UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2012.

~~For the quarterly period ended September 30, 2011.~~

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____ to ____.

Commission File Number: 000-17007

Republic First Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania		23-2486815
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

50 South 16th Street, Philadelphia, Pennsylvania		19102
(Address of principal executive offices)		(Zip code)

215-735-4422

Registrant’s telephone number, including area code

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ~~[X ]~~[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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [ ]
Non-Accelerated filer [ ] (Do not check if a smaller reporting company)	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]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 per share		25,972,897
Title of Class		Number of Shares Outstanding as of ~~November 10, 2011~~May 11, 2012

REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

Part I: Financial Information		Page

Item 1.	Financial Statements
	Consolidated balance sheets as of ~~September 30, 2011~~March 31, 2012 (unaudited) and December 31, ~~2010~~2011	1
	Consolidated statements of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ (unaudited)	2
	Consolidated statements of comprehensive income (loss) for the three months ended March 31, 2012 and 2011 (unaudited)	3
	Consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ (unaudited)	34
	Consolidated statements of changes in shareholders’ equity for the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ (unaudited)	45
	Notes to consolidated financial statements (unaudited)	56

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2829

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46

Item 4.	Controls and Procedures	46

Part II: Other Information

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	~~(Removed and Reserved)~~Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	48

Signatures		49

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011

(Dollars in thousands, except per share data)

~~(unaudited)~~


	September 30,			December 31,			March 31, 2012			December 31, 2011
	2011			2010			(unaudited)
ASSETS
Cash and due from banks	$	12,832		$	6,146		$	8,627		$	13,221
Interest bearing deposits with banks		76,286			29,620			109,604			217,734
Federal funds sold		2,088			99
Cash and cash equivalents		91,206			35,865			118,231			230,955

Investment securities available for sale, at fair value		154,259			143,439			182,805			174,323
Investment securities held to maturity, at amortized cost (fair value of $145 and $157, respectively)		139			147
Investment securities held to maturity, at amortized cost (fair value of $143 and $144, respectively)								140			140
Restricted stock, at cost		5,594			6,501			5,062			5,321
Loans held for sale		1,390			—			1,875			925
Loans receivable (net of allowance for loan losses of $12,380 and $11,444, respectively)		621,256			608,911
Loans receivable (net of allowance for loan losses of $10,756 and $12,050, respectively)								592,506			577,442
Premises and equipment, net		23,906			25,496			23,131			23,507
Other real estate owned, net		13,988			15,237			6,135			6,479
Accrued interest receivable		3,101			3,119			3,033			3,003
Bank owned life insurance		12,661			12,555			10,436			10,417
Other assets		25,301			24,827			14,934			14,841
Total Assets	$	952,801		$	876,097		$	958,288		$	1,047,353



LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Demand – non-interest bearing	$	126,310		$	128,578		$	128,935		$	226,287
Demand – interest bearing		98,293			66,283			103,385			109,242
Money market and savings		371,293			329,742			447,974			400,141
Time Deposits		237,393			233,127			177,080			216,941
Total Deposits		833,289			757,730			857,374			952,611
Short-term borrowings								4,516			-
Accrued interest payable		1,238			953			960			1,049
Other liabilities		7,494			6,792			6,559			6,366
Subordinated debt		22,476			22,476			22,476			22,476
Total Liabilities		864,497			787,951			891,885			982,502

Shareholders’ Equity
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized; no shares issued as of September 30, 2011 and December 31, 2010		—			—
Common stock, par value $0.01 per share: 50,000,000 shares authorized; shares issued 26,501,742 as of September 30, 2011 and December 31, 2010		265			265
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized; no shares issued as of March 31, 2012 and December 31, 2011								-			-
Common stock, par value $0.01 per share: 50,000,000 shares authorized; shares issued 26,501,742 as of March 31, 2012 and December 31, 2011								265			265
Additional paid in capital		106,277			106,024			106,472			106,383
Accumulated deficit		(14,764	)		(13,140	)		(36,537	)		(37,842	)
Treasury stock at cost (416,303 shares)		(3,099	)		(3,099	)		(3,099	)		(3,099	)
Stock held by deferred compensation plan		(809	)		(809	)		(809	)		(809	)
Accumulated other comprehensive income (loss)		434			(1,095	)		111			(47	)
Total Shareholders’ Equity		88,304			88,146			66,403			64,851
Total Liabilities and Shareholders’ Equity	$	952,801		$	876,097		$	958,288		$	1,047,353

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~

(Dollars in thousands, except per share data)

(unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,			September 30,			September 30,			September 30,			Three Months Ended March 31,
	2011			2010			2011			2010			2012			2011
Interest income:
Interest and fees on taxable loans	$	8,408		$	8,766		$	24,857		$	26,200		$	8,020		$	8,143
Interest and fees on tax-exempt loans		78			-			227			-			70			68
Interest and dividends on taxable investment securities		1,092			1,390			3,210			4,367			1,269			996
Interest and dividends on tax-exempt investment securities		114			111			341			333			116			113
Interest on federal funds sold and other interest-earning assets		34			4			82			40			101			14
Total interest income		9,726			10,271			28,717			30,940			9,576			9,334
Interest expense:
Demand- interest bearing		159			119			425			326			171			98
Money market and savings		868			839			2,527			2,801			863			799
Time deposits		781			1,099			2,327			3,743			581			721
Other borrowings		279			293			853			1,229			285			296
Total interest expense		2,087			2,350			6,132			8,099			1,900			1,914
Net interest income		7,639			7,921			22,585			22,841			7,676			7,420
Provision for loan losses		616			700			5,666			16,950
Net interest income after provision for loan losses		7,023			7,221			16,919			5,891
Provision (credit) for loan losses														(750	)		3,550
Net interest income after provision (credit) for loan losses														8,426			3,870
Non-interest income:
Loan advisory and servicing fees		137			146			293			299			211			37
Gain on sales of SBA loans		1,983			-			4,337			-			1,086			697
Service fees on deposit accounts		216			296			586			829			210			169
Gain on sale of investment securities		640			-			640			-
Other-than-temporary impairment losses		(45	)		155			(49	)		(673	)		(17	)		-
Portion recognized in other comprehensive income (before taxes)		5			(155	)		7			301
Net impairment loss on investment securities		(40	)		-			(42	)		(372	)
Gain on sale of other real estate owned		-			-			-			246
Bank owned life insurance income		40			44			106			146			19			31
Other non-interest income		979			35			1,238			102			137			193
Total non-interest income		3,955			521			7,158			1,250			1,646			1,127
Non-interest expenses:
Salaries and employee benefits		4,135			3,192			11,280			9,110			4,134			3,338
Occupancy		850			751			2,494			3,247			844			855
Depreciation and amortization		527			529			1,588			1,497			518			528
Legal		400			476			1,274			1,429			889			295
Other real estate owned		315			165			1,739			1,117			98			1,359
Advertising		70			104			260			199			50			105
Data processing		347			196			865			649			264			247
Insurance		200			209			637			744			134			217
Professional fees		383			477			1,271			1,367			293			434
Regulatory assessments and costs		507			530			1,550			1,603			338			483
Taxes, other		261			238			706			681			260			213
Other operating expenses		1,110			851			3,444			2,433			1,014			918
Total non-interest expense		9,105			7,718			27,108			24,076			8,836			8,992
Income (loss) before provision (benefit) for income taxes		1,873			24			(3,031	)		(16,935	)
Provision (benefit) for income taxes		509			(44	)		(1,407	)		(6,086	)
Income (loss) before benefit for income taxes														1,236			(3,995	)
Benefit for income taxes														(69	)		(1,487	)
Net income (loss)	$	1,364		$	68		$	(1,624	)	$	(10,849	)	$	1,305		$	(2,508	)
Net income (loss) per share:
Basic	$	0.05		$	-		$	(0.06	)	$	(0.67	)	$	0.05		$	(0.10	)
Diluted	$	0.05		$	-		$	(0.06	)	$	(0.67	)	$	0.05		$	(0.10	)

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of ~~Cash Flows~~Comprehensive Income (Loss)

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~

(Dollars in thousands)

(unaudited)

Nine Months Ended
September 30,

2011 2010
Cash flows from operating activities:
Net loss $ (1,624 ) $ (10,849 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses 5,666 16,950
Writedown of other real estate owned 1,252 885
Gain on sale of other real estate owned - (246 )
Depreciation and amortization 1,588 1,497
Share based compensation 253 198
Gain on sale of investment securities (640 ) -
Impairment charges on investment securities 42 372
Amortization of premiums/(discounts) on investment securities 45 43
Proceeds from sales of SBA loans 47,046 -
SBA loans originated for sale (44,099 ) -
Gains on sales of SBA loans originated for sale (4,337 ) -
Increase in value of bank owned life insurance (106 ) (146 )
Increase in accrued interest receivable and other assets (831 ) (2,248 )
Increase in accrued interest payable and other liabilities 987 878
Net cash provided by operating activities 5,242 7,334

Cash flows from investing activities:
Purchase of investment securities available for sale (55,466 ) -
Proceeds from the maturity or call of securities available for sale 47,569 38,159
Proceeds from the maturity or call of securities held to maturity 8 8
Proceeds from redemption of FHLB stock 907 -
Net (increase) decrease in loans (19,024 ) 38,293
Net proceeds from sale of other real estate owned 1,010 2,988
Premises and equipment expenditures (464 ) (2,543 )
Net cash (used in) provided by investing activities (25,460 ) 76,905

Cash flows from financing activities:
Net proceeds from stock offering - 28,812
Net stock purchases for deferred compensation plans - (100 )
Net increase in demand, money market and savings deposits 71,293 3,850
Net increase (decrease) in time deposits 4,266 (61,610 )
Net decrease in other borrowings - (25,000 )
Net cash provided by (used in) financing activities 75,559 (54,048 )

Net increase in cash and cash equivalents 55,341 30,191
Cash and cash equivalents, beginning of year 35,865 55,618
Cash and cash equivalents, end of year $ 91,206 $ 85,809

Supplemental disclosures:
Interest paid $ 5,847 $ 7,895
Non-cash transfers from loans to other real estate owned 1,013 663

	Three Months Ended March 31,
	2012		2011
Net income (loss)	$	1,305	$	(2,508	)

Other comprehensive income, net of tax
Unrealized gain on securities (pre-tax $230 and $1,030, respectively)		147		660
Reclassification adjustment for impairment charge (pre-tax $17 and $0, respectively)		11		-

Total other comprehensive income		158		660

Total comprehensive income (loss)	$	1,463	$	(1,848	)

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of ~~Changes in Shareholders’ Equity~~Cash Flows

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~

(Dollars in ~~thousands, except per share data)~~thousands)

(unaudited)

��

Common
Stock

Additional
Paid in
Capital
Accumulated Deficit
Treasury
Stock
Stock Held by Deferred Compensation Plan
Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity

BALANCE, JANUARY 1, 2011 $ 265 $ 106,024 $ (13,140 ) $ (3,099 ) $ (809 ) $ (1,095 ) $ 88,146
Net loss (1,624 ) (1,624 )
Other comprehensive gain, net of tax:
Unrealized gain on securities (pre-tax $2,343) 1,502 1,502
Reclassification adjustment for impairment charge (pre-tax $42) 27 27
1,529
Total comprehensive loss (95 )
Stock based compensation 253 253
BALANCE, SEPTEMBER 30, 2011 $ 265 $ 106,277 $ (14,764 ) $ (3,099 ) $ (809 ) $ 434 $ 88,304

	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	1,305		$	(2,508	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Credit) provision for loan losses		(750	)		3,550
Writedown of other real estate owned		10			1,099
Depreciation and amortization		518			528
Share based compensation		89			86
Impairment charges on investment securities		17			-
Amortization of premiums/(discounts) on investment securities		67			45
Proceeds from sales of SBA loans		11,408			8,225
SBA loans originated for sale		(11,272	)		(13,684	)
Gains on sales of SBA loans originated for sale		(1,086	)		(697	)
Increase in value of bank owned life insurance		(19	)		(31	)
Increase in accrued interest receivable and other assets		(206	)		(693	)
Increase (decrease) in accrued interest payable and other liabilities		104			(135	)
Net cash provided by (used in) operating activities		185			(4,215	)

Cash flows from investing activities:
Purchase of investment securities available for sale		(14,775	)		-
Proceeds from the maturity or call of securities available for sale		6,450			4,785
Proceeds from redemption of FHLB stock		259			318
Net increase in loans		(14,314	)		(10,999	)
Net proceeds from sale of other real estate owned		334			61
Premises and equipment expenditures		(142	)		(121	)
Net cash used in investing activities		(22,188	)		(5,956	)

Cash flows from financing activities:
Net decrease in demand, money market and savings deposits		(55,376	)		(36,575	)
Net (decrease) increase in time deposits		(39,861	)		39,922
Net increase in short-term borrowings		4,516			-
Net cash (used in) provided by financing activities		(90,721	)		3,347

Net decrease in cash and cash equivalents		(112,724	)		(6,824	)
Cash and cash equivalents, beginning of year		230,955			35,865
Cash and cash equivalents, end of period	$	118,231		$	29,041

Supplemental disclosures:
Interest paid	$	1,989		$	1,770

Common
Stock

Additional
Paid in
Capital

Accumulated Deficit

Treasury
Stock

Stock Held by Deferred Compensation Plan

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity

BALANCE, JANUARY 1, 2010 $ 111 $ 77,086 $ (2,450 ) $ (3,099 ) $ (709 ) $ (675 ) $ 70,264
Net loss (10,849 ) (10,849 )
Other comprehensive gain, net of tax:
Unrealized gain on securities (pre-tax $2,493) 1,598 1,598
Reclassification adjustment for impairment charge (pre-tax $372) 238 238
1,836
Total comprehensive loss (9,013 )
Shares issued under common stock offering (15,412,350 shares) 154 28,658 28,812
Stock based compensation - 198 198
Stock purchases for deferred compensation plan (24,489 shares) (100 ) (100 )
BALANCE, SEPTEMBER 30, 2010 $ 265 $ 105,942 $ (13,299 ) $ (3,099 ) $ (809 ) $ 1,161 $ 90,161

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2012 and 2011

(Dollars in thousands)

(unaudited)

	Common Stock		Additional Paid in Capital		Accumulated Deficit			Treasury Stock			Stock Held by Deferred Compensation Plan			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance January 1, 2012	$	265	$	106,383	$	(37,842	)	$	(3,099	)	$	(809	)	$	(47	)	$	64,851

Net income						1,305												1,305
Other comprehensive income															158			158
Total comprehensive income						1,305									158			1,463
Stock based compensation				89														89
Balance March 31, 2012	$	265	$	106,472	$	(36,537	)	$	(3,099	)	$	(809	)	$	111		$	66,403


Balance January 1, 2011	$	265	$	106,024	$	(13,140	)	$	(3,099	)	$	(809	)	$	(1,095	)	$	88,146

Net loss						(2,508	)											(2,508	)
Other comprehensive income															660			660
Total comprehensive loss						(2,508	)								660			(1,848	)
Stock based compensation				86														86
Balance March 31, 2011	$	265	$	106,110	$	(15,648	)	$	(3,099	)	$	(809	)	$	(435	)	$	86,384

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

1. Note 1: Basis of Presentation

Republic First Bancorp, Inc. (the “Company”) is a corporation incorporated under the laws of the Commonwealth of Pennsylvania and a registered bank holding company. The Company offers a variety of retail and commercial banking services to individuals and businesses throughout the Greater Philadelphia and Southern New Jersey area through its wholly-owned subsidiary, Republic First Bank (“Republic” or “the Bank”) which does business under the name Republic Bank. The Company also has three unconsolidated subsidiaries, which are statutory trusts established by the Company in connection with its sponsorship of three separate issuances of trust preferred securities.

The Company and Republic encounter vigorous competition for market share in the geographic areas they serve from bank holding companies, national, regional and other community banks, thrift institutions, credit unions and other non-bank financial organizations, such as mutual fund companies, insurance companies and brokerage companies.

The Company and Republic are subject to regulations of certain state and federal agencies. These regulatory agencies periodically examine the Company and Republic for adherence to laws and regulations. As a consequence, the cost of doing business may be affected.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Republic. The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB sets accounting principles generally accepted in the United States of America (“U.S. GAAP”) that are followed to ensure consistent reporting of financial condition, results of operations, and cash flows.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to United States Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for financial statements for a complete fiscal year. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2011~~March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2011.~~2012. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. The Company has evaluated subsequent events through the date of issuance of the financial data included herein.

Note 2: Summary of Significant Accounting Policies

Risks and Uncertainties

The earnings of the Company depend primarily on the earnings of Republic. The earnings of Republic are dependent primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the Company’s results of operations are subject to risks and uncertainties surrounding Republic’s exposure to changes in the interest rate environment.

Prepayments on residential real estate mortgage and other fixed rate loans and mortgage-backed securities vary significantly, and may cause significant fluctuations in interest margins.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned, assessment of other than temporary impairment (“OTTI”) of investment securities, impairment of restricted stock and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.

In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows, and other relevant factors. Because the allowance for loan losses and carrying value of other real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the Company’s and Republic’s control, the estimates of the allowance for loan losses and the carrying values of other real estate owned could differ materially in the near term.

In estimating OTTI of investment securities, securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other than temporary. To determine whether a loss in value is other than temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

In estimating impairment of restricted stock, management’s determination of whether these investments are impaired is based on the assessment of the ultimate recoverability of the cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the cost is influenced by criteria such as (1) the significance of the decline in net assets of the Federal Home Loan Bank of Pittsburgh (“FHLB”) and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and accordingly, on the customer base of the FHLB.

In evaluating the Company’s ability to recover deferred tax assets, management considers all available positive and negative evidence, including the Company’s past operating results and the Company’s forecast of future taxable income. In determining future taxable income, management makes assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require management to make judgments about the Company’s future taxable income and are consistent with the plans and estimates management uses to manage the Company’s business. Any reduction in estimated future taxable income may require the Company to record a valuation allowance against its deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on the Company’s future earnings.

The Division of Corporate Finance at the U.S. Securities and Exchange Commission (“SEC”) selectively reviews filings made under the Securities Act of 1933 and the Securities Exchange Act of 1934 to monitor and enhance compliance with applicable accounting and disclosure requirements. As a result of this process the Company has received a comment letter from the SEC questioning the realizability of its deferred tax asset and the lack of a related valuation reserve. The Company has asked the SEC to reconsider its view related to the deferred tax asset and at this time the matter remains unresolved.

Stock-Based Compensation

The Company ~~maintains the Amendment and Restatement No. 3 of the~~has a Stock Option ~~Plan~~ and Restricted Stock Plan ~~of Republic First Bancorp, Inc.~~ (“Plan”), under which the Company may grant options, restricted stock or stock appreciation rights to the Company’s employees, directors, and certain consultants. Under the terms of the Plan, 1.5 million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that may be available for grant under the Plan to 1.5 million shares, are available for such grants. As of ~~September 30, 2011,~~March 31, 2012, the only grants under the Plan have been option grants. The Plan provides that the exercise price of each option granted equals the market price of the Company’s stock on the date of the grant. Any option granted vests within one to five years and has a maximum term of ten years.

~~The Company utilizes a~~A summary of the assumptions used in the Black-Scholes option pricing model ~~to determine the fair market value of stock options. In~~for 2012 and 2011 the following assumptions were utilized: a dividend yield of 0%; expected volatility of 49.11%; a risk-free interest rate of 2.84%; and an expected life of 7.0 years. In 2010, the following assumptions were utilized: a dividend yield of 0%; expected volatility of 33.67% to 37.37%; a risk-free interest rate of 2.06% to 3.46%; and an expected life of 7.0 years. are as follows:

	2012			2011
Dividend yield(1)		0.0	%		0.0	%
Expected volatility(2)		53.12	%		49.11	%
Risk-free interest rate(3)		1.36	%		2.84	%
Expected life(4)	7.0 years			7.0 years

(1) A dividend yield of 0%0.0% is utilized because cash dividends have never been paid.

(2) Expected volatility is based on Bloomberg’s seven year volatility calculation for “FRBK” stock.

(3) The risk-free interest rate is based on the seven year Treasury bond.

(4) The expected life reflects ~~a combination of~~ a 3 to 4 year “all or nothing” vesting period, the maximum ~~ten-year~~ten year term and review of historical behavior. ~~The volatility was based on Bloomberg’s seven-year volatility calculation for “FRBK” stock. The risk-free interest rate is based on the seven year Treasury bond.~~

During the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, 21,000 shares and 53,500 ~~options vested. No options~~shares vested, ~~during the nine months ended September 30, 2010.~~respectively. Expense is recognized ratably over the period required to vest. ~~There were 445,350 unvested options at January 1, 2011 with a fair value of $1,158,861 with $531,757 of that amount remaining to be recognized as expense.~~ At ~~September 30, 2011, there were 550,350 unvested options with a fair value of $1,231,597 with $554,517 of that amount remaining to be recognized as expense. At that date,~~March 31, 2012 the intrinsic value of the ~~785,893~~1,001,526 options outstanding was ~~$0,~~$139,213, while the intrinsic value of the ~~235,543~~145,926 exercisable (vested) options was $0.

~~Compensation expense of $85,000 and $253,000 was recognized during~~Information regarding stock based compensation for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011 respectively. Compensation expense of $78,000 and $198,000 was recognized during the three and nine months ended September 30, 2010, respectively. For each of these periods, a 35% assumed tax benefit for the Plan was utilized in making the calculations.is set forth below:

	2012		2011
Stock based compensation expense recognized	$	89,000	$	86,000
Number of unvested stock options		855,600		562,950
Fair value of unvested stock options	$	1,555,074	$	1,235,096
Amount remaining to be recognized as expense	$	734,256	$	724,281

Earnings per Share

Earnings per share (“EPS”) consists of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of dilutive stock options granted through the Company’s Plan and convertible securities related to the trust preferred securities issued in 2008. In the diluted EPS computation, the after tax interest expense on the trust preferred securities issuance is added back to the net income. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ the effect of CSEs and the related add back of after tax interest expense was considered anti-dilutive and therefore was not included in the EPS calculation.

The calculation of EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ is as follows ~~(in~~(dollars in thousands, except per share amounts):

	Three Months Ended March 31,
	2012		2011
Net income (loss)	$	1,305	$	(2,508	)

Weighted average shares outstanding		25,973		25,973

Net income (loss) per share – basic and diluted	$	0.05	$	(0.10	)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2011 2010 2011 2010
Basic and diluted earnings per share:

Net income/(loss)
$ 1,364 $ 68 $ (1,624 ) $ (10,849 )

Weighted average shares outstanding 25,871 25,871 25,871 16,109

Net income (loss) per share – basic and diluted $ 0.05 $ - $ (0.06 ) $ (0.67 )

Recent Accounting Pronouncements

ASU 2011-12

In December 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. In response to stakeholder concerns regarding the operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration. The requirement in ASU 2011-05, Presentation of Comprehensive Income, for the presentation of a combined statement of comprehensive income or separate, but consecutive, statements of net income and other comprehensive income is still effective for fiscal years and interim periods beginning after December 15, 2011 for public companies, and fiscal years ending after December 15, 2011 for nonpublic companies. The adoption of this guidance did not have a material effect on its consolidated financial statements.

ASU 2011-05

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which amends FASB ASC Topic 220, Comprehensive Income. The FASB has issued this ASU to facilitate the continued alignment of U.S. GAAP with International Accounting Standards.

The Update prohibits the presentation of the components of comprehensive income in the statement of stockholders’ equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate statements of net income and other comprehensive income. Under previous GAAP, all three presentations were acceptable. Regardless of the presentation selected, the Company is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements.

The ~~effective date of ASU 2011-05 differs for public and nonpublic companies. For public companies, the~~ Update is effective for fiscal years and interim periods beginning after December 31, 2011. ~~For nonpublic entities, the provisions are effective for fiscal years ending after December 31, 2012, and for interim and annual periods thereafter. Early adoption is permitted.~~ The ~~Company does not expect the~~ adoption of this guidance todid not have a material effect on its consolidated financial ~~statements.~~

statements but expanded related disclosures.

ASU 2011-04

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The FASB has issued this ASU to amend ASC Topic 820, Fair Value Measurements, in order to bring U.S. GAAP for fair value measurements in line with International Accounting Standards.

The Update clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholders’ equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets.

The Update also creates an exception to Topic 820 for entities, which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The Update also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy.

Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes.

The ~~effective date of ASU 2011-04 differs for public and nonpublic companies. For public companies, the~~ Update is effective for interim and annual periods beginning after December 15, 2011. ~~For nonpublic entities, the Update is effective for annual periods beginning after December 15, 2011. Early adoption is not permitted.~~ The ~~Company does not expect the~~ adoption of this guidance todid not have a material effect on its consolidated financial ~~statements.~~statements but expanded disclosures surrounding fair value.

~~ASU 2011-02~~

~~In April 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-02,~~ ~~Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.~~ ~~The FASB has issued this ASU to clarify the accounting principles applied to loan modifications, as defined by FASB~~ ~~ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors~~.

The ASU clarifies guidance on a creditor’s evaluation of whether or not a concession has been granted, with an emphasis on evaluating all aspects of the modification rather than focus on specific criteria, such as the effective interest rate test, to determine a concession. The ASU goes on to provide guidance on specific types of modifications such as changes in the interest rate of the borrowing, and insignificant delays in payments, as well as guidance on the creditor’s evaluation of whether or not a debtor is experiencing financial difficulties.

The effective date of ASU 2011-02 differs for public and nonpublic companies. For public companies, the amendments in the ASU are effective for the first interim or annual periods beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.

Note 3: Legal Proceedings

The Company and Republic are from time to time parties (plaintiff or defendant) to lawsuits in the normal course of business. While any litigation involves an element of uncertainty, management, after reviewing pending actions with its legal counsel, is of the opinion that the liability of the Company and Republic, if any, resulting from such actions will not have a material effect on the financial condition or results of operations of the Company and Republic.

Note 4: Segment Reporting

The Company has one reportable segment: community banking. The community bank segment primarily encompasses the commercial loan and deposit activities of Republic, as well as, consumer loan products in the area surrounding its branches.

~~Note 5: Comprehensive Income / (Loss)~~

Total comprehensive income (loss), which for the Company included net income (loss) and changes in unrealized gains and losses on the Company’s available for sale securities, was $1.1 million and $610,000 for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, total comprehensive loss was $95,000 and $9.0 million, respectively.

Note 6:5: Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 is as follows:

September 30, 2011
Investment Securities Available for Sale

(Dollars in thousands)
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses
Fair
Value

Mortgage-backed securities/CMOs $ 113,287 $ 3,848 $ - $ 117,135
Municipal securities 10,794 362 (473 ) 10,683
Corporate bonds 22,995 - (110 ) 22,885
Pooled Trust Preferred Securities 6,375 - (2,954 ) 3,421
Other securities 131 4 135
Total $ 153,582 $ 4,214 $ (3,537 ) $ 154,259

	At March 31, 2012
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities/CMOs	$	138,325	$	3,644	$	(134	)	$	141,835
Municipal securities		10,934		521		(256	)		11,199
Corporate bonds		26,883		7		(652	)		26,238
Trust Preferred Securities		6,358		-		(2,959	)		3,399
Other securities		131		3		-			134
Total securities available for sale	$	182,631	$	4,175	$	(4,001	)	$	182,805

U.S. Government agencies	$	2	$	-	$	-		$	2
Other securities		138		3		-			141
Total securities held to maturity	$	140	$	3	$	-		$	143

	September 30, 2011								At December 31, 2011
(dollars in thousands)									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities/CMOs									$	130,146	$	3,981	$	-		$	134,127
Municipal securities										10,863		494		(323	)		11,034
Corporate bonds										26,881		17		(1,281	)		25,617
Trust Preferred Securities										6,375		-		(2,965	)		3,410
Other securities										131		4		-			135
Total securities available for sale									$	174,396	$	4,496	$	(4,569	)	$	174,323
	Investment Securities Held to Maturity
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies	$	2	$	-	$	-	$	2	$	2	$	-	$	-		$	2
Other securities		137		6		-		143		138		4		-			142
Total	$	139	$	6	$	-	$	145

Total securities held to maturity									$	140	$	4	$	-		$	144

December 31, 2010
Investment Securities Available for Sale

(Dollars in thousands)
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses
Fair
Value

Mortgage-backed securities/CMOs $ 125,011 $ 2,784 $ (133 ) $ 127,662
Municipal securities 10,589 36 (1,415 ) 9,210
Corporate bonds 3,000 - - 3,000
Pooled Trust Preferred Securities 6,417 - (2,967 ) 3,450
Other securities 131 2 (16 ) 117
Total $ 145,148 $ 2,822 $ (4,531 ) $ 143,439

December 31, 2010
Investment Securities Held to Maturity

(Dollars in thousands)
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses
Fair
Value

U.S. Government agencies $ 2 $ - $ - $ 2
Other securities 145 10 - 155
Total $ 147 $ 10 $ - $ 157

The maturity distribution of the amortized cost and estimated market value of investment securities by contractual maturity at ~~September 30, 2011~~March 31, 2012 is as follows:

	September 30, 2011								Available for Sale				Held to Maturity
	Available for Sale				Held to Maturity
(Dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
(dollars in thousands)									Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	8	$	8	$	75	$	77	$	99	$	112	$	75	$	75
After 1 year to 5 years		86,377		88,669		44		48		104,454		106,991		45		48
After 5 years to 10 years		54,502		52,708		-		-		63,763		61,025		-		-
After 10 years		12,695		12,874		-		-		14,315		14,677		-		-
No stated maturity		-		-		20		20		-		-		20		20
Total	$	153,582	$	154,259	$	139	$	145	$	182,631	$	182,805	$	140	$	143

Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

As of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, the ~~mortgage-backed~~mortgage backed securities and collateralized mortgage obligations included in the investment securities portfolio consist solely of securities issued by U.S. government sponsored agencies. There were no private label ~~mortgage-backed~~mortgage securities held in the investment securities portfolio as of those dates. The Company ~~does~~did not hold any mortgage-backed securities that ~~are~~were rated “Alt-A” or “Subprime” as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011. In addition, the Company ~~does~~did not hold any ~~privately~~private issued CMO’s as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011.

In instances when a determination is made that an ~~OTTI~~other-than-temporary impairment exists with respect to a debt security but the investor does not intend to sell the debt security and it is more likely than not that the investor will not be required to sell the debt security prior to its anticipated recovery, FASB Accounting Standards Codification (“ASC”) 320-10,, Investments – Debt and Equity Securities,~~, changes~~ requires the ~~presentation and amount of the OTTI recognized in the income statement. The OTTI is~~other-than-temporary impairment to be separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total ~~OTTI~~other-than-temporary impairment related to all other factors. The amount of the total ~~OTTI~~other-than-temporary impairment related to other factors is recognized in other comprehensive income. ~~In accordance with the updated guidance under ASC 320-10, the Company recorded impairment~~Impairment charges (credit losses) on ~~bank pooled~~ trust preferred securities for the three ~~and nine~~ months ended ~~September 30, 2011 of $40,000~~March 31, 2012 and $42,000, respectively, which was due to the default of a bank in one of the securities. The Company realized gross losses due to impairment charges on pooled trust preferred securities of $0 and $372,000 for the three and nine months ended September 30, 2010, respectively.

~~The Company realized gross gains on the sale of securities of $640,000 during the three and nine months ended September 30, 2011. The tax provision applicable to these gross gains in~~ 2011 amounted to ~~approximately $225,000. No securities were sold during the three~~$17,000 and ~~nine months ended September 30, 2010.~~$0 respectively.

The following table ~~shows~~presents a roll-forward of the balance of credit-related impairment losses on securities held at March 31, 2012 and 2011 for which a portion of OTTI was recognized in other comprehensive income:

(dollars in thousands)	2012		2011

Beginning Balance, January 1st	$	3,925	$	3,883
Additional credit-related impairment loss on securities for which an
other-than-temporary impairment was previously recognized		17		-
Reductions for securities sold during the period (realized)		-		-
Reductions for securities for which the amount previously recognized in other		-		-
comprehensive income was recognized in earnings because the Company
intends to sell the security		-		-
Ending Balance, March 31,	$	3,942	$	3,883

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	At September 30, 2011												At March 31, 2012
	Less than 12 months				12 months or longer				Total				Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(dollars in thousands)													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities/CMOs	$	-	$	-	$	30	$	-	$	30	$	-	$	16,344	$	134	$	9	$	-	$	16,353	$	134
Municipal securities		-		-		4,147		473		4,147		473		-		-		4,606		256		4,606		256
Corporate bonds		14,885		110		-		-		14,885		110		23,231		652		-		-		23,231		652
Trust Preferred Securities		-		-		3,431		2,954		3,431		2,954		-		-		3,399		2,959		3,399		2,959
Other securities														75		-		-		-		75		-
Total	$	14,885	$	110	$	7,608	$	3,427	$	22,493	$	3,537	$	39,650	$	786	$	8,014	$	3,215	$	47,664	$	4,001

	At December 31, 2011
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities/CMOs	$	-	$	-	$	9	$	-	$	9	$	-
Municipal securities		-		-		4,490		323		4,490		323
Corporate bonds		18,714		1,281		-		-		18,714		1,281
Trust Preferred Securities		-		-		3,410		2,965		3,410		2,965
Other securities		-		-		-		-		-		-
Total	$	18,714	$	1,281	$	7,909	$	3,288	$	26,623	$	4,569

At December 31, 2010
Less than 12 months 12 months or longer Total

(Dollars in thousands)

Fair
Value
Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Mortgage-backed securities/CMOs $ 17,599 $ 133 $ 31 $ - $ 17,630 $ 133
Municipal securities 5,288 398 3,599 1,017 8,887 1,415
Trust Preferred Securities - - 3,450 2,967 3,450 2,967
Other securities - - 74 16 74 16
Total $ 22,887 $ 531 $ 7,154 $ 4,000 $ 30,041 $ 4,531

The impairment of the investment portfolio totaled ~~$3.5~~$4.0 million with a total fair value of ~~$22.5~~$47.7 million at ~~September 30, 2011.~~March 31, 2012. The unrealized loss ~~for~~associated with the ~~Bank’s pooled~~ trust preferred securities was due to the secondary market for such securities becoming inactive and is considered temporary at ~~September 30, 2011.~~March 31, 2012.

The unrealized loss on the remaining securities is due to changes in market value resulting from changes in market interest rates and is also considered temporary. At ~~September 30, 2011,~~March 31, 2012, the investment portfolio included twenty-five municipal securities with a total market value of ~~$10.7~~$11.2 million. These securities are reviewed quarterly for impairment. Research on each issuer is completed to ensure the financial stability of the municipal entity. The largest geographic concentration was in ~~the state of~~ California where thirteen municipal securities had a market value of ~~$5.3~~$5.6 million. As of ~~September 30, 2011,~~March 31, 2012, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio.

Note 7:6: Loans Receivable and Allowance for Loan Losses

The following table sets forth the Company’s gross loans by major categories as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010:~~2011:

(Dollars in thousands)

September 30,
2011

December 31,
2010

Commercial real estate $ 393,652 $ 374,935
Construction and land development 52,681 73,795
Commercial and industrial 79,162 78,428
Owner occupied real estate 88,677 70,833
Consumer and other 16,636 17,808
Residential mortgage 3,175 5,026
Total loans receivable 633,983 620,825

Deferred costs (fees) (347 ) (470 )
Allowance for loan losses (12,380 ) (11,444 )
Net loans receivable $ 621,256 $ 608,911

(dollars in thousands)	March 31, 2012			December 31, 2011

Commercial real estate	$	343,838		$	344,377
Construction and land development		35,424			35,061
Commercial and industrial		96,586			87,668
Owner occupied real estate		107,804			102,777
Consumer and other		16,832			16,683
Residential mortgage		3,114			3,150
Total loans receivable		603,598			589,716
Deferred costs (fees)		(336	)		(224	)
Allowance for loan losses		(10,756	)		(12,050	)
Net loans receivable	$	592,506		$	577,442

A loan is considered impaired, in accordance with ASC 310, Receivables, when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans, but also include internally classified accruing loans. As of September 30, 2011, management identified one troubled debt restructuring in the loan portfolio in the amount of $2.5 million. No troubled debt restructurings were identified as of December 31, 2010.

The following table ~~presents the Company’s~~summarizes information with regard to impaired loans ~~at September 30, 2011~~by loan portfolio class as of March 31, 2012 and December 31, ~~2010:~~2011:

(Dollars in thousands)

September 30,
2011

December 31,
2010

Impaired loans without a valuation allowance $ 50,267 $ 72,908
Impaired loans with a valuation allowance 20,965 14,206
Total impaired loans $ 71,232 $ 87,114

Valuation allowance related to impaired loans $ 3,359 $ 2,786
Total nonaccrual loans 32,006 39,992
Total loans past-due ninety days or more and still accruing - -

	March 31, 2012						December 31, 2011
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate	$	14,449	$	14,525	$	-	$	11,053	$	11,123	$	-
Construction and land development		3,303		6,410		-		6,165		12,011		-
Commercial and industrial		2,599		2,599		-		4,781		4,895		-
Owner occupied real estate		2,473		2,473		-		506		506		-
Consumer and other		874		1,093		-		958		1,196		-
Total	$	23,698	$	27,100	$	-	$	23,463	$	29,731	$	-

Impaired loans with a valuation allowance increased from $14.2 million at December 31, 2010 to $21.0 million at September 30, 2011. The increase was primarily due to valuation allowances, which were recorded during the nine month period ending September 30, 2011 for impaired loans which previously did not have a valuation allowance as of December 31, 2010. The valuation allowances recorded for these impaired loans were primarily driven by updated appraisals of collateral received during the nine month period ending September 30, 2011. Management determined that these valuation allowances did not have to be immediately charged off during this time period. Total impaired loans decreased by $15.9 million to $71.2 million at September 30, 2011 compared to $87.1 million at December 31, 2010. This decrease was mainly driven by upgrades to loans previously categorized as impaired as a result of improved financial performance and strength of the borrowers. The valuation allowance related to impaired loans increased from $2.8 million at December 31, 2010 to $3.4 million at September 30, 2011.

With an allowance recorded:
Commercial real estate	$	5,979	$	5,979	$	1,313	$	9,023	$	9,023	$	2,066
Construction and land development		3,428		7,283		935		818		1,933		98
Commercial and industrial		5,526		8,109		1,183		3,539		6,009		629
Owner occupied real estate		1,343		1,343		291		1,356		1,356		311
Total	$	16,276	$	22,714	$	3,722	$	14,736	$	18,321	$	3,104

As of September 30, 2011 and December 31, 2010, the average recorded investment in impaired loans was approximately $78.8 million and $100.3 million, respectively. The Company earned $1.6 million and $2.7 million of interest income on impaired loans (internally classified as accruing loans) for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively. The Company recognized interest income on a cash basis on impaired loans of $1.7 million and $2.9 million during the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively. There were no commitments to extend credit to any borrowers with impaired loans as of the end of the periods presented herein.

Total:
Commercial real estate	$	20,428	$	20,504	$	1,313	$	20,076	$	20,146	$	2,066
Construction and land development		6,731		13,693		935		6,983		13,944		98
Commercial and industrial		8,125		10,708		1,183		8,320		10,904		629
Owner occupied real estate		3,816		3,816		291		1,862		1,862		311	��
Consumer and other		874		1,093		-		958		1,196		-
Total	$	39,974	$	49,814	$	3,722	$	38,199	$	48,052	$	3,104

The following table ~~summarizes~~presents additional information ~~in regards to~~regarding the Company’s impaired loans ~~by loan portfolio class as of September 30, 2011~~for the three months ended March 31, 2012 and ~~December~~March 31, ~~2010:~~

At September 30, 2011

(Dollars in thousands)
Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized

With no related allowance recorded:

Commercial real estate $ 27,518 $ 32,738 $ - $ 31,140 $ 822
Construction and land development 18,767 33,022 - 17,328 144
Commercial and industrial 1,926 1,926 - 3,083 80
Owner occupied real estate 1,301 1,301 - 1,710 28
Consumer and other 755 985 - 709 -
Total $ 50,267 $ 69,972 $ - $ 53,970 $ 1,074

With an allowance recorded:

Commercial real estate $ 14,476 $ 14,476 $ 2,015 $ 12,901 $ 411
Construction and land development 656 656 442 5,545 25
Commercial and industrial 4,039 6,509 583 3,784 16
Owner occupied real estate 1,794 1,794 319 2,610 96
Total $ 20,965 $ 23,435 $ 3,359 $ 24,840 $ 548

Total:

Commercial real estate $ 41,994 $ 47,214 $ 2,015 $ 44,041 $ 1,233
Construction and land development 19,423 33,678 442 22,873 169
Commercial and industrial 5,965 8,435 583 6,867 96
Owner occupied real estate 3,095 3,095 319 4,320 124
Consumer and other 755 985 - 709 -
Total $ 71,232 $ 93,407 $ 3,359 $ 78,810 $ 1,622

2011:

	March 31, 2012				March 31, 2011
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate	$	14,615	$	193	$	37,962	$	364
Construction and land development		3,428		30		17,883		53
Commercial and industrial		2,627		35		4,223		27
Owner occupied real estate		1,490		27		2,118		19
Consumer and other		916		2		652		-
Total	$	23,076	$	287	$	62,838	$	463

With an allowance recorded:
Commercial real estate	$	5,637	$	55	$	8,410	$	81
Construction and land development		3,428		-		6,641		3
Commercial and industrial		5,595		14		3,048		6
Owner occupied real estate		1,350		12		3,418		59
Total	$	16,010	$	81	$	21,517	$	149

Total:
Commercial real estate	$	20,252	$	248	$	46,372	$	445
Construction and land development		6,856		30		24,524		56
Commercial and industrial		8,222		49		7,271		33
Owner occupied real estate		2,840		39		5,536		78
Consumer and other		916		2		652		-
Total	$	39,086	$	368	$	84,355	$	612

At December 31, 2010

(Dollars in thousands)
Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized

With no related allowance recorded:

Commercial real estate $ 40,840 $ 46,119 $ - $ 43,144 $ 1,341
Construction and land development 22,802 35,042 - 32,061 291
Commercial and industrial 6,482 7,992 - 7,040 160
Owner occupied real estate 2,278 2,278 - 2,370 132
Consumer and other 506 684 - 536 6
Total $ 72,908 $ 92,115 $ - $ 85,151 $ 1,930

With an allowance recorded:

Commercial real estate $ 7,683 $ 7,872 $ 1,937 $ 7,882 $ 422
Construction and land development 2,289 2,440 45 2,602 23
Commercial and industrial 798 798 287 809 26
Owner occupied real estate 3,436 3,436 517 3,832 267
Total $ 14,206 $ 14,546 $ 2,786 $ 15,125 $ 738

Total:

Commercial real estate $ 48,523 $ 53,991 $ 1,937 $ 51,026 $ 1,763
Construction and land development 25,091 37,482 45 34,663 314
Commercial and industrial 7,280 8,790 287 7,849 186
Owner occupied real estate 5,714 5,714 517 6,202 399
Consumer and other 506 684 - 536 6
Total $ 87,114 $ 106,661 $ 2,786 $ 100,276 $ 2,668

If these loans were performing under their original contractual rate, interest income on such loans would have increased approximately ~~$1.6 million~~$167,000 and ~~$2.4 million,~~$637,000 for the ~~nine~~three months ~~ended September 30,~~March 31, 2012 and 2011, ~~and the year ended December 31, 2010, respectively.~~respectively

The following ~~is an analysis~~tables provide the activity in and ending balances of ~~the changes in~~ the allowance for loan losses by loan portfolio class at and for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 and ~~year ended December~~March 31, ~~2010:~~2011:

(Dollars in thousands)

September 30,
2011

December 31,
2010

Balance at beginning of year $ 11,444 $ 12,841

Provision for loan losses 5,666 16,600
Recoveries of loans previously charged off 50 1,171
Loan charge-offs (4,780 ) (19,168 )
Balance at end of period $ 12,380 $ 11,444

(dollars in thousands)	Commercial Real Estate			Construction and Land Development		Commercial and Industrial			Owner Occupied Real Estate			Consumer and Other			Residential Mortgage			Unallocated		Total
March 31, 2012
Allowance for loan losses:

Beginning balance:	$	7,372		$	558	$	1,928		$	1,963		$	113		$	23		$	93	$	12,050
Charge-offs		(492	)		-		(52	)		-			(1	)		-			-		(545	)
Recoveries		-			-		-			-			1			-			-		1
Provisions (credits)		(2,509	)		1,611		343			(508	)		(7	)		(3	)		323		(750	)
Ending balance	$	4,371		$	2,169	$	2,219		$	1,455		$	106		$	20		$	416	$	10,756

(dollars in thousands)	Commercial Real Estate			Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other			Residential Mortgage			Unallocated		Total
March 31, 2011
Allowance for loan losses:

Beginning balance:	$	7,243		$	837	$	1,443	$	1,575	$	130		$	41		$	175	$	11,444
Charge-offs		(522	)		-		-		-		(31	)		-			-		(553	)
Recoveries		9			-		-		-		-			-			-		9
Provisions (credits)		677			758		1,326		70		22			(9	)		706		3,550
Ending balance	$	7,407		$	1,595	$	2,769	$	1,645	$	121		$	32		$	881	$	14,450

The following tables provide a summary of the allowance for loan losses and balance of loans receivable by loan class and by impairment method as of March 31, 2012 and December 31, 2011:

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total
March 31, 2012
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	1,313	$	935	$	1,183	$	291	$	-	$	-	$	-	$	3,722

Ending balance: collectively evaluated for impairment	$	3,058	$	1,234	$	1,036	$	1,164	$	106	$	20	$	416	$	7,034

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Loans receivable:
Ending balance	$	343,838	$	35,424	$	96,586	$	107,804	$	16,832	$	3,114	$	-	$	603,598

Ending balance: individually evaluated for impairment	$	20,428	$	6,731	$	8,125	$	3,816	$	874	$	-	$	-	$	39,974

Ending balance: collectively evaluated for impairment	$	323,410	$	28,693	$	88,461	$	103,988	$	15,958	$	3,114	$	-	$	563,624

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

~~The following provides the ending balances of the allowance for credit losses and loan receivables by loan portfolio class as of September 30, 2011 and December 31, 2010:~~

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total
December 31, 2011
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	2,066	$	98	$	629	$	311	$	-	$	-	$	-	$	3,104

Ending balance: collectively evaluated for impairment	$	5,456	$	460	$	1,299	$	1,502	$	113	$	23	$	93	$	8,946

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Loans receivable:
Ending balance	$	344,377	$	35,061	$	87,668	$	102,777	$	16,683	$	3,150	$	-	$	589,716

Ending balance: individually evaluated for impairment	$	20,076	$	6,983	$	8,320	$	1,862	$	958	$	-	$	-	$	38,199

Ending balance: collectively evaluated for impairment	$	324,301	$	28,078	$	79,348	$	100,915	$	15,725	$	3,150	$	-	$	551,517

Ending balance: loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

At September 30, 2011
Allowance for Credit Losses

(Dollars in thousands) Commercial Real Estate
Construction and
Land Development
Commercial and Industrial Owner Occupied Real Estate Consumer and Other Residential Mortgage Unallocated Total
Three Months Ended September 30, 2011:

Beginning balance:
$ 8,646 $ 1,819 $ 2,729 $ 1,596 $ 124 $ 33 $ 161 $ 15,108
Charge-offs (1,062 ) (1,305 ) (975 ) - (3 ) - - (3,345 )
Recoveries - - - - 1 - - 1
Provisions 99 460 - 93 (8 ) (10 ) (18 ) 616
Ending balance $ 7,683 $ 974 $ 1,754 $ 1,689 $ 114 $ 23 $ 143 $ 12,380

Nine Months Ended September 30, 2011:

Beginning balance:
$ 7,243 $ 837 $ 1,443 $ 1,575 $ 130 $ 41 $ 175 $ 11,444
Charge-offs (2,096 ) (1,675 ) (975 ) - (34 ) - - (4,780 )
Recoveries 9 2 - - 39 - - 50
Provisions 2,527 1,810 1,286 114 (21 ) (18 ) (32 ) 5,666
Ending balance $ 7,683 $ 974 $ 1,754 $ 1,689 $ 114 $ 23 $ 143 $ 12,380

Ending balance:  individually evaluated for impairment $ 2,015 $ 442 $ 583 $ 319 $ - $ - $ - $ 3,359
Ending balance:  collectively evaluated for impairment $ 5,668 $ 532 $ 1,171 $ 1,370 $ 114 $ 23 $ 143 $ 9,021
Ending balance:  loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ -

At September 30, 2011
Loans Receivable

(Dollars in thousands)
Commercial Real Estate Construction and Land Development Commercial and Industrial Owner Occupied Real Estate Consumer and Other Residential Mortgage

Unallocated
Total
Ending balance $ 393,652 $ 52,681 $ 79,162 $ 88,677 $ 16,636 $ 3,175 $ - $ 633,983

Ending balance:  individually evaluated for impairment $ 41,994 $ 19,423 $ 5,965 $ 3,095 $ 755 $ - $ - $ 71,232
Ending balance:  collectively evaluated for impairment $ 351,658 $ 33,258 $ 73,197 $ 85,582 $ 15,881 $ 3,175 $ - $ 562,751
Ending balance:  loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ -

At December 31, 2010
Allowance for Credit Losses

(Dollars in thousands)
Commercial Real Estate Construction and Land Development Commercial and Industrial Owner Occupied Real Estate Consumer and Other Residential Mortgage

Unallocated

Total

Ending balance $ 7,243 $ 837 $ 1,443 $ 1,575 $ 130 $ 41 $ 175 $ 11,444

Ending balance:  individually evaluated for impairment $ 1,937 $ 45 $ 287 $ 517 $ - $ - $ - $ 2,786
Ending balance:  collectively evaluated for impairment $ 5,306 $ 792 $ 1,156 $ 1,058 $ 130 $ 41 $ 175 $ 8,658
Ending balance:  loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ -

At December 31, 2010
Loans Receivable

(Dollars in thousands)
Commercial Real Estate Construction and Land Development Commercial and Industrial Owner Occupied Real Estate Consumer and Other Residential Mortgage

Unallocated

Total

Ending balance $ 374,935 $ 73,795 $ 78,428 $ 70,833
$
17,808 $ 5,026 $ - $ 620,825

Ending balance:  individually evaluated for impairment $ 48,523 $ 25,091 $ 7,280 $ 5,714 $ 506 $ - $ - $ 87,114
Ending balance:  collectively evaluated for impairment $ 326,412 $ 48,704 $ 71,148 $ 65,119 $ 17,302 $ 5,026 $ - $ 533,711
Ending balance:  loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ -

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010:~~2011:

	At September 30, 2011
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing

(dollars in thousands)															30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing
At March 31, 2012:
Commercial real estate	$	-	$	7,588	$	11,217	$	18,805	$	374,847	$	393,652	$	-	$	5,713	$	-	$	1,721	$	7,434	$	336,404	$	343,838	$	-
Construction and land development		-		413		15,718		16,131		36,550		52,681		-
Construction and landdevelopment																-		-		4,021		4,021		31,403		35,424		-
Commercial and industrial		-		-		3,539		3,539		75,623		79,162		-		46		-		4,169		4,215		92,371		96,586		-
Owner occupied real estate		-		1,193		789		1,982		86,695		88,677		-		1,537		-		-		1,537		106,267		107,804		-
Consumer and other		-		12		743		755		15,881		16,636		-		140		53		811		1,004		15,828		16,832		-
Residential mortgage		-		-		-		-		3,175		3,175		-		-		-		-		-		3,114		3,114		-
Total	$	-	$	9,206	$	32,006	$	41,212	$	592,771	$	633,983	$	-	$	7,436	$	53	$	10,722	$	18,211	$	585,387	$	603,598	$	-

At December 31, 2011:
Commercial real estate	$	8,662	$	390	$	1,880	$	10,932	$	333,445	$	344,377	$	-
Construction and landdevelopment		-		-		4,022		4,022		31,039		35,061		-
Commercial and industrial		-		-		4,673		4,673		82,995		87,668		748
Owner occupied real estate		1,043		-		-		1,043		101,734		102,777		-
Consumer and other		1		-		737		738		15,945		16,683		-
Residential mortgage		-		-		-		-		3,150		3,150		-
Total	$	9,706	$	390	$	11,312	$	21,408	$	568,308	$	589,716	$	748

1917

At December 31, 2010

(Dollars in thousands)

30-59
Days Past Due

60-89
Days Past Due

Greater than 90 Days

Total
Past Due

Current

Total
Loans Receivable
Loans Receivable > 90 Days and Accruing

Commercial real estate $ 1,249 $ 12,155 $ 14,955 $ 28,359 $ 346,576 $ 374,935 $ -
Construction and land development - 3,006 18,970 21,976 51,819 73,795 -
Commercial and industrial 251 - 4,500 4,751 73,677 78,428 -
Owner occupied real estate - 2,179 1,061 3,240 67,593 70,833 -
Consumer and other 164 198 461 823 16,985 17,808 -
Residential mortgage - - - - 5,026 5,026 -
Total $ 1,664 $ 17,538 $ 39,947 $ 59,149 $ 561,676 $ 620,825 $ -

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010:~~2011:

At September 30, 2011

(Dollars in thousands)
Pass Special Mention Substandard Doubtful Total

Commercial real estate $ 336,292 $ 8,346 $ 49,014 $ - $ 393,652
Construction and land development 32,482 - 20,199 - 52,681
Commercial and industrial 69,217 2,766 7,179 - 79,162
Owner occupied real estate 82,270 275 6,132 - 88,677
Consumer and other 15,411 213 1,012 - 16,636
Residential mortgage 3,175 - - - 3,175
Total $ 538,847 $ 11,600 $ 83,536 $ - $ 633,983

	At December 31, 2010
(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total

(dollars in thousands)											Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2012:
Commercial real estate	$	299,916	$	18,531	$	56,488	$	-	$	374,935	$	309,562	$	5,347	$	28,929	$	-	$	343,838
Construction and land development		36,775		-		37,020		-		73,795		27,945		-		7,479		-		35,424
Commercial and industrial		65,361		2,794		10,273		-		78,428		87,004		247		9,335		-		96,586
Owner occupied real estate		60,849		3,923		6,061		-		70,833		103,972		111		3,721		-		107,804
Consumer and other		16,977		-		831		-		17,808		15,627		74		1,131		-		16,832
Residential mortgage		5,026		-		-		-		5,026		3,114		-		-		-		3,114
Total	$	484,904	$	25,248	$	110,673	$	-	$	620,825	$	547,224	$	5,779	$	50,595	$	-	$	603,598

December 31, 2011:
Commercial real estate											$	310,364	$	8,573	$	25,440	$	-	$	344,377
Construction and land development												27,224		-		7,837		-		35,061
Commercial and industrial												77,888		248		9,532		-		87,668
Owner occupied real estate												99,031		-		3,746		-		102,777
Consumer and other												15,468		209		1,006		-		16,683
Residential mortgage												3,150		-		-		-		3,150
Total											$	533,125	$	9,030	$	47,561	$	-	$	589,716

The following table shows non-accrual loans by class as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010:~~2011:

(Dollars in thousands)	September 30, 2011		December 31, 2010
(dollars in thousands)					March 31, 2012		December 31, 2011
Commercial real estate	$	11,217	$	14,955	$	1,721	$	1,880
Construction and land development		15,718		18,970		4,021		4,022
Commercial and industrial		3,539		4,500		4,169		3,925
Owner occupied real estate		789		1,061		-		-
Consumer and other		743		506		811		737
Residential mortgage		-		-		-		-
Total	$	32,006	$	39,992	$	10,722	$	10,564

Troubled Debt Restructurings

The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the ~~current period~~quarter ended September 30, 2011. As required, the Company reassessed all restructurings that occurred on or after ~~the beginning of the current fiscal year (January~~January 1, ~~2011)~~2011 for identification as a potential troubled debt ~~restructurings. The~~restructuring. Since the adoption of this accounting guidance, the Company has identified ~~one loan~~two loans as a troubled debt ~~restructuring~~restructurings for which the allowance for credit loss had previously been measured under a general allowance for credit losses methodology (ASC 450-20). Upon identifying ~~the reassessed receivable~~these receivables as a troubled debt ~~restructuring,~~restructurings, the Company also identified itthem as impaired under the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired.

The following table summarizes information in regards to troubled debt restructurings for the ~~nine months~~period ended ~~September 30, 2011 (dollars in thousands):~~March 31, 2012 and December 31, 2011:

(dollars in thousands)	Accrual Status		Non-Accrual Status		Total Modifications
March 31, 2012:
Commercial real estate	$	2,109	$	-	$	2,109
Construction and land development		2,374		-		2,374
Commercial and industrial		-		-		-
Owner occupied real estate		-		-		-
Consumer and other		-		-		-
Residential mortgage		-		-		-
Total	$	4,483	$	-	$	4,483

December 31, 2011:
Commercial real estate	$	2,383	$	-	$	2,383
Construction and land development		2,625		-		2,625
Commercial and industrial		-		-		-
Owner occupied real estate		-		-		-
Consumer and other		-		-		-
Residential mortgage		-		-		-
Total	$	5,008	$	-	$	5,008

Number of Contracts Pre-Modification Outstanding Recorded Investments Post-Modification Outstanding Recorded Investments
Troubled Debt Restructurings
Commercial real estate 1 $ 2,563 $ 2,535

There were no new troubled debt restructurings identified during the three month period ended March 31, 2012. There were no troubled debt restructurings that subsequently defaulted.

~~As indicated in the table above, the~~The Company modified one commercial real estate loan and one construction and land development loan during the ~~nine months~~year ended ~~September 30,~~December 31, 2011. As a result of the modified terms of the new commercial estate loan, the Company accelerated the maturity date of the loan. The effective interest rate of the modified commercial real estate loan was reduced when compared to the interest rate of the original loan. The commercial real estate loan has also been converted to interest only payments for a period of time. The commercial real estate loan has been and continues to be an accruing loan. The borrower has remained current since the modification. As a result of the modified terms of the new construction and land development loan, the Company extended the maturity date of such loan. The effective interest rate of the modified construction and land development loan was reduced when compared to the interest rate of the original loan. The construction and land development loan has been and continues to be an accruing loan. The borrower has remained current since the modification.

2119

Note 8:7: Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The Company follows the guidance issued under ASC 820-10, Fair Value Measurements, ~~and Disclosures~~, which defines fair value, establishes a framework for measuring fair value under GAAP, and identifies required disclosures on fair value measurements.

ASC 820-10 establishes a fair value hierarchy that ~~prioritizes~~categorizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 ~~measurements)~~inputs) and the lowest priority to unobservable inputs (Level 3 ~~measurements)~~inputs). The three levels of the fair value hierarchy under ASC 820-10 are as follows:

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:

Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

2220

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 were as follows:

At September 30, 2011
(Dollars in thousands) Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Mortgage Backed Securities/CMOs $ 117,135 $ - $ 117,135 $ -
Municipal securities 10,683 - 10,683 -
Corporate bonds 22,885 - 19,885 3,000
Pooled Trust Preferred Securities 3,421 - - 3,421
Other securities 135 - 135 -
SBA servicing asset 938 - - 938
Total fair value $ 155,197 $ - $ 147,838 $ 7,359

(dollars in thousands)	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
March 31, 2012:
Mortgage-backed securities/CMOs	$	141,835	$	-	$	141,835	$	-
Municipal securities		11,199		-		11,199		-
Corporate bonds		26,238		-		23,231		3,007
Trust Preferred Securities		3,399		-		-		3,399
Other securities		134		-		134		-
Securities Available for Sale	$	182,805	$	-	$	176,399	$	6,406

December 31, 2011:
Mortgage-backed securities/CMOs	$	134,127	$	-	$	134,127	$	-
Municipal securities		11,034		-		11,034		-
Corporate bonds		25,617		-		22,613		3,004
Trust Preferred Securities		3,410		-		-		3,410
Other securities		135		-		135		-
Securities Available for Sale	$	174,323	$	-	$	167,909	$	6,414

At December 31, 2010
(Dollars in thousands) Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Mortgage Backed Securities/CMOs $ 127,662 $ - $ 127,662 $ -
Municipal securities 9,210 - 9,210 -
Corporate bonds 3,000 - - 3,000
Pooled Trust Preferred Securities 3,450 - - 3,450
Other securities 117 - 117 -
Total fair value $ 143,439 $ - $ 136,989 $ 6,450

The ~~following~~ table below presents ~~a reconciliation of the securities available for sale~~all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 and ~~the year ended December 31, 2010:~~2011.

(Dollars in thousands)
At September 30, 2011
Corporate Bonds Pooled Trust Preferred Securities SBA Servicing Asset Total
Beginning Balance, January 1, 2011 $ 3,000 $ 3,450 $ - $ 6,450
Originations - - 952 952
Unrealized gains/(losses) - 13 - 13
Amortization of servicing asset - - (14 ) (14 )
Impairment charges - (42 ) - (42 )
Ending Balance, September 30, 2011 $ 3,000 $ 3,421 $ 938 $ 7,359

	Three Months Ended March 31, 2012					Three Months Ended March 31, 2011
Level 3 Investments Only (dollars in thousands)	Trust Preferred Securities			Corporate Bonds		Trust Preferred Securities		Corporate Bonds
Balance, January 1,	$	3,410		$	3,004	$	3,450	$	3,000
Unrealized gains (losses)		6			3		151		-
Impairment charges on Level 3		(17	)		-		-		-
Balance, March 31,	$	3,399		$	3,007	$	3,601	$	3,000

2321

(Dollars in thousands)
At December 31, 2010
Corporate Bonds Pooled Trust Preferred Securities SBA Servicing Asset Total
Beginning Balance, January 1, 2010 $ - $ 3,926 $ - $ 3,926
Transfers into Level 3 3,000 - - 3,000
Unrealized gains/(losses) - (104 ) - (104 )
Impairment charges - (372 ) - (372 )
Ending Balance, December 31, 2010 $ 3,000 $ 3,450 $ - $ 6,450

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 were as ~~follows:~~follows (dollars in thousands):

	At September 30, 2011								Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
(Dollars in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2012:
Impaired loans	$	17,606	$	-	$	-	$	17,606	$	13,575	$	-	$	-	$	13,575
Other real estate owned		13,988		-		-		13,988		6,135		-		-		6,135
Total fair value	$	31,594	$	-	$	-	$	31,594

December 31, 2011:
Impaired loans									$	15,659	$	-	$	-	$	15,659
Other real estate owned										6,479		-		-		6,479

At December 31, 2010
(Dollars in thousands) Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Impaired loans $ 11,420 $ - $ - $ 11,420
Other real estate owned 15,237 - - 15,237
Total fair value $ 26,657 $ - $ - $ 26,657

The table below presents additional quantitative information about level 3 assets measured at fair value on a nonrecurring basis (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements March 31, 2012
Asset Description	Fair Value	Valuation Technique	Unobservable Input	Range Weighted Average (3)
Impaired loans	$ 13,575	Fair Value of Collateral (1)	Appraised Value (2)	7% - 39% (22%)

Other real estate owned	$ 6,135	Fair Value of Collateral (1)	Appraised Value (2) Sales Price	8% (8%)


(1)Fair value is generally determined through independent appraisals of the underlying collateral, which include level 3 inputs that are not identifiable.
(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
(3)The range and weighted average of liquidation expenses are presented as a percent of the appraised value.

The ~~recorded investment in~~significant unobservable inputs for impaired loans and other real estate owned are the appraised value or the sales price. These values are adjusted for estimated costs to sell which are incremental direct costs to transact a sale such as broker commissions, legal, closing costs and title transfer fees. The costs must be considered essential to the sale and would not have been incurred if the decision to sell had not been made. The costs to sell are based on costs associated with ~~a valuation allowance totaled $21.0 million at September 30, 2011 and $14.2 million at December 31, 2010. The amounts~~the Company’s actual sales of ~~related valuation allowances were $3.4 million and $2.8 million, respectively, at September 30, 2011 and December 31, 2010.~~other real estate owned which are assessed annually.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010:~~2011:

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Investment Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

The types of instruments valued based on matrix pricing in active markets include all of the Company’s U.S. government and agency securities and municipal obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy. As required by ASC 820-10, the Company does not adjust the matrix pricing for such instruments.

For certain securities, which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments, are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows. The Level 3 investment securities classified as available for sale are primarily comprised of various issues of ~~bank pooled~~ trust preferred securities and a single corporate bond.

~~Bank pooled trust~~

Trust preferred consists of the debt instruments of various banks, diversified by the number of participants in the security as well as geographically. The securities are performing according to terms, however the secondary market for such securities has become inactive, and such securities are therefore classified as Level 3 securities. The fair value analysis does not reflect or represent the actual terms or prices at which any party could purchase the securities. There is currently no secondary market for the securities and there can be no assurance that any secondary market for the securities will develop.

A third party pricing service was used in the development of the fair market valuation. The calculations used to determine fair value are based on the attributes of the ~~bank pooled~~ trust preferred securities, the financial condition of the issuers of the ~~bank pooled~~ trust preferred securities, and market based assumptions. The INTEX CDO Deal Model Library was utilized to obtain information regarding the attributes of each security and its specific collateral as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011. Financial information on the issuers was also obtained from Bloomberg, the FDIC and the Office of Thrift Supervision and SNL Financial. Both published and unpublished industry sources were utilized in estimating fair value. Such information includes loan prepayment speed assumptions, discount rates, default rates, and loss severity percentages. For more information on these assumptions, please refer to the Company’s most recent 10-K. Due to the current state of the global capital and financial markets, the fair market valuation is subject to greater uncertainty that would otherwise exist.

Fair market valuation for each security was determined based on discounted cash flow analyses. The cash flows are primarily dependent on the estimated speeds at which the trust preferred securities are expected to prepay, the estimated rates at which the trust preferred securities are expected to defer payments, the estimated rates at which the trust preferred securities are expected to default, and the severity of the losses on securities that do default.

Prepayment Assumptions. Trust preferred securities generally allow for prepayments without a prepayment penalty any time after 5 years. Due to the lack of new trust preferred issuances and the relativity poor conditions of the financial institution industry, the rate of voluntary prepayments are estimated at 1%.

Prepayments affect the securities in three ways. First, prepayments lower the absolute amount of excess spread, an important credit enhancement. Second, the prepayments are directed to the senior tranches, the effect of which is to increase the overcollateralization of the mezzanine layer, the layer at which the Company is located in each of the securities. However, the prepayments can lead to adverse selection in which the strongest institutions have prepaid, leaving the weaker institutions in the pool, thus mitigating the effect of the increased overcollateralization. Third, prepayments can limit the numeric and geographic diversity of the pool, leading to concentration risks.

Deferral and Default Rates. Trust preferred securities include a provision that allows the issuing bank to defer interest payments for up to five years. The estimates for the rates of deferral are based on the financial condition of the trust preferred issuers in the pool. Estimates for the conditional default rates are based on the trust preferred securities themselves as well as the financial condition of the trust preferred issuers in the pool.

Estimates for the near-term rates of deferral and conditional default are based on key financial ratios relating to the financial institutions’ capitalization, asset quality, profitability and liquidity. Each bank in each security is evaluated based on ratings from outside services including Standard & Poors, Moodys, Fitch, Bankrate.com and The Street.com. Recent stock price information is also considered, as well as the 52 week high and low, for each bank in each security. Also, the receipt of TARP funding is considered, and if so, the amount. Finally, each bank’s ability to generate capital (internally or externally), which is predictive of a troubled bank’s ability to recover, is considered.

Estimates for longer term rates of deferral and defaults are based on historical averages from a research report issued by Salomon Smith Barney in 2002. Default is defined as any instance when a regulator takes an active role in a bank’s operations under a supervisory action. This definition of default is distinct from failure. A bank is considered to have defaulted if it falls below minimum capital requirements or becomes subject to regulatory actions including a written agreement, or a cease and desist order.

The rates of deferral and conditional default are estimated at ranges of 0.28% to 0.42% at March 31, 2012 and 0.29% to 0.44% at December 31, 2011.

Loss Severity. The fact that an issuer defaults on a loan, does not necessarily mean that the investor will lose all of their investment. Thus, it is important to understand not only the default assumption, but also the expected loss given a default, or the loss severity assumption.

Both Standard & Poors and Moody’s Analytics have performed and published research that indicates that recoveries on trust preferred securities are low (less than 20%). The loss severity estimates are estimated at 95%.

Ratings Agencies. The major ratings agencies have recently been cutting the ratings on various trust preferred securities

Bond Waterfall. The trust preferred securities have several tranches: Senior tranches, Mezzanine tranches and the Residual or income tranches. We invested in the mezzanine tranches for all of the trust preferred securities. The Senior and Mezzanine tranches were overcollateralized at issuance, meaning that the par value of the underlying collateral was more than the balance issued on the tranches. The terms generally provide that if the performing collateral balances fall below certain triggers, then income is diverted from the residual tranches to pay the Senior and Mezzanine tranches. However, if significant deferrals occur, income could also be diverted from the Mezzanine tranches to pay the Senior tranches.

The INTEX desktop model calculates collateral cash flows based on the attributes of the trust preferred securities as of the collateral cut-off date of March 31, 2012 and certain valuation input assumptions for the underlying collateral. Allocations of the cash flows to securities are based on the overcollateralization and interest coverage tests (triggers), events of default and liquidation, deferrals of interest, mandatory auction calls, optional redemptions and any interest rate hedge agreements.

Internal Rate of Return. Internal rates of return are the pre-tax yield rates used to discount the future cash flow stream expected from the collateral cash flow. The marketplace for the trust preferred securities at March 31, 2012 and December 31, 2011 was not active. This is evidenced by a significant widening of the bid/ask spreads the markets in which the trust preferred securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive and few new trust preferred securities have been issued since 2007.

ASC 820-10 provides guidance on the discount rates to be used when a market is not active. The discount rate should take into account the time value of money, price for bearing the uncertainty in the cash flows and other case specific factors that would be considered by market participants, including a liquidity adjustment. The discount ~~rates~~rate used ~~are~~is a LIBOR 3-month ~~and 6-month~~ forward-looking ~~curves~~curve plus a range of ~~404~~433 to ~~989~~1,059 basis points. In addition, the cash flows are primarily dependent on the estimated speeds at which the bank pooled trust preferred securities are expected to prepay, the estimated rates at which the bank pooled trust preferred securities are expected to defer payments, the estimated rates at which the bank pooled trust preferred securities are expected to default, and the severity of the losses on securities which default. Management’s estimates of cash flows used to evaluate other-than-temporary impairment of ~~pooled~~ trust-preferred securities were based on sensitive assumptions regarding the timing and amounts of defaults that may occur, and changes in those assumptions could produce different conclusions for each security.

Increases (decreases) in actual or expected issuer defaults tend to decrease (increase) the fair value of the Corporation’s senior and mezzanine tranches of trust preferred securities. The values of the Corporation’s mezzanine tranches of trust preferred securities are also affected by expected future interest rates. However, due to the structure of each security, timing of cash flows, and secondary effects on the financial performance of the underlying issuers, the effects of changes in future interest rates on the fair value of the Corporation’s holdings are not quantifiably estimable.

Also included in Level 3 investment securities classified as available for sale is a single-issue corporate bond transferred from Level 2 in 2010 since the bond is not actively traded. Impairment would depend on the repayment ability of the single underlying institution, which is supported by a detailed quarterly review of the institution’s financial statements. The institution is a “well capitalized” institution under banking regulations and has recently demonstrated the ability to raise additional capital, when necessary, through the public capital market. The fair value of this corporate bond is estimated by obtaining a price of an equivalent floating rate debt instrument from Bloomberg.

Loans Receivable, including Loans Held for Sale (Carried at Cost)

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Due to the significant judgment involved in evaluating credit quality, loans are classified within level 3 of the fair value hierarchy.

Other Real Estate Owned (Carried at Lower of Cost or ~~Market)~~Fair Value)

These assets are carried at the lower of cost or ~~market.~~fair value. At ~~September 30, 2011,~~March 31, 2012, these assets were carried at current market value.

Restricted Stock (Carried at Cost)

The carrying amount of restricted stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings approximate their fair values.

FHLB Advances (Carried at Cost)

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated Debt (Carried at Cost)

Fair values of subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity. Due to the significant judgment involved in developing the spreads used to value the subordinated debt, it is classified within level 3 of the fair value hierarchy.

Off-Balance Sheet Financial Instruments ~~(Disclosed at Notional amounts)~~

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

The estimated fair values of the Company’s financial instruments were as follows at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010:~~2011:

	September 30, 2011				December 31, 2010				Fair Value Measurements at March 31, 2012
(Dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
(dollars in thousands)									Carrying Amount		Fair Value		Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Balance Sheet Data
Financial assets:
Cash and cash equivalents	$	91,206	$	91,206	$	35,865	$	35,865	$	118,231	$	118,231	$	118,231	$	-	$	-
Investment securities available for sale		154,259		154,259		143,439		143,439		182,805		182,805		-		176,399		6,406
Investment securities held to maturity		139		145		147		157		140		143		-		143		-
Restricted stock		5,594		5,594		6,501		6,501		5,062		5,062		5,062		-		-
Loans held for sale		1,390		1,551		-		-		1,875		2,100		-		2,100		-
Loans receivable, net		621,256		621,291		608,911		611,813		592,506		590,964		-		-		590,964
Accrued interest receivable		3,101		3,101		3,119		3,119		3,033		3,033		3,003		-		-

Financial liabilities:
Deposits
Demand, savings and money market	$	595,896	$	595,896	$	524,603	$	524,603	$	680,294	$	680,294	$	680,294	$	-	$	-
Time		237,393		239,115		233,127		234,417		177,080		178,058		-		178,058		-
Subordinated debt		22,476		18,307		22,476		17,728		22,476		18,545		-		-		18,545
Short-term borrowings										4,516		4,516		4,516		-		-
Accrued interest payable		1,238		1,238		953		953		960		960		960		-		-

Off-Balance Sheet Data
Commitments to extend credit		-		-		-		-		-		-		-		-		-
Standby letters-of-credit		-		-		-		-		-		-		-		-		-

	December 31, 2011
(dollars in thousands)	Carrying Amount		Fair Value
Balance Sheet Data
Financial assets:
Cash and cash equivalents	$	230,955	$	230,955
Investment securities available for sale		174,323		174,323
Investment securities held to maturity		140		144
Restricted stock		5,321		5,321
Loans held for sale		925		1,021
Loans receivable, net		577,442		576,052
Accrued interest receivable		3,003		3,003

Financial liabilities:
Deposits
Demand, savings and money market	$	735,670	$	735,670
Time		216,941		218,137
Subordinated debt		22,476		18,247
Short-term borrowings		-		-
Accrued interest payable		1,049		1,049

Off-Balance Sheet Data
Commitments to extend credit		-		-
Standby letters-of-credit		-		-

2728

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the Company’s financial condition, changes in financial condition, and results of operations in the accompanying consolidated financial statements. This discussion should be read in conjunction with the accompanying notes to the consolidated financial statements.

Certain statements in this report may be considered to be “forward-looking statements” as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995, such as statements that include the words “may,” “believes,” “expect,” “estimate,” “project,” “anticipate,” “should,” “intend,” “probability,” “risk,” “target,” “objective” and similar expressions or variations on such expressions. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For example, risks and uncertainties can arise with changes in: general economic conditions, including their impact on capital expenditures; new service and product offerings by competitors and price pressures; and similar items. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as may be required by applicable laws or regulations. Readers should carefully review the risk factors described in the Form 10-K for the year ended December 31, ~~2010~~2011 and other documents the Company files from time to time with the SEC, such as Quarterly Reports on Form 10-Q, and any Current Reports on Form 8-K, as well as other filings.

Regulatory Reform and Legislation

~~Last year,~~On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) ~~was enacted. This new law~~. The Dodd-Frank Act has and will ~~significantly change~~continue to have a broad impact on the ~~current bank~~financial services industry, including significant regulatory ~~structure~~ and ~~affect the lending, deposit, investment, trading~~compliance changes including, among other things, (i) enhanced resolution authority of troubled and ~~operating activities of financial institutions~~failing banks and their holding ~~companies. The Dodd-Frank Act requires various~~companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the FDIC for federal ~~agencies~~deposit insurance; and (v) numerous other provisions designed to ~~adopt a broad range~~improve supervision and oversight of, ~~new implementing rules~~ and ~~regulations,~~strengthening safety and ~~to prepare numerous studies and reports~~soundness for, ~~Congress. The federal agencies are given significant discretion in drafting~~ the ~~implementing rules and regulations, and consequently, many of the details and much of the impact of~~financial services sector. Additionally, the Dodd-Frank Act ~~may not~~establishes a new framework for systemic risk oversight within the financial system to be ~~known for many months or years. The discussion below generally discusses~~distributed among new and existing federal regulatory agencies, including the ~~material~~Financial Stability Oversight Council, the Consumer Financial Protection Bureau, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC. A summary of certain provisions of the Dodd-Frank Act ~~applicable to~~is set forth in the ~~Company and~~Company’s Annual Report on Form 10-K for the ~~Bank and is not complete or meant to be an exhaustive discussion.~~

Among other things, the Dodd-Frank Act directs the Federal Deposit Insurance Corporation to redefine the base for deposit insurance assessments paid by banks (assessments will now be based on the average consolidated total assets less tangible equity of a financial institution), permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, extends the FDIC’s program of insuring non-interest bearing transaction accounts on an unlimited basis throughfiscal year ended December 31, 2012, increases the minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35% of estimated insured deposits and requires the FDIC to take the necessary steps for the reserve ratio to reach the new minimum reserve ratio by September 30, 2020, imposes new capital requirements on bank and thrift holding companies, permits interest on demand deposits, imposes new restrictions on transactions between banks and thrifts and their affiliates and insiders, relaxes de novo branching and imposes additional requirements for interstate bank acquisitions and mergers.2011.

The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, such as Republic, will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives.

~~The Company expects that many~~Many of the requirements called for in the Dodd-Frank Act will be implemented over time, and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on financial institutions’ operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of the Company’s business activities, require changes to certain of ~~its~~the Company’s business practices, impose upon itthe Company more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect the Company’s business. These changes may also ~~may~~ require the Company to invest significant management attention and resources to evaluate and make ~~any~~ necessary changes ~~to its operations~~ in order to comply with new statutory and ~~could materially adversely affect its business, results of operations and financial condition.~~regulatory requirements.

Financial Condition

Assets

Total assets ~~increased~~decreased by ~~$76.7~~$89.1 million to ~~$952.8~~$958.3 million at ~~September 30, 2011,~~March 31, 2012, compared to ~~$876.1 million~~$1.0 billion at December 31, ~~2010. The increase was primarily driven by growth in deposits, which resulted in an increase~~2011, mainly due to a decrease in cash and cash ~~equivalents of $55.3 million, a $10.8 million increase in investment securities, and the ability to fund net loan growth of $12.3 million.~~

~~Cash and Cash Equivalents~~

Cash and due from banks, interest bearing deposits and federal funds sold comprise this category, which consists of the Company’s most liquid assets. The aggregate amount in these three categories increased by $55.3 million, to $91.2 million at September 30, 2011, from $35.9 million at December 31, 2010. This increase was caused by growth in deposit balances during the first nine months of 2011 combined with a conservative approach in investment strategy related to the Company’s securities portfolio.equivalents.

Loans Held for Sale

Loans held for sale are comprised of loans guaranteed by the U.S. Small Business Administration (“SBA”), which the Company usually originates with the intention of selling in the future. During the first nine months of 2011, the Company originated SBA loans totaling $44.1 million and transferred the guaranteed portion of those loans totaling $42.7 million to the loans held for sale category. Total SBA loans held for sale were ~~$1.4~~$1.9 million at ~~September 30, 2011.~~

March 31, 2012. Loans held for sale, as a percentage of total Company assets, were less than 1% at March 31, 2012.

Loans Receivable

The loan portfolio represents the Company’s largest asset category and is its most significant source of interest income. The Company’s lending strategy is focused on small and medium size businesses and professionals that seek highly personalized banking services. The loan portfolio consists of secured and unsecured commercial loans including commercial real estate, construction loans, residential mortgages, automobile loans, home improvement loans, home equity loans and lines of credit, overdraft lines of credit and others. Commercial loans typically range between $250,000 and $5,000,000 but customers may borrow significantly larger amounts up to Republic’s legal lending limit to a customer, which was approximately ~~$16.4~~$14.3 million at ~~September 30, 2011.~~March 31, 2012. Loans made to one individual customer even if secured by different collateral, are aggregated for purposes of the lending limit. Gross loans increased ~~$13.2~~$13.8 million, to ~~$633.6~~$603.3 million at ~~September 30, 2011,~~March 31, 2012, compared to ~~$620.4~~$589.5 million at December 31, ~~2010~~2011 mainly as a result of new originations in the ~~owner occupied real estate~~commercial and industrial category.

Investment Securities

Investment securities available-for-sale are investments which may be sold in response to changing market and interest rate conditions, and for liquidity and other purposes. The Company’s investment securities available-for-sale consist primarily of U.S. Government agency mortgage-backed securities (MBS), agency collateralized mortgage obligations (CMO), municipal securities, corporate bonds and ~~pooled~~ trust preferred securities. Available-for-sale securities totaled ~~$154.3~~$182.8 million at ~~September 30, 2011,~~March 31, 2012, compared to ~~$143.4~~$174.3 million at December 31, ~~2010.~~2011. The increase of ~~$10.9~~$8.5 million was ~~mainly attributable~~primarily due to the purchase of ~~corporate bonds~~fixed rate CMO securities totaling $14.6 million during the ~~third~~first quarter ~~2011, partially offset by the sale~~ of ~~CMO securities held in the investment portfolio.~~2012. At ~~September 30, 2011,~~March 31, 2012, the portfolio had a net unrealized gain of ~~$683,000~~$174,000 compared to a net unrealized loss of ~~$1.7 million~~$73,000 at December 31, ~~2010.~~2011.

Investment securities held-to-maturity are investments for which there is the intent and ability to hold the investment to maturity. These investments are carried at amortized cost. The held-to-maturity portfolio consists primarily of debt securities and stocks. At ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, securities held to maturity totaled ~~$139,000 and $147,000, respectively.~~$140,000 for both periods.

Restricted Stock

Restricted stock, which represents required investment in the common stock of correspondent banks related to a credit facility, is carried at cost and as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, consists of the common stock of the Federal Home Loan Bank of Pittsburgh (“FHLB”) ~~of Pittsburgh~~ and Atlantic Central Bankers Bank (“ACBB”). In ~~December 2009,~~the first quarter of 2012, the FHLB repurchased 5% of ~~Pittsburgh notified member banks that it was suspending dividend payments and the repurchase~~Republic’s total restricted stock outstanding, continuing its recent policy of ~~excess~~quarterly repurchases of capital stock ~~investments. Beginning in October 2010, the FHLB of Pittsburgh started to repurchase portions of Republic’s outstanding restricted stock which was~~ in excess of the minimum required investment. Decisions regarding any future ~~repurchase~~repurchases of restricted stock will be made on a quarterly basis. The FHLB issued its first dividend payment since 2008 during the first quarter of 2012.

At ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, the investment in FHLB ~~of Pittsburgh~~ stock totaled ~~$5.5~~$4.9 million and ~~$6.4~~$5.2 million, respectively. At both ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, ACBB stock totaled $143,000.

Cash and Cash Equivalents

~~Other Real Estate Owned~~

Cash and due from banks, interest bearing deposits and federal funds sold comprise this category, which consists of the Company’s most liquid assets. The ~~balance of other real estate owned~~aggregate amount in these three categories decreased by ~~$1.2~~$112.7 million, to ~~$14.0~~$118.2 million at ~~September 30, 2011~~March 31, 2012, from ~~$15.2~~$231.0 million at December 31, ~~2010~~2011. This decrease was primarily ~~due to write-downs~~caused by the decrease in deposit balances, growth in outstanding loan balances and the purchase of ~~$1.3 million and proceeds from sales of $1.0 million recorded in~~investment securities during the first ~~nine~~three months of ~~2011, partially offset by a transfer from non-performing loans of $1.1 million.~~2012.

Deposits

Deposits, which include non-interest and interest-bearing demand deposits, money market, savings and time deposits, are Republic’s major source of funding. Deposits are generally solicited from the Company’s market area through the offering of a variety of products to attract and retain customers, with a primary focus on multi-product relationships.

Total deposits ~~increased~~decreased by ~~$75.6~~$95.2 million to ~~$833.3~~$857.4 million at ~~September 30, 2011~~March 31, 2012 from ~~$757.7~~$952.6 million at December 31, ~~2010~~2011. The decrease was primarily the result of $96.6 million in temporary demand deposits received just prior to the end of the fourth quarter 2011 that were withdrawn early in the first quarter 2012.

Short-Term Borrowings

Short-term borrowings are used to supplement deposits as a ~~result~~source of ~~the Company’s retail strategy, which focuses on relationship banking. The most significant increases were recognized in the demand – interest bearing~~funds. Republic had $4.5 million of short-term borrowings outstanding at March 31, 2012 and ~~money market categories.~~$0 at December 31, 2011.

Shareholders’ Equity

Total shareholders’ equity increased $1.6 million to $66.4 million at March 31, 2012, compared to $64.9 million at December 31, 2011, primarily due to the net income recognized during the first quarter 2012.

Results of Operations

Three Months Ended ~~September 30, 2011~~March 31, 2012 Compared to ~~September 30, 2010~~March 31, 2011

The Company reported net income of ~~$1.4~~$1.3 million, or $0.05 per share, for the three months ended ~~September 30, 2011,~~March 31, 2012, as compared to a net ~~income~~loss of ~~$68,000,~~$2.5 million, or ~~$0.00~~$0.10 per share, for the three months ended ~~September 30, 2010. The increase~~March 31, 2011, mainly due to a decrease in ~~net income was primarily driven by an increase in non-interest income from $521,000~~the provision for loan losses recorded during the ~~three months ended September 30, 2010 to $4.0 million for the three months ended September 30, 2011.~~first quarter 2012.

Net interest income for the three month period ended ~~September 30, 2011 was $7.6~~March 31, 2012 increased slightly to $7.7 million as compared to ~~$7.9~~$7.4 million for the three month period ended ~~September 30, 2010.~~March 31, 2011. Interest income ~~decreased $545,000,~~increased $242,000, or ~~5.3%~~2.6%, from ~~$10.3~~$9.3 million for the three months ended ~~September 30, 2010~~March 31, 2011 to ~~$9.7~~$9.6 million for the three months ended ~~September 30, 2011,~~March 31, 2012, primarily due to ~~a 33 basis point decrease~~an increase in ~~the yield on average interest earning assets.~~income from investment securities. Interest expense ~~decreased $263,000, or 11.2%, from $2.4~~was $1.9 million for both the three months ended ~~September 30, 2010 to $2.1 million for the three months ended September 30,~~March 31, 2012 and 2011 ~~due to a 14 basis point decrease in the rate on~~as higher average ~~interest-bearing deposits outstanding. This decrease is the result of the Company’s continued focus on the gathering of low-cost core deposits.~~deposit balances were offset by lower rates.

Non-interest income increased ~~$3.4 million~~$519,000 to ~~$4.0~~$1.6 million during the three months ended ~~September 30, 2011~~March 31, 2012 compared to $521,000 during the three months ended September 30, 2010 primarily due to gains recognized on the sale of SBA loans of $2.0 million during the third quarter of 2011, a settlement of $750,000 related to the resolution of a legal dispute, and a $640,000 gain on the sale of investment securities. Non-interest expenses increased $1.4 million to $9.1$1.1 million during the three months ended ~~September 30,~~March 31, 2011 ~~as compared~~primarily due to ~~$7.7~~an increase in gains on sales of SBA loans. Non-interest expenses decreased $156,000 to $8.8 million during the three months ended ~~September 30, 2010~~March 31, 2012 as compared to $9.0 million during the three months ended March 31, 2011 primarily due to ~~expenses related to the origination~~reduced write downs and ~~sale of SBA loans during the third quarter of 2011.~~carrying costs associated with other real estate owned partially offset by increases in personnel and legal expenses. Return on average assets and average equity from continuing operations were ~~0.58%~~0.53% and ~~6.17%~~8.03%, respectively, during the three months ended ~~September 30, 2011~~March 31, 2012 compared to ~~0.03%~~(1.17)% and ~~0.30%~~(11.59)%, respectively, for the three months ended ~~September 30, 2010.~~March 31, 2011.

3132

~~Nine Months Ended September 30, 2011 compared to September 30, 2010~~

The Company reported a net loss of $1.6 million, or $0.06 per share, for the nine months ended September 30, 2011, as compared to a net loss of $10.8 million, or $0.67 per share, for the nine months ended September 30, 2010. The improved results are primarily due to the decrease in the provision for loan losses from $17.0 million during 2010 compared to $5.7 million in 2011 as credit quality continues to improve and the Company continues to successfully reduce the balance of impaired loans.

Net interest income for the nine months ended September 30, 2011 decreased $256,000 as compared to the nine months ended September 30, 2010. During this same period, interest income decreased $2.2 million, or 7.2%, due to a $41.4 million decrease in average interest earning assets and interest expense decreased $2.0 million, or 24.3%, primarily due to a $50.9 million decrease in average interest bearing liabilities and a 21 basis point decrease in the rate on average interest-bearing deposits outstanding.

Non-interest income increased $5.9 million to $7.2 million during the nine months ended September 30, 2011 as compared to $1.3 million during the nine months ended September 30, 2010 primarily due to gains recognized on the sale of SBA loans during the nine months ended September 30, 2011. Non-interest expenses increased $3.0 million to $27.1 million during the nine months ended September 30, 2011 as compared to $24.1 million during the nine months ended September 30, 2010 primarily due to the addition of an SBA lending team during 2011. Return on average assets and average equity from continuing operations were (0.24)% and (2.48)%, respectively, during the nine months ended September 30, 2011 compared to (1.53)% and (18.89)%, respectively, for the nine months ended September 30, 2010.

Analysis of Net Interest Income

Historically, the Company’s earnings have depended primarily upon Republic’s net interest income, which is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is affected by changes in the mix of the volume and rates of interest-earning assets and interest-bearing liabilities. The following table provides an analysis of net interest income, setting forth for the applicable periods (i) average assets, liabilities, and shareholders’ equity, (ii) interest income earned on interest-earning assets and interest expense on interest-bearing liabilities, (iii) annualized average yields earned on interest-earning assets and average rates on interest-bearing liabilities, and (iv) Republic’s annualized net interest margin (net interest income as a percentage of average total interest-earning assets). Averages are computed based on daily balances. Non-accrual loans are included in average loans receivable. All yields are adjusted for tax equivalency.

~~Average Balances and Net Interest Income~~

	For the Three Months Ended September 30, 2011							For the Three Months Ended September 30, 2010							Average Balances and Net Interest Income
(Dollars in thousands)	Average Balance		Interest Rate		Yield/ Rate(1)			Average Balance		Interest Rate		Yield/ Rate(1)
															For the three months ended March 31, 2012							For the three months ended March 31, 2011
(dollars in thousands)															Average Balance		Interest		Yield/ Rate(1)			Average Balance		Interest		Yield/ Rate(1)
Interest-earning assets:
Federal funds sold and other interest-earning assets	$	72,214	$	34		0.19	%	$	15,888	$	4		0.10	%	$	162,103	$	101		0.25	%	$	14,675	$	14		0.39	%
Investment securities and restricted stock		151,120		1,268		3.36	%		174,059		1,562		3.59	%		178,650		1,447		3.24	%		149,485		1,170		3.13	%
Loans receivable		637,477		8,528		5.31	%		653,618		8,766		5.32	%		592,828		8,127		5.51	%		629,825		8,248		5.31	%
Total interest-earning assets		860,811		9,830		4.53	%		843,565		10,332		4.86	%		933,581		9,675		4.17	%		793,985		9,432		4.82	%
Other assets		71,649							78,405							55,168							76,454
Total assets	$	932,460						$	921,970						$	988,749						$	870,439


Interest-earning liabilities:
Demand – non-interest bearing	$	120,443						$	109,617						$	144,855						$	127,055
Demand – interest bearing		100,516	$	159		0.63	%		59,934	$	119		0.79	%		117,794	$	171		0.58	%		63,870	$	98		0.62	%
Money market & savings		347,727		868		0.99	%		314,626		839		1.06	%		431,106		863		0.81	%		309,805		799		1.05	%
Time deposits		245,083		781		1.26	%		312,364		1,099		1.40	%		199,523		581		1.17	%		241,191		721		1.21	%
Total deposits		813,769		1,808		0.88	%		796,541		2,057		1.02	%		893,278		1,615		0.73	%		741,921		1,618		0.88	%
Total interest-bearing deposits		693,326		1,808		1.03	%		686,924		2,057		1.19	%		748,423		1,615		0.87	%		614,866		1,618		1.07	%
Other borrowings		22,552		279		4.91	%		26,511		293		4.38	%		22,575		285		5.08	%		31,946		296		3.76	%
Total interest-bearing liabilities		715,878		2,087		1.16	%		713,435		2,350		1.31	%	$	770,998		1,900		0.99	%	$	646,812		1,914		1.20	%
Total deposits and other borrowings		836,321		2,087		0.99	%		823,052		2,350		1.13	%		915,853		1,900		0.83	%		773,867		1,914		1.00	%
Non interest-bearing other liabilities		8,468							9,068							7,518							8,781
Shareholders’ equity		87,671							89,850							65,378							87,791
Total liabilities and shareholders’ equity	$	932,460						$	921,970						$	988,749						$	870,439
Net interest income (2)			$	7,743						$	7,982						$	7,775						$	7,518
Net interest spread						3.37	%						3.55	%						3.18	%						3.62	%
Net interest margin (2)						3.57	%						3.75	%						3.35	%						3.84	%

(1)Yields on investments are calculated based on amortized cost.

(2)Net interest income and net interest margin are presented on a tax equivalent basis. Net interest income has been increased over the financial statement amount by ~~$104,000~~$99 and ~~$61,000~~$97 for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ respectively, to adjust for tax equivalency. The tax equivalent net interest margin is calculated by dividing tax equivalent net interest income by average total interest earning assets.

Rate/Volume Analysis of Changes in Net Interest Income

Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The following table sets forth an analysis of volume and rate changes in net interest income for the three ~~and nine~~ months ended ~~September 30, 2011,~~March 31, 2012, as compared to the three ~~and nine~~ months ended ~~September 30, 2010.~~March 31, 2011. For purposes of this table, changes in interest income and expense are allocated to volume and rate categories based upon the respective changes in average balances and average rates.

		For the Three Months Ended September 30, 2011 vs. 2010									For the Nine Months Ended September 30, 2011 vs. 2010									For the three months ended March 31, 2012 vs. 2011
		Changes due to:									Changes due to:									Changes due to:
(Dollars in thousands)		Average Volume			Average Rate			Total Change			Average Volume			Average Rate			Total Change
(dollars in thousands)																				Average Volume			Average Rate			Total Change
Interest earned:
Federal funds sold and other interest-earning assets	Federal funds sold and other interest-earning assets	$	26		$	4		$	30		$	45		$	(3	)	$	42		$	92		$	(5	)	$	87
Securities			(194	)		(100	)		(294	)		(708	)		(437	)		(1,145	)		236			41			277
Loans			(216	)		(22	)		(238	)		(1,503	)		509			(994	)		(518	)		397			(121	)
Total interest-earning assets		$	(384	)	$	(118	)	$	(502	)	$	(2,166	)	$	69		$	(2,097	)		(190	)		433			243

Interest expense:
Deposits
Interest-bearing demand deposits		$	(64	)	$	24		$	(40	)	$	(146	)	$	47		$	(99	)		78			(5	)		73
Money market and savings			(83	)		54			(29	)		(135	)		409			274			256			(193	)		63
Time deposits			214			104			318			781			635			1,416			(121	)		(18	)		(139	)
Total deposit interest expense			67			182			249			500			1,091			1,591			213			(216	)		(3	)
Other borrowings			49			(35	)		14			494			(118	)		376			(18	)		7			(11	)
Total interest expense			116			147			263			994			973			1,967			195			(209	)		(14	)

Net interest income		$	(268	)	$	29		$	(239	)	$	(1,172	)	$	1,042		$	(130	)	$	(385	)	$	642		$	257

Net Interest Income

The Company’s total tax equivalent interest income ~~decreased $502,000,~~increased $243,000, or ~~4.9%~~2.6%, to ~~$9.8~~$9.7 million for the three months ended ~~September 30, 2011 when~~March 31, 2012 as compared to the three months ended ~~September 30, 2010, primarily due to~~March 31, 2011. The primary reason for the ~~$39.1~~increase is the $29.2 million ~~reduction~~increase in average investment securities from the same prior year period as the Company reduced its average non-performing assets with its bulk sale of distressed loans and ~~investment securities balances~~foreclosed properties during the three months ended September 30, 2011. For the nine months ended September 30, 2011, total tax equivalent interest income decreased $2.1 million, or 6.7%, to $29.0 million for the nine months ended September 30, 2011, when compared to the nine months ended September 30, 2010, primarily due to the $41.4 million reductionfourth quarter of ~~interest-earning asset balances during the nine month period ended September 30,~~ 2011. Average loans receivable declined ~~$16.1~~$37.0 million ~~and $37.8 million during the three and nine months ended September 30, 2011, respectively,~~ due to the ~~effort to reduce exposure~~aforementioned sale of loans which was offset by a 20 basis point increase in ~~the commercial real estate~~ loan ~~portfolio~~yields. Average federal funds sold and ~~decrease impaired loan balances. Average investment securities declined $22.9~~other interest-earning assets increased $147.4 million ~~and $29.2 million during the three and nine months ended September 30, 2011, respectively, due to calls and maturities of securities over the last twelve months, primarily~~driven by an increase in ~~the agency bond and mortgage-backed security categories.~~average deposits.

The Company’s total interest expense ~~decreased $263,000, or 11.2%, to $2.1~~was $1.9 million for the three months ended ~~September 30, 2011 as compared to $2.4~~March 31, 2012 and 2011. Average deposit balances increased $151.4 million for the three months ended ~~September 30, 2010. Total interest expense for the nine months ended September 30, 2011 decreased $2.0 million, or 24.3%, to $6.1 million~~March 31, 2012 as compared to ~~$8.1 million for~~ the nine months ended September 30, 2010. Average deposit balances increased $17.2 million for the three months ended September 30, 2011 reflecting the Company’s continued focus on the gathering of low cost core deposits. Average deposit balances declined $37.5 million for the nine months ended September 30, 2011same prior year period as a result of the ~~intentional reduction in volatile sources~~Company’s retail focused, customer service strategy, which emphasizes the gathering of ~~funding, such as brokered and public fund certificates of deposit.~~low-cost core deposits. Average other borrowings decreased ~~$4.0~~$9.4 million ~~and $14.8 million for~~during the ~~three and nine months ended September 30, 2011,~~same period, primarily as a result of the ~~maturity of $25.0 million FHLB term~~reduced dependence on outside borrowings ~~in June 2010.~~and focus on low-cost core deposit funding sources. The average rate paid on interest-bearing liabilities decreased ~~15 and 27~~21 basis points ~~respectively,~~ to ~~1.16%~~0.99% for the three months ended ~~September 30, 2011 and 1.18% for the nine months ended September 30, 2011.~~March 31, 2012. Average time deposit balances declined ~~$67.3 million and $84.0~~$41.7 million for the three ~~and nine~~ months ended ~~September 30, 2011, respectively.~~March 31, 2012 as compared to the same prior year period. The maturity and rollover of higher cost time deposits resulted in the decrease in the average rate paid on time deposits of 144 basis points to ~~1.26%~~1.17% for the three months ended September 30, 2011 and 26 basis points to 1.24% for the nine months ended September 30, 2011. The majority of the decrease in interest expense on deposits reflected the impact of the Company’s strategy to gather low-cost core deposits through relationship banking over the last twelve months. Accordingly, ratesMarch 31, 2012. Rates on total interest-bearing deposits decreased ~~16 and 25~~20 basis points ~~respectively,~~ during the three ~~and nine~~ months ended ~~September 30, 2011.~~March 31, 2012 as compared to the same prior year period.

The Company’s tax equivalent net interest margin decreased ~~by 18~~49 basis points to ~~3.57%~~3.35% for the three months ended ~~September 30, 2011,~~March 31, 2012, compared to ~~3.75%~~3.84% for the ~~three months ended September 30, 2010~~comparable prior year period and the Company’s tax equivalent net interest income ~~decreased $239,000,~~increased $257,000, or ~~3.0%~~3.4%, to ~~$7.7~~$7.8 million for the three months ended ~~September 30, 2011~~March 31, 2012 as compared to the three months ended September 30, 2010. For the nine months ended September 30, 2011, the tax equivalent net interest margin increased 16 basis points to 3.67%, compared to 3.51% for the nine months ended September 30, 2010 and the Company’s tax equivalent net interest income decreased $130,000, or 0.6%, to $22.9 million for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010.same prior year period.

Provision for Loan Losses

The provision for loan losses is charged to operations in an amount necessary to bring the total allowance for loan losses to a level that management believes is adequate to absorb inherent losses in the loan portfolio. The Company recorded a negative (credit) provision for loan losses ~~amounted to $616,000~~in the amount of $750,000 for the three months ended ~~September 30, 2011~~March 31, 2012 compared to ~~$700,000~~a $3.6 million provision for the three months ended ~~September 30, 2010. For the nine months ended September 30, 2011 and 2010, the provision for loan losses amounted to $5.7 million and $17.0 million, respectively.~~

March 31, 2011. The reduction in the provision for loan losses for both the three and nine month periods ending September 30, 2011 compared to the three and nine month periods ending September 30, 2010 is reflective of the reduction in non-performing loan balances and improved credit quality trends. Thenegative provision recorded during the ~~third~~first quarter of ~~2011~~2012 was mainly attributable to a reduction in the general reserve component of the allowance for loan loss calculation caused by an adjustment to the analysis of historical losses during the period. See disclosure under “Credit Quality” and nine months ended September 30, 2011 was driven by updated appraisals and financial data received during those period related to impaired loans that had been identified as substandard in prior periods. All loans currently classified as impaired were originated prior to December 31, 2007. For“Allowance for Loan Losses” for further ~~analysis, please see “Credit Quality”.~~discussion.

Non-Interest Income

Total non-interest income increased ~~by $3.4 million~~ to ~~$4.0~~$1.6 million for the three months ended ~~September 30, 2011,~~March 31, 2012, compared to ~~$521,000~~$1.1 million for the three months ended ~~September 30, 2010. For the nine months ended September 30,~~March 31, 2011, total non-interest income increased $5.9 million to $7.2 million as compared to $1.3 million for the nine months ended September 30, 2010. An experienced team of SBA lenders was hired by the company in January 2011. The increases were primarily due to an increase in gains ~~of $2.0 and $4.3 million recognized~~ on the sale of SBA loans during the ~~three and nine months ended September 30, 2011, respectively. During the third~~first quarter of ~~2011 there was a settlement of $750,000 related to the resolution of a legal dispute, and a $640,000 gain on the sale of investment securities from the available for sale portfolio.~~2012.

Non-Interest Expenses

Total non-interest expenses ~~increased $1.4 million~~decreased $156,000 to ~~$9.1~~$8.8 million for the three months ended ~~September 30, 2011,~~March 31, 2012, compared to ~~$7.7~~$9.0 million for the three months ended ~~September 30, 2010.~~March 31, 2011. The ~~increase~~decrease in total non-interest expenses was primarily due to ~~$847,000 in expenses related to the origination~~reduced write downs and sale of SBA loans. This mainly includes salaries, benefits, occupancy and referral fees related to the SBA lending team. For the nine months ended September 30, 2011, total non-interest expenses increased $3.0 million to $27.1 million, compared to $24.1 million for the nine months ended September 30, 2010, which was primarily due to expenses related to the origination and sale of SBA loans of $1.6 million as well as an increase of $622,000 in carrying costs ~~and write-downs~~ associated with other real estate ~~owned.~~owned of $1.3 million and a decrease in regulatory assessments and costs of $145,000. These decreases were offset by increases in salaries and employee benefits of $796,000 as a result of annual merit increases and the addition of the SBA lending team for a full quarter and increased legal expenses of $594,000.

Benefit for Income Taxes

The benefit for income taxes decreased by ~~$553,000~~$1.4 million to a ~~$509,000 provision for the three months ended September 30, 2011, compared to a $44,000~~$69,000 benefit for the three months ended ~~September 30, 2010. The benefit for income taxes decreased $4.7 million,~~March 31, 2012, compared to a ~~$1.4~~$1.5 million benefit for the ~~nine~~three months ended ~~September 30, 2011, compared to a $6.1 million~~March 31, 2011. The $69,000 benefit ~~for~~recorded during the ~~nine months ended September 30, 2010 primarily as a~~first quarter 2012 was the net result of ~~the decrease~~a tax provision in the ~~pre-tax loss.~~amount of $365,000 calculated on the net profit generated during the period, offset by an adjustment to the deferred tax asset valuation allowance in the amount of $434,000. The effective tax rates for the three-month periods ended ~~September 30,~~March 31, 2012 and 2011 were 30% and ~~2010 were 27% and 185%~~37%, respectively, ~~and for~~excluding an adjustment to the ~~nine months periods ended September 30, 2011 and 2010 were 46% and 36%, respectively.~~

~~The Company’s net~~ deferred tax asset increased to $13.3 million at September 30, 2011 compared to $12.8 million at December 31, 2010. This increase was primarily driven by the benefit for income taxes recorded during the nine month period ending September 30, 2011. The $13.3 million net deferred tax asset as of September 30, 2011 is comprised of $5.2 million currently recognizable through net operating loss carry-forwards and $8.1 million attributable to several items associated with temporary timing differences which will reverse at some point in the future to provide a reduction in tax liabilities. The Company’s largest future reversal relates to its allowance for loan losses, which totaled $4.4 million as of September 30, 2011. The Company expects the full allowance driven component of its deferred tax asset to reverse in the future. The earliest period that the $5.2 million related to net operating loss carry-forwards will expire occurs in the year 2030, leaving over 19 years for recognition. As for the items related to temporary timing differences, the 20 year time period for realization of each respective item has not yet begun and would have to be triggered by a future event, prolonging the time period for recovery.valuation allowance.

The Company evaluates the carrying amount of its deferred tax assets on a quarterly basis or more frequently, if necessary, in accordance with the guidance provided in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 (ASC 740), in particular, applying the criteria set forth therein to determine whether it is more likely than not (i.e. a likelihood of more than 50%) that some portion, or all, of the deferred tax asset will not be realized within its life cycle, based on the weight of available evidence. If management makes a determination based on the available evidence that it is more likely than not that some portion or all of the deferred tax assets will not be realized in future periods a valuation allowance is calculated and recorded. These determinations are inherently subjective and dependent upon estimates and judgments concerning management’s evaluation of both positive and negative ~~evidence, the forecasts of future income, applicable tax planning strategies and assessments of the current and future economic and business conditions.~~evidence.

In conducting the deferred tax asset analysis, the Company believes it is important to consider the unique characteristics of an industry or business. In particular, characteristics such as business model, level of capital and reserves held by financial institutions and their ability to absorb potential losses are important distinctions to be considered for bank holding companies like the Company. In addition, it is also important to consider that NOLs for federal income tax purposes can generally be carried back two years and carried forward for a period of twenty years. In order to realize our deferred tax assets, we must generate sufficient taxable income in such future years.

~~The Company evaluates~~In assessing the ~~realizability of the deferred tax asset based on history of earnings, expectations~~need for future earnings and expected timing of the reversal of temporary differences. As of September 30, 2011, the Company concluded that it is more likely than not that the deferred tax asset would be realized in full and that a valuation allowance, ~~was not required. In reaching this conclusion~~ the Company carefully weighed both positive and negative evidence currently available. ~~Realization~~Judgment is required when considering the relative impact of ~~deferred tax assets ultimately depends~~such evidence. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which it can be objectively verified. A cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. Based on the ~~existence~~analysis of ~~sufficient~~available positive and negative evidence, the Company determined that a valuation allowance should be recorded as of March 31, 2012 and December 31, 2011.

When determining an estimate for a valuation allowance, the Company assessed the possible sources of taxable income ~~including taxable income~~available under tax law to realize a tax benefit for deductible temporary differences and carryforwards as defined in ~~prior carry-back~~paragraph 740-10-30-18. As a result of cumulative losses in recent years ~~as well as future taxable income. If there are substantial, adverse~~and the uncertain nature of the current economic ~~developments that cause a deterioration of credit quality or profitability impacting~~environment, the ~~projection~~Company did not use projections of future taxable income, exclusive of reversing temporary timing differences and carryforwards, as a factor. The Company will exclude future taxable income as a factor until it can show consistent and sustained profitability.

The Company did assess tax planning strategies as defined under paragraph 740-10-30-18 (d.) to determine the ~~judgments made regarding~~amount of a valuation allowance. Strategies reviewed included the sale of investment securities and loans with fair values greater than book values, redeployment of cash and cash equivalents into higher yielding investment options, a switch from tax-exempt to taxable investments and loans, and the election of a decelerated depreciation method tax purposes for future fixed asset purchases. The Company believes that these tax planning strategies are (a.) prudent and feasible, (b.) steps that the Company would not ordinarily take, but would take to prevent an operating loss or tax credit carryforward from expiring unused, and (c.) would result in the realization of existing deferred tax assets. These tax planning strategies, if implemented, would result in taxable income in the first full reporting period after deployment and accelerate the recovery of deferred tax asset ~~may change. This could result~~balances if faced with the inability to recover those assets or the risk of potential expiration. The Company believes that these are viable tax planning strategies and appropriately considered in the ~~recognition~~analysis at this time, but may not align with the strategic direction of the organization today and therefore, has no present intention to implement such strategies.

The net deferred tax asset balance before consideration of a valuation allowance was $18.5 million as of March 31, 2012 and ~~additional income~~$18.9 million as of December 31, 2011. The tax ~~expense~~planning strategies assessed resulted in the ~~Consolidated Statement~~projected realization of ~~Operations~~approximately $4.0 million in tax assets which ~~would negatively impact earnings. As noted in the financial statements,~~can be considered more likely than not to be realized as of March 31, 2012 and December 31, 2011. Accordingly, the Company ~~has received~~recorded a ~~comment letter from the SEC questioning the realizability of its deferred tax asset and the lack of a related~~partial valuation ~~reserve. The Company has asked the SEC to reconsider its view~~allowance related to the deferred tax asset balance in the amount of $14.5 million as of March 31, 2012 and ~~at this time~~$14.9 million as of December 31, 2011. The deferred tax asset will continue to be analyzed on a quarterly basis for changes affecting realizability and the ~~matter remains unresolved.~~valuation allowance may be adjusted in future periods accordingly.

Commitments, Contingencies and Concentrations

Financial instruments, whose contract amounts represent potential credit risk, were commitments to extend credit of approximately ~~$73.4~~$74.2 million and ~~$62.0~~$71.5 million, and standby letters of credit of approximately ~~$3.1 million~~$3.7 and ~~$3.6~~$3.3 million, at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively. These financial instruments constitute off-balance sheet arrangements. Commitments often expire without being drawn upon. Substantially all of the ~~$73.4~~$74.2 million of commitments to extend credit at ~~September 30, 2011~~March 31, 2012 were committed as variable rate credit facilities.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. The Company’s commitments generally have fixed expiration dates or other termination clauses and many require the payment of fees. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In issuing commitments, the Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral required in connection with any commitment is based on management’s credit evaluation of the customer. The type of required collateral varies, but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable.

Standby letters of credit are conditional commitments that guarantee the performance of a customer to a third party. The credit risk and collateral policy involved in issuing letters of credit is essentially the same as that involved in issuing loan commitments. The amount of collateral which may be pledged to secure a letter of credit is based on management’s credit evaluation of the customer. The type of collateral which may be held varies, but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable.

Regulatory Matters

The following table presents the capital regulatory ratios for both Republic and the Company as at ~~September 30, 2011,~~March 31, 2012 and December 31, ~~2010~~2011 (dollars in thousands):

	Actual					For Capital Adequacy Purposes					To be well capitalized under regulatory capital guidelines					Actual					For Capital Adequacy Purposes					To be well capitalized under regulatory capital guidelines
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
At September 30, 2011:

At March 31, 2012:
Total risk based capital
Republic	$	105,854		13.76	%		61,553		8.00	%	$	76,941		10.00	%	$	93,320		12.85	%	$	58,092		8.00	%	$	72,615		10.00	%
Company		107,892		13.97	%		61,782		8.00	%		-		-			94,799		13.00	%		58,345		8.00	%		-		-
Tier one risk based capital
Republic		96,202		12.50	%		30,776		4.00	%		46,165		6.00	%		84,222		11.60	%		29,046		4.00	%		43,569		6.00	%
Company		98,205		12.72	%		30,891		4.00	%		-		-			85,662		11.75	%		29,172		4.00	%		-		-
Tier one leveraged capital
Republic		96,202		10.46	%		36,787		4.00	%		45,984		5.00	%		84,222		8.55	%		39,401		4.00	%		49,251		5.00	%
Company		98,205		10.66	%		36,840		4.00	%		-		-			85,662		8.69	%		34,453		4.00	%		-		-

At December 31, 2010:

At December 31, 2011:
Total risk based capital
Republic	$	97,570		13.51	%		57,775		8.00	%	$	72,218		10.00	%	$	91,622		12.90	%	$	56,826		8.00	%	$	72,218		10.00	%
Company		108,222		14.93	%		57,977		8.00	%		-		-			93,383		13.09	%		57,068		8.00	%		-		-
Tier one risk based capital
Republic		88,513		12.26	%		28,887		4.00	%		43,331		6.00	%		82,704		11.64	%		28,413		4.00	%		43,331		6.00	%
Company		99,134		13.68	%		28,988		4.00	%		-		-			84,259		11.81	%		28,534		4.00	%		-		-
Tier one leveraged capital
Republic		88,513		9.85	%		35,957		4.00	%		44,946		5.00	%		82,704		8.62	%		38,359		4.00	%		44,946		5.00	%
Company		99,134		11.01	%		36,013		4.00	%		-		-			84,259		8.77	%		38,411		4.00	%		-		-

See Item 1A. Risk Factors in Part III on Form ~~10-Q~~10-K for the ~~quarter~~fiscal year ended ~~June 30,~~December 31, 2011 for additional information on regulatory capital ~~regulatory~~ ratios.

Dividend Policy

The Company has not paid any cash dividends on its common stock. The Company has no plans to pay cash dividends in ~~2011.~~2012. The Company’s ability to pay dividends depends primarily on receipt of dividends from the Company’s subsidiary, Republic. Dividend payments from Republic are subject to legal and regulatory limitations. The ability of Republic to pay dividends is also subject to profitability, financial condition, capital expenditures and other cash flow requirements. See Item 1A. Risk Factors in Part III on Form ~~10-Q~~10-K for the ~~quarter~~fiscal year ended ~~June 30,~~December 31, 2011 for additional information on restrictions on dividends.

Liquidity

Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, time investment purchases to market conditions and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. The most liquid assets consist of cash, amounts due from banks and federal funds sold.

Regulatory authorities require the Company to maintain certain liquidity ratios in order for funds to be available to satisfy commitments to borrowers and the demands of depositors. In response to these requirements, the Company has formed an asset/liability committee (ALCO), comprised of certain members of Republic’s board of directors and senior management to monitor such ratios. The ALCO committee is responsible for managing the liquidity position and interest sensitivity. That committee’s primary objective is to maximize net interest income while configuring Republic’s interest-sensitive assets and liabilities to manage interest rate risk and provide adequate liquidity for projected needs. The ALCO committee meets on a quarterly basis or more frequently if deemed necessary.

The Company’s target and actual liquidity levels are determined by comparisons of the estimated repayment and marketability of interest-earning assets with projected future outflows of deposits and other liabilities. The Company’s most liquid assets, comprised of cash and cash equivalents on the balance sheet, totaled ~~$91.2~~$118.2 million at ~~September 30, 2011,~~March 31, 2012, compared to ~~$35.9~~$231.0 million at December 31, ~~2010.~~2011. Loan maturities and repayments are another source of asset liquidity. At ~~September 30, 2011,~~March 31, 2012, Republic estimated that more than ~~$50.0~~$40.0 million of loans would mature or repay in the six-month period ending ~~March 31,~~September 30, 2012. Additionally, the majority of its investment securities are available to satisfy liquidity requirements through sales on the open market or by pledging as collateral to access credit facilities. At ~~September 30, 2011,~~March 31, 2012, the Company had outstanding commitments (including unused lines of credit and letters of credit) of ~~$76.5~~$77.9 million. Certificates of deposit scheduled to mature in one year totaled ~~$165.4~~$142.1 million at ~~September 30, 2011.~~March 31, 2012. The Company anticipates that it will have sufficient funds available to meet its current commitments.

Daily funding requirements have historically been satisfied by generating core deposits and certificates of deposit with competitive rates, buying federal funds or utilizing the credit facilities of the Federal Home Loan Bank System (“FHLB”). The Company has established a line of credit with the FHLB of Pittsburgh. The Company is required to pledge qualified collateral to access its full borrowing capacity, which was ~~$287.2~~$300.6 million at ~~September 30, 2011.~~March 31, 2012. As of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, the Company had no outstanding term or short-term borrowings with the FHLB. ~~The Company had no short-term borrowings at both September 30, 2011 and December 31, 2010.~~ The Company has also established a contingency line of credit of $10.0 million with Atlantic Central Bankers Bank (“ACBB”) to assist in managing its liquidity position. The Company had ~~no amounts~~$4.5 million outstanding against the ACBB line of credit at ~~both September 30, 2011~~March 31, 2012 and no amounts outstanding at December 31, ~~2010.~~2011.

Investment Securities Portfolio

At ~~September 30, 2011,~~March 31, 2012, the Company had identified certain investment securities that ~~were~~are being held for indefinite periods of time, including securities that will be used as part of the Company’s asset/liability management strategy and that may be sold in response to changes in interest rates, prepayments and similar factors. These securities are classified as available for sale and are intended to increase the flexibility of the Company’s asset/liability management. Available for sale securities ~~consist primarily~~consisted of U.S Government Agency issued mortgage-backed securities, ~~(MBS), agency~~which include collateralized mortgage obligations ~~(CMO)~~(CMOs), municipal securities, corporate bonds and ~~agency pooled~~ trust preferred securities. Available-for-sale securities totaled ~~$154.3~~$182.8 million and ~~$143.4~~$174.3 million as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively. At ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, the portfolio had a net unrealized gain of ~~$683,000~~$174,000 and a net unrealized loss of ~~$1.7 million,~~$73,000, respectively.

Loan Portfolio

The Company’s loan portfolio consists of secured and unsecured commercial loans including commercial real estate, construction loans, residential mortgages, automobile loans, home improvement loans, home equity loans and lines of credit, overdraft lines of credit and others. Commercial loans are primarily secured term loans made to small to medium-sized businesses and professionals for working capital, asset acquisition and other purposes. Commercial loans are originated as either fixed or variable rate loans with typical terms of 1 to 5 years. Republic’s commercial loans typically range between $250,000 and $5,000,000 million but customers may borrow significantly larger amounts up to Republic’s combined legal lending limit, which was approximately ~~$16.4~~$14.3 million at ~~September 30, 2011.~~March 31, 2012. Individual customers may have several loans often secured by different collateral.

Credit Quality

Republic’s written lending policies require specified underwriting, loan documentation and credit analysis standards to be met prior to funding, with independent credit department approval for the majority of new loan balances. A committee consisting of senior management and certain members of the board of directors oversees the loan approval process to monitor that proper standards are maintained, while approving the majority of commercial loans.

Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity or payment of interest or principal for a period of more than 90 days, unless such loans are well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt.

Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms.

While a loan is classified as non-accrual or as an impaired loan and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. For non-accrual loans, which have been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.

The following summary shows information concerning loan delinquency and non-performing assets at the dates ~~indicated:~~indicated (dollars in thousands):

	March 31, 2012			December 31, 2011
Loans accruing, but past due 90 days or more	$	-		$	748
Non-accrual loans		10,722			10,564
Total non-performing loans (1)		10,722			11,312
Other real estate owned		6,135			6,479
Total non-performing assets (1)	$	16,857		$	17,791

Non-performing loans as a percentage of total loans, net of unearned income (1)		1.78	%		1.92	%
Non-performing assets as a percentage of total assets		1.76	%		1.70	%

(Dollars in thousands) September 30, 2011 December 31, 2010

Loans accruing, but past due 90 days or more $ - $ -
Non-accrual loans 32,006 39,992
Total non-performing loans(1) 32,006 39,992
Other real estate owned 13,988 15,237
Total non-performing assets(1) $ 45,994 $ 55,229

Non-performing loans as a percentage of total loans, net of unearned income(1) 5.05 % 6.45 %
Non-performing assets as a percentage of total assets 4.83 % 6.30 %
(1) Non-performing loans are comprised of (i) loans that are on non-accrual basis and (ii) accruing loans that are 90 days or more past due. Non-performing assets are composed of non-performing loans and other real estate owned.

~~(1)~~

Non-performing loans are comprised of (i) loans that are on non-accrual basis, (ii) accruing loans that are 90 days or more past due and (iii) restructured loans. Non-performing assets are composed of non-performing loans and other real estate owned.

Non-performing asset balances reached a peak during the second quarter of 2010 as a result of the challenging economic environment, which caused an increase in loan delinquencies and a significant decline in collateral values mainly impacting our commercial real estate loan portfolio. Non-performing asset balances have trended lower on a consistent basis since that period.

Non-accrual loans ~~decreased $8.0 million, or 20%,~~increased $158,000 to ~~$32.0~~$10.7 million at ~~September 30, 2011,~~March 31, 2012, from ~~$40.0~~$10.6 million at December 31, ~~2010 as the Company continues to see results from its concentrated effort on the resolution of non-performing assets.~~2011. Problem loans consist of loans that are included in performing loans, but for which potential credit problems of the borrowers have caused management to have serious doubts as to the ability of such borrowers to continue to comply with present repayment terms. At ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, all identified problem loans are included in the preceding table, or are internally classified with a specific reserve allocation in the allowance for loan losses (see “Allowance for Loan Losses”).

Republic had delinquent loans as follows: ~~(i)~~(i.) 30 to 59 days past due in the aggregate principal amount of $0$7.4 million and ~~$1.7~~$9.7 million at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively; and ~~(ii)~~(ii.) 60 to 89 days past due ~~at September 30, 2011 and December 31, 2010,~~ in the aggregate principal amount of ~~$9.2 million~~$53,000 and ~~$17.5 million,~~$390,000 at March 31, 2012 and December 31, 2011, respectively. ~~The Company had no delinquent loans past due 90 days or more, but still accruing at September 30, 2011.~~ Delinquent loans are currently in the process of collection and management believes they are supported by adequate collateral.

Other Real Estate Owned

The balance of other real estate owned decreased by ~~$1.2 million~~$344,000 to ~~$14.0~~$6.1 million at ~~September 30, 2011~~March 31, 2012 from ~~$15.2~~$6.5 million at December 31, ~~2010~~2011 primarily due to ~~write-downs~~the sale of ~~$1.3 million during~~one property in the ~~period.~~

first quarter of 2012.

The following table presents a reconciliation of other real estate owned for the three months ended March 31, 2012 and the year ended December 31, 2011:

(dollars in thousands)	March 31, 2012			December 31, 2011
Beginning Balance, January 1st	$	6,479		$	15,237
Additions		-			6,792
Valuation adjustments		(10	)		(6,103	)
Dispositions		(334	)		(9,447	)
Ending Balance	$	6,135		$	6,479

The valuation adjustments and dispositions recorded during the year ended December 31, 2011 were primarily driven by a bulk sale of distressed loans and foreclosed properties which closed during the fourth quarter of 2011. At March 31, 2012, the Company had no credit exposure to “highly leveraged transactions” as defined by the FDIC.

Allowance for Loan Losses

~~An analysis of the allowance for loan losses for the nine months ended September 30, 2011 and 2010, and the twelve months ended December 31, 2010 is as follows:~~

(Dollars in thousands)
For the nine
months ended
September 30,
2011

For the twelve
months ended
December 31,
2010

For the nine
months ended
September 30,
2010

Balance at beginning of period $ 11,444 $ 12,841 $ 12,841
Charge offs:
Commercial 4,746 19,126 19,126
Consumer 34 42 42
Total charge offs 4,780 19,168 19,168
Recoveries:
Commercial 11 1,168 263
Consumer 39 3 3
Total recoveries 50 1,171 266
Net charge offs 4,730 17,997 18,902
Provision for loan losses 5,666 16,600 16,950
Balance at end of period $ 12,380 $ 11,444 $ 10,889

Average loans outstanding(1) $ 634,505 $ 659,882 $ 672,341

As a percent of average loans:(1)
Net charge offs 1.00 % 2.73 % 3.76 %
Provision for loan losses 1.19 % 2.52 % 3.37 %
Allowance for loan losses 1.95 % 1.73 % 1.62 %

Allowance for loan losses to:
Total loans, net of unearned income 1.95 % 1.84 % 1.71 %
Total non performing loans 38.68 % 28.62 % 22.53 %

~~(1)~~ ~~Includes non-accruing loans.~~

The allowance for loan losses asis a ~~percentage of non-performing loans (coverage ratio) increased to 38.7% at September 30, 2011, compared to 28.6% at December 31, 2010 and 22.5% at September 30, 2010. The increase~~valuation allowance for probable losses inherent in the ~~coverage ratio during~~loan portfolio. The Company evaluates the ~~nine month period ending September 30, 2011 was primarily due~~need to ~~the higher level of charge-offs recorded during 2010. The decrease in charge-offs in 2011 is~~establish an allowance against loan losses on a result of the continued improvement in credit quality indicators combined with the reduction of impaired loans. Total charge-offs of $19.2 million were recorded for the year ended December 31, 2010 compared to $4.8 million for the nine months ended September 30, 2011. Total non-performing loans were $32.0 million and $40.0 million at September 30, 2011 and December 31, 2010, respectively.

~~Non-performing loans reached a peak during the second quarter of 2010 as a result of the challenging economic environment, which caused~~quarterly basis. When an increase in this allowance is necessary, a provision for loan ~~delinquencies and a significant decline in collateral values mainly impacting our commercial real estate loan portfolio.~~losses is charged to earnings. The increase in charge-offs was a result of economic events that transpired during the year ended December 31, 2010 which were identified by our credit monitoring process. This process assesses the ultimate collectability of an outstanding loan balance from all potential sources. When a loan or portfolio of a loan is determined to be uncollectible it is charged-off against the allowance for loan ~~losses.~~losses consists of three components. The first component is allocated to individually evaluated loans found to be impaired and is calculated in accordance with ASC 310. The second component is allocated to all other loans that are not individually identified as impaired pursuant to ASC 310-10 (“non-impaired loans”). This component is calculated for all non-impaired loans on a collective basis in accordance with ASC 450. The third component is an unallocated allowance to account for a level of imprecision in management’s estimation process.

The Company evaluates loans for impairment and potential ~~charge-offs~~charge-off on a quarterly basis. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any loan relationships have deteriorated. Any loan rated as substandard or lower will have aan individual collateral evaluation analysis ~~completed in accordance with the guidance under generally accepted accounting principles (GAAP) on impaired loans~~prepared to determine if a deficiency exists. We ~~will~~ first evaluate the primary repayment source. If the primary repayment source is seriously inadequate and unlikely to repay the debt, we ~~will~~ then look to the secondary and/or tertiary repayment sources. Secondary sources are conservatively reviewed for liquidation values. Updated appraisals and financial data are obtained to substantiate current values. If the reviewed sources are deemed to be inadequate to cover the outstanding principal and any costs associated with the resolution of the troubled loan, an estimate of the deficient amount will be calculated and a specific allocation of loan loss reserve is recorded.

Factors considered in the calculation of the allowance for non-impaired loans include several qualitative and quantitative factors such as historical loss experience, trends in delinquency and nonperforming loan balances, changes in risk composition and underwriting standards, experience and ability of management, and general economic conditions along with other external factors. Historical loss experience is analyzed by reviewing charge-offs over a five year period to determine loss rates consistent with the loan categories depicted in the allowance for loan loss table below.

Prior to the first quarter of 2012, historical losses for all commercial loans secured by real estate were aggregated into one group for purposes of calculating a loss rate for the allowance for loan loss calculation. During the first quarter of 2012, management elected to disaggregate this grouping into five separate categories based on distinct risk factors to provide a more detailed estimate for the allowance calculation. This change resulted in a reduction based on distinct risk factors of approximately $2.2 million in the estimated allowance required for non-impaired loans.

The factors supporting the allowance for loan losses do not diminish the fact that the entire allowance for loan losses is available to absorb losses in the loan portfolio and related commitment portfolio, respectively. The Company’s principal focus, therefore, is on the adequacy of the total allowance for loan losses. The allowance for loan losses is subject to review by banking regulators. The Company’s primary bank regulators regularly conduct examinations of the allowance for loan losses and make assessments regarding the adequacy and the methodology employed in their determination.

An analysis of the allowance for loan losses for the three months ended March 31, 2012 and 2011, and the twelve months ended December 31, 2011 is as follows (dollars in thousands):

	For the three months ended March 31, 2012			For the twelve months ended December 31, 2011			For the three months ended March 31, 2011
Balance at beginning of period	$	12,050		$	11,444		$	11,444
Charge-offs:
Commercial real estate		492			8,783			522
Construction and land development		-			3,719			-
Commercial and industrial		52			1,088			-
Owner occupied real estate		-			1,838			-
Consumer and other		1			41			31
Residential mortgage		-			-			-
Total charge-offs		545			15,469			553
Recoveries:
Commercial real estate		-			44			9
Construction and land development		-			10			-
Commercial and industrial		-			-			-
Owner occupied real estate		-			15			-
Consumer and other		1			40			-
Residential mortgage		-			-			-
Total recoveries		1			109			9
Net charge-offs		544			15,360			544
Provision (credit) for loan losses		(750	)		15,966			3,550
Balance at end of period	$	10,756		$	12,050		$	14,450

Average loans outstanding(1)	$	592,828		$	630,309		$	629,825

As a percent of average loans:(1)
Net charge-offs		0.37	%		2.44	%		0.35	%
Provision (credit) for loan losses		(0.51	%)		2.53	%		2.29	%
Allowance for loan losses		1.81	%		1.91	%		2.29	%

Allowance for loan losses to:
Total loans, net of unearned income		1.78	%		2.04	%		2.29	%
Total non-performing loans		100.32	%		106.52	%		36.90	%

(1) Includes non-accruing loans.

The Company recorded a negative (credit) provision for loan losses in the amount of $750,000 during the three month period ended March 31, 2012 compared to a provision of $3.6 million for the three month period ended March 31, 2011. The negative provision recorded during the three month period ended March 31, 2012 was the net result of a reduced requirement of $2.2 million in the allowance for loan loss calculation related to non-impaired loans as described above offset by a $1.1 million increase in specific allowances for impaired loans evaluated individually and a $0.3 million increase in the unallocated reserve.

The allowance for loan losses as a percentage of non-performing loans (coverage ratio) was 100.3% at March 31, 2012, compared to 106.5% at December 31, 2011 and 36.9% at March 31, 2011. The increase in the coverage ratio during the three month period ending March 31, 2012 as compared to the three month period ending March 31, 2011 was primarily attributable to the significant decrease in non-performing loans from March 31, 2011 to March 31, 2012, primarily driven by a bulk sale of distressed loans and foreclosed properties closed during the fourth quarter 2011. Total non-performing loans were $10.7 million, $11.3 million and $39.2 million at March 31, 2012, December 31, 2011 and March 31, 2011, respectively.

Our credit monitoring process assesses the ultimate collectability of an outstanding loan balance from all potential sources. When a loan is determined to be uncollectible it is charged-off against the allowance for loan losses. Unsecured commercial loans and all consumer loans are charged-off immediately upon reaching the 90-day delinquency mark unless they are well secured and in the process of collection. The timing on charge-offs of all other loan types is subjective and will be recognized when management determines that full repayment, either from the cash flow of the borrower, collateral sources, and/or guarantors, will not be sufficient and that repayment is unlikely. A full or partial charge-off is recognized equal to the amount of the estimated deficiency calculation.

Serious delinquency is often the first indicator of a potential charge-off. Reductions in appraised collateral values and deteriorating financial condition of borrowers and guarantors are factors considered when evaluating potential charge-offs. The likelihood of possible recoveries or improvements in a borrower’s financial condition are also assessed when considering a charge-off.

Partial charge-offs of non-performing and impaired loans can significantly reduce the coverage ratio and other credit loss statistics due to the fact that the balance of the allowance for loan losses will be reduced while still carrying the remainder of a non-performing loan balance in the impaired loan category. The amount of non-performing loans for which partial charge-offs have been recorded amounted to ~~$23.9~~$7.3 million at ~~September 30, 2011~~March 31, 2012 compared to ~~$27.7~~$7.4 million at December 31, ~~2010.~~2011.

The Company’s charge-off policy is reviewed on an annual basis and updated as necessary. During the ~~nine~~three months ended ~~September 30, 2011,~~March 31, 2012, there have been no changes made to this policy.

Recent Accounting Pronouncements

ASU 2011-12

4344

~~Recent Accounting Pronouncements~~

ASU 2011-05

ASU 2011-04

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and ~~IFRSs~~IFRS. The FASB has issued this ASU to amend ASC Topic 820, Fair Value Measurements, in order to bring U.S. GAAP for fair value measurements in line with International Accounting Standards.

~~ASU 2011-02~~

~~In April 2011, the FASB issued ASU 2011-02,~~ ~~Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.~~ ~~The FASB has issued this ASU to clarify the accounting principles applied to loan modifications, as defined by FASB~~ ~~ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors~~.

Effects of Inflation

The majority of assets and liabilities of a financial institution are monetary in nature. Therefore, a financial institution differs greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. Management believes that the most significant impact of inflation on its financial results is through the Company’s need and ability to react to changes in interest rates. Management attempts to maintain an essentially balanced position between rate sensitive assets and liabilities over a one-year time horizon in order to protect net interest income from being affected by wide interest rate fluctuations.

ITEM 3: QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2010~~2011 filed with the SEC on March 16, ~~2011.~~2012.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report ~~(September 30, 2011)~~(March 31, 2012) (“Disclosure Controls”). Based upon the Disclosure Controls evaluation, the principal executive officer and principal financial officer have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

The principal executive officer and principal financial officer also conducted an evaluation of the Company’s internal control over financial reporting, as defined in Rule ~~13a-15(f)~~13a – 15(f) of the Exchange Act, (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter ended ~~September 30, 2011~~March 31, 2012 that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, there has been no such change during the quarter ended ~~September 30, 2011.~~March 31, 2012.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Significant risk factors could adversely affect the Company’s business, financial condition and results of operation. Risk factors discussing these risks can be found in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011. The risk factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and in Part II, “Item 1A. Risk Factors” in the Company’s quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2011. The risk factors in the Company’s Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 have not materially changed. You should carefully consider these risk factors. The risks described in the Company’s Form 10-K ~~and in the Company’s Form 10-Q for the fiscal quarter ended June 30, 2011~~ are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. ~~REMOVED AND RESERVED~~MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following Exhibits are filed as part of this report. (Exhibit numbers correspond to the exhibits required by Item 601 of Regulation S-K for quarterly reports on Form 10-Q).

Exhibit Number	Description	Location
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer of Republic First Bancorp, Inc.	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Republic First Bancorp, Inc.	Filed herewith

32.1	Section 1350 Certification of Harry D. Madonna	Filed herewith

32.2	Section 1350 Certification of Frank A. Cavallaro	Filed herewith

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2011,~~March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, (ii) Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011, (iii) Consolidated Statements of Comprehensive Income (Loss) for each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, (iii)~~(iv) Consolidated Statements of Cash Flows for each of the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, (iv)~~(v) Consolidated Statement of Changes in Shareholders’ Equity orfor each of the ~~nine~~three months ended ~~September 30,~~March 21, 2012 and 2011, and ~~2010, and (v)~~(vi) Notes to Consolidated Financial Statements.	*

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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.

		REPUBLIC FIRST BANCORP, INC.

Date: ~~November~~May 14, ~~2011~~2012	By:	/s/ Harry D. Madonna
		Harry D. Madonna
		Chairman, President and Chief Executive Officer ~~(principal executive officer)~~
		(principal executive officer)
Date: ~~November~~May 14, ~~2011~~2012	By:	/s/ Frank A. Cavallaro
		Frank A. Cavallaro
		~~Senior~~Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(1,624	)	$	(10,849	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		5,666			16,950
Writedown of other real estate owned		1,252			885
Gain on sale of other real estate owned		-			(246	)
Depreciation and amortization		1,588			1,497
Share based compensation		253			198
Gain on sale of investment securities		(640	)		-
Impairment charges on investment securities		42			372
Amortization of premiums/(discounts) on investment securities		45			43
Proceeds from sales of SBA loans		47,046			-
SBA loans originated for sale		(44,099	)		-
Gains on sales of SBA loans originated for sale		(4,337	)		-
Increase in value of bank owned life insurance		(106	)		(146	)
Increase in accrued interest receivable and other assets		(831	)		(2,248	)
Increase in accrued interest payable and other liabilities		987			878
Net cash provided by operating activities		5,242			7,334

Cash flows from investing activities:
Purchase of investment securities available for sale		(55,466	)		-
Proceeds from the maturity or call of securities available for sale		47,569			38,159
Proceeds from the maturity or call of securities held to maturity		8			8
Proceeds from redemption of FHLB stock		907			-
Net (increase) decrease in loans		(19,024	)		38,293
Net proceeds from sale of other real estate owned		1,010			2,988
Premises and equipment expenditures		(464	)		(2,543	)
Net cash (used in) provided by investing activities		(25,460	)		76,905

Cash flows from financing activities:
Net proceeds from stock offering		-			28,812
Net stock purchases for deferred compensation plans		-			(100	)
Net increase in demand, money market and savings deposits		71,293			3,850
Net increase (decrease) in time deposits		4,266			(61,610	)
Net decrease in other borrowings		-			(25,000	)
Net cash provided by (used in) financing activities		75,559			(54,048	)

Net increase in cash and cash equivalents		55,341			30,191
Cash and cash equivalents, beginning of year		35,865			55,618
Cash and cash equivalents, end of year	$	91,206		$	85,809

Supplemental disclosures:
Interest paid	$	5,847		$	7,895
Non-cash transfers from loans to other real estate owned		1,013			663

														��
	Common Stock		Additional Paid in Capital		Accumulated Deficit			Treasury Stock			Stock Held by Deferred Compensation Plan			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
BALANCE, JANUARY 1, 2011	$	265	$	106,024	$	(13,140	)	$	(3,099	)	$	(809	)	$	(1,095	)	$	88,146
Net loss						(1,624	)											(1,624	)
Other comprehensive gain, net of tax:
Unrealized gain on securities (pre-tax $2,343)															1,502			1,502
Reclassification adjustment for impairment charge (pre-tax $42)															27			27
																		1,529
Total comprehensive loss																		(95	)
Stock based compensation				253														253
BALANCE, SEPTEMBER 30, 2011	$	265	$	106,277	$	(14,764	)	$	(3,099	)	$	(809	)	$	434		$	88,304

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011			2010
Basic and diluted earnings per share:
Net income/(loss)	$	1,364	$	68	$	(1,624	)	$	(10,849	)

Weighted average shares outstanding		25,871		25,871		25,871			16,109

Net income (loss) per share – basic and diluted	$	0.05	$	-	$	(0.06	)	$	(0.67	)

(Dollars in thousands)	September 30, 2011			December 31, 2010

Commercial real estate	$	393,652		$	374,935
Construction and land development		52,681			73,795
Commercial and industrial		79,162			78,428
Owner occupied real estate		88,677			70,833
Consumer and other		16,636			17,808
Residential mortgage		3,175			5,026
Total loans receivable		633,983			620,825

Deferred costs (fees)		(347	)		(470	)
Allowance for loan losses		(12,380	)		(11,444	)
Net loans receivable	$	621,256		$	608,911

	At September 30, 2011
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

With no related allowance recorded:

Commercial real estate	$	27,518	$	32,738	$	-	$	31,140	$	822
Construction and land development		18,767		33,022		-		17,328		144
Commercial and industrial		1,926		1,926		-		3,083		80
Owner occupied real estate		1,301		1,301		-		1,710		28
Consumer and other		755		985		-		709		-
Total	$	50,267	$	69,972	$	-	$	53,970	$	1,074

With an allowance recorded:

Commercial real estate	$	14,476	$	14,476	$	2,015	$	12,901	$	411
Construction and land development		656		656		442		5,545		25
Commercial and industrial		4,039		6,509		583		3,784		16
Owner occupied real estate		1,794		1,794		319		2,610		96
Total	$	20,965	$	23,435	$	3,359	$	24,840	$	548

Total:

Commercial real estate	$	41,994	$	47,214	$	2,015	$	44,041	$	1,233
Construction and land development		19,423		33,678		442		22,873		169
Commercial and industrial		5,965		8,435		583		6,867		96
Owner occupied real estate		3,095		3,095		319		4,320		124
Consumer and other		755		985		-		709		-
Total	$	71,232	$	93,407	$	3,359	$	78,810	$	1,622

	At September 30, 2011
	Allowance for Credit Losses

(Dollars in thousands)	Commercial Real Estate			Construction and Land Development			Commercial and Industrial			Owner Occupied Real Estate		Consumer and Other			Residential Mortgage			Unallocated			Total
Three Months Ended September 30, 2011:
Beginning balance:	$	8,646		$	1,819		$	2,729		$	1,596	$	124		$	33		$	161		$	15,108
Charge-offs		(1,062	)		(1,305	)		(975	)		-		(3	)		-			-			(3,345	)
Recoveries		-			-			-			-		1			-			-			1
Provisions		99			460			-			93		(8	)		(10	)		(18	)		616
Ending balance	$	7,683		$	974		$	1,754		$	1,689	$	114		$	23		$	143		$	12,380

Nine Months Ended September 30, 2011:
Beginning balance:	$	7,243		$	837		$	1,443		$	1,575	$	130		$	41		$	175		$	11,444
Charge-offs		(2,096	)		(1,675	)		(975	)		-		(34	)		-			-			(4,780	)
Recoveries		9			2			-			-		39			-			-			50
Provisions		2,527			1,810			1,286			114		(21	)		(18	)		(32	)		5,666
Ending balance	$	7,683		$	974		$	1,754		$	1,689	$	114		$	23		$	143		$	12,380


Ending balance: individually evaluated for impairment	$	2,015		$	442		$	583		$	319	$	-		$	-		$	-		$	3,359
Ending balance: collectively evaluated for impairment	$	5,668		$	532		$	1,171		$	1,370	$	114		$	23		$	143		$	9,021
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-	$	-		$	-		$	-		$	-

	Number of Contracts	Pre-Modification Outstanding Recorded Investments	Post-Modification Outstanding Recorded Investments
Troubled Debt Restructurings
Commercial real estate	1	$ 2,563	$ 2,535

(Dollars in thousands)	For the nine months ended September 30, 2011			For the twelve months ended December 31, 2010			For the nine months ended September 30, 2010

Balance at beginning of period	$	11,444		$	12,841		$	12,841
Charge offs:
Commercial		4,746			19,126			19,126
Consumer		34			42			42
Total charge offs		4,780			19,168			19,168
Recoveries:
Commercial		11			1,168			263
Consumer		39			3			3
Total recoveries		50			1,171			266
Net charge offs		4,730			17,997			18,902
Provision for loan losses		5,666			16,600			16,950
Balance at end of period	$	12,380		$	11,444		$	10,889

Average loans outstanding(1)	$	634,505		$	659,882		$	672,341

As a percent of average loans:(1)
Net charge offs		1.00	%		2.73	%		3.76	%
Provision for loan losses		1.19	%		2.52	%		3.37	%
Allowance for loan losses		1.95	%		1.73	%		1.62	%

Allowance for loan losses to:
Total loans, net of unearned income		1.95	%		1.84	%		1.71	%
Total non performing loans		38.68	%		28.62	%		22.53	%