Newbridge Bancorp (NBBC) 10-Q 2012 Q2 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 June 30, 2012

For the quarterly period ended:

June 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.    Yes  x    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).    Yes  x    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 company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

At August 7, 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 June 30, 2012 and December 31, 2011		3
	Consolidated Statements of Income Three Months and Six Months Ended June 30, 2012 and 2011		4
	Consolidated Statements of Comprehensive Income Three Months and Six Months Ended June 30, 2012 and 2011		5
	Consolidated Statements of Changes in Shareholders’ Equity Six Months Ended June 30, 2012 and 2011		6
	Consolidated Statements of Cash Flows Six Months Ended June 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		25
Item 3	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4	Controls and Procedures		39
PART II Other Information
Item 6	Exhibits		40

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

NewBridge Bancorp and Subsidiary

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	June  30 2012 (Unaudited)			December 31 2011
Assets
Cash and due from banks	$	26,006		$	27,629
Interest-bearing bank balances		35,936			26,363
Loans held for sale		5,741			7,851
Investment securities		388,968			337,811
Loans		1,162,630			1,200,070
Less allowance for credit losses		(25,231	)		(28,844	)
Net loans		1,137,399			1,171,226
Premises and equipment		36,471			36,225
Real estate acquired in settlement of loans		24,491			30,587
Bank-owned life insurance		44,613			43,727
Deferred tax assets		28,126			32,263
Other assets		20,685			20,882
Total assets	$	1,748,436		$	1,734,564
Liabilities
Deposits:
Non-interest bearing	$	192,066		$	172,351
Savings, NOW and money market accounts		850,978			852,941
Time deposits		406,153			393,384
Total deposits		1,449,197			1,418,676
Borrowings from the Federal Home Loan Bank		64,000			86,700
Other borrowings		46,774			46,774
Accrued expenses and other liabilities		18,914			19,027
Total liabilities		1,578,885			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		51,939			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		87,209			87,190
Directors’ deferred compensation plan		(468	)		(575	)
Retained deficit		(46,552	)		(47,525	)
Accumulated other comprehensive (loss)		(856	)		(5,771	)
Total shareholders’ equity		169,551			163,387
Total liabilities and shareholders’ equity	$	1,748,436		$	1,734,564

See notes to consolidated financial statements

3

NewBridge Bancorp and Subsidiary

Consolidated Statements of Income

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

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
Interest Income
Interest and fees on loans	$	14,581		$	16,694		$	29,503		$	33,930
Interest on investment securities
Taxable		3,544			2,974			6,933			6,448
Tax exempt		189			191			385			382
Interest bearing bank balances and Federal funds sold		5			20			20			24
Total interest income		18,319			19,879			36,841			40,784
Interest Expense
Deposits		1,385			2,574			3,129			5,262
Borrowings from the Federal Home Loan Bank		269			284			528			631
Other borrowings		342			492			689			984
Total interest expense		1,996			3,350			4,346			6,877
Net interest income		16,323			16,529			32,495			33,907
Provision for credit losses		2,360			3,020			5,803			9,093
Net interest income after provision for credit losses		13,963			13,509			26,692			24,814
Noninterest Income
Retail banking		2,325			2,554			4,579			5,054
Mortgage banking services		553			268			1,116			693
Wealth Management services		561			626			1,155			1,171
Gain on sale of investment securities		—			—			—			1,961
Writedowns and losses on sales of real estate acquired in settlement of loans		(2,976	)		(1,585	)		(3,984	)		(3,071	)
Bank Owned Life Insurance		378			304			845			712
Other		168			234			298			415
Total noninterest income		1,009			2,401			4,009			6,935
Noninterest Expense
Personnel		7,226			7,352			14,287			14,641
Occupancy		1,024			1,017			2,028			2,060
Furniture and equipment		885			924			1,663			1,888
Technology and data processing		1,015			960			2,035			1,877
Legal and Professional		690			742			1,361			1,368
FDIC insurance		441			632			882			1,427
Real Estate Acquired in Settlement of Loans		205			393			523			782
Other		2,253			2,559			4,561			4,930
Total noninterest expense		13,739			14,579			27,340			28,973
Income before income taxes		1,233			1,331			3,361			2,776
Income tax Expense		312			190			929			624
Net Income		921			1,141			2,432			2,152
Dividends and accretion on preferred stock		(729	)		(730	)		(1,459	)		(1,459	)
Net Income available to common shareholders	$	192		$	411		$	973		$	693
Earnings (loss) per share
Basic	$	0.01		$	0.03		$	0.06		$	0.04
Diluted	$	0.01		$	0.02		$	0.06		$	0.04
Weighted average shares outstanding
Basic		15,655,868			15,655,868			15,655,868			15,655,868
Diluted		16,465,346			16,521,391			16,380,989			16,602,032

See notes to consolidated financial statements

4

NewBridge Bancorp and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited; dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
Net Income	$	921		$	1,141		$	2,432		$	2,152
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period		2,068			2,053			4,935			1,037
Reclassification adjustment for (gains) losses included in net income		—			—			—			(1,187	)
Defined benefit pension plans:
Amortization of post retirement benefit		(10	)		(9	)		(20	)		(19	)
Total other comprehensive income (loss)		2,058			2,044			4,915			(169	)
Comprehensive Income	$	2,979		$	3,185		$	7,347		$	1,983

See notes to consolidated financial statements

5

NewBridge Bancorp and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

Six months ended June 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													2,152						2,152
Change in accumulated other comprehensive income net of deferred income taxes																(169	)		(169	)
Dividends and accretion on preferred stock		149											(1,459	)					(1,310	)
Stock-based compensation expense								67											67
Common stock distributed										43									43
Balances at June 30, 2011	$	51,639		15,655,868	$	78,279	$	87,115	$	(575	)	$	(48,593	)	$	(1,164	)	$	166,701
Balances at December 31, 2011	$	51,789		15,655,868	$	78,279	$	87,190	$	(575	)	$	(47,525	)	$	(5,771	)	$	163,387
Net Income													2,432						2,432
Change in accumulated other comprehensive income net of deferred income taxes																4,915			4,915
Dividends and accretion on preferred stock		150											(1,459	)					(1,309	)
Stock-based compensation expense								19											19
Common stock distributed										107									107
Balances at June 30, 2012	$	51,939		15,655,868	$	78,279	$	87,209	$	(468	)	$	(46,552	)	$	(856	)	$	169,551

See notes to consolidated financial statements

6

NewBridge Bancorp and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited; dollars in thousands)

	Six Months Ended
	June 30
	2012			2011
Cash Flow from operating activities
Net Income	$	2,432		$	2,152
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,719			2,896
Securities premium amortization and discount accretion, net		62			214
(Gain) loss on sale of securities		—			(1,961	)
Mortgage banking services		(1,116	)		(693	)
Originations of loans held for sale		(68,688	)		(39,615	)
Proceeds from sales of loans held for sale		71,985			114,549
(Increase) decrease in deferred tax assets		917			(264	)
(Increase) in income taxes receivable		(153	)		—
Decrease in interest earned but not received		57			554
(Decrease) in interest accrued but not paid		(153	)		(236	)
Write downs of real estate acquired in settlement of loans		1,802			3,277
Loss on sales of real estate acquired in settlement of loans		2,182			(206	)
Net (increase) decrease in other assets		(2,136	)		2,732
Net increase in other liabilities		40			1,526
Provision for credit losses		5,803			9,093
Stock-based compensation		19			67
Net cash provided by operating activities		14,772			94,085
Cash Flow from investing activities
Purchases of securities available for sale		(107,199	)		(27,426	)
Proceeds from sales, maturities and calls of securities available for sale		65,300			58,566
Net (increase) decrease in loans		22,106			(3,126	)
Purchases of premises and equipment		(1,767	)		(1,991	)
Proceeds from sales of premises and equipment		120			2,154
Proceeds from sales of real estate acquired in settlement of loans		7,999			4,143
Net cash provided by (used in) investing activities		(13,441	)		32,320
Cash Flow from financing activities
Net increase in demand deposits, NOW, money market and savings accounts		17,752			33,764
Net increase (decrease) in time deposits		12,769			(59,670	)
Net (decrease) in other borrowings		—			(15,000	)
Net (decrease) in borrowings from FHLB		(22,700	)		(32,500	)
Dividends paid		(1,309	)		(1,310	)
Common stock distributed		107			43
Net cash provided by (used in) financing activities		6,619			(74,673	)
Increase in cash and cash equivalents		7,950			51,732
Cash and cash equivalents at the beginning of the period		53,992			29,075
Cash and cash equivalents at the end of the period	$	61,942		$	80,807

See notes to consolidated financial statements

7

NewBridge Bancorp and Subsidiary

Consolidated Statements of Cash Flows (continued)

(Unaudited; dollars in thousands)

Consolidated Statements of Cash Flows

	Six Months Ended
	June 30
	2012			2011
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest	$	4,499		$	7,113
Income Taxes		250			—
Supplemental disclosures of noncash transactions
Transfer of loans to real estate acquired in settlement of loans	$	5,887		$	6,225
Unrealized gains/(losses) on securities available for sale:
Change in securities available for sale		8,155			(248	)
Change in deferred income taxes		(3,220	)		98
Change in shareholders’ equity		4,935			(150	)

See notes to consolidated financial statements

8

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 six-month periods ended June 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 non-interest bearing checking accounts, certificates of deposit, individual retirement accounts, overdraft protection, personal and corporate trust services, safe deposit boxes, online banking, corporate cash management, brokerage, financial planning and asset management, mortgage loans and secured and unsecured loans.

As of June 30, 2012, the Bank operated four active non-bank subsidiaries: Peoples Finance Company of Lexington, Inc. (“Peoples Finance”), LSB Properties, Inc. (“LSB Properties”), Henry Properties, LLC (“Henry Properties”) and Prince George Court Holdings, Inc. (“Prince George”). Peoples Finance, a NC licensed finance company, with approximately $80,000 of loans outstanding as of June 30, 2012, is no longer actively soliciting loans. LSB Properties, Henry Properties and Prince George together own the real estate acquired in settlement of loans of the Bank.

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the consolidated financial statements in Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 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.

9

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 — 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 June 30				For the six months ended June 30
	2012		2011		2012		2011
Basic:
Net income available to common shareholders	$	192	$	411	$	973	$	693
Weighted average shares outstanding		15,655,868		15,655,868		15,655,868		15,655,868
Net income per share, basic	$	0.01	$	0.03	$	0.06		0.04
Diluted:
Net income available to common shareholders	$	192	$	411	$	973	$	693
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		37,078		8,484		23,319		8,601
Warrant		772,400		857,039		701,802		937,563
Weighted average shares outstanding and dilutive potential shares outstanding		16,465,346		16,521,391		16,380,989		16,602,032
Net income per share, diluted	$	0.01	$	0.02	$	0.06	$	0.04

10

Note 3 — Investment Securities

Investment securities consist of the following (in thousands):

					June 30, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses			Market Value		Average Yield			Average Duration(1)
U. S. Treasury securities	$	10,000	$	—	$	—		$	10,000		0.06	%		0.07
U.S. government agency securities		35,989		172		—			36,161		1.84			0.50
Agency mortgage backed securities		26,473		2,475		—			28,948		5.33			2.19
Collateralized mortgage obligations		19,641		572		(10	)		20,203		5.68			3.08
Commercial mortgage backed securities		55,354		1,145		(133	)		56,366		3.37			3.71
Corporate bonds		152,573		2,668		(1,615	)		153,626		3.85			3.41
Covered bonds		46,606		2,510		—			49,116		3.75			3.78
State and municipal obligations		19,244		589		(82	)		19,751		6.28	(2)		4.65
Total debt securities		365,880		10,131		(1,840	)		374,171		3.81	(2)		3.08
Federal Home Loan Bank stock		8,351		—		—			8,351
Other equity securities		5,775		671		—			6,446
Total investment securities	$	380,006	$	10,802	$	(1,840	)	$	388,968

					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 more 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.

11

The following is a schedule of investment securities in a loss position as of June 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
Collateralized mortgage obligations	$	402	$	(10	)	$	—	$	—		$	402	$	(10	)
Commercial mortgage backed securities		13,966		(133	)		—		—			13,966		(133	)
Corporate bonds		34,869		(580	)		13,950		(1,035	)		48,819		(1,615	)
State and municipal obligations		—		—			2,463		(82	)		2,463		(82	)
Total investment securities in a loss position	$	49,237	$	(723	)	$	16,413	$	(1,117	)	$	65,650	$	(1,840	)

Investment securities with an amortized cost of $87,647,000 and $79,211,000, as of June 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.

Investment securities with a book value of $31,510,000 were sold during the first quarter of 2011 to dispose of agency mortgage backed securities with a remaining life of 1 year or less that had significant gain positions and to reduce the Company’s exposure to certain corporate debt securities and certain types of collateralized mortgage obligations. The Company recognized a gain of $1,961,000 on the sale of those securities. No investment securities were sold during the six months ended June 30, 2012.

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 June 30, 2012, management does not have the intent 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 re-pricing 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.

12

Note 4 — Loans and Allowance for Credit Losses

Loans are summarized as follows (in thousands):

	June 30, 2012		December 31 2011
Secured by owner-occupied nonfarm nonresidential properties	$	264,843	$	269,972
Secured by other nonfarm nonresidential properties		172,718		157,594
Other commercial and industrial		101,509		119,877
Total Commercial		539,070		547,443
Construction loans – 1 to 4 family residential		7,766		7,781
Other construction and land development		69,211		81,630
Total Real estate – construction		76,977		89,411
Closed-end loans secured by 1 to 4 family residential properties		283,796		287,268
Lines of credit secured by 1 to 4 family residential properties		204,122		209,634
Loans secured by 5 or more family residential properties		23,425		25,883
Total Real estate – mortgage		511,343		522,785
Credit cards		7,289		7,649
Other revolving credit plans		9,051		9,444
Other consumer loans		12,849		17,648
Total Consumer		29,189		34,741
All other loans		6.051		5,690
Total Other		6,051		5,690
Total loans	$	1,162,630	$	1,200,070

Nonperforming assets are summarized as follows (in thousands):

	June 30, 2012			December 31, 2011
Commercial nonaccrual loans, not restructured	$	10,331		$	15,773
Commercial nonaccrual loans, restructured		8,243			7,489
Non-commercial nonaccrual loans, not restructured		8,195			9,569
Non-commercial nonaccrual loans, restructured		2,616			283
Total nonaccrual loans		29,385			33,114
Troubled debt restructured loans, accruing		5,230			7,406
Accruing loans which are contractually past due 90 days or more		65			14
Total nonperforming loans		34,680			40,534
Real estate acquired in settlement of loans		24,491			30,587
Total nonperforming assets	$	59,171		$	71,121
Nonperforming loans to loans outstanding at end of period		2.98	%		3.38	%
Nonperforming assets to total assets at end of period		3.38	%		4.10	%
Allowance for credit losses to nonperforming loans		72.75	%		71.16	%
Restructured loans, performing(1)	$	2,443		$	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.

13

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 June 30, 2012.

14

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

June 30, 2012	30-89 days		90+ days		Nonaccrual		Total past due				Total loans
	past due		past due		Loans		+ nonaccrual		Current		receivable
Secured by owner-occupied nonfarm nonresidential properties	$	4,892	$	—	$	5,781	$	10,673	$	254,170	$	264,843
Secured by other nonfarm nonresidential properties		1,621		—		4,546		6,167		166,551		172,718
Other commercial and industrial		1,612		—		619		2,231		99,278		101,509
Total Commercial		8,125		—		10,946		19,071		519,999		539,070
Construction loans – 1 to 4 family residential		—		—		613		613		7,153		7,766
Other construction and land development		3,004		—		2,980		5,984		63,227		69,211
Total Real estate – construction		3,004		—		3,593		6,597		70,380		76,977
Closed-end loans secured by 1 to 4 family residential properties		4,308		—		11,961		16,269		267,527		283,796
Lines of credit secured by 1 to 4 family residential properties		2,674		—		2,315		4,989		199,133		204,122
Loans secured by 5 or more family residential properties		497		—		283		780		22,645		23,425
Total Real estate – mortgage		7,479		—		14,559		22,038		489,305		511,343
Credit cards		79		65		—		144		7,145		7,289
Other revolving credit plans		16		—		156		172		8,879		9,051
Other consumer loans		238		—		131		369		12,480		12,849
Total Consumer		333		65		287		685		28,504		29,189
All other loans		—		—		—		—		6,051		6,051
Total Other		—		—		—		—		6,051		6,051
Total loans	$	18,941	$	65	$	29,385	$	48,391	$	1,114,239	$	1,162,630

December 31, 2011	30-89 days		90+ days		Nonaccrual		Total past due				Total loans
	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 residential properties		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

15

At June 30, 2012 and December 31, 2011, there were $16.1 million and $15.2 million, respectively, of loans classified as 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 June 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 $2,443,000 of performing TDRs at June 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 June 30, 2012						Modifications for the six months ended June 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		1	$	3,100	$	2,900		7	$	6,609	$	5,552
Real estate – construction		—		—		—		2		185		185
Real estate – mortgage		3		569		569		3		569		569
Total		4	$	3,669	$	3,469		12	$	7,363	$	6,306

16

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 June 30, 2012				Defaults for the six months ended June 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
TDR Defaults:
Commercial		0	$	0		2	$	489
Total		0	$	0		2	$	489

Interest income is not typically accrued on impaired loans, but there are $5.2 million in TDRs at June 30, 2012 that are considered impaired and are accruing. The following table shows interest income recognized on TDRs for the three and six months ended June 30, 2012 (in thousands):

	Three Months Ended June 30, 2012		Six Months Ended June  30, 2012
Interest Income Recognized:
Commercial	$	40	$	61
Real estate – construction		2		9
Real estate – mortgage		22		68
Consumer		1		2
Total	$	65	$	140

17

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

	June 30		December 31
	2012		2011
Loans identified as impaired	$	32,955	$	32,591
Other nonperforming loans		1,725		7,943
Total nonperforming loans		34,680		40,534
Performing classified loans		71,673		87,959
Total classified loans	$	106,353	$	128,493

Loans specifically identified and evaluated for impairment totaled $33.0 million and $32.6 million at June 30, 2012 and December 31, 2011, respectively, as summarized in the following tables (in thousands).

			Impaired Loans
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Record Investment
June 30, 2012
Loans without a specific valuation allowance:
Commercial	$	9,713	$	10,685	$	—	$	11,312
Real estate – construction		2,161		2,958		—		3,031
Real estate – mortgage		6,778		7,137		—		7,571
Consumer		—		—		—		—
Total		18,652		20,780		—		21,914
Loans with a specific valuation allowance:
Commercial		5,221		5,521		1,230		5,250
Real estate – construction		1,297		1,297		545		1,300
Real estate – mortgage		7,689		10,198		1,204		10,023
Consumer		96		96		96		100
Total		14,303		17,112		3,075		16,673
Total impaired loans:
Commercial		14,934		16,206		1,230		16,562
Real estate – construction		3,458		4,255		545		4,331
Real estate – mortgage		14,467		17,335		1,204		17,594
Consumer		96		96		96		100
Total	$	32,955	$	37,892	$	3,075	$	38,587

			Impaired Loans
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Record 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

18

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 June 30, 2012, December 31, 2011 and June 30, 2011 were as follows:

	Commercial		Real Estate  - Construction		Real Estate  - Mortgage		Consumer		Other		Total Loans
June 30, 2012
Allowance for credit losses:
Individually evaluated for impairment	$	1,230	$	545	$	1,204	$	96	$	—	$	3,075
Collectively evaluated for impairment		4,498		6,165		10,285		1,203		5		22,156
Total ending allowance	$	5,728	$	6,710	$	11,489	$	1,299	$	5	$	25,231

	Commercial		Real Estate  - Construction		Real Estate  - Mortgage		Consumer		Other		Total 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

	Commercial		Real Estate  - Construction		Real Estate  - Mortgage		Consumer		Other		Total Loans
June 30, 2011
Allowance for credit losses:
Individually evaluated for impairment	$	1,304	$	456	$	1,008	$	—	$	—	$	2,768
Collectively evaluated for impairment		6,014		6,234		10,911		2,113		—		25,272
Total ending allowance	$	7,318	$	6,690	$	11,919	$	2,113	$	—	$	28,040

	Commercial		Real Estate  - Construction		Real Estate  - Mortgage		Consumer		Other		Total Loans
June 30, 2012
Recorded investment in loans:
Individually evaluated for impairment	$	14,934	$	3,458	$	14,467	$	96	$	—	$	32,955
Collectively evaluated for impairment		524,136		73,519		496,876		29,093		6,051		1,129,675
Total recorded investment in loans	$	539,070	$	76,977	$	511,343	$	29,189	$	6,051	$	1,162,630

	Commercial		Real Estate  - Construction		Real Estate  - Mortgage		Consumer		Other		Total 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

	Commercial		Real Estate  - Construction		Real Estate  - Mortgage		Consumer		Other		Total Loans
June 30, 2011
Recorded investment in loans:
Individually evaluated for impairment	$	7,165	$	13,077	$	17,124	$	117	$	—	$	37,483
Collectively evaluated for impairment		532,151		116,796		513,901		39,265		4,692		1,206,805
Total recorded investment in loans	$	539,316	$	129,873	$	531,025	$	39,382	$	4,692	$	1,244,288

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

19

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).

	June 30 2012										December 31 2011
	Pass		Special Mention		Sub- Standard		Doubtful		Total		Pass		Special Mention		Sub- standard		Doubtful		Total
Commercial	$	449,062	$	47,453	$	65,921	$	996	$	563,432	$	437,475	$	56,172	$	79,229	$	301	$	573,177
Real estate – construction		36,915		9,197		16,673		219		63,004		35,622		14,304		23,667		757		74,350
Real estate – mortgage		55,175		8,603		11,670		64		75,512		57,089		7,363		14,517		171		79,140
Consumer		—		—		—		—		—		—		—		—		—		—
Other		5,343		—		—		—		5,343		4,954		—		—		—		4,954
Total	$	546,495	$	65,253	$	94,264	$	1,279	$	707,291	$	535,140	$	77,839	$	117,413	$	1,229	$	731,621

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

	Three Months Ended June 30, 2012		Three Months Ended June 30, 2011		Six Months Ended June 30, 2012		Six Months Ended June 30, 2011
Balance, beginning of period	$	27,918	$	29,057	$	28,844	$	28,752
Loans charged off:
Secured by owner-occupied nonfarm nonresidential properties		227		331		1,146		454
Secured by other nonfarm nonresidential properties		505		156		610		368
Other commercial and industrial		274		772		585		1,637
Total Commercial		1,006		1,259		2,341		2,459
Construction loans – 1-4 family residential		210		83		210		101
Other construction and land development		1,684		1,031		2,532		2,147
Total Real estate – construction		1,894		1,114		2,742		2,248
Closed-end loans secured by 1 to 4 family residential properties		2,027		876		2,526		2,612
Lines of credit secured by 1 to 4 family residential properties		300		932		2,169		1,393
Total Real estate – mortgage		2,327		1,808		4,695		4,005
Credit cards		99		75		211		179
Other consumer loans		149		255		320		531
Total consumer		248		330		531		710
Total other		2		—		2		1,300
Total chargeoffs		5,477		4,511		10,311		10,722
Recoveries of loans previously charged off:
Total Commercial		101		61		176		198
Total Real estate – construction		10		98		185		184
Total Real estate – mortgage		270		182		400		295
Total Consumer		48		117		121		221
Total Other		1		16		13		19
Total Recoveries		430		474		895		917
Net loans charged off		5,047		4,037		9,416		9,805
Provision for credit losses		2,360		3,020		5,803		9,093
Balance, end of period	$	25,231	$	28,040	$	25,231	$	28,040

20

Loans totaling $5,741,000 and $7,851,000, as of June 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 $475,237,000 and $506,449,000, as of June 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 5 — Stock Compensation Plans

The Company recorded $19,000 and $67,000 of total stock-based compensation expense for the six-month periods ended June 30, 2012 and June 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 June 30, 2012, there was $688,000 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. 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 the Capital Purchase Program (the “CPP). The stock-based compensation expense for these awards was immaterial for the first six months of 2012.

21

Note 6 — 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. The fair value of equity investments in the restricted stock of the FHLB equals the carrying value as the fair value is not readily determinable.

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

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

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

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

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

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

Financial instruments with off-balance sheet risk. The carrying value of financial instruments with off-balance sheet risk is considered to approximate fair value, since a large majority of these future financing commitments would result in loans that have variable rates and/or relatively short terms to maturity. For other commitments, generally of a short-term nature, the carrying value is considered to be a reasonable estimate of fair value. The various financial instruments are disclosed in Note 16 in the Notes to Consolidated Financial Statements of the Annual Report.

22

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

			Estimated Fair Value
June 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	$	61,942	$	61,942	$	—	$	—	$	61,942
Loans		1,162,630		—		—		1,153,042		1,153,042
Financial liabilities:
Deposits		1,449,197		—		1,451,459		—		1,451,459
Wholesale repurchase agreements		21,000		—		23,643		—		23,643
Junior Subordinated notes		25,774		—		—		10,921		10,921
FHLB borrowings		64,000		—		65,065		—		65,065

			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
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 June 30, 2012	$	—	$	380,617	$	8,351
Available for sale securities at December 31, 2011		—		330,626		7,185

23

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

	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Loans held for sale at June 30, 2012	$	—	$	5,741	$	—
Loans held for sale at December 31, 2011		—		7,851		—
Real estate acquired in settlement of loans at June 30, 2012		—		—		24,491
Real estate acquired in settlement of loans at December 31, 2011		—		—		30,587
Impaired loans, net of allowance at June 30, 2012		—		—		29,880
Impaired loans, net of allowance at December 31, 2011		—		—		28,425

Note 7 — 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 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.

24

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

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

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent expectations and beliefs of Bancorp including but not limited to Bancorp’s operations, performance, financial condition, growth or strategies. These forward-looking statements are identified by words such as “expects”, “anticipates”, “should”, “estimates”, “believes” and variations of these words and other similar statements. For this purpose, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results to differ materially from current projections depending on a variety of important factors, including without limitation: (1) recently enacted legislation, or legislation enacted in the future, or any proposed federal programs may subject Bancorp to increased regulation and may adversely affect Bancorp; (2) the strength of the United States economy generally, and the strength of the local economies in which Bancorp conducts operations, may be different than expected, resulting in, among other things, a continued deterioration in credit quality, including the resultant effect on Bancorp’s loan portfolio and allowance for credit losses; (3) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”); (4) inflation, deflation, interest rate, market and monetary fluctuations; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate and market liquidity conditions) and the impact of such conditions on Bancorp’s capital markets and capital management activities; (6) the timely development of competitive new products and services by Bancorp and the acceptance of these products and services by new and existing customers; (7) the willingness of customers to accept third party products marketed by Bancorp; (8) the willingness of customers to substitute competitors’ products and services for Bancorp’s products and services and vice versa; (9) the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking and securities); (10) technological changes; (11) changes in consumer spending and saving habits; (12) the effect of corporate restructurings, acquisitions and/or dispositions, and the failure to achieve the expected revenue growth and/or expense savings from such corporate restructurings, acquisitions and/or dispositions; (13) the current stresses in the financial and real estate markets, including possible continued deterioration in property values; (14) unanticipated regulatory or judicial proceedings; (15) the impact of changes in accounting policies by the Securities and Exchange Commission (the “SEC”); (16) adverse changes in financial performance and/or condition of Bancorp’s borrowers which could impact repayment of such borrowers’ outstanding loans; and (17) Bancorp’s success at managing the risks involved in the foregoing. Bancorp cautions that the foregoing list of important factors is not exhaustive. See also those risk factors identified in the section headed “Risk Factors”, beginning on page 13 of Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 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.

25

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.

26

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

Net Interest Income

Net interest income for the second quarter of 2012, on a taxable equivalent basis, was $16.4 million, a decrease of $0.2 million, or 1.2%, from $16.6 million for the second quarter of 2011. Average earning assets in the second quarter of 2012 decreased $22.6 million, or 1.4%, to $1.59 billion, compared to $1.61 billion in the second quarter of 2011. Average interest-bearing liabilities in the second quarter of 2012 decreased $62.2 million, or 4.4%, to $1.35 billion, compared to $1.42 billion in the second quarter of 2011. Taxable equivalent net interest margin increased to 4.16% for the second quarter of 2012, compared to 4.14% for the second quarter of 2011. The interest rate spread increased in the second quarter of 2012 by four basis points compared to the second quarter of 2011.

The increase in net interest margin and interest rate spread was driven primarily by a lower cost of funds rate partially offset by an overall lower yield on the investment portfolio and a lower yield on the loan portfolio. The par value of the Company’s investment in U.S. government agency securities decreased to $36.0 million at June 30, 2012 from $92.3 million at June, 30, 2011 due to calls on higher yielding securities. At June 30, 2012, the par value of the Company’s investment in corporate bonds was $152.8 million compared to $56.8 million at June 30, 2011. The weighted average duration of the Company’s investment securities was 3.1 years at June 30, 2012, compared to 5.6 years at June 30, 2011. The sustained low interest rate environment continues to impact loan yields. The annualized average yield on loans decreased to 4.99% for the three months ended June 30, 2012 compared to 5.16% for the three months ended June 30, 2011. The average yield on earning assets during the second quarter of 2012 was 31 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 36 basis points during the same time period. The highest cost category of deposits remains retail time deposits, which had an average interest rate of 0.76% for the second quarter 2012. Approximately $124.9 million of retail time deposits with a weighted average rate of 0.58% will mature in the third quarter of 2012. An additional $62.5 million of retail time deposits with approximately the same weighted average rate will mature by year end 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 June 30, 2012 and 2011.

27

(Fully taxable equivalent basis¹, dollars in thousands)

	Three Months Ended								Three Months Ended
	June 30, 2012								June 30, 2011
	Average Balance			Interest Income/ Expense		Annualized Average Yield/Rate			Average Balance			Interest Income/ Expense		Annualized Average Yield/Rate
Earning assets:
Loans receivable2	$	1,176,015		$	14,581		4.99	%	$	1,298,832		$	16,694		5.16	%
Taxable securities		373,176			3,517		3.79			251,964			2,953		4.70
Tax exempt securities		17,806			281		6.35			16,255			282		6.96
FHLB stock		7,559			27		1.44			9,664			21		0.86
Interest-bearing bank balances		12,033			5		0.17			32,514			20		0.25
Federal funds sold		—			—		—			—			—		—
Total earning assets		1,586,589			18,411		4.67			1,609,229			19,970		4.98
Non-earning assets:
Cash and due from banks		26,616								35,781
Premises and equipment		36,578								37,706
Other assets		121,922								107,384
Allowance for credit losses		(27,963	)							(29,988	)
Total assets	$	1,743,742		$	18,411				$	1,760,112		$	19,970
Interest-bearing liabilities:
Savings deposits	$	44,707		$	6		0.05	%	$	41,598		$	10		0.10	%
NOW deposits		434,307			349		0.32			439,153			710		0.65
Money market deposits		375,501			344		0.37			358,642			703		0.79
Time deposits		364,675			686		0.76			429,205			1,151		1.08
Other borrowings		47,282			342		2.91			61,279			492		3.22
Borrowings from Federal Home Loan Bank		87,505			269		1.24			86,299			284		1.32
Total interest-bearing liabilities		1,353,977			1,996		0.59			1,416,176			3,350		0.95
Other liabilities and shareholders’ equity:
Demand deposits		201,997								165,070
Other liabilities		19,154								15,902
Shareholders’ equity		168,614								162,964
Total liabilities and shareholders’ equity	$	1,743,742			1,996				$	1,760,112			3,350
Net interest income and net interest margin3				$	16,415		4.16	%				$	16,620		4.14	%
Interest rate spread4							4.07	%							4.03	%

¹  Income related to securities exempt from federal income taxes is stated on a fully taxable equivalent basis, assuming a federal income tax rate of 35%, and is then reduced by the non-deductible portion of interest expense. The adjustments made to convert to a fully taxable equivalent basis were $92 for 2012 and $91 for 2011.

²  The average loans receivable balances include non-accruing loans. Amortization of loan fees, net of deferred costs, of $120 and $150 for the three months ended June 30, 2012 and 2011, respectively, are included in interest income.

³  Net interest margin is computed by dividing net interest income by average earning assets.

⁴  Earning assets yield minus interest-bearing liability rate.

28

Noninterest Income and Expense

In the second quarter of 2012, noninterest income decreased to $1.0 million, from $2.4 million during the same period in 2011. Writedowns and losses on sales of real estate acquired in settlement of loans increased to $3.0 million, from $1.6 million during the same period last year. No investment securities were sold during the three months ended June 30, 2012 or June 30, 2011. Retail Banking income decreased 9.0% to $2.3 million in the second quarter of 2012 from $2.6 million in the second quarter of 2011 due primarily to ongoing regulatory changes in the industry and changes in consumer behavior. Mortgage Banking revenue increased to $0.6 million in the second quarter of 2012, compared to $0.3 million in the second quarter of 2011, due to higher volume of mortgage originations.

In the second quarter of 2012, noninterest expense decreased to $13.7 million from $14.6 million in the second quarter of 2011. Federal Deposit Insurance Corporation (“FDIC”) insurance expense decreased to $0.4 million in the second quarter of 2012 from $0.6 million in the second quarter 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. In addition, since March 31, 2011 the Company recorded decreases in personnel expense, furniture and equipment expense, and legal and professional expense 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
	June 30,				Percentage
	2012		2011		Variance
Other noninterest expense:
Advertising	$	386	$	376		2.7	%
Bankcard expense		103		161		(36.0	)
Postage		189		146		29.5
Telephone		172		175		(1.7	)
Amortization of core deposit intangible		182		182		0.0
Stationery, printing and supplies		100		104		(3.8	)
Other expense		1,121		1,415		(20.8	)
Total noninterest expense	$	2,253	$	2,559		(12.0	)

Income Taxes

The Company recorded income tax expense of $312,000 for the second quarter of 2012, compared to income tax expense of $190,000 for the second quarter of 2011. The Company’s effective tax rate was 25.3% for the three-month period ended June 30, 2012, compared to 14.3% for the second quarter of 2011. The change in the effective tax rate is primarily a result of an increase in the 2012 income tax expense to reflect a higher expected tax rate for the full year ending December 31, 2012, from that expected at June 30, 2011 for the full year ending December 31, 2011.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Net Interest Income

Net interest income for the first half of 2012, on a taxable equivalent basis, was $32.7 million, a decrease of $1.4 million, or 4.1%, from $34.1 million for the first half of 2011. Average earning assets in the first half of 2012 decreased $50.8 million, or 3.1%, to $1.58 billion, compared to $1.66 billion in the first half of 2011. Average interest-bearing liabilities in the first half of 2012 decreased $77.3 million, or 5.4%, to $1.36

29

billion, compared to $1.44 billion in the first half of 2011. Taxable equivalent net interest margin decreased to 4.15% for the first half of 2012, compared to 4.21% for the first half of 2011, a decrease of six basis points. The interest rate spread decreased in the first half of 2012 by three basis points compared to the first half of 2011.

The decrease in net interest margin and interest rate spread was driven primarily by an overall lower yield 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 $36.0 million at June 30, 2012 from $92.3 million at June 30, 2011 due to calls on higher yielding securities. At June 30, 2012, the par value of the Company’s investment in corporate bonds was $152.8 million compared to $56.8 million at June 30, 2011. The weighted average duration of the Company’s investment securities was 3.1 years at June 30, 2012, compared to 5.6 years at June 30, 2011. For the six months ended June 30, 2012, the annualized average yield on loans decreased to 5.01% from 5.20% for the six months ended June 30, 2011. The net interest margin is also impacted by changes in interest income from nonaccrual loans. For the six months ended June 30, 2012, nonaccrual interest decreased the net interest margin by nine basis points compared to 12 basis points for the six months ended June 30, 2011. The average yield on earning assets during the first half of 2012 was 35 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 six months ended June 30, 2012 and 2011.

30

(Fully taxable equivalent basis¹, dollars in thousands)

	Six Months Ended June 30, 2012								Six Months Ended June 30, 2011
	Average Balance			Interest Income/ Expense		Annualized Average Yield/Rate			Average Balance			Interest Income/ Expense		Annualized Average Yield/Rate
Earning assets:
Loans receivable2	$	1,183,528		$	29,503		5.01	%	$	1,316,817		$	33,930		5.20	%
Taxable securities		355,474			6,882		3.89			270,038			6,407		4.78
Tax exempt securities		17,807			573		6.47			15,970			564		7.13
FHLB stock		7,372			51		1.39			10,029			42		0.84
Interest-bearing bank balances		18,005			20		0.22			20,115			24		0.24
Federal funds sold		—			—		—			—			—		—
Total earning assets		1,582,186			37,029		4.71			1,656,974			40,967		5.06
Non-earning assets:
Cash and due from banks		26,482								31,911
Premises and equipment		36,510								38,175
Other assets		123,357								107,306
Allowance for credit losses		(28,573	)							(29,941	)
Total assets	$	1,739,962		$	37,029				$	1,780,420		$	40,967
Interest-bearing liabilities:
Savings deposits	$	43,577		$	14		0.06	%	$	40,898		$	20		0.10	%
NOW deposits		437,683			755		0.35			439,756			1,461		0.67
Money market deposits		376,668			801		0.43			338,314			1,255		0.75
Time deposits		373,783			1,559		0.84			450,727			2,526		1.13
Other borrowings		47,061			689		2.94			61,763			984		3.21
Borrowings from Federal Home Loan Bank		80,737			528		1.32			124,634			631		1.21
Total interest-bearing liabilities		1,359,509			4,346		0.64			1,436,819			6,877		0.97
Other liabilities and shareholders’ equity:
Demand deposits		193,172								164,355
Other liabilities		19,841								16,327
Shareholders’ equity		167,440								162,919
Total liabilities and shareholders’ equity	$	1,739,962			4,346				$	1,780,420			6,877
Net interest income and net interest margin3				$	32,683		4.15	%				$	34,090		4.21	%
Interest rate spread4							4.06	%							4.09	%

¹  Income related to securities exempt from federal income taxes is stated on a fully taxable equivalent basis, assuming a federal income tax rate of 35%, and is then reduced by the non-deductible portion of interest expense. The adjustments made to convert to a fully taxable equivalent basis were $188 for 2012 and $182 for 2011.

²  The average loans receivable balances include non-accruing loans. Amortization of loan fees, net of deferred costs, of $289 and $359 for the six months ended June 30, 2012 and 2011, respectively, are included in interest income.

³  Net interest margin is computed by dividing net interest income by average earning assets.

⁴  Earning assets yield minus interest-bearing liability rate.

31

Noninterest Income and Expense

In the first half of 2012, noninterest income decreased to $4.0 million, from $6.9 million during the same period in 2011. Writedowns and losses on sales of real estate acquired in settlement of loans increased to $4.0 million, from $3.1 million during the same period last year. The Company recognized gains on the sale of investment securities of $2.0 million during the first half of 2011, whereas no investment securities were sold during the six months ended June 30, 2012. Retail Banking income decreased 9.4% to $4.6 million in the first half of 2012 from $5.1 million in the first half of 2011 due primarily to ongoing regulatory changes in the industry and changes in consumer behavior. Mortgage Banking revenue increased to $1.1 million in the first half of 2012, compared to $0.7 million in the first half of 2011, due to higher volume of mortgage originations.

In the first half of 2012, noninterest expense decreased to $27.3 million from $29.0 million in the first half of 2011. FDIC insurance expense decreased to $0.9 million in the first half of 2012 from $1.4 million in the first half 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. In addition, since June 30, 2011 the Company recorded decreases in personnel expense, occupancy expense, and furniture and equipment expense 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):

	Six Months Ended
	June 30,				Percentage
	2012		2011		Variance
Other noninterest expense:
Advertising	$	783	$	814		(3.8	)%
Bankcard expense		212		293		(27.6	)
Postage		386		360		7.2
Telephone		343		325		5.5
Amortization of core deposit intangible		363		363		0.0
Stationery, printing and supplies		215		251		(14.3	)
Other expense		2,259		2,524		(10.5	)
Total noninterest expense	$	4,561	$	4,930		(7.5	)

Income Taxes

The Company recorded income tax expense of $929,000 for the first half of 2012, compared to income tax expense of $624,000 for the first half of 2011. The Company’s effective tax rate was 27.6% for the six-month period ended June 30, 2012, compared to 22.5% for the first half of 2011. The change in the effective tax rate is primarily a result of an increase in the 2012 income tax expense to reflect a higher expected tax rate for the full year ending December 31, 2012, from that expected at June 30, 2011 for the full year ending December 31, 2011.

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

32

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 will likely 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.

At June 30, 2012, the allowance for credit losses was $25.2 million, or 2.17% of total loans outstanding, compared to $28.8 million, or 2.40% of loans outstanding at December 31, 2011, and $28.0 million, or 2.25% of loans outstanding, at June 30, 2011. At June 30, 2012, the allowance for credit losses was 72.75% of nonperforming loans compared to 71.16% at December 31, 2011, and 58.81% at June 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 $34.7 million at June 30, 2012 compared to $40.5 million at December 31, 2011 and $47.7 million at June 30, 2011. These changes reflect a trend of reductions in nonaccrual loans. Real estate acquired in settlement of loans (“OREO”) was $24.5 million at June 30, 2012, $30.6 million at December 31, 2011, and $25.7 million at June 30, 2011. Approximately $5.9 million was transferred from loans into OREO and approximately $10.2 million of OREO was disposed of during the first six months of 2012. A net loss of $4.0 million has been recorded on the disposition and writedown of OREO in the current year through June 30, 2012, compared to a net loss of $3.1 million in the first half of 2011. The Company recorded $523,000 of expenses on OREO during the first six months of 2012, compared to $782,000 in the first half of 2011. Nonperforming assets (comprised of nonaccrual loans, certain restructured loans and OREO) totaled $59.2 million, or 3.38% of total assets, at June 30, 2012, compared to $71.1 million, or 4.10% of total assets, at December 31, 2011 and $73.4 million, or 4.22% of total assets, a year ago.

The provision for credit losses charged to operations for the three months ended June 30, 2012 totaled $2.4 million, compared to $3.0 million for the three months ended June 30, 2011. Net chargeoffs for the three months ended June 30, 2012 were $5.0 million, or 1.73% of average loans held for investment on an annualized basis, compared to net chargeoffs of $4.0 million, or 1.25% of average loans held for investment on an annualized basis, for the three months ended June 30, 2011.

The provision for credit losses charged to operations for the six months ended June 30, 2012 totaled $5.8 million, compared to $9.1 million for the six months ended June 30, 2011. Net chargeoffs for the six months ended June 30, 2012 were $9.4 million, or 1.60% of average loans held for investment on an annualized basis, compared to net chargeoffs of $9.8 million, or 1.50% of average loans held for investment on an annualized basis, for the six months ended June 30, 2011.

The Company is developing a plan to accelerate the work-out and disposition of a substantial portion of remaining problem assets. This is expected to be completed by December 31, 2012. The greatest impact on

33

the Company’s financial performance will likely occur during the third quarter of this year as a determination is made regarding which assets will be sold in an orderly market and which will be sold in a liquidation market. It is anticipated that the Company will report a net loss in the third quarter as the disposition write-downs become estimable. It is further anticipated that the implementation of this plan will rapidly lead to improved earnings in future periods and cause credit related costs to fall to a fraction of their recent levels.

34

Asset Quality Analysis

(dollars in thousands)

	Three Months Ended June  30, 2012			Year Ended December 31, 2011			Three Months Ended June 30, 2011
Allowance for credit losses:
Balance, beginning of period	$	27,918		$	28,752		$	29,057
Loans charged off:
Secured by owner-occupied nonfarm nonresidential properties		227			1,131			331
Secured by other nonfarm nonresidential properties		505			956			156
Other commercial and industrial		274			2,958			772
Total Commercial		1,006			5,045			1,259
Construction loans – 1-4 family residential		210			209			83
Other construction and land development		1,684			3,776			1,031
Total Real estate – construction		1,894			3,985			1,114
Closed-end loans secured by 1 to 4 family residential properties		2,027			3,603			876
Lines of credit secured by 1 to 4 family residential properties		300			2,443			932
Loans secured by 5 or more family residential properties		—			776			—
Total Real estate – mortgage		2,327			6,822			1,808
Credit cards		99			398			75
Other consumer loans		149			1,047			255
Total Consumer		248			1,445			330
Total Other		2			1,300			—
Total chargeoffs		5,477			18,597			4,511
Recoveries of loans previously charged off:
Total Commercial		101			495			61
Total Real estate – construction		10			534			98
Total Real estate – mortgage		270			443			182
Total Consumer		48			401			117
Total Other		1			31			16
Total recoveries		430			1,904			474
Net loans charged off		5,047			16,693			4,037
Provision for credit losses		2,360			16,785			3,020
Balance, end of period	$	25,231		$	28,844		$	28,040
Nonperforming Assets:
Commercial nonaccrual loans, not restructured	$	10,331		$	15,773		$	17,839
Commercial nonaccrual loans, restructured		8,243			7,489			11,042
Non-commercial nonaccrual loans		8,195			9,569			10,075
Non-commercial nonaccrual loans, restructured		2,616			283			308
Total nonaccrual loans		29,385			33,114			39,264
Troubled debt restructured loans, accruing		5,230			7,406			8,351
Loans 90 days or more past due and still accruing		65			14			65
Total nonperforming loans		34,680			40,534			47,680
Real estate acquired in settlement of loans		24,491			30,587			25,729
Total nonperforming assets	$	59,171		$	71,121		$	73,409
Asset Quality Percentages:
Nonperforming loans to total loans outstanding at end of period		2.98	%		3.38	%		3.83	%
Nonperforming assets to total assets at end of period		3.38	%		4.10	%		4.22	%
Allowance for credit losses as a percentage of total loans outstanding at end of period		2.17	%		2.40	%		2.25	%
Allowance for credit losses to nonperforming loans		72.75	%		71.16	%		58.81	%
Net chargeoffs as a percentage of average loans outstanding during the period (annualized for interim periods)		1.73	%		1.32	%		1.25	%

35

	Six Months Ended June  30, 2012			Year Ended December 31, 2011			Six Months Ended June  30, 2011
Allowance for credit losses:
Balance, beginning of period	$	28,844		$	28,752		$	28,752
Loans charged off:
Secured by owner-occupied nonfarm nonresidential properties		1,146			1,131			454
Secured by other nonfarm nonresidential properties		610			956			368
Other commercial and industrial		585			2,958			1,637
Total Commercial		2,341			5,045			2,459
Construction loans – 1-4 family residential		210			209			101
Other construction and land development		2,532			3,776			2,147
Total Real estate – construction		2,742			3,985			2,248
Closed-end loans secured by 1 to 4 family residential properties		2,526			3,603			2,612
Lines of credit secured by 1 to 4 family residential properties		2,169			2,443			1,393
Loans secured by 5 or more family residential properties		—			776			—
Total Real estate – mortgage		4,695			6,822			4,005
Credit cards		211			398			179
Other consumer loans		320			1,047			531
Total Consumer		531			1,445			710
Total Other		2			1,300			1,300
Total chargeoffs		10,311			18,597			10,722
Recoveries of loans previously charged off:
Total Commercial		176			495			198
Total Real estate – construction		185			534			184
Total Real estate – mortgage		400			443			295
Total Consumer		121			401			221
Total Other		13			31			19
Total recoveries		895			1,904			917
Net loans charged off		9,416			16,693			9,805
Provision for credit losses		5,803			16,785			9,093
Balance, end of period	$	25,231		$	28,844		$	28,040
Nonperforming Assets:
Commercial nonaccrual loans, not restructured	$	10,331		$	15,773		$	17,839
Commercial nonaccrual loans, restructured		8,243			7,489			11,042
Non-commercial nonaccrual loans		8,195			9,569			10,075
Non-commercial nonaccrual loans, restructured		2,616			283			308
Total nonaccrual loans		29,385			33,114			39,264
Troubled debt restructured loans, accruing		5,230			7,406			8,351
Loans 90 days or more past due and still accruing		65			14			65
Total nonperforming loans		34,680			40,534			47,680
Real estate acquired in settlement of loans		24,491			30,587			25,729
Total nonperforming assets	$	59,171		$	71,121		$	73,409
Asset Quality Percentages:
Nonperforming loans to total loans outstanding at end of period		2.98	%		3.38	%		3.83	%
Nonperforming assets to total assets at end of period		3.38	%		4.10	%		4.22	%
Allowance for credit losses as a percentage of total loans outstanding at end of period		2.17	%		2.40	%		2.25	%
Allowance for credit losses to nonperforming loans		72.75	%		71.16	%		58.81	%
Net chargeoffs as a percentage of average loans outstanding during the period (annualized for interim periods)		1.60	%		1.32	%		1.50	%

36

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 six months of 2012, the Company had net cash provided by operating activities of $14.8 million, compared to $94.1 million of net cash provided by operating activities in the first six 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 half of 2011, while no securities were sold during the first half of 2012.

Net cash used by investing activities for the first six months of 2012 was $13.4 million, compared to net cash provided by investing activities in the first six months of 2011 of $32.3 million. This change is primarily attributable to purchases of securities available for sale of $107.2 million during the first half of 2012, compared to $27.4 million in purchases during the same period last year. Proceeds from securities sales, maturities and calls were $65.3 million during the first half of 2012, compared to $58.6 million during the first half of 2011. During the first six months of 2012, there was a decrease in loans of $22.1 million compared to an increase in loans of $3.1 million during the same period last year.

During the six months ended June 30, 2012, financing activities provided $6.6 million, compared to net cash used by financing activities of $74.7 million during the same period of 2011. The change was primarily the result of an increase in time deposits of $12.8 million during the first half of 2012, compared to a decrease of $59.7 million for these deposits during the first half of 2011.

Cash and cash equivalents totaled $61.9 million at June 30, 2012, compared to $54.0 million at December 31, 2011 and $80.8 million at June 30, 2011.

The Company has borrowing capacity of approximately $265.0 million with the FHLB, of which approximately $151.0 million was available at June 30, 2012. These borrowings are collateralized by FHLB stock, investment securities, qualifying 1 to 4 family residential mortgage loans, and qualifying commercial real estate loans. The Bank provides various reports to the FHLB on a regular basis to maintain the availability of the credit line. Each borrowing request to the FHLB is initiated through an advance application that is subject to approval by the FHLB before funds are advanced under the line of credit. The Bank also has $15.5 million of borrowing capacity through the Federal Reserve Bank System, of which none was used as of June 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 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.

37

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 March 31, 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		.25	%		(.78	)%
Base case – no change		—			(1.50	)%
100 basis point ramped decrease		.21	%		(3.40	)%

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 two 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 June 30, 2012.

38

	Regulatory Capital
	Well Capitalized			Adequately Capitalized			Company			Bank
Total Capital		10.0	%		8.0	%		14.73	%		14.52	%
Tier 1 Capital		6.0			4.0			13.45			13.24
Leverage Capital		5.0			4.0			10.65			10.49

The Company holds $3.2 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 14.52%.

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 37.

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 June 30, 2012. Based upon that evaluation, the Company’s CEO, CFO and CAO each concluded that as of June 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 June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

39

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).
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).*

40

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).*

41

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	Form of Employment Agreement Amendment, dated December 12, 2008 among Bancorp, the Bank and the senior executive officers of Bancorp, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).*
10.25	Promissory Note by Ramsey K. Hamadi in favor of the Bank incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed with the SEC on April 21, 2009 (SE File No. 000-11448).*
10.26	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)
10.27	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).*
10.28	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).*

42

10.29	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).*
10.30	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).*
10.31	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).*
10.32	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).*
10.33	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.*
10.34	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.*
10.35	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.*
10.36	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.*
10.37	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.*
10.38	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.*
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.

43

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: August 8, 2012	NEWBRIDGE BANCORP
	(Registrant)
	By:	/s/ Ramsey K. Hamadi
	Name: Ramsey K. Hamadi
	Title: Senior Executive Vice President and Chief Financial Officer (Authorized Officer)

44

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.

45