10-Q

US Securities and Exchange Commission

Washington, DC 20549

Form 10-Q

Quarterly Report Pursuant To Section 13 or 15(d)

Of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2012

Commission File Number 000-52099

Yadkin Valley Financial Corporation

(Exact name of registrant specified in its charter)

North Carolina	20-4495993
(State of Incorporation)	(I.R.S. Employer Identification No.)

209 North Bridge Street, Elkin, North Carolina 28621

(address of principal executive offices)

336-526-6300

(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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o 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 o No x

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 No o

Common shares outstanding as of October 25, 2012, par value $1.00 per share, were 20,003,688.

YADKIN VALLEY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and nine months ended September 30, 2012 and 2011

Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets September 30, 2012 and December 31, 2011	2
Condensed Consolidated Statements of Income (Loss) Three and Nine Months Ended September 30, 2012 and 2011	3
Condensed Consolidated Statements of Comprehensive Income (Loss) Three and Nine Months Ended September 30, 2012 and 2011	4
Condensed Consolidated Statements of Shareholders' Equity Nine Months Ended September 30, 2012 and 2011	5
Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2012 and 2011	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3. Quantitative and Qualitative Disclosures About Market Risk	56
Item 4. Controls and Procedures	56
Part II. Other Information
Item 1. Legal Proceedings	58
Item 5. Other Information	58
Item 6. Exhibit Index	58
Signatures	59

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

1

YADKIN VALLEY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of September 30, 2012 and December 31, 2011

	September 30,			December 31,
	2012			2011*
	(Amounts in thousands, except share data)
ASSETS
Cash and due from banks	$	26,048		$	40,790
Federal funds sold	50			50
Interest-bearing deposits	97,124			52,078
Securities available-for-sale at fair value (amortized cost $302,718 in 2012 and $324,172 in 2011)	310,556			330,422
Gross loans	1,358,868			1,450,924
Less: allowance for loan losses	27,231			32,848
Net loans	1,331,637			1,418,076
Loans held-for-sale	24,766			19,534
Accrued interest receivable	6,229			6,745
Premises and equipment, net	41,460			42,120
Other real estate owned	22,294			24,966
Federal Home Loan Bank stock, at cost	4,155			6,130
Investment in bank-owned life insurance	26,274			25,934
Core deposit intangible (net of accumulated amortization of $9,609 in 2012 and $8,789 in 2011)	2,914			3,733
Other assets	26,871			22,610
Total Assets	$	1,920,378		$	1,993,188
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing demand deposits	$	256,402		$	229,895
Interest-bearing deposits:
NOW, savings and money market accounts	606,220			625,560
Time certificates:
$100 or more	342,356			360,388
Other	446,482			515,498
Total Deposits	1,651,460			1,731,341
Short-term borrowings	36,314			39,810
Long-term borrowings	65,985			65,729
Capital lease obligations	2,335			2,365
Accrued interest payable	1,746			2,619
Other liabilities	7,302			10,738
Total Liabilities	$	1,765,142		$	1,852,602
Shareholders' Equity
Preferred stock, no par value, 1,000,000 shares authorized; 49,312 issued and outstanding in 2012 and 2011	48,033			47,389
Common stock, $1 par value, 50,000,000 shares authorized; 20,003,688 issued and outstanding in 2012 and 19,526,188 issued and outstanding in 2011	20,004			19,526
Warrants	3,581			3,581
Surplus	117,700			117,883
Accumulated deficit	(38,923		)	(51,656		)
Accumulated other comprehensive income	4,841			3,863
Total Shareholders' Equity	155,236			140,586
Total Liabilities and Shareholders' Equity	$	1,920,378		$	1,993,188

_______________________

* Derived from audited consolidated financial statements

See notes to condensed consolidated financial statements

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

2

YADKIN VALLEY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three and nine months ended September 30, 2012 and 2011

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Amounts in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans	$	17,735		$	19,341		$	54,618		$	60,780
Interest on federal funds sold	9			7			24			22
Interest and dividends on securities:
Taxable	1,165			1,598			3,797			4,800
Non-taxable	509			548			1,637			1,709
Interest-bearing deposits	28			71			103			276
TOTAL INTEREST INCOME	19,446			21,565			60,179			67,587
INTEREST EXPENSE
Time deposits of $100 or more	1,762			2,326			5,667			7,804
Other time and savings deposits	2,018			3,120			6,582			11,231
Borrowed funds	477			494			1,692			1,651
TOTAL INTEREST EXPENSE	4,257			5,940			13,941			20,686
NET INTEREST INCOME	15,189			15,625			46,238			46,901
PROVISION FOR LOAN LOSSES	4,251			1,956			8,820			17,216
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	10,938			13,669			37,418			29,685
NON-INTEREST INCOME:
Service charges on deposit accounts	1,319			1,464			3,887			3,961
Other service fees	857			837			2,646			2,582
Net gain on sale of securities	1,348			1,556			1,648			2,078
Income on investment in bank-owned life insurance	159			167			473			491
Mortgage banking activities	1,599			1,183			4,412			4,442
Other than temporary impairment of securities	—			(74		)	—			(116		)
Loss on sale of loans	(900		)	—			(900		)	—
Other income	283			90			415			333
TOTAL NON-INTEREST INCOME	4,665			5,223			12,581			13,771
NON-INTEREST EXPENSES:
Salaries and employee benefits	6,914			6,073			19,378			21,402
Occupancy and equipment expense	1,794			1,961			5,436			6,461
Printing and supplies	168			141			463			478
Data processing	456			404			1,295			1,158
Amortization of core deposit intangible	266			289			820			892
Communications	314			372			1,019			1,291
FDIC assessment	650			79			2,004			2,757
Loan collection fees	69			379			510			1,285
Other professional fees	491			218			1,276			830
Net cost of operation of other real estate owned	1,322			759			5,295			3,982
(Gain) loss on sale of premises and equipment	—			286			(22		)	1,481
Goodwill impairment	—			—			—			4,944
Other	2,348			1,868			6,628			6,910
TOTAL NON-INTEREST EXPENSES	14,792			12,829			44,102			53,871
INCOME (LOSS) BEFORE INCOME TAXES	811			6,063			5,897			(10,415		)
INCOME TAX EXPENSE (BENEFIT)	54			2,384			(9,329		)	6,905
NET INCOME (LOSS)	757			3,679			15,226			(17,320		)
Preferred stock dividend and accretion of preferred stock discount	838			771			2,493			2,216
NET INCOME (LOSS) TO COMMON SHAREHOLDERS	$	(81	)	$	2,908		$	12,733		$	(19,536	)
NET INCOME (LOSS) PER COMMON SHARE:
Basic	$	—		$	0.15		0.66			$	(1.09	)
Diluted	$	—		$	0.15		0.66			$	(1.09	)
CASH DIVIDENDS PER COMMON SHARE	—			—			—			—

See notes to condensed consolidated financial statements

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

3

YADKIN VALLEY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPRENHENSIVE INCOME (LOSS) (UNAUDITED)

Three and nine months ended September 30, 2012 and 2011

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Amounts in thousands)						(Amounts in thousands)
NET INCOME (LOSS)	$	757		$	3,679		$	15,226		$	(17,320	)
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains on securities available-for-sale	1,975			3,234			3,239			7,338
Tax effect	(760		)	(1,245		)	(1,247		)	(2,825		)
Unrealized holding gains on securities available-for-sale, net of tax amount	1,215			1,989			1,992			4,513
Reclassification adjustment for realized gains	(1,348		)	(1,556		)	(1,648		)	(1,998		)
Tax effect	519			599			634			769
Reclassification adjustment for realized gains, net of tax amount	(829		)	(957		)	(1,014		)	(1,229		)
OTHER COMPREHENSIVE INCOME, NET OF TAX	386			1,032			978			3,284
COMPREHENSIVE INCOME (LOSS)	$	1,143		$	4,711		$	16,204		$	(14,036	)

See notes to condensed consolidated financial statements

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

4

YADKIN VALLEY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

Nine months ended September 30, 2012 and 2011

																Accumulated
																Other		Total
	Common Stock					Preferred							Accumulated			Comprehensive		Shareholders'
	Shares		Amount			Stock		Warrants		Surplus			Deficit			Income		Equity
	(Amounts in thousands, except share data)
BALANCE, DECEMBER 31, 2010	16,147,640		$	16,148		$	46,770	$	3,581	$	114,649		$	(34,273	)	$	582	$	147,457
Net loss	—		—			—		—		—			(17,320		)	—		(17,320		)
Issuance of common stock	3,233,548		3,233			—		—		3,169			—			—		6,402
Restricted stock issued (forfeited)	145,000		145			—		—		(145		)	—			—		—
Discount accretion on preferred stock	—		—			465		—		—			(465		)	—		—
Share based compensation:
stock options	—		—			—		—		58			—			—		58
restricted stock	—		—			—		—		86			—			—		86
Preferred stock dividends	—		—			—		—		—			(1,751		)	—		(1,751		)
Other comprehensive income	—		—			—		—		—			—			3,284		3,284
BALANCE, SEPTEMBER 30, 2011	19,526,188		$	19,526		$	47,235	$	3,581	$	117,817		$	(53,809	)	$	3,866	$	138,216
BALANCE, DECEMBER 31, 2011	19,526,188		$	19,526		$	47,389	$	3,581	$	117,883		$	(51,656	)	$	3,863	$	140,586
Net income	—		—			—		—		—			15,226			—		15,226
Issuance of restricted stock	497,500		498			—		—		(498		)	—			—		—
Restricted stock issued (forfeited)	(20,000	)	(20		)	—		—		20			—			—		—
Discount accretion on preferred stock	—		—			644		—		—			(644		)	—		—
Share based compensation:
stock options	—		—			—		—		23			—			—		23
restricted stock	—		—			—		—		272			—			—		272
Preferred stock dividends	—		—			—		—		—			(1,849		)	—		(1,849		)
Other comprehensive income	—		—			—		—		—			—			978		978
BALANCE, SEPTEMBER 30, 2012	20,003,688		$	20,004		$	48,033	$	3,581	$	117,700		$	(38,923	)	$	4,841	$	155,236

See notes to condensed consolidated financial statements

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

5

YADKIN VALLEY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine months ended September 30, 2012 and 2011

	Nine Months Ended September 30,
	2012			2011
	(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	15,226		$	(17,320	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net amortization of premiums on investment securities	5,545			3,483
Provision for loan losses	8,820			17,216
Loss on sales of loans held-for-sale	900			—
Net gain on sale of mortgage loans	(2,309		)	(3,201		)
Other than temporary impairment of investments	—			116
Impairment of goodwill	—			4,944
Increase in cash surrender value of life insurance	(473		)	(491		)
Depreciation and amortization	2,028			2,149
(Gain) loss on sales and impairment of premises and equipment	(22		)	1,481
Net losses on sale and write downs of other real estate owned	4,595			2,891
Gain on sale of securities	(1,648		)	(2,078		)
Amortization of core deposit intangible	820			892
Deferred tax provision	(8,987		)	5,279
Stock based compensation expense	295			144
Originations of mortgage loans held-for-sale	(100,516		)	(407,551		)
Proceeds from sales of mortgage loans	108,393			447,370
Decrease in capital lease obligations	(67		)	(28		)
Decrease in accrued interest receivable	515			1,500
Decrease in other assets	4,246			6,224
Decrease in accrued interest payable	(873		)	(621		)
Increase (decrease) in other liabilities	(1,435		)	45
NET CASH PROVIDED BY OPERATING ACTIVITIES	35,053			62,444
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities	(73,767		)	(110,103		)
Proceeds from sales of available-for-sale securities	35,444			89,111
Proceeds from maturities of available-for-sale securities	55,883			29,930
Net decrease in loans	52,550			94,863
Proceeds from the redemption of Federal Home Loan Bank stock	1,975			2,411
Purchases of premises and equipment	(1,383		)	(2,823		)
Proceeds from the sale of premises and equipment	37			106
Proceeds from the sale of other real estate owned	11,446			12,165
NET CASH PROVIDED BY INVESTING ACTIVITIES	82,185			115,660
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking, NOW, money market and savings accounts	7,167			37,799
Net decrease in time certificates	(87,048		)	(274,093		)
Net decrease in borrowed funds	(3,240		)	(8,459		)
Proceeds from the issuance of common stock	—			6,402
Preferred dividends paid	(3,813		)	(616		)
NET CASH USED IN FINANCING ACTIVITIES	(86,934		)	(238,967		)

See notes to condensed consolidated financial statements

YADKIN VALLEY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) CONTINUED

Nine months ended September 30, 2012 and 2011

	Nine Months Ended September 30,
	2012		2011
	(Amounts in thousands)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	30,304	$	(60,863	)
CASH AND CASH EQUIVALENTS:
Beginning of year	92,918		229,780
End of year	$	123,222	$	168,917
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid for interest	$	18,317	$	21,285
Cash paid for income taxes	$	—	$	26
SUPPLEMENT DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfer from loans to foreclosed real estate	$	13,369	$	10,781
Unrealized gain on investment securities available-for-sale, net of tax effect	$	1,992	$	4,513

See notes to condensed consolidated financial statements

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

6

Notes to Unaudited Condensed Consolidated Financial Statements

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Yadkin Valley Financial Corporation (the "Company") and its subsidiary, Yadkin Valley Bank and Trust Company (the "Bank"). On July 1, 2006, the Bank became a subsidiary of the Company through a one for one share exchange of the then outstanding 10,648,300 shares. Sidus Financial, LLC (“Sidus”) is a single member limited liability company with the Bank as its single member. Sidus offers mortgage banking services and is headquartered in Greensboro, NC. The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial statements and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the audited consolidated financial statements and accompanying footnotes included with the Company's 2011 Annual Report on Form 10-K (the "2011 Form 10-K") filed with the Securities and Exchange Commission (“SEC”) on February 29, 2012. Operating results, for the three and nine months ended September 30, 2012, do not necessarily indicate the results that may be expected for the year or other interim periods.

In the opinion of management, the accompanying condensed consolidated financial statements contain all the adjustments, all of which are normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2012 and December 31, 2011, and the results of its operations and cash flows for the three and nine months ended September 30, 2012 and 2011. The accounting policies followed are set forth in Note 1 to the Consolidated Financial Statements in the Company's 2011 Form 10-K.

Mortgage Banking Activities - During the second quarter of 2012, a decision was made by management to make a change in how the Company's mortgage activities are reported based on the prior year reorganization of the Bank's mortgage division and Sidus. This decision was made to improve overall reporting of its mortgage banking activities which are now analyzed and reviewed as a separate and distinct business segment. This change in reporting segment combines both mortgage activities of the Bank with mortgage activities that were previously reported separately from mortgage activities provided by Sidus.

Mortgage banking activity income includes gains on sale of mortgage loans made with the intent to sell, revenue from the fair value gains and losses recognized on interest rate lock commitments and forward sales commitments, direct costs related to the gain of mortgage loans, and costs related to representations and warranties and other obligations incurred in the sales of mortgage loans. Also included in mortgage banking activity income is all servicing income earned in connection with servicing activities and mortgage servicing rights valuation adjustments. When the Bank retains the right to service a sold mortgage loan, the previous carrying amount is allocated between the loan sold and the retained mortgage servicing right based on their relative fair values on the date of transfer. The Bank uses the fair value method of accounting for mortgage servicing rights. Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets.

Reclassifications - Certain income and expenses reported in prior periods have been reclassified to conform to the 2012 presentation of mortgage banking activity income. Reclassifications include interest income which was previously presented in other income, commission expenses recorded in salaries that are now recorded as a reduction in mortgage banking activity income, and other miscellaneous expenses previously recorded in other expenses that have been reclassified as a reduction to mortgage banking activity income. In addition, gains on sale of mortgage loans has been reclassified to be reported with mortgage banking income to provide a combined overview of the mortgage banking activity segment. The reclassifications had no effect on net income (loss) or shareholders' equity, as previously reported.

2. New Accounting Standards

Recently Adopted Accounting Standards

In 2011, the FASB issued Accounting Standards Update No. 2011-04 "Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements" ("ASU 2011-04"). The ASU 2011-04 amends Topic 820 to add both additional clarifications to existing fair value measurement and disclosure requirements and changes to existing principles and disclosure guidance. Clarifications were made to the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity's shareholder's equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to existing principles and disclosures included measurement of financial instruments

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

7

managed within a portfolio, the application of premiums and discounts in fair value measurement, and additional disclosures related to fair value measurements. The updated guidance and requirements are effective for financial statements issued for the first interim or annual period beginning after December 15, 2011, and should be applied prospectively. Early adoption is permitted. The guidance did not have a material impact on the Company's consolidated financial statements, and the disclosure requirements were included in this Form 10-Q.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05 "Presentation of Comprehensive Income" (“ASU 2011-05”). This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in shareholders' equity and is intended to enhance comparability between entities that report under U.S. GAAP and those that report under International Financial Reporting Standards (“IFRS”), and to provide a more consistent method of presenting non-owner transactions that affect an entity's equity. ASU 2011-05 requirements are effective for public entities as of the beginning of fiscal years beginning after December 15, 2011 and interim and annual periods thereafter. Early adoption is permitted, but full retrospective application is required under both sets of accounting standards. The Company has adopted the standard and the adoption of ASU 2011-05 did not have an impact on the Company's financial condition, results of operations, or cash flows.

3. Stock-based Compensation

During the three and nine months ended September 30, 2012, 1,000 and 8,500 options were vested, respectively. During the three and nine months ended September 30, 2011, 2,300 and 22,600 options were vested, respectively. At September 30, 2012, there were 11,000 options unvested and no shares available for grants of options other than shares available under the Company's 2008 Omnibus Stock Ownership and Long Term Incentive Plan (the "Omnibus Plan"). Total options outstanding at September 30, 2012 were 246,967.

There were no options granted or exercised during the first three or nine months ended September 30, 2012 or 2011.

As of September 30, 2012, there are 640,500 restricted shares outstanding, of which 42,663 shares of restricted stock are vested and 597,837 shares are nonvested. There were no shares of restricted stock issued during the three months ended September 30, 2012. There were 497,500 shares of restricted stock issued during the nine months ended September 30, 2012 at an average fair value of $2.31, and 20,000 restricted shares were forfeited. Of the 497,500 shares issued during 2012, 490,000 were issued with performance and service conditions. These conditions are based on achieving certain earnings and credit performance standards and require a minimum of 2-years of service. During the first nine months of 2011, there were 145,000 shares of restricted stock granted at an average fair value of $2.34 per share. The fair value of each share grant is based on the closing market price of the stock on the date of issuance. There were no restricted shares granted in the third quarter of 2011.

The compensation expense related to options and restricted shares was $130,344 for the three month period ended September 30, 2012 and $294,384 for the nine months ended September 30, 2012. The compensation expense related to options and restricted shares was $53,728 for the three-month period ended September 30, 2011 and $144,101 for the nine month period ended September 30, 2011. As of September 30, 2012, there was $1,128,303 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under all of the Company's stock benefit plans. This cost is expected to be recognized over an average vesting period of 2.3 years.

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

8

4. Investment Securities

Investment securities at September 30, 2012 and December 31, 2011 are summarized as follows:

	September 30, 2012
	Amortized Cost		Unrealized  Gains		Unrealized  Losses		Fair Value
	(Amounts in thousands)
Available-for-sale securities:
Securities of U.S. government agencies due:
Within 1 year	$	20,008	$	44	$	—	$	20,052
After 1 but within 5 years	12,779		38		—		12,817
	32,787		82		—		32,869
Government sponsored agencies:
Residential mortgage-backed securities due:
Within 1 year	67		1		—		68
After 1 but within 5 years	490		28		—		518
After 5 but within 10 years	11,526		345		—		11,871
After 10 years	68,847		1,972		12		70,807
	80,930		2,346		12		83,264
Collateralized mortgage obligations due:
After 1 but within 5 years	1,743		7		—		1,750
After 5 but within 10 years	10,332		322		—		10,654
After 10 years	124,469		1,060		450		125,079
	136,544		1,389		450		137,483
Private label collateralized mortgage obligations due:
After 5 but within 10 years	190		—		7		183
After 10 years	853		23		—		876
	1,043		23		7		1,059
State and municipal securities due:
Within 1 year	720		11		—		731
After 1 but within 5 years	5,738		367		—		6,105
After 5 but within 10 years	19,025		1,648		—		20,673
After 10 years	24,816		2,444		—		27,260
	50,299		4,470		—		54,769
Common and preferred stocks:	1,115		42		45		1,112
Total available-for-sale securities	$	302,718	$	8,352	$	514	$	310,556

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Form 10-Q Quarterly Report September 30, 2012

9

	December 31, 2011
	Amortized Cost		Unrealized  Gains		Unrealized  Losses		Fair Value
	(Amounts in thousands)
Available-for-sale securities:
Securities of U.S. government agencies due:
Within 1 year	$	9,988	$	51	$	—	$	10,039
After 1 but within 5 years	13,622		65		—		13,687
	23,610		116		—		23,726
Government sponsored agencies:
Residential mortgage-backed securities due:
After 1 but within 5 years	476		18		—		494
After 5 but within 10 years	3,481		281		—		3,762
After 10 years	60,388		959		393		60,954
	64,345		1,258		393		65,210
Collateralized mortgage obligations due:
After 5 but within 10 years	13,986		478		—		14,464
After 10 years	150,915		1,241		592		151,564
	164,901		1,719		592		166,028
Private label collateralized mortgage obligations due:
After 5 but within 10 years	275		10		—		285
After 10 years	1,028		—		57		971
	1,303		10		57		1,256
State and municipal securities due:
Within 1 year	618		5		—		623
After 1 but within 5 years	6,575		347		—		6,922
After 5 but within 10 years	21,252		1,639		19		22,872
After 10 years	40,455		2,255		9		42,701
	68,900		4,246		28		73,118
Common and preferred stocks:	1,113		23		52		1,084
Total available-for-sale securities	$	324,172	$	7,372	$	1,122	$	330,422

Mortgage-backed securities are included in maturity groups based upon stated maturity date. At September 30, 2012, $83.3 million of the Bank's mortgage-backed securities were pass-through securities and $138.5 million were collateralized mortgage obligations. At December 31, 2011, $65.2 million of the Bank's mortgage-backed securities were pass-through securities and $167.3 million were collateralized mortgage obligations. Actual maturity will vary based onrepayment of the underlying mortgage loans.

Gross realized gains on the sale of securities for the three and nine months ended September 30, 2012 were $1.3 million and $1.6 million, respectively. Gross realized gains on the sale of securities for the three and nine months ended September 30, 2011 were $1,600,000 million and $2,078,000.0 million, respectively. There were no losses on the sale of securities available-for-sale for the three and nine months ended September 30, 2012 or 2011.

Investment securities with carrying values of approximately $86,037,077 and $120,227,824 at September 30, 2012 and December 31, 2011, respectively, were pledged as collateral for public deposits and for other purposes as required or permitted by law.

The following table presents the gross unrealized losses and fair value of investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2012 and December 31, 2011. Securities that have been in a loss position for twelve months or more at September 30, 2012 include one mortgage backed security, one collateralized mortgage obligation and two other securities. The key factors considered in evaluating

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Form 10-Q Quarterly Report September 30, 2012

10

the collateralized mortgage obligations, private label collateralized mortgage obligations, and municipal securities were cash flows of the investment and the assessment of other relative economic factors. Securities that have been in a loss position for twelve months or more at December 31, 2011 include three mortgage-backed securities, two collateralized mortgage obligations, one private label collateralized mortgage obligation and one common stock. The unrealized losses relate to securities that have incurred fair value reductions due to a shift in demand from non-governmental securities and municipals to U.S. Treasury bonds and governmental agencies due to credit market concerns. The unrealized losses are not likely to reverse until market interest rates decline to the levels that existed when the securities were purchased. None of the unrealized losses relate to the marketability of the securities or the issuer's ability to honor redemption obligations. It is not more likely than not that the Company will have to sell the investments before recovery of their amortized cost bases. For the three and nine months ended September 30, 2012, there were no securities available-for-sale deemed to be other than temporarily impaired (“OTTI”).

If management determines that an investment has experienced an other than temporary impairment, the loss is recognized in the income statement.

	Less Than 12 Months				12 Months or More				Total
September 30, 2012	Fair value		Unrealized  losses		Fair value		Unrealized  losses		Fair value		Unrealized  losses
	(Amounts in thousands)
Securities available-for-sale:
Government sponsored agencies:
Residential mortgage-backed securities	$	—	$	—	$	4,204	$	12	$	4,204	$	12
Collateralized mortgage obligations	26,982		198		20,689		252		47,671		450
Private label collateralized mortgage obligations	183		7		—		—		183		7
Common and preferred stocks	—		—		66		45		66		45
Total temporarily impaired securities	$	27,165	$	205	$	24,959	$	309	$	52,124	$	514

	Less Than 12 Months				12 Months or More				Total
December 31, 2011	Fair value		Unrealized  losses		Fair value		Unrealized  losses		Fair value		Unrealized  losses
	(Amounts in thousands)
Securities available-for-sale:
Government sponsored agencies:
Residential mortgage-backed securities	$	13,121	$	45	$	16,751	$	348	$	29,872	$	393
Collateralized mortgage obligation	70,421		505		5,043		87		75,464		592
Private label collateralized mortgage obligations	—		—		971		57		971		57
State and municipal securities	3,429		28		—		—		3,429		28
Common and preferred stocks, and other	6		1		53		51		59		52
Total temporarily impaired securities	$	86,977	$	579	$	22,818	$	543	$	109,795	$	1,122

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Form 10-Q Quarterly Report September 30, 2012

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5. Non-marketable Equity Securities

The aggregate cost of the Company's cost method investments totaled $6,715,208 at September 30, 2012 and $8,771,278 at December 31, 2011. Cost method investments at September 30, 2012 include $4,154,700 in Federal Home Loan Bank ("FHLB") stock and $2,560,508 of investments in various trust and financial companies, which are included in other assets. All cost method investments were evaluated for impairment at September 30, 2012 and December 31, 2011. The following factors have been considered in determining the carrying amount of FHLB stock: 1) the recoverability of the par value, 2) the Company has sufficient liquidity to meet all operational needs in the foreseeable future and would not need to dispose of the stock below recorded amounts, 3) redemptions and purchases of the stock are at the discretion of the FHLB, 4) the Company believes the FHLB has the ability to absorb economic losses given the expectation that the various FHLBs' have a high degree of government support, and 5) the unrealized losses related to securities owned by the FHLB are manageable given the capital levels of the organization. The Company estimated that the fair value equaled or exceeded the cost of these investments (that is, the investments were not impaired) as of September 30, 2012. During the three and nine months ended September 30, 2011, the Company's investment in a financial services company and a local community bank were considered to be other than temporarily impaired and approximately $116,003 and $73,848, respectively, was charged-off. In addition to the impairment charges recorded for the nine months ended September 30, 2011, the Company sold one of its investments in a financial services company for a loss of $79,910. There were no other than temporary impairments recorded for the three or nine months ended September 30, 2012.

6. Commitments and Contingencies

In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit, which are not reflected in the accompanying financial statements. At September 30, 2012, the Company had commitments outstanding of $266.8 million for additional loan amounts. Commitments of Sidus, the Bank's mortgage lending subsidiary, are excluded from this amount and discussed in the paragraph below. Additional commitments totaling $7.5 million were outstanding under standby letters of credit. Management does not expect any significant losses to result from these commitments.

At September 30, 2012, Sidus had $63.3 million of commitments outstanding to originate mortgage loans held-for-sale at fixed prices and $88.0 million of forward commitments outstanding under best efforts contracts to sell mortgages to agencies and other investors. See Note 9 for additional disclosures on these derivative financial instruments.

7. Earnings Per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the reporting periods. Diluted net income available to common shareholders per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The numerators of the basic net income per common share computations are the same as the numerators of the diluted net income per common share computations for all the periods presented. Weighted average shares outstanding for the three and nine months ended September 30, 2012 excludes 597,837 shares of unvested restricted stock. Weighted average shares outstanding for the three and nine months ended September 30, 2011 excludes 161,334 shares of unvested restricted stock. A reconciliation of the denominator of the basic net income per common share computations to the denominator of the diluted net income per common share computations is as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2012	2011	2012	2011
Basic EPS denominator:
Weighted average number of common shares outstanding	19,389,251	19,527,855	19,382,649	17,858,777
Dilutive potential common shares	—	—	—	—
Diluted EPS denominator	19,389,251	19,527,855	19,382,649	17,858,777

For the quarter ended September 30, 2012 and 2011, net income (loss) for determining net income (loss) per common share was reported as net income (loss) less the dividend on preferred stock. During the quarter and nine months ended September 30, 2012, there were 246,967 warrants and stock options that were not considered dilutive because the exercise prices exceeded the average market price per share and 596,835 shares of restricted stock not considered dilutive because they were antidilutive under the

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Form 10-Q Quarterly Report September 30, 2012

12

treasury stock method or because performance and service criteria had not been met. During the quarter ended September 30, 2012 there were 1,002 shares of restricted stock that would have been considered dilutive had the Company reported net income for the period. The non-dilutive options had exercise prices ranging from $3.84 to $19.07 per share. Unvested shares of restricted stock and all other common stock equivalents were excluded from the determination of diluted earnings (loss) per share for the year-to-date period ended September 30, 2011 due to the Company's loss position for that period.

8. Shareholders' Equity

Effective October 1, 2012, North Carolina passed the Banking Modernization Act, pursuant to Section 53C-4-7 of which, the Bank, as a North Carolina banking corporation, may pay dividends if such distributions will not reduce its capital below its applicable “required capital.” The Bank's “required capital” is that amount of capital required for the Bank to be deemed “adequately capitalized” under applicable federal regulatory capital ratios. Currently, the Bank exceeds each of these federal regulatory capital ratios. However, the Bank is currently prohibited from paying dividends to the holding company without prior approval of the Federal Deposit Insurance Corporation (the “FDIC”) and the North Carolina Banking Commissioner. In addition, the Company has committed to the regulators that the Bank will maintain a Tier 1 leverage ratio of 8%, which is higher than the statutory Tier 1 leverage ratio of 5.00% to be classified as well-capitalized. The Company deferred dividend payments on its Fixed Rate Cumulative Perpetual Preferred Stock, Series T (“Series T Preferred Stock”), and its Fixed Rate Cumulative Perpetual Preferred Stock, Series T- ACB (the “Series T-ACB Preferred Stock” and together with the Series T Preferred Stock, the “TARP Preferred Stock”), and interest payments on the trust preferred securities in the second, third and fourth quarters of 2011 and the first and second quarters of 2012. However, in August 2012, the Company received regulatory approval and paid in all of the outstanding deferred dividends on the TARP Preferred Stock and all accrued but unpaid interest on the trust preferred securities payments in full, including the required payments for the third quarter of 2012. The Company is now current on its payment obligations on its Series T and Series T-ACB Preferred Stock and on the trust preferred securities.

On September 12, 2012, the U.S. Treasury completed the sale of its $36 million of Series T Preferred Stock and $13.3 million of its Series T-ACB Preferred Stock investment in the Company to private investors through a registered public offering. There was no impact to the Company's financial condition or operating results due to the transaction.

9. Derivatives

The Company currently has derivative instrument contracts consisting of interest rate swaps and interest rate lock commitments and commitments to sell mortgages.  The primary objective for each of these contracts is to minimize interest rate risk.  The Company's strategy is to use derivative contracts to stabilize and improve net interest margin and net interest income currently and in future periods. The Company does not enter into derivative financial instruments for speculative or trading purposes.  For derivatives that are economic hedges, but are not designated as hedging instruments or otherwise do not qualify for hedge accounting treatment, all changes in fair value are recognized in non-interest income during the period of change.  

As part of interest rate risk management, the Company has entered into two interest rate swap agreements to convert certain fixed-rate receivables to floating rates and certain fixed-rate obligations to floating rates.  The interest rate swaps are used to provide fixed rate financing while managing interest rate risk and were not designated as hedges. The interest rate swaps pay and receive interest based on a floating rate based on one month LIBOR, with payments being calculated on the notional amount. The interest rate swaps are settled quarterly and mature on June 15, 2016. The interest rate swaps each had a notional amount of $2.0 million at September 30, 2012, representing the amount of fixed-rate receivables outstanding and liabilities outstanding, and are included in other assets and other liabilities at their fair value of $212,923. The Company had a gain of $334 on the interest rate swap asset and a loss of $334 on the interest rate swap liability for the three months ended September 30, 2012. The Company had a gain of $4,057 on the interest rate swap asset and a loss of $4,057 on the interest rate swap liability for the nine months ended September 30, 2012. The Company had a gain of $54,211 on the interest rate swap asset and a loss of $54,211 on the interest rate swap liability for the three months ended September 30, 2011. The Company had a gain of $68,357 on the interest rate swap asset and a loss of $68,357 on the interest rate swap liability for the nine months ended September 30, 2011. The interest rate swaps had a notional amount of $2.0 million outstanding as of December 31, 2011 and was included in other assets and other liabilities at their fair market value of $216,979. All changes in fair value are recorded as other income within non-interest income. Fair values for interest rate swap agreements are based upon the amounts required to settle the contracts.  

The Company is exposed to certain risks relating to its ongoing mortgage origination business. Sidus, the Bank's mortgage lending subsidiary, enters into interest rate lock commitments and commitments to sell mortgages. The primary risks managed by derivative instruments are these interest rate lock commitments and forward-loan-sale commitments. Interest rate lock commitments are entered into to manage interest rate risk associated with the Company's fixed rate loan commitments. The period of time between the issuance of a loan commitment and the closing and sale of the loan generally ranges from 10 to 60 days. Such interest rate

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Form 10-Q Quarterly Report September 30, 2012

13

lock commitments and forward-loan-sale commitments represent derivative instruments which are required to be carried at fair value. These derivative instruments do not qualify as hedges under the Derivatives and Hedging topic of the FASB Accounting Standards Codification. The fair value of the Company's interest rate lock commitments is based on the value that can be generated when the underlying loan is sold on the secondary market and is included on the balance sheet in other assets and on the income statement in mortgage banking income (loss). The fair value of the Company's forward sales commitments is based on changes in the value of the commitment, principally because of changes in interest rates, and is included on the balance sheet in other assets or other liabilities and on the income statement in mortgage banking income (loss).

At September 30, 2012, Sidus had $63.3 million of commitments outstanding to originate mortgage loans held-for-sale at fixed prices and $88 million of forward commitments outstanding for original commitments and outstanding mortgage loans held-for-sale under best efforts contracts to sell mortgages to agencies and other investors. The fair value of forward sales commitments recorded in other assets was $1,008,706 at September 30, 2012. The fair value of the interest rate lock commitments recorded in liabilities was $(491,245) at September 30, 2012. Recognition of gains related to the change in fair value of forward sales commitments were $41,610 and $330,279 for the three and nine months ended September 30, 2012, respectively, and are included in mortgage banking activities income. Recognition of gains related to the change in fair value of the interest rate lock commitments were $64,294 and $141,071 for the three and nine months ended September 30, 2012, respectively, and are included in mortgage banking activities income. Recognition of losses related to the change in fair value of the interest rate lock commitments and gains related to forward sales commitments were $56,698 and $100,565 for the three months ended September 30, 2011, respectively, and are included in other income. Recognition of gains related to the change in fair value of the interest rate lock commitments and losses related to forward sales commitments were $50,398 and $86,737, respectively, for the nine months ended September 30, 2011, and are included in other income. At December 31, 2011, Sidus had $51.6 million of commitments outstanding to originate mortgage loans held-for-sale at fixed prices and $67.4 million of forward commitments outstanding under best efforts contracts to sell mortgages to agencies and other investors. The fair value of interest rate locks recorded in other assets was $57,363 at December 31, 2011. The fair value of the forward sales commitments recorded in other assets was $129,818 at December 31, 2011.

10. Loans and Allowance for Loan Losses

General. The Bank provides to its customers a full range of short- to medium-term commercial, agricultural, Small Business Administration guaranteed, mortgage, home equity, and personal loans, both secured and unsecured. The Bank also makes real estate mortgage and construction loans.

The following table presents loans at September 30, 2012 and December 31, 2011 by class:

	September 30,			December 31,
	2012			2011
	(in thousands)
Construction and land development	$	147,408		$	202,803
Commercial real estate:
Owner occupied	346,908			348,931
Non-owner occupied	230,854			242,827
Residential mortgages:
1-4 family	174,712			179,047
Multifamily	37,987			39,881
Home equity lines of credit	196,489			201,220
Commercial	168,510			177,047
Consumer and other	54,772			58,283
Total	1,357,640			1,450,039
Less: Net deferred loan origination fees	1,228			885
Allowance for loan losses	(27,231		)	(32,848		)
Loans, net	$	1,331,637		$	1,418,076

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Form 10-Q Quarterly Report September 30, 2012

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Real Estate Loans. Real estate loans include construction and land development loans, commercial real estate loans, home equity lines of credit, and residential mortgages.

Commercial real estate loans totaled $577.8 million and $591.8 million at September 30, 2012 and December 31, 2011, respectively. This lending has involved loans secured by owner-occupied commercial buildings for office, storage and warehouse space, as well as non-owner occupied commercial buildings. The Bank generally requires the personal guaranty of borrowers and a demonstrated cash flow capability sufficient to service the debt. Loans secured by commercial real estate may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties.

Construction/development lending totaled $147.4 million and $202.8 million at September 30, 2012 and December 31, 2011, respectively. The Bank originates one-to-four family residential construction loans for the construction of custom homes (where the home buyer is the borrower) and provides financing to builders and consumers for the construction of pre-sold homes. The Bank generally receives a pre-arranged permanent financing commitment from an outside banking entity prior to financing the construction of pre-sold homes. The Bank also makes commercial real estate construction loans, primarily for owner-occupied properties. The Bank limits its construction lending risk through adherence to established underwriting procedures.

During the third quarter of 2012, the Company performed a review of all amortizing commercial construction loans to determine if loans written as a combination construction to permanent financing should be reclassified as commercial real estate loans. As a result of this review, the Company identified approximately $25.3 million in loans previously coded as construction that needed to be properly reclassified as permanent commercial real estate loans. There was no material impact to allowances for loan losses related to this transfer.

Residential one-to-four family loans amounted to $174.7 million and $179.0 million at September 30, 2012 and December 31, 2011, respectively. The Bank's residential mortgage loans are typically construction loans that convert into permanent financing and are secured by properties located within the Bank's market areas.

During the first nine months of 2012, the decision was made by management to transfer two classified non-owner occupied commercial real estate loans in the amount of $7.6 million and $8.4 million from loans held-for-investment to loans held-for-sale. As a result of this transfer, approximately $4.3 million was charged-off in order to record the loans at fair value at time of transfer.

Commercial Loans. At September 30, 2012 and December 31, 2011, the Bank's commercial loan portfolio totaled $168.5 million and $177.0 million, respectively. Commercial loans include both secured and unsecured loans for working capital, expansion, and other business purposes. Short-term working capital loans are secured by accounts receivable, inventory and/or equipment. The Bank also makes term commercial loans secured by equipment and real estate. Lending decisions are based on an evaluation of the financial strength, cash flow, management and credit history of the borrower, and the quality of the collateral securing the loan. With few exceptions, the Bank requires personal guarantees and secondary sources of repayment. Commercial loans generally provide greater yields and reprice more frequently than other types of loans, such as real estate loans.

Consumer Loans. Loans to individuals (consumer loans) include automobile loans, boat and recreational vehicle financing, and miscellaneous secured and unsecured personal loans and totaled $54.8 million and $58.3 million at September 30, 2012 and December 31, 2011, respectively. Consumer loans generally can carry significantly greater risks than other loans, even if secured, if the collateral consists of rapidly depreciating assets such as automobiles, boats, recreational vehicles, and equipment. Repossessed collateral securing a defaulted consumer loan may not provide an adequate source of repayment of the loan. Consumer loan collections are sensitive to job loss, illness and other personal factors. The Bank manages the risks inherent in consumer lending by following established credit guidelines and underwriting practices designed to minimize risk of loss.

Loan Approvals. The Bank's loan policies and procedures establish the basic guidelines governing its lending operations. The guidelines address the type of loans that the Bank seeks, target markets, underwriting and collateral requirements, terms, interest rate and yield considerations and compliance with laws and regulations. All loans or credit lines are subject to approval procedures and amount limitations. These limitations apply to the borrower's total outstanding indebtedness to the Bank, including any indebtedness as a guarantor. The policies are reviewed and approved at least annually by the Board of Directors of the Bank. The Bank supplements its own supervision of the loan underwriting and approval process with periodic loan reviews by independent, outside professionals experienced in loan review. Responsibility for loan review,loan underwriting, and approval resides with the Chief Credit Officer position. On an annual basis, the Board of Directors of the Bank determines officers lending authority. Authorities may include loans, letters of credit, overdrafts, uncollected funds and such other authorities as determined by the Board of Directors.

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Form 10-Q Quarterly Report September 30, 2012

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Substantially all of the Company's loans have been granted to customers in the Piedmont, foothills, northwestern mountains, and the Research Triangle regions of North Carolina and the upstate region of South Carolina.

Credit Review and Evaluation. The Bank has a credit risk review department that reports to the Chief Credit Officer. The focus of the department is on policy compliance and proper grading of higher credit risk loans as well as new and existing loans on a sample basis. Additional reporting for problem/criticized assets has been developed along with an after-the-fact loan review.

The Bank uses a risk grading program to facilitate the evaluation of probable inherent loan losses and the adequacy of the allowance for loan losses for real estate, commercial and consumer loans. In this program, risk grades are initially assigned by loan officers, reviewed by regional credit officers, and further reviewed by internal credit review analysts on a test basis. The Bank strives to maintain the loan portfolio in accordance with conservative loan underwriting policies that result in loans specifically tailored to the needs of the Bank's market area. Every effort is made to identify and minimize the credit risks associated with such lending strategies.

Loans over $20,000 are risk graded on a scale from 1 (highest quality) to 8 (loss). Acceptable loans at inception are grades 1 through 4, and these grades have underwriting requirements that at least meet the minimum requirements of a secondary market source. If borrowers do not meet credit history requirements, other mitigating criteria such as substantial liquidity and low loan-to-value ratios could be considered and would generally have to be met in order to make the loan. The Bank's loan policy states that a guarantor may be necessary if reasonable doubt exists as to the borrower's ability to repay. The Board of Directors has authorized the loan officers to have individual approval authority for risk grade 1 through 4 loans up to maximum exposure limits for each customer. New or renewed loans that are graded 5 (special mention) or lower must have approval from a regional credit officer. Any changes in risk assessments as determined by loan officers, credit administrators, regulatory examiners and management are also considered.

The risk grades, normally assigned by the loan officers when the loan is originated and reviewed by the regional credit officers, are based on several factors including historical data, current economic factors, composition of the portfolio, and evaluations of the total loan portfolio and assessments of credit quality within specific loan types. In some cases, the risk grades are assigned by regional executives, depending upon dollar exposure. Because these factors are dynamic, the provision for loan losses can fluctuate. Credit quality reviews are based primarily on analysis of borrowers' cash flows, with asset values considered only as a second source of payment. Regional credit officers work with lenders in underwriting, structuring and risk grading the Bank's credits. The Risk Review Officer focuses on lending policy compliance, credit risk grading, and credit risk reviews on larger dollar exposures. Management uses the information developed from the procedures above in evaluating and grading the loan portfolio. This continual grading process is used to monitor the credit quality of the loan portfolio and to assist management in determining the appropriate levels of the allowance for loan losses.

The following is a summary of the credit risk grade definitions for all loan types:

“1” - High Quality- These loans represent a credit extension of the highest quality. The borrower's historic (at least five years) cash flows manifest extremely large and stable margins of coverage. Balance sheets are conservative, well capitalized, and liquid. After considering debt service for proposed and existing debt, projected cash flows continue to be strong and provide ample coverage. The borrower typically reflects broad geographic and product diversification and has access to alternative financial markets.

“2” - Good Quality- These loans have a sound primary and secondary source of repayment. The borrower may have access to alternative sources of financing, but sources are not as widely available as they are to a higher graded borrower. This loan carries a normal level of risk, with minimal loss exposure. The borrower has the ability to perform according to the terms of the credit facility. The margins of cash flow coverage are satisfactory but vulnerable to more rapid deterioration than the highest quality loans.

“3” - Satisfactory- The borrowers are a reasonable credit risk and demonstrate the ability to repay the debt from normal business operations. Risk factors may include reliability of margins and cash flows, liquidity, dependence on a single product or industry, cyclical trends, depth of management, or limited access to alternative financing sources. Historic financial information may indicate erratic performance, but current trends are positive. Quality of financial information is adequate, but is not as detailed and sophisticated as information found on higher graded loans. If adverse circumstances arise, the impact on the borrower may be significant.

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Form 10-Q Quarterly Report September 30, 2012

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“4” - Satisfactory - Merits Attention- These credit facilities have potential developing weaknesses that deserve extra attention from the account manager and other management personnel. If the developing weakness is not corrected or mitigated, there may be deterioration in the ability of the borrower to repay the bank's debt in the future.

“5” - Watch or Special Mention - These loans are typically existing loans, made using the passing grades outlined above, that have deteriorated to the point that cash flow is not consistently adequate to meet debt service or current debt service coverage is based on projections. Secondary sources of repayment may include specialized collateral or real estate that is not readily marketable or undeveloped, making timely collection in doubt.

“6” - Substandard- Loans and other credit extensions bearing this grade are considered inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions jeopardizing repayment of principal and interest as originally intended. Clear loss potential, however, does not have to exist in any individual assets classified as substandard.

“7” - Substandard Impaired (also includes any loans over 90 days past due, excluding sold mortgages )- Loans and other credit extensions graded “7” have all the weaknesses inherent in those graded “6,” with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. The probability of some loss is extremely high, but because of certain important and reasonably specific factors, the amount of loss cannot be determined.

"7B"- Doubtful- Loans and other credit extensions graded “7b” have all the weaknesses inherent in those graded “7,” with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. The probability of some loss is extremely high, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral. Loans in this classification are placed in non-accrual status, with collections applied to principal on the bank's books and evaluated for impairment. All loans in this category are considered impaired and all material loans are evaluated for a specific reserve in accordance with FAS 114 and the bank's ALLL methodology and specific reserve guidelines.

“8” - Loss- Loans in this classification are considered uncollectible and cannot be justified as a viable asset of the Bank. Such loans are to be charged-off or charged-down. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.

The following is a summary of credit quality indicators by class at September 30, 2012 and December 31, 2011:

Real Estate Credit Exposure as of September 30, 2012
			Commercial Real Estate
	Construction		Owner occupied		Non-owner occupied		1-4 Family		Multifamily		Home Equity
	(in thousands)
High Quality	$	—	$	121	$	—	$	379	$	—	$	116
Good Quality	480		—		—		1,416		—		7,566
Satisfactory	22,165		107,794		59,713		96,222		7,856		119,279
Merits Attention	70,357		192,518		137,137		58,010		28,164		59,019
Special Mention	22,137		23,906		21,108		8,479		575		4,223
Substandard	10,428		5,171		2,013		3,087		609		2,336
Substandard impaired	19,632		17,398		10,883		7,119		783		3,950
Doubtful	2,209		—		—		—		—		—
Loss	—		—		—		—		—		—
	$	147,408	$	346,908	$	230,854	$	174,712	$	37,987	$	196,489

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

17

Other Credit Exposures as of September 30, 2012
	Commercial		Consumer and other		Total Loans
	(in thousands)
High Quality	$	2,620	$	2,473	$	5,709
Good Quality	5,300		1,383		16,145
Satisfactory	50,336		24,880		488,245
Merits Attention	81,934		24,748		651,887
Special Mention	17,549		629		98,606
Substandard	1,613		88		25,345
Substandard impaired	9,158		571		69,494
Doubtful	—		—		2,209
Loss	—		—		—
	$	168,510	$	54,772	$	1,357,640

Real Estate Credit Exposure as of December 31, 2011
			Commercial Real Estate
	Construction		Owner  occupied		Non-owner  occupied		1-4 Family		Multifamily		Home Equity
	(in thousands)
High Quality	$	—	$	126	$	—	$	423	$	—	$	132
Good Quality	543		32		117		1,701		—		7,545
Satisfactory	30,446		110,051		61,416		98,992		8,789		125,932
Merits Attention	93,974		180,173		134,247		57,310		28,824		58,576
Special Mention	41,739		23,326		24,307		9,112		697		4,807
Substandard	5,054		10,069		11,162		3,586		629		2,006
Substandard impaired	31,047		25,154		11,578		7,923		942		2,222
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
	$	202,803	$	348,931	$	242,827	$	179,047	$	39,881	$	201,220

Other Credit Exposures as of December 31, 2011
	Commercial		Consumer and other		Total Loans
	(in thousands)
High Quality	$	2,690	$	1,831	$	5,202
Good Quality	5,472		1,482		16,892
Satisfactory	55,309		27,508		518,443
Merits Attention	80,064		25,607		658,775
Special Mention	12,224		1,189		117,401
Substandard	10,367		118		42,991
Substandard impaired	10,921		548		90,335
Doubtful	—		—		—
Loss	—		—		—
	$	177,047	$	58,283	$	1,450,039

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

18

Nonaccrual loans and past due loans. Nonperforming assets include loans classified as nonaccrual, foreclosed bank-owned property and loans past due 90 days or more on which interest is still being accrued. It is the general policy of the Bank to stop accruing interest for all classes of loans past due 90 days or when it is apparent that the collection of principal and/or interest is doubtful. In addition, certain restructured loans are placed on nonaccrual status until sufficient evidence of timely payment is obtained. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against interest income in the current period. Amounts received on nonaccrual loans generally are applied first to principal and then to interest only after all principal has been collected. There were no financing receivables past due over 90 days accruing interest as of September 30, 2012 and December 31, 2011.

Nonperforming loans as of September 30, 2012 totaled $57.1 million, or 4.12% of total loans, compared with $70.4 million, or 4.78% of total loans, as of December 31, 2011. The Bank aggressively pursues the collection and repayment of all loans. Other nonperforming assets, such as repossessed and foreclosed collateral is aggressively liquidated by the Bank's collection department. The total number of loans on nonaccrual status has decreased from 505 at December 31, 2011 to 441 at September 30, 2012.

The following is a breakdown of nonaccrual loans as of September 30, 2012 and December 31, 2011:

	September 30, 2012		December 31, 2011
	(in thousands)
Financing Receivables on Nonaccrual status
Construction	$	16,497	$	26,575
Commercial Real Estate:
Owner occupied	14,771		16,339
Non-owner occupied	5,936		7,634
Mortgages:
1-4 Family first lien	6,370		7,271
Multifamily	713		942
Home Equity lines of credit	3,950		2,222
Commercial	8,293		8,896
Consumer and other	523		475
Total	$	57,053	$	70,354

Past due loans reported in the following table do not include loans granted forbearance terms since payments terms have been modified or extended, although the loans are past due based on original contract terms. All loans with forbearance terms are included and reported as impaired loans.

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

19

Loans are considered past due if the required principal and interest income have not been received as of the date such payments were due. The following table presents the Bank's aged analysis of past due loans:

	30-59 Days  Past Due		60-89 Days  Past Due		Greater Than  90 Days		Total Past  Due		Current		Total Loans
September 30, 2012	(in thousands)
Construction	$	706	$	2,258	$	8,223	$	11,187	$	136,221	$	147,408
Commercial real estate:
Owner occupied	1,414		1,883		3,727		7,024		339,884		346,908
Non-owner occupied	2,686		2,178		3,141		8,005		222,849		230,854
Commercial	767		3,678		3,055		7,500		161,010		168,510
Mortgages:
Secured 1-4 family- first lien	2,286		1,534		3,406		7,226		167,486		174,712
Multifamily	6		79		—		85		37,902		37,987
Home equity lines of credit	1,345		216		2,209		3,770		192,719		196,489
Consumer and other	276		112		258		646		54,126		54,772
Total	$	9,486	$	11,938	$	24,019	$	45,443	$	1,312,197	$	1,357,640
December 31, 2011
Construction	$	2,265	$	402	$	15,538	$	18,205	$	184,598	$	202,803
Commercial real estate:
Owner occupied	4,342		1,215		3,727		9,284		339,647		348,931
Non-owner occupied	9,723		86		4,679		14,488		228,339		242,827
Commercial	586		1,432		2,087		4,105		172,942		177,047
Mortgages:
Secured 1-4 family- first lien	3,441		1,049		2,955		7,445		171,602		179,047
Multifamily	277		—		896		1,173		38,708		39,881
Home equity lines of credit	—		634		856		1,490		199,730		201,220
Consumer and other	375		61		128		564		57,719		58,283
Total	$	21,009	$	4,879	$	30,866	$	56,754	$	1,393,285	$	1,450,039

Impaired Loans. Management considers certain loans graded “substandard impaired” (loans graded 7), "doubtful" (loans graded 7B) or “loss” (loans graded 8) to be individually impaired and may consider “substandard” loans (loans graded 6) individually impaired depending on the borrower's payment history. The Bank measures impairment based upon probable cash flows or the value of the collateral. Collateral value is assessed based on collateral value trends, liquidation value trends, and other liquidation expenses to determine logical and credible discounts that may be needed. Updated appraisals are required for all impaired loans and typically at renewal or modification of larger loans if the appraisal is more than 12 months old.

Impaired loans for all classes of loans typically include nonaccrual loans, loans over 90 days past due still accruing, troubled debt restructured loans and other potential problem loans considered impaired based on other underlying factors. Troubled debt restructured loans are those for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal have been granted due to the borrower's weakened financial condition. Interest on troubled debt restructured loans is accrued at the restructured rates when it is anticipated that no loss of original principal will occur and a sustained payment performance period is obtained. Due to the borrowers' inability to make the payments required under the original loan terms, the Bank modifies the terms by granting a longer amortized repayment structure or reduced interest rates.  Potential problem loans are loans which are currently performing and are not included in nonaccrual or restructured loans above, but about which we have serious doubts as to the borrower's ability to comply with present repayment terms. These loans are likely to be included later in nonaccrual, past due or troubled debt restructured loans, so they are considered by management in assessing the adequacy of the allowance for loan losses. Impaired loans under $250,000 are typically not individually evaluated for impairment.

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

20

The following table presents the Bank's investment in loans considered to be impaired and related information on those impaired loans as of September 30, 2012 and December 31, 2011:

							Quarter to Date				Year to Date
	Recorded  Investment		Unpaid  Principal  Balance		Related  Allowance		Average  Recorded  Investment		Interest Income Recognized		Average  Recorded  Investment		Interest Income Recognized
September 30, 2012	(in thousands)
Impaired loans without a related allowance for loan losses
Construction	$	13,376	$	14,563	$	—	$	14,694	$	125	$	20,382	$	275
Commercial real estate:
Owner occupied	14,056		14,756		—		13,840		23		15,594		332
Non-owner occupied	3,506		3,893		—		4,017		29		8,193		39
Commercial	6,226		6,432		—		6,403		—		6,316		130
Mortgages:
Secured 1-4 family real estate	968		991		—		1,432		—		2,680		29
Multifamily	701		884		—		703		4		702		7
Home equity lines of credit	1,706		1,767		—		1,588		—		1,320		7
Consumer and other	—		—		—		—		—		—		—
Impaired loans with a related allowance for loan losses
Construction	$	4,649	$	5,382	$	1,249	$	4,106	$	—	$	2,379	$	—
Commercial real estate:
Owner occupied	5,212		5,220		279		6,154		66		6,910		134
Non-owner occupied	4,029		4,300		476		3,491		26		1,768		42
Commercial	2,790		2,936		1,632		2,865		—		3,006		164
Mortgages:
Secured 1-4 family real estate	903		919		155		449		—		411		3
Multifamily	—		—		—		—		—		30		7
Home equity lines of credit	—		—		—		29		—		111		—
Consumer and other	—		—		—		54		—		67		—
Total impaired loans
Construction	$	18,025	$	19,945	$	1,249	$	18,800	$	125	$	22,761	$	275
Commercial real estate:
Owner occupied	19,268		19,976		279		19,994		89		22,504		466
Non-owner occupied	7,535		8,193		476		7,508		55		9,961		81
Commercial	9,016		9,368		1,632		9,268		—		9,322		294
Mortgages:
Secured 1-4 family real estate	1,871		1,910		155		1,881		—		3,091		32
Multifamily	701		884		—		703		4		732		14
Home equity lines of credit	1,706		1,767		—		1,617		—		1,431		7
Consumer and other	—		—		—		54		—		67		—
Total impaired loans individually reviewed for impairment	$	58,122	$	62,043	$	3,791	$	59,825	$	273	$	69,869	$	1,169

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

21

	As of December 31, 2011						Quarter to Date September 30, 2011				Year to Date September 30, 2011
	Recorded Investment		Unpaid  Principal  Balance		Related  Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
Impaired loans without a related allowance for loan losses
Construction	$	28,067	$	40,045	$	—	$	22,835	$	81	$	26,288	$	139
Commercial real estate:
Owner occupied	17,586		20,070		—		10,104		88		13,166		175
Non-owner occupied	8,639		11,255		—		6,640		59		8,591		155
Commercial	6,381		6,436		—		2,560		42		3,636		126
Mortgages:
Secured 1-4 family real estate	3,843		4,285		—		2,372		14		2,851		24
Multifamily	295		309		—		299		—		304		—
Home equity lines of credit	525		694		—		707		—		725		—
Consumer and other	—		—		—		—		—		—		—
Impaired loans with a related allowance for loan losses
Construction	$	1,011	$	1,011	$	570	$	9,159	$	2	$	8,740	$	5
Commercial real estate:
Owner occupied	6,459		6,533		585		3,209		7		5,891		22
Non-owner occupied	975		1,363		143		2,517		—		4,994		—
Commercial	2,914		2,920		2,511		1,067		24		5,218		71
Mortgages:
Secured 1-4 family real estate	498		517		45		1,010		2		2,331		6
Multifamily	300		319		135		460		—		454		—
Home equity lines of credit	403		412		112		749		—		720		—
Consumer and other	—		—		—		130		—		129		—
Total impaired loans
Construction	$	29,078	$	41,056	$	570	$	31,994	$	83	$	35,028	$	144
Commercial real estate:
Owner occupied	24,045		26,603		585		13,313		95		19,057		197
Non-owner occupied	9,614		12,618		143		9,157		59		13,585		155
Commercial	9,295		9,356		2,511		3,627		66		8,854		197
Mortgages:
Secured 1-4 family real estate	4,341		4,802		45		3,382		16		5,182		30
Multifamily	595		628		135		759		—		758		—
Home equity lines of credit	928		1,106		112		1,456		—		1,445		—
Consumer and other	—		—		—		130		—		129		—
Total impaired loan individually reviewed for impairment	$	77,896	$	96,169	$	4,101	$	63,818	$	319	$	84,038	$	723

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

22

Impaired loans acquired in business combinations without a related allowance for loan losses includes loans for which no additional reserves have been recorded in excess of credit discounts for purchased impaired loans. Impaired loans acquired with subsequent deterioration and related allowance for loan losses are loans in which additional impairment has been identified in excess of credit discounts resulting in additional reserves. These additional reserves are included in the allowance for loan losses related to purchased impaired loans and were $15,000 and $49,000 as of September 30, 2012 and December 31, 2011, respectively.

At September 30, 2012, the outstanding balance of purchased impaired loans from American Community Bancshares, Inc. ("American Community"), which includes principal, interest and fees due, was $380,887. Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans.

Troubled Debt Restructured Loans. Total amount of troubled debt restructured loans outstanding as of September 30, 2012 was $35.6 million with related reserves of $1.8 million. Approximately $13.9 million of troubled debt restructured loans are accruing interest as of September 30, 2012, as these loans have sufficient evidence of paying according to the new restructured terms. Total amount of troubled debt restructured loans outstanding as of December 31, 2011 were $43.5 million with related reserves of $2.3 million. Approximately $17.2 million of troubled debt restructured loans are accruing interest as of December 31, 2011, as these loans have sufficient evidence of paying according to the new restructured terms.

The following tables include the recorded investment and number of modifications for troubled debt restructured loans for the three and nine months ended September 30, 2012 and September 30, 2011. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Reductions in the recorded investment are primarily due to the partial charge-off of the principal balance prior to modification.

	Three Months Ended September 30, 2012
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Secured 1-4 family mortgages	1	$	396	$	391
Total	1	$	396	$	391
Extended payment terms
Construction	2	$	521	$	521
Commercial real estate:
Non-owner occupied	2	1,375		1,156
Owner occupied	2	353		331
Total	6	$	2,249	$	2,008
Total	7	$	2,645	$	2,399

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

23

	Nine Months Ended September 30, 2012
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Secured 1-4 family mortgages	1	$	396	$	391
Total	1	$	396	$	391
Extended payment terms
Construction	5	$	1,231	$	873
Commercial real estate:
Non-owner occupied	3	1,586		1,367
Owner occupied	7	2,065		2,021
Commercial	6	1,872		1,482
1-4 Family Residential	3	827		751
Consumer	1	26		24
Total	25	$	7,607	$	6,518
Principal payment reduction
Commercial real estate:
Owner occupied	2	$	571	$	571
Consumer	1	165		9
Total	3	$	736	$	580
Total	29	$	8,739	$	7,489

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

24

	Three Months Ended September 30, 2011
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Construction	2	$	1,721	$	1,705
Secured 1-4 family mortgages	1	150		150
Total	3	$	1,871	$	1,855
Extended payment terms
Construction	3	$	595	$	586
Commercial real estate:
Non-owner occupied	2	734		139
Owner occupied	4	6,834		6,404
Commercial	1	120		120
Total	10	$	8,283	$	7,249
Principal payment reduction
Construction	1	$	400	$	258
Commercial	1	16		15
Total	2	$	416	$	273
Total	15	$	10,570	$	9,377

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

25

	Nine Months Ended September 30, 2011
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Construction	3	$	2,221	$	2,131
Secured 1-4 family mortgages	1	150		150
Total	4	$	2,371	$	2,281
Extended payment terms
Construction	8	2,705		2,449
Commercial real estate:
Non-owner occupied	3	1,133		533
Owner occupied	9	8,230		7,743
Commercial	3	346		120
1-4 Family Residential	2	327		197
Consumer	—	—		—
Total	25	$	12,741	$	11,042
Principal payment reduction
Construction	4	3,302		1,060
Commercial real estate:
Owner occupied	1	240		—
Commercial	2	64		62
Home equity lines of credit	1	165		165
Total	8	3,771		1,287
Total	37	$	18,883	$	14,610

The following tables present loans that were modified as troubled debt restructurings during the previous twelve months and for which there was a payment default during the nine months ended September 30, 2012 and three and nine months ended September 30, 2011. There were no payment defaults for troubled debt restructurings for the three months ended September 30, 2012.

	Nine months ended September 30, 2012
	Number of loans	Recorded investment
Below Market Rate		(in thousands)
Construction	1	$	578
Total	1	$	578
Extended payment terms
Consumer	1	$	24
Total	1	$	24
Total	2	$	602

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

26

	Three months ended September 30, 2011			Nine months ended September 30, 2011
	Number of loans	Recorded investment		Number of loans	Recorded investment
Extended payment terms		(in thousands)			(in thousands)
Construction	1	$	221	1	$	221
Commercial real estate:
Non-owner occupied	1	1,789		1	1,789
Commercial	—	—		2	226
Secured 1-4 family mortgages	1	120		1	120
Total	3	$	2,130	5	$	2,356
Principal payment reduction
Construction	1	$	797	1	$	797
Commercial real estate:
Owner occupied	—			1	240
Total	1	$	797	2	$	1,037
Total	4	$	2,927	7	$	3,393

Allowance for Loan Losses. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management's best estimate for probable losses that have been incurred within the existing portfolio of loans. The primary risks inherent in the Bank's loan portfolio, including the adequacy of the allowance or reserve for loan losses, are based on management's assumptions regarding, among other factors, general and local economic conditions, which are difficult to predict and are beyond the Bank's control. In estimating these risks, and the related loss reserve levels, management also considers the financial conditions of specific borrowers and credit concentrations with specific borrowers, groups of borrowers, and industries.

The allowance for loan losses is adjusted by direct charges to provision expense. Losses on loans are charged against the allowance for loan losses in the accounting period in which they are determined by management to be uncollectible. Recoveries during the period are credited to the allowance for loan losses. The provision for loan losses was $4.3 million for the quarter ended September 30, 2012 as compared to $2.0 million for the quarter ended September 30, 2011. The provision expense is determined by management with the use of the Bank's allowance for loan losses model. The components of the model are specific reserves for impaired loans and a general allocation for unimpaired loans. The general allocation has two components, an estimate based on historical loss experience and an additional estimate based on internal and external environmental factors due to the uncertainty of historical loss experience in predicting current embedded losses in the portfolio that will be realized in the future.

During the second quarter of 2012, the Company completed the transition to the use of migration analysis in calculating historical loss experience for collectively evaluated loans.  This method takes into consideration the probability of loss for each loan type by credit quality, and historical losses given default by loan type.  Previously, the Company utilized migration analysis in  determining its reserve for classified loans, while continuing to incorporate average historical losses for all collectively evaluated loans.  The migration analysis is utilized across all risk categories and for all non-impaired loans, and average historical losses are excluded from the calculation.  The impact of this change to the allowance for loan losses was an increase of $1.4 million in general reserve allocation during the second quarter of 2012.

The portion of the general allocation on environmental factors includes estimates of losses related to interest rate trends, unemployment trends, real estate characteristics, past due and nonaccrual trends, watch list trends, charge-off trends, and underwriting and servicing assessments. Markets served by the Bank continue to experience softening from the general economy and declines in real estate values. The real estate characteristics component includes trends in real estate concentrations, exceptions to FDIC guidelines for loan-to-value ratios, and changes in real estate market values. Other factors impacting the allowance at September 30, 2012 were watch list trends, unemployment rate trends, and underwriting and servicing assessments.

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

27

The following table presents changes in the allowance for loan losses for the three months ended September 30, 2012 and 2011:

	June 30, 2012		Charge-offs		Recoveries		Provision			September 30, 2012
	(Amounts in thousands)
Construction	$	5,903	$	3,881	$	45	$	3,675		$	5,742
Commercial real estate:
Owner occupied	5,630		146		2		(943		)	4,543
Non-owner occupied	3,582		697		256		1,096			4,237
Commercial	4,715		771		63		624			4,631
Mortgages:
Secured 1-4 family- first lien	3,063		57		4		(83		)	2,927
Multifamily	563		—		—		5			568
Home equity lines of credit	4,399		372		29		(162		)	3,894
Consumer and other	942		313		21		39			689
	$	28,797	$	6,237	$	420	$	4,251		$	27,231
	June 30, 2011		Charge-offs		Recoveries		Provision			September 30, 2011
	(Amounts in thousands)
Construction	$	10,770	$	1,175	$	630	$	(390	)	$	9,835
Commercial real estate:
Owner occupied	6,701		546		3		(506		)	5,652
Non-owner occupied	4,280		1,101		—		707			3,886
Commercial	4,020		489		278		976			4,785
Mortgages:
Secured 1-4 family- first lien	4,514		584		84		223			4,237
Multifamily	526		—		—		48			574
Home equity lines of credit	4,012		973		17		867			3,923
Consumer and other	829		156		77		31			781
	$	35,652	$	5,024	$	1,089	$	1,956		$	33,673

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

28

The following table presents changes in the allowance for loan losses for the nine months ended September 30, 2012 and 2011:

	December 31, 2011		Charge-offs		Recoveries		Provision			September 30, 2012
	(Amounts in thousands)
Construction	$	8,214	$	7,823	$	323	$	5,028		$	5,742
Commercial real estate:
Owner occupied	5,792		2,019		126		644			4,543
Non-owner occupied	4,668		2,461		289		1,741			4,237
Commercial	5,712		1,789		829		(121		)	4,631
Mortgages:
Secured 1-4 family- first lien	3,726		625		153		(327		)	2,927
Multifamily	805		213		—		(24		)	568
Home equity lines of credit	3,310		1,073		50		1,607			3,894
Consumer and other	621		521		317		272			689
	$	32,848	$	16,524	$	2,087	$	8,820		$	27,231
	December 31, 2010		Charge-offs		Recoveries		Provision			September 30, 2011
	(Amounts in thousands)
Construction	$	12,014	$	9,050	$	1,710	$	5,161		$	9,835
Commercial real estate:
Owner occupied	5,958		3,382		109		2,967			5,652
Non-owner occupied	7,150		3,434		52		118			3,886
Commercial	4,335		2,513		389		2,574			4,785
Mortgages:
Secured 1-4 family- first lien	3,706		2,364		161		2,734			4,237
Multifamily	424		11		—		161			574
Home equity lines of credit	3,298		2,659		97		3,187			3,923
Consumer and other	867		569		169		314			781
	$	37,752	$	23,982	$	2,687	$	17,216		$	33,673

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The following tables provide the a breakdown of allowance for loan losses for collectively evaluated and individually evaluated loans by type as of September 30, 2012 and December 31, 2011.

	Reserves for  loans  individually  evaluated for  impairment		Loans  individually  evaluated for  impairment		Reserves for  loans  collectively  evaluated for  impairment		Loans  collectively  evaluated for  impairment
As of September 30, 2012	(Amounts in thousands)
Construction	$	1,249	$	18,025	$	4,493	$	129,383
Commercial real estate:
Owner occupied	279		19,268		4,264		327,640
Non-owner occupied	476		7,535		3,761		223,319
Commercial	1,632		9,016		2,999		159,494
Mortgages:
Secured 1-4 family- first lien	155		1,871		2,773		172,841
Multifamily	—		701		567		37,286
Home equity lines of credit	—		1,706		3,894		194,783
Consumer and other	—		—		689		54,772
	$	3,791	$	58,122	$	23,440	$	1,299,518
	Reserves for  loans  individually  evaluated for  impairment		Loans  individually  evaluated for  impairment		Reserves for  loans  collectively  evaluated for  impairment		Loans  collectively  evaluated for  impairment
As of December 31, 2011	(Amounts in thousands)
Construction	$	570	$	29,078	$	7,644	$	173,725
Commercial real estate:
Owner occupied	585		24,045		5,207		324,886
Non-owner occupied	143		9,614		4,525		233,213
Commercial	2,511		9,295		3,201		167,752
Mortgages:
Secured 1-4 family- first lien	45		4,341		3,681		174,706
Multifamily	135		595		670		39,286
Home equity lines of credit	112		928		3,198		200,292
Consumer and other	—		—		621		58,283
	$	4,101	$	77,896	$	28,747	$	1,372,143

The allowance model is applied to determine the specific allowance balance for impaired loans and the general allowance balance for unimpaired loans grouped by loan type.

The Company's loan charge-off policy for all loan classes is to charge down loans to net realizable value once a portion of the loan is determined to be uncollectable, and the underlying collateral shortfall is assessed. Unsecured loans (primarily consumer loans) are charged off against the reserve once the loan becomes 90 days past due or it is determined that a portion of the loan is uncollectable. Secured loans (primarily construction, real estate, commercial and other loans) are moved to nonaccrual status when the loan becomes 90 days delinquent or a portion of the loan is determined to be uncollectable and supporting collateral is not considered to be sufficient to cover potential losses. Nonaccrual loans are reviewed at least quarterly to determine if all or a portion of the loan is uncollectable. Nonaccrual loans that are determined to be solely collateral dependent are promptly charged down to net realizable value upon determination that they are impaired.

In addition to the allowance for loan losses, the Company also estimates probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees and unfunded loan commitments. Unfunded lending commitments are analyzed and segregated by loan classification. These classifications, in conjunction with an analysis of historical loss experience, current

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Form 10-Q Quarterly Report September 30, 2012

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economic conditions, performance trends within specific portfolio segments and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments. The reserve for credit losses related to unfunded lending commitments was $201,000 and $221,000 as of September 30, 2012 and December 31, 2011, respectively.

The Company maintains reserves for mortgage loans sold to agencies and investors in the event that, either through error or disagreement between the parties, the Company is required to indemnify the purchase.  The reserves take into consideration risks associated with underwriting, key factors in the mortgage industry, loans with specific reserve requirements, past due loans and potential indemnification by the Company.  Reserves are estimated based on consideration of factors in the mortgage industry such as declining collateral values and rising levels of delinquency, default and foreclosure, coupled with increased incidents of quality reviews at all levels of the mortgage industry seeking justification for pushing back losses to loan originators and wholesalers.  As of September 30, 2012, the Company had reserves for mortgage loans sold of $1.7 million, and charges against reserves for the three months ended September 30, 2012 were $115,238. For the three and nine months ended September 30, 2012, the Company recorded $204,861 and $234,576 in provision expense related to potential repurchase and warranties exposure on the $94 million and $288.6 million in loan sales that occurred during that period, respectively. For the three months ended September 30, 2011, the Company recorded $18,000 in provision expense related to potential repurchase and warranties exposure. There were no charges against reserves for the three and nine months ended September 30, 2011.  For the quarters and nine months ended September 30, 2012 and 2011, the Company did not repurchase any mortgage loans sold. As of December 31, 2011, the Company had reserves for mortgage loans sold of $1.8 million.

11. Fair Value

The Company utilizes fair value measurements to record fair value adjustments for certain assets and liabilities and to determine fair value disclosures. Available-for-sale securities, interest rate swaps, mortgage servicing rights, interest rate lock commitments and forward sale loan commitments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record other assets at fair value, such as loans held-for-investment and certain other assets. These nonrecurring fair value adjustments usually involve writing the asset down to fair value or the lower of cost or market value.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Available-for-Sale Investment Securities

Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities and private label entities, municipal bonds and corporate debt securities. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

Interest Rate Swaps

Interest rate swaps are recorded at fair value on a recurring basis. Fair value measurement is based on discounted cash flow models run by a third-party on a monthly basis. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date. As a result, the Company classifies interest rate swaps as Level 3.

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The following table presents a rollforward of interest rate swaps from June 30, 2012 to September 30, 2012, and from June 30, 2011 to September 30, 2011.

	Level 3
	Fair Value- Assets			Fair Value- Liabilities
	(Amounts in thousands)
Balance, June 30, 2011	$	173		$	173
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	55			55
Balance, September 30, 2011	$	228		$	228
Balance, June 30, 2012	$	213		$	213
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	—			—
Balance, September 30, 2012	$	213		$	213
The following table presents a rollforward of interest rate swaps from December 31, 2011 to September 30, 2012, and from December 31, 2010 to September 30, 2011.
	Level 3
	Fair Value- Assets			Fair Value- Liabilities
	(Amounts in thousands)
Balance, December 31, 2010	$	159		$	159
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	69			69
Balance, September 30, 2011	$	228		$	228
Balance, December 31, 2011	$	217		$	217
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	(4		)	(4		)
Balance, September 30, 2012	$	213		$	213

Interest Rate Locks and Forward Loan Sale Commitments

Sidus, the Company's mortgage lending subsidiary, enters into interest rate lock commitments and commitments to sell mortgages. At September 30, 2012, the amount of fair value associated with these interest rate lock commitments and sale commitments was $(491,245) and $1,008,706, respectively. At December 31, 2011, the amount of fair value associated with these interest rate lock commitments and sale commitments was $129,818 and $57,363, respectively. The fair value of interest rate lock commitments is based on servicing rate premium, origination income net of origination costs, fall out rates and changes in loan pricing between the commitment date and period end, typically month end.

The Company classifies interest rate lock commitments as Level 3. The fair value of forward sales commitments is based on changes in loan pricing between the commitment date and period end. The Company classified forward sale commitments as Level 2. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

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Form 10-Q Quarterly Report September 30, 2012

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The following table presents a rollforward of interest rate lock commitments for the three months ended September 30, 2012 and 2011, respectively.

	Interest Rate Lock Commitments
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, June 30, 2012 and 2011	$	578		$	16
Gains/losses included in other income	(1,069		)	314
Transfer in and out	—			—
Balance, September 30, 2012 and 2011	$	(491	)	$	330
The following table presents a rollforward of interest rate lock commitments for the nine months ended September 30, 2012 and 2011, respectively.
	Interest Rate Lock Commitments
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, December 31, 2011 and 2010	$	130		$	105
Gains/losses included in other income	(621		)	225
Transfer in and out	—			—
Balance, September 30, 2012 and 2011	$	(491	)	$	330

Mortgage Servicing Rights

A valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. The present value of the future earnings is the estimated market value for the pool, calculated by a third party at least semi-annually, using assumptions that a third party purchaser would utilize in evaluating a potential acquisition of the servicing. As such, the Company classifies loan servicing rights as a Level 3 asset. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

The following table presents a rollforward of mortgage servicing rights from December 31, 2011 and 2010 to September 30, 2012 and 2011 and June 30, 2012 and 2011 to September 30, 2012 and 2011 and shows that the mortgage servicing rights are classified as Level 3 as discussed above.

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	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, June 30, 2012 and 2011	$	1,889		$	2,193
Capitalized	300			71
Gains/losses included in other income	(153		)	(248		)
Balance, September 30, 2012 and 2011	$	2,036		$	2,016
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, December 31, 2011 and 2010	$	1,871		$	2,144
Capitalized	645			266
Gains/losses included in other income	(480		)	(394		)
Balance, September 30, 2012 and 2011	$	2,036		$	2,016

Mortgage Loans Held-for-Sale

Loans held-for-sale are carried at lower of cost or market value. The fair value of loans held-for-sale is based on what secondary markets are currently offering for portfolios with similar characteristics. The changes in fair value of the assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale. As such, the Company classifies loans measured at fair value on a nonrecurring basis as a Level 2 asset. At September 30, 2012, the cost of the Company's mortgage loans held-for-sale was less than the market value. Accordingly, the Company's loans held-for-sale are carried at cost. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

Impaired Loans

The Company does not record loans held-for-investment at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with the Receivables topic of the FASB Accounting Standards Codification. The fair value of impaired loans is estimated using one of several methods, including collateral value (through appraisal processes and applying liquidity discounts and deducting expected selling costs), market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2012, the majority of impaired loans were evaluated based on the fair value of the collateral by obtaining third-party appraisals and applying liquidity discounts. Third party appraisals are obtained at least annually for all impaired loans greater than $250,000. The Company records impaired loans as nonrecurring Level 3. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

Other Real Estate Owned

Other real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral (through appraisal processes and applying liquidity discounts and deducting expected selling costs). When the fair value of the collateral is measured due to further deterioration in the value of the OREO since initial recognition, the Company records the foreclosed asset as nonrecurring Level 3. The current carrying value of OREO at September 30, 2012 is $22.3 million. At December 31, 2011 the carrying value of OREO was $25.0 million. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

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Form 10-Q Quarterly Report September 30, 2012

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The following table presents assets and (liabilities) measured at fair value on a recurring basis:

September 30, 2012 (in thousands)	Fair Value			Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. government agencies	$	32,869		$	—	$	32,869	$	—
Government sponsored agencies:
Residential mortgage-backed securities	83,264			—		83,264		—
Collateralized mortgage obligations	137,483			—		137,483		—
Private label collateralized mortgage obligations	1,059			—		1,059		—
State and municipal securities	54,769			—		54,769		—
Common and preferred stocks	1,112			1,112		—		—
Interest rate swap agreements	213			—		—		213
Interest rate swap agreements	(213		)	—		—		(213		)
Interest rate lock commitments	(491		)	—		—		(491		)
Forward loan sale commitments	1,008			—		1,008		—
Mortgage servicing rights	2,036			—		—		2,036

December 31, 2011 (in thousands)	Fair Value			Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. government agencies	$	23,726		$	—	$	23,726	$	—
Government sponsored agencies:
Residential mortgage-backed securities	65,210			—		65,210		—
Collateralized mortgage obligations	166,028			—		166,028		—
Private label collateralized mortgage obligations	1,256			—		1,256		—
State and municipal securities	73,118			—		73,118		—
Common and preferred stocks	1,084			1,084		—		—
Interest rate swap agreements	216			—		—		216
Interest rate swap agreements	(216		)	—		—		(216		)
Interest rate lock commitments	130			—		—		130
Forward loan sale commitments	57			—		57		—
Mortgage servicing rights	1,871			—		—		1,871

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Form 10-Q Quarterly Report September 30, 2012

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Quantitative Information about Level 3 Fair Value Measurements

	Fair Value at September 30, 2012 (in thousands)			Valuation Technique	Unobservable Input	Range (Weighted Avg)
Recurring measurements:
Interest Rate Swaps	$	213		Discounted cash flow	Discount rate	1-4% (1.20%)
Interest Rate Lock Commitments	(491		)	Pricing model	Pull through rates	80-86%
Mortgage Servicing Rights	2,036			Discounted cash flow	Constant prepayment rate	20.03%
					Cost of service	$50
					Discount rate	8%
Nonrecurring measurements:
Impaired loans	$	13,793		Discounted appraisals	Collateral discounts	15-50%
Other real estate owned	8,715			Discounted appraisals	Collateral discounts	6-15%

The unobservable input used in the fair value measurement of the Company's interest rate swap agreements is the discount rate.  A significant increase (decrease) in the discount rate could result in a significantly lower (higher) fair value measurement.  The discount rate is determined by the third-party by obtaining third party market quotes from Reuters, which handle up to 30 year swap maturities. The Company's asset liability management team periodically reviews the discount rates utilized in determining the fair value of the interest rate swap agreements.

The significant unobservable input used in the fair value measurement of the Company's interest rate lock commitments is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close.  Generally, the fair value of an interest rate lock commitment is positive (negative) if the prevailing interest rate is lower (higher) than the interest rate lock commitment rate.  Therefore, an increase in the pull through rates (i.e., higher percentage of loans are estimated to close) will result in the fair value of the interest rate lock commitments to increase if in a gain position, or decrease if in a loss position.  The pull through ratio is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock.  The pull through rate is computed by our secondary marketing system using historical data and the ratio is periodically reviewed by the Company's mortgage banking division.

The significant unobservable inputs used in the fair value measurement of the Company's mortgage servicing rights are the weighted average constant prepayment rate and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.  Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. The Company utilizes an independent third-party to estimate the fair value of mortgage servicing rights through use of a discounted cash flow model to calculate the present value of estimated future net servicing income based on observable and unobservable inputs into the model to arrive at an estimated fair value.  To assess the reasonableness of the fair value measurement, the fair value and constant prepayment rates are compared to forward-looking estimates by the Company. 

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Form 10-Q Quarterly Report September 30, 2012

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The following table presents assets measured at fair value on a nonrecurring basis:

	Fair Value		Level 1		Level 2		Level 3
September 30, 2012	(Amounts in thousands)
Other real estate owned	$	8,715	$	—	$	—	$	8,715
Impaired loans:
Construction	3,400		—		—		3,400
Commercial real estate:
Owner occupied	4,933		—		—		4,933
Non-owner occupied	3,553		—		—		3,553
Commercial	1,158		—		—		1,158
Mortgages:
Secured 1-4 family real estate	749		—		—		749
Multifamily	—		—		—		—
Home equity lines of credit	—		—		—		—
Consumer and other	—		—		—		—

	Fair Value		Level 1		Level 2		Level 3
December 31, 2011	(Amounts in thousands)
Other real estate owned	$	5,391	$	—	$	—	$	5,391
Impaired loans:
Construction	441		—		—		441
Commercial real estate:
Owner occupied	5,874		—		—		5,874
Non-owner occupied	832		—		—		832
Commercial	403		—		—		403
Mortgages:
Secured 1-4 family real estate	453		—		—		453
Multifamily	165		—		—		165
Home equity lines of credit	291		—		—		291
Consumer and other	—		—		—		—

There were no transfers between valuation levels for any assets during the quarter ended September 30, 2012 or the quarter ended September 30, 2011. If different valuation techniques are deemed necessary, we would consider those transfers to occur at the end of the period when the assets are valued.

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Form 10-Q Quarterly Report September 30, 2012

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12. Financial Instruments

The following is a summary of the carrying amounts and fair values of the Company's financial assets and liabilities at September 30, 2012 and December 31, 2011:    

	September 30, 2012
	Carrying  amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	123,222	$	123,222	$	123,222	$	—	$	—
Investment securities	310,556		310,556		1,112		309,444		—
Loans and loans held-for-sale, net	1,356,403		1,228,930		—		—		1,228,930
Accrued interest receivable	6,229		6,229		—		6,229		—
Federal Home Loan Bank stock	4,155		4,155		4,155		—		—
Forward sales commitments	1,008		1,008		—		1,008		—
Interest rate swap agreements	213		213		—		—		213
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	862,622		858,491		—		858,491		—
Time deposits	788,838		800,977		—		800,977		—
Borrowed funds	102,299		103,270		—		103,270		—
Accrued interest payable	1,746		1,746		—		1,746		—
Interest rate swap agreements	213		213		—		—		213
Interest rate lock commitments	491		491		—		—		491

	December 31, 2011
	Carrying  amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	92,918	$	92,918	$	92,918	$	—	$	—
Investment securities	330,422		330,422		1,084		329,338		—
Loans and loans held-for-sale, net	1,437,610		1,365,586		—		—		1,365,586
Accrued interest receivable	6,745		6,745		—		6,745		—
Federal Home Loan Bank stock	6,130		6,130		6,130		—		—
Forward sales commitments	57		57		—		57		—
Interest rate swap agreements	216		216		—		—		216
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	855,455		855,455		—		855,455		—
Time deposits	875,886		885,903		—		885,903		—
Borrowed funds	105,539		106,923		—		106,923		—
Accrued interest payable	2,619		2,619		—		2,619		—
Interest rate swap agreements	216		216		—		—		216
Interest rate lock commitments	130		130		—		—		130

The carrying amounts of cash and cash equivalents approximate their fair value.

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The fair value of marketable securities is based on quoted market prices, prices quoted for similar instruments, and prices obtained from independent pricing services.

For certain categories of loans, such as installment and commercial loans, the fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The cost of fixed rate mortgage loans held-for-sale approximates the lower of cost or market as these loans are typically sold within 60 days of origination. Fair values for adjustable-rate mortgages are based on quoted market prices of similar loans adjusted for differences in loan characteristics. The Company applied an additional illiquidity discount in the amount of 10.0%.

The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB stock.

The fair value of demand deposits and savings accounts is the amount payable on demand at September 30, 2012 and December 31, 2011, respectively. The fair value of fixed-maturity certificates of deposit and individual retirement accounts is estimated using the present value of the projected cash flows using rates currently offered for similar deposits with similar maturities.

The fair values of borrowings are based on discounting expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements. The carrying values of short-term borrowings, including overnight, securities sold under agreements to repurchase, federal funds purchased and FHLB advances, approximates the fair values due to the short maturities of those instruments. The Company's credit risk is not material to calculation of fair value because these borrowings are collateralized.

The carrying values of accrued interest receivable and accrued interest payable approximates fair values due to the short-term duration.

Interest rate swaps are recorded at fair value on a recurring basis. Fair value measurement is based on discounted cash flow models. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date.

Interest rate locks and forward loan sale commitments are recorded at fair value on a recurring basis. The fair value of forward sales commitments is based on changes in loan pricing between the commitment date and period end, typically month end. The fair value of interest rate lock commitments is based on servicing release premium, origination income net of origination costs, and changes in loan pricing between the commitment date and period end, typically month end.

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Form 10-Q Quarterly Report September 30, 2012

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13. Business Segment Information

The Company has two reportable segments, including banking activities and mortgage banking activities, which includes mortgage activities at the Bank and at Sidus Financial, a single member LLC with the Bank as the single member. Sidus is headquartered in Greensboro, North Carolina and offers mortgage banking services to its customers throughout the Southeast. The following table details the results of operations for the three and nine months ended September 30, 2012 and 2011 for bank activities and mortgage activities.

During the second quarter of 2012, a decision was made by management to make a change in how the Company's mortgage activities are reported based on the reorganization of the Bank's mortgage division and Sidus. This decision was made to improve overall reporting of its mortgage banking activities which are now analyzed and reviewed as a separate and distinct business segment. This change in reporting segment combines both mortgage activities of the Bank with mortgage activities that were previously reported separately from mortgage activities provided by Sidus. Reclassifications include interest income which was previously presented in other income, commission expenses recorded in salaries that are now recorded as a reduction in mortgage banking activity income, and other miscellaneous expenses previously recorded in other expenses that have been reclassified as a reduction to mortgage banking activity income. In addition, gains on sale of mortgage loans has been reclassified to be reported with mortgage banking income to provide a combined overview of the mortgage banking activity segment. The reclassifications had no effect on net income (loss) or shareholders' equity, as previously reported.

	Bank Activities			Mortgage Activities			Other			Total
	(Amounts in thousands)
For Three Months Ended September 30, 2012
Interest income	$	19,238		$	208		$	—		$	19,446
Interest expense	3,985			61			211			4,257
Net interest income	15,253			147			(211		)	15,189
Provision for loan losses	4,254			(3		)	—			4,251
Net interest income (loss) after provision for loan losses	10,999			150			(211		)	10,938
Other income	3,060			1,599			6			4,665
Other expense	13,589			1,192			11			14,792
Income (loss) before income taxes	470			557			(216		)	811
Income taxes	54			—			—			54
Net income (loss)	$	416		$	557		$	(216	)	$	757
Total assets	$	1,899,745		$	33,208		$	(12,575	)	$	1,920,378
Net loans	1,331,637			—			—			1,331,637
Loans held for sale	—			24,766			—			24,766
For Nine Months Ended September 30, 2012
Interest income	$	59,641		$	538		$	—		$	60,179
Interest expense	13,215			90			636			13,941
Net interest income	46,426			448			(636		)	46,238
Provision for loan losses	8,842			(22		)	—			8,820
Net interest income (loss) after provision for loan losses	37,584			470			(636		)	37,418
Other income	8,134			4,412			35			12,581
Other expense	40,781			3,297			24			44,102
Income (loss) before income taxes	4,937			1,585			(625		)	5,897
Income taxes	(9,329		)	—			—			(9,329		)
Net income (loss)	$	14,266		$	1,585		$	(625	)	$	15,226

(1) Note: The “Other” column includes asset eliminations representing the Bank's Due from Sidus account ($10,689 in 2012), the Bank's Investment in Sidus ($3,000 in 2012), and the Bank's A/R from Sidus ($0 in 2012). Also included in this column are Holding Company assets ($1,114 in 2012) and Holding Company income and expenses.

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Form 10-Q Quarterly Report September 30, 2012

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	Bank Activities			Mortgage Activities			Other			Total
	(Amounts in thousands)
For Three Months Ended September 30, 2011
Interest income	$	21,400		$	165		$	—		$	21,565
Interest expense	5,738			10			192			5,940
Net interest income	15,662			155			(192		)	15,625
Provision for loan losses	1,922			34			—			1,956
Net interest income (loss) after provision for loan losses	13,740			121			(192		)	13,669
Other income	4,281			996			(54		)	5,223
Other expense	11,299			1,528			2			12,829
Income (loss) before income tax expense	6,722			(411		)	(248		)	6,063
Income tax expense	2,384			—			—			2,384
Net income (loss)	$	4,338		$	(411	)	$	(248	)	$	3,679
Total assets	$	2,026,753		$	23,142		$	(2,764	)	$	2,047,131
Net loans	1,439,927			—			—			1,439,927
Loans held for sale	357			13,444			—			13,801
Goodwill	—			—			—			—
For Nine Months Ended September 30, 2011
Interest income	$	67,351		$	236		$	—		$	67,587
Interest expense	19,891			219			576			20,686
Net interest income	47,460			17			(576		)	46,901
Provision for loan losses	17,162			54			—			17,216
Net interest income (loss) after provision for loan losses	30,298			(37		)	(576		)	29,685
Other income	10,431			3,476			(136		)	13,771
Other expense	42,408			11,433			30			53,871
Loss before income tax expense	(1,679		)	(7,994		)	(742		)	(10,415		)
Income tax expense	6,905			—			—			6,905
Net loss	$	(8,584	)	$	(7,994	)	$	(742	)	$	(17,320	)

________________________

(1) As an LLC, Sidus passes its pre-tax income through to its single member, the Bank, which is taxed on that income.

(2) Note: The “Other” column includes asset eliminations representing the Bank's Due from Sidus account ($3,286 in 2011), the Bank's Investment in Sidus ($3,000 in 2011), and the Bank's A/R from Sidus ($614 in 2011). Also included in this column are Holding Company assets ($1,258 in 2011) and Holding Company income and expenses.

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Form 10-Q Quarterly Report September 30, 2012

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14. Income Taxes

The following table presents the provision for income taxes for the nine months ended September 30, 2012 and 2011:

	2012			2011
	(in thousands)
Current:
Federal	$	(342	)	$	1,627
State	—			—
	(342		)	1,627
Deferred:
Federal	1,575			(5,120		)
State	438			(602		)
	2,013			(5,722		)
Increase (decrease) in valuation allowance for deferred tax assets	(11,000		)	11,000
Total income taxes	$	(9,329	)	$	6,905

The following table presents the tax effects of significant components of the Company's net deferred tax assets as of September 30, 2012 and December 31, 2011:

	September 30,			December 31,
	2012			2011
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	10,671		$	12,880
Other than temporary impairment	807			807
Accrued liabilities	213			276
OREO property	1,594			1,268
Net operating loss	6,511			7,281
Sidus goodwill	953			1,050
Other	1,887			1,798
	22,636			25,360
Less: Valuation Allowance	—			(11,000		)
	$	22,636		$	14,360
Deferred tax liabilities:
Unrealized gain on available-for-sale securities	$	(3,002	)	$	(2,387	)
FMV adjustment related to mergers	(177		)	(255		)
Depreciation	(1,688		)	(1,980		)
Prepaid expenses	(358		)	(327		)
Core deposit intangible	(1,146		)	(1,468		)
Noncompete intangible	(149		)	(149		)
Other	(146		)	(195		)
	$	(6,666	)	$	(6,761	)
Net deferred tax asset	$	15,970		$	7,599

Our net deferred tax asset was $16.0 million at September 30, 2012 and $7.6 million at December 31, 2011. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50

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Form 10-Q Quarterly Report September 30, 2012

42

percent) that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is used in the consideration to determine whether, based on the weight of that evidence, a valuation allowance is required.

As of June 30, 2012, the Company reversed a previously recorded $11 million valuation allowance which had been established as a measure of caution in 2011 after falling into a 3-year cumulative loss position at that time. After review of all available evidence at June 30, 2012 and based on the weight of such evidence, the Company believed the realization of the deferred tax asset was more likely than not and reversed the previously recorded $11.0 million valuation allowance. The reversal of the allowance was based primarily on a return to profitability as the Company had reported four consecutive quarters of net income. Based on net income trends, projected net income over the next 36 months and improving credit quality metrics, no valuation allowance was deemed necessary as of June 30, 2012.

At September 30, 2012, the Company considered the following negative and positive evidence in its evaluation of deferred tax assets:

• The Company is in a cumulative tax income position for the 3-year period ending September 30, 2012 of $1.7 million. Significance: High

	September 30, 2012 Cumulative Loss Test
	2009*		2010			2011			2012**		Total
Income (loss) before income taxes	$	6,545	$	(1,402	)	$	(7,701	)	$	5,897	$	(3,206	)
Goodwill impairment	—		—			4,944			—		4,944
	$	6,545	$	(1,402	)	$	(2,757	)	$	5,897	$	1,738

*4th quarter of 2009

**First nine months of 2012

• The Company has recorded $14.7 million in taxable income for five previous consecutive quarters as credit quality has improved and net interest margin has increased over the past year. Credit quality has improved, including significant decreases in classified loans and nonperforming loans. Credit losses have shown a dramatic reduction in the second half of 2011 and continuing into 2012 with only $16.5 million in charge-offs for the nine months ended September 30, 2012. Significance: High

• The Company's strong history of earnings since the inception of the Bank, and particularly over the 10 year period prior to the current economic cycle, shows the Company has historically been profitable and has no history of expiration of loss carryforwards. Significance: Moderate

• Management is not aware of any unsettled circumstances that, if resolved, would adversely affect future operations or earnings. Significance: Low

• Credit quality has improved over the past twelve months, including significant decreases in classified loans and nonperforming loans. Credit losses have shown a dramatic reduction in the second half of 2011 and continuing into 2012, with only $25.3 million in gross charge-offs over the past twelve months as compared to $39.8 million in the twelve prior months. Significance: Moderate

• Federal net operating losses can be deducted over the twenty year carryforward period. Currently, management is projecting full utilization of these tax benefits within 3 years from December 31, 2011. The Company's loss carryforwards for the tax period ending December 31, 2012 include net operating loss carryforwards generated in the acquisition of Cardinal State Bank in 2008 and American Community Bank in 2009, as well as net operating loss carryforwards for the Company. The expiration of the loss carryforwards for the tax period ending December 31, 2012 are as follows:

Significance: Moderate

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	Net Operating Loss  Carryforward at December 31, 2011		Expiration
	(in thousands)
Cardinal State Bank acquisition	$	2,424	2029
American Community Bank acquisition	345		2030
Yadkin Valley Federal Tax	14,517		2031
Yadkin Valley State Tax	16,166		2031
Total Loss Carryforwards	$	33,452

After review of all available evidence and based on the weight of such evidence, the Company believes the realization of the deferred tax asset is, more likely than not and no valuation allowance is deemed necessary at September 30, 2012 based primarily on a return to profitability (excluding projected losses related to management's de-risk plan) as the Company has reported five consecutive quarters of net income, net income trends, projected net income for the years 2013-2015 and improving credit quality metrics.

In October 2012, the Company announced a plan to reduce credit risk and reduce problem assets. As a result of this plan, the Company is projecting a loss for the year ended December 31, 2012. This loss will cause the Company to return to a cumulative loss position for the 3-year period ended. Although the Company estimates losses related to this effort will be between $40-45 million, the plan will help reduce problem assets that led to significant losses in the years 2010 and 2011 and capital raised as part of the Private Placement will better position the Company in the future. See Note 15 for further discussion on the Private Placement and de-risk plan. The Company has considered this potential transaction as part of our analysis of realizability of deferred tax assets at September 30, 2012 and concluded that it was still more likely than not that the deferred tax assets will be realized and that no valuation allowance is necessary at September 30, 2012.

The following table presents a reconciliation of applicable income taxes for the nine months ended September 30, 2012 and 2011 to the amount of tax expense computed at the statutory federal income tax rate of 35%:

	2012			2011
	(in thousands)
Tax expense (benefit) at statutory rate on income before income taxes	$	2,064		$	(3,645	)
Increases (decreases) resulting from:
Tax-exempt interest on investments	(589		)	(651		)
State income tax, net of federal benefits	285			(391		)
Income from bank-owned life insurance	(166		)	(172		)
Valuation allowance on deferred tax assets	(11,000		)	11,000
Other	77			764
Total income taxes	$	(9,329	)	$	6,905

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Form 10-Q Quarterly Report September 30, 2012

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15. Subsequent Events

On October 23, 2012, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors and directors and executive officers of the Company (collectively, the “Investors”), pursuant to which the Investors purchased 45,000 shares of the Company's Mandatorily Convertible Cumulative Non-Voting Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), at a price of $1,000 per share in a private placement (the “Private Placement”). The Series A Preferred Stock will convert into shares of the Company's common stock at a price of $2.80 per share upon shareholder approval. The Company raised approximately $41.8 million in net proceeds from the sale of the Series A Preferred Stock.

As part of the Private Placement, contemporaneously with the execution of the Purchase Agreement, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with certain holders (the “Preferred Shareholders”) of the Company's Series T Preferred Stock and Series T-ACB Preferred Stock, pursuant to which the Preferred Shareholders agreed, upon shareholder approval, to exchange shares of the Preferred Stock for shares of the Company's common stock and shares of a new class of non-voting common stock, par value $1.00 per share, of the Company (the “non-voting common stock”). Upon shareholder approval, the total amount of Preferred Stock to be exchanged for common stock and non-voting common stock will be approximately $21 million. The non-voting common stock will convert into shares of the Company's common stock under certain conditions in accordance with the terms of the Articles of Amendment creating the class of the non-voting common stock.

In connection with the Private Placement, the Company intends to call a special meeting of shareholders (the “Special Meeting”) to be held on December 14, 2012 to, among other things: (i) create a class of non-voting and ii) approve, pursuant to the NASDAQ Rules, the conversion of the Series A Preferred Stock into common stock and the exchange of the Series T Preferred Stock and the Series T-ACB Preferred Stock into common stock and non-voting common stock.

For additional information on the Private Placement, see the Company's Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on October 24, 2012.

Also, in conjunction with the Private Placement, the Company made the strategic decision to implement a plan to substantially reduce credit risk within the Bank's loan portfolio. This plan will include the transfer of certain substandard and nonperforming loans to loans held for sale, and significant losses on sale of foreclosed real estate. Losses on sale of assets related to the plan are expected to be approximately $40-45 million and are due to a discount to fair value for liquidation purposes. The Company is pursuing potential loan sale alternatives that are expected to result in the disposition of these assets prior to the calendar year end.

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

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

The following is our discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. This commentary should be read in conjunction with the financial statements and the related notes and the other statistical information included in this report.

This report contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to the financial condition, results of operations, plans, objectives, future performance, and business of our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitation, those described under the heading “Risk Factors” in our 2011 Form 10-K as filed with the SEC and the following:

• reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;

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• reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral;

• the rate of delinquencies and amount of loans charged-off;

• the adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods;

• results of examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for loan losses or writedown assets;

• the amount of our loan portfolio collateralized by real estate, and the weakness in the commercial real estate market;

• our efforts to raise capital or otherwise increase and maintain our regulatory capital ratios above the statutory and agreed upon minimums, including the impact of the proposed capital rules under Basel III;

• the impact of our efforts to raise capital on our financial position, liquidity, capital, and profitability;

• risks and uncertainties associated with the closing of the Private Placement, including the risk that we are unable to receive shareholder approval to (i) issue the shares of common stock resulting from the conversion of the Series A Preferred Stock, (ii) amend the Articles of Incorporation to create the non-voting common stock, (iii) issue shares of common stock and the non-voting common stock to certain of the Series T and Series T-ACB Preferred Shareholders in exchange for the Series T and Series T-ACB Preferred Stock, and (iv) issue the shares of common stock resulting from the conversion of the non-voting common stock;

• risks and uncertainties relating to not successfully negotiating and entering into definitive agreements with respect to, and closing the, currently contemplated asset dispositions and the asset sales or accelerated foreclosed properties dispositions not occurring within our currently expected ranges for price and other terms, and the pre-tax charges associated with such sales exceeding the pre-tax charges that we currently anticipate;

• the increase in the cost of capital of our Series A Preferred Stock if we do not obtain shareholder approval to convert the Series A Preferred Stock into common stock at the Special Meeting;

• the increase in the cost of capital of our Series T and Series T-ACB Preferred Stock if we do not redeem within five years of the date of issuance;

• adverse changes in asset quality and resulting credit risk-related losses and expenses;

• increased funding costs due to market illiquidity, increased competition for funding, and increased regulatory requirements with regard to funding;

• significant increases in competitive pressure in the banking and financial services industries;

• changes in the interest rate environment which could reduce anticipated or actual margins;

• changes in political conditions or the legislative or regulatory environment, including the effect of recent financial reform legislation on the banking industry;

• general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;

• our ability to retain our existing customers, including our deposit relationships;

• changes occurring in business conditions and inflation;

• changes in technology;

• changes in monetary and tax policies;

• ability of borrowers to repay loans, which can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, natural disasters, which could be exacerbated by potential climate change, and international instability;

• changes in deposit flows;

• changes in accounting principles, policies or guidelines;

• changes in the assessment of whether a deferred tax valuation allowance is necessary;

• our ability to maintain internal control over financial reporting;

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Form 10-Q Quarterly Report September 30, 2012

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• our reliance on secondary sources such as FHLB advances, sales of securities and loans, federal funds lines of credit from correspondent banks and out-of-market time deposits, to meet our liquidity needs;

• loss of consumer confidence and economic disruptions resulting from terrorist activities;

• changes in the securities markets; and

• other risks and uncertainties detailed from time to time in our filings with the SEC.

These risks are exacerbated by the developments in national and international financial markets that have persisted over the past several years, and we are unable to predict what effect these uncertain market conditions will continue to have on us. There can be no assurance that these unprecedented developments will not continue to materially and adversely affect our business, financial condition and results of operations.

We have based our forward-looking statements on our current expectations about future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations will be achieved. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

The following discussion describes our results of operations for the three and nine months ended September 30, 2012 and 2011 and also analyzes our financial condition as of September 30, 2012 as compared to December 31, 2011. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section, we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this noninterest income, as well as our noninterest expense, in the following discussion.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or occurrences after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Changes in Financial Position

Total assets at September 30, 2012 were $1,920.4 million, a decrease of $72.8 million, or 3.7%, compared to assets of $1,993.2 million at December 31, 2011. The loan portfolio, net of allowance for losses, was $1,331.6 million compared to $1,418.1 million at December 31, 2011. Gross loans held-for-investment decreased by $92.1 million, or 6.3% as loans continue to paydown and the Company continues efforts to focus on credit quality. The allowance for loan losses decreased $5.6 million driven primarily by decreases in classified loans for the quarter ended September 30, 2012, decreased charge-offs in 2012 as compared to 2011, as well as an overall decrease in loans held-for-investment. Total watch list and substandard loans were $124.0 million as compared to $160.4 million as of December 31, 2011, a decrease of $36.4 million. Also, included in the first nine months of 2012 was a $1.1 million recovery of loan losses sustained in 2009. Although this recovery is included in net charge-off numbers for the three and nine months ended September 30, 2012 it was not considered in the Company's calculation of allowance for loan losses. See Note 10 above entitled “Loans and Allowance for Loan Losses” for further discussion of the allowance for loan losses.

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Form 10-Q Quarterly Report September 30, 2012

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During the first quarter of 2012, the decision was made by management to transfer a pass graded non-owner occupied commercial real estate loan in the amount of $7.6 million from loans held-for-investment to loans held-for-sale. As a result of this transfer, approximately $912,000 was charged-off in order to record the loan at fair value at time of transfer. This loan was sold on September 28, 2012 for a loss of $900,000. During the third quarter of 2012, another real estate loan in the amount of $5.0 million was transfered from loans held-for-investment to loans held-for-sale as management made the strategic decision to market the loan for sale. As a result of the transfer the Company charged-off $3.4 million in order to record the loan at fair value at the time of transfer. The loan was sold on September 21, 2012 with no gain or loss recorded on the sale.

Mortgage loans held-for-sale increased by $5.2 million, or 26.8%, from December 31, 2011 to September 30, 2012 as the Bank continued its strategy of selling mortgage loans mostly to various investors with servicing rights released and to a lesser extent to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation with servicing rights retained. This increase was the result of a larger pipeline at September 30, 2012, as well as an increase in fair value of loan commitments. These loans are normally held for a period of two to three weeks before being sold to investors. Mortgage loans closed in the first nine months of 2012 ranged from a low of $14.6 million in January 2012 to a high of $33.8 million in July 2012 and totaled $237.3 million at September 30, 2012. Mortgage loans closed during the nine months ended September 30, 2011 totaled $407.6 million.

The securities portfolio decreased from $330.4 million at December 31, 2011, to $310.6 million at September 30, 2012, a decrease of $19.9 million as mortgage-backed securities continue to pay down at an increased rate, and lower interest earning securities are sold. The portfolio is comprised of securities of U.S. government agencies (10.6%), mortgage-backed securities (71.4%), state and municipal securities (17.6%), and publicly traded common and preferred stocks (0.4%).

Other assets increased $4.3 million due largely to a reversal of the valuation allowance for deferred taxes of $11.0 million that occurred in June 2012, offset by a decrease in income taxes receivable. OREO decreased $2.7 million as the result of sales in the amount of $11.6 million, losses of $4.4 million offset by transfers in the amount of $13.4 million for the nine months ended September 30, 2012. Premises and equipment decreased $660,000, or 1.57%.

Deposits decreased $79.9 million, or 4.6%, comparing September 30, 2012 to December 31, 2011. Overall, noninterest-bearing demand deposits increased $26.5 million, or 11.5%, while NOW, savings, and money market accounts decreased $19.3 million, or 3.1%, certificates of deposit (“CODs”) over $100,000 decreased $18.0 million, or 5.0%, and other CODs decreased $69.0 million, or 13.4%. Management continues to focus on shifting the deposit mix from higher cost time deposits to lower cost demand and NOW accounts through the use of marketing efforts and interest rates.

Borrowed funds decreased $3.2 million, or 3.1%, comparing September 30, 2012 to December 31, 2011. Advances from FHLB and overnight borrowings decreased $1.8 million as the Company continued to paydown outstanding advances and repurchase agreements decreased $1.5 million. Long term borrowings included $35.0 million in trust preferred securities and advances from the FHLB of $25.3 million. The American Community merger added $10.4 million in trust preferred securities at a rate equal to the three-month LIBOR rate plus 2.80% and will mature in 2033. Yadkin Valley Statutory Trust I (“the Trust”) issued $25.8 million in trust preferred securities at a rate equal to the three-month LIBOR rate plus 1.32%.  The trust preferred securities mature in 30 years, and can be called by the Trust without penalty. 

Other liabilities, capital lease obligations and accrued interest payable combined decreased by $4.3 million, or 27.6%, from December 31, 2011 to September 30, 2012. Decreases in other liabilities resulted primarily from a decrease in preferred dividends payable of $2.2 million, a decrease in accrued interest on trust preferred of $595,000, and a $873,000 decrease in accrued interest payable as average deposits and borrowings have decreased year-over-year.

At September 30, 2012, total shareholders' equity was $155.2 million, or a book value of $5.36 per common share, compared to $140.6 million, or a book value of $4.77 per common share, at December 31, 2011. The Company's equity to assets ratio was 8.08% and 7.05%, at September 30, 2012 and December 31, 2011, respectively.

Capital adequacy is an important indicator of financial stability and performance. In order to be considered “well capitalized”, a bank must exceed total risk-based capital ratios of 10%, and Tier 1 risk-based capital ratios of 6% and leverage ratios of 5%. In addition, we have committed to regulators that the Bank will maintain a Tier 1 Leverage Ratio of 8%, which is higher than the statutory Tier 1 leverage ratio of 5% to be classified as well-capitalized. Our goal has been to maintain a “well-capitalized” status for the Bank since failure to meet or exceed this classification affects how regulatory applications for certain activities, including acquisitions, and continuation and expansion of existing activities, are evaluated and could make our customers and potential investors less confident in our Bank.

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Form 10-Q Quarterly Report September 30, 2012

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The following table sets forth the Company's and the Bank's various capital ratios as of September 30, 2012 and December 31, 2011. The Company and the Bank exceeded the minimum regulatory capital ratios as of September 30, 2012, as well as the ratios to be considered "well capitalized."

	September 30, 2012		December 31, 2011
	Holding  Company	Bank	Holding  Company	Bank
Total risk-based capital ratio	12.6%	12.4%	11.8%	11.5%
Tier 1 risk-based capital ratio	11.4%	11.2%	10.6%	10.2%
Leverage ratio	8.8%	8.7%	8.3%	7.9%

Management of equity is a critical aspect of capital management in any business. The determination of the appropriate amount of equity for a regulated financial institution is affected by a number of factors, including but not limited to, the amount of capital needed to meet regulatory requirements, the amount of “risk equity” the business requires and balance sheet leverage.

As disclosed in Note 15 to the Condensed Consolidated Financial Statements (Unaudited), on October 23, 2012, the Company entered into the Purchase Agreement with certain accredited investors and directors and executive officers of the Company, pursuant to which the Investors purchased 45,000 shares of the Company's Series A Preferred Stock at a price of $1,000 per share in the Private Placement. The net proceeds of the sale of the Series A Preferred Stock, after direct expenses of $3.2 million, were approximately $41.8 million of which approximately $2.0 million was retained by the Company and approximately $39.8 million was contributed to the Bank as a capital contribution.

In addition, as part of the Private Placement, contemporaneously with the execution of the Purchase Agreement, the Company entered into the Exchange Agreement with the Preferred Shareholders, pursuant to which the Preferred Shareholders agreed, upon shareholder approval, to exchange certain shares of the Series T and Series T-ACB Preferred Stock for shares of the Company's common stock and shares of the Company's non-voting common stock.

In June 2012, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) approved three notices of proposed rulemaking (“NPRs”) to, among other things, implement the Basel III minimum capital requirements and capital conservation buffer. The three NPRs are expected to be published jointly by the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency after each agency has completed its approval process. The comment period on the NPRs ends on October 22, 2012. If approved in their current form, the NPRs would be effective over a phased-in period from 2013 to 2019. We are in the process of evaluating the impact of the proposed rules on the Company and the Bank.

To be categorized as well capitalized, the Company and the Bank each must maintain minimum amounts and ratios. At September 30, 2012, the Company is well-capitalized for regulatory purposes both at the bank and holding company level, however the Bank has committed to regulators that it will maintain a Tier 1 Leverage Ratio of 8% which it exceeded at September 30, 2012.

Liquidity, Interest Rate Sensitivity and Market Risk

The Bank derives the majority of its liquidity from its core deposit base and to a lesser extent from wholesale borrowing. The balance sheet liquidity ratio, measured by the sum of cash (less reserve requirements), investments, and loans held-for-sale reduced by pledged securities, as compared to deposits and short-term borrowings, was 21.7% at September 30, 2012 compared to 19.1% at December 31, 2011. Additional liquidity is provided by $59.0 million in unused credit including federal funds purchased lines provided by correspondent banks as well as credit availability from the FHLB. In addition, the Bank has unpledged marketable securities of $223.3 million available for use as a source of collateral. At September 30, 2012, brokered deposits totaled $3.8 million, or 0.23% of total deposits. Brokered certificates of deposit are primarily short-term with maturities of nine months or less. The Bank also maintains a brokered deposit NOW account to add municipal deposits totaling $3.1 million at September 30, 2012.

The Bank contracted with Promontory Interfinancial Network ("Promontory") in 2008 for various services including wholesale COD funding. Promontory's CDARS® product, One-Way BuySM, enables the Bank to bid on a weekly basis through a private auction for COD terms ranging from four weeks to 260 weeks (approximately five years) with settlement available each Thursday. There were no outstanding funds acquired through the One-Way Buy product at September 30, 2012 or December 31, 2011.

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Promontory also provides a product, CDARS® Reciprocal, which allows the Bank's customers to place funds in excess of the FDIC insurance limit with Promontory's network of participating Banks so that the customer is fully insured for the amount deposited. Promontory provides reciprocating funds to the Bank from funds placed at other banks by their customers. The Bank sets its customers' interest rates when they place deposits through the network and pays/receives the rate difference to/from the other banks whose reciprocal funds are held by the Bank. The overall impact of this process is that the Bank effectively pays the rate offered to its relationship customer. Therefore, the Bank does not consider these funds to be wholesale or brokered funds. In compliance with FDIC reporting requirements, the Bank includes reciprocal deposits as brokered deposits in its quarterly Federal Financial Institutions Examination Council Call Report. At September 30, 2012, CDARS® reciprocal deposits totaled $824,000, compared to $2.1 million at December 31, 2011.

Management continues to assess interest rate risk internally and by utilizing outside sources. The balance sheet is asset sensitive over a three-month period, meaning that there will be more assets than liabilities immediately repricing as market rates change. Over a period of twelve months, the balance sheet remains slightly asset sensitive. We generally would benefit from increasing market interest rates when we have an asset-sensitive, or a positive interest rate gap, and we would generally benefit from decreasing market interest rates when we have liability-sensitive, or a negative interest rate gap.

The Company currently has derivative instrument contracts consisting of interest rate swaps and interest rate lock commitments and commitments to sell mortgages.  The primary objective for each of these contracts is to minimize interest rate risk.  The Company's strategy is to use derivative contracts to stabilize and improve net interest margin and net interest income currently and in future periods. The Company has no market risk sensitive instruments held for trading purposes. The Company's exposure to market risk is reviewed regularly by management.

Results of Operations

Net income for the quarter ended September 30, 2012 was $757,000 before preferred dividends, compared to net income of $3.7 million in the same period of 2011. Net loss to common shareholders for the three-month period ended September 30, 2012 was $81,000. Net income to common shareholders for the three-month period ended September 30, 2011 was $2.9 million. Basic and diluted income per common share were $0.00 for the three-month period ended September 30, 2012. Basic and diluted income per common share were $0.15 for the three month period ended September 30, 2011. On an annualized basis, third quarter results represent a return on average assets of (0.02)% at September 30, 2012 compared to 0.56% at September 30, 2011, and a return on average equity of (0.21)% compared to 8.49% at September 30, 2011.

Net income for the nine month period ended September 30, 2012 was $15.2 million before preferred dividends, compared to a net loss of $17.3 million in the same period of 2011. Net income available to common shareholders for the nine months ended September 30, 2012 was $12.7 million, compared to a net loss to common shareholders of $19.5 million for the nine months ended September 30, 2011. Basic and diluted earnings per common share were $0.66 for the nine months ended September 30, 2012. Basic and diluted losses per common share were $1.09 for the nine months ended September 30, 2011. On an annualized basis, year-to-date results represent a return on average assets of 0.87% at September 30, 2012 compared to (1.21)% at September 30, 2011, and a return on average equity of 11.57% compared to (18.27)% at September 30, 2011.

Certain income and expense items have been reclassified for the three and nine months ended September 30, 2012 and 2011 for comparability due to a change in the Company's mortgage banking segment reporting as of September 30, 2012.

Net Interest Income

Net interest income, the largest contributor to earnings, decreased $436,000, or 2.8%, to $15.2 million in the third quarter of 2012, compared with $15.6 million in the same period of 2011. The overall decrease in net interest income was primarily due to a decrease in interest income on loans of 8.3% as average loan balances are down 9% from the prior year and loan yields continue to be depressed by nonaccrual loans. This decrease in net interest income was offset by a 28% decrease in interest expense as higher costs time deposits have decreased 9.9% since December 31, 2011. The net interest margin increased to 3.37% in the third quarter of 2012 from 3.29% in the third quarter of 2011. The increase in net interest margin is primarily related to a decrease in deposit yields. Deposit yields have decreased as management focused efforts on shifting the deposit mix from higher cost time deposits to lower cost interest bearing NOW and money market accounts. The Company maintains an asset-sensitive position with respect to the impact of changing rates on net interest income.

Net interest income for the nine months ended September 30, 2012 decreased to $46.2 million from $46.9 million when compared to the same period in 2011 again due primarily to a decrease in interest income on loans of 10.1% as average loan balances are down from the prior year and loan yields continue to be depressed by nonaccrual loans.. The net interest margin increased to

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3.46% in the first nine months of 2012 from 3.18% in the first nine months of 2011. Excluding the accretion of acquisition related fair market value adjustments, net interest margin for the nine months ended September 30, 2012 increased to 3.44% as compared to 3.12% for the nine months ended September 30, 2011. The Company maintains an asset-sensitive position with respect to the impact of changing rates on net interest income.

	Nine Months Ended September 30, 2012						Nine Months Ended September 30, 2011
	Average				Yield/		Average				Yield/
Interest Rates Earned and Paid	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:	(Dollars in thousands)
Interest-bearing deposits and
federal funds sold	$	70,650	$	127	0.24	%	$	151,137	$	299	0.26	%
Investment securities (1)	337,414		6,161		2.44	%	307,654		7,266		3.16	%
Total loans (1)(2)(6)(8)	1,411,072		54,726		5.18	%	1,553,468		60,901		5.25	%
Total interest-earning assets	1,819,136		61,014		4.48	%	2,012,259		68,466		4.55	%
Non-earning assets	125,398						155,488
Total assets	$	1,944,534					$	2,167,747
Interest-bearing liabilities:
Deposits (7):
NOW and money market	$	553,199	$	1,208	0.29	%	$	550,217	$	2,768	0.67	%
Savings	63,487		68		0.14	%	56,354		79		0.19	%
Time certificates	830,533		10,973		1.76	%	1,063,044		16,189		2.04	%
Total interest bearing deposits	1,447,219		12,249		1.13	%	1,669,615		19,036		1.52	%
Repurchase agreements sold	40,820		217		0.71	%	41,210		317		1.03	%
Borrowed funds (7)	66,470		1,475		2.96	%	65,490		1,333		2.61	%
Total interest-bearing liabilities	1,554,509		13,941		1.20	%	1,776,315		20,686		1.55	%
Non-interest bearing deposits	237,513						226,422
Shareholders' equity	146,569						143,309
Other liabilities	5,943						21,701
Total average liabilities and shareholders' equity	$	1,944,534					$	2,167,747
Net interest income (3) and interest rate spread (5)			$	47,073	3.28	%			$	47,780	3.00	%
Net interest margin (4)					3.46	%					3.18	%

__________________________

(1) Yields related to investment securities and loans exempt from Federal income taxes are stated on a fully tax-equivalent basis, assuming a Federal income tax rate of 35%. The calculation includes an adjustment for the nondeductible portion of interest expense

(2) The loan average includes loans on which accrual of interest has been discontinued.

(3) The net interest income is the difference between income from earning assets and interest expense.

(4) Net interest margin is net interest income divided by total average earning assets.

(5) Interest spread is the difference between the average interest rate received on earning assets and the average interest rate paid on interest-bearing liabilities.

(6) Interest income on loans for 2012 and 2011 includes $157 and $499, respectively, in accretion of fair market value adjustments related to mergers.

(7) Interest expense on deposits and borrowings in 2012 and 2011 includes $11 and $322, respectively, in accretion of fair market value adjustments related to mergers.

(8) Certain amounts in the current and prior periods have been reclassified based on a change in segment reporting for mortgage banking activities.

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Provisions and Allowance for Loan Losses

Adequacy of the allowance or reserve for loan losses of the Bank is a significant estimate that is based on management's assumptions regarding, among other factors, general and local economic conditions, which are difficult to predict and are beyond the Bank's control. In estimating these loss reserve levels, management also considers the financial conditions of specific borrowers and credit concentrations with specific borrowers, groups of borrowers, and industries.

The allowance for loan losses was $27.2 million at September 30, 2012, or 2.00% of loans held-for-investment, as compared to $32.8 million, or 2.26% of loans held-for-investment, at December 31, 2011. Decreases in the allowance for loan losses were due to decreased charge-offs in the first nine months of 2012, decreased criticized loans and an overall decrease in gross loans since December 31, 2011. Decreases in criticized loans were due to improvements in loans 30-89 days past due, payoffs and overall improvements in underlying credit exposures.

The allowance model is applied to the loan portfolio quarterly to determine the specific allowance balance for impaired loans and the general allowance balance for performing loans grouped by loan type. Out of the $27.2 million in total allowance for loan losses at September 30, 2012, the specific allowance for impaired loans accounted for $3.8 million, down from $4.1 million at year end as collateral dependent impaired loans are charged down to fair value. The remaining general allowance, $23.4 million, was attributed to performing loans and was down from $28.7 million at year end. The general allowance, as a percent of loans not individually reviewed for impairment was 1.81% as of September 30, 2012 as compared to 2.09% as of December 31, 2011. The decrease in the general allowance was driven primarily by a decrease in charge-offs, as well as a decrease in substandard and watch loans of $36.4 million which resulted from additional impairments loans, for which specific allowances are now calculated, as well as a few significant payoffs and improvements in past dues and underlying credit exposures of previously classified loans.  Also contributing to the decrease in the general allowance for loan losses was a 6.3% decrease in gross loans as of September 30, 2012 as compared to December 31, 2011.  These decreases in allowances led to decreased provisions in many of the loan types including negative provisions for the nine months ended September 30, 2012 for commercial and 1-4 family mortgage loans as nonaccruals and classified loans in these categories decreased.

Beginning in the second quarter of 2012, the Company changed its method of calculating the historical loss experience to incorporate a methodology that takes into consideration the probability of loss for each loan type and credit quality, and historical losses given default. This process not only helps break out loans by risk, but also looks at the migration of the credit quality over a period of two years. The impact of this change to the allowance for loan losses was an increase of $1.4 million in the general reserve allocation.

Net loan charge offs were $5.8 million, or 1.66% (annualized), of average loans, for the three months ended September 30, 2012 compared to $3.9 million, or 1.04% (annualized), of average loans for the three months ended September 30, 2011. The increase in charge-offs for the quarter was due primarily to the charge-down by $3.4 million of one loan transferred to held-for-sale at fair value. For the nine months ended September 30, 2012, net loan charge offs were $14.4 million, or 1.36% (annualized) of average loans compared to $21.3 million, or 1.84% (annualized) of average loans, for the nine months ended September 30, 2011.

Management considers the allowance for loan losses adequate to cover the estimated losses inherent in the Bank's loan portfolio as of September 30, 2012. No assurance can be given in this regard, however, especially considering the overall weakness in the commercial real estate market in the Bank's market areas. Management believes it has established the allowance in accordance with accounting principles generally accepted in the United States of America and will consider future changes to the allowance that may be necessary based on changes in economic and other conditions. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the recognition of adjustments to the allowances based on their judgments of information available to them at the time of their examinations.

Management realizes that general economic trends greatly affect loan losses. The continued downturn in the real estate market has resulted in increased loan delinquencies, defaults and foreclosures, and we believe that these trends are likely to continue. In some cases, this downturn has resulted in a significant impairment to the value of our collateral and our ability to sell the collateral upon foreclosure. Collateral value is assessed based on collateral value trends, liquidation value trends, and other liquidation expenses to determine logical and credible discounts that may be needed. In response to this deterioration in real estate loan quality, management is aggressively monitoring its classified loans and is continuing to monitor credits with significant weaknesses. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If real estate values continue to decline, it is also more likely that we would be required to increase our allowance for loan losses and our net charge-offs which could have a material adverse effect on our financial condition and results of operations. Assurances cannot be made either (1) that further charges to the allowance

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account will not be significant in relation to the normal activity or (2) that further evaluation of the loan portfolio based on prevailing conditions may not require sizable additions to the allowance and charges to provision expense.

Our real estate portfolio has approximately $147.4 million of construction loans, $577.8 million of commercial real estate loans, $174.7 million in first lien mortgage loans, $196.5 million in home equity lines of credit and $38.0 million in multifamily mortgage loans as of September 30, 2012.  We consider our construction and junior lien mortgage loans our riskiest loans within our real estate portfolio. Construction loans are typically comprised of loans to borrowers for real estate to be developed into properties such as sub-divisions or speculative houses.  The majority of these borrowers are still having financial difficulties.  Normally, these loans are repaid with the proceeds from the sale of the developed property. In addition, management continues to evaluate closely junior lien mortgage loans and home equity lines of credit. Given the slow economic recovery and depressed real estate values the Company recognizes that it will experience some loss in these portfolios, and management continues to monitor borrower financials, LTVs, and first lien positions. The significance of both construction and commercial real estate loans to our overall loan portfolio has caused us to apply a greater degree of scrutiny in analyzing the ultimate collectability of amounts due. Loans are placed on nonaccrual status when the loan is past due 90 days or when it is apparent that the collection of principal and/or interest is doubtful. Net charge-offs (recoveries) of construction and commercial real estate loans were $7.5 million and $4.1 million, respectively, for the nine months ended September 30, 2012. For the nine months ended September 30, 2011, net charge-offs (recoveries) of construction and commercial real estate loans were $7.3 million and $6.7 million, respectively.

As of September 30, 2012, $5.8 million of our real estate loans had interest reserves including both borrower and bank funded, compared to $15.9 million as of December 31, 2011. There is a risk that an interest reserve could mask problems with a borrower's willingness and ability to repay the debt consistent with the terms and conditions of the loan obligation, therefore the Company has implemented review policies and internal controls to identify and monitor all loans with interest reserves.

Nonperforming Assets

Total nonperforming assets (which includes nonaccrual loans, loans over 90 days past due but still accruing, and foreclosed real estate) decreased from $95.3 million to $79.3 million as of December 31, 2011 and September 30, 2012, respectively. Nonperforming assets as a percentage of total assets decreased to 4.12% as of September 30, 2012 as compared to 4.78% as of December 31, 2011, due primarily to a decrease in nonaccrual loans and a decrease in total assets since December 31, 2011. Total nonaccrual loans decreased from $70.4 million, or 4.78% of total loans, at December 31, 2011 to $57.1 million, or 4.12% of total loans, at September 30, 2012. The decreases in nonaccrual and impaired loans are the result of charge-offs and foreclosures, as well as upgrades. We have analyzed our nonperforming loans to determine what we believe is the amount needed to reserve in the allowance for loan losses based on an assessment of the collateral value or discounted cash flows of the loan. We have downgraded loans for which the probability of collection is uncertain and written down OREO property values where net realizable values have declined. Specific allowance for nonperforming loans accounted for $3.8 million, down from $4.1 million at year end, due to the charge-off of collateral dependent impaired loans to fair value.

Approximately 44% of loans in nonaccrual status are currently not past due 30 days or more.  The total number of loans on nonaccrual has decreased from 505 to 441 since December 31, 2011. The average nonaccrual loan balance is $127,000 and $143,000 as of December 31, 2011 and September 30, 2012, respectively.  At September 30, 2012, 84% of the nonaccrual loans were secured by real estate.

The largest amount of nonaccrual loans for one customer totaled $5.5 million and included loans utilized for the purchase of land, equipment and operating expenses.  Total reserves for the relationship were $642,115 at September 30, 2012.   Nonaccrual loans also include three other large relationships totaling $3.4 million, $2.2 million and $1.8 million.  The first relationship consists of various loans utilized for the purchase and refinance of real estate, equipment and the operating expenses with reserves of $989,827.  The second relationship consists of acreage held for sale with a reserve of $900,500.  The third relationship is a loan secured by a low rise multi-tenant office flex building with $283,500 in reserves assigned to it. These loans have been placed in nonaccrual status because of concerns for the customers' continued ability to pay, collateral deterioration and depressed future industry outlook.

Noninterest Income

Noninterest income consists of all revenues that are not included in interest and fee income related to earning assets. Total noninterest income decreased approximately $558,000, or 10.7%, comparing the third quarters of 2012 and 2011. A loss of $900,000 on the sale of loan made up the majority of the decrease. Offsetting the decrease was an increase in mortgage banking activities of $416,000. Other changes in noninterest income include the following:

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• Service charges on deposit accounts decreased by $145,000, or 9.9%, as commercial NSF fees decreased $109,000 and service charges on non-interest checking accounts decreased $25,000.

• Other service fees increased $20,000 when comparing the second quarter of 2012 to the prior year due primarily to an increase in net ATM and debit card interchange fees of $15,000.

• Net gain on sale of investment securities decreased $208,000.

• Income on investment in bank-owned life insurance (“BOLI”) decreased by $8,000, or 4.8%, during the three month period ended September 30, 2012, as the calculation for cost of benefits was updated in the second half of 2011 based on current employee and insurance information.

• Mortgage banking income increased approximately $416,000 for the quarter. Although mortgage production decreased when comparing 2012 and 2011, net returns on sales increased as the Company exited less profitable wholesale markets.

• Loss on sale of loans increased $900,000 as compared to the prior year as the Company sold a loan held-for-sale at a loss during the quarter.

• Other income increased by approximately $193,000, or 214.4%, for the quarter as the Company received a $127,000 settlement on rental income owed from the cancellation of leased rental property.

For the nine months ended September 30, 2012, total noninterest income decreased approximately $1,190,000, or 8.6%, as compared to the nine months ended September 30, 2011. A decrease in gains on sale of investments of $430,000 and $900,000 loss on the sale of loans made up the majority of the decrease. Other changes in noninterest income include the following:

• Service charges on deposit accounts decreased $74,000, or 1.9%, as service charges on non-interest checking accounts (a major component of service charges) decreased $95,000. These decreases were partially offset by an increase in NSF (including overdraft privilege) of $27,000.

• The increase in other service fees of $64,000 was due primarily to an increase in ATM and debit card interchange fees of $223,000. This increase was partially offset by a $176,000 decrease in annuity and mutual fund commissions for the year.

• Net gain on sale of investment securities decreased $430,000, or 20.7%.

• Income on investment in bank-owned life insurance (“BOLI”) decreased by $18,000, or 3.7%, during the Nine months ended September 30, 2012, as the calculation for cost of benefits was updated based on current employee and insurance information.

• Mortgage banking activities decreased approximately $30,000, or 0.7% for the Nine months ended September 30, 2012 as the Company decided to exit the wholesale market during the second quarter of 2011.

• Loss on sale of loans increased $900,000 as compared to the prior year as the Company sold a loan held-for-sale at a loss during the quarter.

• Other income increased by approximately $82,000, or 24.6%, as the Company received a $127,000 settlement on rental income owed from the cancellation of leased rental property. This increase was offset partially by a decrease on other divided income of $33,000.

Noninterest Expense

Total noninterest expenses were $14.8 million for the third quarter of 2012, compared to $12.8 million in the same period of 2011, an increase of $2.0 million, or 15.3%. Noninterest expense includes salaries and employee benefits, occupancy and equipment expenses, and all other operating costs. Noninterest expense to average assets for the quarter ended September 30, 2012 and 2011 was 0.76%, and 0.62%, respectively. Efficiency ratios for the three months ended September 30, 2012 and 2011 were 72.21% and 59.60%, respectively. The efficiency ratio is the ratio of noninterest expenses less amortization of intangibles to the total of the taxable equivalent net interest income and noninterest income. Noninterest expenses were $44.1 million for the Nine months

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ended September 30, 2012, compared to $53.9 million for the same period of 2011, a decrease of $9.8 million or 18.1%. Efficiency ratios for the Nine months ended September 30, 2012 and 2011 were 72.56% and 86.18%, respectively. The largest contributor to the increased noninterest expense in the first nine months of 2011 was a $4.9 million goodwill impairment writedown.

The following is a summary of the fluctuations for the quarter ended September 30, 2012 as compared to September 30, 2011.

• Quarter-to-date, salaries and employee benefit expenses increased by $841,000, or 13.8%. The major components of this increase are summarized as follows:  Salaries and wages decreased $337,000 due to personnel reductions. Offsetting this decrease was a $597,000 increase in other miscellaneous personnel costs which include BOLI expenses and recruiting fees and a $400,000 increase in commissions as mortgage and investment activity have increased.

• Year-to-date, salaries and employee benefit expenses decreased by $2.0 million, or 9.5%. The major components of this decrease are summarized as follows:  Salaries and wages decreased by $2.5 million due to decreases in personnel and the accrual of $552,000 in severance costs related to branch closures in the prior year.  Related payroll taxes also decreased $180,000. Other personnel expenses, which include BOLI expenses and recruiter fees increased $605,000. Deferral of salaries and benefit costs related to loan originations (which directly offset salary expense), increased $117,000. Commission expenses increased by $371,000 as mortgage and investment activity increased.

• Occupancy and equipment expenses decreased by $167,000, or 8.5%, for the quarter and $1.0 million, or (15.9)% for the nine months ended September 30, 2012 and 2011 due to lease termination costs accrued in 2011which resulted from branch and office closures in 2010 and 2011.

• Printing and supplies increased by $27,000, or 19.1%, comparing the third quarter 2012 with the third quarter 2011 as the Company. Year-to-date printing and supplies expense decreased $15,000, or 3.1%.

• Data processing expense increased $52,000, or 12.9%, for the quarter and $137,000, or 11.8% year-to-date due to normal fluctuations in transaction volume and timing.

• Communication expense decreased $58,000, or 15.6%, for the third quarter of 2012 compared to the third quarter of 2011, while year-to-date communication expense decreased $272,000, or 21.1%.

• FDIC assessment expenses increased $571,000 for the quarter and decreased $753,000 year-to-date. Changes in the calculation of assessments beginning in the third quarter of 2011 led to decreased cost overall and a decrease in expense for the third quarter of 2011 as prepaid amounts were sufficient to cover costs.

• Net cost of operation of other real estate owned increased $563,000 compared to the third quarter of 2011 as additional writedowns in the amount of $1.4 million were taken during the quarter. Net cost of operation of other real estate owned increased $1.3 million for the nine months ended September 30, 2012 as compared to the prior year. During 2012, the Company has recorded additional writedowns of $4.3 million which resulted from continued declines in real estate values.

• Loan collection fees decreased $310,000, or 81.8%, compared to the third quarter of 2011, and decreased $775,000, or 60.3%, year-to-date as past dues and classified loans have shown improvement year-over-year.

• Other professional fees increased $273,000 for the quarter and $446,000 year-to-date when compared to the prior year as the Company has engaged in several new projects for 2012 due to increasing burden of regulatory.

• Loss on sale of premises and equipment decreased $286,000 for the quarter and $1.5 million for the nine months ended September 30, 2012 due to the fact that the Company recorded significant writedowns on buildings and furniture as the Company entered into contracts to sell property and equipment in the prior year.

• Quarter-to-date other operating expenses increased by $480,000, or 25.7%. The largest increase was a $216,000 increase in attorney fees for the quarter. Other increases include a $122,000 increase in training expense as the Company embarked on a new training program in 2012 for all employees, and a $120,000 increase in appraisal fees as credit administration ordered updated appraisals on large impaired loans.

• Year-to-date other operating expenses decreased approximately $282,000 or 4.1%. Decreases include a $304,000 decrease in other taxes (including franchise and privilege tax), a $121,000 decrease in other outside service costs

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and a $95,000 decrease in audit and accounting fees. These decreases were offset by an increase in training expense of $547,000 as the Company embarked on a new training program for all employees, and a $295,000 increase in attorney fees year-over-year.

Income Tax Expense

The Company recorded an income tax expense (benefit) for the three and nine months ended September 30, 2012 of $54,000 and $(9.3) million, respectively. For the three and nine months ended September 30, 2011, the Company recorded an income tax expense (benefit) of $771,000 and $2.2 million, respectively. The decrease in income tax benefit for the nine months ended September 30, 2012 was primarily due to the reversal of the valuation allowance for deferred taxes in the second quarter. The reversal of the allowance was based primarily on a return to profitability as the Company has reported four consecutive quarters of net income, projected net income over the next 12 months and improving credit quality metrics. The effective tax rate for the nine months ended September 30, 2012 was (158.2)% as compared to 66.3% for the nine months ended September 30, 2011. See footnote 14 in the consolidated financial statements for further discussion of income tax expense and deferred tax assets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises principally from interest rate risk inherent in our lending, deposit, and borrowing activities. Management actively monitors and manages its interest rate risk exposure. In addition to other risks that we manage in the normal course of business, such as credit quality and liquidity, management considers interest rate risk to be a significant market risk that could potentially have a material effect on our financial condition and results of operations. The information contained in Item 2 in the section captioned "Liquidity, Interest Rate Sensitivity and Market Risk" is incorporated herein by reference. Other types of market risks, such as foreign currency risk and commodity price risk, do not arise in the normal course of our business activities. The acquisition of American Community and expansion into new market areas in North and South Carolina have marketing risks that are mitigated by retaining the American Community brand name in these markets. Credit risk associated with loans acquired in the merger are part of the overall discussion of credit risk in the sections captioned “Provision and Allowance for Loan Losses” and “Non-Performing Assets.”

The primary objective of asset and liability management is to manage interest rate risk and achieve reasonable stability in net interest income throughout interest rate cycles. This is achieved by maintaining the proper balance of rate-sensitive earning assets and rate-sensitive interest-bearing liabilities. The relationship of rate-sensitive earning assets to rate-sensitive interest-bearing liabilities is the principal factor in projecting the effect that fluctuating interest rates will have on future net interest income. Rate-sensitive assets and liabilities are those that can be repriced to current market rates within a relatively short time period. Management monitors the rate sensitivity of earning assets and interest-bearing liabilities over the entire life of these instruments, but places particular emphasis on the next twelve months. Following a period of rate increases (or decreases) net interest income will increase (or decrease) over both a three-month and a twelve-month period.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

56

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company's systems evolve with its business.

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

57

Part II. Other Information

Item 1. Legal Proceedings

We are not a party to, nor are any of our properties subject to, any material legal proceedings, other than legal proceedings that we believe are routine litigation incidental to our business.

Item 5. Other Information

None

Item 6. Exhibits

Exhibit #	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification
31.2	Rule 13a-14(a)/15d-14(a) Certification
32.1	Section 1350 Certification
101	The following financial statements from the Quarterly Report on Form 10-Q of Yadkin Valley Financial Corporation for the quarter ended September 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income (Loss), (iii) Consolidated Statements of Changes in Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statement of Cash Flows and (vi) Notes to Consolidated Financial Statements.(1)

_________________

(1) As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

58

Signatures

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

Yadkin Valley Financial Corporation

BY:	/s/ Joseph H. Towell
	Joseph H. Towell, President and Chief Executive Officer
BY:	/s/ Jan H. Hollar
	Jan H. Hollar, Principal Accounting Officer,  Executive Vice President and Chief Financial Officer

October 25, 2012

Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report September 30, 2012

59

EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Joseph H. Towell, Chief Executive Officer, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Yadkin Valley Financial Corporation, a North Carolina corporation (the "registrant");

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	October 25, 2012	By:	/s/ Joseph H. Towell
			Joseph H. Towell President and Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Jan H. Hollar, Chief Financial Officer, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Yadkin Valley Financial Corporation, a North Carolina corporation (the "registrant");

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	October 25, 2012	By:	/s/ Jan H. Hollar
			Jan H. Hollar Principal Accounting Officer, Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

Section 1350 Certification

The undersigned hereby certify that, to their knowledge, (i) the Form 10-Q filed by Yadkin Valley Financial Corporation (the “Issuer”) for the quarter ended September 30, 2012, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.

		Yadkin Valley Financial Corporation
Date:	October 25, 2012	By:	/s/ Joseph H. Towell
			Joseph H. Towell
			President and Chief Executive Officer
		By:	/s/ Jan H. Hollar
			Jan H. Hollar
			Principal Accounting Officer, Executive Vice President and Chief Financial Officer

XML

Earnings Per Common Share (Details) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended	3 Months Ended			9 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Restricted Stock	Sep. 29, 2011 Restricted Stock	Sep. 30, 2012 Restricted Stock	Sep. 30, 2011 Restricted Stock	Sep. 30, 2012 Warrants and Stock Options	Sep. 30, 2012 Warrants and Stock Options	Sep. 30, 2012 Minimum Warrants and Stock Options	Sep. 30, 2012 Maximum Warrants and Stock Options	Sep. 29, 2011 Performance and Service Criteria Not Met [Member] Restricted Stock	Sep. 30, 2012 Performance and Service Criteria Not Met [Member] Restricted Stock	Sep. 30, 2012 Net Loss Position [Member] Restricted Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share
Antidilutive securities excluded from weighted average shares outstanding					597,837	161,334	597,837	161,334	246,967	242,967			596,835	596,835	1,002
Exercise price of non-dilutive shares											$ 3.84	$ 19.07
Weighted Average Number of Shares Outstanding Reconciliation
Weighted average number of common shares outstanding	19,389,251	19,527,855	19,382,649	17,858,777
Dilutive potential common shares	0	0	0	0
Diluted EPS denominator	19,389,251	19,527,855	19,382,649	17,858,777

XML

Business Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended					9 Months Ended			12 Months Ended			36 Months Ended
	Sep. 30, 2012	Sep. 29, 2011	Sep. 30, 2011	Dec. 31, 2009		Sep. 30, 2012 Segments		Sep. 30, 2011	Dec. 31, 2011		Dec. 31, 2010	Jun. 30, 2012
Segment Reporting Information
Number of Reportable Segments						2
Segment Reporting Information, Profit (Loss)
Interest income	$ 19,446	$ 21,565	$ 21,565			$ 60,179		$ 67,587
Interest expense	4,257	5,940	5,940			13,941		20,686
Net interest income	15,189	15,625	15,625			46,238		46,901
Provision for loan losses	4,251	1,956	1,956			8,820		17,216
Net interest income (loss) after provision for loan losses	10,938	13,669	13,669			37,418		29,685
Other income	4,665	5,223	5,223			12,581		13,771
Other expense	14,792	12,829	12,829			44,102		53,871
Income (loss) before income taxes	811	6,063	6,063	6,545	[1]	5,897	[2]	(10,415)	(7,701)		(1,402)	(3,206)
Income taxes	54	2,384	2,384			(9,329)		6,905
Net income (loss)	757	3,679	3,679			15,226		(17,320)
Segment Reporting Information, Balance Sheet Data
Total assets	1,920,378		2,047,131			1,920,378		2,047,131	1,993,188	[3]
Net loans	1,331,637		1,439,927			1,331,637		1,439,927	1,418,076	[3]
Loans held for sale	24,766		13,801			24,766		13,801	19,534	[3]
Goodwill			0					0
Bank Activities
Segment Reporting Information, Profit (Loss)
Interest income	19,238	21,400				59,641		67,351
Interest expense	3,985	5,738				13,215		19,891
Net interest income	15,253	15,662				46,426		47,460
Provision for loan losses	4,254	1,922				8,842		17,162
Net interest income (loss) after provision for loan losses	10,999	13,740				37,584		30,298
Other income	3,060	4,281				8,134		10,431
Other expense	13,589	11,299				40,781		42,408
Income (loss) before income taxes	470	6,722				4,937		(1,679)
Income taxes	54	2,384				(9,329)		6,905
Net income (loss)	416	4,338				14,266		(8,584)
Segment Reporting Information, Balance Sheet Data
Total assets	1,899,745		2,026,753			1,899,745		2,026,753
Net loans	1,331,637		1,439,927			1,331,637		1,439,927
Loans held for sale	0		357			0		357
Goodwill			0					0
Mortgage Activities
Segment Reporting Information, Profit (Loss)
Interest income	208	165				538		236
Interest expense	61	10				90		219
Net interest income	147	155				448		17
Provision for loan losses	(3)	34				(22)		54
Net interest income (loss) after provision for loan losses	150	121				470		(37)
Other income	1,599	996				4,412		3,476
Other expense	1,192	1,528				3,297		11,433
Income (loss) before income taxes	557	(411)				1,585		(7,994)
Income taxes	0	0				0		0
Net income (loss)	557	(411)				1,585		(7,994)
Segment Reporting Information, Balance Sheet Data
Total assets	33,208		23,142			33,208		23,142
Net loans	0		0			0		0
Loans held for sale	24,766		13,444			24,766		13,444
Goodwill			0					0
Other
Segment Reporting Information, Profit (Loss)
Interest income	0	0				0		0
Interest expense	211	192				636		576
Net interest income	(211)	(192)				(636)		(576)
Provision for loan losses	0	0				0		0
Net interest income (loss) after provision for loan losses	(211)	(192)				(636)		(576)
Other income	6	(54)				35		(136)
Other expense	11	2				24		30
Income (loss) before income taxes	(216)	(248)				(625)		(742)
Income taxes	0	0				0		0
Net income (loss)	(216)	(248)				(625)		(742)
Segment Reporting Information, Balance Sheet Data
Total assets	(12,575)		(2,764)			(12,575)		(2,764)
Net loans	0		0			0		0
Loans held for sale	0		0			0		0
Goodwill			0					0
Intersegment Elimination [Member]
Segment Reporting Information, Balance Sheet Data
Bank Due from Sidus	10,689		3,286			10,689		3,286
Bank investment in Sidus	3,000		3,000			3,000		3,000
Bank A/R from Sidus	0		614			0		614
Parent [Member] | Other
Segment Reporting Information, Balance Sheet Data
Total assets	$ 1,114		$ 1,258			$ 1,114		$ 1,258

[1] 4th quarter of 2009

[2] First nine months of 2012

[3] Derived from audited consolidated financial statements

XML

Fair Value - Level 3 Instruments (Details) (USD $)				3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended				3 Months Ended		9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011		Sep. 30, 2012 Interest Rate Swap Agreements Derivative Financial Instruments, Assets	Sep. 29, 2011 Interest Rate Swap Agreements Derivative Financial Instruments, Assets	Sep. 30, 2012 Interest Rate Swap Agreements Derivative Financial Instruments, Assets	Sep. 30, 2011 Interest Rate Swap Agreements Derivative Financial Instruments, Assets	Sep. 30, 2012 Interest Rate Swap Agreements Derivative Financial Instruments, Liabilities	Sep. 29, 2011 Interest Rate Swap Agreements Derivative Financial Instruments, Liabilities	Sep. 30, 2012 Interest Rate Swap Agreements Derivative Financial Instruments, Liabilities	Sep. 30, 2011 Interest Rate Swap Agreements Derivative Financial Instruments, Liabilities	Sep. 30, 2012 Interest Rate Lock Commitments Derivative Financial Instruments, Assets	Sep. 29, 2011 Interest Rate Lock Commitments Derivative Financial Instruments, Assets	Sep. 30, 2012 Interest Rate Lock Commitments Derivative Financial Instruments, Assets	Sep. 30, 2011 Interest Rate Lock Commitments Derivative Financial Instruments, Assets	Sep. 30, 2012 Forward Sales Commitments Derivative Financial Instruments, Assets	Dec. 31, 2011 Forward Sales Commitments Derivative Financial Instruments, Assets	Sep. 30, 2012 Mortgage Servicing Rights Derivative Financial Instruments, Assets	Sep. 29, 2011 Mortgage Servicing Rights Derivative Financial Instruments, Assets	Sep. 30, 2012 Mortgage Servicing Rights Derivative Financial Instruments, Assets	Sep. 30, 2011 Mortgage Servicing Rights Derivative Financial Instruments, Assets
Rollforward of Level 3 Assets [Rollforward]
Beginning balance				$ 213,000	$ 173,000	$ 217,000	$ 159,000					$ 578,000	$ 16,000	$ 129,818	$ 105,000	$ 1,008,706	$ 57,363	$ 1,889,000	$ 2,193,000	$ 1,871,000	$ 2,144,000
Purchases, sales, issuances and settlements				0	0	0	0
Capitalized																		300,000	71,000	645,000	266,000
Gains/losses included in other income				0	55,000	(4,000)	69,000					(1,069,000)	314,000	(621,000)	225,000			(153,000)	(248,000)	(480,000)	(394,000)
Transfer in and out												0	0	0	0
Ending balance				213,000		213,000	228,000					(491,245)		(491,245)	330,000	1,008,706	57,363	2,036,000		2,036,000	2,016,000
Rollforward of Level 3 Liabilities [Rollforward]
Beginning balance								213,000	173,000	217,000	159,000
Purchases, sales, issuances and settlements								0	0	0	0
Gains/lossses included in other income								0	55,000	(4,000)	69,000
Ending balance								213,000		213,000	228,000
Other real estate owned	$ 22,294,000	$ 24,966,000	[1]

[1] Derived from audited consolidated financial statements

XML

Income Taxes - Provision for Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Current:
Federal	$ (342)	$ 1,627
State	0	0
Total current	(342)	1,627
Deferred:
Federal	1,575	(5,120)
State	438	(602)
Total deferred	2,013	(5,722)
Increase (decrease) in valuation allowance for deferred tax assets	(11,000)	11,000
Total income taxes	$ (9,329)	$ 6,905

XML

Loans and Allowance for Loan Losses - Troubled Debt Restructured Loans (Details) (USD $)	3 Months Ended			9 Months Ended
	Sep. 30, 2012 Loans	Sep. 29, 2011 Loans	Sep. 30, 2011 Loans	Sep. 30, 2012 Loans	Sep. 30, 2011 Loans	Dec. 31, 2011
Troubled Debt Restructurings
Total amount of troubled debt restructured loans outstanding	$ 35,600,000			$ 35,600,000		$ 43,500,000
Allowance for troubled debt restructed loans	1,800,000			1,800,000		2,300,000
Amount of troubled debt restructured loans accruing interest	13,900,000			13,900,000		17,200,000
Number of Loans	7		15	29	37
Recorded Investment Prior to Modification	2,645,000		10,570,000	8,739,000	18,883,000
Recorded Investment After Modification	2,399,000		9,377,000	7,489,000	14,610,000
Number of troubled debt restructured loans with a payment default during the period		4		2	7
Recorded investment of troubled debt restructured loans with payment default during period		2,927,000		602,000	3,393,000
Below Market Rate
Troubled Debt Restructurings
Number of Loans	1		3	1	4
Recorded Investment Prior to Modification	396,000		1,871,000	396,000	2,371,000
Recorded Investment After Modification	391,000		1,855,000	391,000	2,281,000
Number of troubled debt restructured loans with a payment default during the period				1
Recorded investment of troubled debt restructured loans with payment default during period				578,000
Extended Payment Terms
Troubled Debt Restructurings
Number of Loans	6		10	25	25
Recorded Investment Prior to Modification	2,249,000		8,283,000	7,607,000	12,741,000
Recorded Investment After Modification	2,008,000		7,249,000	6,518,000	11,042,000
Number of troubled debt restructured loans with a payment default during the period		3		1	5
Recorded investment of troubled debt restructured loans with payment default during period		2,130,000		24,000	2,356,000
Principal Payment Reducation
Troubled Debt Restructurings
Number of Loans			2	3	8
Recorded Investment Prior to Modification			416,000	736,000	3,771,000
Recorded Investment After Modification			273,000	580,000	1,287,000
Number of troubled debt restructured loans with a payment default during the period		1			2
Recorded investment of troubled debt restructured loans with payment default during period		797,000			1,037,000
Real Estate Loans | Below Market Rate | Construction Loans
Troubled Debt Restructurings
Number of Loans			2		3
Recorded Investment Prior to Modification			1,721,000		2,221,000
Recorded Investment After Modification			1,705,000		2,131,000
Number of troubled debt restructured loans with a payment default during the period				1
Recorded investment of troubled debt restructured loans with payment default during period				578,000
Real Estate Loans | Below Market Rate | One to Four Family
Troubled Debt Restructurings
Number of Loans	1		1	1	1
Recorded Investment Prior to Modification	396,000		150,000	396,000	150,000
Recorded Investment After Modification	391,000		150,000	391,000	150,000
Real Estate Loans | Extended Payment Terms | Construction Loans
Troubled Debt Restructurings
Number of Loans	2		3	5	8
Recorded Investment Prior to Modification	521,000		595,000	1,231,000	2,705,000
Recorded Investment After Modification	521,000		586,000	873,000	2,449,000
Number of troubled debt restructured loans with a payment default during the period		1			1
Recorded investment of troubled debt restructured loans with payment default during period		221,000			221,000
Real Estate Loans | Extended Payment Terms | Owner Occupied
Troubled Debt Restructurings
Number of Loans	2		4	7	9
Recorded Investment Prior to Modification	353,000		6,834,000	2,065,000	8,230,000
Recorded Investment After Modification	331,000		6,404,000	2,021,000	7,743,000
Real Estate Loans | Extended Payment Terms | Non-owner Occupied
Troubled Debt Restructurings
Number of Loans	2		2	3	3
Recorded Investment Prior to Modification	1,375,000		734,000	1,586,000	1,133,000
Recorded Investment After Modification	1,156,000		139,000	1,367,000	533,000
Number of troubled debt restructured loans with a payment default during the period		1			1
Recorded investment of troubled debt restructured loans with payment default during period		1,789,000			1,789,000
Real Estate Loans | Extended Payment Terms | One to Four Family
Troubled Debt Restructurings
Number of Loans				3	2
Recorded Investment Prior to Modification				827,000	327,000
Recorded Investment After Modification				751,000	197,000
Number of troubled debt restructured loans with a payment default during the period		1			1
Recorded investment of troubled debt restructured loans with payment default during period		120,000			120,000
Real Estate Loans | Principal Payment Reducation | Construction Loans
Troubled Debt Restructurings
Number of Loans			1		4
Recorded Investment Prior to Modification			400,000		3,302,000
Recorded Investment After Modification			258,000		1,060,000
Number of troubled debt restructured loans with a payment default during the period		1			1
Recorded investment of troubled debt restructured loans with payment default during period		797,000			797,000
Real Estate Loans | Principal Payment Reducation | Owner Occupied
Troubled Debt Restructurings
Number of Loans				2	1
Recorded Investment Prior to Modification				571,000	240,000
Recorded Investment After Modification				571,000	0
Number of troubled debt restructured loans with a payment default during the period		0			1
Recorded investment of troubled debt restructured loans with payment default during period					240,000
Real Estate Loans | Principal Payment Reducation | Home Equity Lines of Credit
Troubled Debt Restructurings
Number of Loans					1
Recorded Investment Prior to Modification					165,000
Recorded Investment After Modification					165,000
Commercial | Extended Payment Terms
Troubled Debt Restructurings
Number of Loans			1	6	3
Recorded Investment Prior to Modification			120,000	1,872,000	346,000
Recorded Investment After Modification			120,000	1,482,000	120,000
Number of troubled debt restructured loans with a payment default during the period		0			2
Recorded investment of troubled debt restructured loans with payment default during period		0			226,000
Commercial | Principal Payment Reducation
Troubled Debt Restructurings
Number of Loans			1		2
Recorded Investment Prior to Modification			16,000		64,000
Recorded Investment After Modification			15,000		62,000
Consumer and other | Extended Payment Terms
Troubled Debt Restructurings
Number of Loans				1	0
Recorded Investment Prior to Modification				26,000	0
Recorded Investment After Modification				24,000	0
Number of troubled debt restructured loans with a payment default during the period				1
Recorded investment of troubled debt restructured loans with payment default during period				24,000
Consumer and other | Principal Payment Reducation
Troubled Debt Restructurings
Number of Loans				1
Recorded Investment Prior to Modification				165,000
Recorded Investment After Modification				$ 9,000

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Stock-based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 29, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock-based Compensation
Options vested during period	1,000	2,300	8,500	22,600
Unvested stock options outstanding	11,000		11,000
Stock options outstanding	246,967		246,967
Share-based compensation expense	$ 130,344	$ 53,728	$ 294,384	$ 144,101
Total unrecognized share-based compensation cost	$ 1,128,303		$ 1,128,303
Period to recognize share-based compensation expense not yet recognized			2 years 3 months 18 days
Stock Options
Stock-based Compensation
Shares available for grant	0		0
Restricted Stock
Stock-based Compensation
Restricted shares outstanding	640,500		640,500
Restricted shares outstanding, vested	42,663		42,663
Restricted shares outstanding, nonvested	597,837		597,837
Shares of restricted stock issued		0	497,500	145,000
Restricted shares forfeited			20,000
Average fair value of restricted stock granted (in dollars per share)			$ 2.31	$ 2.34
Performance and Service Conditions | Restricted Stock
Stock-based Compensation
Shares of restricted stock issued			490,000
Minimum | Restricted Stock
Stock-based Compensation
Years of service required			2 years

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Income Taxes - Valuation Allowance (Details) (USD $)	3 Months Ended					9 Months Ended			12 Months Ended				36 Months Ended	6 Months Ended
	Sep. 30, 2012	Sep. 29, 2011	Sep. 30, 2011	Dec. 31, 2009		Sep. 30, 2012		Sep. 30, 2011	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Dec. 31, 2010	Jun. 30, 2012	Jun. 30, 2012 Loss Carryforward
Income Tax Disclosure [Abstract]
Valuation Allowance, Cumulative Tax Loss Position	$ 1,700,000					$ 1,700,000
INCOME (LOSS) BEFORE INCOME TAXES	811,000	6,063,000	6,063,000	6,545,000	[1]	5,897,000	[2]	(10,415,000)		(7,701,000)		(1,402,000)	(3,206,000)
Goodwill impairment	0		0	0	[1]	0	[2]	4,944,000		4,944,000		0	4,944,000
Tax loss position				6,545,000	[1]	5,897,000	[2]			(2,757,000)		(1,402,000)	1,738,000
Management projecting full utilization of tax benefits within	3 years					3 years
Valuation Allowance [Line Items]
Income (Loss) from Continuing Operations before Income Taxes, Domestic			14,700,000
Charge-offs	6,237,000	5,024,000				16,524,000		23,982,000	25,300,000		39,800,000
Change in valuation allowance														$ 11,000,000

[1] 4th quarter of 2009

[2] First nine months of 2012

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Investments, Debt and Equity Securities [Abstract]

Available-for-sale investment securities

Investment securities at September 30, 2012 and December 31, 2011 are summarized as follows:

	September 30, 2012
	Amortized Cost		Unrealized  Gains		Unrealized  Losses		Fair Value
	(Amounts in thousands)
Available-for-sale securities:
Securities of U.S. government agencies due:
Within 1 year	$	20,008	$	44	$	—	$	20,052
After 1 but within 5 years	12,779		38		—		12,817
	32,787		82		—		32,869
Government sponsored agencies:
Residential mortgage-backed securities due:
Within 1 year	67		1		—		68
After 1 but within 5 years	490		28		—		518
After 5 but within 10 years	11,526		345		—		11,871
After 10 years	68,847		1,972		12		70,807
	80,930		2,346		12		83,264
Collateralized mortgage obligations due:
After 1 but within 5 years	1,743		7		—		1,750
After 5 but within 10 years	10,332		322		—		10,654
After 10 years	124,469		1,060		450		125,079
	136,544		1,389		450		137,483
Private label collateralized mortgage obligations due:
After 5 but within 10 years	190		—		7		183
After 10 years	853		23		—		876
	1,043		23		7		1,059
State and municipal securities due:
Within 1 year	720		11		—		731
After 1 but within 5 years	5,738		367		—		6,105
After 5 but within 10 years	19,025		1,648		—		20,673
After 10 years	24,816		2,444		—		27,260
	50,299		4,470		—		54,769
Common and preferred stocks:	1,115		42		45		1,112
Total available-for-sale securities	$	302,718	$	8,352	$	514	$	310,556

	December 31, 2011
	Amortized Cost		Unrealized  Gains		Unrealized  Losses		Fair Value
	(Amounts in thousands)
Available-for-sale securities:
Securities of U.S. government agencies due:
Within 1 year	$	9,988	$	51	$	—	$	10,039
After 1 but within 5 years	13,622		65		—		13,687
	23,610		116		—		23,726
Government sponsored agencies:
Residential mortgage-backed securities due:
After 1 but within 5 years	476		18		—		494
After 5 but within 10 years	3,481		281		—		3,762
After 10 years	60,388		959		393		60,954
	64,345		1,258		393		65,210
Collateralized mortgage obligations due:
After 5 but within 10 years	13,986		478		—		14,464
After 10 years	150,915		1,241		592		151,564
	164,901		1,719		592		166,028
Private label collateralized mortgage obligations due:
After 5 but within 10 years	275		10		—		285
After 10 years	1,028		—		57		971
	1,303		10		57		1,256
State and municipal securities due:
Within 1 year	618		5		—		623
After 1 but within 5 years	6,575		347		—		6,922
After 5 but within 10 years	21,252		1,639		19		22,872
After 10 years	40,455		2,255		9		42,701
	68,900		4,246		28		73,118
Common and preferred stocks:	1,113		23		52		1,084
Total available-for-sale securities	$	324,172	$	7,372	$	1,122	$	330,422

Available-for-sale Securities in a Continuous Unrealized Loss Position

If management determines that an investment has experienced an other than temporary impairment, the loss is recognized in the income statemen

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Fair Value - Level 3 Quantitative Information (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Recurring | Interest Rate Swap Agreements | Derivative Financial Instruments, Assets | Minimum
Fair Value Inputs
Discount rate	1.00%
Recurring | Interest Rate Swap Agreements | Derivative Financial Instruments, Assets | Maximum
Fair Value Inputs
Discount rate	4.00%
Recurring | Interest Rate Swap Agreements | Derivative Financial Instruments, Assets | Weighted Average
Fair Value Inputs
Discount rate	1.20%
Recurring | Interest Rate Lock Commitments | Derivative Financial Instruments, Liabilities | Minimum
Fair Value Inputs
Pull through rates	81.00%
Recurring | Interest Rate Lock Commitments | Derivative Financial Instruments, Liabilities | Maximum
Fair Value Inputs
Pull through rates	82.00%
Recurring | Mortgage Servicing Rights | Derivative Financial Instruments, Assets
Fair Value Inputs
Discount rate	8.00%
Constant prepayment rate	20.09%
Cost of service	50
Nonrecurring | Impaired Loans Receivable | Minimum
Fair Value Inputs
Collateral discounts	15.00%
Nonrecurring | Impaired Loans Receivable | Maximum
Fair Value Inputs
Collateral discounts	50.00%
Nonrecurring | Other Real Estate Owned | Minimum
Fair Value Inputs
Collateral discounts	6.00%
Nonrecurring | Other Real Estate Owned | Maximum
Fair Value Inputs
Collateral discounts	15.00%
Level 3 | Recurring | Interest Rate Swap Agreements
Quantitative Information
Assets, Fair Value Disclosure	213,000
Level 3 | Recurring | Interest Rate Lock Commitments
Quantitative Information
Liabilities, Fair Value Disclosure	(491,000)
Level 3 | Recurring | Mortgage Servicing Rights
Quantitative Information
Assets, Fair Value Disclosure	2,036,000
Level 3 | Nonrecurring | Impaired Loans Receivable
Quantitative Information
Assets, Fair Value Disclosure	13,793,000
Level 3 | Nonrecurring | Other Real Estate Owned
Quantitative Information
Assets, Fair Value Disclosure	8,715,000

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Loans and Allowance for Loan Losses - Loans Receivable (Details) (USD $)	3 Months Ended				9 Months Ended																			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011		Sep. 30, 2011	Sep. 30, 2012 Non-owner Occupied	Sep. 30, 2012 Real Estate Loans Construction Loans	Dec. 31, 2011 Real Estate Loans Construction Loans	Sep. 30, 2012 Real Estate Loans Commercial Real Estate	Dec. 31, 2011 Real Estate Loans Commercial Real Estate	Sep. 30, 2012 Real Estate Loans Owner Occupied	Dec. 31, 2011 Real Estate Loans Owner Occupied	Sep. 30, 2012 Real Estate Loans Non-owner Occupied	Dec. 31, 2011 Real Estate Loans Non-owner Occupied	Sep. 30, 2012 Real Estate Loans One to Four Family	Dec. 31, 2011 Real Estate Loans One to Four Family	Sep. 30, 2012 Real Estate Loans Multifamily	Dec. 31, 2011 Real Estate Loans Multifamily	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit	Sep. 30, 2012 Commercial	Dec. 31, 2011 Commercial	Sep. 30, 2012 Consumer and other	Dec. 31, 2011 Consumer and other	Sep. 30, 2012 Transferred Loan 1 Non-owner Occupied
Loans Receivable
Loans	$ 1,357,640,000	$ 1,450,039,000				$ 147,408,000	$ 202,803,000	$ 577,800,000	$ 591,800,000	$ 346,908,000	$ 348,931,000	$ 230,854,000	$ 242,827,000	$ 174,712,000	$ 179,047,000	$ 37,987,000	$ 39,881,000	$ 196,489,000	$ 201,220,000	$ 168,510,000	$ 177,047,000	$ 54,772,000	$ 58,283,000
Less: Net deferred loan origination fees	1,228,000	885,000
Allowance for loan losses	(27,231,000)	(32,848,000)	[1]
Net loans	1,331,637,000	1,418,076,000	[1]	1,439,927,000
Loans transferred from construction loans to permanent commercial real estate loans	25,300,000
Transfer from loans held-for-investment to loans held-for-sale					8,400,000																			7,600,000
Transfer of loans to held-for-sale, amount charged off to record loan at fair value					$ 4,300,000

[1] Derived from audited consolidated financial statements

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Non-marketable Equity Securities (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 29, 2011	Sep. 30, 2011 SecuritiesPositions	Sep. 30, 2012	Dec. 31, 2011
Non-marketable Equity Securities
Cost-method investments			$ 6,715,208	$ 8,771,278
Other than temporary impairment	116,003	73,848
Cost-Method Investments, Number of Investments Sold		1
Realized losses from sale of investments		79,910
FHLB Stock
Non-marketable Equity Securities
Cost-method investments			4,154,700
Investments in Various Trust and Financial Companies
Non-marketable Equity Securities
Cost-method investments			$ 2,560,508

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Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Level 1
Financial assets:
Cash and cash equivalents	$ 123,222	$ 92,918
Investment securities	1,112	1,084
Loans and loans held-for-sale, net	0	0
Accrued interest receivable	0	0
Federal Home Loan Bank stock	4,155	6,130
Financial liabilities:
Demand deposits, NOW, savings and money market accounts	0	0
Time deposits	0	0
Borrowed funds	0	0
Accrued interest payable	0	0
Level 1 | Forward Sales Commitments
Financial assets:
Derivative assets	0	0
Financial liabilities:
Derivative liabilities	0
Level 1 | Interest Rate Swap Agreements
Financial assets:
Derivative assets	0	0
Financial liabilities:
Derivative liabilities	0	0
Level 1 | Interest Rate Lock Commitments
Financial liabilities:
Derivative liabilities		0
Level 2
Financial assets:
Cash and cash equivalents	0	0
Investment securities	309,444	329,338
Loans and loans held-for-sale, net	0	0
Accrued interest receivable	6,229	6,745
Federal Home Loan Bank stock	0	0
Financial liabilities:
Demand deposits, NOW, savings and money market accounts	858,491	855,455
Time deposits	800,977	885,903
Borrowed funds	103,270	106,923
Accrued interest payable	1,746	2,619
Level 2 | Forward Sales Commitments
Financial assets:
Derivative assets	1,008	57
Level 2 | Interest Rate Swap Agreements
Financial assets:
Derivative assets	0	0
Financial liabilities:
Derivative liabilities	0	0
Level 2 | Interest Rate Lock Commitments
Financial assets:
Derivative assets	0
Financial liabilities:
Derivative liabilities		0
Level 3
Financial assets:
Cash and cash equivalents	0	0
Investment securities	0	0
Loans and loans held-for-sale, net	1,228,930	1,365,586
Accrued interest receivable	0	0
Federal Home Loan Bank stock	0	0
Financial liabilities:
Demand deposits, NOW, savings and money market accounts	0	0
Time deposits	0	0
Borrowed funds	0	0
Accrued interest payable	0	0
Level 3 | Forward Sales Commitments
Financial assets:
Derivative assets	0	0
Level 3 | Interest Rate Swap Agreements
Financial assets:
Derivative assets	213	216
Financial liabilities:
Derivative liabilities	213	216
Level 3 | Interest Rate Lock Commitments
Financial liabilities:
Derivative liabilities	491	130
Carrying Amount
Financial assets:
Cash and cash equivalents	123,222	92,918
Investment securities	310,556	330,422
Loans and loans held-for-sale, net	1,356,403	1,437,610
Accrued interest receivable	6,229	6,745
Federal Home Loan Bank stock	4,155	6,130
Financial liabilities:
Demand deposits, NOW, savings and money market accounts	862,622	855,455
Time deposits	788,838	875,886
Borrowed funds	102,299	105,539
Accrued interest payable	1,746	2,619
Carrying Amount | Forward Sales Commitments
Financial assets:
Derivative assets	1,008	57
Carrying Amount | Interest Rate Swap Agreements
Financial assets:
Derivative assets	213	216
Financial liabilities:
Derivative liabilities	213	216
Carrying Amount | Interest Rate Lock Commitments
Financial liabilities:
Derivative liabilities	491	130
Estimated Fair Value
Financial assets:
Cash and cash equivalents	123,222	92,918
Investment securities	310,556	330,422
Loans and loans held-for-sale, net	1,228,930	1,365,586
Accrued interest receivable	6,229	6,745
Federal Home Loan Bank stock	4,155	6,130
Financial liabilities:
Demand deposits, NOW, savings and money market accounts	858,491	855,455
Time deposits	800,977	885,903
Borrowed funds	103,270	106,923
Accrued interest payable	1,746	2,619
Estimated Fair Value | Forward Sales Commitments
Financial assets:
Derivative assets	1,008	57
Estimated Fair Value | Interest Rate Swap Agreements
Financial assets:
Derivative assets	213	216
Financial liabilities:
Derivative liabilities	213	216
Estimated Fair Value | Interest Rate Lock Commitments
Financial liabilities:
Derivative liabilities	$ 491	$ 130

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Loans and Allowance for Loan Losses - Allowance for Loan Losses (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 29, 2011	Sep. 30, 2012	Sep. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	$ 28,797,000	$ 35,652,000	$ 32,848,000	$ 37,752,000	$ 35,652,000
Charge-offs	6,237,000	5,024,000	16,524,000	23,982,000	25,300,000	39,800,000
Recoveries	420,000	1,089,000	2,087,000	2,687,000
Provision	4,251,000	1,956,000	8,820,000	17,216,000
Allowance for loan losses, ending balance	27,231,000		27,231,000	33,673,000	28,797,000	35,652,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	3,791,000		3,791,000				4,101,000
Loans individually evaluated for impairment	58,122,000		58,122,000				77,896,000
Reserves for loans collectively evaluated for impairment	23,440,000		23,440,000				28,747,000
Loans collectively evaluated for impairment	1,299,518,000		1,299,518,000				1,372,143,000
Loans sold during period	94,000,000		288,600,000
Impact of change in allowance methodology	1,400,000
Reserve for Off-balance Sheet Activities
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves	201,000		201,000				221,000
Reserve for Losses on Mortgage Loans Sold
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves	1,700,000		1,700,000				1,800,000
Charges against reserves	115,238
Provision expense	204,861	18,000	234,576
Real Estate Loans | Construction Loans
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	5,903,000	10,770,000	8,214,000	12,014,000	10,770,000
Charge-offs	3,881,000	1,175,000	7,823,000	9,050,000
Recoveries	45,000	630,000	323,000	1,710,000
Provision	3,675,000	(390,000)	5,028,000	5,161,000
Allowance for loan losses, ending balance	5,742,000		5,742,000	9,835,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	1,249,000		1,249,000				570,000
Loans individually evaluated for impairment	18,025,000		18,025,000				29,078,000
Reserves for loans collectively evaluated for impairment	4,493,000		4,493,000				7,644,000
Loans collectively evaluated for impairment	129,383,000		129,383,000				173,725,000
Real Estate Loans | Owner Occupied
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	5,630,000	6,701,000	5,792,000	5,958,000	6,701,000
Charge-offs	146,000	546,000	2,019,000	3,382,000
Recoveries	2,000	3,000	126,000	109,000
Provision	(943,000)	(506,000)	644,000	2,967,000
Allowance for loan losses, ending balance	4,543,000		4,543,000	5,652,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	279,000		279,000				585,000
Loans individually evaluated for impairment	19,268,000		19,268,000				24,045,000
Reserves for loans collectively evaluated for impairment	4,264,000		4,264,000				5,207,000
Loans collectively evaluated for impairment	327,640,000		327,640,000				324,886,000
Real Estate Loans | Non-owner Occupied
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	3,582,000	4,280,000	4,668,000	7,150,000	4,280,000
Charge-offs	697,000	1,101,000	2,461,000	3,434,000
Recoveries	256,000	0	289,000	52,000
Provision	1,096,000	707,000	1,741,000	118,000
Allowance for loan losses, ending balance	4,237,000		4,237,000	3,886,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	476,000		476,000				143,000
Loans individually evaluated for impairment	7,535,000		7,535,000				9,614,000
Reserves for loans collectively evaluated for impairment	3,761,000		3,761,000				4,525,000
Loans collectively evaluated for impairment	223,319,000		223,319,000				233,213,000
Real Estate Loans | One to Four Family
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	3,063,000	4,514,000	3,726,000	3,706,000	4,514,000
Charge-offs	57,000	584,000	625,000	2,364,000
Recoveries	4,000	84,000	153,000	161,000
Provision	(83,000)	223,000	(327,000)	2,734,000
Allowance for loan losses, ending balance	2,927,000		2,927,000	4,237,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	155,000		155,000				45,000
Loans individually evaluated for impairment	1,871,000		1,871,000				4,341,000
Reserves for loans collectively evaluated for impairment	2,773,000		2,773,000				3,681,000
Loans collectively evaluated for impairment	172,841,000		172,841,000				174,706,000
Real Estate Loans | Multifamily
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	563,000	526,000	805,000	424,000	526,000
Charge-offs	0	0	213,000	11,000
Recoveries	0	0	0	0
Provision	5,000	48,000	(24,000)	161,000
Allowance for loan losses, ending balance	568,000		568,000	574,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	0		0				135,000
Loans individually evaluated for impairment	701,000		701,000				595,000
Reserves for loans collectively evaluated for impairment	567,000		567,000				670,000
Loans collectively evaluated for impairment	37,286,000		37,286,000				39,286,000
Real Estate Loans | Home Equity Lines of Credit
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	4,399,000	4,012,000	3,310,000	3,298,000	4,012,000
Charge-offs	372,000	973,000	1,073,000	2,659,000
Recoveries	29,000	17,000	50,000	97,000
Provision	(162,000)	867,000	1,607,000	3,187,000
Allowance for loan losses, ending balance	3,894,000		3,894,000	3,923,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	0		0				112,000
Loans individually evaluated for impairment	1,706,000		1,706,000				928,000
Reserves for loans collectively evaluated for impairment	3,894,000		3,894,000				3,198,000
Loans collectively evaluated for impairment	194,783,000		194,783,000				200,292,000
Commercial
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	4,715,000	4,020,000	5,712,000	4,335,000	4,020,000
Charge-offs	771,000	489,000	1,789,000	2,513,000
Recoveries	63,000	278,000	829,000	389,000
Provision	624,000	976,000	(121,000)	2,574,000
Allowance for loan losses, ending balance	4,631,000		4,631,000	4,785,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	1,632,000		1,632,000				2,511,000
Loans individually evaluated for impairment	9,016,000		9,016,000				9,295,000
Reserves for loans collectively evaluated for impairment	2,999,000		2,999,000				3,201,000
Loans collectively evaluated for impairment	159,494,000		159,494,000				167,752,000
Consumer and other
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Allowance for loan losses, beginning balance	942,000	829,000	621,000	867,000	829,000
Charge-offs	313,000	156,000	521,000	569,000
Recoveries	21,000	77,000	317,000	169,000
Provision	39,000	31,000	272,000	314,000
Allowance for loan losses, ending balance	689,000		689,000	781,000
Financing Receivable, Allowance for Credit Loss, Additional Information
Reserves for loans individually evaluated for impairment	0		0				0
Loans individually evaluated for impairment	0		0				0
Reserves for loans collectively evaluated for impairment	689,000		689,000				621,000
Loans collectively evaluated for impairment	$ 54,772,000		$ 54,772,000				$ 58,283,000

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New Accounting Standards

9 Months Ended

Sep. 30, 2012

Accounting Changes and Error Corrections [Abstract]

New Accounting Standards

New Accounting Standards

Recently Adopted Accounting Standards

In 2011, the FASB issued Accounting Standards Update No. 2011-04 "Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements" ("ASU 2011-04"). The ASU 2011-04 amends Topic 820 to add both additional clarifications to existing fair value measurement and disclosure requirements and changes to existing principles and disclosure guidance. Clarifications were made to the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity's shareholder's equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to existing principles and disclosures included measurement of financial instruments managed within a portfolio, the application of premiums and discounts in fair value measurement, and additional disclosures related to fair value measurements. The updated guidance and requirements are effective for financial statements issued for the first interim or annual period beginning after December 15, 2011, and should be applied prospectively. Early adoption is permitted. The guidance did not have a material impact on the Company's consolidated financial statements, and the disclosure requirements were included in this Form 10-Q.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05 "Presentation of Comprehensive Income" (“ASU 2011-05”). This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in shareholders' equity and is intended to enhance comparability between entities that report under U.S. GAAP and those that report under International Financial Reporting Standards (“IFRS”), and to provide a more consistent method of presenting non-owner transactions that affect an entity's equity. ASU 2011-05 requirements are effective for public entities as of the beginning of fiscal years beginning after December 15, 2011 and interim and annual periods thereafter. Early adoption is permitted, but full retrospective application is required under both sets of accounting standards. The Company has adopted the standard and the adoption of ASU 2011-05 did not have an impact on the Company's financial condition, results of operations, or cash flows.

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Loans and Allowance for Loan Losses - Credit Quality Indicators (Details) (USD $)																																																																																																																																																																															9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Real Estate Loans Owner Occupied	Dec. 31, 2011 Real Estate Loans Owner Occupied	Sep. 30, 2012 Real Estate Loans Owner Occupied High Quality	Dec. 31, 2011 Real Estate Loans Owner Occupied High Quality	Sep. 30, 2012 Real Estate Loans Owner Occupied Good Quality	Dec. 31, 2011 Real Estate Loans Owner Occupied Good Quality	Sep. 30, 2012 Real Estate Loans Owner Occupied Satisfactory	Dec. 31, 2011 Real Estate Loans Owner Occupied Satisfactory	Sep. 30, 2012 Real Estate Loans Owner Occupied Merits Attention	Dec. 31, 2011 Real Estate Loans Owner Occupied Merits Attention	Sep. 30, 2012 Real Estate Loans Owner Occupied Special Mention	Dec. 31, 2011 Real Estate Loans Owner Occupied Special Mention	Sep. 30, 2012 Real Estate Loans Owner Occupied Substandard	Dec. 31, 2011 Real Estate Loans Owner Occupied Substandard	Sep. 30, 2012 Real Estate Loans Owner Occupied Substandard Impaired	Dec. 31, 2011 Real Estate Loans Owner Occupied Substandard Impaired	Sep. 30, 2012 Real Estate Loans Owner Occupied Doubtful [Member]	Sep. 30, 2012 Real Estate Loans Owner Occupied Loss	Dec. 31, 2011 Real Estate Loans Owner Occupied Loss	Sep. 30, 2012 Real Estate Loans Non-owner Occupied	Dec. 31, 2011 Real Estate Loans Non-owner Occupied	Sep. 30, 2012 Real Estate Loans Non-owner Occupied High Quality	Dec. 31, 2011 Real Estate Loans Non-owner Occupied High Quality	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Good Quality	Dec. 31, 2011 Real Estate Loans Non-owner Occupied Good Quality	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Satisfactory	Dec. 31, 2011 Real Estate Loans Non-owner Occupied Satisfactory	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Merits Attention	Dec. 31, 2011 Real Estate Loans Non-owner Occupied Merits Attention	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Special Mention	Dec. 31, 2011 Real Estate Loans Non-owner Occupied Special Mention	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Substandard	Dec. 31, 2011 Real Estate Loans Non-owner Occupied Substandard	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Substandard Impaired	Dec. 31, 2011 Real Estate Loans Non-owner Occupied Substandard Impaired	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Doubtful [Member]	Sep. 30, 2012 Real Estate Loans Non-owner Occupied Loss	Dec. 31, 2011 Real Estate Loans Non-owner Occupied Loss	Sep. 30, 2012 Real Estate Loans One to Four Family	Dec. 31, 2011 Real Estate Loans One to Four Family	Sep. 30, 2012 Real Estate Loans One to Four Family High Quality	Dec. 31, 2011 Real Estate Loans One to Four Family High Quality	Sep. 30, 2012 Real Estate Loans One to Four Family Good Quality	Dec. 31, 2011 Real Estate Loans One to Four Family Good Quality	Sep. 30, 2012 Real Estate Loans One to Four Family Satisfactory	Dec. 31, 2011 Real Estate Loans One to Four Family Satisfactory	Sep. 30, 2012 Real Estate Loans One to Four Family Merits Attention	Dec. 31, 2011 Real Estate Loans One to Four Family Merits Attention	Sep. 30, 2012 Real Estate Loans One to Four Family Special Mention	Dec. 31, 2011 Real Estate Loans One to Four Family Special Mention	Sep. 30, 2012 Real Estate Loans One to Four Family Substandard	Dec. 31, 2011 Real Estate Loans One to Four Family Substandard	Sep. 30, 2012 Real Estate Loans One to Four Family Substandard Impaired	Dec. 31, 2011 Real Estate Loans One to Four Family Substandard Impaired	Sep. 30, 2012 Real Estate Loans One to Four Family Doubtful [Member]	Sep. 30, 2012 Real Estate Loans One to Four Family Loss	Dec. 31, 2011 Real Estate Loans One to Four Family Loss	Sep. 30, 2012 Real Estate Loans Multifamily	Dec. 31, 2011 Real Estate Loans Multifamily	Sep. 30, 2012 Real Estate Loans Multifamily High Quality	Dec. 31, 2011 Real Estate Loans Multifamily High Quality	Sep. 30, 2012 Real Estate Loans Multifamily Good Quality	Dec. 31, 2011 Real Estate Loans Multifamily Good Quality	Sep. 30, 2012 Real Estate Loans Multifamily Satisfactory	Dec. 31, 2011 Real Estate Loans Multifamily Satisfactory	Sep. 30, 2012 Real Estate Loans Multifamily Merits Attention	Dec. 31, 2011 Real Estate Loans Multifamily Merits Attention	Sep. 30, 2012 Real Estate Loans Multifamily Special Mention	Dec. 31, 2011 Real Estate Loans Multifamily Special Mention	Sep. 30, 2012 Real Estate Loans Multifamily Substandard	Dec. 31, 2011 Real Estate Loans Multifamily Substandard	Sep. 30, 2012 Real Estate Loans Multifamily Substandard Impaired	Dec. 31, 2011 Real Estate Loans Multifamily Substandard Impaired	Sep. 30, 2012 Real Estate Loans Multifamily Doubtful [Member]	Sep. 30, 2012 Real Estate Loans Multifamily Loss	Dec. 31, 2011 Real Estate Loans Multifamily Loss	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit High Quality	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit High Quality	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Good Quality	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit Good Quality	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Satisfactory	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit Satisfactory	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Merits Attention	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit Merits Attention	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Special Mention	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit Special Mention	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Substandard	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit Substandard	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Substandard Impaired	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit Substandard Impaired	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Doubtful [Member]	Sep. 30, 2012 Real Estate Loans Home Equity Lines of Credit Loss	Dec. 31, 2011 Real Estate Loans Home Equity Lines of Credit Loss	Sep. 30, 2012 Real Estate Loans Construction Loans	Dec. 31, 2011 Real Estate Loans Construction Loans	Sep. 30, 2012 Real Estate Loans Construction Loans High Quality	Dec. 31, 2011 Real Estate Loans Construction Loans High Quality	Sep. 30, 2012 Real Estate Loans Construction Loans Good Quality	Dec. 31, 2011 Real Estate Loans Construction Loans Good Quality	Sep. 30, 2012 Real Estate Loans Construction Loans Satisfactory	Dec. 31, 2011 Real Estate Loans Construction Loans Satisfactory	Sep. 30, 2012 Real Estate Loans Construction Loans Merits Attention	Dec. 31, 2011 Real Estate Loans Construction Loans Merits Attention	Sep. 30, 2012 Real Estate Loans Construction Loans Special Mention	Dec. 31, 2011 Real Estate Loans Construction Loans Special Mention	Sep. 30, 2012 Real Estate Loans Construction Loans Substandard	Dec. 31, 2011 Real Estate Loans Construction Loans Substandard	Sep. 30, 2012 Real Estate Loans Construction Loans Substandard Impaired	Dec. 31, 2011 Real Estate Loans Construction Loans Substandard Impaired	Sep. 30, 2012 Real Estate Loans Construction Loans Doubtful [Member]	Sep. 30, 2012 Real Estate Loans Construction Loans Loss	Dec. 31, 2011 Real Estate Loans Construction Loans Loss	Sep. 30, 2012 Commercial	Dec. 31, 2011 Commercial	Sep. 30, 2012 Commercial High Quality	Dec. 31, 2011 Commercial High Quality	Sep. 30, 2012 Commercial Good Quality	Dec. 31, 2011 Commercial Good Quality	Sep. 30, 2012 Commercial Satisfactory	Dec. 31, 2011 Commercial Satisfactory	Sep. 30, 2012 Commercial Merits Attention	Dec. 31, 2011 Commercial Merits Attention	Sep. 30, 2012 Commercial Special Mention	Dec. 31, 2011 Commercial Special Mention	Sep. 30, 2012 Commercial Substandard	Dec. 31, 2011 Commercial Substandard	Sep. 30, 2012 Commercial Substandard Impaired	Dec. 31, 2011 Commercial Substandard Impaired	Sep. 30, 2012 Commercial Doubtful [Member]	Sep. 30, 2012 Commercial Loss	Dec. 31, 2011 Commercial Loss	Sep. 30, 2012 Consumer and other	Dec. 31, 2011 Consumer and other	Sep. 30, 2012 Consumer and other High Quality	Dec. 31, 2011 Consumer and other High Quality	Sep. 30, 2012 Consumer and other Good Quality	Dec. 31, 2011 Consumer and other Good Quality	Sep. 30, 2012 Consumer and other Satisfactory	Dec. 31, 2011 Consumer and other Satisfactory	Sep. 30, 2012 Consumer and other Merits Attention	Dec. 31, 2011 Consumer and other Merits Attention	Sep. 30, 2012 Consumer and other Special Mention	Dec. 31, 2011 Consumer and other Special Mention	Sep. 30, 2012 Consumer and other Substandard	Dec. 31, 2011 Consumer and other Substandard	Sep. 30, 2012 Consumer and other Substandard Impaired	Dec. 31, 2011 Consumer and other Substandard Impaired	Sep. 30, 2012 Consumer and other Doubtful [Member]	Sep. 30, 2012 Consumer and other Loss	Dec. 31, 2011 Consumer and other Loss	Sep. 30, 2012 Loans Receivable [Member]	Dec. 31, 2011 Loans Receivable [Member]	Sep. 30, 2012 Loans Receivable [Member] High Quality	Dec. 31, 2011 Loans Receivable [Member] High Quality	Sep. 30, 2012 Loans Receivable [Member] Good Quality	Dec. 31, 2011 Loans Receivable [Member] Good Quality	Sep. 30, 2012 Loans Receivable [Member] Satisfactory	Dec. 31, 2011 Loans Receivable [Member] Satisfactory	Sep. 30, 2012 Loans Receivable [Member] Merits Attention	Dec. 31, 2011 Loans Receivable [Member] Merits Attention	Sep. 30, 2012 Loans Receivable [Member] Special Mention	Dec. 31, 2011 Loans Receivable [Member] Special Mention	Sep. 30, 2012 Loans Receivable [Member] Substandard	Dec. 31, 2011 Loans Receivable [Member] Substandard	Sep. 30, 2012 Loans Receivable [Member] Substandard Impaired	Dec. 31, 2011 Loans Receivable [Member] Substandard Impaired	Sep. 30, 2012 Loans Receivable [Member] Doubtful [Member]	Dec. 31, 2011 Loans Receivable [Member] Doubtful [Member]	Sep. 30, 2012 Loans Receivable [Member] Loss	Dec. 31, 2011 Loans Receivable [Member] Loss	Sep. 30, 2012 Minimum
Credit Quality Indicators
Risk review threshold																																																																																																																																																																															$ 20,000
Loans	$ 1,357,640,000	$ 1,450,039,000	$ 346,908,000	$ 348,931,000	$ 121,000	$ 126,000	$ 0	$ 32,000	$ 107,794,000	$ 110,051,000	$ 192,518,000	$ 180,173,000	$ 23,906,000	$ 23,326,000	$ 5,171,000	$ 10,069,000	$ 17,398,000	$ 25,154,000	$ 0	$ 0	$ 0	$ 230,854,000	$ 242,827,000	$ 0	$ 0	$ 0	$ 117,000	$ 59,713,000	$ 61,416,000	$ 137,137,000	$ 134,247,000	$ 21,108,000	$ 24,307,000	$ 2,013,000	$ 11,162,000	$ 10,883,000	$ 11,578,000	$ 0	$ 0	$ 0	$ 174,712,000	$ 179,047,000	$ 379,000	$ 423,000	$ 1,416,000	$ 1,701,000	$ 96,222,000	$ 98,992,000	$ 58,010,000	$ 57,310,000	$ 8,479,000	$ 9,112,000	$ 3,087,000	$ 3,586,000	$ 7,119,000	$ 7,923,000	$ 0	$ 0	$ 0	$ 37,987,000	$ 39,881,000	$ 0	$ 0	$ 0	$ 0	$ 7,856,000	$ 8,789,000	$ 28,164,000	$ 28,824,000	$ 575,000	$ 697,000	$ 609,000	$ 629,000	$ 783,000	$ 942,000	$ 0	$ 0	$ 0	$ 196,489,000	$ 201,220,000	$ 116,000	$ 132,000	$ 7,566,000	$ 7,545,000	$ 119,279,000	$ 125,932,000	$ 59,019,000	$ 58,576,000	$ 4,223,000	$ 4,807,000	$ 2,336,000	$ 2,006,000	$ 3,950,000	$ 2,222,000	$ 0	$ 0	$ 0	$ 147,408,000	$ 202,803,000	$ 0	$ 0	$ 480,000	$ 543,000	$ 22,165,000	$ 30,446,000	$ 70,357,000	$ 93,974,000	$ 22,137,000	$ 41,739,000	$ 10,428,000	$ 5,054,000	$ 19,632,000	$ 31,047,000	$ 2,209,000	$ 0	$ 0	$ 168,510,000	$ 177,047,000	$ 2,620,000	$ 2,690,000	$ 5,300,000	$ 5,472,000	$ 50,336,000	$ 55,309,000	$ 81,934,000	$ 80,064,000	$ 17,549,000	$ 12,224,000	$ 1,613,000	$ 10,367,000	$ 9,158,000	$ 10,921,000	$ 0	$ 0	$ 0	$ 54,772,000	$ 58,283,000	$ 2,473,000	$ 1,831,000	$ 1,383,000	$ 1,482,000	$ 24,880,000	$ 27,508,000	$ 24,748,000	$ 25,607,000	$ 629,000	$ 1,189,000	$ 88,000	$ 118,000	$ 571,000	$ 548,000	$ 0	$ 0	$ 0	$ 1,357,640,000	$ 1,450,039,000	$ 5,709,000	$ 5,202,000	$ 16,145,000	$ 16,892,000	$ 488,245,000	$ 518,443,000	$ 651,887,000	$ 658,775,000	$ 98,606,000	$ 117,401,000	$ 25,345,000	$ 42,991,000	$ 69,494,000	$ 90,335,000	$ 2,209,000	$ 0	$ 0	$ 0

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Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Financial Instruments [Abstract]

Fair Value, by Balance Sheet Grouping

The following is a summary of the carrying amounts and fair values of the Company's financial assets and liabilities at September 30, 2012 and December 31, 2011:    

	September 30, 2012
	Carrying  amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	123,222	$	123,222	$	123,222	$	—	$	—
Investment securities	310,556		310,556		1,112		309,444		—
Loans and loans held-for-sale, net	1,356,403		1,228,930		—		—		1,228,930
Accrued interest receivable	6,229		6,229		—		6,229		—
Federal Home Loan Bank stock	4,155		4,155		4,155		—		—
Forward sales commitments	1,008		1,008		—		1,008		—
Interest rate swap agreements	213		213		—		—		213
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	862,622		858,491		—		858,491		—
Time deposits	788,838		800,977		—		800,977		—
Borrowed funds	102,299		103,270		—		103,270		—
Accrued interest payable	1,746		1,746		—		1,746		—
Interest rate swap agreements	213		213		—		—		213
Interest rate lock commitments	491		491		—		—		491

	December 31, 2011
	Carrying  amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	92,918	$	92,918	$	92,918	$	—	$	—
Investment securities	330,422		330,422		1,084		329,338		—
Loans and loans held-for-sale, net	1,437,610		1,365,586		—		—		1,365,586
Accrued interest receivable	6,745		6,745		—		6,745		—
Federal Home Loan Bank stock	6,130		6,130		6,130		—		—
Forward sales commitments	57		57		—		57		—
Interest rate swap agreements	216		216		—		—		216
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	855,455		855,455		—		855,455		—
Time deposits	875,886		885,903		—		885,903		—
Borrowed funds	105,539		106,923		—		106,923		—
Accrued interest payable	2,619		2,619		—		2,619		—
Interest rate swap agreements	216		216		—		—		216
Interest rate lock commitments	130		130		—		—		130

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Fair Value (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Level 3 Fair Value Reconciliation

The following table presents a rollforward of interest rate swaps from June 30, 2012 to September 30, 2012, and from June 30, 2011 to September 30, 2011.

	Level 3
	Fair Value- Assets			Fair Value- Liabilities
	(Amounts in thousands)
Balance, June 30, 2011	$	173		$	173
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	55			55
Balance, September 30, 2011	$	228		$	228
Balance, June 30, 2012	$	213		$	213
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	—			—
Balance, September 30, 2012	$	213		$	213
The following table presents a rollforward of interest rate swaps from December 31, 2011 to September 30, 2012, and from December 31, 2010 to September 30, 2011.
	Level 3
	Fair Value- Assets			Fair Value- Liabilities
	(Amounts in thousands)
Balance, December 31, 2010	$	159		$	159
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	69			69
Balance, September 30, 2011	$	228		$	228
Balance, December 31, 2011	$	217		$	217
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	(4		)	(4		)
Balance, September 30, 2012	$	213		$	213

Level 3 Fair Value Reconciliation

The following table presents a rollforward of mortgage servicing rights from December 31, 2011 and 2010 to September 30, 2012 and 2011 and June 30, 2012 and 2011 to September 30, 2012 and 2011 and shows that the mortgage servicing rights are classified as Level 3 as discussed above.

	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, June 30, 2012 and 2011	$	1,889		$	2,193
Capitalized	300			71
Gains/losses included in other income	(153		)	(248		)
Balance, September 30, 2012 and 2011	$	2,036		$	2,016
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, December 31, 2011 and 2010	$	1,871		$	2,144
Capitalized	645			266
Gains/losses included in other income	(480		)	(394		)
Balance, September 30, 2012 and 2011	$	2,036		$	2,016

	Interest Rate Lock Commitments
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, June 30, 2012 and 2011	$	578		$	16
Gains/losses included in other income	(1,069		)	314
Transfer in and out	—			—
Balance, September 30, 2012 and 2011	$	(491	)	$	330
The following table presents a rollforward of interest rate lock commitments for the nine months ended September 30, 2012 and 2011, respectively.
	Interest Rate Lock Commitments
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, December 31, 2011 and 2010	$	130		$	105
Gains/losses included in other income	(621		)	225
Transfer in and out	—			—
Balance, September 30, 2012 and 2011	$	(491	)	$	330

Assets and Liabilities Measured on a Recurring Basis

The following table presents assets and (liabilities) measured at fair value on a recurring basis:

September 30, 2012 (in thousands)	Fair Value			Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. government agencies	$	32,869		$	—	$	32,869	$	—
Government sponsored agencies:
Residential mortgage-backed securities	83,264			—		83,264		—
Collateralized mortgage obligations	137,483			—		137,483		—
Private label collateralized mortgage obligations	1,059			—		1,059		—
State and municipal securities	54,769			—		54,769		—
Common and preferred stocks	1,112			1,112		—		—
Interest rate swap agreements	213			—		—		213
Interest rate swap agreements	(213		)	—		—		(213		)
Interest rate lock commitments	(491		)	—		—		(491		)
Forward loan sale commitments	1,008			—		1,008		—
Mortgage servicing rights	2,036			—		—		2,036

December 31, 2011 (in thousands)	Fair Value			Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. government agencies	$	23,726		$	—	$	23,726	$	—
Government sponsored agencies:
Residential mortgage-backed securities	65,210			—		65,210		—
Collateralized mortgage obligations	166,028			—		166,028		—
Private label collateralized mortgage obligations	1,256			—		1,256		—
State and municipal securities	73,118			—		73,118		—
Common and preferred stocks	1,084			1,084		—		—
Interest rate swap agreements	216			—		—		216
Interest rate swap agreements	(216		)	—		—		(216		)
Interest rate lock commitments	130			—		—		130
Forward loan sale commitments	57			—		57		—
Mortgage servicing rights	1,871			—		—		1,871

Level 3 Inputs, Quantitative Information

	Fair Value at September 30, 2012 (in thousands)			Valuation Technique	Unobservable Input	Range (Weighted Avg)
Recurring measurements:
Interest Rate Swaps	$	213		Discounted cash flow	Discount rate	1-4% (1.20%)
Interest Rate Lock Commitments	(491		)	Pricing model	Pull through rates	80-86%
Mortgage Servicing Rights	2,036			Discounted cash flow	Constant prepayment rate	20.03%
					Cost of service	$50
					Discount rate	8%
Nonrecurring measurements:
Impaired loans	$	13,793		Discounted appraisals	Collateral discounts	15-50%
Other real estate owned	8,715			Discounted appraisals	Collateral discounts	6-15%

Assets measured on a nonrecurring basis

The following table presents assets measured at fair value on a nonrecurring basis:

	Fair Value		Level 1		Level 2		Level 3
September 30, 2012	(Amounts in thousands)
Other real estate owned	$	8,715	$	—	$	—	$	8,715
Impaired loans:
Construction	3,400		—		—		3,400
Commercial real estate:
Owner occupied	4,933		—		—		4,933
Non-owner occupied	3,553		—		—		3,553
Commercial	1,158		—		—		1,158
Mortgages:
Secured 1-4 family real estate	749		—		—		749
Multifamily	—		—		—		—
Home equity lines of credit	—		—		—		—
Consumer and other	—		—		—		—

	Fair Value		Level 1		Level 2		Level 3
December 31, 2011	(Amounts in thousands)
Other real estate owned	$	5,391	$	—	$	—	$	5,391
Impaired loans:
Construction	441		—		—		441
Commercial real estate:
Owner occupied	5,874		—		—		5,874
Non-owner occupied	832		—		—		832
Commercial	403		—		—		403
Mortgages:
Secured 1-4 family real estate	453		—		—		453
Multifamily	165		—		—		165
Home equity lines of credit	291		—		—		291
Consumer and other	—		—		—		—

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Income Taxes - Deferred Tax Assets, Net (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Deferred tax assets:
Allowance for loan losses	$ 10,671	$ 12,880
Other than temporary impairment	807	807
Accrued liabilities	213	276
OREO property	1,594	1,268
Net operating loss	6,511	7,281
Sidus goodwill	953	1,050
Other	1,887	1,798
Deferred tax assets, gross	22,636	25,360
Less: Valuation Allowance	0	(11,000)
Deferred tax assets, net of valuation allowance	22,636	14,360
Deferred tax liabilities:
Unrealized gain on available-for-sale securities	(3,002)	(2,387)
FMV adjustment related to mergers	(177)	(255)
Depreciation	(1,688)	(1,980)
Prepaid expenses	(358)	(327)
Other	(146)	(195)
Deferred tax liabilities	(6,666)	(6,761)
Net deferred tax asset	15,970	7,599
Core deposit intangible
Deferred tax liabilities:
Intangibles	(1,146)	(1,468)
Noncompete intangible
Deferred tax liabilities:
Intangibles	$ (149)	$ (149)

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Loans and Allowance for Loan Losses - Nonaccrual and Past Due Loans (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012 Loans	Dec. 31, 2011 Loans
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	$ 57,053	$ 70,354
Ratio of nonperforming loans to all loans	4.12%	4.78%
Total number of loans on nonaccrual status	441	505
Past due Loans, Aging Analysis
30 to 59 Days Past Due	9,486	21,009
60 to 89 Days Past Due	11,938	4,879
Greater Than 90 Days	24,019	30,866
Total Past Due	45,443	56,754
Current	1,312,197	1,393,285
Loans	1,357,640	1,450,039
Real Estate Loans | Construction Loans
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	16,497	26,575
Past due Loans, Aging Analysis
30 to 59 Days Past Due	706	2,265
60 to 89 Days Past Due	2,258	402
Greater Than 90 Days	8,223	15,538
Total Past Due	11,187	18,205
Current	136,221	184,598
Loans	147,408	202,803
Real Estate Loans | Owner Occupied
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	14,771	16,339
Past due Loans, Aging Analysis
30 to 59 Days Past Due	1,414	4,342
60 to 89 Days Past Due	1,883	1,215
Greater Than 90 Days	3,727	3,727
Total Past Due	7,024	9,284
Current	339,884	339,647
Loans	346,908	348,931
Real Estate Loans | Non-owner Occupied
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	5,936	7,634
Past due Loans, Aging Analysis
30 to 59 Days Past Due	2,686	9,723
60 to 89 Days Past Due	2,178	86
Greater Than 90 Days	3,141	4,679
Total Past Due	8,005	14,488
Current	222,849	228,339
Loans	230,854	242,827
Real Estate Loans | One to Four Family
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	6,370	7,271
Past due Loans, Aging Analysis
30 to 59 Days Past Due	2,286	3,441
60 to 89 Days Past Due	1,534	1,049
Greater Than 90 Days	3,406	2,955
Total Past Due	7,226	7,445
Current	167,486	171,602
Loans	174,712	179,047
Real Estate Loans | Multifamily
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	713	942
Past due Loans, Aging Analysis
30 to 59 Days Past Due	6	277
60 to 89 Days Past Due	79	0
Greater Than 90 Days	0	896
Total Past Due	85	1,173
Current	37,902	38,708
Loans	37,987	39,881
Real Estate Loans | Home Equity Lines of Credit
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	3,950	2,222
Past due Loans, Aging Analysis
30 to 59 Days Past Due	1,345	0
60 to 89 Days Past Due	216	634
Greater Than 90 Days	2,209	856
Total Past Due	3,770	1,490
Current	192,719	199,730
Loans	196,489	201,220
Commercial
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	8,293	8,896
Past due Loans, Aging Analysis
30 to 59 Days Past Due	767	586
60 to 89 Days Past Due	3,678	1,432
Greater Than 90 Days	3,055	2,087
Total Past Due	7,500	4,105
Current	161,010	172,942
Loans	168,510	177,047
Consumer and other
Financing Receivable, Recorded Investment, Past Due
Financing receivables on nonaccrual status	523	475
Past due Loans, Aging Analysis
30 to 59 Days Past Due	276	375
60 to 89 Days Past Due	112	61
Greater Than 90 Days	258	128
Total Past Due	646	564
Current	54,126	57,719
Loans	$ 54,772	$ 58,283

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Business Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

The following table details the results of operations for the three and nine months ended September 30, 2012 and 2011 for bank activities and mortgage activities.

During the second quarter of 2012, a decision was made by management to make a change in how the Company's mortgage activities are reported based on the reorganization of the Bank's mortgage division and Sidus. This decision was made to improve overall reporting of its mortgage banking activities which are now analyzed and reviewed as a separate and distinct business segment. This change in reporting segment combines both mortgage activities of the Bank with mortgage activities that were previously reported separately from mortgage activities provided by Sidus. Reclassifications include interest income which was previously presented in other income, commission expenses recorded in salaries that are now recorded as a reduction in mortgage banking activity income, and other miscellaneous expenses previously recorded in other expenses that have been reclassified as a reduction to mortgage banking activity income. In addition, gains on sale of mortgage loans has been reclassified to be reported with mortgage banking income to provide a combined overview of the mortgage banking activity segment. The reclassifications had no effect on net income (loss) or shareholders' equity, as previously reported.

	Bank Activities			Mortgage Activities			Other			Total
	(Amounts in thousands)
For Three Months Ended September 30, 2012
Interest income	$	19,238		$	208		$	—		$	19,446
Interest expense	3,985			61			211			4,257
Net interest income	15,253			147			(211		)	15,189
Provision for loan losses	4,254			(3		)	—			4,251
Net interest income (loss) after provision for loan losses	10,999			150			(211		)	10,938
Other income	3,060			1,599			6			4,665
Other expense	13,589			1,192			11			14,792
Income (loss) before income taxes	470			557			(216		)	811
Income taxes	54			—			—			54
Net income (loss)	$	416		$	557		$	(216	)	$	757
Total assets	$	1,899,745		$	33,208		$	(12,575	)	$	1,920,378
Net loans	1,331,637			—			—			1,331,637
Loans held for sale	—			24,766			—			24,766
For Nine Months Ended September 30, 2012
Interest income	$	59,641		$	538		$	—		$	60,179
Interest expense	13,215			90			636			13,941
Net interest income	46,426			448			(636		)	46,238
Provision for loan losses	8,842			(22		)	—			8,820
Net interest income (loss) after provision for loan losses	37,584			470			(636		)	37,418
Other income	8,134			4,412			35			12,581
Other expense	40,781			3,297			24			44,102
Income (loss) before income taxes	4,937			1,585			(625		)	5,897
Income taxes	(9,329		)	—			—			(9,329		)
Net income (loss)	$	14,266		$	1,585		$	(625	)	$	15,226

(1) Note: The “Other” column includes asset eliminations representing the Bank's Due from Sidus account ($10,689 in 2012), the Bank's Investment in Sidus ($3,000 in 2012), and the Bank's A/R from Sidus ($0 in 2012). Also included in this column are Holding Company assets ($1,114 in 2012) and Holding Company income and expenses.

	Bank Activities			Mortgage Activities			Other			Total
	(Amounts in thousands)
For Three Months Ended September 30, 2011
Interest income	$	21,400		$	165		$	—		$	21,565
Interest expense	5,738			10			192			5,940
Net interest income	15,662			155			(192		)	15,625
Provision for loan losses	1,922			34			—			1,956
Net interest income (loss) after provision for loan losses	13,740			121			(192		)	13,669
Other income	4,281			996			(54		)	5,223
Other expense	11,299			1,528			2			12,829
Income (loss) before income tax expense	6,722			(411		)	(248		)	6,063
Income tax expense	2,384			—			—			2,384
Net income (loss)	$	4,338		$	(411	)	$	(248	)	$	3,679
Total assets	$	2,026,753		$	23,142		$	(2,764	)	$	2,047,131
Net loans	1,439,927			—			—			1,439,927
Loans held for sale	357			13,444			—			13,801
Goodwill	—			—			—			—
For Nine Months Ended September 30, 2011
Interest income	$	67,351		$	236		$	—		$	67,587
Interest expense	19,891			219			576			20,686
Net interest income	47,460			17			(576		)	46,901
Provision for loan losses	17,162			54			—			17,216
Net interest income (loss) after provision for loan losses	30,298			(37		)	(576		)	29,685
Other income	10,431			3,476			(136		)	13,771
Other expense	42,408			11,433			30			53,871
Loss before income tax expense	(1,679		)	(7,994		)	(742		)	(10,415		)
Income tax expense	6,905			—			—			6,905
Net loss	$	(8,584	)	$	(7,994	)	$	(742	)	$	(17,320	)

________________________

(1) As an LLC, Sidus passes its pre-tax income through to its single member, the Bank, which is taxed on that income.

(2) Note: The “Other” column includes asset eliminations representing the Bank's Due from Sidus account ($3,286 in 2011), the Bank's Investment in Sidus ($3,000 in 2011), and the Bank's A/R from Sidus ($614 in 2011). Also included in this column are Holding Company assets ($1,258 in 2011) and Holding Company income and expenses.

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Abstract]

Provision for income taxes

The following table presents the provision for income taxes for the nine months ended September 30, 2012 and 2011:

	2012			2011
	(in thousands)
Current:
Federal	$	(342	)	$	1,627
State	—			—
	(342		)	1,627
Deferred:
Federal	1,575			(5,120		)
State	438			(602		)
	2,013			(5,722		)
Increase (decrease) in valuation allowance for deferred tax assets	(11,000		)	11,000
Total income taxes	$	(9,329	)	$	6,905

Deferred tax assets, net

	September 30,			December 31,
	2012			2011
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	10,671		$	12,880
Other than temporary impairment	807			807
Accrued liabilities	213			276
OREO property	1,594			1,268
Net operating loss	6,511			7,281
Sidus goodwill	953			1,050
Other	1,887			1,798
	22,636			25,360
Less: Valuation Allowance	—			(11,000		)
	$	22,636		$	14,360
Deferred tax liabilities:
Unrealized gain on available-for-sale securities	$	(3,002	)	$	(2,387	)
FMV adjustment related to mergers	(177		)	(255		)
Depreciation	(1,688		)	(1,980		)
Prepaid expenses	(358		)	(327		)
Core deposit intangible	(1,146		)	(1,468		)
Noncompete intangible	(149		)	(149		)
Other	(146		)	(195		)
	$	(6,666	)	$	(6,761	)
Net deferred tax asset	$	15,970		$	7,599

Schedule of Cumulative Loss Position

	September 30, 2012 Cumulative Loss Test
	2009*		2010			2011			2012**		Total
Income (loss) before income taxes	$	6,545	$	(1,402	)	$	(7,701	)	$	5,897	$	(3,206	)
Goodwill impairment	—		—			4,944			—		4,944
	$	6,545	$	(1,402	)	$	(2,757	)	$	5,897	$	1,738

*

Summary of loss carryforwards

The expiration of the loss carryforwards for the tax period ending December 31, 2012 are as follows:

Significance: Moderate

	Net Operating Loss  Carryforward at December 31, 2011		Expiration
	(in thousands)
Cardinal State Bank acquisition	$	2,424	2029
American Community Bank acquisition	345		2030
Yadkin Valley Federal Tax	14,517		2031
Yadkin Valley State Tax	16,166		2031
Total Loss Carryforwards	$	33,452

Reconciliation of effective tax rate

The following table presents a reconciliation of applicable income taxes for the nine months ended September 30, 2012 and 2011 to the amount of tax expense computed at the statutory federal income tax rate of 35%:

	2012			2011
	(in thousands)
Tax expense (benefit) at statutory rate on income before income taxes	$	2,064		$	(3,645	)
Increases (decreases) resulting from:
Tax-exempt interest on investments	(589		)	(651		)
State income tax, net of federal benefits	285			(391		)
Income from bank-owned life insurance	(166		)	(172		)
Valuation allowance on deferred tax assets	(11,000		)	11,000
Other	77			764
Total income taxes	$	(9,329	)	$	6,905

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Significant Accounting Policies

Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Yadkin Valley Financial Corporation (the "Company") and its subsidiary, Yadkin Valley Bank and Trust Company (the "Bank"). On July 1, 2006, the Bank became a subsidiary of the Company through a one for one share exchange of the then outstanding 10,648,300 shares. Sidus Financial, LLC (“Sidus”) is a single member limited liability company with the Bank as its single member. Sidus offers mortgage banking services and is headquartered in Greensboro, NC. The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial statements and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the audited consolidated financial statements and accompanying footnotes included with the Company's 2011 Annual Report on Form 10-K (the "2011 Form 10-K") filed with the Securities and Exchange Commission (“SEC”) on February 29, 2012. Operating results, for the three and nine months ended September 30, 2012, do not necessarily indicate the results that may be expected for the year or other interim periods.

In the opinion of management, the accompanying condensed consolidated financial statements contain all the adjustments, all of which are normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2012 and December 31, 2011, and the results of its operations and cash flows for the three and nine months ended September 30, 2012 and 2011. The accounting policies followed are set forth in Note 1 to the Consolidated Financial Statements in the Company's 2011 Form 10-K.

Mortgage Banking Activities - During the second quarter of 2012, a decision was made by management to make a change in how the Company's mortgage activities are reported based on the prior year reorganization of the Bank's mortgage division and Sidus. This decision was made to improve overall reporting of its mortgage banking activities which are now analyzed and reviewed as a separate and distinct business segment. This change in reporting segment combines both mortgage activities of the Bank with mortgage activities that were previously reported separately from mortgage activities provided by Sidus.

Mortgage banking activity income includes gains on sale of mortgage loans made with the intent to sell, revenue from the fair value gains and losses recognized on interest rate lock commitments and forward sales commitments, direct costs related to the gain of mortgage loans, and costs related to representations and warranties and other obligations incurred in the sales of mortgage loans. Also included in mortgage banking activity income is all servicing income earned in connection with servicing activities and mortgage servicing rights valuation adjustments. When the Bank retains the right to service a sold mortgage loan, the previous carrying amount is allocated between the loan sold and the retained mortgage servicing right based on their relative fair values on the date of transfer. The Bank uses the fair value method of accounting for mortgage servicing rights. Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets.

Reclassifications - Certain income and expenses reported in prior periods have been reclassified to conform to the 2012 presentation of mortgage banking activity income. Reclassifications include interest income which was previously presented in other income, commission expenses recorded in salaries that are now recorded as a reduction in mortgage banking activity income, and other miscellaneous expenses previously recorded in other expenses that have been reclassified as a reduction to mortgage banking activity income. In addition, gains on sale of mortgage loans has been reclassified to be reported with mortgage banking income to provide a combined overview of the mortgage banking activity segment. The reclassifications had no effect on net income (loss) or shareholders' equity, as previously reported.

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Significant Accounting Policies (Details) (Yadkin Valley Bank and Trust Company)	0 Months Ended
	Jul. 01, 2006 SharesPerShare
Yadkin Valley Bank and Trust Company
Business Acquisition
Share exchange, number of shares per share (in shares)	1
Total shares in share exchange (in shares)	10,648,300

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Shareholders' Equity (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended		0 Months Ended
	Sep. 30, 2011	Sep. 30, 2012	Sep. 12, 2012 Series T Preferred Stock [Member]	Sep. 12, 2012 Series T-ACB Preferred Stock [Member]
Class of Stock [Line Items]
Tier One Leverage Capital Required to be Well Capitalized to Average Assets		5.00%
Tier 1 leverage ratio committed to by the Company		8.00%
Preferred stock sold during period	$ 6,402		$ 36,000	$ 13,300

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Financial Instruments - Textual (Details)	9 Months Ended
	Sep. 30, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Illiquidity discount	10.00%
Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Time period between issuance of loan commitment and closing and sale of loan	60 days

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 26,048	$ 40,790	[1]
Federal funds sold	50	50	[1]
Interest-bearing deposits	97,124	52,078	[1]
Securities available-for-sale at fair value (amortized cost $332,259 in 2012 and $324,172 in 2011)	310,556	330,422	[1]
Gross loans	1,358,868	1,450,924	[1]
Less: allowance for loan losses	27,231	32,848	[1]
Net loans	1,331,637	1,418,076	[1]
Loans held-for-sale	24,766	19,534	[1]
Accrued interest receivable	6,229	6,745	[1]
Premises and equipment, net	41,460	42,120	[1]
Other real estate owned	22,294	24,966	[1]
Federal Home Loan Bank stock, at cost	4,155	6,130	[1]
Investment in bank-owned life insurance	26,274	25,934	[1]
Core deposit intangible (net of accumulated amortization of $9,343 in 2012 and $8,789 in 2011)	2,914	3,733	[1]
Other assets	26,871	22,610	[1]
Total Assets	1,920,378	1,993,188	[1]
Deposits
Noninterest-bearing demand deposits	256,402	229,895	[1]
Interest-bearing deposits:
NOW, savings and money market accounts	606,220	625,560	[1]
Time certificates:
$100 or more	342,356	360,388	[1]
Other	446,482	515,498	[1]
Total Deposits	1,651,460	1,731,341	[1]
Short-term borrowings	36,314	39,810	[1]
Long-term borrowings	65,985	65,729	[1]
Capital lease obligations	2,335	2,365	[1]
Accrued interest payable	1,746	2,619	[1]
Other liabilities	7,302	10,738	[1]
Total Liabilities	1,765,142	1,852,602	[1]
Shareholders' Equity
Preferred stock, no par value, 1,000,000 shares authorized; 49,312 issued and outstanding in 2012 and 2011	48,033	47,389	[1]
Common stock, $1 par value, 50,000,000 shares authorized; 20,003,688 issued and outstanding in 2012 and 19,526,188 issued and outstanding in 2011	20,004	19,526	[1]
Warrants	3,581	3,581	[1]
Surplus	117,700	117,883	[1]
Accumulated deficit	(38,923)	(51,656)	[1]
Accumulated other comprehensive income	4,841	3,863	[1]
Total Shareholders' Equity	155,236	140,586	[1]
Total Liabilities and Shareholders' Equity	$ 1,920,378	$ 1,993,188	[1]

[1] Derived from audited consolidated financial statements

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Loans and Allowance for Loan Losses - Impaired Loans (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Impaired Loans
Theshold for individual impairment evaluation			$ 250,000
Impaired loans with a related allowance for loan losses, related allowance	3,791,000		3,791,000		4,101,000
Total impaired loans, recorded investment	58,122,000		58,122,000		77,896,000
Total impaired loans, unpaid principal balance	62,043,000		62,043,000		96,169,000
Total impaired loans, average recorded investment	59,825,000	63,818,000	69,869,000	84,038,000
Total impaired loans, interest income recognized	273,000	319,000	1,169,000	723,000
Allowance for loan losses	27,231,000		27,231,000		32,848,000	[1]
Outstanding balance of purchased impaired loans	380,887		380,887
Allowance for Purchased Impaired Loans Excess Credit Discount
Impaired Loans
Allowance for loan losses	15,000		15,000		49,000
Real Estate Loans | Construction Loans
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	13,376,000		13,376,000		28,067,000
Impaired loans without a related allowance for loan losses, unpaid principal balance	14,563,000		14,563,000		40,045,000
Impaired loans without a related allowance for loan losses, average recorded investment	14,694,000	22,835,000	20,382,000	26,288,000
Impaired loans without a related allowance for loan losses, interest income recognized	125,000	81,000	275,000	139,000
Impaired loans with a related allowance for loan losses, recorded investment	4,649,000		4,649,000		1,011,000
Impaired loans with a related allowance for loan losses, unpaid principal balance	5,382,000		5,382,000		1,011,000
Impaired loans with a related allowance for loan losses, related allowance	1,249,000		1,249,000		570,000
Impaired loans with a related allowance for loan losses, average recorded investment	4,106,000	9,159,000	2,379,000	8,740,000
Impaired loans with a related allowance for loan losses, interest income recognized	0	2,000	0	5,000
Total impaired loans, recorded investment	18,025,000		18,025,000		29,078,000
Total impaired loans, unpaid principal balance	19,945,000		19,945,000		41,056,000
Total impaired loans, average recorded investment	18,800,000	31,994,000	22,761,000	35,028,000
Total impaired loans, interest income recognized	125,000	83,000	275,000	144,000
Real Estate Loans | Owner Occupied
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	14,056,000		14,056,000		17,586,000
Impaired loans without a related allowance for loan losses, unpaid principal balance	14,756,000		14,756,000		20,070,000
Impaired loans without a related allowance for loan losses, average recorded investment	13,840,000	10,104,000	15,594,000	13,166,000
Impaired loans without a related allowance for loan losses, interest income recognized	23,000	88,000	332,000	175,000
Impaired loans with a related allowance for loan losses, recorded investment	5,212,000		5,212,000		6,459,000
Impaired loans with a related allowance for loan losses, unpaid principal balance	5,220,000		5,220,000		6,533,000
Impaired loans with a related allowance for loan losses, related allowance	279,000		279,000		585,000
Impaired loans with a related allowance for loan losses, average recorded investment	6,154,000	3,209,000	6,910,000	5,891,000
Impaired loans with a related allowance for loan losses, interest income recognized	66,000	7,000	134,000	22,000
Total impaired loans, recorded investment	19,268,000		19,268,000		24,045,000
Total impaired loans, unpaid principal balance	19,976,000		19,976,000		26,603,000
Total impaired loans, average recorded investment	19,994,000	13,313,000	22,504,000	19,057,000
Total impaired loans, interest income recognized	89,000	95,000	466,000	197,000
Real Estate Loans | Non-owner Occupied
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	3,506,000		3,506,000		8,639,000
Impaired loans without a related allowance for loan losses, unpaid principal balance	3,893,000		3,893,000		11,255,000
Impaired loans without a related allowance for loan losses, average recorded investment	4,017,000	6,640,000	8,193,000	8,591,000
Impaired loans without a related allowance for loan losses, interest income recognized	29,000	59,000	39,000	155,000
Impaired loans with a related allowance for loan losses, recorded investment	4,029,000		4,029,000		975,000
Impaired loans with a related allowance for loan losses, unpaid principal balance	4,300,000		4,300,000		1,363,000
Impaired loans with a related allowance for loan losses, related allowance	476,000		476,000		143,000
Impaired loans with a related allowance for loan losses, average recorded investment	3,491,000	2,517,000	1,768,000	4,994,000
Impaired loans with a related allowance for loan losses, interest income recognized	26,000	0	42,000	0
Total impaired loans, recorded investment	7,535,000		7,535,000		9,614,000
Total impaired loans, unpaid principal balance	8,193,000		8,193,000		12,618,000
Total impaired loans, average recorded investment	7,508,000	9,157,000	9,961,000	13,585,000
Total impaired loans, interest income recognized	55,000	59,000	81,000	155,000
Real Estate Loans | One to Four Family
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	968,000		968,000		3,843,000
Impaired loans without a related allowance for loan losses, unpaid principal balance	991,000		991,000		4,285,000
Impaired loans without a related allowance for loan losses, average recorded investment	1,432,000	2,372,000	2,680,000	2,851,000
Impaired loans without a related allowance for loan losses, interest income recognized	0	14,000	29,000	24,000
Impaired loans with a related allowance for loan losses, recorded investment	903,000		903,000		498,000
Impaired loans with a related allowance for loan losses, unpaid principal balance	919,000		919,000		517,000
Impaired loans with a related allowance for loan losses, related allowance	155,000		155,000		45,000
Impaired loans with a related allowance for loan losses, average recorded investment	449,000	1,010,000	411,000	2,331,000
Impaired loans with a related allowance for loan losses, interest income recognized	0	2,000	3,000	6,000
Total impaired loans, recorded investment	1,871,000		1,871,000		4,341,000
Total impaired loans, unpaid principal balance	1,910,000		1,910,000		4,802,000
Total impaired loans, average recorded investment	1,881,000	3,382,000	3,091,000	5,182,000
Total impaired loans, interest income recognized	0	16,000	32,000	30,000
Real Estate Loans | Multifamily
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	701,000		701,000		295,000
Impaired loans without a related allowance for loan losses, unpaid principal balance	884,000		884,000		309,000
Impaired loans without a related allowance for loan losses, average recorded investment	703,000	299,000	702,000	304,000
Impaired loans without a related allowance for loan losses, interest income recognized	4,000	0	7,000	0
Impaired loans with a related allowance for loan losses, recorded investment	0		0		300,000
Impaired loans with a related allowance for loan losses, unpaid principal balance	0		0		319,000
Impaired loans with a related allowance for loan losses, related allowance	0		0		135,000
Impaired loans with a related allowance for loan losses, average recorded investment	0	460,000	30,000	454,000
Impaired loans with a related allowance for loan losses, interest income recognized	0	0	7,000	0
Total impaired loans, recorded investment	701,000		701,000		595,000
Total impaired loans, unpaid principal balance	884,000		884,000		628,000
Total impaired loans, average recorded investment	703,000	759,000	732,000	758,000
Total impaired loans, interest income recognized	4,000	0	14,000	0
Real Estate Loans | Home Equity Lines of Credit
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	1,706,000		1,706,000		525,000
Impaired loans without a related allowance for loan losses, unpaid principal balance	1,767,000		1,767,000		694,000
Impaired loans without a related allowance for loan losses, average recorded investment	1,588,000	707,000	1,320,000	725,000
Impaired loans without a related allowance for loan losses, interest income recognized	0	0	7,000	0
Impaired loans with a related allowance for loan losses, recorded investment	0		0		403,000
Impaired loans with a related allowance for loan losses, unpaid principal balance	0		0		412,000
Impaired loans with a related allowance for loan losses, related allowance	0		0		112,000
Impaired loans with a related allowance for loan losses, average recorded investment	29,000	749,000	111,000	720,000
Impaired loans with a related allowance for loan losses, interest income recognized	0	0	0	0
Total impaired loans, recorded investment	1,706,000		1,706,000		928,000
Total impaired loans, unpaid principal balance	1,767,000		1,767,000		1,106,000
Total impaired loans, average recorded investment	1,617,000	1,456,000	1,431,000	1,445,000
Total impaired loans, interest income recognized	0	0	7,000	0
Commercial
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	6,226,000		6,226,000		6,381,000
Impaired loans without a related allowance for loan losses, unpaid principal balance	6,432,000		6,432,000		6,436,000
Impaired loans without a related allowance for loan losses, average recorded investment	6,403,000	2,560,000	6,316,000	3,636,000
Impaired loans without a related allowance for loan losses, interest income recognized	0	42,000	130,000	126,000
Impaired loans with a related allowance for loan losses, recorded investment	2,790,000		2,790,000		2,914,000
Impaired loans with a related allowance for loan losses, unpaid principal balance	2,936,000		2,936,000		2,920,000
Impaired loans with a related allowance for loan losses, related allowance	1,632,000		1,632,000		2,511,000
Impaired loans with a related allowance for loan losses, average recorded investment	2,865,000	1,067,000	3,006,000	5,218,000
Impaired loans with a related allowance for loan losses, interest income recognized	0	24,000	164,000	71,000
Total impaired loans, recorded investment	9,016,000		9,016,000		9,295,000
Total impaired loans, unpaid principal balance	9,368,000		9,368,000		9,356,000
Total impaired loans, average recorded investment	9,268,000	3,627,000	9,322,000	8,854,000
Total impaired loans, interest income recognized	0	66,000	294,000	197,000
Consumer and other
Impaired Loans
Impaired loans without a related allowance for loan losses, recorded investment	0		0		0
Impaired loans without a related allowance for loan losses, unpaid principal balance	0		0		0
Impaired loans without a related allowance for loan losses, average recorded investment	0	0	0	0
Impaired loans without a related allowance for loan losses, interest income recognized	0	0	0	0
Impaired loans with a related allowance for loan losses, recorded investment	0		0		0
Impaired loans with a related allowance for loan losses, unpaid principal balance	0		0		0
Impaired loans with a related allowance for loan losses, related allowance	0		0		0
Impaired loans with a related allowance for loan losses, average recorded investment	54,000	130,000	67,000	129,000
Impaired loans with a related allowance for loan losses, interest income recognized	0	0	0	0
Total impaired loans, recorded investment	0		0		0
Total impaired loans, unpaid principal balance	0		0		0
Total impaired loans, average recorded investment	54,000	130,000	67,000	129,000
Total impaired loans, interest income recognized	$ 0	$ 0	$ 0	$ 0

[1] Derived from audited consolidated financial statements

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Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Total		Common Stock	Preferred Stock	Warrants	Surplus	Accumulated Deficit	Accumulated Other Comprehensive Income
Balance at Dec. 31, 2010	$ 147,457		$ 16,148	$ 46,770	$ 3,581	$ 114,649	$ (34,273)	$ 582
Balance, shares at Dec. 31, 2010			16,147,640
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(17,320)						(17,320)
Issuance of common stock, shares			3,233,548
Issuance of common stock	6,402		3,233			3,169
Restricted stock issued	0		145			(145)
Restricted stock issued, shares			145,000
Discount accretion on preferred stock	0			465			(465)
Share based compensation:
stock options	58					58
restricted stock	86					86
Preferred stock dividends	(1,751)						(1,751)
Other comprehensive income	3,284							3,284
Balance at Sep. 30, 2011	138,216		19,526	47,235	3,581	117,817	(53,809)	3,866
Balance, shares at Sep. 30, 2011			19,526,188
Balance at Dec. 31, 2011	140,586	[1]	19,526	47,389	3,581	117,883	(51,656)	3,863
Balance, shares at Dec. 31, 2011			19,526,188
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	15,226						15,226
Restricted stock issued	0		498			(498)
Restricted stock issued, shares			497,500
Restricted stock issued (forfeited), shares			(20,000)
Restricted stock issued (forfeited)	0		(20)			20
Discount accretion on preferred stock	0			644			(644)
Share based compensation:
stock options	23					23
restricted stock	272					272
Preferred stock dividends	(1,849)						(1,849)
Other comprehensive income	978							978
Balance at Sep. 30, 2012	$ 155,236		$ 20,004	$ 48,033	$ 3,581	$ 117,700	$ (38,923)	$ 4,841
Balance, shares at Sep. 30, 2012			20,003,688

[1] Derived from audited consolidated financial statements

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Income Taxes - Income Tax Reconciliation (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Income Tax Disclosure [Abstract]
Statutory federal income tax rate	35.00%	35.00%
Tax expense (benefit) at statutory rate on income before income taxes	$ 2,064	$ (3,645)
Tax-exempt interest on investments	(589)	(651)
State income tax, net of federal benefits	285	(391)
Income from bank-owned life insurance	(166)	(172)
Valuation allowance on deferred tax assets	(11,000)	11,000
Other	77	764
Total income taxes	$ (9,329)	$ 6,905

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Investment Securities - Textual (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 29, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Schedule of Available-for-sale Securities
Gross realized gains	$ 1,300,000	$ 1,600,000,000,000	$ 1,600,000	$ 2,078,000,000,000
Gross realized losses	0	0	0	0
Investment securities pledged as collateral	86,037,077		86,037,077		120,227,824
Mortgage-backed, pass-through securities
Schedule of Available-for-sale Securities
Fair Value	83,264,000		83,264,000		65,210,000
Collateralized Mortgage Obligations
Schedule of Available-for-sale Securities
Fair Value	$ 138,500,000		$ 138,500,000		$ 167,300,000

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Subsequent Events Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On October 23, 2012, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors and directors and executive officers of the Company (collectively, the “Investors”), pursuant to which the Investors purchased 45,000 shares of the Company's Mandatorily Convertible Cumulative Non-Voting Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), at a price of $1,000 per share in a private placement (the “Private Placement”). The Series A Preferred Stock will convert into shares of the Company's common stock at a price of $2.80 per share upon shareholder approval. The Company raised approximately $41.8 million in net proceeds from the sale of the Series A Preferred Stock.

As part of the Private Placement, contemporaneously with the execution of the Purchase Agreement, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with certain holders (the “Preferred Shareholders”) of the Company's Series T Preferred Stock and Series T-ACB Preferred Stock, pursuant to which the Preferred Shareholders agreed, upon shareholder approval, to exchange shares of the Preferred Stock for shares of the Company's common stock and shares of a new class of non-voting common stock, par value $1.00 per share, of the Company (the “non-voting common stock”). Upon shareholder approval, the total amount of Preferred Stock to be exchanged for common stock and non-voting common stock will be approximately $21 million. The non-voting common stock will convert into shares of the Company's common stock under certain conditions in accordance with the terms of the Articles of Amendment creating the class of the non-voting common stock.

In connection with the Private Placement, the Company intends to call a special meeting of shareholders (the “Special Meeting”) to be held on December 14, 2012 to, among other things: (i) create a class of non-voting and ii) approve, pursuant to the NASDAQ Rules, the conversion of the Series A Preferred Stock into common stock and the exchange of the Series T Preferred Stock and the Series T-ACB Preferred Stock into common stock and non-voting common stock.

For additional information on the Private Placement, see the Company's Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on October 24, 2012.

Also, in conjunction with the Private Placement, the Company made the strategic decision to implement a plan to substantially reduce credit risk within the Bank's loan portfolio. This plan will include the transfer of certain substandard and nonperforming loans to loans held for sale, and significant losses on sale of foreclosed real estate. Losses on sale of assets related to the plan are expected to be approximately $40-45 million and are due to a discount to fair value for liquidation purposes. The Company is pursuing potential loan sale alternatives that are expected to result in the disposition of these assets prior to the calendar year end.

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Investment Securities - Investments in continuous loss position (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities
Less Than 12 Months, Fair value	$ 27,165	$ 86,977
Less Than 12 Months, Unrealized losses	205	579
12 Months or More, Fair value	24,959	22,818
12 Months or More, Unrealized losses	309	543
Total, Fair value	52,124	109,795
Total, Unrealized losses	514	1,122
Government sponsored agencies - Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Continuous unrealized loss investments, number of positions	1	3
Less Than 12 Months, Fair value	0	13,121
Less Than 12 Months, Unrealized losses	0	45
12 Months or More, Fair value	4,204	16,751
12 Months or More, Unrealized losses	12	348
Total, Fair value	4,204	29,872
Total, Unrealized losses	12	393
Government sponsored agencies - Collateralized mortgage obligations
Schedule of Available-for-sale Securities
Continuous unrealized loss investments, number of positions	1	2
Less Than 12 Months, Fair value	26,982	70,421
Less Than 12 Months, Unrealized losses	198	505
12 Months or More, Fair value	20,689	5,043
12 Months or More, Unrealized losses	252	87
Total, Fair value	47,671	75,464
Total, Unrealized losses	450	592
Private label collateralized mortgage obligations
Schedule of Available-for-sale Securities
Continuous unrealized loss investments, number of positions		1
Less Than 12 Months, Fair value	183	0
Less Than 12 Months, Unrealized losses	7	0
12 Months or More, Fair value	0	971
12 Months or More, Unrealized losses	0	57
Total, Fair value	183	971
Total, Unrealized losses	7	57
State and municipal securities
Schedule of Available-for-sale Securities
Less Than 12 Months, Fair value		3,429
Less Than 12 Months, Unrealized losses		28
12 Months or More, Fair value		0
12 Months or More, Unrealized losses		0
Total, Fair value		3,429
Total, Unrealized losses		28
Common and preferred stocks
Schedule of Available-for-sale Securities
Continuous unrealized loss investments, number of positions	2	1
Less Than 12 Months, Fair value	0	6
Less Than 12 Months, Unrealized losses	0	1
12 Months or More, Fair value	66	53
12 Months or More, Unrealized losses	45	51
Total, Fair value	66	59
Total, Unrealized losses	$ 45	$ 52

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New Accounting Standards (Policies)

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy

In 2011, the FASB issued Accounting Standards Update No. 2011-04 "Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements" ("ASU 2011-04"). The ASU 2011-04 amends Topic 820 to add both additional clarifications to existing fair value measurement and disclosure requirements and changes to existing principles and disclosure guidance. Clarifications were made to the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity's shareholder's equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to existing principles and disclosures included measurement of financial instruments managed within a portfolio, the application of premiums and discounts in fair value measurement, and additional disclosures related to fair value measurements. The updated guidance and requirements are effective for financial statements issued for the first interim or annual period beginning after December 15, 2011, and should be applied prospectively. Early adoption is permitted. The guidance did not have a material impact on the Company's consolidated financial statements, and the disclosure requirements were included in this Form 10-Q.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05 "Presentation of Comprehensive Income" (“ASU 2011-05”). This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in shareholders' equity and is intended to enhance comparability between entities that report under U.S. GAAP and those that report under International Financial Reporting Standards (“IFRS”), and to provide a more consistent method of presenting non-owner transactions that affect an entity's equity. ASU 2011-05 requirements are effective for public entities as of the beginning of fiscal years beginning after December 15, 2011 and interim and annual periods thereafter. Early adoption is permitted, but full retrospective application is required under both sets of accounting standards. The Company has adopted the standard and the adoption of ASU 2011-05 did not have an impact on the Company's financial condition, results of operations, or cash flows.

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 15,226		$ (17,320)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net amortization of premiums on investment securities	5,545		3,483
Provision for loan losses	8,820		17,216
Net gain on sales of mortgage loans	900		0
Gain (Loss) on Sale of Mortgage Loans	(2,309)		(3,201)
Other than temporary impairment of investments	0		116
Impairment of goodwill	0	[1]	4,944
Increase in cash surrender value of life insurance	(473)		(491)
Depreciation and amortization	2,028		2,149
Gain (loss) on sales and impairment of premises and equipment	(22)		1,481
Net losses on sale and write downs of other real estate owned	4,595		2,891
Gain on sale of securities	(1,648)		(2,078)
Amortization of core deposit intangible	820		892
Deferred tax provision	(8,987)		5,279
Stock based compensation expense	295		144
Originations of mortgage loans held-for-sale	(100,516)		(407,551)
Proceeds from sales of mortgage loans	108,393		447,370
Decrease in capital lease obligations	(67)		(28)
Decrease in accrued interest receivable	515		1,500
Decrease in other assets	4,246		6,224
Increase (decrease) in accrued interest payable	(873)		(621)
Increase in other liabilities	(1,435)		45
NET CASH PROVIDED BY OPERATING ACTIVITIES	35,053		62,444
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities	(73,767)		(110,103)
Proceeds from sales of available-for-sale securities	35,444		89,111
Proceeds from maturities of available-for-sale securities	55,883		29,930
Net decrease in loans	52,550		94,863
Proceeds from the redemption of Federal Home Loan Bank stock	1,975		2,411
Purchases of premises and equipment	(1,383)		(2,823)
Proceeds from the sale of premises and equipment	37		106
Proceeds from the sale of other real estate owned	11,446		12,165
NET CASH PROVIDED BY INVESTING ACTIVITIES	82,185		115,660
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking, NOW, money market and savings accounts	7,167		37,799
Net decrease in time certificates	(87,048)		(274,093)
Net decrease in borrowed funds	(3,240)		(8,459)
Proceeds from the issuance of common stock	0		6,402
Preferred dividends paid	(3,813)		(616)
NET CASH USED IN FINANCING ACTIVITIES	(86,934)		(238,967)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	30,304		(60,863)
CASH AND CASH EQUIVALENTS:
Beginning of year	92,918		229,780
End of year	123,222		168,917
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid for interest	18,317		21,285
Cash paid for income taxes	0		26
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to foreclosed real estate	13,369		10,781
Unrealized gain on investment securities available-for-sale, net of tax effect	$ 1,992		$ 4,513

[1] First nine months of 2012

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Condensed Consolidated Balance Sheets Balance Sheet Parentheticals (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current Assets:
Securities available-for-sale at amortized cost	$ 302,718	$ 324,172
Accumulated amortization on core deposit intangible	$ 9,609	$ 8,789
Stockholders' Equity:
Preferred stock, par value	$ 0	$ 0
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	49,312	49,312
Preferred stock, shares outstanding	49,312	49,312
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	20,003,688	19,526,188
Common stock, shares outstanding	20,003,688	19,526,188

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Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2012

Receivables [Abstract]

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

General. The Bank provides to its customers a full range of short- to medium-term commercial, agricultural, Small Business Administration guaranteed, mortgage, home equity, and personal loans, both secured and unsecured. The Bank also makes real estate mortgage and construction loans.

The following table presents loans at September 30, 2012 and December 31, 2011 by class:

	September 30,			December 31,
	2012			2011
	(in thousands)
Construction and land development	$	147,408		$	202,803
Commercial real estate:
Owner occupied	346,908			348,931
Non-owner occupied	230,854			242,827
Residential mortgages:
1-4 family	174,712			179,047
Multifamily	37,987			39,881
Home equity lines of credit	196,489			201,220
Commercial	168,510			177,047
Consumer and other	54,772			58,283
Total	1,357,640			1,450,039
Less: Net deferred loan origination fees	1,228			885
Allowance for loan losses	(27,231		)	(32,848		)
Loans, net	$	1,331,637		$	1,418,076

Real Estate Loans. Real estate loans include construction and land development loans, commercial real estate loans, home equity lines of credit, and residential mortgages.

Commercial real estate loans totaled $577.8 million and $591.8 million at September 30, 2012 and December 31, 2011, respectively. This lending has involved loans secured by owner-occupied commercial buildings for office, storage and warehouse space, as well as non-owner occupied commercial buildings. The Bank generally requires the personal guaranty of borrowers and a demonstrated cash flow capability sufficient to service the debt. Loans secured by commercial real estate may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties.

Construction/development lending totaled $147.4 million and $202.8 million at September 30, 2012 and December 31, 2011, respectively. The Bank originates one-to-four family residential construction loans for the construction of custom homes (where the home buyer is the borrower) and provides financing to builders and consumers for the construction of pre-sold homes. The Bank generally receives a pre-arranged permanent financing commitment from an outside banking entity prior to financing the construction of pre-sold homes. The Bank also makes commercial real estate construction loans, primarily for owner-occupied properties. The Bank limits its construction lending risk through adherence to established underwriting procedures.

During the third quarter of 2012, the Company performed a review of all amortizing commercial construction loans to determine if loans written as a combination construction to permanent financing should be reclassified as commercial real estate loans. As a result of this review, the Company identified approximately $25.3 million in loans previously coded as construction that needed to be properly reclassified as permanent commercial real estate loans. There was no material impact to allowances for loan losses related to this transfer.

Residential one-to-four family loans amounted to $174.7 million and $179.0 million at September 30, 2012 and December 31, 2011, respectively. The Bank's residential mortgage loans are typically construction loans that convert into permanent financing and are secured by properties located within the Bank's market areas.

During the first nine months of 2012, the decision was made by management to transfer two classified non-owner occupied commercial real estate loans in the amount of $7.6 million and $8.4 million from loans held-for-investment to loans held-for-sale. As a result of this transfer, approximately $4.3 million was charged-off in order to record the loans at fair value at time of transfer.

Commercial Loans. At September 30, 2012 and December 31, 2011, the Bank's commercial loan portfolio totaled $168.5 million and $177.0 million, respectively. Commercial loans include both secured and unsecured loans for working capital, expansion, and other business purposes. Short-term working capital loans are secured by accounts receivable, inventory and/or equipment. The Bank also makes term commercial loans secured by equipment and real estate. Lending decisions are based on an evaluation of the financial strength, cash flow, management and credit history of the borrower, and the quality of the collateral securing the loan. With few exceptions, the Bank requires personal guarantees and secondary sources of repayment. Commercial loans generally provide greater yields and reprice more frequently than other types of loans, such as real estate loans.

Consumer Loans. Loans to individuals (consumer loans) include automobile loans, boat and recreational vehicle financing, and miscellaneous secured and unsecured personal loans and totaled $54.8 million and $58.3 million at September 30, 2012 and December 31, 2011, respectively. Consumer loans generally can carry significantly greater risks than other loans, even if secured, if the collateral consists of rapidly depreciating assets such as automobiles, boats, recreational vehicles, and equipment. Repossessed collateral securing a defaulted consumer loan may not provide an adequate source of repayment of the loan. Consumer loan collections are sensitive to job loss, illness and other personal factors. The Bank manages the risks inherent in consumer lending by following established credit guidelines and underwriting practices designed to minimize risk of loss.

Loan Approvals. The Bank's loan policies and procedures establish the basic guidelines governing its lending operations. The guidelines address the type of loans that the Bank seeks, target markets, underwriting and collateral requirements, terms, interest rate and yield considerations and compliance with laws and regulations. All loans or credit lines are subject to approval procedures and amount limitations. These limitations apply to the borrower's total outstanding indebtedness to the Bank, including any indebtedness as a guarantor. The policies are reviewed and approved at least annually by the Board of Directors of the Bank. The Bank supplements its own supervision of the loan underwriting and approval process with periodic loan reviews by independent, outside professionals experienced in loan review. Responsibility for loan review,loan underwriting, and approval resides with the Chief Credit Officer position. On an annual basis, the Board of Directors of the Bank determines officers lending authority. Authorities may include loans, letters of credit, overdrafts, uncollected funds and such other authorities as determined by the Board of Directors.

Substantially all of the Company's loans have been granted to customers in the Piedmont, foothills, northwestern mountains, and the Research Triangle regions of North Carolina and the upstate region of South Carolina.

Credit Review and Evaluation. The Bank has a credit risk review department that reports to the Chief Credit Officer. The focus of the department is on policy compliance and proper grading of higher credit risk loans as well as new and existing loans on a sample basis. Additional reporting for problem/criticized assets has been developed along with an after-the-fact loan review.

The Bank uses a risk grading program to facilitate the evaluation of probable inherent loan losses and the adequacy of the allowance for loan losses for real estate, commercial and consumer loans. In this program, risk grades are initially assigned by loan officers, reviewed by regional credit officers, and further reviewed by internal credit review analysts on a test basis. The Bank strives to maintain the loan portfolio in accordance with conservative loan underwriting policies that result in loans specifically tailored to the needs of the Bank's market area. Every effort is made to identify and minimize the credit risks associated with such lending strategies.

Loans over $20,000 are risk graded on a scale from 1 (highest quality) to 8 (loss). Acceptable loans at inception are grades 1 through 4, and these grades have underwriting requirements that at least meet the minimum requirements of a secondary market source. If borrowers do not meet credit history requirements, other mitigating criteria such as substantial liquidity and low loan-to-value ratios could be considered and would generally have to be met in order to make the loan. The Bank's loan policy states that a guarantor may be necessary if reasonable doubt exists as to the borrower's ability to repay. The Board of Directors has authorized the loan officers to have individual approval authority for risk grade 1 through 4 loans up to maximum exposure limits for each customer. New or renewed loans that are graded 5 (special mention) or lower must have approval from a regional credit officer. Any changes in risk assessments as determined by loan officers, credit administrators, regulatory examiners and management are also considered.

The risk grades, normally assigned by the loan officers when the loan is originated and reviewed by the regional credit officers, are based on several factors including historical data, current economic factors, composition of the portfolio, and evaluations of the total loan portfolio and assessments of credit quality within specific loan types. In some cases, the risk grades are assigned by regional executives, depending upon dollar exposure. Because these factors are dynamic, the provision for loan losses can fluctuate. Credit quality reviews are based primarily on analysis of borrowers' cash flows, with asset values considered only as a second source of payment. Regional credit officers work with lenders in underwriting, structuring and risk grading the Bank's credits. The Risk Review Officer focuses on lending policy compliance, credit risk grading, and credit risk reviews on larger dollar exposures. Management uses the information developed from the procedures above in evaluating and grading the loan portfolio. This continual grading process is used to monitor the credit quality of the loan portfolio and to assist management in determining the appropriate levels of the allowance for loan losses.

The following is a summary of the credit risk grade definitions for all loan types:

“1” - High Quality- These loans represent a credit extension of the highest quality. The borrower's historic (at least five years) cash flows manifest extremely large and stable margins of coverage. Balance sheets are conservative, well capitalized, and liquid. After considering debt service for proposed and existing debt, projected cash flows continue to be strong and provide ample coverage. The borrower typically reflects broad geographic and product diversification and has access to alternative financial markets.

“2” - Good Quality- These loans have a sound primary and secondary source of repayment. The borrower may have access to alternative sources of financing, but sources are not as widely available as they are to a higher graded borrower. This loan carries a normal level of risk, with minimal loss exposure. The borrower has the ability to perform according to the terms of the credit facility. The margins of cash flow coverage are satisfactory but vulnerable to more rapid deterioration than the highest quality loans.

“3” - Satisfactory- The borrowers are a reasonable credit risk and demonstrate the ability to repay the debt from normal business operations. Risk factors may include reliability of margins and cash flows, liquidity, dependence on a single product or industry, cyclical trends, depth of management, or limited access to alternative financing sources. Historic financial information may indicate erratic performance, but current trends are positive. Quality of financial information is adequate, but is not as detailed and sophisticated as information found on higher graded loans. If adverse circumstances arise, the impact on the borrower may be significant.

“4” - Satisfactory - Merits Attention- These credit facilities have potential developing weaknesses that deserve extra attention from the account manager and other management personnel. If the developing weakness is not corrected or mitigated, there may be deterioration in the ability of the borrower to repay the bank's debt in the future.

“5” - Watch or Special Mention - These loans are typically existing loans, made using the passing grades outlined above, that have deteriorated to the point that cash flow is not consistently adequate to meet debt service or current debt service coverage is based on projections. Secondary sources of repayment may include specialized collateral or real estate that is not readily marketable or undeveloped, making timely collection in doubt.

“6” - Substandard- Loans and other credit extensions bearing this grade are considered inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions jeopardizing repayment of principal and interest as originally intended. Clear loss potential, however, does not have to exist in any individual assets classified as substandard.

“7” - Substandard Impaired (also includes any loans over 90 days past due, excluding sold mortgages )- Loans and other credit extensions graded “7” have all the weaknesses inherent in those graded “6,” with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. The probability of some loss is extremely high, but because of certain important and reasonably specific factors, the amount of loss cannot be determined.

"7B"- Doubtful- Loans and other credit extensions graded “7b” have all the weaknesses inherent in those graded “7,” with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. The probability of some loss is extremely high, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral. Loans in this classification are placed in non-accrual status, with collections applied to principal on the bank's books and evaluated for impairment. All loans in this category are considered impaired and all material loans are evaluated for a specific reserve in accordance with FAS 114 and the bank's ALLL methodology and specific reserve guidelines.

“8” - Loss- Loans in this classification are considered uncollectible and cannot be justified as a viable asset of the Bank. Such loans are to be charged-off or charged-down. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.

The following is a summary of credit quality indicators by class at September 30, 2012 and December 31, 2011:

Real Estate Credit Exposure as of September 30, 2012
			Commercial Real Estate
	Construction		Owner occupied		Non-owner occupied		1-4 Family		Multifamily		Home Equity
	(in thousands)
High Quality	$	—	$	121	$	—	$	379	$	—	$	116
Good Quality	480		—		—		1,416		—		7,566
Satisfactory	22,165		107,794		59,713		96,222		7,856		119,279
Merits Attention	70,357		192,518		137,137		58,010		28,164		59,019
Special Mention	22,137		23,906		21,108		8,479		575		4,223
Substandard	10,428		5,171		2,013		3,087		609		2,336
Substandard impaired	19,632		17,398		10,883		7,119		783		3,950
Doubtful	2,209		—		—		—		—		—
Loss	—		—		—		—		—		—
	$	147,408	$	346,908	$	230,854	$	174,712	$	37,987	$	196,489

Other Credit Exposures as of September 30, 2012
	Commercial		Consumer and other		Total Loans
	(in thousands)
High Quality	$	2,620	$	2,473	$	5,709
Good Quality	5,300		1,383		16,145
Satisfactory	50,336		24,880		488,245
Merits Attention	81,934		24,748		651,887
Special Mention	17,549		629		98,606
Substandard	1,613		88		25,345
Substandard impaired	9,158		571		69,494
Doubtful	—		—		2,209
Loss	—		—		—
	$	168,510	$	54,772	$	1,357,640

Real Estate Credit Exposure as of December 31, 2011
			Commercial Real Estate
	Construction		Owner  occupied		Non-owner  occupied		1-4 Family		Multifamily		Home Equity
	(in thousands)
High Quality	$	—	$	126	$	—	$	423	$	—	$	132
Good Quality	543		32		117		1,701		—		7,545
Satisfactory	30,446		110,051		61,416		98,992		8,789		125,932
Merits Attention	93,974		180,173		134,247		57,310		28,824		58,576
Special Mention	41,739		23,326		24,307		9,112		697		4,807
Substandard	5,054		10,069		11,162		3,586		629		2,006
Substandard impaired	31,047		25,154		11,578		7,923		942		2,222
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
	$	202,803	$	348,931	$	242,827	$	179,047	$	39,881	$	201,220

Other Credit Exposures as of December 31, 2011
	Commercial		Consumer and other		Total Loans
	(in thousands)
High Quality	$	2,690	$	1,831	$	5,202
Good Quality	5,472		1,482		16,892
Satisfactory	55,309		27,508		518,443
Merits Attention	80,064		25,607		658,775
Special Mention	12,224		1,189		117,401
Substandard	10,367		118		42,991
Substandard impaired	10,921		548		90,335
Doubtful	—		—		—
Loss	—		—		—
	$	177,047	$	58,283	$	1,450,039

Nonaccrual loans and past due loans. Nonperforming assets include loans classified as nonaccrual, foreclosed bank-owned property and loans past due 90 days or more on which interest is still being accrued. It is the general policy of the Bank to stop accruing interest for all classes of loans past due 90 days or when it is apparent that the collection of principal and/or interest is doubtful. In addition, certain restructured loans are placed on nonaccrual status until sufficient evidence of timely payment is obtained. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against interest income in the current period. Amounts received on nonaccrual loans generally are applied first to principal and then to interest only after all principal has been collected. There were no financing receivables past due over 90 days accruing interest as of September 30, 2012 and December 31, 2011.

Nonperforming loans as of September 30, 2012 totaled $57.1 million, or 4.12% of total loans, compared with $70.4 million, or 4.78% of total loans, as of December 31, 2011. The Bank aggressively pursues the collection and repayment of all loans. Other nonperforming assets, such as repossessed and foreclosed collateral is aggressively liquidated by the Bank's collection department. The total number of loans on nonaccrual status has decreased from 505 at December 31, 2011 to 441 at September 30, 2012.

The following is a breakdown of nonaccrual loans as of September 30, 2012 and December 31, 2011:

	September 30, 2012		December 31, 2011
	(in thousands)
Financing Receivables on Nonaccrual status
Construction	$	16,497	$	26,575
Commercial Real Estate:
Owner occupied	14,771		16,339
Non-owner occupied	5,936		7,634
Mortgages:
1-4 Family first lien	6,370		7,271
Multifamily	713		942
Home Equity lines of credit	3,950		2,222
Commercial	8,293		8,896
Consumer and other	523		475
Total	$	57,053	$	70,354

Past due loans reported in the following table do not include loans granted forbearance terms since payments terms have been modified or extended, although the loans are past due based on original contract terms. All loans with forbearance terms are included and reported as impaired loans.

Loans are considered past due if the required principal and interest income have not been received as of the date such payments were due. The following table presents the Bank's aged analysis of past due loans:

	30-59 Days  Past Due		60-89 Days  Past Due		Greater Than  90 Days		Total Past  Due		Current		Total Loans
September 30, 2012	(in thousands)
Construction	$	706	$	2,258	$	8,223	$	11,187	$	136,221	$	147,408
Commercial real estate:
Owner occupied	1,414		1,883		3,727		7,024		339,884		346,908
Non-owner occupied	2,686		2,178		3,141		8,005		222,849		230,854
Commercial	767		3,678		3,055		7,500		161,010		168,510
Mortgages:
Secured 1-4 family- first lien	2,286		1,534		3,406		7,226		167,486		174,712
Multifamily	6		79		—		85		37,902		37,987
Home equity lines of credit	1,345		216		2,209		3,770		192,719		196,489
Consumer and other	276		112		258		646		54,126		54,772
Total	$	9,486	$	11,938	$	24,019	$	45,443	$	1,312,197	$	1,357,640
December 31, 2011
Construction	$	2,265	$	402	$	15,538	$	18,205	$	184,598	$	202,803
Commercial real estate:
Owner occupied	4,342		1,215		3,727		9,284		339,647		348,931
Non-owner occupied	9,723		86		4,679		14,488		228,339		242,827
Commercial	586		1,432		2,087		4,105		172,942		177,047
Mortgages:
Secured 1-4 family- first lien	3,441		1,049		2,955		7,445		171,602		179,047
Multifamily	277		—		896		1,173		38,708		39,881
Home equity lines of credit	—		634		856		1,490		199,730		201,220
Consumer and other	375		61		128		564		57,719		58,283
Total	$	21,009	$	4,879	$	30,866	$	56,754	$	1,393,285	$	1,450,039

Impaired Loans. Management considers certain loans graded “substandard impaired” (loans graded 7), "doubtful" (loans graded 7B) or “loss” (loans graded 8) to be individually impaired and may consider “substandard” loans (loans graded 6) individually impaired depending on the borrower's payment history. The Bank measures impairment based upon probable cash flows or the value of the collateral. Collateral value is assessed based on collateral value trends, liquidation value trends, and other liquidation expenses to determine logical and credible discounts that may be needed. Updated appraisals are required for all impaired loans and typically at renewal or modification of larger loans if the appraisal is more than 12 months old.

Impaired loans for all classes of loans typically include nonaccrual loans, loans over 90 days past due still accruing, troubled debt restructured loans and other potential problem loans considered impaired based on other underlying factors. Troubled debt restructured loans are those for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal have been granted due to the borrower's weakened financial condition. Interest on troubled debt restructured loans is accrued at the restructured rates when it is anticipated that no loss of original principal will occur and a sustained payment performance period is obtained. Due to the borrowers' inability to make the payments required under the original loan terms, the Bank modifies the terms by granting a longer amortized repayment structure or reduced interest rates.  Potential problem loans are loans which are currently performing and are not included in nonaccrual or restructured loans above, but about which we have serious doubts as to the borrower's ability to comply with present repayment terms. These loans are likely to be included later in nonaccrual, past due or troubled debt restructured loans, so they are considered by management in assessing the adequacy of the allowance for loan losses. Impaired loans under $250,000 are typically not individually evaluated for impairment.

The following table presents the Bank's investment in loans considered to be impaired and related information on those impaired loans as of September 30, 2012 and December 31, 2011:

							Quarter to Date				Year to Date
	Recorded  Investment		Unpaid  Principal  Balance		Related  Allowance		Average  Recorded  Investment		Interest Income Recognized		Average  Recorded  Investment		Interest Income Recognized
September 30, 2012	(in thousands)
Impaired loans without a related allowance for loan losses
Construction	$	13,376	$	14,563	$	—	$	14,694	$	125	$	20,382	$	275
Commercial real estate:
Owner occupied	14,056		14,756		—		13,840		23		15,594		332
Non-owner occupied	3,506		3,893		—		4,017		29		8,193		39
Commercial	6,226		6,432		—		6,403		—		6,316		130
Mortgages:
Secured 1-4 family real estate	968		991		—		1,432		—		2,680		29
Multifamily	701		884		—		703		4		702		7
Home equity lines of credit	1,706		1,767		—		1,588		—		1,320		7
Consumer and other	—		—		—		—		—		—		—
Impaired loans with a related allowance for loan losses
Construction	$	4,649	$	5,382	$	1,249	$	4,106	$	—	$	2,379	$	—
Commercial real estate:
Owner occupied	5,212		5,220		279		6,154		66		6,910		134
Non-owner occupied	4,029		4,300		476		3,491		26		1,768		42
Commercial	2,790		2,936		1,632		2,865		—		3,006		164
Mortgages:
Secured 1-4 family real estate	903		919		155		449		—		411		3
Multifamily	—		—		—		—		—		30		7
Home equity lines of credit	—		—		—		29		—		111		—
Consumer and other	—		—		—		54		—		67		—
Total impaired loans
Construction	$	18,025	$	19,945	$	1,249	$	18,800	$	125	$	22,761	$	275
Commercial real estate:
Owner occupied	19,268		19,976		279		19,994		89		22,504		466
Non-owner occupied	7,535		8,193		476		7,508		55		9,961		81
Commercial	9,016		9,368		1,632		9,268		—		9,322		294
Mortgages:
Secured 1-4 family real estate	1,871		1,910		155		1,881		—		3,091		32
Multifamily	701		884		—		703		4		732		14
Home equity lines of credit	1,706		1,767		—		1,617		—		1,431		7
Consumer and other	—		—		—		54		—		67		—
Total impaired loans individually reviewed for impairment	$	58,122	$	62,043	$	3,791	$	59,825	$	273	$	69,869	$	1,169

	As of December 31, 2011						Quarter to Date September 30, 2011				Year to Date September 30, 2011
	Recorded Investment		Unpaid  Principal  Balance		Related  Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
Impaired loans without a related allowance for loan losses
Construction	$	28,067	$	40,045	$	—	$	22,835	$	81	$	26,288	$	139
Commercial real estate:
Owner occupied	17,586		20,070		—		10,104		88		13,166		175
Non-owner occupied	8,639		11,255		—		6,640		59		8,591		155
Commercial	6,381		6,436		—		2,560		42		3,636		126
Mortgages:
Secured 1-4 family real estate	3,843		4,285		—		2,372		14		2,851		24
Multifamily	295		309		—		299		—		304		—
Home equity lines of credit	525		694		—		707		—		725		—
Consumer and other	—		—		—		—		—		—		—
Impaired loans with a related allowance for loan losses
Construction	$	1,011	$	1,011	$	570	$	9,159	$	2	$	8,740	$	5
Commercial real estate:
Owner occupied	6,459		6,533		585		3,209		7		5,891		22
Non-owner occupied	975		1,363		143		2,517		—		4,994		—
Commercial	2,914		2,920		2,511		1,067		24		5,218		71
Mortgages:
Secured 1-4 family real estate	498		517		45		1,010		2		2,331		6
Multifamily	300		319		135		460		—		454		—
Home equity lines of credit	403		412		112		749		—		720		—
Consumer and other	—		—		—		130		—		129		—
Total impaired loans
Construction	$	29,078	$	41,056	$	570	$	31,994	$	83	$	35,028	$	144
Commercial real estate:
Owner occupied	24,045		26,603		585		13,313		95		19,057		197
Non-owner occupied	9,614		12,618		143		9,157		59		13,585		155
Commercial	9,295		9,356		2,511		3,627		66		8,854		197
Mortgages:
Secured 1-4 family real estate	4,341		4,802		45		3,382		16		5,182		30
Multifamily	595		628		135		759		—		758		—
Home equity lines of credit	928		1,106		112		1,456		—		1,445		—
Consumer and other	—		—		—		130		—		129		—
Total impaired loan individually reviewed for impairment	$	77,896	$	96,169	$	4,101	$	63,818	$	319	$	84,038	$	723

Impaired loans acquired in business combinations without a related allowance for loan losses includes loans for which no additional reserves have been recorded in excess of credit discounts for purchased impaired loans. Impaired loans acquired with subsequent deterioration and related allowance for loan losses are loans in which additional impairment has been identified in excess of credit discounts resulting in additional reserves. These additional reserves are included in the allowance for loan losses related to purchased impaired loans and were $15,000 and $49,000 as of September 30, 2012 and December 31, 2011, respectively.

At September 30, 2012, the outstanding balance of purchased impaired loans from American Community Bancshares, Inc. ("American Community"), which includes principal, interest and fees due, was $380,887. Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans.

Troubled Debt Restructured Loans. Total amount of troubled debt restructured loans outstanding as of September 30, 2012 was $35.6 million with related reserves of $1.8 million. Approximately $13.9 million of troubled debt restructured loans are accruing interest as of September 30, 2012, as these loans have sufficient evidence of paying according to the new restructured terms. Total amount of troubled debt restructured loans outstanding as of December 31, 2011 were $43.5 million with related reserves of $2.3 million. Approximately $17.2 million of troubled debt restructured loans are accruing interest as of December 31, 2011, as these loans have sufficient evidence of paying according to the new restructured terms.

The following tables include the recorded investment and number of modifications for troubled debt restructured loans for the three and nine months ended September 30, 2012 and September 30, 2011. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Reductions in the recorded investment are primarily due to the partial charge-off of the principal balance prior to modification.

	Three Months Ended September 30, 2012
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Secured 1-4 family mortgages	1	$	396	$	391
Total	1	$	396	$	391
Extended payment terms
Construction	2	$	521	$	521
Commercial real estate:
Non-owner occupied	2	1,375		1,156
Owner occupied	2	353		331
Total	6	$	2,249	$	2,008
Total	7	$	2,645	$	2,399

	Nine Months Ended September 30, 2012
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Secured 1-4 family mortgages	1	$	396	$	391
Total	1	$	396	$	391
Extended payment terms
Construction	5	$	1,231	$	873
Commercial real estate:
Non-owner occupied	3	1,586		1,367
Owner occupied	7	2,065		2,021
Commercial	6	1,872		1,482
1-4 Family Residential	3	827		751
Consumer	1	26		24
Total	25	$	7,607	$	6,518
Principal payment reduction
Commercial real estate:
Owner occupied	2	$	571	$	571
Consumer	1	165		9
Total	3	$	736	$	580
Total	29	$	8,739	$	7,489

	Three Months Ended September 30, 2011
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Construction	2	$	1,721	$	1,705
Secured 1-4 family mortgages	1	150		150
Total	3	$	1,871	$	1,855
Extended payment terms
Construction	3	$	595	$	586
Commercial real estate:
Non-owner occupied	2	734		139
Owner occupied	4	6,834		6,404
Commercial	1	120		120
Total	10	$	8,283	$	7,249
Principal payment reduction
Construction	1	$	400	$	258
Commercial	1	16		15
Total	2	$	416	$	273
Total	15	$	10,570	$	9,377

	Nine Months Ended September 30, 2011
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Construction	3	$	2,221	$	2,131
Secured 1-4 family mortgages	1	150		150
Total	4	$	2,371	$	2,281
Extended payment terms
Construction	8	2,705		2,449
Commercial real estate:
Non-owner occupied	3	1,133		533
Owner occupied	9	8,230		7,743
Commercial	3	346		120
1-4 Family Residential	2	327		197
Consumer	—	—		—
Total	25	$	12,741	$	11,042
Principal payment reduction
Construction	4	3,302		1,060
Commercial real estate:
Owner occupied	1	240		—
Commercial	2	64		62
Home equity lines of credit	1	165		165
Total	8	3,771		1,287
Total	37	$	18,883	$	14,610

The following tables present loans that were modified as troubled debt restructurings during the previous twelve months and for which there was a payment default during the nine months ended September 30, 2012 and three and nine months ended September 30, 2011. There were no payment defaults for troubled debt restructurings for the three months ended September 30, 2012.

	Nine months ended September 30, 2012
	Number of loans	Recorded investment
Below Market Rate		(in thousands)
Construction	1	$	578
Total	1	$	578
Extended payment terms
Consumer	1	$	24
Total	1	$	24
Total	2	$	602

	Three months ended September 30, 2011			Nine months ended September 30, 2011
	Number of loans	Recorded investment		Number of loans	Recorded investment
Extended payment terms		(in thousands)			(in thousands)
Construction	1	$	221	1	$	221
Commercial real estate:
Non-owner occupied	1	1,789		1	1,789
Commercial	—	—		2	226
Secured 1-4 family mortgages	1	120		1	120
Total	3	$	2,130	5	$	2,356
Principal payment reduction
Construction	1	$	797	1	$	797
Commercial real estate:
Owner occupied	—			1	240
Total	1	$	797	2	$	1,037
Total	4	$	2,927	7	$	3,393

Allowance for Loan Losses. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management's best estimate for probable losses that have been incurred within the existing portfolio of loans. The primary risks inherent in the Bank's loan portfolio, including the adequacy of the allowance or reserve for loan losses, are based on management's assumptions regarding, among other factors, general and local economic conditions, which are difficult to predict and are beyond the Bank's control. In estimating these risks, and the related loss reserve levels, management also considers the financial conditions of specific borrowers and credit concentrations with specific borrowers, groups of borrowers, and industries.

The allowance for loan losses is adjusted by direct charges to provision expense. Losses on loans are charged against the allowance for loan losses in the accounting period in which they are determined by management to be uncollectible. Recoveries during the period are credited to the allowance for loan losses. The provision for loan losses was $4.3 million for the quarter ended September 30, 2012 as compared to $2.0 million for the quarter ended September 30, 2011. The provision expense is determined by management with the use of the Bank's allowance for loan losses model. The components of the model are specific reserves for impaired loans and a general allocation for unimpaired loans. The general allocation has two components, an estimate based on historical loss experience and an additional estimate based on internal and external environmental factors due to the uncertainty of historical loss experience in predicting current embedded losses in the portfolio that will be realized in the future.

During the second quarter of 2012, the Company completed the transition to the use of migration analysis in calculating historical loss experience for collectively evaluated loans.  This method takes into consideration the probability of loss for each loan type by credit quality, and historical losses given default by loan type.  Previously, the Company utilized migration analysis in  determining its reserve for classified loans, while continuing to incorporate average historical losses for all collectively evaluated loans.  The migration analysis is utilized across all risk categories and for all non-impaired loans, and average historical losses are excluded from the calculation.  The impact of this change to the allowance for loan losses was an increase of $1.4 million in general reserve allocation during the second quarter of 2012.

The portion of the general allocation on environmental factors includes estimates of losses related to interest rate trends, unemployment trends, real estate characteristics, past due and nonaccrual trends, watch list trends, charge-off trends, and underwriting and servicing assessments. Markets served by the Bank continue to experience softening from the general economy and declines in real estate values. The real estate characteristics component includes trends in real estate concentrations, exceptions to FDIC guidelines for loan-to-value ratios, and changes in real estate market values. Other factors impacting the allowance at September 30, 2012 were watch list trends, unemployment rate trends, and underwriting and servicing assessments.

The following table presents changes in the allowance for loan losses for the three months ended September 30, 2012 and 2011:

	June 30, 2012		Charge-offs		Recoveries		Provision			September 30, 2012
	(Amounts in thousands)
Construction	$	5,903	$	3,881	$	45	$	3,675		$	5,742
Commercial real estate:
Owner occupied	5,630		146		2		(943		)	4,543
Non-owner occupied	3,582		697		256		1,096			4,237
Commercial	4,715		771		63		624			4,631
Mortgages:
Secured 1-4 family- first lien	3,063		57		4		(83		)	2,927
Multifamily	563		—		—		5			568
Home equity lines of credit	4,399		372		29		(162		)	3,894
Consumer and other	942		313		21		39			689
	$	28,797	$	6,237	$	420	$	4,251		$	27,231
	June 30, 2011		Charge-offs		Recoveries		Provision			September 30, 2011
	(Amounts in thousands)
Construction	$	10,770	$	1,175	$	630	$	(390	)	$	9,835
Commercial real estate:
Owner occupied	6,701		546		3		(506		)	5,652
Non-owner occupied	4,280		1,101		—		707			3,886
Commercial	4,020		489		278		976			4,785
Mortgages:
Secured 1-4 family- first lien	4,514		584		84		223			4,237
Multifamily	526		—		—		48			574
Home equity lines of credit	4,012		973		17		867			3,923
Consumer and other	829		156		77		31			781
	$	35,652	$	5,024	$	1,089	$	1,956		$	33,673

The following table presents changes in the allowance for loan losses for the nine months ended September 30, 2012 and 2011:

	December 31, 2011		Charge-offs		Recoveries		Provision			September 30, 2012
	(Amounts in thousands)
Construction	$	8,214	$	7,823	$	323	$	5,028		$	5,742
Commercial real estate:
Owner occupied	5,792		2,019		126		644			4,543
Non-owner occupied	4,668		2,461		289		1,741			4,237
Commercial	5,712		1,789		829		(121		)	4,631
Mortgages:
Secured 1-4 family- first lien	3,726		625		153		(327		)	2,927
Multifamily	805		213		—		(24		)	568
Home equity lines of credit	3,310		1,073		50		1,607			3,894
Consumer and other	621		521		317		272			689
	$	32,848	$	16,524	$	2,087	$	8,820		$	27,231
	December 31, 2010		Charge-offs		Recoveries		Provision			September 30, 2011
	(Amounts in thousands)
Construction	$	12,014	$	9,050	$	1,710	$	5,161		$	9,835
Commercial real estate:
Owner occupied	5,958		3,382		109		2,967			5,652
Non-owner occupied	7,150		3,434		52		118			3,886
Commercial	4,335		2,513		389		2,574			4,785
Mortgages:
Secured 1-4 family- first lien	3,706		2,364		161		2,734			4,237
Multifamily	424		11		—		161			574
Home equity lines of credit	3,298		2,659		97		3,187			3,923
Consumer and other	867		569		169		314			781
	$	37,752	$	23,982	$	2,687	$	17,216		$	33,673

The following tables provide the a breakdown of allowance for loan losses for collectively evaluated and individually evaluated loans by type as of September 30, 2012 and December 31, 2011.

	Reserves for  loans  individually  evaluated for  impairment		Loans  individually  evaluated for  impairment		Reserves for  loans  collectively  evaluated for  impairment		Loans  collectively  evaluated for  impairment
As of September 30, 2012	(Amounts in thousands)
Construction	$	1,249	$	18,025	$	4,493	$	129,383
Commercial real estate:
Owner occupied	279		19,268		4,264		327,640
Non-owner occupied	476		7,535		3,761		223,319
Commercial	1,632		9,016		2,999		159,494
Mortgages:
Secured 1-4 family- first lien	155		1,871		2,773		172,841
Multifamily	—		701		567		37,286
Home equity lines of credit	—		1,706		3,894		194,783
Consumer and other	—		—		689		54,772
	$	3,791	$	58,122	$	23,440	$	1,299,518
	Reserves for  loans  individually  evaluated for  impairment		Loans  individually  evaluated for  impairment		Reserves for  loans  collectively  evaluated for  impairment		Loans  collectively  evaluated for  impairment
As of December 31, 2011	(Amounts in thousands)
Construction	$	570	$	29,078	$	7,644	$	173,725
Commercial real estate:
Owner occupied	585		24,045		5,207		324,886
Non-owner occupied	143		9,614		4,525		233,213
Commercial	2,511		9,295		3,201		167,752
Mortgages:
Secured 1-4 family- first lien	45		4,341		3,681		174,706
Multifamily	135		595		670		39,286
Home equity lines of credit	112		928		3,198		200,292
Consumer and other	—		—		621		58,283
	$	4,101	$	77,896	$	28,747	$	1,372,143

The allowance model is applied to determine the specific allowance balance for impaired loans and the general allowance balance for unimpaired loans grouped by loan type.

The Company's loan charge-off policy for all loan classes is to charge down loans to net realizable value once a portion of the loan is determined to be uncollectable, and the underlying collateral shortfall is assessed. Unsecured loans (primarily consumer loans) are charged off against the reserve once the loan becomes 90 days past due or it is determined that a portion of the loan is uncollectable. Secured loans (primarily construction, real estate, commercial and other loans) are moved to nonaccrual status when the loan becomes 90 days delinquent or a portion of the loan is determined to be uncollectable and supporting collateral is not considered to be sufficient to cover potential losses. Nonaccrual loans are reviewed at least quarterly to determine if all or a portion of the loan is uncollectable. Nonaccrual loans that are determined to be solely collateral dependent are promptly charged down to net realizable value upon determination that they are impaired.

In addition to the allowance for loan losses, the Company also estimates probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees and unfunded loan commitments. Unfunded lending commitments are analyzed and segregated by loan classification. These 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. The reserve for credit losses related to unfunded lending commitments was $201,000 and $221,000 as of September 30, 2012 and December 31, 2011, respectively.

The Company maintains reserves for mortgage loans sold to agencies and investors in the event that, either through error or disagreement between the parties, the Company is required to indemnify the purchase.  The reserves take into consideration risks associated with underwriting, key factors in the mortgage industry, loans with specific reserve requirements, past due loans and potential indemnification by the Company.  Reserves are estimated based on consideration of factors in the mortgage industry such as declining collateral values and rising levels of delinquency, default and foreclosure, coupled with increased incidents of quality reviews at all levels of the mortgage industry seeking justification for pushing back losses to loan originators and wholesalers.  As of September 30, 2012, the Company had reserves for mortgage loans sold of $1.7 million, and charges against reserves for the three months ended September 30, 2012 were $115,238. For the three and nine months ended September 30, 2012, the Company recorded $204,861 and $234,576 in provision expense related to potential repurchase and warranties exposure on the $94 million and $288.6 million in loan sales that occurred during that period, respectively. For the three months ended September 30, 2011, the Company recorded $18,000 in provision expense related to potential repurchase and warranties exposure. There were no charges against reserves for the three and nine months ended September 30, 2011.  For the quarters and nine months ended September 30, 2012 and 2011, the Company did not repurchase any mortgage loans sold. As of December 31, 2011, the Company had reserves for mortgage loans sold of $1.8 million.

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Document and Entity Information Document	9 Months Ended
	Sep. 30, 2012	Oct. 25, 2012
Document Information [Line Items]
Entity Registrant Name	YADKIN VALLEY FINANCIAL CORP
Entity Central Index Key	0001366367
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		20,003,688

XML

Fair Value

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

The Company utilizes fair value measurements to record fair value adjustments for certain assets and liabilities and to determine fair value disclosures. Available-for-sale securities, interest rate swaps, mortgage servicing rights, interest rate lock commitments and forward sale loan commitments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record other assets at fair value, such as loans held-for-investment and certain other assets. These nonrecurring fair value adjustments usually involve writing the asset down to fair value or the lower of cost or market value.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Available-for-Sale Investment Securities

Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities and private label entities, municipal bonds and corporate debt securities. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

Interest Rate Swaps

Interest rate swaps are recorded at fair value on a recurring basis. Fair value measurement is based on discounted cash flow models run by a third-party on a monthly basis. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date. As a result, the Company classifies interest rate swaps as Level 3.

The following table presents a rollforward of interest rate swaps from June 30, 2012 to September 30, 2012, and from June 30, 2011 to September 30, 2011.

	Level 3
	Fair Value- Assets			Fair Value- Liabilities
	(Amounts in thousands)
Balance, June 30, 2011	$	173		$	173
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	55			55
Balance, September 30, 2011	$	228		$	228
Balance, June 30, 2012	$	213		$	213
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	—			—
Balance, September 30, 2012	$	213		$	213
The following table presents a rollforward of interest rate swaps from December 31, 2011 to September 30, 2012, and from December 31, 2010 to September 30, 2011.
	Level 3
	Fair Value- Assets			Fair Value- Liabilities
	(Amounts in thousands)
Balance, December 31, 2010	$	159		$	159
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	69			69
Balance, September 30, 2011	$	228		$	228
Balance, December 31, 2011	$	217		$	217
Purchases, sales, issuances and settlements	—			—
Gains/losses included in other income	(4		)	(4		)
Balance, September 30, 2012	$	213		$	213

Interest Rate Locks and Forward Loan Sale Commitments

Sidus, the Company's mortgage lending subsidiary, enters into interest rate lock commitments and commitments to sell mortgages. At September 30, 2012, the amount of fair value associated with these interest rate lock commitments and sale commitments was $(491,245) and $1,008,706, respectively. At December 31, 2011, the amount of fair value associated with these interest rate lock commitments and sale commitments was $129,818 and $57,363, respectively. The fair value of interest rate lock commitments is based on servicing rate premium, origination income net of origination costs, fall out rates and changes in loan pricing between the commitment date and period end, typically month end.

The Company classifies interest rate lock commitments as Level 3. The fair value of forward sales commitments is based on changes in loan pricing between the commitment date and period end. The Company classified forward sale commitments as Level 2. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

The following table presents a rollforward of interest rate lock commitments for the three months ended September 30, 2012 and 2011, respectively.

	Interest Rate Lock Commitments
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, June 30, 2012 and 2011	$	578		$	16
Gains/losses included in other income	(1,069		)	314
Transfer in and out	—			—
Balance, September 30, 2012 and 2011	$	(491	)	$	330
The following table presents a rollforward of interest rate lock commitments for the nine months ended September 30, 2012 and 2011, respectively.
	Interest Rate Lock Commitments
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, December 31, 2011 and 2010	$	130		$	105
Gains/losses included in other income	(621		)	225
Transfer in and out	—			—
Balance, September 30, 2012 and 2011	$	(491	)	$	330

Mortgage Servicing Rights

A valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. The present value of the future earnings is the estimated market value for the pool, calculated by a third party at least semi-annually, using assumptions that a third party purchaser would utilize in evaluating a potential acquisition of the servicing. As such, the Company classifies loan servicing rights as a Level 3 asset. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

The following table presents a rollforward of mortgage servicing rights from December 31, 2011 and 2010 to September 30, 2012 and 2011 and June 30, 2012 and 2011 to September 30, 2012 and 2011 and shows that the mortgage servicing rights are classified as Level 3 as discussed above.

	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, June 30, 2012 and 2011	$	1,889		$	2,193
Capitalized	300			71
Gains/losses included in other income	(153		)	(248		)
Balance, September 30, 2012 and 2011	$	2,036		$	2,016
	Level 3
	Fair Value			Fair Value
	(In thousands)
Balance, December 31, 2011 and 2010	$	1,871		$	2,144
Capitalized	645			266
Gains/losses included in other income	(480		)	(394		)
Balance, September 30, 2012 and 2011	$	2,036		$	2,016

Mortgage Loans Held-for-Sale

Loans held-for-sale are carried at lower of cost or market value. The fair value of loans held-for-sale is based on what secondary markets are currently offering for portfolios with similar characteristics. The changes in fair value of the assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale. As such, the Company classifies loans measured at fair value on a nonrecurring basis as a Level 2 asset. At September 30, 2012, the cost of the Company's mortgage loans held-for-sale was less than the market value. Accordingly, the Company's loans held-for-sale are carried at cost. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

Impaired Loans

The Company does not record loans held-for-investment at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with the Receivables topic of the FASB Accounting Standards Codification. The fair value of impaired loans is estimated using one of several methods, including collateral value (through appraisal processes and applying liquidity discounts and deducting expected selling costs), market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2012, the majority of impaired loans were evaluated based on the fair value of the collateral by obtaining third-party appraisals and applying liquidity discounts. Third party appraisals are obtained at least annually for all impaired loans greater than $250,000. The Company records impaired loans as nonrecurring Level 3. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

Other Real Estate Owned

Other real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral (through appraisal processes and applying liquidity discounts and deducting expected selling costs). When the fair value of the collateral is measured due to further deterioration in the value of the OREO since initial recognition, the Company records the foreclosed asset as nonrecurring Level 3. The current carrying value of OREO at September 30, 2012 is $22.3 million. At December 31, 2011 the carrying value of OREO was $25.0 million. There have been no changes in valuation techniques for the quarter ended September 30, 2012. Valuation techniques are consistent with techniques used in prior periods.

The following table presents assets and (liabilities) measured at fair value on a recurring basis:

September 30, 2012 (in thousands)	Fair Value			Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. government agencies	$	32,869		$	—	$	32,869	$	—
Government sponsored agencies:
Residential mortgage-backed securities	83,264			—		83,264		—
Collateralized mortgage obligations	137,483			—		137,483		—
Private label collateralized mortgage obligations	1,059			—		1,059		—
State and municipal securities	54,769			—		54,769		—
Common and preferred stocks	1,112			1,112		—		—
Interest rate swap agreements	213			—		—		213
Interest rate swap agreements	(213		)	—		—		(213		)
Interest rate lock commitments	(491		)	—		—		(491		)
Forward loan sale commitments	1,008			—		1,008		—
Mortgage servicing rights	2,036			—		—		2,036

December 31, 2011 (in thousands)	Fair Value			Level 1		Level 2		Level 3
Available-for-sale securities:
U.S. government agencies	$	23,726		$	—	$	23,726	$	—
Government sponsored agencies:
Residential mortgage-backed securities	65,210			—		65,210		—
Collateralized mortgage obligations	166,028			—		166,028		—
Private label collateralized mortgage obligations	1,256			—		1,256		—
State and municipal securities	73,118			—		73,118		—
Common and preferred stocks	1,084			1,084		—		—
Interest rate swap agreements	216			—		—		216
Interest rate swap agreements	(216		)	—		—		(216		)
Interest rate lock commitments	130			—		—		130
Forward loan sale commitments	57			—		57		—
Mortgage servicing rights	1,871			—		—		1,871

Quantitative Information about Level 3 Fair Value Measurements

	Fair Value at September 30, 2012 (in thousands)			Valuation Technique	Unobservable Input	Range (Weighted Avg)
Recurring measurements:
Interest Rate Swaps	$	213		Discounted cash flow	Discount rate	1-4% (1.20%)
Interest Rate Lock Commitments	(491		)	Pricing model	Pull through rates	80-86%
Mortgage Servicing Rights	2,036			Discounted cash flow	Constant prepayment rate	20.03%
					Cost of service	$50
					Discount rate	8%
Nonrecurring measurements:
Impaired loans	$	13,793		Discounted appraisals	Collateral discounts	15-50%
Other real estate owned	8,715			Discounted appraisals	Collateral discounts	6-15%

The unobservable input used in the fair value measurement of the Company's interest rate swap agreements is the discount rate.  A significant increase (decrease) in the discount rate could result in a significantly lower (higher) fair value measurement.  The discount rate is determined by the third-party by obtaining third party market quotes from Reuters, which handle up to 30 year swap maturities. The Company's asset liability management team periodically reviews the discount rates utilized in determining the fair value of the interest rate swap agreements.

The significant unobservable input used in the fair value measurement of the Company's interest rate lock commitments is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close.  Generally, the fair value of an interest rate lock commitment is positive (negative) if the prevailing interest rate is lower (higher) than the interest rate lock commitment rate.  Therefore, an increase in the pull through rates (i.e., higher percentage of loans are estimated to close) will result in the fair value of the interest rate lock commitments to increase if in a gain position, or decrease if in a loss position.  The pull through ratio is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock.  The pull through rate is computed by our secondary marketing system using historical data and the ratio is periodically reviewed by the Company's mortgage banking division.

The significant unobservable inputs used in the fair value measurement of the Company's mortgage servicing rights are the weighted average constant prepayment rate and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.  Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. The Company utilizes an independent third-party to estimate the fair value of mortgage servicing rights through use of a discounted cash flow model to calculate the present value of estimated future net servicing income based on observable and unobservable inputs into the model to arrive at an estimated fair value.  To assess the reasonableness of the fair value measurement, the fair value and constant prepayment rates are compared to forward-looking estimates by the Company. 

The following table presents assets measured at fair value on a nonrecurring basis:

	Fair Value		Level 1		Level 2		Level 3
September 30, 2012	(Amounts in thousands)
Other real estate owned	$	8,715	$	—	$	—	$	8,715
Impaired loans:
Construction	3,400		—		—		3,400
Commercial real estate:
Owner occupied	4,933		—		—		4,933
Non-owner occupied	3,553		—		—		3,553
Commercial	1,158		—		—		1,158
Mortgages:
Secured 1-4 family real estate	749		—		—		749
Multifamily	—		—		—		—
Home equity lines of credit	—		—		—		—
Consumer and other	—		—		—		—

	Fair Value		Level 1		Level 2		Level 3
December 31, 2011	(Amounts in thousands)
Other real estate owned	$	5,391	$	—	$	—	$	5,391
Impaired loans:
Construction	441		—		—		441
Commercial real estate:
Owner occupied	5,874		—		—		5,874
Non-owner occupied	832		—		—		832
Commercial	403		—		—		403
Mortgages:
Secured 1-4 family real estate	453		—		—		453
Multifamily	165		—		—		165
Home equity lines of credit	291		—		—		291
Consumer and other	—		—		—		—

There were no transfers between valuation levels for any assets during the quarter ended September 30, 2012 or the quarter ended September 30, 2011. If different valuation techniques are deemed necessary, we would consider those transfers to occur at the end of the period when the assets are valued.

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Condensed Consolidated Statements of Income (Loss) (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012		Sep. 30, 2011
INTEREST INCOME:
Interest and fees on loans	$ 17,735	$ 19,341	$ 54,618		$ 60,780
Interest on federal funds sold	9	7	24		22
Interest and dividends on securities:
Taxable	1,165	1,598	3,797		4,800
Non-taxable	509	548	1,637		1,709
Interest-bearing deposits	28	71	103		276
TOTAL INTEREST INCOME	19,446	21,565	60,179		67,587
INTEREST EXPENSE
Time deposits of $100 or more	1,762	2,326	5,667		7,804
Other time and savings deposits	2,018	3,120	6,582		11,231
Borrowed funds	477	494	1,692		1,651
TOTAL INTEREST EXPENSE	4,257	5,940	13,941		20,686
NET INTEREST INCOME	15,189	15,625	46,238		46,901
PROVISION FOR LOAN LOSSES	4,251	1,956	8,820		17,216
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	10,938	13,669	37,418		29,685
NON-INTEREST INCOME:
Service charges on deposit accounts	1,319	1,464	3,887		3,961
Other service fees	857	837	2,646		2,582
Net gain on sale of securities	1,348	1,556	1,648		2,078
Income on investment in bank-owned life insurance	159	167	473		491
Mortgage banking activities	1,599	1,183	4,412		4,442
Other than temporary impairment of securities	0	(74)	0		(116)
Gain (Loss) on Sales of Loans, Net	(900)	0	(900)		0
Other income	283	90	415		333
TOTAL NON-INTEREST INCOME	4,665	5,223	12,581		13,771
NON-INTEREST EXPENSES:
Salaries and employee benefits	6,914	6,073	19,378		21,402
Occupancy and equipment expense	1,794	1,961	5,436		6,461
Printing and supplies	168	141	463		478
Data processing	456	404	1,295		1,158
Amortization of core deposit intangible	266	289	820		892
Communications	314	372	1,019		1,291
FDIC assessment	650	79	2,004		2,757
Loan collection fees	69	379	510		1,285
Other professional fees	491	218	1,276		830
Net cost of operation of other real estate owned	1,322	759	5,295		3,982
(Gain) loss on sale of premises and equipment	0	286	(22)		1,481
Goodwill impairment	0	0	0	[1]	4,944
Other	2,348	1,868	6,628		6,910
TOTAL NON-INTEREST EXPENSES	14,792	12,829	44,102		53,871
INCOME (LOSS) BEFORE INCOME TAXES	811	6,063	5,897	[1]	(10,415)
INCOME TAX EXPENSE (BENEFIT)	54	2,384	(9,329)		6,905
NET INCOME (LOSS)	757	3,679	15,226		(17,320)
Preferred stock dividend and accretion of preferred stock discount	838	771	2,493		2,216
NET INCOME (LOSS) TO COMMON SHAREHOLDERS	$ (81)	$ 2,908	$ 12,733		$ (19,536)
NET INCOME (LOSS) PER COMMON SHARE:
Basic (in dollars per share)	$ 0.00	$ 0.15	$ 0.66		$ (1.09)
Diluted (in dollars per share)	$ 0.00	$ 0.15	$ 0.66		$ (1.09)
CASH DIVIDENDS PER COMMON SHARE (IN DOLLARS PER COMMON SHARE)	$ 0.00	$ 0.00	$ 0.00		$ 0.00

[1] First nine months of 2012

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Non-marketable Equity Securities

9 Months Ended

Sep. 30, 2012

Investments, All Other Investments [Abstract]

Non-marketable Equity Securities

Non-marketable Equity Securities

The aggregate cost of the Company's cost method investments totaled $6,715,208 at September 30, 2012 and $8,771,278 at December 31, 2011. Cost method investments at September 30, 2012 include $4,154,700 in Federal Home Loan Bank ("FHLB") stock and $2,560,508 of investments in various trust and financial companies, which are included in other assets. All cost method investments were evaluated for impairment at September 30, 2012 and December 31, 2011. The following factors have been considered in determining the carrying amount of FHLB stock: 1) the recoverability of the par value, 2) the Company has sufficient liquidity to meet all operational needs in the foreseeable future and would not need to dispose of the stock below recorded amounts, 3) redemptions and purchases of the stock are at the discretion of the FHLB, 4) the Company believes the FHLB has the ability to absorb economic losses given the expectation that the various FHLBs' have a high degree of government support, and 5) the unrealized losses related to securities owned by the FHLB are manageable given the capital levels of the organization. The Company estimated that the fair value equaled or exceeded the cost of these investments (that is, the investments were not impaired) as of September 30, 2012. During the three and nine months ended September 30, 2011, the Company's investment in a financial services company and a local community bank were considered to be other than temporarily impaired and approximately $116,003 and $73,848, respectively, was charged-off. In addition to the impairment charges recorded for the nine months ended September 30, 2011, the Company sold one of its investments in a financial services company for a loss of $79,910. There were no other than temporary impairments recorded for the three or nine months ended September 30, 2012.

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Investment Securities

9 Months Ended

Sep. 30, 2012

Available-for-sale Securities [Abstract]

Investment Securities

Investment Securities

Investment securities at September 30, 2012 and December 31, 2011 are summarized as follows:

	September 30, 2012
	Amortized Cost		Unrealized  Gains		Unrealized  Losses		Fair Value
	(Amounts in thousands)
Available-for-sale securities:
Securities of U.S. government agencies due:
Within 1 year	$	20,008	$	44	$	—	$	20,052
After 1 but within 5 years	12,779		38		—		12,817
	32,787		82		—		32,869
Government sponsored agencies:
Residential mortgage-backed securities due:
Within 1 year	67		1		—		68
After 1 but within 5 years	490		28		—		518
After 5 but within 10 years	11,526		345		—		11,871
After 10 years	68,847		1,972		12		70,807
	80,930		2,346		12		83,264
Collateralized mortgage obligations due:
After 1 but within 5 years	1,743		7		—		1,750
After 5 but within 10 years	10,332		322		—		10,654
After 10 years	124,469		1,060		450		125,079
	136,544		1,389		450		137,483
Private label collateralized mortgage obligations due:
After 5 but within 10 years	190		—		7		183
After 10 years	853		23		—		876
	1,043		23		7		1,059
State and municipal securities due:
Within 1 year	720		11		—		731
After 1 but within 5 years	5,738		367		—		6,105
After 5 but within 10 years	19,025		1,648		—		20,673
After 10 years	24,816		2,444		—		27,260
	50,299		4,470		—		54,769
Common and preferred stocks:	1,115		42		45		1,112
Total available-for-sale securities	$	302,718	$	8,352	$	514	$	310,556

	December 31, 2011
	Amortized Cost		Unrealized  Gains		Unrealized  Losses		Fair Value
	(Amounts in thousands)
Available-for-sale securities:
Securities of U.S. government agencies due:
Within 1 year	$	9,988	$	51	$	—	$	10,039
After 1 but within 5 years	13,622		65		—		13,687
	23,610		116		—		23,726
Government sponsored agencies:
Residential mortgage-backed securities due:
After 1 but within 5 years	476		18		—		494
After 5 but within 10 years	3,481		281		—		3,762
After 10 years	60,388		959		393		60,954
	64,345		1,258		393		65,210
Collateralized mortgage obligations due:
After 5 but within 10 years	13,986		478		—		14,464
After 10 years	150,915		1,241		592		151,564
	164,901		1,719		592		166,028
Private label collateralized mortgage obligations due:
After 5 but within 10 years	275		10		—		285
After 10 years	1,028		—		57		971
	1,303		10		57		1,256
State and municipal securities due:
Within 1 year	618		5		—		623
After 1 but within 5 years	6,575		347		—		6,922
After 5 but within 10 years	21,252		1,639		19		22,872
After 10 years	40,455		2,255		9		42,701
	68,900		4,246		28		73,118
Common and preferred stocks:	1,113		23		52		1,084
Total available-for-sale securities	$	324,172	$	7,372	$	1,122	$	330,422

Mortgage-backed securities are included in maturity groups based upon stated maturity date. At September 30, 2012, $83.3 million of the Bank's mortgage-backed securities were pass-through securities and $138.5 million were collateralized mortgage obligations. At December 31, 2011, $65.2 million of the Bank's mortgage-backed securities were pass-through securities and $167.3 million were collateralized mortgage obligations. Actual maturity will vary based onrepayment of the underlying mortgage loans.

Gross realized gains on the sale of securities for the three and nine months ended September 30, 2012 were $1.3 million and $1.6 million, respectively. Gross realized gains on the sale of securities for the three and nine months ended September 30, 2011 were $1,600,000 million and $2,078,000.0 million, respectively. There were no losses on the sale of securities available-for-sale for the three and nine months ended September 30, 2012 or 2011.

Investment securities with carrying values of approximately $86,037,077 and $120,227,824 at September 30, 2012 and December 31, 2011, respectively, were pledged as collateral for public deposits and for other purposes as required or permitted by law.

The following table presents the gross unrealized losses and fair value of investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2012 and December 31, 2011. Securities that have been in a loss position for twelve months or more at September 30, 2012 include one mortgage backed security, one collateralized mortgage obligation and two other securities. The key factors considered in evaluating the collateralized mortgage obligations, private label collateralized mortgage obligations, and municipal securities were cash flows of the investment and the assessment of other relative economic factors. Securities that have been in a loss position for twelve months or more at December 31, 2011 include three mortgage-backed securities, two collateralized mortgage obligations, one private label collateralized mortgage obligation and one common stock. The unrealized losses relate to securities that have incurred fair value reductions due to a shift in demand from non-governmental securities and municipals to U.S. Treasury bonds and governmental agencies due to credit market concerns. The unrealized losses are not likely to reverse until market interest rates decline to the levels that existed when the securities were purchased. None of the unrealized losses relate to the marketability of the securities or the issuer's ability to honor redemption obligations. It is not more likely than not that the Company will have to sell the investments before recovery of their amortized cost bases. For the three and nine months ended September 30, 2012, there were no securities available-for-sale deemed to be other than temporarily impaired (“OTTI”).

If management determines that an investment has experienced an other than temporary impairment, the loss is recognized in the income statement.

	Less Than 12 Months				12 Months or More				Total
September 30, 2012	Fair value		Unrealized  losses		Fair value		Unrealized  losses		Fair value		Unrealized  losses
	(Amounts in thousands)
Securities available-for-sale:
Government sponsored agencies:
Residential mortgage-backed securities	$	—	$	—	$	4,204	$	12	$	4,204	$	12
Collateralized mortgage obligations	26,982		198		20,689		252		47,671		450
Private label collateralized mortgage obligations	183		7		—		—		183		7
Common and preferred stocks	—		—		66		45		66		45
Total temporarily impaired securities	$	27,165	$	205	$	24,959	$	309	$	52,124	$	514

	Less Than 12 Months				12 Months or More				Total
December 31, 2011	Fair value		Unrealized  losses		Fair value		Unrealized  losses		Fair value		Unrealized  losses
	(Amounts in thousands)
Securities available-for-sale:
Government sponsored agencies:
Residential mortgage-backed securities	$	13,121	$	45	$	16,751	$	348	$	29,872	$	393
Collateralized mortgage obligation	70,421		505		5,043		87		75,464		592
Private label collateralized mortgage obligations	—		—		971		57		971		57
State and municipal securities	3,429		28		—		—		3,429		28
Common and preferred stocks, and other	6		1		53		51		59		52
Total temporarily impaired securities	$	86,977	$	579	$	22,818	$	543	$	109,795	$	1,122

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Significant Accounting Policies Policies (Policies)

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Basis of Accounting, Policy

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial statements and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the audited consolidated financial statements and accompanying footnotes included with the Company's 2011 Annual Report on Form 10-K (the "2011 Form 10-K") filed with the Securities and Exchange Commission (“SEC”) on February 29, 2012. Operating results, for the three and nine months ended September 30, 2012, do not necessarily indicate the results that may be expected for the year or other interim periods.

In the opinion of management, the accompanying condensed consolidated financial statements contain all the adjustments, all of which are normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2012 and December 31, 2011, and the results of its operations and cash flows for the three and nine months ended September 30, 2012 and 2011.

Reclassifications

Certain income and expenses reported in prior periods have been reclassified to conform to the 2012 presentation of mortgage banking activity income. Reclassifications include interest income which was previously presented in other income, commission expenses recorded in salaries that are now recorded as a reduction in mortgage banking activity income, and other miscellaneous expenses previously recorded in other expenses that have been reclassified as a reduction to mortgage banking activity income. In addition, gains on sale of mortgage loans has been reclassified to be reported with mortgage banking income to provide a combined overview of the mortgage banking activity segment. The reclassifications had no effect on net income (loss) or shareholders' equity, as previously reported.

Allowance for Credit Losses, Policy or Methodology Change

During the second quarter of 2012, the Company completed the transition to the use of migration analysis in calculating historical loss experience for collectively evaluated loans.  This method takes into consideration the probability of loss for each loan type by credit quality, and historical losses given default by loan type.  Previously, the Company utilized migration analysis in  determining its reserve for classified loans, while continuing to incorporate average historical losses for all collectively evaluated loans.  The migration analysis is utilized across all risk categories and for all non-impaired loans, and average historical losses are excluded from the calculation.

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Financial Instruments

9 Months Ended

Sep. 30, 2012

Financial Instruments [Abstract]

Financial Instruments

Financial Instruments

The following is a summary of the carrying amounts and fair values of the Company's financial assets and liabilities at September 30, 2012 and December 31, 2011:    

	September 30, 2012
	Carrying  amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	123,222	$	123,222	$	123,222	$	—	$	—
Investment securities	310,556		310,556		1,112		309,444		—
Loans and loans held-for-sale, net	1,356,403		1,228,930		—		—		1,228,930
Accrued interest receivable	6,229		6,229		—		6,229		—
Federal Home Loan Bank stock	4,155		4,155		4,155		—		—
Forward sales commitments	1,008		1,008		—		1,008		—
Interest rate swap agreements	213		213		—		—		213
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	862,622		858,491		—		858,491		—
Time deposits	788,838		800,977		—		800,977		—
Borrowed funds	102,299		103,270		—		103,270		—
Accrued interest payable	1,746		1,746		—		1,746		—
Interest rate swap agreements	213		213		—		—		213
Interest rate lock commitments	491		491		—		—		491

	December 31, 2011
	Carrying  amount		Estimated fair value		Level 1		Level 2		Level 3
	(Amounts in thousands)
Financial assets:
Cash and cash equivalents	$	92,918	$	92,918	$	92,918	$	—	$	—
Investment securities	330,422		330,422		1,084		329,338		—
Loans and loans held-for-sale, net	1,437,610		1,365,586		—		—		1,365,586
Accrued interest receivable	6,745		6,745		—		6,745		—
Federal Home Loan Bank stock	6,130		6,130		6,130		—		—
Forward sales commitments	57		57		—		57		—
Interest rate swap agreements	216		216		—		—		216
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts	855,455		855,455		—		855,455		—
Time deposits	875,886		885,903		—		885,903		—
Borrowed funds	105,539		106,923		—		106,923		—
Accrued interest payable	2,619		2,619		—		2,619		—
Interest rate swap agreements	216		216		—		—		216
Interest rate lock commitments	130		130		—		—		130

The carrying amounts of cash and cash equivalents approximate their fair value.

The fair value of marketable securities is based on quoted market prices, prices quoted for similar instruments, and prices obtained from independent pricing services.

For certain categories of loans, such as installment and commercial loans, the fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The cost of fixed rate mortgage loans held-for-sale approximates the lower of cost or market as these loans are typically sold within 60 days of origination. Fair values for adjustable-rate mortgages are based on quoted market prices of similar loans adjusted for differences in loan characteristics. The Company applied an additional illiquidity discount in the amount of 10.0%.

The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB stock.

The fair value of demand deposits and savings accounts is the amount payable on demand at September 30, 2012 and December 31, 2011, respectively. The fair value of fixed-maturity certificates of deposit and individual retirement accounts is estimated using the present value of the projected cash flows using rates currently offered for similar deposits with similar maturities.

The fair values of borrowings are based on discounting expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements. The carrying values of short-term borrowings, including overnight, securities sold under agreements to repurchase, federal funds purchased and FHLB advances, approximates the fair values due to the short maturities of those instruments. The Company's credit risk is not material to calculation of fair value because these borrowings are collateralized.

The carrying values of accrued interest receivable and accrued interest payable approximates fair values due to the short-term duration.

Interest rate swaps are recorded at fair value on a recurring basis. Fair value measurement is based on discounted cash flow models. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date.

Interest rate locks and forward loan sale commitments are recorded at fair value on a recurring basis. The fair value of forward sales commitments is based on changes in loan pricing between the commitment date and period end, typically month end. The fair value of interest rate lock commitments is based on servicing release premium, origination income net of origination costs, and changes in loan pricing between the commitment date and period end, typically month end.

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Shareholders' Equity

9 Months Ended

Sep. 30, 2012

Equity [Abstract]

Shareholders' Equity

Shareholders' Equity

Effective October 1, 2012, North Carolina passed the Banking Modernization Act, pursuant to Section 53C-4-7 of which, the Bank, as a North Carolina banking corporation, may pay dividends if such distributions will not reduce its capital below its applicable “required capital.” The Bank's “required capital” is that amount of capital required for the Bank to be deemed “adequately capitalized” under applicable federal regulatory capital ratios. Currently, the Bank exceeds each of these federal regulatory capital ratios. However, the Bank is currently prohibited from paying dividends to the holding company without prior approval of the Federal Deposit Insurance Corporation (the “FDIC”) and the North Carolina Banking Commissioner. In addition, the Company has committed to the regulators that the Bank will maintain a Tier 1 leverage ratio of 8%, which is higher than the statutory Tier 1 leverage ratio of 5.00% to be classified as well-capitalized. The Company deferred dividend payments on its Fixed Rate Cumulative Perpetual Preferred Stock, Series T (“Series T Preferred Stock”), and its Fixed Rate Cumulative Perpetual Preferred Stock, Series T- ACB (the “Series T-ACB Preferred Stock” and together with the Series T Preferred Stock, the “TARP Preferred Stock”), and interest payments on the trust preferred securities in the second, third and fourth quarters of 2011 and the first and second quarters of 2012. However, in August 2012, the Company received regulatory approval and paid in all of the outstanding deferred dividends on the TARP Preferred Stock and all accrued but unpaid interest on the trust preferred securities payments in full, including the required payments for the third quarter of 2012. The Company is now current on its payment obligations on its Series T and Series T-ACB Preferred Stock and on the trust preferred securities.

On September 12, 2012, the U.S. Treasury completed the sale of its $36 million of Series T Preferred Stock and $13.3 million of its Series T-ACB Preferred Stock investment in the Company to private investors through a registered public offering. There was no impact to the Company's financial condition or operating results due to the transaction.

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Subsequent Events - (Details) (USD $) In Millions, except Share data, unless otherwise specified				0 Months Ended		0 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Oct. 25, 2012 Credit Risk Reduction Plan Subsequent Event	Oct. 23, 2012 Series A Preferred Stock Subsequent Event Issuance of Equity	Oct. 23, 2012 Nonvoting Common Stock Subsequent Event Exchange of Equity	Oct. 23, 2012 Scenario, Forecast Series T Preferred Stock and Series T-ACB Preferred Stock Subsequent Event Exchange of Equity
Subsequent Event [Line Items]
Number of shares issued in Private Placement (in shares)				45,000
Value per share of shares sold in Private Placement (in dollars per share)				$ 1,000
Conversion price of convertible stock (in dollars per share)				$ 2.80
Proceeds from Private Placement				$ 41.8
Common stock, par value (in dollars per share)	$ 1	$ 1			$ 1
Value of stock converted						21
Estimated loss, maximum			40
Estimated losses, minimum			$ 45

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit, which are not reflected in the accompanying financial statements. At September 30, 2012, the Company had commitments outstanding of $266.8 million for additional loan amounts. Commitments of Sidus, the Bank's mortgage lending subsidiary, are excluded from this amount and discussed in the paragraph below. Additional commitments totaling $7.5 million were outstanding under standby letters of credit. Management does not expect any significant losses to result from these commitments.

At September 30, 2012, Sidus had $63.3 million of commitments outstanding to originate mortgage loans held-for-sale at fixed prices and $88.0 million of forward commitments outstanding under best efforts contracts to sell mortgages to agencies and other investors. See Note 9 for additional disclosures on these derivative financial instruments.

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Earnings Per Common Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Common Share

Earnings Per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the reporting periods. Diluted net income available to common shareholders per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The numerators of the basic net income per common share computations are the same as the numerators of the diluted net income per common share computations for all the periods presented. Weighted average shares outstanding for the three and nine months ended September 30, 2012 excludes 597,837 shares of unvested restricted stock. Weighted average shares outstanding for the three and nine months ended September 30, 2011 excludes 161,334 shares of unvested restricted stock. A reconciliation of the denominator of the basic net income per common share computations to the denominator of the diluted net income per common share computations is as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2012	2011	2012	2011
Basic EPS denominator:
Weighted average number of common shares outstanding	19,389,251	19,527,855	19,382,649	17,858,777
Dilutive potential common shares	—	—	—	—
Diluted EPS denominator	19,389,251	19,527,855	19,382,649	17,858,777

For the quarter ended September 30, 2012 and 2011, net income (loss) for determining net income (loss) per common share was reported as net income (loss) less the dividend on preferred stock. During the quarter and nine months ended September 30, 2012, there were 246,967 warrants and stock options that were not considered dilutive because the exercise prices exceeded the average market price per share and 596,835 shares of restricted stock not considered dilutive because they were antidilutive under the treasury stock method or because performance and service criteria had not been met. During the quarter ended September 30, 2012 there were 1,002 shares of restricted stock that would have been considered dilutive had the Company reported net income for the period. The non-dilutive options had exercise prices ranging from $3.84 to $19.07 per share. Unvested shares of restricted stock and all other common stock equivalents were excluded from the determination of diluted earnings (loss) per share for the year-to-date period ended September 30, 2011 due to the Company's loss position for that period.

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Derivatives

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

The Company currently has derivative instrument contracts consisting of interest rate swaps and interest rate lock commitments and commitments to sell mortgages.  The primary objective for each of these contracts is to minimize interest rate risk.  The Company's strategy is to use derivative contracts to stabilize and improve net interest margin and net interest income currently and in future periods. The Company does not enter into derivative financial instruments for speculative or trading purposes.  For derivatives that are economic hedges, but are not designated as hedging instruments or otherwise do not qualify for hedge accounting treatment, all changes in fair value are recognized in non-interest income during the period of change.  

As part of interest rate risk management, the Company has entered into two interest rate swap agreements to convert certain fixed-rate receivables to floating rates and certain fixed-rate obligations to floating rates.  The interest rate swaps are used to provide fixed rate financing while managing interest rate risk and were not designated as hedges. The interest rate swaps pay and receive interest based on a floating rate based on one month LIBOR, with payments being calculated on the notional amount. The interest rate swaps are settled quarterly and mature on June 15, 2016. The interest rate swaps each had a notional amount of $2.0 million at September 30, 2012, representing the amount of fixed-rate receivables outstanding and liabilities outstanding, and are included in other assets and other liabilities at their fair value of $212,923. The Company had a gain of $334 on the interest rate swap asset and a loss of $334 on the interest rate swap liability for the three months ended September 30, 2012. The Company had a gain of $4,057 on the interest rate swap asset and a loss of $4,057 on the interest rate swap liability for the nine months ended September 30, 2012. The Company had a gain of $54,211 on the interest rate swap asset and a loss of $54,211 on the interest rate swap liability for the three months ended September 30, 2011. The Company had a gain of $68,357 on the interest rate swap asset and a loss of $68,357 on the interest rate swap liability for the nine months ended September 30, 2011. The interest rate swaps had a notional amount of $2.0 million outstanding as of December 31, 2011 and was included in other assets and other liabilities at their fair market value of $216,979. All changes in fair value are recorded as other income within non-interest income. Fair values for interest rate swap agreements are based upon the amounts required to settle the contracts.  

The Company is exposed to certain risks relating to its ongoing mortgage origination business. Sidus, the Bank's mortgage lending subsidiary, enters into interest rate lock commitments and commitments to sell mortgages. The primary risks managed by derivative instruments are these interest rate lock commitments and forward-loan-sale commitments. Interest rate lock commitments are entered into to manage interest rate risk associated with the Company's fixed rate loan commitments. The period of time between the issuance of a loan commitment and the closing and sale of the loan generally ranges from 10 to 60 days. Such interest rate lock commitments and forward-loan-sale commitments represent derivative instruments which are required to be carried at fair value. These derivative instruments do not qualify as hedges under the Derivatives and Hedging topic of the FASB Accounting Standards Codification. The fair value of the Company's interest rate lock commitments is based on the value that can be generated when the underlying loan is sold on the secondary market and is included on the balance sheet in other assets and on the income statement in mortgage banking income (loss). The fair value of the Company's forward sales commitments is based on changes in the value of the commitment, principally because of changes in interest rates, and is included on the balance sheet in other assets or other liabilities and on the income statement in mortgage banking income (loss).

At September 30, 2012, Sidus had $63.3 million of commitments outstanding to originate mortgage loans held-for-sale at fixed prices and $88 million of forward commitments outstanding for original commitments and outstanding mortgage loans held-for-sale under best efforts contracts to sell mortgages to agencies and other investors. The fair value of forward sales commitments recorded in other assets was $1,008,706 at September 30, 2012. The fair value of the interest rate lock commitments recorded in liabilities was $(491,245) at September 30, 2012. Recognition of gains related to the change in fair value of forward sales commitments were $41,610 and $330,279 for the three and nine months ended September 30, 2012, respectively, and are included in mortgage banking activities income. Recognition of gains related to the change in fair value of the interest rate lock commitments were $64,294 and $141,071 for the three and nine months ended September 30, 2012, respectively, and are included in mortgage banking activities income. Recognition of losses related to the change in fair value of the interest rate lock commitments and gains related to forward sales commitments were $56,698 and $100,565 for the three months ended September 30, 2011, respectively, and are included in other income. Recognition of gains related to the change in fair value of the interest rate lock commitments and losses related to forward sales commitments were $50,398 and $86,737, respectively, for the nine months ended September 30, 2011, and are included in other income. At December 31, 2011, Sidus had $51.6 million of commitments outstanding to originate mortgage loans held-for-sale at fixed prices and $67.4 million of forward commitments outstanding under best efforts contracts to sell mortgages to agencies and other investors. The fair value of interest rate locks recorded in other assets was $57,363 at December 31, 2011. The fair value of the forward sales commitments recorded in other assets was $129,818 at December 31, 2011.

XML

Investment Securities - Amortized Cost and Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities
Amortized Cost, Total available-for-sale securities	$ 302,718	$ 324,172
Unrealized Gains	8,352	7,372
Unrealized Losses	514	1,122
Fair Value, Total available-for-sale securities	310,556	330,422	[1]
Securities of U.S. government agencies
Schedule of Available-for-sale Securities
Amortized Cost, Within 1 year	20,008	9,988
Amortized Cost, After 1 but within 5 years	12,779	13,622
Amortized Cost	32,787	23,610
Unrealized Gains	82	116
Unrealized Losses	0	0
Fair Value, Within 1 year	20,052	10,039
Fair Value, After 1 but within 5 years	12,817	13,687
Fair Value	32,869	23,726
Government sponsored agencies - Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Amortized Cost, Within 1 year	67
Amortized Cost, After 1 but within 5 years	490	476
Amortized Cost, After 5 but within 10 years	11,526	3,481
Amortized Cost, After 10 years	68,847	60,388
Amortized Cost	80,930	64,345
Unrealized Gains	2,346	1,258
Unrealized Losses	12	393
Fair Value, Within 1 year	68
Fair Value, After 1 but within 5 years	518	494
Fair Value, After 5 but within 10 years	11,871	3,762
Fair Value, After 10 years	70,807	60,954
Fair Value	83,264	65,210
Government sponsored agencies - Collateralized mortgage obligations
Schedule of Available-for-sale Securities
Amortized Cost, After 1 but within 5 years	1,743
Amortized Cost, After 5 but within 10 years	10,332	13,986
Amortized Cost, After 10 years	124,469	150,915
Amortized Cost	136,544	164,901
Unrealized Gains	1,389	1,719
Unrealized Losses	450	592
Fair Value, After 1 but within 5 years	1,750
Fair Value, After 5 but within 10 years	10,654	14,464
Fair Value, After 10 years	125,079	151,564
Fair Value	137,483	166,028
Private label collateralized mortgage obligations
Schedule of Available-for-sale Securities
Amortized Cost, After 5 but within 10 years	190	275
Amortized Cost, After 10 years	853	1,028
Amortized Cost	1,043	1,303
Unrealized Gains	23	10
Unrealized Losses	7	57
Fair Value, After 5 but within 10 years	183	285
Fair Value, After 10 years	876	971
Fair Value	1,059	1,256
State and municipal securities
Schedule of Available-for-sale Securities
Amortized Cost, Within 1 year	720	618
Amortized Cost, After 1 but within 5 years	5,738	6,575
Amortized Cost, After 5 but within 10 years	19,025	21,252
Amortized Cost, After 10 years	24,816	40,455
Amortized Cost	50,299	68,900
Unrealized Gains	4,470	4,246
Unrealized Losses	0	28
Fair Value, Within 1 year	731	623
Fair Value, After 1 but within 5 years	6,105	6,922
Fair Value, After 5 but within 10 years	20,673	22,872
Fair Value, After 10 years	27,260	42,701
Fair Value	54,769	73,118
Common and preferred stocks
Schedule of Available-for-sale Securities
Amortized Cost, Common and preferred stocks	1,115	1,113
Unrealized Gains	42	23
Unrealized Losses	45	52
Fair Value, Common and preferred stocks	1,112	1,084
Within 1 year | Securities of U.S. government agencies
Schedule of Available-for-sale Securities
Unrealized Gains	44	51
Unrealized Losses	0	0
Within 1 year | Government sponsored agencies - Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Unrealized Gains	1
Unrealized Losses	0
Within 1 year | State and municipal securities
Schedule of Available-for-sale Securities
Unrealized Gains	11	5
Unrealized Losses	0	0
After 1 but within 5 years | Securities of U.S. government agencies
Schedule of Available-for-sale Securities
Unrealized Gains	38	65
Unrealized Losses	0	0
After 1 but within 5 years | Government sponsored agencies - Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Unrealized Gains	28	18
Unrealized Losses	0	0
After 1 but within 5 years | Government sponsored agencies - Collateralized mortgage obligations
Schedule of Available-for-sale Securities
Unrealized Gains	7
Unrealized Losses	0
After 1 but within 5 years | State and municipal securities
Schedule of Available-for-sale Securities
Unrealized Gains	367	347
Unrealized Losses	0	0
After 5 but within 10 years | Government sponsored agencies - Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Unrealized Gains	345	281
Unrealized Losses	0	0
After 5 but within 10 years | Government sponsored agencies - Collateralized mortgage obligations
Schedule of Available-for-sale Securities
Unrealized Gains	322	478
Unrealized Losses	0	0
After 5 but within 10 years | Private label collateralized mortgage obligations
Schedule of Available-for-sale Securities
Unrealized Gains	0	10
Unrealized Losses	7	0
After 5 but within 10 years | State and municipal securities
Schedule of Available-for-sale Securities
Unrealized Gains	1,648	1,639
Unrealized Losses	0	19
After 10 years | Government sponsored agencies - Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Unrealized Gains	1,972	959
Unrealized Losses	12	393
After 10 years | Government sponsored agencies - Collateralized mortgage obligations
Schedule of Available-for-sale Securities
Unrealized Gains	1,060	1,241
Unrealized Losses	450	592
After 10 years | Private label collateralized mortgage obligations
Schedule of Available-for-sale Securities
Unrealized Gains	23	0
Unrealized Losses	0	57
After 10 years | State and municipal securities
Schedule of Available-for-sale Securities
Unrealized Gains	2,444	2,255
Unrealized Losses	$ 0	$ 9

[1] Derived from audited consolidated financial statements

XML

Fair Value - Nonrecurrning Measurements (Details) (Nonrecurring, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Estimated Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Other real estate owned	$ 8,715	$ 5,391
Estimated Fair Value | Impaired Loans Receivable | Construction Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	3,400	441
Estimated Fair Value | Impaired Loans Receivable | Owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	4,933	5,874
Estimated Fair Value | Impaired Loans Receivable | Non-owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	3,553	832
Estimated Fair Value | Impaired Loans Receivable | Commercial Loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	1,158	403
Estimated Fair Value | Impaired Loans Receivable | One to Four Family
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	749	453
Estimated Fair Value | Impaired Loans Receivable | Multifamily
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	165
Estimated Fair Value | Impaired Loans Receivable | Home Equity Lines of Credit
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	291
Estimated Fair Value | Impaired Loans Receivable | Consumer and Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Other real estate owned	0	0
Level 1 | Impaired Loans Receivable | Construction Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1 | Impaired Loans Receivable | Owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1 | Impaired Loans Receivable | Non-owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1 | Impaired Loans Receivable | Commercial Loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1 | Impaired Loans Receivable | One to Four Family
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1 | Impaired Loans Receivable | Multifamily
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1 | Impaired Loans Receivable | Home Equity Lines of Credit
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 1 | Impaired Loans Receivable | Consumer and Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Other real estate owned	0	0
Level 2 | Impaired Loans Receivable | Construction Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2 | Impaired Loans Receivable | Owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2 | Impaired Loans Receivable | Non-owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2 | Impaired Loans Receivable | Commercial Loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2 | Impaired Loans Receivable | One to Four Family
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2 | Impaired Loans Receivable | Multifamily
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2 | Impaired Loans Receivable | Home Equity Lines of Credit
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 2 | Impaired Loans Receivable | Consumer and Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	0
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Other real estate owned	8,715	5,391
Level 3 | Impaired Loans Receivable | Construction Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	3,400	441
Level 3 | Impaired Loans Receivable | Owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	4,933	5,874
Level 3 | Impaired Loans Receivable | Non-owner Occupied
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	3,553	832
Level 3 | Impaired Loans Receivable | Commercial Loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	1,158	403
Level 3 | Impaired Loans Receivable | One to Four Family
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	749	453
Level 3 | Impaired Loans Receivable | Multifamily
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	165
Level 3 | Impaired Loans Receivable | Home Equity Lines of Credit
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	0	291
Level 3 | Impaired Loans Receivable | Consumer and Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	$ 0	$ 0

XML

Income Taxes

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table presents the provision for income taxes for the nine months ended September 30, 2012 and 2011:

	2012			2011
	(in thousands)
Current:
Federal	$	(342	)	$	1,627
State	—			—
	(342		)	1,627
Deferred:
Federal	1,575			(5,120		)
State	438			(602		)
	2,013			(5,722		)
Increase (decrease) in valuation allowance for deferred tax assets	(11,000		)	11,000
Total income taxes	$	(9,329	)	$	6,905

The following table presents the tax effects of significant components of the Company's net deferred tax assets as of September 30, 2012 and December 31, 2011:

	September 30,			December 31,
	2012			2011
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	10,671		$	12,880
Other than temporary impairment	807			807
Accrued liabilities	213			276
OREO property	1,594			1,268
Net operating loss	6,511			7,281
Sidus goodwill	953			1,050
Other	1,887			1,798
	22,636			25,360
Less: Valuation Allowance	—			(11,000		)
	$	22,636		$	14,360
Deferred tax liabilities:
Unrealized gain on available-for-sale securities	$	(3,002	)	$	(2,387	)
FMV adjustment related to mergers	(177		)	(255		)
Depreciation	(1,688		)	(1,980		)
Prepaid expenses	(358		)	(327		)
Core deposit intangible	(1,146		)	(1,468		)
Noncompete intangible	(149		)	(149		)
Other	(146		)	(195		)
	$	(6,666	)	$	(6,761	)
Net deferred tax asset	$	15,970		$	7,599

Our net deferred tax asset was $16.0 million at September 30, 2012 and $7.6 million at December 31, 2011. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is used in the consideration to determine whether, based on the weight of that evidence, a valuation allowance is required.

As of June 30, 2012, the Company reversed a previously recorded $11 million valuation allowance which had been established as a measure of caution in 2011 after falling into a 3-year cumulative loss position at that time. After review of all available evidence at June 30, 2012 and based on the weight of such evidence, the Company believed the realization of the deferred tax asset was more likely than not and reversed the previously recorded $11.0 million valuation allowance. The reversal of the allowance was based primarily on a return to profitability as the Company had reported four consecutive quarters of net income. Based on net income trends, projected net income over the next 36 months and improving credit quality metrics, no valuation allowance was deemed necessary as of June 30, 2012.

At September 30, 2012, the Company considered the following negative and positive evidence in its evaluation of deferred tax assets:

• The Company is in a cumulative tax income position for the 3-year period ending September 30, 2012 of $1.7 million. Significance: High

	September 30, 2012 Cumulative Loss Test
	2009*		2010			2011			2012**		Total
Income (loss) before income taxes	$	6,545	$	(1,402	)	$	(7,701	)	$	5,897	$	(3,206	)
Goodwill impairment	—		—			4,944			—		4,944
	$	6,545	$	(1,402	)	$	(2,757	)	$	5,897	$	1,738

*4th quarter of 2009

**First nine months of 2012

• The Company has recorded $14.7 million in taxable income for five previous consecutive quarters as credit quality has improved and net interest margin has increased over the past year. Credit quality has improved, including significant decreases in classified loans and nonperforming loans. Credit losses have shown a dramatic reduction in the second half of 2011 and continuing into 2012 with only $16.5 million in charge-offs for the nine months ended September 30, 2012. Significance: High

• The Company's strong history of earnings since the inception of the Bank, and particularly over the 10 year period prior to the current economic cycle, shows the Company has historically been profitable and has no history of expiration of loss carryforwards. Significance: Moderate

• Management is not aware of any unsettled circumstances that, if resolved, would adversely affect future operations or earnings. Significance: Low

• Credit quality has improved over the past twelve months, including significant decreases in classified loans and nonperforming loans. Credit losses have shown a dramatic reduction in the second half of 2011 and continuing into 2012, with only $25.3 million in gross charge-offs over the past twelve months as compared to $39.8 million in the twelve prior months. Significance: Moderate

• Federal net operating losses can be deducted over the twenty year carryforward period. Currently, management is projecting full utilization of these tax benefits within 3 years from December 31, 2011. The Company's loss carryforwards for the tax period ending December 31, 2012 include net operating loss carryforwards generated in the acquisition of Cardinal State Bank in 2008 and American Community Bank in 2009, as well as net operating loss carryforwards for the Company. The expiration of the loss carryforwards for the tax period ending December 31, 2012 are as follows:

Significance: Moderate

	Net Operating Loss  Carryforward at December 31, 2011		Expiration
	(in thousands)
Cardinal State Bank acquisition	$	2,424	2029
American Community Bank acquisition	345		2030
Yadkin Valley Federal Tax	14,517		2031
Yadkin Valley State Tax	16,166		2031
Total Loss Carryforwards	$	33,452

After review of all available evidence and based on the weight of such evidence, the Company believes the realization of the deferred tax asset is, more likely than not and no valuation allowance is deemed necessary at September 30, 2012 based primarily on a return to profitability (excluding projected losses related to management's de-risk plan) as the Company has reported five consecutive quarters of net income, net income trends, projected net income for the years 2013-2015 and improving credit quality metrics.

In October 2012, the Company announced a plan to reduce credit risk and reduce problem assets. As a result of this plan, the Company is projecting a loss for the year ended December 31, 2012. This loss will cause the Company to return to a cumulative loss position for the 3-year period ended. Although the Company estimates losses related to this effort will be between $40-45 million, the plan will help reduce problem assets that led to significant losses in the years 2010 and 2011 and capital raised as part of the Private Placement will better position the Company in the future. See Note 15 for further discussion on the Private Placement and de-risk plan. The Company has considered this potential transaction as part of our analysis of realizability of deferred tax assets at September 30, 2012 and concluded that it was still more likely than not that the deferred tax assets will be realized and that no valuation allowance is necessary at September 30, 2012.

The following table presents a reconciliation of applicable income taxes for the nine months ended September 30, 2012 and 2011 to the amount of tax expense computed at the statutory federal income tax rate of 35%:

	2012			2011
	(in thousands)
Tax expense (benefit) at statutory rate on income before income taxes	$	2,064		$	(3,645	)
Increases (decreases) resulting from:
Tax-exempt interest on investments	(589		)	(651		)
State income tax, net of federal benefits	285			(391		)
Income from bank-owned life insurance	(166		)	(172		)
Valuation allowance on deferred tax assets	(11,000		)	11,000
Other	77			764
Total income taxes	$	(9,329	)	$	6,905

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Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Reconciliation of denominator of basic and diluted net income per share

A reconciliation of the denominator of the basic net income per common share computations to the denominator of the diluted net income per common share computations is as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2012	2011	2012	2011
Basic EPS denominator:
Weighted average number of common shares outstanding	19,389,251	19,527,855	19,382,649	17,858,777
Dilutive potential common shares	—	—	—	—
Diluted EPS denominator	19,389,251	19,527,855	19,382,649	17,858,777

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Fair Value - Fair Value of Assets and Liabilities on Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	$ 1,112	$ 1,084
Level 1 | Interest Rate Swap Agreements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Derivative liabilities	0	0
Level 1 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative liabilities		0
Level 1 | Forward Sales Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Derivative liabilities	0
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	309,444	329,338
Level 2 | Interest Rate Swap Agreements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Derivative liabilities	0	0
Level 2 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0
Derivative liabilities		0
Level 2 | Forward Sales Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	1,008	57
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Level 3 | Interest Rate Swap Agreements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	213	216
Derivative liabilities	(213)	(216)
Level 3 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative liabilities	(491)	(130)
Level 3 | Forward Sales Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Recurring | Estimated Fair Value | Interest Rate Swap Agreements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	213	216
Derivative liabilities	(213)	(216)
Recurring | Estimated Fair Value | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets		130
Derivative Liabilities	(491)
Recurring | Estimated Fair Value | Forward Sales Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	1,008	57
Recurring | Estimated Fair Value | Mortgage Servicing Rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	2,036	1,871
Recurring | Estimated Fair Value | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	32,869	23,726
Recurring | Estimated Fair Value | Government sponsored agencies - Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	83,264	65,210
Recurring | Estimated Fair Value | Government sponsored agencies - Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	137,483	166,028
Recurring | Estimated Fair Value | Private label collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	1,059	1,256
Recurring | Estimated Fair Value | State and municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	54,769	73,118
Recurring | Estimated Fair Value | Common and preferred stocks
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	1,112	1,084
Recurring | Level 1 | Interest Rate Swap Agreements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Derivative liabilities	0	0
Recurring | Level 1 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Recurring | Level 1 | Forward Sales Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets		0
Derivative liabilities	0
Recurring | Level 1 | Mortgage Servicing Rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Recurring | Level 1 | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 1 | Government sponsored agencies - Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 1 | Government sponsored agencies - Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 1 | Private label collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 1 | State and municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 1 | Common and preferred stocks
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	1,112	1,084
Recurring | Level 2 | Interest Rate Swap Agreements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Derivative liabilities	0	0
Recurring | Level 2 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Recurring | Level 2 | Forward Sales Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets		57
Derivative liabilities	1,008
Recurring | Level 2 | Mortgage Servicing Rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	0	0
Recurring | Level 2 | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	32,869	23,726
Recurring | Level 2 | Government sponsored agencies - Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	83,264	65,210
Recurring | Level 2 | Government sponsored agencies - Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	137,483	166,028
Recurring | Level 2 | Private label collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	1,059	1,256
Recurring | Level 2 | State and municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	54,769	73,118
Recurring | Level 2 | Common and preferred stocks
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 3 | Interest Rate Swap Agreements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	213	216
Derivative liabilities	(213)	(216)
Recurring | Level 3 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	(491)	130
Recurring | Level 3 | Forward Sales Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets		0
Derivative liabilities	0
Recurring | Level 3 | Mortgage Servicing Rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative assets	2,036	1,871
Recurring | Level 3 | U.S. government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 3 | Government sponsored agencies - Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 3 | Government sponsored agencies - Collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 3 | Private label collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 3 | State and municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	0	0
Recurring | Level 3 | Common and preferred stocks
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Available-for-sale securities	$ 0	$ 0

XML

Derivatives (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012 DerivativeInstruments	Sep. 29, 2011	Sep. 30, 2012 DerivativeInstruments	Sep. 30, 2011	Dec. 31, 2011
Commitments to Originate Mortgage Loans Held-for-Sale at Fixed Prices
Derivatives
Derivative Asset, Notional Amount	$ 63,300,000		$ 63,300,000		$ 51,600,000
Interest Rate Lock Commitments | Not Designated as Hedging Instrument | Other Assets
Derivatives
Derivative Asset, Fair Value, Gross Asset					57,363
Interest Rate Lock Commitments | Not Designated as Hedging Instrument | Other Liabilities
Derivatives
Derivative Liability, Fair Value, Gross Liability	(491,245)		(491,245)
Forward Sales Commitments | Not Designated as Hedging Instrument
Derivatives
Derivative Asset, Notional Amount	88,000,000		88,000,000		67,400,000
Forward Sales Commitments | Not Designated as Hedging Instrument | Other Assets
Derivatives
Derivative Asset, Fair Value, Gross Asset	1,008,706		1,008,706		129,818
Interest Rate Swap Agreements | Not Designated as Hedging Instrument
Derivatives
Number of derivative agreements	2		2
LIBOR rate used to calculate notional amount			1 month
Derivative Asset, Notional Amount	2,000,000		2,000,000		2,000,000
Derivative Liability, Notional Amount	2,000,000		2,000,000		2,000,000
Gain on derivative	334	54,211	4,057	68,357
Loss on derivative	334	54,211	4,057	68,357
Interest Rate Swap Agreements | Not Designated as Hedging Instrument | Other Assets
Derivatives
Derivative Asset, Fair Value, Gross Asset	212,923		212,923		216,979
Interest Rate Swap Agreements | Not Designated as Hedging Instrument | Other Liabilities
Derivatives
Derivative Liability, Fair Value, Gross Liability	(212,923)		(212,923)		(216,979)
Minimum
Derivatives
Time period between issuance of loan commitment and closing and sale of loan			10 days
Maximum
Derivatives
Time period between issuance of loan commitment and closing and sale of loan			60 days
Mortgage Banking Activities | Interest Rate Lock Commitments
Derivatives
Gain on derivative	64,294		141,071
Mortgage Banking Activities | Forward Sales Commitments
Derivatives
Gain on derivative	41,610		330,279
Other Income | Interest Rate Lock Commitments
Derivatives
Gain on derivative				50,398
Loss on derivative		56,698
Other Income | Forward Sales Commitments
Derivatives
Gain on derivative		100,565
Loss on derivative				$ 86,737

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 29, 2011	Sep. 30, 2012	Sep. 30, 2011
NET INCOME (LOSS)	$ 757	$ 3,679	$ 15,226	$ (17,320)
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains on securities available-for-sale	1,975	3,234	3,239	7,338
Tax effect	(760)	(1,245)	(1,247)	(2,825)
Unrealized holding gains on securities available-for-sale, net of tax amount	1,215	1,989	1,992	4,513
Reclassification adjustment for realized gains	(1,348)	(1,556)	(1,648)	(1,998)
Tax effect	519	599	634	769
Reclassification adjustment for realized gains, net of tax amount	(829)	(957)	(1,014)	(1,229)
OTHER COMPREHENSIVE INCOME, NET OF TAX	386	1,032	978	3,284
COMPREHENSIVE INCOME (LOSS)	$ 1,143	$ 4,711	$ 16,204	$ (14,036)

XML

Income Taxes - Net Operating Loss Carryforwards (Details) (USD $)	Dec. 31, 2011	Dec. 31, 2011 Yadkin Valley Federal Tax	Dec. 31, 2011 Yadkin Valley State Tax	Dec. 31, 2011 Cardinal State Bank	Dec. 31, 2011 American Community Bank	Oct. 25, 2012 Subsequent Event Credit Risk Reduction Plan
Operating Loss Carryforwards
Loss Carryforwards	$ 33,452,000	$ 14,517,000	$ 16,166,000	$ 2,424,000	$ 345,000
Estimated losses, minimum						45,000,000
Estimated loss, maximum						$ 40,000,000

XML

Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2012

Receivables [Abstract]

Loans Receivable

The following table presents loans at September 30, 2012 and December 31, 2011 by class:

	September 30,			December 31,
	2012			2011
	(in thousands)
Construction and land development	$	147,408		$	202,803
Commercial real estate:
Owner occupied	346,908			348,931
Non-owner occupied	230,854			242,827
Residential mortgages:
1-4 family	174,712			179,047
Multifamily	37,987			39,881
Home equity lines of credit	196,489			201,220
Commercial	168,510			177,047
Consumer and other	54,772			58,283
Total	1,357,640			1,450,039
Less: Net deferred loan origination fees	1,228			885
Allowance for loan losses	(27,231		)	(32,848		)
Loans, net	$	1,331,637		$	1,418,076

Credit Quality Indicators

The following is a summary of credit quality indicators by class at September 30, 2012 and December 31, 2011:

Real Estate Credit Exposure as of September 30, 2012
			Commercial Real Estate
	Construction		Owner occupied		Non-owner occupied		1-4 Family		Multifamily		Home Equity
	(in thousands)
High Quality	$	—	$	121	$	—	$	379	$	—	$	116
Good Quality	480		—		—		1,416		—		7,566
Satisfactory	22,165		107,794		59,713		96,222		7,856		119,279
Merits Attention	70,357		192,518		137,137		58,010		28,164		59,019
Special Mention	22,137		23,906		21,108		8,479		575		4,223
Substandard	10,428		5,171		2,013		3,087		609		2,336
Substandard impaired	19,632		17,398		10,883		7,119		783		3,950
Doubtful	2,209		—		—		—		—		—
Loss	—		—		—		—		—		—
	$	147,408	$	346,908	$	230,854	$	174,712	$	37,987	$	196,489

Other Credit Exposures as of September 30, 2012
	Commercial		Consumer and other		Total Loans
	(in thousands)
High Quality	$	2,620	$	2,473	$	5,709
Good Quality	5,300		1,383		16,145
Satisfactory	50,336		24,880		488,245
Merits Attention	81,934		24,748		651,887
Special Mention	17,549		629		98,606
Substandard	1,613		88		25,345
Substandard impaired	9,158		571		69,494
Doubtful	—		—		2,209
Loss	—		—		—
	$	168,510	$	54,772	$	1,357,640

Real Estate Credit Exposure as of December 31, 2011
			Commercial Real Estate
	Construction		Owner  occupied		Non-owner  occupied		1-4 Family		Multifamily		Home Equity
	(in thousands)
High Quality	$	—	$	126	$	—	$	423	$	—	$	132
Good Quality	543		32		117		1,701		—		7,545
Satisfactory	30,446		110,051		61,416		98,992		8,789		125,932
Merits Attention	93,974		180,173		134,247		57,310		28,824		58,576
Special Mention	41,739		23,326		24,307		9,112		697		4,807
Substandard	5,054		10,069		11,162		3,586		629		2,006
Substandard impaired	31,047		25,154		11,578		7,923		942		2,222
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
	$	202,803	$	348,931	$	242,827	$	179,047	$	39,881	$	201,220

Other Credit Exposures as of December 31, 2011
	Commercial		Consumer and other		Total Loans
	(in thousands)
High Quality	$	2,690	$	1,831	$	5,202
Good Quality	5,472		1,482		16,892
Satisfactory	55,309		27,508		518,443
Merits Attention	80,064		25,607		658,775
Special Mention	12,224		1,189		117,401
Substandard	10,367		118		42,991
Substandard impaired	10,921		548		90,335
Doubtful	—		—		—
Loss	—		—		—
	$	177,047	$	58,283	$	1,450,039

Nonaccrual Loans

The following is a breakdown of nonaccrual loans as of September 30, 2012 and December 31, 2011:

	September 30, 2012		December 31, 2011
	(in thousands)
Financing Receivables on Nonaccrual status
Construction	$	16,497	$	26,575
Commercial Real Estate:
Owner occupied	14,771		16,339
Non-owner occupied	5,936		7,634
Mortgages:
1-4 Family first lien	6,370		7,271
Multifamily	713		942
Home Equity lines of credit	3,950		2,222
Commercial	8,293		8,896
Consumer and other	523		475
Total	$	57,053	$	70,354

Past Due Loan Aging

The following table presents the Bank's aged analysis of past due loans:

	30-59 Days  Past Due		60-89 Days  Past Due		Greater Than  90 Days		Total Past  Due		Current		Total Loans
September 30, 2012	(in thousands)
Construction	$	706	$	2,258	$	8,223	$	11,187	$	136,221	$	147,408
Commercial real estate:
Owner occupied	1,414		1,883		3,727		7,024		339,884		346,908
Non-owner occupied	2,686		2,178		3,141		8,005		222,849		230,854
Commercial	767		3,678		3,055		7,500		161,010		168,510
Mortgages:
Secured 1-4 family- first lien	2,286		1,534		3,406		7,226		167,486		174,712
Multifamily	6		79		—		85		37,902		37,987
Home equity lines of credit	1,345		216		2,209		3,770		192,719		196,489
Consumer and other	276		112		258		646		54,126		54,772
Total	$	9,486	$	11,938	$	24,019	$	45,443	$	1,312,197	$	1,357,640
December 31, 2011
Construction	$	2,265	$	402	$	15,538	$	18,205	$	184,598	$	202,803
Commercial real estate:
Owner occupied	4,342		1,215		3,727		9,284		339,647		348,931
Non-owner occupied	9,723		86		4,679		14,488		228,339		242,827
Commercial	586		1,432		2,087		4,105		172,942		177,047
Mortgages:
Secured 1-4 family- first lien	3,441		1,049		2,955		7,445		171,602		179,047
Multifamily	277		—		896		1,173		38,708		39,881
Home equity lines of credit	—		634		856		1,490		199,730		201,220
Consumer and other	375		61		128		564		57,719		58,283
Total	$	21,009	$	4,879	$	30,866	$	56,754	$	1,393,285	$	1,450,039

Impaired Loans

The following table presents the Bank's investment in loans considered to be impaired and related information on those impaired loans as of September 30, 2012 and December 31, 2011:

							Quarter to Date				Year to Date
	Recorded  Investment		Unpaid  Principal  Balance		Related  Allowance		Average  Recorded  Investment		Interest Income Recognized		Average  Recorded  Investment		Interest Income Recognized
September 30, 2012	(in thousands)
Impaired loans without a related allowance for loan losses
Construction	$	13,376	$	14,563	$	—	$	14,694	$	125	$	20,382	$	275
Commercial real estate:
Owner occupied	14,056		14,756		—		13,840		23		15,594		332
Non-owner occupied	3,506		3,893		—		4,017		29		8,193		39
Commercial	6,226		6,432		—		6,403		—		6,316		130
Mortgages:
Secured 1-4 family real estate	968		991		—		1,432		—		2,680		29
Multifamily	701		884		—		703		4		702		7
Home equity lines of credit	1,706		1,767		—		1,588		—		1,320		7
Consumer and other	—		—		—		—		—		—		—
Impaired loans with a related allowance for loan losses
Construction	$	4,649	$	5,382	$	1,249	$	4,106	$	—	$	2,379	$	—
Commercial real estate:
Owner occupied	5,212		5,220		279		6,154		66		6,910		134
Non-owner occupied	4,029		4,300		476		3,491		26		1,768		42
Commercial	2,790		2,936		1,632		2,865		—		3,006		164
Mortgages:
Secured 1-4 family real estate	903		919		155		449		—		411		3
Multifamily	—		—		—		—		—		30		7
Home equity lines of credit	—		—		—		29		—		111		—
Consumer and other	—		—		—		54		—		67		—
Total impaired loans
Construction	$	18,025	$	19,945	$	1,249	$	18,800	$	125	$	22,761	$	275
Commercial real estate:
Owner occupied	19,268		19,976		279		19,994		89		22,504		466
Non-owner occupied	7,535		8,193		476		7,508		55		9,961		81
Commercial	9,016		9,368		1,632		9,268		—		9,322		294
Mortgages:
Secured 1-4 family real estate	1,871		1,910		155		1,881		—		3,091		32
Multifamily	701		884		—		703		4		732		14
Home equity lines of credit	1,706		1,767		—		1,617		—		1,431		7
Consumer and other	—		—		—		54		—		67		—
Total impaired loans individually reviewed for impairment	$	58,122	$	62,043	$	3,791	$	59,825	$	273	$	69,869	$	1,169

	As of December 31, 2011						Quarter to Date September 30, 2011				Year to Date September 30, 2011
	Recorded Investment		Unpaid  Principal  Balance		Related  Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
Impaired loans without a related allowance for loan losses
Construction	$	28,067	$	40,045	$	—	$	22,835	$	81	$	26,288	$	139
Commercial real estate:
Owner occupied	17,586		20,070		—		10,104		88		13,166		175
Non-owner occupied	8,639		11,255		—		6,640		59		8,591		155
Commercial	6,381		6,436		—		2,560		42		3,636		126
Mortgages:
Secured 1-4 family real estate	3,843		4,285		—		2,372		14		2,851		24
Multifamily	295		309		—		299		—		304		—
Home equity lines of credit	525		694		—		707		—		725		—
Consumer and other	—		—		—		—		—		—		—
Impaired loans with a related allowance for loan losses
Construction	$	1,011	$	1,011	$	570	$	9,159	$	2	$	8,740	$	5
Commercial real estate:
Owner occupied	6,459		6,533		585		3,209		7		5,891		22
Non-owner occupied	975		1,363		143		2,517		—		4,994		—
Commercial	2,914		2,920		2,511		1,067		24		5,218		71
Mortgages:
Secured 1-4 family real estate	498		517		45		1,010		2		2,331		6
Multifamily	300		319		135		460		—		454		—
Home equity lines of credit	403		412		112		749		—		720		—
Consumer and other	—		—		—		130		—		129		—
Total impaired loans
Construction	$	29,078	$	41,056	$	570	$	31,994	$	83	$	35,028	$	144
Commercial real estate:
Owner occupied	24,045		26,603		585		13,313		95		19,057		197
Non-owner occupied	9,614		12,618		143		9,157		59		13,585		155
Commercial	9,295		9,356		2,511		3,627		66		8,854		197
Mortgages:
Secured 1-4 family real estate	4,341		4,802		45		3,382		16		5,182		30
Multifamily	595		628		135		759		—		758		—
Home equity lines of credit	928		1,106		112		1,456		—		1,445		—
Consumer and other	—		—		—		130		—		129		—
Total impaired loan individually reviewed for impairment	$	77,896	$	96,169	$	4,101	$	63,818	$	319	$	84,038	$	723

Troubled Debt Restructurings

	Three Months Ended September 30, 2012
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Secured 1-4 family mortgages	1	$	396	$	391
Total	1	$	396	$	391
Extended payment terms
Construction	2	$	521	$	521
Commercial real estate:
Non-owner occupied	2	1,375		1,156
Owner occupied	2	353		331
Total	6	$	2,249	$	2,008
Total	7	$	2,645	$	2,399

	Nine Months Ended September 30, 2012
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Secured 1-4 family mortgages	1	$	396	$	391
Total	1	$	396	$	391
Extended payment terms
Construction	5	$	1,231	$	873
Commercial real estate:
Non-owner occupied	3	1,586		1,367
Owner occupied	7	2,065		2,021
Commercial	6	1,872		1,482
1-4 Family Residential	3	827		751
Consumer	1	26		24
Total	25	$	7,607	$	6,518
Principal payment reduction
Commercial real estate:
Owner occupied	2	$	571	$	571
Consumer	1	165		9
Total	3	$	736	$	580
Total	29	$	8,739	$	7,489

	Three Months Ended September 30, 2011
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Construction	2	$	1,721	$	1,705
Secured 1-4 family mortgages	1	150		150
Total	3	$	1,871	$	1,855
Extended payment terms
Construction	3	$	595	$	586
Commercial real estate:
Non-owner occupied	2	734		139
Owner occupied	4	6,834		6,404
Commercial	1	120		120
Total	10	$	8,283	$	7,249
Principal payment reduction
Construction	1	$	400	$	258
Commercial	1	16		15
Total	2	$	416	$	273
Total	15	$	10,570	$	9,377

	Nine Months Ended September 30, 2011
	Number of Loans	Recorded  Investment  Prior to  Modification		Recorded  Investment  After  Modification
		(in thousands)
Below market interest rate
Construction	3	$	2,221	$	2,131
Secured 1-4 family mortgages	1	150		150
Total	4	$	2,371	$	2,281
Extended payment terms
Construction	8	2,705		2,449
Commercial real estate:
Non-owner occupied	3	1,133		533
Owner occupied	9	8,230		7,743
Commercial	3	346		120
1-4 Family Residential	2	327		197
Consumer	—	—		—
Total	25	$	12,741	$	11,042
Principal payment reduction
Construction	4	3,302		1,060
Commercial real estate:
Owner occupied	1	240		—
Commercial	2	64		62
Home equity lines of credit	1	165		165
Total	8	3,771		1,287
Total	37	$	18,883	$	14,610

The following tables present loans that were modified as troubled debt restructurings during the previous twelve months and for which there was a payment default during the nine months ended September 30, 2012 and three and nine months ended September 30, 2011. There were no payment defaults for troubled debt restructurings for the three months ended September 30, 2012.

	Nine months ended September 30, 2012
	Number of loans	Recorded investment
Below Market Rate		(in thousands)
Construction	1	$	578
Total	1	$	578
Extended payment terms
Consumer	1	$	24
Total	1	$	24
Total	2	$	602

	Three months ended September 30, 2011			Nine months ended September 30, 2011
	Number of loans	Recorded investment		Number of loans	Recorded investment
Extended payment terms		(in thousands)			(in thousands)
Construction	1	$	221	1	$	221
Commercial real estate:
Non-owner occupied	1	1,789		1	1,789
Commercial	—	—		2	226
Secured 1-4 family mortgages	1	120		1	120
Total	3	$	2,130	5	$	2,356
Principal payment reduction
Construction	1	$	797	1	$	797
Commercial real estate:
Owner occupied	—			1	240
Total	1	$	797	2	$	1,037
Total	4	$	2,927	7	$	3,393

Allowance for Loan Losses

The following table presents changes in the allowance for loan losses for the three months ended September 30, 2012 and 2011:

	June 30, 2012		Charge-offs		Recoveries		Provision			September 30, 2012
	(Amounts in thousands)
Construction	$	5,903	$	3,881	$	45	$	3,675		$	5,742
Commercial real estate:
Owner occupied	5,630		146		2		(943		)	4,543
Non-owner occupied	3,582		697		256		1,096			4,237
Commercial	4,715		771		63		624			4,631
Mortgages:
Secured 1-4 family- first lien	3,063		57		4		(83		)	2,927
Multifamily	563		—		—		5			568
Home equity lines of credit	4,399		372		29		(162		)	3,894
Consumer and other	942		313		21		39			689
	$	28,797	$	6,237	$	420	$	4,251		$	27,231
	June 30, 2011		Charge-offs		Recoveries		Provision			September 30, 2011
	(Amounts in thousands)
Construction	$	10,770	$	1,175	$	630	$	(390	)	$	9,835
Commercial real estate:
Owner occupied	6,701		546		3		(506		)	5,652
Non-owner occupied	4,280		1,101		—		707			3,886
Commercial	4,020		489		278		976			4,785
Mortgages:
Secured 1-4 family- first lien	4,514		584		84		223			4,237
Multifamily	526		—		—		48			574
Home equity lines of credit	4,012		973		17		867			3,923
Consumer and other	829		156		77		31			781
	$	35,652	$	5,024	$	1,089	$	1,956		$	33,673

The following table presents changes in the allowance for loan losses for the nine months ended September 30, 2012 and 2011:

	December 31, 2011		Charge-offs		Recoveries		Provision			September 30, 2012
	(Amounts in thousands)
Construction	$	8,214	$	7,823	$	323	$	5,028		$	5,742
Commercial real estate:
Owner occupied	5,792		2,019		126		644			4,543
Non-owner occupied	4,668		2,461		289		1,741			4,237
Commercial	5,712		1,789		829		(121		)	4,631
Mortgages:
Secured 1-4 family- first lien	3,726		625		153		(327		)	2,927
Multifamily	805		213		—		(24		)	568
Home equity lines of credit	3,310		1,073		50		1,607			3,894
Consumer and other	621		521		317		272			689
	$	32,848	$	16,524	$	2,087	$	8,820		$	27,231
	December 31, 2010		Charge-offs		Recoveries		Provision			September 30, 2011
	(Amounts in thousands)
Construction	$	12,014	$	9,050	$	1,710	$	5,161		$	9,835
Commercial real estate:
Owner occupied	5,958		3,382		109		2,967			5,652
Non-owner occupied	7,150		3,434		52		118			3,886
Commercial	4,335		2,513		389		2,574			4,785
Mortgages:
Secured 1-4 family- first lien	3,706		2,364		161		2,734			4,237
Multifamily	424		11		—		161			574
Home equity lines of credit	3,298		2,659		97		3,187			3,923
Consumer and other	867		569		169		314			781
	$	37,752	$	23,982	$	2,687	$	17,216		$	33,673

The following tables provide the a breakdown of allowance for loan losses for collectively evaluated and individually evaluated loans by type as of September 30, 2012 and December 31, 2011.

	Reserves for  loans  individually  evaluated for  impairment		Loans  individually  evaluated for  impairment		Reserves for  loans  collectively  evaluated for  impairment		Loans  collectively  evaluated for  impairment
As of September 30, 2012	(Amounts in thousands)
Construction	$	1,249	$	18,025	$	4,493	$	129,383
Commercial real estate:
Owner occupied	279		19,268		4,264		327,640
Non-owner occupied	476		7,535		3,761		223,319
Commercial	1,632		9,016		2,999		159,494
Mortgages:
Secured 1-4 family- first lien	155		1,871		2,773		172,841
Multifamily	—		701		567		37,286
Home equity lines of credit	—		1,706		3,894		194,783
Consumer and other	—		—		689		54,772
	$	3,791	$	58,122	$	23,440	$	1,299,518
	Reserves for  loans  individually  evaluated for  impairment		Loans  individually  evaluated for  impairment		Reserves for  loans  collectively  evaluated for  impairment		Loans  collectively  evaluated for  impairment
As of December 31, 2011	(Amounts in thousands)
Construction	$	570	$	29,078	$	7,644	$	173,725
Commercial real estate:
Owner occupied	585		24,045		5,207		324,886
Non-owner occupied	143		9,614		4,525		233,213
Commercial	2,511		9,295		3,201		167,752
Mortgages:
Secured 1-4 family- first lien	45		4,341		3,681		174,706
Multifamily	135		595		670		39,286
Home equity lines of credit	112		928		3,198		200,292
Consumer and other	—		—		621		58,283
	$	4,101	$	77,896	$	28,747	$	1,372,143

XML

Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012
Commitments to Extend Credit
Commitments and Contingencies
Commitments outstanding	$ 266.8
Standby Letters of Credit
Commitments and Contingencies
Commitments outstanding	7.5
Commitments to Originate Mortgage Loans Held-for-Sale at Fixed Prices
Commitments and Contingencies
Commitments outstanding	63.3
Forward Sales Commitments
Commitments and Contingencies
Commitments outstanding	$ 88.0

XML

Business Segment Information

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Business Segment Information

Business Segment Information

The Company has two reportable segments, including banking activities and mortgage banking activities, which includes mortgage activities at the Bank and at Sidus Financial, a single member LLC with the Bank as the single member. Sidus is headquartered in Greensboro, North Carolina and offers mortgage banking services to its customers throughout the Southeast. The following table details the results of operations for the three and nine months ended September 30, 2012 and 2011 for bank activities and mortgage activities.

During the second quarter of 2012, a decision was made by management to make a change in how the Company's mortgage activities are reported based on the reorganization of the Bank's mortgage division and Sidus. This decision was made to improve overall reporting of its mortgage banking activities which are now analyzed and reviewed as a separate and distinct business segment. This change in reporting segment combines both mortgage activities of the Bank with mortgage activities that were previously reported separately from mortgage activities provided by Sidus. Reclassifications include interest income which was previously presented in other income, commission expenses recorded in salaries that are now recorded as a reduction in mortgage banking activity income, and other miscellaneous expenses previously recorded in other expenses that have been reclassified as a reduction to mortgage banking activity income. In addition, gains on sale of mortgage loans has been reclassified to be reported with mortgage banking income to provide a combined overview of the mortgage banking activity segment. The reclassifications had no effect on net income (loss) or shareholders' equity, as previously reported.

	Bank Activities			Mortgage Activities			Other			Total
	(Amounts in thousands)
For Three Months Ended September 30, 2012
Interest income	$	19,238		$	208		$	—		$	19,446
Interest expense	3,985			61			211			4,257
Net interest income	15,253			147			(211		)	15,189
Provision for loan losses	4,254			(3		)	—			4,251
Net interest income (loss) after provision for loan losses	10,999			150			(211		)	10,938
Other income	3,060			1,599			6			4,665
Other expense	13,589			1,192			11			14,792
Income (loss) before income taxes	470			557			(216		)	811
Income taxes	54			—			—			54
Net income (loss)	$	416		$	557		$	(216	)	$	757
Total assets	$	1,899,745		$	33,208		$	(12,575	)	$	1,920,378
Net loans	1,331,637			—			—			1,331,637
Loans held for sale	—			24,766			—			24,766
For Nine Months Ended September 30, 2012
Interest income	$	59,641		$	538		$	—		$	60,179
Interest expense	13,215			90			636			13,941
Net interest income	46,426			448			(636		)	46,238
Provision for loan losses	8,842			(22		)	—			8,820
Net interest income (loss) after provision for loan losses	37,584			470			(636		)	37,418
Other income	8,134			4,412			35			12,581
Other expense	40,781			3,297			24			44,102
Income (loss) before income taxes	4,937			1,585			(625		)	5,897
Income taxes	(9,329		)	—			—			(9,329		)
Net income (loss)	$	14,266		$	1,585		$	(625	)	$	15,226

(1) Note: The “Other” column includes asset eliminations representing the Bank's Due from Sidus account ($10,689 in 2012), the Bank's Investment in Sidus ($3,000 in 2012), and the Bank's A/R from Sidus ($0 in 2012). Also included in this column are Holding Company assets ($1,114 in 2012) and Holding Company income and expenses.

	Bank Activities			Mortgage Activities			Other			Total
	(Amounts in thousands)
For Three Months Ended September 30, 2011
Interest income	$	21,400		$	165		$	—		$	21,565
Interest expense	5,738			10			192			5,940
Net interest income	15,662			155			(192		)	15,625
Provision for loan losses	1,922			34			—			1,956
Net interest income (loss) after provision for loan losses	13,740			121			(192		)	13,669
Other income	4,281			996			(54		)	5,223
Other expense	11,299			1,528			2			12,829
Income (loss) before income tax expense	6,722			(411		)	(248		)	6,063
Income tax expense	2,384			—			—			2,384
Net income (loss)	$	4,338		$	(411	)	$	(248	)	$	3,679
Total assets	$	2,026,753		$	23,142		$	(2,764	)	$	2,047,131
Net loans	1,439,927			—			—			1,439,927
Loans held for sale	357			13,444			—			13,801
Goodwill	—			—			—			—
For Nine Months Ended September 30, 2011
Interest income	$	67,351		$	236		$	—		$	67,587
Interest expense	19,891			219			576			20,686
Net interest income	47,460			17			(576		)	46,901
Provision for loan losses	17,162			54			—			17,216
Net interest income (loss) after provision for loan losses	30,298			(37		)	(576		)	29,685
Other income	10,431			3,476			(136		)	13,771
Other expense	42,408			11,433			30			53,871
Loss before income tax expense	(1,679		)	(7,994		)	(742		)	(10,415		)
Income tax expense	6,905			—			—			6,905
Net loss	$	(8,584	)	$	(7,994	)	$	(742	)	$	(17,320	)

________________________

(1) As an LLC, Sidus passes its pre-tax income through to its single member, the Bank, which is taxed on that income.

(2) Note: The “Other” column includes asset eliminations representing the Bank's Due from Sidus account ($3,286 in 2011), the Bank's Investment in Sidus ($3,000 in 2011), and the Bank's A/R from Sidus ($614 in 2011). Also included in this column are Holding Company assets ($1,258 in 2011) and Holding Company income and expenses.