Newbridge Bancorp (NBBC) 10-K 2010 FY Annual report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended: December 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 Blvd., Suite 400
Greensboro, North Carolina	27410
(Address of principal executive offices)	(Zip Code)

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

Securities Registered Pursuant to Section 12(g) of the Securities Exchange Act of 1934:

	Name of each exchange
Title of each class	on which registered
Common Stock, par value $5.00 per share	Nasdaq Global Select Market

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yeso Noþ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yeso Noþ

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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yesþ Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference to Part III of this Form 10-K or any amendment to this Form 10-K.þ

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 check 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

The aggregate market value of the Registrant’s voting and nonvoting common equity held by non-affiliates of the Registrant, based on the average bid and asked price of such common equity on the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $52.5 million. As of March 21, 2011 (the most recent practicable date), the Registrant had 15,655,868 shares of Common Stock outstanding.

Documents incorporated by reference — Portions of the Proxy Statement for the 2011 Annual Meeting of Shareholders of NewBridge Bancorp (the “Proxy Statement”) are incorporated by reference into Part III hereof.

The Exhibit Index begins on page 90.

NewBridge Bancorp
Annual Report on Form 10-K for the fiscal year ended December 31, 2010
Table of Contents

Index		Page
PART I
Item 1.	Business		4
Item 1A.	Risk Factors		14
Item 1B.	unresolved staff comments		24
Item 2.	Properties		25
Item 3.	Legal Proceedings		26
PART II
Item 5.	Market for Registrant’s Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities		27
Item 6.	Selected Financial Data		30
Item 7.	Management’s Discussion and Analysisof Financial Condition and Results of Operations		31
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		54
Item 8.	Financial Statements and Supplementary Data		58
Item 9.	Changes in and Disagreements with Accountantson Accounting and Financial Disclosure		87
Item 9A.	Controls and Procedures		87
Item 9B.	Other Information		87
PART III
Item 10.	Directors, Executive Officers And Corporate Governance		88
Item 11.	Executive Compensation		88
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		88
Item 13.	Certain Relationships and Related Transactions, and director independence		88
Item 14.	Principal Accountant Fees and Services		88
PART IV
Item 15.	Exhibits and Financial Statement Schedules		89
	Signatures		94
EX-21.01
EX-23.01
EX-31.01
EX-31.02
EX-32.01
EX-99.01
EX-99.02

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent expectations and beliefs of NewBridge Bancorp (hereinafter referred to as “Bancorp” or the “Company”) 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 Annual Report on Form 10-K 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:

• revenues are lower than expected;

• credit quality deterioration which could cause an increase in the provision for credit losses;

• competitive pressure among depository institutions increases significantly;

• changes in consumer spending, borrowings and savings habits;

• regulatory approval for paying dividends cannot be obtained

• technological changes and security and operations risks associated with the use of technology;

• the cost of additional capital is more than expected;

• a change in the interest rate environment reduces interest margins;

• asset/liability repricing risks, ineffective hedging and liquidity risks;

• counterparty risk;

• general economic conditions, particularly those affecting real estate values, either nationally or in the market areas in which we do or anticipate doing business, are less favorable than expected;

• the effects of the Federal Deposit Insurance Corporation (“FDIC”) deposit insurance premiums and assessments;

• the effects of and changes in monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board;

• volatility in the credit or equity markets and its effect on the general economy;

• demand for the products or services of the Company, as well as its ability to attract and retain qualified people;

• the costs and effects of legal, accounting and regulatory developments and compliance;

• regulatory approvals for acquisitions cannot be obtained on the terms expected or on the anticipated schedule; and

• the effects of the recent enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act; and the enactment of further regulations related to this Act.

Bancorp cautions that the foregoing list of important factors is not exhaustive. See also “Risk Factors” which begins on page 14. 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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PART I

Item 1. Business

General

Bancorp is a bank holding company incorporated under the laws of the State 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 Annual Report on Form 10-K, there are frequent references to the Bank. The principal executive offices of Bancorp and the Bank are located at 1501 Highwoods Boulevard, Suite 400, Greensboro, NC 27410. The telephone number is (336) 369-0900 and its website is www.newbridgebank.com. The Bank maintains operations facilities in Lexington and Reidsville, NC.

Bancorp is the successor entity to LSB Bancshares, Inc., which was incorporated on December 8, 1982 (“LSB”). On July 31, 2007, FNB Financial Services Corporation (“FNB”), a bank holding company, also incorporated in NC and registered under the BHCA, merged with and into LSB in a merger of equals (the “Merger”). LSB’s name was then changed to “NewBridge Bancorp”.

The Bank, a NC chartered non-member bank, is the successor entity to Lexington State Bank (“LSB Bank”), which was incorporated on July 5, 1949. As a result of the Merger, Bancorp acquired FNB Southeast, a NC chartered bank, the sole banking subsidiary of FNB. On November 12, 2007, FNB Southeast merged with and into LSB Bank (the “Bank Merger”) and the surviving bank changed its name to “NewBridge Bank”.

Business of Bank and Other Subsidiaries

Through its branch network, the Bank provides a wide range of banking products to small to medium-sized businesses and retail clients in its market areas, including interest bearing and noninterest bearing demand deposit accounts, certificates of deposits, individual retirement accounts, overdraft protection, personal and corporate trust services, safe deposit boxes, online banking, corporate cash management, brokerage, financial planning and asset management, and secured and unsecured loans. On December 31, 2009, the Bank expanded its mortgage production business through its acquisition of the assets of Bradford Mortgage Company, an established mortgage origination company operating principally in the Piedmont Triad Region of NC.

As of December 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 $0.9 million of loans outstanding as of December 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.

Bancorp has one non-bank subsidiary, FNB Financial Services Capital Trust I (“FNB Trust”), a Delaware statutory trust, formed to facilitate the issuance of trust preferred securities. Prior to the Merger, FNB Trust was a subsidiary of FNB. FNB Trust is not consolidated in Bancorp’s financial statements.

As part of its operations, Bancorp regularly holds discussions and evaluates the potential acquisition of, or merger with, various financial institutions and other businesses. Bancorp also regularly considers the potential disposition of certain assets, branches, subsidiaries, or lines of business. As a general rule, Bancorp only publicly announces any material acquisitions or dispositions once a definitive agreement has been reached.

Bancorp operates one reportable segment, the Bank. Reference is made to Item 8 — “Financial Statements and Supplementary Data”. Management believes that Bancorp is not dependent upon any single customer, or a few customers, the loss of any one or more of which would have a material adverse effect on Bancorp’s operations.

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Market Areas

The Bank’s primary market area is the Piedmont Triad Region of NC. On December 31, 2010, the Bank operated 31 branch offices, two commercial loan production offices and two mortgage loan production offices in its three markets: the Piedmont Triad Region and Coastal Region of NC and the Shenandoah Valley Region of Virginia (“VA”). The Bank also has one mortgage loan production office in Raleigh, NC and one in Charlotte, NC. The following table lists the Bank’s branch offices, categorized by region and city.

Piedmont Triad Region:	Piedmont Triad Region (continued):
Greensboro (five offices)	Midway
Lexington (three offices)	Thomasville
Reidsville(two offices)	Tyro
Winston-Salem (two offices)	Walkertown
Archdale	Wallburg
Clemmons	Welcome
Danbury
Eden	Coastal Region:
High Point	Wilmington (two offices)
Jamestown	Burgaw
Kernersville
King	Shenandoah Valley Region:
Madison	Harrisonburg1

¹  On December 21, 2010, the Bank announced it had entered into an agreement to sell its Harrisonburg, VA operations.

As of December 31, 2010, the Bank operated 27 branches and four loan production offices in the Piedmont Triad Region of North Carolina. The Piedmont Triad Region is a 12 county area, located in the rapidly growing interstate corridor between Charlotte, NC and the Research Triangle Park, and has a combined population of approximately 1.6 million people. The Piedmont Triad Region includes the cities of Greensboro, Winston-Salem and High Point, respectively the third, fourth and eighth largest cities in NC.

The Piedmont Triad Region economy, traditionally centered on the textile, furniture and tobacco industries, has transitioned to a more service-oriented economy; successfully diversifying into areas related to transportation, logistics, health care, education and technology. Benefiting the Piedmont Triad Region’s economy are decisions by FedEx to locate a national hub at Piedmont Triad International Airport (“PTIA”), and by Honda Aircraft Company to locate its world headquarters at PTIA.

In addition to its strategic proximity to key markets, the Piedmont Triad Region has a well defined transportation infrastructure, providing access to both global and national markets. Interstates I-40, I-85 and I-77 provide both North-South and East-West routes. In addition, local manufacturers and distribution hubs will have direct access to both Midwest markets and additional Southeast ports when Interstates I-73 and I-74, which will bisect the Piedmont Triad Region, are completed. Moreover, extensive rail services are offered by major carriers, Norfolk Southern, CSX and Amtrak as well as a number of short-line railroads.

The Piedmont Triad Region is home to numerous institutions of higher education, including Wake Forest University, Wake Forest University Medical Center, North Carolina School of the Arts, Salem College and Winston-Salem State University (Winston-Salem), High Point University (High Point), two members of the University of North Carolina system located in Greensboro; the University of North Carolina at Greensboro and a number of other well-respected private colleges, as well as many community colleges and technical schools. All are recognized for academic excellence and enhance the Piedmont Triad Region’s business development efforts, particularly in the field of biotechnology.

As of June 30, 2010, the Bank was the largest community bank in the Piedmont Triad Region, based on deposit market share.

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As of December 31, 2010, the Bank operated three branches in the Coastal Region, which includes Pender County and New Hanover County, located on the Southeast coast of NC. Wilmington is the county seat and industrial center of New Hanover County. A historic seaport and a popular tourist destination, Wilmington has diversified and developed into a major resort area, a busy sea port (one of NC’s two deep water ports), a light manufacturing center, a chemical manufacturing center and the distribution hub of southeastern NC. During the past 20 years, the Wilmington area has experienced extensive industrial development and growth in the service and trade sectors. Industries in the Wilmington region produce fiber optic cables for the communications industry; aircraft engine parts; pharmaceuticals; nuclear fuel components; and various textile products. The motion picture industry has a significant presence in the Wilmington area. Wilmington also serves as a regional retail center, a regional medical center and the home of the University of North Carolina at Wilmington.

The total population of New Hanover County is approximately 190,000. The County is served by Interstate 40 and U.S. Highways 17 and 74, major rail connections and national and regional airlines through facilities at the New Hanover International Airport, located near Wilmington.

As of December 31, 2010, the Bank operated one branch in its Shenandoah Valley Region, serving Rockingham County, VA. On December 21, 2010, the Bank announced it had entered into an agreement to sell its Virginia operations.

Management believes that unemployment data is the most significant indicator of the economic health of its market areas and monitors this data on a regular basis. As reflected in the table below, the unemployment rates in each of the Company’s market areas has increased substantially since the end of 2007. In addition to the unemployment rate increases, Coastal Region property values were substantially impacted by speculative real estate development. The table also shows non-performing loans as a percentage of total loans in each market as of December 31, 2010.

	Unemployment Rate						As of December 31, 2010
							Nonperforming				% of Total
	December 31						Loans		Total Loans		Loans
	2007	2008	2009	2010			(in thousands)
Piedmont Triad:
Guilford County	4.5%	8.3%	11.2%		10.1	%	$	6,473	$	275,978	2.35%
Davidson County	5.3	9.7	13.4		11.1			12,448		367,112	3.39
Rockingham County	5.7	10.1	12.6		12.1			2,577		90,239	2.86
Forsyth County	4.3	7.4	9.9		9.1			5,617		217,959	2.58
Coastal	3.9	7.5	9.7		8.9			17,340		187,730	9.24
Shenandoah Valley	2.4	4.2	5.5		5.4			1,004		104,653	0.96

The following table reflects the Bank’s loans, deposits and branch locations by region at December 31, 2010, and the Bank’s rank, by deposit market share as of June 30, 2010 (dollars in thousands):

					Number of		Deposit Market
Region	Loans(1)		Deposits		Branches		Share Rank(2)
Piedmont Triad	$	1,033,887	$	1,293,431		27		1
Coastal		194,388		102,945		3		5
Shenandoah Valley		32,310		56,619		1		4

(1)	Excludes loans held for sale.
(2)	Rank for community financial institutions; excludes banks greater than $10 billion in assets.

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Deposits

The Bank offers a variety of deposit products to small and medium-sized businesses and retail clients at interest rates generally competitive with local market conditions. The table below sets forth the mix of depository accounts at the Bank as a percentage of total deposits of the Bank at the dates indicated.

	As of December 31,
	2010			2009			2008
Noninterest-bearing demand		11.1	%		10.4	%		9.0	%
Savings, NOW, MMA		54.8			44.6			36.9
Certificates of deposit		34.1			45.0			54.1
		100.0	%		100.0	%		100.0	%

The Bank accepts deposits at its banking offices, all of which have automated teller machines (“ATMs”). Its memberships in multiple ATM networks allow customers access to their depository accounts from ATM facilities throughout the United States. Competitive fees are charged for the use of its ATM facilities by customers not having an account with the Bank. Deposit flows are controlled primarily through the pricing of deposits.

At December 31, 2010, the Bank had $247.2 million in certificates of deposit of $100,000 or more, which includes $83.6 million in certificates of deposit of $250,000 or more. The Bank is a member of an electronic network that allows it to post interest rates and attract certificates of deposit nationally. It also utilizes brokered deposits and deposits obtained through the Promontory InterFinancial Network, also known as CDARS, to supplement in-market deposits. The accompanying table presents the scheduled maturities of time deposits of $100,000 or more and $250,000 or more at December 31, 2010.

Scheduled maturity of time deposits	$100,000 or more		$250,000 or more
(In thousands)
Less than three months	$	124,886	$	43,844
Three through six months		53,904		25,047
Seven through twelve months		38,602		7,512
Over twelve months		29,762		6,012
Total	$	247,154	$	82,415

See also Note 7 in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Marketing

The Bank focuses its marketing efforts on small- to medium-sized businesses and retail clients, and on achieving certain strategic objectives, including increasing non-interest income and growing core deposits and loans. The Bank promotes its brand through its association with the Greensboro minor league baseball team and stadium (NewBridge Bank Park), traditional advertising and promotions, sponsorship of local events and other community-focused campaigns.

Competition

Commercial banking in North Carolina and Virginia is extremely competitive, due in large part to intrastate and interstate branching laws. Many of Bancorp’s competitors are significantly larger and have greater resources. Bancorp 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. Bancorp competes in its market areas with some of the largest banking organizations in the Southeast and nationally, almost all of which have numerous branches in NC and VA. Bancorp’s competition is not limited to financial institutions based in NC and VA. Many of its competitors have substantially higher lending limits due to their greater total capitalization, and many perform functions for their

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customers that Bancorp generally does not offer. Bancorp primarily relies on providing quality products and services at a competitive price within its market areas. As a result of interstate banking legislation, Bancorp’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.

In the Piedmont Triad Region, as of June 30, 2010, Bancorp competed with 31 commercial banks and savings institutions, as well as numerous credit unions. As of that date, Bancorp competed with 20 commercial banks and savings institutions, and several credit unions, in the Coastal Region and 16 commercial banks and several credit unions in the Shenandoah Valley Region.

Employees

At December 31, 2010, the Company had a total of 497 employees, including 481 full time employees, all of whom were compensated by the Bank or its subsidiaries. None of the Company’s employees are represented by a collective bargaining unit, and the Company has not recently experienced any type of strike or labor dispute. The Company considers its relationship with its employees to be good.

Supervision and Regulation

Bank holding companies and commercial banks are extensively regulated under both federal and state law. The following is a brief summary of certain statutes and rules and regulations that affect or will affect Bancorp, the Bank and the Bank’s subsidiaries. This summary is qualified in its entirety by reference to the particular statute and regulatory provisions referred to below, and is not intended to be an exhaustive description of the statutes or regulations applicable to the business of Bancorp and the Bank. Supervision, regulation and examination of Bancorp and the Bank by the regulatory agencies are intended primarily for the protection of depositors rather than shareholders of Bancorp. Statutes and regulations which contain wide-ranging proposals for altering the structures, regulations and competitive relationship of financial institutions are introduced regularly. Bancorp cannot predict whether, or in what form, any proposed statute or regulation will be adopted or the extent to which the business of Bancorp and the Bank may be affected by such statute or regulation.

General.There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the Federal Deposit Insurance Corporation (the “FDIC”) insurance fund in the event the depository institution becomes in danger of default or in default. For example, to avoid receivership of an insured depository institution subsidiary, a holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (i) an amount equal to 5% of the bank’s total assets at the time the bank became undercapitalized or (ii) the amount which is necessary (or would have been necessary) to bring the bank into compliance with all acceptable capital standards as of the time the bank fails to comply with such capital restoration plan. Bancorp, as a registered bank holding company, is subject to the regulation of the Board of Governors of the Federal Reserve System (“Federal Reserve”). Under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy. The Federal Reserve, under the BHCA, also has the authority to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the holding company.

As a result of Bancorp’s ownership of the Bank, Bancorp is also registered under the bank holding company laws of North Carolina. Accordingly, Bancorp is also subject to supervision and regulation by the North Carolina Commissioner of Banks (the “Commissioner”).

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.

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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, currently 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 Emergency Economic Stabilization Act of 2008 (“EESA”), the American Recovery and Reinvestment Act of 2009 (“ARRA”) and subsequent regulations issued by the U.S. Treasury.

Capital Adequacy Guidelines for Bank Holding Companies.The Federal Reserve has adopted capital adequacy guidelines for bank holding companies and banks that are members of the Federal Reserve System and have consolidated assets of $150 million or more. Bank holding companies subject to the Federal Reserve’s capital adequacy guidelines are required to comply with the Federal Reserve’s risk-based capital guidelines. Under these regulations, the minimum ratio of total capital to risk-weighted assets is 8%. At least half of the total capital is required to be “Tier I capital,” principally consisting of common stockholders’ equity, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock less certain goodwill items. The remainder (“Tier II capital”) may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, perpetual preferred stock and a limited amount of the general loan loss allowance. In addition to the risk-based capital guidelines, the Federal Reserve has adopted a minimum Tier I capital (leverage) ratio, under which a bank holding company must maintain a minimum level of Tier I capital to average total consolidated assets of at least 3% in the case of a bank holding company which has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a Tier I capital (leverage) ratio of at least 1% to 2% above the stated minimum. Bancorp exceeded all applicable minimum capital adequacy guidelines as of December 31, 2010.

Capital Requirements for the Bank.The Bank, as a NC commercial bank, is required to maintain a surplus account equal to 50% or more of its paid-in capital stock. As a FDIC insured commercial bank that is not a member of the Federal Reserve, the Bank is also subject to capital requirements imposed by the FDIC. Under the FDIC’s regulations, state nonmember banks that (a) receive the highest rating during the examination process and (b) are not anticipating or experiencing any significant growth, are required to maintain a minimum leverage ratio of 3% of total consolidated assets; all other banks are required to maintain a minimum ratio of 1% or 2% above the stated minimum, with a minimum leverage ratio of not less than 4%. The Bank exceeded all applicable minimum capital requirements as of December 31, 2010.

Dividend and Repurchase Limitations.Bancorp’s participation in the CPP limits our ability to repurchase shares of our common stock (with certain exceptions, including the repurchase of our common stock to offset share dilution from equity-based compensation awards), except with the prior approval of the U.S. Treasury. See “Supervision and Regulation—U.S. Treasury Capital Purchase Program.” Federal regulations provide that Bancorp must obtain Federal Reserve approval prior to repurchasing common stock for consideration in excess of 10% of its net worth during any 12-month period unless Bancorp (i) both before and after the redemption satisfies capital requirements for a “well capitalized” bank holding company; (ii) received a one or two rating in its last examination; and (iii) is not the subject of any unresolved supervisory issues. Additionally, Bancorp’s Board of Directors has resolved not to redeem any of Bancorp’s stock without the prior approval of The Federal Reserve Bank of Richmond (the “Federal Reserve Bank”).

The ability of Bancorp to pay dividends or repurchase shares is dependent upon Bancorp’s receipt of dividends from the Bank. NC commercial banks, such as the Bank, are subject to legal limitations on the amounts of dividends they are permitted to pay. NC commercial banks may only pay dividends from undivided profits,

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which are determined by deducting and charging certain items against actual profits, including any contributions to surplus required by NC law. The Bank is currently restricted from paying dividends to Bancorp unless it receives advance approval from the FDIC and the Commissioner. Also, an insured depository institution, such as the Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is defined in the applicable law and regulations).

During 2008, the Company first reduced its quarterly cash dividend, and later suspended the payment of cash dividends. As a result of the Company’s participation in the CPP, the Company currently requires prior approval of the U.S. Treasury to increase dividends payable on its common stock to more than the last quarterly cash dividend ($0.05 per share) declared prior to October 14, 2008. Additionally, Bancorp’s Board of Directors has resolved not to declare or pay any dividend, common or preferred, or make any payments on trust preferred securities without the prior approval of the Federal Reserve Bank.

Deposit Insurance Assessments.The Bank is subject to insurance assessments imposed by the FDIC. Under current law, the insurance assessment to be paid by members of the Deposit Insurance Fund, such as the Bank, is specified in a schedule required to be issued by the FDIC. In 2010, FDIC assessments for deposit insurance ranged from 12 to 50 basis points per $100 of insured deposits, depending on the institution’s capital position and other supervisory factors. During the first quarter of 2009, the FDIC instituted a one-time special assessment equal to 5 cents per $100 of domestic deposits on FDIC insured institutions, which resulted in an additional $970,000 in FDIC insurance expense for 2009. The assessment rate schedule can change from time to time at the discretion of the FDIC, subject to certain limits. On November 12, 2009, the FDIC adopted a rule requiring banks to prepay three years’ worth of estimated deposit insurance premiums by December 31, 2009. The FDIC exempted the Bank from this rule, and the Bank continues to pay premiums on a quarterly basis. On February 7, 2011, the FDIC adopted a new assessment formula, effective with the second quarter of 2011. The Bank expects its assessments will decline as a result.

Federal Home Loan Bank System.The Federal Home Loan Bank (“FHLB”) system provides a central credit facility for member institutions. As a member of the FHLB of Atlanta, the Bank is required to own capital stock in the FHLB of Atlanta in an amount at least equal to 0.20% of the Bank’s total assets at the end of each calendar year, plus 4.5% of its outstanding advances (borrowings) from the FHLB of Atlanta. At December 31, 2010, the Bank was in compliance with these requirements.

Community Reinvestment.Under the Community Reinvestment Act (“CRA”), as implemented by regulations of the FDIC, an insured institution has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop, consistent with the CRA, the types of products and services that it believes are best suited to its particular community. The CRA requires the federal banking regulators, in connection with their examinations of insured institutions, to assess the institutions’ records of meeting the credit needs of their communities, using the ratings “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance,” and to take that record into account in its evaluation of certain applications by those institutions. All institutions are required to make public disclosure of their CRA performance ratings. The Bank received a “satisfactory” rating in its last CRA examination, which was completed during June 2008.

Prompt Corrective Action.The FDIC has broad powers to take corrective action to resolve the problems of insured depository institutions. The extent of these powers will depend upon whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized”. Under the regulations, an institution is considered “well capitalized” if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater, and (iv) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” institution is defined as one that has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier I risk-based capital ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of an institution with the highest examination rating). An institution is

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considered (A) “undercapitalized” if it has (i) a total risk-based capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less than 4%, or (iii) a leverage ratio of less than 4% (or 3% in the case of an institution with the highest examination rating); (B) “significantly undercapitalized” if the institution has (i) a total risk-based capital ratio of less than 6%, (ii) a Tier I risk-based capital ratio of less than 3% or (iii) a leverage ratio of less than 3%; and (C) “critically undercapitalized” if the institution has a ratio of tangible equity to total assets equal to or less than 2%. At December 31, 2010, the Bank had the requisite capital levels to qualify as “well capitalized”.

Changes in Control.The BHCA prohibits Bancorp from acquiring direct or indirect control of more than 5% of the outstanding voting stock or substantially all of the assets of any bank or savings bank or merging or consolidating with another bank or financial holding company or savings bank holding company without prior approval of the Federal Reserve. Similarly, Federal Reserve approval (or, in certain cases, non-disapproval) must be obtained prior to any person acquiring control of Bancorp. Control is conclusively presumed to exist if, among other things, a person acquires more than 25% of any class of voting stock of Bancorp or controls in any manner the election of a majority of the directors of Bancorp. Control is presumed to exist if a person acquires more than 10% of any class of voting stock, the stock is registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”), and the acquiror will be the largest shareholder after the acquisition.

Federal Securities Law. Bancorp has registered its common stock with the SEC pursuant to Section 12(g) of the Exchange Act. As a result of such registration, the proxy and tender offer rules, insider trading reporting requirements, annual and periodic reporting and other requirements of the Exchange Act are applicable to Bancorp.

Transactions with Affiliates.Under current federal law, depository institutions are subject to the restrictions contained in Section 22(h) of the Federal Reserve Act with respect to loans to directors, executive officers and principal shareholders. Under Section 22(h), loans to directors, executive officers and shareholders who own more than 10% of a depository institution (18% in the case of institutions located in an area with less than 30,000 in population), and certain affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities, the institution’s loans to one borrower limit (as discussed below). Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers and shareholders who own more than 10% of an institution, and their respective affiliates, unless such loans are approved in advance by a majority of the board of directors of the institution. Any “interested” director may not participate in the voting. The FDIC has prescribed the loan amount (which includes all other outstanding loans to such person), as to which such prior board of director approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Further, pursuant to Section 22(h), the Federal Reserve requires that loans to directors, executive officers, and principal shareholders be made on terms substantially the same as offered in comparable transactions with non-executive employees of the Bank. The FDIC has imposed additional limits on the amount a bank can loan to an executive officer.

Loans to One Borrower.The Bank is subject to the loans to one borrower limits imposed by the Commissioner, which are substantially the same as those applicable to national banks. Under these limits, no loans and extensions of credit to any borrower outstanding at one time and not fully secured by readily marketable collateral shall exceed 15% of the unimpaired capital and unimpaired surplus of the Bank. At December 31, 2010, this limit was $31.6 million. Loans and extensions of credit fully secured by readily marketable collateral may comprise an additional 10% of unimpaired capital and unimpaired surplus, or $21.1 million.

Gramm-Leach-Bliley Act.The federal Gramm-Leach-Bliley Act, enacted in 1999 (the “GLB Act”), dramatically changed various federal laws governing the banking, securities and insurance industries. The GLB Act expanded opportunities for banks and bank holding companies to provide services and engage in other revenue-generating activities that previously were prohibited to them. In doing so, it increased competition in the financial services industry, presenting greater opportunities for our larger competitors, which were more able to expand their service and products than smaller, community-oriented financial institutions, such as the Bank.

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USA Patriot Act of 2001.The USA Patriot Act of 2001 was enacted in response to the terrorist attacks that occurred in New York, Pennsylvania and Washington, D.C. on September 11, 2001. The Act was intended to strengthen the ability of U.S. law enforcement and the intelligence community to work cohesively to combat terrorism on a variety of fronts. The impact of the Act on financial institutions of all kinds has been significant and wide ranging. The Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations, including standards for verifying customer identification at account opening, and rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

Sarbanes-Oxley Act of 2002.The Sarbanes-Oxley Act (“SOX”) was signed into law in 2002 and addresses accounting, corporate governance and disclosure issues. The impact of SOX is wide-ranging as it applies to all public companies and imposes significant requirements for public company governance and disclosure requirements.

In general, SOX established new corporate governance and financial reporting requirements intended to enhance the accuracy and transparency of public companies’ reported financial results. It established new responsibilities for corporate chief executive officers, chief financial officers and audit committees in the financial reporting process and created a new regulatory body to oversee auditors of public companies. It backed these requirements with new SEC enforcement tools, increased criminal penalties for federal mail, wire and securities fraud, and created new criminal penalties for document and record destruction in connection with federal investigations. It also increased the opportunity for more private litigation by lengthening the statute of limitations for securities fraud claims and providing new federal corporate whistleblower protection.

The economic and operational effects of SOX on public companies, including the Company, have been and will continue to be significant in terms of the time, resources and costs associated with compliance with its requirements.

Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act was intended primarily to overhaul the financial regulatory framework following the global financial crisis and will impact all financial institutions including Bancorp and the Bank. The Dodd-Frank Act contains provisions that will, among other things, establish a Bureau of Consumer Financial Protection, establish a systemic risk regulator, consolidate certain federal bank regulators and impose increased corporate governance and executive compensation requirements. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations and to prepare numerous studies and reports for the U.S. Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act are not yet known.

Limits on Rates Paid on Deposits and Brokered Deposits. FDIC regulations limit the ability of insured depository institutions to accept, renew or roll-over deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in such depository institution’s normal market area. Under these regulations, “well capitalized” depository institutions may accept, renew or roll-over such deposits without restriction, “adequately capitalized” depository institutions may accept, renew or roll-over such deposits with a waiver from the FDIC (subject to certain restrictions on payments of rates) and “undercapitalized” depository institutions may not accept, renew, or roll-over such deposits. Definitions of “well capitalized,” “adequately capitalized” and “undercapitalized” are the same as the definitions adopted by the FDIC to implement the prompt corrective action provisions discussed above.

Taxation.Federal Income Taxation. Financial institutions such as the Company are subject to the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), in the same general manner as other corporations. The Bank computes its bad debt deduction under the specific charge-off method.

State Taxation. Under NC law, the Bancorp and its subsidiaries are each subject to corporate income taxes at a 6.90% rate and an annual franchise tax at a rate of 0.15% of equity.

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Other.Additional regulations require annual examinations of all insured depository institutions by the appropriate federal banking agency, with some exceptions for small, well-capitalized institutions and state chartered institutions examined by state regulators, and establish operational and managerial, asset quality, earnings and stock valuation standards for insured depository institutions, as well as compensation standards.

The Bank is subject to examination by the FDIC and the Commissioner. In addition, it is subject to various other state and federal laws and regulations, including state usury laws, laws relating to fiduciaries, consumer credit, equal credit and fair credit reporting laws and laws relating to branch banking. The Bank, as an insured NC commercial bank, is prohibited from engaging as a principal in activities that are not permitted for national banks, unless (i) the FDIC determines that the activity would pose no significant risk to the Deposit Insurance Fund and (ii) the Bank is, and continues to be, in compliance with all applicable capital standards.

Future Requirements. Statutes and regulations, which contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions, are introduced regularly. Neither Bancorp nor the Bank can predict whether or what form any proposed statute or regulation will be adopted or the extent to which the business of Bancorp or the Bank may be affected by such statute or regulation.

Available Information

Bancorp makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports available free of charge on its internet websitewww.newbridgebank.com, as soon as reasonably practicable after the reports are electronically filed with the SEC. Any materials that Bancorp files with the SEC may be read and/or copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. These filings are also accessible on the SEC’s website atwww.sec.gov.

Additionally, Bancorp’s corporate governance policies, including the charters of the Audit and Risk Management, Compensation, and Corporate Governance and Nominating Committees, the Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Code of Business Conduct and Ethics for CEO and Senior Financial Officers may also be found under the“Investor Relations”section of Bancorp’s website. A written copy of the foregoing corporate governance policies is available upon written request to Bancorp.

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Item 1A. Risk Factors

An investment in Bancorp’s common stock is subject to risks inherent in Bancorp’s business. The material risks and uncertainties that management believes affect Bancorp are described below. Before making an investment decision, you should carefully consider these risks and uncertainties, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K. These risks and uncertainties are not the only ones facing Bancorp. Additional risks and uncertainties that management is not aware of or focused on, or that management currently deems immaterial may also impair Bancorp’s business operations. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, Bancorp’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of Bancorp’s common stock could decline significantly, and you could lose all or part of your investment.

Risks Related to Recent Economic Conditions and Governmental Response Efforts

Our business has been and may continue to be adversely affected by current conditions in the financial markets and economic conditions generally.The global, U.S. and North Carolina economies are continuing to experience significantly reduced business activity and consumer spending as a result of, among other factors, disruptions in the capital and credit markets that first occurred during 2008. Since 2008, dramatic declines in the housing market, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. A sustained weakness or weakening in business and economic conditions generally or specifically in the principal markets in which we do business could have one or more of the following adverse effects on our business:

• a decrease in the demand for loans or other products and services offered by us;

• a decrease in the value of our loans or other assets secured by consumer or commercial real estate;

• a decrease in deposit balances due to overall reductions in the accounts of customers;

• an impairment of certain intangible assets or investment securities;

• a decreased ability to raise additional capital on terms acceptable to us or at all; or

• an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs and provision for credit losses, which would reduce our earnings.

Until conditions improve, we expect our business, financial condition and results of operations to continue to be adversely affected.

Financial reform legislation recently enacted by Congress will result in new laws and regulations that are expected to increase our costs of operations.Congress recently enacted the Dodd-Frank Act. This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

Certain provisions of the Dodd-Frank Act are expected to have a near term effect on us. For example, effective one year after the date of enactment, is a provision that eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse effect on our interest expense.

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The Dodd-Frank Act also broadens the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012.

The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws.

It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs and could increase our interest expense.

Increases in FDIC insurance premiums may adversely affect Bancorp’s net income and profitability. Since 2008, higher levels of bank failures have dramatically increased resolution costs of the FDIC and depleted the deposit insurance fund. In addition, the FDIC instituted two temporary programs, to further insure customer deposits at FDIC insured banks: deposit accounts are now insured up to $250,000 per customer (up from $100,000), which in 2010 was made permanent, and noninterest-bearing transactional accounts are currently fully insured (unlimited coverage). These programs have placed additional stress on the deposit insurance fund. In order to maintain a strong funding position and restore reserve ratios of the deposit insurance fund, the FDIC has increased assessment rates of insured institutions. In addition, on November 12, 2009, the FDIC adopted a rule requiring banks to prepay three years’ worth of estimated deposit insurance premiums by December 31, 2009. The FDIC exempted the Bank from this prepayment requirement, and the Bank continues to pay these premiums on a quarterly basis. Bancorp is generally unable to control the amount of premiums that the Bank is required to pay for FDIC insurance. If there are additional bank or financial institution failures, or the cost of resolving prior failures exceeds expectations, the Bank may be required to pay higher FDIC premiums than those currently in force. Any future increases or required prepayments of FDIC insurance premiums may adversely impact Bancorp’s earnings and financial condition.

The capital and credit markets have experienced unprecedented levels of volatility.During the economic downturn, the capital and credit markets experienced extended volatility and disruption. In some cases, the markets produced downward pressure on financial institution stock prices and credit capacity for certain issuers without regard to those issuers’ underlying financial strength. If these levels of market disruption and volatility continue, worsen or abate and then arise at a later date, Bancorp’s ability to access capital could be materially impaired. Bancorp’s inability to access the capital markets could constrain the Bank’s ability to make new loans, to meet the Bank’s existing lending commitments and, ultimately jeopardize the Bank’s overall liquidity and capitalization.

Additional requirements under our regulatory framework, especially those imposed under ARRA, EESA or other legislation or regulations intended to strengthen the U.S. financial system, could adversely affect us.Recent government efforts to strengthen the U.S. financial system, including the implementation of ARRA,

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EESA, the TLGP and special assessments imposed by the FDIC, subject participants to additional regulatory fees and requirements, including corporate governance requirements, executive compensation restrictions, restrictions on declaring or paying dividends, restrictions on share repurchases, limits on executive compensation tax deductions and prohibitions against golden parachute payments. These requirements, and any other requirements that may be subsequently imposed, may have a material and adverse affect on our business, financial condition, and results of operations.

Our participation in the CPP imposes restrictions and obligations on us that limit our ability to increase dividends, repurchase shares of our common stock and access the capital markets.On December 12, 2008, we issued and sold (i) 52,372 shares of Series A Preferred Stock and (ii) a Warrant to purchase 2,567,255 shares of Bancorp’s common stock, par value $5.00 per share, to the U.S. Treasury as part of its CPP. Prior to December 12, 2011, unless we have redeemed all of the Series A Preferred Stock or the U.S. Treasury has transferred all of the Series A Preferred Stock to a third party, the Securities Purchase Agreement pursuant to which such securities were sold, among other things, limits the payment of dividends on our common stock to a maximum quarterly dividend of $0.05 per share without prior regulatory approval, limits our ability to repurchase shares of our common stock (with certain exceptions, including the repurchase of our common stock to offset share dilution from equity-based compensation awards), and grants the holders of such securities certain registration rights which, in certain circumstances, impose lock-up periods during which we would be unable to issue equity securities. In addition, unless we are able to redeem the Series A Preferred Stock during the first five years, the dividends on this capital will increase substantially at that point, from 5% to 9%. Depending on market conditions at the time, this increase in dividends could significantly impact our liquidity.

The limitations on incentive compensation contained in the ARRA and subsequent regulations may adversely affect our ability to retain our highest performing employees.In the case of a company such as Bancorp that received CPP funds, the ARRA, and subsequent regulations issued by the U.S. Treasury, contain restrictions on bonus and other incentive compensation payable to the company’s senior executive officers. As a consequence, we may be unable to create a compensation structure that permits us to retain our highest performing employees and attract new employees of a high caliber. If this were to occur, our businesses and results of operations could be adversely affected.

The soundness of other financial institutions could adversely affect us.Since mid-2007, the financial services industry as a whole, as well as the securities markets generally, have been materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. Financial institutions in particular have been subject to increased volatility and an overall loss in investor confidence.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, and other institutional clients.

From time to time, we may utilize derivative financial instruments, primarily to hedge our exposure to changes in interest rates, but also to hedge cash flow. By entering into these transactions and derivative instrument contracts, we expose ourselves to counterparty credit risk in the event of default of our counterparty or client. When the fair value of a derivative contract is in an asset position, the counterparty has a liability to us, which creates credit risk for us. We attempt to minimize this risk by selecting counterparties with investment grade credit ratings, limiting our exposure to any single counterparty and regularly monitoring our market position with each counterparty. Nonetheless, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan due us. There is no assurance that any such losses would not materially and adversely affect our businesses, financial condition or results of operations.

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Market developments may adversely affect our industry, business and results of operations. Significant declines in the housing market, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by many financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Bancorp has experienced significant challenges, its credit quality has deteriorated and its net income and results of operations have been adversely impacted. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers including other financial institutions. Although to date Bancorp and the Bank remain “well capitalized,” and have performed better than many of their peers, we are part of the financial system and a systemic lack of available credit, a lack of confidence in the financial sector, increased volatility in the financial markets and/or reduced business activity could materially adversely affect our business, financial condition and results of operations.

Risks Associated with Our Business

We rely on dividends from the Bank for most of our revenue.Bancorp is a separate and distinct legal entity from the Bank. Bancorp receives substantially all of its revenue from dividends received from the Bank. These dividends are the principal source of funds to pay dividends on Bancorp’s common and preferred stock, and interest and principal on its outstanding debt securities. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to Bancorp. The Bank is currently restricted from paying dividends to Bancorp unless it receives advance approval from the FDIC and the Commissioner. In the event the Bank is unable to pay dividends to Bancorp, Bancorp may not be able to service debt, pay obligations, or pay dividends on Bancorp’s common stock. The inability to receive dividends from the Bank could have a material adverse effect on Bancorp’s business, financial condition and results of operations. See Item 1 “Business — Supervision and Regulation” and Note 19 of the Notes to the Consolidated Financial Statements.

The Bank is exposed to risks in connection with the loans it makes.A significant source of risk for Bancorp and the Bank arises from the possibility that losses will be sustained by the Bank because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. Losses from such failures have materially impacted the Bank’s operating results during the past 3 years. The Bank has underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for loan losses, that it believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying its loan portfolio. Such policies and procedures, however, can not fully prevent unexpected losses that could adversely affect the Bank’s results of operations.

Our allowance for loan losses may be insufficient.All borrowers carry the potential to default and our remedies to recover (seizure and/or sale of collateral, legal actions, guarantees, etc.) may not fully satisfy money previously lent. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan losses reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political, and regulatory conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge offs, based on judgments different than those of management. An increase in the allowance for loan losses results in a decrease in net income, and possibly risk-based capital, and may have a material adverse effect on our financial condition and results of operations.

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If the value of real estate in the markets we serve were to further decline, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on us.At December 31, 2010, our loans secured by real estate totaled $1.07 billion, or 84.8% of total loans (excluding loans held for sale). With these loans concentrated within our three markets, the Piedmont Triad Region, Coastal Region and Shenandoah Valley Region, a further decline in local economic conditions in these markets could adversely affect the value of the real estate collateral securing our loans. A further decline in property values would diminish our ability to recover on defaulted loans by selling the real estate collateral, making it more likely that we would suffer losses on defaulted loans. See Allocation of Allowance for Credit Losses in the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion related to the Bank’s process for determining the appropriate level of the allowance for possible credit losses. Additionally, a decrease in asset quality could require additions to our allowance for loan losses through increased provisions for loan losses, which would negatively impact our profits. Also, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of financial institutions whose real estate loan portfolios are more geographically diverse. Real estate values are affected by various factors in addition to local economic conditions, including, among other things, changes in general or regional economic conditions, governmental rules or policies, and natural disasters.

Our commercial real estate lending may expose us to risk of loss and hurt our earnings and profitability.We regularly make loans secured by commercial real estate. These types of loans generally have higher risk-adjusted returns and shorter maturities than traditional one-to-four family residential mortgage loans. Further, loans secured by commercial real estate properties are generally for larger amounts and involve a greater degree of risk than one to four family residential mortgage loans. Payments on loans secured by these properties are often dependent on the income produced by the underlying properties which, in turn, depends on the successful operation and management of the properties. Accordingly, repayment of these loans is subject to adverse conditions in the real estate market or the local economy. Because of the current general economic slowdown, these loans represent higher risk, could result in an increase in our total net-charge offs and could require us to increase our allowance for loan losses, which could have a material adverse effect on our financial condition or results of operations. At December 31, 2010, our loans secured by commercial real estate totaled $382.0 million, which represented 30.3% of total loans (excluding loans held for sale). For the year ended December 31, 2010, we had net charge-offs of loans secured by commercial real estate of $2.5 million, a decrease of $4.7 million when compared to the same year-ago period. While we seek to minimize these risks in a variety of ways, there can be no assurance that these measures will protect against credit-related losses.

Our construction loans and land development loans involve a higher degree of risk than other segments of our loan portfolio.A portion of our loan portfolio is comprised of construction loans and land development loans. Construction financing typically involves a higher degree of credit risk than commercial real estate lending. Risk of loss on a construction loan is largely dependent upon the accuracy of the initial estimate of the property’s value at completion of construction and the bid price and estimated cost (including interest) of construction. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of the value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project whose value is insufficient to assure full repayment. When lending to builders, the cost of construction breakdown is provided by the builder, as well as supported by the appraisal. Although our underwriting criteria are designed to evaluate and minimize the risks of each construction loan, there can be no guarantee that these practices will safeguard against material delinquencies and losses to our operations. Construction and land development loans are dependent on the successful completion of the projects they finance, however, in many cases such construction and development projects in our primary market areas are not being completed in a timely manner, if at all. At December 31, 2010, we had loans of $139.1 million, or 11.0% of total loans (excluding loans held for sale), outstanding to finance construction and land development. For the year ended December 31, 2010 we had net charge-offs of construction and land development loans of $5.3 million, a decrease of $6.3 million when compared to the same year-ago period.

Our lending on unimproved land may expose us to a greater risk of loss and may have an adverse effect on results of operations.A portion of our construction and land development lending is secured by unimproved land. Loans secured by unimproved land are generally more risky than loans secured by improved property for

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one to four family residential mortgage loans. Since unimproved land is generally held by the borrower for investment purposes or future use, payments on loans secured by unimproved land will typically rank lower in priority to the borrower than a loan the borrower may have on their primary residence or business. These loans are susceptible to adverse conditions in the real estate market and local economy. At December 31, 2010, loans secured by unimproved property totaled $36.5 million, or 2.9% of our loan portfolio (excluding loans held for sale).

If our investment in the common stock of the FHLB of Atlanta is classified as other-than-temporarily impaired or as permanently impaired, our earnings and stockholders’ equity could decrease.We own common stock of the FHLB of Atlanta. We hold this stock to qualify for membership in the FHLB System and to be eligible to borrow funds under the FHLB of Atlanta’s advance program. The aggregate cost and fair value of our FHLB of Atlanta common stock as of December 31, 2010 was $10.4 million based on its par value. There is no market for our FHLB of Atlanta common stock.

Published reports indicate that certain member banks of the FHLB System may be subject to accounting rules and asset quality risks that could result in materially lower regulatory capital levels. In an extreme situation, it is possible that the capital of an FHLB, including the FHLB of Atlanta, could be substantially diminished or reduced to zero. Consequently, we believe that there is a risk that our investment in FHLB of Atlanta common stock could be impaired at some time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the after-tax amount of the impairment charge.

If the Bank loses key employees with significant business contacts in its market areas, its business may suffer.The Bank’s success is largely dependent on the personal contacts of our officers and employees in its market areas. If the Bank loses key employees temporarily or permanently, this could have a material adverse effect on the business. The Bank could be particularly affected if its key employees go to work for competitors. The Bank’s future success depends on the continued contributions of its existing senior management personnel, many of whom have significant local experience and contacts in its market areas. The Bank has employment agreements or non-competition agreements with several of its senior and executive officers in an attempt to partially mitigate this risk.

Bancorp’s growth strategy may not be successful.As a strategy, Bancorp seeks to increase the size of its franchise by pursuing business development opportunities. Bancorp can provide no assurance that it will be successful in increasing the volume of Bancorp’s loans and deposits at acceptable risk levels and upon acceptable terms, expanding its asset base while managing the costs and implementation risks associated with this growth strategy. There can be no assurance that any expansion will be profitable or that Bancorp will be able to sustain its growth, either through internal growth or through successful expansions of its banking markets, or that Bancorp will be able to maintain sufficient levels of capital to support its continued growth. If further deterioration of the Bank’s credit quality should occur, the need to preserve capital levels above the minimum to be deemed “well capitalized” could further restrict the Bank’s ability to pursue a growth strategy.

The Bank is subject to interest rate risk.The Bank’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and investment securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond the Bank’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest the Bank receives on loans and investment securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) the Bank’s ability to originate loans and obtain deposits, (ii) the fair value of the Bank’s financial assets and liabilities, and (iii) the average duration of certain of the Bank’s interest-rate sensitive assets and liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Bank’s net interest income and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. In addition, there are costs associated with the Bank’s risk management techniques, and these costs could be material. Fluctuations in interest rates are not predictable or controllable and, therefore, there

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can be no assurances of the Bank’s ability to continue to maintain a consistent, positive spread between the interest earned on the Bank’s earning assets and the interest paid on the Bank’s interest-bearing liabilities. See Item 7A Quantitative and Qualitative Disclosures about Market Risk for further discussion related to Bancorp’s management of interest rate risk.

We may face increasing deposit-pricing pressures, which may, among other things, reduce our profitability.Checking and savings account balances and other forms of deposits can decrease when our deposit customers perceive alternative investments, such as the stock market or other non-depository investments, as providing superior expected returns or seek to spread their deposits over several banks to maximize FDIC insurance coverage. Furthermore, technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments, including products offered by other financial institutions or non-bank service providers. Additional increases in short-term interest rates could increase transfers of deposits to higher yielding deposits. Efforts and initiatives we undertake to retain and increase deposits, including deposit pricing, can increase our costs. When bank customers move money out of bank deposits in favor of alternative investments or into higher yielding deposits, or spread their accounts over several banks, we can lose a relatively inexpensive source of funds, thus increasing our funding costs.

Bancorp’s operating results and financial condition would likely suffer if there is a further deterioration in the general economic condition of the areas in which the Bank does business. Unlike larger national or other regional banks that are more geographically diversified, the Bank primarily provides services to customers located in the Piedmont Triad Region and Coastal Region in NC and the Shenandoah Valley Region in VA. Because the Bank’s lending and deposit-gathering activities are concentrated in these markets, particularly the Piedmont Triad Region, the Bank will be affected by the business activity, population, income levels, deposits and real estate activity in these markets. Adverse developments in local industries have had and could continue to have a negative affect on the Bank’s financial condition and results of operations. Even though the Bank’s customers’ business and financial interest may extend well beyond these market areas, adverse economic conditions that affect these market areas could reduce the Bank’s growth rate, affect the ability of the Bank’s customers to repay their loans and generally affect Bancorp’s financial condition and results of operations. A further decline in general economic conditions in the Bank’s market areas, caused by inflation, recession, higher unemployment or other factors which are beyond the Bank’s control would also impact these local economic conditions and could have an adverse affect on Bancorp’s financial condition and results of operations.

Bancorp and the Bank compete with much larger companies for some of the same business.The banking and financial services business in our market areas continues to be a competitive field and it is becoming more competitive as a result of:

• Changes in regulations;

• Changes in technology and product delivery systems; and

• The accelerating pace of consolidation among financial services providers.

We may not be able to compete effectively in our markets, and our results of operations could be adversely affected by the nature or pace of change in competition. We compete for loans, deposits and customers with various bank and nonbank financial services providers, many of which are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services.

Negative publicity could damage our reputation.Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct.

The Bank is subject to environmental liability risk associated with lending activities.A significant portion of the Bank’s loan portfolio is secured by real property. During the ordinary course of business, the Bank may

20

foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Bank may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Bank to incur substantial expenses and may materially reduce the affected property’s value or limit the Bank’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations of enforcement policies with respect to existing laws may increase the Bank’s exposure to environmental liability. Although the Bank has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on Bancorp’s financial condition and results of operations.

Financial services companies depend on the accuracy and completeness of information about customers and counterparties.In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports, and other financial information. We may also rely on representations of those customers, counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports, or other financial information could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, results of operations and cash flows.Liquidity is essential to our business. Our ability to implement our business strategy will depend on our ability to obtain funding for loan originations, working capital, possible acquisitions and other general corporate purposes. An inability to raise funds through deposits, borrowings, securities sold under repurchase agreements, the sale of loans and other sources could have a substantial negative effect on our liquidity. We do not anticipate that our retail and commercial deposits will be sufficient to meet our funding needs in the foreseeable future. We therefore rely on deposits obtained through intermediaries, FHLB advances, securities sold under agreements to repurchase and other wholesale funding sources to obtain the funds necessary to manage our balance sheet.

Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general, including a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets. To the extent we are not successful in obtaining such funding, we will be unable to implement our strategy as planned which could have a material adverse effect on our financial condition, results of operations and cash flows.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

From time to time the Financial Accounting Standards Board (the “FASB”) and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes are beyond our control, can be hard to predict and could materially impact how we report our results of operations and financial condition. We could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements in material amounts.

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Impairment of investment securities, certain other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations. In assessing the impairment of investment securities, management considers the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuers, and the intent and ability of Bancorp to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value in the near term. Under current accounting standards, certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically or when impairment indicators are present. Assessment of certain other intangible assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period during which such impairment is identified. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.

Technological advances impact Bancorp’s business.The banking industry continues to undergo technological changes with frequent introductions of new technology-driven products and services. In addition to improving customer services, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Bancorp’s future success will depend, in part, on our ability to address the needs of the Bank’s customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in operations. Many competitors have substantially greater resources to invest in technological improvements. The Bank may not be able to effectively implement new technology-driven products and services or successfully market such products and services to its customers.

We rely on other companies to provide key components of our business infrastructure.Third party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third party vendors could also entail significant delay and expense.

Our information systems may experience an interruption or breach in security.We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, we cannot assure you that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

Government regulations may prevent or impair Bancorp’s ability to engage in mergers or operate in other ways.Current and future legislation and the policies established by federal and state regulatory authorities will affect our operations. The Bank is subject to supervision and periodic examination by the FDIC and the Commissioner. Bancorp is subject to regulation by the Federal Reserve and the Commissioner. The Bank is currently restricted from paying dividends to Bancorp, unless it receives advance approval from the FDIC and the Commissioner. Bancorp’s Board of Directors has resolved not to declare any dividend, common or preferred, make any payments on trust preferred stock or redeem any of its stock without advance approval of the Federal Reserve Bank. Banking regulations, designed primarily for the protection of depositors, and the withholding of necessary approvals by the bank regulatory agencies may limit the growth and the return to Bancorp’s stockholders by restricting certain activities, such as:

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• The payment of dividends to our stockholders;

• The payment of dividends on trust preferred securities;

• Possible mergers with or acquisitions of or by other institutions;

• Our desired investments;

• Loans and interest rates on loans;

• Interest rates paid on our deposits;

• The possible expansion of our branch offices; and

• Our ability to provide securities or trust services.

The Bank also is subject to capitalization guidelines set forth in federal legislation, and could be subject to enforcement actions to the extent that it is found by regulatory examiners to be undercapitalized. Bancorp cannot predict what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on Bancorp’s future business and earnings prospects. The cost of compliance with regulatory requirements may adversely affect our ability to operate profitably.

Unpredictable catastrophic events could have a material adverse effect on Bancorp.The occurrence of catastrophic events such as hurricanes, tropical storms, earthquakes, pandemic disease, windstorms, floods, severe winter weather (including snow, freezing water, ice storms and blizzards), fires and other catastrophes could adversely affect Bancorp’s consolidated financial condition or results of operations. Unpredictable natural and other disasters could have an adverse effect on the Bank in that such events could materially disrupt its operations or the ability or willingness of its customers to access the financial services offered by the Bank. The incidence and severity of catastrophes are inherently unpredictable. Although the Bank carries insurance to mitigate its exposure to certain catastrophic events, these events could nevertheless reduce Bancorp’s earnings and cause volatility in its financial results for any fiscal quarter or year and have a material adverse effect on Bancorp’s financial condition and/or results of operations.

Risks Related to our Common Stock

Our stock price can be volatile.Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

• Actual or anticipated variations in quarterly results of operations;

• Recommendations by securities analysts;

• Operating results and stock price performance of other companies that investors deem comparable to us;

• News reports relating to trends, concerns, and other issues in the financial services industry;

• Perceptions in the marketplace regarding us and/or our competitors;

• New technology used or services offered by competitors;

• Significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors; and

• Changes in government regulations.

General market fluctuations, industry factors, and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, or credit loss trends, could also cause our stock price to decrease regardless of operating results.

Bancorp’s trading volume is low compared with larger national and regional banks.Bancorp’s common stock is traded on the NASDAQ Global Select Market. However, the trading volume of Bancorp’s common stock is relatively low when compared with larger companies listed on the NASDAQ, the NYSE or other consolidated reporting systems or stock exchanges. Thus, the market in Bancorp’s common stock may be limited in scope relative to larger companies. In addition, Bancorp cannot say with any certainty that a more active and liquid trading market for its common stock will develop.

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Bancorp has issued preferred stock and subordinated debentures, all of which rank senior to our common stock.Bancorp has issued 52,372 shares of Series A Preferred Stock. This series of preferred stock ranks senior to shares of our common stock. As a result, Bancorp must make dividend payments on the preferred stock before any dividends can be paid on the common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders the preferred stock must be satisfied before any distributions can be made on the common stock. If Bancorp does not remain current in the payment of dividends on the Series A Preferred Stock, no dividends may be paid on the common stock. In addition, Bancorp has issued $25.8 million in subordinated debentures in connection with its issuance of trust preferred securities. These debentures also rank senior to the common stock.

Our preferred stock reduces net income available to holders of our common stock and earnings per common share and the Warrant may be dilutive to holders of our common stock.The dividends payable on our preferred stock will reduce any net income available to holders of common stock and our earnings per common share. The preferred stock will also receive preferential treatment in the event of sale, merger, liquidation, dissolution or winding up of our company. Additionally, the ownership interest of holders of our common stock will be diluted to the extent the Warrant is exercised.

There may be future sales of additional common stock or preferred stock or other dilution of our equity, which may adversely affect the market price of our common stock.We are not restricted from issuing additional common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market value of our common stock could decline as a result of sales by us of a large number of shares of common stock or preferred stock or similar securities in the market or the perception that such sales could occur.

There may be future issuances of additional subordinated debentures, which may adversely affect the market price of our common stock.We may issue additional subordinated debentures in connection with the issuance of additional trust preferred securities. Such additional debentures would rank senior to the common stock. The market value of our common stock could decline as a result of future issuances or the perception that such issuances could occur.

Our common stock is not FDIC insured.Bancorp’s common stock is not a savings or deposit account or other obligation of any bank and is not insured by the FDIC or any other governmental agency and is subject to investment risk, including the possible loss of principal. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, holders of our common stock may lose some or all of their investment.

Item 1B. Unresolved Staff Comments

None

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Item 2. Properties

Bancorp and the Bank’s executive offices are located at 1501 Highwoods Boulevard in Greensboro, NC. The Bank’s principal support and operational functions are located at 38 West First Avenue, Lexington, NC and 202 South Main Street in Reidsville, NC. On December 31, 2010, the Bank operated 31 branch offices, two commercial loan production offices and two mortgage loan production offices in its three markets: the Piedmont Triad Region and Coastal Region of NC and the Shenandoah Valley Region of VA. In addition, the Bank operated two mortgage loan production offices outside its markets. The locations of the Bank’s executive and banking offices, their form of occupancy, deposits as of December 31, 2010, and year opened, are provided in the accompanying table:

Location	Owned or Leased	Deposits		Year
		(in thousands)
1501 Highwoods Boulevard, Greensboro, NC(1)	Leased	$	—		2004
38 West First Avenue, Lexington, NC(2)	Owned		223,037		1949
202 South Main Street, Reidsville, NC(3)	Owned		79,476		1910
10401 South Main Street, Archdale, NC	Owned		13,545		2003
301 East Fremont Street, Burgaw, NC	Leased		34,229		1999
2386 Lewisville-Clemmons Road, Clemmons, NC	Owned		24,430		2001
1101 North Main Street, Danbury, NC	Owned		24,808		1997
801 South Van Buren Road, Eden, NC	Owned		51,317		1996
2132 New Garden Road, Greensboro, NC	Owned		76,076		1997
4638 Hicone Road, Greensboro, NC	Owned		31,699		2000
3202 Randleman Road, Greensboro, NC	Owned		42,539		2000
1702 Battleground Avenue, Greensboro, NC	Owned		16,510		2008
201 North Elm Street, Greensboro, NC	Leased		6,415		2009
200 Westchester Drive, High Point, NC	Owned		38,069		2001
120 East Main Street, Jamestown, NC	Owned		26,652		2004
230 East Mountain Street, Kernersville, NC	Leased		19,502		1997
647 South Main Street, King, NC	Owned		53,888		1997
1926 Cotton Grove Road, Lexington, NC	Owned		33,120		1968
500 South Main Street, Lexington, NC(4)	Leased		—		2004
605 North Highway Street, Madison, NC	Owned		29,941		1997
11492 Old U.S. Highway 52, Midway, NC	Owned		32,109		1973
1646 Freeway Drive, Reidsville, NC	Owned		50,085		1972
941 Randolph Street, Thomasville, NC	Owned		46,972		1987
4481 Highway 150 South, Tyro, NC	Owned		25,797		2002
3000 Old Hollow Road, Walkertown, NC	Owned		24,838		1997
10335 North NC Highway 109, Wallburg, NC	Owned		30,852		1992
6123 Old U.S. Highway 52, Welcome, NC	Owned		53,606		1958
161 South Stratford Road, Winston-Salem, NC	Leased		70,680		1997
3500 Old Salisbury Road, Winston-Salem, NC	Owned		41,578		1978
704 South College Road, Wilmington, NC	Leased		36,247		1997
1001 Military Cutoff Road, Wilmington, NC	Leased		32,469		2006
440 South Main Street, Harrisonburg, VA(5)	Owned		56,619		1988

(1)	Executive offices of Bancorp and the Bank since July 2007 and November 2007, respectively.
(2)	Former headquarters of LSB and LSB Bank. Serves as a full service branch as well as an operations center for the Bank.
(3)	Former headquarters of FNB Southeast. Serves as a full service branch as well as an operations center for the Bank.
(4)	This location is an express drive through facility that only processes transactions and does not open customer accounts.
(5)	On December 21, 2010, the Bank announced it had entered into an agreement to sell its Harrisonburg, VA operation.

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Peoples Finance operates from a leased 3,200 square foot, one-story building located at 126 Forest Hill Road, Lexington, NC.

The Bank operates commercial loan production offices in leased premises in Burlington and Greensboro, NC. The Bank also operates mortgage loan production offices in leased premises in Charlotte, Lake Norman, Raleigh and Winston-Salem, NC.

In addition, as of December 31, 2010, the Bank also operated 14 offsite ATM machines in various locations throughout its markets.

Item 3. Legal Proceedings

In the ordinary course of operations, Bancorp and its subsidiaries are often involved in legal proceedings. In the opinion of management, neither Bancorp nor its subsidiaries is a party to, nor is their property the subject of, any material pending legal proceedings, other than ordinary routine litigation incidental to their business, nor has any such proceeding been terminated during the fourth quarter of Bancorp’s fiscal year ended December 31, 2010.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Prices and Dividend Policies

Bancorp’s common stock is traded on the Global Select Market of the NASDAQ Stock Market (“NASDAQ GSM”) under the symbol “NBBC”. The following table shows the high, low and closing sales prices of Bancorp’s common stock on the NASDAQ GSM, based on published financial sources, for each quarter within the last two fiscal years.

Quarter ended	High		Low		Close
December 31, 2010	$	5.00	$	3.40	$	4.70
September 30, 2010		4.00		2.94		3.57
June 30, 2010		5.28		3.46		3.51
March 31, 2010		4.34		2.08		3.56
December 31, 2009	$	2.78	$	1.89	$	2.22
September 30, 2009		3.11		1.82		2.74
June 30, 2009		2.70		1.39		2.07
March 31, 2009		3.04		0.94		2.11

As of March 15, 2011, there were approximately 6,900 beneficial owners, including 3,253 holders of record, of Bancorp’s common stock.

Holders of Bancorp’s common stock are entitled to receive ratably such dividends as may be declared by Bancorp’s Board of Directors out of legally available funds. No cash dividends have been declared for Bancorp’s common stock since 2008. The ability of Bancorp’s Board of Directors to declare and pay dividends on its common stock is subject to the terms of applicable North Carolina law and banking regulations. Further, except with the U.S. Treasury’s approval, until such time as Bancorp has redeemed all of the Series A Preferred Stock or the U.S. Treasury has transferred all of the Series A Preferred Stock to a third party, prior to December 12, 2011, the payment of dividends on its common stock is limited to a maximum quarterly dividend of $0.05 per share. Also, Bancorp may not pay dividends on its capital stock if it is in default or has elected to defer payments of interest under its junior subordinated debentures. The declaration and payment of future dividends to holders of Bancorp’s common stock will also depend upon Bancorp’s earnings and financial condition, the capital requirements of Bancorp’s subsidiaries, regulatory conditions and other factors as Bancorp’s Board of Directors may deem relevant. For a further discussion as to restrictions on Bancorp and the Bank’s ability to pay dividends, please refer to “Item 1 — Supervision and Regulation”.

The following table sets forth certain information regarding outstanding options and shares available for future issuance under equity compensation plans as of December 31, 2010. Individual equity compensation arrangements are aggregated and included within this table. This table excludes any plan, contract or arrangement that provides for the issuance of options, warrants or other rights that are given to Bancorp’s shareholders on a pro rata basis and any employee benefit plan that is intended to meet the qualification requirements of Section 401(a) of the Code.

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					Number of Shares
					Remaining Available
					for Future Issuance
					under Equity
	Number of Shares to be		Weighted-Average		Compensation Plans
	Issued Upon Exercise of		Exercise Price of		(excluding shares
	Outstanding Options,		Outstanding Options,		reflected in
	Warrants and Rights		Warrants and Rights		column (a))
Plan Category	(a)		(b)		(c)
Equity Compensation Plans Approved by Shareholders(1)		821,767	$	14.23		1,439,942
Equity Compensation Plans Not Approved by Shareholders		—		—		—
Total		821,767	$	14.23		1,439,942

(1) Includes 557,353 shares to be issued upon the exercise of outstanding options, warrants and rights assumed in connection with the Merger and having a weighted average exercise price of $13.44.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Bancorp did not repurchase any of its equity securities during 2010.

Recent Sales of Unregistered Securities

Bancorp did not sell any of its equity securities in the last fiscal year which were not registered under the Securities Act of 1933, as amended.

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FIVE-YEAR STOCK PERFORMANCE TABLE

     The following table illustrates the cumulative total shareholder return on Bancorp’s common stock over the five-year period ended December 31, 2010 and the cumulative total return over the same period of the S&P 500 Index (U.S.) and The Carson Medlin Company’s Independent Bank Index of 23 independent community banks located in eight southeastern states. The table assumes $100 originally invested on December 31, 2005 and that all subsequent dividends were reinvested in additional shares.

NEWBRIDGE BANCORP
Comparison of Cumulative Total Shareholder Return
Years Ended December 31

	2005			2006		2007		2008		2009		2010
NewBridge Bancorp		100			99		67		16		15		31
The Carson Medlin Company’s Independent Bank Index1		100			112		90		77		88		87
			��
S&P 500 Index		100			116		122		77		97		112

1 The Carson Medlin Company’s Independent Bank Index is the compilation of the total return to shareholders over the past five years of a group of 23 independent community banks located in the southeastern states of Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia. The total five year return was calculated for each of the banks in the peer group taking into consideration changes in stock price, cash dividends, stock dividends and stock splits since December 31, 2005. The individual results were then weighted by the market capitalization of each bank relative to the entire peer group. The total return approach and the weighting based upon market capitalization are consistent with the preparation of the S&P 500 total return index.

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Item 6. Selected Financial Data

The following table should be read in conjunction with “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation,” and “Item 8 — Financial Statements and Supplementary Data,” which begin on page 30 and page 57 below, respectively.

	Years Ended December 31
(In thousands, except per share data and performance
measures)	2010			2009			2008			2007			2006
SUMMARY OF OPERATIONS
Interest income	$	89,913		$	98,500		$	117,286		$	97,621		$	67,323
Interest expense		20,454			39,156			53,852			42,368			24,195
Net interest income		69,459			59,344			63,434			55,253			43,128
Provision for credit losses		21,252			35,749			25,262			18,952			5,510
Net interest income after provision for credit losses		48,207			23,595			38,172			36,301			37,618
Noninterest income		19,507			19,177			20,630			14,998			14,290
Goodwill impairment		—			—			50,437			—			—
Noninterest expense		64,581			69,546			72,191			62,356			43,324
Income (loss) before income taxes		3,133			(26,774	)		(63,826	)		(11,057	)		8,584
Income taxes		(247	)		(11,641	)		(6,924	)		(5,394	)		2,584
Net income (loss)		3,380			(15,133	)		(56,902	)		(5,663	)		6,000
Dividends and accretion on preferred stock		(2,919	)		(2,917	)		(170	)		—			—
Net income (loss) available to common shareholders	$	461		$	(18,050	)	$	(57,072	)	$	(5,663	)	$	6,000
Cash dividends declared	$	—		$	—		$	6,106		$	8,255		$	5,755
SELECTED YEAR END ASSETS AND LIABILITIES
Investment Securities	$	325,129		$	325,339		$	288,572		$	369,423		$	147,129
Loans held for investment, net of unearned income		1,260,585			1,456,526			1,603,588			1,490,084			759,978
Assets		1,807,161			1,946,526			2,078,627			2,057,358			987,746
Deposits		1,452,995			1,499,310			1,663,463			1,627,720			817,683
Shareholders’ equity		163,188			164,604			179,236			193,153			89,309
PERFORMANCE MEASURES
Net income (loss) to average total assets		0.02	%		(0.88	)%		(2.72	)%		(0.40	)%		0.61	%
Net income (loss) to average shareholders’ equity		0.28			(11.75	)		(29.38	)		(3.76	)		6.47
Dividend payout		—			—			N/M			N/M			95.92
Average shareholders’ equity to average total assets		8.68			8.30			9.25			9.18			9.44
Average tangible shareholders’ equity to average tangible total assets		8.45			8.05			6.73			7.51			9.40
PER SHARE DATA
Earnings (loss) per share:
Basic	$	0.03		$	(1.15	)	$	(3.64	)	$	(0.49	)	$	0.71
Diluted		0.03			(1.15	)		(3.64	)		(0.49	)		0.71
Cash dividends declared		—			—			0.39			0.68			0.68
Book value at end of year		7.08			7.17			8.10			12.30			10.60
Tangible book value at end of year		6.79			6.83			7.72			9.10			10.54

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of the Company’s financial condition and results of operations and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. The following discussion is intended to assist in understanding the financial condition and results of operations of the Company.

Executive Overview

The Company is in its fourth year of operations following the merger of equals of FNB and LSB in July 2007 and the subsequent merger of the two $1 billion legacy banks, FNB Southeast and LSB Bank, in late 2007. Due primarily to the severe economic recession that followed, the Company lost $6.6 million (not including goodwill impairment) in 2008 and $15.1 million in 2009. The Company did not defer credit costs, but instead aggressively charged-off and wrote down credits in an effort to rapidly restore profitability. In 2010, earnings dramatically improved by $18.5 million. Today, we believe the Company is well positioned to take advantage of a disrupted market.

In July 2008, Pressley A. Ridgill was named CEO of the Company, having become President of the Company, and CEO and President of the Bank in 2007. One year earlier, Mr. Ridgill had been appointed CEO of FNB and FNB Southeast. Through the combination, the Bank became the largest community bank in the North Central region of North Carolina, known as the Piedmont Triad. While a number of challenges emerged during the recession, the newly appointed CEO began bringing together his executive management team. The management team members were selected for their talents, experience and commitment to the Company’s Guiding Principles, which are founded on the concept that “Financial Success Begins with Integrity”. By early 2009, the executive management team was in place, and the credit deterioration in the loan portfolio had peaked. Having implemented a re-defined community bank strategy, the Company focused on returning to profitability. Under Mr. Ridgill’s guidance, management’s implementation of the redefined community bank strategy has yielded dramatically improved operating results and positive trends, including:

• Five consecutive quarters of profit, including $3.4 million of full-year profit in 2010

• Pre-tax income increased $29.9 million from 2009 to 2010

• Net interest margin of 4.00% in 2010, an 82 basis point improvement over the prior year

• Core deposit growth of 16% in 2010

• Provision for credit losses declined $14.5 million from 2009 to 2010

• Nonperforming loans declined 47% from the June 2009 peak, excluding changes in troubled debt restructured loans

• Total noninterest expense declined by $5.0 million in 2010 and $53.1 million in 2009; recurring operating expense declined by $4.6 million in 2010 and $8.9 million in 2009 compared to the prior years

• Total and tier one leverage capital improved to 13.14% and 9.69%, respectively, at December 31, 2010 from their lows of 12.20% and 8.83%, respectively

As we evaluate our 2010 results, we are satisfied with robust improvements in lowering operating and credit-related costs, increasing net interest income and building a stable capital position well above the regulatory levels required to be “well capitalized”. From 2007 through 2010 the Company charged-off more than $115 million of loans and other real estate owned, or 7.1% of the highest/peak level of loan balances of June 2008. As we have previously discussed, our desire was to put this adverse credit cycle behind us as quickly as possible, through early recognition of credit losses. We believe we have been largely successful in doing so. Looking forward to 2011, we believe credit costs will remain high for many months to come, but core earnings should continue to exceed credit costs and preferred dividends, resulting in a rising level of capital generation. In the recovery period of this recession, we believe the Company has emerged more disciplined and efficient with a greater opportunity for long-term success than what would have otherwise been realized.

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Our Community Bank Strategy and Operating Plan

As a community bank, we believe our opportunity to achieve exceptional returns for our shareholders is through consistent delivery of superior customer service to small- and mid-size business and consumer customers in a manner that the large national and super regional banks are unable or unwilling to emulate. The Piedmont Triad has approximately $40 billion of deposits and just 3% of those balances are held at our Bank. The market is dominated by large national and regional banks, with 80% of the market’s deposits residing in banks with more than $10 billion of assets. Consequently, even relatively small growth in our market share could potentially result in extraordinary gains for the Company. We believe the economic downturn affected many of the competing North Carolina banks later in the credit cycle, which is resulting in less effective competition for quality customers, enhancing our opportunity to grow our market share.

To ensure the achievement of our strategic plan, management rewrote our operating plans following the bank merger to include basic measurable items that communicate throughout the organization the steps needed to improve the financial results of the organization. The operating plan objectives include:

• Manage the net interest margin (NIM), including growing and expanding profitable customer relationships

• Improve asset quality

• Increase non-interest income

• Implement a disciplined cost management culture

• Position the Company to fulfill its Vision and Mission.

Manage Net Interest Margin

Net interest income is the difference between interest income and interest expense and is the Bank’s primary source of revenue. In order to manage our net interest income effectively, management must manage our net interest margin, which is the net yield on earning assets less the cost of interest bearing liabilities.

In the strategic and operating plans, management defined several steps to improve our control of the net interest margin, including:

• Identifying and growing profitable relationships, by focusing our efforts and incentives on growing these relationships. Our performance-based sales culture identifies specific methodologies and tools to use in cross-selling to existing clients and introducing the Bank to new prospects. The Bank looks to take advantage of the current turbulent financial environment to grow market share throughout our markets.

• Enhancing our interest rate risk management tools. Early in 2009, management engaged a prominent consulting firm to improve management’s interest rate risk management tools and practices. This firm works with more than 300 banks across the country and has been a leader in the asset liability management field since the 1980s.

• Reducing the Company’s dependence on high cost time deposits in favor of lower cost core accounts, including DDA, NOW checking, money market and savings accounts.

• Pricing loans consistently while considering relationship pricing for deposit and other relationships. Management is also seeking to develop more consistency on loan pricing relative to the various durations of fixed rate loans.

• Implementing a more disciplined and accountable budget process to include monitoring loan, investment and deposit yields, rates and balances so that variances are questioned and controllable items are controlled.

Management implemented many of these operating changes over the last three years, which had a pronounced impact on the Company’s operating results in 2009 and 2010.

Net interest income increased $10.1 million in 2010 to $69.5 million compared to $59.3 million in 2009. The increased net interest income was due primarily to a 82 basis point rise in the Company’s net interest margin to

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4.00% for the twelve months ended December 31, 2010 compared to the same period a year ago. The margin improved due to growth in core deposits and lower dependence on high cost time deposits. The weighted average deposit costs fell 106 basis points to 1.10% for the year ending December 31, 2010 compared to 2.16% for the year ending December 31, 2009. In 2008, the Company faced irrational time deposit pricing pressure from financial institutions in-market. The impact caused intense margin compression during late 2008 and the first two quarters of 2009. As management shifted liability strategies, high cost time deposits left the Bank for higher rates elsewhere and were replaced with lower cost core deposit accounts. NOW checking accounts became the featured product in marketing ads and internal sales incentives, which resulted in a sizable shift in the deposit mix. At December 31, 2010, DDA, money market, NOW and savings accounts totaled 66%, or $957.4 million, of the Company’s $1.45 billion of deposits. The percentage of core deposits has increased significantly, from 55%, or $824.9 million, at December 31, 2009 and 46%, or $763.3 million at December 31, 2008.

Improve Asset Quality

Our primary objective is to put the adverse affects of the recession behind us as quickly as possible through early recognition of credit losses. We believe we have been largely successful in identifying and taking appropriate aggressive action with our problem credits. Since 2007, the Company has charged off more than $115 million of problem loans and other real estate owned. Asset quality has steadily improved since nonperforming loans peaked in June of 2009 at $64.0 million. At December 31, 2010, nonperforming loans totaled $50.6 million, or 4.01% of total loans, and nonperforming assets totaled $77.3 million, or 4.28% of total assets. The Company’s highest risk and most closely monitored nonperforming assets are nonaccruing loans excluding troubled debt restructured loans. These loans totaled $32.0 million at December 31, 2010, down $19.6 million, or 38% since December 31, 2009 and down $27.3 million, or 47%, since June 30, 2009. OREO balances continue to cycle through the balance sheet, helping control the level of nonperforming assets over time. At December 31, 2010, OREO balances totaled $26.7 million, down from $27.3 million at December 31, 2009. During 2010, $20.7 million of loans were transferred into OREO, $3.8 million of OREO was written down, and $17.5 million was sold.

At December 31, 2010, the allowance for credit losses totaled $28.8 million, or 2.28% of loans held for investment and 56.8% of nonperforming loans. Provision for credit losses declined $14.5 million for the year to $21.3 million compared to $35.7 million for the year ending December 31, 2009. The Company’s coverage percentage may not be comparable with other banking institutions due to its practice of charging off specific estimated losses on loans at the time they become measurable. Consequently, the Company’s allowance for credit losses consists primarily of general reserves, with 95% being general and 5% specific. Substantially all estimated losses from the Company’s $50.6 million of non-performing loans have been recognized through charge-offs.

Increase Non-interest Income

Non interest income increased $330,000 in 2010 to $19.5 million compared to $19.2 million for 2009. Gain on sale of investments boosted 2010 non-interest income by $3.2 million compared to the prior year. Excluding the gain on sale of investments, non-interest income declined due primarily to lower deposit fee income resulting from changes in banking regulation combined with industry wide trends in consumer behavior that we believe are favorable to consumers as the banking industry implements improved consumer protection processes and policies on consumer overdraft activates. The Company also took steps to expand mortgage banking fees in 2010 through the acquisition of Bradford Mortgage, a quality community mortgage origination company operating principally in the Piedmont Triad area. Mortgage revenue totaled $2.4 million in 2010 compared to $674,000 in 2009. Investment services income also contributed strong growth, increasing $403,000 to $1.6 million for the year. With our sights set on continued growth in fee income businesses outside of retail banking, we believe non-interest income sources will remain a favorable contributor to our future earnings.

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Implement a Disciplined Cost Management Culture

Core to the execution of management’s operating plan is the implementation of a disciplined cost management culture where “that which is within our control is controlled.” While certain items such as FDIC insurance costs have proven to be outside our control, the vast majority of non-interest related expenses are controllable.

A key element to changing the culture was the implementation of a line-item accountable budget process. The budget was built around a philosophy we termed as the “CAST” philosophy, which is an acronym for:

• Conservative in forecasts and expectations

• Accountable on an account by account basis

• Specific to each individual in the organization so goals and budgets are understood

• Timely so that continued monitoring and adjustments can be made

Since the merger, the Bank has implemented several major cost reduction initiatives focused on eliminating excess costs and non-core or unprofitable activities. These initiatives include an ongoing franchise validation plan, which carefully reviews each of our branch locations and targets the elimination of waste, inefficiency and duplication throughout our franchise. Management developed a methodology that evaluates each location’s pre-tax contribution, age and state of the facility, ease of closure, market demographics and overall fit within our strategic vision. Execution of the franchise validation plan and other expense reduction initiatives has resulted in a net reduction of 12 bank locations and 199 full time equivalent employees since merger. In 2009 and 2010, the validation planning led to the closing of seven low performing locations, the addition of two locations and the planned sale of the last remaining Virginia location. Following the sale, the Company will have 30 full service bank locations and 481 full time equivalent employees. The reduction in the number of branch locations and other expense reductions resulted in an improvement in our core efficiency from a high of 90% to an average of 67% in 2010.

For the second consecutive year, the Company has experienced meaningful gains by lowering operating costs. In 2009, recurring operating expenses declined $8.9 million excluding $3.5 million in one-time items such as losses on disposal of branch locations. In 2010, recurring operating expenses fell an additional $4.6 million. The improved efficiency is due in large part to management’s ability to focus attention on eliminating excess costs and inefficient products, services and delivery channels from legacy operations. As we look into 2011, we anticipate that the improved cost management culture will continue to improve the organization’s financial performance. While noninterest expense has declined significantly in recent years, the goal remains to continue to improve efficiencies to a level that surpasses our peers. That objective has not yet been achieved, but remains a focus through continued discipline in a time that has the potential to generate meaningful growth in our Company.

Position the Company to fulfill its Vision and Mission

The Company is located primarily in the Piedmont Triad area which is the third largest metropolitan area in North Carolina. The Company is headquartered in proximity to the largest two markets in North Carolina; Charlotte and Raleigh/Durham, both within a 90 minute drive. Due to the weakened financial conditions among many North Carolina financial institutions, consolidation of institutions is beginning to occur. While the Company may consider an in-market acquisition of a troubled institution, it is more certain the Company will look to acquire valuable customer relationships, which is likely to occur through the addition of key bankers. The opportunity for growth is significant. The Company is carefully considering the growth and design of our franchise. Late in 2010, the Company decided to sell the last remaining Virginia banking location, further clarifying the strategic plan as a North Carolina bank. Consequently, growth will focus on expansion in the existing and adjacent market locations.

Finally capital planning has remained paramount in this environment. Despite several challenging years following the merger, the Company’s capital levels remain well above the “well capitalized levels” as defined by regulatory guidelines. At December 31, 2010 the Company’s total risk based capital was 13.13% compared to the minimum “well capitalized” level of 10.00%. The Company continues to have no near-term plans to raise capital for the purpose of repaying TARP funds; however, the Small Business Lending Fund capital program may be a viable alternative to replacing TARP funds. The Company is very attentive to the ramifications of near

34

and long term dilution caused by a capital raise. Therefore, while many opportunities seem to be emerging and will be evaluated, the decision to acquire another in market institution will be evaluated with a high regard to risk and dilution. Organic growth and talent acquisition may prove to be the more prudent growth strategy over time. The Company anticipates modest loan growth in 2011.

Financial Condition at December 31, 2010 and 2009

Bancorp’s consolidated assets of $1.81 billion at year end 2010 reflect a decrease of 7.2% from year end 2009, following a decrease of 6.4% during the previous year. The decreases in both years are primarily a result of a decline in Bancorp’s loan portfolio. Total average assets decreased 7.1% from $2.05 billion in 2009, to $1.91 billion in 2010, while average earning assets decreased 8.2%, from $1.93 billion in 2009, to $1.77 billion in 2010. The decreases in total average assets and average earning assets were also primarily the result of a decrease in loans outstanding.

Gross loans (including loans held for sale) decreased $125.5 million during 2010, or 8.6%, compared to a decrease of 8.8% in 2009. The decrease in loans is due primarily to principal repayment on existing loans, loan chargeoffs, and foreclosures, coupled with soft loan demand from qualified borrowers. Loans secured by real estate totaled $1.07 billion in 2010 and represented 84.8% of total loans (excluding loans held for sale), compared with 83.4% at year end 2009. Within this category, residential real estate loans decreased 9.0% to $544.4 million and construction loans decreased 21.5% to $139.1 million. Commercial loans totaled $516.0 million at year end 2010, a decrease of 13.0% from the end of 2009. Consumer loans decreased 30.0% during 2010, ending the year at $53.0 million. Management believes the Bank is not dependent on any single customer or group of customers concentrated in a particular industry, the loss of whose deposits or whose insolvency would have a material adverse effect on operations.

Investment securities (at amortized cost) totaled $321.3 million at year end 2010, a 1.1% increase from $317.9 million at year end 2009. U.S. Government agency securities totaled $109.3 million, or 34.0% of the portfolio at year end 2010, compared to $49.0 million, or 15.4% of the portfolio one year earlier. Management believes that the additional risk of owning agency securities over U.S. Treasury securities is negligible and has capitalized on the favorable spreads available on the former. Mortgage backed securities totaled $56.0 million, or 17.4% of the portfolio, at December 31, 2010, compared to $77.4 million, or 24.4% of the portfolio at the previous year end. State and municipal obligations amounted to $17.4 million at year end 2010, and comprised 5.4% of the portfolio, compared to $105.2 million, or 33.1% of the portfolio a year earlier. Investment securities with a book value of $82.1 million were sold during 2010 to reposition the investment portfolio and reduce the Company’s exposure to municipalities. A portion of the securities that were identified for sale had been classified as held to maturity and, accordingly, all held to maturity securities were designated as available for sale. During 2009, the Company began investing in corporate bonds and collateralized mortgage obligations (CMOs). Corporate bonds totaled $82.8 million, or 25.8% of the portfolio at December 31, 2010, of which $46.1 million were covered bonds, compared to total corporate bonds of $34.0 million, or 10.7% of the portfolio at December 31, 2009, of which $29.1 million were covered bonds. CMOs totaled $39.7 million, or 12.3% of the portfolio at year end 2010, compared to $35.1 million, or 11.0% of the portfolio at the end of the previous year. The Company’s investment strategy is to achieve acceptable total returns through investments in securities with varying maturity dates, cash flows and yield characteristics. U.S. Government agency securities are generally purchased for liquidity and collateral purposes, mortgage backed securities are purchased for yield and cash flow purposes, corporate bonds are purchased for yield and longer maturity municipal bonds are purchased for yield and income tax advantage. The table, “Investment Securities,” on page 52, presents the composition of the securities portfolio for the last three years, as well as information about cost, fair value and weighted average yield.

The competition for deposits within the Bank’s market areas increased significantly during the liquidity crisis of 2008 as larger national and regional banks increased their rates in an effort to attract deposits and maintain adequate liquidity. The Bank, which historically has relied on appropriate pricing and high quality customer service to retain and increase its retail deposit base, was forced to compete with higher rates offered by the larger national and regional banks in order to satisfy its deposit requirements. During 2009 and throughout 2010, the

35

Company shifted its liability strategy, reducing its dependence on high cost time deposits in favor of lower cost core accounts, including DDA, NOW checking, money market and savings accounts.

Total deposits decreased $46.3 million to $1.45 billion at December 31, 2010, a 3.1% decrease from a total of $1.50 billion one year earlier. This change was primarily the result of a $178.8 million reduction in time deposits, as the interest rates offered by the Bank declined substantially during the year. This decrease was partially offset by a $169.0 million increase in NOW account deposits, as the Bank’s new “FastForward Checking” product, introduced in the third quarter of 2009, grew to $212.0 million at December 31, 2010.

In order to attract additional deposits when necessary, the Bank uses several different sources such as membership in an electronic deposit gathering network that allows it to post interest rates and attract deposits from across the U.S. (bulletin board deposits), brokered certificates of deposit secured through broker/dealer partnerships and deposits obtained through the Promontory InterFinancial Network, also known as CDARS. The Bank’s reliance on these out-of-market deposits has continued to decrease during 2010. CDARS decreased $30.9 million, from $58.0 million at year end 2009 to $27.1 million at year end 2010, while brokered deposits increased $15.1 million, from $15.0 million at year end 2009 to $30.1 million at year end 2010.

The Bank also has a credit facility available with the FHLB of Atlanta. The Bank utilized a portion of the approximately $361.0 million credit line with the FHLB of Atlanta to fund earning assets. FHLB borrowings totaled $112.7 million at year end 2010. In addition to the credit line at the FHLB, the Bank has borrowing capacity at the Federal Reserve Bank totaling $30.0 million, of which there were no borrowings outstanding at December 31, 2010. Management believes these credit lines are a cost effective and prudent alternative to deposit balances, since particular amounts, terms and structures may be selected to meet changing needs.

Financial Condition at December 31, 2009 and 2008

Bancorp’s consolidated assets of $1.95 billion at year end 2009 reflect a decrease of 6.4% over year end 2008. The decrease from year end 2008 to year end 2009 is primarily a result of the decline in Bancorp’s loan portfolio. Total average assets decreased 1.8% from $2.09 billion in 2008, to $2.05 billion in 2009, while average earning assets increased 0.9%, from $1.91 billion in 2008, to $1.93 billion in 2009. The decrease in total average assets was also primarily the result of a decrease in loans outstanding, while the slight increase in average earning assets was driven by an increase in interest bearing bank balances.

Gross loans decreased $141.4 million during 2009, or 8.8%, compared to increases of 7.7% in 2008 and 96.1% in 2007. The decrease in loans was due primarily to principal repayment on existing loans, loan chargeoffs, and foreclosures, coupled with soft loan demand from qualified borrowers. Loans secured by real estate totaled $1.22 billion in 2009 and represented 83.4% of total loans, compared with 82.3% at year end 2008. Within this category, residential real estate loans decreased 4.4% to $605.0 million and construction loans decreased 19.0% to $177.3 million. Commercial loans totaled $593.4 million at year end 2009, a decrease of 3.9% from the end of 2008. Consumer loans decreased 38.3% during 2009, ending the year at $75.5 million.

Investment securities (at amortized cost) totaled $317.9 million at year end 2009, a 12.0% increase from $283.7 million at year end 2008. U.S. Government agency securities totaled $49.0 million, or 15.4% of the portfolio at year end 2009, compared to $56.6 million, or 20.0% of the portfolio one year earlier. Mortgage backed securities totaled $77.4 million, or 24.4% of the portfolio, at December 31, 2009, compared to $97.8 million, or 34.5% of the portfolio at the previous year end. State and municipal obligations amounted to $105.2 million at year end 2009, and comprised 33.1% of the portfolio, compared to $115.6 million, or 40.8% of the portfolio a year earlier. During 2009, the Company also began investing in corporate bonds and CMOs. Corporate bonds totaled $34.0 million, or 10.7% of the portfolio, of which $29.1 million were covered bonds, while CMOs totaled $35.1 million, or 11.0% of the portfolio.

Total deposits decreased $164.2 million to $1.50 billion at December 31, 2009, a 9.9% decrease from a total of $1.66 billion one year earlier. This change was primarily the result of a $225.8 million reduction in time deposits, as the interest rates offered by the Bank declined substantially during the year. This decrease was

36

partially offset by increases in NOW and money market deposits, as the Bank’s new “FastForward Checking” product, introduced in the third quarter of 2009, grew to $79.7 million at December 31, 2009.

Net Interest Income

Like most financial institutions, the primary component of the Company’s earnings is net interest income. Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume and changes in interest rates earned and paid. Volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Spread and margin are influenced by the levels and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of noninterest-bearing liabilities.

     Average Balances and Net Interest Income Analysis.The accompanying table sets forth, for the years 2008 through 2010, information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant yields or rates, net interest income, net interest spread, net interest margin and ratio of average interest-earning assets to average interest-bearing liabilities. Average loans include nonaccruing loans, the effect of which is to lower the average yield.

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Average Balances and Net Interest Income Analysis

Fully taxable equivalent basis⁽¹⁾(Dollars in thousands)

				2010								2009								2008
				Interest								Interest								Interest
	Average			Income/		Average			Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield/Rate			Balance			Expense		Yield/Rate			Balance			Expense		Yield/Rate
Earning assets:
Loans receivable(2)	$	1,406,624		$	74,795		5.32	%	$	1,538,777		$	84,089		5.46	%	$	1,575,064		$	101,550		6.49	%
Taxable securities		253,585			11,659		4.60			197,132			9,425		4.78			191,766			10,229		5.33
Tax exempt securities		65,807			4,821		7.33			109,622			6,754		6.16			113,480			6,539		5.76
FHLB stock		11,241			39		0.35			11,177			4		0.04			10,281			368		3.58
Interest-bearing bank balances		34,496			96		0.28			54,667			186		0.34			10,189			267		2.62
Federal funds sold		—			—		—			18,751			46		0.25			11,187			114		1.02
Total earning assets		1,771,753			91,410		5.16			1,930,126			100,504		5.21			1,911,967			119,067		6.23
Non-earning assets:
Cash and due from banks		27,525								24,120								41,829
Premises and equipment		39,815								42,889								45,415
Other assets		105,160								97,936								124,075
Allowance for credit losses		(35,630	)							(40,584	)							(31,020	)
Total assets	$	1,908,623							$	2,054,487							$	2,092,266
Interest-bearing liabilities:
Savings deposits	$	40,222		$	40		0.10	%	$	40,703		$	41		0.10	%	$	41,430		$	65		0.16	%
NOW deposits		368,702			3,201		0.87			195,626			778		0.40			170,221			802		0.47
Money market deposits		344,033			2,838		0.82			390,042			4,327		1.11			429,322			10,145		2.36
Time deposits		606,636			8,881		1.46			853,100			26,746		3.14			838,205			33,660		4.02
Other Borrowings		76,415			2,407		3.15			75,462			2,559		3.39			92,296			3,697		4.01
Borrowings from Federal
Home Loan Bank		123,015			3,087		2.51			149,559			4,706		3.15			148,206			5,483		3.70
Total interest-bearing liabilities		1,559,023			20,454		1.31			1,704,492			39,157		2.30			1,719,680			53,852		3.13
Other liabilities and shareholders’ equity:
Demand deposits		164,958								158,436								164,712
Other liabilities		18,921								20,988								14,223
Shareholders’ equity		165,721								170,571								193,651
Total liabilities and shareholders’ equity	$	1,908,623							$	2,054,487							$	2,092,266
Net interest income and net interest margin(3)				$	70,956		4.00	%				$	61,347		3.18	%				$	65,215		3.41	%
Interest rate spread(4)							3.85	%							2.91	%							3.10	%

(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 $1,497 for 2010, $2,004 for 2009 and $1,781 for 2008.
(2)	Average loans receivable include non-accruing loans. Amortization of loan fees, net of deferred costs, of $935, $1,449 and $2,231, for 2010, 2009 and 2008, respectively, are included in interest income.
(3)	Net interest margin is computed by dividing taxable-equivalent net interest income by average earning assets.
(4)	Interest rate spread is computed by subtracting interest-bearing liability rate from earning asset yield.

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Volume and Rate Variance Analysis

The following table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table identifies (i) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (ii) changes attributable to rate (changes in rate multiplied by the prior period’s volume), and (iii) net change (the sum of the previous columns). The change attributable to both rate and volume (changes in rate multiplied by changes in volume) have been allocated, based on the absolute value, between changes attributable to volume and changes attributable to rate.

Volume and Rate Variance Analysis

Fully taxable-equivalent basis⁽¹⁾(in thousands)

				2010									2009
	Volume			Rate			Total			Volume			Rate			Total
	Variance(2)			Variance(2)			Variance			Variance(2)			Variance(2)			Variance
Interest income:
Loans receivable	$	(7,157	)	$	(2,137	)	$	(9,294	)	$	(2,214	)	$	(15,247	)	$	(17,461	)
Taxable investment securities		2,602			(368	)		2,234			278			(1,082	)		(804	)
Tax exempt investment securities		(3,049	)		1,116			(1,933	)		(228	)		443			215
FHLB stock		0			36			36			29			(393	)		(364	)
Interest-bearing bank balances		(62	)		(29	)		(91	)		320			(401	)		(81	)
Federal funds sold		(46	)		0			(46	)		49			(117	)		(68	)
Total interest income		(7,712	)		(1,382	)		(9,094	)		(1,766	)		(16,797	)		(18,563	)
Interest expense:
Savings deposits		(1	)		0			(1	)		(1	)		(23	)		(24	)
NOW deposits		1,041			1,382			2,423			107			(131	)		(24	)
Money market deposits		(463	)		(1,026	)		(1,489	)		(857	)		(4,961	)		(5,818	)
Time deposits		(6,264	)		(11,601	)		(17,865	)		589			(7,503	)		(6,914	)
Other borrowings		31			(183	)		(152	)		(616	)		(522	)		(1,138	)
Borrowings from FHLB		(755	)		(864	)		(1,619	)		49			(826	)		(777	)
Total interest expense		(6,411	)		(12,292	)		(18,703	)		(729	)		(13,966	)		(14,695	)
Increase (decrease) in net interest income	$	(1,301	)	$	10,910		$	9,609		$	(1,035	)	$	(2,833	)	$	(3,868	)

(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.
(2)	The volume/rate variance for each category has been allocated on a consistent basis between rate and volume variances, based on the percentage of rate, or volume, variance to the sum of the two absolute variances.

Results of Operations —Years Ended December 31, 2010 and 2009

Net Income.Net income available to common shareholders for 2010 was $461,000, representing net income per diluted share of $0.03, compared to net loss to common shareholders of ($18.1) million, or ($1.15) per diluted share the prior year. The improvement to net income in 2010 from net loss for 2009 is mostly attributed to a reduction in the provision for credit losses, improved net interest income and continued reductions in noninterest expense. Net interest income for 2010 after provision for credit losses increased by $24.6 million, or 104.3%, as compared to 2009. The taxable equivalent net interest margin increased 82 basis points for 2010, to 4.00%, from 3.18% for 2009. Noninterest income increased $0.3 million, or 1.7%, in 2010, while noninterest expense for 2010 decreased $5.0 million, or 7.1%. The provision for loan losses in 2010 was $21.3 million, down $14.4 million, or 40.6% from $35.7 million in 2009. Return on average assets for 2010 was 0.18% compared to (0.74)% for 2009. Return on average shareholders’ equity for 2010 was 2.03% compared to (8.87)% in 2009.

Net Interest Income.Net interest income represents the gross profit from the lending and investment activities of a banking organization and is the most significant factor affecting the earnings of the Company. Net interest income is influenced by changes in interest rates, volume and the mix of these various components. Net interest income for 2010, on a taxable-equivalent basis, increased $9.6 million, or 15.7%, compared to 2009. This was primarily due to an increase in net interest margin, which increased 82 basis points over the same period. Average earning assets in 2010 decreased $158.4 million, or 8.2%, to $1.77 billion, compared to $1.93 billion in

39

2009. Average interest-bearing liabilities for 2010 decreased $145.5 million, or 8.5%, to $1.56 billion, compared to $1.70 billion for 2009.

The taxable-equivalent net interest margin for 2010 increased to 4.00%, compared to 3.18% for 2009, an improvement of 82 basis points. During 2010, the Bank substantially reduced its dependence on high cost time deposits, and, as a result, net interest income and the net interest margin improved steadily throughout 2010. In 2010, the average yield on earning assets decreased by five basis points while the average rate on interest-bearing liabilities decreased by 99 basis points, which resulted in an increase in the interest rate spread in 2010 of 94 basis points compared to the prior year.

The table,“Average Balances and Net Interest Income Analysis,” on page 37 summarizes net interest income and average yields earned, and rates paid for the years indicated, on a taxable-equivalent basis. The table, “Volume and Rate Variance Analysis” on page 38 presents the changes in interest income and interest expense attributable to volume and rate changes between the years indicated.

Provision for Credit Losses and Allowance for Credit Losses.The Company recorded a $21.3 million provision for credit losses during the year ended December 31, 2010, compared to a $35.7 million provision during the previous year. The decrease in 2010 is primarily a result of a lower level of chargeoffs in 2010 than in 2009, following the Company’s decision in 2009 to more quickly take appropriate aggressive action with its problem credits. During the fourth quarter of 2010, the Company charged off $6.2 million of a $10.0 million loan which represents subordinated debt to a financial institution. The Company does not have any other loans to financial institutions. The Company’s allowance for credit losses decreased 19.8% from the prior year end and was $28.8 million at December 31, 2010. The allowance for credit losses expressed as a percentage of total loans (including loans held for sale) decreased from 2.45% at December 31, 2009 to 2.15% at December 31, 2010.

Noninterest Income.In 2010, noninterest income increased $330,000 to $19.5 million. Pre-tax gains on sale of investment securities totaled $3.6 million in 2010 compared to $389,000 in 2009. The Company sold substantially all of its municipal securities to reduce exposure to municipalities, many of which are experiencing challenging budgetary issues. These gains were partially offset by losses on sale of OREO of $1.8 million in 2010 and $591,000 in 2009 and other writedowns on land and fixed assets of $418,000 in 2010. For 2010, growth in mortgage revenue and investment services income exceeded declines in deposit service income. Mortgage revenue increased $1.8 million, or 262%, for the year due primarily to the Company’s acquisition of the assets of Bradford Mortgage Company a year ago. Investment services revenue increased $403,000 for the year to $1.6 million from $1.2 million in 2009. Deposit service charge revenue declined 13% for the year, or $1.1 million, due primarily to ongoing regulatory changes in the industry and changes in consumer behavior. Merchant processing income decreased by $1.6 million as a result of the Company’s sale of its merchant card servicing operation in 2009. For the detailed change in other operating income please see the table “Other Operating Income and Expenses” in Note 13 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Noninterest Expense.In 2010, noninterest expense declined $5.0 million, or 7%, compared to 2009. The Company recorded a $3.5 million increase in OREO-related costs in 2010 compared to 2009. The results in 2009 were affected by $3.8 million of one time expenses related to restructuring branch operations, terminating certain retired data processing systems and termination of non-executive employment agreements totaling $2.9 million pre-tax, as well as a special industry-wide FDIC assessment expense of $970,000. Excluding the one-time items and the increased costs on OREO, operating costs have declined $4.6 million for the year on lower data processing costs, legal and professional expenses, merchant processing costs and various other operating expense reductions. For the detailed change in other operating income please see the table “Other Operating Income and Expenses” in Note 13 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Provision for Income Taxes.Bancorp recorded a tax benefit of $0.2 million in 2010, compared to a tax benefit totaling $11.6 million in 2009. The tax benefits in both years are primarily attributable to the provisions for credit losses and asset writedowns recorded during those years. Bancorp’s effective tax rate was (7.9)% in 2010

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and (43.5)% in 2009. In both 2010 and 2009, the difference between the effective tax rate and the statutory rate was principally due to tax exempt interest income.

Results of Operations —Years Ended December 31, 2009 and 2008

Net Income.Net loss available to common shareholders for 2009 was $18.1 million, representing a net loss per diluted share of $1.15, compared to net loss to common shareholders of $57.1 million, or $3.64 per diluted share the prior year. Excluding the goodwill impairment, the net loss available to common shareholders for 2008 was $6.6 million, representing a net loss per diluted share of $0.42. The decrease in net loss for 2009 is mostly attributed to the write off of $50.4 million of goodwill during 2008, partially offset by an increase in the provision for credit losses as a result of the continued weakness in the national and regional economies. Net interest income after provision for credit losses decreased by $14.6 million, or 38.2%, as compared to 2008. The taxable equivalent net interest margin decreased 23 basis points during 2009, to 3.18%, from 3.41% for 2008. Noninterest income decreased $1.5 million, or 7.0%, in 2009, while noninterest expense for 2009 decreased $53.1 million, or 43.3%. The provision for loan losses in 2009 was $35.7 million, up $10.5 million, or 41.5% from $25.3 million in 2008. Return on average assets for 2009 was (0.98)% compared to (2.72)% for 2008. Return on average shareholders’ equity for 2009 was (11.75)% compared to (29.38)% in 2008.

Net Interest Income.Net interest income represents the gross profit from the lending and investment activities of a banking organization and is the most significant factor affecting the earnings of the Company. Net interest income is influenced by changes in interest rates, volume and the mix of these various components. Net interest income for 2009, on a taxable-equivalent basis, decreased $3.9 million, or 5.9%, compared to 2008. This was primarily due to a decline in net interest margin, which decreased 23 basis points. Average earning assets in 2009 increased $18.2 million, or 0.9%, to $1.93 billion, compared to $1.91 billion in 2008. Average interest-bearing liabilities for 2009 decreased $15.2 million, or 0.9%, to $1.70 billion, compared to $1.72 billion for 2008.

The taxable-equivalent net interest margin for 2009 decreased to 3.18%, compared to 3.41% for 2008, a decline of 23 basis points. In mid-2009, the Bank began reducing its dependence on high cost time deposits, and, as a result, net interest income and the net interest margin improved steadily in the second half of 2009, although this improvement was insufficient to overcome the effect of higher deposit costs in the first half of the year. In 2009, the average yield on earning assets decreased by 102 basis points while the average rate on interest-bearing liabilities decreased by 83 basis points, which resulted in a decrease in the interest rate spread in 2009 of 19 basis points compared to the prior year.

The table,“Average Balances and Net Interest Income Analysis,” summarizes net interest income and average yields earned, and rates paid for the years indicated, on a taxable-equivalent basis. The table, “Volume and Rate Variance Analysis” presents the changes in interest income and interest expense attributable to volume and rate changes between the years indicated.

Provision for Credit Losses and Allowance for Credit Losses.The Company recorded a $35.7 million provision for credit losses during the year ended December 31, 2009, compared to a $25.3 million provision during the previous year. The increase in 2009 is primarily a result of continued weakness in asset and credit quality caused by the downturn in the real estate market, disruption and volatility in the financial markets, and the overall decline in the local and national economies. In addition, during 2009, the Company improved its process for identifying and taking appropriate aggressive action with its problem credits. The Company’s allowance for credit losses remained essentially unchanged from the prior year end and was $35.8 million at December 31, 2009. The allowance for credit losses expressed as a percentage of total loans (including loans held for sale) increased from 2.23% at December 31, 2008 to 2.45% at December 31, 2009.

Noninterest Income.In 2009, noninterest income decreased $1.5 million, or 7.0%, and totaled $19.2 million compared to $20.6 million in 2008. Fee income from service charges on deposit accounts for 2009 decreased $0.8 million, or 8.6%, compared to 2008. Noninterest income for 2009 includes $0.4 million in gains from the sales of investment securities, compared to $2.5 million of such gains during the previous year. These declines were partially offset by growth in mortgage banking revenue and investment services income, which increased 51.8%

41

and 35.7%, respectively from the previous year. Other income for 2009 includes a $1.1 million gain from the sale of merchant card services, and also includes $0.6 million of income on an investment in bank-owned life insurance, compared to $1.1 million of income from bank-owned life insurance in 2008. For the detailed change in other operating income please see the table “Other Operating Income and Expenses” in Note 13 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Noninterest Expense.In 2009, noninterest expense was $69.5 million, representing a decrease of $53.1 million, or 43.3%, from 2008. The decrease was primarily the result of the write off of $50.4 million of goodwill in 2008. Excluding one time costs, such as the impairment of goodwill, losses on disposal of branch locations, and a $3.5 million increase in the cost of FDIC insurance, non-interest expense declined $8.9 million for the twelve months ending December 31, 2009 compared to the same period in 2008. Personnel expense, consisting of employee salaries and benefits, decreased $4.3 million, or 12.2%, primarily as a result of headcount reductions taken during the year. For the detailed changes in other operating expenses, please see the table “Other Operating Income and Expense” in Note 13 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Provision for Income Taxes.Bancorp recorded a tax benefit of $11.6 million in 2009, compared to a tax benefit totaling $6.9 million in 2008. The tax benefits in both years are primarily attributable to the provisions for credit losses and asset writedowns recorded during those years. Bancorp’s effective tax rates were (43.5)% in 2009 and (10.8)% in 2008. Excluding the goodwill impairment in 2008, the effective rate for 2008 was (51.7)%. In 2009, the difference between the effective tax rate and the statutory rate was principally due to tax exempt interest income. In 2008, the difference between the effective rate and the statutory rate was primarily the result of the write off of goodwill.

Liquidity and Cash Flow

Market and public confidence in our financial strength and in the strength of financial institutions in general will largely determine our access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital resources. 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. Management measures our liquidity position by giving consideration to both on- and off-balance sheet sources of, and demands for, funds on a daily and other periodic bases. Deposit withdrawals, loan funding and general corporate activity create the primary needs for liquidity for the Bank. Sources of liquidity include cash and cash equivalents, net of federal requirements to maintain reserves against deposit liabilities, investments available for sale, loan repayments, loan sales, increases in deposits, and increases in borrowings from the FHLB secured with pledged loans and securities, and from correspondent banks under overnight federal funds credit lines and securities sold under repurchase agreements.

Bancorp, the bank holding company, has sufficient cash and cash equivalents on hand at December 31, 2010 to provide for Bancorp’s obligations and service its debt for approximately two years.

The investment portfolio at December 31, 2010 included securities with a par value of approximately $126.3 million with call features, whereby the issuers of such securities have the option to repay the security before the contractual maturity date. Bancorp anticipates that a number of these debt instruments may be called by their issuers during 2011, due to the current volatility in the interest markets for long term debt issuances.

The Bank has the ability to manage, within competitive and cost of funds constraints, increases in deposits within its market areas. The Bank is a member of an electronic network that allows it to post interest rates and attract certificates of deposit nationally. It also utilizes CDARS and brokered deposits to supplement in-market deposit growth.

The Bank has established wholesale repurchase agreements with regional brokerage firms. The Bank can access this additional source of liquidity by pledging investment securities with the brokerage firms.

42

Liquidity is further enhanced by a line of credit with the FHLB, amounting to approximately $361.0 million, collateralized by FHLB stock, investment securities, qualifying 1 to 4 family residential mortgage loans, and qualifying commercial real estate loans. Based upon collateral pledged, as of December 31, 2010, the borrowing capacity under this line was $276.9 million, with $114.2 million available to be borrowed. 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. In addition to the credit line at the FHLB, the Bank has borrowing capacity at the Federal Reserve Bank totaling $30.0 million, of which none was outstanding at December 31, 2010.

As presented in the Consolidated Statement of Cash Flows, the Company generated $42.9 million in operating cash flow during 2010, compared to $14.7 million in 2009 and $22.1 million in 2008. The increase from 2009 to 2010 was primarily the result of the Company’s net income in 2010, compared to a net loss in 2009. The decrease from 2008 to 2009 was primarily a result of an increase in loans held for sale during 2009 compared to a decrease in loans held for sale during 2008, offset by a number of other changes.

Cash provided by investing activities was $80.5 million in 2010, compared to cash provided by investing activities of $102.3 million in 2009 and cash used for investing activities of $115.6 million in 2008. Cash flows for 2010 and 2009 included inflows of $73.6 million and $83.9 million, respectively, related to a decrease in the loan portfolio, compared to a cash outflow of $156.3 million in 2008 as the loan portfolio increased.

Cash used by financing activities was $139.2 million in 2010, compared to cash used by financing activities of $118.0 million in 2009 and cash provided by financing activities of $80.7 million in 2008. Cash flows for 2010 and 2009 included outflows of $178.8 million and $225.8 million, respectively related to decreases in time deposits, while 2008 included cash inflows of $85.9 million from an increase in time deposits. During 2010, the Company had a cash inflow of $132.5 million related to increase in core deposits, partially offset by cash outflows of $90.3 million used to reduce outstanding borrowings. In 2009, the Company had cash inflows of $61.6 million as a result of increased core deposits and an inflow of $48.7 million as a result of increased borrowings.

Contractual Obligations and Commitments

In the normal course of business there are various outstanding contractual obligations of Bancorp that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, which may or may not require future cash outflows. Payments for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts. The following table reflects the material contractual obligations of Bancorp outstanding as of December 31, 2010.

43

Contractual Obligations
(in thousands)

			Payments Due by Period
			One Year		Three Years		After
	Within One		to Three		to Five		Five
	Year		Years		Years		Years		Total
Junior subordinated notes and wholesale repurchase agreements	$	15,000	$	—	$	—	$	46,774	$	61,774
Federal Home Loan Bank borrowings		60,000		32,700		20,000		—		112,700
Operating lease obligations		1,454		2,607		1,767		664		6,492
Purchase obligations		6,946		7,260		4,961		1,892		21,059
Other long-term liabilities		1,482		2,911		3,017		9,010		16,420
Total contractual cash obligations excluding deposits		84,882		45,478		29,745		58,340		218,445
Deposits		1,377,119		50,348		25,395		133		1,452,995
Total contractual cash obligations	$	1,462,001	$	95,826	$	55,140	$	58,473	$	1,671,440

Capital Resources

Banks, bank holding companies, and financial holding companies, as regulated institutions, must meet required levels of capital. The Federal Reserve and the FDIC have minimum capital regulations 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. On August 26, 2005, FNB completed a private placement of trust preferred securities in the amount of $25.0 million, and contributed $24.0 million of the proceeds to its bank subsidiary as capital to support the bank’s growth. See Note 8 of the Notes to the Consolidated Financial Statements for a discussion of FNB’s issuance of the trust preferred securities. On December 12, 2008, the Company sold Series A Preferred Stock and a Warrant to the U.S. Treasury for $52.4 million as part of the CPP. As shown in Note 19 of the Notes to the Consolidated Financial Statements, the Company and the Bank both maintained capital levels exceeding the minimum levels required to be categorized as “well capitalized” for each of the three years presented.

The Company’s stock repurchase program expired on May 31, 2009. The Company did not repurchase any shares during 2009 or 2010.

Lending Activities

General.The Bank offers a broad array of lending services, including construction, real estate, commercial and consumer loans, to individuals and small to medium-sized businesses and retail clients that are located in or conduct a substantial portion of their business in the Bank’s market areas. The Bank’s total loans (excluding loans held for sale) at December 31, 2010 were $1.26 billion, or 69.8% of total assets. At December 31, 2010, the Bank had no large loan concentrations (exceeding 10% of its portfolio) in any particular industry, other than real estate. The Bank’s legal lending limit at December 31, 2010 was $31.6 million and the largest credit relationship was approximately $13.9 million.

Loan Composition.The following table summarizes, at the dates indicated, the composition of the Bank’s loan portfolio and the related percentage composition (excluding loans held for sale). A substantial portion of the increases from 2006 to 2007 are as a result of the Merger.

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Summary of Loan Portfolio
(in thousands; excluding loans held for sale)

											December 31
	2010					2009					2008					2007						2006
			% Of					% Of					% Of						% Of						% Of
			Total					Total					Total						Total						Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount			Loans			Amount			Loans
Secured by owner-occupied nonfarm non- residential properties	$	222,889				$	232,769				$	242,379				$	—	(a)				$	—	(a)
Secured by other nonfarm nonresidential properties		159,086					202,030					202,069					407,015						195,660
Other commercial and industrial		134,011					158,624					173,197					164,559						83,712
Total Commercial		515,986		40.9	%		593,423		40.7	%		617,645		38.5	%		571,574			38.4	%		279,372			36.8	%
Construction loans — 1 to 4 family residential		16,736					28,929					27,131					—	(a)					—	(a)
Other construction and land development		122,382					148,356					212,622					248,222						59,959
Total Real estate — construction		139,118		11.0			177,285		12.2			239,753		13.7			248,222			16.6			59,959			7.9
Closed-end loans secured by 1 to 4 family residential properties		304,640					339,485					371,592					353,814						240,631
Lines of credit secured by 1 to 4 family residential properties		219,557					234,674					231,314					203,779						107,067
Loans secured by 5 or more family residential properties		20,207					24,333					28,888					17,546						10,073
Total Real estate — mortgage		544,404		43.2			598,492		41.1			631,794		39.4			575,139			38.6			357,771			47.1
Credit cards		7,749					7,416					6,703					6,555						6,648
Other revolving credit plans		9,042					10,974					14,354					17,781						4,544
Other consumer loans		36,224					57,079					80,342					67,490						49,761
Total Consumer		53,015		4.2			75,469		5.2			101,399		7.6			91,826			6.2			60,953			8.0
Loans to other depository institutions		3,800					10,000					10,000					—						—
All other loans		4,262					1,857					2,997					3,323						1,923
Total Other		8,062		0.7			11,857		0.8			12,997		0.8			3,323			0.2			1,923			0.2
Total	$	1,260,585		100.0	%	$	1,456,526		100.0	%	$	1,603,588		100.0	%	$	1,490,084			100.0	%	$	759,978			100.0	%

(a) Data is not available for these line items prior to 2008

The Company has no foreign loan activity.

Real Estate Loans. Loans secured by real estate totaled $1.07 billion, or 84.8% of total loans (excluding loans held for sale) at December 31, 2010. At year end 2010, the Bank had real estate loan relationships of various sizes ranging up to $13.5 million and commitments up to $13.9 million, secured by office buildings, retail establishments, residential development and construction, warehouses, motels, restaurants and other types of property. Loan terms are typically limited to five years, with payments through the date of maturity generally based on a 15-20 year (15-30 year for owner-occupied single and multi-family properties) amortization schedule. Interest rates may be fixed or adjustable, based on market conditions, and the Bank generally charges an origination fee. Management has attempted to reduce credit risk in the real estate portfolio by emphasizing loans on owner-occupied office, multi-family and retail buildings where the loan to value ratio, established by independent appraisals, does not exceed 70% to 80%, and net projected cash flow available for debt service amounts to at least 120% to 135% of the debt service requirement. The Bank also generally requires personal guarantees and personal financial statements from the principal owners in such cases.

Real Estate — Mortgage.The Bank originates fixed and adjustable rate mortgages as well as FHA, VA and USDA Government supported loans for resale into the secondary market. The Bank provides bank-held mortgage products to accommodate qualified borrowers who do not meet all the standards for a conventional secondary market mortgage. During 2010 the Bank originated $228.7 million of loans in these various categories. Also included in real estate mortgage loans are home equity revolving lines of credit, with $219.6 million outstanding as of December 31, 2010.

Real Estate — Construction Loans. The Bank’s current lending strategy is to reduce exposure in this portfolio segment. The Bank expects that the majority of its new construction and development loans on commercial and residential projects will be in the range of $300,000 to $5.0 million. At December 31, 2010 and 2009, the Bank held $139.1 million and $177.3 million, respectively of such loans. To reduce credit risk associated with such loans, the Bank emphasizes small commercial centers that are substantially preleased, or residential projects that

45

are substantially presold and built in strong, proven markets. The leases on commercial projects must generally result in a loan to appraised value of 75% to 80% or less and a net cash flow to debt service of no less than 120% to 135%. The Bank typically requires a personal guarantee from the developer or builder. Loan terms are generally 12-15 months, although the Bank will make a “mini-permanent” loan for purposes of construction and development of up to a five year term. Rates can be either fixed or variable, and the Bank usually charges an origination fee. The Bank experienced net chargeoffs from real estate — construction loans of $5.3 million in 2010, $11.6 million in 2009, and $7.2 million in 2008.

Commercial Loans.The Bank makes loans for commercial purposes to various types of businesses. At December 31, 2010, the Bank held $516.0 million of commercial loans, or 40.9% of its total loan portfolio. Equipment loans are typically made on terms up to five years at fixed or variable rates, with the financed equipment pledged as collateral to the Bank. The Bank attempts to reduce its credit risk on these loans by limiting the loan to value percentage to 80%. Working capital loans are made on terms typically not exceeding one year. These loans may be secured or unsecured, but the Bank attempts to limit its credit risk by requiring the borrower to demonstrate its capacity to produce net cash flow available for debt service equal to 120% to 150% of its debt service requirements. The Bank experienced net chargeoffs from commercial loans of $7.7 million in 2010, $10.6 million in 2009, and $4.1 million in 2008.

Consumer Loans.Using a centralized underwriting process, the Bank makes a variety of loans to individuals for personal and household purposes, including (i) secured and unsecured installment and term loans originated directly by the Bank; (ii) unsecured revolving lines of credit, and (iii) amortizing secured lot loans. Certain of the direct loans are secured by the borrowers’ residences. At December 31, 2010, the Bank held $53.0 million of consumer loans. During 2010, 2009, and 2008, the Bank experienced net consumer chargeoffs of $2.2 million, $3.9 million, and $3.7 million, respectively.

Loan Approval and Review.When the aggregate outstanding loans to a single borrower or related entities exceed an individual officer’s lending authority, the loan request must be considered and approved by an officer with a higher lending limit. All consumer purpose loan decisions are made by the Bank’s Central Underwriting Support Group. Area executives can generally approve commercial relationships up to $750,000. If the lending request exceeds the area executive’s lending limit, the loan must be submitted to and approved by a senior credit officer. A senior credit officer has authority to approve commercial relationships up to $2,500,000 on a secured basis. All loan relationships between $2,500,000 and $4,000,000 must be approved by the Chief Commercial Credit Officer (“CCCO”). All loans between $4,000,000 and $7,500,000 must be approved by the Chief Credit Officer (“CCO”). Loan relationships exceeding $7,500,000 up to $10,000,000 must be unanimously approved by a committee of the CCCO, the CCO, and the Bank’s Chief Executive Officer (“CEO”). Loan relationships over $10,000,000 must be approved by the Credit Management Committee of the Bank’s Board of Directors.

The Bank’s Loan Review Program is headed by the Loan Review Manager, who reports directly to the Credit Management Committee of the Bank’s Board of Directors. The Program includes the Annual Loan Review Coverage Plan which is approved by the Credit Management Committee and which stipulates a certain number of loan reviews to be completed by the Loan Review Manager and employees under his or her guidance, and an additional number of loan reviews to be completed by independent loan review consulting firms. In addition, all loan officers are charged with the responsibility of reviewing their portfolios and making adjustments to the risk ratings as needed. The “Watch Loan Committee”, which includes the CCO, the CCCO, the Special Assets Manager and the Special Assets Officers, reviews all commercial loans graded special mention, substandard, doubtful and loss on a monthly basis, and provides a summary to the Credit Management Committee, also on a monthly basis.

The Bank’s credit review system supplements its loan rating system, pursuant to which the Bank may place a loan on its criticized asset list or may classify a loan in one of various other classification categories. A specified minimum percentage of loans in each adverse asset classification category, based on the probability of default and on the historical loss experience of the Bank in each such category, are used to determine the adequacy of the Bank’s allowance for credit losses monthly. These loans are also individually reviewed by the Watch Loan Committee of the Bank to determine whether a greater allowance allocation is justified due to the facts and circumstances of a particular adversely classified loan.

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The Bank’s loan portfolio is analyzed on an ongoing basis to evaluate current risk levels, and risk grades are adjusted accordingly. The Bank’s allowance for credit losses is also analyzed monthly by management. This analysis includes a methodology that separates the total loan portfolio into homogeneous loan classifications for purposes of evaluating risk. The required allowance is calculated by applying a risk adjusted reserve requirement to the dollar volume of loans within a homogenous group. Major loan portfolio subgroups include: risk graded commercial loans, mortgage loans, home equity loans, retail loans and retail credit lines. The provisions of ASC 310-10-35 “Loans that Are Identified for Evaluation or that Are Individually Considered Impaired” are applied to individually significant loans. Finally, individual reserves may be recorded based on a review of loans on the watch list. See also Note 5 in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Loan Portfolio — Maturities and Interest Rate Sensitivities
(in thousands, including loans held for sale)

	Maturity								Maturity Greater Than One Year
			Over One		Over				Fixed		Floating or
	One Year		Year to		Five				Interest		Adjustable
	or Less		Five Years		Years		Total		Rate		Rate
Secured by owner-occupied nonfarm non-residential properties	$	40,345	$	158,998	$	32,082	$	231,425	$	165,553	$	25,527
Secured by other nonfarm non-residential properties		30,581		125,920		23,381		179,882		109,477		39,824
Other commercial and industrial		52,765		75,283		10,486		138,534		63,559		22,210
Total Commercial	$	123,691	$	360,201	$	65,949	$	549,841	$	338,589	$	87,561
Construction loans — 1 to 4 family residential		15,999		959		—		16,958		612		347
Other construction and land development		52,703		56,067		20,228		128,998		57,393		18,902
Total Real estate — construction		68,702		57,026		20,228		145,956		58,005		19,249
Closed-end loans secured by 1 to 4 family residential properties		52,469		121,835		151,101		325,405		133,977		138,959
Lines of credit secured by 1 to 4 family residential properties		2,106		9,898		217,519		229,523		100		227,317
Loans secured by 5 or more family residential properties		924		23,244		461		24,629		19,890		3,815
Total Real estate — mortgage		55,499		154,977		369,081		579,557		153,967		370,091
Credit cards		7,749		—		—		7,749		—		—
Other revolving credit plans		1,004		148		8,160		9,312		3,061		5,247
Other consumer loans		6,237		29,717		1,148		37,102		30,466		399
Total Consumer		14,990		29,865		9,308		54,163		33,527		5,646
Loans to other depository institutions		—		3,800		—		3,800		—		3,800
All other loans		712		1,274		2,276		4,262		3,515		35
Total Other		712		5,074		2,276		8,062		3,515		3,835
Total	$	263,594	$	607,143	$	466,842	$	1,337,579	$	587,603	$	486,382

Asset Quality

The Bank considers asset quality to be of primary importance, and employs a formal internal loan review process to ensure adherence to its lending policy as approved by the Bank’s Board of Directors. See “Lending Activities — Loan Approval and Review”. It is the responsibility of each commercial lending officer to assign an appropriate risk grade to every loan they originate. Credit Administration, through the loan review process, validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, it is the lending officer’s responsibility to recommend appropriate changes in the borrower’s risk grade.

Currently, the grading process utilized by the Bank is segmented by product type. This methodology does not provide a direct correlation with groupings utilized in the other tables presenting loan information.

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The following table summarizes, by internally assigned risk grade, the risk grade for loans for which the bank has assigned a risk grade.

Risk Profile by Internally Assigned Risk Grade
(in thousands)

									December 31
	2010										2009
			Special		Sub-								Special		Sub-
	Pass		Mention		standard		Doubtful		Total		Pass		Mention		standard		Doubtful		Total
Commercial	$	423,474	$	48,651	$	75,682	$	1,121	$	548,928	$	503,985	$	55,806	$	37,977	$	15,270	$	613,038
Real estate — construction		66,766		13,673		47,319		630		128,388		71,516		27,135		37,521		10,080		146,252
Real estate — mortgage		92,610		7,898		20,288		798		121,594		104,379		12,227		12,726		2,817		132,149
Consumer		2		—		—		—		2		2		—		—		—		2
Other		3,448		—		3,903		—		7,351		896		105		—		—		1,001
Total	$	586,300	$	70,222	$	147,192	$	2,549	$	806,263	$	680,778	$	95,273	$	88,224	$	28,167	$	892,442

The Bank’s loan portfolio consists of loans made for a variety of commercial and consumer purposes. Because commercial loans are made based to a great extent on the Bank’s assessment of a borrower’s income, cash flow, character and ability to repay, such loans are generally viewed as involving a higher degree of credit risk than is the case with residential mortgage loans or consumer loans. To manage this risk, the Bank’s commercial loan portfolio is managed under a defined process which includes underwriting standards and risk assessment, procedures for loan approvals, loan grading, ongoing identification and management of credit deterioration and portfolio reviews to assess loss exposure and to ascertain compliance with the Bank’s credit policies and procedures.

Allocation of Allowance for Credit Losses
(in thousands)

											December 31
	2010					2009					2008					2007					2006
			% Of					% Of					% Of					% Of					% Of
			Total					Total					Total					Total					Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial	$	9,952		40.9	%	$	10,648		40.7	%	$	7,351		38.5	%	$	11,185		38.4	%	$	2,724		36.8	%
Real estate — construction		6,865		11.0			11,662		12.2			13,039		13.6			6,945		16.6			1,032		7.9
Real estate — mortgage		9,056		43.2			9,615		41.1			8,555		39.5			7,928		38.6			3,827		47.1
Consumer		2,827		4.2			3,858		5.2			6,742		7.6			4,295		6.2			1,606		8.0
Other		52		0.7			60		0.8			118		0.8			17		0.2			375		0.2
Total	$	28,752		100.0	%	$	35,843		100.0	%	$	35,805		100.0	%	$	30,370		100.0	%	$	9,564		100.0	%

The allowance for credit losses has been allocated on an approximate basis. The entire amount of the allowance is available to absorb losses occurring in any category. The allocation is not necessarily indicative of future losses.

In general, consumer loans (including mortgage and home equity) have a lower risk profile than commercial loans. Commercial loans (including commercial real estate, commercial non real estate and construction loans) are generally larger in size and more complex than consumer loans. Commercial real estate loans are deemed less risky than commercial non real estate and construction loans, because the collateral value of real estate generally maintains its value better than non real estate or construction collateral. The Bank has little or no exposure to subprime lending. Consumer loans, which are smaller in size and more geographically diverse across the Bank’s entire primary market areas, provide risk diversity across the portfolio. Because mortgage loans are secured by first liens on the consumer’s residential real estate, they are the Bank’s lowest risk profile loan type. Home equity loans are deemed less risky than unsecured consumer loans because home equity loans and lines are secured by first or second deeds of trust on the borrower’s residential real estate. A centralized decision-making process is in place to control the risk of the consumer, home equity and mortgage loan portfolio. The consumer real estate appraisal process is also centralized relative to appraisal engagement, appraisal review, and appraiser quality assessment. These processes are detailed in the underwriting guidelines, which cover each retail loan product type from underwriting, servicing, compliance issues and closing procedures.

Management follows a loan review program designed to evaluate the credit risk in its loan portfolio. Through this loan review process, the Bank maintains an internally classified watch list that helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. In establishing the

48

appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history and the current delinquent status. As a result of this process, certain loans are categorized as special mention, substandard, doubtful or loss and reserves are allocated based on management’s judgment and historical experience.

The function of determining the allowance for credit losses is fundamentally driven by the risk grade system. The allowance for credit losses represents management’s estimate of the appropriate level of reserve to provide for probable losses inherent in the loan portfolio. In determining the allowance for credit losses and any resulting provision to be charged against earnings, particular emphasis is placed on the results of the loan review process. Consideration is also given to a review of individual loans, historical loan loss experience, the value and adequacy of collateral and economic conditions in the Bank’s market areas. For loans determined to be impaired, the allowance is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for credit losses. Such agencies may require the Bank to recognize changes to the allowance based on their judgments about information available to them at the time of their examinations. Loans are charged off when in the opinion of management, they are deemed to be uncollectible. Recognized losses are charged against the allowance, and subsequent recoveries are added to the allowance.

Management believes the allowance for credit losses of $28.8 million at December 31, 2010 is adequate to cover probable losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires continuous evaluation and considerable judgment. Management’s judgments are based on numerous assumptions about current events which it believes to be reasonable, but which may or may not be valid. Thus, there can be no assurance that credit losses in future periods will not exceed the current allowance or that future increases in the allowance will not be required. No assurance can be given that management’s ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting future operating results of the Bank.

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The following table presents an analysis of the changes in the allowance for credit losses.

Analysis of Allowance for Credit Losses

(in thousands, except ratios)

				As of or for the Years Ended
							December 31
	2010			2009			2008			2007			2006
Average amount of loans outstanding	$	1,406,624		$	1,538,777		$	1,575,064		$	1,060,522		$	756,088
Amount of loans outstanding at December 31		1,337,579			1,463,094			1,604,525			1,490,084			759,978
Allowance for credit losses:
Balance on January 1	$	35,843		$	35,805		$	30,370		$	9,564		$	8,440
Loans charged off:
Secured by owner-occupied nonfarm non-residential properties		1,433			3,108			2,745			—	(a)		—	(a)
Secured by other nonfarm nonresidential properties		1,767			4,425			707			1,668			—
Other commercial and industrial		5,852			3,699			1,594			3,384			1,864
Total Commercial		9,052			11,232			5,046			5,052			1,864
Construction loans — 1 to 4 family residential		526			2,055			—			—	(a)		—	(a)
Other construction and land development		4,853			10,172			7,339			825			144
Total Real estate — construction		5,379			12,227			7,339			825			144
Closed end loans secured by 1 to 4 family residential properties		4,262			4,877			3,740			437			—
Lines of credit secured by 1 to 4 family residential properties		2,998			5,233			1,272			863			—
Total Real estate — mortgage		7,260			10,110			5,012			1,300			—
Credit Cards		291			276			300			221			286
Other consumer loans		2,538			4,649			4,771			2,014			3,153
Total Consumer		2,829			4,925			5,071			2,235			3,439
All Other		6,200			—			—			—			—
Total chargeoffs		30,720			38,494			22,468			9,412			5,447
Recoveries of loans previously charged off:
Total Commercial		1,370			605			978			210			406
Total Real estate — construction		80			588			95			8			11
Total Real estate — mortgage		270			514			243			34			—
Total Consumer		647			1,076			1,296			702			644
Total Other		10			—			29			2			—
Total recoveries		2,377			2,783			2,641			956			1,061
Net loans charged off		28,343			35,711			19,827			8,456			4,386
Provision for loan losses		21,252			35,749			25,262			18,952			5,510
Allowance acquired via merger		—			—			—			10,310			—
Balance on December 31	$	28,752		$	35,843		$	35,805		$	30,370		$	9,564
Ratio of net chargeoffs of loans to average loans outstanding during the year		2.01	%		2.32	%		1.26	%		0.79	%		0.58	%
Ratio of allowance to loans outstanding		2.15	%		2.45	%		2.23	%		2.04	%		1.26	%
Ratio of non-performing assets to loans outstanding		5.78	%		5.85	%		3.03	%		1.16	%		1.30	%
Ratio of allowance to non-performing loans		56.84	%		61.56	%		90.52	%		234.35	%		161.50	%

(a) Data is not available for these line items prior to 2008

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Commercial loans.All commercial loans within the portfolio are risk graded among nine risk grades based on management’s evaluation of the overall credit quality of the loan, including the payment history, the financial position of the borrower, the underlying collateral value, an internal credit risk assessment and examination results. There is an increased reserve percentage for each successively higher risk grade. As a result, the allowance is adjusted upon any migration of a loan to a higher risk grade within the commercial loan portfolio. The reserve percentages utilized have been determined by management to be appropriate based on historical loan loss levels and the risk for each corresponding risk grade.

Mortgage, home equity, and credit lines.Reserves are calculated on mortgage, home equity, and credit lines based on historical loss experience. The average rolling eight quarter net loss percentage is calculated for each of these loan categories, and is multiplied by the dollar balance of loans in each of these categories to determine the required reserve.

Retail loans.The retail loans are pooled together to determine the reserve requirement. The average rolling eight quarter net loss percentage is calculated for this loan category, and is multiplied by the dollar balance of retail loans to determine a required reserve. An additional reserve, equal to 25.0% of all retail loans past due 90 days or more, is added to the above.

Specific impairment.Management evaluates significant loans graded substandard, doubtful and loss on an individual basis for impairment. The specific allowance is calculated based upon a review of these loans and the estimated losses at the balance sheet date. At December 31, 2010 and 2009, the recorded investment in significant loans considered impaired was approximately $38.3 million and $46.1 million, respectively and the specific allowance for credit losses associated with those loans was approximately $1.9 million and $2.7 million, respectively. The decrease in the amount of significant impaired loans held by the Bank and the associated allowance for credit losses resulted, primary, from the Bank’s decision to take appropriate aggressive action with our problem credits through chargeoffs and foreclosure.

Other potential problem loans.Loans graded substandard, doubtful and loss which do not fit the criteria to be considered significant are not evaluated on an individual basis for impairment. However, the Bank closely monitors such loans as a result of their elevated risk profile. As a result of the Bank’s disciplined and conservative loan classification methodology and the prolonged negative credit cycle, the balance of these other potential problem loans increased to $110.9 million at December 31, 2010 from $66.7 million at December 31, 2009. The loans that make up this category trended as management had projected and reached a peak level in the third quarter of 2010. These loans, while exhibiting signs of weakness, continue to perform pursuant to stated terms and conditions and therefore do not have identified expected losses. Approximately 70% of the loans in this category are identified as commercial and industrial or income producing commercial real estate, which management assigns a lower probability of default and/or loss given default. The allowance for credit losses associated with such loans was $5.2 million at December 31, 2010, which was based on a model that uses probability of default, and expected loss in the event of default, to determine expected losses within a given group of loans.

Provision for credit losses. The 2010 provision for credit losses totaled $21.3 million, compared to $35.7 million in 2009. As of December 31, 2010, nonperforming assets totaled $77.3 million, comprised of $50.6 million in nonperforming loans and $26.7 million in other real estate owned. Those figures compare to $58.2 million in nonperforming loans and $27.4 million in other real estate owned at the end of 2009, totaling $85.6 million in nonperforming assets. Net chargeoffs decreased in 2010 to $28.3 million, or 2.01% of average loans outstanding, compared with $35.7 million, or 2.32% of average loans outstanding in the prior year. During the fourth quarter of 2010, the Company charged off $6.2 million of a $10.0 million loan which represents subordinated debt to a financial institution. The Company does not have any other loans to financial institutions. At December 31, 2010 and 2009 the allowance for credit losses as a percentage of year end loans (including loans held for sale) was 2.15% and 2.45%, respectively. The 2010 and 2009 results have been impacted by the continued weakness in the regional and national economies.

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Nonperforming Assets
(in thousands, except ratios)

							December 31
	2010			2009			2008			2007			2006
Commercial nonaccrual loans, not restructured	$	23,453		$	46,788		$	32,428		$	8,688		$	3,682
Commercial nonaccrual loans, restructured		11,190			1,777			160			—			—
Non-commercial nonaccrual loans		8,537			4,772			5,601			3,548			4
Total nonaccrual loans		43,180			53,337			38,189			12,236			3,686
Loans past due 90 days or more and still accruing		27			3,450			1,277			72			2,103
Accruing restructured loans		7,378			1,442			90			651			133
Total nonperforming loans		50,585			58,229			39,556			12,959			5,922
Real estate acquired in settlement of loans		26,718			27,337			9,080			4,280			3,969
Total nonperforming assets	$	77,303		$	85,566		$	48,636		$	17,239		$	9,891
Nonperforming loans to loans outstanding at end of year		4.01	%		3.98	%		2.47	%		0.87	%		0.78	%
Nonperforming assets to total assets at end of year
		4.28	%		4.40	%		2.34	%		0.84	%		1.00	%

Nonperforming assets include nonaccrual loans, accruing loans contractually past due 90 days or more, restructured loans, and real estate acquired in settlement of loans. Loans are placed on nonaccrual status when: (i) management has concerns relating to the ability to collect the loan principal and interest and (ii) generally when such loans are 90 days or more past due. No assurance can be given, however, that economic conditions will not adversely affect borrowers and result in increased credit losses.

Investment Activities

Our investment portfolio plays a primary role in the management of liquidity and interest rate sensitivity and, therefore, is managed in the context of the overall balance sheet. In 2010, the securities portfolio generated a substantial percentage of our interest income and served as a necessary source of liquidity.

Management attempts to deploy investable funds into instruments that are expected to increase the overall return of the portfolio given the current assessment of economic and financial conditions, while maintaining acceptable levels of credit, interest rate and liquidity risk, as well as capital usage and risk.

The following tables present the carrying values, fair values, and weighted average yields of our investment portfolio at December 31, 2010, 2009 and 2008 and the interval of maturities or repricings at December 31, 2010.

Investment Securities
(in thousands)

	December 31, 2010				December 31, 2009				December 31, 2008
	Amortized		Market		Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value		Cost		Value
U.S. government agencies obligations	$	109,274	$	107,524	$	49,005	$	49,519	$	56,622	$	57,954
Mortgage backed securities		55,989		60,309		77,430		81,690		97,843		102,042
Corporate bonds		82,816		84,513		33,978		35,604		—		—
Collateralized mortgage obligations		39,679		40,412		35,124		35,368		—		—
State and municipal obligations		17,380		15,411		105,169		105,994		115,627		114,912
Total debt securities		305,138		308,169		300,706		308,175		270,092		274,908
Other equity		16,174		16,959		17,189		17,694		13,642		13,896
Total securities	$	321,312	$	325,128	$	317,895	$	325,869	$	283,734	$	288,804

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Investment Securities Portfolio Maturity Schedule
(dollars in thousands)

	December 31, 2010
			Weighted
	Market		Average
	Value		Yield(1)
U. S. government agencies and mortgage backed obligations:
Within one year	$	—		—	%
One to five years		8,198		2.67
Five to ten years		69,123		4.12
After ten years		130,924		5.15
Total		208,245		4.71
Obligations of states and political subdivisions:
Within one year		—		—
One to five years		466		5.12
Five to ten years		2,358		4.10
After ten years		12,587		4.38
Total		15,411		4.36
Corporate Bonds:
Within one year		7,919		5.53
One to five years		32,862		5.29
Five to ten years		43,732		5.44
After ten years		—		—
Total		84,513		5.39
Total debt securities	$	308,169		4.86	%

⁽¹⁾ The yield related to securities exempt from federal income taxes is stated on a fully taxable-equivalent basis, assuming a federal income tax rate of 35%.

See also Note 4 in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

Information about the Company’s off-balance sheet risk exposure is presented in Note 17 in the Notes to the Consolidated Financial Statements.

Market Risk

Market risk is the risk of loss arising from adverse changes in the fair values of financial instruments or other assets caused by changes in interest rates, currency exchange rates, or equity prices. Interest rate risk is the Company’s primary market risk and results from timing differences in the repricing of assets and liabilities, changes in relationships between rate indices, and the potential exercise of explicit or embedded options.

For a complete discussion on market risk and how the Company addresses this risk, see Item 7A of this Annual Report on Form 10-K.

Effects of Inflation

As discussed in Item 7A of this Annual Report on Form 10-K, the effect of interest rate movements in response to changes in the actual and perceived rates of inflation can materially impact bank operations, which rely on net interest margins as a major source of earnings. Noninterest expense, such as salaries and wages, occupancy and equipment are also negatively affected by inflation.

53

Application of Critical Accounting Policies

The Company’s accounting policies are in accordance with accounting principles generally accepted in the United States and with general practice within the banking industry, and are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The Company’s significant accounting policies are discussed in detail in Note 1 in the Notes to the Consolidated Financial Statements. The following is a summary of the Bank’s allowance for credit losses, one of the most complex and judgmental accounting policies of the Company.

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. The Bank’s allowance for credit losses is also analyzed monthly by management. This analysis includes a methodology that separates the total loan portfolio into homogeneous loan classifications for purposes of evaluating risk. The required allowance is calculated by applying a risk adjusted reserve requirement to the dollar volume of loans within a homogenous group. 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 available to make evaluations, future adjustments may be necessary, if economic or other conditions differ substantially from the assumptions used. See additional discussion under “Asset Quality” above.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk is considered to be the Bank’s interest rate risk which could potentially have the greatest impact on operating earnings. The Bank is not subject to other types of market risk, such as foreign currency exchange rate risk, commodity or equity price risk. Interest rate risk on our balance sheet arises from the maturity mismatch of interest-earning assets versus interest-bearing liabilities, as well as the potential for maturities to shorten or lengthen our interest-earning assets and interest-bearing liabilities. In addition, 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 uses several interest rate risk measurement tools provided by a national asset liability management consultant to help manage this risk. The Bank’s Asset/Liability policy provides guidance for acceptable levels of interest rate risk and potential remediations. Management provides the consultant with key assumptions, which are used as inputs into the measurement tools. Following is a summary of two different tools management uses on a quarterly basis to monitor and manage interest rate risk.

Earnings Simulation Modeling.Net income is affected by changes in the level of interest rates, the shape of the yield curve and the general market pressures affecting current market interest rates at the time of simulation. Many interest rate indices do not move uniformly, creating certain disunities between them. For example, the spread between a 30 day, prime-based asset and a 30 day, FHLB advance may not be uniform over time. The earnings simulation model projects changes in net interest income caused by the effect of changes in interest rates on interest-earning assets and interest-bearing liabilities. Simulation results are measured as a percentage change in net interest income compared to the static-rate or “base case” scenario. The model uses the Company’s current balance sheet, but considers decreases in asset and liability volumes based on prepayment assumptions as well as rate changes. Rate changes are modeled gradually over a 12 month period, referred to as a “rate ramp.” The model projects only changes in interest income and expense and does not project changes in non-interest income, non-interest expense, provision for loan losses or the impact of changing tax rates. At December 31, 2010, net interest income simulation showed a negative 1.92% change from the base case in a 200 basis point ramped rising rate environment and a positive 0.15% change from the base case in a 100 basis point ramped declining rate environment. The projected decrease in net interest income is within the Asset/Liability Committee’s guidelines in a 200 basis point increasing or 100 basis point decreasing interest rate environment. However, management continually monitors signs of elevated risks and takes certain actions to limit these risks.

54

The following table summarizes the results of the Company’s income simulation model as of December 31, 2010.

	Change in Net Interest Income
	Year 1			Year 2
Change in Market Interest Rates:
200 basis point ramped increase		(1.92	)%		(2.50	)%
Base case — no change		—			(1.21	)%
100 basis point ramped decrease		0.15	%		(3.57	)%

Net Portfolio Value Analysis.Net portfolio value (“NPV”) represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 200 basis point increase or decrease in market interest rates with no effect given to any actions management might take to counter the effect of that interest rate movement. The following is a summary of the results of the report compiled by the Company’s outside consultant using data and assumptions management provided as of December 31, 2010.

	Estimated Change in Net Portfolio Value
	Amount in 000s			Percent
Change in Market Interest Rates:
200 basis point increase	$	(10,319	)		(4.61	)%
Base case — no change		—			—
100 basis point decrease	$	(12,584	)		(5.62	)%

The preceding table indicates that, at December 31, 2010, in the event of a 200 basis point increase in prevailing market interest rates, NPV would be expected to decrease by $10.3 million, or 4.6% of the base case scenario value of $223.8 million. In the event of a decrease in prevailing market rates of 100 basis points, NPV would be expected to decline by $12.6 million, or 5.6% of the base case scenario value. The projected decrease in NPV is within the Asset/Liability Committee’s guidelines in a 200 basis point increasing or 100 basis point decreasing interest rate environment. However, management continually monitors signs of elevated risks and takes certain actions to limit these risks.

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 CEO, Chief Financial Officer (“CFO”) 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 Bank’s primary earnings component, net interest income. This process involves monitoring the Bank’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.

55

Interest Sensitivity Analysis

At December 31, 2010
(in thousands, except ratios)

							Total			Total
	1 — 90			91 — 365			Sensitive			Sensitive
	Day			Day			Within			Over
	Sensitive			Sensitive			One Year			One Year		Total
Interest earning assets:
Loans (including held for sale), net of unearned income	$	664,553		$	85,423		$	749,976		$	587,603	$	1,337,579
U. S. government agencies and mortgage backed obligations		—			—			—			204,941		204,941
State and municipal obligations		—			—			—			17,380		17,380
Corporate bonds		—			7,669			7,669			75,147		82,816
Other investment securities		10,399			—			10,399			5,775		16,174
Overnight funds		5,596			—			5,596			—		5,596
Total interest earning assets		680,548			93,092			773,640			890,846		1,664,486
Interest bearing liabilities:
NOW		440,190			—			440,190			—		440,190
MMI		316,608			—			316,608			—		316,608
Savings		38,898			—			38,898			—		38,898
Time deposits		210,132			209,557			419,689			75,876		495,565
Junior subordinated notes		25,774			—			25,774			—		25,774
FHLB borrowings		35,000			25,000			60,000			52,700		112,700
Wholesale repurchase agreements		36,000			—			36,000			—		36,000
Total interest bearing liabilities		1,102,602			234,557			1,337,159			128,576		1,465,735
Interest sensitivity gap	$	(422,054	)	$	(141,465	)	$	(563,519	)	$	762,270	$	198,751
Ratio of interest sensitive assets to liabilities		0.62			0.40			0.58			6.93		1.14

The measurement of the Bank’s interest rate sensitivity, or “gap”, is a technique traditionally used in asset/liability management. The interest sensitivity gap is the difference between repricing assets and repricing liabilities for a particular time period. The table, "Interest Sensitivity Analysis,” indicates a ratio of rate sensitive assets to rate sensitive liabilities within one year at December 31, 2010, to be 0.58X. This ratio indicates that a larger balance of liabilities, compared to assets, could potentially reprice during the upcoming 12 month period. Included in rate sensitive liabilities are certain deposit accounts (NOW, MMI, and savings) that are subject to immediate withdrawal and repricing. These balances are presented in the category that management believes best identifies their actual repricing patterns. The overall risk to net interest income is also influenced by the Bank’s level of variable rate loans. These are loans with a contractual interest rate tied to an interest rate index, such as the prime rate. A portion of these loans may reprice on multiple occasions during a one-year period due to changes in the underlying interest rate index. Approximately 45.8% of the total loan portfolio has a variable interest rate and reprices in accordance with the underlying rate index subject to terms of individual note agreements.

The table, “Market Sensitive Financial Instruments Maturities,” presents the Company’s financial instruments that are considered to be sensitive to changes in interest rates, categorized by contractual maturities, average interest rates and estimated fair values as of December 31, 2010.

56

Market Sensitive Financial Instruments Maturities
(Dollars in thousands)

	Contractual Maturities as of December 31, 2010
											After
											Five
	2011		2012		2013		2014		2015		Years		Total
Financial assets:
Investment securities	$	7,669	$	25,429	$	2,449	$	6,946	$	4,982	$	257,662	$	305,137
Loans:
Fixed rate		137,502		129,326		192,742		67,113		94,917		103,504		725,104
Variable rate		126,093		24,068		47,158		31,925		19,893		363,338		612,475
Total	$	271,264	$	178,823	$	242,349	$	105,984	$	119,792	$	724,504	$	1,642,716
Financial liabilities:
NOW	$	440,190	$	—	$	—	$	—	$	—	$	—	$	440,190
MMI		316,608		—		—		—		—		—		316,608
Savings		38,898		—		—		—		—		—		38,898
Time deposits		419,689		43,609		6,739		24,882		513		133		495,565
Wholesale repurchase agreements		15,000		—		—		—		—		21,000		36,000
FHLB borrowing		60,000		17,700		15,000		20,000		—		—		112,700
Junior subordinated notes		—		—		—		—		—		25,774		25,774
Total	$	1,290,385	$	61,309	$	21,739	$	44,882	$	513	$	46,907	$	1,465,735

Market Sensitive Financial Instruments Maturities (continued)
(Dollars in thousands)

	Average Interest			Estimated Fair
	Rate			Value
Financial assets:
Investment securities		4.86	%	$	308,169
Loans:
Fixed rate		6.00			730,760
Variable rate		4.23			612,475
Total				$	1,651,404
Financial liabilities:
NOW		0.79		$	440,190
MMI		0.70			316,608
Savings		0.10			38,898
Time deposits		1.19			500,073
Wholesale repurchase agreements		4.19			37,231
FHLB borrowing		1.53			113,580
Junior subordinated notes		1.77			16,706
Total				$	1,463,286

57

Item 8.Financial Statements and Supplementary Data

QUARTERLY FINANCIAL INFORMATION

The following table sets forth, for the periods indicated, certain of Bancorp’s consolidated quarterly financial information. This information is derived from Bancorp’s unaudited financial statements, which include all normal recurring adjustments which management considers necessary for a fair presentation of the results for such periods. This information should be read in conjunction with Bancorp’s consolidated financial statements included elsewhere in this report. The results for any quarter are not necessarily indicative of results for any future period.

Quarterly Financial Data

(Dollars in thousands, except per share data)

2010	4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
Interest income	$	21,272		$	22,419		$	22,972		$	23,250
Interest expense		4,152			4,693			5,597			6,012
Net interest income		17,120			17,726			17,375			17,238
Provision for credit losses		4,636			7,965			4,928			3,723
Net interest income after provision for credit losses		12,484			9,761			12,447			13,515
Noninterest income		4,119			7,699			4,259			3,430
Noninterest expense		15,982			16,312			15,818			16,469
Income before income taxes		621			1,148			888			476
Provision for income taxes		(499	)		115			34			103
Net income		1,120			1,033			854			373
Dividends and accretion on preferred stock		(729	)		(730	)		(730	)		(730	)
Net income (loss) available to common shareholders	$	391		$	303		$	124		$	(357	)
Earnings per share:
Basic	$	0.02		$	0.02		$	0.01		$	(0.02	)
Diluted	$	0.02		$	0.02		$	0.01		$	(0.02	)

2009	4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
Interest income	$	23,933		$	24,471		$	24,725		$	25,371
Interest expense		7,466			9,441			10,856			11,395
Net interest income		16,467			15,030			13,869			13,976
Provision for credit losses		5,569			10,808			10,853			8,518
Net interest income after provision for credit losses		10,898			4,222			3,016			5,458
Noninterest income		4,884			5,555			4,726			4,014
Noninterest expense		15,653			19,818			18,093			15,983
Income (loss) before income taxes		129			(10,041	)		(10,351	)		(6,511	)
Provision for income taxes		78			(4,347	)		(4,440	)		(2,933	)
Net income (loss)		51			(5,694	)		(5,911	)		(3,578	)
Dividends and accretion on preferred stock		(729	)		(729	)		(729	)		(729	)
Net income (loss) available to common shareholders	$	(678	)	$	(6,423	)	$	(6,640	)	$	(4,307	)
Earnings per share:
Basic	$	(0.04	)	$	(0.41	)	$	(0.42	)	$	(0.28	)
Diluted	$	(0.04	)	$	(0.41	)	$	(0.42	)	$	(0.28	)

58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
NewBridge Bancorp

We have audited the accompanying consolidated balance sheets of NewBridge Bancorp and Subsidiary as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2010. 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 audits.

We conducted our audits 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. 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 audits provide 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 NewBridge Bancorp and Subsidiary as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NewBridge Bancorp’s internal control over financial reporting as of December 31, 2010, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)and our report dated March 24, 2011, expressed an unqualified opinion.

/s/ GRANT THORNTON LLP
Raleigh, North Carolina
March 24, 2011

59

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
NewBridge Bancorp

We have audited NewBridge Bancorp’s internal control over financial reporting as of December 31, 2010, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NewBridge Bancorp’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on NewBridge Bancorp’s internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, NewBridge Bancorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established inInternal Control—Integrated Frameworkissued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NewBridge Bancorp and Subsidiary as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2010, and our report dated March 24, 2011, expressed an unqualified opinion.

/s/ GRANT THORNTON LLP
Raleigh, North Carolina
March 24, 2011

60

NewBridge Bancorp and Subsidiary
Consolidated Balance Sheets

December 31, 2010 and 2009
(Dollars in thousands, except per share data)

	2010			2009
ASSETS
Cash and due from banks	$	23,479		$	29,674
Interest-bearing bank balances		5,596			15,166
Loans held for sale		76,994			6,568
Investment securities:
Held to maturity, market value $0 in 2010 and $20,487 in 2009		—			19,957
Available for sale		325,129			305,382
Loans		1,260,585			1,456,526
Less allowance for credit losses		(28,752	)		(35,843	)
Net Loans		1,231,833			1,420,683
Premises and equipment, net		38,442			40,406
Real estate acquired in settlement of loans		26,718			27,337
Bank-owned life insurance		30,317			28,986
Deferred tax assets		27,089			26,022
Accrued income and other assets		21,564			26,345
Total assets	$	1,807,161		$	1,946,526
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	161,734		$	156,040
Savings, NOW and money market accounts		795,696			668,875
Time deposits		495,565			674,395
Total deposits		1,452,995			1,499,310
Borrowings from the Federal Home Loan Bank		112,700			165,200
Other borrowings		61,774			99,374
Accrued expenses and other liabilities		16,504			18,038
Total liabilities		1,643,973			1,781,922
Commitments and contingent liabilities
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		51,490			51,190
Common stock, par value $5.00 per share; Authorized — 50,000,000 shares; issued and outstanding - 15,655,868		78,279			78,279
Paid-in capital		87,048			86,969
Directors’ deferred compensation plan		(618	)		(634	)
Retained deficit		(52,016	)		(52,477	)
Accumulated other comprehensive income (loss)		(995	)		1,277
Total shareholders’ equity		163,188			164,604
Total liabilities and shareholders’ equity	$	1,807,161		$	1,946,526

See notes to consolidated financial statements

61

NewBridge Bancorp and Subsidiary
Consolidated Statements of Income

Years ended December 31, 2010, 2009 and 2008
(Dollars in thousands, except per share data)

	2010			2009			2008
Interest Income
Interest and fees on loans	$	74,795		$	84,089		$	101,550
Interest on taxable investment securities		11,698			9,416			10,229
Interest on tax exempt investment securities		3,324			4,759			4,758
Interest-bearing bank balances and federal funds sold		96			236			749
Total interest income		89,913			98,500			117,286
Interest Expense
Deposits		14,960			31,891			44,672
Borrowings from the Federal Home Loan Bank		3,087			4,706			5,483
Other borrowings		2,407			2,559			3,697
Total Interest Expense		20,454			39,156			53,852
Net Interest Income		69,459			59,344			63,434
Provision for credit losses		21,252			35,749			25,262
Net interest income after provision for credit losses		48,207			23,595			38,172
Noninterest Income
Service charges on deposit accounts		7,392			8,527			9,333
Fee income		3,604			3,816			2,959
Gain on sales of mortgage loans		2,438			601			396
Gain on sales of investment securities		3,637			389			2,459
Loss on sale of OREO		(1,817	)		(591	)		(508	)
Other operating income		4,253			6,435			5,991
Total Noninterest Income		19,507			19,177			20,630
Noninterest Expense
Personnel		29,897			30,901			35,175
Occupancy		4,189			5,436			4,546
Furniture and equipment		4,644			6,012			4,679
Technology and data processing		4,359			5,724			6,006
FDIC insurance		3,491			4,528			1,037
OREO writedowns/expense		5,117			1,622			3,871
Goodwill impairment		—			—			50,437
Other operating		12,884			15,323			16,877
Total Noninterest Expense		64,581			69,546			122,628
Income (Loss) Before Income Taxes		3,133			(26,774	)		(63,826	)
Income Taxes		(247	)		(11,641	)		(6,924	)
Net Income (Loss)		3,380			(15,133	)		(56,902	)
Dividends and accretion on preferred stock		(2,919	)		(2,917	)		(170	)
Net Income (Loss) available to common shareholders	$	461		$	(18,050	)	$	(57,072	)
Income (Loss) Per Share
Basic	$	0.03		$	(1.15	)	$	(3.64	)
Diluted	$	0.03		$	(1.15	)	$	(3.64	)
Weighted Average Shares Outstanding
Basic		15,655,868			15,655,868			15,663,719
Diluted		16,101,122			15,655,868			15,663,719

See notes to consolidated financial statements

62

NewBridge Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income

Years ended December 31, 2010, 2009 and 2008
(Dollars in thousands, except share data)

																		Accumulated
												Directors’						Other			Total
	Preferred		Common Stock						Paid-In			Deferred			Retained			Comprehensive			Shareholders’
	Stock		Shares			Amount			Capital			Comp Plan			Earnings			Income (Loss)			Equity
Balances at December 31, 2007	$	—		15,694,068		$	78,470		$	85,412		$	(1,301	)	$	28,751		$	1,821		$	193,153
Net Loss																(56,902	)					(56,902	)
Change in unrealized gain on securities available for sale																			205			205
Change in funded status of pension plans																			(3,735	)		(3,735	)
Comprehensive loss																						(60,432	)
Cash dividends declared on common stock																(6,106	)					(6,106	)
Preferred stock issued, including Warrant		50,875								1,497												52,372
Dividends and accretion on preferred stock		16														(170	)					(154	)
Stock-based compensation										93												93
Common stock distributed													651									651
Common stock acquired and cancelled				(38,200	)		(191	)		(150	)											(341	)
Balances at December 31, 2008	$	50,891		15,655,868		$	78,279		$	86,852		$	(650	)	$	(34,427	)	$	(1,709	)	$	179,236
Net Loss																(15,133	)					(15,133	)
Change in unrealized gain on securities available for sale																			1,577			1,577
Change in funded status of pension plans																			1,409			1,409
Comprehensive loss																						(12,147	)
Dividends and accretion on preferred stock		299														(2,917	)					(2,618	)
Stock-based compensation										117												117
Common stock distributed													16									16
Balances at December 31, 2009	$	51,190		15,655,868		$	78,279		$	86,969		$	(634	)	$	(52,477	)	$	1,277		$	164,604
Net Income																3,380						3,380
Change in unrealized gain on securities available for sale																			(2,195	)		(2,195	)
Change in funded status of pension plans																			(77	)		(77	)
Comprehensive income																						1,108
Dividends and accretion on preferred stock		300														(2,919	)					(2,619	)
Stock-based compensation										79												79
Common stock distributed													16									16
Balances at December 31, 2010	$	51,490		15,655,868		$	78,279		$	87,048		$	(618	)	$	(52,016	)	$	(995	)	$	163,188

See notes to consolidated financial statements

63

NewBridge Bancorp and Subsidiary
Consolidated Statements of Cash Flows

Years ended December 31, 2010, 2009 and 2008
(Dollars in thousands)

	2010			2009			2008
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (Loss)	$	3,380		$	(15,133	)	$	(56,902	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		5,500			6,669			4,737
Securities premium amortization and discount accretion, net		697			591			565
Gain on sale of loans held for sale		(2,438	)		(601	)		(396	)
Originations of loans held for sale		(195,602	)		(97,360	)		(130,027	)
Proceeds from sales of loans held for sale		199,957			92,330			141,837
Goodwill impairment		—			—			50,437
(Increase) decrease in deferred tax assets		(1,067	)		(4,158	)		(8,360	)
(Increase) decrease in income taxes receivable		3,632			(2,560	)		(2,800	)
(Increase) decrease in interest earned but not received		1,179			700			3,014
Increase (decrease) in interest accrued but not paid		(623	)		(1,470	)		(572	)
Net (increase) decrease in other assets		5,445			(115	)		(9,849	)
Net increase (decrease) in other liabilities		(687	)		(589	)		4,287
Provision for credit losses		21,252			35,749			25,262
Stock-based compensation		79			117			93
Loss on sales of premises and equipment and OREO		2,236			572			731
Net cash provided by operating activities		42,940			14,742			22,057
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of securities available for sale		(226,705	)		(108,828	)		(128,665	)
Proceeds from maturities of securities available for sale		220,104			78,325			210,355
Net (increase) decrease in loans		73,606			83,853			(156,319	)
Purchases of premises and equipment and expenditures for improvements to real estate acquired in settlement of loans		(2,296	)		(1,894	)		(5,808	)
Proceeds from sales of premises and equipment and OREO		15,827			8,794			4,686
Net (increase) decrease in federal funds sold		—			42,043			(39,870	)
Net cash provided by (used in) investing activities		80,536			102,293			(115,621	)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW, money market and savings accounts		132,515			61,600			(50,204	)
Net increase (decrease) in time deposits		(178,830	)		(225,753	)		85,945
Net increase (decrease) in other borrowings		(37,823	)		22,543			(22,471	)
Net increase (decrease) in borrowings from FHLB		(52,500	)		26,200			21,000
Dividends paid		(2,619	)		(2,618	)		(6,260	)
Proceeds from issuance of preferred stock and warrants		—			—			52,372
Common stock distributed		16			16			310
Net cash provided by (used in) financing activities		(139,241	)		(118,012	)		80,692
Increase (decrease) in cash and cash equivalents		(15,765	)		(977	)		(12,872	)
Cash and cash equivalents at the beginning of the years		44,840			45,817			58,689
Cash and cash equivalents at the end of the years	$	29,075		$	44,840		$	45,817
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest	$	21,077		$	40,626		$	54,424
Income taxes		—			—			3,500
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Transfer of loans to other real estate owned	$	20,667		$	26,216		$	9,963
Transfer of loans to loans held for sale		72,343			—			—
Reclassification of investment securities from held to maturity to available for sale		43,679			—			—
Unrealized gain on securities available for sale:
Change in securities available for sale		5,099			(5,308	)		(298	)
Change in deferred income taxes		(2,826	)		3,731			93
Change in shareholders’ equity		(2,273	)		1,577			205

See notes to consolidated financial statements

64

NewBridge Bancorp and Subsidiary
Notes to Consolidated Financial Statements

December 31, 2010, 2009, and 2008

Note 1 — Summary of significant accounting policies

Principles of consolidation

The accompanying consolidated financial statements include the accounts of NewBridge Bancorp (“Bancorp” or the “Company”) and its wholly owned subsidiary NewBridge Bank (the “Bank”). All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of operations

The Bank provides a variety of financial services to individual and corporate customers in North Carolina (“NC”) and Virginia (“VA”). As of December 31, 2010, the Bank operated 30 branches in the Piedmont Triad Region and Coastal Region of NC and one branch in the Shenandoah Valley Region of VA. The majority of the Bank’s NC clients are located in Davidson, Rockingham, Guilford, Forsyth and New Hanover Counties. The majority of the Bank’s VA customers are located in Rockingham County. The Bank’s primary deposit products are noninterest-bearing checking accounts, interest-bearing checking accounts, money market accounts, certificates of deposit and individual retirement accounts. Its primary lending products are commercial, real estate and consumer loans.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses. A majority of the Bank’s loan portfolio consists of loans in the geographic areas cited above. The local economies of these areas depend heavily on the industrial, agricultural and service sectors. Accordingly, the ultimate collectibility of a large portion of the Bank’s loan portfolio would be affected by changes in local economic conditions.

Cash and cash equivalents

Cash and cash equivalents include cash and due from banks and interest-bearing bank deposits. Cash and cash equivalents are defined as cash and short-term investments with maturities of three months or less at the time of acquisition.

Investment securities

The Bank classifies its investment securities at the time of purchase into three categories as follows:

• Held to Maturity — reported at amortized cost,

• Trading — reported at fair value with unrealized gains and losses included in earnings, or

• Available for Sale — reported at fair value with unrealized gains and losses reported in other comprehensive income.

The Bank is required to maintain certain levels of Federal Home Loan Bank (“FHLB”) of Atlanta stock based on various criteria established by the issuer. Gains and losses on sales of securities are recognized when realized on a specific identification basis. Premiums and discounts are amortized into interest income using methods that approximate the level yield method.

65

Other Than Temporary Impairment of Investment Securities

Bancorp’s policy regarding other than temporary impairment of investment securities requires continuous monitoring. Individual investment securities with a fair market value that is less than 80% of original cost over a continuous period of two quarters are evaluated for impairment during the subsequent quarter. The evaluation includes an assessment of both qualitative and quantitative measures to determine whether, in management’s judgment, the investment is likely to recover its original value. If the evaluation concludes that the investment is not likely to recover its original value, the unrealized loss is reported as an “other than temporary impairment”, and the loss is recorded as a securities transaction on the Consolidated Statement of Income.

Loans

Interest on loans is accrued and credited to income based on the principal amount outstanding. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Loans are placed on nonaccrual status when: (i) management has concerns relating to the ability to collect the loan principal and interest and (ii) generally when such loans are 90 days or more past due. Interest income is subsequently recognized only to the extent payments are received and the loan is well secured. Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance (generally a minimum of six months) of interest and principal by the borrower in accordance with the contractual terms. Loans held for sale are valued at the lower of cost or market as determined by outstanding commitments from investors or current investor yield requirements, calculated on the aggregate loan basis.

Loan origination fees and costs

Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan.

Impaired loans

A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Generally, a loan will be considered impaired if it exhibits the same level of underlying weakness and probability of loss as loans classified doubtful or loss.

The impairment evaluation compares the recorded book value of the loan, or loan relationship, to the present value of the expected future principal, interest and collateral value (if applicable) cash flows. The expected cash flows are discounted at the contractual interest rate for the individual note. A specific reserve is established if the present value of expected future cash flows is less than the recorded book value of the loan.

Allowance for credit losses

The Bank’s allowance for credit losses is based on management’s best estimate of probable loan losses incurred as of the balance sheet date. Factors impacting estimated probable loan losses include credit quality trends, past loan loss experience, current economic conditions, and loan volume among loan categories.

While management uses the best available information to establish the allowance for credit losses, future additions to the allowance may be necessary based on the factors cited above. In addition, the allowance is reviewed by regulatory agencies as an integral part of their examination processes. Such agencies may require the Company to recognize changes to the allowance based on their judgments about information available to them at the time of their examination.

Real estate acquired in settlement of loans

Real estate acquired in settlement of loans, through partial or total satisfaction of loans, is initially recorded at fair market value, less estimated costs to sell, which becomes the property’s new basis. At the date of acquisition, losses are charged to the allowance for credit losses. Subsequent write-downs are charged to expense in the period they are incurred.

66

Premises and equipment

Premises and equipment are stated at cost (or at fair value for premises and equipment acquired in business combinations) less accumulated depreciation and amortization. The provision for depreciation and amortization is computed principally by the straight-line method over the estimated useful lives of the assets. Useful lives are estimated at 20 to 40 years for buildings and three to ten years for equipment. Leasehold improvements are amortized over the expected terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Expenditures for maintenance and repairs are charged to operations, and expenditures for major replacements and betterments are added to the premises and equipment accounts. The cost and accumulated depreciation of premises and equipment retired or sold are eliminated from the appropriate asset accounts at the time of retirement or sale and the resulting gain or loss is reflected in current operations.

Income taxes

Provisions for income taxes are based on taxes payable or refundable, for the current year (after exclusion of non-taxable income such as interest on state and municipal securities and bank owned life insurance and non-deductible expenses) and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Per share data

Basic net income per share of common stock is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during each year. Diluted net income per share of common stock is computed by dividing net income available to common shareholders plus any adjustments to net income related to the issuance of dilutive potential common shares, comprised of outstanding options and/or warrants to purchase shares of common stock and restricted stock grants, by the weighted average number of shares of common stock outstanding during each year plus the number of dilutive potential common shares.

Sales of loans

Gains and losses on the sales of loans are accounted for by imputing gain or loss on those sales where a yield rate guaranteed to the buyer is more or less than the contract interest rate being collected. Such gains or losses are recognized in the financial statements at the time of the sale. Loans held for sale are recorded at the lower of cost or fair value, on an aggregate basis.

Off-balance sheet arrangements

In the ordinary course of business, the Bank enters into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Segment information

Operating segments are components of an enterprise with separate financial information available for use by the chief operating decision maker to allocate resources and to assess performance. The Company has determined that it has one significant operating segment, providing financial services through the Bank, including banking, mortgage, and investment services, to customers located principally in Davidson, Rockingham, Guilford, Forsyth and New Hanover Counties in NC, and in Rockingham County VA, and in the surrounding communities. The various products are those generally offered by community banks, and the allocation of resources is based on the overall performance of the Bank, rather than the individual branches or products.

There are no differences between the measurements used in reporting segment information and those used in the Company’s general-purpose financial statements.

67

Recent accounting pronouncements

In July 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-20, Receivables (ASC 310) — “Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This ASU requires new disclosures and clarifies existing disclosure requirements about the nature of credit risk inherent in an entity’s loan portfolio; how that risk is analyzed and assessed in arriving at the allowance for loan losses; and the changes and reasons for those changes in the allowance for loan losses. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting, as well as clarify the requirements for existing disclosures. ASU 2010-20 is effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. In January 2011, the FASB delayed the effective date of the portion of ASU 2010-20 related to troubled debt restructurings to June 2011. The Company adopted the required portions of ASU-2010-20 as of December 31, 2010, which only impacted disclosures. The Company does not expect the adoption of the remainder of ASU 2010-20 to have a material impact on its financial condition or results of operations.

Reclassification

Certain items for 2009 and 2008 have been reclassified to conform to the 2010 presentation. Such reclassifications had no effect on net income, total assets or shareholders’ equity as previously reported.

Note 2 — Merger of Equals

The Company is a bank holding company incorporated under the laws of the state of North Carolina (“NC”) and registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancorp is the successor entity to LSB Bancshares, Inc. (“LSB”), which was incorporated on December 8, 1982. On July 31, 2007, FNB Financial Services Corporation (“FNB”), a bank holding company, also incorporated in NC and registered under the BHCA, merged with and into LSB in a merger of equals (the “Merger”). LSB’s name was then changed to “NewBridge Bancorp”.

The Merger was accounted for under the purchase method of accounting and was structured to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code. The Merger initially resulted in $49.9 million of goodwill and $6.6 million of core deposit intangibles. The goodwill was not tax deductible. The core deposit intangible was determined by an independent valuation and is being amortized over the estimated life of 10 years, based on undiscounted cash flows.

As of December 31, 2008, the Company wrote off $50.4 million of goodwill. At December 31, 2010, the carrying value of other intangibles was $4.5 million.

Note 3 — Restriction on cash and due from banks

The Bank maintains required reserve balances with the Federal Reserve Bank of Richmond. The amounts of these reserve balances at December 31, 2010 and 2009 were $25,000 and $15,831,000, respectively.

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Note 4 — Investment securities

Investment securities at December 31 consist of the following (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated Fair
	Cost		Gains		Losses			Value
2010:
Available for sale:
U.S. government agency securities	$	109,274	$	267	$	(2,017	)	$	107,524
Mortgage backed securities		55,989		4,320		—			60,309
State and municipal obligations		17,380		13		(1,982	)		15,411
Corporate bonds		82,816		2,309		(612	)		84,513
Collateralized mortgage obligations		39,679		823		(90	)		40,412
Federal Home Loan Bank stock		10,399		—		—			10,399
Other equity securities		5,775		786		—			6,561
Total available for sale		321,312		8,518		(4,701	)		325,129
Municipal obligations held to maturity		—		—		—			—
Total investment securities	$	321,312	$	8,518	$	(4,701	)	$	325,129
2009:
Available for sale:
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
Municipal obligations held to maturity		19,957		550		(20	)		20,487
Total investment securities	$	317,895	$	9,783	$	(1,809	)	$	325,869

The aggregate cost of the Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $10,399,000 at December 31, 2010. Because of the redemption provisions of this stock, and the financial condition of the FHLB of Atlanta, the Company estimates that the fair value equals the cost of this investment and that it is not impaired.

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2010 and 2009. The unrealized losses relate to debt securities that have incurred fair value reductions due to higher market interest rates since the securities were purchased. The unrealized losses are not likely to reverse unless and until market interest rates decline to the levels that existed when the securities were purchased. Since none of the unrealized losses relate to the marketability of the securities or the issuer’s ability to honor redemption obligations, and the Company has the intent and ability to hold until recovery, none of the securities are deemed to be other than temporarily impaired.

	Less than 12 months					12 months or more					Total
2010	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
(In thousands)
Investment securities:
U.S. government agency securities	$	58,273	$	(2,017	)	$	—	$	—		$	58,273	$	(2,017	)
Collateralized mortgage obligations		3,706		(90	)		—		—			3,706		(90	)
State and municipal obligations		8,514		(924	)		5,059		(1,058	)		13,573		(1,982	)
Corporate bonds		28,023		(612	)		—		—			28,023		(612	)
Total temporarily impaired securities	$	98,516	$	(3,643	)	$	5,059	$	(1,058	)	$	103,575	$	(4,701	)

69

	Less than 12 months					12 months or more					Total
2009	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
(In thousands)
Investment securities:
U.S. government agency securities	$	3,985	$	(15	)	$	—	$	—		$	3,985	$	(15	)
Collateralized mortgage obligations		17,380		(102	)		—		—			17,380		(102	)
State and municipal obligations		21,479		(761	)		4,795		(711	)		26,274		(1,472	)
Other equity securities		—		—			839		(220	)		839		(220	)
Total temporarily impaired securities	$	42,844	$	(878	)	$	5,634	$	(931	)	$	48,478	$	(1,809	)

The amortized cost and estimated market value of debt securities at December 31, 2010, by contractual maturities, are shown in the accompanying schedule. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	7,669	$	7,919
Due after one through five years		39,806		41,526
Due after five through ten years		115,561		115,213
Due after ten years		142,102		143,511
Total debt securities	$	305,138	$	308,169

A recap of the maturities of held to maturity securities follows (in thousands):

	Years Ended December 31
	2010		2009		2008
Proceeds from maturities	$	1,480	$	—	$	—

A recap of the maturities and sales of available for sale securities follows (in thousands):

	Years Ended December 31
	2010		2009		2008
Proceeds from sales and maturities	$	82,148	$	10,977	$	210,535
Gross realized gains		3,637		389		2,475
Gross realized losses		—		—		16

Investment securities with a book value of $82,148,000 were sold during 2010 to reposition the investment portfolio and reduce the Company’s exposure to municipalities. A portion of the securities that were identified for sale had been classified as held to maturity and, accordingly, all held to maturity securities were designated as available for sale.

During 2010, the Company determined that investment securities with amortized costs of approximately $98,111,000 and $154,352,000 and market values of approximately $99,223,000 and $158,450,000 as of December 31, 2010 and 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.

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Note 5 — Loans

Loans are summarized as follows (in thousands):

	December 31
	2010		2009
Secured by owner-occupied nonfarm nonresidential properties	$	222,889	$	232,769
Secured by other nonfarm nonresidential properties		159,086		202,030
Other commercial and industrial		134,011		158,624
Total Commercial		515,986		593,423
Construction loans — 1 to 4 family residential		16,736		28,929
Other construction and land development		122,382		148,356
Total Real estate — construction		139,118		177,285
Closed-end loans secured by 1 to 4 family residential properties		304,640		339,485
Lines of credit secured by 1 to 4 family residential properties		219,557		234,674
Loans secured by 5 or more family residential		20,207		24,333
Total Real estate — mortgage		544,404		598,492
Credit cards		7,749		7,416
Other revolving credit plans		9,042		10,974
Other consumer loans		36,224		57,079
Total Consumer		53,015		75,469
Loans to other depository institutions		3,800		10,000
All other loans		4,262		1,857
Total Other		8,062		11,857
Total loans		1,260,585		1,456,526
Loans held for sale		76,994		6,568
Total loans and loans held for sale	$	1,337,579	$	1,463,094

As of December 31, 2010 and December 31, 2009, loans totaling approximately $569,896,000 and $575,108,000, respectively, were pledged to secure the line of credit with the FHLB and Federal Reserve Bank.

Nonperforming assets are summarized as follows (in thousands):

	December 31
	2010		2009
Commercial nonaccrual loans, not restructured	$	23,453	$	46,788
Commercial nonaccrual loans, restructured		11,190		1,777
Non-commercial nonaccrual loans		8,537		4,772
Total nonaccrual loans		43,180		53,337
Troubled debt restructured, accruing		7,378		1,442
Accruing loans which are contractually past due 90 days or more		27		3,450
Total nonperforming loans		50,585		58,229
Real estate acquired in settlement of loans		26,718		27,337
Total nonperforming assets	$	77,303	$	85,566

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

	December 31
	2010		2009		2008
Loans identified as impaired	$	38,303	$	46,122	$	39,556
Other nonperforming loans		12,282		12,107		—
Total nonperforming loans		50,585		58,229		39,556
Other potential problem loans		110,924		66,725		51,755
Total impaired and potential problem loans	$	161,509	$	124,954	$	91,311

71

The following table summarizes, by internally assigned risk grade, the risk grade for loans for which the bank has assigned a risk grade (in thousands).

	December 31
	2010										2009
			Special		Sub-								Special		Sub-
	Pass		Mention		standard		Doubtful		Total		Pass		Mention		standard		Doubtful		Total
Commercial	$	423,474	$	48,651	$	75,682	$	1,121	$	548,928	$	503,985	$	55,806	$	37,977	$	15,270	$	613,038
Real estate — construction		66,766		13,673		47,319		630		128,388		71,516		27,135		37,521		10,080		146,252
Real estate — mortgage		92,610		7,898		20,288		798		121,594		104,379		12,227		12,726		2,817		132,149
Consumer		2		—		—		—		2		2		—		—		—		2
Other		3,448		—		3,903		—		7,351		896		105		—		—		1,001
Total	$	586,300	$	70,222	$	147,192	$	2,549	$	806,263	$	680,778	$	95,273	$	88,224	$	28,167	$	892,442

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

	Years Ended December 31
	2010		2009		2008
Balance, beginning of year	$	35,843	$	35,805	$	30,370
Loans charged off:
Secured by owner-occupied nonfarm nonresidential properties		1,433		3,108		2,745
Secured by other nonfarm nonresidential properties		1,767		4,425		707
Other commercial and industrial		5,852		3,699		1,594
Total Commercial		9,052		11,232		5,046
Construction loans — 1 to 4 family residential		526		2,055		—
Other construction and land development		4,853		10,172		7,339
Total Real estate — construction		5,379		12,227		7,339
Closed-end loans secured by 1 to 4 family residential properties		4,262		4,877		3,740
Lines of credit secured by 1 to 4 family residential properties		2,998		5,233		1,272
Total Real estate — mortgage		7,260		10,110		5,012
Credit cards		291		276		300
Other consumer loans		2,538		4,649		4,771
Total Consumer		2,829		4,925		5,071
Total Other		6,200		—		—
Total chargeoffs		30,720		38,494		22,468
Recoveries of loans previously charged off:
Total Commercial		1,370		605		978
Total Real estate — construction		80		588		95
Total Real estate — mortgage		270		514		243
Total Consumer		647		1,076		1,296
Total Other		10		—		29
Total Recoveries		2,377		2,783		2,641
Net loans charged off		28,343		35,711		19,827
Provision for credit losses		21,252		35,749		25,262
Balance, end of year	$	28,752	$	35,843	$	35,805

The Bank’s policy for impaired loan accounting subjects all 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.

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Note 6 — Premises and equipment

The following is a summary of premises and equipment (in thousands):

	December 31
	2010		2009
Land	$	15,312	$	15,043
Buildings		21,721		21,974
Equipment		27,866		31,081
Leasehold improvements		1,831		2,109
Premises and equipment, total cost		66,730		70,207
Less, accumulated depreciation		28,288		29,801
Premises and equipment, net	$	38,442	$	40,406

Depreciation and amortization expense amounting to $3,792,000, $4,630,000 and $4,737,000, for the years ended December 31, 2010, 2009, and 2008, respectively, is included in occupancy expense and furniture and equipment expense in the consolidated statements of income.

Note 7 — Deposits

The aggregate amount of certificates of deposit of $100,000 or more was approximately $247,154,000 and $239,057,000 at December 31, 2010 and 2009, respectively. The accompanying table presents the scheduled maturities of total time deposits at December 31, 2010 (in thousands).

Years ending December 31,
2011	$	419,689
2012		43,609
2013		6,739
2014		24,882
2015		513
Thereafter		133
Total time deposits	$	495,565

Note 8 — Short-term borrowings and long-term debt

The following is a schedule of short-term borrowings and long-term debt (in thousands, except percentages):

											Maximum
	Balance		Interest Rate					Average			Outstanding
	as of		as of			Average		Interest			at Any
	December 31		December 31			Balance		Rate			Month End
2010
Federal funds purchased and repurchase agreements	$	36,000		4.19	%	$	45,933		4.16	%	$	46,000
Federal Reserve Bank borrowings		—		N/A			4,708		0.56	%		26,500
Trust preferred securities		25,774		1.77	%		25,774		1.83	%		25,774
FHLB borrowings		112,700		1.53	%		123,015		2.51	%		162,700
Total	$	174,474				$	199,430				$	260,974
2009
Federal funds purchased and repurchase agreements	$	46,000		4.12	%	$	47,220		4.03	%	$	53,841
Federal Reserve Bank borrowings		27,600		0.50	%		2,467		0.48	%		27,600
Trust preferred securities		25,774		1.76	%		25,774		2.39	%		25,774
FHLB borrowings		165,200		2.86	%		149,559		3.15	%		174,000
Total	$	264,574				$	225,020				$	281,215

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At December 31, 2010, the Bank had a $361,032,000 line of credit with the FHLB under which $162,700,000 was used. The amounts used consist of $112,700,000 in regular FHLB advances and a $50,000,000 letter of credit which the Bank uses as collateral securing deposits from municipalities. This line of credit is secured with FHLB stock, certain pledged securities and a blanket floating lien on qualifying 1 to 4 family residential mortgage loans, home equity loans and commercial real estate. Based upon collateral pledged, as of December 31, 2010, the borrowing capacity under this line was $276,922,000, with $114,222,000 available to be borrowed. In addition to the credit line at the FHLB, the Bank has borrowing capacity at the Federal Reserve Bank totaling $29,988,000, of which there were no borrowings outstanding at December 31, 2010.

Federal funds purchased represent unsecured overnight borrowings from other financial institutions by the Bank. Retail repurchase agreements represent short-term borrowings by the Bank, with overnight maturities collateralized by securities issued by the United States Government or its agencies.

FNB Southeast, the banking subsidiary of FNB, sold securities under an agreement to repurchase (a “wholesale repurchase agreement”) on December 8, 2006. This $21,000,000 transaction has a maturity date of December 8, 2016, became callable after one year, and has quarterly calls thereafter at a fixed rate of 4.03%. FNB Southeast also entered into a wholesale repurchase agreement on June 28, 2007. The $15,000,000 transaction has a maturity date of June 28, 2011, became callable after one year, and has quarterly calls thereafter. The transaction has a fixed rate of 4.42%. The investment securities serving as collateral for these two borrowings had a market value of approximately $45,528,000 at December 31, 2010.

FNB and FNB Financial Services Capital Trust I, a Delaware statutory trust (the “Trust,” now wholly owned by the Company), issued and sold in a private placement, on August 26, 2005, $25,000,000 of the Trust’s floating rate preferred securities, with a liquidation amount of $1,000 per preferred security, bearing a variable rate of interest per annum, reset quarterly, equal to 3 month LIBOR plus 1.46% (the “Preferred Securities”) and a maturity date of September 30, 2035. The Preferred Securities become callable after five years. Interest payment dates are March 30, June 30, September 30 and December 30 of each year. The Preferred Securities are fully and unconditionally guaranteed on a subordinated basis by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. The entire proceeds from the sale by the Trust to the holders of the Preferred Securities was combined with the entire proceeds from the sale by the Trust to the Company of its common securities (the “Common Securities”), and was used by the Trust to purchase $25,774,000 in principal amount of the Floating Rate Junior Subordinated Notes (the “Junior Subordinated Notes”) of the Company. The Company has not included the Trust in the consolidated financial statements. FNB contributed $24,000,000 of the proceeds from the sale of the Junior Subordinated Notes to FNB Southeast as Tier I Capital to support FNB Southeast’s growth. Currently, regulatory capital rules allow trust preferred securities to be included as a component of regulatory capital for the Company.

The following is a schedule of the components of other borrowings (in thousands):

	2010		2009
Federal Reserve Bank borrowings	$	—	$	27,600
Wholesale repurchase agreements		36,000		46,000
Junior subordinated notes		25,774		25,774
Total	$	61,774	$	99,374

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Note 9 — Other assets and other liabilities

The components of other assets and liabilities for the years ended December 31 are as follows (in thousands):

	2010		2009
Other assets:
Core deposit intangible	$	4,526	$	5,252
Accrued interest receivable		7,134		8,313
Deferred compensation		4,080		3,134
Other		5,824		9,646
Total	$	21,564	$	26,345
Other liabilities:
Accrued interest payable		911		1,534
Accrued compensation		1,009		1,731
Dividends payable		405		335
Retirement plans and deferred compensation		11,055		11,156
Other		2,881		3,282
Total	$	16,261	$	18,038

Note 10 — Income taxes

The components of income tax expense (benefit) for the years ended December 31 are as follows (in thousands):

	2010			2009			2008
Current tax expense
Federal	$	78		$	(4,808	)	$	(70	)
State		(50	)		(613	)		563
Total current		28			(5,421	)		493
Deferred tax (benefit) expense
Federal		(359	)		(5,133	)		(6,121	)
State		84			(1,087	)		(1,296	)
Total deferred		(275	)		(6,220	)		(7,417	)
Total income tax benefit	$	(247	)	$	(11,641	)	$	(6,924	)

The significant components of deferred tax assets at December 31 are as follows (in thousands):

	2010			2009
Deferred tax assets:
Allowance for credit losses	$	11,371		$	14,142
Non-qualified deferred compensation plans		2,020			1,441
Accrued compensation		286			628
Writedowns on loans and real estate acquired in settlement of loans		3,459			2,694
Net operating losses		17,282			14,140
Pension plans — Other comprehensive income		2,156			2,106
Contribution carryforward		966			900
Other		2,494			3,977
Valuation allowance		(483	)		(544	)
Total	$	39,551		$	39,484
Deferred tax liabilities:
Depreciable basis of property and equipment		5,598			5,829
Deferred loan fees		395			438
Net unrealized gain on available for sale securities		2,284			3,026
Other		4,185			4,169
Total		12,462			13,462
Net deferred tax assets	$	27,089		$	26,022

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Management has evaluated the realizability of the recorded deferred tax assets at December 31, 2010. This evaluation included a review of recent improving trends and expected near term levels in the net interest margin, non performing assets, operating expenses and other factors. It also included a current forecast of performance for 2011 as well as projections for several years based on management’s expectations of performance, adjusted to assume a continuation of credit quality issues and future net interest margin erosion. It further included the consideration of the items that have given rise to the deferred tax assets, as well as tax planning strategies. Management has concluded that, with the exception of contribution and tax credit carryforwards which begin expiring in two years, it is more likely than not that the deferred taxes will be realized and therefore, no valuation allowance is necessary, except for those contribution and tax credit carryforwards.

The provision for income taxes differs from that computed by applying the federal statutory rate of 35% as indicated in the following analysis (in thousands, except percentages):

	2010			2009			2008
Tax based on statutory rates	$	1,097		$	(9,371	)	$	(22,339	)
Increase (decrease) resulting from:
Effect of tax-exempt income		(1,155	)		(1,570	)		(1,456	)
Write off of goodwill		—			—			17,653
State income taxes, net of federal benefit		22			(1,105	)		(476	)
Income on bank-owned life insurance		(303	)		(205	)		(386	)
Other, net		92			610			80
Total provision (benefit) for income taxes	$	(247	)	$	(11,641	)	$	(6,924	)
Effective tax rate		(7.9	%)		(43.5	%)		(10.8	%)

Note 11 — Lease commitments

The minimum annual lease commitments under noncancelable operating leases in effect at December 31, 2010, are as follows (in thousands):

Years Ending December 31
2011	$	1,454
2012		1,329
2013		1,278
2014		1,016
2015		751
Thereafter		664
Total lease commitments	$	6,492

Payments under these leases amounted to approximately $1,863,000, $2,671,000 and $2,452,000 for the years ended December 31, 2010, 2009, and 2008, respectively.

Note 12 — Related party transactions

The Bank had loans outstanding to principal officers and directors and their affiliated entities during each of the past two years. Such loans were made substantially on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers, and, at the time that they were made, did not involve more than the normal risks of collectibility. The following table summarizes the transactions for the past two years (in thousands):

	2010			2009
Balance, beginning of year	$	10,229		$	11,575
Amounts removed as a result of director resignations		—			(1,801	)
Advances (repayments), net, during year		(1,478	)		455
Balance, end of year	$	8,751		$	10,229

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Note 13 — Other operating income and expenses

The components of other operating income and other operating expense for the years ended December 31, 2010, 2009 and 2008 are as follows (in thousands):

	Years Ended December 31
	2010		2009		2008
Other operating income:
Bankcard income	$	680	$	2,228	$	2,545
Investment services commissions		1,589		1,186		874
Insurance commissions		65		78		153
Trust income		544		563		571
Income on bank-owned life insurance		1,055		784		1,270
Gain on sale of merchant services		—		1,177		—
Other income		320		419		578
	$	4,253	$	6,435	$	5,991
Other operating expenses:
Advertising	$	1,594	$	1,428	$	1,940
Bankcard expense		567		2,225		2,413
Legal and professional fees		3,029		3,460		3,448
Postage		964		873		1,040
Stationery, printing and supplies		675		590		909
Other expense		6,055		6,747		7,127
	$	12,884	$	15,323	$	16,877

Note 14 — Stock based compensation

The Company recorded $80,000, or less than $0.01 per diluted share, of total stock-based compensation expense during 2010, compared to $117,000, or less than $0.01 per diluted share, in 2009. The stock-based compensation expense is calculated on a ratable basis over the vesting periods of the related stock options or restricted stock units. This expense had no impact on the Company’s reported cash flows. The stock-based compensation expense is reported under personnel expense in the consolidated statements of income.

To determine the amounts recorded in the financial statements, the fair value of each stock option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year Ended December 31, 2008
Dividend yield		7.40	%
Risk-free interest rate		2.50	%
Expected stock volatility		36.32	%
Expected years until exercise		6.25

     There were no stock options granted during 2009 or 2010.

For restricted stock units, the fair value is considered to be the market price on the date the restricted stock unit is granted.

As of December 31, 2010, there was $90,000 of total unrecognized compensation expense related to stock options and restricted stock units granted under the NewBridge Bancorp Amended and Restated Comprehensive Equity Compensation Plan (formerly the LSB Bancshares Inc. Comprehensive Equity Compensation Plan for Directors and Employees) (the “Comprehensive Benefit Plan”). This expense will be fully amortized by March of 2013.

As of December 31, 2010, 31,000 restricted stock units granted to certain executive officers were outstanding. The weighted average fair value of these restricted stock units is $6.58, which was the weighted average closing price of the Company’s common stock on the dates they were granted. The restricted stock units vest based on certain

77

performance criteria that the Company did not meet during 2009, and partially met during 2010. The stock-based compensation expense for these awards was immaterial for the period ended December 31, 2010.

As of December 31, 2010, the Company’s Compensation Committee administered the Company’s five stock-based compensation plans, including two stock-based compensation plans assumed by the Company pursuant to the Merger.

The Company’s Compensation Committee administers the following legacy LSB plans to the extent that awards remain outstanding and unexercised: (a) the 1994 Director Stock Option Plan; and (b) the 1996 Omnibus Stock Incentive Plan (collectively, the “Previous Benefit Plans”). Each of the Previous Benefit Plans has expired and no additional awards may be granted thereunder.

At their 2004 annual meeting, LSB’s shareholders approved the Comprehensive Benefit Plan. Under the Comprehensive Benefit Plan, 750,000 shares of common stock are available for issuance to plan participants in the form of stock options, restricted stock, restricted stock units, performance units and other stock-based awards.

At their 1996 annual meeting, FNB shareholders approved the FNB Omnibus Equity Compensation Plan (the “1996 FNB Omnibus Plan”). The 1996 FNB Omnibus Plan authorizes the Board of Directors to grant stock options to directors, executives and key employees. Options granted under the 1996 FNB Omnibus Plan have a term of up to ten years and generally vest over a four-year period beginning on the date of the grant. Options under the 1996 FNB Omnibus Plan were granted at a price not less than the fair market value at the date of grant. The 1996 FNB Omnibus Plan expired in 2006 and no more options may be granted thereunder.

The FNB Long Term Stock Incentive Plan (the “2006 FNB Omnibus Plan”) was approved by FNB’s shareholders at their 2006 annual meeting and authorized the issuance of up to 500,000 shares of FNB common stock pursuant to the exercise of various rights granted under the 2006 FNB Omnibus Plan. Under the 2006 FNB Omnibus Plan, participants may be granted or awarded eligible options, rights to receive restricted shares of common stock and/or performance units. Except with respect to awards then outstanding, all awards must be granted or awarded on or before May 18, 2016.

Upon the Merger, each option to acquire a share of FNB common stock granted pursuant to the 2006 FNB Omnibus Plan and the 1996 FNB Omnibus Plan that was outstanding and unexercised immediately prior to the Merger was converted into an option to acquire 1.07 shares of the Company’s common stock.

The following is a summary of stock option activity and related information for the years ended December 31:

	2010					2009					2008
				Weighted Avg.					Weighted Avg.					Weighted Avg.
	Options			Exercise Price		Options			Exercise Price		Options			Exercise Price
Outstanding — Beginning of year		896,991		$	14.45		1,052,517		$	14.32		1,394,517		$	14.84
Granted		—			—		—			—		24,000			9.18
Exercised		—			—		—			—		—			—
Forfeited		(75,224	)		16.33		(155,526	)		13.55		(366,000	)		15.96
Outstanding — End of year		821,767		$	14.23		896,991		$	14.45		1,052,517		$	14.32
Exercisable — End of year		742,067		$	14.13		811,041		$	14.41		940,517		$	14.23

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The following is a summary of information on outstanding and exercisable options at December 31, 2010:

Options Outstanding							Options Exercisable
			Weighted Average
			Remaining		Weighted
Range of			Contractual Life		Average				Weighted Average
Exercise Prices	Number		(Years)		Exercise Price		Number		Exercise Price
$5.81 — 10.05		219,085		1.95	$	8.94		209,585	$	8.93
$11.06 — 14.93		114,770		2.70		14.49		114,770		14.49
$15.42 — 16.93		281,537		3.88		15.91		228,037		15.99
$17.10 — 18.00		206,375		3.45		17.43		189,675		17.44
		821,767		3.09	$	14.23		742,067	$	14.13

Note 15 — Net income (loss) per share

The following is a reconciliation of the numerator and denominator of basic and diluted net income (loss) per share of common stock (in thousands, except share data):

	For the years ended December 31,
	2010		2009			2008
Basic:
Net income (loss) available to common shareholders	$	461	$	(18,050	)	$	(57,072	)
Weighted average shares outstanding		15,655,868		15,655,868			15,663,719
Net income (loss) per share, basic	$	0.03	$	(1.15	)	$	(3.64	)
Diluted:
Net income (loss) available to common shareholders	$	461	$	(18,050	)	$	(57,072	)
Weighted average shares outstanding		15,655,868		15,655,868			15,663,719
Effect of dilutive securities:				��
Restricted stock units		13,442		—			—
Warrant		431,812		—			—
Weighted average shares outstanding and dilutive potential shares outstanding		16,101,122		15,655,868			15,663,719
Net income (loss) per share, diluted	$	0.03	$	(1.15	)	$	(3.64	)

On December 31, 2010, there were 821,767 options that were antidilutive since the exercise price exceeded the average market price for the year. There were 13,442 restricted stock units and a warrant to purchase 2,567,255 shares that were dilutive, and the dilutive effect of those restricted stock units and warrant are reflected in the table above.

On December 31, 2009, there were 896,991 options, 15,664 restricted stock units and a warrant to purchase 2,567,255 shares outstanding. On December 31, 2008, there were 1,049,517 options, 12,003 restricted stock units and a warrant to purchase 2,567,255 shares outstanding. In each case the options, the restricted stock units and the warrant were antidilutive as a result of the Company’s net loss for 2009 and 2008.

See Note 21 in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for a description of the warrant.

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Note 16 — Parent company only

The parent company’s principal asset is its investment in its subsidiary, the Bank. The principal source of income of the parent company is dividends received from the Bank. The following presents condensed financial information of the parent company (in thousands):

	2010		2009
Condensed balance sheets
Assets
Cash and due from banks	$	6,282	$	9,933
Investment in wholly-owned subsidiary		182,831		180,911
Other assets		1,006		1,097
Total assets	$	190,119	$	191,941
Trust preferred securities	$	25,774	$	25,774
Other liabilities		1,157		1,563
Shareholders’ equity		163,188		164,604
Total liabilities and shareholders’ equity	$	190,119	$	191,941

	2010			2009			2008
Condensed statements of income
Dividends from subsidiary	$	—		$	—		$	8,175
Other operating expense		733			824			51,319
Income before equity in undistributed net income of subsidiary		(733	)		(824	)		(43,144	)
Equity in undistributed net income (loss) of subsidiary		4,113			(14,309	)		(13,758	)
Net income (loss)	$	3,380		$	(15,133	)	$	(56,902	)

	2010			2009			2008
Condensed statements of cash flows
Cash flows from operating activities
Net income( loss)	$	3,380		$	(15,133	)	$	(56,902	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Other changes, net		(299	)		3,243			49,283
Change in investment in wholly-owned subsidiary		(4,113	)		14,309			13,758
Net cash (used in) provided by operating activities		(1,032	)		2,419			6,139
Cash flows from investing activities
Investments in wholly-owned subsidiary		—			(16,372	)		(26,000	)
Net cash provided by (used in) investing activities		—			(16,372	)		(26,000	)
Cash flows from financing activities
Proceeds from issuance of preferred stock and warrants		—			—			52,372
Dividends paid		(2,619	)		(2,422	)		(6,122	)
Common stock acquired		—			—			(341	)
Increase in other liabilities		—			—			38
Net cash provided by (used in) financing activities		(2,619	)		(2,422	)		45,947
Increase (decrease) in cash		(3,651	)		(16,375	)		26,086
Cash at beginning of year		9,933			26,308			222
Cash at end of year	$	6,282		$	9,933		$	26,308

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Note 17 — Off-balance sheet arrangements

The Company’s consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit. A summary of the contractual amounts of the Bank’s exposure to off-balance sheet risk at December 31 is as follows (in thousands):

	Contractual Amount
	2010		2009
Loan commitments	$	273,536	$	295,041
Credit card lines		22,457		21,790
Standby letters of credit		3,830		3,994
Total commitments and contingent liabilities	$	299,823	$	320,825

The Bank’s exposure to credit loss in the event of nonperformance by the other party to these commitments is equal to 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.

Note 18 — Employee benefit plans

The Company has three defined benefit retirement plans as follows:

• A pension plan, which is the result of the merger of two legacy pension plans. The first plan was a plan covering substantially all of the former employees of Lexington State Bank, and which was curtailed in December 2006. The second plan was a plan covering substantially all of the former employees of FNB Southeast, which was curtailed prior to the Merger. These two plans were merged into one plan, effective December 31, 2008.

• A supplemental executive retirement plan (“SERP”) covering certain executive and former executive officers, which was curtailed in 2008; and

• A retiree health benefit plan, which provides partial health insurance benefits for certain early retired former employees of Lexington State Bank, which was curtailed in 2007.

The disclosures presented represent combined information for all of the employee benefit plans. The retiree health benefit plan is not a material part of the aggregate information.

The pension plan, the retiree health benefit plan and the SERP provide for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Company and a percentage of qualifying compensation during the employee’s final years of employment. Contributions to the pension plan were based upon the projected unit credited actuarial funding method and comply with the funding requirements of the Employee Retirement Income Security Act. Contributions prior to the curtailments were intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Plan assets consist primarily of cash and cash equivalents, U.S. government securities, and securities. The following tables outline the changes in these pension obligations, assets and funded status for the years ended December 31, 2010 and 2009, and the assumptions and components of net periodic pension cost for the two and three years in the period ended December 31, 2010 (in thousands):

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	2010			2009
Change in benefit obligation
Projected benefit obligation at beginning of year	$	25,716		$	24,104
Service cost		42			43
Interest cost		1,523			1,494
Actuarial (gain) loss		1,231			1,346
Benefits paid		(1,409	)		(1,271	)
Curtailment		—			—
Projected benefit obligation at end of year		27,103			25,716
Change in plan assets
Fair value of plan assets at beginning of year		18,688			14,644
Actual return on plan assets		2,252			4,351
Employer contributions		1,150			964
Benefits paid		(1,408	)		(1,271	)
Fair value of plan assets at end of year		20,682			18,688
Funded status at end of year
Plan assets less projected benefit obligation		(6,421	)		(7,028	)
Unrecognized transitional obligation		—			—
Pension asset (liability)	$	(6,421	)	$	(7,028	)

	2010			2009
Amounts recognized in the consolidated balance sheets consist of:
Pension liability	$	(6,421	)	$	(7,028	)
Deferred tax asset		2,535			3,256
Accumulated comprehensive income, net		3,304			3,227
Net amount recognized	$	(582	)	$	(545	)

	2010			2009			2008
Components of net periodic pension cost
Service	$	42		$	43		$	213
Interest		1,523			1,494			1,520
Expected return on plan assets		(1,524	)		(1,197	)		(1,630	)
Amortization of prior service cost		1			1			82
Amortization of transition obligation		—			—			—
Amortization of net gain (loss)		241			416			54
Curtailment		—			—			(241	)
Net periodic pension cost	$	283		$	757		$	(2	)
Weighted-average assumptions
Discount rate		5.65	%		6.00	%		6.25	%
Expected return on plan assets		8.25	%		8.25	%		8.25	%
Rate of compensation increases		4.50	%		4.50	%		4.75	%

Target asset allocations are established based on periodic evaluations of risk/reward under various economic scenarios and with varying asset class allocations. The near-term and long-term impact on obligations and asset values are projected and evaluated for funding and financial accounting implications. Actual allocation and investment performance is reviewed quarterly. The current target allocation ranges, along with the actual allocation as of December 31, 2010, are included in the accompanying table.

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	Market Value as of		Actual Allocation
	December 31, 2010		as of December 31,			Long-Term
Plan Assets	(in thousands)		2010			Allocation Target
Equity securities	$	12,155		58.8	%		40% - 75	%
Debt securities		8,527		41.2	%		25% - 60	%
Total	$	20,682		100	%		100	%

The assumed expected return on assets considers the current level of expected returns on risk-free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in the portfolio and the expectation for future returns of each asset class. The expected return of each asset class is weighted based on the target allocation to develop the expected long-term rate of return on assets. This resulted in the selection of the 8.25% rate used in 2010 and to be used for 2011. The required contributions for 2010 were approximately $1,150,000, and the required contributions for 2011 are expected to be approximately $1,106,000. The expected benefit payments for the next ten years are as follows: (1) 2011 - $1,376,000, (2) 2012 — $1,406,000, (3) 2013 — $1,505,000, (4) 2014 — $1,494,000, (5) 2015 - $1,523,000, and (6) 2016 through 2020 — $9,010,000.

The Company also has a separate contributory 401(k) savings plan covering substantially all employees. Prior to year end 2007, the separate plans of the two legacy banks were merged into the current 401(k) savings plan. The 401(k) savings plan allows eligible employees to contribute up to a fixed percentage of their compensation, with the Bank matching a portion of each employee’s contribution. The Bank’s contributions were $792,000 for 2010, $748,000 for 2009 and $878,000 for 2008. The 401(k) savings plan contribution expense is reported under personnel expense in the consolidated statements of income.

Three deferred compensation plans allow the directors of the Company to defer compensation. Each plan participant makes an annual election to either receive that year’s compensation or to defer receipt until his or her death, disability or retirement. The deferred compensation balances of two of these plans are maintained in a rabbi trust. The balances in the trust at December 31, 2010 and 2009 were $4,000,000 and $3,134,000, respectively. The third plan acquires shares of the Company’s common stock in the open market and holds these shares in a trust at cost, as a component of shareholders’ equity, until distributed.

Note 19 — Regulatory matters

The primary source of funds for dividends paid by the Company to its shareholders is dividends received from the Bank plus cash on hand of $6.2 million as of December 31, 2010. The Bank is restricted as to dividend payout by state laws applicable to banks and may pay dividends only out of undivided profits. At December 31, 2010, the Bank had undivided profits of approximately $56.4 million. Additionally, dividends paid by the Company and the Bank may be limited by minimum capital requirements imposed by banking regulators. The Bank is currently restricted from paying dividends to Bancorp unless it receives advance approval from the FDIC and the Commissioner. Additionally, the Company’s Board of Directors has resolved not to declare or pay any dividend, common or preferred, or make any payments on trust preferred securities without the prior approval of the Federal Reserve Bank. During 2008, the Company first reduced its quarterly cash dividend, and later suspended the payment of cash dividends, based on the highly uncertain economic conditions and in the interest of preserving capital. As a consequence of the Company’s participation in the U.S. Department of the Treasury (the “U.S. Treasury”) Capital Purchase Program (the “CPP”), regulatory approval is currently required before the Company may increase dividends payable on its common stock to more than the last quarterly cash dividend ($0.05) declared prior to October 14, 2008.

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possible 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 Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting

83

practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that as of December 31, 2010, both the Company and the Bank meet all capital adequacy requirements to which they are subject.

The most recent notification from the NC Commissioner of Banks categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the accompanying table (in thousands, except percentages).

											To Be Well
						For Capital					Capitalized Under
						Adequacy					Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2010
Total Capital (To Risk Weighted Assets)
Consolidated	$	194,931		13.1	%	$	118,781		≥8.0	%		N/A
Bank		188,261		12.7			118,657		≥8.0		$	148,321		≥10.0	%
Tier 1 Capital (To Risk Weighted Assets)
Consolidated		175,893		11.8			59,390		≥4.0			N/A
Bank		169,242		11.4			59,328		≥4.0			88,992		≥6.0	%
Tier 1 Capital (To Average Assets)
Consolidated		175,893		9.7			72,644		≥4.0			N/A
Bank		169,242		9.3			72,551		≥4.0			90,689		≥5.0	%
December 31, 2009
Total Capital (To Risk Weighted Assets)
Consolidated	$	195,658		12.3	%	$	127,551		≥8.0	%		N/A
Bank		185,579		11.7			127,414		≥8.0		$	159,268		≥10.0	%
Tier 1 Capital (To Risk Weighted Assets)
Consolidated		175,304		11.0			63,776		≥4.0			N/A
Bank		165,246		10.4			63,707		≥4.0			95,561		≥6.0	%
Tier 1 Capital (To Average Assets)
Consolidated		175,304		8.9			78,531		≥4.0			N/A
Bank		165,246		8.4			78,439		≥4.0			98,049		≥5.0	%

Note 20 — Fair value of financial instruments

The following methods and assumptions were used to estimate the fair value for each class of the Company’s financial instruments.

Cash and cash equivalents.The carrying amounts for cash and due from banks approximate fair value because of the short maturities of those instruments.

Investment securities.In accordance with GAAP, the fair value of investment securities is based on quoted prices in active markets for identical assets, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities, corresponding to the “significant other observable inputs” definition of GAAP. The fair value of equity investments in the restricted stock of the FHLB equals the carrying value.

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Loans.The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Substantially all residential mortgage loans held for sale are pre-sold and their carrying value approximates fair value. The fair value of variable rate loans with frequent repricing and negligible credit risk approximates book value.

Investment in bank-owned life insurance.The carrying value of bank-owned life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the insurer.

Deposits.The fair value of noninterest-bearing demand deposits and NOW, savings, and money market deposits are the amounts payable on demand at the reporting date. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.

Federal funds purchased and retail repurchase agreements.The carrying value of federal funds purchased and retail repurchase agreements are considered to be a reasonable estimate of fair value.

Wholesale repurchase agreements and other borrowings.The fair values of these liabilities are estimated using the discounted values of the contractual cash flows. The discount rate is estimated using the rates currently in effect for similar borrowings.

Accrued interest. The carrying amounts of accrued interest approximate fair value.

Financial instruments with off-balance sheet risk. The carrying value of financial instruments with off-balance sheet risk is considered to approximate fair value, since a large majority of these future financing commitments would result in loans that have variable rates and/or relatively short terms to maturity. For other commitments, generally of a short-term nature, the carrying value is considered to be a reasonable estimate of fair value. The various financial instruments were disclosed in Note 17.

The estimated fair values of financial instruments for the years ending December 31 (in thousands):

	2010					2009
	Carrying			Estimated		Carrying			Estimated
	Value			Fair Value		Value			Fair Value
Financial assets:
Cash and short term investments	$	29,075		$	29,075	$	44,840		$	44,840
Investment securities		325,129			325,129		325,339			325,869
Loans (including held for sale)		1,337,579			1,343,235		1,463,094			1,475,084
Less allowance for loan losses		(28,752	)		—		(35,843	)		—
Net loans		1,308,827			1,343,235		1,427,251			1,475,084
Financial liabilities:
Deposits		1,452,995			1,455,838		1,499,310			1,504,123
Federal funds purchased and retail repurchase agreements		—			—		—			—
Federal Reserve Bank borrowings		—			—		27,600			27,600
Wholesale repurchase agreements		36,000			37,231		46,000			46,931
Junior subordinated notes		25,774			16,706		25,774			12,586
FHLB borrowings		112,700			113,580		165,200			167,810

The fair value estimates are made at a specific point in time based on relevant market and other information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on current economic conditions, risk characteristics of various financial instruments, and such other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, the tax ramifications related to the realization of the

85

unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

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 markets		Significant other		Significant
	for identical		observable inputs		unobservable inputs
	assets (Level 1)		(Level 2)		(Level 3)
Available for sale securities at December 31, 2010	$	—	$	314,730	$	—
Available for sale securities at December 31, 2009		—		305,382		—

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 markets		Significant other		Significant
	for identical		observable inputs		unobservable inputs
	assets (Level 1)		(Level 2)		(Level 3)
Loans held for sale at December 31, 2010	$	—	$	76,994	$	—
Loans held for sale at December 31, 2009		—		6,568		—
Real estate acquired in settlement of loans at December 31, 2010		—		—		26,718
Real estate acquired in settlement of loans at December 31, 2009		—		—		27,337
Core deposit intangible at December 31, 2010		—		—		4,526
Core deposit intangible at December 31, 2009		—		—		5,252
Impaired loans net of allowance at December 31, 2010		—		—		36,368
Impaired loans net of allowance at December 31, 2009		—		—		43,418

Note 21 — U.S. Treasury Capital Purchase Program

Pursuant to 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, representing an aggregate market price of approximately $7.9 million, 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. Subject to the approval of the federal banking regulators, the Series A Preferred Stock may be redeemed in whole or in part, at any time and from time to time. Once an institution notifies the U.S. Treasury that it would like to repay its investment, the U.S. Treasury must permit repayment subject to consultation with the federal banking regulators. All such redemptions will be at 100% of the issue price, plus any accrued and unpaid dividends. 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 holders of the Series A Preferred Stock are entitled to receive cumulative dividends of 5 percent for the first five years and 9 percent thereafter.

Note 22 — Pending sale of Virginia operations

On December 21, 2010, the Bank entered into an agreement to sell its Harrisonburg, Virginia operations. Under the terms of the sale, which is expected to be completed during the second quarter of 2011, the Bank will sell deposits of approximately $59.3 million and loans of approximately $73.5 million at book value. The Bank will also sell its branch in Harrisonburg, as well as a parcel of land located in Waynesboro, Virginia. An impairment charge of $339,000 was recorded during the fourth quarter of 2010 for the expected loss on the sale of the real property.

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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.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 Exchange Act) as of December 31, 2010. Based upon that evaluation, the Company’s CEO, CFO and CAO each concluded that as of December 31, 2010, the end of the period covered by this Annual Report on Form 10-K, the Company effectively maintained disclosure controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s CEO, CFO and CAO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Management has made a comprehensive review, evaluation and assessment of the Company’s internal control over financial reporting as of December 31, 2010. In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control—Integrated Framework.Based on this assessment, management believes that, as of December 31, 2010, the Company’s internal control over financial reporting is effective. In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, management makes the following assertions:

• Management has implemented a process to monitor and assess both the design and operating effectiveness of internal control over financial reporting.

• Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. This Report of Independent Registered Public Accounting Firm is included in Item 8, Financial Statements and Supplementary Data.

Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company’s CEO, CFO, and CAO, changes in the Company’s internal control over financial reporting during the fourth quarter of 2010. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the fourth quarter that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.Other Information

None.

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PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

(a) Directors and Executive Officers—The information required by this Item regarding directors, nominees and executive officers of Bancorp is set forth under the Proxy Statement sections captioned “Proposal 1 — Election of Directors,” “Executive Officers of the Company,” and “Board Committees — Audit Committee,” which sections are incorporated herein by reference.

(b) Section 16(a) Compliance — The information required by this Item regarding compliance with Section 16(a) of the Exchange Act is set forth under the Proxy Statement section captioned “Section 16(a) Beneficial Ownership Reporting Compliance,” which section is incorporated herein by reference.

(c) Audit Committee — The information required by the Item regarding Bancorp’s Audit Committee, including the Audit Committee Finance Expert, is set forth under the Proxy Statement sections captioned “Board Committees — Audit Committee” and “Board Committees — Audit Committee Report,” which sections are incorporated by reference.

(d) Code of Ethics — The information required by the Item regarding codes of ethics is set forth under the Proxy Statement section captioned “Code of Business Conduct and Ethics,” which section is incorporated by reference.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is set forth under the Proxy Statement sections captioned “Compensation Discussion and Analysis”, “Grant of Plan-Based Awards”, “Discussion on Base Salary”, “Outstanding Equity Awards at Fiscal Year-End”, “Option Exercises and Stock Vested”, “ Pension Benefits”, “Nonqualified Deferred Compensation”, “Potential Payments Upon Termination or Change in Control”, “Director Compensation”, “Directors’ Fees and Practices”, “Board Committees — Compensation Committee Interlocks and Insider Participation” and “Board Committees — Compensation Committee Report,” which sections are incorporated by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is set forth under the Proxy Statement sections captioned “Security Ownership of Certain Beneficial Owners” and “How Much Common Stock do our Directors and Executive Officers Own?” and in Item 5 of this Annual Report on Form 10-K, which sections and Item are incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is set forth under the Proxy Statement sections captioned “Proposal 1 — Election of Directors,” “Certain Relationships and Related Transactions,” “Board Committees”, “Board Committees — Compensation Committee Interlocks and Insider Participation,” and “Board Committees — Related Party matters,” which sections are incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is set forth under the Proxy Statement section captioned “Proposal 2: Ratification of Appointment of Grant Thornton as Our Independent Registered Public Accounting Firm for the Fiscal Year Ended December 31, 2011,” which section is incorporated herein by reference.

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PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)(1) Financial Statements. The following financial statements and supplementary data are included in Item 8 of this report.

Financial Statements	Page
Quarterly Financial Information		58
Reports of Independent Registered Public Accounting Firm		59
Consolidated Balance Sheets as of December 31, 2010 and 2009		61
Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008		62
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2010, 2009 and 2008		63
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008		64
Notes to Consolidated Financial Statements		65

(a)(2)Financial Statement Schedules. All applicable financial statement schedules required under Regulation S-X have been included in the Notes to Consolidated Financial Statements.

(a)(3)Exhibits. The exhibits required by Item 601 of Regulation S-K are listed below. The management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K are listed as exhibits 10.1 through 10.37 (excluding exhibits 10.30 and 10.35) in the Exhibit Index.

(b) The exhibits to the Form 10-K begin on page 97 of this Report.

(c) See 15(a)(2) above.

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Exhibit Index

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).
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).

90

Exhibit
No.	Description
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).
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).

91

Exhibit
No.	Description
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 99.1 of the Current Report on Form 8-K, filed with the SEC on August 3, 2010 (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	Employment and Change of Control Agreement with George Richard Webster, incorporated herein by reference to Exhibit 99.6 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.22	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).
10.23	Second Amendment to the Directors and Senior Management Deferred Compensation Plan and Directors Retirement Policy Trust Agreement among Regions bank d/b/a/Regions Morgan Keegan Trust, Bancorp and the Bank, incorporated herein by reference to Exhibit 99.8 of the Current Report on Form 8-K, filed with the SEC on March 14, 2008 (SEC File No. 000-11448).
10.24	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).
10.25	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).
10.26	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).
10.27	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).
10.28	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).
10.29	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).
10.30	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).
10.31	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).

92

Exhibit
No.	Description
10.32	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).
10.33	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).
10.34	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).
10.35	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).
10.36	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).
10.37	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).
21.01	Schedule of Subsidiaries
23.01	Consent of Grant Thornton LLP
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.
99.01	Certification Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009.
99.02	Certification Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009.

93

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

NEWBRIDGE BANCORP
Date: March 23, 2011	By: /s/Pressley A. Ridgill
	Pressley A. Ridgill,
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/pressley a. ridgill	President, Chief Executive Officer, Director	March 23, 2011
Pressley A. Ridgill	(Principal Executive Officer)
/s/ramsey k. hamadi Ramsey K. Hamadi	Executive Vice President, Chief Financial Officer	March 23, 2011
	(Principal Financial Officer)
/s/richard m. cobb Richard M. Cobb	Senior Vice President, Chief Accounting Officer, Controller	March 23, 2011
	(Principal Accounting Officer)
/s/michael s. albert	Chairman of the Board	March 23, 2011
Michael S. Albert
/s/Barry Z. Dodson	Vice Chairman of the Board	March 23, 2011
Barry Z. Dodson
/s/j. david branch	Director	March 24, 2011
J. David Branch
/s/ c. arnold britt	Director	March 23, 2011
C. Arnold Britt
/s/ robert c. clark	Director	March 23, 2011
Robert C. Clark
/s/Alex A. Diffey, jr.	Director	March 23, 2011
Alex A. Diffey, Jr.
/s/Joseph H. Kinnarney	Director	March 23, 2011
Joseph H. Kinnarney
/s/robert f. lowe	Director	March 23, 2011
Robert F. Lowe

94

Signature	Capacity	Date
/s/robert v. perkins, ii	Director	March 23, 2011
Robert V. Perkins, II
/s/mary e. rittling	Director	March 23, 2011
Mary E. Rittling
/s/burr w. sullivan	Director	March 23, 2011
Burr W. Sullivan
/s/E. Reid Teague	Director	March 23, 2011
E. Reid Teague
/s/john f. watts	Director	March 23, 2011
John F. Watts
/s/g. alfred webster	Director	March 23, 2011
G. Alfred Webster
/s/Kenan C. Wright	Director	March 23, 2011
Kenan C. Wright
/s/julius s. young, jr.	Director	March 23, 2011
Julius S. Young, Jr.

95

EXHIBIT INDEX

Exhibit	Description
21.01	Schedule of Subsidiaries
23.01	Consent of Grant Thornton LLP
31.01	Certification of Pressley A. Ridgill
31.02	Certification of Ramsey K. Hamadi
32.01	Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
99.01	Certification Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009.
99.02	Certification Pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009.

96