10-Q/A

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

Commission file number 333-148302

1^st Century Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Delaware	26-1169687
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1875 Century Park East, Suite 1400

Los Angeles, California  90067

(Address of principal executive offices)

(Zip Code)

(310) 270-9500

(Registrant’s telephone number, including area code)

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

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 such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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.  (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

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

9,043,322 shares of common stock of the registrant were outstanding as of November 4, 2011.

EXPLANATORY NOTE

This Form 10Q/A amends the Quarterly Report on Form 10-Q of 1^st Century Bancshares, Inc. for the quarterly period ended September 30, 2011 (the “Form 10-Q”), filed with the U.S. Securities and Exchange Commission on November 8, 2011, for the sole purpose of furnishing the Interactive Data Files as Exhibit 101 in accordance with Rule 405 of Regulation S-T.  Exhibit 101 provides the financial statements and related notes from the Form 10-Q formatted in eXtensible Business Reporting Language (XBRL).

No other changes are being made to the Form 10-Q other than furnishing the exhibit described above.  This Form 10-Q/A speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Form 10-Q.

The interactive data files on Exhibit 101 hereto are not deemed filed with the U.S. Securities and Exchange Commission and are not to be incorporated by reference into any filing of 1^st Century Bancorp, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

2

Item 6.

Exhibits

31.1

Chief Executive Officer Certification required under Section 302 of the Sarbanes—Oxley Act of 2002^{. (1)}

31.2

Chief Operating Officer Certification required under Section 302 of the Sarbanes—Oxley Act of 2002. ⁽¹⁾

31.3

Principal Financial Officer Certification required under Section 302 of the Sarbanes—Oxley Act of 2002. ⁽¹⁾

32

Chief Executive Officer, Chief Operating Officer and Principal Financial Officer Certification required under Section 906 of the Sarbanes—Oxley Act of 2002. ⁽¹⁾

101.INS

XBRL Instance Document ⁽²⁾

101.SCH

XBRL Taxonomy Extension Schema Document ⁽²⁾

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document ⁽²⁾

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document ⁽²⁾

101.LAB

XBRL Taxonomy Extension Label Linkbase Document ⁽²⁾

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document ⁽²⁾

⁽¹⁾  These exhibits were previously included or incorporated by reference in 1^st Century Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, filed with the U.S. Securities and Exchange Commission on November 8, 2011.

⁽²⁾  Furnished herewith.

3

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.

	1ST CENTURY BANCSHARES, INC.
November 8, 2011	By:	/s/ Alan I. Rothenberg.
		Alan I. Rothenberg
		Chairman and Chief Executive Officer
November 8, 2011	By:	/s/ Jason P. DiNapoli.
		Jason P. DiNapoli
		President and Chief Operating Officer
November 8, 2011	By:	/s/ Bradley S. Satenberg.
		Bradley S. Satenberg
		Executive Vice President and Chief Financial Officer

4

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Unaudited Consolidated Statements of Operations in thousands, except per share data (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Interest and fee income on:
Loans	$ 2,365	$ 2,185	$ 7,003	$ 6,601
Investments	640	405	1,737	1,327
Other	73	73	198	157
Total interest and fee income	3,078	2,663	8,938	8,085
Interest expense on:
Deposits	228	189	634	560
Borrowings	35	41	59	197
Total interest expense	263	230	693	757
Net interest income	2,815	2,433	8,245	7,328
Provision for loan losses	0	100	275	200
Net interest income after provision for loan losses	2,815	2,333	7,970	7,128
Non-interest income	222	223	618	662
Non-interest expenses:
Compensation and benefits	1,478	1,230	4,348	3,905
Occupancy	268	232	770	688
Professional fees	158	155	554	510
Technology	165	172	475	482
Marketing	100	51	207	140
FDIC assessments	41	107	266	283
Other operating expenses	473	454	1,375	1,384
Total non-interest expenses	2,683	2,401	7,995	7,392
Income before income taxes	354	155	593	398
Income tax provision	0	0	0	0
Net income	$ 354	$ 155	$ 593	$ 398
Earnings Per Share
Earnings Per Share Basic	$ 0.04	$ 0.02	$ 0.07	$ 0.04
Earnings Per Share Diluted	$ 0.04	$ 0.02	$ 0.07	$ 0.04

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Unaudited Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income in thousands, except share data (USD $) Share data in Thousands	Total	Common Stock	Additional Paid-in-Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Treasury Shares
Stockholders' Equity, Beginning Balance at Dec. 31, 2009	$ 46,320	$ 104	$ 63,562	$ (12,903)	$ 817	$ (5,260)
Shares issued, Beginning Balance at Dec. 31, 2009	9,219,399	10,446,580	0	0	0	(1,227,181)
Restricted stock issued during period, value	2	2	0	0	0	0
Restricted stock issued during period, shares	190,000	190,000	0	0	0	0
Forfeiture of restricted stock, value	0	0	0	0	0	0
Forfeiture of restricted stock, shares	(2,000)	(2,000)	0	0	0	0
Compensation expense associated with restricted stock awards, net of estimated forfeitures	389	0	389	0	0	0
Shares surrendered to pay taxes on vesting of restricted stock, value	(142)	0	0	0	0	(142)
Shares surrendered to pay taxes on vesting of restricted stock, shares	(35,512)	0	0	0	0	(35,512)
Common stock repurchased, value	(125)	0	0	0	0	(125)
Common stock repurchased, shares	(35,480)	0	0	0	0	(35,480)
Net income	398	0	0	398	0	0
Net change in unrealized gains on AFS investments, net of tax	321	0	0	0	321	0
Total comprehensive income	719	0	0	398	321	0
Stockholders' Equity, Ending Balance at Sep. 30, 2010	47,163	106	63,951	(12,505)	1,138	(5,527)
Shares issued, Ending Balance at Sep. 30, 2010	9,336,407	10,634,580	0	0	0	(1,298,173)
Stockholders' Equity, Beginning Balance at Dec. 31, 2010	44,338	107	64,069	(14,866)	838	(5,810)
Shares issued, Beginning Balance at Dec. 31, 2010	9,302,291	10,672,676				(1,370,385)
Restricted stock issued during period, value	1	1	0	0	0	0
Restricted stock issued during period, shares	104,500	104,500	0	0	0	0
Forfeiture of restricted stock, value	(66)	(1)	(65)	0	0	0
Forfeiture of restricted stock, shares	(33,500)	(33,500)	0	0	0	0
Compensation expense associated with restricted stock awards, net of estimated forfeitures	355	0	355	0	0	0
Shares surrendered to pay taxes on vesting of restricted stock, value	(62)	0	0	0	0	(62)
Shares surrendered to pay taxes on vesting of restricted stock, shares	(15,681)	0	0	0	0	(15,681)
Common stock repurchased, value	(985)	0	0	0	0	(985)
Common stock repurchased, shares	(19,518)	0	0	0	0	(267,345)
Net income	593	0	0	593	0	0
Net change in unrealized gains on AFS investments, net of tax	1,157	0	0	0	1,157	0
Total comprehensive income	1,750	0	0	593	1,157	0
Stockholders' Equity, Ending Balance at Sep. 30, 2011	$ 45,331	$ 107	$ 64,359	$ (14,273)	$ 1,995	$ (6,857)
Shares issued, Ending Balance at Sep. 30, 2011	9,090,265	10,743,676	0	0	0	(1,653,411)

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Document and Entity Information (USD $)	3 Months Ended
	Sep. 30, 2011	Nov. 04, 2011	Jun. 30, 2011
Entity Registrant Name	1st Century Bancshares, Inc.
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Entity Central Index Key	0001420525
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		9,043,322
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Entity Public Float			$ 32,393,404

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Deposits

9 Months Ended

Sep. 30, 2011

Deposits {2}

Deposits

(6)          Deposits

The following table reflects the summary of deposit categories by dollar and percentage at September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
(dollars in thousands)	Amount		Percent of Total		Amount		Percent of Total
Non-interest bearing demand deposits	$	120,895	37.1	%	$	91,501	35.5	%
Interest bearing checking	24,770		7.6	%	33,632		13.0	%
Money market deposits and savings	133,349		40.9	%	72,757		28.2	%
Certificates of deposit	46,893		14.4	%	60,099		23.3	%
Total	$	325,907	100.0	%	$	257,989	100.0	%

At September 30, 2011, the Company had three certificate of deposit accounts with the State of California Treasurer’s Office for a total of $34.0 million that represented 10.4% of total deposits.  Each of these deposits is scheduled to mature in the fourth quarter of 2011. The Company intends to renew each of these deposits at maturity.  However, given the current economic climate in the State of California, there can be no assurance that the State of California Treasurer’s Office will continue to maintain deposit accounts with the Company.  At December 31, 2010, the Company had three certificate of deposit accounts with the State of California Treasurer’s Office for a total of $34.0 million that represented 13.2% of total deposits.

At September 30, 2011, the Company had $2.9 million of Certificate of Deposit Accounts Registry Service (“CDARS”) reciprocal deposits, which represented 0.9% of total deposits.  At December 31, 2010, the Company had $12.8 million of CDARS reciprocal deposits, which represented 5.0% of total deposits.

The aggregate amount of certificates of deposit of $100,000 or greater at September 30, 2011 and December 31, 2010 was $44.9 million and $57.6 million, respectively.  At September 30, 2011, the maturity distribution of certificates of deposit of $100,000 or greater, including deposit accounts with the State of California Treasurer’s Office and CDARS, was as follows: $38.4 million maturing in six months or less, $3.4 million maturing in six months to one year and $3.1 million maturing in more than one year.

The table below sets forth the range of interest rates, amount and remaining maturities of the certificates of deposit at September 30, 2011.

(in thousands)	Six months and less		Greater than six months through one year		Greater than one year
0.00% to 0.99%	$	39,299	$	3,738	$	—
1.00% to 1.99%	670		—		3,186
Total	$	39,969	$	3,738	$	3,186

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Non-Interest Income

9 Months Ended

Sep. 30, 2011

Non-Interest Income

Non-Interest Income

(12)                     Non-Interest Income

The following table summarizes the information regarding non-interest income for the three and nine months ended September 30, 2011 and 2010, respectively:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2011		2010		2011	2010
Loan arrangement fees	$	170	$	163	$            421	$               413
Service charges and other operating income	52		60		195	205
Net gain on sale of AFS securities	—		—		2	44
Total non-interest income	$	222	$	223	$            618	$               662

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Investments

9 Months Ended

Sep. 30, 2011

Investments {2}

Investments

(2)                               Investments

The following is a summary of the investments categorized as Available for Sale at September 30, 2011 and December 31, 2010:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(in thousands)	Cost		Gains		Losses			Value
At September 30, 2011:
Investments — Available for Sale
U.S. Gov’t Treasuries	$	2,100	$	26	$	—		$	2,126
Corporate Notes	4,136		36		(9		)	4,163
Residential Mortgage-Backed Securities	92,672		3,337		—			96,009
Residential Collateralized Mortgage Obligations (“CMOs”)	1,000		1		(1		)	1,000
Total	$	99,908	$	3,400	$	(10	)	$	103,298
At December 31, 2010:
Investments — Available for Sale
U.S. Gov’t Treasuries	$	150	$	—	$	—		$	150
Debt issued by the States of the United States		2,012		3		—			2,015
Residential Mortgage-Backed Securities	53,105		1,588		(174		)	54,519
Residential CMOs	1,783		7		—			1,790
Total	$	57,050	$	1,598	$	(174	)	$	58,474

The Company did not have any investment securities categorized as “Held to Maturity” or “Trading” at September 30, 2011 or December 31, 2010.

Additionally, at September 30, 2011 and December 31, 2010, the carrying amount of securities pledged to the State of California Treasurer’s Office to secure their deposits was $59.0 million and $56.3 million, respectively.  Deposits from the State of California were $34.0 million at both September 30, 2011 and December 31, 2010.

The fair value of AFS securities and the weighted average yield of investment securities by contractual maturity at September 30, 2011 are as follows:

(dollars in thousands)

Available for Sale	1 Year or Less		Weighted Average Yield		After 1 Through 5 Years		Weighted Average Yield		After 5 Through 10 Years		Weighted Average Yield		After 10 Years		Weighted Average Yield		Total		Weighted Average Yield
U.S. Government Treasuries	$	—	—	%	$	2,126	0.64	%	$	—	—	%	$	—	—	%	$	2,126	0.64	%
Corporate Notes	—		—		4,163		1.16		—		—		—		—		4,163		1.16
Residential Mortgage-Backed Securities	15		4.22		1,202		4.36		58,493		2.78		36,299		3.30		96,009		3.00
Residential CMOs	—		—		—		—		399		1.26		601		0.31		1,000		0.69
Total	$	15	4.22	%	$	7,491	1.53	%	$	58,892	2.77	%	$	36,900	3.26	%	$	103,298	2.85	%

A total of three and nine securities had unrealized losses at September 30, 2011 and December 31, 2010, respectively.  Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

		Less than Twelve Months								Twelve Months or More
(in thousands)		Gross Unrealized Losses				Fair Value				Gross Unrealized Losses			Fair Value
At September 30, 2011:
Investments-Available for Sale
Corporate Notes	$		(9	)	$		1,573	$	—		$	—
Residential CMOs			(1	)			601		—			—
Total	$		(10	)	$		2,174	$	—		$	—
At December 31, 2010:
Investments-Available for Sale
Residential Mortgage-Backed Securities	$		(174	)	$		18,146	$	—		$	—

The Company’s assessment that it has the ability to continue to hold impaired investment securities along with its evaluation of their future performance provide the basis for it to conclude that its impaired securities are not other-than-temporarily impaired.  In assessing whether it is more likely than not that the Company will be required to sell any impaired security before its anticipated recovery, which may be at their maturity, it considers the significance of each investment, the amount of impairment, as well as the Company’s liquidity position and the impact on the Company’s capital position.  As a result of its analyses, the Company determined at September 30, 2011 and December 31, 2010 that the unrealized losses on its securities portfolio on which impairments had not been recognized are temporary.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies {1}

Commitments and Contingencies

(8)                                 Commitments and Contingencies

Commitments to Extend Credit

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby/commercial letters of credit and guarantees on revolving credit card limits. These instruments involve various levels and elements of credit and interest rate risk in excess of the amount recognized in the accompanying consolidated financial statements. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company had $64.8 million and $60.6 million in commitments to extend credit to customers and $2.5 million and $2.1 million in standby/commercial letters of credit at September 30, 2011 and December 31, 2010, respectively.  The Company also guarantees the outstanding balance on credit cards offered at the Company, but underwritten by another financial institution.  The outstanding balances on these credit cards were $49,000 at both September 30, 2011 and December 31, 2010.

Lease Commitments

The Company leases office premises under three operating leases that will expire in May 2012, June 2014 and November 2017, respectively.  Rental expense included in occupancy expense was $143,000 and $400,000 for the three and nine months ended September 30, 2011 and $113,000 and $343,000 for the three and nine months ended September 30, 2010, respectively. Sublease income earned was $27,000 and $79,000 during the three months and nine months ended September 30, 2011, and $25,000 and $71,000 during the three and nine months ended September 30, 2010, respectively.

The projected minimum rental payments under the term of the leases at September 30, 2011 are as follows (in thousands):

Years ending December 31,
2011 (October – December)	$	169
2012	662
2013	639
2014	374
2015	107
Thereafter	215
	$	2,166

Litigation

The Company from time to time is party to lawsuits, which arise out of the normal course of business. At September 30, 2011 and December 31, 2010, the Company did not have any litigation that management believes will have a material impact on the Consolidated Balance Sheets or unaudited Consolidated Statements of Operations.

Restricted Stock

The following table sets forth the Company’s future restricted stock expense, net of estimated forfeitures (in thousands).

Years ending December 31,
2011 (October – December)	$	103
2012	342
2013	211
2014	97
2015	32
Thereafter	5
	$	790

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Regulatory Matters

9 Months Ended

Sep. 30, 2011

Regulatory Matters

Regulatory Matters

(14)         Regulatory Matters

Capital

Bancshares and the Bank are subject to the various regulatory capital requirements administered by federal banking agencies.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancshares and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Company.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulation) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that as of September 30, 2011 and December 31, 2010, the Company and the Bank met all capital adequacy requirements to which they are subject.

At December 31, 2010, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The Company’s and the Bank’s capital ratios as of September 30, 2011 and December 31, 2010 are presented in the table below:

	Company				Bank				For Capital Adequacy Purposes				For the Bank to be Well Capitalized Under Prompt Corrective Measures
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount			Ratio
September 30, 2011:
Total Risk-Based Capital Ratio	$	46,105	21.07	%	$	44,104	20.15	%	$	17,507	8.00	%		$	21,885	10.00	%
Tier 1 Risk-Based Capital Ratio	$	43,336	19.80	%	$	41,335	18.89	%	$	8,753	4.00	%		$	13,131	6.00	%
Tier 1 Leverage Ratio	$	43,336	11.65	%	$	41,335	11.10	%	$	14,884	4.00	%		$	18,612	5.00	%
December 31, 2010:
Total Risk-Based Capital Ratio	$	46,197	21.69	%	$	42,959	20.16	%	$	17,039	8.00	%		$	21,307	10.00	%
Tier 1 Risk-Based Capital Ratio	$	43,500	20.42	%	$	40,260	18.90	%	$	8,519	4.00	%		$	12,784	6.00	%
Tier 1 Leverage Ratio	$	43,500	13.93	%	$	40,260	12.88	%	$	12,488	4.00	%		$	15,634	5.00	%

Dividends

In the ordinary course of business, Bancshares is dependent upon dividends from the Bank to provide funds for the payment of dividends to stockholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.  Currently, the Bank is prohibited from paying dividends to Bancshares until such time as the accumulated deficit is eliminated.

To date, Bancshares has not paid any cash dividends.  Payment of stock or cash dividends in the future will depend upon earnings and financial condition and other factors deemed relevant by Bancshares’ Board of Directors, as well as Bancshares’ legal ability to pay dividends.  Accordingly, no assurance can be given that any cash dividends will be declared in the foreseeable future.

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Stock Repurchase Program

9 Months Ended

Sep. 30, 2011

Stock Repurchase Program

Stock Repurchase Program

(9)                                 Stock Repurchase Program

In August 2010, the Company’s Board of Directors (the “Board”) authorized the purchase of up to $2.0 million of the Company’s common stock, which was announced by press release and Current Report on Form 8-K on August 16, 2010.  Under this stock repurchase program, the Company has been acquiring its common stock in the open market from time to time beginning in August 2010.  The shares repurchased by the Company under this stock repurchase program are held as treasury stock.  During the nine months ended September 30, 2011, the Company repurchased 267,345 shares in the open market at a cost ranging from $3.52 to $4.02 per share in connection with this program.  This stock repurchase program may be modified, suspended or terminated by the Board at any time without notice.

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Other Borrowings

9 Months Ended

Sep. 30, 2011

Other Borrowings {1}

Other Borrowings

(7)                            Other Borrowings

At September 30, 2011, the Company had a $54.9 million borrowing/credit facility secured by a blanket lien on eligible loans at the FHLB. The Company had $10.0 million of long-term borrowings and no overnight borrowings outstanding under this borrowing/credit facility with the FHLB at September 30, 2011.  At December 31, 2010, the Company had a $45.8 million borrowing/credit facility secured by a blanket lien of eligible loans at the FHLB.  The Company had $2.0 million of long-term borrowings and no overnight borrowings outstanding under this borrowing/credit facility with the FHLB at December 31, 2010.

The following table summarizes the outstanding long-term borrowings under the borrowing/credit facility secured by a blanket lien on eligible loans at the FHLB at September 30, 2011 and December 31, 2010 (dollars in thousands):

Maturity Date	Interest Rate		September 30, 2011				December 31, 2010
April 15, 2011	1.59	%		$	—	$		2,000
May 23, 2013	0.63	%			2,500			—
May 23, 2014	1.14	%			2,500			—
May 26, 2015	1.65	%			2,500			—
May 23, 2016	2.07	%			2,500			—
	Total			$	10,000	$		2,000

At September 30, 2011, the Company also had $27.0 million in Federal fund lines of credit available with other correspondent banks that could be used to disburse loan commitments and to satisfy demands for deposit withdrawals. Each of these lines of credit is subject to conditions that the Company may not be able to meet at the time when additional liquidity is needed.  The Company did not have any borrowings outstanding under these lines of credit at September 30, 2011 or December 31, 2010.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

(1)                               Summary of Significant Accounting Policies

Nature of Operations

1^st Century Bancshares, Inc., a Delaware corporation (“Bancshares”) is a bank holding company with one subsidiary, 1^st Century Bank, National Association (the “Bank”).  The Bank commenced operations on March 1, 2004 in the State of California operating under the laws of a National Association (“N.A.”) regulated by the Office of the Comptroller of the Currency (the “OCC”). The Bank is a commercial bank that focuses on closely held and family owned businesses and their employees, professional service firms, real estate professionals and investors, the legal, accounting and medical professions, and small and medium-sized businesses and individuals principally in Los Angeles County. The Bank provides a wide range of banking services to meet the financial needs of the local residential community, with an orientation primarily directed toward owners and employees of the Bank’s business client base. The Bank is subject to both the regulations of and periodic examinations by the OCC, which is the Bank’s federal regulatory agency. Bancshares and the Bank are collectively referred to herein as “the Company.”

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations, changes in stockholders’ equity and comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations, changes in stockholders’ equity and comprehensive income and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, 2010, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC, under the Securities and Exchange Act of 1934, (the “Exchange Act”).  The unaudited consolidated financial statements include the accounts of Bancshares and the Bank.  All intercompany accounts and transactions have been eliminated.

The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2011.

The Company’s accounting and reporting policies conform to GAAP and to general practices within the banking industry. A summary of the significant accounting and reporting policies consistently applied in the preparation of the accompanying unaudited consolidated financial statements follows:

Use of Estimates

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant assumptions and estimates used by management in preparation of the consolidated financial statements include assumptions and assessments made in connection with calculating the allowance for loan losses and determining the realizability of the Company’s deferred tax assets.  It is at least reasonably possible that certain assumptions and estimates could prove to be incorrect and cause actual results to differ materially and adversely from the amounts reported in the consolidated financial statements included herewith.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest earning deposits at other financial institutions with original maturities less than 90 days and all highly liquid investments with original maturities of less than 90 days.

Investment Securities

Investment securities are classified in three categories. Debt securities that management has a positive intent and ability to hold to maturity are classified as “Held to Maturity” or “HTM” and are recorded at amortized cost. Debt and equity securities bought and held principally for the purpose of selling in the near term are classified as “Trading” securities and are measured at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as “Held to Maturity” or “Trading” with readily determinable fair values are classified as “Available for Sale” or “AFS” and are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. The Company uses estimates from third parties in arriving at fair value determinations which are derived in accordance with fair value measurement standards.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of investment securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income provided that management does not have the intent to sell the securities and it is more likely than not that management will not have to sell the security before recovery of its cost basis.  In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

The Bank is a member of the Federal Reserve System (“Fed” or “FRB”).  FRB stock is carried at cost and is considered a nonmarketable equity security.  Cash dividends from the FRB are reported as interest income on an accrual basis.

The Bank is a member and stockholder of the capital stock of the Federal Home Loan Bank of San Francisco (“FHLB of San Francisco” or “FHLB”).  Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.  FHLB of San Francisco stock is carried at cost and is considered a nonmarketable equity security.  Both cash and stock dividends are reported as interest income on a cash basis.

Loans

Loans, net, are stated at the unpaid principal balances less the allowance for loan losses and unamortized deferred fees and costs. Loan origination fees, net of related direct costs, are deferred and accreted to interest income as an adjustment to yield over the respective maturities of the loans using the effective interest method.

Interest on loans is accrued as earned on a daily basis, except where reasonable doubt exists as to the collection of interest and principal, in which case the accrual of interest is discontinued and the loan is placed on non-accrual status.  Loans are placed on non-accrual at the time principal or interest is 90 days delinquent. Interest on non-accrual loans is accounted for on a cash-basis or cost-recovery method, until qualifying for return to accrual status. In order for a loan to return to accrual status, all principal and interest amounts owed must be brought current and future payments must be reasonably assured, or the loan must be well secured and in the process of collection.

A loan is charged-off at any time the loan is determined to be uncollectible.  Collateral dependent loans, which generally include commercial real estate loans, residential loans, and construction and land loans, are typically charged down to their net realizable value when a loan is impaired or on non-accrual status.  All other loans are typically charged-off when, based upon current available facts and circumstances, it’s determined that either: (1) a loan is uncollectible, (2) repayment is determined to be protracted beyond a reasonable time frame, or (3) the loan is classified as a loss determined by either the Bank’s internal review process or by external examiners.

Loans are considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all principal and interest amounts due according to the original contractual terms of the loan agreement on a timely basis. The Company evaluates impairment on a loan-by-loan basis. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or by using the loan’s most recent market value or the fair value of the collateral if the loan is collateral dependent.  Loans that experience insignificant payment delays or payment shortfalls are generally not considered to be impaired.

When the measurement of an impaired loan is less than the recorded amount of the loan, a valuation allowance is established by recording a charge to the provision for loan losses. Subsequent increases or decreases in the valuation allowance for impaired loans are recorded by adjusting the existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses.  The Company’s policy for recognizing interest income on impaired loans is the same as that for non-accrual loans.

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a troubled debt restructuring (“TDR”).  Management strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before their loan reaches nonaccrual status.  Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.  Effective July 1, 2011, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2011-02, Receivables (“Topic 310”) - A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU 11-02”).  As such, the Company reassessed all loan modifications occurring since January 1, 2011 for identification as troubled debt restructurings.  In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for impaired loans.  There were no troubled debt restructurings during the nine months ended September 30, 2011 and 2010.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to operations. Loan losses are charged against the allowance when management believes that principal is uncollectible. Subsequent repayments or recoveries, if any, are credited to the allowance. Management periodically assesses the adequacy of the allowance for loan losses by reference to many quantitative and qualitative factors that may be weighted differently at various times depending on prevailing conditions.  The provisions reflect management’s evaluation of the adequacy of the allowance based, in part, upon estimates from historical peer group loan loss data, the loss experience of other financial institutions, as well as the historical loss experience of the loan portfolio, augmented by the experience of management with similar assets and the Company’s independent loan review process.  During this process, loans are segmented into the following categories: commercial loans, commercial real estate, residential, land and construction, and consumer and other loans. Loss ratios for all categories of loans are evaluated on a quarterly basis.  Loss ratios associated with historical loss experience are determined based on a rolling migration analysis of each loan category within the portfolio.  This migration analysis estimates loss factors based on the performance of each loan category over a three-year time period.  These loss factors are then adjusted, if necessary, for other identifiable risks specifically related to each loan category or risk grade.  Management carefully monitors changing economic conditions, the concentrations of loan categories, values of collateral, the financial condition of the borrowers, the history of the loan portfolio, and historical peer group loan loss data to determine the adequacy of the allowance for loan losses.  As a part of this process, management typically focuses on loan-to-value (“LTV”) percentages to assess the adequacy of loss ratios of collateral dependent loans within each loan category discussed above, trends within each loan category, as well as general economic and real estate market conditions where the collateral and borrower are located.  For loans that are not collateral dependent, which generally consist of commercial and consumer and other loans, management typically focuses on general business conditions where the borrower operates, trends within the portfolio, and other external factors to evaluate the severity of loss factors.  The allowance is based on estimates and actual losses may vary from the estimates.

In addition, regulatory agencies, as a part of their examination process, periodically review the Bank’s allowance for loan losses, and may require the Bank to make additions to the allowance based on their judgment about information available to them at the time of their examinations.  No assurance can be given that adverse future economic conditions will not lead to increased delinquent loans, and increases in the provision for loan losses and/or charge-offs. Management believes that the allowance as of September 30, 2011 and December 31, 2010 was adequate to absorb known and inherent risks in the loan portfolio.

Other Real Estate Owned

OREO represents real estate acquired through or in lieu of foreclosure.  OREO is held for sale and is initially recorded at fair value less estimated costs of disposition at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of cost or estimated fair value less costs of disposition.  OREO are included in accrued interest and other assets within the Consolidated Balance Sheets and the net operating results, if any, from OREO are recognized as non-interest expense within the unaudited Consolidated Statements of Operations.

Furniture, Fixtures and Equipment, net

Leasehold improvements and furniture, fixtures and equipment are carried at cost, less depreciation and amortization. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated useful life of the asset (three to five years). Leasehold improvements are depreciated using the straight-line method over the terms of the related leases or the estimated lives of the improvements, whichever is shorter.

Advertising Costs

Advertising costs are expensed as incurred.

Income Taxes

The Company files consolidated federal and combined state income tax returns. Income tax expense or benefit is the total of the current year income tax payable or refundable and the change in the deferred tax assets and liabilities (excluding deferred tax assets and liabilities related to components of other comprehensive income). Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates.

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in the rates and laws.  A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. The Company records a valuation allowance if it believes, based on all available evidence, that it is “more likely than not” that the future tax assets will not be realized. This assessment requires management to evaluate the Company’s ability to generate sufficient future taxable income or use eligible tax carrybacks, if any, to determine the need for a valuation allowance.

During the year ended December 31, 2009, the Company established a full valuation allowance against the deferred tax assets due to the uncertainty regarding its realizability.  At September 30, 2011 and December 31, 2010, management reassessed the need for this valuation allowance and concluded that a full valuation allowance remained appropriate.  Management reached this conclusion as a result of the Company’s cumulative losses since inception, and the anticipated near term economic climate in which the Company will operate.  Management will continue to evaluate the potential realizability of the deferred tax assets and will continue to maintain a valuation allowance to the extent it is determined that it is more likely than not that these assets will not be realized. At September 30, 2011 and December 31, 2010, the Company maintained a deferred tax liability of $1.4 million and $586,000, respectively, in connection with net unrealized gains on investment securities, which is included in Accrued Interest and Other Liabilities within the accompanying Consolidated Balance Sheets.  The Company did not utilize this deferred tax liability to reduce its tax valuation allowance due to the fact that management does not currently intend to dispose of these investments and realize the associated gains.

At September 30, 2011 and December 31, 2010, the Company did not have any tax benefits disallowed under accounting standards for uncertainties in income taxes.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. However, certain changes in assets and liabilities, such as unrealized gains and losses on Available for Sale securities, are reported as a separate component of the equity section of the Consolidated Balance Sheets and, along with net income, are components of comprehensive income.

Fair Value of Financial Instruments

The Company is required to make certain disclosures about its use of fair value measurements in the preparation of its financial statements.  These standards establish a three-level hierarchy for disclosure of assets and liabilities recorded at fair value.  The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect management’s estimates about market data.

Level 1	Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange, as well as U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.
Level 2	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 instruments include securities traded in less active dealer or broker markets.

Level 3 Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Stock-Based Compensation

            The Company has granted restricted stock awards to directors, employees, and a vendor under the 1st Century Bancshares 2005 Amended and Restated Equity Incentive Plan (the “Equity Incentive Plan”). The restricted stock awards are considered fixed awards as the number of shares and fair value is known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU 2010-06, Fair Value Measurements and Disclosures (“Topic 820”): Improving Disclosures about Fair Value Measurements (“ASU 10-06”).  ASU 10-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It requires the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. The Company’s disclosures about fair value measurements are presented in Note 10: Fair Value Measurements. These new disclosure requirements were adopted by the Company during the three months ended March 31, 2010, with the exception of the requirement concerning gross presentation of Level 3 activity, which was adopted during the three months ended March 31, 2011.  The adoption of this standard did not have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.

In July 2010, the FASB issued ASU 2010-20, Receivables (“Topic 310”) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 10-20”).  ASU 10-20 requires a company to disaggregate new and existing disclosures based on how it develops its allowance for credit losses and how it manages credit exposures.  Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from the ASU 10-20.  For public companies, the amendments that require disclosures as of the end of a reporting period were effective for periods ending on or after December 15, 2010. The adoption of this portion of ASU 10-20 did not have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.  The amendments that require disclosures about activity that occurs during a reporting period were effective for periods beginning on or after December 15, 2010.  The adoption of this portion of the ASU did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In January 2011, the FASB issued ASU 2011-01, Receivables (“Topic 310”) - Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU 11-01”).  ASU 11-01 temporarily deferred the effective date for disclosures related to troubled debt restructurings (“TDRs”) to coincide with the effective date of the ASU, discussed below, related to troubled debt restructurings.

In April 2011, the FASB issued ASU 2011-02.  ASU 11-02 amends the content in ASC 310 related to identifying TDRs and effectively nullifies ASU 2011-01.  This ASU removes the deferral of the TDR disclosure requirements of ASU 2010-20 for public entities and thus establishes the effective date for those disclosures.  ASU 11-02 is effective for the first interim or annual period beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the fiscal year of adoption. Early adoption is permitted.  The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (“Topic 820”) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 11-04”).  This ASU amends Topic 820, "Fair Value Measurements and Disclosures," to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards.  ASU 11-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 11-04 is effective for annual periods beginning after December 15, 2011.  Management does not believe that the adoption of this ASU will have a material impact on the Company’s financial position, results of operations, or cash flows.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (“Topic 220”) – Presentation of Comprehensive Income (“ASU 11-05”).  This ASU amends Topic 220, "Comprehensive Income," to require that all nonowner changes in stockholders' equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 11-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders' equity was eliminated. ASU 11-05 is effective for annual periods beginning after December 15, 2011.  Management does not believe that the adoption of this ASU will have a material impact on the Company’s financial position, results of operations, or cash flows.

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Loans, Allowance for Loan Losses, and Non-Performing Assets

9 Months Ended

Sep. 30, 2011

Loans, Allowance for Loan Losses, and Non-Performing Assets

Loans, Allowance for Loan Losses, and Non-Performing Assets

(3)          Loans, Allowance for Loan Losses, and Non-Performing Assets

Loans

As of September 30, 2011 and December 31, 2010, gross loans outstanding totaled $184.8 million and $179.3 million, respectively, within the following loan categories:

	September 30, 2011					December 31, 2010
	Amount			Percent		Amount			Percent
(dollars in thousands)	Outstanding			of Total		Outstanding			of Total
Commercial (1)	$	62,155		33.6	%	$	67,411		37.6	%
Commercial real estate	52,116			28.2	%	54,456			30.4	%
Residential	32,110			17.4	%	21,707			12.1	%
Land and construction	20,674			11.2	%	15,462			8.6	%
Consumer and other (2)	17,762			9.6	%	20,235			11.3	%
Loans, gross	184,817			100.0	%	179,271			100.0	%
Net deferred costs	65					22
Less — allowance for loan losses	(5,246		)			(5,283		)
Loans, net	$	179,636				$	174,010

(1)         Unsecured commercial loan balances were $10.8 million and $11.0 million at September 30, 2011 and December 31, 2010, respectively.

(2)         Unsecured consumer and other loan balances were $845,000 and $1.9 million at September 30, 2011 and December 31, 2010, respectively.

As of September 30, 2011 and December 31, 2010, substantially all of the Company’s loan customers were located in Southern California.

Allowance for Loan Losses and Recorded Investment in Loans

The following is a summary of activities for the allowance for loan losses and recorded investment in loans as of and for the three and nine months ended September 30, 2011:

(in thousands)	Commercial			Commercial Real Estate			Residential			Land and Construction			Consumer and Other			Total
Three Months Ended September 30, 2011:
Allowance for loan losses:
Beginning balance	$	2,671			$	902		$	296		$	886		$	329		$	5,084
Provision for loan losses		(162	)			—			62			100			—			—
Charge-offs		—				—			—			—			—			—
Recoveries		162				—			—			—			—			162
Ending balance	$	2,671			$	902		$	358		$	986		$	329		$	5,246

Nine Months Ended September 30, 2011:
Allowance for loan losses:
Beginning balance	$	2,812		$	888		$	213	$	995		$	375		$	5,283
Provision for loan losses		(99	)		294			145		(9	)		(56	)		275
Charge-offs		(222	)		(280	)		—		—			—			(502	)
Recoveries		180			—			—		—			10			190
Ending balance	$	2,671		$	902		$	358	$	986		$	329		$	5,246
As of September 30, 2011:
Ending balance: individually evaluated for impairment	$	1,000		$	—		$	—	$	—		$	—		$	1,000
Ending balance: collectively evaluated for impairment		1,671			902			358		986			329			4,246
Total	$	2,671		$	902		$	358	$	986		$	329		$	5,246
Loans:
Ending balance: individually evaluated for impairment	$	2,252		$	4,041		$	—	$	—		$	345		$	6,638
Ending balance: collectively evaluated for impairment		59,903			48,075			32,110		20,674			17,417			178,179
Total	$	62,155		$	52,116		$	32,110	$	20,674		$	17,762		$	184,817

The following is a summary of the allowance for loan losses and recorded investment in loans as of December 31, 2010:

(in thousands)	Commercial		Commercial Real Estate					Residential					Land and Construction					Consumer and Other					Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	1,121			$		20			$		—			$		—			$		40			$		1,181
Ending balance: collectively evaluated for impairment		1,691					868					213					995					335					4,102
Total	$	2,812			$		888			$		213			$		995			$		375			$		5,283
Loans:
Ending balance: individually evaluated for impairment	$	1,693		$		5,080			$		—			$		—			$		345			$		7,118
Ending balance: collectively evaluated for impairment		65,718					49,376					21,707					15,462					19,890					172,153
Total	$	67,411			$		54,456			$		21,707			$		15,462			$		20,235			$		179,271

The following is a summary of activities for the allowance for loan losses for the three and nine months ended September 30, 2010:

(in thousands)	Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010
Beginning balance	$	4,947			$	5,478
Provision for loan losses		100				200
Charge-offs:
Commercial		(659	)			(889	)
Commercial real estate		(250	)			(650	)
Consumer and other		—				(52	)
Total charge-offs		(909	)			(1,591	)
Recoveries:
Commercial		381				386
Commercial real estate		—				22
Residential		—				20
Consumer and other		—				4
Total recoveries		381				432
Ending balance	$	4,519			$	4,519

There were no loans acquired with deteriorated credit quality as of September 30, 2011 and December 31, 2010.

In addition to the allowance for loan losses, the Company also estimates probable losses related to unfunded lending commitments.  Unfunded lending commitments are subject to individual reviews and are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, current economic conditions, performance trends within specific portfolio segments and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments.  Provision for credit losses related to unfunded lending commitments is reported in other operating expenses in the unaudited Consolidated Statements of Operations.  The allowance held for unfunded lending commitments is reported in accrued interest and other liabilities within the accompanying Consolidated Balance Sheets, and not as part of the allowance for loan losses in the above tables.  As of September 30, 2011 and December 31, 2010, the allowance for unfunded lending commitments was $203,000 and is primarily related to commercial and home equity lines of credit and letters of credit which amounted to $67.3 million and $62.7 million at September 30, 2011 and December 31, 2010, respectively.

Non-Performing Assets

The following table presents an aging analysis of the recorded investment of past due loans as of September 30, 2011. Payment activity is reviewed by management on a monthly basis to determine the performance of each loan.  Loans are considered to be non-performing when a loan is greater than 90 days delinquent.  Loans that are 90 days or more past due may still accrue interest if they are well-secured and in the process of collection.  Total additions to non-performing loans during the nine months ended September 30, 2011 and 2010 were $891,000 and $1.4 million, respectively.  Non-performing loans represented 3.6% and 4.0% of total loans at September 30, 2011 and December 31, 2010, respectively.  There were no accruing loans past due 90 days or more at September 30, 2011 and December 31, 2010.

(in thousands)	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total
As of September 30, 2011:
Commercial	$	—	$	—	$	1,878	$	1,878	$	60,277	$	62,155
Commercial real estate		—		—		790		790		51,326		52,116
Residential		—		—		—		—		32,110		32,110
Land and construction		—		—		—		—		20,674		20,674
Consumer and other		—		—		345		345		17,417		17,762
Totals	$	—	$	—	$	3,013	$	3,013	$	181,804	$	184,817
As of December 31, 2010:
Commercial	$	437	$	—	$	—	$	437	$	66,974	$	67,411
Commercial real estate		—		—		1,695		1,695		52,761		54,456
Residential		—		—		—		—		21,707		21,707
Land and construction		—		—		—		—		15,462		15,462
Consumer and other		50		—		345		395		19,840		20,235
Totals	$	487	$	—	$	2,040	$	2,527	$	176,744	$	179,271

           The following table sets forth non-accrual loans and other real estate owned at September 30, 2011 and December 31, 2010:

(dollars in thousands)	September 30, 2011			December 31, 2010
Non-accrual loans:
Commercial	$	2,252		$	1,693
Commercial real estate	4,041			5,080
Consumer and other	345			345
Total non-accrual loans	6,638			7,118
OREO	532			845
Total non-performing assets	$	7,170		$	7,963
Non-performing assets to gross loans and OREO	3.87		%	4.42		%
Non-performing assets to total assets	1.87		%	2.58		%

Credit Quality Indicators

The following table represents the credit exposure by internally assigned grades at September 30, 2011 and December 31, 2010.  This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms.  The Company’s internal credit risk grading system is based on management’s experiences with similarly graded loans.  Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan.

The Company’s internally assigned grades are as follows:

Pass – Strong credit with no existing or known potential weaknesses deserving of management's close attention.

Special Mention – Potential weaknesses that deserve management’s close attention.  Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard – Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful – All the weakness inherent in one classified as Substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss – Considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has absolutely no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery may be collected in the future.

(in thousands)	Commercial		Commercial Real Estate		Residential		Land and Construction		Consumer and Other
As of September 30, 2011:
Grade:
Pass	$	55,624	$	47,386	$	32,110	$	14,295	$	17,368
Special Mention		2,000		—		—		4,779		—
Substandard		3,631		4,730		—		1,600		394
Doubtful		900		—		—		—		—
Total	$	62,155	$	52,116	$	32,110	$	20,674	$	17,762
As of December 31, 2010:
Grade:
Pass	$	57,315	$	49,376	$	21,707	$	7,861	$	18,724
Special Mention		3,053		—		—		2,137		938
Substandard		5,922		5,080		—		5,464		573
Doubtful		1,121		—		—		—		—
Total	$	67,411	$	54,456	$	21,707	$	15,462	$	20,235

There were no loans assigned to the Loss grade as of September 30, 2011 and December 31, 2010.

             Impaired Loans

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.  Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral.  In those cases, the current fair value of the collateral, less selling costs was used to determine the specific allowance recorded.  Also presented below are the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on non-accrual status, contractual interest is credited to interest income when received, under the cash basis method. The average balances are calculated based on the month-end balances of the financing receivables of the period reported.

(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
As of and for the nine months ended September 30, 2011:
With no related allowance recorded:
Commercial	$	1,060	$	1,317	$	—	$	586
Commercial real estate		4,041		7,985		—		3,878
Residential		—		—		—		—
Land and construction		—		—		—		—
Consumer and other		345		345		—		115
With an allowance recorded:
Commercial	$	1,192	$	2,225	$	1,000	$	1,329
Commercial real estate		—		—		—		638
Residential		—		—		—		—
Land and construction		—		—		—		—
Consumer and other		—		—		—		230
Totals:
Commercial	$	2,252	$	3,542	$	1,000	$	1,915
Commercial real estate	$	4,041	$	7,985	$	—	$	4,516
Residential	$	—	$	—	$	—	$	—
Land and construction	$	—	$	—	$	—	$	—
Consumer and other	$	345	$	345	$	—	$	345
As of and for the year ended December 31, 2010:
With no related allowance recorded:
Commercial	$	247	$	262	$	—	$	1,380
Commercial real estate		4,425		8,276		—		5,300
Residential		—		—		—		707
Land and construction		—		—		—		—
Consumer and other		—		—		—		—
With an allowance recorded:
Commercial	$	1,446	$	2,462	$	1,121	$	733
Commercial real estate		655		705		20		202
Residential		—		—		—		—
Land and construction		—		—		—		—
Consumer and other		345		345		40		106
Totals:
Commercial	$	1,693	$	2,724	$	1,121	$	2,113
Commercial real estate	$	5,080	$	8,981	$	20	$	5,502
Residential	$	—	$	—	$	—	$	707
Land and construction	$	—	$	—	$	—	$	—
Consumer and other	$	345	$	345	$	40	$	106

During the three months ended September 30, 2011 and 2010, no interest income was recognized on these loans subsequent to their classification as impaired.  Furthermore, the Company stopped accruing interest on these loans on the date they were classified as non-accrual and reversed any uncollected interest that had been previously accrued as income.  The Company may begin recognizing interest income on these loans as cash interest payments are received, if collection of principal is reasonably assured.

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Comprehensive Income

9 Months Ended

Sep. 30, 2011

Comprehensive Income

Comprehensive Income

(4)           Comprehensive Income

Comprehensive income, which includes net income and the net change in unrealized gains on investment securities available for sale is presented below:

	Three Months Ended September 30,					Nine Months Ended September30,
(in thousands)	2011		2010				2011		2010
Net income	$	354	$	155			$	593		$	398
Other comprehensive income:
Increase (decrease) in net unrealized gains on investment securities available for sale, net of tax expense (benefit) of $484 and $809 for the three and nine months ended September 30, 2011, respectively, and ($82) and $242 for the three and nine months ended September 30, 2010, respectively		692		(117	)			1,158			347
Reclassification for net gains included in earnings, net of tax expense of $1 and $18 for the nine months ended September 30, 2011 and 2010, respectively		—		—				(1	)		(26	)
Comprehensive income	$	1,046	$	38			$	1,750		$	719

The Company did not sell any available for sale securities during the three months ended September 30, 2011.  The Company sold one available for sale securities totaling $140,000 during the nine months ended September 30, 2011, resulting in a realized gain of $2,000.  The Company did not sell any available for sale securities during the three months ended September 30, 2010.  The Company sold two available for sale securities totaling $3.8 million during the nine months ended September 30, 2010, resulting in a realized gain of $44,000. The realized gain was reported in non-interest income within the accompanying unaudited Consolidated Statements of Operations.

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

(13)         Stock-Based Compensation

The Company grants restricted stock awards to directors and employees under the Equity Incentive Plan.  Restricted stock awards are considered fixed awards as the number of shares and fair value is known at the date of grant and the fair value at the grant date is amortized over the requisite service period.  On May 15, 2011, the Company granted 104,500 restricted stock awards to employees with various vesting periods as follows:  50% or 52,250 awards that vest in three years, 25% or 26,125 awards that vest in four years, and 25% or 26,125 awards that vest in five years.

Non-cash stock compensation expense recognized in the unaudited Consolidated Statements of Operations related to the restricted stock awards, net of estimated forfeitures, was $52,000 and $290,000 for the three and nine months ended September 30, 2011, respectively, and $109,000 and $389,000 for the three and nine months ended September 30, 2010, respectively.

The following table reflects the activities related to restricted stock awards outstanding for the nine months ended September 30, 2011 and 2010, respectively.

	Nine Months Ended September 30,
	2011				2010
Restricted Shares	Number of Shares		Weighted Avg Fair Value at Grant Date		Number of Shares		Weighted Avg Fair Value at Grant Date
Beginning balance	449,768		$	4.40	359,710		$	5.58
Granted	104,500		4.00		190,000		4.05
Vested	(72,478	)	5.30		(112,795	)	7.11
Forfeited and surrendered	(33,500	)	4.33		(2,000	)	4.71
Ending balance	448,290		$	4.16	434,915		$	5.88

The Company recognizes compensation expense for stock options by amortizing the fair value at the grant date over the service, or vesting period.

There have been no options granted, exercised or cancelled under the 2004 Founder Stock Option Plan for the nine months ended September 30, 2011 or 2010.

The remaining contractual life of the 2004 Founder Stock Options outstanding was 2.41 and 3.41 years at September 30, 2011 and 2010, respectively. All options under the 2004 Founder Stock Option Plan were exercisable at September 30, 2011 and 2010.  At September 30, 2011 and 2010, the weighted average exercise price of the 133,700 shares outstanding under the 2004 Founder Stock Option Plan was $5.00.

There have been no options granted, exercised or cancelled under the Director and Employee Stock Option Plan for the nine months ended September 30, 2011 or 2010.

The remaining contractual life of the Director and Employee Stock Options outstanding was 2.89 and 3.89 years at September 30, 2011 and 2010, respectively. All options under the Directors and Employee Stock Option Plan were exercisable at September 30, 2011 and 2010.  At September 30, 2011 and 2010, the weighted average exercise price of the 1,045,673 shares outstanding under the Director and Employee Stock Option Plan was $6.05.

The following tables detail the amount of shares authorized and available under all stock plans as of September 30, 2011:

	Shares Reserved	Less Shares Previously Exercised/Vested	Less Shares Outstanding	Total Shares Available for Future Issuance
2004 Founder Stock Option Plan	150,000	8,000	133,700	8,300
Director and Employee Stock Option Plan	1,434,000	216,924	1,045,673	171,403
Equity Incentive Plan	1,200,000	390,849	448,290	360,861

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Premises and Equipment

9 Months Ended

Sep. 30, 2011

Premises and Equipment

Premises and Equipment

(5)                                 Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. The depreciation and amortization are computed on a straight line basis over the lesser of the lease term, or the estimated useful lives of the assets, generally three to ten years.

Premises and equipment at September 30, 2011 and December 31, 2010 are comprised of the following:

(in thousands)	September 30, 2011			December 31, 2010
Leasehold improvements	$	946		$	906
Furniture & equipment	1,788			1,530
Software	544			527
Total	3,278			2,963
Accumulated depreciation	(2,241		)	(1,975		)
Premises and equipment, net	$	1,037		$	988

Depreciation and amortization included in occupancy expense was $94,000 and $266,000 for the three and nine months ended September 30, 2011, respectively, and $91,000 and $263,000 for the three and nine months ended September 30, 2010, respectively.

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Unaudited Consolidated Statements of Cash Flows in thousands (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Net Cash Provided by Operating Activities:
Net income	$ 593	$ 398
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of premises and equipment	266	263
Provision for loan losses	275	200
Amortization of deferred loan costs, net of fees	31	109
Non-cash stock compensation, net of forfeitures	290	389
Other, net	282	(39)
(Increase) decrease in accrued interest and other assets	(5)	244
Decrease in accrued interest and other liabilities	(1,708)	(39)
Net cash provided by operating activities	24	1,525
Net Cash (Used In) Provided by Investing Activities:
Purchases of securities	(56,995)	(8,773)
Maturities, calls and principal reductions of securities	13,759	10,247
Proceeds from the sale of securities	140	3,887
(Increase) decrease in loans, net	(5,932)	11,095
Proceeds from the sale of other real estate owned ("OREO")	268	0
Purchase of premises and equipment	(315)	(207)
Redemption of FRB stock and FHLB stock	314	392
Net cash (used in) provided by investing activities	(48,761)	16,641
Net Cash Provided by Financing Activities:
Net increase in deposits	67,918	38,253
Proceeds from long-term FHLB borrowings	10,000	0
Repayment of long-term FHLB borrowings	(2,000)	(12,500)
Common stock repurchased, value	(985)	(125)
Shares surrendered to pay taxes on vesting of restricted stock, value	(62)	(142)
Net cash provided by financing activities	74,871	25,486
Increase in cash and cash equivalents	26,134	43,652
Cash and cash equivalents at start of period	69,012	45,935
Cash and cash equivalents at end of period	95,146	89,587
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	669	778
Supplemental disclosures of non-cash investing activity:
Transfer of residential mortgage loan to OREO	$ 0	$ 313

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Earnings Per Share

9 Months Ended

Sep. 30, 2011

Earnings Per Share

Earnings Per Share

Earnings per Share

The Company reports both basic and diluted earnings per share. Basic earnings per share is determined by dividing net income by the average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net income by the average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents. Potential dilutive common shares related to outstanding stock options and restricted stock are determined using the treasury stock method.

	Three Months Ended September 30,				Nine months Ended September 30,
(dollars in thousands)	2011		2010		2011		2010
Net income	$	354	$	155	$	593	$	398
Average number of common shares outstanding		8,763,972		8,921,861		8,831,843		8,899,752
Effect of dilution of restricted stock		159,193		95,882		168,583		108,820
Average number of common shares outstanding used to calculate diluted earnings per common share		8,923,165		9,017,743		9,000,426		9,008,572

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Fair Value Measurements and Estimated Fair Value Information

9 Months Ended

Sep. 30, 2011

Fair Value Measurements and Estimated Fair Value Information

Fair Value Measurements and Estimated Fair Value Information

(10)                          Fair Value Measurements

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2011 and December 31, 2010, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At September 30, 2011:
Investments-Available for Sale
U.S. Gov’t treasuries	$	2,126	$	2,126	$	—	$	—
Corporate Notes		4,163		—		4,163		—
Residential Mortgage-Backed Securities		96,009		—		96,009		—
Residential CMOs		1,000		—		1,000		—
Total	$	103,298	$	2,126	$	101,172	$	—
At December 31, 2010:
Investments-Available for Sale
U.S. Gov’t treasuries	$	150	$	150	$	—	$	—
Debt issued by the States of the United States		2,015		—		2,015		—
Residential Mortgage-Backed Securities		54,519		—		54,519		—
Residential CMOs		1,790		—		1,790		—
Total	$	58,474	$	150	$	58,324	$	—

AFS securities — Level 2 fair values for investment securities are based on inputs other than quoted prices that are observable, either directly or indirectly.  The Company obtains quoted prices through third party brokers.  There were no transfers into or out of Level 2 measurements during the three and nine months ended September 30, 2011 and 2010.

As of September 30, 2011 and December 31, 2010, the Level 2 fair value of the Company’s residential mortgage-backed securities and collateralized mortgage obligations was $97.0 million and $56.3 million, respectively.  These securities consist entirely of agency mortgage-backed securities issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).  The underlying loans for these securities are residential mortgages that were primarily originated beginning in the year of 2003 through the current period.  These loans are geographically dispersed throughout the United States.  At September 30, 2011 and December 31, 2010, the weighted average rate and weighed average life of these securities were 3.00% and 3.64%, respectively, and 4.08 years and 3.43 years, respectively.

The valuation for investment securities utilizing Level 2 inputs were primarily determined by quotes received from an independent pricing services using matrix pricing, which is a mathematical technique widely used in the industry to value securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
At September 30, 2011:
Impaired loans
Commercial	$	1,252	$	—		$	—		$	1,252
Commercial real estate		4,041		—			—			4,041
Residential		—		—			—			—
Land and construction		—		—			—			—
Consumer and other		345		—			—			345
Other real estate owned - residential		532		—			—			532
Total	$	6,170	$	—		$	—		$	6,170
At December 31, 2010:
Impaired loans
Commercial	$	572	$	—		$	—		$	572
Commercial real estate		5,060		—			—			5,060
Residential		—		—			—			—
Land and construction		—		—			—			—
Consumer and other		305		—			—			305
Other real estate owned - residential		845		—			—			845
Total	$	6,782	$	—		$	—		$	6,782

Impaired loans — Loans are considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all principal and interest amounts due according to the original contractual terms of the loan agreement on a timely basis. The Company evaluates impairment on a loan-by-loan basis. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or by using the loan’s most recent market value or the fair value of the collateral if the loan is collateral dependent.  The fair value of impaired loans using discounted cash flows is determined using estimates of expected future cash flow which requires significant judgment from management that could not be corroborated by observable market data.  The fair value of impaired loans that are collateral dependent is determined using various valuation techniques which are not readily observable in the market place, including consideration of appraised values and other pertinent real estate market data.  The Company recorded net recoveries of $162,000 on impaired loans during the three months ended September 30, 2011 and net charge-offs of $312,000 during the nine months ended September 30, 2011, compared to net charge-offs of $528,000 and $1.2 million during the same periods last year.

Other real estate owned — OREO represents real estate acquired through or in lieu of foreclosure.  OREO is held for sale and is initially recorded at fair value less estimated costs of disposition at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of cost or estimated fair value less costs of disposition.  The fair value of OREO is determined using various valuation techniques which are not readily observable in the market place, including consideration of appraised values and other pertinent real estate market data.

(11)                          Estimated Fair Value Information

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many cases, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize in a current market exchange.

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value are explained below.

Cash and cash equivalents

The carrying amounts are considered to be their estimated fair values because of the short-term maturity of these instruments which includes Federal funds sold and interest-earning deposits at other financial institutions.

Investment securities

AFS investment securities are carried at fair value, which are based on quoted prices of exact or similar securities, or on inputs that are observable, either directly or indirectly. The Company obtains quoted prices through third party brokers.

FRB and FHLB stock

For FRB and FHLB stock, the carrying amount is equal to the par value at which the stock may be sold back to FRB or FHLB, which approximates fair value.

Loans, net

For loans, the fair value is estimated using market quotes for similar assets or the present value of future cash flows, discounted using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same maturities and giving consideration to estimated prepayment risk and credit risk.

Impaired loans are measured for impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, the Company may measure impairment based on a loan's observable market price, or the fair value of the collateral (net of estimated costs to sell) if the loan is collateral dependent.

Off-balance sheet credit-related instruments

The fair values of commitments, which include standby letters of credit and commercial letters of credit, are based upon fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The related fees are not considered material to the Company’s financial statements as a whole and the fair market value of the Company’s off-balance sheet credit-related instruments cannot be readily determined.

Deposits

For demand deposits, the carrying amount approximates fair value. The fair values of interest bearing checking, savings, and money market deposits are estimated by discounting future cash flows using the interest rates currently offered for deposits of similar products.  The fair values of the certificates of deposit are estimated by discounting future cash flows based on the rates currently offered for certificates of deposit with similar interest rates and remaining maturities.

Other borrowings

The fair values of long term FHLB advances are estimated based on the rates currently offered by the FHLB for advances with similar interest rates and remaining maturities.

Accrued interest

The estimated fair value for both accrued interest receivable and accrued interest payable are considered to be equivalent to the carrying amounts.

The estimated fair value and carrying amounts of the financial instruments at September 30, 2011 and December 31, 2010 are as follows:

	September 30, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
(dollars in thousands)	Amount		Fair Value		Amount		Fair Value
Assets
Cash and cash equivalents	$	95,146	$	95,146	$	69,012	$	69,012
Investment securities	103,298		103,298		58,474		58,474
FRB stock	1,233		1,233		1,301		1,301
FHLB stock	1,780		1,780		2,026		2,026
Loans, net	179,636		179,188		174,010		170,595
Accrued interest receivable	718		718		658		658
Liabilities
Non-interest bearing deposits	$	120,895	$	120,895	$	91,501	$	91,501
Interest bearing deposits	205,012		205,012		166,488		166,489
Other borrowings	10,000		10,145		2,000		2,009
Accrued interest payable	116		116		91		91

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Consolidated Balance Sheets in thousands, except share and per share data (USD $)	Sep. 30, 2011		Dec. 31, 2010
ASSETS
Cash and due from banks	$ 11,032		$ 6,673
Interest earning deposits at other financial institutions	84,114		62,339
Total cash and cash equivalents	95,146		69,012
Investment securities - Available for Sale ("AFS"), at estimated fair value	103,298		58,474
Loans, net	179,636	[1]	174,010	[2]
Premises and equipment, net	1,037		988
Federal Home Loan Bank ("FHLB") stock	1,780		1,301
Federal Reserve Bank ("FRB") stock	1,233		2,026
Accrued interest and other assets	2,245		2,553
Total Assets	384,375		308,364
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing demand deposits	120,895		91,501
Interest bearing checking ("NOW")	24,770		33,632
Money market deposits and savings	133,349		72,757
Certificates of deposit less than $100	1,981		2,522
Certificates of deposit of $100 or greater	44,912		57,577
Total deposits	325,907		257,989
Other borrowings	10,000		2,000
Accrued interest and other liabilities	3,137		4,037
Total Liabilities	339,044		264,026
Commitments and contingencies		[3]		[3]
Stockholders' Equity:
Preferred stock	0	[4]	0	[5]
Common stock	107	[6]	107	[7]
Additional paid-in capital	64,359		64,069
Accumulated deficit	(14,273)		(14,866)
Accumulated other comprehensive income	1,995		838
Treasury stock	(6,857)	[8]	(5,810)	[9]
Total Stockholders' Equity	45,331		44,338
Total Liabilities and Stockholders' Equity	$ 384,375		$ 308,364

[1] net of allowance for loan losses of $5,246 at September 30, 2011

[2] net of allowance for loan losses of $5,283 at December 31, 2010

[3] note 8

[4] $0.01 par value, 10,000,000 shares authorized, none issued and outstanding at September 30, 2011

[5] $0.01 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2010

[6] $0.01 par value, 50,000,000 shares authorized, 10,743,676 issued at September 30, 2011

[7] $0.01 par value, 50,000,000 shares authorized, 10,672,676 issued at December 31, 2010

[8] at cost, 1,653,411 shares at September 30, 2011

[9] at cost, 1,370,385 shares at December 31, 2010