2. Allowance for Loan Losses

The following table presents the activity of the allowance for loan losses by portfolio segment for the three months ended June 30.

Allowance for Loan Losses:	June 30, 2013
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Beginning balance	$	14,144	$	5,400	$	3,481	$	2,247	$	25,272
Provision for loan losses*		1,660		303		611		126		2,700
Loans charged -off		(1,435)		(4,127)		(811)		-		(6,373)
Recoveries		162		16		356		-		534
Ending Balance	$	14,531	$	1,592	$	3,637	$	2,373	$	22,133

* Provision before increase of $260 thousand in 2013 for decrease in FDIC indemnification asset

Allowance for Loan Losses:	June 30, 2012
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Beginning balance	$	11,448	$	2,092	$	3,806	$	967	$	18,313
Provision for loan losses*		1,880		582		670		67		3,199
Loans charged -off		(344)		(572)		(1,073)		-		(1,989)
Recoveries		206		22		341		-		569
Ending Balance	$	13,190	$	2,124	$	3,744	$	1,034	$	20,092

* Provision before decrease of $1.41 million in 2012 for increase in FDIC indemnification asset

The following table presents the activity of the allowance for loan losses by portfolio segment for the six months ended June 30.

Allowance for Loan Losses:	June 30, 2013
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Beginning balance	$	10,987	$	5,426	$	3,879	$	1,666	$	21,958
Provision for loan losses*		2,924		500		844		707		4,975
Loans charged -off		(1,885)		(4,399)		(1,837)		-		(8,121)
Recoveries		2,505		65		751		-		3,321
Ending Balance	$	14,531	$	1,592	$	3,637	$	2,373	$	22,133

* Provision before increase of $1.01 million in 2013 for decrease in FDIC indemnification asset

Allowance for Loan Losses:	June 30, 2012
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Beginning balance	$	12,119	$	2,728	$	3,889	$	506	$	19,242
Provision for loan losses*		2,877		1,265		989		528		5,659
Loans charged -off		(2,202)		(1,908)		(1,856)		-		(5,966)
Recoveries		396		39		722		-		1,157
Ending Balance	$	13,190	$	2,124	$	3,744	$	1,034	$	20,092

* Provision before decrease of $914 thousand in 2012 for increase in FDIC indemnification asset

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method at June 30, 2013 and December 31, 2012.

Allowance for Loan Losses	June 30, 2013
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	$	6,057	$	-	$	-	$	-	$	6,057
Collectively evaluated for impairment		7,763		1,278		3,637		2,373		15,051
Acquired with deteriorated credit quality		711		314		-		-		1,025
Ending Balance	$	14,531	$	1,592	$	3,637	$	2,373	$	22,133

Loans:	June 30, 2013
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	$	25,201	$	264	$	-	$	25,465
Collectively evaluated for impairment		1,014,924		484,192		268,941		1,768,057
Acquired with deteriorated credit quality		11,513		3,170		1		14,684
Ending Balance	$	1,051,638	$	487,626	$	268,942	$	1,808,206

Allowance for Loan Losses:	December 31, 2012
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment		3,453		3,920		-		-		7,373
Collectively evaluated for impairment		7,286		1,506		3,879		1,666		14,337
Acquired with deteriorated credit quality		248		-		-		-		248
Ending Balance	$	10,987	$	5,426	$	3,879	$	1,666	$	21,958

Loans	December 31, 2012
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment		23,721		6,973		-		30,694
Collectively evaluated for impairment		1,056,861		487,486		269,882		1,814,229
Acquired with deteriorated credit quality		13,582		3,421		6		17,009
Ending Balance	$	1,094,164	$	497,880	$	269,888	$	1,861,932

The following tables present loans individually evaluated for impairment by class of loans.

	June 30, 2013
					Allowance
	Unpaid				for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	2,131	$	1,929	$	-	$	776	$	-	$	-
Farmland		-		-		-		-		-		-
Non Farm, Non Residential		-		-		-		-		-		-
Agriculture		-		-		-		-		-		-
All Other Commercial		-		-		-		-		-		-
Residential
First Liens		34		34		-		11		-		-
Home Equity		-		-		-		-		-		-
Junior Liens		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
All Other Residential		-		-		-		-		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial
Commercial & Industrial		12,462		12,462		3,657		15,244		-		-
Farmland		-		-		-		594		-		-
Non Farm, Non Residential		8,439		8,373		1,507		8,134		-		-
Agriculture		-		-		-		-		-		-
All Other Commercial		4,189		4,189		993		3,241		-		-
Residential
First Liens		39		39		-		849		-		-
Home Equity		191		191		-		189		-		-
Junior Liens		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
All Other Residential		-		-		-		3,693		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
TOTAL	$	27,485	$	27,217	$	6,157	$	32,731	$	-	$	-

	December 31, 2012
					Allowance						Cash Basis
	Unpaid				for Loan		Average		Interest		Interest
	Principal		Recorded		Losses		Recorded		Income		Income
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	-	$	-	$	-	$	1,013	$	-	$	-
Farmland		-		-		-		-		-		-
Non Farm, Non Residential		-		-		-		1,679		-		-
Agriculture		-		-		-		-		-		-
All Other Commercial		-		-		-		-		-		-
Residential
First Liens		-		-		-		150		-		-
Home Equity		-		-		-		-		-		-
Junior Liens		-		-		-		-		-		-
Multifamily		-		-		-		50		-		-
All Other Residential		-		-		-		-		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial
Commercial & Industrial		17,262		17,098		3,153		16,738		-		-
Farmland		891		891		191		891		-		-
Non Farm, Non Residential		7,438		7,386		293		5,000		179		-
Agriculture		-		-		-		-		-		-
All Other Commercial		1,209		1,209		52		1,362		-		-
Residential
First Liens		1,254		1,254		126		1,230		-		-
Home Equity		179		179		-		75		-		-
Junior Liens		-		-		-		176		-		-
Multifamily		5,540		5,540		3,794		2,216		-		-
All Other Residential		-		-		-		-		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
TOTAL	$	33,773	$	33,557	$	7,609	$	30,580	$	179	$	-

	Three Months Ended						Six Months Ended
	June 30, 2013						June 30, 2013
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest Income		Recorded		Income		Interest Income
(Dollar amounts in thousands)	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	1,164	$	-	$	-	$	776	$	-	$	-
Farmland		-		-		-		-		-		-
Non Farm, Non Residential		-		-		-		-		-		-
Agriculture		-		-		-		-		-		-
All Other Commercial		-		-		-		-		-		-
Residential
First Liens		17		-		-	?	11		-		-
Home Equity		-		-		-		-		-		-
Junior Liens		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
All Other Residential		-		-		-		-		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial
Commercial & Industrial		14,317		-		-		15,244		-		-
Farmland		446		-		-		594		-		-
Non Farm, Non Residential		8,509		-		-		8,134		-		-
Agriculture		-		-		-		-		-		-
All Other Commercial		4,258		-		-		3,241		-		-
Residential
First Liens		646		-		-		849		-		-
Home Equity		194		-		-		189		-		-
Junior Liens		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
All Other Residential		2,770		-		-		3,693		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
TOTAL	$	32,321	$	-	$	-	$	32,731	$	-	$	-

	Three Months Ended						Six Months Ended
	June 30, 2012						June 30, 2012
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest Income		Recorded		Income		Interest Income
(Dollar amounts in thousands)	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	1,284	$	-	$	-	$	856	$	-	$	-
Farmland		-		-		-		-		-		-
Non Farm, Non Residential		1,975		-		-		2,798		-		-
Agriculture		-		-		-		-		-		-
All Other Commercial		-		-		-		-		-		-
Residential
First Liens		-		-		-		250		-		-
Home Equity		-		-		-		-		-		-
Junior Liens		-		-		-		-		-		-
Multifamily		-		-		-		83		-		-
All Other Residential		-		-		-		-		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
With an allowance recorded:
Commercial
Commercial & Industrial		16,669		-		-		17,068		-		-
Farmland		891		-		-		891		-		-
Non Farm, Non Residential		2,609		-		-		3,345		-		-
Agriculture		-		-		-		-		-		-
All Other Commercial		1,384		-		-		1,428		-		-
Residential
First Liens		1,213		-		-		1,213		-		-
Home Equity		-		-		-		-		-		-
Junior Liens		-		-		-		293		-		-
Multifamily		-		-		-		-		-		-
All Other Residential		-		-		-		-		-		-
Consumer
Motor Vehicle		-		-		-		-		-		-
All Other Consumer		-		-		-		-		-		-
TOTAL	$	26,025	$	-	$	-	$	28,225	$	-	$	-

The table below presents the recorded investment in non-performing loans.

	June 30, 2013
	Loans Past
	Due Over		Troubled
	90 Day Still		Debt
(Dollar amounts in thousands)	Accruing		Restructurings		Nonaccrual
Commercial
Commercial & Industrial	$	245	$	10,288	$	6,877
Farmland		61		-		61
Non Farm, Non Residential		-		4,717		8,003
Agriculture		-		-		81
All Other Commercial		-		-		4,601
Residential
First Liens		514		4,228		5,357
Home Equity		62		-		191
Junior Liens		113		-		557
Multifamily		-		-		149
All Other Residential		-		-		141
Consumer
Motor Vehicle		89		676		170
All Other Consumer		-		17		1,366
TOTAL	$	1,084	$	19,926	$	27,554

	December 31, 2012
	Loans Past
	Due Over		Troubled
	90 Day Still		Debt
(Dollar amounts in thousands)	Accruing		Restructurings		Nonaccrual
Commercial
Commercial & Industrial	$	724	$	11,573	$	9,360
Farmland		231		-		907
Non Farm, Non Residential		491		4,836		6,718
Agriculture		69		-		104
All Other Commercial		-		-		4,811
Residential
First Liens		1,237		4,126		6,852
Home Equity		24		-		196
Junior Liens		538		-		405
Multifamily		101		-		5,598
All Other Residential		-		-		150
Consumer
Motor Vehicle		133		685		174
All Other Consumer		3		16		1,519
TOTAL	$	3,551	$	21,236	$	36,794

Loans covered by loss share agreements with the FDIC included in loans past due over 90 days still on accrual are $24 thousand at June 30, 2013 and $630 thousand at December 31, 2012. Covered loans included in non-accrual loans are $2.7 million at June 30, 2013 and $4.3 million at December 31, 2012. Covered loans of $1.7 million at June 30, 2013 and $2.9 million at December 31, 2012 are deemed impaired and have allowance for loan loss allocated to them of $100 thousand and $236 thousand, respectively for June 30, 2013 and December 31, 2012. Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in loans by past due category and class of loans.

	June 30, 2013
					Greater
	30-59 Days		60-89 Days		than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	1,428	$	820	$	7,255	$	9,503	$	467,641	$	477,144
Farmland		189		-		65		254		84,843		85,097
Non Farm, Non Residential		1,558		48		3,866		5,472		265,855		271,327
Agriculture		395		-		2		397		121,016		121,413
All Other Commercial		204		195		363		762		95,895		96,657
Residential
First Liens		1,732		1,573		2,480		5,785		335,621		341,406
Home Equity		113		31		62		206		42,627		42,833
Junior Liens		199		173		505		877		33,722		34,599
Multifamily		357		-		48		405		58,626		59,031
All Other Residential		-		-		-		-		9,757		9,757
Consumer
Motor Vehicle		2,868		482		98		3,448		243,599		247,047
All Other Consumer		99		25		-		124		21,771		21,895
TOTAL	$	9,142	$	3,347	$	14,744	$	27,233	$	1,780,973	$	1,808,206

	December 31, 2012
					Greater
	30-59 Days		60-89 Days		than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	1,315	$	861	$	3,616	$	5,792	$	487,160	$	492,952
Farmland		534		-		1,122		1,656		87,270		88,926
Non Farm, Non Residential		5,618		1,004		2,449		9,071		290,023		299,094
Agriculture		137		-		78		215		130,404		130,619
All Other Commercial		568		202		350		1,120		81,453		82,573
Residential
First Liens		8,359		1,659		4,599		14,617		336,230		350,847
Home Equity		143		15		24		182		43,317		43,499
Junior Liens		555		98		586		1,239		36,535		37,774
Multifamily		52		-		5,641		5,693		49,019		54,712
All Other Residential		214		-		-		214		10,834		11,048
Consumer
Motor Vehicle		4,164		600		182		4,946		241,303		246,249
All Other Consumer		225		93		3		321		23,318		23,639
TOTAL	$	21,884	$	4,532	$	18,650	$	45,066	$	1,816,866	$	1,861,932

Troubled Debt Restructurings:

The Corporation has allocated $3.7 million and $1.6 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2013 and December 31, 2012. The Corporation has not committed to lend additional amounts as of June 30, 2013 and December 31, 2012 to customers with outstanding loans that are classified as troubled debt restructurings. Modification of the terms of such loans typically include 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. No modification in 2013 or 2012 resulted in permanent reduction of the recorded investment in the loan. There were $90 thousand in modifications that were troubled debt restructurings in the quarter ended June 30, 2013 and $655 thousand for the three months ended June 30, 2012, resulting in no impact to the allowance for loan losses. There were no loans that defaulted during the six months ended June 30, 2013 or 2012 that had been restructured within the past 12 months.

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance greater than $50 thousand. Any consumer loans outstanding to a borrower who had commercial loans analyzed will be similarly risk rated. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These loans have a well-defined weakness or weaknesses which have clearly jeopardized repayment of principal and interest as originally intended. They are characterized by the distinct possibility that the institution will sustain some future loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those graded substandard, 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.

Furthermore, non-homogeneous loans which were not individually analyzed, but are 90+ days past due or on non-accrual are classified as substandard. Loans included in homogeneous pools, such as residential or consumer may be classified as substandard due to 90+ days delinquency, non-accrual status, bankruptcy, or loan restructuring.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 thousand or are included in groups of homogeneous loans. As of June 30, 2013 and December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans are as follows:

	June 30, 2013
			Special
(Dollar amounts in thousands)	Pass		Mention		Substandard		Doubtful		Not Rated		Total
Commercial
Commercial & Industrial	$	414,347	$	23,878	$	28,895	$	6,103	$	2,791	$	476,014
Farmland		80,045		3,097		685		-		35		83,862
Non Farm, Non Residential		236,649		9,962		21,931		870		1,195		270,607
Agriculture		114,878		4,703		97		-		436		120,114
All Other Commercial		80,642		3,453		11,124		49		816		96,084
Residential
First Liens		110,195		10,336		8,760		1,354		209,524		340,169
Home Equity		13,229		602		1,477		115		27,334		42,757
Junior Liens		9,246		191		476		243		24,317		34,473
Multifamily		54,073		3,121		1,581		101		19		58,895
All Other Residential		1,956		-		33		-		7,733		9,722
Consumer
Motor Vehicle		11,644		315		383		10		233,521		245,873
All Other Consumer		3,754		62		64		19		17,860		21,759
TOTAL	$	1,130,658	$	59,720	$	75,506	$	8,864	$	525,581	$	1,800,329

	December 31, 2012
			Special
(Dollar amounts in thousands)	Pass		Mention		Substandard		Doubtful		Not Rated		Total
Commercial
Commercial & Industrial	$	414,680	$	31,368	$	31,442	$	7,138	$	7,025	$	491,653
Farmland		81,977		2,718		1,616		-		805		87,116
Non Farm, Non Residential		249,614		25,764		22,038		831		42		298,289
Agriculture		119,789		8,921		134		-		62		128,906
All Other Commercial		69,952		132		11,239		54		803		82,180
Residential
First Liens		113,360		8,986		11,516		689		215,034		349,585
Home Equity		13,035		469		1,631		23		28,267		43,425
Junior Liens		10,419		50		515		70		26,575		37,629
Multifamily		42,719		3,328		8,481		59		-		54,587
All Other Residential		2,840		-		35		-		8,136		11,011
Consumer		-
Motor Vehicle		11,695		262		311		25		232,727		245,020
All Other Consumer		4,614		73		104		21		18,675		23,487
TOTAL	$	1,134,694	$	82,071	$	89,062	$	8,910	$	538,151	$	1,852,888