Newbridge Bancorp 10Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended:

September 30, 2012

Commission File Number: 000-11448

NewBridge Bancorp

(Exact name of Registrant as specified in its Charter)

North Carolina	56-1348147
(State of Incorporation)	(I.R.S. Employer Identification No.)

1501 Highwoods Boulevard, Suite 400
Greensboro, North Carolina	27410
(Address of principal executive offices)	(Zip Code)

(336) 369-0900

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

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). Yesx No¨

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

Large accelerated filer¨

Accelerated filer¨

Non-accelerated filer¨

Smaller reporting companyx

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

At November 13, 2012, 15,655,868 shares of the registrant’s common stock were outstanding.

NEWBRIDGE BANCORP

FORM 10-Q

TABLE OF CONTENTS

		Page

PART I
Financial Information

Item 1	Financial Statements	3
	Consolidated Balance Sheets September 30, 2012 and December 31, 2011	3
	Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2012 and 2011	4
	Consolidated Statements of Comprehensive Income Three Months and Nine Months Ended September 30, 2012 and 2011	5
	Consolidated Statements of Changes in Shareholders’ Equity Nine Months Ended September 30, 2012 and 2011	6
	Consolidated Statements of Cash Flows Nine Months Ended September 30, 2012 and 2011	7
	Notes to Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4	Controls and Procedures	41

PART II
Other Information
Item 6	Exhibits	42

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

NewBridge Bancorp and Subsidiary

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	September 30			December 31
	2012			2011
	(Unaudited)
Assets
Cash and due from banks	$	32,095		$	27,629
Interest-bearing bank balances		10,646			26,363
Loans held for sale		7,074			7,851
Investment securities		387,376			337,811
Loans		1,168,747			1,200,070
Less allowance for credit losses		(35,016	)		(28,844	)
Net loans		1,133,731			1,171,226
Premises and equipment		36,637			36,225
Real estate acquired in settlement of loans		10,465			30,587
Bank-owned life insurance		44,940			43,727
Deferred tax assets		29,966			32,263
Other assets		20,979			20,882
Total assets	$	1,713,909		$	1,734,564

Liabilities
Noninterest-bearing deposits	$	184,942		$	172,351
NOW deposits		429,792			441,292
Savings and money market deposits		395,179			411,649
Time deposits		379,823			393,384
Total deposits		1,389,736			1,418,676
Borrowings from the Federal Home Loan Bank		117,200			86,700
Other borrowings		46,774			46,774
Accrued expenses and other liabilities		20,834			19,027
Total liabilities		1,574,544			1,571,177

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		52,014			51,789
Common stock, par value $5 per share:
Authorized 50,000,000 shares; issued and outstanding – 15,655,868		78,279			78,279
Paid-in capital		87,276			87,190
Directors’ deferred compensation plan		(468	)		(575	)
Retained deficit		(79,731	)		(47,525	)
Accumulated other comprehensive income (loss)		1,995			(5,771	)
Total shareholders’ equity		139,365			163,387
Total liabilities and shareholders’ equity	$	1,713,909		$	1,734,564

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Income

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

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2012			2011			2012			2011
Interest Income
Interest and fees on loans	$	14,084		$	16,121		$	43,587		$	50,052
Interest on investment securities
Taxable		3,061			3,147			9,994			9,595
Tax exempt		186			190			571			572
Interest-bearing bank balances and federal funds sold		10			20			30			44
Total interest income		17,341			19,478			54,182			60,263

Interest Expense
Deposits		1,088			2,252			4,217			7,513
Borrowings from the Federal Home Loan Bank		232			275			760			907
Other borrowings		343			329			1,032			1,313
Total interest expense		1,663			2,856			6,009			9,733
Net interest income		15,678			16,622			48,173			50,530
Provision for credit losses		28,881			3,445			34,684			12,539
Net interest income after provision for credit losses		(13,203	)		13,177			13,489			37,991

Noninterest Income
Retail banking		2,308			2,457			6,888			7,511
Mortgage banking services		732			395			1,848			1,088
Wealth management services		645			702			1,800			1,873
Gain on sale of investment securities		3			65			3			2,026
Writedowns and losses on sales of real estate acquired in settlement of loans		(10,587	)		(799	)		(14,571	)		(3,871	)
Bank-owned life insurance		326			303			1,171			1,015
Other		171			177			468			592
Total noninterest income		(6,402	)		3,300			(2,393	)		10,234

Noninterest Expense
Personnel		7,513			7,857			21,800			22,498
Occupancy		2,155			983			4,183			3,043
Furniture and equipment		832			896			2,495			2,784
Technology and data processing		1,039			960			3,074			2,970
Legal and professional		858			664			2,219			2,032
FDIC insurance		444			600			1,326			2,027
Real estate acquired in settlement of loans		479			451			1,002			1,233
Other		3,225			2,482			7,786			7,278
Total noninterest expense		16,545			14,893			43,885			43,865
Income (loss) before income taxes		(36,150	)		1,584			(32,789	)		4,360
Income tax expense (benefit)		(3,700	)		501			(2,771	)		1,125
Net Income (Loss)		(32,450	)		1,083			(30,018	)		3,235
Dividends and accretion on preferred stock		(729	)		(730	)		(2,188	)		(2,188	)
Net Income (Loss) available to common shareholders	$	(33,179	)	$	353		$	(32,206	)	$	1,047

Earnings (loss) per share
Basic	$	(2.12	)	$	0.02		$	(2.06	)	$	0.07
Diluted	$	(2.12	)	$	0.02		$	(2.06	)	$	0.06

Weighted average shares outstanding
Basic		15,655,868			15,655,868			15,655,868			15,655,868
Diluted		15,655,868			16,467,550			15,655,868			16,558,862

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited; dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2012			2011			2012			2011
Net Income (Loss)	$	(32,450	)	$	1,083		$	(30,018	)	$	3,235
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period		2,863			160			7,797			1,197
Reclassification adjustment for (gains) losses included in net income		(2	)		(39	)		(2	)		(1,226	)
Defined benefit pension plans:
Amortization of post retirement benefit		(9	)		(10	)		(29	)		(29	)
Total other comprehensive income (loss)		2,852			111			7,766			(58	)
Comprehensive Income (Loss)	$	(29,598	)	$	1,194		$	(22,252	)	$	3,177

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

Nine months ended September 30, 2012 and 2011

(Unaudited; dollars in thousands)

									Directors’						Accumulated
									Deferred			Retained			Other			Total
	Preferred		Common Stock				Paid-in		Compensation			Earnings			Comprehensive			Shareholders’
	Stock		Shares		Amount		Capital		Plan			(Deficit)			Income (Loss)			Equity
Balances at December 31, 2010	$	51,490		15,655,868	$	78,279	$	87,048	$	(618	)	$	(49,286	)	$	(995	)	$	165,918
Net Income													3,235						3,235
Change in accumulated other comprehensive income (loss) net of deferred income taxes																(58	)		(58	)
Dividends and accretion on preferred stock		224											(2,188	)					(1,964	)
Stock-based compensation expense								104											104
Common stock distributed										43									43
Balances at September 30, 2011	$	51,714		15,655,868	$	78,279	$	87,152	$	(575	)	$	(48,239	)	$	(1,053	)	$	167,278

Balances at December 31, 2011	$	51,789		15,655,868	$	78,279	$	87,190	$	(575	)	$	(47,525	)	$	(5,771	)	$	163,387
Net (Loss)													(30,018	)					(30,018	)
Change in accumulated other comprehensive income (loss) net of deferred income taxes																7,766			7,766
Dividends and accretion on preferred stock		225											(2,188	)					(1,963	)
Stock-based compensation expense								86											86
Common stock distributed										107			��						107
Balances at September 30, 2012	$	52,014		15,655,868	$	78,279	$	87,276	$	(468	)	$	(79,731	)	$	1,995		$	139,365

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited; dollars in thousands)

	Nine Months Ended
	September 30
	2012			2011

Cash Flow from operating activities
Net Income (Loss)	$	(30,018	)	$	3,235
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,585			4,346
Securities premium amortization and discount accretion, net		165			280
(Gain) loss on sale of securities		(3	)		(2,026	)
Mortgage banking services		(1,848	)		(1,088	)
Originations of loans held for sale		(114,385	)		(72,928	)
Proceeds from sales of loans held for sale		117,081			144,117
(Increase) decrease in deferred tax assets		(2,789	)		309
(Increase) in income taxes receivable		(153	)		-
Decrease in interest earned but not received		190			311
(Decrease) in interest accrued but not paid		(195	)		(327	)
Writedowns and losses on sales of real estate acquired in settlement of loans		14,571			3,871
Net (increase) decrease in other assets		(2.603	)		2,251
Net increase in other liabilities		2,002			3,759
Provision for credit losses		34,684			12,539
Stock-based compensation		86			104
Net cash provided by operating activities		19,370			98,753

Cash Flow from investing activities
Purchases of securities available for sale		(170,690	)		(86,418	)
Proceeds from sales of securities available for sale		6,721			39,209
Proceeds from maturities, prepayments and calls of securities available for sale		127,812			75,063
Net (increase) decrease in loans		(4,618	)		15,086
Purchases of premises and equipment		(2,686	)		(3,076	)
Proceeds from sales of premises and equipment		160			2,902
Proceeds from sales of real estate acquired in settlement of loans		12,977			7,358
Net cash provided by (used in) investing activities		(30,324	)		50,124

Cash Flow from financing activities
Net increase (decrease) in demand deposits and NOW accounts		1,090			(10,978	)
Net increase (decrease) in savings and money market accounts		(16,470	)		47,932
Net (decrease) in time deposits		(13,561	)		(94,278	)
Net (decrease) in other borrowings		-			(15,000	)
Net increase (decrease) in borrowings from FHLB		30,500			(39,700	)
Dividends paid		(1,963	)		(1,964	)
Common stock distributed		107			43
Net cash (used in) financing activities		(297	)		(113,945	)
Increase (decrease) in cash and cash equivalents		(11,251	)		34,932
Cash and cash equivalents at the beginning of the period		53,992			29,075
Cash and cash equivalents at the end of the period	$	42,741		$	64,007

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Cash Flows (continued)

(Unaudited; dollars in thousands)

	Nine Months Ended
	September 30
	2012			2011

Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest	$	6,204		$	10,060
Income taxes		250			-

Supplemental disclosures of noncash transactions
Transfer of loans to real estate acquired in settlement of loans	$	7,426		$	10,980
Unrealized gains/(losses) on securities available for sale:
Change in securities available for sale		12,881			(48	)
Change in deferred income taxes		(5,086	)		19
Change in shareholders’ equity		7,795			(29	)

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

Note 1—Basis of Presentation

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and provisions for credit losses considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

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

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

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the consolidated financial statements in Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2012 (SEC File No. 000-11448) (the “Annual Report”). This Quarterly Report should be read in conjunction with the Annual Report.

Recent accounting pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). This Update establishes common fair value measurement and disclosure requirements in GAAP and IFRS through changes in the description and disclosure of fair value measurements, clarification about the application of existing requirements, and changes to particular principles for measuring fair value or for disclosing information about those measurements. This guidance became effective during the first interim period beginning after December 15, 2011. The application of this Update did not have a material effect on our consolidated financial position or consolidated results of operations.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income. This Update requires companies to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Presentation of comprehensive income in the statement of changes in shareholders’ equity is no longer acceptable. This Update does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, the option for an entity to present components of other comprehensive income net or before related tax effects, or how earnings per share is calculated or presented. This Update became effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the new disclosure requirements in its Quarterly Report on Form 10-Q for the period ended March 31, 2012.

Reclassification

Certain items for 2011 have been reclassified to conform to the 2012 presentation. Such reclassifications had no effect on net income, total assets or shareholders’ equity as previously reported.

Note 2—Nonrecurring Adjustments

Occupancy expense for the three months and nine months ended September 30, 2012 includes $1.0 million in adjustments for impairments on facilities. Other expense for the three months and nine months ended September 30, 2012 includes $0.9 million in adjustments for various nonrecurring accruals.

Note 3 — Net Income Per Share

Basic and diluted net income per share is computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options or warrants were exercised, or restricted stock vested, resulting in the issuance of common stock sharing in the net income of the Company. A summary of basic and diluted net income per share follows (in thousands, except per share data):

	For the three months ended September 30					For the nine months ended September 30
	2012			2011		2012			2011
Basic:
Net income (loss) available to common shareholders	$	(33,179	)	$	353	$	(32,206	)	$	1,047
Weighted average shares outstanding		15,655,868			15,655,868		15,655,868			15,655,868
Net income (loss) per share, basic	$	(2.12	)	$	0.02	$	(2.06	)		0.07
Diluted:
Net income (loss) available to common shareholders	$	(33,179	)	$	353	$	(32,206	)	$	1,047
Weighted average shares outstanding		15,655,868			15,655,868		15,655,868			15,655,868
Effect of dilutive securities:
Stock options		-			-		-			-
Restricted stock units		-			10,218		-			9,484
Warrant		-			801,464		-			893,510
Weighted average shares outstanding and dilutive potential shares outstanding		15,655,868			16,467,550		15,655,868			16,558,862
Net income (loss) per share, diluted	$	(2.12	)	$	0.02	$	(2.06	)	$	0.06

The calculation of diluted net income (loss) per share for the 2012 periods excludes the effect of normally dilutive restricted stock units of 50,472 and warrant of 791,539 for the three months and 33,054 and 732,867, respectively, for the nine months as these are antidilutive due to the net loss reported in these periods.

Note 4 — Investment Securities

Investment securities consist of the following (in thousands):

					September 30, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses			Market Value		Average Yield			Average Duration⁽¹⁾

U.S. Treasury securities	$	19,999	$	-	$	-		$	19,999		0.05	%		0.06
U.S. government agency securities		36,996		135		-			37,131		1.74			0.41
Agency mortgage backed securities		23,963		2,569		-			26,532		5.28			2.40
Collateralized mortgage obligations		11,579		252		(1	)		11,830		5.66			1.70
Commercial mortgage backed securities		53,960		2,196		(126	)		56,030		3.34			3.54
Corporate bonds		150,578		4,978		(1,807	)		153,749		3.26			3.51
Covered bonds		44,915		3,853		-			48,768		3.68			3.71
State and municipal obligations		18,048		779		-			18,827		6.21	⁽²⁾		4.27
Total debt securities		360,038		14,762		(1,934	)		372,866		3.35	⁽²⁾		2.93
Federal Home Loan Bank stock		7,874		-		-			7,874
Other equity securities		5,775		861		-			6,636
Total investment securities	$	373,687	$	15,623	$	(1,934	)	$	387,376

					December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses			Market Value		Average Yield			Average Duration⁽¹⁾

U.S. government agency securities	$	39,000	$	147	$	-		$	39,147		2.79	%		1.06
Agency mortgage backed securities		31,917		2,926		-			34,843		5.21			3.55
Collateralized mortgage obligations		23,599		168		(332	)		23,435		4.69			2.03
Commercial mortgage backed securities		30,169		153		(33	)		30,289		3.47			4.43
Corporate bonds		118,573		385		(4,282	)		114,676		3.77			3.98
Covered bonds		61,414		1,243		(131	)		62,526		5.25			2.12
State and municipal obligations		19,371		425		(288	)		19,508		6.47	⁽²⁾		5.64
Total debt securities		324,043		5,447		(5,066	)		324,424		4.13	⁽²⁾		3.37
Federal Home Loan Bank stock		7,185		-		-			7,185
Other equity securities		5,775		427		-			6,202
Total investment securities	$	337,003	$	5,874	$	(5,066	)	$	337,811

(1) Average remaining duration to maturity, in years

(2) Fully taxable equivalent basis

All securities were classified as available for sale as of each date presented.

During 2012, the Company’s investment strategy has focused on corporate bonds in order to take advantage of higher yield potential compared to other available investment alternatives and to supplement earning asset growth. Accordingly, the balance of corporate bond investments has increased notably during the period. All corporate bond investments are investment grade, as determined by S&P and Moody’s credit ratings.

The following is a schedule of investment securities in a loss position as of September 30, 2012 (in thousands):

	Less than 1 year					1 Year or More					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss

U.S. Treasury securities	$	9,999	$	-		$	-	$	-		$	9,999	$	-
Collateralized mortgage obligations		367		(1	)		-		-			367		(1	)
Commercial mortgage backed securities		13,442		(126	)		-		-			13,442		(126	)
Corporate bonds		2,484		(15	)		23,183		(1,792	)		25,667		(1,807	)
State and municipal obligations		-		-			467		-			467		-
Total investment securities in a loss position	$	26,292	$	(142	)	$	23,650	$	(1,792	)	$	49,942	$	(1,934	)

Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.

As of September 30, 2012, management does not intend to sell any of the securities classified as available for sale in the table above which have unrealized losses and believes that it is not likely that we will have to sell any such securities before a recovery of cost given the current liquidity position. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality.

Investment securities with an amortized cost of $94,642,000 and $79,211,000, as of September 30, 2012, and December 31, 2011, 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.

During the first nine months of 2012, the Company sold $6,721,000 of investments for a gain of $3,000. During the first nine months of 2011, the Company sold $39,209,000 of investments for a gain of $2,026,000. The investments sold by the Company in 2011 consisted of shorter-duration, odd-lot mortgage backed securities and certain corporate bonds.

Note 5 — Loans and Allowance for Credit Losses

Loans are summarized as follows (in thousands):

	September 30		December 31
	2012		2011
Secured by owner-occupied nonfarm nonresidential properties	$	257,230	$	269,972
Secured by other nonfarm nonresidential properties		200,848		157,594
Other commercial and industrial		94,536		119,877
Total Commercial		552,614		547,443

Construction loans – 1 to 4 family residential		9,850		7,781
Other construction and land development		66,276		81,630
Total Real estate – construction		76,126		89,411

Closed-end loans secured by 1 to 4 family residential properties		283,409		287,268
Lines of credit secured by 1 to 4 family residential properties		201,731		209,634
Loans secured by 5 or more family residential properties		20,698		25,883
Total Real estate – mortgage		505,838		522,785

Credit cards		7,408		7,649
Other revolving credit plans		9,139		9,444
Other consumer loans		11,441		17,648
Total Consumer		27,988		34,741

All other loans		6,181		5,690
Total Other		6,181		5,690

Total loans	$	1,168,747	$	1,200,070

Nonperforming assets are summarized as follows (in thousands):

	September 30			December 31
	2012			2011
Commercial nonaccrual loans, not restructured	$	12,411		$	15,773
Commercial nonaccrual loans, restructured		5,092			7,489
Non-commercial nonaccrual loans, not restructured		4,418			9,569
Non-commercial nonaccrual loans, restructured		1,007			283
Total nonaccrual loans		22,928			33,114
Troubled debt restructured loans, accruing		4,760			7,406
Accruing loans which are contractually past due 90 days or more		6			14
Total nonperforming loans		27,694			40,534
Real estate acquired in settlement of loans		10,465			30,587
Total nonperforming assets	$	38,159		$	71,121

Nonperforming loans to loans outstanding at end of period		2.37	%		3.38	%
Nonperforming assets to total assets at end of period		2.23	%		4.10	%
Allowance for credit losses to nonperforming loans		126.44	%		71.16	%

Restructured loans, performing⁽¹⁾	$	1,296		$	4,888

(1)

Loans restructured in a prior calendar year at a market rate of interest and which have experienced at least six consecutive months of payment performance in accordance with the restructured terms.

Nonperforming assets include nonaccrual loans, accruing loans contractually past due 90 days or more, certain 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.

Commitments to lend additional funds to borrowers whose loans have been restructured are not material at September 30, 2012.

The aging of loans is summarized in the following table (in thousands):

	30-89 days		90+ days		Nonaccrual		Total past due				Total loans
September 30, 2012	past due		past due		Loans		+ nonaccrual		Current		receivable
Secured by owner-occupied nonfarm nonresidential properties	$	4,206	$	-	$	5,844	$	10,050	$	247,180	$	257,230
Secured by other nonfarm nonresidential properties		1,088		-		4,934		6,022		194,826		200,848
Other commercial and industrial		1,211		-		657		1,868		92,668		94,536
Total Commercial		6,505		-		11,435		17,940		534,674		552,614

Construction loans – 1 to 4 family residential		101		-		470		571		9,279		9,850
Other construction and land development		1,843		-		3,298		5,141		61,135		66,276
Total Real estate – construction		1,944		-		3,768		5,712		70,414		76,126

Closed-end loans secured by 1 to 4 family residential properties		6,165		-		6,149		12,314		271,095		283,409
Lines of credit secured by 1 to 4 family residentialproperties		2,473		-		1,325		3,798		197,933		201,731
Loans secured by 5 or more family residential properties		437		-		-		437		20,261		20,698
Total Real estate – mortgage		9,075		-		7,474		16,549		489,289		505,838

Credit cards		73		6		-		79		7,329		7,408
Other revolving credit plans		42		-		111		153		8,986		9,139
Other consumer loans		550		-		140		690		10,751		11,441
Total Consumer		665		6		251		922		27,066		27,988

All other loans		-		-		-		-		6,181		6,181
Total Other		-		-		-		-		6,181		6,181

Total loans	$	18,189	$	6	$	22,928	$	41,123	$	1,127,624	$	1,168,747

	30-89 days		90+ days		Nonaccrual		Total past due				Total loans
December 31, 2011	past due		past due		Loans		+ nonaccrual		Current		receivable
Secured by owner-occupied nonfarm nonresidential properties	$	4,514	$	-	$	7,718	$	12,232	$	257,740	$	269,972
Secured by other nonfarm nonresidential properties		2,134		-		1,310		3,444		154,150		157,594
Other commercial and industrial		1,199		-		437		1,636		118,241		119,877
Total Commercial		7,847		-		9,465		17,312		530,131		547,443

Construction loans – 1 to 4 family residential		650		-		447		1,097		6,684		7,781
Other construction and land development		2,776		-		9,016		11,792		69,838		81,630
Total Real estate – construction		3,426		-		9,463		12,889		76,522		89,411

Closed-end loans secured by 1 to 4 family residential properties		7,483		-		12,744		20,227		267,041		287,268
Lines of credit secured by 1 to 4 family residentialproperties		5,489		-		975		6,464		203,170		209,634
Loans secured by 5 or more family residential properties		3,852		-		302		4,154		21,729		25,883
Total Real estate – mortgage		16,824		-		14,021		30,845		491,940		522,785

Credit cards		146		14		-		160		7,489		7,649
Other revolving credit plans		339		-		125		464		8,980		9,444
Other consumer loans		372		-		40		412		17,236		17,648
Total Consumer		857		14		165		1,036		33,705		34,741

All other loans		-		-		-		-		5,690		5,690
Total Other		-		-		-		-		5,690		5,690

Total loans	$	28,954	$	14	$	33,114	$	62,082	$	1,137,988	$	1,200,070

At September 30, 2012 and December 31, 2011, there were $10.9 million and $15.2 million, respectively, of loans classified as nonperforming troubled debt restructurings (“TDRs”). A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for reasons related to the borrower’s financial difficulties that it would not otherwise consider. For loans classified as TDRs, the Company further evaluates the loans as performing or nonperforming. Nonperforming TDRs originally classified as nonaccrual may be reclassified as accruing if, subsequent to restructure, they experience six consecutive months of payment performance in accordance with the restructured terms. Further, a TDR may be considered performing and subsequently removed from impaired status in years subsequent to the restructuring if it meets the following criteria:

At the time of restructure, the loan was made at a market rate of interest; and

The loan has experienced at least six consecutive months of payment performance in accordance with the restructured terms; and

The loan has been included in the TDR disclosures for at least one Annual Report on Form 10-K

Modifications of terms for loans and their inclusion as TDRs are based on individual facts and circumstances. Loan modifications that are included as TDRs may involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral or forgiveness of principal payments. The loans included as TDRs at September 30, 2012 had either an interest rate modification or a deferral of one or more principal payments. All loans designated as TDRs were modified due to financial difficulties experienced by the borrower. The Company has $1,296,000 of performing TDRs at September 30, 2012 which meet the above criteria and therefore are excluded from nonperforming status.

The Company monitors the performance of modified loans on an ongoing basis. Loans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual. A modified loan will be reclassified to nonaccrual if the loan becomes 90 days delinquent or other weaknesses are observed which make collection of principal and interest unlikely. A loan on nonaccrual may be reclassified to accrual status following an evaluation and having experienced at least six consecutive months of payment performance in accordance with the restructured terms. Nonperforming TDRs are considered impaired.

The following table provides information about TDRs identified during the current period (in thousands, except number of contracts):

	Modifications for the three months ended September 30, 2012						Modifications for the nine months ended September 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		2	$	1,242	$	651		9	$	7,851	$	6,204
Real estate – construction		1		135		124		3		321		309
Real estate – mortgage		1		100		117		4		669		685
Total		4	$	1,477	$	892		16	$	8,841	$	7,198

A TDR is considered to be in default if it is 90 days or more past due at the end of any month during the reporting period.

The following table provides information about TDRs restructured in the previous 12 months that subsequently defaulted during the stated periods (in thousands, except number of contracts):

	Defaults for the three months ended September 30, 2012				Defaults for the nine months ended September 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
TDR Defaults:
Commercial		1	$	425		3	$	914
Total		1	$	425		3	$	914

Interest income is not typically accrued on impaired loans, but there are $4.8 million in TDRs at September 30, 2012 that are considered impaired and are accruing. The following table shows interest income recognized on these TDRs for the three and nine months ended September 30, 2012 (in thousands):

	Three Months Ended September 30, 2012		Nine Months Ended September 30, 2012
Interest Income Recognized:
Commercial	$	29	$	90
Real estate – construction		4		13
Real estate – mortgage		22		90
Consumer		-		2
Total	$	55	$	195

Classified loans are summarized in the following table (in thousands):

	September 30		December 31
	2012		2011
Loans identified as impaired	$	22,644	$	32,591
Other nonperforming loans		5,050		7,943
Total nonperforming loans		27,694		40,534
Performing classified loans		46,842		87,959
Total classified loans	$	74,536	$	128,493

Loans specifically identified and evaluated for impairment totaled $22,644,000 and $32,591,000 at September 30, 2012 and December 31, 2011, respectively, as summarized in the following tables (in thousands).

			Impaired Loans
	Recorded		Unpaid Principal		Specific		Average
	Balance		Balance		Allowance		Recorded Investment
September 30, 2012
Loans without a specific valuation allowance:
Commercial	$	8,183	$	10,761	$	-	$	10,944
Real estate – construction		1,853		4,071		-		4,102
Real estate – mortgage		4,224		5,372		-		5,764
Consumer		-		-		-		-
Total		14,260		20,204		-		20,810

Loans with a specific valuation allowance:
Commercial		4,570		4,595		876		6,112
Real estate – construction		913		1,116		253		1,167
Real estate – mortgage		2,882		2,882		1,155		2,900
Consumer		19		19		19		11
Total		8,384		8,612		2,303		10,190

Total impaired loans:
Commercial		12,753		15,356		876		17,056
Real estate – construction		2,766		5,187		253		5,269
Real estate – mortgage		7,106		8,254		1,155		8,664
Consumer		19		19		19		11
Total	$	22,644	$	28,816	$	2,303	$	31,000

			Impaired Loans
	Recorded		Unpaid Principal		Specific		Average
	Balance		Balance		Allowance		Recorded Investment
December 31, 2011
Loans without a specific valuation allowance:
Commercial	$	2,722	$	2,856	$	-	$	3,497
Real estate – construction		6,874		8,571		-		8,655
Real estate – mortgage		6,429		6,536		-		8,128
Consumer		-		-		-		57
Total		16,025		17,963		-		20,337

Loans with a specific valuation allowance:
Commercial		8,014		8,329		1,972		4,251
Real estate – construction		1,495		1,515		203		2,954
Real estate – mortgage		6,940		7,240		1,874		7,472
Consumer		117		117		117		86
Total		16,566		17,201		4,166		14,763

Total impaired loans:
Commercial		10,736		11,185		1,972		7,748
Real estate – construction		8,369		10,086		203		11,609
Real estate – mortgage		13,369		13,776		1,874		15,600
Consumer		117		117		117		143
Total	$	32,591	$	35,164	$	4,166	$	35,100

The balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and based on the reserving method as of September 30, 2012, December 31, 2011 and September 30, 2011 were as follows:

			Real Estate -		Real Estate -						Total
	Commercial		Construction		Mortgage		Consumer		Other		Loans
September 30, 2012
Allowance for credit losses:
Individually evaluated for impairment	$	876	$	253	$	1,155	$	19	$	-	$	2,303
Collectively evaluated for impairment		12,790		7,941		11,007		972		3		32,713
Total ending allowance	$	13,666	$	8,194	$	12,162	$	991	$	3	$	35,016

			Real Estate -		Real Estate -						Total
	Commercial		Construction		Mortgage		Consumer		Other		Loans
December 31, 2011
Allowance for credit losses:
Individually evaluated for impairment	$	1,972	$	203	$	1,874	$	117	$	-	$	4,166
Collectively evaluated for impairment		6,554		6,264		10,079		1,749		32		24,678
Total ending allowance	$	8,526	$	6,467	$	11,953	$	1,866	$	32	$	28,844

			Real Estate -		Real Estate -						Total
	Commercial		Construction		Mortgage		Consumer		Other		Loans
September 30, 2011
Allowance for credit losses:
Individually evaluated for impairment	$	368	$	281	$	1,073	$	119	$	-	$	1,841
Collectively evaluated for impairment		7,868		6,709		9,189		2,143		-		25,909
Total ending allowance	$	8,236	$	6,990	$	10,262	$	2,262	$	-	$	27,750

			Real Estate -		Real Estate -						Total
	Commercial		Construction		Mortgage		Consumer		Other		Loans
September 30, 2012
Recorded investment in loans:
Individually evaluated for impairment	$	12,753	$	2,766	$	7,106	$	19	$	-	$	22,644
Collectively evaluated for impairment		539,861		73,360		498,732		27,969		6,181		1,146,103
Total recorded investment in loans	$	552,614	$	76,126	$	505,838	$	27,988	$	6,181	$	1,168,747

			Real Estate -		Real Estate -						Total
	Commercial		Construction		Mortgage		Consumer		Other		Loans
December 31, 2011
Recorded investment in loans:
Individually evaluated for impairment	$	10,736	$	8,369	$	13,369	$	117	$	-	$	32,591
Collectively evaluated for impairment		536,707		81,042		509,416		34,624		5,690		1,167,479
Total recorded investment in loans	$	547,443	$	89,411	$	522,785	$	34,741	$	5,690	$	1,200,070

			Real Estate -		Real Estate -						Total
	Commercial		Construction		Mortgage		Consumer		Other		Loans
September 30, 2011
Recorded investment in loans:
Individually evaluated for impairment	$	5,547	$	10,557	$	17,604	$	119	$	-	$	33,827
Collectively evaluated for impairment		536,750		95,822		508,751		36,167		5,741		1,183,231
Total recorded investment in loans	$	542,297	$	106,379	$	526,355	$	36,286	$	5,741	$	1,217,058

The Bank’s policy for calculating and assigning specific reserves is applicable to all loans except for large groups of smaller balance homogeneous loans such as credit card, residential mortgage and consumer loans in which impairment is collectively evaluated. The Bank generally considers loans 90 days or more past due and all nonaccrual loans to be impaired.

The allowance for credit losses increased $9.8 million in the third quarter of 2012 to $35.0 million. A portion of the increase in reserves was attributed to higher general reserve levels principally for homogenous residential and home equity loans resulting from management’s review of these portfolios and the subsequent identification of pools of high risk performing loans.

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).

	September 30										December 31
	2012_										2011
			Special		Sub-								Special		Sub-
	Pass		Mention		Standard		Doubtful		Total		Pass		Mention		standard		Doubtful		Total
Commercial	$	491,203	$	35,356	$	49,068	$	693	$	576,320	$	437,475	$	56,172	$	79,229	$	301	$	573,177
Real estate – construction		42,491		10,068		10,205		213		62,977		35,622		14,304		23,667		757		74,350
Real estate – mortgage		58,167		7,485		8,901		32		74,585		57,089		7,363		14,517		171		79,140
Other		5,598		-		-		-		5,598		4,954		-		-		-		4,954

Total	$	597,459	$	52,909	$	68,174	$	938	$	719,480	$	535,140	$	77,839	$	117,413	$	1,229	$	731,621

Loans with a risk grade of sub-standard or doubtful are components of classified loans. Additionally, non-risk graded residential, home equity, and consumer loans in nonaccrual status of $5,424,000 and $9,851,000 as of September 30, 2012 and December 31, 2011, respectively, are components of classified loans.

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

	Three Months Ended September 30 2012		Three Months Ended September 30 2011		Nine Months Ended September 30 2012		Nine Months Ended September 30 2011
Balance, beginning of period	$	25,231	$	28,040	$	28,844	$	28,752
Loans charged off:
Secured by owner-occupied nonfarm nonresidential properties		4,609		62		5,755		516
Secured by other nonfarm nonresidential properties		1,491		398		2,101		766
Other commercial and industrial		3,257		542		3,842		2,179
Total Commercial		9,357		1,002		11,698		3,461

Construction loans – 1-4 family residential		193		108		403		209
Other construction and land development		4,079		1,070		6,611		3,217
Total Real estate – construction		4,272		1,178		7,014		3,426

Closed-end loans secured by 1 to 4 family residential properties		4,034		592		6,560		3,204
Lines of credit secured by 1 to 4 family residential properties		1,409		433		3,578		1,826
Loans secured by 5 or more family residential properties		273		576		273		576
Total Real estate – mortgage		5,716		1,601		10,411		5,606

Credit cards		54		117		265		296
Other consumer loans		263		282		583		813
Total Consumer		317		399		848		1,109

Total Other		1		-		3		1,300

Total chargeoffs		19,663		4,180		29,974		14,902

Recoveries of loans previously charged off:
Total Commercial		118		14		294		212
Total Real estate – construction		107		158		292		341
Total Real estate – mortgage		176		156		576		450
Total Consumer		157		106		278		328
Total Other		9		11		22		30
Total recoveries		567		445		1,462		1,361
Net loans charged off		19,096		3,735		28,512		13,541
Provision for credit losses		28,881		3,445		34,684		12,539
Balance, end of period	$	35,016	$	27,750	$	35,016	$	27,750

Loans totaling $7,074,000 and $7,851,000, as of September 30, 2012 and December 31, 2011, respectively, were held for sale, and stated at the lower of cost or market on an individual basis.

Loans totaling $466,700,000 and $506,449,000, as of September 30, 2012 and December 31, 2011, respectively, were pledged to secure lines of the credit with the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Richmond.

Note 6 — Deferred Tax Assets

During the third quarter 2012, the Company recorded material writedowns and losses on the disposition or resolution of problem assets, which resulted in a material pretax net loss for the quarter. The Company is now in a cumulative pretax loss position for the three year period ended September 30, 2012, which constitutes significant negative evidence in the context of evaluating deferred tax assets for realizability as prescribed by ASC Topic 740.

ASC Topic 740 requires that the realizability of the deferred tax asset and evaluation of the need for a valuation allowance consider all positive and negative evidence to form a conclusion as to whether the realization of the deferred tax asset is more likely than not. The Company must also assign weight to the various forms of evidence, based upon the ability to verify the evidence.

Management has evaluated the realizability of the recorded deferred tax assets at September 30, 2012. This evaluation included a review of all available evidence, including recent historical financial performance and expected near term levels in net interest margin, nonperforming assets, operating expenses, earnings and other factors. 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, in addition to a portion of contribution carryforwards which begin expiring in 2013, and a portion of state economic loss carryforwards, an additional $11.0 million valuation allowance is necessary. Management also concluded that the utilization of the remaining deferred tax asset was more likely than not.

The significant components of deferred tax assets at September 30, 2012 and December 31, 2011 are as follows (in thousands):

	2012			2011
Deferred tax assets:
Allowance for credit losses	$	13,826		$	11,411
Writedowns on real estate acquired in settlement of loans		5,571			1,992
Interest on nonaccrual loans		1,145			1,551
Net operating losses		24,954			16,753
Other		8,637			8,637
Valuation allowance		(12,037	)		(1,037	)
Total		42,096			39,307

Deferred tax liabilities:
Net unrealized gain on available for sale securities		5,405			319
Other		6,725			6,725
Total		12,130			7,044
Net deferred tax assets	$	29,966		$	32,263

Note 7 — Stock Compensation Plans

The Company recorded $86,000 and $104,000 of total stock-based compensation expense for the nine-month periods ended September 30, 2012 and September 30, 2011, respectively. The reduced expense during the current period is primarily due to revised expectations as to the achievement of certain conditions affecting the vesting of outstanding performance-based awards. The stock-based compensation expense is calculated on a ratable basis over the vesting periods of the related stock options, restricted stock grants or restricted stock units and is reported under personnel expense. This expense had no impact on the Company’s reported cash flows.As of September 30, 2012, there was $661,000 of total unrecognized stock-based compensation expense. This expense will be fully recognized by December of 2015.

For purposes of determining estimated fair value of stock options, restricted stock grants and restricted stock units, the Company has computed the estimated fair values of all stock-based compensation using the Black-Scholes option pricing model and, for stock options and restricted stock grants granted prior to December 31, 2011, has applied the assumptions set forth in the Annual Report.

On January 11, 2012, the Company’s Board of Directors awarded a total of 121,616 restricted stock units to certain executive officers. The fair value of these restricted stock units is $3.89 per unit, which was the closing price of the Company’s common stock on that date. On July 25, 2012, the Company’s Board of Directors awarded an additional 9,710 restricted stock units to certain executive officers. The fair value of these restricted stock units is $4.10 per unit, which was the closing price of the Company’s common stock on that date. Half of the restricted stock units vest over a period of four years and half vest, subject to meeting certain performance criteria, over a period of three years. Vesting is also subject to the Company repurchasing, or the U.S. Department of the Treasury (the “U.S. Treasury”) selling, some or all of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) issued by the U.S. Treasury under theCapital Purchase Program (the “CPP). The stock-based compensation expense for these awards was immaterial for the first nine months of 2012.

Note 8—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. 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. If a quoted market price for a similar security is not available, fair value is estimated using “significant unobservable inputs” as defined by GAAP. The fair value of equity investments in the restricted stock of the FHLB equals the carrying value as there is no market for FHLB stock which is redeemable only by the FHLB.

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.

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.

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 are disclosed in Note 16in the Notes to Consolidated Financial Statements of the Annual Report.

The table below presents the estimated fair values of financial instruments as of September 30, 2012 and December 31, 2011 (in thousands):

			Estimated Fair Value
September 30, 2012	Carrying Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Financial assets:
Cash and short term investments	$	42,741	$	42,741	$	-	$	-	$	42,741
Investment securities		387,376				379,502		7,874		387,376
Loans		1,168,747		-		-		1,156,043		1,156,043
Financial liabilities:
Deposits		1,389,736		-		1,391,240		-		1,391,240
Wholesale repurchase agreements		21,000		-		23,896		-		23,896
Junior subordinated notes		25,774		-		-		11,225		11,225
FHLB borrowings		117,200		-		118,214		-		118,214

			Estimated Fair Value
December 31, 2011	Carrying Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Financial assets:
Cash and short term investments	$	53,992	$	53,992	$	-	$	-	$	53,992
Investment securities		337,811				330,626		7,185		337,811
Loans		1,200,070		-		-		1,197,885		1,197,885
Financial liabilities:
Deposits		1,418,676		-		1,420,704		-		1,420,704
Wholesale repurchase agreements		21,000		-		23,772		-		23,772
Junior subordinated notes		25,774		-		-		10,857		10,857
FHLB borrowings		86,700		-		87,911		-		87,911

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 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 for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Available for sale securities at September 30, 2012	$	-	$	379,502	$	7,874
Available for sale securities at December 31, 2011		-		330,626		7,185

The table below presents the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) during 2012 and 2011 (in thousands):

	Nine Months			Twelve Months
	Ended			Ended
	September 30			December 31
	2012			2011

Available for sale securities
Federal Home Loan Bank stock:
Beginning balance	$	7,185		$	10,399
Purchases		4,894			-
Redemptions		(4,205	)		(3,214	)
Ending balance	$	7,874		$	7,185

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

	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Loans held for sale at September 30, 2012	$	-	$	7,074	$	-
Loans held for sale at December 31, 2011		-		7,851		-
Real estate acquired in settlement of loans at September 30, 2012		-		-		10,465
Real estate acquired in settlement of loans at December 31, 2011		-		-		30,587
Impaired loans, net of allowance at September 30, 2012		-		-		20,341
Impaired loans, net of allowance at December 31, 2011		-		-		28,425

The fair value of loans secured by real estate is determined by appraisals or by alternative evaluations, such as tax evaluations. The fair value of loans not secured by real estate is based on present value of future cash flows. The fair value of loans may also be determined by sales contract in hand or settlement agreement.

Note 9—U.S. Treasury Capital Purchase Program (CPP)

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

Note 10—Subsequent Events

On November 1, 2012, the Company entered into securities purchase agreements with select investors and insiders pursuant to which it expects to raise $56 million of equity, subject to receipt of customary regulatory approvals and determinations. The capital raise will be executed through a private placement of two series of mandatorily convertible preferred stock. The two series of preferred stock will automatically convert into shares of the Company’s voting and nonvoting common stock at a price of $4.40 per share after the Company has received shareholder approval at a Special Meeting of Shareholders expected to be held in the first quarter of 2013.

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

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

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent expectations and beliefs of Bancorp including but not limited to Bancorp’s operations, performance, financial condition, growth or strategies. These forward-looking statements are identified by words such as “expects,” “anticipates,” “should,” “estimates,” “believes” and variations of these words and other similar statements. For this purpose, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results to differ materially from current projections depending on a variety of important factors, including without limitation: (1) the successful completion of the recently announced capital raise; (2) the receipt of customary regulatory approvals and determinations related to the recently announced capital raise; (3) receipt of the shareholder approvals related to the recently announced capital raise; (4) recently enacted legislation, or legislation enacted in the future, or any proposed federal programs may subject Bancorp to increased regulation and may adversely affect Bancorp; (5) the strength of the United States economy generally, and the strength of the local economies in which Bancorp conducts operations, may be different than expected, resulting in, among other things, a continued deterioration in credit quality, including the resultant effect on Bancorp’s loan portfolio and allowance for credit losses; (6) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”); (7) inflation, deflation, interest rate, market and monetary fluctuations; (8) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate and market liquidity conditions) and the impact of such conditions on Bancorp’s capital markets and capital management activities; (9) the timely development of competitive new products and services by Bancorp and the acceptance of these products and services by new and existing customers; (10) the willingness of customers to accept third party products marketed by Bancorp; (11) the willingness of customers to substitute competitors’ products and services for Bancorp’s products and services and vice versa; (12) the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking and securities); (13) technological changes; (14) changes in consumer spending and saving habits; (15) the effect of corporate restructurings, acquisitions and/or dispositions, and the failure to achieve the expected revenue growth and/or expense savings from such corporate restructurings, acquisitions and/or dispositions; (16) the current stresses in the financial and real estate markets, including possible continued deterioration in property values; (17) unanticipated regulatory or judicial proceedings; (18) the impact of changes in accounting policies by the Securities and Exchange Commission (the “SEC”); (19) adverse changes in financial performance and/or condition of Bancorp’s borrowers which could impact repayment of such borrowers’ outstanding loans; and (20) Bancorp’s success at managing the risks involved in the foregoing. Bancorp cautions that the foregoing list of important factors is not exhaustive. See also those risk factors identified in the section headed “Risk Factors” beginning on page 13 of Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the SEC on March 22, 2012 (the “Annual Report”). Bancorp undertakes no obligation to update any forward-looking statement, whether written or oral, which may be made from time to time by or on behalf of Bancorp.

Introduction

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

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

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

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

Application of Critical Accounting Policies

The accounting and reporting policies of the Company and its subsidiary comply with accounting principles generally accepted in the United States and conform to standards within the banking industry.The preparation of the financial information contained in this Quarterly Report on Form 10-Q requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s management evaluates these estimates on an ongoing basis.A summary of the allowance for credit losses, the most complex and subjective accounting policy of the Company, is discussed under the heading “Asset Quality and Allowance for Credit Losses” as well as in Note 4 of the Notes to Consolidated Financial Statements. Income taxes and the valuation allowance against deferred tax assets are discussed in Note 5 of the Notes to Consolidated Financial Statements.

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Net Interest Income

Net interest income for the third quarter of 2012, on a taxable equivalent basis, was $15.8 million, a decrease of $0.9 million, or 5.6%, from $16.7 million for the third quarter of 2011. Average earning assets in the third quarter of 2012 decreased $18.7 million, or 1.2%, to $1.56 billion, compared to $1.58 billion in the third quarter of 2011. Average interest-bearing liabilities in the third quarter of 2012 decreased $36.4 million, or 2.6%, to $1.34 billion, compared to $1.37 billion in the third quarter of 2011. Taxable equivalent net interest margin decreased to 4.02% for the third quarter of 2012, compared to 4.20% for the third quarter of 2011. The interest rate spread decreased in the third quarter of 2012 by 14 basis points compared to the third quarter of 2011.

The decrease in net interest margin and interest rate spread was driven primarily by an overall lower yield on the investment portfolio and a lower yield on the loan portfolio, partially offset by a lower cost of funds rate. The par value of the Company’s investment in U.S. government agency securities decreased to $37.0 million at September 30, 2012 from $48.0 million at September, 30, 2011 due to calls on higher yielding securities. At September 30, 2012, the par value of the Company’s investment in corporate bonds was $150.8 million compared to $110.8 million at September 30, 2011. The weighted average duration of the Company’s investment securities was 2.9 years at September 30, 2012, compared to 3.4 years at September 30, 2011. The sustained low interest rate environment continues to impact loan yields. The annualized average yield on loans decreased to 4.81% for the three months ended September 30, 2012 compared to 5.18% for the three months ended September 30, 2011. The average yield on earning assets during the third quarter of 2012 was 47 basis points lower than the average yield on earning assets during the comparable period in 2011, while the average rate on interest-bearing liabilities decreased by 33 basis points during the same time period. The highest cost category of deposits remains retail time deposits, which had a weighted average interest rate of 0.64% at September 30 2012. Approximately $94.9 million of retail time deposits with a weighted average rate of 0.46% will mature in the fourth quarter of 2012. The following table provides an analysis of average volumes, yields and rates and net interest income on a taxable equivalent basis for the three months ended September 30, 2012 and 2011.

(Fully taxable equivalent basis¹, dollars in thousands)

	Three Months Ended								Three Months Ended
	September 30, 2012								September 30, 2011
				Interest		Annualized						Interest		Annualized
	Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield/Rate			Balance			Expense		Yield/Rate
Earning assets:
Loans receivable²	$	1,165,080		$	14,084		4.81	%	$	1,234,861		$	16,121		5.18	%
Taxable securities		361,123			3,033		3.34			286,736			3,129		4.33
Tax exempt securities		17,464			279		6.36			16,790			283		6.69
FHLB stock		7,163			28		1.56			8,830			18		0.83
Interest-bearing bank balances		10,430			10		0.38			32,709			20		0.24
Federal funds sold		-			-		-			-			-		-

Total earning assets		1,561,260			17,434		4.44			1,579,926			19,571		4.91

Nonearning assets:
Cash and due from banks		25,439								25,623
Premises and equipment		36,544								36,387
Other assets		120,127								104,938
Allowance for credit losses		(28,757	)							(28,456	)

Total assets	$	1,714,613		$	17,434				$	1,718,418		$	19,571

Interest-bearing liabilities:
Savings deposits	$	45,298		$	6		0.05	%	$	40,675		$	10		0.10	%
NOW deposits		425,361			259		0.24			420,734			557		0.53
Money market deposits		366,213			224		0.24			364,813			657		0.71
Time deposits		389,638			599		0.61			428,291			1,028		0.95
Other borrowings		46,926			343		2.91			46,774			328		2.78
Borrowings from FHLB		62,259			232		1.48			70,761			276		1.55

Total interest-bearing liabilities		1,335,695			1,663		0.50			1,372,048			2,856		0.83

Other liabilities and shareholders’ equity:
Demand deposits		189,979								163,440
Other liabilities		18,442								17,849
Shareholders’ equity		170,497								165,081
Total liabilities and shareholders’ equity	$	1,714,613			1,663				$	1,718,418			2,856

Net interest income and net interest margin³				$	15,771		4.02	%				$	16,715		4.20	%

Interest rate spread⁴							3.94	%							4.08	%

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 nondeductible portion of interest expense. The adjustments made to convert to a fully taxable equivalent basis were $92 for 2012 and $92 for 2011.

The average loans receivable balances include nonaccruing loans. Amortization of loan fees, net of deferred costs, and other loan-related fees of $84 and $139 for the three months ended September 30, 2012 and 2011, respectively, are included in interest income.

Net interest margin is computed by dividing net interest income by average earning assets.

⁴

Earning assets yield minus interest-bearing liability rate.

Noninterest Income and Expense

In the third quarter of 2012, noninterest income decreased to $(6.4) million, from $3.3 million during the same period in 2011. Writedowns and losses on sales of real estate acquired in settlement of loans increased to $10.6 million, from $0.8 million during the same period last year as the Company made significant progress with the asset disposition plan. See “Asset Quality and Allowance for Credit Losses” for further discussion of this plan.The Company recognized gains on the sale of investment securities of $3,000 during the third quarter of 2012, compared to $65,000 during the third quarter of 2011. Retail Banking income decreased 6.1% to $2.3 million in the third quarter of 2012 from $2.5 million in the third quarter of 2011 due primarily to ongoing regulatory changes in the industry and changes in consumer behavior.Mortgage Banking revenue increased to $0.7 million in the third quarter of 2012, compared to $0.4 million in the third quarter of 2011, due to higher volume of mortgage originations.

In the third quarter of 2012, noninterest expense increased to $16.5 million from $14.9 million in the third quarter of 2011. In the third quarter of 2012, the Company expensed $1.9 million in adjustments for impairments on facilities and for other nonrecurring accruals. Federal Deposit Insurance Corporation (“FDIC”) insurance expense decreased to $0.4 million in the third quarter of 2012 from $0.6 million in the third quarter of 2011. In the third quarter of 2011, the Bank received a new risk rating which reduced the Bank’s assessments. Compared to the third quarter of 2011, the Company recorded decreases in personnel expense and furniture and equipment expense during the third quarter of 2012 as a result of the Company’s continued focus on efficiency and a disciplined cost management culture.

The following table presents the details of Other Noninterest Expense (dollars in thousands):

	Three Months Ended
	September 30				Percentage
	2012		2011		Variance

Other noninterest expense:
Advertising	$	367	$	346		6.1	%
Bankcard expense		117		166		(29.5	)
Postage		186		225		(17.3	)
Telephone		182		164		11.0
Amortization of core deposit intangible		182		182		0.0
Stationery, printing and supplies		97		125		(22.4	)
Other expense		2,094		1,274		64.4
Total other noninterest expense	$	3,225	$	2,482		29.9

Income Taxes

The Company recorded income tax benefit of $3.7 million for the third quarter of 2012, compared to income tax expense of $501,000 for the third quarter of 2011. The Company’s effective tax rate was 10.2% for the three-month period ended September 30, 2012, compared to 31.6% for the third quarter of 2011. The change in the effective tax rate is primarily a result of an increase of $11.0 million in the valuation allowance against deferred tax assets in 2012.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Net Interest Income

Net interest income for the first nine months of 2012, on a taxable equivalent basis, was $48.5 million, a decrease of $2.4 million, or 4.6%, from $50.8 million for the first nine months of 2011. Average earning assets in the first nine months of 2012 decreased $39.9 million, or 2.5%, to $1.58 billion, compared to $1.62 billion in the first nine months of 2011. Average interest-bearing liabilities in the first nine months of 2012 decreased $63.5 million, or 4.5%, to $1.35 billion, compared to $1.41 billion in the first nine months of 2011. Taxable equivalent net interest margin decreased to 4.11% for the nine months of 2012, compared to 4.21% for the first nine months of 2011, a decrease of 10 basis points. The interest rate spread decreased in the first nine months of 2012 by six basis points compared to the first nine months of 2011.

The decrease in net interest margin and interest rate spread was driven primarily by an overall lower yield on the investment portfolio and a lower yield on the loan portfolio, partially offset by a lower cost of funds rate. The par value of the Company’s investment in U.S. government agency securities decreased to $37.0 million at September 30, 2012 from $48.0 million at September 30, 2011 due to calls on higher yielding securities. At September 30, 2012, the par value of the Company’s investment in corporate bonds was $150.8 million compared to $110.8 million at September 30, 2011. The weighted average duration of the Company’s investment securities was 2.9 years at September 30, 2012, compared to 3.4 years at September 30, 2011. For the nine months ended September 30, 2012, the annualized average yield on loans decreased to 4.95% from 5.19% for the nine months ended September 30, 2011. The net interest margin is also impacted by changes in interest income from nonaccrual loans. For the nine months ended September 30, 2012, nonaccrual interest decreased the net interest margin by nine basis points compared to 11 basis points for the nine months ended September 30, 2011. The average yield on earning assets during the first nine months of 2012 was 39 basis points lower than the average yield on earning assets during the comparable period in 2011, while the average rate on interest-bearing liabilities decreased by 33 basis points during the same time period. The following table provides an analysis of average volumes, yields and rates and net interest income on a taxable equivalent basis for the nine months ended September 30, 2012 and 2011.

(Fully taxable equivalent basis¹, dollars in thousands)

	Nine Months Ended								Nine Months Ended
	September 30, 2012								September 30, 2011
				Interest		Annualized						Interest		Annualized
	Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield/Rate			Balance			Expense		Yield/Rate
Earning assets:
Loans receivable²	$	1,177,334		$	43,587		4.95	%	$	1,289,198		$	50,052		5.19	%
Taxable securities		357,371			9,915		3.71			275,665			9,535		4.62
Tax exempt securities		17,692			852		6.43			16,247			848		6.98
FHLB stock		7,302			79		1.45			9,625			60		0.83
Interest-bearing bank balances		15,462			30		0.26			24,359			44		0.24
Federal funds sold		-			-		-			-			-		-

Total earning assets		1,575,161			54,463		4.62			1,615,094			60,539		5.01

Nonearning assets:
Cash and due from banks		26,132								29,815
Premises and equipment		36,522								37,579
Other assets		122,271								106,483
Allowance for credit losses		(28,635	)							(29,446	)

Total assets	$	1,731,451		$	54,463				$	1,759,525		$	60,539

Interest-bearing liabilities:
Savings deposits	$	44,155		$	20		0.06	%	$	40,823		$	30		0.10	%
NOW deposits		433,546			1,015		0.31			433,346			2,018		0.62
Money market deposits		373,158			1,024		0.37			347,244			1,912		0.74
Time deposits		379,106			2,158		0.76			443,166			3,553		1.07
Other borrowings		47,016			1,032		2.93			56,712			1,313		3.10
Borrowings from FHLB		74,532			760		1.36			93,701			907		1.29

Total interest-bearing liabilities		1,351,513			6,009		0.59			1,414,992			9,733		0.92

Other liabilities and shareholders’ equity:
Demand deposits		192,100								164,047
Other liabilities		19,372								16,657
Shareholders’ equity		168,466								163,829
Total liabilities and shareholders’ equity	$	1,731,451			6,009				$	1,759,525			9,733

Net interest income and net interest margin³				$	48,454		4.11	%				$	50,806		4.21	%

Interest rate spread⁴							4.03	%							4.09	%

The average loans receivable balances include nonaccruing loans. Amortization of loan fees, net of deferred costs, and other loan-related feesof $373 and $422 for the nine months ended September 30, 2012 and 2011, respectively, are included in interest income.

Net interest margin is computed by dividing net interest income by average earning assets.

⁴

Earning assets yield minus interest-bearing liability rate.

Noninterest Income and Expense

In the first nine months of 2012, noninterest income decreased to $(2.4) million, from $10.2 million during the same period in 2011. Writedowns and losses on sales of real estate acquired in settlement of loans increased to $14.6 million, from $3.9 million during the same period last year as the Company made significant progress with the asset disposition plan. See “Asset Quality and Allowance for Credit Losses” for further discussion of this plan.The Company recognized gains on the sale of investment securities of $3,000 during the first nine months of 2012, compared to $2.0 million during the first nine months of 2011. Retail Banking income decreased 8.3% to $6.9 million in the first nine months of 2012 from $7.5 million in the first nine months of 2011 due primarily to ongoing regulatory changes in the industry and changes in consumer behavior.Mortgage Banking revenue increased to $1.8 million in the first nine months of 2012, compared to $1.1 million in the first nine months of 2011, due to higher volume of mortgage originations.

In the first nine months of 2012, noninterest expense was $43.9 million, the same as for the first nine months of 2011. In the third quarter of 2012, the Company expensed $1.9 million in adjustments for impairments on facilities and for other nonrecurring accruals. FDIC insurance expense decreased to $1.3 million in the first nine months of 2012 from $2.0 million in the first nine months of 2011. On February 7, 2011, the FDIC adopted a new assessment formula, which became effective in the second quarter of 2011. The application of the new assessment formula had the effect of reducing the Bank’s assessments. In the third quarter of 2011, the Bank received a new risk rating which further reduced the Bank’s assessments. Compared to the first nine months of 2011, the Company recorded decreases in personnel expense and furniture and equipment expense during the first nine months of 2012 as a result of the Company’s continued focus on efficiency and a disciplined cost management culture.

The following table presents the details of Other Noninterest Expense (dollars in thousands):

	Nine Months Ended
	September 30				Percentage
	2012		2011		Variance

Other noninterest expense:
Advertising	$	1,150	$	1,160		(0.9	)%
Bankcard expense		329		459		(28.3	)
Postage		572		585		(2.2	)
Telephone		525		489		7.4
Amortization of core deposit intangible		545		545		0.0
Stationery, printing and supplies		312		375		(16.8	)
Other expense		4,353		3,665		18.8
Total noninterest expense	$	7,786	$	7,278		7.0

Income Taxes

The Company recorded income tax benefit of $2.8 million for the first nine months of 2012, compared to income tax expense of $1.1 million for the first nine months of 2011. The Company’s effective tax rate was 8.5% for the nine-month period ended September 30, 2012, compared to 25.8% for the first nine months of 2011. The change in the effective tax rate is primarily a result of an increase of $11.0 million in the valuation allowance against deferred tax assets in 2012.

Asset Quality and Allowance for Credit Losses

The Company’s allowance for credit losses, which is utilized to absorb actual losses in the loan portfolio, is analyzed monthly by management. This analysis includes a methodology that segments the loan portfolio into risk graded loans and homogeneous loan classifications and considers the current status of the portfolio, historical chargeoff experience, current levels of delinquent, impaired and nonperforming loans and their underlying collateral values, as well as economic and other risk factors. It is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology employed and other analytical measures in comparison to a group of peer banks. The Bank, like many financial institutions, has recently faced a challenging credit environment and could continue to face similar challenges in the coming months unless there is a significant improvement in regional and national economic conditions. The majority of the Bank’s loan portfolio is comprised of loans secured by real estate and is therefore subject to risk as a result of the weak real estate market. No assurances can be given that future economic conditions will not adversely affect borrowers and result in increases in credit losses and nonperforming asset levels.

The allowance for credit losses is maintained at a level consistent with management’s best estimate of probable credit losses incurred as of the balance sheet date. Major loan portfolio subgroups include: risk graded commercial loans, mortgage loans, home equity loans, retail loans and retail credit lines. Management analyzes loans in the 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 needed if economic or other conditions differ substantially from the assumptions used. The allowance for credit losses increased $9.8 million in the third quarter of 2012 to $35.0 million. A portion of the increase in reserves was attributed to higher general reserve levels principally for homogenous residential and home equity loans resulting from management’s review of these portfolios and the subsequent identification of pools of high risk performing loans.

In its Quarterly Report on Form 10-Q for the second quarter of 2012, the Company disclosed that a Plan was being developed to accelerate the work-out and disposition of a substantial portion of remaining problem assets. During the third quarter, the Plan was developed with management committing to the execution of an internally managed asset disposition plan, rather than a bulk sale.

Using March 31, 2012 problem asset levels, management established the following goals:

Nonperforming Loans – Reduce by $20.0 million to $23.7 million

Performing Classified Loans – Reduce by $26.0 million to $49.3 million

Real Estate Acquired in Settlement of Loans (“OREO”) – Reduce by $25.0 million to $5.0 million

Total Classified Assets – Reduce by $71.0 million to $78.0 million

Classified Assets – Reduce to 45.00% of Tier 1 capital plus reserves

Nonperforming Assets – Reduce to 2.00% or less of total assets

As of September 30, 2012, by various methods, including loan sale, asset sale, short refinancing, foreclosure, and chargeoff, the Bank has executed the plan to substantial completion. As of September 30, total problem assets have been reduced by approximately $64.0 million from the March 31, 2012 levels as follows:

Nonperforming Loans – Reduced by $16.0 million to $27.7 million

Performing Classified Loans – Reduced by $28.5 million to $46.8 million

OREO – Reduced by $19.5 million to $10.5 million

Total Classified Assets – Reduced by $64.0 million to $85.0 million

Classified Assets – Reduced to 48.10% of Tier 1 capital plus reserves

Nonperforming Assets – Reduced to 2.23% of total assets

At September 30, 2012, loans with a carrying value of $9.1 million, after writedowns, are under contract to sell, or the Bank has received a letter of intent or similar non-binding agreement to sell the loans. These loans have not been classified as held for sale in the balance sheet as their future sale is not in the normal course of business and the sales are not imminent.

The results achieved through this asset disposition plan are reflected in the amounts reported for September 30, 2012 and for the periods then ended and are the principal reasons for changes from prior period amounts.

At September 30, 2012, the allowance for credit losses was $35.0 million, or 3.00% of total loans outstanding, compared to $28.8 million, or 2.40% of loans outstanding at December 31, 2011, and $27.8 million, or 2.28% of loans outstanding, at September 30, 2011. At September 30, 2012, the allowance for credit losses was 126.44% of nonperforming loans compared to 71.16% at December 31, 2011, and 63.85% at September 30, 2011. Based on its analysis of the current loan portfolio and levels of current problem assets and potential problem loans, management believes the allowance for credit losses to be adequate. Additional information regarding the allowance for credit losses is presented in the table headed “Asset Quality Analysis” on the following page.

Nonperforming loans totaled $27.7 million at September 30, 2012 compared to $40.5 million at December 31, 2011 and $43.5 million at September 30, 2011. OREO was $10.5 million at September 30, 2012, $30.6 million at December 31, 2011, and $26.5 million at September 30, 2011. Approximately $7.4 million was transferred from loans into OREO, and approximately $16.6 million of OREO was disposed of during the first nine months of 2012. A net loss of $14.6 million has been recorded on the disposition and writedown of OREO in the current year through September 30, 2012, compared to a net loss of $3.9 million in the first nine months of 2011. At September 30, 2012 the OREO balance of $10.5 million is net of accumulated writedowns of $12.8 million. The Company recorded $1.0 million of additional expenses on OREO during the first nine months of 2012, compared to $1.2 million in the first nine months of 2011. Nonperforming assets (comprised of nonaccrual loans, loans 90 days past due and still accruing, certain restructured loans and OREO) totaled $38.2 million, or 2.23% of total assets, at September 30, 2012, compared to $71.1 million, or 4.10% of total assets, at December 31, 2011 and $69.9 million, or 4.11% of total assets, a year ago.

Classified assets are summarized in the following table (in thousands):

	September 30			December 31
	2012			2011
Loans identified as impaired	$	22,644		$	32,591
Other nonperforming loans		5,050			7,943
Total nonperforming loans		27,694			40,534
Performing classified loans		46,842			87,959
Total classified loans		74,536			128,493
Real estate acquired in settlement of loans		10,465			30,587
Total classified assets	$	85,001		$	159,080
Classified ratio		48.10	%		77.59	%

The Bank is well within the regulatory commercial real estate high concentration guidelines in land acquisition, development and construction (the “AD&C portfolio”) loans, as well as total commercial real estate loans. At September 30, 2012, the Bank’s concentration levels were 39.61% and 178.96%, respectively, of total regulatory capital, which compares favorably to the interagency regulatory guidance maximum concentrations of 100% and 300%, respectively. The AD&C portfolio totaled $63 million at September 30, 2012, including $23 million of speculative residential construction and residential acquisition and development. This portfolio is largely graded as classified loans.

The provision for credit losses charged to operations for the three months ended September 30, 2012 totaled $28.9 million, compared to $3.4 million for the three months ended September 30, 2011. Net chargeoffs for the three months ended September 30, 2012 were $19.1 million, or 6.52% of average loans held for investment on an annualized basis, compared to net chargeoffs of $3.7 million, or 1.20% of average loans held for investment on an annualized basis, for the three months ended September 30, 2011.

The provision for credit losses charged to operations for the nine months ended September 30, 2012 totaled $34.7 million, compared to $12.5 million for the nine months ended September 30, 2011. Net chargeoffs for the nine months ended September 30, 2012 were $28.5 million, or 3.23% of average loans held for investment on an annualized basis, compared to net chargeoffs of $13.5 million, or 1.40% of average loans held for investment on an annualized basis, for the nine months ended September 30, 2011.

Asset Quality Analysis

(dollars in thousands)

Allowance for credit losses:	Three Months Ended September 30, 2012			Year Ended December 31, 2011			Three Months Ended September 30, 2011
Balance, beginning of period	$	25,231		$	28,752		$	28,040
Loans charged off:
Secured by owner-occupied nonfarm nonresidential properties		4,609			1,131			62
Secured by other nonfarm nonresidential properties		1,491			956			398
Other commercial and industrial		3,257			2,958			542
Total Commercial		9,357			5,045			1,002

Construction loans – 1-4 family residential		193			209			108
Other construction and land development		4,079			3,776			1,070
Total Real estate – construction		4,272			3,985			1,178

Closed-end loans secured by 1 to 4 family residential properties		4,034			3,603			592
Lines of credit secured by 1 to 4 family residential properties		1,409			2,443			433
Loans secured by 5 or more family residential properties		273			776			576
Total Real estate – mortgage		5,716			6,822			1,601

Credit cards		54			398			117
Other consumer loans		263			1,047			282
Total Consumer		317			1,445			399

Total Other		1			1,300			-

Total chargeoffs		19,663			18,597			4,180

Recoveries of loans previously charged off:
Total Commercial		118			495			14
Total Real estate – construction		107			534			158
Total Real estate – mortgage		176			443			156
Total Consumer		157			401			106
Total Other		9			31			11
Total recoveries		567			1,904			445
Net loans charged off		19,096			16,693			3,735
Provision for credit losses		28,881			16,785			3,445

Balance, end of period	$	35,016		$	28,844		$	27,750

Nonperforming Assets:
Commercial nonaccrual loans, not restructured	$	12,411		$	15,773		$	17,477
Commercial nonaccrual loans, restructured		5,092			7,489			9,870
Non-commercial nonaccrual loans, not restructured		4,418			9,569			8,789
Non-commercial nonaccrual loans, restructured		1,007			283			133
Total nonaccrual loans		22,928			33,114			36,269
Troubled debt restructured loans, accruing		4,760			7,406			7,167
Loans 90 days or more past due and still accruing		6			14			26
Total nonperforming loans		27,694			40,534			43,462
Real estate acquired in settlement of loans		10,465			30,587			26,469
Total nonperforming assets	$	38,159		$	71,121		$	69,931

Asset Quality Percentages:
Nonperforming loans to total loans outstanding at end of period		2.37	%		3.38	%		3.57	%
Nonperforming assets to total assets at end of period		2.23	%		4.10	%		4.11	%
Allowance for credit losses as a percentage of total loans outstanding at end of period		3.00	%		2.40	%		2.28	%
Allowance for credit losses to nonperforming loans		126.44	%		71.16	%		63.85	%
Net chargeoffs as a percentage of average loans outstanding during the period (annualized for interim periods)		6.52	%		1.32	%		1.20	%

Allowance for credit losses:	Nine Months Ended September 30, 2012			Year Ended December 31, 2011			Nine Months Ended September 30, 2011
Balance, beginning of period	$	28,844		$	28,752		$	28,752
Loans charged off:
Secured by owner-occupied nonfarm nonresidential properties		5,755			1,131			516
Secured by other nonfarm nonresidential properties		2,101			956			766
Other commercial and industrial		3,842			2,958			2,179
Total Commercial		11,698			5,045			3,461

Construction loans – 1-4 family residential		403			209			209
Other construction and land development		6,611			3,776			3,217
Total Real estate – construction		7,014			3,985			3,426

Closed-end loans secured by 1 to 4 family residential properties		6,560			3,603			3,204
Lines of credit secured by 1 to 4 family residential properties		3,578			2,443			1,826
Loans secured by 5 or more family residential properties		273			776			576
Total Real estate – mortgage		10,411			6,822			5,606

Credit cards		265			398			296
Other consumer loans		583			1,047			813
Total Consumer		848			1,445			1,109

Total Other		3			1,300			1,300

Total chargeoffs		29,974			18,597			14,902

Recoveries of loans previously charged off:
Total Commercial		294			495			212
Total Real estate – construction		292			534			341
Total Real estate – mortgage		576			443			450
Total Consumer		278			401			328
Total Other		22			31			30
Total recoveries		1,462			1,904			1,361
Net loans charged off		28,512			16,693			13,541
Provision for credit losses		34,684			16,785			12,539

Balance, end of period	$	35,016		$	28,844		$	27,750

Nonperforming Assets:
Commercial nonaccrual loans, not restructured	$	12,411		$	15,773		$	17,477
Commercial nonaccrual loans, restructured		5,092			7,489			9,870
Non-commercial nonaccrual loans, not restructured		4,418			9,569			8,789
Non-commercial nonaccrual loans, restructured		1,007			283			133
Total nonaccrual loans		22,928			33,114			36,269
Troubled debt restructured loans, accruing		4,760			7,406			7,167
Loans 90 days or more past due and still accruing		6			14			26
Total nonperforming loans		27,694			40,534			43,462
Real estate acquired in settlement of loans		10,465			30,587			26,469
Total nonperforming assets	$	38,159		$	71,121		$	69,931

Asset Quality Percentages:
Nonperforming loans to total loans outstanding at end of period		2.37	%		3.38	%		3.57	%
Nonperforming assets to total assets at end of period		2.23	%		4.10	%		4.11	%
Allowance for credit losses as a percentage of total loans outstanding at end of period		3.00	%		2.40	%		2.28	%
Allowance for credit losses to nonperforming loans		126.44	%		71.16	%		63.85	%
Net chargeoffs as a percentage of average loans outstanding during the period (annualized for interim periods)		3.23	%		1.32	%		1.40	%

Liquidity Management

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

During the first nine months of 2012, the Company had net cash provided by operating activities of $19.4 million, compared to $98.8 million of net cash provided by operating activities in the first nine months of 2011. The decrease was primarily the result of the Company’s sale of $73.0 million of loans in connection with the sale of its Harrisonburg, Virginia operations in May 2011. In addition, there was a gain on the sale of securities of $2.0 million during the first nine months of 2011.

Net cash used in investing activities for the first nine months of 2012 was $30.3 million, compared to net cash provided by investing activities in the first nine months of 2011 of $50.1 million. This change is primarily attributable to purchases of securities available for sale of $170.7 million during the first nine months of 2012, compared to $86.4 million in purchases during the same period last year. Proceeds from securities sales, maturities and calls were $134.5 million during the first nine months of 2012, compared to $114.3 million during the first nine months of 2011. During the first nine months of 2012, there was an increase in loans of $4.6 million compared to a decrease in loans of $15.1 million during the same period last year.

During the nine months ended September 30, 2012, financing activities used $300,000, compared to net cash used by financing activities of $113.9 million during the same period of 2011. The change was primarily the result of a decrease in time deposits of $13.6 million during the first nine months of 2012, compared to a decrease of $94.3 million in time deposits during the first nine months of 2011.

Cash and cash equivalents totaled $42.7 million at September 30, 2012, compared to $54.0 million at December 31, 2011 and $64.0 million at September 30, 2011.

The Bank has borrowing capacity of approximately $255.6 million with the FHLB, of which approximately $88.4 million was available at September 30, 2012. These borrowings are collateralized by FHLB stock, investment securities, qualifying residential 1 to 4 family first mortgage loans, qualifying multifamily first mortgage loans, qualifying commercial real estate loans, and qualifying home equity lines of credit and second mortgage loans. The Bank provides various reports to the FHLB on a regular basis to maintain the availability of the credit line. Each borrowing request to the FHLB is initiated through an advance application that is subject to approval by the FHLB before funds are advanced under the line of credit. The Bank also has $8 million of borrowing capacity through the Federal Reserve Bank System, of which none was used as of September 30, 2012. The line with the Federal Reserve Bank of Richmond (“Federal Reserve Bank”) is collateralized using investment securities and qualified loans. In addition, the Bank has $25.0 million in unsecured, overnight Federal Funds lines with correspondent banks.

Interest Rate Risk Management

Interest rate risk management is a part of the Company’s overall asset/liability management process. The primary oversight of asset/liability management rests with the Bank’s Asset and Liability Committee, which is comprised of the Bank’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), 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 and the Bank.

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

The Company uses several interest rate risk measurement tools provided by a national asset liability management consultant to help manage this risk. The Company’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. The Company has not experienced any material changes in interest rate risk since the end of the fiscal year ended December 31, 2011.

The following table summarizes the results of the Company’s income simulation model as of June 30, 2012, the most currently available review date.

	Change in Net Interest Income
	Year 1			Year 2
Change in Market Interest Rates:
200 basis point ramped increase		.33	%		(2.41	)%
Base case – no change		-			(2.55	)%
100 basis point ramped decrease		.30	%		(3.90	)%

Capital Resources and Shareholders’ Equity

Pursuant to the U.S. Department of the Treasury (the “U.S. Treasury”) Capital Purchase Program (the “CPP”), on December 12, 2008, the Company issued and sold to the U.S. Treasury (i) 52,372 shares of Company’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 the Company’s common stock, par value $5.00 per share, for an aggregate purchase price of $52,372,000 in cash. The Securities Purchase Agreement grants the holders of the Series A Preferred Stock, the Warrant and the common stock of the Company to be issued under the Warrant, certain registration rights, and subjects the Company to certain of the executive compensation limitations included in the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009 and related regulations. The Bank is currently restricted from paying dividends to the Company unless it receives advance approval from the FDIC and the N. C. Commissioner of Banks (“Commissioner”).

The Company did not repurchase any of its equity securities during 2011 or the first three quarters of 2012.

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

As shown in the accompanying table, the Company and the Bank have capital levels exceeding the minimum levels for “well capitalized” banks and bank holding companies as of September 30, 2012.

	Regulatory Capital
	Well Capitalized			Adequately Capitalized			Company			Bank

Total Capital		10.0	%		8.0	%		12.07	%		11.93	%
Tier 1 Capital		6.0			4.0			10.78			10.63
Leverage Capital		5.0			4.0			8.53			8.43

The Company holds $2.5 million of the $52.4 million received from the U.S. Treasury under the CPP, which may be invested in the Bank to increase the Bank’s total risk based capital percentage from the present level of 11.93%.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the possible chance of loss from unfavorable changes in market prices and rates. These changes may result in a reduction of future period net interest income or other comprehensive income.

The Company considers interest rate risk to be its most significant market risk, which is discussed under the heading “Interest Rate Risk Management” on page 39.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The Company’s management, including its CEO, CFO and Chief Accounting Officer (“CAO”) evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2012. Based upon that evaluation, the Company’s CEO, CFO and CAO each concluded that as of September 30, 2012, the end of the period covered by this Quarterly Report on Form 10-Q, the Company maintained effective disclosure controls and procedures.

Changes in internal control over financial reporting

There have been no changes to the Company’s internal controls over financial reporting that occurred during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits

Exhibit No.		Description

3.1		Articles of Incorporation, and amendments thereto, incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-8, filed with the SEC on May 16, 2001 (SEC File No. 333-61046).

3.2		Articles of Merger of FNB with and into LSB, including amendments to the Articles of Incorporation, as amended, incorporated by reference to Exhibit 3.4 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the SEC on November 9, 2007 (SEC File No. 000-11448).

3.3		Amended and Restated Bylaws adopted by the Board of Directors on August 17, 2004 and amended on July 23, 2008 (with identified Bylaw approved by the shareholders) incorporated by reference to Exhibit 3.3 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed with the SEC on May 8, 2009 (SEC File No. 000-11448).

3.4		Form of Articles of Amendment to Designate the Terms of the Series B Mandatorily Convertible Adjustable Rate Cumulative Perpetual Preferred Stock and Series C Mandatorily Convertible Adjustable Rate Cumulative Perpetual Preferred Stock, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on November 1, 2012 (SEC File No. 000-11448).

3.5		Form of Common Stock Articles of Amendment, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on November 1, 2012 (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).*

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 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).*

10.9		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).*

10.10		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).*

10.11		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).*

10.12		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).*

10.13		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).*

10.14		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).*

10.15		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).*

10.16		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).*

10.17		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, which is incorporated 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). *

10.18		Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on March 14, 2008 (SEC File No. 000-11448).*

10.19		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).*

10.20		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).*

10.21		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).*

10.22		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).*

10.23		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).

10.24		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).

10.25		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).*

10.26		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).*

10.27		Employment and Change of Control Agreement with William W. Budd, Jr., incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on March 11, 2010 (SEC File No. 000-11448).*

10.28		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).*

10.29		Employment and Change of Control Agreement among Bancorp, the Bank and David P. Barksdale, dated January 12, 2012, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on January 30, 2012 (SEC File No. 000-11448).*

10.30		Employment and Change of Control Agreement among Bancorp, the Bank and Ramsey K. Hamadi, dated March 2, 2012, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on March 2, 2012 (SEC File No. 000-11448).*

10.31		Second Amendment to the Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, effective January 11, 2012, incorporated herein by reference to Exhibit 10.33 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012.*

10.32		Third Amendment to the Trust Agreement for the Directors and Senior Management Deferred Compensation Plan and Directors Retirement Policy, effective March 5, 2012, incorporated herein by reference to Exhibit 10.34 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012.*

10.33		Appointment of Successor Trustee under the Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management dated March 5, 2012, incorporated herein by reference to Exhibit 10.35 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012.*

10.34		Second 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 10.36 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012.*

10.35		Third 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 10.37 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012.*

10.36		Fourth 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 10.38 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012.*

10.37		Employment and Change of Control Agreement among Bancorp, the Bank and Pressley A. Ridgill, executed September 9, 2009, and effective January 1, 2013, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on September 5, 2012 (SEC File No. 000-11448).*

10.38		Form of Securities Purchase Agreement, dated November 1, 2012, between Bancorp and certain investors, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on November 1, 2012 (SEC File No. 000-11448).

10.39		Form of Registration Rights Agreement, dated November 1, 2012, between Bancorp and certain investors, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on November 1, 2012 (SEC File No. 000-11448).

31.01		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Financial Statements filed in XBRL format.

*Management contract and compensatory arrangement.

SIGNATURES

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

Date: November 14, 2012	NEWBRIDGE BANCORP
	(Registrant)

	By:	/s/ Ramsey K. Hamadi
	Name: Ramsey K. Hamadi
	Title: Senior Executive Vice President and Chief Financial Officer
	(Authorized Officer)

EXHIBIT INDEX

Exhibit No.		Description

31.01		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Newbridge Bancorp (NBBC) Inactive 10-Q2012 Q3 Quarterly report

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