Newbridge Bancorp (NBBC) 10-Q 2010 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended:

March 31, 2010

Commission File Number: 000-11448

NewBridge Bancorp

(Exact name of Registrant as specified in its Charter)

North Carolina (State of Incorporation)	56-1348147 (I.R.S. Employer Identification No.)
1501 Highwoods Boulevard, Suite 400 Greensboro, North Carolina (Address of principal executive offices)	27410 (Zip Code)

(336) 369-0900
(Registrant’s telephone number, including area code)

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

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

Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
		(Do not ckeck if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yeso Noþ

At May 12, 2010, 15,655,868 shares of the registrant’s common stock were outstanding.

NEWBRIDGE BANCORP

FORM 10-Q
TABLE OF CONTENTS

	Page
PART I Financial Information
Item 1 Financial Statements		3
Consolidated Balance Sheets March 31, 2010 and December 31, 2009		3
Consolidated Statements of Income Three Months Ended March 31, 2010 and 2009		4
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income Three Months Ended March 31, 2010 and 2009		5
Consolidated Statements of Cash Flows Three Months Ended March 31, 2010 and 2009		6
Notes to Consolidated Financial Statements		8
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3 Quantitative and Qualitative Disclosures About Market Risk		23
Item 4 Controls and Procedures		24
PART II Other Information
Item 1 Legal Proceedings		25
Item 1A Risk Factors		25
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 3 Defaults Upon Senior Securities		25
Item 4 Removed and Reserved		25
Item 5 Other Information		25
Item 6 Exhibits		27
EX-31.01
EX-31.02
EX-32.01

2

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

NewBridge Bancorp and Subsidiary

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	March 31
	2010			December 31
	(Unaudited)			2009
Assets
Cash and due from banks	$	30,100		$	29,674
Interest-bearing bank balances		24,095			15,166
Investment securities:
Held to maturity, market value $41,437 at March 31, 2010 and $20,487 at December 31, 2009		40,999			19,957
Available for sale		311,583			305,382
Loans held for sale		8,716			6,568
Loans		1,425,727			1,456,526
Less allowance for credit losses		(35,524	)		(35,843	)
Net loans		1,398,919			1,427,251
Premises and equipment		40,826			40,405
Real estate acquired in settlement of loans		29,316			27,337
Bank-owned life insurance		28,747			28,614
Deferred tax assets		25,676			26,022
Other assets		24,031			26,717
Total assets	$	1,954,292		$	1,946,526
Liabilities
Deposits:
Non-interest bearing	$	168,414		$	156,040
Savings, NOW and money market accounts		717,854			668,875
Certificates of deposit		658,985			674,395
Total deposits		1,545,253			1,499,310
Borrowings from the Federal Home Loan Bank		153,200			165,200
Other borrowings		73,774			99,374
Accrued expenses and other liabilities		17,333			18,038
Total liabilities		1,789,560			1,781,922
Shareholders’ Equity
Preferred stock, par value $.01 per share:
Authorized 10,000,000 shares; issued and outstanding (liquidation preference $1,000 per share) – 52,372 at March 31, 2010 and at December 31, 2009		51,265			51,190
Common stock, par value $5 per share:
Authorized 50,000,000 shares; issued and outstanding – 15,655,868 at March 31, 2010 and at December 31, 2009		78,279			78,279
Paid-in capital		86,989			86,969
Directors’ deferred compensation plan		(634	)		(634	)
Retained deficit		(52,834	)		(52,477	)
Accumulated other comprehensive income		1,667			1,277
Total shareholders’ equity		164,732			164,604
Total liabilities and shareholders’ equity	$	1,954,292		$	1,946,526

See notes to consolidated financial statements

3

NewBridge Bancorp and Subsidiary

Consolidated Statements of Income

(Unaudited; dollars in thousands, except per share data)

	Three Months Ended
	March 31
	2010			2009
Interest Income
Interest and fees on loans	$	19,430		$	22,080
Interest on investment securities:
Taxable		2,680			2,029
Tax exempt		1,119			1,195
Interest-bearing bank balances		11			33
Federal funds sold		10			34
Total interest income		23,250			25,371
Interest Expense
Deposits		4,302			9,568
Borrowings from the Federal Home Loan Bank		1,101			1,155
Other borrowings		609			672
Total interest expense		6,012			11,395
Net interest income		17,238			13,976
Provision for credit losses		3,723			8,518
Net interest income after provision for credit losses		13,515			5,458
Noninterest Income
Service charges on deposit accounts		1,865			2,075
Gains on sales of mortgage loans		214			194
Other		1,351			1,745
Total noninterest income		3,430			4,014
Noninterest Expense
Personnel		7,814			7,455
Occupancy		1,135			1,132
Furniture and equipment		1,182			1,308
FDIC insurance		900			767
Other		5,438			5,321
Total noninterest expense		16,469			15,983
Income (loss) before income taxes		476			(6,511	)
Income tax expense (benefit)		103			(2,933	)
Net Income (Loss)		373			(3,578	)
Dividends and accretion on preferred stock		(730	)		(730	)
Net Loss available to common shareholders	$	(357	)	$	(4,308	)
Earnings (loss) per share:
Basic	$	(0.02	)	$	(0.28	)
Diluted	$	(0.02	)	$	(0.28	)
Weighted average shares outstanding:
Basic		15,655,868			15,655,868
Diluted		15,655,868			15,655,868

See notes to consolidated financial statements

4

NewBridge Bancorp and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income

Three months ended March 31, 2010 and 2009
(Unaudited; Dollars in thousands)

									Directors’						Accumulated
									Deferred			Retained			Other			Total
	Preferred		Common Stock				Paid-in		Compensation			Earnings			Comprehensive			Shareholders’
	Stock		Shares		Amount		Capital		Plan			(Deficit)			Income (Loss)			Equity
Balances at December 31, 2008	$	50,891		15,655,868	$	78,279	$	86,852	$	(650	)	$	(34,427	)	$	(1,709	)	$	179,236
Net Loss													(3,578	)					(3,578	)
Change in unrealized gain on securities available for sale, net of deferred income taxes																(1,322	)		(1,322	)
Comprehensive income (loss)																			(4.900	)
Dividends and accretion on preferred stock		75											(730	)					(655	)
Stock-based compensation expense								30											30
Common stock distributed										16									16
Balances at March 31, 2009	$	50,966		15,655,868	$	78,279	$	86,882	$	(634	)	$	(38,735	)	$	(3,031	)	$	173,727
Balances at December 31, 2009	$	51,190		15,655,868	$	78,279	$	86,969	$	(634	)	$	(52,477	)	$	1,277		$	164,604
Net Income													373						373
Change in unrealized gain on securities available for sale, net of deferred income taxes																390			390
Comprehensive income (loss)																			763
Dividends and accretion on preferred stock		75											(730	)					(655	)
Stock-based compensation expense								20											20
Balances at March 31, 2010	$	51,265		15,655,868	$	78,279	$	86,989	$	(634	)	$	(52,834	)	$	1,667		$	164,732

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited; dollars in thousands)

	Three Months Ended
	March 31
	2010			2009
Cash Flow from operating activities
Net Income (Loss)	$	373		$	(3,578	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		1,626			1,874
Decrease in deferred income taxes		346			659
(Increase) decrease in income taxes receivable		2,728			(3,592	)
Increase in income earned but not received		(452	)		(267	)
Increase (decrease) in interest accrued but not paid		(228	)		54
Net increase in other assets		(8	)		(1,579	)
Net increase (decrease) in other liabilities		1,562			(433	)
Provision for credit losses		3,723			8,518
Gain on sale of loans held for sale		(214	)		(194	)
Originations of loans held for sale		(31,697	)		(36,385	)
Proceeds from sales of loans held for sale		29,763			28,501
Loss on sale of premises, equipment and real estate acquired in settlement of loans		593			233
Stock based compensation		20			30
Net cash provided by (used for) operating activities		8,135			(6,159	)
Cash Flow from investing activities
Purchases of securities available for sale		(21,149	)		(29,000	)
Purchases of securities held to maturity		(23,160	)		—
Proceeds from maturities of securities available for sale		18,281			11,317
Net (increase) decrease in loans made to customers		20,662			28,085
Proceeds from sale of premises, equipment and real estate acquired in settlement of loans		2,410			2,876
Expenditures for improvements to real estate acquired in settlement of loans, net of income received		42			(939	)
Purchases of premises and equipment		(1,515	)		(283	)
Net decrease in federal funds sold		—			6,425
Net cash provided by (used for) investing activities		(4,429	)		18,481
Cash Flow from financing activities
Net increase in demand deposits, NOW, money market and savings accounts		61,352			20,485
Net increase (decrease) in time deposits		(15,410	)		21,183
Net decrease in other borrowings		(27,638	)		(4,682	)
Net increase (decrease) in borrowings from Federal Home Loan Bank		(12,000	)		26,700
Dividends paid		(655	)		(458	)
Common stock distributed (acquired)		—			17
Net cash provided by financing activities		5,649			63,245
Increase in cash and cash equivalents		9,355			75,567
Cash and cash equivalents at the beginning of the period		44,840			45,817
Cash and cash equivalents at the end of the period	$	54,195		$	121,384

See notes to consolidated financial statements

6

NewBridge Bancorp and Subsidiary
Consolidated Statements of Cash Flows (continued)
(Unaudited; dollars in thousands)

	Three Months Ended
	March 31
	2010			2009
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest	$	6,240		$	11,341
Income Taxes		—			—
Supplemental disclosures of noncash transactions
Transfer of loans to real estate acquired in settlement of loans	$	5,872		$	5,429
Accretion on U.S. Treasury preferred stock		75			75
Unrealized gains/(losses) on securities available for sale:
Change in securities available for sale		1,184			(2,184	)
Change in deferred income taxes		(794	)		862
Change in shareholders’ equity		390			(1,322	)

See notes to consolidated financial statements

7

NewBridge Bancorp and Subsidiary

Notes to Consolidated Financial Statements
(Unaudited)

Note 1 — Basis of Presentation

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and provisions for credit losses considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

NewBridge Bancorp (“Bancorp” or the “Company”) is a bank holding company incorporated under the laws of North Carolina (“NC”) and registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancorp’s principal asset is stock of its banking subsidiary, NewBridge Bank (the “Bank”). Accordingly, throughout this Quarterly Report on Form 10-Q, there are frequent references to the Bank.

Through its branch network, the Bank provides a wide range of banking products to individuals, small to medium-sized businesses and other organizations in its market areas, including interest bearing and non-interest bearing checking accounts, certificates of deposit, individual retirement accounts, overdraft protection, personal and corporate trust services, safe deposit boxes, online banking, corporate cash management, brokerage, financial planning and asset management, mortgage loans and secured and unsecured loans.

As of March 31, 2010, the Bank operated four active non-bank subsidiaries: Peoples Finance Company of Lexington, Inc. (“Peoples Finance”), LSB Properties, Inc. (“LSB Properties”), Henry Properties, LLC (“Henry Properties”) and Prince George Court Holdings, Inc. (“Prince George”). Peoples Finance, a NC licensed finance company, with approximately $2.1 million of loans outstanding as of March 31, 2010, is no longer actively soliciting loans. LSB Properties, Henry Properties and Prince George together own the real estate acquired in settlement of loans of the Bank.

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the consolidated financial statements in Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2010 (SEC File No. 000-11448) (the “Annual Report”). This Quarterly Report should be read in conjunction with the Annual Report.

Note 2 — Net Income (Loss) Per Share

Basic and diluted net income (loss) per share is computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options or warrants were exercised, or restricted stock vested, resulting in the issuance of common stock sharing in the net income of the Company. No securities were dilutive during either of the periods presented, and therefore, basic and diluted income (loss) per share are identical for both periods presented.

8

	Three Months Ended
	March 31
	2010			2009
Basic and diluted:
Net loss available to common shareholders (in $000s)	$	(357	)	$	(4,308	)
Weighted average shares outstanding		15,655,868			15,655,868
Net loss per share, basic and diluted	$	(0.02	)	$	(0.28	)

Note 3 — Investment Securities

Investment securities consist of the following (in thousands):

	March 31, 2010 - Securities Held to Maturity
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
US government agency securities	$	23,160	$	16	$	(38	)	$	23,138
State and municipal obligations		17,839		480		(20	)		18,299
Total	$	40,999	$	496	$	(58	)	$	41,437

	March 31, 2010 - Securities Available for Sale
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
U.S. government agency securities	$	41,003	$	373	$	(5	)	$	41,371
Mortgage backed securities		72,455		4,463		—			76,918
State and municipal obligations		84,382		1,620		(1,542	)		84,460
Corporate bonds		49,167		2,137		—			51,304
Collateralized mortgage obligations		39,101		462		(121	)		39,442
Federal Home Loan Bank stock		11,639		—		—			11,639
Other equity securities		5,775		794		(120	)		6,449
Total	$	303,522	$	9,849	$	(1,788	)	$	311,583

	December 31, 2009 - Securities Held to Maturity
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
State and municipal obligations	$	19,957	$	550	$	(20	)	$	20,487

	December 31, 2009 - Securities Available for Sale
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
U.S. government agency securities	$	49,005	$	529	$	(15	)	$	49,519
Mortgage backed securities		77,430		4,260		—			81,690
State and municipal obligations		85,212		1,747		(1,452	)		85,507
Corporate bonds		33,978		1,626		—			35,604
Collateralized mortgage obligations		35,124		346		(102	)		35,368
Federal Home Loan Bank stock		11,414		—		—			11,414
Other equity securities		5,775		725		(220	)		6,280
Total available for sale	$	297,938	$	9,233	$	(1,789	)	$	305,382

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The following is a schedule of securities in a loss position as of March 31, 2010 (in thousands):

	Less than 1 year					1 Year or More					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. government agency securities	$	6,957	$	(43	)	$	—	$	—		$	6,957	$	(43	)
State and municipal obligations		24,880		(856	)		4,788		(706	)		29,668		(1,562	)
Collateralized mortgage obligations		15,821		(121	)		—		—			15,821		(121	)
Other equity securities		—		—			839		(120	)		839		(120	)
Total securities	$	47,658	$	(1,020	)	$	5,627	$	(826	)	$	53,285	$	(1,846	)

Investment securities with an amortized cost of $149,506,000 and $154,352,000, as of March 31, 2010, and December 31, 2009, respectively, were pledged to secure public deposits and for other purposes. The Bank has obtained $50,000,000 in letters of credit, which are used in lieu of securities to pledge against public deposits.

No investment securities were sold during the three months ended March 31, 2010 or 2009.

Note 4 — Loans and Allowance for Credit Loss

A summary of consolidated loans follows (in thousands):

	March 31		December 31
	2010		2009
Commercial	$	587,233	$	593,423
Real estate — construction		166,539		177,285
Real estate — mortgage		591,410		598,492
Consumer		68,521		75,469
Other		12,024		11,857
Total loans		1,425,727		1,456,526
Loans held for sale		8,716		6,568
Total loans and loans held for sale	$	1,434,443	$	1,463,094

Nonperforming assets are summarized as follows (in thousands):

	March 31			December 31
	2010			2009
Commercial nonaccrual loans, not restructured	$	42,869		$	46,788
Commercial nonaccrual loans, restructured		4,406			1,777
Non-commercial nonaccrual loans		4,566			4,772
Total nonaccrual loans		51,841			53,337
Troubled debt restructured, accruing		2,300			1,442
Accruing loans which are contractually past due 90 days or more		2,571			3,450
Total nonperforming loans		56,712			58,229
Real estate acquired in settlement of loans		29,316			27,337
Total nonperforming assets	$	86,028		$	85,566
Nonperforming loans to loans outstanding at end of period		3.95	%		3.98	%
Nonperforming assets to total assets at end of period		4.40	%		4.40	%
Allowance for credit losses to non-performing loans		62.64	%		61.56	%
Allowance for credit losses to non-performing loans, net of loans for which the full anticipated loss has been charged off		108.38	%		104.52	%

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Impaired loans and related information are summarized in the following tables (in thousands):

	March 31		December 31
	2010		2009
Loans specifically identified as impaired
Commercial and real estate	$	137,750	$	118,771
Consumer		3,898		6,183
Total	$	141,648	$	124,954
Allowance for credit losses associated with impaired loans	$	10,493	$	16,723
Previous writedowns on impaired loans	$	13,075	$	11,918

	Three Months Ended
	March 31
	2010		2009
Average balances of impaired loans	$	131,573	$	92,308
Interest income recorded for impaired loans	$	1,114	$	776

The Bank’s policy for impaired loan accounting subjects all significant loans to impairment recognition except for large groups of smaller balance homogeneous loans such as credit card, residential mortgage and consumer loans. The Bank generally considers loans 90 days or more past due and all nonaccrual loans to be impaired.

An analysis of the changes in the allowance for credit losses follows (in thousands):

	Three Months Ended
	March 31
	2010			2009
Balance, beginning of period	$	35,843		$	35,805
Provision for credit losses		3,723			8,518
Net charge-offs		(4,042	)		(3,289	)
Balance, end of period	$	35,524		$	41,034

Loans totaling $8,716,000 and $6,568,000, as of March 31, 2010 and December 31, 2009, respectively, were held for sale, and stated at the lower of cost or market on an individual basis.

Loans totaling $541,753,000 and $575,108,000, as of March 31, 2010 and December 31, 2009, respectively, were pledged to secure lines of the credit with the Federal Home Loan Bank and Federal Reserve Bank.

Note 5 — Recent Accounting Pronouncements

In June 2009 the Financial Accounting Standards Board (“FASB”) issued new guidance impacting “Transfers and Servicing”. The objective of this guidance is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. The Company’s adoption of this new guidance did not result in any material effect on the Company’s financial position or operating results.

In June 2009, the FASB issued new guidance impacting “Consolidation” of variable interest entities. The objective of this guidance is to improve financial reporting by enterprises involved with variable

11

interest entities and to provide more relevant and reliable information to users of financial statements. This guidance became effective on January 1, 2010. The Company’s adoption of this new guidance did not result in any material effect on the Company’s financial position or operating results.

Note 6 — Stock Compensation Plans

In accordance with GAAP, the Company recorded $20,000, or less than $0.01 per diluted share and $30,000, or less than $0.01 per diluted share, of total stock-based compensation expense for the three-month periods ended March 31, 2010 and March 31, 2009, respectively. The stock-based compensation expense is calculated on a ratable basis over the vesting periods of the related stock options or restricted stock grants and is reported under personnel expense. This expense had no impact on the Company’s reported cash flows. As of March 31, 2010, there was $149,000 of total unrecognized stock-based compensation expense. This expense will be fully recognized by March of 2013.

For purposes of determining estimated fair value of the stock options and restricted stock grants, the Company has computed the estimated fair values of all stock-based compensation using the Black-Scholes option pricing model and, for stock options and restricted stock grants granted prior to December 31, 2009, has applied the assumptions set forth in the Annual Report. During the first quarter of 2010, no stock options or restricted stock grants were granted to employees or directors.

Note 7 — Fair Value of Financial Instruments

The table below presents the assets measured at fair value on a recurring basis categorized by the level of inputs used in the valuation of each asset (in thousands):

	Quoted prices in active		Significant other		Significant
	markets for identical		observable		unobservable
	assets (Level 1)		inputs (Level 2)		inputs (Level 3)
Available for sale securities at March 31, 2010	$	215,484	$	84,460	$	—
Available for sale securities at December 31, 2009		219,875		85,507		—

The table below presents the assets measured at fair value on a non-recurring basis categorized by the level of inputs used in the valuation of each asset (in thousands):

	Quoted prices in active		Significant other		Significant
	markets for identical		observable		unobservable
	assets (Level 1)		inputs (Level 2)		inputs (Level 3)
Mortgage loans held for sale at March 31, 2010	$	—	$	8,716	$	—
Mortgage loans held for sale at December 31, 2009		—		6,568		—
Real estate acquired in settlement of loans at March 31, 2010		—		—		29,316
Real estate acquired in settlement of loans at December 31, 2009		—		—		27,337
Core deposit intangible at March 31, 2010		—		—		5,071
Core deposit intangible at March 31, 2010		—		—		5,252
Impaired loans net of allowance at March 31, 2010		—		—		131,155
Impaired loans net of allowance at December 31, 2009		—		—		108,231

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Note 8 — U.S. Treasury Capital Purchase Program

Pursuant to the U.S. Department of the Treasury (the “U.S. Treasury”) Capital Purchase Program (the “CPP”), on December 12, 2008, Bancorp issued and sold to the U.S. Treasury (i) 52,372 shares of Bancorp’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 2,567,255 shares of Bancorp’s common stock at an exercise price of $3.06 per share, for an aggregate purchase price of $52,372,000 in cash. The Warrant may be exercised by U.S. Treasury at any time before it expires on December 12, 2018. The fair value of the Warrant of $1,497,000 was estimated on the date of the grant using the Black-Scholes option-pricing model. The Series A Preferred Stock pays cumulative dividends of five percent for the first five years and nine percent thereafter, unless Bancorp redeems the shares.

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

The discussion presented herein is intended to provide an overview of the changes in financial condition and results of operations during the time periods required by Item 303 of Regulation S-K for NewBridge Bancorp (“Bancorp” or the “Company”) and its wholly-owned subsidiary NewBridge Bank (the “Bank”).

The consolidated financial statements also include the accounts and results of operations of the Bank’s wholly-owned subsidiaries. This discussion and analysis is intended to complement the unaudited financial statements, notes and supplemental financial data in this Quarterly Report on Form 10-Q, and should be read in conjunction therewith.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent expectations and beliefs of Bancorp including but not limited to Bancorp’s operations, performance, financial condition, growth or strategies. These forward-looking statements are identified by words such as “expects”, “anticipates”, “should”, “estimates”, “believes” and variations of these words and other similar statements. For this purpose, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results to differ materially from current projections depending on a variety of important factors, including without limitation: (1) recently enacted legislation, or legislation enacted in the future, or any proposed federal programs may subject Bancorp to increased regulation and may adversely affect Bancorp; (2) the strength of the United States economy generally, and the strength of the local economies in which Bancorp conducts operations, may be different than expected, resulting in, among other things, a continued deterioration in credit quality, including the resultant effect on Bancorp’s loan portfolio and allowance for credit losses; (3) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”); (4) inflation, deflation, interest rate, market and monetary fluctuations; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate and market liquidity conditions) and the impact of such conditions on Bancorp’s capital markets and capital management activities; (6) the timely development of competitive new products and services by Bancorp and the acceptance of these products and services by new and existing customers; (7) the willingness of customers to accept third party products marketed by Bancorp; (8) the willingness of customers to substitute competitors’ products and services for Bancorp’s products and services and vice versa; (9) the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking and securities); (10) technological changes; (11) changes in consumer spending and saving habits; (12) the effect of corporate restructurings, acquisitions and/or dispositions, and the failure to achieve the expected revenue growth and/or expense savings from such corporate restructurings, acquisitions and/or dispositions; (13) the current stresses in the financial and real estate markets, including possible continued deterioration in property values; (14) unanticipated regulatory or judicial proceedings; (15) the impact of changes in accounting policies by the Securities and Exchange Commission (the “SEC”); (16) adverse changes in financial performance and/or condition of Bancorp’s borrowers which could impact repayment of such borrowers’ outstanding loans; and (17) Bancorp’s success at managing the risks involved in the foregoing. Bancorp cautions that the foregoing list of important factors is not exhaustive. See also those risk factors identified in the section headed “Risk Factors”, beginning on page 13 of Bancorp’s Annual Report on Form 10-K for the fiscal year ended December  31, 2009, filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2010 (the “Annual Report”). Bancorp undertakes no obligation to update any forward-looking statement, whether written or oral, which may be made from time to time by or on behalf of Bancorp.

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Introduction

Bancorp is a bank holding company incorporated under the laws of North Carolina (“NC”) and registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancorp’s principal asset is the stock of its banking subsidiary, the Bank.

The Company’s results of operations are dependent primarily on the results of operations of the Bank and thus are dependent to a significant extent on net interest income, which is the difference between the income earned on the Bank’s loan and investment portfolios and cost of funds, consisting of interest paid on deposits and borrowings. Results of operations are also affected by the Company’s provision for credit losses, mortgage loan sales activities, service charges and other fee income, and noninterest expense. The Company’s noninterest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, professional fees, and advertising and business promotion expenses. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities.

Commercial banking in North Carolina and Virginia (“VA”) is extremely competitive, due in large part to intrastate and interstate branching laws. Currently, many of the Company’s competitors are significantly larger and have greater resources. The Company continues to encounter significant competition from a number of sources, including bank holding companies, financial holding companies, commercial banks, thrift institutions, credit unions and other financial institutions and financial intermediaries. The Company competes in its market areas with some of the largest banking organizations in the Southeast and nationally, several of which have numerous branches in NC and VA. The Company’s competition is not limited to financial institutions based in NC and VA. The enactment of federal legislation authorizing nationwide interstate banking has greatly increased the size and financial resources of some of the Company’s competitors. Consequently, many of its competitors have substantially higher lending limits due to their greater total capitalization, and many perform functions for their customers that the Company generally does not offer. The Company primarily relies on providing quality products and services at a competitive price within its market areas. As a result of interstate banking legislation, The Company’s market is open to future penetration by banks located in other states, provided that the other states also permit de novo branching and acquisitions by NC and VA banking institutions, thereby increasing competition.

The following discussion and analysis is presented on a consolidated basis and focuses on the major components of the Company’s operations and significant changes in its results of operations for the periods presented. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Annual Report.

Application of Critical Accounting Policies

The accounting and reporting policies of the Company and its subsidiary comply with accounting principles generally accepted in the United States and conform to standards within the banking industry. The preparation of the financial information contained in this Quarterly Report on Form 10-Q requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s management evaluates these estimates on an ongoing basis. A summary of the allowance for credit losses, one of the most complex and subjective accounting policies of the Company, is discussed under the heading"Asset Quality and Allowance for Credit losses.”

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Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Net Interest Income

The primary source of earnings for the Bank is net interest income, which represents the dollar amount by which interest generated from earning assets exceeds the cost of funds. Earning assets consist primarily of loans and investment securities and cost of funds is the interest paid on interest-bearing deposits and borrowed funds.

Net interest income for the first quarter of 2010, on a taxable equivalent basis, was $17.7 million, an increase of $3.3 million or 22.8%, from $14.5 million for the first quarter of 2009. This was primarily due to an increase in net interest margin. Average earning assets in the first quarter of 2010 decreased $145.9 million, or 7.4%, to $1.81 billion, compared to $1.96 billion in the first quarter of 2009. Average interest-bearing liabilities for the first quarter of 2010 decreased $152.2 million, or 8.6%, to $1.61 billion, compared to $1.76 billion for the first quarter of 2009.

The taxable-equivalent net interest margin for the first quarter of 2010 increased to 3.97%, compared to 2.99% for 2009, an increase of 98 basis points. The increase in net interest margin was due to the Company’s decision to shift its marketing and strategic focus away from higher cost time deposits and towards checking accounts and other core deposit relationships. In addition, during early 2009, the Company’s deposit prices were negatively impacted by irrational pricing pressures by competing financial institutions. The average yield on earning assets during the first quarter of 2010 was four basis points lower than the average yield on earning assets during the comparable period in 2009, while the average rate on interest-bearing liabilities decreased by 111 basis points during the same time period, which resulted in an increase in the interest rate spread in the first quarter of 2010 of 107 basis points compared to the first quarter of 2009. The following table provides an analysis of average volumes, yields and rates and net interest income on a tax-equivalent basis for the three months ended March 31, 2010 and 2009.

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(Fully taxable equivalent basis¹, in thousands)

	Three Months Ended								Three Months Ended
	March 31, 2010								March 31, 2009
				Interest		Annualized						Interest		Annualized
	Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield/Rate			Balance			Expense		Yield/Rate
Earning assets:
Loans receivable2	$	1,452,707		$	19,431		5.42	%	$	1,597,154		$	22,080		5.61	%
Taxable securities		224,486			2,672		4.83			170,395			2,029		4.83
Tax exempt securities		104,284			1,629		6.34			112,797			1,676		6.03
FHLB stock		11,627			8		0.27			11,103			4		0.15
Interest-bearing bank balances		21,450			20		0.39			29,043			29		0.40
Federal funds sold		—			—		—			39,971			34		0.34
Total earning assets		1,814,554			23,760		5.31			1,960,463			25,852		5.35
Non-earning assets:
Cash and due from banks		26,985								51,843
Premises and equipment		40,612								44,936
Other assets		108,799								92,229
Allowance for credit losses		(36,705	)							(37,026	)
Total assets	$	1,954,244		$	23,760				$	2,112,445		$	25,852
Interest-bearing liabilities:
Savings deposits	$	40,433		$	10		0.10	%	$	40,475		$	10		0.10	%
NOW deposits		290,123			588		0.82			176,581			145		0.33
Money market deposits		354,494			807		0.92			397,717			1,384		1.41
Time deposits		681,715			2,897		1.72			905,747			8,029		3.60
Other borrowings		90,346			609		2.73			76,199			672		3.58
Borrowings from Federal Home Loan Bank		153,811			1,101		2.90			166,410			1,155		2.81
Total interest-bearing liabilities		1,610,922			6,013		1.51			1,763,129			11,395		2.62
Other liabilities and shareholders’ equity:
Demand deposits		159,568								153,520
Other liabilities		19,185								18,915
Shareholders’ equity		164,569								176,881
Total liabilities and shareholders’ equity	$	1,954,244			6,013				$	2,112,445			11,395
Net interest income and net interest margin3				$	17,747		3.97	%				$	14,457		2.99	%
Interest rate spread4							3.80	%							2.73	%

1	Income related to securities exempt from federal income taxes is stated on a fully taxable-equivalent basis, assuming a federal income tax rate of 35%, and is then reduced by the non-deductible portion of interest expense. The adjustments made to convert to a fully taxable equivalent basis were $510 for 2010 and $481 for 2009.
2	The average loans receivable balances include non-accruing loans. Amortization of loan fees, net of deferred costs, of $268 and $447 for the three months ended March 31, 2010 and 2009, respectively, are included in interest income.
3	Net interest margin is computed by dividing net interest income by average earning assets.
4	Earning assets yield minus interest-bearing liability rate.

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Noninterest Income and Expense

In the first quarter of 2010, noninterest income decreased to $3.4 million, from $4.0 million during the same period in 2009. Service charge income decreased 10.1% to $1.9 million in the first quarter of 2010 from $2.1 million in the first quarter of 2009. Bankcard income decreased to $183,000 in the first quarter of 2010 from $561,000 in the first quarter of 2009, as a result of the Company’s sale of its merchant services portfolio in the third quarter of 2009.

In the first quarter of 2010, noninterest expense increased to $16.5 million from $16.0 million in the first quarter of 2009. Personnel expense increased to $7.8 million in the first quarter of 2010 from $7.5 million in the first quarter of 2009, primarily as a result of the addition of the employees of Bradford Mortgage Company. Real estate acquired in settlement of loans (“OREO”) writedowns increased from $45,000 in the first quarter of 2009 to $917,000 in the first quarter of 2010. This increase was partially offset by a decrease in bankcard expense as a result of the Company’s sale of its merchant services portfolio described above, as well as decreases in automated services expense, legal and professional fees, postage, and stationary expenses, achieved as a result of the Company’s implementation of a disciplined cost management culture.

The following table presents the details of Other Operating Income and Expense.

Other Noninterest Income and Expense (dollars in thousands)

	Three Months Ended
	March 31,						Percentage
	2010			2009			Variance
Other operating income:
Bankcard income	$	183		$	561			(67.4	)%
Fee income		987			895			10.3
Investment services commissions		380			256			48.6
Insurance commissions		20			16			25.0
Trust income		143			143			—
Loss on sale of real estate		(525	)		(227	)		131.1
Income on bank-owned life insurance		191			51			274.5
Other income		(28	)		50			(155.7	)
	$	1,351			1,745			(22.6	)
Other operating expenses:
Advertising	$	390		$	333			17.0	%
Automated services		1,154			1,481			(22.1	)
Bankcard expense		163			550			(70.3	)
Legal and professional fees		724			808			(10.4	)
Postage		211			251			(15.9	)
Stationery, printing and supplies		139			171			(18.6	)
OREO expense		332			151			120.1
OREO writedowns		917			45			1,937.3
Other expense		1,408			1,531			(7.9	)
	$	5,438		$	5,321			2.2

Asset Quality and Allowance for Credit losses

The Company’s allowance for credit losses is analyzed monthly by management. This analysis includes a methodology that segments the loan portfolio into homogeneous loan classifications and considers the current status of the portfolio, historical charge-off experience, current levels of delinquent, impaired and non-performing loans and their underlying collateral values, as well as economic and other risk factors. It is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology employed and other analytical

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measures in comparison to a group of peer banks. Management believes the allowance for credit losses is sufficient to absorb known risk in the portfolio. The Company, like many financial institutions, has recently and will likely continue to face a challenging credit environment in the coming months, as a result of the overall economic slowdown in the region and the nation. The majority of the Bank’s loan portfolio is comprised of loans secured by real estate, and is therefore subject to risk as a result of the weakening real estate market. No assurances can be given that future economic conditions will not adversely affect borrowers and result in increases in credit losses and non-performing asset levels.

The allowance for credit losses, which is utilized to absorb actual losses in the loan portfolio, is maintained at a level consistent with management’s best estimate of probable credit losses incurred as of the balance sheet date. Major loan portfolio subgroups include: risk graded commercial loans, mortgage loans, home equity loans, retail loans and retail credit lines. Management also analyzes the loan portfolio on an ongoing basis to evaluate current risk levels, and risk grades are adjusted accordingly. While management uses the best information to make evaluations, future adjustments may be needed if economic or other conditions differ substantially from the assumptions used.

At March 31, 2010, the allowance for credit losses was $35.5 million or 2.48% of loans outstanding compared to $35.8 million or 2.45% of loans outstanding at December 31, 2009, and $41.0 million or 2.60% of loans outstanding at March 31, 2009. At March 31, 2010, the allowance for credit losses was 62.64% of nonperforming loans compared to 61.56% at December 31, 2009 and 68.23% at March 31, 2009. The allowance for credit losses as a percentage of non-performing loans, net of non-performing loans for which the full anticipated loss has been charged off was 108.38% at March 31, 2010, compared to 104.52% at December 31, 2009 and 68.23% at March 31, 2009. Based on analysis of the current loan portfolio and levels of current problem assets and potential problem loans, management believes the allowance for credit losses to be adequate. Additional information regarding the allowance for credit losses is presented in the table headed “Asset Quality Analysis”, on the following page.

Nonperforming loans totaled $56.7 million at March 31, 2010, compared to $58.2 million at December 31, 2009 and $60.1 million at March 31, 2009. The decrease from the 2009 year end and from the prior year is primarily driven by decreases in non-accrual loans and, to a lesser extent, restructured loans. OREO was $29.3 million at March 31, 2010, $27.3 million at December 31, 2009, and $12.3 million at March 31, 2009. Restructured loans still accruing interest totaled $2.3 million at March 31, 2010, $1.4 million at December 31, 2009, and $3.9 million at March 31, 2009. Approximately $5.9 million was transferred from loans into OREO and approximately $3.9 million of such assets were disposed of during the first three months of 2010. A net loss of $525,000 has been recorded on disposition of OREO in the current year, compared to a net loss of $227,000 in the first quarter of 2009. The Company recorded $917,000 of writedowns of OREO during the first three months of 2010, compared to writedowns of $45,000 in the first quarter of 2009. Nonperforming assets (comprised of nonaccrual loans, restructured loans and OREO) totaled $86.0 million, or 4.40% of total assets, at March 31, 2010, compared to $85.6 million, or 4.40% of total assets, at December 31, 2009 and $72.5 million, or 3.39% of total assets, a year ago.

The provision for credit losses charged to operations for the three months ended March 31, 2010 totaled $3.7 million, compared to $8.5 million for the three months ended March 31, 2009. Net charge-offs for the three months ended March 31, 2010 were $4.0 million, or 1.13% of average loans outstanding on an annualized basis, compared to net charge-offs of $3.3 million, or 0.82% of average loans outstanding on an annualized basis, for the three months ended March 31, 2009.

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	Three Months Ended			Year Ended			Three Months Ended
Asset Quality Analysis	March 31			December 31			March 31
(Dollars in thousands)	2010			2009			2009
Allowance for credit losses:
Beginning balance	$	35,843		$	35,805		$	35,805
Provision for credit losses		3,723			35,749			8,518
Net charge-offs		(4,042	)		(35,711	)		(3,289	)
Ending balance	$	35,524		$	35,843		$	41,034
Nonperforming Assets:
Commercial nonaccrual loans, not restructured	$	42,869		$	46,788		$	43,919
Commercial nonaccrual loans, restructured		4,406			1,777			158
Non-commercial nonaccrual loans		4,566			4,772			9,103
Total nonaccrual loans		51,841			53,337			53,180
Troubled debt restructured, accruing		2,300			1,442			3,920
Loans 90 days or more past due and still accruing		2,571			3,450			3,038
Total non-performing loans		56,712			58,229			60,138
Real estate acquired in settlement of loans		29,316			27,337			12,345
Total nonperforming assets	$	86,028		$	85,566		$	72,483
Asset Quality Ratios:
Nonperforming loans to loans outstanding at end of period		3.95	%		3.98	%		3.82	%
Nonperforming assets to total assets at end of period		4.40			4.40			3.39
Allowance for credit losses as a percentage of loans outstanding at end of period		2.48			2.45			2.60
Allowance for credit losses to nonperforming loans		62.64			61.56			68.23
Allowance for credit losses to nonperforming loans, net of non-performing loans for which the full anticipated loss has been charged off		108.38			104.52			68.23
Net charge-offs as a percentage of average loans outstanding during the period		1.13	*		2.32			0.82	*

*  Denotes annualized

Income Taxes

The Company recorded an income tax expense of $103,000 for the first quarter of 2010, compared to an income tax benefit totaling $2.9 million for the first quarter of 2009. The change from a benefit for the first quarter of 2009, compared to an expense for the comparable period in 2010, is primarily the result of the change from a pre-tax loss in the first quarter of 2009 to pre-tax income in the comparable period in 2010. The Company’s effective tax rate was 21.6% for the three-month period ended March 31, 2010, compared to 45.0% for the first quarter of 2009. The change in the effective rate is primarily as a result of the change from a pre-tax loss in the first quarter of 2009 to income in the first quarter of 2010, and the effect of the tax exempt income.

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Risk Management

It is the design of risk management to ensure long-range profitability performance, minimize risk, adhere to proper liquidity and maintain sound capital. To meet these objectives, the process of asset/liability management monitors the exposure to interest rate risk, balance sheet trends, pricing policies and liquidity position. Reports regarding credit, asset/liability, market, and operational risks are regularly provided to the Bank’s Board of Directors.

Risk management practices include key elements such as independent checks and balances, formal authority limits, policies and procedures and portfolio management performed by experienced personnel.

Interest Rate Risk Management

Interest rate risk management is a part of the Bank’s overall asset/liability management process. The primary oversight of asset/liability management rests with the Bank’s Asset and Liability Committee, which is comprised of the Bank’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief Credit Officer (“CCO”), Investment Officer, and other senior executives. The Committee meets on a monthly basis to review the asset/liability management activities of the Bank and monitor compliance with established policies. Activities of the Asset and Liability Committee are reported to the Audit and Risk Management Committee of the Company’s Board of Directors.

A primary objective of interest rate sensitivity management is to ensure the stability and quality of the Company’s primary earnings component, net interest income. This process involves monitoring the Company’s balance sheet in order to determine the potential impact that changes in the interest rate environment may have on net interest income. Rate sensitive assets and liabilities have interest rates that are subject to change within a specific time period, due to either maturity or to contractual agreements which allow the instruments to reprice prior to maturity. Interest rate sensitivity management seeks to ensure that both assets and liabilities react to changes in interest rates within a similar time period, thereby minimizing the risk to net interest income.

The Bank utilizes a computer based interest rate risk simulation model prepared by an independent consultant. This comprehensive model includes rate sensitivity gap analysis, net interest income analysis, and present value of equity analysis, under various rate scenarios. The Bank uses this model to monitor interest rate risk on a quarterly basis and to detect trends that may affect the overall net interest income of the Bank. This simulation incorporates the dynamics of balance sheet and interest rate changes and calculates the related effect on net interest income. As a result, management believes that this analysis more accurately projects the risk to net interest income over the upcoming 12-month period. The Bank’s asset/liability policy provides guidance for levels of interest rate risk and potential remediations, if necessary, to mitigate excessive levels of risk. The modeling results indicate the Bank is subject to an acceptable level of interest rate risk. The Bank is not subject to other types of market risk, such as foreign currency exchange rate risk, commodity or equity price risk.

Liquidity Management

Liquidity management refers to the policies and practices that ensure the Bank has the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts of the Bank’s customers. Deposit withdrawals, loan funding and general corporate activity create the primary needs for liquidity for the Bank. Liquidity is derived from sources such as deposit growth; maturity, calls or sales of investment securities; principal and interest payments on loans; access to borrowed funds or lines of credit; and profits.

During the first three months of 2010, the Company had net cash provided by operating activities of $8.1 million, compared to $6.2 million of net cash used for operating activities in the first three months

21

of 2009. The change was primarily the result of the Company’s net income in 2010 compared to a net loss in 2009, as well as a $2.7 million decrease in income taxes receivable in the first quarter of 2010 and a $3.6 million increase in income taxes receivable during the first quarter of 2009.

Net cash used for investing activities for the first three months of 2010 was $4.4 million, compared to net cash provided by investing activities in the first three months of 2009 of $18.5 million. This change is primarily attributable to a $15.3 million increase in purchases of securities in 2010 compared to 2009, as well as a $6.4 million decrease in federal funds sold during the first quarter of 2009.

During the three months ended March 31, 2010, financing activities provided $5.6 million, compared to net cash provided by financing activities of $63.2 million during the same period of 2009. The change was primarily the result of a decrease in borrowings from the Federal Home Loan Bank (“FHLB”) of $12.0 million during the first quarter of 2010, compared to an increase in borrowings from the FHLB of $26.7 during the first quarter of 2009. In addition, during the first quarter of 2010, the Company decreased its other borrowings by $27.6 million, compared to a decrease of $4.7 million during the first quarter of 2009.

Cash and cash equivalents totaled $54.2 million at March 31, 2010, compared to $44.8 million at December 31, 2009 and $121.4 million at March 31, 2009.

The Bank has borrowing capacity of approximately $268.0 million with the FHLB, of which approximately $44.2 million was available at March 31, 2010. These borrowings are collateralized by FHLB stock, investment securities, qualifying 1 to 4 family residential mortgage loans, and qualifying commercial real estate loans. The Bank provides various reports to the FHLB on a regular basis to maintain the availability of the credit line. Each borrowing request to the FHLB is initiated through an advance application that is subject to approval by the FHLB before funds are advanced under the line of credit. The Bank also has $75.5 million of borrowing capacity through the Federal Reserve Bank System, of which none was used as of March 31, 2010. The line with the Federal Reserve Bank is collateralized using investment securities and qualified loans.

Capital Resources and Shareholders’ Equity

Pursuant to the U.S. Department of the Treasury (the “U.S. Treasury”) Capital Purchase Program (the “CPP”), on December 12, 2008, Bancorp issued and sold to the U.S. Treasury (i) 52,372 shares of Bancorp’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 2,567,255 shares of Bancorp’s common stock, par value $5.00 per share, for an aggregate purchase price of $52,372,000 in cash. The Securities Purchase Agreement, dated December 12, 2008, pursuant to which the securities issued to the U.S. Treasury under the CPP were sold, restricts Bancorp, without the prior approval of the U.S. Treasury, from increasing dividends payable on its common stock from the last quarterly cash dividend per share ($0.05) declared on the common stock prior to October 14, 2008, limits Bancorp’s ability to repurchase shares of its common stock (with certain exceptions, including the repurchase of its common stock to offset share dilution from equity-based compensation awards), grants the holders of the Series A Preferred Stock, the Warrant and the common stock of Bancorp to be issued under the Warrant, certain registration rights, and subjects Bancorp to certain of the executive compensation limitations included in the EESA, the ARRA and related regulations.

The Company’s stock repurchase program expired on May 31, 2009. Bancorp did not repurchase any shares under the stock repurchase program during 2009 or the first quarter of 2010.

Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The Commissioner of Banks in North Carolina, the Federal Reserve and the FDIC, which are the primary banking regulatory agencies for the Bank and the Company, have adopted minimum capital regulations

22

or guidelines that categorize components and the level of risk associated with various types of assets. Financial institutions are required to maintain a level of capital commensurate with the risk profile assigned to their assets in accordance with the guidelines.

As shown in the accompanying table, the Company and the Bank have capital levels exceeding the minimum levels for “well capitalized” banks and bank holding companies as of March 31, 2010.

	Regulatory Capital
	Well			Adequately
	Capitalized			Capitalized			Company			Bank
Total Capital		10.0	%		8.0	%		12.44	%		11.86	%
Tier 1 Capital		6.0			4.0			11.15			10.58
Leverage Capital		5.0			4.0			9.02			8.56

The Company holds $10.0 million of the $52.4 million received from the U.S. Treasury under the CPP, which may be invested in the Bank to increase the Bank’s total risk based capital ratio from the present level of 11.86%.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the possible chance of loss from unfavorable changes in market prices and rates. These changes may result in a reduction of current and future period net interest income, which is the favorable spread earned from the excess of interest income on interest-earning assets, over interest expense on interest-bearing liabilities.

The Company considers interest rate risk to be its most significant market risk, which could potentially have the greatest impact on operating earnings. The primary oversight of asset/liability management rests with the Bank’s Asset and Liability Committee. The Committee meets on a monthly basis to review the asset/liability management activities of the Bank and monitor compliance with established policies. Activities of the Asset and Liability Committee are reported to the Audit and Risk Management Committee of the Company’s Board of Directors.

The Company has not experienced any material changes in interest rate risk since the end of the fiscal year ended December 31, 2009.

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Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The Company’s management, including its CEO, CFO and Chief Accounting Officer (“CAO”) evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2010. Based upon that evaluation, the Company’s CEO, CFO and CAO each concluded that as of March 31, 2010, the end of the period covered by this Quarterly Report on Form 10-Q, the Company maintained effective disclosure controls and procedures.

Changes in internal control over financial reporting

There have been no changes to the Company’s internal controls over financial reporting that occurred during the fiscal quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     Not applicable.

Item 1A. Risk Factors

There have been no material changes to the Company’s Risk Factors as previously disclosed in Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

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

There were no sales of equity securities during the first quarter of 2010 which were not registered under the Securities Act of 1933, as amended. The Company did not repurchase any of its equity securities during the first quarter of 2010.

Item 3. Defaults Upon Senior Securities

     Not applicable.

Item 4. Removed and Reserved

Item 5. Other Information

     Item 5.07 Submission of Matters to a Vote of Security Holders

On May 12, 2010, at the Annual Meeting of the Company’s shareholders, a total of 12,072,433 shares, or 77.11 percent of the eligible voting shares, were voted. The following proposals were voted on by shareholders:

Proposal 1

To elect seventeen persons who will serve as members of the Board of Directors until the 2011 annual meeting of shareholders or until their successors are duly elected and qualified:

Nominee	For		Against or Withheld		Abstentions		Broker Non-Votes
Michael S. Albert		7,190,824		461,586		114,610		4,305,413
J. David Branch		7,245,454		387,343		134,223		4,305,413
C. Arnold Britt		7,166,532		443,970		156,518		4,305,413
Robert C. Clark		7,173,492		456,097		137,431		4,305,413
Alex A. Diffey, Jr.		7,152,694		451,810		162,516		4,305,413
Barry Z. Dodson		7,162,492		448,088		156,440		4,305,413
Joseph H. Kinnarney		7,159,625		441,113		166,282		4,305,413
Robert F. Lowe		7,082,489		602,054		82,477		4,305,413
Robert V. Perkins		7,127,669		476,087		163,264		4,305,413
Pressley A. Ridgill		7,161,421		424,572		181,027		4,305,413
Mary E. Rittling		7,262,325		390,851		113,844		4,305,413
Burr W. Sullivan		7,166,806		508,099		92,115		4,305,413
E. Reid Teague		7,190,129		409,183		167,708		4,305,413
John F. Watts		7,253,374		352,936		160,710		4,305,413
G. Alfred Webster		7,239,765		391,110		136,145		4,305,413
Kenan C. Wright		7,259,356		344,551		163,113		4,305,413
Julius S. Young		7,330,954		350,859		85,207		4,305,413

All of the above-named nominees were duly elected.

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Proposal 2

To ratify the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2010:

For	Against or Withheld		Abstentions		Broker Non-Votes
11,607,771		331,880		132,782		0

Proposal 3

To consider and approve an advisory (non-binding) proposal on executive compensation:

For	Against or Withheld		Abstentions		Broker Non-Votes
10,717,228		1,064,820		290,385		0

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Item 6. Exhibits

Exhibit
No.	Description
3.1	Articles of Incorporation, and amendments thereto, incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-8, filed with the SEC on May 16, 2001 (SEC File No. 333-61046).
3.2	Articles of Merger of FNB with and into LSB, including amendments to the Articles of Incorporation, as amended, incorporated by reference to Exhibit 3.4 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the SEC on November 9, 2007 (SEC File No. 000-11448).
3.3	Amended and Restated Bylaws adopted by the Board of Directors on August 17, 2004 and amended on July 23, 2008 (with identified Bylaw approved by the shareholders) incorporated by reference to Exhibit 3.3 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed with the SEC on May 8, 2009 (SEC File No. 000-11448).
4.1	Specimen certificate of common stock, $5.00 par value, incorporated by reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the SEC on November 9, 2007 (SEC File No. 000-11448).
4.2	Amended and Restated Trust Agreement, regarding Trust Preferred Securities, dated August 23, 2005, incorporated herein by reference to Exhibit 4.02 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC (SEC File No. 000-13086).
4.3	Guarantee Agreement, regarding Trust Preferred Securities, dated August 23, 2005, incorporated herein by reference to Exhibit 4.03 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC (SEC File No. 000-13086).
4.4	Indenture, regarding Trust Preferred Securities, dated August 23, 2005, incorporated herein by reference to Exhibit 4.04 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC (SEC File No. 000-13086).
4.5	Articles of Amendment, filed with the North Carolina Department of the Secretary of State on December 12, 2008, incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).
4.6	Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).
4.7	Warrant for Purchase of Shares of Common Stock issued by Bancorp to the United States Department of the Treasury on December 12, 2008, incorporated herein by reference to Exhibit 4.3 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).
10.1	Benefit Equivalency Plan of FNB Southeast, effective January 1, 1994 incorporated herein by reference to Exhibit 10 of the Quarterly Report on Form 10-QSB for the fiscal quarter ended June 30, 1995, filed with the SEC (SEC File No. 000-13086).
10.2	1994 Director Stock Option Plan, incorporated herein by reference to Exhibit 4 of the Registration Statement on Form S-8 filed with the SEC on July 15, 1994 (SEC File No. 33-81664).

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Exhibit
No.	Description
10.3	1996 Omnibus Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2 of the Annual Report on Form 10-K for the year ended December 31, 1995 filed with the SEC on March 28, 1996 (SEC File No. 000-11448).
10.4	Omnibus Equity Compensation Plan, incorporated herein by reference to Exhibit 10(B) of the Annual Report on Form 10-KSB40 for the fiscal year ended December 31, 1996, filed with the SEC on March 31, 1997 (SEC File No. 000-13086).
10.5	Amendment to Benefit Equivalency Plan of FNB Southeast, effective January 1, 1998., incorporated herein by reference to Exhibit 10.16 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed with the SEC on March 25, 1999 (SEC File No. 000-13086)
10.6	Amendment Number 1 to 1996 Omnibus Stock Incentive Plan, incorporated herein by reference to Exhibit 4.5 of the Registration Statement on Form S-8, filed with the SEC on May 16, 2001 (SEC File No. 333-61046).
10.7	Long Term Stock Incentive Plan for certain senior management employees of FNB Southeast incorporated herein by reference to Exhibit 10.10 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed with the SEC on March 27, 2003 (SEC File No. 000-13086).
10.8	Form of Employment Continuity Agreement effective as of January 1, 2004 between LSB and Robert E. Lineback, Jr. and Philip G. Gibson with a Schedule setting forth the material details in which such documents differ from the document a copy of which is filed, incorporated herein by reference to Exhibit 10.10 of the Annual Report on Form 10-K for the year ended December 31, 2003 filed with the SEC on March 15, 2004 (SEC File No. 000-11448).
10.9	Form of Stock Option Award Agreement for a Director adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on December 23, 2004 (SEC File No. 000-11448).
10.10	Form of Incentive Stock Option Award Agreement for an Employee adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on December 23, 2004 (SEC File No. 000-11448).
10.11	Form of Amendment to the applicable Grant Agreements under the 1996 Omnibus Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on April 15, 2005 (SEC File No. 000-11448).
10.12	Form of Amendment to the Incentive Stock Option Award Agreement for an Employee adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the SEC on April 15, 2005 (SEC File No. 000-11448).
10.13	Restated Form of Director Fee Deferral Agreement adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on December 23, 2005 (SEC File No. 000-11448).
10.14	Form of Stock Appreciation Rights Award Agreement adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC on December 23, 2005 (SEC File No. 000-11448).

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Exhibit
No.	Description
10.15	FNB Amended and Restated Directors Retirement Policy, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed with the SEC on August 3, 2007 (SEC File No. 000-11448).
10.16	Amendment to the FNB Directors and Senior Management Deferred Compensation Plan Trust Agreement among Regions Bank d/b/a/ Regions Morgan Keegan Trust, FNB Southeast and FNB, dated July 31, 2007, incorporated herein by reference to Exhibit 99.2 of the Current Report on Form 8-K, filed with the SEC on August 3, 2007 (SEC File No. 000-11448).
10.17	Employment and Change of Control Agreement with William W. Budd, Jr. incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed with the SEC on March 11, 2010 (SEC File No. 000-11448).
10.18	Employment and Change of Control Agreement with Jerry W. Beasley, incorporated herein by reference to Exhibit 99.3 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.19	Employment and Change of Control Agreement with Robin S. Hager, incorporated herein by reference to Exhibit 99.4 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.20	Employment and Change of Control Agreement with Paul McCombie, incorporated herein by reference to Exhibit 99.5 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.21	Directors and Senior Management Deferred Compensation Plan Trust Agreement between FNB Southeast and Morgan Trust Company, incorporated herein by reference to Exhibit 99.7 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.22	Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, incorporated herein by reference to Exhibit 99.9 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.23	First Amendment to the Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, incorporated herein by reference to Exhibit 99.10 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.24	Bancorp Amended and Restated Long Term Stock Incentive Plan, formerly the “FNB Long Term Stock Incentive Plan” (the “2006 Omnibus Plan”), incorporated herein by reference to Exhibit 10.27 of the Quarterly Report on Form 10-Q filed with the SEC on May 9, 2008 (SEC File No. 000-11448).
10.25	Amended and Restated Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.44 of the Quarterly Report on Form 10-Q, filed with the SEC on August 11, 2008 (SEC File No. 000-11448).
10.26	Form of Restricted Stock Award Agreement adopted under the Amended and Restated Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.45 of the Quarterly Report on Form 10-Q, filed with the SEC on August 11, 2008 (SEC File No. 000-11448).
10.27	Employment and Change of Control Agreement with David P. Barksdale, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed with the SEC on October 17, 2008 (SEC File No. 000-11448).

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Exhibit
No.	Description
10.28	Letter Agreement, dated December 12, 2008, between Bancorp and the United States Department of the Treasury, with respect to the issuance and sale of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A and the Warrant, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).
10.29	Form of Employment Agreement Amendment, dated December 12, 2008 among Bancorp, the Bank and the senior executive officers of Bancorp, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).
10.30	Bancorp Management Incentive Plan, dated February 18, 2008, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed with the SEC on March 6, 2009 (SEC File No. 000-11448).
10.31	Employment and Change of Control Agreement with Ramsey K. Hamadi, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed with the SEC on March 30, 2009 (SEC File No. 000-11448).
10.32	Promissory Note by Ramsey K. Hamadi in favor of the Bank incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed with the SEC on April 21, 2009 (SEC File No. 000-11448).
10.33	Excessive and Luxury Expenditure Policy of Bancorp and the Bank, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on September 9, 2009 (SEC File No. 000-11448).
10.34	Employment and Change of Control Agreement among Bancorp, the Bank and Pressley A. Ridgill, executed September 9, 2009, and effective January 1, 2010, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on September 11, 2009 (SEC File No. 000-11448).
10.35	Form of Amendment to Employment and Change of Control Agreement, dated September 16, 2009, among Bancorp, the Bank and the senior executive officers of Bancorp, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on September 16, 2009 (SEC File No. 000-11448).
31.01	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

Date: May 14, 2010	NEWBRIDGE BANCORP (Registrant)
	By:	/s/ Ramsey K. Hamadi
		Name:	Ramsey K. Hamadi
		Title:	Executive Vice President and Chief Financial Officer (Authorized Officer)

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EXHIBIT INDEX

Exhibit No.	Description
31.01	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32