Securities Registration: Business Combination (s-4)

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

(1) Represents the estimated maximum number of shares of Cape Bancorp, Inc. common stock estimated to be issuable upon the completion of the merger to which this Registration Statement relates.

(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of $51,360,081, the market value of the common stock of Colonial Financial Services, Inc. to be exchanged or cancelled in the merger, computed in accordance with Rule 457(c) multiplied by the number of shares of common stock of Colonial Financial Services, Inc. that may be received by the Registrant and/or cancelled upon consummation of the merger.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

On September 10, 2014, Cape Bancorp, Inc. entered into a Merger Agreement to acquire Colonial Financial Services, Inc. in a stock and cash transaction. If the Merger Agreement is approved and the Merger is subsequently completed, Colonial Financial Services, Inc. will merge into Cape Bancorp, Inc.

The shares of Colonial Financial Services, Inc. common stock owned by each Colonial Financial Services, Inc. stockholder will be converted, subject to certain agreed adjustment and allocations procedures, into the right to receive 1.412 shares of Cape Bancorp, Inc. common stock, $14.50 in cash, or a mix of Cape Bancorp, Inc. common stock and cash. In the event that Colonial Financial Services, Inc.’s consolidated net book value at the month-end prior to the closing date, calculated in accordance with the Merger Agreement, is less than $63.1 million, the cash consideration will be reduced by an amount as determined by a formula included in the Merger Agreement.

The maximum number of shares of Cape Bancorp, Inc. common stock estimated to be issuable upon completion of the Merger is 2,780,678. As a result of the Merger, Colonial Financial Services, Inc. stockholders who receive stock consideration will become stockholders of Cape Bancorp, Inc.

Your board of directors has unanimously determined that the Merger and the Merger Agreement are fair and in the best interests of Cape Bancorp, Inc. and its stockholders and unanimously recommends that you vote “FOR” approval of the Merger Agreement and the Merger. The Merger cannot be completed unless a majority of the outstanding shares of common stock of Cape Bancorp, Inc. vote to approve the Merger Agreement and the Merger. Whether or not you plan to attend the special meeting of stockholders, please take the time to vote by completing the enclosed proxy card and mailing it in the enclosed envelope. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote “FOR” approval of the Merger Agreement and the Merger. If you fail to vote, or you do not instruct your broker how to vote any shares held for you in “street name,” it will have the same effect as voting “AGAINST” the Merger Agreement and the Merger.

The accompanying document is also being delivered to Colonial Financial Services, Inc. stockholders as Cape Bancorp, Inc.’s Prospectus for its offering of Cape Bancorp, Inc. common stock in connection with the Merger, and as a proxy statement for the solicitation of proxies from Colonial Financial Services, Inc. stockholders to vote for the approval of the Merger Agreement and the Merger.

This Joint Proxy Statement/Prospectus provides you with detailed information about the proposed Merger. It also contains or references information about Cape Bancorp, Inc. and Colonial Financial Services, Inc. and related matters. You are encouraged to read this document carefully. In particular, you should read the “Risk Factors” section beginning on page 18 for a discussion of the risks you should consider in evaluating the proposed Merger and how it will affect you.

Voting procedures are described in this Joint Proxy Statement/Prospectus. Your vote is important, so I urge you to cast it promptly. Cape Bancorp, Inc.’s management enthusiastically supports the acquisition of Colonial Financial Services, Inc., and joins with our board of directors in recommending that you vote “FOR” approval of the Merger Agreement and the Merger.

The shares of Colonial Financial Services, Inc. common stock owned by each Colonial Financial Services, Inc. stockholder will be converted, subject to certain agreed adjustment and allocations procedures, into the right to receive 1.412 shares of Cape Bancorp, Inc. common stock, $14.50 in cash, or a mix of Cape Bancorp, Inc. common stock and cash. In the event that Colonial Financial’s consolidated net book value at the month-end prior to the closing date, calculated in accordance with the Merger Agreement, is less than $63.1 million, the cash consideration will be reduced by an amount as determined by a formula included in the Merger Agreement.

Your board of directors has unanimously determined that the Merger and the Merger Agreement are fair and in the best interests of Colonial Financial Services, Inc. and its stockholders and unanimously recommends that you vote “FOR” approval of the Merger Agreement and the Merger and “FOR” the advisory, non-binding proposal to approve the merger-related executive compensation to Colonial Financial’s named executive officers. The Merger cannot be completed unless a majority of the issued and outstanding shares of common stock of Colonial Financial Services, Inc. entitled to be cast vote to approve the Merger Agreement and the Merger. Whether or not you plan to attend the special meeting of stockholders, please take the time to vote by completing the enclosed proxy card and mailing it in the enclosed envelope. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote “FOR” approval of the Merger Agreement and the Merger and “FOR” the advisory, non-binding proposal to approve merger-related executive compensation to Colonial Financial’s named executive officers. If you fail to vote, or you do not instruct your broker how to vote any shares held for you in “street name,” it will have the same effect as voting “AGAINST” the Merger Agreement and the Merger.

The accompanying document is being delivered to Colonial Financial Services, Inc. stockholders as Cape Bancorp, Inc.’s Prospectus for its offering of Cape Bancorp, Inc. common stock in connection with the Merger, and as a proxy statement for the solicitation of proxies from Colonial Financial Services, Inc. stockholders to vote for the approval of the Merger Agreement and the Merger.

Voting procedures are described in this Joint Proxy Statement/Prospectus. Your vote is important, so I urge you to cast it promptly. Colonial Financial Services, Inc.’s management enthusiastically supports the Merger with Cape Bancorp, Inc., and joins with our board of directors in recommending that you vote “FOR” approval of the Merger Agreement and the Merger and “FOR” the advisory, non-binding proposal to approve merger-related executive compensation to Colonial Financial’s named executive officers.

Both Cape Bancorp, Inc. and Colonial Financial Services, Inc. file annual, quarterly and special reports, proxy statements and other business and financial information with the Securities and Exchange Commission (the “SEC”). You may read and copy any materials that either Cape Bancorp, Inc. or Colonial Financial Services, Inc. files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 ((800) 732-0330) for further information on the public reference room. In addition, Cape Bancorp, Inc. and Colonial Financial Services, Inc. file reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at http://www.sec.gov containing this information. You will also be able to obtain these documents, free of charge, from Cape Bancorp, Inc. at www.capebanknj.com under the “Investor Relations” tab or from Colonial Financial Services, Inc. by accessing Colonial Financial Services, Inc.’s website at www.colonialbankfsb.com under the “Investors” tab.

Cape Bancorp, Inc. has filed a registration statement on Form S-4 to register with the SEC up to 3,307,678 shares of Cape Bancorp, Inc. common stock. This Joint Proxy Statement/Prospectus is a part of that registration statement. As permitted by SEC rules, this Joint Proxy Statement/Prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules and exhibits at the addresses set forth below. Statements contained in this document as to the contents of any contract or other documents referred to in this Joint Proxy Statement/Prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. This Joint Proxy Statement/Prospectus incorporates by reference documents that Cape Bancorp, Inc. and Colonial Financial Services, Inc. have previously filed with the SEC. They contain important information about the companies and their financial condition. See “Where You Can Find More Information” on page 169. These documents are available without charge to you upon written or oral request to the applicable company’s principal executive offices. The respective addresses and telephone numbers of such principal executive offices are listed below:

To obtain timely delivery of these documents, you must request the information no later than [document request date five business days prior to special meeting] in order to receive them before Cape Bancorp, Inc.’s special meeting of stockholders or Colonial Financial Services, Inc.’s special meeting of stockholders.

Cape Bancorp, Inc. common stock is traded on the NASDAQ Global Select Market under the symbol “CBNJ,” and Colonial Financial Services, Inc. common stock is traded on the NASDAQ Global Market under the symbol “COBK.”

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Cape Bancorp, Inc. will be held at [Cape Special Meeting Location], at _____ a.m., Eastern Standard Time, on [Cape Special Meeting Date], for the following purposes:

1. To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of September 10, 2014, by and between Cape Bancorp, Inc. and Colonial Financial Services, Inc., and thereby to approve the transactions contemplated by the Merger Agreement, including the Merger of Colonial Financial Services, Inc. with and into Cape Bancorp, Inc.;

2. To approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the Merger; and

3. To transact any other business which may properly come before the special meeting or any adjournment or postponement thereof.

The proposed Merger is described in more detail in this Joint Proxy Statement/Prospectus, which you should read carefully in its entirety before you vote. A copy of the Merger Agreement is attached as Appendix A to this Joint Proxy Statement/Prospectus. Only Cape Bancorp, Inc. stockholders of record as of the close of business on [Cape Special Meeting Record Date], are entitled to notice of and to vote at the special meeting of stockholders or any adjournments of the special meeting.

To ensure your representation at the special meeting of stockholders, please follow the voting procedures described in the accompanying Joint Proxy Statement/Prospectus and on the enclosed proxy card. This will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Your proxy may be revoked at any time before it is voted.

CAPE BANCORP, INC.’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE MERGER AGREEMENT AND THE MERGER AND “FOR” THE ADJOURNMENT PROPOSAL DESCRIBED ABOVE.

WHETHER OR NOT YOU EXPECT TO ATTEND THE CAPE BANCORP SPECIAL MEETING IN PERSON, CAPE BANCORP URGES YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE BY COMPLETING, SIGNING AND RETURNING THE PROXY CARD OR VOTING INSTRUCTION CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.

If you have any questions concerning the Merger or other matters to be considered at the Cape Bancorp, Inc. special meeting, would like additional copies of this Joint Proxy Statement/Prospectus or need help voting your shares, please contact Cape Bancorp, Inc.’s proxy solicitor:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Colonial Financial Services, Inc. will be held at [Colonial Financial Special Meeting Location] at ________ a.m., Eastern Standard Time, on [Colonial Financial Special Meeting Date], for the following purposes:

2. To consider and vote upon a non-binding, advisory proposal to approve the compensation paid to the named executive officers of Colonial Financial if the Merger contemplated by the Merger Agreement is consummated (the “Merger-Related Executive Compensation”)

3. To approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the Merger; and

4. To transact any other business which may properly come before the special meeting or any adjournment or postponement thereof.

The proposed Merger is described in more detail in this Joint Proxy Statement/Prospectus, which you should read carefully in its entirety before voting. A copy of the Merger Agreement is attached as Appendix A to this Joint Proxy Statement/Prospectus. Only Colonial Financial Services, Inc. stockholders of record as of the close of business on [Colonial Financial Special Meeting Record Date], are entitled to notice of and to vote at the special meeting of stockholders or any adjournments of the special meeting.

COLONIAL FINANCIAL SERVICES, INC.’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE MERGER AGREEMENT AND THE MERGER, “FOR” THE MERGER-RELATED EXECUTIVE COMPENSATION, AND “FOR” THE ADJOURNMENT PROPOSAL DESCRIBED ABOVE.

DO NOT SEND STOCK CERTIFICATES WITH THE PROXY CARD. YOU WILL RECEIVE A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR DELIVERING YOUR STOCK CERTIFICATES UNDER SEPARATE COVER.

WHETHER OR NOT YOU EXPECT TO ATTEND THE COLONIAL FINANCIAL SERVICES, INC. SPECIAL MEETING IN PERSON, COLONIAL FINANCIAL SERVICES, INC. URGES YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE BY COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.

If you have any questions concerning the Merger or other matters to be considered at the Colonial Financial Services, Inc. special meeting, would like additional copies of this Joint Proxy Statement/Prospectus or need help voting your shares, please contact Colonial Financial Services, Inc.’s proxy solicitor:

The following are answers to certain questions that you may have regarding the Merger and the special meetings. We urge you to read carefully the remainder of this Joint Proxy Statement/Prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to, and the documents incorporated by reference in, this Joint Proxy Statement/Prospectus.

Under Maryland law, which governs mergers involving both Cape and Colonial Financial, the Merger cannot be completed unless Cape stockholders and Colonial Financial stockholders both vote to approve the Merger Agreement and approve the Merger. By this Joint Proxy Statement/Prospectus, Cape’s board of directors and Colonial Financial’s board of directors are soliciting proxies from their respective stockholders to obtain this approval at the special meetings of Cape stockholders and Colonial Financial stockholders discussed below.

The above consideration is subject to an allocation process which requires 50% of Colonial Financial’s shares of common stock to be exchanged for cash and 50% of Colonial Financial’s common stock to be converted into Cape common stock. Accordingly, allocations of Cape common stock and cash that you receive will depend on the elections made by other Colonial Financial stockholders. Additionally, in the event that Colonial Financial’s consolidated net book value at the month-end prior to the closing date, calculated in accordance with the Merger Agreement, is less than $63.1 million, the cash consideration will be reduced by an amount as determined by a formula included in the Merger Agreement.

the Merger Agreement by Cape stockholders at the Cape special meeting and the approval of the Merger Agreement by Colonial Financial stockholders at the Colonial Financial special meeting. We currently expect to complete the Merger during the first half of 2015. However, because fulfillment of some of the conditions to completion of the Merger, such as the receipt of required regulatory approvals, is not entirely within our control, we cannot predict the actual timing.

Colonial Financial stockholders are also being asked to vote in favor of a non-binding proposal to approve the Merger-Related Executive Compensation. Although it is expected that certain of the Merger-Related Executive Compensation will not be paid as discussed further in the Section entitled “Interests of Certain Persons in the Merger that are Different from Yours,” we are required to provide for this non-binding advisory vote under SEC regulations.

Finally, Colonial Financial stockholders are being asked to approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the Colonial Financial Merger Agreement proposal, which we refer to as the “Colonial Financial adjournment proposal.”

Approval of the Colonial Financial Merger-Related Executive Compensation will require the affirmative vote of a majority of the shares of Colonial Financial common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal. Abstentions and broker non-votes will not affect whether the proposal is approved.

Approval of the Colonial Financial adjournment proposal will require the affirmative vote of a majority of the shares of Colonial Financial common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal. Abstentions and broker non-votes will not affect whether the Colonial Financial adjournment proposal is approved.

As of the record date for the special meeting, directors and executive officers of Colonial Financial, together with their affiliates, had sole or shared voting power over approximately ___% of the Colonial Financial common stock outstanding and entitled to vote at the special meeting. Pursuant to the terms of the Merger Agreement, each of the directors, certain executive officers and certain stockholders of Colonial

Financial have entered into voting agreements with Cape to vote their respective shares of Colonial Financial common stock “FOR” the Merger.

If you have instructed a broker to vote your shares, you must follow your broker’s directions to change your vote.

Colonial Financial’s board of directors also unanimously recommends that Colonial Financial stockholders vote “FOR” the Colonial Financial adjournment proposal.

· 1.412 shares of Cape common stock, plus cash in lieu of fractional shares; or

The above consideration is subject to an allocation process, which requires 50% of Colonial Financial’s shares of common stock to be exchanged for aggregate merger consideration cash and 50% of Colonial Financial’s common stock to be converted into Cape common stock. Accordingly, allocations of Cape common stock and cash that you receive will depend on the elections made by other Colonial Financial stockholders. Additionally, in the event that Colonial Financial’s consolidated net book value at the month-end prior to the closing date calculated in accordance with the Merger Agreement is less than $63.1 million, the cash consideration will be reduced by an amount as determined by a formula included in the Merger Agreement.

For a more detailed discussion of the material United States federal income tax consequences of the transaction, please see the section “Description of the Merger – Material Tax Consequences of the Merger” beginning on page 77.

The consequences of the Merger to any particular stockholder will depend on that stockholder’s particular facts and circumstances. Accordingly, you are urged to consult your tax advisor to determine your tax consequences from the Merger.

Cape stockholders also are being asked to approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the Cape Merger Agreement proposal, which we refer to as the “Cape adjournment proposal.”

Approval of the Cape adjournment proposal will require the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will have no effect on whether the Cape adjournment proposal is approved.

As of the record date for the special meeting, directors and executive officers of Cape, together with their affiliates, had sole or shared voting power over approximately _____% of the Cape common stock outstanding and entitled to vote at the special meeting.

that you provide timely instruction to your broker or bank to ensure that all shares of Cape common stock that you own are voted at the special meeting.

If you have instructed a broker to vote your shares, you must follow your broker’s directions to change your vote.

Cape’s board of directors also unanimously recommends that Cape stockholders vote “FOR” the Cape Bancorp adjournment proposal.

This summary highlights selected information in this Joint Proxy Statement/Prospectus and may not contain all of the information important to you. To understand the Merger more fully, you should read this entire document carefully, including the documents attached to this Joint Proxy Statement/Prospectus.

Cape Bancorp, Inc., a Maryland corporation (“Cape”), is a savings and loan holding company headquartered in Cape May Court House, New Jersey that was incorporated and commenced operations in 2007. Cape’s common stock is listed on the NASDAQ Global Select Market under the symbol “CBNJ.” Cape conducts its operations primarily through Cape Bank, a New Jersey-chartered savings bank with 14 full-service branch offices located in Atlantic and Cape May Counties, including Cape Bank’s main office located at 225 North Main Street, Cape May Court House, New Jersey, one drive-up teller/ATM operation in Atlantic County and our two market development offices (“MDOs”) located in Burlington County, New Jersey and in Radnor, Pennsylvania. Cape Bank offers personal and business checking accounts, commercial mortgage loans, construction loans, home equity loans and lines of credit and other types of commercial and consumer loans. At September 30, 2014, Cape had total assets of $1.08 billion, total deposits of $800.9 million and total stockholders’ equity of $139.9 million.

Colonial Financial Services, Inc. a Maryland corporation (“Colonial Financial”), is a savings and loan holding company headquartered in Vineland, New Jersey that was incorporated and commenced operations in 2010. Colonial Financial’s common stock is quoted on the NASDAQ Global Market under the symbol “COBK.” Colonial Financial conducts its operations primarily through Colonial Bank, a federally-chartered savings bank that offers products and services to individuals, families and business through nine branch offices in Cumberland and Gloucester Counties, New Jersey. Colonial Bank’s business consists primarily of making loans, including residential mortgages, commercial real estate loans, commercial loans and consumer loans, and investing in a variety of investment and mortgage-backed securities. Colonial Bank funds these lending and investment activities with deposits from the general public and municipal deposits, funds generated from operations and select borrowings. At September 30, 2014, Colonial Financial had total assets of $552.7 million, total deposits of $477.9 million and total stockholders’ equity of $62.8 million.

A special meeting of Cape stockholders is scheduled to be held at [Cape Special Meeting Location] at _________ a.m., local time, on [Cape Special Meeting Date]. At the special meeting, you will be asked to vote on a proposal to approve the Merger Agreement and the Merger between Colonial Financial and Cape. You will also be asked to vote to adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the Merger Agreement.

Only Cape stockholders of record as of the close of business on [Cape Special Meeting Record Date] are entitled to notice of, and to vote at, the Cape special meeting and any adjournments or postponements of the meeting.

Approval of the Merger Agreement and the Merger requires the affirmative vote of holders of a majority of the outstanding shares of Cape common stock entitled to vote. As of the record date, there were [Cape Outstanding

Stock] shares of Cape common stock outstanding. The directors and executive officers of Cape, as a group, beneficially owned [Cape Insider Shares] shares of Cape common stock, representing approximately ___% of the outstanding shares of Cape common stock as of the record date and have agreed to vote their shares in favor of the Merger Agreement and the Merger at the Cape special meeting.

Special Meeting of Colonial Financial Services, Inc. Stockholders; Required Vote (page 12)

A special meeting of Colonial Financial stockholders is scheduled to be held at [Colonial Financial Special Meeting Location] at ______ a.m., local time, on [Colonial Financial Special Meeting Date]. At the special meeting, you will be asked to vote on a proposal to approve the Merger Agreement and the Merger between Colonial Financial and Cape. You will also be asked to vote on a non-binding, advisory proposal to approve the Merger-Related Executive Compensation. You may also be asked to vote to adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the Merger Agreement.

Only Colonial Financial stockholders of record as of the close of business on [Colonial Financial Special Meeting Record Date] are entitled to notice of, and to vote at, the Colonial Financial special meeting and any adjournments or postponements of the meeting.

Approval of the Merger Agreement requires the affirmative vote of holders of a majority of the outstanding shares of Colonial Financial common stock entitled to vote. Approval of the Merger-Related Executive Compensation proposal is determined by a majority of the votes cast, without regard to broker non-votes or abstentions. As of the record date, there were [Colonial Financial Outstanding Stock] shares of Colonial Financial common stock outstanding and entitled to vote. The directors, executive officers and certain key stockholders of Colonial Financial, as a group, beneficially owned [Colonial Financial Insider Shares] shares of Colonial Financial common stock, representing approximately ____% of the outstanding shares of Colonial Financial common stock as of the record date, and have agreed to vote their shares in favor of the Merger Agreement and the Merger at the special meeting.

Cape’s acquisition of Colonial Financial is governed by the Merger Agreement. The Merger Agreement provides that if all of the conditions are satisfied or waived, Colonial Financial will be merged with and into Cape, with Cape as the surviving entity. We encourage you to read the Merger Agreement, which is included as Appendix A to this Joint Proxy Statement/Prospectus.

What Colonial Financial Services, Inc. Stockholders Will Receive in the Merger (page 12)

Under the Merger Agreement, each share of Colonial Financial common stock will be exchanged for either 1.412 shares of Cape common stock plus cash in lieu of fractional shares or $14.50 in cash, subject to 50% of the total merger consideration consisting of Cape common stock and the remainder consisting of cash. In the event that Colonial Financial’s consolidated net book value at the month-end prior to the closing date is less than $63.1 million, the cash consideration will be reduced by an amount as determined by a formula included in the Merger Agreement.

The following table shows the closing price per share of Cape common stock and the equivalent price per share of Colonial Financial common stock, giving effect to the Merger, on September 9, 2014, which is the last day on which shares of Cape common stock traded preceding the public announcement of the proposed Merger, and on [Colonial Financial Special Meeting Record Date], the most recent practicable date prior to the mailing of this Joint Proxy Statement/Prospectus. The equivalent price per share of Colonial Financial common stock was computed by multiplying the price of a share of Cape common stock by the 1.412 exchange ratio. See “Description of the Merger—Consideration to be Received in the Merger” on page 75.

Recommendation of Colonial Financial Services, Inc. board of directors (page 43)

The Colonial Financial board of directors has unanimously approved the Merger Agreement and the proposed Merger. The Colonial Financial board believes that the Merger Agreement, including the Merger, is fair to and in the best interests of, Colonial Financial and its stockholders, and therefore unanimously recommends that Colonial Financial stockholders vote “FOR” the proposal to approve the Merger Agreement and the Merger. In reaching this decision, Colonial Financial’s board of directors considered a variety of factors, which are described in the section captioned “Description of the Merger—Recommendation of the Colonial Financial board of directors; Colonial Financial’s Reasons for the Merger” beginning on page 13).

In addition, the Colonial Financial board of directors unanimously recommends that Colonial Financial stockholders vote “FOR” the non-binding advisory proposal to approve the Merger-Related Executive Compensation and “FOR” the proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are insufficient votes at the time of the special meeting to approve the Merger Agreement.

Opinion of Colonial Financial Services, Inc.’s Financial Advisors (page 45)

In connection with the Merger, the Colonial Financial board of directors received the separate opinions, dated September 10, 2014, of Keefe, Bruyette & Woods, Inc. (“KBW”) and FinPro Capital Advisors, Inc. (“FinPro”), each of which acted as a financial advisor to Colonial Financial, as to the fairness, from a financial point of view and as of the date of such opinions, of the merger consideration in the proposed Merger to be received by the holders of Colonial Financial common stock. The full text of the KBW opinion is included as Appendix B to this Joint Proxy Statement/Prospectus and the full text of the FinPro opinion is included as Appendix C. Colonial Financial stockholders are encouraged to read the opinions carefully to understand the respective procedures followed, assumptions made, matters considered and limitations of the reviews conducted by KBW and FinPro.

The Cape board of directors has unanimously approved the Merger Agreement and the proposed Merger. The Cape board believes that the Merger Agreement, including the Merger, is fair to and in the best interests of Cape and its stockholders, and therefore unanimously recommends that Cape stockholders vote “FOR” the proposal to approve the Merger Agreement and the Merger. In reaching this decision, Cape’s board of directors considered a variety of factors, which are described in the section captioned “Description of the Merger—Recommendation of Cape Bancorp, Inc. board of directors and Reasons for Merger” beginning on page 70.

The Cape board of directors unanimously recommends that Cape stockholders vote “FOR” the proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are insufficient votes at the time of the special meeting to approve the Merger Agreement.

In deciding to approve the Merger, the Cape board of directors considered the opinion of Sterne, Agee & Leach, Inc. (“Sterne Agee”), which served as financial advisor to Cape’s board of directors. Sterne Agee delivered its oral opinion on September 10, 2014, which was confirmed in writing on September 10, 2014, that the merger consideration is fair to the holders of Cape common stock from a financial point of view. The full text of this opinion is included as Appendix D to the Joint Proxy Statement/Prospectus. You should read the opinion carefully to understand the procedures followed, assumptions made, matters considered and limitations of the review conducted by Sterne Agee.

Cape has agreed to pay Sterne Agee a transaction fee of $550,000, which includes the issuance of the fairness opinion issued by Sterne Agee in connection with this Merger.

Under the terms of the Merger Agreement, the Merger cannot be completed unless it is first approved by the FDIC, the New Jersey Department of Banking and Insurance (the “Department”), and the Federal Reserve. Cape has filed the required applications. As of the date of this Joint Proxy Statement/Prospectus, Cape has not received any approvals from these regulators. While Cape does not know of any reason why it would not obtain approval in a timely manner, Cape cannot be certain when or if it will receive regulatory approval.

The completion of the Merger is subject to the fulfillment of a number of conditions, including:

The Merger Agreement may be terminated by mutual consent of Cape and Colonial Financial at any time prior to the completion of the Merger. Additionally, subject to conditions and circumstances described in the Merger Agreement, either Cape or Colonial Financial may terminate the Merger Agreement if, among other things, any of the following occur:

Colonial Financial also may terminate the Merger Agreement if Cape’s stock price falls below thresholds set forth in the Merger Agreement and Cape does not increase the exchange ratio pursuant to a prescribed formula.

Cape also may terminate the Merger Agreement if Colonial Financial materially breaches its agreements regarding the solicitation of other acquisition proposals and the submission of the Merger Agreement to stockholders, or if the board of directors of Colonial Financial does not recommend approval of the Merger in the Joint Proxy Statement/Prospectus or withdraws or revises its recommendation in a manner adverse to Cape. Colonial Financial may also terminate the Merger Agreement if, without breaching its agreements regarding solicitation of other acquisition proposals, Colonial Financial receives a proposal from a third party that the Colonial Financial board of directors determines, after consultation with its legal and financial advisors, it must consider in the exercise of its fiduciary duty to the Colonial Financial stockholders.

Under certain circumstances described in the Merger Agreement, Colonial Financial will owe Cape a $2.2 million termination fee in connection with the termination of the Merger Agreement. Likewise, under certain circumstances described in the Merger Agreement, Cape will owe Colonial Financial a $2.2 million termination fee in connection with the termination of the Merger Agreement. See “Description of the Merger—Termination Fee” on page 94 for a list of the circumstances under which a termination fee is payable.

Interests of Certain Persons in the Merger that are Different from Yours (page 80)

In considering the recommendation of the board of directors of Colonial Financial to approve the Merger Agreement and the Merger, you should be aware that officers and directors of Colonial Financial have employment and other compensation agreements or plans that give them interests in the Merger that are somewhat different from, or in addition to, their interests as Colonial Financial stockholders. These interests and agreements include:

On May 30, 2013, Colonial Bank was designated by the OCC as being in “troubled condition” when it entered into a formal enforcement order with the OCC. As a result, certain payments that are paid to employees, officers and directors of Colonial Bank in connection with a separation from service are subject to the FDIC golden parachute rules and may be prohibited unless the board of Colonial Bank or Colonial Financial certifies to its primary federal regulator and the FDIC that such person was not substantially responsible for the troubled condition designation and its primary federal regulator approves (and the FDIC concurs with) such payment. The boards of Colonial Bank and Colonial Financial have determined not to file any certifications with the OCC, the FDIC, and, to the extent applicable, with respect to the equity awards, the Federal Reserve, that any of the named executive officers, the controller, or the boards of directors were not substantially responsible for the troubled condition status of Colonial Bank. The individuals may, however, file on their own behalf applications with the federal banking regulators seeking approval for such payments. Unless approval or non-objection to make the payment is obtained from the applicable primary federal regulator and the FDIC, certain of the payments described in the section entitled “Interests of Certain Persons in the Merger that are Different from Yours” cannot legally be made.

The Merger will be accounted for using the acquisition method in accordance with U.S. generally accepted accounting principles.

When the Merger is completed, Colonial Financial stockholders who receive shares of Cape common stock will become Cape stockholders and their rights will be governed by Maryland law and by Cape’s articles of incorporation and bylaws. See “Comparison of Rights of Stockholders” beginning on page 99 for a summary of the material differences between the respective rights of Colonial Financial and Cape stockholders.

Colonial Financial stockholders do not have dissenters’ rights under Maryland law since the Colonial Financial articles of incorporation provide that the holders of Colonial Financial common stock are not entitled to exercise such dissenter’s rights or approval. See “No Dissenters’ Rights” on page 40.

The federal tax consequences of the Merger to stockholders of Colonial Financial will depend primarily on whether they exchange their Colonial Financial common stock solely for Cape common stock, solely for cash or for a combination of Cape common stock and cash. Colonial Financial stockholders who exchange their shares solely for Cape common stock should not recognize a gain or loss except with respect to the cash they receive instead of a fractional share Cape common stock. Colonial Financial stockholders who exchange their shares solely for cash should recognize a gain or loss on the exchange. Colonial Financial stockholders who exchange their shares for a combination of Cape common stock and cash should recognize a gain, but not any loss, on the exchange. The actual federal income tax consequences to Colonial Financial stockholders of electing to receive cash, Cape common stock

or a combination of cash and stock will not be ascertainable at the time Colonial Financial stockholders make their election because it will not be known at that time how, or to what extent, the allocation and proration procedures will apply.

This tax treatment may not apply to all Colonial Financial stockholders. Determining the actual tax consequences of the Merger to Colonial Financial stockholders can be complicated. Colonial Financial stockholders should consult their own tax advisor for a full understanding of the Merger’s tax consequences that are particular to each stockholder.

To review the tax consequences of the Merger to Colonial Financial stockholders in greater detail, please see the section “Description of the Merger—Material Tax Consequences of the Merger” beginning on page 81.

In addition to the other information contained in or incorporated by reference into this Joint Proxy Statement/Prospectus, you should consider carefully the risk factors described below, in deciding how to vote. You should keep these risk factors in mind when you read forward-looking statements in this document. Please refer to the section of this Joint Proxy Statement/Prospectus titled “Caution About Forward-Looking Statements” beginning on page 22.

The price of Cape common stock will fluctuate, and therefore Colonial Financial stockholders will not know until the effective time of the Merger the value of the consideration they will receive in the Merger.

Because the per share stock consideration is fixed at 1.412 shares of Cape common stock, the market value of the Cape common stock to be issued in the Merger will depend upon the market price of Cape common stock. This market price likely will vary from the closing price of Cape common stock on the date the Merger was announced, on the date that this Joint Proxy Statement/Prospectus was mailed, and on the date of the Cape special meeting or Colonial Financial special meeting. Accordingly, at the time of the Colonial Financial special meeting, and at the time Colonial Financial stockholders are required to elect the form of consideration they wish to receive, Colonial Financial stockholders will not necessarily know or be able to calculate the value of the stock consideration they would be entitled to receive upon completion of the Merger. You should obtain current market quotations for shares of Cape common stock and for shares of Colonial Financial common stock.

The amount of cash consideration to be paid to Colonial Financial stockholders may decrease if Colonial Financial’s consolidated net book value at the month-end prior to the closing date is less than $63.1 million.

If Colonial Financial’s consolidated net book value is less than $63.1 million at the month-end prior to closing, the cash consideration to be paid by Cape will be reduced by an amount equal to (i) the book value shortfall multiplied by 1.78, (ii) divided by the number of shares of Colonial Financial common stock outstanding. For example, if Colonial Financial’s consolidated net book value at the month-end prior to closing were $60.0 million, then the book value shortfall would be $3.1 million. Assuming the outstanding shares of Colonial Financial common stock at the month-end prior to closing are 3,800,000, the cash consideration would be reduced by $1.45 to $13.05 per share. Accordingly, Colonial Financial stockholders who elect cash consideration may receive less than $14.50 per share. At the time of the Colonial Financial special meeting, Colonial Financial stockholders will not necessarily know or be able to calculate Colonial Financial’s consolidated net book value. As defined in the Merger Agreement consolidated net book value means Colonial Financial’s unaudited consolidated net common stockholders’ equity without giving effect to (i) the after-tax impact of any credit to loan and lease losses between June 30, 2014 and the determination date, (ii) the merger-related expenses, subject to certain limitations, and (iii) any changes to Colonial Financial’s accumulated other comprehensive income.

Colonial Financial stockholders may receive a form of consideration different from what they elect.

The consideration to be received by Colonial Financial stockholders in the Merger is subject to the requirement that 50% of the outstanding shares of Colonial Financial common stock be exchanged for Cape common stock and the remaining 50% be exchanged for cash. The Merger Agreement contains proration and allocation methods to achieve this desired result. If you elect all cash and the available cash is oversubscribed, then you will receive a portion of the merger consideration in Cape common stock. If you elect all stock and the available stock is oversubscribed, then you will receive a portion of the merger consideration in cash.

Following the Merger, holders of Colonial Financial common stock who receive stock consideration will become stockholders of Cape. Cape common stock could decline in value after the Merger. For example, during the twelve-month period ending on [Colonial Financial Special Meeting Record Date] (the most recent practicable date before the printing of this Joint Proxy Statement/Prospectus), the closing price of Cape common stock varied from a low of $_____to a high of $____ and ended that period at $_____. The market value of Cape common stock fluctuates based upon general market conditions, Cape’s business and prospects and other factors. Further, the

market price of Cape common stock after the Merger may be affected by factors different from those currently affecting the common stock of Cape or Colonial Financial. The businesses of Colonial Financial and Cape differ and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations and market prices of common stock of each of Colonial Financial and Cape. For a discussion of the businesses of Colonial Financial and Cape and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this Joint Proxy Statement/Prospectus and referred to under “Where You Can Find More Information” beginning on page 169.

Failure to complete the Merger could negatively impact the stock prices and future businesses and financial results of Cape and Colonial Financial.

If the Merger is not completed, the ongoing businesses of Cape and Colonial Financial may be adversely affected and Cape and Colonial Financial will be subject to several risks, including the following:

In addition, if the Merger is not completed, Cape and/or Colonial Financial may experience negative reactions from the financial markets and from their respective customers and employees. Cape and/or Colonial Financial also could be subject to litigation related to any failure to complete the Merger or to enforcement proceedings to perform their respective obligations under the Merger Agreement. If the Merger is not completed, Cape and Colonial Financial cannot assure their stockholders that the risks described above will not materialize and will not materially affect the business, financial results and stock prices of Cape or Colonial Financial.

Cape may be unable to successfully integrate Colonial Financial’s operations or otherwise realize the expected benefits from the Merger, which would adversely affect Cape’s results of operations and financial condition.

The Merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include:

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will require the experience and expertise of certain key employees of Colonial Financial who are expected to be retained by Cape. Cape may not be successful in retaining these employees for the time period necessary to successfully integrate Colonial Financial’s operations with those of Cape. The diversion of management’s attention and any delay or difficulty encountered in connection with the Merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operation of Cape following the Merger.

The success of the Merger will depend, in part, on Cape’s ability to realize the anticipated benefits and cost savings from combining the business of Cape with Colonial Financial. If Cape is unable to successfully integrate

Colonial Financial, the anticipated benefits and cost savings of the Merger may not be realized fully or may take longer to realize than expected. For example, Cape may fail to realize the anticipated increase in earnings and cost savings anticipated to be derived from the acquisition. In addition, as with regard to any merger, a significant decline in asset valuations or cash flows may also cause Cape not to realize expected benefits.

The termination fee and the restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire Colonial Financial.

Until the completion of the Merger, with some exceptions, Colonial Financial is prohibited from soliciting, initiating, encouraging or participating in any discussion of or otherwise considering any inquiry or proposal that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person other than Cape. In addition, Colonial Financial has agreed to pay a termination fee to Cape in specified circumstances. These provisions could discourage other companies from trying to acquire Colonial Financial even though those other companies might be willing to offer greater value to Colonial Financial’s stockholders than Cape has offered in the Merger. The payment of the termination fee could also have a material adverse effect on Colonial Financial’s financial condition.

Certain of Colonial Financial’s officers and directors have interests that are different from, or in addition to, interests of Colonial Financial stockholders generally.

You should be aware that the directors and officers of Colonial Financial have interests in the Merger that are different from, or in addition to, the interests of Colonial Financial stockholders generally. These include: two current Colonial Financial board members joining the Cape board of directors upon completion of the Merger; the remaining current Colonial Financial board members will be appointed to a Cape advisory board to serve for a term of one year; severance payments that certain officers may receive under existing employment or change-in-control agreements (assuming such agreements have not expired pursuant to their terms prior to the closing), subject to regulatory approval; the acceleration of unvested stock options and restricted stock awards subject to regulatory approval; and provisions in the Merger Agreement relating to indemnification of directors and officers and insurance for directors and officers of Colonial Financial for events occurring before the Merger. For a more detailed discussion of these interests, see “Description of the Merger—Interests of Certain Persons in the Merger that are Different from Yours” beginning on page 80.

Colonial Financial stockholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over management of the combined organization.

Colonial Financial stockholders currently have the right to vote in the election of the Colonial Financial board of directors and on various other matters affecting Colonial Financial. Upon the completion of the Merger, each Colonial Financial stockholder will become a stockholder of Cape with a percentage ownership of the combined organization that is much smaller than the stockholder’s percentage ownership of Colonial Financial. It is expected that the former stockholders of Colonial Financial as a group will receive shares in the Merger constituting approximately 23.0% of the outstanding shares of Cape common stock immediately after the Merger. As a result, Colonial Financial stockholders will have significantly less influence on the management and policies of Cape than they now have on the management and policies of Colonial Financial.

The shares of Cape common stock to be received by Colonial Financial stockholders receiving the stock consideration as a result of the Merger will have different rights from shares of Colonial Financial common stock.

Following completion of the Merger, Colonial Financial stockholders who receive the stock consideration will no longer be stockholders of Colonial Financial but will instead be stockholders of Cape. Although Colonial Financial and Cape are each incorporated under Maryland law, there will be important differences between the current rights of Colonial Financial stockholders and the rights of Cape stockholders that may be important to Colonial Financial stockholders. See “Comparison of Rights of Stockholders” beginning on page 21 for a discussion of the different rights associated with Cape common stock and Colonial Financial common stock.

The fairness opinions received by Colonial Financial’s board of directors from Colonial Financial’s financial advisors do not reflect changes in circumstances subsequent to the date of the fairness opinions.

KBW and FinPro, Colonial Financial’s financial advisors in connection with the Merger, each delivered to the board of directors of Colonial Financial their respective opinions dated September 10, 2014. The opinions do not speak as of the time the Merger will be completed or any date other than the date of such opinions. The opinions do not reflect changes that may occur or may have occurred after the date of the opinions, including changes to the operations and prospects of Cape or Colonial Financial, changes in general market and economic conditions or regulatory or other factors. Any such changes may materially alter or affect the relative values of Cape and Colonial Financial.

The fairness opinion obtained by Cape from its financial advisor does not reflect changes in circumstances subsequent to the date of the fairness opinion.

Sterne Agee, Cape’s financial advisor in connection with the Merger, has delivered to the board of directors of Cape its opinion dated as of September 10, 2014. The opinion of Sterne Agee states that as of such date, and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid to the holders of the outstanding shares of Cape common stock pursuant to the Merger Agreement is fair from a financial point of view to such holders. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Colonial Financial or Cape, changes in general market and economic conditions or regulatory or other factors. Any such changes, or changes in other factors on which the opinion is based, may materially alter or affect the relative values of Colonial Financial and Cape.

Completion of the Merger is subject to satisfaction or waiver of a number of conditions. See “Description of the Merger—Conditions to Completing the Merger” on page 86. There can be no assurance that Cape and Colonial Financial will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived.

Cape and Colonial Financial can agree at any time to terminate the Merger Agreement, even if Colonial Financial stockholders and Cape stockholders have already voted to approve the Merger Agreement. Cape and Colonial Financial can also terminate the Merger Agreement under other specified circumstances.

The Merger is subject to the receipt of consents and approvals from regulatory authorities that may impose conditions that could have an adverse effect on Cape or, if not obtained, could prevent completion of the Merger.

Before the Merger may be completed, various approvals and consents must be obtained from regulatory entities. These regulators may impose conditions on the completion of the Merger or require changes to the terms of the Merger. Any such conditions or changes could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of Cape following the Merger.

Either Cape or Colonial Financial may terminate the Merger Agreement if the Merger has not been completed by September 10, 2015, provided that the termination date may be automatically extended by Cape for an additional 60 days if the inability to complete the Merger is solely due to a delay in receiving regulatory approvals, unless the failure of the Merger to be completed has resulted from the failure of the party seeking to terminate the Merger Agreement to perform its obligations under the Merger Agreement.

Goodwill incurred in the Merger may negatively affect Cape’s financial condition.

To the extent that the purchase price, consisting of cash plus the number of shares of Cape common stock issued or to be issued in the Merger, exceeds the fair value of the net assets, including identifiable intangibles of Colonial Financial, that amount will be reported as goodwill. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. A failure to realize expected benefits

of the Merger could adversely impact the carrying value of the goodwill recognized in the Merger, and in turn negatively affect Cape’s financial condition.

Legal proceedings commenced after the announcement of the Merger may delay consummation of the Merger, result in increased expenditures and consume the time and attention of our executive officers.

A complaint has been filed in the Circuit Court for Baltimore City, Maryland against Colonial Financial, the Colonial Financial board of directors and Cape, seeking class action status and asserting that Colonial Financial and the Colonial Financial board of directors violated their fiduciary duties to Colonial Financial stockholders in connection with the proposed Merger. The complaint further alleges that Cape aided and abetted Colonial Financial and the Colonial Financial board of directors in their alleged breach of fiduciary duties. Legal proceedings of this type are costly to defend and may consume the time and attention of our executive officers. While Colonial Financial and Cape believe that the allegations are without merit, these legal proceedings could delay the consummation of the Merger.

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The sections of this document which contain forward-looking statements include, but are not limited to, “Questions And Answers About the Merger and the Special Meeting,” “Summary,” “Risk Factors,” “Description of the Merger—Background of the Merger,” “Description of the Merger—Financial Forecasts,” and “Description of the Merger—Recommendation of the Colonial Financial board of directors; Colonial Financial’s Reasons for the Merger.” You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions and the risks and other factors set forth in the “Risk Factors” section beginning on page 18.

Additional factors that could cause the results of Cape or Colonial Financial to differ materially from those described in the forward-looking statements can be found in the filings made by Cape and Colonial Financial with the Securities and Exchange Commission, including the Cape Quarterly Report on Form 10-Q for the nine months ended September 30, 2014, the Cape Annual Report on Form 10-K for the fiscal year ended December 31, 2013, the Colonial Financial Quarterly Report on Form 10-Q for the nine months ended September 30, 2014, and the Colonial Financial Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Because of these and other uncertainties, Cape’s and Colonial’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Cape’s and Colonial Financial’s past results of operations do not necessarily indicate Cape’s and Colonial Financial’s combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Neither Cape nor Colonial Financial is undertaking an obligation to update these forward-looking statements, even though its situation may change in the future, except as required under the federal securities laws. Each of Cape and Colonial Financial qualifies all of its forward-looking statements by these cautionary statements.

The following tables show summarized historical financial data for Cape and Colonial Financial. You should read this summary financial information in connection with Cape’s historical financial information, which is incorporated by reference into this document, and in connection with Colonial Financial’s historical financial information, which is included as Appendices E and F.

Note: All performance ratios are based on average balance sheet amounts where applicable.

SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF COLONIAL FINANCIAL SERVICES, INC.

The following table shows selected financial information on a pro forma combined basis giving effect to the Merger (which is known as “pro forma” information) as if the Merger had become effective as of the date presented, in the case of the balance sheet information, and at the beginning of the period presented, in the case of the income statement information. The pro forma information reflects the acquisition method of accounting.

Cape anticipates that the Merger will provide the combined company with financial benefits that include reduced operating expenses and greater revenue. The pro forma information, while helpful in illustrating the financial characteristics of Cape following the Merger under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of Cape would have been had its companies been combined during these periods.

The exchange ratio of 1.412 was used in preparing this selected pro forma information. You should read this summary pro forma information in conjunction with the information under “Pro Forma Financial Information” and with the historical information in this document on which it is based.

Unaudited Pro Forma combined condensed consolidated financial information relating to the COLONIAL FINANCIAL Merger

The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting, giving effect to the proposed Merger. The unaudited pro forma combined condensed consolidated statement of financial condition combines the historical financial information of Cape and Colonial Financial as of September 30, 2014 and assumes that the Merger was completed on that date. The unaudited pro forma combined condensed consolidated statements of operations combine the historical financial information of Cape and Colonial Financial and give effect to the Merger as if it had been completed as of January 1, 2013. The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial condition had the Merger been completed on the dates described above, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. The financial information should be read in conjunction with the accompanying Notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial Information. Certain reclassifications have been made to Colonial Financial’s historical financial information in order to conform to Cape’s presentation of financial information.

The actual value of Cape common stock to be recorded as consideration in the Merger will be based on the closing price of Cape common stock at the time of the merger completion date. The proposed Merger is expected to be completed in the second quarter of 2015, but there can be no assurance that the Merger will be completed as anticipated. For purposes of the pro forma financial information, the fair value of Cape common stock to be issued in connection with the Merger was based on Cape’s closing price of $8.91 as of November 4, 2014.

The pro forma financial information includes estimated adjustments, including adjustments to record assets and liabilities of Colonial Financial at its fair value, and represents the pro forma estimates by Cape based on available fair value information as of the date of the Merger Agreement. In some cases, where noted, more recent information has been used to support estimated adjustments in the pro forma financial information.

The pro forma adjustments included herein are subject to change depending on changes in interest rates and the components of assets and liabilities, and as additional information becomes available and additional analyses are performed. The final allocation of the purchase price for the Merger will be determined after it is completed and after completion of thorough analyses to determine the fair value of Colonial Financial’s tangible and identifiable intangible assets and liabilities as of the date the Merger is completed. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the unaudited pro forma combined condensed consolidated financial information may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact Cape’s statement of operations due to adjustments in yield and/or amortization of the adjusted assets or liabilities. Any changes to Colonial Financial’s stockholders’ equity, including results of operations from September 30, 2014 through the date the Merger is completed, will also change the purchase price allocation, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein.

Cape anticipates that the Merger will provide the combined company with financial benefits that include reduced operating expenses. Cape expects to realize cost savings of approximating 40% of the anticipated non-interest expense of Colonial Financial. These cost savings are not included in these pro forma statements and there can be no assurance that expected cost savings will be realized. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods.

The unaudited pro forma combined condensed consolidated financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of Cape and Colonial Financial, which, in the case of Cape, are incorporated in this Joint Proxy Statement/Prospectus by reference and, in the case of Colonial Financial, included as Appendices E and F hereto. See “Where You Can Find More Information” on page 169.

The unaudited pro forma stockholders’ equity and net income are qualified by the statements set forth under this caption and should not be considered indicative of the market value of Cape common stock or the actual or future results of operations of Cape for any period. Actual results may be materially different than the pro forma information presented.

The following pro forma adjustments have been reflected in the unaudited condensed combined consolidated financial statements presented for Cape and Colonial Financial. All taxable adjustments were calculated using a 40% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change. The adjustments are presented in thousands, with the exception of per share amounts.

A - Adjustments to available for sale securities: Cape expects to sell investment securities available for sale to provide cash for buyer and seller deal expenses and for purposes of cashing out the ESOP and stock options.

B - Cape has reviewed the loan portfolio and estimated the associated credit losses estimated at 5.4% of loans outstanding. Once the acquisition has been completed, Cape will update and finalize its analysis which may change significantly from the initial estimate. Cape applied traditional examination methodologies to arrive at the expected credit loss. The pro forma balance of loans was decreased by $988 for the accretable yield portion, or interest rate fair value adjustment, and decreased by $14,000 for the non-accretable yield portion, or credit fair value adjustment.

C - To remove Colonized Financial’s allowance at merger date as the credit risk is contemplated in the fair value adjustment in B above.

D – Adjustment to reflect estimated fair value at acquisition date of acquired premises and equipment based on third party estimates.

E - Adjustment to current and deferred income taxes based on the pro forma fair value adjustments of acquired assets and assumed liabilities and on a calculation of future tax benefits.

F – Preliminary estimated fair value of the core deposit intangible to be recorded calculated at 1.0% of Colonial Financial's non-time deposits. The acquired core deposit intangible will be amortized over 10 years using the sum-of-the-years-digits method. The actual amount of such core deposit intangible asset will be determined at the completion of the transaction and will be based on an independent third party appraisal.

G – Adjustment to reflect the estimated fair value of foreclosed and repossessed assets based on third party estimates adjusted for estimated costs to sell. Subsequent to the completion of the transaction, Cape will finalize its determination of the fair value of the acquired foreclosed and repossessed property which could significantly change the estimated purchase accounting adjustments.

H – Adjustments to the fair value of time deposits to reflect the current market rate of interest for similar products. The adjustment will be accreted into income over the estimated lives of the deposits.

This adjustment represents the elimination of Colonial Financial’s historical common stock and reflects the issuance of Cape shares to Colonial Financial shareholders. As of September 30, 2014, Colonial Financial had 3,860,209 common shares outstanding and 39,214 shares of unvested restricted stock. Based on the base exchange ratio of 1.412 Cape shares for each Colonial Financial share, which is subject to adjustment, Cape will issue 2,719,674 shares of Cape Bancorp’s $0.01 par value common shares to Colonial Financial shareholders.

L – To reflect the elimination of Colonial Financial’s other comprehensive income.

M – To reflect the pay out and elimination of Colonial Financial’s unearned ESOP shares.

Notes to Unaudited Pro Forma Condensed Combined Consolidated Income Statements

For the Nine Months Ending September 30, 2014 and Year Ending December 31, 2013

N – Cape has evaluated the acquired loan portfolio to estimate the necessary interest rate fair value adjustments. Subsequently, the accretable portion of the fair value adjustment will be accreted into earnings using the straight line method. For purposes of the pro forma impact, the net discount accretion was estimated using a period of 5.67 years.

O – Adjustment to reflect accretion on the fair value premium adjustment on available for sale securities. For purposes of the pro forma impact, the net discount accretion was estimated using a period of 3.8 years, net of lost interest due to sale of securities to provide cash for the transaction.

P – Adjustment to reflect the estimated fair value of time deposits based on the current market rate of interest for comparable deposits. The fair value adjustment will be accreted into earnings as a reduction of the cost of funds over 1.5 years.

Q – Adjustment to amortize the acquired core deposit intangible asset over 10 years by the sum of the years’ digits method. Cape also made an adjustment to reduce other expense by $470 for the nine months ended September 30, 2014 for non-recurring transaction costs incurred during the period for Colonial Financial.

R – Adjustment to reflect the income tax effect of pro forma adjustments at Cape’s assumed income tax rate of 40%.

S – Adjustment to weighted average shares for the conversion of 50% of the 3,860,209 shares outstanding on September 30, 2014, including 39,214 shares of unvested restricted stock which will are assumed to vest when the Cape and Colonial Financial shareholders approve the share exchange proposal, at the conversion ratio of 1.412 Cape shares for additional Cape shares outstanding of 2,719,674.

Preliminary Purchase Accounting Allocation: The unaudited pro forma condensed combined financial information reflects the issuance of 2,719,674 shares of Cape common stock totaling $24,232 and cash consideration totaling $27,810 for a total consideration of $52,042. The merger will be accounted for using the acquisition method of accounting: accordingly Cape’s cost to acquire Colonial Financial will be allocated to the assets (including identifiable intangible assets) and liabilities of Colonial Financial at their respective estimated fair values as of the merger date. Accordingly, the pro forma purchase prices was preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values as summarized in the following table:

The following table summarizes selected share and per share information about Cape and Colonial Financial giving effect to the Merger (which is referred to as “pro forma” information). The data in the table should be read together with the financial information and the financial statements of Cape and Colonial Financial incorporated by reference or included in this Joint Proxy Statement/Prospectus . The pro forma information is presented as an illustration only. The data does not necessarily indicate the combined financial position per share or combined results of operations per share that would have been reported if the Merger had occurred when indicated, nor is the data a forecast of the combined financial position or combined results of operations for any future period.

The information about book value per share and shares outstanding assumes that the Merger took place as of the dates presented and is based on the assumptions set forth in the preceding unaudited pro forma combined consolidated statements of financial condition. The information about dividends and earnings per share assumes that the Merger took place as of the periods presented and is based on the assumptions set forth in the preceding unaudited pro forma combined consolidated statements of operations. No pro forma adjustments have been included in these statements of operations which reflect potential effects of the Merger related to integration expenses, cost savings or operational synergies which are expected to be obtained by combining the operations of Cape and Colonial Financial, or the costs of combining the companies and their operations. It is further assumed that Cape will pay a cash dividend after the completion of the Merger at the annual rate of $0.24 per share. The actual payment of dividends is subject to numerous factors, and no assurance can be given that Cape will pay dividends following the completion of the Merger or that dividends will not be reduced in the future.

Cape common stock is listed on the NASDAQ Global Select Market under the symbol “CBNJ.” Colonial Financial common stock is quoted on the NASDAQ Global Market under the symbol “COBK.” The following table lists the high and low prices per share for Cape common stock and Colonial Financial common stock and the cash dividends declared by each company for the periods indicated.

You should obtain current market quotations for Cape and Colonial Financial common stock, as the market price of Cape common stock will fluctuate between the date of this document and the date on which the Merger is completed, and thereafter. You can get these quotations on the Internet, from a newspaper or by calling your broker.

As of [Cape Special Meeting Record Date], there were approximately [# Cape stockholders] holders of record of Cape common stock. As of [Colonial Financial Special Meeting Record Date], there were approximately [# Colonial Financial stockholders] holders of record of Colonial Financial common stock. These numbers do not reflect the number of persons or entities who may hold their stock in nominee or “street name” through brokerage firms.

Following the Merger, the declaration of dividends will be at the discretion of Cape’s board of directors and will be determined after consideration of various factors, including earnings, cash requirements, the financial condition of Cape, applicable state law and government regulations and other factors deemed relevant by Cape’s board of directors.

Colonial Financial’s board of directors is sending you this document to request that you allow your shares of Colonial Financial to be represented at the special meeting by the persons named in the enclosed proxy card. At the special meeting, the Colonial Financial board of directors will ask you to vote on a proposal to approve the Merger Agreement and the Merger, as well as the Merger-Related Executive Compensation. You may also be asked to vote to adjourn the special meeting if necessary to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the Merger Agreement. The special meeting will be held at [Colonial Financial Special Meeting Location] at _____ a.m., local time, on [Colonial Financial Special Meeting Date].

You are entitled to vote if the records of Colonial Financial show that you held shares of Colonial Financial common stock as of the close of business on [Colonial Financial Special Meeting Record Date]. As of the close of business on that date, a total of [Colonial Financial Record Date] shares of Colonial Financial common stock were outstanding. Each share of common stock has one vote. If you are a beneficial owner of shares of Colonial Financial common stock held by a broker, bank or other nominee (i.e., in “street name”) and you want to vote your shares in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

The special meeting will conduct business only if a majority of the outstanding shares of Colonial Financial common stock entitled to vote is represented in person or by proxy at the meeting. If you return valid proxy instructions or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting. Broker non-votes also will be counted for purposes of determining the existence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding shares of Colonial Financial common stock for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

Proposal 1: Approval of the Merger Agreement. Approval of the Merger Agreement and the Merger will require the affirmative vote of a majority of the outstanding shares of Colonial Financial common stock entitled to vote at the meeting. Failure to return a properly executed proxy card or to vote in person will have the same effect as a vote against the Merger Agreement and the Merger. Broker non-votes and abstentions from voting will have the same effect as voting against the Merger Agreement and the Merger.

Proposal 2: Approval of the Merger-Related Executive Compensation. Approval of the Merger-Related Executive Compensation proposal is determined by the affirmative vote of a majority of the votes cast. Broker non-votes and abstentions from voting will have no effect on this matter.

Proposal 3: Adjourn the meeting if necessary or appropriate, including an adjournment to permit further solicitation of proxies in favor of the Merger. The affirmative vote of the majority of votes cast is required to approve the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the Merger Agreement and the Merger.

As of [Colonial Financial Special Meeting Record Date], directors and executive officers of Colonial Financial beneficially owned [Colonial Financial Insider Shares] shares of Colonial Financial common stock, not including shares that may be acquired upon the exercise of stock options. This equals ___% of the outstanding shares of Colonial Financial common stock. The directors and executive officers of Colonial Financial have agreed to vote their shares in favor of the Merger Agreement and the Merger at the special meeting. In addition, two

stockholders of Colonial Financial, owning an aggregate of __% of the outstanding shares of Colonial Financial common stock as of the [Colonial Financial Special Meeting Record Date], have agreed to vote their shares in favor of the Merger Agreement and the Merger at the Special Meeting. As of the same date, Cape and its subsidiaries and its directors and executive officers did not own any shares of Colonial Financial common stock.

You may vote in person at the special meeting or by proxy. To ensure your representation at the special meeting, Colonial Financial recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the special meeting.

Colonial Financial stockholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker or bank may allow you to deliver your voting instructions via the telephone or the Internet.

Voting instructions are included on your proxy form. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain with respect to the approval of the Merger Agreement, the Merger-Related Executive Compensation and the proposal to adjourn the meeting. If you are the record holder of your shares of Colonial Financial common stock and submit your proxy without specifying a voting instruction, your shares of Colonial Financial common stock will be voted “FOR” the proposal to approve the Merger Agreement and the Merger, “FOR” the advisory, non-binding proposal to approve the Merger-Related Executive Compensation, and “FOR” the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the Merger Agreement and the Merger. Colonial Financial’s board of directors recommends a vote “FOR” approval of the Merger Agreement and the Merger, “FOR” the Merger-Related Executive Compensation and “FOR” approval of the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the Merger Agreement and the Merger.

Attendance at the special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to:

If any matters not described in this document are properly presented at the special meeting, the persons named in the proxy card will use their own judgment to determine how to vote your shares. Colonial Financial does not know of any other matters to be presented at the meeting.

Colonial Financial will pay for this proxy solicitation. In addition to soliciting proxies by mail, _______________, a proxy solicitation firm, will assist Colonial Financial in soliciting proxies for the special meeting. Colonial Financial will pay $_______, plus expenses, for these services. Colonial Financial will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions. Additionally, directors, officers and employees of Colonial Financial may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies.

Cape’s board of directors is sending you this document to request that you allow your shares of Cape to be represented at the special meeting by the persons named in the enclosed proxy card. At the special meeting, the Cape board of directors will ask you to vote on a proposal to approve the Merger Agreement and the Merger. You may also be asked to vote to adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the Merger Agreement. The special meeting will be held at [Cape Special Meeting Location] at ________ a.m., local time, on [Cape Special Meeting Date].

You are entitled to vote if the records of Cape show that you held shares of Cape common stock as of the close of business on [Cape Special Meeting Record Date]. As of the close of business on that date, a total of [Cape Outstanding Shares] shares of Cape common stock were outstanding. Each share of common stock has one vote. If you are a beneficial owner of shares of Cape common stock held by a broker, bank or other nominee (i.e., in “street name”) and you want to vote your shares in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

The special meeting will conduct business only if a majority of the outstanding shares of Cape common stock entitled to vote is represented in person or by proxy at the meeting. If you return valid proxy instructions or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting. Broker non-votes also will be counted for purposes of determining the existence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding shares of Cape common stock for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

Proposal 1: Approval of the Merger Agreement. Approval of the Merger Agreement and the Merger will require the affirmative vote of a majority of the outstanding shares of Cape common stock entitled to vote at the meeting. Failure to return a properly executed proxy card or to vote in person will have the same effect as a vote against the Merger Agreement and the Merger. Broker non-votes and abstentions from voting will have the same effect as voting against the Merger Agreement and the Merger.

Proposal 2: Adjourn the meeting if necessary or appropriate, including an adjournment to permit further solicitation of proxies in favor of the Merger. The affirmative vote of the majority of votes cast is required to approve the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the Merger.

As of [Cape Special Meeting Record Date], directors and executive officers of Cape beneficially owned [Cape Insider Shares] shares of Cape common stock, not including shares that may be acquired upon the exercise of stock options. This equals approximately ___% of the outstanding shares of Cape common stock. The directors and executive officers of Cape have agreed to vote their shares in favor of the Merger Agreement and the Merger at the special meeting. As of the same date, Colonial Financial and its subsidiaries and its directors and executive officers owned approximately 100 shares of Cape common stock]

You may vote in person at the special meeting or by proxy. To ensure your representation at the special meeting, Cape recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the special meeting.

Cape stockholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker or bank may allow you to deliver your voting instructions via the telephone or the Internet.

Voting instructions are included on your proxy form. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain with respect to the approval of the Merger Agreement and the Merger, and the proposal to adjourn the meeting. If you are the record holder of your shares of Cape common stock and submit your proxy without specifying a voting instruction, your shares of Cape common stock will be voted “FOR” the proposal to approve the Merger Agreement and the Merger, and “FOR” the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the Merger Agreement and the Merger. Cape’s board of directors recommends a vote “FOR” approval of the Merger Agreement and the Merger, and “FOR” approval of the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the Merger Agreement and the Merger.

If any matters not described in this document are properly presented at the special meeting, the persons named in the proxy card will use their own judgment to determine how to vote your shares. Cape does not know of any other matters to be presented at the meeting.

Cape will pay for this proxy solicitation. In addition to soliciting proxies by mail, __________, a proxy solicitation firm, will assist Cape in soliciting proxies for the special meeting. Cape will pay $_______, plus expenses, for these services. Cape will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions. Additionally, directors, officers and employees of Cape may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies.

Dissenters’ rights are statutory rights that, if available under law, enable stockholders to object to an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value of their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in the transaction.

Under Maryland law, a corporation may eliminate dissenters’ rights for one or more classes of stock by explicitly denying such rights in its articles of incorporation. Colonial Financial’s articles of incorporation provides that holders of Colonial Financial stock are not entitled to exercise the rights of an objecting stockholder, as that

term is defined by Maryland law. Accordingly, stockholders of Colonial Financial common stock are not entitled to dissenters’ rights in connection with the proposed transaction.

The following summary of the Merger Agreement is qualified by reference to the complete text of the Merger Agreement. A copy of the Merger Agreement is attached as Appendix A to this Joint Proxy Statement/Prospectus and is incorporated by reference into this Joint Proxy Statement/Prospectus. You should read the Merger Agreement completely and carefully as it, rather than this description, is the legal document that governs the Merger.

The Merger Agreement provides for the Merger of Colonial Financial with and into Cape, with Cape as the surviving entity. Following the Merger of Colonial Financial with and into Cape, Cape will merge Colonial Bank with and into Cape Bank, with Cape Bank as the surviving bank.

On July 13, 2010, Colonial Financial became the holding company for Colonial Bank upon the completion of the mutual to stock conversion of Colonial Bancshares, MHC, the former mutual holding company for Colonial Bank. In order to deploy the capital raised in the conversion, Colonial Bank sought to grow its loan portfolio, particularly its commercial real estate and commercial loan portfolios.

However, beginning in 2011, Colonial Financial began to experience asset quality issues which led to substantial credit charge-offs and operating losses in each of 2012 and 2013. As a result of concerns regarding Colonial Bank’s credit quality and credit administration, on May 30, 2013 Colonial Bank entered into a formal agreement with the OCC (the “Formal Agreement”) which required, among other things, that Colonial Bank:

As part of Colonial Bank’s compliance with the Formal Agreement, Colonial Bank developed a three-year strategic plan. The plan was reviewed by its board of directors at a meeting on August 22, 2013. The strategic plan laid out two alternatives: remaining as an independent entity, or exploring a sale of Colonial Financial and Colonial Bank. In order to remain independent and provide an adequate return to stockholders, the strategic plan required that, among other things, Colonial Bank continue to grow and substantially increase its base of earning assets while continuing to improve credit quality. In order to attain the growth required by the strategic plan, the board believed Colonial Bank would need to expand into other markets, as its current markets of Cumberland and Gloucester Counties in Southern New Jersey were growing too slowly to generate sufficient new loan demand. The board ultimately concluded that Colonial Bank was too small to provide an adequate return to stockholders in the current regulatory environment, and that substantially growing Colonial Bank’s earning assets while the Formal Agreement remained in effect would be very difficult. The board therefore concluded that remaining independent was not in the best interest of Colonial Financial stockholders, and exposed the stockholders and Colonial Bank to too much execution risk. The board therefore determined to explore a potential sale.

In August 2013, Colonial Financial retained KBW as its financial advisor in connection with a possible sale of Colonial Financial. In August and September of 2013, Colonial Financial management, with the assistance of KBW, prepared a confidential information memorandum in connection with the possible sale. In addition, starting in September 2013, at Colonial Financial’s direction, KBW contacted 29 parties to solicit their potential interest in Colonial Financial. Eight of the parties contacted, including Cape, signed non-disclosure agreements and received the confidential information memorandum. During November and December of 2013, KBW received responses from each of the eight parties who received the confidential information memorandum, and none of the parties was prepared to move forward and provide an indication of interest for an acquisition of Colonial Financial.

Although Colonial Financial was profitable for the first quarter of 2014, the Colonial Financial board of directors continued to believe that Colonial Financial did not have the size or scale to provide an adequate return to the stockholders, and that Colonial Financial would need to significantly restructure its business plan if it were to remain an independent entity, including expanding out of its current market into faster growing markets with greater loan demand. However, the board continued to acknowledge the difficulty of achieving this while Colonial Bank remained subject to the Formal Agreement.

In May 2014, a new party contacted KBW and expressed interest in potentially acquiring Colonial Financial. This party signed a non-disclosure agreement and was provided access by Colonial Financial to Colonial Financial due diligence materials. However, this party ultimately determined not to proceed and did not provide any indication of interest to acquire Colonial Financial.

On May 29, 2014, Colonial Financial Chairman Gregory Facemyer, board member Corissa Briglia and Colonial Financial President and Chief Executive Officer Edward Geletka met with Cape President and Chief Executive Officer Michael Devlin to discuss whether Cape may have a continuing interest in a business combination with Colonial Financial. In addition, on June 12, 2014, Mr. Facemyer and Ms. Briglia met with the President and Chief Executive Officer and Chairman of another institution that had participated in the earlier solicitation process to determine whether that institution had any continuing interest in a strategic transaction with Colonial Financial.

Following those meetings, both Cape and the other institution contacted KBW and requested access to additional due diligence materials concerning Colonial Financial. Each was granted access by Colonial Financial to a virtual data room containing the additional due diligence materials, and Cape and the other institution provided non-binding indications of interest for a merger involving Colonial Financial.

The two indications of interest were reviewed by Colonial Financial’s board of directors at a meeting on July 23, 2014. Representatives of KBW joined the meeting telephonically, and reviewed each of the indications with the board. The board concluded that the indication of interest presented by Cape provided both greater certainty and a higher price than the conditional indication of interest provided by the other institution. One of the conditions of the other institution’s indication of interest was that Colonial Financial sell a variety of assets at or prior to any closing of the proposed merger. The purchase price offered by the other institution would have been dependent, in part, upon the purchase price received for those assets.

In late July 2014, Cape informed Colonial Financial that it would be unwilling to move forward and negotiate a definitive merger agreement and conduct more detailed onsite diligence of Colonial Financial without first entering into an exclusivity agreement with Colonial Financial. At this point, at Colonial Financial’s direction, KBW contacted the other interested institution, to ask whether the other institution was willing to revise its indication of interest to increase the value of its proposal. The other institution declined to revise its indication of interest.

On July 29, 2014, the board of directors of Colonial Financial held a telephonic meeting to receive an update on the transaction process, review the proposal for an exclusivity agreement with Cape and to retain special counsel, as the Company’s regular counsel also represented Cape. At the meeting, the board elected to retain Windels Marx Lane & Mittendorf (“Windels Marx”) and Windels Marx reviewed with the board the proposed indication of interest from Cape and the proposed terms of the exclusivity agreement between Colonial Financial and Cape. At the meeting, the board approved the terms of an exclusivity agreement, and authorized and directed Chairman Facemyer, working with counsel, to finalize an exclusivity agreement. After negotiating the form of

agreement for the next several days, the exclusivity agreement was signed on August 6, 2014, and the parties began conducting, onsite due diligence on each other.

On August 15, 2014, Luse Gorman Pomerenk & Schick, P.C. (“Luse Gorman”), counsel to Cape, provided a proposed draft merger agreement to Windels Marx. Thereafter, from August 15 through September 10, 2014, representatives of Windels Marx and Luse Gorman, with input from their client’s respective management teams and financial advisors, negotiated the final terms of the definitive Merger Agreement and various selected documents.

Between August 15 and September 10, 2014, Chairman Facemyer updated the Colonial Financial board members by e-mail of developments in the negotiations with Cape.

On August 29, 2014, Colonial Financial engaged FinPro to provide a separate fairness opinion to the board of directors regarding the proposed Cape transaction.

On September 10, 2014, the respective boards of Cape and Colonial Financial met and approved the definitive Merger Agreement. The Colonial Financial board of directors met on the morning of September 10, 2014, to review the definitive Merger Agreement and ancillary documents. Counsel, KBW and representatives of FinPro were also present. At this meeting, KBW reviewed the financial aspects of the proposed Merger and rendered an opinion to the Colonial Financial board of directors to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in its opinion, the consideration in the proposed Merger was fair, from a financial point of view, to the holders of Colonial Financial common stock. FinPro then provided its financial analysis of the transaction and rendered its opinion that the merger consideration to be provided to Colonial stockholders was fair to the Colonial stockholders from a financial point of view. After further discussion, the board of directors of Colonial unanimously approved the definitive Merger Agreement, and delegated to the Chairman and management authority to finalize the Merger Agreement and execute it on behalf of Colonial.

The Cape board of directors met with counsel and Sterne Agee on the afternoon of September 10, 2014 to review the definitive Merger Agreement and related documents. Sterne Agee provided its financial analysis of the transaction and rendered its opinion that the financial terms of the proposed Merger was fair to Cape’s stockholders from a financial point of view. After further discussion, the Cape board of directors unanimously approved the definitive Merger Agreement.

The Merger was announced on the evening of September 10, 2014, after trading markets had closed for the day.

The Colonial Financial board of directors unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of Colonial Financial and its stockholders, approved the Merger Agreement and the Merger, and recommended that Colonial Financial stockholders approve the Merger Agreement and the Merger.

The Colonial Financial board of directors unanimously recommends that you vote “FOR” approval of the Merger Agreement AND THE MERGER.

In the course of its deliberations on the proposed transaction with Cape, the Colonial Financial board of directors consulted with its legal counsel with respect to its legal duties and the terms of the Merger Agreement, with Colonial Financial’s financial advisors with respect to the financial aspects of the transaction and with senior management regarding, among other things, operational and due diligence matters.

In reaching its decision to approve the Merger Agreement, the Colonial Financial board of directors considered the following material factors, which are not intended to be exhaustive:

All business combinations, including the Merger, also include certain risks and disadvantages. The material potential risks and disadvantages to Colonial Financial’s stockholders identified by Colonial Financial’s board and management include the following material matters, the order of which does not necessarily reflect their relative significance:

In reaching the determination to approve the Merger Agreement and the related transactions, the Colonial Financial board of directors did not quantify or otherwise attempt to assign any relative weight to the various factors it considered, and individual directors may have viewed certain factors more positively or negatively than others. In addition, as in any business combination, there can be no assurances that the benefits of the Merger perceived by the Colonial Financial board of directors and described above will be realized or will outweigh the risks and uncertainties.

The Colonial Financial board of directors also considered the fact that litigation is often commenced after business combinations involving public companies are announced. No such proceedings involving Colonial Financial and Cape had been commenced at the time of the Colonial Financial board of directors meeting at which the Merger was approved, but subsequent to the announcement of the Merger, legal proceedings were commenced. The Colonial Financial board of directors continues to monitor these legal proceedings.

The Colonial Financial board of directors has unanimously approved the Merger and the Merger Agreement, and believes that the proposed Merger is in the best interests of Colonial Financial and its stockholders. Accordingly, the Colonial Financial board of directors unanimously recommends that Colonial Financial stockholders vote “FOR” approval of the Merger Agreement and the Merger.

The foregoing discussion of the factors considered by the Colonial Financial board of directors is not intended to be exhaustive, but does set forth the principal factors considered by Colonial Financial’s board of directors. The Colonial Financial board of directors collectively reached the unanimous conclusion to approve the Merger Agreement and the Merger in light of the various factors described above and other factors that each member of the Colonial Financial board of directors determined was appropriate. In view of the range and complexity of factors considered by the Colonial Financial board of directors in connection with its evaluation of the Merger, the Colonial Financial board did not consider it practical, and therefore did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, the Colonial Financial board of directors is making its recommendation based on the totality of information presented to it and the investigation conducted by it. In considering the factors discussed above, individual Colonial Financial directors may have given different weight to different factors.

Colonial Financial engaged KBW to render financial advisory and investment banking services to Colonial Financial, including an opinion to the Colonial Financial board of directors as to the fairness, from a financial point of view, of the merger consideration to be received by the holders of Colonial Financial common stock in the proposed Merger. Colonial Financial selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the Merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.

As part of its engagement, representatives of KBW attended the meeting of the Colonial Financial board held on September 10, 2014, at which the Colonial Financial board evaluated the proposed Merger. At this meeting, KBW reviewed the financial aspects of the proposed Merger and rendered an opinion to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the merger consideration in the proposed Merger was fair, from a financial point of view, to the holders of Colonial Financial common stock. The Colonial Financial board approved the Merger Agreement at this meeting.

The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Appendix B to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.

KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Colonial Financial board (in its capacity as such) in connection with its consideration of the financial terms of the Merger. The opinion addressed only the fairness, from a financial point of view, of the merger consideration in the Merger to the holders of Colonial Financial common stock. It did not address the underlying business decision of Colonial Financial to engage in the Merger or enter into the Merger Agreement or constitute a recommendation to the Colonial Financial board in connection with the

Merger, and it does not constitute a recommendation to any holder of Colonial Financial common stock or any stockholder of any other entity as to how to vote in connection with the Merger or any other matter, nor does it constitute a recommendation on whether or not any holder of Colonial Financial common stock should enter into a voting, stockholders’ or affiliates’ agreement with respect to the Merger or exercise any dissenters’ rights that may be available to such stockholder.

KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Colonial Financial and Cape and the Merger, including, among other things:

KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:

KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also held discussions with senior management of Colonial Financial and Cape regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters that KBW deemed relevant to its inquiry. In addition, KBW considered the results of the efforts undertaken by Colonial Financial, with KBW’s assistance, to solicit indications of interest from third parties regarding a potential transaction with Colonial Financial.

In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information provided to it or that was publicly available, and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon management of Colonial Financial as to the reasonableness and achievability of the financial and operating forecasts and projections of Colonial Financial (and the assumptions and bases therefor) that were prepared by Colonial Financial management and provided to and discussed with KBW by such management. KBW assumed that such forecasts and projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of Colonial Financial management and that such forecasts and projections would be realized in the amounts and in the time periods estimated by such management. KBW further relied, with the consent of Colonial Financial, upon the reasonableness and achievability of the publicly available consensus “street estimates” of Cape referred to above, and the assumed long term growth rates based on such “street estimates” that were provided by Cape, as well as the estimates regarding certain pro forma effects of the Merger on Cape (and the assumptions and bases therefor, including without limitation purchase accounting assumptions, cost savings and related expenses expected to result or be derived from the Merger) that were provided by Cape. KBW assumed, with the consent of Colonial Financial, that all such information was consistent with (in the case of Cape “street estimates”), or was otherwise reasonably prepared on a basis reflecting, the best currently available estimates and judgments of Cape and that such forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.

It is understood that the forecasts, projections and estimates of Colonial Financial and Cape provided to KBW were not prepared with the expectation of public disclosure, that all such information, together with the publicly available consensus “street estimates” of Cape referred to above, were based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such forecasts, projections and estimates. KBW assumed, based on discussions with Colonial Financial management, and with the consent of the Colonial Financial, that all such information provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness of such information.

KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Colonial Financial or Cape since the date of the latest financial statements of each such entity that were made available to KBW. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with Colonial Financial’s consent, that the aggregate allowances for loan and lease losses for

Colonial Financial and Cape were adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Colonial Financial or Cape, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Colonial Financial or Cape under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.

At the direction of Colonial Financial, KBW assumed for purposes of its opinion that the consolidated net book value of Colonial Financial on the determination date (as defined in the Merger Agreement) would not be less than $63,100,000. KBW further assumed that, in all respects material to its analyses:

KBW assumed that the Merger would be consummated in a manner that complied with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW further assumed that Colonial Financial relied upon the advice of its counsel, independent accountants and other advisors (other than KBW) as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Colonial Financial, Cape, the Merger, any related transaction (including the Subsidiary Bank Merger) and the Merger Agreement. KBW did not provide advice with respect to any such matters.

KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, of the merger consideration to the holders of Colonial Financial common stock. KBW expressed no view or opinion as to any terms or other aspects of the Merger or any related transaction (including the Subsidiary Bank Merger), including without limitation, the form or structure of the Merger (including the form of the merger consideration or the allocation of the merger consideration among cash and stock) or any related transaction, any consequences of the Merger or any related transaction to Colonial Financial, its stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, consulting, voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Merger or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of such opinion

and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:

In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, Colonial Financial and Cape. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Colonial Financial board in making its determination to approve the Merger Agreement and the Merger. Consequently, the analyses described below should not be viewed as

determinative of the decision of the Colonial Financial board with respect to the fairness of the Merger consideration. The type and amount of consideration payable in the Merger were determined through negotiation between Colonial Financial and Cape and the decision to enter into the Merger Agreement was solely that of the Colonial Financial board.

The following is a summary of the material financial analyses presented by KBW to the Colonial Financial board in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the Colonial Financial board, but summarizes the material analyses performed and presented in connection with such opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. The tables alone do not constitute a complete description of the financial analyses. For purposes of its analyses, KBW utilized the implied value of merger consideration of $14.40 per share of Colonial Financial common stock, consisting of the sum of (i) the cash election consideration of $14.50 multiplied by 50% and (ii) the implied value of the stock election consideration of 1.411 shares of Cape common stock to be exchanged for each share of Colonial Financial common stock, based on the closing price of Cape common stock on September 8, 2014 of $10.13, multiplied by 50%.

Selected Companies Analysis – Colonial Financial. Using publicly available information, KBW compared the financial performance, financial condition and market performance of Colonial Financial to 14 selected banks, bank holding companies and thrifts traded on NASDAQ or the New York Stock Exchange, headquartered in New Jersey and the Philadelphia Metropolitan Statistical Area (“MSA”) and total assets between $250 million and $1.0 billion. Mutual holding companies and merger targets were excluded from the selected companies.

The selected companies included in Colonial Financial’s “peer” group were:

To perform this analysis, KBW used last-twelve-months (“LTM”) profitability data and other financial information as of or for the most recent reported completed quarter available and market price information as of September 8, 2014. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Colonial Financial’s historical financial statements, the data prepared by FinPro presented under the section “Proposal 1 — Description of the Merger — Opinion of Colonial Financial Services, Inc.’s Financial Advisors — FinPro’s Opinion,” or the data prepared by Cape Bancorp’s financial advisor presented under the section “Proposal 1 — Description of the Merger — Opinion of Cape Bancorp Inc.’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

KBW’s analysis showed the following concerning the financial performance of Colonial Financial and the selected companies in its “peer” group:

KBW’s analysis also showed the following concerning the financial condition of Colonial Financial and the selected companies in its “peer” group:

In addition, KBW’s analysis showed the following concerning the market performance of Colonial Financial and the selected companies in its “peer” group (excluding the impact of certain selected company LTM earnings per share (“EPS”) multiples considered to be not meaningful (“NM”) because they were negative or greater than 30.0x):

Selected Companies Analysis – Cape. Using publicly available information, KBW then compared the financial performance, financial condition and market performance of Cape to 16 selected banks, bank holding companies and thrifts traded on NASDAQ or the New York Stock Exchange, headquartered in New Jersey and the Philadelphia MSA and with total assets between $650 million and $2.5 billion. Mutual holding companies and merger targets were excluded from the selected companies. KBW also compared certain corresponding pro forma information regarding the projected financial performance and financial condition of Cape and Colonial Financial on a combined basis.

To perform this analysis, KBW used LTM profitability data and other financial information as of or for the most recent reported completed quarter available and market price information as of September 8, 2014. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Cape historical financial statements, the data prepared by FinPro presented under the section “Proposal 1 — Description of the Merger — Opinions of Colonial Financial Services, Inc.’s Financial Advisors — FinPro’s Opinion,” or the data prepared by Cape’s financial advisor presented under the section “Proposal 1 — Description of the Merger — Opinion of Cape Bancorp’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

KBW’s analysis showed the following concerning the financial performance of Cape and the selected companies in its “peer” group and also certain corresponding projected pro forma combined information of Cape and Colonial Financial:

KBW’s analysis also showed the following concerning the financial condition of Cape and the selected companies in its “peer” group and also certain corresponding projected pro forma combined information of Cape and Colonial Financial:

In addition, KBW’s analysis showed the following concerning the market performance of Cape and the selected companies in its “peer” group (excluding the impact of certain selected company LTM EPS multiples considered to be not meaningful because they were negative or greater than 30.0x):

No company used as a comparison in the above-selected companies analyses is identical to Colonial Financial, Cape or the combined company. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Select Transactions Analysis - Regional Transactions. KBW reviewed publicly available information related to 13 selected bank and thrift transactions announced since January 1, 2010 and with acquired companies in the Mid-Atlantic region (consisting of Delaware, District of Columbia, Maryland, New Jersey, New York and Pennsylvania) and Northeast region (consisting of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont) of the United States, transaction values between $15 million and $250 million, and acquired companies having a nonperforming assets to assets ratios greater than 3.0%. Terminated transactions, mutual-to-mutual transactions, and mergers of equals were excluded from the selected transactions. The selected transactions included in the group were:

For each selected transaction, KBW derived the ratio of the transaction consideration value per common share paid for the acquired company to the following, in each case based on the acquired company’s then latest publicly available financial statements prior to the announcement of the acquisition:

KBW also reviewed the price per common share paid for the acquired company for each selected transaction involving a publicly traded acquired company as a premium to the closing price of the acquired company one day prior to the announcement of the acquisition (expressed as a percentage and referred to as the one day market premium). The resulting transaction multiples and premiums for the selected transactions were compared with the corresponding transaction multiples and premiums for the proposed Merger based on the implied value of the merger consideration of $14.40 per share of Colonial Financial common stock and using historical financial information for Colonial Financial as of June 30, 2014 and the closing price of Colonial Financial common stock on September 8, 2014.

The results of the analysis (excluding the impact of certain selected transaction LTM EPS multiples considered to be not meaningful because they were negative or greater than 70.0x and the impact of certain selected transaction one-day market premiums also considered to be not meaningful) are set forth in the following table:

Select Transactions Analysis - Nationwide Transactions. KBW reviewed publicly available information related to 21 selected bank and thrift transactions announced since June 30, 2012, with transaction values between $15 million and $100 million and in which the acquired companies had nonperforming assets to assets ratios greater than 3.0% and LTM return on assets less than 0.5%. Terminated transactions, mutual-to-mutual transactions, and

mergers of equals were excluded from the selected transactions. The selected transactions included in the group were:

KBW also reviewed the one day market premium for each selected transaction involving a publicly traded acquired company. The resulting transaction multiples and premiums for the selected transactions were compared with the corresponding transaction multiples and premiums for the proposed Merger based on the implied value of the merger consideration of $14.40 per share of Colonial Financial common stock and using historical financial information for Colonial Financial as of June 30, 2014 and the closing price of Colonial Financial common stock on September 8, 2014.

No company or transaction used as a comparison in the above selected transaction analyses is identical to Colonial Financial or the proposed Merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Relative Contribution Analysis. KBW analyzed the relative standalone contribution of Cape and Colonial Financial to various pro forma balance sheet and income statement items and the pro forma market capitalization of the combined entity. This analysis did not include purchase accounting adjustments. To perform this analysis, KBW used (i) balance sheet data for Cape and Colonial Financial as of June 30, 2014, as adjusted per Cape management in the case of Colonial Financial’s mark-to-market tangible common equity, (ii) the First Call consensus 2014 and 2015 EPS estimates for Cape and 2014 and 2015 net income estimates for Colonial Financial provided by Colonial Financial management, and (iii) market price data as of September 8, 2014. The results of KBW’s analysis are set forth in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of Cape and Colonial Financial stockholders in the combined company based on the 1.411x exchange ratio both at the 50% aggregate stock consideration percentage provided for in the Merger and also assuming 100% stock consideration for illustrative purposes, in the following table:

Forecasted Pro Forma Financial Analysis. KBW performed a pro forma financial impact analysis that combined projected income statement and balance sheet information of Cape and Colonial Financial. Using closing balance sheet estimates as of March 31, 2015 for Cape and Colonial Financial provided by Cape and Colonial Financial, First Call consensus 2014 and 2015 EPS estimates for Cape, long term earnings and balance sheet growth rates for Cape provided by Cape, financial forecasts and projections relating to the net income and assets of Colonial Financial provided by Colonial Financial, and pro forma assumptions (including purchase accounting adjustments, cost savings and related expenses) provided by Cape, KBW analyzed the potential financial impact of the Merger on certain projected financial results of Cape. This analysis indicated the Merger could be accretive to Cape Bancorp’s estimated 2015 and 2016 EPS and dilutive to Cape’s estimated tangible book value per share as of March 31, 2015. Furthermore, the analysis indicated that each of Cape’s tangible common equity to tangible assets ratio, leverage ratio, Tier 1 Risk-Based Capital Ratio and Total Risk Based Capital Ratio as of March 31, 2015 could be lower. For all of the above analysis, the actual results achieved by Cape Bancorp following the Merger may vary from the projected results, and the variations may be material.

Discounted Cash Flow Analysis. KBW performed a discounted cash flow analysis of Colonial Financial to estimate ranges for the implied equity value of Colonial Financial. In this analysis, KBW used financial forecasts and projections relating to the net income and assets of Colonial Financial prepared by and provided to KBW by Colonial Financial management, and assumed discount rates ranging from 14.0% to 17.0%. The ranges of values were derived by adding (i) the present value of the estimated free cash flows that Colonial Financial could generate over the five-year period from 2014 to 2019 as a standalone company, and (ii) the present value of Colonial Financial’s implied terminal value at the end of such period. KBW assumed that Colonial Financial would maintain a tangible common equity to tangible asset ratio of 8.0% and would retain sufficient earnings to maintain that level. KBW derived implied terminal values using two methodologies, one based on 2020 net income multiples and the other based on 2019 tangible book value multiples. Based on implied terminal values for Colonial Financial calculated by applying a range of 12.0x to 16.0x estimated 2020 net income, this analysis resulted in a range of implied values per share of Colonial Financial common stock of $11.49 per share to $13.99 per share. Based on implied terminal values for Colonial Financial calculated by applying a range of 0.85x to 1.05x estimated 2019 tangible book value per share, this analysis resulted in a range of implied values per share of Colonial Financial common stock of $11.77 per share to $13.85 per share.

KBW also performed a discounted cash flow analysis of the pro forma combined company to estimate ranges for the implied value of 1.411 shares of the pro forma combined company’s common stock. In this analysis, KBW used (i) financial forecasts and projections relating to the earnings and assets of Cape based on the First Call consensus 2014 and 2015 EPS estimates and long term net income and balance sheet growth rates provided by Cape, (ii) financial forecasts and projections relating to the net income and assets of Colonial Financial provided by Colonial Financial, and (iii) pro forma assumptions (including purchase accounting adjustments, cost savings and related expenses) provided by Cape, and KBW assumed discount rates ranging from 11.0% to 14.0%. The ranges of values were derived by adding (i) the present value of the estimated free cash flows that the pro forma combined company could generate over the five-year period from 2014 to 2019, and (ii) the present value of the pro forma combined company’s implied terminal value at the end of such period. KBW assumed that the pro forma combined company would maintain a tangible common equity to tangible asset ratio of 8.0% and would retain sufficient earnings to maintain that level. KBW derived implied terminal values using two methodologies, one based on 2020 net income multiples and the other based on 2019 tangible book value multiples. Based on implied terminal values for the pro forma combined company calculated by applying a range of 13.0x to 17.0x estimated 2020 net income, this analysis resulted in a range of implied values for 1.411 shares of the pro forma combined company’s common stock of $16.71 to $22.66. Based on implied terminal values for the pro forma combined company calculated by applying a range of 0.95x to 1.35x estimated 2019 tangible book value per share, this analysis resulted in a range of implied values for 1.411 shares of the pro forma combined company’s common stock of $12.53 to $17.42.

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The foregoing discounted cash flow analyses did not

purport to be indicative of the actual values or expected values of Colonial Financial or the pro forma combined company.

Miscellaneous. KBW acted as financial advisor to Colonial Financial in connection with the proposed Merger and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of its business as a broker-dealer, KBW may from time to time purchase securities from, and sell securities to, Colonial Financial and Cape. As a market maker in securities, KBW may from time to time have a long or short position in, and buy or sell, debt or equity securities of Colonial Financial and Cape for its own account and for the accounts of its customers. Any KBW proprietary positions or positions of KBW employees (including a member of the deal team providing services to Colonial Financial) in Colonial Financial and Cape, as of the date of KBW’s opinion, were disclosed to Colonial Financial.

Pursuant to the KBW engagement agreement, Colonial Financial agreed to pay KBW a total cash fee equal to 1.25% of the aggregate merger consideration, a portion of which became payable to KBW upon the rendering of KBW’s opinion, a portion of which became payable to KBW upon the signing of the Merger Agreement, a portion of which became payable upon the mailing of this document to Colonial Financial’s stockholders, and the balance of which is contingent upon the consummation of the Merger. Colonial Financial also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with this present engagement, during the two years preceding the date of its opinion, KBW has not provided investment banking and financial advisory services to Colonial Financial. In the two years preceding the date of its opinion, KBW has not provided investment banking and financial advisory services to Cape. KBW may in the future provide investment banking and financial advisory services to Colonial Financial or Cape and receive compensation for such services.

On August 29, 2014, Colonial Financial engaged FinPro to provide its opinion as to the fairness, from a financial point of view, of the merger consideration to be received by Colonial Financial’s common equity stockholders in the proposed transaction. FinPro was not retained to structure, analyze, negotiate or perform any services outside of the scope of rendering a fairness opinion. FinPro is engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. Colonial Financial selected FinPro because of its knowledge of, experience with, and reputation in the financial services industry.

Colonial Financial’s board of directors considered and approved the Merger Agreement at a board meeting held on September 10, 2014. At that board of directors meeting, FinPro delivered to the board a fairness opinion presentation that the Merger consideration was fair to Colonial Financial and its stockholders from a financial point of view.

The full text of FinPro’s written opinion is attached as Appendix C to this Joint Proxy Statement/Prospectus and is incorporated herein by reference.

Colonial Financial stockholders are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by FinPro.

FinPro’s opinion speaks only as of the date of such opinion. FinPro’s opinion addresses only the fairness, from a financial point of view, of the consideration offered in the Merger. It does not address the

underlying business decision to proceed with the Merger and does not constitute a recommendation to any Colonial Financial stockholder as to how the stockholder should vote on the Merger or any related matter at the Colonial Financial special meeting.

In performing its review and in rendering its opinion, FinPro has relied upon the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to it by Colonial Financial, Cape, or their representatives, or that was otherwise reviewed by FinPro and has assumed such accuracy and completeness for purposes of rendering its opinion. FinPro has further relied on the assurances of management of Colonial Financial that they are not aware of any facts or circumstances not within the actual knowledge of FinPro, as the case may be, that would make any of such information inaccurate or misleading. FinPro has not been asked to verify and has not undertaken any independent verification of any of such information, and FinPro does not assume any responsibility or liability for the accuracy or completeness thereof. FinPro has not made an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Colonial Financial, Cape, or any subsidiaries, or the collectability of any such assets, nor has FinPro been furnished with any such evaluations or appraisals. FinPro has not made any independent evaluation of the adequacy of the allowance for loan losses of Colonial Financial or Cape, or their respective subsidiaries nor has FinPro reviewed any individual credit files and has assumed that their respective allowance for loan losses is adequate.

The following is a summary of the material analyses performed by FinPro and presented to the Colonial Financial board of directors on September 10, 2014. The summary is not a complete description of all the analyses underlying FinPro’s opinions. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. FinPro believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses considered, without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process

underlying its opinion. The financial analyses summarized below include information presented in a tabular format. In order to understand fully the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses.

Market Value Approach (Trading Comparables). Using publicly available information, FinPro compared the financial performance, financial condition and market performance of Colonial Financial to publically traded banks headquartered in the states of New Jersey, New York, Pennsylvania, Maryland, and Delaware with total assets between $200 million and $800 million, and NPAs (including performing TDRs) as a percentage of total assets under 5%. Companies with average daily trading volume (over the prior 3 months) below 1,000 shares were excluded. Publically announced merger targets, mutual holding companies, and institutions focused on specialty finance were also excluded.

To perform this analysis, FinPro used financial information for the last twelve months (as of the most recently available quarter, unless otherwise noted) and market price information as of September 8, 2014.

Using publicly available information, FinPro compared the financial performance, financial condition and market performance of Cape with that of publically traded banks headquartered in the states of New Jersey, New York, Pennsylvania, Maryland, and Delaware with total assets between $750 million and $1.5 billion, and NPAs (including performing TDRs) as a percentage of total assets under 5%. Companies with average daily trading volume (over the prior 3 months) below 2,000 shares were excluded. Publically announced merger targets, mutual holding companies, and institutions focused on specialty finance were also excluded.

Market Value Approach (Acquisition Comparables). FinPro reviewed publically available information related to certain selected bank and thrift transactions in Colonial Financial’s geographic region (Comparable Group 1) and across the United States (Comparable Group 2). The financial performance metrics of the acquired companies were compared to Colonial Financial’s most recent publically available financials. Multiples for the proposed Cape/Colonial Financial transaction were analyzed relative to comparable transaction groups selected by FinPro. For each transaction, FinPro compared, among other things, the following implied pricing multiples:

Bank and thrift transactions announced after January 1, 2012 where the acquired company was headquartered in the states of New York, New Jersey, Delaware, Pennsylvania, and Maryland, and where the acquired company has total assets between $250 million and $1.0 billion. The following transaction types were excluded from the analysis: transactions involving investor groups; transactions where the target was a mutual institution; purchase and assumptions transactions; and transactions for which price to tangible book value data was unavailable.

(14) Actual dollars. Based on median income for the county where the acquired company was headquartered.

This group consists of bank and thrift transactions announced after January 1, 2012 where the acquired company was headquartered in the United States, and where the acquired company had total assets between $250 million and $1.0 billion and NPAs to Assets between 3% and 6%. The following transaction types were excluded from the analysis: transactions involving investor groups; transactions where the target was a mutual institution; purchase and assumptions transactions; deals with niche/specialty focused banks; and transactions for which price to tangible book value data was unavailable.

(16) Actual dollars. Based on median income for the county where the acquired company was headquartered.

Investment Value Approach (Discounted Cash Flow). FinPro performed a discounted cash flow (DCF) analysis to estimate a range of the present values of free cash flows that Colonial Financial could generate on a stand-alone basis. The DCF analysis is a widely used valuation methodology that relies on numerous assumptions, including asset and earnings growth rates, terminal values and discount rates. In performing this analysis, FinPro based cash flow estimates on 2015 and 2016 earnings, which incorporated pre-tax bank level estimates from Management, adjusted for a 31% effective tax rate and holding company expenses of $300,000 per year. Estimates

for 2017 through 2019 assumed modest balance sheet growth. FinPro assumed discount rates ranging from 10% to 17%. In calculating the terminal value, FinPro used earnings multiples between 18 and 22 times for a P/E (price to earnings) approach and between 90% and 130% for a P/TBVS (price to tangible book value) approach. This resulted in a range of present values of Colonial Financial from $5.36 to $16.03 per share. The purpose of this analysis was to determine the range of present values of a Colonial Financial liquidity event in five years.

Contribution Analysis. FinPro analyzed the relative contribution of Colonial Financial and Cape to the pro forma balance sheet and income statement items of the combined entity, including pro forma ownership, assets, total loans, deposits, tangible common equity, and core net income. The core net income figure utilized for both companies is explained in footnotes 5 and 11 in the previous sections of this analysis. To perform this analysis, FinPro used financial information as of the period ended June 30, 2014 and included merger related adjustments to the balance sheet figures. The results of FinPro’s analysis are set forth in the following table:

Pro Forma Financial Impact Analysis. FinPro performed pro forma merger analyses that combined actual and projected income statement and balance sheet information of Colonial Financial and Cape. Assumptions regarding the accounting treatment, acquisition adjustments and cost savings were provided by Colonial Financial and Cape were relied on by FinPro, and were used to calculate the financial impact that the Merger would have on certain projected financial results of Colonial Financial and Cape. FinPro utilized an implied value of the merger consideration based upon the a 20 day volume weighted average closing price of Cape common stock on September 8, 2014. This analysis indicated that the Merger is expected to be accretive to Cape’s historical and projected earnings per share (excluding one-time Merger charges). The analysis also indicated that the Merger is expected to be dilutive to tangible book value per share for Cape and that Cape is expected to maintain well-capitalized capital ratios. All of the results of FinPro’s financial impact analysis may vary materially from the actual results achieved by the resulting entity. These forward looking projections may be affected by many factors beyond the control of Colonial Financial and Cape, including the future direction of interest rates, economic conditions in the companies’ market place, the actual amount and timing of cost savings achieved through the Merger, the actual level of one-time expenses brought about through the Merger, future regulatory changes and various other factors. The actual results achieved may vary from the projected results and the variations may be material.

FinPro’s Compensation and Other Relationships with Colonial Financial. Colonial Financial engaged FinPro to provide its opinion as to the fairness, from a financial point of view, of the merger consideration. FinPro was not retained to structure, analyze, negotiate or perform any services outside of the scope of rendering a fairness opinion. FinPro will receive total advisory fees equal to $75,000. FinPro’s fees are payable upon rendering of the fairness opinion to Colonial Financial. Additionally, Colonial Financial has agreed to reimburse FinPro for its out-of-pocket expenses and has agreed to indemnify FinPro and certain related persons against certain liabilities that may be incurred in connection with the services performed.

Prior to this engagement, FinPro has not provided investment banking services to Colonial Financial within the past two years. FinPro, Inc., FinPro Capital Advisors, Inc.’s parent, has provided services to Colonial Financial within the past two years. The amount of compensation received from Colonial Financial is not material to FinPro, Inc.’s gross revenue in either of the two prior years. Neither FinPro, Inc. nor FinPro Capital Advisors, Inc. has provided services to Cape within the past two years.

FinPro expresses no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the transaction relative to the consideration to be paid to Colonial Financial stockholders in the transaction or with respect to the fairness of any such compensation. FinPro does not express an opinion as to the underlying decision by Colonial Financial to engage in the Merger or the relative merits of the Merger compared to other strategic alternatives which may be available to Colonial Financial. The issuance of this opinion has been approved by FinPro’s Fairness Opinion Committee.

Cape’s board of directors reviewed and discussed the transaction with Cape’s management and its financial and legal advisors in unanimously determining that the Merger is advisable and is fair to, and in the best interests of, Cape and its stockholders. In reaching its determination, the Cape board of directors considered a number of factors, including, among others, the following:

This discussion of the factors considered by Cape’s board of directors is not exhaustive. Cape’s board of directors considered these factors as a whole, and considered them to be favorable to, and supportive of, its determination. Cape’s board of directors did not consider it practical, nor did it attempt, to quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above, individual members of Cape’s board of directors may have given different weights to different factors.

Cape’s board of directors determined that the Merger Agreement and the Merger are fair to and in the best interests of Cape and its stockholders. Accordingly, Cape’s board of directors approved the Merger Agreement and the Merger, and unanimously recommends that Cape stockholders vote “FOR” approval of the Merger Agreement and the Merger.

THE CAPE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE MERGER.

On July 29, 2014, the Cape board of directors retained Sterne Agee to act as financial adviser to Cape regarding the Merger with Colonial Financial. As part of the engagement, Sterne Agee was asked to assess the fairness, from a financial point of view, of the consideration paid, which includes common stock of Cape, to Colonial Financial.

Sterne Agee, a nationally recognized investment banking firm with offices throughout the United States, has substantial experience in transactions similar to the Merger. Sterne Agee is continually engaged in the financial analysis of banking businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. As specialists in the securities of banking companies, Sterne Agee has experience in, and knowledge of, the financial analysis of banking enterprises. Other than with respect to the proposed Merger, Sterne Agee has not been engaged to provide services to Cape during the past two years.

As part of Sterne Agee’s engagement, representatives attended the meeting of Cape’s board of directors held on September 10, 2014, in which Cape’s board of directors evaluated the proposed Merger. At this meeting, Sterne Agee reviewed the financial aspects of the proposed Merger and rendered an opinion that, as of such date, the consideration to be paid to Colonial Financial stockholders in the Merger was fair, from a financial point of view, to Cape. Cape’s board of directors approved the Merger Agreement at this meeting.

The full text of Sterne Agee’s written opinion is attached as Annex D to this document and is incorporated herein by reference. Cape’s stockholders are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Sterne Agee. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion.

Sterne Agee's opinion speaks only as of the date of the opinion. The opinion is directed to Cape’s board of directors and addresses only the fairness, from a financial point of view, of the consideration provided for in the Merger. It does not address the underlying business decision to proceed with the Merger and does not constitute a recommendation to any stockholder as to how the stockholder should vote or act with respect to any matter relating to the Merger.

Sterne Agee, in conducting its review and arriving at its opinion, relied upon the accuracy and completeness of all of the financial and other information provided to it or otherwise publicly available. Sterne Agee did not independently verify the accuracy or completeness of any such information or assume any responsibility for such verification or accuracy. Sterne Agee relied upon the management of Cape and Colonial Financial as to the reasonableness and achievability of the financial and operating forecasts and projections (and the assumptions and basis therefore) provided to Sterne Agee. Sterne Agee assumed that such forecasts and projections reflect the best currently available estimates and judgments of such managements and that such forecasts and projections will be realized in the amounts and in the time periods currently estimated by such managements. Sterne Agee did not make or obtain any evaluation or appraisal of the property of Cape or Colonial Financial, nor did it examine any individual credit files.

The financial forecast furnished to Sterne Agee by Colonial Financial’s senior management team differs from the estimates provided by Cape, the latter of which were used by Sterne Agee. Cape and Colonial Financial do not publicly disclose internal management projections of the type provided to Sterne Agee in connection with its review of the Merger. As a result, such projections were not prepared with a view towards public disclosure. The projections were based on numerous variables and assumptions, which are inherently uncertain, including factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in the projections.

For purposes of rendering its opinion, Sterne Agee assumed that, in all respects material to its analyses:

Sterne Agee further assumed that the Merger will be accounted for as a purchase transaction under generally accepted accounting principles, and that the Merger will qualify as a tax-free reorganization for United States federal income tax purposes. Sterne Agee’s opinion is not an expression of an opinion as to the price at

which Cape common shares will trade following the announcement of the Merger or the actual value of the common shares of the combined company when issued pursuant to the Merger, or the price at which the common shares of the combined company will trade following the completion of the Merger.

In performing its analyses, Sterne Agee made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Sterne Agee, Cape and Colonial Financial. Any estimates contained in the analyses performed by Sterne Agee are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the Sterne Agee opinion was among several factors taken into consideration by the Cape board of directors in making its determination to approve the Merger Agreement and the Merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Cape board of directors with respect to the fairness of the consideration.

The following is a summary of the material analyses presented by Sterne Agee to the Cape board of directors on September 10, 2014, in connection with its fairness opinion. The summary is not a complete description of the analyses underlying the Sterne Agee opinion or the presentation made by Sterne Agee to the Cape board of directors, but summarizes the material analyses performed and presented in connection with such opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. In arriving at its opinion, Sterne Agee did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. Accordingly, Sterne Agee believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.

Summary of Proposal. Pursuant to the terms of the Merger Agreement, upon completion of the Merger, 50% of the Colonial Financial common shares will be converted into the right to receive 1.412 shares of Cape common shares, par value $0.01 per share, and 50% of the Colonial Financial common shares will be converted into an amount of cash equal to $14.50. Based on Cape’s closing price on September 9, 2014 of $10.06, the Merger consideration was equivalent to a price of approximately $14.35 per share to Colonial Financial’s stockholders.

Comparable Transaction Analysis. Sterne Agee reviewed publicly available information related to 13 selected acquisitions of banks and bank holding companies as well as thrifts and thrift holding companies announced after December 31, 2012, where the target had financial characteristics similar to Colonial Financial:

Transaction multiples for the Merger were derived from an offer price of $14.35 per share for Colonial Financial, based on Cape’s September 9, 2014 closing price of $10.06. For each precedent transaction, Sterne Agee derived and compared, among other things, the implied deal value paid for the acquired company to:

No company or transaction used as a comparison in the above analysis is identical to Colonial Financial, Cape or the Merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies.

Discounted Cash Flow Analysis. Sterne Agee performed a discounted cash flow analysis to estimate a range of the present values of 5 years of after-tax cash flows that Colonial Financial could provide to equity holders on a pro forma basis after accounting for merger adjustments and projected cost savings. In performing this analysis, Sterne Agee used Cape’s management guidance for fiscal years 2015 – 2020 to derive projected after-tax cash flows. The analysis assumed discount rates ranging from 10.0% to 14.0%. The range of values was determined by adding (1) the present value of projected cash flows to Colonial Financial’s stockholders from fiscal year 2015 to 2020, (2) the estimated projected cost savings realized in the Merger from 2015 – 2020, (3) estimated fair market value adjustments to Colonial Financial’s projected March 31, 2015 balance sheet; and (4) the present value of the terminal value of Colonial Financial’s common stock. In determining cash flows available to stockholders, Sterne Agee assumed that Colonial Financial would maintain a tangible common equity/tangible asset ratio of 8.0% and would retain sufficient earnings to maintain that level. Any earnings in excess of what would need to be retained represented dividendable cash flows for Colonial Financial. In calculating the terminal value of Colonial Financial, Sterne Agee applied multiples ranging from 14.0 times to 16.0 times fiscal year 2020 forecasted earnings. This resulted in a pro forma discounted cash flow analysis range of value of Colonial Financial from $15.17 to $18.96 per share.

Sterne Agee stated that the discounted cash flow present value analysis is a widely used valuation methodology, but noted that it relies on numerous assumptions, including asset and earnings growth rates, terminal values, and discount rates. The analysis did not purport to be indicative of the actual values or expected values of Colonial Financial.

Financial Impact Analysis. Sterne Agee performed pro forma Merger analyses that combined projected income statement and balance sheet information of Cape and Colonial. Assumptions regarding the accounting treatment, acquisition adjustments and cost savings were used to calculate the financial impact that the Merger would have on certain projected financial results of Cape. In the course of this analysis, Sterne Agee used earnings estimates for Cape and Colonial for 2014 and 2015 as provided by Cape’s Management Projections. This analysis indicated that the Merger is expected to be accretive to Cape’s estimated earnings per share in 2015, excluding restructuring charges. The analysis also indicated that the Merger is expected to be dilutive to tangible book value per share for Cape and that Cape would maintain well capitalized capital ratios. For all of the above analyses, the actual results achieved by Cape following the Merger will vary from the projected results, and the variations may be material.

Other Analyses. Sterne Agee reviewed the relative financial performance of Cape and Colonial to a variety of relevant industry peer groups. Sterne Agee also reviewed earnings estimates, balance sheet composition and other financial data for Cape and Colonial.

Relationships. In the ordinary course of its business as a broker-dealer, Sterne Agee may, from time to time, purchase securities from, and sell securities to Cape, Colonial or their respective affiliates. Sterne Agee may also from time to time have a long or short position in, and buy or sell, debt or equity securities of Cape, Colonial or its affiliates for its own account and for the accounts of its customers.

Sterne Agee has acted exclusively for the board of directors of Cape in rendering this opinion in connection with the Merger and will receive a fee from Cape for its services. Sterne Agee has also acted as an advisor on the transaction and a portion of its fee is contingent on the successful completion of the Merger.

Sterne Agee was paid a retainer fee of $25,000 upon its engagement and received a fee of $75,000 upon advising the board of directors of Cape that it was prepared to render the fairness opinion, regardless of the conclusions set forth in the opinion. Upon the successful completion of the Merger, Sterne Agee is also entitled to a fee of $550,000, reduced by the retainer and fairness opinion fees paid to Sterne Agee in connection with its engagement. Cape has agreed to reimburse Sterne Agee for reasonable and customary out-of-pocket expenses and disbursements, including fees and reasonable expenses of counsel, and to indemnify against certain liabilities, including liabilities under the federal securities laws. Other than services provided to Cape in connection with the transaction, Sterne Agee has not provided investment banking and financial advisory services to Cape or Colonial in the past two years.

Under the terms of the Merger Agreement, 50% of Colonial Financial’s common stock will be converted into Cape common stock and the remaining 50% will be exchanged for cash. Colonial Financial’s stockholders will have the option to elect to receive either 1.412 shares of Cape’s common stock or $14.50 in cash for each Colonial Financial common share, subject to proration to ensure that in the aggregate 50% of Colonial Financial’s common shares will be converted into Cape common stock. In the event that Colonial Financial’s consolidated net book value at the month-end prior to the closing date is less than $63.1 million, the cash consideration will be reduced by an amount as determined by a formula included in the Merger Agreement. Consolidated Net Book Value is defined in the Merger Agreement as the unaudited consolidated net common stockholders’ equity of Colonial Financial as of the month-end prior to the closing date of the Merger (i) excluding the effect of the after-tax impact of any negative provision for loan and lease losses for the period between June 30, 2014 and the month-end prior to the closing date, (ii) excluding the effect of expenses incurred by Colonial Financial in connection with the Merger Agreement, and (iii) excluding the effect of any changes of accumulated other comprehensive income between June 30, 2014 and the month-end prior to the closing date.

If Cape declares a stock dividend or distribution on shares of its common stock or subdivides, splits, reclassifies or combines the shares of Cape common stock prior to the effective time of the Merger, then the exchange ratio will be adjusted to provide Colonial Financial stockholders with the same economic benefit as contemplated by the Merger Agreement prior to any of these events.

Colonial Financial stockholders will not receive fractional shares of Cape common stock. Instead, Colonial Financial stockholders will receive a cash payment for any fractional shares in an amount equal to the product of (i) the fraction of a share of Cape common stock to which such stockholder is entitled multiplied by (ii) the average closing price of Cape common stock during the ten consecutive trading days immediately preceding the closing date of the Merger.

At the effective time of the Merger, each option to purchase shares of Colonial Financial common stock that was granted under the Colonial Bankshares, Inc. 2006 Stock-Based Incentive Plan will cease to represent an option to purchase Colonial Financial common stock and will be converted automatically into the right to receive cash equal to the amount by which $14.50 exceeds the option exercise price. At the effective time of the Merger, (i) each vested option to purchase Colonial Financial common stock that was granted under the Colonial Financial Services, Inc. 2011 Equity Incentive Plan (the “2011 Equity Incentive Plan”) will convert into the right to receive cash equal to the amount by which $14.50 exceeds the option exercise price, and (ii) each unvested option to purchase Colonial Financial common stock that was granted under the 2011 Equity Incentive Plan will convert into the right to receive cash equal to the amount by which $14.50 exceeds the option exercise price, provided that such acceleration of the vesting period receives any required regulatory approval or non-objection. If required regulatory approval or non-objection is not received, unvested stock options under the 2011 Equity Incentive Plan will convert into unvested Cape stock options according to the following formula: (i) the number of shares of Cape common stock purchasable upon exercise of such stock option will equal the product obtained by multiplying (x) the number of shares of Colonial Financial common stock that was purchasable under such stock option immediately prior to the effective time by (y) the exchange ratio (rounded down to the nearest whole share), and (ii) the per share exercise price for each such stock option will equal the quotient obtained by dividing (x) the per share exercise price of the Colonial Financial stock option by (y) the exchange ratio (rounded down to the nearest cent).

At the effective time of the Merger, each outstanding Colonial Financial restricted share that was granted under the Colonial Bankshares, Inc. 2006 Stock-Based Plan will become fully vested and convert into the right to receive 1.412 shares of Cape common stock. Subject to applicable regulatory approvals or non-objections, each outstanding Colonial Financial restricted share that was granted under the 2011 Equity Incentive Plan will become fully vested and will convert into the right to receive 1.412 shares of Cape common stock. In the event that regulatory approval to accelerate the vesting of shares under the 2011 Equity Incentive Plan is not received, the restricted stock granted pursuant to the 2011 Equity Incentive Plan will continue to vest in accordance with the terms of the plan.

Colonial Financial stockholders will receive instructions from the transfer agent on where to surrender their Colonial Financial stock certificates after the Merger is completed. Colonial Financial stockholders should not forward their Colonial Financial stock certificates with their proxy cards.

In accordance with current accounting guidance, the Merger will be accounted for using the acquisition method. The result of this is that the recorded assets and liabilities of Cape will be carried forward at their recorded amounts, the historical operating results will be unchanged for the prior periods being reported on and the assets and liabilities of Colonial Financial will be adjusted to fair value at the date of the Merger. In addition, all identified intangible assets will be recorded at fair value and included as part of the net assets acquired. To the extent that the

purchase price, consisting of cash plus the number of shares of Cape common stock to be issued to Colonial Financial stockholders and option holders at fair value, exceeds the fair value of the net assets including identifiable intangibles of Colonial Financial at the merger date, that amount will be reported as goodwill. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. Identified intangibles will be amortized over their estimated lives. Further, the acquisition method of accounting results in the operating results of Colonial Financial being included in the operating results of Cape beginning from the date of completion of the Merger.

General. The following summary discusses the material anticipated U.S. federal income tax consequences of the Merger applicable to a holder of shares of Colonial Financial common stock who surrenders all of the stockholder’s common stock for shares of Cape common stock and/or cash in the Merger. This discussion is based upon the Internal Revenue Code, Treasury Regulations, judicial authorities, published positions of the Internal Revenue Service (“IRS”), and other applicable authorities, all as in effect on the date of this document and all of which are subject to change or differing interpretations (possibly with retroactive effect). This discussion is limited to U.S. residents and citizens who hold their shares as capital assets for U.S. federal income tax purposes (generally, assets held for investment). This discussion does not cover all U.S. federal income tax consequences of the Merger and related transactions that may be relevant to holders of shares of Colonial Financial common stock. This discussion also does not address all of the tax consequences that may be relevant to a particular person or the tax consequences that may be relevant to persons subject to special treatment under U.S. federal income tax laws (including, among others, tax-exempt organizations, dealers in securities or foreign currencies, banks, insurance companies, financial institutions or persons who hold their shares of Colonial Financial common stock as part of a hedge, straddle, constructive sale or conversion transaction, persons whose functional currency is not the U.S. dollar, persons that are, or hold their shares of Colonial Financial common stock through, partnerships or other pass-through entities, or persons who acquired their shares of Colonial Financial common stock through the exercise of an employee stock option or otherwise as compensation). In addition, this discussion does not address any aspects of state, local, non-U.S. taxation or U.S. federal taxation other than income taxation. No ruling has been requested from the IRS regarding the U.S. federal income tax consequences of the Merger. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the U.S. federal income tax consequences set forth below.

Colonial Financial stockholders are urged to consult their tax advisors as to the U.S. federal income tax consequences of the Merger, as well as the effects of state, local, non-U.S. tax laws and U.S. tax laws other than income tax laws.

Opinion Conditions. It is a condition to the obligations of Cape and Colonial Financial that both receive an opinion by Luse Gorman Pomerenk & Schick to the effect that the Merger will constitute a “reorganization” for U.S. federal income tax purposes within the meaning of Section 368(a) of the Internal Revenue Code. Cape and Colonial Financial both expect to be able to obtain the tax opinions if, as expected:

The opinion of Luse Gorman Pomerenk & Schick will not be binding on the IRS or any court.

In addition, in connection with the filing of the registration statement of which this Joint Proxy Statement/Prospectus forms a part, Luse Gorman Pomerenk & Schick has delivered its opinion to Cape, dated as of the date of this Joint Proxy Statement/Prospectus, that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Such opinion has been rendered on the basis of facts, representations and assumptions set forth or referred to in such opinion and factual representations contained in certificates of officers of Cape and Colonial Financial, all of which must continue to be true and accurate in all material respects as of the effective time of the Merger.

If any of the representations or assumptions upon which the opinion is based are inconsistent with the actual facts, the tax consequences of the Merger could be adversely affected. The determination by tax counsel as to whether the proposed Merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code will depend upon the facts and law existing at the effective time of the proposed Merger. The following discussion assumes that the Merger will constitute a “reorganization” for U.S. federal income tax purposes within the meaning of Section 368(a) of the Internal Revenue Code.

Exchange Solely for Cape Common Stock. No gain or loss will be recognized by a Colonial Financial stockholder who receives solely shares of Cape common stock (except for cash received in lieu of fractional shares, as discussed below) in exchange for all of his or her shares of Colonial Financial common stock. The tax basis of the shares of Cape common stock received by a Colonial Financial stockholder in such exchange will be equal (except for the basis attributable to any fractional shares of Cape common stock, as discussed below) to the basis of the Colonial Financial common stock surrendered in exchange for the Cape common stock. The holding period of the Cape common stock received will include the holding period of shares of Colonial Financial common stock surrendered in exchange for the Cape common stock, provided that such shares were held as capital assets of the Colonial Financial stockholder at the effective time of the Merger.

Exchange Solely for Cash. A Colonial Financial stockholder who receives solely cash in exchange for all of his or her shares of Colonial Financial common stock (and is not treated as constructively owning Cape common stock after the Merger under the circumstances referred to below under “—Possible Dividend Treatment”) will recognize a gain or loss for federal income tax purposes equal to the difference between the cash received and such stockholder’s tax basis in the Colonial Financial common stock surrendered in exchange for the cash. Such gain or loss will be a capital gain or loss, provided that such shares were held as capital assets of the Colonial Financial stockholder at the effective time of the Merger. Such gain or loss will be long-term capital gain or loss if the Colonial Financial stockholder’s holding period is more than one year at the effective time of the Merger. The Internal Revenue Code contains limitations on the extent to which a taxpayer may deduct capital losses from ordinary income.

Exchange for Cape Common Stock and Cash. A Colonial Financial stockholder who receives a combination of Cape common stock and cash in exchange for his or her Colonial Financial common stock will not be permitted to recognize any loss for federal income tax purposes. Such a stockholder will recognize gain, if any, equal to the lesser of (1) the amount of cash received or (2) the amount of gain “realized” in the transaction. The amount of gain a Colonial Financial stockholder “realizes” will equal the amount by which (a) the cash plus the fair market value at the effective time of the Merger of Cape common stock received exceeds (b) the stockholder’s basis in the Colonial Financial common stock to be surrendered in the exchange for the cash and Cape common stock. Any recognized gain could be taxed as a capital gain or a dividend, as described below. The tax basis of the shares of Cape common stock received by such Colonial Financial stockholder will be the same as the basis of the shares of Colonial Financial common stock surrendered in exchange for the shares of Cape common stock, adjusted as provided in Section 368(a) of the Internal Revenue Code for the gain recognized and/or cash received in exchange for Colonial Financial common stock. If a Colonial Financial stockholder purchased or acquired Colonial Financial common stock on different dates or at different prices, then solely for purposes of determining the basis of the Cape common stock received in the Merger, such stockholder may designate which share of Cape common stock is received in exchange for each particular share of Colonial Financial common stock. The holding period for shares of Cape common stock received by such Colonial Financial stockholder will include such stockholder’s holding period for the Colonial Financial common stock surrendered in exchange for the Cape common stock, provided that such shares were held as capital assets of the stockholder at the effective time of the Merger.

A Colonial Financial stockholder’s federal income tax consequences will also depend on whether his or her shares of Colonial Financial common stock were purchased at different times at different prices. If they were, the Colonial Financial stockholder could realize gain with respect to some of the shares of Colonial Financial common stock and loss with respect to other shares. Such Colonial Financial stockholder would have to recognize such gain to the extent such stockholder receives cash with respect to those shares in which the stockholder’s adjusted tax basis is less than the amount of cash plus the fair market value at the effective time of the Merger of the Cape common stock received, but could not recognize loss with respect to those shares in which the Colonial Financial stockholder’s adjusted tax basis is greater than the amount of cash plus the fair market value at the effective time of the Merger of the Cape common stock received. Any disallowed loss would be included in the adjusted basis of the

Cape common stock. Such a Colonial Financial stockholder is urged to consult his or her own tax advisor respecting the tax consequences of the Merger to that stockholder.

Possible Dividend Treatment. In certain circumstances, a Colonial Financial stockholder who receives solely cash or a combination of cash and Cape common stock in the Merger may receive ordinary income, rather than capital gain, treatment on all or a portion of the gain recognized by that stockholder if the receipt of cash “has the effect of the distribution of a dividend.” The determination of whether a cash payment has such effect is based on a comparison of the Colonial Financial stockholder’s proportionate interest in Cape after the Merger with the proportionate interest the stockholder would have had if the stockholder had received solely Cape common stock in the Merger. This could happen because of the stockholder’s purchase (or the purchase by a family member) of additional Cape common stock or a repurchase of shares by Cape. For purposes of this comparison, the Colonial Financial stockholder may be deemed to constructively own shares of Cape common stock held by certain members of the stockholder’s family or certain entities in which the stockholder has an ownership or beneficial interest and certain stock options may be aggregated with the stockholder’s shares of Cape common stock. The amount of the cash payment that may be treated as a dividend is limited to the stockholder’s ratable share of the accumulated earnings and profits of Colonial Financial at the effective time of the Merger. Any gain that is not treated as a dividend will be taxed as a capital gain, provided that the stockholder’s shares were held as capital assets at the effective time of the Merger. Because the determination of whether a cash payment will be treated as having the effect of a dividend depends primarily upon the facts and circumstances of each Colonial Financial stockholder, stockholders are urged to consult their own tax advisors regarding the tax treatment of any cash received in the Merger.

Cash in Lieu of Fractional Shares. A Colonial Financial stockholder who holds Colonial Financial common stock as a capital asset and who receives in the Merger, in exchange for such stock, solely Cape common stock and cash in lieu of a fractional share interest in Cape common stock will be treated as having received such cash in full payment for such fractional share of stock and as capital gain or loss, notwithstanding the dividend rules discussed above.

Backup Withholding. Unless an exemption applies under the backup withholding rules of Section 3406 of the Internal Revenue Code, the exchange agent shall be required to withhold, and will withhold, 28% of any cash payments to which a Colonial Financial stockholder is entitled pursuant to the Merger, unless the Colonial Financial stockholder signs the substitute Internal Revenue Service Form W-9 enclosed with the letter of transmittal sent by the exchange agent. Unless an applicable exemption exists and is proved in a manner satisfactory to the exchange agent, this completed form provides the information, including the Colonial Financial stockholder’s taxpayer identification number, and certification necessary to avoid backup withholding.

Tax Treatment of the Entities. No gain or loss will be recognized by Cape or Colonial Financial as a result of the Merger.

Completion of the Merger is subject to the receipt of all required approvals and consents from regulatory authorities. The Merger is subject to approval by the FDIC, the New Jersey Department of Banking and Insurance (the “Department”) and the Federal Reserve. Cape has filed the required applications and notifications.

Bank Merger. The bank merger is subject to the approval of the FDIC under the Bank Merger Act and the Department under applicable New Jersey law. In granting its approval under the Bank Merger Act, the FDIC must consider the financial and managerial resources and future prospects of the existing and resulting institutions, the convenience and needs of the communities to be served, competitive factors, any risk to the stability of the United States banking or financial system and the effectiveness of the institutions involved in combating money laundering activities. The Department follows criteria similar to those used by the FDIC.

Holding Company Merger. The merger of Colonial Financial with and into Cape, with Cape as the surviving savings and loan holding company, requires the approval or non-objection of the Federal Reserve. The Federal Reserve will consider factors such as financial and managerial resources, future prospects, the convenience and needs of the community and competitive factors.

Anti-Competitive Matters. In addition, a period of 15 to 30 days must expire following approval by the FDIC before completion of the Merger is allowed, within which period the United States Department of Justice may file objections to the Merger under the federal antitrust laws. While Cape and Colonial Financial believe that the likelihood of objection to the Merger by the Department of Justice is remote, there can be no assurance that the Department of Justice will not initiate proceedings to block the Merger, or that the Attorney General of the State of New Jersey will not challenge the Merger, or if any proceeding is instituted or challenge is made, what the result of such challenge or proceeding would be.

The Merger cannot proceed in the absence of the requisite regulatory approvals. See “Approval of the Merger Agreement—Conditions to Completing the Merger” and “—Terminating the Merger Agreement.” There can be no assurance that the requisite regulatory approvals will be obtained, and if obtained, there can be no assurance as to the date of any approval. There also can be no assurance that any regulatory approvals will not contain a condition or requirement that causes the approvals to fail to satisfy one or more conditions set forth in the Merger Agreement and described under “Approval of the Merger Agreement—Conditions to Completing the Merger.” In recent similar transactions, the Federal Reserve has taken a longer time to render a decision on applications than the typical time period for approval set forth in the Federal Reserve’s regulations.

The approval of any application merely implies the satisfaction of regulatory criteria for approval, which does not include review of the Merger from the standpoint of the adequacy of the exchange ratio for converting Colonial Financial common stock to Cape common stock. Furthermore, regulatory approvals do not constitute an endorsement or recommendation with respect to the Merger.

The discussion below regarding “Interests of Certain Person in the Merger that are Different from Yours,” is qualified in its entirety by the requirement that any payments to Colonial Bank or Colonial Financial employees and directors are subject to the FDIC “golden parachute rules” which restrict severance payments or acceleration or enhancement of benefit payments to such persons due to Colonial Bank having been designated “in troubled condition” on May 30, 2013 by the OCC, its primary federal regulator. Because Colonial Bank has been designated “in troubled condition,” severance payments to officers and directors are generally limited under the golden parachute rules to no more than one times such person’s base salary, subject to the approval or non-objection of the OCC and the FDIC, and based on certifications that the individual receiving the payment is not substantially responsible for Colonial Bank’s status as having been designated “in troubled condition.” Although payments to employees and directors are subject to these restrictions, the discussion below describes the payments that would be made under the various agreements, plans and arrangements without regard to the FDIC golden parachute rules.

The Colonial Financial board of directors has determined that it will not seek regulatory approval to make any golden parachute payments to any director or to any of the named executive officers (Messrs. Edward J. Geletka, L. Joseph Stella, III, or William F. Whalen) or Mr. Joseph Sidebotham, the controller of Colonial Bank. Accordingly, unless a director or one of the above-named officers seeks and obtains regulatory approval for Colonial Financial or Cape to make such payment, the actual payments to such persons may be significantly lower than as described below or no payments may actually be made.

Share Ownership. On the record date for the Colonial Financial special meeting, Colonial Financial’s directors and officers beneficially owned, in the aggregate, ________ shares of Colonial Financial’s common stock, representing approximately ___% of the outstanding shares of Colonial Financial common stock.

As described below, certain of Colonial Financial’s officers and directors have interests in the Merger that are in addition to, or different from, the interests of Colonial Financial’s stockholders generally. Colonial Financial’s board of directors was aware of these potential conflicts of interest and took them into account in approving the Merger. These interests include the following arrangements:

Outstanding Options. At the effective time of the Merger, each option to purchase shares of Colonial Financial common stock, that was granted under the Colonial Bankshares, Inc. 2006 Stock-Based Incentive Plan will cease to represent an option to purchase Colonial Financial common stock and will be converted automatically into the right to receive cash equal to the amount by which $14.50 exceeds the option exercise price multiplied by

the number of shares represented by such option. At the effective time of the Merger, (i) each vested option to purchase Colonial Financial common stock that was granted under the Colonial Financial Services, Inc. 2011 Equity Incentive Plan (the “2011 Equity Incentive Plan”) will convert into the right to receive cash equal to the amount by which $14.50 exceeds the option exercise price multiplied by the number of shares represented by such option, and (ii) each unvested option to purchase Colonial Financial common stock that was granted under the 2011 Equity Incentive Plan will convert into the right to receive cash equal to the amount by which $14.50 exceeds the option exercise price multiplied by the number of shares represented by such option, provided that such acceleration of the vesting period receives regulatory approval or non-objection. If regulatory approval or non-objection to accelerate the vesting of stock options under the 2011 Equity Incentive Plan is not received, unvested stock options under the 2011 Equity Incentive Plan will convert into unvested Cape stock options according to the following formula: (i) the number of shares of Cape common stock purchasable upon exercise of such stock option will equal the product obtained by multiplying (x) the number of share of Colonial Financial common stock that was purchasable under such stock option immediately prior to the effective time by (y) the exchange ratio (rounded down to the nearest whole share) and (ii) the per share exercise price for each such stock option will equal the quotient obtained by dividing (x) the per share exercise price of the Colonial Financial stock option by (y) the exchange ratio (rounded down to the nearest cent).

Acceleration of Vesting of Restricted Stock Awards. At the effective time of the Merger, each outstanding Colonial Financial restricted share that was granted under the Colonial Bankshares, Inc. 2006 Stock-Based Plan will become fully vested and convert into the right to receive 1.412 shares of Cape common stock. Subject to applicable regulatory approvals or non-objections, each outstanding and unvested Colonial Financial restricted share that was granted under the 2011 Equity Incentive Plan will convert into the right to receive 1.412 shares of Cape common stock. In the event that regulatory approval or non-objection to accelerate the vesting of shares under the 2011 Equity Incentive Plan is not received, the unvested restricted stock granted pursuant to the 2011 Equity Incentive Plan will continue to vest in accordance with the terms of the plan.

Employment Agreements with Colonial Financial. Cape has agreed to honor the contractual terms of all Colonial Financial or Colonial Bank employment, consulting or change in control agreements, subject to any regulatory approvals, non-objections or limitations that may be necessary or applicable under the FDIC golden parachute rules applicable to institutions that have been designated “in troubled condition.” The following named executive officers of Colonial Bank have employment agreements with Colonial Bank: L. Joseph Stella, Executive

Vice President and Chief Financial Officer; and William Whelan, Executive Vice President and Chief Operating Officer. These employment agreements provide a severance benefit on termination without cause or for good reason following a change in control equal to two times the base salary and highest rate of bonus awarded during the prior three years. On November 18, 2013, the board notified each of the executives that their agreements were not being renewed. Accordingly, the agreements for Messrs. Stella and Whelan will continue through December 31, 2014. If the change in control does not occur prior to December 31, 2014, neither Mr. Stella nor Mr. Whelan will be parties to an employment agreement at the time of the change in control. Accordingly, any severance benefit to which they might be entitled, subject to regulatory approval of non-objection would be paid under the severance provisions for employees generally. Mr. Edward J. Geletka, the President and Chief Executive Officer of Colonial Bank, is also a party to an employment agreement with Colonial Bank, however, his employment agreement does not provide for any severance payments in the event of his termination of employment.

Two New Directors. In accordance with the Merger Agreement, Gregory J. Facemyer and Hugh J. McCaffrey will be appointed to the Cape and Cape Banks boards of directors at the consummation of the Merger. The fees paid to these directors will be the same as similarly situated board members of Cape and Cape Bank.

Nonqualified Deferred Compensation Plans. Colonial Bank maintains a 2011 Executive Retirement Incentive Plan in which its named executive officers participate. Under the plan, participants may receive annual incentive awards of deferred compensation based on satisfaction of pre-determined goals, however, no grants were made in 2012 or 2013. Each grant vests at the rate of 20% per year but all grants become 100% vested on the occurrence of a change in control. As a result of the change in control, Messrs. Geletka, Stella and Whelan will vest in $24,982, $16,527 and $15,489 under the 2011 Executive Retirement Plan. In accordance with the terms of the plan, such payments will be paid in a lump sum on the effective date of the change in control, provided, however, that such payments are subject to regulatory approval or non-objection (including “non-objection” because the OCC and FDIC determine that the payments will not be considered subject to the FDIC golden parachute rules).

In addition, Colonial Bank sponsors two director plans - a 2011 Director Deferred Fee Plan and a Director Retirement Plan. The 2011 Director Deferred Fee Plan provides directors the opportunity to defer all or a portion of their director’s fees and is fully vested at all times. In connection with the Merger, Colonial Bank has agreed to terminate the 2011 Director Deferred Fee Plan, if requested, and to distribute the account balances in a lump sum to the participants. The Director Retirement Plan provides each director that has 20 years of service with a benefit equal to 50% of the director’s final three-year average compensation payable in ten installments. A director begins to vest in a benefit after ten years of service at the rate of 10% per year, however, in the event of a change in control, each director will be entitled to the normal retirement benefit, irrespective of the director’s years of service. Colonial has agreed that one day prior to the effective time of the Merger, it will freeze the accrued benefits under the Director Retirement Plan and pay solely such accrued benefit, in lieu of any other benefit, in a lump sum at the time effective time of the Merger. Such payments are subject to regulatory approval or non-objection (including “non-objection” because the OCC and FDIC determine that the payments will not be considered subject to the FDIC golden parachute rules). Assuming regulatory approval or non-objection is received, the following directors will receive lump sum payments from the Director Retirement Plan in the amounts set forth: Mr. Facemyer will receive $81,264; Mr. Fitzpatrick will receive $40,971; Mr. McCaffrey will receive $59,290; and Mr. Bailey will receive $50,431.

Employee Stock Ownership Plan. The Colonial Bank ESOP is a tax-qualified plan that covers substantially all of the employees of Colonial Bank who have at least one year of service and have attained age 21. The Colonial Bank ESOP received a share acquisition loan from Colonial Financial, the proceeds of which were used to acquire shares of Colonial Financial common stock for the benefit of plan participants. The Colonial Bank ESOP has pledged the shares acquired with the loan as collateral for the loan and holds them in a suspense account, releasing them to participants’ accounts as the loan is repaid, using contributions received from Colonial Bank. Prior to the effective time of the Merger, the outstanding share acquisition loan of the Colonial Bank ESOP will be repaid by the Colonial Bank ESOP by delivering a sufficient number of unallocated shares of Colonial Financial common stock to Colonial Financial. Any unallocated shares remaining in the suspense account (after the repayment of the outstanding share acquisition loan) will be allocated to the plan participants. As of the effective time of the Merger, the Colonial Bank ESOP will be terminated and all allocated shares of Colonial Financial common stock held by the Colonial Bank ESOP will be converted into shares of Cape common stock pursuant to the exchange ratio.

As a result of the foregoing, Colonial Bank’s executive officers, as well as Colonial Bank’s other employees who participate in the Colonial Bank ESOP, would receive an estimated benefit in connection with the Colonial Bank ESOP’s termination to the extent that the stock price of Colonial Financial common stock multiplied by the number of shares held in the suspense account exceeds the outstanding loan used to acquire those shares. Based on account balances as of December 31, 2013, and a stock price of $14.50, the estimated value of the additional benefit that would be payable to the executive officers under the Colonial Bank ESOP upon the effective time of the Merger is as follows: Mr. Geletka, $36,758, Mr. Stella, $25,685 and Mr. Whelan, $22,446.

Indemnification. Pursuant to the Merger Agreement, Cape has agreed that it will indemnify, defend and hold harmless each present and former officer, director or employee of Colonial Financial and its subsidiary (as defined in the Merger Agreement) against all losses, claims, damages, costs, expenses (including attorney’s fees), liabilities, judgments and amounts that are paid in settlement (with the approval of Cape, which approval shall not be unreasonably withheld) of or in connection with any claim, action, suit, proceeding or investigation, based in whole or in part on, or arising in whole or in part out of, the fact that such person is or was a director, officer or employee of Colonial Financial or its subsidiary if such claim pertains to any matter of fact arising, existing or occurring at or before the closing date (including, without limitation, the Merger and other transactions contemplated thereby), regardless of whether such claim is asserted or claimed before or after the effective time.

Directors’ and Officers’ Insurance. Cape has further agreed, for a period of six years after the effective date, to cause the persons serving as officers and directors of Colonial Financial immediately prior to the effective date to continue to be covered by Colonial Financial’s current directors’ and officers’ liability insurance policy (provided that Cape may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are substantially no less advantageous than such policy) with respect to acts or omissions occurring prior to the effective date which were committed by such officers and directors in their capacity as such. Cape is not required to spend more than 175% of the annual cost currently incurred by Colonial Financial for its insurance coverage.

Merger-Related Executive Compensation for Colonial Financial’s Named Executive Officers.

The table below sets forth the estimated aggregate dollar value of various elements of Merger-related executive compensation that each of Colonial Financial’s named executive officers would receive that is based on or otherwise related to the Merger. This table does not include the value of benefits that the named executive officers are vested in without regard to the occurrence of a change in control. This table assumes the following:

As discussed above, Colonial Financial is prohibited from making certain of these payments without the prior approval or non-objection of the OCC, FDIC and, to the extent applicable, the Federal Reserve, including a non-objection because the OCC and FDIC, and to the extent applicable, the Federal Reserve, determine that the payments will not be considered subject to the FDIC golden parachute rules. Colonial Financial and Colonial Bank have determined not to file a certification, permitted under the FDIC golden parachute rules, with the primary federal regulators and the FDIC seeking approval or non-objection for any payments payable to named executive officers or directors because such certifications would require, among other things, that Colonial Financial or Colonial Bank, as applicable, certify that such that such persons are not substantially responsible for the troubled condition of Colonial Bank. However, Colonial Financial and/or Colonial Bank, as applicable, will seek

clarification from its primary federal regulator and the FDIC as to whether certain payments will be considered subject to the FDIC golden parachute rules, and if no objection is made to any such payment, such payment will be made. With respect to payments that are subject to the FDIC golden parachute rules, unless a named executive officer or director submits an individual application seeking regulatory approval for Colonial Financial or Cape to make a golden parachute payment subject to such person, and obtains approval or non-objection for such payment, the actual payments to such persons may be significantly lower than as shown in the table.

As a result of the foregoing assumptions, the actual amounts received by a named executive officer may materially differ from the amounts set forth below

Each person who is an employee of Colonial Bank as of the closing of the Merger (whose employment is not specifically terminated upon the closing) will become an employee of Cape Bank and will be eligible to participate in group health, medical, dental, life, disability and other welfare plans available to similarly situated employees of Cape on the same basis that it provides such coverage to Cape employees. With respect to any welfare plan or program of Colonial Financial that Cape determines provides benefits of the same type as a plan maintained

by Cape, Cape will continue the Colonial Financial plan until such employees become eligible for the Cape plan so that there is no gap in coverage. Cape will give credit to continuing Colonial Financial employees for purposes of Cape’s vacation and other paid leave programs for their accrued and unpaid vacation and/or leave balance with Colonial Financial.

The Colonial Financial 401(k) Plan will terminate immediately prior to the effective date of the Merger. Current employees of Colonial Bank who remain employed until the closing date will be eligible to participate in the Cape 401(k) plan following the termination date of the Colonial Financial 401(k) Plan. The Colonial Financial employee stock ownership plan (ESOP) will terminate immediately prior to the effective date of the Merger. At that time, the ESOP will repay the outstanding ESOP loan from the unallocated shares held in the ESOP and the remaining unallocated shares will be allocated to the accounts of individuals in the ESOP as provided in the ESOP. The balance of the shares and any other assets remaining in the ESOP will be distributed to ESOP participants after the receipt of a favorable determination letter from the Internal Revenue Service.

Subject to applicable regulatory approval or non-objections, Cape will pay severance benefits to each employee of Colonial Financial who is not otherwise a party to an employment agreement or change in control agreement whose employment is terminated (other than for cause) at the effective time or within six months following the effective time of the Merger or who is not offered employment with Cape or resigns for good reason. Such severance benefit will equal six weeks of base salary and one month of coverage under the health care plan for non-officers (who were covered by a Colonial or Cape health plan at the time of termination) and eight weeks of base salary and two months of coverage under the health care plan for officers (who were covered by a Colonial or Cape health plan at the time of termination).

Under the Merger Agreement, Colonial Financial is entitled to pay retention bonuses to certain employees of Colonial Financial, which bonuses shall not exceed $100,000 in the aggregate or more than $30,000 to any individual, subject to any applicable regulatory approvals or non-objections that Cape may consider necessary.

The Merger Agreement provides for the merger of Colonial Financial with and into Cape, with Cape as the surviving entity. Following the merger of Colonial Financial with and into Cape, Cape intends to merge Colonial Bank with and into Cape Bank. The executive officers of Cape Bank will remain the same following the Merger, and two directors of Colonial Bank will be added to the Cape Bank board of directors.

Upon completion of the Merger, depositors of Colonial Bank will become depositors of Cape Bank. In 2010, Colonial Financial and Colonial Bank established liquidation accounts to provide certain depositors of Colonial Bank a liquidation interest after the conversion of Colonial Bankshares, MHC, in the event of a liquidation of Colonial Financial and Colonial Bank or a liquidation solely of Colonial Bank. Specifically, in the unlikely event that either (i) Colonial Bank or (ii) Colonial Financial and Colonial Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by a distribution to depositors of Colonial Bank as of January 31, 2009 and March 31, 2010 of their interests in the liquidation account maintained by Colonial Financial.

Under the rules and regulations of the Federal Reserve, as the successor regulator to the Office of Thrift Supervision, a post-conversion merger, consolidation, or similar combination or transaction with another depository institution or depository institution holding company in which Colonial Financial or Colonial Bank is not the surviving institution would not be considered a liquidation. In such a transaction, the liquidation account would be assumed by the surviving institution. Accordingly, Cape and Cape Bank, as the surviving institutions following the Merger, are required by federal banking law to establish liquidation accounts for the benefit of certain former Colonial Bank depositors who will remain depositors of Cape Bank.

Each Colonial Bank depositor with a deposit account of $50 or more held in Colonial Bank as of January 31, 2009 or March 31, 2010 who has continued to maintain such deposit account with Colonial Bank and who

continues to maintain such deposit account with Cape Bank following the completion of the Merger has an interest in the liquidation accounts. The liquidation accounts will never increase and may decrease based if the balance in the deposit account as of December 31 is less than the deposit account balance on January 31, 2009 or March 31, 2010.

Approval of the Merger Agreement and the Merger by Cape stockholders will include the approval of the establishment of the liquidation accounts in Cape and Cape Bank for the benefit of the above-referenced Colonial Bank depositors, which will occur by operation of law upon completion of the Merger.

All shares of Cape common stock issued to Colonial Financial’s stockholders in connection with the Merger will be freely transferable. This Joint Proxy Statement/Prospectus does not cover any resales of the shares of Cape common stock to be received by Colonial Financial’s stockholders upon completion of the Merger, and no person may use this Joint Proxy Statement/Prospectus in connection with any resale.

Unless the parties agree otherwise and unless the Merger Agreement has otherwise been terminated, the closing of the Merger will take place on a date designated by Cape that is no later than 10 business days following the date on which all of the conditions to the Merger contained in the Merger Agreement are satisfied or waived. See “—Conditions to Completing the Merger.” On the closing date, Cape will file Articles of Merger with the Maryland Secretary of State to merge Colonial Financial into Cape. The Merger will become effective at the time stated in the Articles of Merger.

Cape and Colonial Financial are working to complete the Merger quickly. It is currently expected that the Merger will be completed during the first half of 2015. However, because completion of the Merger is subject to regulatory approvals and other conditions, the parties cannot be certain of the actual timing of the completion of the Merger.

Cape’s and Colonial Financial’s obligations to consummate the Merger are conditioned on the following:

In addition, Cape’s obligations to consummate the Merger are conditioned on the following:

In addition, Colonial Financial’s obligations to consummate the Merger are conditioned on the following:

Cape and Colonial Financial cannot guarantee that all of the conditions to the Merger will be satisfied or waived by the party permitted to do so.

Colonial Financial has agreed that, until completion of the Merger and unless permitted by Cape, neither it nor its subsidiaries will:

Cape has agreed that, until the completion of the Merger and unless permitted by Colonial Financial, it will not:

Agreement Not to Solicit Other Proposals. Colonial Financial and its officers, directors, employees and representatives have agreed not to: (1) solicit, initiate, or knowingly encourage any acquisition proposal by a third party; (2) participate in discussions or negotiations regarding an acquisition proposal; (3) release any person from provisions of, waive, or fail to enforce any confidentiality agreement or standstill agreement; or (4) enter into any agreement that constitutes an acquisition proposal. An acquisition proposal includes the following:

Despite the agreement of Colonial Financial not to solicit other acquisition proposals, Colonial Financial may generally negotiate or have discussions with, or provide information to, a third party who makes an unsolicited, written, bona fide acquisition proposal, provided that the Colonial Financial board of directors:

If Colonial Financial receives an acquisition proposal or information request from a third party or enters into negotiations with a third party regarding a superior proposal, Colonial Financial must promptly notify Cape within 24 hours and provide Cape with information about the third party and its proposal.

Certain Other Covenants. The Merger Agreement also contains other agreements relating to the conduct of Cape and Colonial Financial before consummation of the Merger, including the following:

Representations and Warranties Made by Cape and Colonial Financial in the Merger Agreement

Cape and Colonial Financial have made certain customary representations and warranties to each other in the Merger Agreement relating to their businesses. For information on these representations and warranties, please refer to the Merger Agreement attached as Appendix A. The representations and warranties must be true in all material respects through the completion of the Merger unless the change does not have a material adverse effect on the parties’ business, financial condition or results of operations. See “—Conditions to Completing the Merger.”

The representations and warranties contained in the Merger Agreement were made only for purposes of such agreement and are made as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed to by Cape or Colonial Financial, including being qualified by disclosures between the parties. These representations and warranties may have been made for the purpose of allocating risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality that differ from the standard of materiality that an investor may apply when reviewing statements of factual information.

Each of Cape and Colonial Financial has made representations and warranties to the other regarding, among other things:

In addition, Colonial Financial has made other representations and warranties about itself to Cape as to:

The representations and warranties of each of Cape and Colonial Financial will expire upon the effective time of the Merger.

The Merger Agreement may be terminated at any time before the completion of the Merger, either before or after approval of the Merger Agreement by Colonial Financial or Cape stockholders, as follows:

Additionally, Colonial Financial may terminate the Merger Agreement if, at any time during the five-day period commencing on the first date on which all bank regulatory approvals (and waivers, if applicable) necessary for consummation of the Merger have been received (disregarding any waiting period) (the “Determination Date”), both of the following conditions are satisfied:

If Colonial Financial elects to exercise its termination right as described above, it must give prompt written notice thereof to Cape. During the five business day period commencing with its receipt of such notice, Cape shall have the option to increase the consideration to be received by the holders of Colonial Financial common stock by adjusting the exchange ratio (calculated to the nearest one one-thousandth) to equal the lesser of (x) a number (rounded to the nearest one one-thousandth) obtained by dividing (A) the product of $10.06, 0.80 and 1.412 (as then in effect) by (B) the Average Closing Price (defined as the average daily closing price of Cape common stock for the 20 consecutive trading days preceding the tenth day prior to the closing date) and (y) a number (rounded to the nearest one one-thousandth) obtained by dividing (A) the product of the Index Ratio and 1.412 (as then in effect) by (B) the Cape Bancorp Ratio. If within such five business day period, Cape delivers written notice to Colonial Financial that it intends to proceed with the Merger by paying such additional consideration as contemplated by the preceding sentence, then no termination shall have occurred and this Agreement shall remain in full force and effect in accordance with its terms (except that the exchange ratio shall have been so modified as described herein and, thereafter, any reference in the Merger Agreement to “Stock Consideration” shall be deemed to refer to the Stock Consideration reflecting the Exchange Ratio as modified herein).

The Merger Agreement requires Colonial Financial to pay Cape a fee of $2.2 million if the Merger Agreement is terminated in certain circumstances that involve a competing offer. Specifically, Colonial Financial must pay the termination fee if Cape terminates the Merger Agreement as a result of a breach by Colonial Financial of its covenant regarding the solicitation of competing offers or its obligation to call a stockholders meeting or if Colonial Financial’s board of directors fails to recommend approval of the Merger or withdraws, qualifies, or revises its recommendation to approve the Merger.

Colonial Financial also must (i) pay the termination fee if Colonial Financial terminates the Merger Agreement because it has accepted a superior proposal or (ii) Colonial Financial enters into a definitive merger

agreement within one year of Cape terminating the Merger Agreement due to Colonial Financial’s breach of a representation, warranty or covenant or failure of Colonial Financial’s stockholders to approve the Merger Agreement after Colonial Financial’s receipt of a competing offer.

The Merger Agreement further requires Cape to pay Colonial Financial a fee of $2.2 million if Colonial Financial terminates the Merger Agreement because Cape’s board of directors fails to recommend approval of the Merger or withdraws, qualifies or revises its recommendation to approve the Merger.

Each of Cape and Colonial Financial will pay its own costs and expenses incurred in connection with the Merger. In the event that either Cape or Colonial Financial is required to take legal action to obtain the termination fee referenced above in connection with the termination of the Merger Agreement, the breaching party is obligated to pay all fees, costs, and other expenses incurred by the non-breaching party in connection with enforcing its legal right to the termination fee.

Before the completion of the Merger, Cape and Colonial Financial may agree to waive, amend or modify any provision of the Merger Agreement. However, after the vote by Colonial Financial stockholders, Cape and Colonial Financial may not make any amendment or modification that would reduce the amount or alter the kind of consideration to be received by Colonial Financial’s stockholders under the terms of the Merger Agreement.

Cape and Colonial Financial do not as a matter of course publicly disclose internal management forecasts or projections as to future financial performance due to the unpredictability of the underlying assumptions and estimates. However, in connection with their respective confirmatory due diligence, Cape requested, and Colonial Financial’s management provided, Cape and its financial advisors with certain non-public financial forecasts prepared by Colonial Financial’s management, and Colonial Financial requested, and Cape’s management provided, Colonial Financial and its financial advisors with, certain non-public financial forecasts prepared by Cape’s management.

Set forth below are the material financial forecasts that were provided by Colonial Financial to Cape and to the financial advisors to Colonial Financial and Cape:

Set forth below are the material financial forecasts that were provided by Cape to Colonial Financial and to the financial advisors to Cape and Colonial Financial:

The financial forecasts set forth above represent the projections prepared by Colonial Financial and delivered to Cape and prepared by Cape and delivered to Colonial Financial prior to the announcement of the Merger. At the time the financial forecasts were prepared, they represented the best estimates and judgments of the management teams of Colonial Financial and Cape, respectively, that prepared the forecasts in good faith. These financial forecasts cannot be relied on as necessarily predictive of actual future operating results, and no assurance can be given regarding future events. The projections represent Cape’s and Colonial Financial’s independent forecasts. The financial forecasts were not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information or published guidelines of the SEC regarding forward-looking statements and do not fully comply with generally accepted accounting principles in the United States (“GAAP”). Neither Colonial Financial nor Cape relied solely upon the projections disclosed above in determining whether to approve the Merger. Each of Cape and Colonial Financial engaged financial advisors which utilized financial information for Cape and Colonial Financial, as described in “Description of the Merger-Opinion of Colonial Financial Services, Inc.’s Financial Advisors – KBW’s Opinion,” “– FinPro’s Opinion,” and “– Opinion of Cape’s Financial Advisor,” which was different in some respects from the financial forecasts disclosed in the tables above, including the use by Colonial Financial’s financial advisors of assumed long-term earnings growth rates for Cape and Colonial Financial with respect to periods beyond 2015 of 5% per year, assumed long-term balance sheet growth rates for Cape and Colonial Financial with respect to periods beyond 2015 of 5% and 2%, respectively, per year, as well as publicly available consensus “street” estimates” of Cape for 2014 and 2015. In light of the foregoing, and considering that the Cape and Colonial Financial shareholder meetings will be held several months after the financial forecasts were prepared, as well as the uncertainties inherent in any financial forecasts, shareholders of Cape and Colonial Financial are cautioned not to rely on these financial forecasts as a predictor of future operating results or otherwise.

The estimates and assumptions underlying the financial forecasts of Colonial Financial and Cape involve assumptions and judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions. These estimates and assumptions may not be realized and are inherently subject to significant business, economic, competitive and regulatory uncertainties, including those risk factors detailed in the sections entitled “Risk Factors” and “Caution About Forward-Looking Statements”, all of which are difficult to predict and many of which are beyond the control of Colonial Financial and Cape and will be beyond the control of the combined company after the Merger. Estimates or projections of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. In addition, the financial forecasts prepared by Colonial Financial and Cape represent each company’s own evaluation of its future financial performance on a stand-alone basis, and without reference to transaction-related costs or benefits. Accordingly, actual results could vary materially from those presented in the financial forecasts, and actual value or future results could be significantly more or less favorable than what is suggested by the forecasts. The inclusion of these financial forecasts should not be interpreted as an indication that Colonial Financial or Cape considers this information to be necessarily predictive of actual future results, and this information should not be relied on for that purpose. Cape and its management did not participate in preparing, and do not express any view on, the Colonial Financial financial forecasts set forth above, or the assumptions underlying such financial forecasts. Colonial Financial and its management did not participate in preparing, and do not express any view on, the Cape financial forecasts set forth above, or the assumptions underlying such financial forecasts.

The prospective financial information of Colonial Financial and Cape included in this joint proxy statement and prospectus has been prepared by, and is the responsibility of, the management teams of Colonial Financial and Cape, respectively. Neither Colonial Financial’s or Cape’s auditors, nor any other independent registered public accounting firm, nor Colonial Financial’s or Cape’s financial advisors have examined, compiled or performed any

procedures with respect to these forecasts, nor have they expressed any opinion or any other form of assurance on this information or its achievability.

Neither Cape nor Colonial Financial intends to disclose publicly any update or other revision to these forecasts to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events or changes in general economic or industry conditions, even in the event that any or all of the underlying assumptions are shown to be in error.

The following summary describes the material terms of Cape’s capital stock and is subject to, and qualified by, Cape’s articles of incorporation and bylaws and applicable Maryland law. See “Where You Can Find More Information” as to how to obtain a copy of Cape’s articles of incorporation and bylaws.

Cape is currently authorized to issue 100,000,000 shares of common stock having a par value of $0.01 per share, and 50,000,000 shares of preferred stock having a par value of $0.01 per share. At [Cape Special Meeting Record Date], _________ shares of common stock were outstanding. At that date, no preferred shares were outstanding.

Dividends. Cape may pay dividends on its common stock if, after giving effect to such distribution, (i) it would be able to pay its indebtedness as the indebtedness comes due in the usual course of business or (ii) its total assets exceed the sum of its liabilities and the amount needed, if Cape were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference in the event of dissolution; provided, however, that even if Cape’s assets are less than the amount necessary to satisfy the requirement set forth in (ii) above, Cape may make a distribution from: (A) Cape’s net earnings for the fiscal year in which the distribution is made; (B) Cape’s net earnings for the preceding fiscal year; or (C) the sum of Cape’s net earnings for the preceding eight fiscal quarters. The holders of common stock of Cape will be entitled to receive and share equally in dividends as may be declared by Cape’s board of directors out of funds legally available therefor. If Cape issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends. The payment of dividends by Cape is also subject to limitations that are imposed by federal law, regulation and policy. The Federal Reserve has issued a policy statement providing that dividends should be paid only out of current earnings and only if Cape’s prospective rate of earnings retention is consistent with its capital needs, asset quality and overall financial condition. Federal regulatory guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or earnings retention is inconsistent with its capital needs and overall financial condition.

Voting Rights. Holders of common stock of Cape have exclusive voting rights in Cape. They elect Cape’s board of directors and act on other matters that are required to be presented to them under Maryland law or that are otherwise presented to them by the board of directors. Each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. However, any person who beneficially owns more than 10% of the then-outstanding shares of Cape’s common stock is not entitled or permitted to vote any shares of common stock held in excess of the 10% limit. If Cape issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require the approval of 80% of Cape’s outstanding common stock.

Liquidation. In the event of liquidation, dissolution or winding up of Cape, the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities (including payments with respect to its liquidation account), all of the assets of Cape available for distribution. If preferred

stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

Preemptive Rights. Holders of the common stock of Cape are not entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption.

Cape’s articles of incorporation authorizes its board of directors, without stockholder action, to issue preferred stock in one or more series and to establish the designations, dividend rates and rights, dissolution or liquidation rights, preferences, price and terms and conditions on which shares may be redeemed, terms and conditions for conversion or exchange into any other class or series of the stock, voting rights and other terms. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of common stock and could have the effect of delaying, deferring or preventing a change in control of Cape.

Certain Articles of Incorporation and Bylaw Provisions Affecting Cape Common Stock

Cape’s articles of incorporation and bylaws contain several provisions that may make Cape a less attractive target for an acquisition of control by anyone who does not have the support of Cape’s board of directors. Such provisions include, among other things, the requirement of a supermajority vote of stockholders or directors to approve certain business combinations and other corporate actions, special procedural rules regarding nomination for election to the board of directors or the introduction of new business at meetings of stockholders, a staggered board of directors, and a vote limitation on shares owned in excess of 10% of Cape’s outstanding shares. The foregoing is qualified in its entirely by reference to Cape’s articles of incorporation and bylaws.

Under the Change in Bank Control Act, no person may acquire control of a savings and loan holding company such as Cape unless the Federal Reserve has been given 60 days’ prior written notice and has not disapproved the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of Cape’s directors, or a determination by the regulator that the acquiror has the power, directly or indirectly, to exercise a controlling influence over the management or policies of Cape. Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable determination of control under Federal Reserve Board regulations where, as will be the case with Cape, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.

In addition, federal regulations provide that no company may acquire control of a savings and loan holding company without the prior approval of the Federal Reserve. Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination and regulation by the Federal Reserve.

The Transfer Agent and Registrar for Cape’s common stock is Computershare Trust Company, N.A., Canton, Massachusetts.

The rights of stockholders of Cape are currently governed by Cape’s articles of incorporation and bylaws and by Maryland law. The rights of stockholders of Colonial Financial are currently governed by Colonial Financial’s articles of incorporation and bylaws and by Maryland law. If the Merger is completed, Colonial Financial stockholders who receive Cape common stock will become Cape stockholders and their rights will likewise be governed by Cape’s articles of incorporation and bylaws and Maryland law.

The following is a summary of the material differences between the rights of a Colonial Financial stockholder and the rights of a Cape stockholder. This summary is not a complete statement of the differences between the rights of Colonial Financial stockholders and the rights of Cape stockholders and is qualified in its entirety by reference to Maryland law and to the articles of incorporation and bylaws of each corporation. Copies of Cape’s articles of incorporation and bylaws are on file with the Securities and Exchange Commission. Copies of Cape’s articles of incorporation and bylaws are also available upon written request addressed to Corporate Secretary, Cape Bancorp, Inc., 225 North Main Street, Cape May Court House, New Jersey 08210.

After completion of the Merger, the boards of directors of Cape and Cape Bank will be increased by two members and will consist of all the current directors of Cape and two directors of Colonial Financial, Gregory J. Facemyer and Hugh J. McCaffrey.

Information regarding the current directors and executive officers of Cape, executive compensation and relationships and related transactions is included in Cape’s proxy statement for its 2014 annual meeting of stockholders, which is incorporated by reference in this Joint Proxy Statement/Prospectus.

After completion of the Merger, the executive officers of Cape and Cape Bank will consist of the current executive officers of Cape and Cape Bank.

While there can be no assurance as to the achievement of business and financial goals, Cape currently expects to achieve cost savings equal to approximately 40% of Colonial Financial’s non-interest expense base, phased-in over the next two fiscal years, through the elimination of redundant senior management and back-office staffing and other operating efficiencies (such as the elimination of duplicative data processing services). See “Caution About Forward-Looking Statements.”

Colonial Financial is a Maryland corporation that was incorporated in March 2010 to serve as the successor corporation to Colonial Bankshares, Inc., the former stock holding company for Colonial Bank, upon completion of the mutual-to-stock conversion of Colonial Bankshares, MHC, the former mutual holding company for Colonial Bank.

The conversion was completed July 13, 2010. Colonial Financial sold a total of 2,295,000 shares of common stock at $10.00 per share in the related offering. Concurrent with the completion of the offering, shares of Colonial Bankshares, Inc. common stock owned by public stockholders were exchanged for 0.9399 shares of Colonial Financial’s common stock. Net proceeds from the offering were $20.3 million. As of September 30, 2014, Colonial Financial had 3,860,209 shares outstanding and a market capitalization of approximately $51.3 million.

The executive offices of Colonial Financial are located at 2745 S. Delsea Drive, Vineland, New Jersey 08360, and its telephone number is (856) 205-0058. Colonial Financial is subject to comprehensive regulation and examination by the Federal Reserve.

Colonial Bank is a federally chartered savings bank headquartered in Vineland, New Jersey. Colonial Bank was originally founded in 1913. Colonial Bank conducts business from its main office located at 2745 S. Delsea Drive in Vineland, New Jersey, its eight branch offices located in Cumberland and Gloucester Counties, New Jersey, and through its operating subsidiary, Cohansey Bridge, LLC. The telephone number at its main office is (856) 205-0058.

Colonial Bank’s principal business activity is the origination of one- to four-family residential and commercial real estate loans. Colonial Bank also offers home equity loans and lines of credit, commercial business loans and construction and land loans, and, to a lesser extent, multi-family real estate loans and consumer loans.

Colonial Bank also invests in mortgage-backed securities and other investment securities. Colonial Bank offers a variety of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts and certificates of deposit. Deposits are Colonial Bank’s primary source of funds for its lending and investing activities. Colonial Bank has also used borrowed funds as a source of funds, and it borrows principally from the Federal Home Loan Bank of New York.

Colonial Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (“OCC”). Colonial Bank is a member of the Federal Home Loan Bank system. Its website address is www.colonialbankfsb.com. Information on this website is not and should not be considered to be a part of this joint proxy statement/prospectus.

On May 30, 2013, Colonial Bank entered into a regulatory agreement with the OCC. On May 30, 2013, the OCC notified Colonial Bank that the OCC had established minimum capital requirements for Colonial Bank. See “Regulation and Supervision – Regulatory Agreement and Capital Requirements.”

Cohansey Bridge, LLC is a wholly owned subsidiary of Colonial Financial. It is a New Jersey corporation that was formed in March 2012 whose purpose is to invest in and manage real estate.

Colonial Financial conducts its operations from its main office in Vineland, New Jersey and eight full-service branch offices located in Cumberland and Gloucester counties in New Jersey, which is Colonial Financial’s primary market area for loans and deposits. These counties are in the southwest part of New Jersey, within a one hour driving distance of Philadelphia, Pennsylvania, Wilmington, Delaware and Atlantic City, New Jersey.

Colonial Financial’s market areas have a broad range of private employers, as well as public employers such as federal, state and local governments. Gloucester County is located within the Greater Philadelphia Metropolitan Statistical Area of the United States Census Bureau, and diverse employment opportunities exist within this area. Cumberland County is predominantly rural, with a smaller proportion of higher paying white collar jobs. Industries represented in the employment base include agriculture, healthcare, retail, glass manufacturing, higher education and food processing. The New Jersey Motor Sports Park opened in July 2008. This motorsports attraction has hosted nationally broadcast races from its 700 acre facility in Cumberland County. As a result, over a dozen hotels and restaurants have come to the area during the past four years. In addition, Boeing has a facility at Millville airport, which replaced many positions lost upon the departure of another company from the same facility. A large number of other Fortune 500 companies are located within Colonial Financial’s footprint. Higher education attainment is increasing with record numbers of students attending Cumberland and Gloucester County Colleges. Rutgers and Rowan Universities have campuses and research facilities in both counties while both schools, along with St. Joseph’s University and several others offer undergraduate and graduate degrees on the County College campuses.

According to the U. S. Census, the population of Cumberland and Gloucester counties, New Jersey grew 7.7% and 13.7%, respectively, from 2000 to 2012. The unemployment rates for Cumberland and Gloucester counties were 10.5% and 6.9% as of December 2013, respectively, compared to 13.9% and 9.9% as of December 2012, respectively. This compares to 7.3% for the entire State of New Jersey and 7.0% for the United States as a whole as of December 31, 2013.

U.S. Census Bureau data indicates the median household income as of December 31, 2012 was $51,530 and $74,915 for Cumberland and Gloucester counties, New Jersey, respectively, compared to $39,150 and $54,273 as of December 31, 2000. Based on the American Community Survey for 2012 and the U. S. Census Bureau for 2000, the median home value in Cumberland County, New Jersey was $174,400 as of December 2012 compared to $91,200 for 2000. Similarly, for Gloucester County, New Jersey, the median home value has increased to $232,400 as of 2012 compared to $120,100 as of 2000.

Colonial Financial faces significant competition in both originating loans and attracting deposits. Cumberland and Gloucester Counties, New Jersey, which comprise Colonial Financial’s primary market area, have a high concentration of financial institutions, many of which are significantly larger and have greater financial resources than Colonial Financial, and many of which are its competitors to varying degrees. As of June 30, 2014 (the latest date for which information is available), Colonial Financial’s market share was 15.3% of total FDIC-insured deposits in Cumberland County, making it the second largest of 12 financial institutions in Cumberland County based upon deposit share as of that date. As of June 30, 2014, Colonial Financial’s market share was 1.8% of total deposits in Gloucester County, making Colonial Financial the 14^th largest of 22 financial institutions based on deposit share as of that date. Some of Colonial Financial’s competitors offer products and services that Colonial Financial currently does not offer, such as trust services and private banking. Colonial Financial’s competition for loans comes principally from commercial banks, savings banks, mortgage banking companies and credit unions. Colonial Financial’s most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. Colonial Financial faces additional competition for deposits from nondepository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies.

Colonial Financial seeks to meet this competition by emphasizing personalized banking, competitive pricing strategies and the advantage of local decision-making in its banking business. Specifically, Colonial Financial promotes and maintains relationships and builds customer loyalty within its market area by focusing its marketing and community involvement on the specific needs of local communities.

General. Colonial Financial originates one- to four-family residential real estate loans, home equity loans and lines of credit, commercial real estate loans, commercial business loans, construction loans, consumer loans and multi-family mortgage loans. At September 30, 2014, Colonial Financial’s gross loan portfolio totaled $276.5 million compared to $282.9 million at December 31, 2013.

One- to Four-Family Residential Real Estate Loans. Colonial Financial offers conforming and non-conforming, fixed-rate and adjustable-rate residential real estate loans with maturities of up to 30 years. This portfolio totaled $153.3 million, or 55.4% of Colonial Financial’s total loan portfolio, at September 30, 2014.

Colonial Financial currently offers fixed-rate conventional mortgage loans with terms of 10 to 30 years that are fully amortizing with monthly loan payments, and adjustable-rate conventional residential real estate loans with initial fixed-rate terms of one, three, five or seven years that amortize up to 30 years. One- to four-family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and loans that conform to such guidelines are referred to as “conforming loans.” Colonial Financial generally originates both fixed- and adjustable-rate loans in amounts up to the maximum conforming loan limits as established by Fannie Mae, which for 2014 is currently $417,000 for single-family homes located in its primary market area. Colonial Financial also originates loans above conforming limits, referred to as “jumbo loans,” although the significant majority of the loans it has originated have been within conforming loan limits.

Colonial Financial currently offers several adjustable-rate loan products secured by residential properties with rates that are fixed for an initial period ranging from one year to seven years. After the initial fixed-rate period, the interest rate on these loans resets based upon a contractual spread or margin above the average yield on U.S. Treasury securities, adjusted to a constant maturity of one, three or five years, as published weekly by the Federal Reserve, subject to certain periodic and lifetime limitations on interest rate changes. Colonial Financial does not offer “teaser” rates on its adjustable-rate loans. Colonial Financial underwrites its adjustable-rate loans in the same manner as it underwrites fixed-rate loans, but does not qualify borrowers based on the fully-indexed interest rate (the maximum interest rate permitted under the terms of the loan). Adjustable-rate residential real estate loans generally pose different credit risks than fixed-rate loans primarily because the underlying debt service payments of the borrowers rise as interest rates rise, thereby increasing the potential for default. Colonial Financial attempts to mitigate this risk through its maximum loan-to-value ratio of 80% for all one- to four-family residential real estate loans (including adjustable-rate loans). At September 30, 2014, Colonial Financial’s adjustable-rate, one- to four-family residential real estate loan portfolio totaled $7.2 million.

Colonial Financial requires title insurance on all of its one- to four-family residential real estate loans, and it also require that borrowers maintain fire and extended coverage casualty insurance (and, if appropriate, flood insurance) in an amount at least equal to the lesser of the loan balance or the replacement cost of the improvements. Nearly all residential real estate loans must have a mortgage escrow account from which disbursements are made for real estate taxes. Colonial Financial does not conduct environmental testing on residential real estate loans unless specific concerns for hazards are determined by the appraiser utilized in connection with the loan.

Home Equity Loans and Lines of Credit. In addition to traditional one- to four-family residential real estate loans, Colonial Financial offers home equity loans and home equity lines of credit that are secured by the borrower’s primary residence. At September 30, 2014, the outstanding balance of home equity loans and lines of credit totaled $25.0 million, or 9.1% of Colonial Financial’s total loan portfolio. The borrower is permitted to draw on a home equity line of credit at any time after it is originated and may repay the outstanding balance over a term not to exceed 15 years from the date of the borrower’s last draw on the home equity line of credit. Colonial Financial generally reviews each performing line of credit every six years to determine whether to continue to offer the unused portion of the line of credit to the borrower. However, due to the current economic environment, Colonial Financial reviewed and evaluated every home equity line of credit during 2011. Colonial Financial’s home equity loans are generally originated as mortgages with fixed terms of five to 15 years or with balloon maturities of three or five years. Home equity loans and lines of credit are generally underwritten with the same criteria that Colonial Financial uses to underwrite fixed-rate, one- to four-family residential mortgage loans. Colonial Financial currently underwrites fixed-rate home equity loans with a loan-to-value ratio of up to 80% when combined with the principal balance of the existing first mortgage loan and it underwrites lines of credit with a loan-to-value ratio of up to 75% when combined with the principal balance of the existing mortgage loan. Colonial Financial obtains an appraisal of the property securing the loan at the time of the loan application in order to determine the value of the property securing the home equity loan or line of credit. At the time Colonial Financial closes a home equity loan or line of credit, it files a mortgage to perfect its security interest in the underlying collateral.

Commercial Real Estate Lending. Colonial Financial also originates real estate loans secured by first liens on commercial real estate. The commercial real estate properties are predominantly professional offices, churches and hotels and, to a lesser extent, manufacturing and retail facilities and healthcare facilities. Colonial Financial has purchased commercial real estate loan participations through the Thrift Institution Community Investment Council, which originates loans for Community Reinvestment Act purposes. Colonial Financial also originated commercial real estate loans as a participant with other lenders. Colonial Financial emphasizes commercial real estate loans with initial principal balances between $100,000 and $2.0 million. Loans secured by commercial real estate totaled $63.4 million, or 23.0% of Colonial Financial’s total loan portfolio, at September 30, 2014. Substantially all of Colonial Financial’s commercial real estate loans are secured by properties located in its primary market area.

Colonial Financial’s commercial real estate loans are generally written as mortgages with balloon maturities of five years. Amortization of these loans is typically based on 10- to 20-year payout schedules. Colonial Financial also originates some 10 and 15-year, fixed-rate, fully amortizing loans. Colonial Financial establishes margins for commercial real estate loans based upon its cost of funds, but it also considers rates offered by its competitors in Colonial Financial’s market area. Interest rates may be fixed or adjustable, but may not be fixed for periods of longer than 10 years.

In the underwriting of commercial real estate loans, Colonial Financial currently lends up to 75% of the lower of the purchase price or the property’s appraised value. Colonial Financial bases its decisions to lend on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, Colonial Financial emphasizes the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%), computed after deduction for a vacancy factor and property expenses it deems appropriate. Personal guarantees are usually obtained from commercial real estate borrowers. Colonial Financial requires title insurance insuring the priority of its lien, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect its security interest in the underlying property.

Commercial real estate loans generally have higher interest rates and shorter terms than those on one- to four-family residential mortgage loans. Commercial real estate loans, however, entail significant additional credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances

concentrated with single borrowers or groups of related borrowers. In addition, the repayment of loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent than one- to four-family residential loans to adverse conditions in the real estate market and in the general economy.

Commercial Loans. Colonial Financial offers various types of secured and unsecured commercial loans to customers in its market area for business expansion, working capital and other general business purposes. The terms of these loans generally range from less than one year to five years. The loans are either negotiated on a fixed-rate basis or carry adjustable interest rates indexed to the prime rate, as published in The Wall Street Journal, although the significant majority of Colonial Financial’s commercial loans are fixed-rate loans. At September 30, 2014, Colonial Financial’s commercial loans totaled $21.3 million or 7.7% of Colonial Bank’s total loan portfolio at September 30, 2014.

Commercial credit decisions are based upon Colonial Financial’s credit assessment of the loan applicant. Colonial Financial determines the applicant’s ability to repay in accordance with the proposed terms of the loans and it assesses the risks involved. Colonial Financial also evaluates the applicant’s credit and business history and ability to manage the loan and its business. Colonial Financial usually obtains personal guarantees of the principals. In addition to evaluating the loan applicant’s financial statements, Colonial Financial considers the adequacy of the primary and secondary sources of repayment for the loan. Colonial Financial supplements its analysis of the applicant’s creditworthiness with credit agency reports of the applicant’s credit history. Colonial Financial may also check with other banks and conduct trade investigations. Collateral supporting a secured transaction also is analyzed to determine its marketability. Commercial business loans generally have higher interest rates than residential loans of like duration because they have a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of any collateral. Colonial Financial’s pricing of commercial business loans is based primarily on the credit risk of the borrower, with due consideration given to borrowers with appropriate deposit relationships and competition.

Construction and Land Loans. Colonial Financial originates construction and land loans to individuals and builders in its market area. These loans totaled $7.3 million, or 2.6% of Colonial Financial’s total loan portfolio, at September 30, 2014. Colonial Financial’s construction loans are often originated in conjunction with development loans. In the case of residential subdivisions, these loans finance the cost of completing homes on the improved property. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction, but are generally limited to 75% of actual construction costs and a 75% loan to completed appraised value ratio. Repayment of construction loans on residential subdivisions is normally expected from the sale of units to individual purchasers.

Construction lending exposes Colonial Financial to greater credit risk than permanent mortgage financing. The repayment of construction loans may depend upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. Construction loans also expose Colonial Financial to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

Loan Portfolio Composition. The following table sets forth the composition of Colonial Financial’s loan portfolio, by type of loan, at the dates indicated.

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of Colonial Financial’s loan portfolio at September 30, 2014. Demand loans, which are loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2014 that are contractually due after September 30, 2015.

Loan Originations, Purchases, Sales and Servicing. While Colonial Financial originates both fixed-rate and adjustable-rate loans, its ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed- versus adjustable-rate loans, and the interest rates offered on each type of loan by other lenders competing in Colonial Financial’s market area. Loan originations are derived from a number of sources, including branch office personnel, existing customers, borrowers, builders, attorneys, accountants and other professionals, real estate broker referrals and walk-in customers.

Colonial Financial’s loan origination activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand, while declining interest rates may stimulate increased loan demand. Accordingly, the volume of loan originations, the mix of fixed and adjustable-rate loans, and the profitability of this activity can vary from period to period. One- to four-family residential mortgage loans are generally underwritten to current Fannie Mae seller/servicer guidelines, and are closed on documents that conform to Fannie Mae guidelines.

During 2013 and for the nine months ended September 30, 2014, Colonial Financial did not sell any whole loans. Colonial Financial has purchased SBA, USDA and other government insured loan products.

Loan Approval Authority and Underwriting. Colonial Financial’s board of directors grants lending authority to its board management loan committee, senior management loan committee and to individual executive officers and loan officers. Colonial Financial’s lending activities are subject to written policies established by the board of directors. These policies are reviewed periodically.

The board management loan committee and the senior management loan committee may approve loans in accordance with applicable loan policies, including Colonial Financial’s policy governing loans to one borrower. This policy limits the aggregate dollar amount of credit that may be extended to any one borrower and related entities. The Senior Management Loan Committee may approve secured loans in amounts up to $300,000, and unsecured loans in amounts up to $100,000. The board management loan committee may approve secured loans in amounts above $300,000 up to $750,000, and unsecured loans in amounts above $100,000. The full board of directors may approve secured loans above $750,000.

In connection with Colonial Financial’s residential and commercial real estate loans, it generally requires property appraisals to be performed by independent appraisers who are approved by the board of directors. Appraisals are then received by Colonial Financial’s loan underwriting personnel and reviewed by an independent third party. Under certain conditions, Colonial Financial may not require appraisals for loans under $250,000, but it obtains appraisals in nearly all of these cases. Colonial Financial also requires title insurance, hazard insurance and, if necessary, flood insurance on property securing mortgage loans.

Loan Origination Fees and Costs. In addition to interest earned on loans, Colonial Financial also receives loan origination fees. Such fees vary with the volume and type of loans and commitments made, and competitive

conditions in the mortgage markets, which in turn respond to the demand and availability of money. Colonial Financial defers loan origination fees and costs and amortize such amounts as an adjustment to yield over the term of the loan by use of the level-yield method. Deferred loan origination fees (net of deferred costs) were $510,000 at September 30, 2014 and $847,000 at December 31, 2013.

Loans to One Borrower. At September 30, 2014 , Colonial Financial’s five largest aggregate amounts loaned to any borrower and related interests were: (i) a $7.9 million relationship which is collateralized by six commercial properties; (ii) a $6.0 million relationship which is collateralized by two multi-family properties; (iii) a $4.9 million relationship which is collateralized by four commercial properties, equipment and vehicles; (iv) a $4.5 million relationship collateralized by two commercial properties and two single family dwellings; and (v) a $3.7 million relationship collateralized by four commercial properties and two single family dwelling. The balances noted above include the unused portion of credit lines and letters of credit. At September 30, 2014, these loans were all performing according to their original terms. Under federal banking regulations, at September 30, 2014, Colonial Financial’s maximum regulatory loan-to-one borrower limit was $8.8 million. See “Information About Colonial Financial - Supervision and Regulation—Federal Banking Regulation—Loans to One Borrower” for a discussion of applicable regulatory limitations.

Collection Procedures. When a loan is more than 10 days delinquent, Colonial Financial generally contacts the borrower by telephone to determine the reason for delinquency and arrange for payment, and accounts are monitored electronically for receipt of payments. Colonial Financial also sends a computer-generated late notice on the tenth day after the payment due date on a commercial loan (the 15th day for a consumer or residential loan), which requests the payment due plus any late charge that is assessed. If payments are not received within 30 days of the original due date, a letter demanding payment of all arrearages is sent and contact efforts are continued. By the 36^th day of delinquency, good faith efforts to establish live contact with the borrower are made to inform them that loss mitigation options may be available. In addition, written notice with information about loss mitigation options is provided to the borrower by the 45^th day of delinquency. If payment is not received within 60 days of the due date, Colonial Financial accelerates loans and demand payment in full. Failure to pay within 90 days of the original due date may result in legal action, notwithstanding ongoing collection efforts. Unsecured consumer loans are charged-off between 90 to 120 days. For commercial loans, procedures with respect to demand letters and legal action may vary depending upon individual circumstances.

Loans Past Due and Nonperforming Assets. Loans are reviewed on a regular basis, and are placed on nonaccrual status when either principal or interest is 90 days or more past due. In addition, Colonial Financial places loans on nonaccrual status when it believes that there is sufficient reason to question the borrower’s ability to continue to meet contractual principal or interest payment obligations. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are not recognized as income unless warranted based on the borrower’s financial condition and payment record.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less estimated costs of disposal. If the fair value of the property is less than the loan balance, the difference is charged against the allowance for loan losses.

For all loans secured by real estate, carrying values in excess of net realizable value are charged off at or before the time foreclosure is completed or when settlement is reached with the borrower. If foreclosure is not pursued and there is no reasonable expectation for recovery, the account is charged off no later than the end of the month in which the account becomes six months contractually delinquent. For all secured and unsecured commercial business loans, loan balances are charged off at the time all or a portion of the balance is deemed uncollectible.

Colonial Financial currently obtains updated appraisals and title searches on all collateral-dependent loans secured by real estate that are 90 days or more past due and placed on non-accrual status. All appraisals for $250,000 or more are reviewed internally or by an outside service.

The performances and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status at the dates indicated. At each date, Colonial Financial had no loans that were 90 days or more delinquent and still accruing interest.

Nonperforming Assets. The table below sets forth the amounts and categories of Colonial Financial’s nonperforming assets at the dates indicated. Colonial Financial will not advance any new funds to any of the troubled debt restructurings. As of September 30, 2014, Colonial Financial had 27 loans totaling $7.9 million that were considered performing troubled debt restructurings (where, for economic or legal reasons related to a borrower’s financial difficulties, Colonial Financial granted a concession to the borrower that it would not otherwise consider). These loans consisted of 23 one- to four-family real estate loans with a recorded investment of $3.6 million, two commercial real estate loans, with a recorded investment of $2.1 million, one construction and land loan with a recorded investment of $2.0 million, and one home equity loan with a recorded investment of $45,000. As of December 31, 2013, Colonial Financial had 29 loans totaling $9.8 million that were considered performing troubled debt restructurings. These loans consisted of five commercial real estate loans with a recorded investment of $4.2 million, one construction and land loan with a recorded investment of $2.1 million, 22 one- to four-family residential real estate loans with a recorded investment of $3.5 million and one home equity loan with a recorded investment of $45,000. As of December 31, 2012, Colonial Financial had 46 loans totaling $16.8 million that were considered performing troubled debt restructurings. These loans consisted of ten commercial real estate loans with a recorded investment of $8.3 million, four construction and land loans with a recorded investment of $3.8 million, 30 one- to four-family residential real estate loans with a recorded investment of $4.2 million, one home equity loan with a recorded investment of $46,000 and one commercial loan with a recorded investment of $384,000.

Colonial Financial will also grant concessions that it does not consider troubled debt restructurings.

The amount of the allowance for loan losses allocated to the $9.4 million of non-performing loans at September 30, 2014, noted above, was $115,000. The amount of the allowance for loan losses allocated to the $13.6 million of non-performing loans at December 31, 2013, noted above, was $1.8 million.

For the nine months ended September 30, 2014, gross interest income that would have been recorded had Colonial Financial’s non-accruing and troubled debt restructurings been current in accordance with their original and restructured terms was $541,000 and $267,000, respectively. For the year ended December 31, 2013, gross interest income that would have been recorded had Colonial Financial’s non-accruing loans and troubled debt restructurings been current in accordance with their original and restructured terms was $717,000 and $565,000, respectively. Colonial Financial recognized $152,000 and $543,000, respectively, of interest income on such loans during the year.

Classification of Assets. Colonial Financial’s policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that Colonial Financial will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, questionable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose Colonial Financial to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve Colonial Financial’s close attention, are required to be designated as special mention.

The allowance for loan losses represents amounts that have been established to recognize losses inherent in the loan portfolio that are both probable and reasonably estimable at the date of the financial statements. When Colonial Financial classifies problem assets as loss, it charges-off such amounts. Colonial Financial’s determination as to the classification of its assets and the amount of its loss allowances are subject to review by its regulatory agencies, which can require that Colonial Financial establish additional loss allowances. Colonial Financial regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

The following table sets forth Colonial Financial’s amounts of classified assets and assets designated as special mention as of September 30, 2014, December 31, 2013 and 2012. The classified assets totals at September 30, 2014, December 31, 2013 and 2012 include $9.4 million, $13.6 million and $13.1 million, respectively, of nonperforming loans.

At September 30, 2014, substandard assets consisted primarily of (i) 55 residential mortgage loans with a recorded investment of $6.2 million, (ii) 19 home equity loans with a recorded investment totaling $1.0 million, (iii) 25 commercial real estate loans with a recorded investment totaling $5.3 million, (iv) seven construction and land loans with a recorded investment totaling $2.9 million and (v) five commercial loans with a recorded investment totaling $989,000. At September 30, 2014, special mention assets consisted primarily of (i) six commercial real estate loans with a recorded investment of $836,000 and (ii) one consumer loan with a recorded investment totaling $1.2 million.

At December 31, 2013, substandard assets consisted primarily of (i) 69 residential mortgage loans with a recorded investment of $9.4 million, (ii) 21 home equity loans with a recorded investment totaling $846,000, (iii) 14 commercial real estate loan relationships with a recorded investment totaling $7.8 million, (iv) five construction and land loans with a recorded investment totaling $3.5 million and (v) three commercial loans with a recorded investment of $340,000. At December 31, 2013, special mention assets consisted primarily of (i) eighteen residential mortgage loans with a recorded investment totaling $1.8 million, (ii) three home equity loans with a recorded investment totaling $108,000, (iii) ten commercial real estate loan relationships with a recorded investment totaling $3.7 million and (v) two consumer loans with principal balances of $20,000.

At December 31, 2012, substandard assets consisted primarily of (i) 71 residential mortgage loans with a recorded investment of $8.5 million, (ii) three home equity loans with a recorded investment totaling $578,000, (iii) 18 commercial real estate loan relationships with a recorded investment totaling $10.0 million, (iv) eight construction and land loans with a recorded investment totaling $4.6 million, (v) four commercial loans with a recorded investment of $3.4 million, and (vi) two consumer loans totaling $8,000. The collateral for the commercial real estate loan relationships classified as substandard was valued at $17.2 million as of December 31, 2012. At December 31, 2012, special mention assets consisted primarily of (i) eight residential mortgage loans with a recorded investment totaling $1.5 million, (ii) two home equity loans with a recorded investment totaling $60,000, (iii) three commercial real estate loan relationships with a recorded investment totaling $897,000, (iv) four commercial loans with a recorded investment totaling $1.6 million, and (v) one consumer loan with principal balances of $59,000.

See “—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of Operating Results for the Years Ended December 31, 2013 and 2012—Provision for Loan Losses” and “—Allowance for Loan Losses.”

Allowance for Loan Losses. Colonial Financial provides for loan losses based on the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in Colonial Financial’s judgment, deserve current recognition in estimating probable losses. Colonial Financial regularly reviews the loan portfolio and make provisions for loan losses in order to maintain the allowance for loan losses in accordance with GAAP. The allowance for loan losses consists of three components:

The adjustments to historical loss experience are based on Colonial Financial’s evaluation of several factors, including:

Colonial Financial evaluates the allowance for loan losses based upon the combined total of the specific, historical loss and general components. Generally when the loan portfolio increases, absent other factors, the allowance for loan loss methodology results in a higher dollar amount of estimated probable losses than would be the case without the increase. Generally when the loan portfolio decreases, absent other factors, the allowance for

loan loss methodology results in a lower dollar amount of estimated probable losses than would be the case without the decrease.

Colonial Financial considers commercial loans, commercial real estate loans and construction loans to be riskier than one- to four-family residential mortgage loans. Commercial loans involve a higher risk of default than residential loans of like duration since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Commercial real estate loans also have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. Construction loans have greater credit risk than permanent mortgage financing. The repayment of these loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event Colonial Financial makes an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Construction loans also expose Colonial Financial to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

The fair value of impaired collateral dependent loans is estimated using an appraisal of the collateral less estimated liquidation expenses or discounted cash flows for non-collateral dependent loans. Those impaired loans not requiring a write-down represent loans for which the fair value of the collateral or expected repayments exceeds the recorded investment in such loans. Impaired loans are charged off to the estimated fair value.

Colonial Financial periodically evaluates the carrying value of loans and the allowance is adjusted accordingly. While Colonial Financial use the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, Colonial Financial’s regulatory agencies periodically review the allowance for loan losses. Such agencies may require Colonial Financial to recognize additions to the allowance based on their evaluation of information available to them at the time of their examination.

The allowance for loan losses was $4.4 million, or 1.60% of total loans, at September 30, 2014, compared to $5.9 million, or 2.07% of total loans, at December 31, 2013 and $4.1 million, or 1.37% of total loans, at December 31, 2012. The allowance for loan losses represented 47.0% of nonperforming loans at September 30, 2014, 43.2% at December 31, 2013, and 31.6% at December 31, 2012, respectively. Nonperforming loans decreased to $9.4 million at September 30, 2014 compared to $13.6 million and $13.1 million at December 31, 2013 and 2012, respectively. Loans delinquent 30 days or greater decreased to $5.9 million at September 30, 2014 compared to $11.9 million and $15.1 million at December 31, 2013 and 2012, respectively.

For further discussion regarding how Colonial Financial determined the allowance for loan losses as of December 31, 2013 and 2012, see “Information About Colonial Financial - Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of Operating Results for the Years Ended December 31, 2013 and December 31, 2012—Provisions for Loan Losses.”

The following table sets forth activity in Colonial Financial’s allowance for loan losses for the periods indicated.

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the percent of the allowance to the total allowance and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category.

Colonial Financial’s securities investment policy is established by its board of directors. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with Colonial Financial’s interest rate risk management strategy. Colonial Financial’s Asset/Liability Management Committee, which consists of senior management, oversees its investing strategies. The board of directors reviews the Asset/Liability Management Committee’s activities and strategies, and evaluates on an ongoing basis Colonial Financial’s investment policy and objectives. Colonial Financial’s Asset/Liability Management Committee is responsible for making securities portfolio decisions in accordance with established policies. Colonial Financial’s chief executive officer and its chief financial officer have the authority to purchase and sell securities within specific guidelines established by the investment policy. In addition, all transactions are reviewed by the Asset/Liability Management Committee at least monthly.

Colonial Financial’s current investment policy generally permits securities investments in debt securities issued by the U.S. Government and U.S. Government agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of U.S. Government agencies and U.S. Government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank. Securities in these categories are classified as “investment securities” for financial reporting purposes. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, as well as collateralized mortgage obligations (“CMOs”) issued or backed by securities issued by these government agencies or government-sponsored enterprises. Also permitted are investments in securities issued or backed by the Small Business Administration and mortgage-related mutual funds. As of September 30, 2014, Colonial Financial held no asset-backed securities (securities collateralized by automobile loans, credit card receivables and home equity loans), no preferred securities issued by either Fannie Mae or Freddie Mac and no private-label mortgage backed securities. Colonial Financial’s current investment strategy uses a risk management approach of diversified investing in fixed-rate securities with short- to intermediate-term maturities, as well as adjustable-rate securities, which may have a longer term to maturity. The emphasis of this approach is to increase overall investment securities yields, manage interest rate risk, ensure adequate liquidity for loan demand, deposit fluctuations and other changes to Colonial Financial’s balance sheet, and provide collateral for its long-term debt needs.

At September 30, 2014, Colonial Financial did not have any securities from an issuer (other than securities issued by the U. S. Governments or by its agencies) that had an aggregate book value of more than 10% of its consolidated stockholders’ equity.

FASB ASC Topic 320-10-25, “Accounting for Certain Investments in Debt and Equity Securities,” requires that, at the time of purchase and at each balance sheet date thereafter, Colonial Financial designates a security as held to maturity, available-for-sale, or trading, depending on Colonial Financial’s ability and intent. Securities available-for-sale are reported at fair value, while securities held to maturity are reported at amortized cost. Colonial Financial does not have a trading portfolio. The increase in interest rates during 2013 and for the nine months ended September 30, 2014 reduced the market value of Colonial Financial’s investment portfolio.

Effective December 10, 2013, pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliated companies from engaging in short-term proprietary trading of certain securities, investing in funds with collateral comprised of less than 100% loans if such funds are not registered with the Securities and Exchange Commission and from engaging in hedging activities that do not hedge a specific identified risk. After the transition period, the Volcker Rule prohibitions and restrictions will apply to banking entities unless an exception applies. Management does not believe that implementation of the Volcker Rule will have a material effect on its operations.

Mortgage-Backed Securities. Colonial Financial invests in government-sponsored enterprise (“GSE”) mortgage-backed securities to generate positive interest rate spreads with minimal administrative expense, lower credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae and Ginnie Mae, and increase liquidity. Colonial Financial invest primarily in mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. At September 30, 2014, Colonial Financial’s mortgage-backed securities portfolio had a fair value of $57.5 million, and consisted of pass-through securities.

Mortgage-backed securities are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of Colonial Financial’s mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (government sponsored enterprises, such as Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as Colonial Financial, and guarantee the payment of principal and interest to these investors. Investments in mortgage-backed securities involve a risk that actual prepayments will be greater or lesser than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield on such securities. Colonial Financial reviews prepayment estimates for its mortgage-backed securities at the time of purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio.

Collateralized Mortgage Obligations. Government-sponsored enterprise collateralized mortgage obligations (CMO’s) are types of debt securities issued by a special-purpose entity that aggregates pools of mortgages and mortgage-backed securities and creates different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. Colonial Financial’s practice is to limit fixed-rate CMO investments primarily to the early-to-intermediate tranches, which have the greatest cash flow stability. Floating rate CMOs are purchased with emphasis on the relative trade-offs between lifetime interest rate caps, prepayment risk and interest rates. At September 30, 2014, Colonial Financial’s collateralized mortgage obligation portfolio had a fair value of $59.3 million.

Corporate Debt Securities and Municipal Bonds. At September 30, 2014, Colonial Financial had no corporate debt securities. At September 30, 2014, Colonial Financial held $7.3 million in bonds issued by states and political subdivisions. Included in this total are bond anticipation notes and tax anticipation notes (all of which have

terms of one year or less), issued by municipalities in the State of New Jersey. Although municipal bonds may offer a higher yield than a U.S. Treasury or agency security of comparable duration, these securities also have a higher risk of default due to adverse changes in the creditworthiness of the issuer. In recognition of this potential risk, Colonial Financial generally limits investments in corporate bonds to securities rated in one of the four highest categories by at least one nationally recognized rating agency, and to a total investment of no more than $1.0 million per issuer. Colonial Financial also generally limits investments in municipal bonds to issues that are insured unless the issuer is a local government entity within its service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In addition Colonial Financial’s investment policy imposes an investment limitation of $1.5 million per municipal bond and a limitation equal to its loan-to-one borrower limitation for bond anticipation notes and tax anticipation notes.

Equity Securities. At September 30, 2014, Colonial Financial’s equity securities consisted of Federal Home Loan Bank of New York common stock and mutual funds. Colonial Financial holds the Federal Home Loan Bank of New York common stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of New York’s advance program. There is no market for the common stock, but it is the current practice of the Federal Home Loan Bank of New York to redeem shares at par value. The aggregate fair value of Colonial Financial’s Federal Home Loan Bank of New York common stock as of September 30, 2014 was $938,000 based on its par value. No unrealized gains or losses have been recorded because the par value of the common stock represents its fair value. Colonial Financial’s mutual funds consist solely of Shay Asset Management Funds.

U.S. Government Agency Securities. At September 30, 2014, Colonial Financial held U.S. government agency securities available for sale with a fair value of $95.2 million. Generally, these securities have short- to medium-term maturities (one to five years) and may have call or step-up features. While these securities generally provide lower yields than other investments such as mortgage-backed securities, Colonial Financial’s current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes, as collateral for borrowings, and for prepayment protection.

Other-Than-Temporary Impairment of Securities. For the nine months ended September 30, 2014 and 2013 and the years ended December 31, 2013 and 2012, there was no charge against operating results for other-than-temporarily impaired securities.

The following table sets forth the composition of Colonial Financial’s securities portfolio (excluding Federal Home Loan Bank of New York common stock) at the dates indicated.

The following tables show the gross unrealized losses and fair value, and the length of time that individual securities have been in a continuous unrealized loss position, for Colonial Financial’s available-for-sale investment securities at the dates indicated.

At September 30, 2014 and December 31, 2013 and 2012, there were no held-to-maturity investment securities with gross unrealized losses.

in the twelve-month-or-more category are (a) 24 U.S government obligations, (b) 19 collateralized mortgage obligations, (c) one mortgage-backed security and (d) five municipal debt obligations.

At December 31, 2013, there were 120 securities in the less-than-twelve-months unrealized loss category and eight securities in the twelve-months-or-more unrealized loss category for the available-for-sale portfolio. Included in the 120 securities in the less-than-twelve month category for available-for-sale securities are: (a) 68 U. S. government obligations; (b) two corporate debt obligations which have been in a loss position for one and two months, respectively; (c) twelve municipal debt obligations; (d) three SBA pools; (e) two mortgage-backed securities; and (f) 33 collateralized mortgage obligations. Included in the eight securities in the twelve-months-or-more category are: (a) four U. S. government obligations; (b) two municipal debt obligations; (c) one mortgage-backed security; and (d) one collateralized mortgage obligation.

At December 31, 2012, there were 27 securities in the less-than-twelve-months unrealized loss category and three securities in the twelve-months-or-more unrealized loss category for the available-for-sale portfolio. Included in the 27 securities in the less-than-twelve month category for available-for-sale securities are: (a) 16 U. S. Government securities, 14 of which have been in a loss position for one month, one was in a loss position for three months and one was in a loss position for five months; (b) one corporate debt obligation which has been in a loss position for one month; (c) six municipal debt obligations, one of which was in a loss position for two months and five were in a loss position for one month; (d) two SBA pools, both of which have been in a loss position for one month; (e) one mortgage-backed security which has been in a loss position for one month; and (f) one collateralized mortgage obligation which has been in a loss position for one month. Included in the three securities in the twelve-months-or-more category are: (a) two mortgage-backed securities; and (b) one collateralized mortgage obligation.

As of September 30, 2014, December 31, 2013 and 2012, management believed that the unrealized losses of the securities noted above were primarily dependent on movements in market interest rates. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service, pools of loans from the Small Business Administration and pools of loans from a government-sponsored enterprise. Management believes that these fair values will recover as the underlying portfolios mature. Colonial Financial did not intend to sell and expect that it is not more likely than not that it would be required to sell these investment securities prior to an anticipated recovery in fair value. Accordingly, management did not believe any individual unrealized loss as of September 30, 2014, December 31, 2013 and 2012, represented an other-than-temporary impairment.

Portfolio Maturities and Yields. The composition and maturities of the investment debt securities portfolio and the mortgage-backed securities portfolio at September 30, 2014 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have been adjusted to a tax-equivalent basis, assuming a federal income tax rate of 34.0%. At September 30, 2014, the non-tax adjusted weighted average yield on total state and municipal securities was 2.86%.

General. Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from sales of securities, proceeds from maturing securities and cash flows from operations are the primary sources of Colonial Financial’s funds for use in lending, investing and for other general purposes.

Deposits. Colonial Financial offers a variety of deposit accounts with a range of interest rates and terms. Colonial Financial’s deposit accounts consist of certificates of deposit, savings accounts, NOW accounts, checking accounts, money market deposit accounts, club accounts and individual retirement accounts. Colonial Financial provides commercial checking accounts for businesses, municipalities and school boards. In addition, Colonial Financial provides low-cost checking account services for its customers.

Colonial Financial’s deposits are obtained predominantly from the areas in which its branch offices are located. Colonial Financial relies on its customer service and competitive pricing to attract and retain these deposits. Colonial Financial accepts certificates of deposit in excess of $100,000 for which it may provide preferential rates. At September 30, 2014 and December 31, 2013, Colonial Financial had no brokered certificates of deposits. In addition, at September 30, 2014 and December 31, 2013, Colonial Financial had $145.3 million and $143.7 million in deposits, respectively, from municipalities and school boards within the State of New Jersey.

The following tables set forth the distribution of total deposit accounts, by account type, at the dates indicated.

As of September 30, 2014, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $38.5 million. The following table sets forth the maturity of those certificates of deposit as of September 30, 2014.

At September 30, 2014, $51.9 million of Colonial Financial’s certificates of deposit had maturities of one year or less

Borrowings. Colonial Financial’s borrowings consist of short-term and long-term Federal Home Loan Bank advances. The following table sets forth information concerning the borrowing balances and interest rates at the dates and for the periods indicated.

At September 30, 2014, Colonial Financial had the ability to borrow approximately $165.8 million under Colonial Financial’s credit facilities with the Federal Home Loan Bank of New York of which $9.7 million was outstanding.

As of September 30, 2014, Colonial Financial had 86 full-time employees and 7 part-time employees. The employees are not represented by a collective bargaining unit and Colonial Financial believes it has a good working relationship with its employees.

Colonial Financial, Colonial Financial and COBK Investments, LLC have established a method for allocating and for reimbursing the payment of their consolidated tax liability.

General. Colonial Financial, Colonial Financial and COBK Investments, LLC are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. Colonial Financial Services Inc.’s and Colonial Financial’s federal tax returns are not currently under audit, and have not been audited during the past five years. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the applicable tax rules.

Method of Accounting. For federal income tax purposes, Colonial Financial currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Bad Debt Reserves. Retained earnings include $1.5 million at December 31, 2013 and 2012, for which no provision for federal income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Bank’s total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.

Currently, the Colonial Financial consolidated group uses the specific charge off method to account for bad debt deductions for income tax purposes.

Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to November 1, 1988 were subject to recapture into taxable income if Colonial Financial failed to meet certain thrift asset and definitional tests.

At September 30, 2014, Colonial Financial’s total federal pre-1988 base year reserve was approximately $1.5 million. However, under current law, base-year reserves remain subject to recapture if Colonial Financial makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years. Colonial Financial and Colonial Financial have been subject to the AMT but currently have no such amounts available as credits for carryover.

Net Operating Loss Carryovers. Generally, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. However, subject to certain limitations, the carryback period for net operating losses incurred in 2008 or 2009 (but not both years) was expanded to five years. At September 30, 2014, Colonial Financial had no net operating loss carryforwards for federal income tax purposes.

Corporate Dividends-Received Deduction. Colonial Financial may exclude from its federal taxable income 100% of dividends received from Colonial Financial as a wholly owned subsidiary.

Capital Loss Carryovers. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. At December 31, 2013, Colonial Financial and its subsidiaries have federal capital loss carryforwards of approximately $195,000 expiring from 2014 through 2015. Colonial Financial expects to fully realize the benefit of such carryforwards through tax planning strategies.

Colonial Financial currently files New Jersey Corporation Business tax returns for banking and financial corporations. Generally, the income of savings institutions in New Jersey is subject to the New Jersey Corporation Business tax at the rate of 9% on its “entire net income,” which generally means federal taxable income before net operating loss and special deductions, subject to certain adjustments (including addition of interest income on state and municipal obligations). Colonial Financial is in a net operating loss position for state tax purposes and may utilize state net operating loss carryforwards to reduce future state income taxes, though there is no guarantee that these carryforwards will be utilized before they expire.

At September 30, 2014, Colonial Financial has New Jersey net operating loss carryforwards of $19.2 million, of which $5.5 million expires from 2014 through 2015 and the balance expires from 2029 through 2032. New Jersey net operating losses occurring for periods before January 1, 2009 can be carried forward for seven succeeding years and net operating losses accruing for periods after January 1, 2009 may be carried forward 20 succeeding tax years. At September 30, 2014, Colonial Financial has recorded a valuation allowance of approximately $324,000 against the deferred tax assets attributable to the New Jersey net operating loss carryforwards.

At December 31, 2013, Colonial Financial had New Jersey capital loss carryforwards of $115,000. For New Jersey purposes, capital losses can be carried back three years and carried forward five succeeding years. At September 30, 2014, Colonial Financial has recorded a full valuation allowance of $13,000 for the state capital loss carryforwards.

Colonial Bank is examined and supervised by the OCC and is subject to examination by the FDIC. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit insurance fund and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the federal agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. Colonial Bank also is a member of and owns stock in the Federal Home Loan Bank of New York, which is one of the twelve regional banks in the Federal Home Loan Bank System. Colonial Bank is also regulated to a lesser extent by the Federal Reserve, governing reserves to be maintained against deposits and other matters. The OCC examines Colonial Bank and prepares reports for the consideration of its board of directors on any operating deficiencies. Colonial Bank’s relationship with its depositors and borrowers is also regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of Colonial Bank’s mortgage documents.

As a savings and loan holding company, Colonial Financial is required to comply with the rules and regulations of the Federal Reserve, and is required to file certain reports with and be subject to examination by the

Federal Reserve. Colonial Financial is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in these laws or regulations, whether by the FDIC, the OCC, the Federal Reserve or Congress, could have a material adverse impact on Colonial Financial and Colonial Bank and their operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes in the regulation of federal savings banks such as Colonial Bank. Under the Dodd-Frank Act, the Office of Thrift Supervision has been eliminated and responsibility for the supervision and regulation of federal savings banks has been transferred to the OCC, which is the agency that is currently primarily responsible for the regulation and supervision of national banks. Responsibility for the regulation and supervision of savings and loan holding companies, such as Colonial Financial has been transferred to the Federal Reserve, which currently supervises bank holding companies. Additionally, a new Consumer Financial Protection Bureau (“CFPB”) has been established as an independent bureau of the Federal Reserve. The CFPB has assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned to federal banking regulators, and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as Colonial Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the primary enforcement authority of, their primary regulator rather than the CFPB.

Set forth below is a brief description of certain regulatory requirements that are or will be applicable to Colonial Financial and Colonial Bank. The description below is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Colonial Financial and Colonial Bank.

On May 30, 2013, Colonial Bank entered into an agreement with the OCC. The agreement provides, among other things, that within specified time frames:

On May 30, 2013, Colonial Bank was notified by the OCC that it established minimum capital ratios for Colonial Bank requiring it to maintain a Tier 1 capital to adjusted total assets ratio of 9.50%, a Tier 1 capital to risk-

weighted assets ratio of 11.00%, and a Total risk-based capital to risk-weighted assets ratio of 13.00%. As of September 30, 2014, Colonial Bank’s ratios for these items were 10.63%, 22.35% and 23.62%, respectively.

Failure to comply with the regulatory capital ratios can result in Colonial Bank being required to submit a revised capital plan for the OCC’s review and non-objection as well as imposition of a revised enforcement order.

In July 2013, Colonial Financial approved board resolutions as requested by the Federal Reserve. The resolutions provide, among other things, that within specified time frames:

Failure to comply with the board resolutions could result in enforcement action by the Federal Reserve.

Business Activities. A federal savings bank derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and the regulations of the OCC. Under these laws and regulations, Colonial Bank may invest in mortgage loans secured by residential and nonresidential real estate, commercial business loans and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. Colonial Bank also may establish subsidiaries that may engage in activities not otherwise permissible for Colonial Bank, including real estate investment and securities and insurance brokerage. The Dodd-Frank Act authorized the payment of interest on commercial checking accounts, effective July 21, 2011.

Capital Requirements. OCC regulations require savings banks to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for savings banks receiving the highest rating on the CAMELS rating system) and an 8% risk-based capital ratio.

The risk-based capital standard for savings banks requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the OCC, based on the risks believed inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. Additionally, a savings bank that retains credit risk in connection with an asset sale may be required to maintain additional regulatory capital because of the purchaser’s recourse to the savings bank. Colonial Bank does not typically engage in asset sales.

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-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers 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 also implements the Dodd-Frank Act’s directive to apply to savings and loan holding companies consolidated capital requirements that are not less stringent than those applicable to their subsidiary institutions. The final rule is effective January 1, 2015. The “capital conservation buffer” will be phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer will be effective.

In accordance with OTS regulations, at the time of the mutual-to-stock conversion, Colonial Financial substantially restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who continue to maintain their accounts at Colonial Financial after conversion. Colonial Bank established a parallel liquidation account to support Colonial Financial’s liquidation account in the event Colonial Financial does not have sufficient assets to fund its obligations under its liquidation account. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of Colonial Financial or Colonial Bank, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held. Colonial Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

At September 30, 2014, Colonial Bank’s capital exceeded all applicable requirements.

Loans to One Borrower. Generally, a federal savings bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2014, Colonial Bank was in compliance with the loans-to-one-borrower limitations.

Qualified Thrift Lender Test. As a federal savings bank, Colonial Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, Colonial Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12 months. A savings bank that fails the qualified thrift lender test must operate under specified restrictions. The Dodd-Frank Act made noncompliance with the QTL test potentially subject to agency enforcement action for a violation of law.

Capital Distributions. OCC regulations govern capital distributions by a federal savings bank, which include cash dividends, stock repurchases and other transactions charged to the capital account. A savings bank must file an application for approval of a capital distribution if:

Even if an application is not otherwise required, every savings bank that is a subsidiary of a holding company must still file a notice with the Federal Reserve at least 30 days before the board of directors declares a dividend or approves a capital distribution.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution, if after making such distribution the institution would be undercapitalized.

Liquidity. A federal savings bank is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

Community Reinvestment Act and Fair Lending Laws. All savings banks have a responsibility under the Community Reinvestment Act and related regulations of the OCC to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings bank, the OCC is required to assess the association’s record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice. Colonial Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. A federal savings bank’s authority to engage in transactions with its affiliates is limited by federal regulations and by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as Colonial Bank. Colonial Bank is an affiliate of Colonial Financial. In general, loan transactions between an insured depository institution and its affiliate are subject to certain quantitative and collateral requirements. In this regard, transactions between an insured depository institution and its affiliate are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates. Collateral in specified amounts ranging from 100% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from the association. In addition, federal regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. The OCC requires savings banks to maintain detailed records of all transactions with affiliates.

Colonial Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in

the aggregate, which limits are based, in part, on the amount of Colonial Bank’s capital. In addition, extensions of credit in excess of certain limits must be approved by Colonial Bank’s board of directors.

Enforcement. The OCC has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all “institution-affiliated parties,” including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or to recommend to the OCC that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies approved Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the OCC is required and authorized to take supervisory actions against undercapitalized savings banks. For this purpose, a savings bank is placed in one of the following five categories based on the savings bank’s capital:

Generally, the OCC is required to appoint a receiver or conservator for a savings bank that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the OCC within 45 days of the date a savings bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings bank will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the savings bank. Any holding company for the savings bank required to submit a capital restoration plan must guarantee the lesser of: an amount equal to 5% of a savings bank’s assets at the time it was

notified or deemed to be undercapitalized by the OCC, or the amount necessary to restore the savings bank to adequately capitalized status. This guarantee remains in place until the OCC notifies the savings bank that it has maintained adequately capitalized status for each of four consecutive calendar quarters, and the OCC has the authority to require payment and collect payment under the guarantee. Failure by a holding company to provide the required guarantee will result in certain operating restrictions on the savings bank, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations. The OCC may also take any one of a number of discretionary supervisory actions against undercapitalized savings banks, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At September 30, 2014, Colonial Bank met the criteria for being considered “well-capitalized.”

In connection with the final capital rule described earlier, the federal banking agencies have approved revisions, effective January 1, 2015, to the prompt corrective action framework. Under the revised prompt corrective action requirements, insured depository institutions would be required to meet the following in order to qualify as “well capitalized:” (1) a common equity Tier 1 risk-based capital ratio of 6.5%; (2) a Tier 1 risk-based capital ratio of 8% (increased from 6%); (3) a total risk-based capital ratio of 10% (unchanged from current rules) and (4) a Tier 1 leverage ratio of 5% (unchanged from the current rules).

Insurance of Deposit Accounts. Colonial Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Federal deposit insurance per account owner has been raised to $250,000.

Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified by FDIC regulations. The FDIC may adjust the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.

Assessment rates previously ranged from seven to 77.5 basis points of assessable deposits. The Dodd-Frank Act required the FDIC to revise its procedures to base its assessments upon total assets less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that changed the assessment range to 2.5 to 45 basis points of total assets less tangible equity.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That payment is established quarterly and during the quarter ended September 30, 2014 equaled 0.62 basis points of total assets less tangible capital.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC and the FDIC has recently exercised that discretion by establishing a long range fund ratio of 2%.

The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Colonial Bank. Colonial Bank cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. Colonial Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Prohibitions Against Tying Arrangements. Federal savings banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Home Loan Bank System. Colonial Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of New York, Colonial Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank. As of September 30, 2014, Colonial Bank was in compliance with this requirement.

Qualified Mortgages and Retention of Credit Risk. The CFPB has issued a rule designed to clarify for lenders how they can avoid legal liability under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that meet this “qualified mortgage” definition will be presumed to have complied with the new ability-to-repay standard. Under the CFPB’s rule, a “qualified mortgage” loan must not contain certain specified features, including:

Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The CFPB’s rule on qualified mortgages could limit Colonial Bank’s ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could limit its growth or profitability.

In addition, the Dodd-Frank Act requires the regulatory agencies to issue regulations that require securitizers of loans to retain not less than 5% of the credit risk for any asset that is not a “qualified residential mortgage.” The regulatory agencies have issued a proposed rule to implement this requirement. The Dodd-Frank Act provides that the definition of “qualified residential mortgage” can be no broader than the definition of “qualified mortgage” issued by the CFPB for purposes of its regulations (as described above). Although the final rule with respect to the retention of credit risk has not yet been issued, the final rule could have a significant effect on the secondary market for loans and the types of loans Colonial Bank originates, and restrict Colonial Banks ability to make loans.

Federal Reserve regulations require savings banks to maintain noninterest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At December 31, 2013, Colonial Bank was in compliance with these reserve requirements.

Interest and other charges collected or contracted for by Colonial Bank are subject to state usury laws and federal laws concerning interest rates. Colonial Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

Colonial Financial is a unitary savings and loan holding company, subject to regulation and supervision by the Federal Reserve. The Federal Reserve has enforcement authority over Colonial Financial and its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve to restrict or prohibit activities that are determined to be a risk to Colonial Bank.

Colonial Financial’s activities are limited to those activities permissible for financial holding companies or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance, incidental to financial activities or

complementary to a financial activity. The Dodd-Frank Act added that any savings and loan holding company that engages in activities permissible for a financial holding company must meet the qualitative requirements for a bank holding company to be a financial holding company and conduct the activities in accordance with the requirements that would apply to a financial holding company’s conduct of the activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c) (8) of the Bank Holding Company Act, subject to the prior approval of the Federal Reserve, and certain additional activities authorized by Federal Reserve regulations.

Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings institution or holding company thereof, without prior written approval of the Federal Reserve. It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the equity securities of a company engaged in activities that are not closely related to banking or financial in nature or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve must consider the financial and managerial resources and future prospects of the savings institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, required the Federal Reserve to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. The previously discussed final rule regarding regulatory capital requirements implements the Dodd-Frank Act as to savings and loan holding companies. Consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions will apply to savings and loan holding companies as of January 1, 2015. As is the case with institutions themselves, the capital conservation buffer will be phased in between 2016 and 2019.

Dividends and Stock Repurchases. The Federal Reserve has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies that it has made applicable to savings and loan holding companies as well. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend. The guidance also provides for prior regulatory review where the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also provides for regulatory review prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of Colonial Financial to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Colonial Financial common stock is registered with the Securities and Exchange Commission. Colonial Financial is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. Colonial Financial’s Chief Executive Officer and Chief Financial Officer are required to certify, among other things, that its quarterly and annual reports do not contain any untrue statement of a material fact.

The following table provides certain information with respect to Colonial Financial’s banking offices as of September 30, 2014:

The net book value of Colonial Financial’s premises, land and equipment was approximately $7.5 million at September 30, 2014.

Other than as set forth below, Colonial Financial is not engaged in any legal proceedings of a material nature at September 30, 2014. In the ordinary course of business, Colonial Financial is from time to time party to legal proceedings incident to its business. While the ultimate outcome of these proceedings cannot be predicted with certainty, management, after consultation with counsel representing Colonial Financial in these proceedings, does not expect that the resolution of these proceedings will have a material effect on Colonial Financial’s consolidated financial condition, results of operations or cash flows.

On October 14, 2014, a complaint was filed in the Circuit Court for Baltimore City, Maryland against Colonial Financial and the Colonial Financial board of directors, seeking class action status and asserting that Colonial Financial and the Colonial Financial board of directors violated their fiduciary duties to stockholders in connection with the proposed Merger with Cape. Colonial Financial believes this complaint is without merit and intends to vigorously defend itself against this complaint.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on Colonial Financial’s income or the carrying value of its assets. Colonial Financial’s critical accounting policies are those related to its allowance for loan losses, the evaluation of other-than-temporary impairment of investments securities, the valuation of and its ability to realize deferred tax assets and the measurement of fair value.

Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance sufficient to absorb estimated probable loan losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires an estimate of the loss for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

Colonial Financial has established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish the allowance for loan losses. The allowance for loan losses is based on Colonial Financial’s current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for loan losses is established through a provision for loan losses based on Colonial Financial’s evaluation of the losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date.

The allowance for loan losses consists of specific, general and unallocated components. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The fair value of impaired collateral dependent loans is estimated using an appraisal of the collateral less estimated liquidation expenses or discounted cash flows for non-collateral dependent loans. Those impaired loans not requiring a write-down represent loans for which the fair value of the collateral or expected repayments exceeds the recorded investment in such loans. Impaired loans are charged off to the estimated fair value.

The allowance for losses on loans is determined by segregating the loans by loan category and assigning allowance percentages based on Colonial Financial’s historical loss experience, delinquency trends and management’s evaluation of the collectability of the loan portfolio. The allowance is adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in Colonial Financial’s lending policies and procedures, changes in current general economic conditions and business conditions affecting its primary lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, loss experience, and duration of the current business cycle. The applied loss factors are re-evaluated each reporting period to ensure their relevance in the current economic environment.

The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Future provisions for loan losses may include an unallocated component as Colonial Financial re-evaluate Colonial Financial’s estimates including, but not limited to changes in economic conditions in its market area, declines in local property values and concentrations of risk. Included in Colonial Financial’s estimate and evaluation is an analysis of its mortgage loans, both current and delinquent, that may have private mortgage insurance.

Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires Colonial Financial to make subjective judgments that often require assumptions or estimates about various matters. Historically, Colonial Financial believes its estimates and assumptions have proven to be relatively accurate. Nevertheless, because a small number of non-performing loans could result in net charge-offs significantly in excess of the estimated losses inherent in Colonial Financial’s loan portfolio, additional provisions to the allowance for loan losses may be required that would adversely impact earnings for future periods. In addition, the OCC and the Federal Reserve, as an integral part of their examination processes, periodically review Colonial Financial’s allowance for loan losses. They may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

Other-Than-Temporary Impairment. Investment securities are evaluated on at least a quarterly basis, to determine whether a decline in their value is other-than-temporary. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether or not Colonial Financial intends to sell or expect that it is more likely than not that it will be required to sell the investment security prior to an anticipated recovery in fair value. Once a decline in value for a debt security is determined to be other than temporary, the other-than-temporary impairment is separated into (a) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss). For equity securities, the full amount of the other-than-temporary impairment is recognized in earnings.

Valuation of Deferred Tax Assets. In evaluating Colonial Financial’s ability to realize deferred tax assets, management considers all positive and negative information, including its past operating results and its forecast of future taxable income. In determining future taxable income, management utilizes a budget process that makes business assumptions and the implementation of feasible and prudent tax planning strategies. These assumptions require Colonial Financial to make judgments about Colonial Financial’s future taxable income and are consistent with the plans and estimates Colonial Financial uses to manage its business. Any reduction in estimated future taxable income may require Colonial Financial to record a valuation allowance against Colonial Financial’s deferred tax assets which would result in additional income tax expense in the period.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Colonial Financial estimates the fair value of financial instruments using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, Colonial Financial estimates fair value. Other factors such as model assumptions and market dislocations can affect estimates of fair value. Differences in the fair value and carrying value of certain financial instruments (including changes in the differences between the fair value and the carrying value from period to period), such as loans, securities held to maturity, deposits and borrowings do not affect Colonial Financial’s reported financial condition or results of operations, as such financial instruments are carried at cost.

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

Total assets decreased $30.5 million, or 5.2%, to $552.7 million at September 30, 2014, from $583.2 million at December 31, 2013. The decrease was mainly the result of decreases in cash and amounts due from banks, investment securities held-to-maturity, and net loans receivable offset by an increase in investment securities available-for-sale.

million to $63.4 million at September 30, 2014 from $79.6 million at December 31, 2013. Construction and land loans decreased $1.4 million to $7.3 million at September 30, 2014 from $8.7 million at December 31, 2013. Home equity loans and lines of credit decreased $1.4 million to $25.0 million at September 30, 2014 from $26.4 million at December 31, 2013. Commercial loans increased by $4.0 million to $21.3 million at September 30, 2014 from $17.3 million at December 31, 2013. Included in the net loans receivable are nonaccrual loans which decreased to $9.4 million at September 30, 2014 from $13.6 million at December 31, 2013.

Real estate owned decreased to $3.2 million at September 30, 2014 from $3.3 million at December 31, 2013. Colonial Financial currently holds through the foreclosure process or deed-in-lieu of foreclosure 13 properties, five of which are residential one- to four-family properties, three of which are nonresidential properties and five of which are construction and land loans.

Securities available-for-sale increased $8.3 million, or 3.7%, to $235.4 million at September 30, 2014 from $227.1 million at December 31, 2013. This increase was the result of purchases in the amount of $70.4 million and transfers from the held-to-maturity portfolio in the amount of $10.0 million and a market value increase of $4.6 million offset by calls, maturities and sales in the amount of $69.4 million and $14.3 million in principal amortization. Securities held-to-maturity decreased by $17.3 million as the entire held-to-maturity portfolio was transferred to the available-for-sale portfolio.

Deposits decreased $44.1 million, or 8.4%, to $477.9 million at September 30, 2014 from $522.0 million at December 31, 2013. NOW accounts increased $700,000 to $153.0 million at September 30, 2014 from $152.3 million at December 31, 2013. Savings accounts decreased $25.2 million to $86.0 million at September 30, 2014 from $111.2 million at December 31, 2013. Super NOW accounts decreased by $5.9 million to $37.8 million at September 30, 2014 from $43.7 million at December 31, 2013. Non-interest bearing demand accounts increased by $3.9 million to $46.6 million at September 30, 2014 from $42.7 million at December 31, 2013. Certificates of deposit decreased by $6.7 million to $101.5 million at September 30, 2014 from $108.2 million at December 31, 2013. Money market deposit accounts decreased $10.9 million, or 16.9%, to $52.9 million at September 30, 2014 from $63.8 million at December 31, 2014.

Federal Home Loan Bank borrowings totaled $9.7 million at September 30, 2014. There were no Federal Home Loan Bank borrowings outstanding at December 31, 2013.

Total stockholders’ equity increased $3.6 million to $62.8 million at September 30, 2014 from $59.2 million at December 31, 2013. This increase was mainly attributable to net income of $415,000 and an increase in the market value of available for sale securities of $3.1 million.

Total assets decreased $40.4 million, or 6.5%, to $583.2 million at December 31, 2013 from $623.6 million at December 31, 2012. The decrease was the result of decreases in cash and cash and amounts due from banks, investment securities available-for-sale, investment securities held-to-maturity, net loans receivable, real estate owned, Federal Home Loan Bank stock, office properties and equipment and accrued interest receivable, offset by increases in bank-owned life insurance and the net deferred tax asset.

Net loans receivable decreased by $21.0 million, or 7.1%, to $276.2 million at December 31, 2013 from $297.2 million at December 31, 2012. One- to four-family residential real estate loans increased $1.1 million, or 0.7%, to $149.7 million at December 31, 2013 from $148.7 million at December 31, 2012. Commercial real estate loans decreased $10.5 million, or 11.7%, to $79.6 million at December 31, 2013 from $90.1 million at December 31, 2012. Home equity loans and lines of credit decreased $2.2 million, or 7.7%, to $26.4 million at December 31, 2013 from $28.7 million at December 31, 2012. Construction and land loans decreased $1.0 million, or 10.5%, to $8.7 million at December 31, 2013 from $9.7 million at December 31, 2012. Commercial loans decreased $6.0 million, or 25.9%, to $17.3 million at December 31, 2013 from $23.3 million at December 31, 2012.

Investment securities available for sale decreased $6.2 million, or 2.7%, to $227.1 million at December 31, 2013 from $233.3 million at December 31, 2012. The decrease was the result of sales in the amount of $25.0

million of investment securities available for sale, $41.0 million in calls and maturities of investment securities available for sale, a decrease in the market value of investment securities available for sale of $11.4 million, $28.2 million in principal amortization and accretion of discounts and premiums in the amount of $19,000 offset by purchases of $99.4 million of mortgage-backed and investment securities available for sale. In addition, securities held to maturity decreased $12.6 million, or 42.2% to $17.3 million at December 31, 2013 from $29.9 million at December 31, 2012. The decrease in securities held to maturity was the result of principal amortization of $244,000 and $28.2 million in calls and maturities of investment securities held to maturity, offset by purchases of $15.6 million and accretion of discounts and premiums in the amount of $188,000.

Other assets increased by $58,000 to $4.0 million at December 31, 2013 from $3.9 million at December 31, 2012. The increase was mainly due to the increase in prepaid income taxes. Cash and amounts due from banks decreased by $3.0 million to $23.4 million at December 31, 2013 from $26.4 million at December 31, 2012.

Colonial Financial invests in bank-owned life insurance to provide a funding source for benefit plan obligations. Bank-owned life insurance also generally provides non-interest income that is nontaxable. Federal regulations generally limit the investment in bank-owned life insurance to 25% of the sum of Colonial Bank’s tier 1 capital and its allowance for loan losses. At December 31, 2013, this limit was $15.7 million. The Bank is the owner of the policies and shares proceeds of the policies in a split dollar arrangement with the beneficiary of the insured employee or director. The amount of the split dollar arrangement is equal to three times the annual base salary of the insured at the time of his or her death less $50,000 for an employee and $250,000 for a director. During 2013, Colonial Financial increased its coverage of life insurance on key personnel from $14.2 million at December 31, 2012 to $14.6 million at December 31, 2013.

Deposits decreased $32.1 million, or 5.8%, to $522.0 million at December 31, 2013 from $554.1 million at December 31, 2012. NOW accounts decreased $15.9 million, or 9.4%, to $152.3 million at December 31, 2013 from $168.2 million at December 31, 2012. Money market deposit accounts decreased $8.2 million, or 11.4%, to $63.8 million at December 31, 2013 from $72.1 million at December 31, 2012. Savings accounts increased $4.8 million, or 4.5%, to $111.2 million at December 31, 2013 from $106.5 million at December 31, 2012. Certificates of deposit decreased $15.3 million, or 12.4%, to $108.2 million at December 31, 2013 from $123.6 million at December 31, 2012. Non-interest bearing demand accounts increased $3.4 million, or 8.8% to $42.7 million at December 31, 2013 from $39.3 million at December 31, 2012. Super NOW accounts decreased $808,000, or 1.8%, to $43.7 million at December 31, 2013 from $44.5 million at December 31, 2012.

There were no borrowings outstanding as of December 31, 2013 and 2012, as Colonial Financial has not required excess liquidity to fund its operations.

Total stockholders’ equity decreased $8.8 million to $59.2 million at December 31, 2013 from $68.0 million at December 31, 2012. This decrease was attributable to a net loss of $1.8 million and a decrease in other comprehensive income of $7.4 million as well as stock repurchases in the amount of $134,000. Accumulated other comprehensive income decreased by $7.4 million to a loss of $4.5 million at December 31, 2013 from income of $2.9 million at December 31, 2012 as a result of a decrease in unrealized gains on investment securities available for sale. Because of interest rate volatility, accumulated other comprehensive income (loss) could materially fluctuate for future interim periods and years depending on economic and interest rate conditions.

The following table sets forth average balances, average yields and costs, and certain other information for the years indicated. Tax-equivalent yield adjustments have not been made for tax-exempt securities. 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.

The following table presents the effects of changing rates and volumes on Colonial Financial’s 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 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.

Comparison of Operating Results for the Nine Months Ended September 30, 2014 and September 30, 2013

General. Colonial Financial experienced net income of $415,000 for the nine months ended September 30, 2014 compared to a net loss of $2.4 million for the nine months ended September 30, 2013. The principal reasons for the increase in net income were a decrease in the provision for loan losses in the amount of $5.3 million and a decrease in total non-interest expense of $888,000 offset by a decrease in net interest income of $1.0 million, a decrease in total non-interest income of $625,000 and an increase in income tax expense of $1.6 million.

Interest Income. Interest income decreased $2.0 million to $11.8 million for the nine months ended September 30, 2014 from $13.8 million for the nine months ended September 30, 2013. The decrease in interest income resulted from a decrease of $1.3 million in interest income on loans and a decrease of $763,000 in interest income on securities.

Interest income on loans decreased $1.3 million to $9.1 million for the nine months ended September 30, 2014 from $10.4 million for the nine months ended September 30, 2013. The average balance of loans decreased $24.0 million to $270.0 million for the nine months ended September 30, 2014 from $294.0 million for the nine months ended September 30, 2013 along with a decrease in the average yield to 4.48% for the nine months ended September 30, 2014 from 4.69% for the nine months ended September 30, 2013.

Interest income on securities decreased by $763,000 to $2.7 million for the nine months ended September 30, 2014 from $3.5 million for the nine months ended September 30, 2013. The decrease in interest income on securities was due to a decrease in the average yield on taxable and tax-exempt securities of 16 basis points to 1.50% for the nine months ended September 30, 2014 from 1.66% for the nine months ended September 30, 2013 along with a decrease in the average balance of taxable and tax-exempt securities to $239.1 million for the nine months ended September 30, 2014 from $277.7 million for the nine months ended September 30, 2013. The yields on tax-exempt securities are not tax-affected.

Interest Expense. Interest expense decreased $1.0 million to $2.0 million for the nine months ended September 30, 2014 from $3.0 million for the nine months ended September 30, 2013.

Interest expense on interest-bearing deposits decreased by $1.0 million to $2.0 million for the nine months ended September 30, 2014 from $3.0 million for the nine months ended September 30, 2013. The decrease in interest expense on interest-bearing deposits was due to a decrease in the average rate paid on interest-bearing deposits to 0.60% for the nine months ended September 30, 2014 from 0.80% for the nine months ended September 30, 2013 along with a decrease in the average balance of interest-bearing deposits to $441.6 million for the nine months ended September 30, 2014 from $501.7 million for the nine months ended September 30, 2013. Colonial Financial experienced decreases in the average balances and average costs across all categories of interest-bearing deposits for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Interest expense on borrowings decreased $11,000 to $16,000 for the nine months ended September 30, 2014 from $27,000 for the nine months ended September 30, 2013. This decrease was primarily due to a $4.0 million decrease in the average balance of borrowings to $5.6 million for the nine months ended September 30, 2014 from $9.6 million for the nine months ended September 30, 2013, partially offset by an increase in the average rate paid on borrowings to 0.39% for the nine months ended September 30, 2014 from 0.38% for the nine months ended September 30, 2013.

Provision for Loan Losses. Colonial Financial establishes 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 probable credit losses inherent in the loan portfolio. In determining the level of the allowance for loan losses, Colonial Financial considers past and current loss experience, evaluation 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 nonperforming and other classified 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 later events change. Colonial Financial assesses the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance.

During the nine months ended September 30, 2014, Colonial Financial charged off $3.2 million in loans, which included $470,000 on one- to four-family loans, $199,000 on commercial real estate loans, $76,000 on construction and land loans, $100,000 on home equity and lines of credit and $2.4 million on commercial loans. As part of the Bank’s loan collection process, Colonial Financial re-appraises loans that are delinquent or impaired. The reasons for the charge-offs in the nine months ended September 30, 2014 were the cash flow analysis that Colonial Financial completed on non-collateral based impaired loans and the reduced appraisals that we received on collateral-based impaired loans Colonial Financial was monitoring. The charge-offs during this period are included in Colonial Financial’s risk-weighted historical loss rates based on the nature, type and industry sector of the loan. The historical loan rates are then incorporated in calculating the general component of Colonial Financial’s allowance for loan loss by loan category.

During the nine months ended September 30, 2013, Colonial Financial charged off $4.2 million in loans, which included $209,000 on one- to four-family loans, $1.8 million on commercial real estate loans, $37,000 on construction and land loans, $210,000 on home equity and lines of credit, $2.0 million on commercial loans, and $7,000 on consumer loans. As part of Colonial Financial Bank’s loan collection process, Colonial Financial re-appraises loans that are delinquent or impaired. The reason for the charge-offs in the nine months ended September 30, 2013 were the reduced appraisals that Colonial Financial received on impaired loans we were monitoring. The charge-offs during this period are included in Colonial Financial’s risk-weighted historical loss rates based on the nature, type and industry sector of the loan. The historical loan rates are then incorporated in calculating the general component of Colonial Financial’s allowance for loan loss by loan category.

Based on Colonial Financial’s evaluation of the above factors, Colonial Financial recorded a provision for loan losses of $290,000 for the nine months ended September 30, 2014 and a provision for loan losses of $5.5 million for the nine months ended September 30, 2013. The allowance for loan losses was $4.4 million, or 1.60% of total loans, at September 30, 2014, compared to $5.6 million, or 1.95% of total loans, at September 30, 2013. Colonial Financial’s balance of loans it evaluated individually for impairment was $17.4 million at September 30, 2014 and $25.3 million at December 31, 2013. At September 30, 2014, December 31, 2013 and September 30, 2013, Colonial Financial maintained unallocated allowances for loan losses of $1.3 million, $750,000 and $1.5 million respectively. The main reason for the increase in the unallocated portion of the allowance for loan losses is the amount of recoveries Colonial Financial received on loans that were previously charged off against earnings. The unallocated portion of the allowance is deemed to be appropriate as it reflects an uncertainty that remains in the loan portfolio, as well as a company-specific, industry-wide reluctance and a regulatory reluctance to reduce allowances at this time. Colonial Financial believes that the amount of provision in 2014 and the resulting allowance at September 30, 2014, are appropriate given the continuing level of risk in the loan portfolio, including the overall level of non-performing loans.

To the best of Colonial Financial’s knowledge, it recorded all losses that are both probable and reasonable to estimate at September 30, 2014 and 2013. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to Colonial Financial’s loan portfolio (including residential and commercial real estate loans) could result in material increases in its provisions for loan losses.

Non-interest Income. Non-interest income was $1.7 million for the nine months ended September 30, 2014 and $2.3 million for the nine months ended September 30, 2013. Fees and service charges on deposit accounts decreased by $51,000 to $853,000 for the nine months ended September 30, 2014 from $904,000 for the nine months ended September 30, 2013. For the nine months ended September 30, 2014, there was a net gain on the sale and call of investment securities in the amount of $500,000 compared to a net gain of $1.1 million for the nine months ended September 30, 2013. Earnings on bank owned life insurance totaled $319,000 for the nine months ended September 30, 2014 and $330,000 for the nine months ended September 30, 2013.

Non-interest Expense. Non-interest expense decreased $888,000 to $10.2 million for the nine months ended September 30, 2014 from $11.1 million for the nine months ended September 30, 2013. Compensation and benefits expense decreased by $880,000 to $4.3 million for the nine months ended September 30, 2014 from $5.2 million for the nine months ended September 30, 2013. The decrease in compensation and benefit expense was due to the elimination of director fees for the nine months ended September 30, 2014 as the director’s suspended payment of their fees. The decline was also due to reduced employee hours as branch staffing was matched to customer activity for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, and reduced ESOP expense. Occupancy and equipment expense increased $36,000 to $1.2 million for the

nine months ended September 30, 2014 from $1.2 million for the nine months ended September 30, 2013. Federal deposit insurance premiums increased $7,000 to $541,000 for the nine months ended September 30, 2014 from $534,000 for the nine months ended September 30, 2013 due to increased premiums. Data processing fees increased by $53,000 to $773,000 for the nine months ended September 30, 2014 from $720,000 for the nine months ended September 30, 2013. This increase was due to costs associated with item processing. Professional fees decreased $36,000 to $893,000 for the nine months ended September 30, 2014 from $929,000 for the nine months ended September 30, 2013. Net real estate owned expense decreased $281,000 to $908,000 for the nine months ended September 30, 2014 from $1.2 million for the nine months ended September 30, 2013 due to reduced allowances for REO properties and reduced REO expenses. Merger-related expenses of $470,000 were incurred during the nine months ended September 30, 2104. Other expenses decreased to $1.0 million for the nine months ended September 30, 2014 from $1.1 million for the three months ended September 30, 2013.

Income Tax Benefit. Colonial Financial recorded an income tax expense of $548,000 for the nine months ended September 30, 2014, compared to an income tax benefit of $1.1 million for the nine months ended September 30, 2013. The effective tax rates are 56.9% and (31.4%), respectively. The effective tax rate for the nine months ended September 30, 2014 was adversely impacted by our payment of Merger-related expenses of $470,000 which Colonial Financial has treated as non-deductible, but will be re-evaluated for potential deductibility in relation to all other expenses incurred in regards to the Merger in the fourth quarter of 2014 and beyond.

Comparison of Operating Results for the Years Ended December 31, 2013 and December 31, 2012

General. Colonial Financial experienced a net loss of $1.8 million for the year ended December 31, 2013 compared to a net loss of $1.7 million for the year ended December 31, 2012. The principal reason for the loss for the year ended December 31, 2013 was a provision for loan losses of $5.7 million. Also, net interest income decreased by $1.7 million to $14.3 million for the year ended December 31, 2013 from $16.0 million for the year ended December 31, 2012 and non-interest expense increased by $404,000 to $14.8 million for the year ended December 31, 2013 from $14.4 million for the year ended December 31, 2012. Also, due to the net loss, the income tax benefit increased from a benefit of $1.3 million for the year ended December 31, 2012 to a benefit of $1.6 million for the year ended December 31, 2013.

Interest Income. Interest income decreased $3.3 million to $18.1 million for the year ended December 31, 2013 from $21.4 million for the year ended December 31, 2012. The decrease in interest income resulted from a $1.2 million decrease in interest income on investment securities and mortgage-backed securities and a decrease of $2.1 million on loans.

Interest income on loans decreased $2.1 million, or 13.2%, to $13.6 million for the year ended December 31, 2013 from $15.7 million for the year ended December 31, 2012. This decrease resulted from a 64 basis point decrease in the average yield on loans to 4.68% for the year ended December 31, 2013 from 5.32% for the year ended December 31, 2012 along with a decrease in the average balance of loans of $3.9 million, or 1.3%, to $291.0 million for the year ended December 31, 2013 from $294.8 million for the year ended December 31, 2012.

Interest income on securities decreased by $1.2 million to $4.5 million for the year ended December 31, 2013 from $5.7 million for the year ended December 31, 2012. The decrease in interest income on securities was due to a decrease in the average yield on taxable and tax-exempt securities of 47 basis points to 1.66% for the year ended December 31, 2013 from 2.13% for the year ended December 31, 2012, which was offset by an increase in the average balance of taxable and tax-exempt securities to $271.8 million for the year ended December 31, 2013 from $268.8 million for the year ended December 31, 2012. The increase in the average balance of securities resulted from Colonial Financial’s investing excess cash in short-term investment securities. The yields on tax-exempt securities are not tax-affected.

Interest Expense. Interest expense decreased $1.6 million, or 29.1%, to $3.8 million for the year ended December 31, 2013 from $5.4 million for the year ended December 31, 2012.

Interest expense on interest-bearing deposits decreased by $1.6 million, or 29.2%, to $3.8 million for the year ended December 31, 2013 from $5.4 million for the year ended December 31, 2012. The decrease in interest expense on interest-bearing deposits was due to a decrease of 28 basis points in the average rate paid on interest-

bearing deposits to 0.77% for the year ended December 31, 2013 from 1.05% for the year ended December 31, 2012. Colonial Financial experienced decreases in the average cost across all categories of interest-bearing deposits for the year ended December 31, 2013. This was augmented by a $14.9 million, or 2.9%, decrease in the average balance of interest-bearing deposits to $496.6 million for the year ended December 31, 2013 from $511.5 million for the year ended December 31, 2012.

Interest expense on borrowings decreased $6,000 to $29,000 for the year ended December 31, 2013 from $35,000 for the year ended December 31, 2012. This decrease was due to a decrease in the average cost of such borrowings to 0.38% for the year ended December 31, 2013 from 1.91% for the year ended December 31, 2012, offset by an increase in the average balance of borrowings to $7.6 million for the year ended December 31, 2013 from $1.8 million for the year ended December 31, 2012.

Net Interest Income. Net interest income decreased by $1.7 million, or 10.6%, to $14.3 million for the year ended December 31, 2013 from $16.0 million for the year ended December 31, 2012 as the $812,000 decrease in Colonial Financial’s average interest earning assets was more than offset by a $9.1 million decrease in its average interest bearing liabilities and a 29 basis point decrease in its net interest margin to 2.54% for the year ended December 31, 2013 from 2.83% for the year ended December 31, 2012, and a 28 basis point decrease in its net interest rate spread to 2.46% for the year ended December 31, 2013 from 2.74% for the year ended December 31, 2012.

Provision for Loan Losses. Colonial Financial establishes provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level it considers necessary to absorb probable credit losses inherent in the loan portfolio. In determining the level of the allowance for loan losses, Colonial Financial considers past and current loss experience, evaluation 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 nonperforming and other classified 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 later events change. Colonial Financial assesses the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance.

Based on Colonial Financial’s evaluation of the above factors, it recorded a provision for loan losses of $5.7 million for the year ended December 31, 2013 and a provision for loan losses of $6.5 million for the year ended December 31, 2012. The allowance for loan losses was $5.9 million, or 2.07% of total loans, at December 31, 2013, compared to $4.1 million, or 1.37% of total loans, at December 31, 2012.

For the year ended December 31, 2012, the charge-offs on commercial real estate loans were due to reduced valuations on re-appraisals of the underlying collateral for such loans. Six out of seven loans in one particular sector of the commercial real estate portfolio were identified as impaired and written down in the second quarter 2012 to the estimated fair value based on appraisals. The Bank feels this industry sector is not representative of the remaining commercial real estate portfolio and has therefore reduced the risk-weighted historical loss factor for the second quarter of 2012 in the calculation for the general loan loss allowance. The Bank has not seen similar decreases in collateral valuations in other commercial real estate industry sectors since the collateral in other sectors is different in type and nature. The charge-offs during the year are included in Colonial Financial’s risk-weighted historical loss rates based on the nature, type and industry sector of the loan. The historical loss rates are segmented by eight quarters and incorporated in calculating the general component of Colonial Financial’s allowance for loan loss by loan category. The calculation of the allowance for loans losses on Colonial Financial’s loan portfolio consists of the historical loan loss rate and a qualitative adjustment. Charge-offs during the year are included in Colonial Financial’s historical loan loss rate. While qualitative risk factors in the general allowance calculation were increased in response to the increase collateral valuation risk noted in the previously mentioned sector, positive trends in the volume and severity of past due loans in the rest of the commercial real estate portfolio resulted in lower qualitative risk factors and an overall lower general reserve for the commercial real estate portfolio.

Colonial Financial’s balance of loans it evaluated individually for impairment decreased to $25.3 million at December 31, 2013 from $30.7 million at December 31, 2012, although it provided specific allowances on loans with principal balances of $3.9 million as of December 31, 2013 and $479,000 as of December 31, 2012. In an October 2011 directive, the OCC required all specific valuation allowances (“SVA”) on collateral-dependent loans

(SVAs established when the recorded investment in an impaired loan exceeded the measured value of the collateral) maintained by savings institutions to be charged off. As a result, reported loan charge-offs for the year ended December 31, 2012 includes the charge-off of specific valuation allowances, which had a balance of $2.6 million at December 31, 2011. At December 31, 2013 and 2012, all nonaccrual loans were individually evaluated for impairment.

The allowance for loan losses represented 43.16% of nonperforming loans at December 31, 2013 and 31.55% of nonperforming loans at December 31, 2012. As a result of Colonial Financial’s recent increase in nonperforming loans, it experienced net charge-offs of $4.0 million for the year ended December 31, 2013 and $7.4 million for the year ended December 31, 2012. In addition, at December 31, 2013, approximately 43% of Colonial Financial’s non-performing loans were one- to four-family residential and home equity real estate loans and 57% of its non-performing loans were commercial real estate, construction and land loans and commercial loans. Colonial Financial decreased the balance of the unallocated portion of the allowance for loan losses to $750,000 at December 31, 2013 compared to the balance of the unallocated portion of the allowance for loan losses at $1.5 million at December 31, 2012. Colonial Financial decreased the unallocated portion to better reflect individual loan reserves and to reflect the large reduction in overall loan balances.

To the best of Colonial Financial’s knowledge, it has recorded all losses that are both probable and reasonable to estimate at December 31, 2013 and 2012. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to Colonial Financial’s loan portfolio (including residential and commercial real estate loans) could result in material increases in its provisions for loan losses.

Non-interest Income. Non-interest income increased $911,000 to $2.8 million for the year ended December 31, 2013 compared to $1.8 million for the year ended December 31, 2012. Fees and service charges on deposit accounts increased by $36,000 to $1.2 million for the year ended December 31, 2013 from $1.2 million for the year ended December 31, 2012. Net gains on the sales and calls of investment securities increased to $1.1 million for the year ended December 31, 2013 from $259,000 for the year ended December 31, 2012.

Non-interest Expense. Non-interest expense increased $404,000, or 2.8%, to $14.8 million for the year ended December 31, 2013 from $14.4 million for the year ended December 31, 2012. Compensation and benefits expense remained level at $6.9 million for the years ended December 31, 2013 and 2012. Occupancy and equipment expense also remained level at $1.6 million for the years ended December 31, 2013 and 2012. Data processing expense increased $89,000 to $968,000 for the year ended December 31, 2013 from $879,000 for the year ended December 31, 2012. FDIC insurance premiums increased by $202,000 to $733,000 for the year ended December 31, 2013 from $531,000 for the year ended December 31, 2012. This increase was due to the increased insurance premium as a result of being under the Formal Agreement. Professional fees increased by $421,000 to $1.3 million for the year ended December 31, 2013 from $850,000 for the year ended December 31, 2012. This increase was due to higher legal expenses and loan collection expenses offset by a decrease in auditing and accounting fees. Real estate owned expense decreased to $1.5 million for the year ended December 31, 2013 from $1.8 million for the year ended December 31, 2012. This decrease is due to the lower additions to the allowance for losses on real estate owned and the net gains on the sale of real estate owned for the year ended December 31, 2013 offset by increased expenses attributable to holding more properties in real estate owned. Other expenses increased $111,000 to $1.5 million for the year ended December 31, 2013. This increase was mainly attributable to increases in appraisal expense, insurance expense, supervisory examination expense, telephone expense offset by a reduction in training and education expense.

Income Tax Expense. Colonial Financial recorded a benefit of $1.6 million for income taxes for the year ended December 31, 2013, compared to a benefit of $1.3 million for the year ended December 31, 2012, reflecting effective tax rates of (47.3)% and (43.0)%, respectively. The benefits were due to the losses Colonial Financial experienced during the year.

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Colonial Financial’s primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds,

deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

Colonial Financial regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.

Colonial Financial’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on its operating, financing, lending and investing activities during any given period. At September 30, 2014, cash and cash equivalents totaled $8.4 million compared to $23.4 million at December 31, 2013. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $235.4 million at September 30, 2014 and $227.1 million at December 31, 2013. In addition, at September 30, 2014, Colonial Financial had the ability to borrow a total of $165.8 million from the Federal Home Loan Bank of New York (30% of its assets at that date) compared to $174.9 million at December 2013. At September 30, 2014, there were $9.7 million in Federal Home Loan Bank advances outstanding compared to no advances at December 31, 2013.

At September 30, 2014 and December 31, 2013, loan commitments outstanding totaled $6.0 and $10.0 million, respectively. In addition to commitments to originate loans, Colonial Financial had $25.2 million in unadvanced funds to borrowers compared to $19.5 million in unadvanced funds and $3.0 million of commitments issued under standby letters of credit at December 31, 2013. Total certificates of deposit due within one year of September 30, 2014 totaled $51.9 million and $51.0 million at December 31, 2013. Total certificates of deposit due within one year of September 30, 2014 represent 10.9% of total deposits and 9.8% of total deposits at December 31, 2013. If these deposits do not remain with us, Colonial Financial will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, Colonial Financial may be required to pay higher rates on such deposits or other borrowings than it currently pays on the certificates of deposit due on or before September 30, 2015. Colonial Financial has the ability to attract and retain deposits by adjusting the interest rates offered.

Colonial Financial has no material commitments or demands that are likely to affect its liquidity other than set forth above. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, Colonial Financial could access Colonial Financial’s borrowing capacity with the Federal Home Loan Bank of New York or increase deposit rates to attract additional deposits.

Colonial Financial’s primary investing activities are the origination of loans and the purchase of securities. For the nine months ended September 30, 2014, Colonial Financial originated $52.7 million of loans and purchased $70.4 million of securities. For the year ended December 31, 2013, we originated $51.6 million of loans and purchased $115.0 million of securities. We have not purchased any whole loans in recent periods.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. Colonial Financial experienced a net decrease of $44.2 million and a net decrease of $26.8 million in total deposits for the nine months ended September 30, 2014 and 2013, respectively. In addition, Colonial Financial experienced a net decrease in total deposits of $32.1 million for the year ended December 31, 2013 and a net increase in total deposits of $33.4 million for the year ended December 31, 2012. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by Colonial Financial and its local competitors and other factors. Colonial Financial generally manages the pricing of its deposits to be competitive in its local markets.

There were $9.7 million in Federal Home Loan Bank short-term borrowings outstanding at September 30, 2014 and no advances at December 31, 2013. Federal Home Loan Bank advances have primarily been used to fund loan demand and purchase securities.

Colonial Bank is subject to various regulatory capital requirements administered by the Office of Comptroller of the Currency, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.

In July 2013, the OCC 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-in or 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 Colonial 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 Colonial Financial Services, Inc., effective January 1, 2015.

General. The majority of Colonial Financial’s assets and liabilities are monetary in nature. Consequently, Colonial Financial’s most significant form of market risk is interest rate risk. Colonial Financial’s assets, consisting primarily of mortgage loans, have longer maturities than its liabilities, consisting primarily of deposits. As a result, a principal part of Colonial Financial’s business strategy is to manage interest rate risk and reduce the exposure of its net interest income to changes in market interest rates. Accordingly, Colonial Financial’s board of directors has established an Asset/Liability Management Committee, consisting of senior management, which is responsible for evaluating the interest rate risk inherent in Colonial Financial’s assets and liabilities, for determining the level of risk that is appropriate given its business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The Asset/Liability Management Committee monitors the level of interest rate risk and Colonial Financial’s board of directors reviews its asset/liability policies and interest rate risk position.

Colonial Financial has sought to manage its interest rate risk in order to minimize the exposure of its earnings and capital to changes in interest rates. Given the current low interest rate environment, Colonial Financial intends to use the following strategies to manage its interest rate risk:

In addition, in previous years, Colonial Financial has sold long-term (greater than 15 years) loans. By following these strategies, Colonial Financial believes that Colonial Financial is better positioned to react to increases in market interest rates. However, investments in shorter-term assets generally have lower yields than longer-term investments.

Economic Value of Equity. The Bank monitors its interest rate risk through the use of a simulation model which incorporates all asset and liability rate and maturity information, assumptions regarding prepayment speeds of loans and the effective maturity of non-maturity deposits, and simulates the effect of various interest rate movements on interest income and the economic value of equity (“EVE”). The quarterly reports developed in the simulation model assist Colonial Financial in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within Colonial Financial’s policy guidelines.

The table below sets forth, as of September 30, 2014 and December 31, 2013, the estimated changes in Colonial Financial’s EVE that would result from the designated instantaneous changes in the United States Treasury yield curve. 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.

The table above indicates that at September 30, 2014, in the event of a 100 basis point increase in interest rates, Colonial Financial would experience a 7.4% decrease in the economic value of equity. In the event of a 200 basis point increase in interest rates, Colonial Financial would experience a 18.4% decrease in the economic value of equity. Both of these calculations are based on the calculated economic value of equity of $83.2 million at September 30, 2014.

In addition to modeling changes in Colonial Financial’s portfolio value of equity, Colonial Financial also runs simulations on its net interest income for a twelve-month period under rising and falling interest rate scenarios. The table below sets forth the changes in Colonial Financial’s net interest income that would result from the designated instantaneous changes in the United States Treasury yield curve at September 30, 2014 and December 31, 2013. As with the market value portfolio equity simulation model, the changes in net interest income 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.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. 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 tables presented assume that the composition of Colonial Financial’s 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 the tables provide an indication of Colonial Financial’s 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 its economic value of equity and net interest income and will differ from actual results.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of Colonial Financial’s loans, deposits and borrowings. For further information, see Note 14 to the Notes to Colonial Financial’s Consolidated Financial Statements at and for the Year Ended December 31, 2013, included herein as Appendix F.

Commitments. As a financial services provider, Colonial Financial routinely is a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent Colonial Financial’s potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans Colonial Financial makes. In addition, Colonial Financial enters into commitments to sell mortgage loans. For additional information, see Note 10 of the Notes to the Consolidated Financial Statements at and for the Nine Months Ended September 30, 2014, included herein as Appendix E, and Note 12 of the Notes to the Consolidated Financial Statements at and for the Year Ended December 31, 2013, included herein as Appendix F.

Contractual Obligations. In the ordinary course of Colonial Financial’s operations, it enters into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect to investments.

For a discussion of recent accounting pronouncements, please see Note 2 of the Notes to the Consolidated Financial Statements at and for the Nine Months Ended September 30, 2014, included herein as Appendix E, and Note 2 of the Notes to Colonial Financial’s Consolidated Financial Statements at and for the Year Ended December 31, 2013, included herein as Appendix F.

The consolidated financial statements and related notes of Colonial Financial Services, Inc. have been prepared in accordance with US GAAP. US GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of Colonial Financial’s operations. Unlike industrial companies, Colonial Financial’s assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On July 18, 2013, Colonial Financial appointed BDO USA LLP (“BDO”) as Colonial Financial’s new independent registered public accounting firm, and dismissed ParenteBeard LLC (“ParenteBeard”) from that role. Colonial Financial’s principal audit personnel at ParenteBeard resigned from ParenteBeard and joined BDO. Each of the appointment of BDO and the dismissal of ParenteBeard were approved by the Colonial Financial’s audit committee.

The reports of ParenteBeard on Colonial Financial’s financial statements as of and for the years ended December 31, 2012 and 2011 did not contain an adverse opinion or a disclaimer of an opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During Colonial Financial’s fiscal years ended December 31, 2011 and 2012 and the subsequent interim period preceding ParenteBeard’s dismissal, there were: (i) no disagreements with ParenteBeard on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of ParenteBeard, would have caused it to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements of Colonial Financial; and (ii) no “reportable events” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).

Colonial Financial previously filed a Current Report on Form 8-K disclosing the above and requested ParenteBeard furnish a letter addressed to the Securities and Exchange Commission stating that it agreed with the statements made above. A copy of ParenteBeard's letter dated July 19, 2013 is attached as Exhibit 16 to Colonial Financial’s Current Report on Form 8-K as filed on July 23, 2013.

During Colonial Financial’s fiscal years ended December 31, 2011 and 2012 and through the date of Colonial Financial’s appointment of BDO, Colonial Financial did not consult with BDO regarding (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on Colonial Financial’s consolidated financial statements, and no written or oral advice was provided by BDO that was an important factor considered by Colonial Financial in reaching a decision as to accounting, auditing or financial reporting issues, or (ii) any matter that was either the subject of a disagreement or event, as set forth in Item 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K.

For information regarding Colonial Financial’s market risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

The Colonial Financial board of directors has determined that each of Colonial Financial’s directors and nominees, with the exception of Mr. Geletka, is “independent” as defined in the listing standards of the Nasdaq Stock Market. In determining the independence of the directors listed above, the board of directors reviewed the following transactions, which are not required to be reported under “Information About Colonial Financial —Transactions with Certain Related Persons,” below. Director John Fitzpatrick has an outstanding mortgage loan on his primary residence with Colonial Bank.

In the ordinary course of business, Colonial Bank makes loans available to its directors, officers and employees. These loans are made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to Colonial Bank. Management believes that these loans neither involve more than the normal risk of collectability nor present other unfavorable features.

Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an issuer from: (1) extending or maintaining credit; (2) arranging for the extension of credit; or (3) renewing an extension of credit in the form of a personal loan for an officer or director. There are several exceptions to this general prohibition, one of which is applicable to Colonial Financial Services, Inc. This does not apply to loans made by a depository institution that is insured by the FDIC and that is subject to the insider lending restrictions of the Federal Reserve Act. All loans to Colonial Financial Services, Inc.’s directors and officers are made in conformity with the Federal Reserve Act and applicable regulations.

In accordance with the listing standards of the NASDAQ Stock Market, any transactions that would be required to be reported under this section of this proxy statement must be approved by Colonial Financial’s audit committee or another independent body of the board of directors. In addition, any transaction with a director is reviewed by and subject to approval of the members of the board of directors who are not directly involved in the proposed transaction to confirm that the transaction is on terms that are no less favorable as those that would be available to Colonial Financial from an unrelated party through an arms-length transaction.

Persons and groups who beneficially own in excess of 5% of shares of common stock are required to file certain reports with Colonial Financial and the Securities and Exchange Commission regarding such ownership. The following table sets forth, as of [Colonial Stockholder Meeting Record Date], the shares of common stock beneficially owned by each person who was known to Colonial Financial as the beneficial owner of more than 5% of the outstanding shares of common stock.

The table below sets forth certain information regarding the share ownership of the directors and executive officers of Colonial Financial.

Below are the biographies of each of the board members of Colonial Financial who will be appointed to the boards of directors of Cape and Cape Bank following the completion of the Merger. The biographies also contain information regarding the person’s business experience and the experiences, qualifications, attributes or skills that caused the Colonial Financial Nominating Committee and its board of directors to determine that the person should serve as a director. Each of the directors is also currently a director of Colonial Bank.

Gregory J. Facemyer, CPA, has been a self-employed certified public accountant since 1980. Mr. Facemyer is a Township Committeeman in Hopewell Township, and has lived in the community in which Colonial Bank operates for over 50 years. He currently serves as Treasurer for the County of Cumberland and also serves on the board of directors of South Jersey Hospital, Inc. Mr. Facemyer’s experience as a certified public accountant qualifies him as an “audit committee financial expert” for purposes of the rules and regulations of the Securities and Exchange Commission.

Hugh J. McCaffrey is the sole owner of Southern New Jersey Steel Company, a steel contracting company servicing New Jersey, Pennsylvania and Delaware. Mr. McCaffrey has held a principal position in Southern New Jersey Steel Company since 1992. Mr. McCaffrey is a system board member of Inspira Health Network as well as a board member of other community non-profits. Mr. McCaffrey’s current position provides the board of directors with insight into construction trends and economic developments affecting the State of New Jersey and the communities in which Colonial Financial operates, as well as in-depth knowledge related to labor and compensation issues.

The following table sets forth for the year ended December 31, 2013 certain information as to the total remuneration Colonial Financial paid to Messrs. McCaffrey and Facemyer. Messrs. McCaffrey and Facemyer will each be appointed to the boards of Cape and Cape Bank following the completion of the Merger.

As of December 31, 2013, Messrs. Facemyer and McCaffrey each held 3,672 unvested shares of restricted stock (including performance-based shares), respectively. As of December 31, 2013, Messrs. Facemyer and McCaffrey had 12,707 and 5,071 vested but unexercised stock options, respectively, and 9,180 and 10,568 unvested stock options, respectively.

Messrs. McCaffrey and Facemyer also serve as directors of Colonial Bank and earns director fees in that capacity. As of September 30, 2013, all directors suspended payment of their director fees.

Directors are eligible to participate in Colonial Financial’s Incentive Plan, described above. See “Information About Colonial Financial—Stock-Based Incentive Plan.”

Director Retirement Plan. On December 15, 2010, the board of directors of Colonial Bank, approved the Colonial Bank Director Retirement Plan, effective January 1, 2011, to provide supplemental funds for retirement or death for eligible directors of the Colonial Bank. Directors Facemyer and McCaffrey are participants in the plan. A director who has attained normal retirement age (generally age 72) and has 20 years of service with Colonial Bank will be entitled to a normal retirement benefit equal to 50% of the director’s final three-year average compensation payable in ten annual installments. If a director has less than 10 years of service with Colonial Bank, the director will not be entitled to any retirement benefit. After 10 years of service, the director will vest in a retirement benefit at the rate of 10% per year. If the director separates from service upon attainment of normal retirement age with less than 20 years of service, he will be entitled to a benefit equal to the normal retirement benefit reduced by 2% of final average compensation for each year of service less than 20. A director who separates from service prior to normal retirement age with less than 20 years of service will be entitled to his vested accrued benefit, amortized and payable in ten annual installments. A director who becomes disabled prior to separation from service will be entitled to a disability benefit equal to 50% of the director’s final three-year average compensation, payable in ten annual installments. In the event of the director’s death prior to separation from service, the director’s beneficiary or estate will be entitled to the director’s normal retirement benefit payable in ten annual installments. In the event of a change in control prior to a director’s separation from service, the director will be entitled to the normal retirement benefit, irrespective of the director’s years of service; the present value of the benefit will be paid in a lump sum on the date of the change in control. If the payment of the retirement benefit, when aggregated with the other payments to which the director would be entitled that are contingent on a change in control, would cause a director to have an “excess parachute payment,” the retirement benefit will be reduced to avoid such excess parachute payment. In the event a director separates from service prior to a change in control and is receiving benefits under the plan, the present value of the remaining retirement benefit payable to the director will be paid in a lump sum on the date of the change in control.

2011 Director Deferred Fee Plan. On December 15, 2010, the board of directors of Colonial Bank approved the Colonial Bank 2011 Director Deferred Fee Plan, effective January 1, 2011, to provide current tax planning opportunities as well as supplemental funds for retirement or death for eligible directors of Colonial Bank. Members of the board of directors of Colonial Bank are eligible to participate in the plan. A director may elect to

participate in the plan by submitting a deferral agreement by December 15 of the calendar year immediately preceding the deferral period for which it will be effective. A new deferral agreement or notice of adjustment of deferral may be submitted by a director for any subsequent year. In the first year an individual becomes a director, a deferral agreement must be submitted to the committee under the plan no later than 30 days following the date the individual becomes a director, and such deferral agreement will be effective only with regard to compensation earned following the submission of the deferral agreement. A director may elect to defer up to 100% of his compensation for the calendar year. Each director’s account will be credited with earnings at the prime rate (provided that such rate is never less than 5% nor greater than 10%) as determined from time to time. A director will be 100% vested at all times in the amount of compensation elected to be deferred under the plan and earnings thereon. In the event a director separates from service for any reason other than death, Colonial Bank will pay a benefit equal to the director’s vested account in accordance with the director’s distribution election, generally made at the time of initial participation. In the event of the director’s death after separation from service with Colonial Bank, the remaining unpaid balance of the director’s account will be paid to the director’s beneficiary in the same form that payments were being made prior to the director’s death. In the event the director dies prior to separation from service, the amount payable will be paid over the period designated by the director. In the event of an unforeseeable emergency, the plan committee may make distributions from the director’s account prior to the time specified for payment of benefits under the plan. All plan benefits other than hardship distributions or otherwise provided in the plan will be paid in the form selected by the director in the deferral agreement or notice of adjustment of deferral at the time of the deferral commitment. A director’s account will be distributed in cash or cash equivalents. Unless otherwise set forth in the plan, payment under the plan will commence no later than 60 days after the event triggering the distribution requirement, in accordance with the director’s elections under the director’s deferral agreement and notice of adjustment of deferral. The plan provides for early distributions in specified circumstances. Messrs. McCaffrey and Facemyer did not participate in the Plan for the fiscal year ended December 31, 2013.

Director Supplemental Life Insurance Plan. On December 15, 2010, the board of directors of Colonial Bank approved the Colonial Bank Director Supplemental Life Insurance Plan for the purpose of dividing the death proceeds of certain life insurance policies owned by Colonial Bank on the lives of the participating directors with the designated beneficiary of each insured participating director. Directors Facemyer and McCaffrey are participants in the plan. Colonial Bank will pay the life insurance premiums from its general assets. Non-employee directors are eligible to participate in the plan by executing an election to participate and a split dollar endorsement for each individual insurance policy approved by the Compensation Committee of the board of directors of Colonial Bank for purposes of insuring a participant’s life under the plan. A participant’s participation in the plan will terminate if the participant’s service with Colonial Bank is terminated for reasons other than death or if the plan is terminated. In the event Colonial Bank decides to maintain the policy or policies after the participant’s termination of participation in the plan, Colonial Bank will be the direct beneficiary of the entire death proceeds of the policy or policies. Unless the participant’s rights under the plan terminate, the participant has the right to designate the beneficiary of a death benefit equal to the lesser of $250,000 or the net death benefit (which is the difference between the cash surrender value of the policy and the total proceeds payable under the policy upon the death of the insured). Colonial Bank is the sole owner of the policies and is the beneficiary of the policies to the extent of each policy’s cash surrender value plus any death benefits remaining after applying those amounts explicitly assigned to the participant’s beneficiary. In addition, Colonial Bank may replace each policy with a comparable insurance policy to cover the benefit provided under the plan and Colonial Bank and the participant will execute a new split dollar endorsement for each new policy. Colonial Bank will pay all premiums due on all policies as long as it maintains the policies in force.

If there are not sufficient votes to constitute a quorum or to approve the Merger Agreement and the Merger at the time of the Cape special meeting, the Merger Agreement cannot be approved unless the Cape special meeting is adjourned to a later date or dates to permit further solicitation of proxies. To allow proxies that have been received by Cape at the time of the special meeting to be voted for an adjournment, if deemed necessary, Cape has submitted the question of adjournment to its stockholders as a separate matter for their consideration. The board of directors of Cape unanimously recommends that stockholders vote “FOR” the adjournment proposal. If it is deemed necessary to adjourn the special meeting, no notice of the adjourned meeting is required to be given to stockholders, other than an announcement at the meeting of the place, date and time to which the meeting is adjourned.

As required by the federal securities laws, Colonial Financial is providing its stockholders with the opportunity to cast a non-binding, advisory vote on the compensation that may become payable to its named executive officers in connection with the completion of the Merger, as disclosed in the section of this document captioned “Description of the Merger-Related Executive Compensation for Colonial Financial’s Named Executive Officers,” and the related table and narrative.

Your vote is requested. Colonial Financial believes that the information regarding compensation that may become payable to its named executive officers in connection with the completion of the Merger is reasonable and demonstrates that Colonial Financial’s executive compensation program was designed appropriately and structured to ensure the retention of talented executives and a strong alignment with the long-term interests of Colonial Financial stockholders. This vote is not intended to address any specific item of compensation, but rather the overall compensation that may become payable to Colonial Financial’s executive officers in connection with the Merger. In addition, this vote is separate and independent from the vote of stockholders to approve the Merger Agreement. However, the compensation will not be payable in the event the Merger is not completed. Colonial Financial asks that its stockholders vote “FOR” the following resolution:

RESOLVED, that the compensation that may become payable to Colonial Financial’s named executive officers in connection with the completion of the Merger, as disclosed in the section captioned “Description of the Merger-Related Executive Compensation for Colonial Financial’s Named Executive Officers,” and the related tables and narrative, is hereby approved.

This vote is advisory and, therefore, will not be binding on Colonial Financial, nor will it overrule any prior decision of Colonial Financial or require Colonial Financial’s board of directors (or any committee thereof) to take any action. However, Colonial Financial’s board of directors values the opinions of Colonial Financial’s stockholders, and to the extent that there is any significant vote against the named executive officer compensation as disclosed in this document, Colonial Financial’s board of directors will consider stockholders’ concerns and will evaluate whether any actions are necessary to address those concerns. Colonial Financial’s board of directors will consider the affirmative vote of the holders of a majority of the votes cast of Colonial Financial common stock entitled to vote on this matter “FOR” the foregoing resolution as advisory approval of the compensation that may become payable to Colonial Financial’s named executive officers in connection with the completion of the Merger. Colonial Financial’s board of directors unanimously recommends that stockholders vote “FOR” the approval of the above resolution.

If there are not sufficient votes to constitute a quorum or to approve the Merger Agreement and the Merger at the time of the Colonial Financial special meeting, the Merger Agreement cannot be approved unless the Colonial Financial special meeting is adjourned to a later date or dates to permit further solicitation of proxies. To allow proxies that have been received by Colonial Financial at the time of the special meeting to be voted for an adjournment, if deemed necessary, Colonial Financial has submitted the question of adjournment to its stockholders as a separate matter for their consideration. The board of directors of Colonial Financial unanimously recommends that stockholders vote “FOR” the adjournment proposal. If it is deemed necessary to adjourn the special meeting, no notice of the adjourned meeting is required to be given to stockholders, other than an announcement at the meeting of the place, date and time to which the meeting is adjourned.

The validity of the Cape common stock to be issued in the proposed Merger has been passed upon for Cape by Luse Gorman Pomerenk & Schick, Washington, D.C. Luse Gorman Pomerenk & Schick will deliver an opinion to Cape and Colonial Financial, as to certain federal income tax consequences of the Merger. See “Description of The Merger—Material Tax Consequences of the Merger.”

The consolidated statements of financial condition of Cape as of December 31, 2013 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2013 have been incorporated by reference to this Joint Proxy Statement/Prospectus in reliance upon the report of Crowe Horwath LLP, independent registered public accounting firm, as stated in their report appearing therein, and upon the authority of said firm as experts in accounting and auditing.

The consolidated balance sheet of Cape as of December 31, 2012 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2012 and 2011 have been incorporated by reference herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

The consolidated statements of financial condition of Colonial Financial as of December 31, 2013 and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2013 have been included in this Joint Proxy Statement/Prospectus in reliance upon the report of BDO USA, LLP, independent registered public accounting firm, as stated in their report appearing herein, and upon the authority of said firm as experts in accounting and auditing.

The audited consolidated statements of financial condition of Colonial Financial as of December 31, 2012 and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the year ended December 31, 2012 have been included in this Joint Proxy Statement/Prospectus in reliance upon the report of Baker Tilly Virchow Krause, LLP, independent registered public accounting firm, as stated in their report appearing herein, and upon the authority of said firm as experts in accounting and auditing.

On July 18, 2013, Colonial Financial dismissed Baker Tilly Virchow Krause, LLP which had previously served as its independent auditors. The decision to dismiss Baker Tilly Virchow Krause, LLP was approved by the audit committee of Colonial Financial’s board of directors.

The audit report of Baker Tilly Virchow Krause, LLP on the consolidated statements of financial condition, statement of operations, comprehensive income, changes in stockholders’ equity, and cash flows of Colonial Financial for the year ended December 31, 2012 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal year ended December 31, 2012 and through the subsequent interim period preceding the date of Baker Tilly Virchow Krause, LLP’s dismissal, there were: (1) no disagreements between Colonial Financial and Baker Tilly Virchow Krause, LLP on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Baker Tilly Virchow Krause, LLP would have caused them to make reference thereto in their report on Colonial Financial’s financial statements for such year, and (2) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

On July 18, 2013, the audit committee of Colonial Financial’s board of directors engaged BDO USA, LLP as its independent registered public accounting firm. During the fiscal years ended December 31, 2012 and 2011 and the subsequent interim period preceding the engagement of BDO USA, LLP, Colonial Financial did not consult with BDO USA, LLP regarding (1) the application of accounting principles to a specified transaction, either completed or proposed; (2) the type of audit opinion that might be rendered on Colonial Financial’s financial

statements, and BDO USA, LLP did not provide any written report or oral advice that BDO USA, LLP concluded was an important factor considered by Colonial Financial in reaching a decision as to any such accounting, auditing or financial report issues; or (3) any matter that was either the subject of a disagreement with Baker Tilly Virchow Krause, LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure or the subject of a reportable event.

Colonial Financial will hold its 2015 annual meeting only if the Merger is not completed. Colonial Financial’s bylaws provide that in order for a stockholder to make nominations for the election of directors or proposals for business to be brought before the annual meeting, a stockholder must deliver notice of such nominations and/or proposals to the Secretary of Colonial Financial at least 80 days before the annual meeting and not more than 90 days before the annual meeting. However, if Colonial Financial gives less than 90 days’ notice or prior public disclosure of the meeting, written notice of the stockholder proposal or nomination must be delivered to the Secretary not later than ten days following the date notice of the meeting was mailed to stockholders or public disclosure of the meeting was made. Colonial Financial’s last annual meeting was held on May 15, 2014.

Cape must receive proposals that stockholders seek to include in the proxy statement for the Cape’s next annual meeting no later than December 24, 2014 and not earlier than November 24, 2014. If next year’s annual meeting is held on a date more than 20 calendar days from April 28, 2015, or delayed by more than 60 days from April 28, 2015, a stockholder proposal, including nominations for the election of directors, must be received no later than 90 days from the annual meeting date and no earlier than 120 days from the annual meeting date. Any stockholder proposals will be subject to the requirements of the proxy rules approved by the Securities and Exchange Commission.

Cape filed with the Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act to register the shares of Cape common stock to be issued to Colonial Financial stockholders in the Merger. This Joint Proxy Statement/Prospectus is a part of that registration statement and constitutes a Prospectus of Cape, a proxy statement of Cape for its special meeting and a proxy statement of Colonial Financial for its special meeting. As permitted by the Securities and Exchange Commission rules, this Joint Proxy Statement/Prospectus does not contain all of the information that you can find in the registration statement or in the exhibits to the registration statement. The additional information may be inspected and copied as set forth above.

Cape and Colonial Financial each files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. These filings are available to the public over the Internet at the Securities and Exchange Commission’s website at www.sec.gov. You may also read and copy any document Cape or Colonial Financial files with the Securities and Exchange Commission at its public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of these documents also can be obtained at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission, at 100 F Street, N.E., Room 1580, Washington D.C. 20549 or by calling 1-800-SEC-0330 for additional information on the operation of the public reference facilities.

The Securities and Exchange Commission allows Cape to “incorporate by reference” information into this Joint Proxy Statement/Prospectus. This means that Cape can disclose important information to you by referring you to another document filed separately with the Securities and Exchange Commission. The information incorporated by reference is deemed to be part of this document, except for any information superseded by information contained directly in this document. This document incorporates by reference the other documents that are listed below that Cape has previously filed with the Securities and Exchange Commission and additional documents that Cape will file with the Securities and Exchange Commission between the date of this Joint Proxy Statement/Prospectus and the date of the Cape and Colonial Financial stockholder meetings. These documents contain important information about Cape’s financial condition.

Documents incorporated by reference are available from Cape without charge (except for exhibits to the documents unless the exhibits are specifically incorporated in this document by reference). You may obtain documents incorporated by reference in this document by requesting them in writing or by telephone from Cape at the following address:

If you would like to request documents from Cape, please do so by [document request date], to receive them before Cape’s meeting of stockholders. If you request any incorporated documents, Cape will mail them to you by first-class mail, or other equally prompt means, within one business day of its receipt of your request.

Cape incorporates by reference additional documents that it may file with the Securities and Exchange Commission between the date of this document and the date of the special meetings. These documents include periodic reports, such as annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (other than information furnished under Items 2.02 or 7.01 of Form 8-K), as well as proxy statements.

Cape has supplied all information contained in this Joint Proxy Statement/Prospectus relating to Cape, and Colonial Financial has supplied all information relating to Colonial Financial.

You should rely only on the information contained in this Joint Proxy Statement/Prospectus when evaluating the Merger Agreement and the proposed Merger. We have not authorized anyone to provide you with information that is different from what is contained in this Joint Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus is dated [proxy date]. You should not assume that the information contained in this Joint Proxy Statement/Prospectus is accurate as of any date other than such date, and neither the mailing of this Joint Proxy Statement/Prospectus to stockholders of Colonial Financial or Cape nor the issuance of shares of Cape common stock as contemplated by the Merger Agreement shall create any implication to the contrary.

You have requested the opinion of Keefe, Bruyette & Woods, Inc. (“KBW” or “we”) as investment bankers as to the fairness, from a financial point of view, to the common shareholders of Colonial Financial Services, Inc. (“Colonial Financial”) of the Merger Consideration (as defined below) in the proposed merger (the “Merger”) of Colonial Financial with and into Cape Bancorp, Inc. (“Cape Bancorp”), pursuant to the Agreement and Plan of Merger to be entered into by and between Colonial Financial and Cape Bancorp (the “Agreement”). Pursuant to the terms of the Agreement and subject to the terms, conditions and limitations set forth therein, at the Effective Time (as defined in the Agreement), by virtue of the Merger and without any action on the part of Cape Bancorp, Colonial Financial, or the holders of any of the shares of common stock, par value $0.01 per share, of Colonial Financial (the “Colonial Financial Common Stock”), each share of Colonial Financial Common Stock that is issued and outstanding immediately prior to the Effective Time (other than Treasury Stock (as defined in the Agreement)) will become and be converted into the right to receive, at the election of the holder thereof (subject to proration and reallocation as set forth in the Agreement, as to which we express no opinion), either: (i) an amount in cash equal to $14.50, subject to adjustment as set forth in the Agreement (as to which we express no opinion) (the “Cash Consideration”), or (ii) 1.412 shares of common stock, par value $0.01 per share, of Cape Bancorp (the “Cape Bancorp Common Stock”) (the “Stock Consideration”); provided that the Agreement provides that, in the aggregate, 50% of the total number of shares of Colonial Financial Common Stock will be converted into the right to receive the Cash Consideration and 50% of the total number of shares of Colonial Financial Common Stock will be converted into the right to receive the Stock Consideration. The Stock Consideration and the Cash Consideration are referred to collectively herein as the “Merger Consideration.” The terms and conditions of the Merger are more fully set forth in the Agreement.

The Agreement further provides that, immediately following the Effective Time, Colonial Bank, a wholly-owned subsidiary of Colonial Financial, will merge with and into Cape Bank, a wholly-owned subsidiary of Cape Bancorp, pursuant to a separate agreement and plan of merger to be entered into by and between such parties (such transaction, the “Bank Merger”).

KBW has acted as financial advisor to Colonial Financial and not as an advisor to or agent of any other person. As part of our investment banking business, we are continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, we have experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of our business as a broker-dealer, we may, from time to time purchase securities from, and sell securities to, Colonial Financial and Cape Bancorp, and as a market maker in securities, we may from time to time have a long or short position in, and buy or sell, debt or equity securities of

Colonial Financial and Cape Bancorp for our own account and for the accounts of our customers. To the extent we have any such position as of the date of this opinion it has been disclosed to Colonial Financial. We have acted exclusively for the board of directors of Colonial Financial (the “Board”) in rendering this opinion and will receive a fee from Colonial Financial for our services. A portion of our fee is payable upon the rendering of this opinion, a portion is payable upon the signing of the Agreement, a portion is payable upon the mailing of definitive proxy statements to Colonial Financial’s shareholders in respect of the Merger and a portion is contingent upon the successful completion of the Merger. In addition, Colonial Financial has agreed to indemnify us for certain liabilities arising out of our engagement.

Other than this present engagement, in the past two years, KBW has not provided investment banking and financial advisory services to Colonial Financial. In the past two years, KBW has not provided investment banking and financial advisory services to Cape Bancorp. We may in the future provide investment banking and financial advisory services to Colonial Financial or Cape Bancorp and receive compensation for such services.

In connection with this opinion, we have reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Colonial Financial and Cape Bancorp and the Merger, including among other things, the following: (i) a draft of the Agreement dated September 8, 2014 (the most recent draft made available to us); (ii) certain regulatory filings of Colonial Financial and Cape Bancorp, including the quarterly call reports filed with respect to each quarter during the two years ended June 30, 2014 for Colonial Financial and Cape Bancorp; (iii) the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2013 of Colonial Financial; (iv) the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2013 of Cape Bancorp; (v) the unaudited quarterly financial statements and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2014 and June 30, 2014 for Colonial Financial; (vi) the unaudited quarterly financial statements and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2014 and June 30, 2014 for Cape Bancorp; (vii) certain other interim reports and other communications of Colonial Financial and Cape Bancorp to their respective stockholders; and (viii) other financial information concerning the businesses and operations of Colonial Financial and Cape Bancorp furnished to us by Colonial Financial and Cape Bancorp or which we were otherwise directed to use for purposes of our analysis. Our consideration of financial information and other factors that we deemed appropriate under the circumstances or relevant to our analyses included, among others, the following: (i) the historical and current financial position and results of operations of Colonial Financial and Cape Bancorp; (ii) the assets and liabilities of Colonial Financial and Cape Bancorp; (iii) the nature and terms of certain other merger transactions and business combinations in the banking industry; (iv) a comparison of certain financial and stock market information for Colonial Financial and Cape Bancorp with similar information for certain other companies the securities of which are publicly traded; (v) financial and operating forecasts and projections of Colonial Financial which were prepared by Colonial Financial management, provided to us and discussed with us by such management, and used and relied upon by us at the direction of such management with the consent of the Board; (vi) publicly available consensus “street estimates” of Cape Bancorp for 2014 and 2015, as well as assumed long term growth rates based thereon which were prepared by Cape Bancorp management and provided to us by Cape Bancorp through its financial advisor, all of which information was discussed with us by Colonial Financial management and used and relied upon by us with the consent of such management and the Board; and (vii) estimates regarding certain pro forma financial effects of the Merger on Cape Bancorp (including, without limitation, purchase accounting assumptions, cost savings and related expenses expected to result or be derived from the Merger), which were prepared by Cape Bancorp management and provided to us by Cape Bancorp through its financial advisor, discussed with us by Colonial Financial management, and used and relied upon by us with the consent of such management and the Board. We have also performed such other studies and analyses as we considered appropriate and have taken into account our assessment of general economic, market and financial conditions and our experience in other transactions, as well as our experience in securities valuation and knowledge of the banking industry generally. We have also held discussions with senior management of Colonial Financial and Cape Bancorp regarding the past and current business operations, regulatory relations, financial

condition and future prospects of their respective companies and such other matters as we have deemed relevant to our inquiry. In addition, we have considered the results of the efforts undertaken by Colonial Financial, with our assistance, to solicit indications of interest from third parties regarding a potential transaction with Colonial Financial.

In conducting our review and arriving at our opinion, we have relied upon and assumed the accuracy and completeness of all of the financial and other information provided to us or publicly available and we have not independently verified the accuracy or completeness of any such information or assumed any responsibility or liability for such verification, accuracy or completeness. We have relied upon the management of Colonial Financial as to the reasonableness and achievability of the financial and operating forecasts and projections of Colonial Financial (and the assumptions and bases therefor) that were prepared by and provided to us by and discussed with us by such management and we have assumed that such forecasts and projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of such management and that such forecasts and projections will be realized in the amounts and in the time periods currently estimated by such management. We have further relied, with the consent of Colonial Financial, upon the reasonableness and achievability of the publicly available consensus “street estimates” of Cape Bancorp referred to above and the assumed long term growth rates based thereon that were provided by Cape Bancorp, as well as the estimates regarding certain pro forma financial effects of the Merger on Cape Bancorp (and the assumptions and bases therefor, including without limitation, purchase accounting assumptions, cost savings and related expenses expected to result or be derived from the Merger) that were provided by Cape Bancorp. We have assumed, with the consent of Colonial Financial, that all such information is consistent with (in the case of Cape Bancorp “street estimates”), or was otherwise reasonably prepared on a basis reflecting, the best currently available estimates and judgments of Cape Bancorp management and that such forecasts, projections and estimates reflected in such information will be realized in the amounts and in the time periods currently estimated.

It is understood that the forecasts, projections and estimates of Colonial Financial and Cape Bancorp provided to us were not prepared with the expectation of public disclosure, that all such information, together with the publicly available consensus “street estimates” of Cape Bancorp referred to above, is based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such forecasts, projections and estimates. We have assumed, based on discussions with the management of Colonial Financial, and with the consent of Colonial Financial, that all such information provides a reasonable basis upon which we could form our opinion and we express no view as to any such information or the assumptions or bases therefor. We have relied on all such information without independent verification or analysis and do not in any respect assume any responsibility or liability for the accuracy of completeness thereof.

We also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Colonial Financial or Cape Bancorp since the date of the last financial statements of each such entity that were made available to us. We are not experts in the independent verification of the adequacy of allowances for loan and lease losses and we have assumed, without independent verification and with your consent, that the aggregate allowances for loan and lease losses for Colonial Financial and Cape Bancorp are adequate to cover such losses. In rendering our opinion, we have not made or obtained any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Colonial Financial or Cape Bancorp, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor have we examined any individual loan or credit files, nor did we evaluate the solvency, financial capability or fair value of Colonial Financial or Cape Bancorp under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, we assume no responsibility or liability for their accuracy.

At the direction of Colonial Financial, we have assumed for purposes of our opinion that the Consolidated Net Book Value (as defined in the Agreement) of Colonial Financial on the Determination Date (as defined in the Agreement) will not be less than $63,100,000. We have further assumed, in all respects material to our analyses, the following: (i) that the Merger and any related transaction (including the Bank Merger) will be completed substantially in accordance with the terms set forth in the Agreement (the final terms of which will not differ in any respect material to our analyses from the draft reviewed) with no additional payments or adjustments to the Merger Consideration; (ii) that the representations and warranties of each party in the Agreement and in all related documents and instruments referred to in the Agreement are true and correct; (iii) that each party to the Agreement and all related documents will perform all of the covenants and agreements required to be performed by such party under such documents; (iv) that there are no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the Merger or any related transaction and that all conditions to the completion of the Merger and any related transaction will be satisfied without any waivers or modifications to the Agreement; and (v) that in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the Merger and any related transaction, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, will be imposed that will have a material adverse effect on the future results of operations or financial condition of Colonial Financial, Cape Bancorp, the combined entity, or the contemplated benefits of the Merger, including without limitation, purchase accounting assumptions, cost savings and related expenses expected to result or be derived from the Merger. We have assumed that the Merger will be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. We have further assumed that Colonial Financial has relied upon the advice of its counsel, independent accountants and other advisors (other than KBW) as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Colonial Financial, Cape Bancorp, the Merger, any related transaction (including the Bank Merger) and the Agreement. KBW has not provided advice with respect to any such matters.

This opinion addresses only the fairness, from a financial point of view, as of the date hereof, of the Merger Consideration in the Merger to the holders of Colonial Financial Common Stock. We express no view or opinion as to any terms or other aspects of the Merger or any related transaction (including the Bank Merger), including without limitation, the form or structure of the Merger (including the form of Merger Consideration or the allocation of the Merger Consideration among cash and stock) or any related transaction, any consequences of the Merger or any related transaction to Colonial Financial, its stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, consulting, voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Merger or otherwise. Our opinion is necessarily based upon conditions as they exist and can be evaluated on the date hereof and the information made available to us through the date hereof. It is understood that subsequent developments may affect the conclusion reached in this opinion and that KBW does not have an obligation to update, revise or reaffirm this opinion. Our opinion does not address, and we express no view or opinion with respect to, (i) the underlying business decision of Colonial Financial to engage in the Merger or enter into the Agreement, (ii) the relative merits of the Merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Colonial Financial or the Board, (iii) the fairness of the amount or nature of any compensation to any of Colonial Financial’s officers, directors or employees, or any class of such persons, relative to any compensation to the holders of Colonial Financial Common Stock, (iv) the effect of the Merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of Colonial Financial other than the Colonial Financial Common Stock (solely with respect to the Merger Consideration, as described herein and not relative to any consideration to be received by any other class) or any class of securities of Cape Bancorp or any other party to any transaction contemplated by the Agreement, (v) any adjustment (as provided in the Agreement) to the Cash Consideration or Stock Consideration assumed to be paid in the Merger for purposes of our opinion, (vi) whether Cape Bancorp has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate Cash Consideration to the holders of Colonial Financial

Common Stock at the closing of the Merger, (vii) the election by holders of Colonial Financial Common Stock to receive the Stock Consideration or the Cash Consideration, or any combination thereof, or the actual allocation between the Stock Consideration and the Cash Consideration among such holders (including, without limitation, any re-allocation thereof as a result of proration pursuant to the Agreement), (viii) the actual value of Cape Bancorp Common Stock to be issued in the Merger, (ix) the prices, trading range or volume at which Colonial Financial Common Stock or Cape Bancorp Common Stock will trade following the public announcement of the Merger or the prices, trading range or volume at which Cape Bancorp Common Stock will trade following consummation of the Merger, (x) any advice or opinions provided by any other advisor to any of the parties to the Merger or any other transaction contemplated by the Agreement, or (xi) any legal, regulatory, accounting, tax or similar matters relating to Colonial Financial, Cape Bancorp, their respective stockholders, or relating to or arising out of or as a consequence of the Merger or any related transaction (including the Bank Merger), including whether or not the Merger would qualify as a tax-free reorganization for United States federal income tax purposes.

This opinion is for the information of, and is directed to, the Board (in its capacity as such) in connection with its consideration of the financial terms of the Merger. This opinion is not to be used for any other purpose and may not be published, referred to, reproduced, disseminated or quoted from, in whole or in part, nor shall any public reference to KBW be made, without our prior written consent. This opinion does not constitute a recommendation to the Board as to how it should vote on the Merger, or to any holder of Colonial Financial Common Stock or any shareholder of any other entity as to how to vote in connection with the Merger or any other matter (including, with respect to holders of Colonial Financial Common Stock, what election any such shareholder should make with respect to the Stock Consideration or the Cash Consideration), nor does it constitute a recommendation as to whether or not any such shareholder should enter into a voting, shareholders’, or affiliates’ agreement with respect to the Merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.

This opinion has been reviewed and approved by our Fairness Opinion Committee in conformity with our policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Merger Consideration in the Merger is fair, from a financial point of view, to the holders of Colonial Financial Common Stock.

You have requested our written opinion, as to the fairness, from a financial point of view to Colonial Financial Services, Inc. (“COBK”) and its stockholders, of the consideration as proposed in the Agreement and Plan of Merger (the “Agreement”) by and among Cape Bancorp, Inc. (“CBNJ”) and COBK, pursuant to which COBK will merge with CBNJ and Colonial Bank, FSB will merge with Cape Bank.

Pursuant to the Agreement, each share of COBK’s common stock has the right to receive, at the election of the holder, either $14.50 in cash consideration or 1.412 shares of CBNJ Common Stock. The exchange ratio is fixed, however, there is pricing protection with a double trigger walkaway provision if CBNJ’s stock declines more than 20% in the aggregate and relative to the NADAQ Bank Index. 50% of the total consideration is payable in cash and 50% is payable in CBNJ stock. COBK shareholders will have the option to elect to receive either cash or CBNJ stock, subject to proration to ensure that, in the aggregate, 50% of COBK’s common shares will be converted into CBNJ stock. Subject to regulatory approval, COBK’s stock option holders will be cashed out in this transaction. In the event that COBK’s Consolidated Net Book Value (GAAP common equity at closing less release of ALLL, excluding merger-related expenses, excluding any changes in AOCI and excluding other non-core operating items) is less than $63.1 million (which is COBK’s 6/30/2014 total equity figure), the cash consideration is subject to a reduction. Each of the directors and executive officers of Colonial Financial have entered into a Voting Agreement with Cape Bancorp.

FinPro Capital Advisors, Inc. (“FCA”), FINRA/SIPC, is a broker/dealer and an investment banking firm that provides advisory services to the bank and thrift industry, including appraisals and valuations of bank and thrift institutions and their securities in connection with mergers, acquisitions and other securities transactions. FCA has knowledge of and experience with the Mid-Atlantic bank and thrift market and financial institutions operating in the New Jersey market. COBK’s Board chose FCA because of its expertise, experience and familiarity with the bank and thrift industry.

COBK engaged FCA to provide its opinion as to the fairness, from a financial point of view, of the consideration as defined in the Agreement. FCA was not retained to structure, analyze, negotiate or perform any services outside of the scope of rendering a fairness opinion. FCA will receive total advisory fees equal to $75,000. FCA’s fees are payable upon rendering of the fairness opinion to COBK. Additionally, COBK has agreed to reimburse FCA for its out-of-pocket expenses and has agreed to indemnify FCA and certain related persons against certain liabilities possibly incurred in connection with the services performed.

Prior to this engagement, FCA has not provided investment banking services to COBK within the past two years. FinPro, Inc. (“FinPro”), FCA’s parent, has provided services to COBK within the past two years. The amount of compensation received from COBK is not material to FinPro’s gross revenue in either of the two prior years. FinPro has not provided services to CBNJ within the past two years. FCA has not provided services to CBNJ within the past two years.

20 Church Street ● P.O. Box 323 ● Liberty Corner, NJ 07938-0323 ● Tel: 908.604.9336 ● Fax: 908.604.5951

FinPro Capital Advisors, Inc. (Member FINRA/SIPC) is a wholly owned subsidiary of FinPro, Inc.

In connection with its opinion, FCA reviewed and considered, among other things:

We considered financial studies, analyses and investigations and economic and market information that we deemed relevant. We analyzed the trading values of COBK and CBNJ relative to comparable financial institutions. We considered certain financial data of COBK and compared that data to other banks, thrifts and their holding companies that were recently merged or acquired. Furthermore, we considered the financial terms of these business combinations involving these banks and their holding companies. We also considered the potential pro forma financial impact of the acquisition. Additionally, we considered a range of potential investment values for COBK’s shares on a present value basis assuming the successful execution of their strategic plan.

FCA did not independently verify the financial data provided by or on behalf of COBK or CBNJ, but instead relied upon and assumed the accuracy and completeness of the data provided.

FCA expresses no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the transaction relative to the consideration to be paid to COBK shareholders in the transaction or with respect to the fairness of any such compensation. FCA does not express an opinion as to the underlying decision by COBK to engage in the merger or the relative merits of the merger compared to other strategic alternatives which may be available to COBK. The issuance of this opinion has been approved by our Fairness Opinion Committee.

In reaching our opinion, we took into consideration the financial benefits of the proposed transaction to COBK stockholders. Based on all factors deemed relevant and assuming the accuracy and completeness of the information and data provided by COBK and CBNJ, it is FCA’s opinion as of this date, the consideration being offered by CBNJ is fair, from a financial point of view, to COBK and its stockholders.

20 Church Street ● P.O. Box 323 ● Liberty Corner, NJ 07938-0323 ● Tel: 908.604.9336 ● Fax: 908.604.5951

Cape Bancorp, Inc. (“CBNJ”) and Colonial Financial Services, Inc. (“Colonial”) have entered into an Agreement and Plan of Merger dated September 10, 2014 (the “Agreement”), pursuant to which CBNJ will acquire all of the outstanding shares of Colonial common stock (the “Transaction”). Under the terms of the Agreement, the shares of common stock of Colonial that are issued and outstanding immediately before the effective time of the Transaction shall be converted into the right to receive, at the election of the holder, a) cash in the amount of $14.50 per share, b) 1.412 shares of CBNJ common stock or c) a combination of CBNJ common stock and cash, subject to allocation procedures which will ensure that, in the aggregate 50% of the total consideration paid by CBNJ will consist of CBNJ common stock and 50% of the total consideration paid by CBNJ will consist of cash (collectively, the “Consideration”).

You have requested our opinion as to the fairness to CBNJ, from a financial point of view, of the Consideration to be paid by CBNJ in connection with the Transaction.

In preparing our opinion, we assumed and relied upon, without independent verification, the accuracy and completeness of the information provided to us by CBNJ, Colonial, and their respective affiliates. In addition, where appropriate, we relied upon publicly available information, without independent verification, that we believe to be reliable, accurate, and complete. We have not been asked to and have not undertaken an independent verification of the reliability, accuracy, or completeness of any such information, and we do not assume any responsibility or liability for the accuracy or completeness thereof. With respect to the financial forecasts supplied to us, including any projections relating to transaction costs, purchase accounting adjustments or expected cost savings, we have assumed, with your consent, that they were reasonably prepared and reflect the best currently available estimates and judgments of management of CBNJ and Colonial as to future operating and financial performance, and we have assumed that such performance would be achieved. We express no opinion as to such financial projections and estimates or the assumptions upon which they are based. In addition, we have assumed that the Agreement is a valid, binding and enforceable agreement upon the parties, that all of the representations and warranties contained in the Agreement and all related agreements are true and correct, that each party to the agreements will perform the covenants required to be performed by it under the under such agreements, that the conditions precedent to the agreements are not waived and that the agreements will not be terminated or breached by either party. We have also assumed that there has been no material change in the assets, liabilities, financial condition, results of operations, business or prospects of CBNJ or Colonial since either (i) the date of the last financial statements made available to us and (ii) the date of the Agreement, and that no legal, political, economic, regulatory or other developments has occurred that will adversely affect CBNJ or Colonial. We did not make an independent evaluation of the assets or liabilities of CBNJ, Colonial or their respective affiliates, including, but not limited to, any derivative or off-balance sheet assets or liabilities. In addition, we did not make an independent evaluation of the adequacy of the allowance for loan losses of CBNJ or Colonial, nor have we reviewed any individual credit files relating to CBNJ or Colonial. We have assumed, with your consent, that the respective allowances for loan losses of CBNJ and Colonial are adequate to cover such losses and will be adequate on a combined basis for the combined entity. We have relied upon and assumed, without assuming any responsibility for

independent verification, the advice that CBNJ has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Transaction and the other transactions contemplated by the Agreement. Finally, we have assumed that all required governmental, regulatory, shareholder and third party approvals have or will be received in a timely fashion and without any conditions or requirements that could adversely affect the Transaction.

Our opinion is necessarily based on economic, market, and other conditions as existed on and could be evaluated as of, and on the information made available to us as of, the date hereof. Events and developments occurring after the date hereof could materially affect the assumptions used in preparing this opinion, and we do not have any obligation to update, revise, reaffirm or withdraw this opinion or otherwise comment on events occurring after the date hereof.

Sterne, Agee & Leach, Inc. (“Sterne Agee”) is acting as financial advisor to CBNJ in connection with the Transaction and will receive fees from CBNJ for our services, a significant portion of which are contingent upon the completion of the Transaction. Sterne Agee also will receive a fee in connection with the delivery of this opinion. In addition, CBNJ has agreed to reimburse our expenses and to indemnify us against certain liabilities arising out of our engagement. Other than our engagement by CBNJ in connection with the Transaction, we have not provided investment banking services to CBNJ, Colonial or their respective affiliates over the past two years; however, we may do so in the future. In the ordinary course of our business as a broker-dealer, we may, from time to time, purchase securities from and sell securities to CBNJ, Colonial or their respective affiliates. We may also actively trade the securities of CBNJ, Colonial or their respective affiliates for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities.

This opinion is directed solely to, and is for the use and benefit of, the Board of Directors of CBNJ. Our opinion is limited to the fairness, from a financial point of view, to CBNJ of the Consideration to be paid in the Transaction by CBNJ and does not address the underlying business decision of CBNJ to engage in the Transaction, the relative merits of the Transaction relative to any strategic alternative that may be available to CBNJ or the effect of any other transaction in which CBNJ or Colonial might engage. In addition, our opinion does not constitute a recommendation whether or not to engage in the Transaction. In rendering this opinion, we express no view or opinion with respect to the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation payable to or to be received by any officers, directors, or employees of any of the parties to the Transaction relative to the aggregate Consideration. We also express no opinion as to what the value of CBNJ’s common stock will be when issued to the shareholders of Colonial under the Agreement or the prices at which CBNJ’s or Colonial’s common stock may trade at any time. Further, we express no view or opinion as to any terms or other aspects of the Transaction or as to how the stockholders of CBNJ should vote at any CBNJ stockholders meeting to be held in connection with the Transaction. The issuance of this opinion has been approved by the Fairness Opinion Committee of Sterne Agee.

Based on and subject to the foregoing and such other matters we have deemed relevant, it is our opinion, as of the date hereof, that the Consideration to be paid in connection with the Transaction by CBNJ is fair from a financial point of view to CBNJ.

COLONIAL FINANCIAL SERVICES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1.	Organization and Basis of Presentation

Colonial Financial Services, Inc. (the “Company”), a Maryland corporation, was formed in March 2010, to serve as the stock holding company for Colonial Bank, FSB (the “Bank”) as part of the mutual-to-stock conversion of Colonial Bankshares, MHC. On July 13, 2010, Colonial Financial Services, Inc. completed its second-step conversion and related public stock offering. The Bank is 100% owned by Colonial Financial Services, Inc. and Colonial Financial Services, Inc. is 100% owned by public stockholders. Colonial Financial Services, Inc. sold a total of 2,295,000 shares of common stock in the subscription, community and syndicated community offerings, including 91,800 shares to the Colonial Bank FSB employee stock ownership plan. All shares were sold at a purchase price of $10.00 per share. Concurrent with the completion of the offering, shares of common stock of Colonial Bankshares, Inc., a federal corporation, owned by public stockholders were converted into the right to receive 0.9399 shares of Colonial Financial Services, Inc. common stock. Cash in lieu of fractional shares was paid at a rate of $10.00 per share. As a result of the offering and the exchange, Colonial Financial Services, Inc. issued 4,173,444 shares of stock.

The same directors and officers who manage Colonial Bank, FSB manage Colonial Financial Services, Inc. The Company, as a savings and loan holding company, is subject to regulation by the Board of Governors of the Federal Reserve System. The Bank is subject to regulation and supervision by the Office of the Comptroller of the Currency (“OCC”).

The Bank is a federally chartered capital stock savings bank. The Bank maintains its executive office and main branch in Vineland, New Jersey with branches in Bridgeton, Mantua, Millville, Upper Deerfield, Vineland, Sewell and Cedarville, New Jersey. The Bank’s principal business consists of attracting customer deposits and investing these deposits primarily in single-family residential, commercial and consumer loans and investments.

The Bank has established a New Jersey corporation, Cohansey Bridge, LLC, whose purpose is to hold foreclosed real estate (the “Operating Subsidiary”). A Delaware corporation, COBK Investments, LLC, whose purpose was to invest in and mange securities, was dissolved in August 2014.

The consolidated financial statements include the accounts of the Company, the Bank and the Operating Subsidiary. All material intercompany transactions and balances have been eliminated. The Company prepares its financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) as set by the Financial Accounting Standards Board (“FASB”). The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Operating results for the three and nine months ended September 30, 2014 (unaudited) are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or for any other period. The balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, evaluation of other-than-temporary impairment of investment securities, our ability to realize deferred tax assets, and measurements of fair value.

For comparative purposes, prior periods’ consolidated financial statements have been reclassified when necessary to conform to report classifications of the current year. The reclassifications had no effect on net income (loss).

The Company has evaluated subsequent events for potential recognition and/or disclosure in this Quarterly Report on Form 10-Q through the date these consolidated financial statements were issued.

2.	Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”. The amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

In May 2014, the FASB issued ASU, 2014-09, “Revenue from Contracts with Customers”, which supersedes nearly all exiting revenue recognition guidance under U. S. GAAP. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U. S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

In June 2014, the FASB issued ASU, 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

In August 2014, the FASB issued ASU, 2014-14, “Receivables-Troubled Debt Restructurings by Creditors, Classification of Certain Government-guaranteed Mortgage Loans upon Foreclosure.” The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

3.	Earnings Per Share

Earnings per share (“EPS”) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested common stock awards. CSEs which are considered antidilutive are not included for the purposes of this calculation. There are no convertible securities which would affect the net income (numerator) in calculating basic and diluted earnings per share; therefore, for these calculations, the net income (loss) for the three months ended September 30, 2014 and 2013 is $(171,000) and $(1,948,000), respectively. Net income (loss) for the nine months ended September 30, 2014 and 2013 is $415,000 and $(2,431,000), respectively. The dilutive effect of potential common shares is computed using the treasury stock method. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and diluted earnings per share computation. At September 30, 2014 and 2013, there were 115,283 and 346,175 anti-dilutive options and awards excluded from the computation of diluted earnings per share.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Net income (loss)	$	(171,000	)	$	(1,948,000	)	$	415,000		$	(2,431,000	)

Weighted average common shares issued		3,860,190			3,853,058			3,860,069			3,853,204
Average unearned ESOP shares		(113,330	)		(133,415	)		(113,330	)		(133,415	)
Weighted average common shares outstanding-basic		3,746,860			3,719,643			3,746,739			3,719,789
Effect of dilutive non-vested shares and stock options outstanding		-			-			3,398			-
Weighted average common shares outstanding-diluted		3,746,860			3,719,643			3,750,137			3,719,789
Basic income (loss) per share	$	(0.05	)	$	(0.52	)	$	0.11		$	(0.65	)
Diluted income (loss) per share	$	(0.05	)	$	(0.52	)	$	0.11		$	(0.65	)

4. Stock-Based Compensation

At September 30, 2014, the Company has two share-based compensation plans under which grants have been made, the 2006 Stock-Based Incentive Plan (the “2006 Plan”) and the 2011 Equity Incentive Plan (the “2011 Plan”). Under the 2006 Plan, the total number of shares that could be granted as awards was 83,300 and the total amount of shares that could be granted as options was 208,247. Under the 2011 Plan, the total number of shares that could be granted as awards was 91,800 and the total amount of shares that could be granted as options was 229,500.

On October 19, 2006, for the 2006 Plan, 83,300 shares of restricted stock were awarded. The restricted shares awarded had a grant date fair value of $13.27 per share. The restricted stock awarded was fully vested as of October 19, 2011 and the total expense and related tax effect has been fully recorded.

On January 20, 2011, for the 2006 Plan, 3,268 shares of restricted stock were awarded. The restricted shares awarded had a grant date fair value of $12.00 per share. The restricted stock awarded vests 33% annually beginning January 20, 2012. The restricted stock awarded on January 20, 2011 is fully vested and the total expense and related tax effect has been fully recorded. For the three and nine months ended September 30, 2013, $(1,000) and $5,000 in compensation expense was recognized in regard to the stock awards given in January 2011 with a related tax benefit of $0 and $2,000, respectively. The negative amount was due to reversing the previously recognized expense for awards that were forfeited during the quarter.

On January 2, 2012, 45,895 shares of restricted time-based stock grants were awarded. The restricted time-based stock grants had a grant date fair value of $12.46 per share and vest 20% annually beginning January 2, 2013. Also, on January 2, 2012, 45,895 shares of restricted performance-based stock grants were awarded. The restricted performance-based stock grants had a grant date fair value of $12.46 and vest 20% annually with the attainment of the performance goal. If the goal is not attained for the year, the stock grants are forfeited. For the three and nine months ended September 30, 2014, $20,000 and $62,000 in compensation expense was recognized in regard to the time-based restricted stock awards, with a related tax benefit of $7,000 and $21,000, respectively. For the three and nine months ended September 30, 2014, there was no expense recorded for the performance-based awards. For the three and nine months ended September 30, 2013, $(4,000) and $54,000 in compensation expense was recognized in regard to these restricted stock awards, with a related tax benefit of $0 and $18,000, respectively. The negative amount was due to reversing the previously recognized expense for awards that were forfeited during the quarter. For the three and nine months ended September 30, 2013, there was no expense recorded for the performance-based awards. As of September 30, 2014, there was $427,000 of unrecognized compensation expense related to the restricted stock awards which is expected to be recognized over a period of 2.25 years.

A summary of the status of the shares under the two Plans as of September 30, 2014 and changes during the three and nine months ended September 30, 2014 are presented below.

	For the Three Months Ended September 30, 2014				For the Nine Months Ended September 30, 2014
Award Shares	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Restricted, beginning of period		39,214	$	12.46		52,832	$	12.46
Granted		-		-		-		-
Forfeitures		-		-		6,536		12.46
Vested		-		-		7,082		12.43
Restricted stock, end of period		39,214	$	12.46		39,214	$	12.46

On October 19, 2006, for the 2006 Plan, options to purchase 184,660 shares of common stock at $13.27 per share were awarded. The options awarded fully vested in October 2011 and expire in 2016. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted in 2006: dividend yield of 0%, risk-free interest rate of 4.79%, expected life of 6.5 years, and expected volatility of 15.00%. The calculated fair value of options granted in 2006 was $4.03 per option. The weighted average contractual term of options outstanding and exercisable was 2.00 years at September 30, 2014 and 3.00 years at September 30, 2013. The total expense and related tax effect has been fully recorded for these options.

On January 20, 2011, for the 2006 Plan, options to purchase 8,328 shares of common stock at $12.00 per share were awarded. The options awarded vest 33% annually beginning January 20, 2012 and expire in 2021. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted in 2011: dividend yield of 0%, risk-free interest rate of 3.47%, expected life of 6.5 years, and expected volatility of 33.00%. The calculated fair value of options granted in 2011 was $4.84 per option. The weighted average contractual term of options outstanding and exercisable was 6.25 years at September 30, 2014 and 7.25 years at September 30, 2013. The total expense and related tax effect has been fully recorded for these options. Stock-based compensation expense related to stock options awarded in 2011 for the three and nine months ended September 30, 2013, was $(1,000) and $5,000 with a related tax benefit of $0 and $2,000, respectively. The negative amount was due to reversing the previously recognized expense for options that were forfeited during the quarter.

On January 2, 2012, for the 2011 Plan, options to purchase 194,600 shares of common stock at $12.46 were awarded. The options awarded vest 20% annually beginning January 20, 2013 and expire in 2022. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted in 2012: dividend yield of 0%, risk-free interest rate of 1.41%, expected life of 6.5 years, and expected volatility of 32.00%. The calculated fair value of options granted in 2012 was $4.34 per option. The weighted average contractual term of options outstanding and exercisable was 7.25 years at September 30, 2014. Stock-based compensation expense related to stock options granted in 2012 for the three and nine months ended September 30, 2014, was $30,000 and $90,000 with a related tax benefit of $10,000 and $30,000, respectively. For the three and nine months ended September 30, 2013, there was $(3,000) and $82,000 with a related tax benefit of $0 and $28,000 of stock based compensation expense, respectively. The negative amount was due to reversing the previously recognized expense for options that were forfeited during the quarter. As of September 30, 2014, there was approximately $272,000 of unrecognized compensation cost related to unvested stock options granted in 2012. The cost will be recognized in a straight line method over a period of 2.25 years.

A summary of the status of the Company’s stock options under the two plans as of September 30, 2014 and changes during the three and nine months ended September 30, 2014 are presented below.

	For the Three Months Ended September 30, 2014				For the Nine Months Ended September 30, 2014
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Options outstanding, beginning of period		279,343	$	12.87		291,343	$	12.87
Granted		-		-		-		-
Exercised		2,295		12.46		2,295		12.46
Forfeitures		18,451		12.95		30,451		12.95
Options outstanding, end of period		258,597	$	12.86		258,597	$	12.86
Exercisable at end of period		175,107	$	13.01		175,107	$	13.01

In 2005, the Bank established a leveraged Employee Stock Ownership Plan (“ESOP”) for full-time employees who satisfy eligibility criteria. The ESOP trust initially purchased 156,399 shares of common stock. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 6.00% with principal and interest payable annually in equal installments over 15 years. The loan is secured by the shares of the common stock purchased.

In July 2010, the ESOP acquired an additional 91,800 shares of the Company’s common stock with a loan from the Company in the amount of $918,000, at a price of $10.00 per share. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 4.25% with principal and interest payable annually in equal installments over 10 years. The loan is secured by the shares of the common stock purchased.

As the debt is repaid, shares are released from the collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Statements of Financial Condition. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. The compensation expense is recorded on a monthly basis. The Company’s contribution expense for the ESOP was $65,000 and $183,000 for the three and nine months ended September 30, 2014 and $71,000 and $206,000 for the three and nine months ended September 30, 2013, respectively.

The following table presents the components of the ESOP shares:

	September 30, 2014		September 30, 2013
Shares released for allocation		134,869		114,784
Unreleased shares		113,330		133,415
Total ESOP shares		248,199		248,199

5. Contingent Liabilities and Guarantees

In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit that are not reflected in the accompanying financial statements. No material losses are anticipated as a result of those transactions on either a completed or uncompleted basis. The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risks involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting those commitments. The Company had $3.2 million of standby letters of credit outstanding as of September 30, 2014. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees.

In October 2009, the Bank entered into an agreement to sponsor a not-for-profit corporation for a Federal Home Loan Bank of New York Affordable Housing Program (“AHP”) Grant in the amount of $275,000. If the non-for-profit corporation does not comply with terms of the agreement, the Bank may be required to repay the grant to the Federal Home Loan Bank of New York. The term of the recapture agreement is 15 years. The Bank expects the not-for-profit corporation to adhere to all requirements of the grant and does not expect to be required to repay any of the AHP grant.

6. Investment Securities

Investment securities are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale:
September 30, 2014
U. S. Government obligations	$	97,301	$	21	$	(2,076	)	$	95,246
Corporate debt obligations		-		-		-			-
Mutual fund		851		41		-			892
Municipal debt obligations		7,168		140		(30	)		7,278
SBA pools		15,278		30		(66	)		15,242
Government-sponsored enterprise (“GSE”) mortgage-backed securities		56,662		892		(96	)		57,458
GSE collateralized mortgage obligations		60,459		179		(1,359	)		59,279
	$	237,719	$	1,303	$	(3,627	)	$	235,395

December 31, 2013
U. S. Government obligations	$	141,836	$	16	$	(5,069	)	$	136,783
Corporate debt obligations		4,493		12		(4	)		4,501
Mutual fund		903		42		-			945
Municipal debt obligations		6,828		35		(144	)		6,719
SBA pools		1,097		-		(4	)		1,093
GSE mortgage-backed securities		14,794		752		(83	)		15,463
GSE collateralized mortgage obligations		64,120		190		(2,688	)		61,622
	$	234,071	$	1,047	$	(7,992	)	$	227,126

Held to Maturity:
December 31, 2013
Corporate debt obligations	$	1,193	$	203	$	-	$	1,396
Municipal debt obligations		15,910		368		-		16,278
GSE mortgage-backed securities		188		20		-		208
	$	17,291	$	591	$	-	$	17,882

The Company had no investment securities classified as held-to-maturity at September 30, 2014.

At March 31, 2014, the Company reclassified its $10.0 million held-to-maturity portfolio as available for sale. The Company made this reclassification to ease the facilitation of security replacement to mitigate interest rate risk and to shift to mortgage related securities. The securities reclassified included: $8.6 million in municipal debt securities with an unrealized gain of $522,000, $1.2 million in corporate debt securities with an unrealized gain of $228,000 and $155,000 in GSE mortgage-backed securities with an unrealized gain of $17,000. In accordance with regulatory and accounting requirements, the Company is prohibited from classifying security purchases as held-to-maturity for a period of two years.

All of the Company’s mortgage-backed securities and collateralized mortgage obligations at September 30, 2014 and December 31, 2013 have been issued by U. S. government agencies or government sponsored enterprises and the collateral is predominantly one- to four-family mortgages.

The amortized cost and estimated fair value of investment securities at September 30, 2014, by contractual maturity, 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.

	Available for Sale
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	851	$	892
Due after one year through five years		49,125		48,624
Due after five years through ten years		55,533		54,089
Due thereafter		15,089		15,053
Sub-total		120,598		118,658
GSE mortgage-backed securities and GSE collateralized mortgage obligations		117,121		116,737
Total	$	237,719	$	235,395

At September 30, 2014 and December 31, 2013, $134.6 million and $139.0 million, respectively, of securities were pledged as collateral to secure certain deposits and FHLB advances.

Gross realized gains on available-for-sale securities totaled $718,000 while gross realized losses on available-for-sale securities totaled $218,000, for the nine months ended September 30, 2014. There were no gross realized gains or losses on held-to-maturity securities for the nine months ended September 30, 2014.

Gross realized gains on available-for-sale securities totaled $4,000 while gross realized losses on available-for-sale securities totaled $0, for the three months ended September 30, 2014.

Gross realized gains on available-for-sale securities totaled $1.1 million while gross realized losses on available-for-sale securities totaled $18,000, for the nine months ended September 30, 2013. There were no gross realized gains or losses on held-to-maturity securities for the nine months ended September 30, 2013.

Gross realized gains on available-for-sale securities totaled $22,000 while gross realized losses on available-for-sale securities totaled $18,000, for the three months ended September 30, 2013. There were no gross realized gains or losses on held-to-maturity securities for the three months ended September 30, 2013.

The following table shows the Company’s available-for-sale investment securities gross unrealized losses and fair value, and length of time that individual securities have been in a continuous unrealized loss position:

At September 30, 2014	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. government obligations	$	45,145	$	811	$	45,089	$	1,265	$	90,234	$	2,076
Corporate debt obligations		-		-		-		-		-		-
Municipal debt obligations		205		1		1,518		29		1,723		30
SBA pools		4,506		66		-		-		4,506		66
GSE mortgage-backed securities		23,095		95		98		1		23,193		96
GSE collateralized mortgage obligations		9,404		133		32,742		1,226		42,146		1,359
Total	$	82,355	$	1,106	$	79,447	$	2,521	$	161,802	$	3,627

At December 31, 2013	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. government obligations	$	126,055	$	4,590	$	8,006	$	479	$	134,061	$	5,069
Corporate debt obligations		1,497		4		-		-		1,497		4
Municipal debt obligations		3,319		123		565		21		3,884		144
SBA pools		1,093		4		-		-		1,093		4
GSE mortgage-backed securities		1,629		82		33		1		1,662		83
GSE collateralized mortgage obligations		46,346		2,628		781		60		47,127		2,688
Total	$	179,939	$	7,431	$	9,385	$	561	$	189,324	$	7,992

At September 30, 2014, there were 50 securities in the less-than-twelve-month category and 49 securities in the twelve-month-or-more category for the available-for-sale portfolio. Included in the 50 securities in the less-than-twelve-month category are (a) 23 U.S government obligations, (b) eight collateralized mortgage obligations, (c) four SBA pools, (d) fourteen mortgage-backed securities and (e) one municipal debt obligation. Included in the 49 securities in the twelve-month-or-more category are (a) 24 U.S government obligations, (b) 19 collateralized mortgage obligations, (c) one mortgage-backed security and (d) five municipal debt obligations.

At December 31, 2013, there were 120 securities in the less-than-twelve-months category and eight securities in the twelve-months-or-more category for the available-for-sale portfolio. Included in the 120 securities in the less-than-twelve months category for available-for-sale securities are (a) 68 U. S. government securities; (b) two corporate debt obligations of which one has been in a loss position for two months and one has been in a loss position for one month; (c) twelve municipal debt obligations, of which five have been in a loss position for eight months, five have been in a loss position for seven months and two of which have been in a loss position for two months; (d) three SBA pools, two of which have been in a loss position for 10 months and one has been in a loss position for one month; (e) two mortgage-backed securities, one of which has been in a loss position for eight months and one of which has been in a loss position for five months and (f) 33 collateralized mortgage obligations. Included in the eight securities in the twelve-months-or-more category are (a) four U. S. government securities; (b) two municipal debt obligations; (c) one mortgage-backed security and (d) one collateralized mortgage obligation.

At December 31, 2013, there were no held to maturity investments in an unrealized loss position.

The Company’s investment in U. S. Government agency securities and SBA loan pools consist of debt obligations of government sponsored enterprises (“GSE”) and pools of loans from the Small Business Administration. All principal and interest payments are current in regards to the investments. The contractual cash flows of these investments are guaranteed by an agency of the United States government. The change in market value is attributable to current interest rate levels relative to the Company’s cost and not credit quality. As the change in market value is attributable to changes in interest rates and not necessarily underlying credit deterioration, and because the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the securities before recovery occurs, the Company does not consider the investments to be other-than-temporarily impaired at September 30, 2014.

The Company’s investment in municipal bonds consists of general obligations and revenue obligations of municipalities in the United States and bond anticipation notes of entities located in New Jersey. The change in market value is attributable to the changes in interest rates relative to the Company’s cost and because the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the securities before recovery occurs, the Company does not consider the investments to be other-than-temporarily impaired at September 30, 2014.

The Company’s investment in mortgage-backed securities and collateralized mortgage obligations consists of GSE securities. The change in market value is attributable to changes in interest rates and widening credit spreads, and not due to underlying credit deterioration. The contractual cash flows for the investments are performing as expected. As the change in market value is attributable to changes in interest rates and credit spread and not underlying credit deterioration, and because the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the securities before recovery occurs, the Company does not consider the investments to be other-than-temporarily impaired at September 30, 2014.

7. Loans and Allowance for Loan Losses

The components of loans at September 30, 2014 and December 31, 2013 are as follows:

	At September 30, 2014						At December 31, 2013
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family	$	153,276			55.4	%	$	149,726			52.9	%
Multi-family		4,154			1.5			284			0.1
Commercial		63,421			23.0			79,601			28.1
Construction and land		7,309			2.6			8,665			3.1
Home equity loans and lines of credit		25,011			9.1			26,442			9.4
Commercial		21,276			7.7			17,302			6.1
Consumer		2,035			0.7			834			0.3
Total loans receivable	$	276,482			100.0	%	$	282,854			100.0	%
Deferred loan fees		(510	)					(847	)
Allowance for loan losses		(4,417	)					(5,853	)
Total loans receivable, net	$	271,555					$	276,154

Our loans are originated and administered through our loan policies. We originate one- to four-family residential real estate loans, multi-family loans, commercial real estate loans, construction and land loans, home equity loans and lines of credit, commercial business loans and consumer loans. Our one- to four-family residential loans also include loans to businesses for a commercial purpose, which are secured by liens on the borrower’s residence. We offer fixed-rate, adjustable-rate and balloon loans that amortize with monthly loan payments. We also originate or purchase SBA, USDA and other government insured loan products.

We have not originated or purchased any sub-prime or Alt-A loans. We have not originated or purchased payment-option ARMs or negative amortizing loans.

While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed- versus adjustable-rate loans, and the interest rates offered on each type of loan by other lenders competing in our market area. Loan originations are derived from a number of sources, including branch office personnel, existing customers, borrowers, builders, attorneys, accountants and other professionals, real estate broker referrals and walk-in customers.

Our loan origination activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand, while declining interest rates may stimulate increased loan demand. Accordingly, the volume of loan originations, the mix of fixed and adjustable-rate loans, and the profitability of this activity can vary from period to period. One- to four-family residential mortgage loans are generally underwritten to current Fannie Mae seller/servicer guidelines, and are closed on documents that conform to Fannie Mae guidelines.

Our board of directors grants lending authority to our Board Loan Committee, Management Loan Committee and to individual executive officers and loan officers. Our lending activities are subject to written policies established by the board of directors. These policies are reviewed periodically. The Management Loan Committee may approve loans in accordance with applicable loan policies, including our policy governing loans to one borrower. This policy limits the aggregate dollar amount of credit that may be extended to any one borrower and related entities. The Management Loan Committee may approve secured loans in amounts up to $750,000, and unsecured loans in amounts up to $300,000 with an aggregate exposure not to exceed $1.5 million. The Board Loan Committee may approve secured and unsecured loans in amounts up to the legal lending limit provided that unanimous approval is obtained. If unanimous approval is not obtained, the request must go to the full Board.

When a loan is more than 10 days delinquent, we generally send a computer-generated notice of delinquency to the borrower to remit the delinquent payment or contact the Bank. When the computer-generated notice does not cause the loan to be brought current, a telephone call is the next step in the process. If payments are not received within 30 days of the original due date, a letter demanding payment of all arrearages is sent and contact efforts are continued. By the 36th day of delinquency, good faith efforts to establish live contact with the borrower is made to inform them that loss mitigation options may be available. In addition, written notice with information about loss mitigation options is provided to the borrower by the 45th day of delinquency. If payment is not received within 60 days of the due date, we accelerate loans and demand payment in full. Failure to pay within 90 days of the original due date may result in legal action, notwithstanding ongoing collection efforts. Unsecured consumer loans are charged-off when they are between 90 to 120 days delinquent. For commercial loans, procedures with respect to demand letters and legal action may vary depending upon individual circumstances.

Loans are reviewed on a regular basis, and are placed on nonaccrual status when either principal or interest is 90 days or more past due. In addition, we place loans on nonaccrual status when we believe that there is sufficient reason to question the borrower’s ability to continue to meet contractual principal or interest payment obligations. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are not recognized as income unless warranted based on the borrower’s financial condition and payment record.

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the adequacy of the allowances for loan losses on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. The Company’s methodology for assessing the appropriateness of the allowance for loan losses consists of a 1) a general valuation allowance on homogeneous credits in the loan portfolio; 2) a valuation allowance of loans reviewed for impairment and 3) an unallocated component. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available to absorb losses in the loan portfolio. We periodically evaluate the carrying value of loans and the factors used in our evaluation of our allowance for loan losses. While we use the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations or if we adjust the factors we use in our methodology. This may reduce our net income by increasing our provision for loan losses.

The following table sets forth the activity in the allowance for loan losses and the related recorded investment in loans receivable by portfolio class at and for the three and nine months ended September 30, 2014 (in thousands):


	Real Estate
	One-to four- family			Multi- family		Commer- cial			Con- struction and land			Home equity and credit lines			Commer- cial			Con- sumer		Unallo- cated			Total
Allowance for loan losses for the three months ended September 30, 2014:
Beginning balance	$	1,270		$	40	$	524		$	105		$	280		$	1,025		$	20	$	1,800		$	5,064
Charge-offs		(279	)		-		(54	)		-			-			(101	)		-		-			(434	)
Recoveries		5			-		6			-			30			4			-		-			45
Provision (Credit)		(356	)		10		(210	)		(29	)		(134	)		869			67		(475	)		(258	)
Ending balance	$	640		$	50	$	266		$	76		$	176		$	1,797		$	87	$	1,325		$	4,417

Allowance for loan losses for the nine months ended September 30, 2014:
Beginning balance	$	1,650		$	3	$	1,222		$	90		$	275		$	1,843		$	20	$	750		$	5,853
Charge-offs		(470	)		-		(199	)		(76	)		(100	)		(2,388	)		-		-			(3,233	)
Recoveries		69			-		909			-			30			445			54		-			1,507
Provision		(609	)		47		(1,666	)		62			(29	)		1,897			13		575			290
Ending balance	$	640		$	50	$	266		$	76		$	176		$	1,797		$	87	$	1,325		$	4,417

Allowance ending balance:
Related to loans individually evaluated for impairment	$	79		$	-	$	-		$	-		$	36		$	-		$	-	$	-		$	115
Related to loans collectively evaluated for impairment		561			50		266			76			140			1,797			87		1,325			4,302
Total balance	$	640		$	50	$	266		$	76		$	176		$	1,797		$	87	$	1,325		$	4,417

Loans receivable:
individually evaluated for impairment	$	9,387		$	-	$	2,888		$	3,106		$	984		$	989		$	-	$	-		$	17,354
collectively evaluated for impairment		143,889			4,154		60,533			4,203			24,027			20,287			2,035		-			259,128
Ending balance	$	153,276		$	4,154	$	63,421		$	7,309		$	25,011		$	21,276		$	2,035	$	-		$	276,482

The following table sets forth the activity in the allowance for loan losses by portfolio class for the three and nine months ended September 30, 2013 (in thousands):


	Real Estate
	One-to four- family			Multi- family			Commer- cial			Con- struction and land			Home equity and credit lines			Commer- cial			Con- sumer			Unallo- cated		Total
Allowance for loan losses for the three months ended September 30, 2013:
Beginning balance	$	1,361		$	15		$	660		$	105		$	239		$	703		$	22		$	1,500	$	4,605
Charge-offs		(50	)		-			(866	)		-			(59	)		(954	)		-			-		(1,929	)
Recoveries		1			-			-			-			-			167			5			-		173
Provision		166			(11	)		1,471			124			98			985			(2	)		-		2,831
Ending balance	$	1,478		$	4		$	1,265		$	229		$	278		$	901		$	25		$	1,500	$	5,680

Allowance for loan losses for the nine months ended September 30, 2013:
Beginning balance	$	692		$	6		$	1,107		$	138		$	277		$	405		$	21		$	1,500	$	4,146
Charge-offs		(209	)		-			(1,813	)		(37	)		(210	)		(1,961	)		(7	)		-		(4,237	)
Recoveries		1			-			-			54			-			167			9			-		231
Provision		994			(2	)		1,971			74			211			2,290			2			-		5,540
Ending balance	$	1,478		$	4		$	1,265		$	229		$	278		$	901		$	25		$	1,500	$	5,680

The following table sets forth the allowance for loan losses and the recorded investment in loans receivable by portfolio class as of December 31, 2013 (in thousands):

	Real Estate
	One- to four- family		Multi- family		Commer- cial		Con- struction and land		Home equity and credit lines		Commer- cial		Con- sumer		Unallo- cated		Total
Allowance ending balance:
Related to loans individually evaluated for impairment	$	210	$	-	$	9	$	-	$	8	$	1,550	$	-	$	-	$	1,777
Related to loans collectively evaluated for impairment		1,440		3		1,213		90		267		293		20		750		4,076
Total allowance	$	1,650	$	3	$	1,222	$	90	$	275	$	1,843	$	20	$	750	$	5,853

Loans receivable:
Individually evaluated for impairment	$	8,933	$	-	$	9,452	$	3,323	$	778	$	2,784	$	-	$	-	$	25,270
Collectively evaluated for impairment		140,793		284		70,149		5,342		25,664		14,518		834		-		257,584
Ending balance	$	149,726	$	284	$	79,601	$	8,665	$	26,442	$	17,302	$	834	$	-	$	282,854

The following tables present the classes of the loan portfolio summarized by the classification rating with the Company’s internal risk rating system as of September 30, 2014 and December 31, 2013:

September 30, 2014	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Real estate loans:
One- to four-family	$	138,867	$	8,708	$	-	$	5,701	$	-	$	153,276
Multi-family		4,154		-		-		-		-		4,154
Commercial		41,756		16,368		836		4,461		-		63,421
Construction and land		6,247		-		-		1,062		-		7,309
Home equity and credit lines		23,013		976		-		1,022		-		25,011
Commercial		18,042		2,245		-		989		-		21,276
Consumer		780		89		1,166		-		-		2,035
Total	$	232,859	$	28,386	$	2,002	$	13,235	$	-	$	276,482

December 31, 2013	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Real estate loans:
One- to four-family	$	130,862	$	7,712	$	1,783	$	9,369	$	-	$	149,726
Multi-family		-		284		-		-		-		284
Commercial		45,181		22,851		3,739		7,830		-		79,601
Construction and land		4,060		1,140		-		3,465		-		8,665
Home equity and credit lines		24,891		597		108		846		-		26,442
Commercial		9,325		1,519		3,674		340		2,444		17,302
Consumer		731		83		20		-		-		834
Total	$	215,050	$	34,186	$	9,324	$	21,850	$	2,444	$	282,854

A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or shortfall in the amount of payments does not necessarily result in the loan being identified as impaired. For this purpose, delays less than 90 days are generally considered to be insignificant.

Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, questionable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are required to be designated as special mention. Loans classified as watch exhibit some of the following risk traits, such as having policy exceptions, documentation concerns, lack of financial statements or declining financial ratios, or pay slowly but never delinquent more than 30 days; however at the time of the classification no loss is expected.

The following table summarizes information in regards to impaired loans by loan portfolio class as of September 30, 2014 and December 31, 2013:

	September 30, 2014						December 31, 2013
(Dollars in thousands)	Recorded investment		Unpaid Principal Balance		Related Allowance		Recorded investment		Unpaid Principal Balance		Related Allowance

With an allowance recorded:
Real estate loans:
One- to four-family	$	3,217	$	3,522	$	79	$	2,728	$	2,870	$	210
Multi-family		-		-		-		-		-		-
Commercial		-		-		-		66		66		9
Construction and land		-		-		-		-		-		-
Home equity and credit lines		148		157		36		60		61		8
Commercial		-		-		-		2,784		3,178		1,550
Consumer		-		-		-		-		-		-
	$	3,365	$	3,679	$	115	$	5,638	$	6,175	$	1,777

With no related allowance recorded:
Real estate loans:
One- to four-family	$	6,170	$	7,537	$	-	$	6,205	$	7,297	$	-
Multi-family		-		-		-		-		-		-
Commercial		2,888		3,107		-		9,386		12,709		-
Construction and land		3,106		3,183		-		3,323		3,325		-
Home equity and credit lines		836		1,064		-		718		946		-
Commercial		989		2,316		-		-		-		-
Consumer		-		-		-		-		3		-
	$	13,989	$	17,207	$	-	$	19,632	$	24,280	$	-

Total
Real estate loans:
One- to four-family	$	9,387	$	11,059	$	79	$	8,933	$	10,167	$	210
Multi-family		-		-		-		-		-		-
Commercial		2,888		3,107		-		9,452		12,775		9
Construction and land		3,106		3,183		-		3,323		3,325		-
Home equity and credit lines		984		1,221		36		778		1,007		8
Commercial		989		2,316		-		2,784		3,178		1,550
Consumer		-		-		-		-		3		-
	$	17,354	$	20,886	$	115	$	25,270	$	30,455	$	1,777

The following table presents additional information regarding the Company’s impaired loans for the nine months ended September 30, 2014 and September 30, 2013:

For the Nine months ended:	September 30, 2014				September 30, 2013
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized While Impaired		Average Recorded Investment		Interest Income Recognized While Impaired

With an allowance recorded:
Real estate loans:
One-to four-family	$	3,171	$	52	$	2,393	$	57
Multi-family		-		-		-		-
Commercial		-		3		2,253		30
Construction and land		-		-		1,612		12
Home equity and credit lines		145		1		147		3
Commercial		-		46		474		3
Consumer		-		-		-		-
	$	3,316	$	102	$	6,879	$	105

With no related allowance recorded:
Real estate loans:
One-to four-family	$	6,369	$	109	$	6,225	$	157
Multi-family		-		-		-		-
Commercial		2,965		109		9,108		303
Construction and land		3,155		36		1,901		25
Home equity and credit lines		889		7		603		21
Commercial		1,148		19		2,512		42
Consumer		-		-		2		-
	$	14,526	$	280	$	20,351	$	548

Total
Real estate loans:
One-to four-family	$	9,540	$	161	$	8,618	$	214
Multi-family		-		-		-		-
Commercial		2,965		112		11,361		333
Construction and land		3,155		36		3,513		37
Home equity and credit lines		1,034		8		750		24
Commercial		1,148		65		2,986		45
Consumer		-		-		2		-
	$	17,842	$	382	$	27,230	$	653

If these loans made all the required principal and interest payments under their original contractual rate or the restructured rate, interest income on such loans would have increased by approximately $426,000 and $328,000 for the nine months ended September 30, 2014 and 2013, respectively.

The following table presents additional information regarding the Company’s impaired loans for the three months ended September 30, 2014 and September 30, 2013:

For the Three Months Ended:	September 30, 2014				September 30, 2013
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized While Impaired		Average Recorded Investment		Interest Income Recognized While Impaired

With an allowance recorded:
Real estate loans:
One-to four-family	$	3,303	$	15	$	2,375	$	27
Multi-family		-		-		-		-
Commercial		-		-		2,238		28
Construction and land		-		-		1,612		12
Home equity and credit lines		158		-		146		3
Commercial		-		-		464		3
Consumer		-		-		-		-
	$	3,461	$	15	$	6,835	$	73

With no related allowance recorded:
Real estate loans:
One-to four-family	$	6,439	$	25	$	6,155	$	63
Multi-family		-		-		-		-
Commercial		2,942		27		8,998		139
Construction and land		3,121		12		1,826		-
Home equity and credit lines		888		-		597		10
Commercial		1,127		-		2,486		14
Consumer		-		-		2		-
	$	14,517	$	64	$	20,064	$	226

Total
Real estate loans:
One-to four-family	$	9,742	$	40	$	8,530	$	90
Multi-family		-		-		-		-
Commercial		2,942		27		11,236		161
Construction and land		3,121		12		3,438		12
Home equity and credit lines		1,046		-		743		13
Commercial		1,127		-		2,950		17
Consumer		-		-		2		-
	$	17,978	$	79	$	26,899	$	299

If these loans made all the required principal and interest payments under their original contractual rate or the restructured rate, interest income on such loans would have increased by approximately $136,000 and $59,000 for the three months ended September 30, 2014 and 2013, respectively.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status at the dates indicated.

	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing
	(In thousands)
At September 30, 2014
Real estate loans:
One- to four-family	$	-	$	1,047	$	3,086	$	4,133	$	149,143	$	153,276	$	-
Multi-family		-		-		-		-		4,154		4,154		-
Commercial		-		-		201		201		63,220		63,421		-
Construction and land		-		-		-		-		7,309		7,309		-
Home equity loans and lines of credit		56		18		484		558		24,453		25,011		-
Commercial		998		-		-		998		20,278		21,276		-
Consumer and other		-		-		-		-		2,035		2,035		-
Total	$	1,054	$	1,065	$	3,771	$	5,890	$	270,592	$	276,482	$	-

	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing
	(In thousands)
At December 31, 2013
Real estate loans:
One- to four-family	$	3,393	$	2,422	$	3,399	$	9,214	$	140,512	$	149,726	$	-
Multi-family		-		-		-		-		284		284		-
Commercial		62		403		1,054		1,519		78,082		79,601		-
Construction and land		-		-		-		-		8,665		8,665		-
Home equity loans and lines of credit		356		15		464		835		25,607		26,442		-
Commercial		-		340		-		340		16,962		17,302		-
Consumer and other		-		-		-		-		834		834		-
Total	$	3,811	$	3,180	$	4,917	$	11,908	$	270,946	$	282,854	$	-

Loans are reviewed on a regular basis, and generally are placed on nonaccrual status when either principal or interest is 90 days or more past due or if we believe that there is sufficient reason to question the borrower’s ability to continue to meet contractual principal or interest payment obligations. We currently obtain updated appraisals and title searches on all collateral-dependent loans secured by real estate that are 90 days or more past due and placed on non-accrual status.

Non-performing assets at September 30, 2014 and December 31, 2013 are as follows:

	September 30, 2014			December 31, 2013
	(In thousands)
Non-accrual loans:
Real estate loans:
One- to four-family	$	5,667		$	5,162
Multi-family		-			-
Commercial		748			5,215
Construction and land		1,062			1,233
Home equity loans and lines of credit		940			715
Commercial		989			1,235
Consumer		-			-
Total non-accrual loans		9,406			13,560

Accruing loans 90 days or more past due:
All loans	$	-		$	-

Total non-performing loans	$	9,406		$	13,560

Real estate owned		3,223			3,258

Total non-performing assets	$	12,629		$	16,818

Ratios:
Total non-performing loans to total loans		3.40	%		4.79	%
Total non-performing loans to total assets		1.70	%		2.33	%
Total non-performing assets to total assets		2.28	%		2.88	%

At September 30, 2014, the non-accrual loans consisted of 49 one- to four-family real estate loans, five commercial real estate loans, two construction and land loans, 15 home equity loans, and one commercial loan. Included in non-accrual loans are 14 troubled debt restructurings in the amount of $3.3 million. The Company had 13 properties in real estate owned totaling $3.2 million consisting of five one- to four-family dwelling units, three non-residential properties and five parcels which had secured construction and land loans. Included in real estate owned at September 30, 2014 and December 31, 2013 are three possible branch locations in the amount of $2.4 million that were transferred from office properties and equipment during 2012.

At September 30, 2014, in addition to the troubled debt restructurings included in the non-accrual loan totals, the Company had 27 loans totaling $7.8 million that were considered troubled debt restructurings and classified as impaired. Twenty-three of the troubled debt restructurings (TDRs) are one- to four-family real estate loans with a net loan balance of $3.6 million, two of the TDRs are commercial real estate loans with a net loan balance of $2.1 million, one of the TDRs is a construction and land loan with a net loan balance of $2.0 million, and one of the TDRs is a home equity loan with a net loan balance of $45,000.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about anticipated operating and financial performance, such as loan originations, operating efficiencies, loan sales, charge-offs and loan loss provision, growth opportunities, regulatory compliance, interest rates and deposit growth. Words such as “may,” “could,” “should,” “would,” “will,” “will likely result,” “believe,” “expect,” “plan,” “will continue,” “is anticipated,” “estimate,” “intend,” “project,” and similar expressions are intended to identify these forward-looking statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings more than presently anticipated or projected.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U. S. Government, including policies of the U. S. Treasury and the Federal Reserve Board, the quality and composition of our loan or investment portfolios, demand for our loan products, deposit flows, competitive products and pricing, demand for financial services in our market area, changes in real estate values in our area, and changes in relevant accounting principles and guidelines. Additional factors that could affect our results may be discussed in our Form 10-K for the year ended December 31, 2013 and in other reports filed with the Securities and Exchange Commission.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, the evaluation of other-than-temporary impairment of investments securities, the valuation of and our ability to realize deferred tax assets and the measurement of fair value.

Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance sufficient to absorb estimated probable loan losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires an estimate of the loss for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

We have established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish the allowance for loan losses. The allowance for loan losses is based on our current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for loan losses is established through a provision for loan losses based on our evaluation of the losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date.

The allowance for losses on loans is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and management’s evaluation of the collectability of the loan portfolio. The allowance is adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in our lending policies and procedures, changes in current general economic conditions and business conditions affecting our primary lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, loss experience, and duration of the current business cycle. The applied loss factors are re-evaluated each reporting period to ensure their relevance in the current economic environment.

In March 2013, in an effort to enhance the allowance for loan loss methodology, the Bank instituted a migration analysis process in determining the allowance. Migration analysis uses loan level attributes to track the movement of loans through the various loan classifications in order to estimate the percentage of losses likely to be incurred in a financial institution’s current portfolio. The purpose of migration analysis is to determine what rate of loss an institution has incurred on similarly criticized or past due loans. This purpose is the same as that of historical loss rate analysis, but it is more granular and therefore can give a truer reflection of the losses inherent in the current portfolio.

The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Future provisions for loan losses may include an unallocated component as we re-evaluate our estimates including, but not limited to changes in economic conditions in our market area, declines in local property values and concentrations of risk. Included in our estimate and evaluation is an analysis of our mortgage loans, both current and delinquent, that may have private mortgage insurance.

Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters. Historically, we believe our estimates and assumptions have proven to be relatively accurate. Nevertheless, because a small number of non-performing loans could result in net charge-offs significantly in excess of the estimated losses inherent in our loan portfolio, additional provisions to the allowance for loan losses may be required that would adversely impact earnings for future periods. In addition, the OCC and the Board of Governors of the Federal Reserve System, as an integral part of their examination processes, periodically review our allowance for loan losses. They may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

Other-Than-Temporary Impairment. Investment securities are evaluated on at least a quarterly basis, to determine whether a decline in their value is other-than-temporary. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether or not we intend to sell or expect that it is more likely than not that we will be required to sell the investment security prior to an anticipated recovery in fair value. Once a decline in value for a debt security is determined to be other than temporary, the other-than-temporary impairment is separated into (a) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss). For equity securities, the full amount of the other-than-temporary impairment is recognized in earnings.

Valuation of Deferred Tax Assets. In evaluating our ability to realize deferred tax assets, management considers all positive and negative information, including our past operating results and our forecast of future taxable income. In determining future taxable income, management utilizes a budget process that makes business assumptions and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets which would result in additional income tax expense in the period.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of financial instruments using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. Other factors such as model assumptions and market dislocations can affect estimates of fair value. Differences in the fair value and carrying value of certain financial instruments (including changes in the differences between the fair value and the carrying value from period to period), such as loans, securities held to maturity, deposits and borrowings do not affect our reported financial condition or results of operations, as such financial instruments are carried at cost.

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

Net loans receivable decreased $4.6 million, or 1.7%, to $271.6 million at September 30, 2014 from $276.2 million at December 31, 2013. One- to four-family residential real estate loans increased $3.6 million to $153.3 million at September 30, 2014 from $149.7 at December 31, 2013. Commercial real estate loans decreased $16.2 million to $63.4 million at September 30, 2014 from $79.6 million at December 31, 2013. Construction and land loans decreased $1.4 million to $7.3 million at September 30, 2014 from $8.7 million at December 31, 2013. Home equity loans and lines of credit decreased $1.4 million to $25.0 million at September 30, 2014 from $26.4 million at December 31, 2013. Commercial loans increased by $4.0 million to $21.3 million at September 30, 2014 from $17.3 million at December 31, 2013. Included in the net loans receivable are nonaccrual loans which decreased to $9.4 million at September 30, 2014 from $13.6 million at December 31, 2013.

Real estate owned decreased to $3.2 million at September 30, 2014 from $3.3 million at December 31, 2013. We currently hold through the foreclosure process or deed-in-lieu of foreclosure 13 properties, five of which are residential one- to four-family properties, three of which are nonresidential properties and five of which are construction and land loans.

Federal Home Loan Bank borrowings totaled $9.7 million at September 30, 2014. There were no Federal Home Loan Bank borrowings outstanding at December 31, 2013.

Comparison of Operating Results for the Three Months Ended September 30, 2014 and September 30, 2013

General. We experienced a net loss of $171,000 for the three months ended September 30, 2014 compared to a net loss of $1.9 million for the three months ended September 30, 2013. The principal reasons for the decrease in the net loss were a decrease in the provision for loan losses in the amount of $3.1 million and a decrease in total non-interest expense of $144,000, offset by a decrease in net interest income of $452,000, a decrease in non-interest income of $22,000 and an increase in income tax expense of $982,000.

Interest Income. Interest income decreased $705,000 to $3.8 million for the three months ended September 30, 2014 from $4.5 million for the three months ended September 30, 2013. The decrease in interest income resulted from a decrease of $392,000 in interest income on loans and a decrease of $313,000 in interest income on securities.

Interest income on loans decreased $392,000 to $3.0 million for the three months ended September 30, 2014 from $3.4 million for the three months ended September 30, 2013. This decrease was caused by a decrease in the average yield on loans to 4.44% for the three months ended September 30, 2014 from 4.65% for the three months ended September 30, 2013 along with a decrease in the average balance of loans of $27.9 million to $268.1 million for the three months ended September 30, 2014 from $296.0 million for the three months ended September 30, 2013.

Interest income on securities decreased by $313,000 to $804,000 for the three months ended September 30, 2014 from $1.1 million for the three months ended September 30, 2013. The decrease in interest income on securities was due to a decrease in the average balance of taxable and tax-exempt securities to $238.5 million for the three months ended September 30, 2014 from $273.5 million for the three months ended September 30, 2013 along with a decrease in the average yield of 28 basis points to 1.35% from 1.63% for the three months ended September 30, 2014 and 2013. The yields on tax-exempt securities are not tax-affected.

Interest Expense. Interest expense decreased $253,000 to $654,000 for the three months ended September 30, 2014 from $907,000 for the three months ended September 30, 2013.

Interest expense on interest-bearing deposits decreased by $246,000 to $646,000 for the three months ended September 30, 2014 from $892,000 for the three months ended September 30, 2013. The decrease in interest expense on interest-bearing deposits was due to a decrease in the average rate paid on interest-bearing deposits to 0.60% for the three months ended September 30, 2014 from 0.74% for the three months ended September 30, 2013, and a decrease in the average balance of interest-bearing deposits to $429.9 million for the three months ended September 30, 2014 from $483.2 million for the three months ended September 30, 2013. We experienced decreases in the average cost across all categories of interest-bearing deposits for the three months ended September 30, 2014, reflecting lower market rates.

Interest expense on borrowings decreased $7,000 to $8,000 for the three months ended September 30, 2014 from $15,000 for the three months ended September 30, 2013. This decrease was primarily due to a $7.4 million decrease in the average balance of borrowings to $8.2 million for the three months ended September 30, 2014 from $15.6 million for the three months ended September 30, 2013 offset by an increase in the average rate paid on borrowings to 0.39% for the three months ended September 30, 2014 from 0.38% for the three months ended September 30, 2013.

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 probable credit losses inherent in the loan portfolio. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluation 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 nonperforming and other classified 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 later events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance.

During the three months ended September 30, 2014, the Company charged off $434,000 in loans, which included $279,000 on one- to four-family real estate loans, $54,000 on commercial real estate loans, and $101,000 on commercial loans. As part of the Bank’s loan collection process, we re-appraise loans that are 90 days delinquent or impaired. The reasons for the charge-offs in the three months ended September 30, 2014 were the cash flow analysis that we completed on non-collateral based impaired loans and the reduced appraisals that we received on collateral-based impaired loans we were monitoring. The charge-offs during this quarter are included in our risk-weighted historical loss rates based on the nature, type and industry sector of the loan. The historical loan rates are then incorporated in calculating the general component of our allowance for loan loss by loan category.

During the three months ended September 30, 2013, the Company charged off $1.9 million in loans, which included $50,000 on one- to four-family real estate loans, $867,000 on commercial real estate loans, $59,000 on home equity and lines of credit, and $954,000 on commercial loans. As part of the Bank’s loan collection process, we re-appraise loans that are delinquent or impaired. The reason for the charge-offs in the three months ended September 30, 2013 were partially due to the reduced appraisals that we received on the impaired loans we were monitoring. The charge-offs during this quarter are included in our risk-weighted historical loss rates based on the nature, type and industry sector of the loan. The historical loan rates are then incorporated in calculating the general component of our allowance for loan loss by loan category.

Based on our evaluation of the above factors, we recorded a negative provision for loan losses of $258,000 for the three months ended September 30, 2014 (i.e., a credit to earnings) and we recorded a provision for loan losses of $2.8 million for the three months ended September 30, 2013. The allowance for loan losses was $4.4 million, or 1.60% of total loans, at September 30, 2014, compared to $5.7 million, or 1.95% of total loans, at September 30, 2013. Our balance of loans we evaluated individually for impairment was $17.4 million at September 30, 2014 and $25.3 million at December 31, 2013. At September 30, 2014, December 31, 2013 and September 30, 2013, we maintained unallocated allowances for loan losses of $1.3 million, $750,000 and $1.5 million respectively. The unallocated portion of the allowance is deemed to be appropriate as it reflects an uncertainty that remains in the loan portfolio, as well as a Company-specific, industry-wide reluctance and a regulatory reluctance to reduce further allowances at this time. The Company believes that the amount of provision in 2014 and the resulting allowance at September 30, 2014, are appropriate given the continuing level of risk in the loan portfolio, including the overall level of non-performing loans.

To the best of our knowledge, we have recorded all losses that are both probable and reasonable to estimate at September 30, 2014 and 2013. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio (including residential and commercial real estate loans) could result in material increases in our provisions for loan losses.

Non-interest Income. Non-interest income was $407,000 for the three months ended September 30, 2014 and $429,000 for the three months ended September 30, 2013. For the three months ended September 30, 2014, there was a net gain on the sale and call of investment securities in the amount of $4,000 compared to a net gain of $4,000 for the three months ended September 30, 2013. Fees and service charges on deposit accounts decreased by $17,000 to $286,000 for the three months ended September 30, 2014 from $303,000 for the three months ended September 30, 2013. Earnings on bank owned life insurance totaled $108,000 for the three months ended September 30, 2014 and $112,000 for the three months ended September 30, 2013.

Non-interest Expense. Non-interest expense decreased $144,000 to $3.7 million for the three months ended September 30, 2014 from $3.8 million for the three months ended September 30, 2013. Compensation and benefits expense decreased by $391,000 to $1.4 million for the three months ended September 30, 2014 compared to $1.8 million for the three months ended September 30, 2013. The decrease in compensation and benefit expense was due to the elimination of director fees for the three months ended September 30, 2014 as the director’s suspended payment of their fees. The decline was also due to reduced employee hours as branch staffing was matched to customer activity for the three months ended September 30, 2014, as compared to the three months ended September 30, 2013, and reduced ESOP expense. Occupancy and equipment expense decreased $22,000 to $394,000 for the three months ended September 30, 2014 from $416,000 for the three months ended September 30, 2013. Federal deposit insurance premiums decreased $33,000 to $178,000 for the three months ended September 30, 2014 from $211,000 for the three months ended September 30, 2013. The decrease in federal deposit insurance premiums was due to reduced deposit balances. Data processing fees increased by $22,000 to $257,000 for the three months ended September 30, 2014 from $235,000 for the three months ended September 30, 2013. Professional fees decreased $48,000 due to decreased costs associated with loan collection, regulatory consulting and strategic planning services. Net real estate owned expense decreased $71,000 to $358,000 for the three months ended September 30, 2014 from $429,000 for the three months ended September 30, 2013. This decrease was due to reduced write-downs on REO properties and reduced REO expenses offset by a loss in the amount of $9,000 on real estate owned sold for the three months ended September 30, 2014. Merger-related expenses of $470,000 were incurred during the three months ended September 30, 2014. Other expenses decreased to $331,000 for the three months ended September 30, 2014 from $367,000 for the three months ended September 30, 2103.

Income Tax Expense/Benefit. We recorded an income tax expense of $285,000 for the three months ended September 30, 2014, compared to an income tax benefit of $697,000 for the three months ended September 30, 2013. The effective tax rates for the three months ended September 30, 2014 and 2013 were 250.0% and (26.4%). The effective tax rate for the three months ended September 30, 2014 was adversely impacted by our payment of merger-related expenses of $470,000 which the Company has treated as non-deductible, but will be re-evaluated for potential deductibility in relation to all other expenses incurred in regards to the merger in the fourth quarter of 2014 and beyond.

Comparison of Operating Results for the Nine Months ended September 30, 2014 and September 30, 2013

General. We experienced net income of $415,000 for the nine months ended September 30, 2014 compared to a net loss of $2.4 million for the nine months ended September 30, 2013. The principal reasons for the increase in net income were a decrease in the provision for loan losses in the amount of $5.3 million and a decrease in total non-interest expense of $888,000 offset by a decrease in net interest income of $1.0 million, a decrease in total non-interest income of $625,000 and an increase in income tax expense of $1.6 million.

Interest Income. Interest income decreased $2.0 million to $11.8 million for the nine months ended September 30, 2014 from $13.8 million for the nine months ended September 30, 2013. The decrease in interest income resulted from a decrease of $1.3 million in interest income on loans and a decrease of $763,000 in interest income on securities.

Interest Expense. Interest expense decreased $1.0 million to $2.0 million for the nine months ended September 30, 2014 from $3.0 million for the nine months ended September 30, 2013.

Interest expense on interest-bearing deposits decreased by $1.0 million to $2.0 million for the nine months ended September 30, 2014 from $3.0 million for the nine months ended September 30, 2013. The decrease in interest expense on interest-bearing deposits was due to a decrease in the average rate paid on interest-bearing deposits to 0.60% for the nine months ended September 30, 2014 from 0.80% for the nine months ended September 30, 2013 along with a decrease in the average balance of interest-bearing deposits to $441.6 million for the nine months ended September 30, 2014 from $501.7 million for the nine months ended September 30, 2013. We experienced decreases in the average balances and average costs across all categories of interest-bearing deposits for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

During the nine months ended September 30, 2014, the Company charged off $3.2 million in loans, which included $470,000 on one- to four-family loans, $199,000 on commercial real estate loans, $76,000 on construction and land loans, $100,000 on home equity and lines of credit and $2.4 million on commercial loans. As part of the Bank’s loan collection process, we re-appraise loans that are delinquent or impaired. The reasons for the charge-offs in the nine months ended September 30, 2014 were the cash flow analysis that we completed on non-collateral based impaired loans and the reduced appraisals that we received on collateral-based impaired loans we were monitoring. The charge-offs during this period are included in our risk-weighted historical loss rates based on the nature, type and industry sector of the loan. The historical loan rates are then incorporated in calculating the general component of our allowance for loan loss by loan category.

During the nine months ended September 30, 2013, the Company charged off $4.2 million in loans, which included $209,000 on one- to four-family loans, $1.8 million on commercial real estate loans, $37,000 on construction and land loans, $210,000 on home equity and lines of credit, $2.0 million on commercial loans, and $7,000 on consumer loans. As part of the Bank’s loan collection process, we re-appraise loans that are delinquent or impaired. The reason for the charge-offs in the nine months ended September 30, 2013 were the reduced appraisals that we received on impaired loans we were monitoring. The charge-offs during this period are included in our risk-weighted historical loss rates based on the nature, type and industry sector of the loan. The historical loan rates are then incorporated in calculating the general component of our allowance for loan loss by loan category.

Based on our evaluation of the above factors, we recorded a provision for loan losses of $290,000 for the nine months ended September 30, 2014 and a provision for loan losses of $5.5 million for the nine months ended September 30, 2013. The allowance for loan losses was $4.4 million, or 1.60% of total loans, at September 30, 2014, compared to $5.6 million, or 1.95% of total loans, at September 30, 2013. Our balance of loans we evaluated individually for impairment was $17.4 million at September 30, 2014 and $25.3 million at December 31, 2013. At September 30, 2014, December 31, 2013 and September 30, 2013, we maintained unallocated allowances for loan losses of $1.3 million, $750,000 and $1.5 million respectively. The main reason for the increase in the unallocated portion of the allowance for loan losses is the amount of recoveries we received on loans that were previously charged off against earnings. The unallocated portion of the allowance is deemed to be appropriate as it reflects an uncertainty that remains in the loan portfolio, as well as a Company-specific, industry-wide reluctance and a regulatory reluctance to reduce allowances at this time. The Company believes that the amount of provision in 2014 and the resulting allowance at September 30, 2014, are appropriate given the continuing level of risk in the loan portfolio, including the overall level of non-performing loans.

Non-interest Income. Non-interest income was $1.7 million for the nine months ended September 30, 2014 and $2.3 million for the nine months ended September 30, 2013. Fees and service charges on deposit accounts decreased by $51,000 to $853,000 for the nine months ended September 30, 2014 from $904,000 for the nine months ended September 30, 2013. For the nine months ended September 30, 2014, there was a net gain on the sale and call of investment securities in the amount of $500,000 compared to a net gain of $1.1 million for the nine months ended September 30, 2013. Earnings on bank owned life insurance totaled $319,000 for the nine months ended September 30, 2014 and $330,000 for the nine months ended September 30, 2013.

Non-interest Expense. Non-interest expense decreased $888,000 to $10.2 million for the nine months ended September 30, 2014 from $11.1 million for the nine months ended September 30, 2013. Compensation and benefits expense decreased by $880,000 to $4.3 million for the nine months ended September 30, 2014 from $5.2 million for the nine months ended September 30, 2013. The decrease in compensation and benefit expense was due to the elimination of director fees for the nine months ended September 30, 2014 as the director’s suspended payment of their fees. The decline was also due to reduced employee hours as branch staffing was matched to customer activity for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, and reduced ESOP expense. Occupancy and equipment expense increased $36,000 to $1.2 million for the nine months ended September 30, 2014 from $1.2 million for the nine months ended September 30, 2013. Federal deposit insurance premiums increased $7,000 to $541,000 for the nine months ended September 30, 2014 from $534,000 for the nine months ended September 30, 2013 due to increased premiums. Data processing fees increased by $53,000 to $773,000 for the nine months ended September 30, 2014 from $720,000 for the nine months ended September 30, 2013. This increase was due to costs associated with item processing. Professional fees decreased $36,000 to $893,000 for the nine months ended September 30, 2014 from $929,000 for the nine months ended September 30, 2013. Net real estate owned expense decreased $281,000 to $908,000 for the nine months ended September 30, 2014 from $1.2 million for the nine months ended September 30, 2013 due to reduced allowances for REO properties and reduced REO expenses. Merger-related expenses of $470,000 were incurred during the nine months ended September 30, 2104. Other expenses decreased to $1.0 million for the nine months ended September 30, 2014 from $1.1 million for the three months ended September 30, 2013.

Income Tax Benefit. We recorded an income tax expense of $548,000 for the nine months ended September 30, 2014, compared to an income tax benefit of $1.1 million for the nine months ended September 30, 2013. The effective tax rates are 56.9% and (31.4%), respectively. The effective tax rate for the nine months ended September 30, 2014 was adversely impacted by our payment of merger-related expenses of $470,000 which the Company has treated as non-deductible, but will be re-evaluated for potential deductibility in relation to all other expenses incurred in regards to the merger in the fourth quarter of 2014 and beyond.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2014, cash and cash equivalents totaled $8.4 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $235.4 million at September 30, 2014. In addition, at September 30, 2014, we had the ability to borrow a total of $165.8 million from the Federal Home Loan Bank of New York (30% of our assets at that date). On that date, there were $9.7 million in Federal Home Loan Bank advances outstanding.

At September 30, 2014, loan commitments outstanding totaled $6.0 million. In addition to commitments to originate loans, we had $25.2 million in unadvanced funds to borrowers. We had commitments to purchase SBA/USDA loans in the amount of $1.8 million and a FNMA MBS security in the amount of $1.0 million. Total certificates of deposit due within one year of September 30, 2014 totaled $51.9 million. Total certificates of deposit due within one year of September 30, 2014 represent 10.9% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2015. We have the ability to attract and retain deposits by adjusting the interest rates offered.

We have no material commitments or demands that are likely to affect our liquidity other than set forth above. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, we could access our borrowing capacity with the Federal Home Loan Bank of New York or increase deposit rates to attract additional deposits.

Our primary investing activities are the origination of loans and the purchase of securities. For the nine months ended September 30, 2014, we originated $52.7 million of loans and purchased $70.4 million of securities. For the nine months ended September 30, 2013, we originated $40.2 million of loans and purchased $113.5 million of securities.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net decrease of $44.2 million and a net decrease of $26.8 million in total deposits for the nine months ended September 30, 2014 and 2013, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive in our local markets.

There were $9.7 million in Federal Home Loan Bank short-term borrowings outstanding at September 30, 2014. Federal Home Loan Bank advances have primarily been used to fund loan demand and purchase securities.

Colonial Bank, FSB is subject to various regulatory capital requirements administered by the Office of Comptroller of the Currency, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. Please see Note 11, Regulatory Matters and Capital Requirements, for minimal capital requirements imposed on the Bank by the Office of Comptroller of the Currency.

In July 2013, the Office of the Comptroller of the Currency 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-in or 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 Colonial Bank FSB 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 Colonial Financial Services, Inc., effective January 1, 2015.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Company is a Smaller Reporting Company.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

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

(b) Changes in internal control over financial reporting.

There were no changes made in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the percent of the allowance to the total allowance and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category.

	At December 31,
	2013								2012								2011
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	1,650		28.2	%		52.9	%	$	692		16.7	%		49.2	%	$	1,220		24.3	%		46.4	%
Home equity loans and lines of credit		275		4.7			9.4			277		6.7			9.5			114		2.3			10.7
Multi-family		3		0.1			0.1			6		0.1			0.1			27		0.5			0.2
Commercial		1,222		20.9			28.1			1,107		26.7			29.9			2,400		47.8			33.7
Construction and land		90		1.5			3.1			138		3.3			3.2			34		0.6			1.4
Commercial		1,843		31.5			6.1			405		9.8			7.7			713		14.2			7.2
Consumer and other		20		0.3			0.3			21		0.5			0.4			19		0.4			0.4
Unallocated		750		12.8			-			1,500		36.2			-			500		9.9			—

Total allowance for loan losses	$	5,853		100.0	%		100.0	%	$	4,146		100.0	%		100.0	%	$	5,027		100.0	%		100.0	%

	At December 31,
	2010								2009
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	580		16.4	%		43.3	%	$	418		16.0	%		46.6	%
Home equity loans and lines of credit		35		1.0			10.9			42		1.6			11.7
Multi-family		27		0.8			1.0			10		0.4			1.3
Commercial		1,800		50.8			35.2			1,010		38.8			29.9
Construction and land		65		1.8			1.8			157		6.0			4.3
Commercial		406		11.4			7.2			283		10.9			5.5
Consumer and other		130		3.7			0.6			164		6.3			0.7
Unallocated		500		14.1			—			522		20.0			—

Total allowance for loan losses	$	3,543		100.0	%		100.0	%	$	2,606		100.0	%		100.0	%

Securities Activities

Our securities investment policy is established by our board of directors. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management strategy. Our Asset/Liability Management Committee, which consists of senior management, oversees our investing strategies. The board of directors reviews the Asset/Liability Management Committee’s activities and strategies, and evaluates on an ongoing basis our investment policy and objectives. Our Asset/Liability Management Committee is responsible for making securities portfolio decisions in accordance with established policies. Our chief executive officer and our chief financial officer have the authority to purchase and sell securities within specific guidelines established by the investment policy. In addition, all transactions are reviewed by the Asset/Liability Management Committee at least monthly.

Our current investment policy generally permits securities investments in debt securities issued by the U.S. Government and U.S. Government agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of U.S. Government agencies and U.S. Government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank. Securities in these categories are classified as “investment securities” for financial reporting purposes. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, as well as collateralized mortgage obligations (“CMOs”) issued or backed by securities issued by these government agencies or government-sponsored enterprises. Also permitted are investments in securities issued or backed by the Small Business Administration and mortgage-related mutual funds. As of December 31, 2013, we held no asset-backed securities (securities collateralized by automobile loans, credit card receivables and home equity loans), no preferred securities issued by either Fannie Mae or Freddie Mac and no private-label mortgage backed securities. Our current investment strategy uses a risk management approach of diversified investing in fixed-rate securities with short- to intermediate-term maturities, as well as adjustable-rate securities, which may have a longer term to maturity. The emphasis of this approach is to increase overall investment securities yields, manage interest rate risk, ensure adequate liquidity for loan demand, deposit fluctuations and other changes to our balance sheet, and provide collateral for our long-term debt needs.

At December 31, 2013, we did not have any securities from an issuer (other than securities issued by the U. S. Governments or by its agencies) that had an aggregate book value of more than 10% of our consolidated stockholders’ equity.

FASB ASC Topic 320-10-25, “Accounting for Certain Investments in Debt and Equity Securities,” requires that, at the time of purchase and at each balance sheet date thereafter, we designate a security as held to maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale are reported at fair value, while securities held to maturity are reported at amortized cost. We do not have a trading portfolio. The increase in interest rates during 2013 reduced the market value of our investment portfolio.

Effective December 10, 2013, pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliated companies from engaging in short-term proprietary trading of certain securities, investing in funds with collateral comprised of less that 100% loans if such funds are not registered with the Securities and Exchange Commission and from engaging in hedging activities that do not hedge a specific identified risk. After the transition period, the Volcker Rule prohibitions and restrictions will apply to banking entities unless an exception applies. We are currently analyzing the impact of the Volcker Rule on our investment portfolio, and if any changes are required to our investment strategies that could negatively affect our earnings.

Mortgage-Backed Securities. We invest in government-sponsored enterprise (“GSE”) mortgage-backed securities to generate positive interest rate spreads with minimal administrative expense, lower credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae and Ginnie Mae, and increase liquidity. We invest primarily in mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. At December 31, 2013, our mortgage-backed securities portfolio had a fair value of $15.5 million, and consisted of pass-through securities.

Mortgage-backed securities are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of our mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (government sponsored enterprises, such as Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as Colonial Bank, FSB, and guarantee the payment of principal and interest to these investors. Investments in mortgage-backed securities involve a risk that actual prepayments will be greater or lesser than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield on such securities. We review prepayment estimates for our mortgage-backed securities at the time of purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio.

Collateralized Mortgage Obligations. Government-sponsored enterprise collateralized mortgage obligations (CMO’s) are types of debt securities issued by a special-purpose entity that aggregates pools of mortgages and mortgage-backed securities and creates different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. Our practice is to limit fixed-rate CMO investments primarily to the early-to-intermediate tranches, which have the greatest cash flow stability. Floating rate CMOs are purchased with emphasis on the relative trade-offs between lifetime interest rate caps, prepayment risk and interest rates. At December 31, 2013, our collateralized mortgage obligation portfolio had a fair value of $61.6 million.

Corporate Debt Securities and Municipal Bonds. At December 31, 2013, we held $5.9 million in corporate debt securities, at fair value, $4.5 million of which were classified as available for sale and $1.4 million of which were classified as held to maturity. At December 31, 2013, we held $22.6 million in bonds issued by states and political subdivisions, $15.9 million of which were classified as held to maturity at amortized cost and $6.7 million of which were classified as available for sale at fair value. Included in this total are bond anticipation notes and tax anticipation notes (all of which have terms of one year or less), issued by municipalities in the State of New Jersey. Although corporate debt securities and municipal bonds may offer a higher yield than a U.S. Treasury or agency security of comparable duration, these securities also have a higher risk of default due to adverse changes in the creditworthiness of the issuer. In recognition of this potential risk, we generally limit investments in corporate bonds to securities rated in one of the four highest categories by at least one nationally recognized rating agency, and to a total investment of no more than $1.0 million per issuer. We also generally limit investments in municipal bonds to issues that are insured unless the issuer is a local government entity within our service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In, addition our investment policy imposes an investment limitation of $1.5 million per municipal bond and a limitation equal to our loan-to-one borrower limitation for bond anticipation notes and tax anticipation notes.

Equity Securities. At December 31, 2013, our equity securities consisted of Federal Home Loan Bank of New York common stock and mutual funds. We hold the Federal Home Loan Bank of New York common stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of New York’s advance program. There is no market for the common stock, but it is the current practice of the Federal Home Loan Bank of New York to redeem shares at par value. The aggregate fair value of our Federal Home Loan Bank of New York common stock as of December 31, 2013 was $702,000 based on its par value. No unrealized gains or losses have been recorded because the par value of the common stock represents its fair value. Our mutual funds consist solely of Shay Asset Management Funds and Wilmington Prime Money Market Fund.

U.S. Government Agency Securities. At December 31, 2013, we held U.S. government agency securities available for sale with a fair value of $136.8 million. Generally, these securities have short- to medium-term maturities (one to five years) and may have call or step-up features. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes, as collateral for borrowings, and for prepayment protection.

Other-Than-Temporary Impairment of Securities. For the years ended December 31, 2013 and 2012, there was no charge against operating results for other-than-temporarily impaired securities.

The following table sets forth the composition of our securities portfolio (excluding Federal Home Loan Bank of New York common stock) at the dates indicated.

	At December 31,
	2013				2012				2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities available-for-sale:
GSE mortgage-backed securities	$	14,794	$	15,463	$	32,340	$	34,721	$	48,355	$	51,803
GSE collateralized mortgage obligations		64,120		61,622		50,846		52,134		59,607		60,970
U.S. Government obligations		141,836		136,783		126,524		127,053		91,203		91,553
Corporate debt obligations		4,493		4,501		6,603		6,753		9,573		9,668
Mutual funds		903		945		4,909		4,948		7,743		7,787
Municipal debt obligations		6,828		6,719		6,171		6,256		4,977		5,075
SBA pools		1,097		1,093		1,427		1,439		1,681		1,687
Total securities available-for-sale	$	234,071	$	227,126	$	228,820	$	233,304	$	223,139	$	228,543

Securities held-to-maturity:
GSE mortgage-backed securities	$	188	$	208	$	429	$	469	$	782	$	859
Corporate debt obligations		1,193		1,396		1,192		1,502		1,191		1,465
Municipal debt obligations		15,910		16,278		28,318		28,953		36,019		36,355
Total securities held-to-maturity	$	17,291	$	17,882	$	29,939	$	30,924	$	37,992	$	38,679

The following tables show the gross unrealized losses and fair value, and the length of time that individual securities have been in a continuous unrealized loss position, for our available-for-sale investment securities at the dates indicated.

	At December 31, 2013
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)

GSE mortgage-backed securities	$	1,629	$	82	$	33	$	1	$	1,662	$	83
GSE collateralized mortgage obligations		46,346		2,628		781		60		47,127		2,688
U. S. Government obligations		126,055		4,590		8,006		479		134,061		5,069
Corporate debt obligations		1,497		4		-		-		1,497		4
Municipal debt obligations		3,319		123		565		21		3,884		144
SBA pools		1,093		4		-		-		1,093		4
Total	$	179,939	$	7,431	$	9,385	$	561	$	189,324	$	7,992

	At December 31, 2012
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)

GSE mortgage-backed securities	$	42	$	1	$	1,508	$	29	$	1,550	$	30
GSE collateralized mortgage obligations		706		1		287		1		993		2
U. S. Government obligations		30,705		163		-		-		30,705		163
Corporate debt obligations		496		1		-		-		496		1
Municipal debt obligations		1,539		9		-		-		1,539		9
SBA pools		101		1		-		-		101		1
Total	$	33,589	$	176	$	1,795	$	30	$	35,384	$	206

At December 31, 2013 and 2012, there were no held-to-maturity investment securities with gross unrealized losses.

As of December 31, 2013 and 2012, management believed that the unrealized losses of the securities noted above were primarily dependent on movements in market interest rates. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service, pools of loans from the Small Business Administration and pools of loans from a government-sponsored enterprise. Management believes that these fair values will recover as the underlying portfolios mature. We did not intend to sell and expect that it is not more likely than not that we would be required to sell these investment securities prior to an anticipated recovery in fair value. Accordingly, management did not believe any individual unrealized loss as of December 31, 2013 and 2012, represented an other-than-temporary impairment.

Portfolio Maturities and Yields. The composition and maturities of the investment debt securities portfolio and the mortgage-backed securities portfolio at December 31, 2013 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have been adjusted to a tax-equivalent basis, assuming a federal income tax rate of 34.0%. At December 31, 2013, the non-tax adjusted weighted average yield on total state and municipal securities was 1.08%.

	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)

Securities available for sale:
Mortgage-backed securities	$	-		-	%	$	174		6.05	%	$	795		4.42	%	$	13,825		3.50	%	$	14,794	$	15,463		3.58	%
Collateralized mortgage obligations		-		-			3,992		1.82			9,291		1.90			50,837		1.87			64,120		61,622		1.87
U.S. government obligations		-		-			58,452		0.85			83,384		1.45			-		-			141,836		136,783		1.20
Corporate debt obligations		2,498		1.01			1,995		0.89			-		-			-		-			4,493		4,501		0.96
Mutual funds		903		1.80			-		-			-		-			-		-			903		945		1.80
Municipal debt obligations		-		-			2,718		4.17			4,110		3.97			-		-			6,828		6,719		4.05
SBA pools		-		-			-		-			202		2.88			895		0.63			1,097		1,093		1.04
Total securities available for sale	$	3,401		1.22	%	$	67,331		1.06	%	$	97,782		1.63	%	$	65,557		2.20	%	$	234,071	$	227,126		1.62	%

Securities held to maturity:
Mortgage-backed securities	$	9		6.11	%	$	36		6.86	%	$	2		6.00	%	$	141		5.21	%	$	188	$	208		5.58	%
Corporate debt obligations		-		-			996		7.13			-		-			197		6.44			1,193		1,396		7.02
Municipal debt obligations		12,266		1.41			510		7.33			1,666		7.33			1,468		7.89			15,910		16,278		2.82
Total securities held to maturity	$	12,275		1.41	%	$	1,542		7.19	%	$	1,668		7.33	%	$	1,806		7.53	%	$	17,291	$	17,882		3.14	%

Sources of Funds

General. Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from sales of securities, proceeds from maturing securities and cash flows from operations are the primary sources of our funds for use in lending, investing and for other general purposes.

Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of certificates of deposit, savings accounts, NOW accounts, checking accounts, money market deposit accounts, club accounts and individual retirement accounts. We provide commercial checking accounts for businesses, municipalities and school boards. In addition, we provide low-cost checking account services for our customers.

Our deposits are obtained predominantly from the areas in which our branch offices are located. We rely on our customer service and competitive pricing to attract and retain these deposits. We accept certificates of deposit in excess of $100,000 for which we may provide preferential rates. At December 31, 2013, we had no brokered certificates of deposits. In addition, at December 31, 2013, we had $143.7 million in deposits from municipalities and school boards within the State of New Jersey.

The following tables set forth the distribution of total deposit accounts, by account type, at the dates indicated.

	At December 31,
	2013								2012								2011
	Balance		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Non-interest bearing demand	$	42,739		8.19	%		-	%	$	39,301		7.09	%		-	%	$	42,568		8.18	%		-	%
Savings		111,219		21.31			0.56			106,469		19.22			0.65			105,045		20.17			1.26
NOW accounts		152,279		29.17			0.42			168,150		30.35			0.82			115,169		22.12			0.84
Super NOW accounts		43,740		8.38			0.35			44,548		8.04			0.54			39,198		7.53			0.82
Money market deposit		63,811		12.22			0.40			72,051		13.00			0.63			71,145		13.66			0.87
Total transaction accounts		413,788		79.27			0.40			430,519		77.70			0.64			373,125		71.66			0.91

Certificates of deposit		108,239		20.73			1.45			123,571		22.30			1.60			147,578		28.34			1.89

Total deposits	$	522,027		100.00	%		0.62	%	$	554,090		100.00	%		0.86	%	$	520,703		100.00	%		1.19	%

As of December 31, 2013, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $39.2 million. The following table sets forth the maturity of those certificates of deposit as of December 31, 2013.

Certificates of Deposits in Amounts Greater than or Equal to $100,000	At December 31, 2013
	(In thousands)

Three months or less	$	2,761
Over three months through six months		3,111
Over six months through one year		8,027
Over one year to three years		9,200
Over three years		16,086

Total	$	39,185

At December 31, 2013, $51.0 million of our certificates of deposit had maturities of one year or less. We monitor activity in these accounts and, based on historical experience and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

Borrowings. Our borrowings consist of short-term and long-term Federal Home Loan Bank advances. The following table sets forth information concerning the borrowing balances and interest rates at the dates and for the years indicated.

	At or For the Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)

Balance at end of year	$	-		$	-		$	10,045
Average balance during year	$	7,557		$	1,836		$	6,235
Maximum outstanding at any month end	$	34,020		$	2,000		$	14,430
Weighted average interest rate at end of year		-	%		-	%		0.42	%
Average interest rate during year		0.38	%		1.91	%		1.89	%

At December 31, 2013, there was no outstanding balance of borrowings from the FHLB.

At December 31, 2013, we had the ability to borrow approximately $174.9 million under our credit facilities with the Federal Home Loan Bank of New York of which no balance was outstanding.

Employees

As of December 31, 2013, we had 100 full-time employees and 16 part-time employees. The employees are not represented by a collective bargaining unit and we believe we have a good working relationship with our employees.

Subsidiary Activities

COBK Investments, LLC (formerly called COBK Investments, Inc.) is a wholly owned subsidiary of Colonial Bank, FSB. It is a Delaware corporation that was formed in 2013 to invest in and manage investment securities that Colonial Bank, FSB is authorized to hold. COBK Investments, Inc. was dissolved in September 2013. At December 31, 2013, COBK Investments, LLC had $150.0 million in assets, and Colonial Bank, FSB had an equity investment of $11.8 million in COBK Investments, LLC.

FEDERAL AND STATE TAXATION

Tax Allocation

Colonial Bank, FSB, Colonial Financial Services, Inc. and COBK Investments, LLC have established a method for allocating and for reimbursing the payment of their consolidated tax liability.

Federal Taxation

General. Colonial Financial Services, Inc., Colonial Bank, FSB and COBK Investments, LLC are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. Colonial Financial Services Inc.’s and Colonial Bank, FSB’s federal tax returns are not currently under audit, and have not been audited during the past five years. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the applicable tax rules.

Method of Accounting. For federal income tax purposes, Colonial Financial Services, Inc. currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Bad Debt Reserves. Historically, Colonial Bank, FSB has been subject to special provisions in the tax law regarding allowable tax bad debt deductions and related reserves. Tax law changes were enacted in 1996, pursuant to the Small Business Protection Act of 1996 (the “1996 Act”), that eliminated the use of the percentage of taxable income method for tax years after 1995 and required recapture into taxable income over a six-year period of all bad debt reserves accumulated after 1987. Colonial Bank, FSB recaptured approximately $50,000 of reserves over the six-year period ended December 31, 2002.

Currently, the Colonial Financial Services, Inc. consolidated group uses the specific charge off method to account for bad debt deductions for income tax purposes.

Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to November 1, 1988 were subject to recapture into taxable income if Colonial Bank, FSB failed to meet certain thrift asset and definitional tests.

At December 31, 2013, our total federal pre-1988 base year reserve was approximately $1.5 million. However, under current law, base-year reserves remain subject to recapture if Colonial Bank, FSB makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years. Colonial Financial Services, Inc. and Colonial Bank, FSB have been subject to the AMT but currently have no such amounts available as credits for carryover.

Net Operating Loss Carryovers. Generally, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. However, subject to certain limitations, the carryback period for net operating losses incurred in 2008 or 2009 (but not both years) was expanded to five years. At December 31, 2013, Colonial Bank, FSB had no net operating loss carryforwards for federal income tax purposes.

Corporate Dividends-Received Deduction. Colonial Financial Services, Inc. may exclude from its federal taxable income 100% of dividends received from Colonial Bank, FSB as a wholly owned subsidiary.

Capital Loss Carryovers. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. At December 31, 2013, Colonial Financial Services, Inc. and its subsidiaries have federal capital loss carryforwards of approximately $195,000 expiring from 2014 through 2015. The Company expects to fully realize the benefit of such carryforwards through tax planning strategies.

State Taxation

Colonial Bank, FSB currently files New Jersey Corporation Business tax returns for banking and financial corporations. Generally, the income of savings institutions in New Jersey is subject to the New Jersey Corporation Business tax at the rate of 9% on its “entire net income,” which generally means federal taxable income before net operating loss and special deductions, subject to certain adjustments (including addition of interest income on state and municipal obligations). With the formation of CB Delaware Investments Inc. (now known as COBK Investments, Inc.) in 2006 and the transfer of investment securities to it, the taxable state income of Colonial Bank, FSB had been substantially reduced. With the reduction, Colonial Bank, FSB is in a net operating loss position for state tax purposes and may utilize state net operating loss carryforwards to reduce future state income taxes, though there is no guarantee that these carryforwards will be utilized before they expire. In September 2013, Colonial Bank FSB dissolved COBK Investments, Inc. and formed COBK Investments, LLC which returns the investment income to the Bank as taxable state income.

At December 31, 2013, Colonial Bank, FSB has New Jersey net operating loss carryforwards of $20.2 million, of which $5.5 million expires from 2014 through 2015 and the balance expires from 2029 through 2032. New Jersey net operating losses occurring for periods before January 1, 2009 can be carried forward for seven succeeding years and net operating losses accruing for periods after January 1, 2009 may be carried forward 20 succeeding tax years. At December 31, 2013, the Company has recorded a valuation allowance of approximately $305,000 against the deferred tax assets attributable to the New Jersey net operating loss carryforwards.

At December 31, 2013, Colonial Bank, FSB had New Jersey capital loss carryforwards of $115,000. For New Jersey purposes, capital losses can be carried back three years and carried forward five succeeding years. At December 31, 2013, the Company has recorded a full valuation allowance of $7,000 for the state capital loss carryforwards.

Colonial Financial Services, Inc. is not currently under audit with respect to their state income tax returns and their state income tax returns have not been audited for the past five years. Colonial Bank, FSB is currently under audit with respect to their state income tax returns.

SUPERVISION AND REGULATION

General

Colonial Bank, FSB is examined and supervised by the Office of the Comptroller of the Currency and is subject to examination by the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance fund and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the federal agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. Colonial Bank, FSB also is a member of and owns stock in the Federal Home Loan Bank of New York, which is one of the twelve regional banks in the Federal Home Loan Bank System. Colonial Bank, FSB is also regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. The Office of the Comptroller of the Currency examines Colonial Bank, FSB and prepares reports for the consideration of its board of directors on any operating deficiencies. Colonial Bank, FSB’s relationship with its depositors and borrowers is also regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of Colonial Bank, FSB’s mortgage documents.

As a savings and loan holding company, Colonial Financial Services, Inc. is required to comply with the rules and regulations of the Federal Reserve Board, and is required to file certain reports with and be subject to examination by the Federal Reserve Board. Colonial Financial Services, Inc. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve Board or Congress, could have a material adverse impact on Colonial Financial Services, Inc. and Colonial Bank, FSB and their operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes in the regulation of federal savings banks such as Colonial Bank, FSB. Under the Dodd-Frank Act, the Office of Thrift Supervision has been eliminated and responsibility for the supervision and regulation of federal savings banks has been transferred to the Office of the Comptroller of the Currency, which is the agency that is currently primarily responsible for the regulation and supervision of national banks. Responsibility for the regulation and supervision of savings and loan holding companies, such as Colonial Financial Services, Inc. has been transferred to the Federal Reserve Board, which currently supervises bank holding companies. Additionally, a new Consumer Financial Protection Bureau has been established as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau has assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned to federal banking regulators, and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as Colonial Bank, FSB, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the primary enforcement authority of, their primary regulator rather than the Consumer Financial Protection Bureau.

Set forth below is a brief description of certain regulatory requirements that are or will be applicable to Colonial Financial Services, Inc. and Colonial Bank, FSB. The description below is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Colonial Financial Services, Inc. and Colonial Bank, FSB.

Regulatory Agreement and Capital Requirements

On May 30, 2013, Colonial Bank, FSB entered into an agreement with the Office of the Comptroller of the Currency. The agreement provides, among other things, that within specified time frames:

●

Colonial Bank, FSB must establish a Compliance Committee to monitor and coordinate Colonial Bank, FSB’s adherence to the agreement and submit reports to the Office of the Comptroller of the Currency;

●

Colonial Bank, FSB must hire an independent consultant to review Colonial Bank, FSB’s lending function, and Colonial Bank, FSB must implement a written plan to correct deficiencies noted by the consultant;

●

Colonial Bank, FSB must submit for review and non-objection by the Office of the Comptroller of the Currency a three-year written capital plan;

●

Colonial Bank, FSB must submit for review and non-objection by the Office of the Comptroller of the Currency a three-year strategic plan;

●

Colonial Bank, FSB must implement a profit plan to improve and sustain Colonial Bank, FSB’s earnings;

●

Colonial Bank, FSB must take immediate and continuing action to protect its interest in criticized assets, and must implement a written program to eliminate the basis of criticism of criticized, classified and certain other assets;

●

Colonial Bank, FSB must review the adequacy of Colonial Bank, FSB’s allowance for loan losses and establish a program for the maintenance of an adequate allowance for loan losses;

●

Colonial Bank, FSB must implement a written program to improve credit risk management; and

●

Colonial Bank, FSB must implement a policy to ensure that other real estate owned is managed in accordance with applicable federal regulations.

On May 30, 2013, Colonial Bank, FSB was notified by the Office of the Comptroller of the Currency that it established minimum capital ratios for Colonial Bank, FSB requiring it to maintain a Tier 1 capital to adjusted total assets ratio of 9.50%, a Tier 1 capital to risk-weighted assets ratio of 11.00%, and a Total risk-based capital to risk-weighted assets ratio of 13.00%. As of December 31, 2013, Colonial Bank, FSB’s ratios for these items were 9.74%, 19.19% and 20.45%, respectively.

Failure to comply with the regulatory capital ratios can result in Colonial Bank, FSB being required to submit a revised capital plan for the Office of the Comptroller of the Currency’s review and non-objection as well as imposition of a revised enforcement order.

Holding Company Board Resolutions

In July 2013, Colonial Financial Services, Inc. adopted board resolutions as requested by the Federal Reserve Board. The resolutions provide, among other things, that within specified time frames:

●

Colonial Financial Services, Inc. must serve as a source of strength to Colonial Bank, FSB, including assuring compliance with the regulatory agreement and other supervisory actions;

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Colonial Financial Services, Inc. must submit to the Federal Reserve Bank of Philadelphia a written plan to strengthen board oversight related to financial and risk management

●

Colonial Financial Services, Inc. may not pay dividends, incur debt or repurchase its stock without prior written approval from the Federal Reserve Bank of Philadelphia; and

●

Colonial Bank, FSB must submit to the Federal Reserve Bank of Philadelphia a capital plan.

Failure to comply with the board resolutions could result in enforcement action by the Federal Reserve Board.

Federal Banking Regulation

Business Activities. A federal savings bank derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and the regulations of the Office of the Comptroller of the Currency. Under these laws and regulations, Colonial Bank, FSB may invest in mortgage loans secured by residential and nonresidential real estate, commercial business loans and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. Colonial Bank, FSB also may establish subsidiaries that may engage in activities not otherwise permissible for Colonial Bank, FSB, including real estate investment and securities and insurance brokerage. The Dodd-Frank Act authorized the payment of interest on commercial checking accounts, effective July 21, 2011.

Capital Requirements. Office of the Comptroller of the Currency regulations require savings banks to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for savings banks receiving the highest rating on the CAMELS rating system) and an 8% risk-based capital ratio.

The risk-based capital standard for savings banks requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of the Comptroller of the Currency, based on the risks believed inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. Additionally, a savings bank that retains credit risk in connection with an asset sale may be required to maintain additional regulatory capital because of the purchaser’s recourse to the savings bank. Colonial Bank, FSB does not typically engage in asset sales.

In July 2013, the Office of the Comptroller of the Currency 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-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers 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 also implements the Dodd-Frank Act’s directive to apply to savings and loan holding companies consolidated capital requirements that are not less stringent than those applicable to their subsidiary institutions. The final rule is effective January 1, 2015. The “capital conservation buffer” will be phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer will be effective.

In accordance with OTS regulations, at the time of the mutual-to-stock conversion, the Company substantially restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who continue to maintain their accounts at Colonial Bank, FSB after conversion. The Bank established a parallel liquidation account to support the Company’s liquidation account in the event the Company does not have sufficient assets to fund its obligations under its liquidation account. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of Colonial Bank, FSB or the Company, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

At December 31, 2013, Colonial Bank, FSB’s capital exceeded all applicable requirements.

Loans to One Borrower. Generally, a federal savings bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2013, Colonial Bank, FSB was in compliance with the loans-to-one-borrower limitations.

Qualified Thrift Lender Test. As a federal savings bank, Colonial Bank, FSB must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, Colonial Bank, FSB must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12 months. A savings bank that fails the qualified thrift lender test must operate under specified restrictions. The Dodd-Frank Act made noncompliance with the QTL Test potentially subject to agency enforcement action for a violation of law.

Capital Distributions. Office of the Comptroller of the Currency regulations govern capital distributions by a federal savings bank, which include cash dividends, stock repurchases and other transactions charged to the capital account. A savings bank must file an application for approval of a capital distribution if:

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the total capital distributions for the applicable calendar year exceed the sum of the savings bank’s net income for that year to date plus the savings bank’s retained net income for the preceding two years;

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the savings bank would not be at least adequately capitalized following the distribution;

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the distribution would violate any applicable statute, regulation, agreement or Office of the Comptroller of the Currency-imposed condition; or

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the savings bank is not eligible for expedited treatment of its filings.

Even if an application is not otherwise required, every savings bank that is a subsidiary of a holding company must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.

The Federal Reserve Board or Office of the Comptroller of the Currency may disapprove a notice or application if:

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the savings bank would be undercapitalized following the distribution;

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the proposed capital distribution raises safety and soundness concerns; or

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the capital distribution would violate a prohibition contained in any statute, regulation, agreement with a federal banking regulatory agency or any formal or informal enforcement action.

Liquidity. A federal savings bank is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

Community Reinvestment Act and Fair Lending Laws. All savings banks have a responsibility under the Community Reinvestment Act and related regulations of the Office of the Comptroller of the Currency to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings bank, the Office of the Comptroller of the Currency is required to assess the association’s record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agencies and the Department of Justice. Colonial Bank, FSB received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. A federal savings bank’s authority to engage in transactions with its affiliates is limited by federal regulations and by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as Colonial Bank, FSB. Colonial Financial Services, Inc. will be an affiliate of Colonial Bank, FSB. In general, loan transactions between an insured depository institution and its affiliate are subject to certain quantitative and collateral requirements. In this regard, transactions between an insured depository institution and its affiliate are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates. Collateral in specified amounts ranging from 100% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from the association. In addition, federal regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. The Office of the Comptroller of the Currency requires savings banks to maintain detailed records of all transactions with affiliates.

Colonial Bank, FSB’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Colonial Bank, FSB’s capital. In addition, extensions of credit in excess of certain limits must be approved by Colonial Bank, FSB’s board of directors.

Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all “institution-affiliated parties,” including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the Office of the Comptroller of the Currency may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to terminate deposit insurance or to recommend to the Office of the Comptroller of the Currency that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the Office of the Comptroller of the Currency is required and authorized to take supervisory actions against undercapitalized savings banks. For this purpose, a savings bank is placed in one of the following five categories based on the savings bank’s capital:

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well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital);

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adequately capitalized (at least 4% leverage capital (3% for savings banks with a composite examination rating of 1), 4% Tier 1 risk-based capital and 8% total risk-based capital);

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undercapitalized (less than 4% leverage capital (3% for savings banks with a composite examination rating of 1), 4% Tier 1 risk-based capital or 8% total risk-based capital);

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significantly undercapitalized (less than 6% total risk-based capital, 3% Tier 1 risk-based capital or 3% leverage capital); or

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critically undercapitalized (less than 2% tangible capital).

COLONIAL FINANCIAL SERVICES, INC.

TABLE OF CONTENTS


		Page No.

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS		F-2/F-3

CONSOLIDATED FINANCIAL STATEMENTS:

	Consolidated Statements of Financial Condition	F-4

	Consolidated Statements of Operations	F-5

	Consolidated Statements of Comprehensive Loss	F-6

	Consolidated Statements of Stockholders’ Equity	F-7

	Consolidated Statements of Cash Flows	F-8

	Notes to Consolidated Financial Statements	F-9

BDO USA, LLP

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Colonial Financial Services, Inc.

Vineland, New Jersey

We have audited the accompanying consolidated statement of financial condition of Colonial Financial Services, Inc. and subsidiary (collectively the “Company”) as of December 31, 2013, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Colonial Financial Services, Inc. and subsidiary as of December 31, 2013, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Philadelphia, Pennsylvania

March 28, 2014

F-2

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Colonial Financial Services, Inc.

We have audited the accompanying consolidated statement of financial condition of Colonial Financial Services, Inc. and subsidiary (the “Company”) as of December 31, 2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended. Colonial Financial Services, Inc’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Colonial Financial Services, Inc. and subsidiary as of December 31, 2012 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Baker Tilly Virchow Krause, LLP

Pittsburgh, Pennsylvania

March 29, 2013

F-3

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2013			2012

	(Dollars In Thousands, Except Share Data)

Assets

Cash and amounts due from banks	$	23,404		$	26,418
Investment securities available for sale		227,126			233,304
Investment securities held to maturity (fair value 2013 - $17,882; 2012 - $30,924)		17,291			29,939
Loans receivable (net of allowance for loan losses 2013 - $5,853; 2012 - $4,146)		276,154			297,182
Real estate owned, net		3,258			5,347
Federal Home Loan Bank stock, at cost		702			758
Office properties and equipment, net		7,825			8,195
Bank-owned life insurance		14,607			14,168
Accrued interest receivable		1,530			1,650
Deferred tax asset, net		7,276			2,709
Other assets		3,984			3,926
Total Assets	$	583,157		$	623,596

Liabilities and Stockholders’ Equity

Liabilities

Deposits:
Non-interest-bearing	$	42,739		$	39,301
Interest-bearing		479,288			514,789
Total deposits		522,027			554,090
Advances from borrowers for taxes and insurance		831			661
Accrued interest payable and other liabilities		1,136			808
Total Liabilities		523,994			555,559

Commitments and contingencies (Note 12)

Stockholders’ Equity

Preferred stock, $0.01 par value; authorized 50,000,000 shares; none issued		—			—
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 3,853,058 shares in 2013 and 3,852,791 shares in 2012		39			39
Additional paid-in capital		37,289			37,155
Unearned shares held by Employee Stock Ownership Plan (ESOP)		(1,170	)		(1,378	)
Retained earnings		27,482			29,307
Accumulated other comprehensive income (loss)		(4,477	)		2,914
Total Stockholders’ Equity		59,163			68,037
Total Liabilities and Stockholders’ Equity	$	583,157		$	623,596

See notes to consolidated financial statements

F-4

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2013			2012
	(Dollars in Thousands, Except Per Share Data)
Interest Income
Loans, including fees	$	13,616		$	15,682
Mortgage-backed securities		1,998			2,997
Investment securities:
Taxable		2,062			2,120
Tax-exempt		453			608
Total Interest Income		18,129			21,407
Interest Expense
Deposits		3,819			5,396
Borrowings		29			35
Total Interest Expense		3,848			5,431
Net Interest Income		14,281			15,976
Provision for Loan Losses		5,699			6,496
Net Interest Income after Provision for Loan Losses		8,582			9,480
Non-Interest Income
Fees and service charges		1,211			1,175
Net gain on sales and calls of investment securities		1,064			259
Earnings on bank-owned life insurance		439			374
Other		41			36
Total Non-Interest Income		2,755			1,844
Non-Interest Expenses
Compensation and benefits		6,887			6,893
Occupancy and equipment		1,650			1,647
Data processing		968			879
FDIC insurance premiums		733			531
Office supplies		154			200
Professional fees		1,271			850
Advertising		131			148
Real estate owned, net		1,475			1,828
Other		1,530			1,419
Total Non-Interest Expenses		14,799			14,395
Loss before Income Tax Benefit		(3,462	)		(3,071	)
INCOME TAX BENEFIT		(1,637	)		(1,322	)
Net Loss	$	(1,825	)	$	(1,749	)

Per Share Data (Note 3):
Loss per share – basic	$	(0.49	)	$	(0.46	)
Loss per share – diluted	$	(0.49	)	$	(0.46	)

See notes to consolidated financial statements

F-5

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	Year Ended December 31,
	2013			2012

	(Dollars in thousands)

Net loss	$	(1,825	)	$	(1,749	)

Other Comprehensive Loss:

Unrealized loss on securities net of tax benefit – 2013, ($3,613); 2012, $(215)		(6,752	)		(446	)

Less reclassification adjustment for realized gain on sale of securities (net) included in net loss net of tax expense – 2013, $425; 2012, $104		(639	)		(155	)
Total Other Comprehensive Loss		(7,391	)		(601	)

Comprehensive Loss	$	(9,216	)	$	(2,350	)

See notes to consolidated financial statements

F-6

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock			Additional Paid-in Capital			Unearned Shares Held by ESOP			Retained Earnings			Accumu- lated Other Compre- hensive Income (Loss)			Total Stock- holders’ Equity
(Dollars in thousands)

Balance, January 1, 2012	$	40		$	38,660		$	(1,586	)	$	31,056		$	3,515		$	71,685

Net loss		-			-			-			(1,749	)		-			(1,749	)

Other comprehensive loss		-			-			-			-			(601	)		(601	)

Common stock repurchased and cancelled (142,370 shares)		(1	)		(1,865	)		-			-			-			(1,866	)
ESOP shares committed to be released (20,085 shares)		-			50			208			-			-			258
Stock-based compensation expense (restricted stock awards)		-			128			-			-			-			128
Stock-based compensation expense (stock options)		-			182			-			-			-			182

Balance, December 31, 2012	$	39		$	37,155		$	(1,378	)	$	29,307		$	2,914		$	68,037

Net loss		-			-			-			(1,825	)		-			(1,825	)

Other comprehensive loss		-			-			-			-			(7,391	)		(7,391	)

Common stock repurchased and cancelled (10,000 shares)		-			(134	)		-			-			-			(134	)
ESOP shares committed to be released (20,085 shares)		-			68			208			-			-			276
Stock-based compensation expense (restricted stock awards)		-			81			-			-			-			81
Stock-based compensation expense (stock options)		-			119			-			-			-			119

Balance, December 31, 2013	$	39		$	37,289		$	(1,170	)	$	27,482		$	(4,477	)	$	59,163

See notes to consolidated financial statements

F-7

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2013			2012
Cash Flows from Operating Activities:	(Dollars In thousands)
Net loss	$	(1,825	)	$	(1,749	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		5,699			6,496
Depreciation expense		565			552
ESOP expense		276			258
Stock-based compensation expense		200			310
Deferred income taxes		(529	)		(1,055	)
Net earnings on bank-owned life insurance		(439	)		(374	)
Net gain on sales and calls of investment securities		(1,064	)		(259	)
(Gain) on sale of real estate owned		(449	)		(45	)
Write-down on real estate owned		1,366			1,455
Net amortization of loan fees		233			152
Accretion of premium and discount on investment securities, net		(207	)		(233	)
Decrease in accrued interest receivable		120			229
Increase in other assets		(58	)		(901	)
Increase in other liabilities		328			63
Net cash provided by operating activities		4,216			4,899
Cash Flows from Investing Activities:
Proceeds from sales of investment securities available for sale		11,968			998
Proceeds from sales of mortgage-backed securities and collateralized mortgage obligations available for sale		13,075
Proceeds from calls and maturities of investment securities available for sale		39,049			115,268
Proceeds from calls and maturities of investment securities held to maturity		28,217			32,880
Purchase of investment securities available for sale		(62,787	)		(146,970	)
Purchase of investment securities held to maturity		(15,625	)		(25,005	)
Purchase of mortgage-backed securities and collateralized mortgage obligations available for sale		(36,609	)		(15,161	)
Purchase of office properties and equipment		(195	)		(527	)
Principal repayments from investment securities		3,310			514
Principal repayments from mortgage-backed securities and collateralized mortgage obligations		28,070			40,340
Net decrease in Federal Home Loan Bank stock		56			513
Proceeds from the sale of real estate owned		2,485			744
Purchase of bank-owned life insurance		-			(3,000	)
Net decrease (increase) in loans receivable		13,783			(8,469	)
Net cash provided by (used for) investing activities		24,797			(7,875	)
Cash Flows from Financing Activities:
Net (decrease) increase in deposits		(32,063	)		33,387
Decrease in Federal Home Loan Bank short-term borrowings		-			(8,045	)
Repayment of Federal Home Loan Bank long-term borrowings		-			(2,000	)
Increase in advances from borrowers for taxes and insurance		170			25
Repurchase of common stock		(134	)		(1,866	)
Net cash provided by (used for) financing activities		(32,027	)		21,501
Increase (decrease) in cash and cash equivalents		(3,014	)		18,525
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		26,418			7,893
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	23,404		$	26,418
Supplemental Cash Flow Disclosures:
Cash paid: Interest	$	3,856		$	5,444
Cash paid: Income taxes	$	-		$	690
Supplemental Schedule of Noncash Investing and Financing Activities:
Other real estate acquired in settlement of loans	$	1,313		$	2,209
Transfer from office properties and equipment to real estate owned	$	-		$	2,405
Transfer from real estate owned to office properties and equipment	$	-		$	205

See notes to consolidated financial statements

F-8

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

Colonial Financial Services, Inc. (the “Company”), a Maryland corporation, was formed in March 2010, to serve as the stock holding company for Colonial Bank, FSB (the “Bank”) as part of the mutual-to-stock conversion of Colonial Bankshares, MHC. On July 13, 2010, Colonial Financial Services, Inc. completed its second-step conversion and related public stock offering. Colonial Bank, FSB is now 100% owned by Colonial Financial Services, Inc. and Colonial Financial Services, Inc. is 100% owned by public stockholders. Colonial Financial Services, Inc. sold a total of 2,295,000 shares of common stock in the subscription, community and syndicated community offerings, including 91,800 shares to the Colonial Bank FSB employee stock ownership plan. All shares were sold at a purchase price of $10.00 per share. Concurrent with the completion of the offering, shares of common stock of Colonial Bankshares, Inc., a federal corporation, owned by public stockholders were converted into the right to receive 0.9399 shares of Colonial Financial Services, Inc. common stock. Cash in lieu of fractional shares was paid at a rate of $10.00 per share. As a result of the offering and the exchange, Colonial Financial Services, Inc. sold or exchanged 4,173,444 shares.

The Bank has established a Delaware corporation, COBK Investments, LLC (formerly known as COBK Investments, Inc.) whose purpose is to invest in and manage securities, and a New Jersey corporation, Cohansey Bridge, LLC, whose purpose is to invest in and manage real estate including foreclosed real estate.

The Bank maintains its executive office and main branch in Vineland, New Jersey. The Bank also maintains branch offices in Bridgeton, Cedarville, Mantua, Millville, Upper Deerfield, Vineland and Sewell, New Jersey. The Bank’s principal business consists of attracting customer deposits and investing these deposits primarily in single-family residential, commercial, and consumer loans and investments.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Colonial Financial Services, Inc., its wholly-owned subsidiary, Colonial Bank, FSB and the Bank’s wholly-owned subsidiaries, COBK Investments, LLC and Cohansey Bridge, LLC. All material intercompany transactions and balances have been eliminated in the consolidated financial statements.

F-9

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the evaluation of other than temporary impairment of investment securities and the valuation of deferred tax assets.

Significant Group Concentrations of Credit Risk

Most of the Bank’s activities are with customers located within Southern New Jersey. Note 4 discusses the types of investment securities that the Bank invests in. Note 5 discuss the types of lending that the Bank engages in. The Bank does not have any significant concentrations to any one industry or customer. Although the Bank has a diversified portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks.

The Company and the Bank maintain cash deposits in other depository institutions that occasionally exceed the amount of deposit insurance available. Management periodically assesses the financial condition of these institutions and believes that the risk of any possible credit loss is minimal.

The Bank is required to maintain average reserve balances in vault cash and with the Federal Home Loan Bank based upon outstanding balances of deposit transaction accounts. No reserve balance was required at December 31, 2013 and 2012.

Investment Securities

Debt securities that management has the positive intent and ability to hold until maturity are classified as held to maturity and are carried at their remaining unpaid principal balance, net of unamortized premiums, or unaccreted discounts. Premiums are amortized and discounts are accreted using a method which produces results which approximate the interest method over the estimated remaining term of the underlying security.

Securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity and changes in the availability of and the yield of alternative investments are classified as available for sale. These securities are carried at estimated fair value, which is determined using published quotes where available. If published quotes are not available, fair values are based on quoted market prices of comparable instruments. Unrealized gains and losses are excluded from earnings and are reported net of tax in other comprehensive income. Realized gains and losses are included in the statements of operations and are determined based on the adjusted cost of the specific security sold.

Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each statement of financial condition date.

F-10

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether or not the Company intends to sell or expects that it is more likely than not that it will be required to sell the security prior to an anticipated recovery in fair value. Once a decline in value for a debt security is determined to be other-than-temporary, the other-than-temporary impairment is separated in (a) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income. For equity securities, the full amount of the other-than-temporary impairment is recognized in earnings.

Loans Receivable

The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the counties of Cumberland and Gloucester of New Jersey. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loans receivable portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: multi-family, commercial real estate, construction and land and commercial non-real estate. Consumer loans consist of the following classes: 1-4 family, home equity loans and credit lines and other consumer loans.

For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

F-11

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential real estate consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of Bankruptcy, or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

●

Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

●

National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.

●

Nature and volume of the portfolio and terms of loans.

●

Experience, ability, and depth of lending management and staff.

●

Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.

●

Quality of the Company’s loan review system, and the degree of oversight by the Company’s Board of Directors.

●

Existence and effect of any concentrations of credit and changes in the level of such concentrations.

●

Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

F-12

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

One-to four-family real estate loans involve certain risks such as interest rate risk and risk of non repayment. Adjustable-rate single family real estate loans pose interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential of default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. Repayment risk can be affected by job loss, divorce, illness, personal bankruptcy of the borrower and regional or local economic conditions.

Multi-family and commercial real estate lending entails significant risks. Such loans typically involve large loan balances to single borrowers or group of borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for multi-family and commercial real estate as well as economic conditions.

Construction lending is generally considered higher risk. A construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) in the project.

Commercial business lending is generally considered higher risk than commercial real estate lending. Commercial business loans are primarily secured by inventories and non-real estate assets. In most cases, any repossessed collateral for a defaulted commercial business loan will not provide an adequate source of repayment of the outstanding loan balance.

Consumer loans generally have shorter terms and higher interest rates than other lending but generally involve more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely effected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will most likely not provide an adequate source of repayment of the outstanding loan.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial loans, commercial real estate loans and construction loans. The fair value of impaired collateral dependent loans is estimated using an appraisal of the collateral less estimated liquidation expenses or discounted cash flows for non-collateral dependent loans. Those impaired loans not requiring a write-down represent loans for which the fair value of the collateral or expected repayments exceeds the recorded investment in such loans. Impaired loans are charged-off or an allowance is established to the estimated fair value if its carrying value exceeds its estimated fair value.

F-13

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loan classified as watch exhibit some of the follow risk traits, such as having policy exceptions, documentation concerns, lack of financial statements or declining financial ratios, or pay slowly but never delinquent more than 30 days; however at the time of the classification no loss is expected. Loans not classified are rated pass.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

F-14

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Federal Home Loan Bank Stock

Federal Home Loan Bank of New York (“FHLB”) Stock, which represents required investment in the common stock of a correspondent bank, is carried at cost.

The Company evaluates the FHLB stock for impairment. Management’s determination of whether this investment is impaired is based on its assessment of the ultimate recoverability of the cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time the decline has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB stock at December 31, 2013 and 2012.

Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in non-interest expense on the consolidated statement of operations. Also included in real estate owned are properties originally acquired by the Bank for future expansion.

Office Properties and Equipment

Office properties and equipment are recorded at cost. Depreciation is computed using the straight-line method over the expected useful lives of the related assets.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Bank-Owned Life Insurance

The Bank invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a chosen group of employees and directors. The Bank is the owner of the policies and shares proceeds of the policies in a split dollar arrangement with the beneficiary of the insured employee or director. The amount of the split dollar arrangement is equal to three times the annual base salary of the insured at the time of his or her death less $50,000 for employees and $250,000 for directors. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies is included in non-interest income on the consolidated statements of operations.

F-15

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Costs

The Bank follows the policy of charging the costs of advertising to expense as incurred.

Stock Compensation Plans

Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. For performance based awards, compensation cost is recognized on a straight-line basis over the requisite service period if the goal is attained. A black-sholes model is used to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

Income Taxes

Income tax accounting guidance results in two components of income tax expense (benefit): current and deferred. Current income tax expense (benefit) reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense (benefit) results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

The Company recognizes interest and penalties on income taxes, if any, as a component of the provision for income taxes. In general, the Company remains open to examination for tax years 2010 and after for federal and for tax years after 2009 for state. The Bank is in the process of a state tax audit for years 2009 through 2013.

F-16

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as unvested restricted stock awards and outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares on common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the statements of financial condition when they are funded.

F-17

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In July 2013, the FASB issued ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, Income Taxes (Topic 740).” An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For example, an entity should not evaluate whether the deferred tax asset expires before the statute of limitations on the tax position or whether the deferred tax asset may be used prior to the unrecognized tax benefit being settled. The amendments in this Update do not require new recurring disclosures. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04 “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40.” The amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for annual period and interim periods within those annual periods beginning after December 15, 2014. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

F-18

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – EARNINGS PER SHARE

There are no preferred securities which would affect the net loss (numerator) in calculating basic and diluted earnings per share. Basic and diluted earnings per share data are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share are further adjusted for potential common shares that were dilutive and outstanding during the period. Potential common shares consist of stock options outstanding and non-vested stock grants under the stock-based incentive plans. The dilutive effect of potential common shares is computed using the treasury stock method. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and diluted earnings per share computation. At December 31, 2013 and 2012, respectively, there were 344,175 and 473,230 anti-dilutive non-vested awards and options excluded from the computation of earnings per share.


	December 31,
	2013			2012
Net Loss	$	(1,825,000	)	$	(1,749,000	)

Weighted average common shares issued		3,853,167			3,960,438
Average unearned ESOP shares		(133,360	)		(153,445	)
Weighted average common shares outstanding – basic		3,719,807			3,806,993
Effect of dilutive non-vested shares and stock options outstanding		-			-
Weighted average common shares outstanding – diluted		3,719,807			3,806,993
Loss per share-basic	$	(0.49	)	$	(0.46	)
Loss per share-diluted	$	(0.49	)	$	(0.46	)

F-19

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENT SECURITIES

Investment securities are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale:
December 31, 2013
U. S. Government obligations	$	141,836	$	16	$	(5,069	)	$	136,783
Corporate debt obligations		4,493		12		(4	)		4,501
Mutual funds		903		42		-			945
Municipal debt obligations		6,828		35		(144	)		6,719
SBA pools		1,097		-		(4	)		1,093
Government-sponsored enterprise (“GSE”) mortgage-backed securities		14,794		752		(83	)		15,463
GSE collateralized mortgage obligations		64,120		190		(2,688	)		61,622
	$	234,071	$	1,047	$	(7,992	)	$	227,126

December 31, 2012
U. S. Government obligations	$	126,524	$	692	$	(163	)	$	127,053
Corporate debt obligations		6,603		151		(1	)		6,753
Mutual funds		4,909		39		-			4,948
Municipal debt obligations		6,171		94		(9	)		6,256
SBA pools		1,427		13		(1	)		1,439
GSE mortgage-backed securities		32,340		2,411		(30	)		34,721
GSE collateralized mortgage obligations		50,846		1,290		(2	)		52,134
	$	228,820	$	4,690	$	(206	)	$	233,304

Held to Maturity:
December 31, 2013
Corporate debt obligations	$	1,193	$	203	$	-		$	1,396
Municipal debt obligations		15,910		368		-			16,278
GSE mortgage-backed securities		188		20		-			208
	$	17,291	$	591	$	-		$	17,882

December 31, 2012
Corporate debt obligations	$	1,192	$	310	$	-		$	1,502
Municipal debt obligations		28,318		635		-			28,953
GSE mortgage-backed securities		429		40		-			469
	$	29,939	$	985	$	-		$	30,924

All of the Company’s mortgage-backed securities and collateralized mortgage obligations at December 31, 2013 and 2012 have been issued by government agencies or government sponsored enterprises.

F-20

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENT SECURITIES (CONTINUED)

The amortized cost and estimated fair value of investment securities at December 31, 2013, by contractual maturity, 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.

	Held to Maturity				Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	12,266	$	12,266	$	3,401	$	3,449
Due after one year through five years		1,506		1,730		63,165		62,367
Due after five year through ten years		1,666		1,765		87,696		83,335
Due thereafter		1,665		1,913		895		890
		17,103		17,674		155,157		150,041
GSE mortgage-backed securities and GSE collateralized mortgage obligations		188		208		78,914		77,085
Total	$	17,291	$	17,882	$	234,071	$	227,126

At December 31, 2013 and 2012, $139.0 million and $92.3 million, respectively, of securities were pledged as collateral to secure certain deposits and FHLB advances.

Gross gains and losses of $1,082,000 and $18,000, respectively, for the year ended December 31, 2013, and $275,000 and $16,000 respectively, for the year ended December 31, 2012, were realized on sales and calls of available-for-sale investment securities.

The following table shows the Company’s available for sale investments’ gross unrealized losses and fair value, and length of time that individual securities have been in a continuous unrealized loss position:

At December 31, 2013	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. Government obligations	$	126,055	$	4,590	$	8,006	$	479	$	134,061	$	5,069
Corporate debt obligations		1,497		4		-		-		1,497		4
Municipal debt obligations		3,319		123		565		21		3,884		144
SBA pools		1,093		4		-		-		1,093		4
GSE mortgage-backed securities		1,629		82		33		1		1,662		83
GSE collateralized mortgage obligations		46,346		2,628		781		60		47,127		2,688
Total	$	179,939	$	7,431	$	9,385	$	561	$	189,324	$	7,992

F-21

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENT SECURITIES (CONTINUED)

At December 31, 2012	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. Government obligations	$	30,705	$	163	$	-	$	-	$	30,705	$	163
Corporate debt obligations		496		1		-		-		496		1
Municipal debt obligations		1,539		9		-		-		1,539		9
SBA pools		101		1		-		-		101		1
GSE mortgage-backed securities		42		1		1,508		29		1,550		30
GSE collateralized mortgage obligations		706		1		287		1		993		2
Total	$	33,589	$	176	$	1,795	$	30	$	35,384	$	206

At December 31, 2013 and 2012, there were no held to maturity investments in an unrealized loss position.

At December 31, 2013, there were 120 securities in the less-than-twelve-months category and eight securities in the twelve-months-or-more category for the available-for-sale portfolio. Included in the 120 securities in the less-than-twelve months category for available-for-sale securities are (a) 68 U. S. government securities; (b) two corporate debt obligation of which one has been in a loss position for two months and one has been in a loss position for one month; (c) twelve municipal debt obligations, of which five have been in a loss position for 8 months, five have been in a loss position for 7 months and two of which had been in a loss position for two months; (d) three SBA pools, two of which have been in a loss position for 10 months and one has been in a loss position for one month; (e) two mortgage-backed securities, one of which has been in a loss position for 8 months and one which has been in a loss position for 5 months and (f) 33 collateralized mortgage obligations. Included in the eight securities in the twelve-months-or-more category are (a) four U. S. government securities; (b) two municipal debt obligations; (c) one mortgage-backed security and (b) one collateralized mortgage obligation.

At December 31, 2012, there were 27 securities in the less-than-twelve-months category and three securities in the twelve-months-or-more category for the available-for-sale portfolio. Included in the 27 securities in the less-than-twelve months category for available-for-sale securities are (a) 16 U. S. government securities, 14 of which have been in a loss position for one month, one was in a loss position for three months and one was in a loss position for five months; (b) one corporate debt obligation which has been in a loss position for one month; (c) six municipal debt obligations, one of which had been in a loss position for two months and five which had been in a loss position for one month; (d) two SBA pools, both of which have been in a loss position for one month; (e) one mortgage-backed security which has been in a loss position for one month and (f) one collateralized mortgage obligation which has been in a loss position for one month. Included in the three securities in the twelve-months-or-more category are (a) two mortgage-backed securities and (b) one collateralized mortgage obligation.

As of December 31, 2013, management believes that the estimated fair values of the securities noted above are primarily dependent on the movement in market interest rates. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service, pools of loans from the Small Business Administration and pools of loans from a government sponsored enterprise. Management believes that these fair values will recover as the underlying portfolios mature. The Company does not intend to sell and expects that it is not more likely than not that it will be required to sell the investment securities prior to an anticipated recovery in fair value. Management does not believe any individual unrealized loss as of December 31, 2013 represents an other-than-temporary impairment.

F-22

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable at December 31, 2013 and 2012 consist of the following:

	2013			2012
	(In thousands)
Real estate loans:
One-to-four family	$	149,726		$	148,674
Multi-family		284			397
Commercial		79,601			90,143
Construction and land		8,665			9,683
Home equity loans and credit lines		26,442			28,657
Commercial		17,302			23,345
Consumer		834			1,043
		282,854			301,942
Deferred loan fees		(847	)		(614	)
Allowance for loan losses		(5,853	)		(4,146	)
	$	276,154		$	297,182

Our loans are originated and administered through our loan policies. We originate one- to four-family residential real estate loans, home equity loans and lines of credit, commercial real estate loans, commercial business loans, construction loans, consumer loans and multi-family loans. Our one- to four-family residential loans also include loans to businesses for commercial purposes which are secured by liens on the borrower’s residence. We offer fixed-rate, adjustable-rate and balloon loans that amortize with monthly loan payments. We have not originated or purchased any sub-prime or Alt-A loans. We have not originated or purchased payment-option ARMs or negative amortizing loans.

In the normal course of business, the Bank has extended loans to executive officers, directors and principal stockholders, their immediate families and affiliated companies (commonly referred to as related parties) on the same terms including interest rates and collateral as those prevailing at the time for comparable transactions with others. A summary of loan activity to related parties is as follows (in thousands):

	Balance January 1, 2013		Transfers				Additions				Amounts Collected				Balance December 31, 2013
$	3,041		$	(2,174	)		$	568			($	589	)		$	846

F-23

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following tables set forth the activity in the allowance for loan losses by portfolio class for the years ended December 31, 2013 and 2012 and the composition of the allowance for loan losses at December 31, 2013 and 2012:

	At or for the year ended December 31, 2013
	Real Estate
(In thousands)	One-to- four family			Multi- family			Comm- ercial			Con- struc- tion and land			Home equity and credit lines			Comm- ercial			Con- sumer			Unallo -cated			Total
Balance at beginning of period	$	692		$	6		$	1,107		$	138		$	277		$	405		$	21		$	1,500		$	4,146
Charge-offs		(217	)		-			(1,826	)		(37	)		(258	)		(1,965	)		(14	)		-			(4,317	)
Recoveries		58			-			-			54			-			203			10			-			325
Provision		1,117			(3	)		1,941			(65	)		256			3,200			3			(750	)		5,699
Balance at end of period	$	1,650		$	3		$	1,222		$	90		$	275		$	1,843		$	20		$	750		$	5,853

Allowance ending balance
Related to loans individually evaluated for impairment	$	210		$	-		$	9		$	-		$	8		$	1,550		$	-		$	-		$	1,777
Related to loans collectively evaluated for impairment		1,440			3			1,213			90			267			293			20			750			4,076
Total allowance	$	1,650		$	3		$	1,222		$	90		$	275		$	1,843		$	20		$	750		$	5,853

	At or for the year ended December 31, 2012
	Real Estate
(In thousands)	One-to- four family			Multi- family			Comm- ercial			Con- struc- tion and land			Home equity and credit lines			Comm- ercial			Con- sumer			Unallo -cated		Total
Balance at beginning of period	$	1,220		$	27		$	2,400		$	34		$	114		$	713		$	19		$	500	$	5,027
Charge-offs		(2,108	)		-			(4,652	)		(49	)		(184	)		(450	)		(20	)		-		(7,463	)
Recoveries		43			-			-			-			2			33			8			-		86
Provision		1,537			(21	)		3,359			153			345			109			14			1,000		6,496
Balance at end of period	$	692		$	6		$	1,107		$	138		$	277		$	405		$	21		$	1,500	$	4,146

Allowance ending balance
Related to loans individually evaluated for impairment	$	-		$	-		$	-		$	-		$	93		$	7		$	1		$	-	$	101
Related to loans collectively evaluated for impairment		692			6			1,107			138			184			398			20			1,500		4,045
Total allowance	$	692		$	6		$	1,107		$	138		$	277		$	405		$	21		$	1,500	$	4,146

F-24

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table sets forth the related recorded investment in loans receivable by portfolio class individually and collectively evaluated for impairment at December 31, 2013:

(In thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Total

Real estate loans:
One-to-four family	$	8,933	$	140,793	$	149,726
Multi-family		-		284		284
Commercial		9,452		70,149		79,601
Construction and land		3,323		5,342		8,665
Home equity and credit lines		778		25,664		26,442
Commercial		2,784		14,518		17,302
Consumer		-		834		834
Total	$	25,270	$	257,584	$	282,854

The following table sets forth the related recorded investment in loans receivable by portfolio class individually and collectively evaluated for impairment at December 31, 2012:

(In thousands)	Individually evaluated for Impairment		Collectively evaluated for impairment		Total

Real estate loans:
One-to-four family	$	7,456	$	141,218	$	148,674
Multi-family		-		397		397
Commercial		15,128		75,015		90,143
Construction and land		4,177		5,506		9,683
Home equity and credit lines		816		27,841		28,657
Commercial		3,126		20,219		23,345
Consumer		2		1,041		1,043
Total	$	30,705	$	271,237	$	301,942

F-25

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table presents the classes of the loan portfolio summarized by the classification rating within the Company’s internal risk rating system as of December 31, 2013:

(In thousands)	Pass		Watch		Special Mention		Substandard		Doubtful		Total

Real estate loans:
One-to-four family	$	130,862	$	7,712	$	1,783	$	9,369	$	-	$	149,726
Multi-family		-		284		-		-		-		284
Commercial		45,181		22,851		3,739		7,830		-		79,601
Construction and land		4,060		1,140		-		3,465		-		8,665
Home equity and credit lines		24,891		597		108		846		-		26,442
Commercial		9,325		1,519		3,674		340		2,444		17,302
Consumer		731		83		20		-		-		834
Total	$	215,050	$	34,186	$	9,324	$	21,850	$	2,444	$	282,854

The following table presents the classes of the loan portfolio summarized by the classification rating within the Company’s internal risk rating system as of December 31, 2012:

(In thousands)	Pass		Watch		Special Mention		Substandard		Doubtful		Total

Real estate loans:
One-to-four family	$	135,692	$	2,794	$	1,523	$	8,538	$	127	$	148,674
Multi-family		298		99		-		-		-		397
Commercial		67,072		12,195		897		9,979		-		90,143
Construction and land		4,310		813		-		4,560		-		9,683
Home equity and credit lines		28,019		-		60		578		-		28,657
Commercial		17,979		386		1,628		3,352		-		23,345
Consumer		889		87		59		8		-		1,043
Total	$	254,259	$	16,374	$	4,167	$	27,015	$	127	$	301,942

F-26

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table summarizes information in regards to impaired loans by loan portfolio class as of and for the year ended December 31, 2013:

(In thousands)	Recorded investment		Unpaid Principal Balance		Related Allowance		Average recorded investment		Interest income recognized

With an allowance recorded:
Real estate loans:
One-to-four family	$	2,728	$	2,870	$	210	$	2,774	$	59
Multi-family		-		-		-		-		-
Commercial		66		66		9		66		2
Construction and land		-		-		-		-		-
Home equity and credit lines		60		61		8		60		-
Commercial		2,784		3,178		1,550		2,967		17
Consumer		-		-		-		-		-
Total	$	5,638	$	6,175	$	1,777	$	5,867	$	78

With no related allowance recorded:
Real estate loans:
One-to-four family	$	6,205	$	7,297	$	-	$	6,475	$	199
Multi-family		-		-		-		-		-
Commercial		9,386		12,709		-		10,190		448
Construction and land		3,323		3,325		-		4,071		29
Home equity and credit lines		718		946		-		758		25
Commercial		-		-		-		-		28
Consumer		-		3		-		2		-
Total	$	19,632	$	24,280	$	-	$	21,496	$	729

Total
Real estate loans:
One-to-four family	$	8,933	$	10,167	$	210	$	9,249	$	258
Multi-family		-		-		-		-		-
Commercial		9,452		12,775		9		10,256		450
Construction and land		3,323		3,325		-		4,071		29
Home equity and credit lines		778		1,007		8		818		25
Commercial		2,784		3,178		1,550		2,967		45
Consumer		-		3		-		2		-
Total	$	25,270	$	30,455	$	1,777	$	27,363	$	807

F-27

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table summarizes information in regards to impaired loans by loan portfolio class as of and for the year ended December 31, 2012:

(In thousands)	Recorded investment		Unpaid Principal Balance		Related Allowance		Average recorded investment		Interest income recognized

With an allowance recorded:
Real estate loans:
One-to-four family	$	-	$	-	$	-	$	-	$	-
Multi-family		-		-		-		-		-
Commercial		-		-		-		-		-
Construction and land		-		-		-		-		-
Home equity and credit lines		93		93		93		92		2
Commercial		384		387		7		303		3
Consumer		2		6		1		8		1
Total	$	479	$	486	$	101	$	403	$	6

With no related allowance recorded:
Real estate loans:
One-to-four family	$	7,456	$	8,601	$	-	$	7,971	$	312
Multi-family		-		-		-		-		-
Commercial		15,128		19,667		-		17,098		643
Construction and land		4,177		4,204		-		4,224		121
Home equity and credit lines		723		907		-		762		52
Commercial		2,742		3,043		-		2,733		3
Consumer		-		-		-		-		-
Total	$	30,226	$	36,422	$	-	$	32,788	$	1,131

Total
Real estate loans:
One-to-four family	$	7,456	$	8,601	$	-	$	7,971	$	312
Multi-family		-		-		-		-		-
Commercial		15,128		19,667		-		17,098		643
Construction and land		4,177		4,204		-		4,224		121
Home equity and credit lines		816		1,000		93		854		54
Commercial		3,126		3,430		7		3,036		6
Consumer		2		6		1		8		1
Total	$	30,705	$	36,908	$	101	$	33,191	$	1,137

In an October 2011 directive, the OCC required all specific valuation allowances (‘SVA”) on collateral-dependent loans (SVAs established when the recorded investment in an impaired loan exceeded the measured value of the collateral) maintained by savings institutions to be charged off. As a result, reported loan charge-offs for the year ended December 31, 2012 includes the charge-off of specific valuation allowances, which had a balance of $2.6 million at December 31, 2011.

Loans are charged off when the loan is deemed uncollectible. Loans that are not charged off are placed on non-accrual status when collection of principal or interest is considered doubtful. Loans are typically placed on non-accrual at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection.

F-28

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Non-performing assets and performing troubled debt restructurings (“TDR”) at December 31, 2013 and 2012 were as follows:

	2013			2012
	(In thousands)
Non-accrual loans:
Real estate loans:
One- to four-family	$	5,162		$	2,553
Multi-family		-			-
Commercial		5,215			6,889
Construction and land		1,233			325
Home equity loans and lines of credit		715			628
Commercial		1,235			2,742
Consumer		-			2
Total non-accrual loans		13,560			13,139

Accruing loans 90 days or more past due:
All loans		-			-

Total non-performing loans		13,560			13,139

Real estate owned		3,258			5,347

Total non-performing assets	$	16,818		$	18,486

Performing troubled debt restructurings:
Real estate loans:
One- to four-family	$	3,464		$	4,246
Multi-family		-			-
Commercial		4,186			8,240
Construction and land		2,091			3,841
Home equity loans and lines of credit		45			46
Commercial		-			384
Consumer		-			-

Total performing troubled debt restructurings		9,786			16,757

Total non-performing assets and performing troubled debt restructurings	$	26,604		$	35,243

Ratios:
Total non-performing loans to total loans		4.79	%		4.35	%
Total non-performing loans to total assets		2.33	%		2.11	%
Total non-performing assets to total assets		2.88	%		2.96	%

At December 31, 2013, nonaccrual loans amounted to $13.6 million consisting of 43 one-to four-family real estate loans, ten commercial real estate properties, three construction and land loans, 15 home equity loans, three non-real estate commercial loans and one consumer loan. Included in the December 31, 2013 nonaccrual amounts are 22 TDRs in the amount of $8.4 million. They consist of twelve one-to four-family real estate loans, five commercial real estate properties, two construction and land loans and three non-real estate commercial loans. At December 31, 2012, nonaccrual loans amounted to $13.1 million consisting of 23 one-to four-family real estate loans, ten commercial properties, two construction and land loans, nine home equity loans, three non-real estate commercial loans and one consumer loan. Included in the December 31, 2012 nonaccrual amounts are ten TDRs in the amount of $9.0 million. They consist of three one-to four-family residential dwelling units, five commercial real estate properties and two non-real estate commercial loans. The Bank had no loan balances past due 90 days or more and still accruing interest at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, all nonaccrual loans were individually evaluated for impairment.

At December 31, 2013, the Bank had 16 properties in real estate owned totaling $3.3 million, which is net of an allowance for losses of $942,000, consisting of seven one- to four-family dwelling units, two commercial properties, six vacant lots and one dockiminium. Included in other real estate owned at December 31, 2013 is improved land for future branch expansion that was transferred from office properties and equipment in the amount of $2.4 million. At December 31, 2012, the Bank had 21 properties in real estate owned totaling $5.3 million, which is net of an allowance for losses of $1.5 million, consisting of ten one- to four-family dwelling units, five commercial properties and six vacant lots.

F-29

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

At December 31, 2013, in addition to the troubled debt restructurings included in the non-accrual loan totals, the Bank had 29 loans totaling $9.8 million that were considered troubled debt restructurings and classified as impaired. Six of the loans are commercial real estate, construction and land and multi-family loans with a recorded investment of $6.3 million, 22 are one-to four-family loans with a recorded investment of $3.5 million and one is a home equity loan with a recorded investment of $45,000.

At December 31, 2012, in addition to the troubled debt restructurings included in the non-accrual loan totals, the Bank had 46 loans totaling $16.8 million that were considered troubled debt restructurings and classified as impaired. Fourteen of the loans are commercial real estate, construction and land and multi-family loans with a recorded investment of $12.1 million, thirty are one-to four-family loans with a recorded investment of $4.3 million, one is a home equity loan with a recorded investment of $46,000 and one is a non-mortgage commercial loan with a recorded investment of $384,000.

The following table summarizes information in regards to troubled debt restructurings for the year ended December 31, 2013, all of which were interest rate modifications and no debt was forgiven:


	Number of Contracts		Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments
	(Dollars in thousands)
Real estate loans:
One- to four-family		3	$	458	$	458

Total		3	$	458	$	458

The following table summarizes information in regards to troubled debt restructurings for the year ended December 31, 2012, all of which were interest rate modifications and no debt was forgiven:


	Number of Contracts		Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments
	(Dollars in thousands)
Real estate loans:
One- to four-family		13	$	2,116	$	2,116
Commercial		3		2,271		2,271
Home equity loans and lines of credit		1		46		46

Total		17	$	4,433	$	4,433

The following table presents troubled debt restructurings with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the year ended December 31, 2013:

	Number of Contracts		Recorded Investment
	(Dollars in thousands)
Real estate loans:
One- to four-family		1	$	111
Commercial		2		2,982

Total		3	$	3,093

F-30

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

	Number of Contracts		Recorded Investment
	(Dollars in thousands)
Real estate loans:
One- to four-family		3	$	451
Consumer		1		384

Total		4	$	835

The performance and credit quality of the loan portfolio is monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The follow tables present the classes of the loan portfolio summarized by the past due status at December 31, 2013 and 2012:

At December 31, 2013 (In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days and More Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable 90 Days or More and Accruing

Mortgage loans:
One- to four-family residential	$	3,393	$	2,422	$	3,399	$	9,214	$	140,512	$	149,726	$	-
Multi-family		-		-		-		-		284		284		-
Commercial		62		403		1,054		1,519		78,082		79,601		-
Construction and land		-		-		-		-		8,665		8,665		-
Home equity loans and credit lines		356		15		464		835		25,607		26,442		-
Commercial		-		340		-		340		16,962		17,302		-
Consumer and other		-		-		-		-		834		834		-
Total	$	3,811	$	3,180	$	4,917	$	11,908	$	270,946	$	282,854	$	-

At December 31, 2012 (In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days and More Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable 90 Days or More and Accruing

Mortgage loans:
One- to four-family residential	$	5,296	$	1,353	$	2,553	$	9,202	$	139,472	$	148,674	$	-
Multi-family		-		-		-		-		397		397		-
Commercial		2,288		593		1,432		4,313		85,830		90,143		-
Construction and land		-		-		325		325		9,358		9,683		-
Home equity loans and credit lines		38		169		628		835		27,822		28,657		-
Commercial		-		384		75		459		22,886		23,345		-
Consumer and other		1		2		2		5		1,038		1,043		-
Total	$	7,623	$	2,501	$	5,015	$	15,139	$	286,803	$	301,942	$	-

F-31

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – OFFICE PROPERTIES AND EQUIPMENT

Office properties and equipment at December 31, 2013 and 2012 are summarized by major classification as follows:

	Estimated Useful Life in Years		2013			2012
			(In thousands)

Land	Indefinite		$	1,705		$	1,705
Buildings		25		8,694			8,777
Furniture, Fixtures and equipment		3 – 7		3,245			3,229
				13,644			13,711
Accumulated depreciation				(5,819	)		(5,516	)
			$	7,825		$	8,195

In the second quarter of 2012, the Company transferred $2.4 million of improved land for future branch expansion from fixed assets to real estate owned.

NOTE 7 - DEPOSITS

Deposits at December 31, 2013 and 2012 consist of the following major classifications (dollars in thousands):

	2013					2012
	Amount		Average Rate			Amount		Average Rate

Certificates of deposit:
0.00% - 2.00%	$	70,676		0.66	%	$	79,966		0.85	%
2.01% - 4.00%		35,688		2.83			40,173		2.82
4.01% - 6.00%		1,875		4.87			3,432		4.95
Total certificates of deposit		108,239		1.45			123,571		1.60

Non interest-bearing demand		42,739		-			39,301		-
NOW		152,279		0.42			168,150		0.82
Super NOW		43,740		0.35			44,548		0.54
Savings		111,219		0.56			106,469		0.65
Money market deposit		63,811		0.40			72,051		0.63
	$	522,027		0.62	%	$	554,090		0.86	%

F-32

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DEPOSITS (CONTINUED)

A summary of certificates of deposit by maturity at December 31, 2013 is as follows (in thousands):

2014	$	50,991
2015		25,929
2016		13,849
2017		12,177
2018		3,886
Thereafter		1,407
	$	108,239

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $39.2 million and $44.9 million at December 31, 2013 and 2012, respectively.

A summary of interest expense on deposits for the years ended December 31, 2013 and 2012 is as follows:

	2013		2012
	(In thousands)
NOW and Super NOW	$	1,185	$	1,633
Savings		632		774
Money market demand		287		532
Certificates of deposit		1,715		2,457
	$	3,819	$	5,396

At December 31, 2013 and 2012, the Company held deposits for related parties of approximately $588,000 and $3.8 million, respectively.

NOTE 8 – FEDERAL HOME LOAN BANK BORROWINGS

There were no Federal Home Loan Bank borrowings outstanding at December 31, 2013 and 2012.

At December 31, 2013, the Bank had a borrowing capacity of 30% of assets or $174.9 million available from the FHLB, of which nothing was outstanding.

F-33

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – INCOME TAXES

Retained earnings include $1.5 million at December 31, 2013 and 2012, for which no provision for federal income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Act also provides for the recapture of deductions arising from the “applicable excess reserve” defined as the total amount of reserve over the base year reserve. The Bank’s total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.

The income tax benefit consists of the following for the years ended December 31:

	2013			2012
	(In thousands)
Current:
Federal	$	(1,110	)	$	(269	)
State		2			2
Total current	$	(1,108	)	$	(267	)

Deferred		(529	)		(1,055	)
Total	$	(1,637	)	$	(1,322	)

A reconciliation of the statutory federal income tax at a rate of 34% to the income tax benefit included in the consolidated statements of operations for the years ended December 31 is as follows (dollars in thousands):

	2013						2012
	Amount			% of Pretax Income			Amount			% of Pretax Income
Federal income tax at statutory rate	$	(1,177	)		(34.0	) %	$	(1,044	)		(34.0	) %
State tax, net of federal benefit		(297	)		(8.6	) %		(58	)		(1.9	) %
Tax-exempt income		(154	)		(4.4	) %		(188	)		(6.1	) %
Life insurance income		(149	)		(4.3	) %		(127	)		(4.1	) %
Other		140			4.0	%		95			3.1	%
Total	$	(1,637	)		(47.3	) %	$	(1,322	)		(43.0	) %

F-34

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – INCOME TAXES (CONTINUED)

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

	December 31,
	2013			2012
	(In thousands)
Deferred tax assets:
Deferred loan fees	$	338		$	245
Allowance for loan losses		2,338			1,656
Securities impairment		125			125
State net operating loss carryforwards		1,202			853
Capital loss carryforwards		73			476
Deferred compensation		141			137
Nonaccrual interest adjustment		207			36
Allowance for REO losses		376			581
Depreciation		180			197
Net unrealized loss on securities available for sale		2,468			-
Other		140			95
Total deferred tax assets		7,588			4,401

Valuation allowance		(312	)		(122	)

Deferred tax liabilities:
Net unrealized gain on securities available for sale		-			(1,570	)
Total deferred tax liabilities		-			(1,570	)
Net Deferred Tax Asset	$	7,276		$	2,709

The Company has considered future market growth, forecasted earnings, future taxable income and prudent, feasible and permissible tax planning strategies in determining the realizability of deferred tax assets. If the Company were to determine that it would not be able to realize a portion of its net deferred tax assets in the future, an adjustment to the net deferred tax assets would be charged to earnings in the period such determination was made.

The Company has New Jersey state net operating loss carryforwards of approximately $20.2 million of which $5.5 million expires from 2014 through 2015 and the balance expires from 2029 through 2032. New Jersey state net operating losses incurred prior to January 1, 2009 may be carried forward for seven succeeding years, and losses incurred in periods after January 1, 2009 may be carried forward for 20 years. At December 31, 2013, the Company recorded a valuation allowance of approximately $305,000 against the deferred tax asset attributable to the New Jersey state net operating loss carryover.

The Company has federal capital loss carryforwards of approximately $195,000 expiring from 2014 through 2015. Capital losses may be carried back three years and carried forward five succeeding years. The Company expects to fully realize the benefit of such carryforwards through tax planning strategies. The Company has state capital loss carryforwards of $115,000. At December 31, 2013, the Company has recorded a full valuation allowance of $7,000 for the state capital loss carryforwards.

F-35

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – BENEFIT PLANS

The Bank has a 401(k) Savings Plan (the “Plan”). All employees are eligible to participate after completing three months of eligible service. The employees may contribute up to fifteen percent of their compensation to the Plan. After one year of service the Bank will match one hundred percent of the first one percent and fifty percent of the next five percent or a maximum of three and one-half percent of total salary. Full vesting in the Plan is prorated equally over a five-year period. The Bank’s contributions to the Plan for the years ended December 31, 2013 and 2012 were $107 thousand and $117 thousand, respectively.

The Bank has an Employee Stock Ownership Plan (“ESOP”) for the benefit of employees who meet the eligibility requirements as defined in the plan. In 2005, the ESOP trust acquired 156,399 shares of common stock in the initial public offering using proceeds of a loan from the Company. The Bank will make cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 6.00% with principal and interest payable annually in equal installments over fifteen years. The loan is secured by the shares of the stock purchased.

In 2010, the ESOP acquired an additional 91,800 shares of the Company’s common stock with a loan from the Company in the amount of $918,000, at a price of $10.00 per share. The Bank will make cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 4.25% with principal and interest payable annually in equal installments over 10 years. The loan is secured by the shares of the stock purchased.

As the debt is repaid, shares are released from the collateral account and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As the shares are released from collateral, the Company reports compensation expense equal to the average market price of the shares, and the shares become outstanding for earnings per share computations. The Company’s compensation expense for the ESOP was $276 thousand and $258 thousand for the years ended December 31, 2013 and 2012, respectively. The following table presents the components of the ESOP shares:

	December 31,
	2013		2012
Shares released for allocation		134,869		114,784
Unreleased shares		113,330		133,415
Total ESOP shares		248,199		248,199
Fair value of unreleased shares	$	1,507,289	$	1,747,737

F-36

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – STOCK-BASED COMPENSATION

In 2006, Board of Directors of Colonial Bankshares, Inc. approved the Colonial Bankshares, Inc. 2006 Stock-based Incentive Plan (the “2006 Plan”). In 2011, the Board of Directors of Colonial Financial Services, Inc. approved the Colonial Financial Services, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). Under the 2006 Plan, the Company may grant options to purchase 208,247 shares of Company stock and may grant 83,300 shares of common stock as restricted stock awards. Under the 2011 Plan, the Company may grant options to purchase 229,500 shares of Company stock and may grant 91,800 shares of common stock as restricted stock awards.

Both plans enable the Board of Directors to grant stock options to executives, other key employees and nonemployee directors. The options granted under both plans may be either non-qualified stock options (NQOs) or incentive stock options (ISOs). Only NQOs may be granted to nonemployee directors under this plan and ISOs may be granted to employees. No grants may be made more than ten years after adoption of the respective plans. Options may not be granted with an exercise price that is less than 100% of the fair market value of the Company’s common stock on the date of grant. Options may not be granted with a term longer than 10 years. Stock options granted under the plans are subject to limitations under Section 422 of the Internal Revenue Code. The number of shares available under the plans, the number of shares subject to outstanding options and the exercise price of outstanding options will be adjusted to reflect any stock dividend, stock split, merger, reorganization or other event generally affecting the number of the Company’s outstanding shares.

On October 19, 2006, 83,300 shares of restricted time-based stock grants were awarded. The restricted time-based stock grants awarded had a grant date fair value of $13.27 per share. The restricted time-based stock grants awarded vest 20% annually beginning October 19, 2007. On January 20, 2011, 3,268 shares of restricted time-based stock grants were awarded. The restricted time-based stock grants awarded had a grant date fair value of $12.00 per share and vest 33% annually beginning January 20, 2012. On January 2, 2012, 45,895 shares of restricted time-based stock grants were awarded. The restricted time-based stock grants had a grant date fair value of $12.46 per shares and vest 20% annually beginning January 2, 2013. Also, on January 2, 2012, 45,895 shares of restricted performance-based stock grants were awarded. The restricted performance-based stock grants had a grant date fair value of $12.46 and vest 20% annually with the attainment of the performance goal. If the goal is not attained for the year, the stock grants are forfeited. During the years ended December 31, 2013 and 2012, $81 thousand and $127 thousand in compensation expense was recognized in regard to these restricted stock awards, respectively. During the years ended December 31, 2013 and 2012, there was no expense recognized in regard to the performance-based stock grants. The tax benefits recognized related to such stock-based compensation was $28 thousand and $43 thousand for the years ended December 31, 2013 and 2012. At December 31, 2013, all of the compensation expense related to the restricted stock awards granted on January 20, 2011 was recognized. At December 31, 2013, there was $681,000 of unrecognized compensation expense related to the restricted stock awards granted on January 2, 2012 which is expected to be recognized over a period of 3.00 years. At December 31, 2013, there were 5 restricted time-based stock grants and 5 performance-based stock grants unawarded.

	Number of shares		Weighted Average Grant Date Fair Value
Restricted stock, January 1, 2013		93,970	$	12.46
Granted		-		-
Forfeited		30,871		12.45
Vested		10,267		12.41
Restricted stock, December 31, 2013		52,832	$	12.46

	Number of shares		Weighted Average Grant Date Fair Value
Restricted stock, January 1, 2012		3,268	$	12.00
Granted		91,790		12.46
Forfeited		-		-
Vested		1,088		12.00
Restricted stock, December 31, 2012		93,970	$	12.45

F-37

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – STOCK-BASED COMPENSATION (CONTINUED)

On October 19, 2006, options to purchase 184,660 shares of common stock at $13.27 per share were awarded. The options awarded vest 20% annually beginning October 19, 2007 and expire in 2016. On January 20, 2011, options to purchase 8,328 shares of common stock at $12.00 per share were awarded. The options awarded vest 33% annually beginning January 20, 2012 and expire in 2021. On January 2, 2012, options to purchase 194,600 shares of common stock at $12.46 per share were awarded. The options awarded vest 20% annually beginning January 2, 2013 and expire in 2022. The following is a summary of the Company’s stock option activity for the years ended December 31, 2012 and 2011:

	Options		Weighted Average Exercise Price
Outstanding at January 1, 2013		379,260	$	12.85
Granted		-		-
Exercised		-		-
Forfeitures		87,917		12.79
Outstanding at December 31, 2013		291,343	$	12.87
Exercisable at December 31, 2013		184,318	$	13.12

	Options		Weighted Average Exercise Price
Outstanding at January 1, 2012		184,660	$	13.22
Granted		194,600		12.46
Exercised		-		-
Forfeitures		-		-
Outstanding at December 31, 2012		379,260	$	12.85
Exercisable at December 31, 2012		179,108	$	13.27

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2006: dividend yield of 0%, risk-free interest rate of 4.79%, expected life of 6.5 years, and expected volatility of 15.00%. The weighted average fair value of options granted in 2006 was $4.03 per option. Weighted average contractual term of options outstanding and exercisable were 2.75 years at December 31, 2013, and 3.75 years at December 31, 2012. The following weighted average assumptions were used for pricing the options granted in 2011: dividend yield of 0%, risk-free interest rate of 3.47%, expected life of 6.5 years and expected volatility of 33.00%. The calculated fair value of options granted in 2011 was $4.84 per option. The weighted average contractual term of options outstanding and exercisable was 7.00 years at December 31, 2013 and 8.00 years at December 31, 2012. The following weighted average assumptions were used for pricing the options granted in 2012: dividend yield of 0%, risk-free interest rate of 1.41%, expected life of 6.5 years and expected volatility of 32.00%. The calculated fair value of options granted in 2012 was $4.34 per option. The weighted average contractual term of options outstanding and exercisable was 8.00 years at December 31, 2013. The options outstanding and exercisable had no aggregate intrinsic value at December 31, 2013 and 2012, respectively.

Stock-based compensation expense related to stock options granted for the years ended December 31, 2013 and 2012 was $119 thousand and $182 thousand, respectively, with a related tax benefit of $40 thousand and $62 thousand, respectively. At December 31, 2013, all of the compensation cost related to stock options granted on January 20, 2011 was recognized and there was $368,000 of unrecognized compensation cost related to stock options granted on January 2, 2012 which will be recognized over 3.0 years.

F-38

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Such commitments involve, to varying degrees, elements of credit, and interest rate risk in excess of the amount recognized in the statements of financial condition.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At December 31, 2013 and 2012, the following financial instruments were outstanding whose contract amounts represent credit risk:

	2013		2012
	(In thousands)
Commitments to grant loans	$	7,079	$	7,519
Unfunded commitments under lines of credit		19,526		19,632
Standby letters of credit		3,040		2,013
	$	29,645	$	29,164

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but generally includes residential or commercial real estate.

Unfunded commitments under lines of credit are collateralized except for the overdraft protection lines of credit and commercial unsecured lines of credit. The amount of collateral obtained is based on management’s credit evaluation, and generally includes residential or commercial real estate. The overdraft protection lines and the commercial unsecured lines of credit total approximately $3.0 million and usually do not contain specified maturity dates and may not be drawn upon to the extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability at December 31, 2013 and 2012 for guarantees under letters of credit is not material.

F-39

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – REGULATORY CAPITAL REQUIREMENTS

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 Company’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 classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. 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 tangible and core capital (as defined in the regulations) to total adjusted assets (as defined) and of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). Management believes, as of December 31, 2013, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2013, the most recent notification from the regulators categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum tangible, core and risk-based ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

In May 2013, the Bank entered into a Formal Agreement (“Agreement”) with the Office of the Comptroller of the Currency that required compliance with certain items within specified timeframes as outlined in the Agreement. Also, in May 2013, the Bank was notified by the OCC that it established minimum capital ratios for the Bank requiring it to maintain a Tier I capital to adjusted total assets ratio of 9.50%, a Tier I capital to risk-weighted assets ratio of 11.00%, and a Total risk-based capital to risk-based weighted assets ratio of 13.00%. As of December 31, 2013, Colonial Bank FSB ratios for these items were 9.74%, 19.19% and 20.45%, respectively.

The Bank’s actual capital amounts and ratios are presented in the table.

Actual

For Capital Adequacy
Purposes

To be Well Capitalized
under Prompt Corrective
Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(In thousands)

As of December 31, 2013:

Tangible Capital (to Adjusted Tangible Assets)

56,820

9.74

>$8,751

>1.50%

N/A

Core Capital (to Adjusted Total Assets)

56,820

9.74

>23,335

>4.00%

>$29,169

>5.00%

Tier 1 Capital (to Risk-Weighted Assets)

56,820

19.19

N/A

>17,769

>6.00%

Total Capital (to Risk-Weighted Assets)

60,568

20.45

>23,693

>8.00%

>29,616

>10.00%

As of December 31, 2012:

Tangible Capital (to Adjusted Tangible Assets)

62,023

10.00

>$9,305

>1.50%

N/A

Core Capital (to Adjusted Total Assets)

62,023

10.00

>24,812

>4.00%

>$31,015

>5.00%

Tier 1 Capital (to Risk-Weighted Assets)

62,023

19.30

N/A

>19,284

>6.00%

Total Capital (to Risk-Weighted Assets)

66,062

20.55

>25,712

>8.00%

>32,140

>10.00%

F-40

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – REGULATORY CAPITAL REQUIREMENTS (CONTINUED)

OCC regulations imposes limitations upon all capital distributions by savings institutions, like the Bank, such as dividends and payments to repurchase or otherwise acquire shares. The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements, or if such declaration and payments would otherwise violate regulatory requirements.

The following table reconciles the Bank’s GAAP capital to its regulatory capital as of the dates indicated:

	December 31,
	2013			2012
	(In thousands)
Total equity capital	$	56,197		$	64,937
Add: Net unrealized loss (gain) on available-for-sale securities		4,477			(2,914	)
Less: Disallowed deferred tax asset		(3,854	)		-
Tier I Capital	$	56,820		$	62,023

Add: Allowance for loan losses includable in Tier 2 capital		3,729			4,021
Add: Unrealized gains on available-for-sale mutual funds (equity securities)		19			18
Total risk-based capital	$	60,568		$	66,062

In accordance with OTS regulations, at the time of the mutual-to-stock conversion, the Company substantially restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The Bank established a parallel liquidation account to support the Company’s liquidation account in the event the Company does not have sufficient assets to fund its obligations under its liquidation account. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of the Bank or the Company, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company’s assets and liabilities; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all assets and liabilities, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these assets and liabilities subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

F-41

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

FASB ASC Topic 820 “Fair Value Measurement” establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2013 and 2012 are as follows (dollars in thousands):

	December 31, 2013		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
U. S. government obligations	$	136,783	$	-	$	136,783	$	-
Corporate debt obligations		4,501		-		4,501		-
Mutual funds		945		945		-		-
Municipal debt obligations		6,719		-		6,719		-
SBA pools		1,093		-		1,093		-
GSE mortgage-backed securities		15,463		-		15,463		-
GSE collateralized mortgage obligations		61,622		-		61,622		-
Securities available-for-sale	$	227,126	$	945	$	226,181	$	-

	December 31, 2012		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
U. S. government obligations	$	127,053	$	-	$	127,053	$	-
Corporate debt obligations		6,753		-		6,753		-
Mutual funds		4,948		4,948		-		-
Municipal debt obligations		6,256		-		6,256		-
SBA pools		1,439		-		1,439		-
GSE mortgage-backed securities		34,721		-		34,721		-
GSE collateralized mortgage obligations		52,134		-		52,134		-
Securities available-for-sale	$	233,304	$	4,948	$	228,356	$	-

F-42

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2013 and 2012 are as follows (dollars in thousands):

	December 31, 2013		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	13,531	$	-	$	-	$	13,531
Real estate owned	$	2,600	$	-	$	-	$	2,600

	December 31, 2012		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	14,879	$	-	$	-	$	14,879
Real estate owned	$	3,217	$	-	$	-	$	3,217

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value at December 31, 2013:

	Quantitative Information About Level 3 Fair Value Measurements
Description	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
	(In thousands)

Impaired loans	$	13,531	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -25.0% (-15.0%)

Real estate owned	$	2,600	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -25.0% (-15.0%)

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors including estimated liquidation expenses, which is presented above as a percent of the appraisal.

F-43

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of certain Company assets and liabilities at December 31, 2013 and 2012:

Cash and Amounts Due From Banks (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and amounts due from banks approximate those assets’ fair values.

Investment Securities

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

Loans Receivable (Carried at Cost)

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired Loans (Generally Carried at Fair Value)

Impaired loans are those loans for which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. At December 31, 2013 and 2012, the fair value consists of loan balances of $5.6 million and $479,000, respectively, net of valuation allowances of $1.8 million and $101,000, respectively, and loan balances of $14.0 million and $20.6 million, respectively, net of partial charge-offs of $4.3 million and $6.1 million, respectively.

Real Estate Owned

Real estate owned assets are adjusted to fair value less estimated selling costs upon transfer of the loans to other real estate owned. Subsequently, real estate owned assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. These assets are included as Level 3 fair values.

F-44

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Federal Home Loan Bank Stock (Carried at Cost)

The carrying amount of FHLB of New York stock approximates fair value, and considers the limited marketability of such security.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest receivable and accrued interest payable approximates their fair value.

Deposits (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Borrowings (Carried at Cost)

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-Balance Sheet Financial Instruments (Disclosed at Cost)

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these instruments is not material.

The carrying amount estimated fair value of the Company’s assets and liabilities at December 31, 2013 and 2012 are as follows:

	December 31, 2013
	Carrying amount		Level 1		Level 2		Level 3		Estimated Fair Value
	(Amounts in thousands)
Financial assets:
Cash and amounts due from banks	$	23,404	$	23,404	$	-	$	-	$	23,404
Investment securities available-for-sale		227,126		945		226,181		-		227,126
Corporate debt obligations held-to-maturity		1,193		-		1,396		-		1,396
Municipal debt obligations held-to-maturity		15,910		-		16,278		-		16,278
GSE mortgage-backed securities held-to-maturity		188		-		208				208
Federal Home Loan Bank stock		702		702		-		-		702
Loans receivable, net		276,154		-		-		276,861		276,861
Accrued interest receivable		1,530		-		1,530		-		1,530

Financial liabilities:
Deposits		522,027		-		524,104		-		524,104
Accrued interest payable		16		-		16		-		16

Off-balance sheet financial instruments:
Commitments to extend credit and letters of credit		-		-		-		-		-

F-45

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

	December 31, 2012
	Carrying amount		Level 1		Level 2		Level 3		Estimated Fair Value
	(Amounts in thousands)
Financial assets:
Cash and amounts due from banks	$	26,418	$	26,418	$	-	$	-	$	26,418
Investment securities available-for-sale		233,304		4,948		228,356		-		233,304
Corporate debt obligations held-to-maturity		1,192		-		1,502		-		1,502
Municipal debt obligations held-to-maturity		28,318		-		28,953		-		28,953
GSE mortgage-backed securities held-to-maturity		429		-		469				469
Federal Home Loan Bank stock		758		758		-		-		758
Loans receivable, net		297,182		-		-		308,253		308,253
Accrued interest receivable		1,650		-		1,650		-		1,650

Financial liabilities:
Deposits		554,090		-		557,001		-		557,001
Accrued interest payable		24		-		24		-		24

Off-balance sheet financial instruments:
Commitments to extend credit and letters of credit		-		-		-		-		-

F-46

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – PARENT COMPANY ONLY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2013		2012
ASSETS	(In thousands)

Cash and cash equivalents	$	1,227	$	1,171
Equity investment in Colonial Bank, FSB		56,196		64,938
Loan receivable – ESOP		1,346		1,548
Other assets		394		380
Total Assets	$	59,163	$	68,037

STOCKHOLDERS’ EQUITY

Total Stockholders’ Equity	$	59,163	$	68,037

CONDENSED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2013			2012
	(In thousands)
Interest income	$	81		$	91
Equity in loss of Colonial Bank, FSB		(1,625	)		(1,519	)
Total loss		(1,544	)		(1,428	)
General, administrative and other expenses		281			321
Net loss	$	(1,825	)	$	(1,749	)

CONDENSED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2013			2012
	(In thousands)

Cash flows from operating activities:
Net loss	$	(1,825	)	$	(1,749	)
Share-based compensation expense		200			310
Equity in undistributed loss Colonial Bank, FSB		1,625			1,519
Increase in cash from ESOP loan repayment		204			192
Dividend received		-			1,325
Increase in other assets		(14	)		(72	)
Net cash from operating activities		190			1,525
Cash flows from financing activities:
Repurchase and retirement of common stock		(134	)		(1,866	)
Net cash used in financing activities		(134	)		(1,866	)
Net increase (decrease) in cash and cash equivalents		56			(341	)
Cash and cash equivalents at beginning of period		1,171			1,512
Cash and cash equivalents at end of period	$	1,227		$	1,171

F-47

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents summarized consolidated quarterly data for each of the last two years. Certain balances may not cross foot due to rounding.

Three Months Ended:	December 31,			September 30,			June 30,			March 31,
	(Dollars in thousands, except per share data)
2013
Total interest income	$	4,329		$	4,487		$	4,600		$	4,713
Total interest expense		818			907			1,045			1,078
Net interest income		3,511			3,580			3,555			3,635
Provision for loan losses		159			2,831			2,667			42
Net interest income after provision for loan losses		3,352			749			888			3,593
Total non-interest income		425			429			1,386			515
Total non-interest expense		3,694			3,823			3,850			3,432
Income (loss) before income tax (benefit)		83			(2,645	)		(1,576	)		676
Income tax (benefit)		(523	)		(697	)		(596	)		179
Net income (loss)	$	606		$	(1,948	)	$	(980	)	$	497
Basic earnings (loss) per share	$	0.16		$	(0.52	)	$	(0.26	)	$	0.13
Diluted earnings (loss) per share	$	0.16		$	(0.52	)	$	(0.26	)	$	0.13

Three Months Ended:	December 31,			September 30,		June 30,			March 31,
	(Dollars in thousands, except per share data)
2012
Total interest income	$	5,120		$	5,314	$	5,388		$	5,585
Total interest expense		1,224			1,291		1,450			1,466
Net interest income		3,896			4,023		3,938			4,119
Provision for loan losses		1,424			329		3,495			1,248
Net interest income after provision for loan losses		2,472			3,694		443			2,871
Total non-interest income		474			425		399			546
Total non-interest expense		4,675			3,428		3,201			3,091
Income (loss) before income taxes		(1,729	)		691		(2,359	)		326
Income tax (benefit)		(769	)		216		(847	)		78
Net income (loss)	$	(960	)	$	475	$	(1,512	)	$	248
Basic earnings (loss) per share	$	(0.26	)	$	0.13	$	(0.40	)	$	0.06
Diluted earnings (loss) per share	$	(0.26	)	$	0.12	$	(0.40	)	$	0.06

F-48

STOCK HOLDER INFORMATION

Annual Meeting		Transfer Agent

The Annual Meeting of Stockholders will be held at 3:00 p.m. on May 15, 2014 at the main office, 2745 S. Delsea Drive, Vineland, New Jersey 08360.		Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016

Stock Listing		If you have any questions concerning your stockholder account, please call our transfer agent, noted above, at (800) 368-5948. This is the number to call if you require a change of address, records or information about lost certificates.

The Company’s Common Stock trades on the Nasdaq Global Market System under the symbol “COBK”

Special Counsel		Annual Report on Form 10-K

Luse Gorman Pomerenk & Schick, P.C. 5335 Wisconsin Avenue, N.W., Suite 780 Washington, D.C. 20015		A copy of the Company’s Form 10-K for the fiscal year ended December 31, 2013, will be furnished without charge to stockholders upon written request to the Secretary, Colonial Financial Services, Inc., 2745 S. Delsea Drive, Vineland, New Jersey 08360.

Independent Registered Public Accounting Firm

BDO USA, LLP
Ten Penn Center
1801 Market Street, Suite 1700
Philadelphia, Pennsylvania 19103

DIRECTORS AND OFFICERS

Directors		Officers

Gregory J. Facemyer, CPA Chairman of the Board Self-Employed Certified Public Accountant	Edward J. Geletka President and Chief Executive Officer, Colonial Bank, FSB	Edward J. Geletka President and Chief Executive Officer

John Fitzpatrick, CPA Vice-Chairman of the Board President, Premier Accounting Services, PC	Hugh McCaffrey Owner, Southern New Jersey Steel Company	L. Joseph Stella, III, CPA Executive Vice President and Chief Financial Officer

John J. Bailey Senior Vice President, Union Center National Bank	Corissa Briglia Senior Analyst The Stilwell Group	William F. Whelan Executive Vice President and Chief Operations Officer

Articles TENTH and ELEVENTH of the Articles of Incorporation of Cape Bancorp, Inc. (the “Corporation”) sets forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such:

A. Indemnification. The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B of this Article 10 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

B. Procedure. If a claim under Section A of this Article 10 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met, and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 10 or otherwise shall be on the Corporation.

C. Non-Exclusivity. The rights to indemnification and to the advancement of expenses conferred in this Article 10 shall not be exclusive of any other right that any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

D. Insurance. The Corporation may maintain insurance, at its expense, to insure itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or

other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.

E. Miscellaneous. The Corporation shall not be liable for any payment under this Article 10 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 10 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

Any repeal or modification of this Article 10 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 10 is in force.

Limitation of Liability. An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; or (B) to the extent that a judgment or other final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

The exhibits and financial statements filed as part of this Registration Statement are as follows:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be a bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)(1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.

(2) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for the purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(e) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means.

This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(f) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of, and included in the registration statement when it became effective.

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cape May Court House, State of New Jersey, on November 21, 2014.

We, the undersigned directors and officers of Cape Bancorp, Inc. (the “Company”) severally constitute and appoint Michael D. Devlin with full power of substitution, our true and lawful attorney and agent, to do any and all things and acts in our names in the capacities indicated below which said Michael D. Devlin may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-4 relating to the offering of the Company common stock, including specifically, but not limited to, power and authority to sign for us or any of us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that said Michael D. Devlin shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

We have acted as special counsel to Cape Bancorp, Inc., a Maryland corporation (the “Company”), in connection with the registration under the Securities Act of 1933, as amended, by the Company of an aggregate of 3,307,678 shares of common stock, par value $0.01 per share (the “Shares”), of the Company and the related preparation and filing by the Company with the Securities and Exchange Commission of a Registration Statement on Form S-4 (the “Registration Statement”). In rendering the opinion set forth below, we do not express any opinion concerning law other than the federal law of the United States and the corporate law of the State of Maryland. We have not passed upon and do not purport to pass upon the application of securities or “blue-sky” laws of any jurisdiction.

We have examined originals or copies, certified or otherwise identified, of such documents, corporate records and other instruments, and have examined such matters of law, as we have deemed necessary or advisable for purposes of rendering the opinion set forth below. As to matters of fact, we have examined and relied upon the representations of the Company contained in the Registration Statement and, where we have deemed appropriate, representations or certificates of officers of the Company or public officials. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents submitted to us as copies. In making our examination of any documents, we have assumed that all parties other than the Company had the corporate power and authority to enter into and perform all obligations thereunder, and, as to such parties, we have also assumed the due authorization by all requisite action, the due execution and delivery of such documents and the validity and binding effect and enforceability thereof.

Based on the foregoing, we are of the opinion that the Shares are duly authorized and, when issued as contemplated in the Registration Statement and the Agreement and Plan of Merger, dated as of September 10, 2014, by and between Cape Bancorp, Inc. and Colonial Financial Services, Inc., will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to our firm under the heading “Legal Opinions” in the Proxy Statement/Prospectus which is part of such Registration Statement.

Pursuant to the Agreement and Plan of Merger dated as of September 10, 2014 (the “Merger Agreement”) by and between Cape Bancorp, Inc., a Maryland corporation (“Cape Bancorp”), and Colonial Financial Services, Inc., a Maryland corporation (“Colonial Financial”), Colonial Financial will merge with and into Cape Bancorp with Cape Bancorp surviving (the “Merger”). Capitalized terms not otherwise defined in this opinion have the meanings ascribed to such terms in the Merger Agreement.

We have acted as special counsel to Cape Bancorp in connection with the Merger. We are providing our opinion regarding certain federal income tax consequences of the Merger for inclusion in the registration statement on Form S-4 being filed concurrently by Cape Bancorp with the Securities and Exchange Commission. For the purpose of rendering our opinion, we have examined and are relying (without any independent investigation or review thereof), with your permission, upon the truth and accuracy, at all relevant times, of the statements, covenants, representations and warranties contained in the following documents (the “Documents”):

For purposes of this opinion, we have assumed, with your permission and without independent

investigation, (i) that the Merger will be consummated in the manner contemplated by the Joint Proxy Statement/Prospectus and in accordance with the provisions of the Merger Agreement without the waiver of any material conditions to any party’s obligation to effect the Merger or the waiver of any conditions to any party’s obligation to effect the Merger that could adversely affect the qualification of the Merger as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) that original documents (including signatures) are authentic, (iii) that documents submitted to us as copies conform to the original documents, (iv) that there has been (or will be by the date of the Merger) due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness of those documents, (v) the accuracy of the statements and representations contained in the Documents, (vi) that covenants and warranties set forth in the Documents will be complied with, and (vii) that the Merger will be effective under applicable state law.

Subject to the foregoing and any other assumptions, limitations and qualifications specified herein, it is our opinion that (i) for United States federal income tax purposes, the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code, and (ii) the discussion contained in the Joint Proxy Statement/Prospectus under the caption “Material Tax Consequences of the Merger,” subject to the limitations, qualifications and assumptions described therein, fairly summarizes the federal income tax consequences that are material to a Colonial Financial stockholder who holds shares of Colonial Financial Common Stock as a capital asset.

The foregoing opinion is limited to the federal income tax matters addressed herein, and no other opinions are rendered with respect to other federal tax matters or to any issues arising under the tax laws of any state, locality or foreign country.

This opinion is rendered as of the date hereof and we undertake no obligation to update, supplement, modify or revise the opinion expressed herein after the date of this letter to reflect any facts or circumstances which may hereafter come to our attention or which may result from any changes in laws or regulations which may hereafter occur.

Our opinion expressed herein is based upon the Code, the Treasury regulations promulgated thereunder, published positions of the Internal Revenue Service and other applicable authorities, administrative pronouncements and judicial authority, all as in effect as of the date hereof. It represents our best legal judgment as to the matters addressed herein, but is not binding on the Internal Revenue Service or the courts. Accordingly, no assurance can be given that the opinion expressed herein, if contested, would be sustained by a court. Furthermore, the authorities upon which we rely may be changed at any time, potentially with retroactive effect. No assurances can be given as to the effect of any such changes on the conclusions expressed in this opinion. If any of the facts and assumptions pertinent to the United States federal income tax treatment of the Merger specified herein or any of the statements, covenants, representations or warranties contained in the Documents are, or later become, inaccurate, such inaccuracy may adversely affect the conclusions expressed in this opinion.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the section captioned “Material Tax Consequences of the Merger” therein. In

giving this consent we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder.

We have read the change in independent registered public accounting firm disclosure pursuant to Item 304 of Regulation S-K, captioned “Change in Accountants” in the Registration Statement on Form S-4 of Colonial Financial Services, Inc. dated on or about November 21, 2014, and agree with the statements concerning our Firm contained therein.

We consent to the use in the Registration Statement on Form S-4, filed with the Securities and Exchange Commission, of our report dated March 10, 2014 on the consolidated financial statements and effectiveness of internal control over financial reporting of Cape Bancorp, Inc., which report appears in the Annual Report on Form 10-K of Cape Bancorp, Inc. for the year ended December 31, 2013.

We also consent to the reference to our firm under the heading “Experts” in the Prospectus contained in the Registration Statement on Form S-4.

We consent to the use of our report dated March 15, 2013, with respect to the consolidated balance sheet of Cape Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years ended December 31, 2012 and 2011, incorporated herein by reference and to the reference to our firm under the heading “Experts” in the Joint Proxy Statement/Prospectus.

We hereby consent to the use in the Joint Proxy Statement/Prospectus constituting a part of this Registration Statement on Form S-4 of our report dated March 28, 2014, relating to the 2013 consolidated financial statements of Colonial Financial Services, Inc., which is contained in that Joint Proxy Statement/Prospectus.

We also consent to the reference to us under the caption “Experts” in the Joint Proxy Statement/Prospectus.

We hereby consent to the inclusion in this Registration Statement on Form S-4 of Colonial Financial Services, Inc. of our report dated March 29, 2013, relating to the consolidated financial statements of Colonial Financial Services, Inc. as of December 31, 2012 and for the year then ended.

We also consent to the reference to us under the caption "Experts" in the Registration Statement on Form S-4.

We hereby consent to the inclusion of our opinion letter to the Board of Directors of Colonial Financial Services, Inc. (“Colonial Financial”), as Appendix B to the Joint Proxy Statement/Prospectus which forms a part of this Registration Statement on Form S-4 (the “Registration Statement”) dated the date hereof relating to the proposed merger of Colonial Financial with and into Cape Bancorp, Inc. and to the references to such opinion and the quotation or summarization of such opinion contained therein. This consent relates solely to the Registration Statement and not to any subsequent amendments thereto or any other document.

In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the “Securities Act”), or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we hereby admit that we are experts with respect to any part of the Registration Statement within the meaning of the term “experts” as used in the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder.

We hereby consent to the inclusion of our opinion letter to the Board of Directors of Colonial Financial Services Inc., a New Jersey corporation (“Colonial” or “COBK”), as Appendix C to the Joint Proxy Statement/Prospectus which forms a part of this Registration Statement on Form S-4 dated the date hereof relating to the proposed merger of Colonial with and into Cape Bancorp, Inc., a New Jersey corporation, and to the references to such opinion and the quotation or summarization of such opinion contained therein. This consent relates solely to such Registration Statement and not to any subsequent amendments thereto or any other document.

In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the “Securities Act”), or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we hereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “experts” as used in the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder.

We hereby consent to the inclusion of our opinion letter to the Board of Directors of Cape Bancorp, Inc. (“CBNJ”), as Appendix D to the Joint Proxy Statement-Prospectus which forms a part of this Registration Statement on Form S-4, dated the date hereof, relating to the proposed transaction by and between CBNJ and Colonial Financial Services, Inc. and to the references to such opinion and the quotation or summarization of such opinion contained therein. This consent relates solely to such Registration Statement and not to any subsequent amendments thereto or any other document.

In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the “Securities Act”), or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we hereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “experts” as used in the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder.

In accordance with Rule 438 under the Securities Act of 1933, as amended (the “Securities Act”), the undersigned hereby consents to being named as person about to become a director of Cape Bancorp, Inc. (“Cape”) in the Joint Proxy Statement/Prospectus contained in the Registration Statement on Form S-4 of Cape and Colonial Financial Services, Inc. (“Colonial Financial”), as amended, pursuant to the Securities Act in connection with the Agreement and Plan of Merger dated as of September 10, 2014, by and between Cape and Colonial Financial (the “Merger Agreement”) wherein Colonial Financial will merge with and into Cape, with Cape as the surviving entity.

Maryland	6035	26-1294270
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification Number)

Marc Levy, Esq.		Robert A. Schwartz, Esq.
Eric Luse, Esq		John Bitar, Esq.
Luse Gorman Pomerenk & Schick, P.C.		Windels Marx Lane & Mittendorf, LLP
5335 Wisconsin Avenue, N.W., Suite 780		120 Albany Street Plaza, 6th Floor
Washington, D.C. 20015		New Brunswick, NJ 08901
Phone: (202) 274-2000		Phone: (732) 846-7600

	At September 30,				At December 31,
*(Dollars in thousands, except per share data)*	2014		2013		2013		2012		2011		2010		2009

Selected Financial Data:
Total assets	$	1,081,737	$	1,074,446	$	1,092,879	$	1,040,798	$	1,071,128	$	1,061,042	$	1,072,821
Loans, net of allowance for loan losses ⁽¹⁾		772,397		764,565		780,127		714,396		716,341		772,318		789,473
Allowance for loan losses		9,799		10,007		9,330		9,852		12,653		12,538		13,311
Securities available for sale		157,290		156,591		157,166		170,857		190,714		157,407		152,815
Goodwill and other intangible assets		22,918		22,851		22,873		22,839		22,909		23,020		23,160
Total deposits		800,866		828,397		798,422		784,591		774,403		753,068		736,587
FHLB borrowings		122,133		89,951		133,995		88,041		106,500		132,130		166,491
Total stockholders’ equity		139,864		140,535		140,427		150,826		145,719		132,154		126,548

	For the nine months ended September 30,				For the year ended December 31,
	2014		2013		2013		2012		2011			2010			2009

Selected Operating Data:
Total interest income	$	30,616	$	30,490	$	41,041	$	43,684	$	46,467		$	50,269		$	54,533
Total interest expense		3,831		4,065		5,292		8,204		11,611			14,539			19,028
Net interest income before provision for loan losses		26,785		26,425		35,749		35,480		34,856			35,730			35,505
Provision for loan losses		2,480		1,059		2,011		4,461		19,607			7,496			13,159
Net interest income after provision for loan losses		24,305		25,366		33,738		31,019		15,249			28,234			22,346
Total non-interest income		5,452		5,521		5,966		7,814		5,311			2,851			932
Total non-interest expense		20,443		22,551		29,922		31,622		30,928			28,534			29,168
Income (loss) before income tax expense (benefit)		9,314		8,336		9,782		7,211		(10,368	)		2,551			(5,890	)
Income tax expense (benefit)		3,551		3,337		4,231		2,655		(18,355	)		(1,490	)		12,011
Net income (loss)	$	5,763	$	4,999	$	5,551	$	4,556	$	7,987		$	4,041		$	(17,901	)

	At or For the Nine Months Ended September 30,						At or For the Years Ended December 31,
	2014			2013			2013			2012			2011			2010			2009

Selected Operating Ratios and Other Data:
Performance Ratios:
Return (loss) on average assets ⁽²⁾		0.71	%		0.64	%		0.53	%		0.43	%		0.75	%		0.38	%		(1.64	)%
Return (loss) on average equity ⁽³⁾		5.44	%		4.52	%		3.80	%		3.05	%		5.61	%		3.06	%		(12.89	)%
Average interest rate spread ⁽⁴⁾		3.53	%		3.66	%		3.66	%		3.61	%		3.42	%		3.46	%		3.27	%
Net interest margin (tax equivalent) ⁽⁵⁾		3.61	%		3.76	%		3.76	%		3.75	%		3.60	%		3.66	%		3.54	%
Non-interest expense/average assets		2.45	%		2.85	%		2.85	%		3.01	%		2.90	%		2.68	%		2.67	%
Efficiency ratio		65.98	%		71.05	%		70.47	%		71.68	%		72.93	%		68.59	%		69.19	%

Capital Ratios:
Total capital (to risk-weighted assets)		14.28	%		14.13	%		14.29	%		15.38	%		13.82	%		13.90	%		12.71	%
Tier 1 capital (to risk weighted assets)		13.03	%		12.88	%		13.07	%		14.12	%		12.57	%		12.65	%		11.45	%
Tier 1 capital (to average assets)		9.60	%		9.50	%		9.53	%		10.36	%		9.15	%		9.96	%		9.37	%
Equity to assets		12.93	%		13.08	%		12.85	%		14.49	%		13.60	%		12.46	%		11.80	%

Asset Quality Ratios:
Nonperforming assets/total assets		1.20	%		1.66	%		1.35	%		2.61	%		3.38	%		4.41	%		3.55	%
Non-performing loans/total loans		0.99	%		1.26	%		0.93	%		2.67	%		3.77	%		5.54	%		4.14	%
Allowance for loan losses/nonperforming loans		127.00	%		102.37	%		127.05	%		50.86	%		46.10	%		28.84	%		40.04	%
Allowance for loan losses as a percent of loans		1.25	%		1.29	%		1.18	%		1.36	%		1.74	%		1.60	%		1.66	%

Share Data:
Basic earnings (loss) per common share	$	0.53		$	0.41		$	0.47		$	0.37		$	0.64		$	0.33		$	(1.45	)
Diluted earnings (loss) per common share		0.52			0.41			0.46			0.37			0.64			0.33			(1.45	)
Dividends per common share		0.18			0.15			0.21			0.05			—			—			—
Book value per share		12.19			11.55			11.64			11.31			10.94			9.93			9.51
Market price at year end		9.43			9.16			10.16			8.69			7.85			8.50			6.72

Weighted average common shares outstanding – basic		10,957,768			12,128,458			11,904,369			12,441,219			12,393,359			12,351,902			12,312,714
Weighted average common shares outstanding – diluted		11,089,421			12,182,683			11,950,943			12,443,298			12,398,178			12,354,952			12,312,714

	Sincerely,

	Edward J. Geletka
	President and Chief Executive Officer

Cape Bancorp, Inc.		Colonial Financial Services, Inc.
225 North Main Street		2745 South Delsea Drive
Cape May Court House, New Jersey 08210		Vineland, New Jersey 08360
Attention: Investor Relations Department		Attention: Investor Relations
(609) 465-5600		(856) 205-0058

	Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS	1
SUMMARY	11
RISK FACTORS	18
CAUTION ABOUT FORWARD-LOOKING STATEMENTS	22
SELECTED HISTORICAL FINANCIAL INFORMATION	23
SUMMARY SELECTED PRO FORMA CONDENSED COMBINED DATA	28
Unaudited Pro Forma combined condensed consolidated financial information relating to the COLONIAL FINANCIAL Merger	29
COMPARATIVE PRO FORMA PER SHARE DATA	36
MARKET PRICE AND DIVIDEND INFORMATION	37
SPECIAL MEETING OF COLONIAL FINANCIAL SERVICES, INC. STOCKHOLDERS	39
SPECIAL MEETING OF CAPE BANCORP, Inc. STOCKHOLDERS	41
NO DISSENTERS’ RIGHTS	42
PROPOSAL 1 - DESCRIPTION OF THE MERGER	43
DESCRIPTION OF CAPE BANCORP, INC. CAPITAL STOCK	99
COMPARISON OF RIGHTS OF STOCKHOLDERS	101
MANAGEMENT AND OPERATIONS AFTER THE MERGER	105
CAPE PROPOSAL 2 – ADJOURNMENT OF SPECIAL MEETING	166
COLONIAL FINANCIAL PROPOSAL 2 - MERGER-RELATED EXECUTIVE COMPENSATION	167
COLONIAL FINANCIAL PROPOSAL 3 - ADJOURNMENT OF THE SPECIAL MEETING	168
LEGAL MATTERS	169
EXPERTS	169
CHANGE IN ACCOUNTANTS	169
STOCKHOLDER PROPOSALS	170
WHERE YOU CAN FIND MORE INFORMATION	170
CAPE BANCORP, INC. FILINGS (File No. 001-33934)	171

Appendix A	Agreement and Plan of Merger
Appendix B	Opinion of Keefe, Bruyette & Woods, Inc.
Appendix C	Opinion of FinPro Capital Advisors, Inc.
Appendix D	Opinion of Sterne, Agee & Leach, Inc.
Appendix E	Colonial Financial Form 10-Q for the Nine Months Ended September 30, 2014
Appendix F	Colonial Financial Form 10-K for the Year Ended December 31, 2013

	Cape Bancorp, Inc. Common Stock		Equivalent Price Per Share of Colonial Financial Services, Inc. Common Stock

September 9, 2014	$	10.06	$	14.20
[Colonial Financial Special Meeting Record Date]	$		$

	At September 30,				At December 31,
*(In thousands, except per share data)*	2014		2013		2013		2012		2011		2010		2009

Selected Financial Data:
Total assets	$	552,709	$	598,236	$	583,157	$	623,596	$	603,814	$	590,342	$	568,541
Loans, net of allowance for loan losses ⁽¹⁾		271,555		284,387		276,154		297,182		297,570		319,987		321,607
Allowance for loan losses		4,417		5,680		5,853		4,146		5,027		3,543		2,606
Securities		235,395		265,989		227,126		233,304		228,543		181,567		166,378
Total deposits		477,861		527,312		522,027		554,090		520,703		512,836		500,366
Borrowings		9,670		8,410		—		—		10,045		7,000		21,300
Total stockholders’ equity		62,811		60,301		59,163		68,037		71,685		69,412		45,517

	At or For the Nine Months Ended September 30,						At or For the Years Ended December 31,
	2014			2013			2013			2012			2011			2010			2009

Selected Operating Ratios and Other Data:
Performance Ratios:
Return (loss) on average assets ⁽²⁾		0.10	%		(0.52	)%		(0.30	)%		(0.28	)%		0.55	%		0.67	%		0.26	%
Return (loss) on average equity ⁽³⁾		0.88	%		(4.92	)%		(2.87	)%		(2.46	)%		4.64	%		6.83	%		3.34	%
Net interest rate spread⁽⁴⁾		2.48	%		2.43	%		2.46	%		2.74	%		2.90	%		3.05	%		2.52	%
Net interest margin⁽⁵⁾		2.55	%		2.51	%		2.54	%		2.83	%		3.06	%		3.21	%		2.71	%
Non-interest expense/average assets		2.66	%		2.39	%		2.42	%		2.29	%		2.06	%		2.02	%		2.12	%
Efficiency ratio ⁽⁶⁾		104.08	%		95.36	%		86.87	%		80.78	%		66.07	%		62.99	%		82.66	%

Capital Ratios:
Total risk based capital (to risk weighted assets)		23.62	%		19.61	%		20.45	%		20.55	%		19.99	%		18.39	%		12.60	%
Tier 1 risk based capital (to risk weighted assets)		22.35	%		18.35	%		19.19	%		19.30	%		19.27	%		17.64	%		11.94	%
Tier 1 leverage (core) capital (to tangible assets)		10.63	%		9.43	%		9.74	%		10.00	%		10.82	%		10.44	%		7.17	%
Equity to total assets		11.36	%		10.08	%		10.15	%		10.91	%		11.87	%		11.76	%		8.01	%

Asset Quality Ratios:
Nonperforming assets/total assets		2.28	%		3.11	%		2.88	%		2.96	%		1.53	%		1.86	%		0.93	%
Nonperforming loans/total loans		3.40	%		4.97	%		4.79	%		4.35	%		2.03	%		3.31	%		1.63	%
Allowance for loan losses/nonperforming loans		46.96	%		39.28	%		43.16	%		31.55	%		81.70	%		33.05	%		49.38	%
Allowance for loan losses as a percent of loans		1.60	%		1.95	%		2.07	%		1.37	%		1.66	%		1.09	%		0.80	%

Share Data:
Basic earnings(loss) per common share	$	0.11		$	(0.65	)	$	(0.49	)	$	(0.46	)	$	0.83		$	0.97		$	0.36
Diluted earnings(loss) per common share		0.11			(0.65	)		(0.49	)		(0.46	)		0.83			0.97			0.36
Dividends per common share		—			—			—			—			—			—			—
Book value per share		16.27			15.35			15.35			17.66			17.95			16.57			10.25

Weighted average common shares outstanding – basic		3,746,739			3,719,789			3,719,807			3,806,993			3,971,504			4,004,916			4,012,131
Weighted average common shares outstanding – diluted		3,750,137			3,719,789			3,719,807			3,806,993			3,971,504			4,004,916			4,012,131

	At September 30, 2014
	(In thousands)
Pro forma combined balance sheet data:
Total assets	$	1,597,064
Loans held to maturity, net		1,033,381
Deposits		1,280,302
Total stockholders’ equity		163,718

	Nine Months Ended		Year Ended
	September 30, 2014		December 31, 2013
	(In thousands, except per share data)
Pro forma condensed combined income statement data:
Interest income	$	42,491	$	59,304
Interest expense		5,052		8,352
Net interest income		37,439		50,952
Provision (benefit) for loan losses		2,770		7,710
Net interest income after provision (benefit) for loan losses		34,669		43,242
Non-interest income		7,157		8,721
Non-interest expense		30,703		45,405
Income before income taxes		11,123		6,558
Provision for income taxes		4,437		2,689
Net income	$	6,686	$	$3,869

Pro forma per share data:
Basic earnings	$	0.49	$	0.26
Diluted earnings	$	0.49	$	0.26

	Cape			Colonial Financial			Pro Forma Adjustments			Pro Forma Combined			Pro Forma Notes
	(In thousands)
Assets:
Cash and due from financial institutions	$	6,915		$	8,388			—		$	15,303
Interest-bearing deposits in other financial institutions		11,618			—			—			11,618
Interest-bearing time deposits		9,540			—			—			9,540
Investment securities available for sale		157,290			235,395			(30,504	)		362,181		A
Investment securities held to maturity		17,796			—			—			17,796
Loans		782,196			275,972			(14,988	)		1,043,180		B
Allowance for Loan Losses		(9,799	)		(4,417	)		4,417			(9,799	)	C
Net Loans		772,397			271,555			(10,571	)		1,033,381
Federal Home Loan Bank stock, at cost		6,873			938			—			7,811
Accrued interest receivable		3,297			1,381			—			4,678
Premises and equipment, net		19,812			7,536			(3,084	)		24,264		D
Deferred income taxes		14,957			5,218			3,969			24,144		E
Bank owned life insurance		31,080			14,926			—			46,006
Goodwill		22,575			—			—			22,575
Other intangibles		343			—			3,763			4,106		F
Other real estate owned		5,299			3,223			(955	)		7,567		G
Other assets		1,945			4,149			—			6,094
Total assets	$	1,081,737		$	552,709		$	(37,382	)	$	1,597,064

Liabilities and Shareholders’ Equity:
Deposits
Interest-bearing	$	710,045		$	431,276		$	1,575		$	1,142,896		H
Non interest-bearing		90,821			46,585			—			137,406
Total deposits		800,866			477,861			1,575			1,280,302
Federal funds purchased and repurchase agreements		9,952			—			—			9,952
Federal Home Loan Bank borrowings		122,133			9,670			—			131,803
Advances from borrowers for taxes and insurance		792			1,101			—			1,893
Accrued interest payable and other Liabilities		8,130			1,266			—			9,396
Total liabilities		941,873			489,898			1,575			1,433,346
Shareholders’ equity:
Common stock		133			39			(12	)		160		I
Additional paid-in capital		128,525			37,441			(13,236	)		152,730		J
Retained earnings		38,825			27,897			(28,275	)		38,447		K
Accumulated other comprehensive income (loss)		(1,759	)		(1,396	)		1,396			(1,759	)	L
Treasury stock		(18,077	)		—			—			(18,077	)
Unearned ESOP Shares		(7,783	)		(1,170	)		1,170			(7,783	)	M
Total shareholders’ equity		139,864			62,811			(38,957	)		163,718
Total liabilities and shareholders’ equity	$	1,081,737		$	552,709		$	(37,382	)	$	1,597,064

	Cape			Colonial Financial			Pro forma Adjustments			Pro forma Combined		Notes
	(In thousands, except share and per share amounts)
Interest and dividend income:
Loans, including fees	$	37,063		$	13,616		$	174		$	50,853	N
Other interest income		3,978			4,513			(40	)		8,451	O
Total interest income		41,041			18,129			134			59,804
Interest expense:
Deposits		2,985			3,819			(788	)		6,016	P
Borrowings		2,307			29			-			2,336
Total interest expense		5,292			3,848			(788	)		8,352
Net interest income		35,749			14,281			922			50,952
Provision for loan losses		2,011			5,699			-			7,710
Net interest income after provision for loan losses		33,738			8,582			922			43,242
Non-interest income:
Service fees		3,469			1,211			—			4,680
Net Increase from BOLI		951			439			—			1,390
Net gains (losses) on sales of available for sale securities		(561	)		1,064			—			503
Other income		2,107			41			—			2,148
Total non-interest income		5,966			2,755			—			8,721
Non-interest expense:
Salaries and employee benefits		15,893			6,887			-			22,780
Occupancy and equipment		2,844			1,650			-			4,494
Data processing		1,393			968			—			2,361
FDIC insurance premiums		928			733			—			1,661
Other expense		8,864			4,561			684			14,109	Q
Total non-interest expense		29,922			14,799			684			45,405
Income (loss) before income taxes		9,782			(3,462	)		238			6,558
Income tax expense (benefit)		4,231			(1,637	)		95			2,689	R
Net income (loss)	$	5,551		$	(1,825	)	$	143		$	3,869

Basic earnings (loss) per common share:
Earnings (loss) per share	$	0.47		$	(0.49	)		—		$	0.26
Weighted average shares outstanding		11,904,369			3,719,807			2,719,674			14,624,043	S
Diluted earnings (loss) per common share:
Earnings (loss) per share	$	0.46		$	(0.49	)		—		$	0.26
Weighted average shares outstanding		11,950,943			3,719,807			2,719,674			14,670,617	S

To reflect estimated seller after-tax deal expenses	$	(1,273	)
To reflect estimated buyer after-tax deal expenses		(1,421	)
To reflect total cash consideration		(27,810	)
	$	(30,504	)

Adjustment to loans – expected credit losses	$ 14,000
Adjustment to loans – interest rate mark	988
Adjustment to allowance for loan losses	(4,417	)
Adjustment to foreclosed assets	955
Adjustment to premises and equipment	3,084
Adjustment to core deposit intangible	(3,763	)
Adjustment to deposits	1,575
Subtotal for fair value adjustments	12,422
Calculated deferred taxes at Cape’s estimated statutory rate 40%	4,969
Write down of Colonial’s net operating loss carryforward	1,000
Total deferred taxes at 40% net of write down	$ 3,969

To eliminate Colonial Financial common stock	$	(39	)
To reflect issuance of Cape common stock to Colonial Financial shareholders		27
	$	(12	)

To eliminate Colonial Financial historical additional paid-in-capital	$	(37,441	)
To reflect issuance of Cape common stock to Colonial Financial shareholders (based on Cape price per share of $8.91 as of November 4, 2014)		24,205
	$	(13,236	)

To eliminate Colonial Financial historical retained earnings	$	(27,897	)
Estimated buyer after-tax merger expenses		(1,421	)
Estimated seller after-tax merger expenses	$	(1,273	)
Goodwill created/(gain on bargain purchase)		2,316
		(28,275	)

To reflect gain on bargain purchase, net of tax
Fair value of consideration			$	52,042
Fair value of assets acquired:
Cash and due from financial institutions	$	8,388
Investment securities available for sale		235,395
Net loans		260,984
Federal Home Loan Bank stock		938
Accrued interest receivable		1,381
Premises and equipment		4,452
Bank owned life insurance		14,926
Core deposit intangible		3,763
Other real estate owned		2,268
Deferred income taxes		9,187
Other assets		4,149
Total assets		545,831
Fair value of liabilities assumed:
Deposits		479,436
Federal Home Loan Bank borrowings		9,670
Advances from borrowers for taxes and insurance		1,101
Accrued interest payable and other liabilities		1,266
Total liabilities	$	491,473
Net assets acquired			$	54,358
Goodwill created / (gain on bargain purchase)					(2,316)

	Cape Historical		Colonial Financial Historical			Pro Forma Combined^(1)(2)(3)		Equivalent Pro Forma Colonial Financial⁽⁴⁾
Basic Net Income (Loss) Per Common Share
Nine Months Ended September 30, 2014	$	0.53	$	0.11		$	0.49	$	0.69
Year Ended December 31, 2013	$	0.47	$	(0.49	)	$	0.26	$	0.37
Diluted Net Income (Loss) Per Common Share
Nine Months Ended September 30, 2014	$	0.52	$	0.11		$	0.49	$	0.69
Year Ended December 31, 2013	$	0.46	$	(0.49	)	$	0.26	$	0.37
Dividends Declared Per Common Share (3)
Nine Months Ended September 30, 2014	$	0.18	$	0.00		$	0.18	$	0.25
Year Ended December 31, 2013	$	0.21	$	0.00		$	0.21	$	0.30
Book Value Per Common Share
September 30, 2014	$	12.19	$	16.27		$	11.53	$	16.29

	Cape Bancorp, Inc. Common Stock						Colonial Financial Services, Inc. Common Stock
	High		Low		Dividends		High		Low		Dividends
Quarter Ended

December 31, 2014 (through ______, 2014)	$		$		$		$		$			—
September 30, 2014	$	10.59	$	9.30	$	0.06	$	13.97	$	12.12		—
June 30, 2014	$	11.07	$	10.22	$	0.06	$	13.94	$	11.01		—
March 31, 2014	$	11.13	$	10.15	$	0.06	$	13.50	$	10.30		—
December 31, 2013	$	10.28	$	9.00	$	0.06	$	14.41	$	12.94		—
September 30, 2013	$	9.91	$	8.36	$	0.05	$	17.00	$	13.24		—
June 30, 2013	$	9.69	$	7.15	$	0.05	$	14.30	$	13.30		—
March 31, 2013	$	9.35	$	7.38	$	0.05	$	13.75	$	13.06		—
December 31, 2012	$	9.48	$	8.00	$	0.05	$	13.47	$	12.76		—
September 30, 2012	$	9.79	$	8.00	$	—	$	13.47	$	12.90		—

1st Constitution Bancorp	Bancorp of New Jersey, Inc.
Unity Bancorp, Inc.	First Bank
Parke Bancorp, Inc.	Malvern Bancorp, Inc.
Two River Bancorp	Sussex Bancorp
Royal Bancshares of Pennsylvania, Inc.	Prudential Bancorp, Inc.
DNB Financial Corporation	Alliance Bancorp, Inc. of Pennsylvania
Stewardship Financial Corporation	Polonia Bancorp, Inc.

				Peer Group
	Colonial			25th									75th
	Financial			Percentile			Average			Median			Percentile
LTM Core Return on Average Assets ⁽¹⁾		(0.19	)%		0.39	%		0.29	%		0.49	%		0.65	%
LTM Core Return on Average Equity ⁽¹⁾		(1.75	)%		2.93	%		3.59	%		5.59	%		7.50	%
LTM Net Interest Margin		2.57	%		3.17	%		3.39	%		3.49	%		3.56	%
LTM Fee Income / Revenue Ratio ⁽²⁾		10.7	%		6.7	%		13.0	%		11.2	%		16.9	%
LTM Efficiency Ratio		83.2	%		80.9	%		72.7	%		70.5	%		64.8	%

Peapack-Gladstone Financial Corporation	Ocean Shore Holding Co.
OceanFirst Financial Corp.	1st Constitution Bancorp
Univest Corporation of Pennsylvania	Unity Bancorp, Inc.
Bryn Mawr Bank Corporation	Parke Bancorp, Inc.
BCB Bancorp, Inc.	Two River Bancorp
Clifton Bancorp Inc.	Royal Bancshares of Pennsylvania, Inc.
Fox Chase Bancorp, Inc.	DNB Financial Corporation
Republic First Bancorp, Inc.	Stewardship Financial Corporation

				Cape Bancorp /			Peer Group
	Cape			Colonial Financial			25th									75th
	Bancorp			Pro Forma ⁽¹⁾			Percentile			Average			Median			Percentile
LTM Core Return on Average Assets ⁽²⁾		0.55	%		0.80	%		0.54	%		0.64	%		0.61	%		0.77	%
LTM Core Return on Average Equity ⁽²⁾		4.22	%		7.79	%		5.03	%		6.36	%		6.49	%		8.96	%
LTM Net Interest Margin		3.72	%		-			3.19	%		3.50	%		3.50	%		3.84	%
LTM Fee Income / Revenue Ratio ⁽³⁾		14.5	%		-			9.5	%		16.7	%		15.2	%		19.1	%
LTM Efficiency Ratio		63.0	%		-			71.8	%		67.5	%		67.1	%		63.6	%

				Peer Group
	Cape			25th									75th
	Bancorp			Percentile			Average			Median			Percentile
One - Year Stock Price Change		11.3	%		0.9	%		10.8	%		10.0	%		19.1	%
One - Year Total Return		14.0	%		4.9	%		12.6	%		11.6	%		22.3	%
YTD Stock Price Change		(0.3	)%		(2.8	)%		7.5	%		(1.1	)%		15.5	%
Stock Price / Book Value per Share		0.84	x		0.90	x		1.10	x		1.12	x		1.24	x
Stock Price / Tangible Book Value per Share		1.00	x		0.96	x		1.18	x		1.17	x		1.26	x
Stock Price / LTM EPS		17.5	x		12.6	x		15.5	x		15.5	x		17.3	x
Dividend Yield ⁽¹⁾		2.4	%		0.9	%		1.7	%		1.6	%		2.6	%
LTM Dividend Payout ⁽²⁾		37.2	%		13.2	%		31.7	%		20.8	%		50.3	%

Acquiror:		Acquired Company:

Bank of the Ozarks, Inc.		Intervest Bancshares Corporation
RKJS Inc.		First Mariner Bank
WSFS Financial Corporation		First Wyoming Financial Corporation
Old Line Bancshares, Inc.		WSB Holdings, Inc.
Berkshire Hills Bancorp, Inc.		Beacon Federal Bancorp, Inc.
Beneficial Mutual Bancorp, Inc. (MHC)		SE Financial Corp.
Sandy Spring Bancorp, Inc.		CommerceFirst Bancorp, Inc.
Berkshire Hills Bancorp, Inc.		Connecticut Bank and Trust Company
Modern Capital Partners L.P.		Madison National Bancorp Inc.
Old Line Bancshares, Inc.		Maryland Bancorp, Inc.
F.N.B. Corporation		Comm Bancorp, Inc.
Liberty Bank		Connecticut River Community Bank
People’s United Financial, Inc.		Smithtown Bancorp, Inc.

	Colonial
	Financial /			Selected Transactions
	Cape Bancorp			25th									75th
	Merger			Percentile			Average			Median			Percentile
Transaction Price/ Tangible Book Value		0.88	x		0.89	x		1.03	x		1.11	x		1.15	x
Core Deposit Premium		(1.5	)%		(2.2	)%		1.3	%		2.2	%		3.0	%
Transaction Price/ LTM EPS		NM			17.9	x		29.3	x		25.3	x		39.8	x
One-Day Market Premium		12.0	%		24.3	%		39.0	%		33.0	%		56.5	%

Acquiror:		Acquired Company:

Community Bank Shares of Indiana, Inc.		First Financial Service Corporation
Ameris Bancorp		Coastal Bankshares, Inc.
RKJS Inc.		First Mariner Bank
HomeTrust Bancshares, Inc.		Jefferson Bancshares, Inc.
BNC Bancorp		Community First Financial Group, Inc.
Hanmi Financial Corporation		Central Bancorp, Inc.
Bank of Ozarks, Inc.		Bancshares, Inc.
Simmons First National Corporation		Metropolitan National Bank
Bond Street Holdings, Inc.		Great Florida Bank
CrossFirst Holdings, LLC		Tulsa National Bancshares, Inc.
Ameris Bancorp		Prosperity Banking Company
Bank of the Ozarks, Inc.		First National Bank of Shelby
Wintrust Financial Corporation		First Lansing Bancorp, Inc.
Central Valley Community Bancorp		Visalia Community Bank
SKBHC Holdings LLC		PremierWest Bancorp
Crescent Financial Bancshares, Inc.		ECB Bancorp, Inc.
Old Line Bancshares, Inc.		WSB Holdings, Inc.
Western Alliance Bancorporation		Western Liberty Bancorp.
SCBT Financial Corporation		Savannah Bancorp, Inc.
City Holding Company		Community Financial Corporation
SKBHC Holdings LLC		ICB Financial

Companies	City, State	Assets in millions		Ticker	Exchange

Bancorp of New Jersey, Inc.	Fort Lee, NJ	$	642.6	BKJ	NYSE MKT
Bay Bancorp, Inc.	Lutherville, MD		487.5	BYBK	NASDAQ
Berkshire Bancorp, Inc.	New York, NY		773.0	BERK	OTCQB
Community Bank of Bergen County, NJ	Maywood, NJ		288.6	CMTB	OTCQB
Emclaire Financial Corp.	Emlenton, PA		583.7	EMCF	NASDAQ
First Bank	Hamilton, NJ		610.7	FRBA	NASDAQ
Malvern Bancorp, Inc.	Paoli, PA		578.1	MLVF	NASDAQ
Prudential Bancorp, Inc.	Philadelphia, PA		512.0	PBIP	NASDAQ
Royal Bancshares of Pennsylvania, Inc.	Narberth, PA		727.2	RBPAA	NASDAQ
Sussex Bancorp	Rockaway, NJ		557.2	SBBX	NASDAQ
Two River Bancorp	Tinton Falls, NJ		765.7	TRCB	NASDAQ

Colonial Financial Services, Inc.	Vineland, NJ		550.7	COBK	NASDAQ

				Comparable Group
	Colonial Financial			25^th Percentile			Median			75^th Percentile		Average

Demographics
2014 Median Household Income⁽¹⁾	$	58,569		$	60,609		$	77,589		$	79,542	$	68,080
Projected Annualized Change in Median HHI (2014-2019)		7.16			3.45			6.04			6.75		5.55

Financial Comparison
Assets ($mil)		551			535			584			685		593
Cash/Deposits (%)		1.48			4.55			6.20			8.63		6.92
Gross Loans HFI (held-for investment)/Total Assets (%)		49.53			62.94			72.68			78.38		68.93
Gross Loans HFI/Deposits (%)		57.34			76.40			87.73			93.69		83.60
Noninterest Bearing Deposits/Total Deposits (%)		10.58			12.90			15.25			21.28		15.15
Wholesale Funding Ratio (%)⁽²⁾		2.01			1.94			4.83			7.88		5.41
Asset Growth Rate (%)		(11.98	)		(3.45	)		3.82			8.34		6.95
Loan Growth Rate (%)		(8.43	)		3.31			6.33			12.35		10.51
Deposit Growth Rate (%)		(9.80	)		(2.03	)		2.78			7.12		6.74
Tangible Equity/Tangible Assets (%)		11.45			8.63			9.06			12.97		11.77
Tangible Common Equity/Tangible Assets (%)		11.45			8.63			10.23			12.97		11.16
Adjusted Texas Ratio (%)⁽³⁾⁽⁴⁾		35.43			8.35			14.27			26.97		17.86
NPA ex. Performing TDRs/Total Assets (%)		2.87			0.87			1.32			1.93		1.39
Core ROAA (%)⁽⁵⁾		0.27			0.38			0.61			0.71		0.16
Core ROAE (%)⁽⁵⁾		2.36			1.86			5.22			7.77		2.35

Stock Pricing Comparison
Market Cap. ($mil)		49.6			47.7			59.2			68.3		63.8
Price/MRQ Core EPS (x)⁽⁶⁾		33.8			12.5			14.3			20.6		21.9
Price/LTM Core EPS (x)		33.8			12.4			16.1			26.9		23.0
Price/Book (%)		78.7			84.7			90.6			94.7		89.3
Price/Tangible Book (%)		78.7			89.8			94.8			96.4		93.3
Tangible Premium/Core Deposits (%)		NA			(2.1	)		(1.0	)		1.0		(0.7	)
LTM Dividend Payout Ratio (%)		NM			14.9			24.5			29.6		24.7
Dividend Yield (%)		NA			0.0			1.0			1.4		1.0
Avg Daily Volume (3 months)		1,794			2,666			5,827			9,724		9,704
Avg Daily Volume (1 Year)		1,989			3,173			5,139			8,131		8,174

Companies	City, State	Assets in billions		Ticker	Exchange

1^st Constitution Bancorp	Cranbury, NJ		0.99	FCCY	NASDAQ
ACNB Corporation	Gettysburg, PA		1.06	BYBK	NASDAQ
Ameriserv Financial, Inc.	Johnstown, PA		1.06	ASRV	NASDAQ
BCB Bancorp, Inc.	Bayonne, NJ		1.28	BCBP	NASDAQ
Citizens & Northern Corporation	Wellsboro, NJ		1.26	CZNC	NASDAQ
Clifton Bancorp Inc.	Clifton, NJ		1.23	CSBK	NASDAQ
Codorus Valley Bancorp, Inc.	York, PA		1.20	CVLY	NASDAQ
First United Corporation	Oakland, MD		1.33	FUNC	NASDAQ
Fox Chase Bancorp, Inc.	Hatboro, PA		1.11	FXCB	NASDAQ
Ocean Shore Holding Co.	Ocean City, NJ		1.01	OSHC	NASDAQ
Old Line Bancshares, Inc.	Bowie, MD		1.19	OLBK	NASDAQ
Oneida Financial Corp.	Oneida, NY		0.78	ONFC	NASDAQ
Orrstown Financial Services, Inc.	Shippensburg, PA		1.17	ORRF	NASDAQ
Penns Woods Bancorp, Inc.	Williamsport, PA		1.22	PWOD	NASDAQ
Republic First Bancorp, Inc.	Philadelphia, PA		1.07	FRBK	NASDAQ
Shore Bancshares, Inc.	Easton, MD		1.07	SHBI	NASDAQ
Two River Bancorp	Tinton Falls, NJ		0.77	TRCB	NASDAQ
Unity Bancorp, Inc.	Clinton, NJ		0.93	UNTY	NASDAQ

Cape Bancorp, Inc.	Cape May Court House, NJ		1.09	CBNJ	NASDAQ