4. Loans

Our assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent loss experience, current economic conditions and other pertinent factors.

An analysis of the allowance for loan losses by portfolio segment for the three months ended September 30, follows:

										Payment
										Plan
	Commercial			Mortgage			Installment			Receivables			Unallocated			Total
	(In thousands)
2012
Balance at beginning of period	$	15,476		$	21,271		$	4,981		$	195		$	9,423		$	51,346
Additions (deductions)
Provision for loan losses		18			1,839			(849	)		(17	)		(740	)		251
Recoveries credited to allowance		782			303			287			-			-			1,372
Loans charged against the allowance		(2,619	)		(1,720	)		(793	)		13			-			(5,119	)
Reclassification to loans held for sale		16			136			133			-			(114	)		171
Balance at end of period	$	13,673		$	21,829		$	3,759		$	191		$	8,569		$	48,021

2011
Balance at beginning of period	$	17,697		$	23,152		$	6,289		$	346		$	13,035		$	60,519
Additions (deductions)
Provision for loan losses		3,335			2,642			693			6			(505	)		6,171
Recoveries credited to allowance		229			247			421			1			-			898
Loans charged against the allowance		(4,330	)		(3,254	)		(1,131	)		(53	)		-			(8,768	)
Balance at end of period	$	16,931		$	22,787		$	6,272		$	300		$	12,530		$	58,820

An analysis of the allowance for loan losses by portfolio segment for the nine months ended September 30, follows:

										Payment
										Plan
	Commercial			Mortgage			Installment			Receivables			Unallocated			Total
	(In thousands)
2012
Balance at beginning of period	$	18,183		$	22,885		$	6,146		$	197		$	11,473		$	58,884
Additions (deductions)
Provision for loan losses		2,708			6,644			(331	)		6			(2,589	)		6,438
Recoveries credited to allowance		2,178			1,423			1,002			-			-			4,603
Loans charged against the allowance		(9,242	)		(9,067	)		(2,973	)		(12	)		-			(21,294	)
Reclassification to loans held for sale		(154	)		(56	)		(85	)		-			(315	)		(610	)
Balance at end of period	$	13,673		$	21,829		$	3,759		$	191		$	8,569		$	48,021

2011
Balance at beginning of period	$	23,836		$	22,642		$	6,769		$	389		$	14,279		$	67,915
Additions (deductions)
Provision for loan losses		9,378			10,975			2,374			51			(1,749	)		21,029
Recoveries credited to allowance		960			987			1,128			5			-			3,080
Loans charged against the allowance		(17,243	)		(11,817	)		(3,999	)		(145	)		-			(33,204	)
Balance at end of period	$	16,931		$	22,787		$	6,272		$	300		$	12,530		$	58,820

During the third quarter of 2012 we implemented a refinement in the calculation methodology for the historical loss component of our allowance for loan losses relating to homogenous mortgage and installment loan groups. This refinement now uses borrower credit scores and portfolio segment as well as a migration analysis to estimate a probability of default. For homogenous mortgage and installment loans a probability of default for each homogenous pool is calculated by way of credit score migration. Historical loss data for each homogenous pool coupled with the associated probability of default is utilized to calculate an expected loss allocation rate.

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

							Payment
							Plan
	Commercial		Mortgage		Installment		Receivables		Unallocated		Total
	(In thousands)
September 30, 2012
Allowance for loan losses:
Individually evaluated for impairment	$	8,368	$	13,094	$	1,597	$	-	$	-	$	23,059
Collectively evaluated for impairment		5,305		8,735		2,162		191		8,569		24,962
Total ending allowance balance	$	13,673	$	21,829	$	3,759	$	191	$	8,569	$	48,021

Loans
Individually evaluated for impairment	$	63,711	$	90,580	$	7,505	$	-			$	161,796
Collectively evaluated for impairment		541,588		449,084		191,011		93,608				1,275,291
Total loans recorded investment		605,299		539,664		198,516		93,608				1,437,087
Accrued interest included in recorded investment		1,761		2,557		780		-				5,098
Total loans	$	603,538	$	537,107	$	197,736	$	93,608			$	1,431,989

December 31, 2011
Allowance for loan losses:
Individually evaluated for impairment	$	10,252	$	10,285	$	1,762	$	-	$	-	$	22,299
Collectively evaluated for impairment		7,931		12,600		4,384		197		11,473		36,585
Total ending allowance balance	$	18,183	$	22,885	$	6,146	$	197	$	11,473	$	58,884

Loans
Individually evaluated for impairment	$	58,674	$	93,702	$	7,554	$	-			$	159,930
Collectively evaluated for impairment		594,665		499,919		212,907		115,018				1,422,509
Total loans recorded investment		653,339		593,621		220,461		115,018				1,582,439
Accrued interest included in recorded investment		2,184		2,745		902		-				5,831
Total loans	$	651,155	$	590,876	$	219,559	$	115,018			$	1,576,608

Loans on non-accrual status and past due more than 90 days ("Non-performing Loans") follow:

	90+ and				Total Non-
	Still		Non-		Performing
	Accruing		Accrual		Loans
	(In thousands)
September 30, 2012
Commercial
Income producing - real estate	$	-	$	7,742	$	7,742
Land, land development and construction - real estate		-		4,598		4,598
Commercial and industrial		3		7,174		7,177
Mortgage
1-4 family		59		10,498		10,557
Resort lending		-		4,713		4,713
Home equity line of credit - 1st lien		-		607		607
Home equity line of credit - 2nd lien		-		709		709
Installment
Home equity installment - 1st lien		-		1,045		1,045
Home equity installment - 2nd lien		-		837		837
Loans not secured by real estate		-		648		648
Other		-		1		1
Payment plan receivables
Full refund		-		102		102
Partial refund		-		98		98
Other		-		13		13
Total recorded investment	$	62	$	38,785	$	38,847
Accrued interest included in recorded investment	$	-	$	-	$	-
December 31, 2011
Commercial
Income producing - real estate	$	490	$	13,788	$	14,278
Land, land development and construction - real estate		43		6,990		7,033
Commercial and industrial		-		7,984		7,984
Mortgage
1-4 family		54		15,929		15,983
Resort lending		-		8,819		8,819
Home equity line of credit - 1st lien		-		523		523
Home equity line of credit - 2nd lien		-		889		889
Installment
Home equity installment - 1st lien		-		1,542		1,542
Home equity installment - 2nd lien		-		1,023		1,023
Loans not secured by real estate		-		880		880
Other		-		4		4
Payment plan receivables
Full refund		-		491		491
Partial refund		-		424		424
Other		-		23		23
Total recorded investment	$	587	$	59,309	$	59,896
Accrued interest included in recorded investment	$	13	$	-	$	13

An aging analysis of loans by class follows:

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
September 30, 2012
Commercial
Income producing - real estate	$	3,543	$	441	$	4,606	$	8,590	$	205,666	$	214,256
Land, land development and construction - real estate		301		1,871		1,090		3,262		40,310		43,572
Commercial and industrial		1,292		495		3,451		5,238		342,233		347,471
Mortgage
1-4 family		3,532		1,343		10,557		15,432		282,731		298,163
Resort lending		206		154		4,713		5,073		169,633		174,706
Home equity line of credit - 1st lien		271		-		607		878		18,811		19,689
Home equity line of credit - 2nd lien		602		90		709		1,401		45,705		47,106
Installment
Home equity installment - 1st lien		767		235		1,045		2,047		31,545		33,592
Home equity installment - 2nd lien		239		139		837		1,215		40,739		41,954
Loans not secured by real estate		862		204		648		1,714		118,514		120,228
Other		18		8		1		27		2,715		2,742
Payment plan receivables
Full refund		2,272		620		102		2,994		82,868		85,862
Partial refund		178		94		98		370		7,089		7,459
Other		12		7		13		32		255		287
Total recorded investment	$	14,095	$	5,701	$	28,477	$	48,273	$	1,388,814	$	1,437,087
Accrued interest included in recorded investment	$	117	$	48	$	-	$	165	$	4,933	$	5,098

December 31, 2011
Commercial
Income producing - real estate	$	1,701	$	937	$	6,408	$	9,046	$	264,620	$	273,666
Land, land development and construction - real estate		487		66		2,720		3,273		51,453		54,726
Commercial and industrial		1,861		1,132		3,516		6,509		318,438		324,947
Mortgage
1-4 family		3,507		1,418		15,983		20,908		294,771		315,679
Resort lending		2,129		932		8,819		11,880		184,943		196,823
Home equity line of credit - 1st lien		96		196		523		815		24,705		25,520
Home equity line of credit - 2nd lien		506		159		889		1,554		54,045		55,599
Installment
Home equity installment - 1st lien		757		264		1,542		2,563		41,239		43,802
Home equity installment - 2nd lien		676		365		1,023		2,064		51,224		53,288
Loans not secured by real estate		1,173		463		880		2,516		117,661		120,177
Other		36		10		4		50		3,144		3,194
Payment plan receivables
Full refund		2,943		951		491		4,385		99,284		103,669
Partial refund		380		200		424		1,004		9,918		10,922
Other		23		24		23		70		357		427
Total recorded investment	$	16,275	$	7,117	$	43,245	$	66,637	$	1,515,802	$	1,582,439
Accrued interest included in recorded investment	$	160	$	105	$	13	$	278	$	5,553	$	5,831

Impaired loans are as follows :

	September 30,		December 31,
	2012		2011
Impaired loans with no allocated allowance	(In thousands)
TDR	$	26,094	$	26,945
Non - TDR		417		423
Impaired loans with an allocated allowance
TDR - allowance based on collateral		18,071		20,142
TDR - allowance based on present value cash flow		108,312		98,130
Non - TDR - allowance based on collateral		8,361		13,773
Non - TDR - allowance based on present value cash flow		-		-
Total impaired loans	$	161,255	$	159,413

Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	5,370	$	6,004
TDR - allowance based on present value cash flow		15,246		12,048
Non - TDR - allowance based on collateral		2,443		4,247
Non - TDR - allowance based on present value cash flow		-		-
Total amount of allowance for loan losses allocated	$	23,059	$	22,299

Impaired loans by class are as follows (1):

	September 30, 2012						December 31, 2011
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	1,806	$	2,672	$	-	$	4,626	$	6,386	$	-
Land, land development & construction-real estate		3,468		3,456		-		219		243		-
Commercial and industrial		3,634		4,144		-		3,593		3,677		-
Mortgage
1-4 family		6,891		9,079		-		6,975		9,242		-
Resort lending		5,933		6,386		-		7,156		7,680		-
Home equity line of credit - 1st lien		15		32		-		-		-		-
Home equity line of credit - 2nd lien		44		118		-		134		211		-
Installment
Home equity installment - 1st lien		2,026		2,201		-		2,100		2,196		-
Home equity installment - 2nd lien		2,226		2,225		-		1,987		1,987		-
Loans not secured by real estate		550		622		-		637		688		-
Other		22		21		-		24		24		-
		26,615		30,956		-		27,451		32,334		-
With an allowance recorded:
Commercial
Income producing - real estate		25,530		28,980		2,813		22,781		29,400		3,642
Land, land development & construction-real estate		9,367		11,847		2,279		12,362		14,055		3,633
Commercial and industrial		19,906		23,882		3,276		15,093		18,357		2,977
Mortgage
1-4 family		59,389		61,071		8,868		61,214		63,464		7,716
Resort lending		18,261		18,500		4,195		18,159		19,351		2,534
Home equity line of credit - 1st lien		47		46		31		64		73		35
Home equity line of credit - 2nd lien		-		-		-		-		-		-
Installment
Home equity installment - 1st lien		1,298		1,348		639		1,232		1,293		660
Home equity installment - 2nd lien		1,108		1,119		877		1,421		1,458		1,062
Loans not secured by real estate		275		284		81		153		156		40
Other		-		-		-		-		-		-
		135,181		147,077		23,059		132,479		147,607		22,299
Total
Commercial
Income producing - real estate		27,336		31,652		2,813		27,407		35,786		3,642
Land, land development & construction-real estate		12,835		15,303		2,279		12,581		14,298		3,633
Commercial and industrial		23,540		28,026		3,276		18,686		22,034		2,977
Mortgage
1-4 family		66,280		70,150		8,868		68,189		72,706		7,716
Resort lending		24,194		24,886		4,195		25,315		27,031		2,534
Home equity line of credit - 1st lien		62		78		31		64		73		35
Home equity line of credit - 2nd lien		44		118		-		134		211		-
Installment
Home equity installment - 1st lien		3,324		3,549		639		3,332		3,489		660
Home equity installment - 2nd lien		3,334		3,344		877		3,408		3,445		1,062
Loans not secured by real estate		825		906		81		790		844		40
Other		22		21		-		24		24		-
Total	$	161,796	$	178,033	$	23,059	$	159,930	$	179,941	$	22,299

Accrued interest included in recorded investment	$	541					$	517

(1)	There were no impaired payment plan receivables at September 30, 2012 or December 31, 2011.

Average recorded investment in and interest income earned on impaired loans by class for the three month periods ended September 30, follows:

	2012				2011
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	1,827	$	15	$	2,214	$	65
Land, land development & construction-real estate		3,131		61		188		13
Commercial and industrial		3,483		58		1,711		83
Mortgage
1-4 family		7,271		80		9,042		82
Resort lending		5,923		52		8,877		99
Home equity line of credit - 1st lien		19		-		-		-
Home equity line of credit - 2nd lien		45		-		124		-
Installment
Home equity installment - 1st lien		2,063		20		2,053		24
Home equity installment - 2nd lien		2,233		29		2,133		24
Loans not secured by real estate		540		8		737		11
Other		22		1		26		-
		26,557		324		27,105		401
With an allowance recorded:
Commercial
Income producing - real estate		26,233		207		19,789		30
Land, land development & construction-real estate		9,785		31		7,356		(9	)
Commercial and industrial		20,749		136		10,445		(49	)
Mortgage
1-4 family		59,322		626		61,934		668
Resort lending		18,411		212		18,522		109
Home equity line of credit - 1st lien		47		1		47		-
Home equity line of credit - 2nd lien		-		-		10		-
Installment
Home equity installment - 1st lien		1,348		11		1,421		14
Home equity installment - 2nd lien		1,130		13		1,421		16
Loans not secured by real estate		277		2		131		2
Other		-		-		-		-
		137,302		1,239		121,076		781
Total
Commercial
Income producing - real estate		28,060		222		22,003		95
Land, land development & construction-real estate		12,916		92		7,544		4
Commercial and industrial		24,232		194		12,156		34
Mortgage
1-4 family		66,593		706		70,976		750
Resort lending		24,334		264		27,399		208
Home equity line of credit - 1st lien		66		1		47		-
Home equity line of credit - 2nd lien		45		-		134		-
Installment
Home equity installment - 1st lien		3,411		31		3,474		38
Home equity installment - 2nd lien		3,363		42		3,554		40
Loans not secured by real estate		817		10		868		13
Other		22		1		26		-
Total	$	163,859	$	1,563	$	148,181	$	1,182

(1)	There were no impaired payment plan receivables during the three month periods ended September 30, 2012 and 2011.

Average recorded investment in and interest income earned on impaired loans by class for the nine month periods ended September 30, follows:

	2012				2011
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	2,713	$	45	$	2,806	$	95
Land, land development & construction-real estate		2,360		97		712		40
Commercial and industrial		3,755		104		2,694		100
Mortgage
1-4 family		7,274		229		8,964		296
Resort lending		6,339		178		7,900		322
Home equity line of credit - 1st lien		9		-		-		-
Home equity line of credit - 2nd lien		67		2		115		2
Installment
Home equity installment - 1st lien		1,945		72		1,919		72
Home equity installment - 2nd lien		2,047		80		2,021		73
Loans not secured by real estate		533		21		588		27
Other		23		2		13		1
		27,065		830		27,732		1,028
With an allowance recorded:
Commercial
Income producing - real estate		24,228		474		17,820		152
Land, land development & construction-real estate		10,680		136		9,195		60
Commercial and industrial		18,227		406		10,603		92
Mortgage
1-4 family		59,793		1,926		63,210		2,019
Resort lending		18,355		582		22,648		505
Home equity line of credit - 1st lien		57		2		24		1
Home equity line of credit - 2nd lien		24		-		11		-
Installment
Home equity installment - 1st lien		1,487		41		1,453		42
Home equity installment - 2nd lien		1,367		38		1,478		46
Loans not secured by real estate		227		7		172		3
Other		-		-		-		-
		134,445		3,612		126,614		2,920
Total
Commercial
Income producing - real estate		26,941		519		20,626		247
Land, land development & construction-real estate		13,040		233		9,907		100
Commercial and industrial		21,982		510		13,297		192
Mortgage
1-4 family		67,067		2,155		72,174		2,315
Resort lending		24,694		760		30,548		827
Home equity line of credit - 1st lien		66		2		24		1
Home equity line of credit - 2nd lien		91		2		126		2
Installment
Home equity installment - 1st lien		3,432		113		3,372		114
Home equity installment - 2nd lien		3,414		118		3,499		119
Loans not secured by real estate		760		28		760		30
Other		23		2		13		1
Total	$	161,510	$	4,442	$	154,346	$	3,948

(1)	There were no impaired payment plan receivables during the nine month periods ended September 30, 2012 and 2011.

Our average investment in impaired loans was approximately $163.9 million and $148.2 million for the three-month periods ended September 30, 2012 and 2011, respectively and $161.5 million and $154.3 million for the nine-month periods ended September 30, 2012 and 2011, respectively. Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance. Interest income recognized on impaired loans during the three months ended September 30, 2012 and 2011 was approximately $1.6 million and $1.2 million, respectively and was approximately $4.4 million and $3.9 million during the nine months ended September 30, 2012 and 2011, respectively .

Troubled debt restructurings follow:

	September 30, 2012
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	44,061	$	88,441		$	132,502
Non-performing TDR's(1)		10,738		9,237	(2)		19,975
Total	$	54,799	$	97,678		$	152,477

	December 31, 2011
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	29,799	$	86,770		$	116,569
Non-performing TDR's(1)		14,567		14,081	(2)		28,648
Total	$	44,366	$	100,851		$	145,217

(1)	Included in non-performing loans table shown previously.

(2)	Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

The Company has allocated $20.6 million and $18.1 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012 and December 31, 2011, respectively.

During the three and nine months ended September 30, 2012 and 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans generally included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan have generally been for periods ranging from 9 months to 60 months but have extended to as much as 480 months in certain circumstances. Modifications involving an extension of the maturity date have generally been for periods ranging from 1 month to 60 months but have extended to as much as 472 months in certain circumstances.

Loans that have been classified as troubled debt restructurings during the three-month periods ended September 30 follow:

			Pre-modification		Post-modification
	Number of		Recorded		Recorded
	Contracts		Balance		Balance
2012	(Dollars in thousands)
Commercial
Income producing - real estate		4	$	626	$	545
Land, land development & construction-real estate		2		460		523
Commercial and industrial		10		631		558
Mortgage
1-4 family		10		1,870		1,656
Resort lending		7		1,575		1,562
Home equity line of credit - 1st lien		-		-		-
Home equity line of credit - 2nd lien		-		-		-
Installment
Home equity installment - 1st lien		4		137		98
Home equity installment - 2nd lien		2		59		56
Loans not secured by real estate		2		22		21
Other		-		-		-
Total		41	$	5,380	$	5,019

2011
Commercial
Income producing - real estate		5	$	6,579	$	6,370
Land, land development & construction-real estate		1		1,900		1,804
Commercial and industrial		-		-		-
Mortgage
1-4 family		6		1,603		1,629
Resort lending		4		1,515		1,501
Home equity line of credit - 1st lien		-		-		-
Home equity line of credit - 2nd lien		-		-		-
Installment
Home equity installment - 1st lien		4		98		99
Home equity installment - 2nd lien		-		-		-
Loans not secured by real estate		5		67		68
Other		-		-		-
Total		25	$	11,762	$	11,471

Loans that have been classified as troubled debt restructurings during the nine-month periods ended September 30 follow:

			Pre-modification		Post-modification
	Number of		Recorded		Recorded
	Contracts		Balance		Balance
2012	(Dollars in thousands)
Commercial
Income producing - real estate		18	$	8,894	$	8,736
Land, land development & construction-real estate		5		3,347		3,436
Commercial and industrial		43		8,827		8,453
Mortgage
1-4 family		58		7,738		7,330
Resort lending		29		7,529		7,356
Home equity line of credit - 1st lien		1		15		-
Home equity line of credit - 2nd lien		-		-		-
Installment
Home equity installment - 1st lien		14		561		521
Home equity installment - 2nd lien		16		604		590
Loans not secured by real estate		12		299		278
Other		-		-		-
Total		196	$	37,814	$	36,700

2011
Commercial
Income producing - real estate		16	$	14,793	$	13,928
Land, land development & construction-real estate		3		5,111		1,893
Commercial and industrial		10		1,129		1,111
Mortgage
1-4 family		59		7,663		7,540
Resort lending		27		7,474		7,393
Home equity line of credit - 1st lien		1		45		47
Home equity line of credit - 2nd lien		1		23		19
Installment
Home equity installment - 1st lien		18		475		470
Home equity installment - 2nd lien		14		464		450
Loans not secured by real estate		23		411		404
Other		-		-		-
Total		172	$	37,588	$	33,255

The troubled debt restructurings described above for 2012 increased the allowance for loan losses by $0.4 million and resulted in zero charge offs during the three months ended September 30, 2012, respectively and increased the allowance by $1.5 million and resulted in $0.4 million charge offs during the nine months ended September 30, 2012, respectively.

The troubled debt restructurings described above for 2011 increased the allowance for loan losses by $0.1 million and resulted in charge offs of $0.3 million during the three months ended September 30, 2011, respectively and increased the allowance by $0.7 million and resulted in charge offs of $3.8 million during the nine months ended September 30, 2011, respectively.

Loans that have been classified as troubled debt restructurings during the past twelve months and that have subsequently defaulted during the three-month periods ended September 30 follow:

	Number of		Recorded
	Contracts		Balance
2012	(Dollars in thousands)
Commercial
Income producing - real estate		2	$	827
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		-		-
Resort lending		2		468
Home equity line of credit - 1st lien		-		-
Home equity line of credit - 2nd lien		-		-
Installment
Home equity installment - 1st lien		-		-
Home equity installment - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
		4	$	1,295

2011
Commercial
Income producing - real estate		1	$	136
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		4		607
Resort lending		1		340
Home equity line of credit - 1st lien		-		-
Home equity line of credit - 2nd lien		-		-
Installment
Home equity installment - 1st lien		-		-
Home equity installment - 2nd lien		1		46
Loans not secured by real estate		-		-
Other		-		-
		7	$	1,129

Loans that have been classified as troubled debt restructurings during the past twelve months and that have subsequently defaulted during the nine-month periods ended September 30 follows:

	Number of		Recorded
	Contracts		Balance
2012	(Dollars in thousands)
Commercial
Income producing - real estate		2	$	827
Land, land development & construction-real estate		1		136
Commercial and industrial		7		520
Mortgage
1-4 family		2		148
Resort lending		3		584
Home equity line of credit - 1st lien		-		-
Home equity line of credit - 2nd lien		-		-
Installment
Home equity installment - 1st lien		1		26
Home equity installment - 2nd lien		1		20
Loans not secured by real estate		-		-
Other		-		-
		17	$	2,261

2011
Commercial
Income producing - real estate		3	$	1,042
Land, land development & construction-real estate		1		1,222
Commercial and industrial		-		-
Mortgage
1-4 family		8		1,024
Resort lending		5		1,128
Home equity line of credit - 1st lien		-		-
Home equity line of credit - 2nd lien		-		-
Installment
Home equity installment - 1st lien		1		19
Home equity installment - 2nd lien		4		264
Loans not secured by real estate		-		-
Other		-		-
		22	$	4,699

A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above for 2012 increased the allowance for loan losses by $0.7 million and resulted in zero charge offs during the three months ended September 30, 2012, respectively and increased the allowance for loan losses by $0.7 million and resulted in charge offs of $0.4 million during the nine months ended September 30, 2012, respectively.

The troubled debt restructurings that subsequently defaulted described above for 2011 increased the allowance for loan losses by $0.2 million and resulted in charge offs of $0.1 million during the three months ended September 30, 2011, respectively and decreased the allowance for loan losses by $0.4 million and resulted in charge offs of $1.5 million during the nine months ended September 30, 2011, respectively.

The terms of certain other loans were modified during the three and nine months ended September 30, 2012 and 2011 that did not meet the definition of a troubled debt restructuring. The modification of these loans could have included modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, we perform an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

Credit Quality Indicators – As part of our on on-going monitoring of the credit quality of our loan portfolios, we track certain credit quality indicators including (a) weighted-average risk grade of commercial loans, (b) the level of classified commercial loans (c) credit scores of mortgage and installment loan borrowers (d) investment grade of certain counterparties for payment plan receivables and (e) delinquency history and non-performing loans.

For commercial loans we use a loan rating system that is similar to those employed by state and federal banking regulators. Loans are graded on a scale of 1 to 12. A description of the general characteristics of the ratings follows:

Rating 1 through 6: These loans are generally referred to as our "non-watch" commercial credits that include very high or exceptional credit fundamentals through acceptable credit fundamentals.

Rating 7 and 8: These loans are generally referred to as our "watch" commercial credits. This rating includes loans to borrowers that exhibit potential credit weakness or downward trends. If not checked or cured these trends could weaken our asset or credit position. While potentially weak, no loss of principal or interest is envisioned with these ratings.

Rating 9: These loans are generally referred to as our "substandard accruing" commercial credits. This rating includes loans to borrowers that exhibit a well-defined weakness where payment default is probable and loss is possible if deficiencies are not corrected. Generally, loans with this rating are considered collectible as to both principal and interest primarily due to collateral coverage.

Rating 10 and 11: These loans are generally referred to as our "substandard - non-accrual" and "doubtful" commercial credits. This rating includes loans to borrowers with weaknesses that make collection of debt in full, on the basis of current facts, conditions and values at best questionable and at worst improbable. All of these loans are placed in non-accrual.

Rating 12: These loans are generally referred to as our "loss" commercial credits. This rating includes loans to borrowers that are deemed incapable of repayment and are charged-off.

The following table summarizes loan ratings by loan class for our commercial loan segment:

	Commercial
					Substandard		Non-
	Non-watch		Watch		Accrual		Accrual
	1-6		7-8		9		10-11		Total
					(In thousands)
September 30, 2012
Income producing - real estate	$	166,740	$	37,261	$	2,513	$	7,742	$	214,256
Land, land development and construction - real estate		31,129		5,172		2,673		4,598		43,572
Commercial and industrial		294,232		30,032		16,033		7,174		347,471
Total	$	492,101	$	72,465	$	21,219	$	19,514	$	605,299
Accrued interest included in total	$	1,430	$	240	$	91	$	-	$	1,761

December 31, 2011
Income producing - real estate	$	201,655	$	52,438	$	5,785	$	13,788	$	273,666
Land, land development and construction - real estate		33,515		9,421		4,800		6,990		54,726
Commercial and industrial		275,245		27,783		13,935		7,984		324,947
Total	$	510,415	$	89,642	$	24,520	$	28,762	$	653,339
Accrued interest included in total	$	1,677	$	381	$	126	$	-	$	2,184

For each of our mortgage and consumer segment classes we generally monitor credit quality based on the credit scores of the borrowers. These credit scores are generally updated at least annually.

The following table summarizes credit scores by loan class for our mortgage and installment loan segments:

	Mortgage (1)
					Home		Home
			Resort		Equity		Equity
	1-4 Family		Lending		1st Lien		2nd Lien		Total
	(In thousands)
September 30, 2012
800 and above	$	23,203	$	19,052	$	2,586	$	5,282	$	50,123
750-799		58,758		64,803		5,871		13,757		143,189
700-749		57,904		46,530		3,476		9,033		116,943
650-699		59,330		23,087		2,347		8,432		93,196
600-649		34,130		10,136		2,578		4,507		51,351
550-599		27,993		6,786		1,326		2,941		39,046
500-549		22,506		2,888		885		2,308		28,587
Under 500		8,961		847		468		668		10,944
Unknown		5,378		577		152		178		6,285
Total	$	298,163	$	174,706	$	19,689	$	47,106	$	539,664
Accrued interest included in total	$	1,392	$	808	$	101	$	256	$	2,557

December 31, 2011
800 and above	$	26,509	$	17,345	$	4,062	$	6,317	$	54,233
750-799		63,746		76,381		8,058		16,892		165,077
700-749		55,047		53,210		4,280		12,131		124,668
650-699		54,579		21,579		2,854		7,909		86,921
600-649		40,977		12,750		2,485		5,066		61,278
550-599		29,732		10,698		1,547		3,466		45,443
500-549		28,573		3,716		1,615		2,758		36,662
Under 500		12,434		565		539		886		14,424
Unknown		4,082		579		80		174		4,915
Total	$	315,679	$	196,823	$	25,520	$	55,599	$	593,621
Accrued interest included in total	$	1,404	$	928	$	123	$	290	$	2,745

	Installment(1)
	Home		Home		Loans not
	Equity		Equity		Secured by
	1st Lien		2nd Lien		Real Estate		Other		Total
	(In thousands)
September 30, 2012
800 and above	$	3,900	$	3,741	$	19,738	$	46	$	27,425
750-799		8,350		11,554		46,222		551		66,677
700-749		5,507		9,231		23,674		711		39,123
650-699		5,813		7,541		14,369		592		28,315
600-649		3,791		4,666		6,685		497		15,639
550-599		3,309		2,489		3,269		170		9,237
500-549		2,164		1,786		2,802		125		6,877
Under 500		710		939		793		24		2,466
Unknown		48		7		2,676		26		2,757
Total	$	33,592	$	41,954	$	120,228	$	2,742	$	198,516
Accrued interest included in total	$	144	$	160	$	453	$	23	$	780

December 31, 2011
800 and above	$	5,466	$	5,047	$	18,245	$	70	$	28,828
750-799		11,651		16,475		41,501		572		70,199
700-749		6,899		10,693		23,174		883		41,649
650-699		7,144		8,407		15,646		673		31,870
600-649		4,943		5,412		7,599		434		18,388
550-599		3,435		3,221		4,573		270		11,499
500-549		3,021		3,145		3,011		183		9,360
Under 500		1,160		854		1,391		50		3,455
Unknown		83		34		5,037		59		5,213
Total	$	43,802	$	53,288	$	120,177	$	3,194	$	220,461
Accrued interest included in total	$	176	$	208	$	489	$	29	$	902

(1)	Credit scores have been updated within the last twelve months.

Mepco Finance Corporation ("Mepco") is a wholly-owned subsidiary of our Bank that operates a vehicle service contract payment plan business throughout the United States. See Note #14 for more information about Mepco's business. As of September 30, 2012, approximately 91.7% of Mepco's outstanding payment plan receivables relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the full refund owing upon cancellation of the related service contract (including with respect to both the portion funded to the service contract seller and the portion funded to the administrator). These receivables are shown as "Full Refund" in the table below. Another approximately 8.0% of Mepco's outstanding payment plan receivables as of September 30, 2012, relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the refund owing upon cancellation only with respect to the unearned portion previously funded by Mepco to the administrator (but not to the service contract seller). These receivables are shown as "Partial Refund" in the table below. The balance of Mepco's outstanding payment plan receivables relate to programs in which there is no insurer or risk retention group that has any contractual liability to Mepco for any portion of the refund amount. These receivables are shown as "Other" in the table below. For each class of our payment plan receivables we monitor credit ratings of the counterparties as we evaluate the credit quality of this portfolio.

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable:

	Payment Plan Receivables
	Full		Partial
	Refund		Refund		Other		Total
	(In thousands)
September 30, 2012
AM Best rating
A +	$	-	$	-	$	149	$	149
A		29,211		4,657		-		33,868
A-		18,001		2,802		-		20,803
B +		162		-		-		162
B		-		-		-		-
Not rated		38,488		-		138		38,626
Total	$	85,862	$	7,459	$	287	$	93,608

December 31, 2011
AM Best rating
A +	$	-	$	118	$	7	$	125
A		32,461		165		269		32,895
A-		27,056		10,639		-		37,695
B +		1,390		-		-		1,390
B		-		-		-		-
Not rated		42,762		-		151		42,913
Total	$	103,669	$	10,922	$	427	$	115,018

Although Mepco has contractual recourse against various counterparties for refunds owing upon cancellation of vehicle service contracts, please see Note #14 below regarding certain risks and difficulties associated with collecting these refunds.