10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 June 30, 2012

Commission File Number 0-15572

FIRST BANCORP

(Exact Name of Registrant as Specified in its Charter)

North Carolina	56-1421916
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)
341 North Main Street, Troy, North Carolina	27371-0508
(Address of Principal Executive Offices)	(Zip Code)
(Registrant's telephone number, including area code)	(910)   576-6171

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 twelve 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.    ý YES     o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý YES     o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

o Large Accelerated Filer	ý Accelerated Filer	o Non-Accelerated Filer	o Smaller Reporting Company
		(Do not check if a smaller
		reporting company)

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

The number of shares of the registrant's Common Stock outstanding on July 31, 2012 was 16,975,481.

INDEX

FIRST BANCORP AND SUBSIDIARIES

	Page
Part I.  Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets - June 30, 2012 and June 30, 2011 (With Comparative Amounts at December 31, 2011)	4
Consolidated Statements of Income - For the Periods Ended June 30, 2012 and 2011	5
Consolidated Statements of Comprehensive Income -For the Periods Ended June 30, 2012 and 2011	6
Consolidated Statements of Shareholders’ Equity - For the Periods Ended June 30, 2012 and 2011	7
Consolidated Statements of Cash Flows - For the Periods Ended June 30, 2012 and 2011	8
Notes to Consolidated Financial Statements	9
Item 2 – Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition	41
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	65
Item 4 – Controls and Procedures	67
Part II.  Other Information
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 6 – Exhibits	68
Signatures	70

Page 2

FORWARD-LOOKING STATEMENTS

Part I of this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning our opinions or judgment about future events. 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. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, our level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of our 2011 Annual Report on Form 10-K.

Page 3

Part I. Financial Information

Item 1 - Financial Statements

First Bancorp and Subsidiaries

Consolidated Balance Sheets

($ in thousands-unaudited)	June 30, 2012			December 31, 2011(audited)			June 30, 2011
ASSETS
Cash and due from banks, noninterest-bearing	$	58,872			80,341			73,676
Due from banks, interest-bearing		203,313			135,218			163,414
Federal funds sold		—			608			1,157
Total cash and cash equivalents		262,185			216,167			238,247
Securities available for sale		171,907			182,626			171,844
Securities held to maturity (fair values of $61,676, $62,754, and $59,860)		56,182			57,988			57,593
Presold mortgages in process of settlement		4,053			6,090			2,466
Loans – non-covered		2,114,906			2,069,152			2,040,714
Loans – covered by FDIC loss share agreement		322,895			361,234			401,726
Total loans		2,437,801			2,430,386			2,442,440
Allowance for loan losses – non-covered		(47,523	)		(35,610	)		(34,465	)
Allowance for loan losses – covered		(5,931	)		(5,808	)		(5,540	)
Total allowance for loan losses		(53,454	)		(41,418	)		(40,005	)
Net loans		2,384,347			2,388,968			2,402,435
Premises and equipment		73,642			69,975			68,898
Accrued interest receivable		10,932			11,779			12,000
FDIC indemnification asset		116,902			121,677			142,894
Goodwill		65,835			65,835			65,835
Other intangible assets		3,452			3,897			4,349
Other real estate owned – non-covered		37,895			37,023			31,849
Other real estate owned – covered		70,850			85,272			102,883
Bank-owned life insurance		27,380			2,207			2,160
Other assets		43,193			40,970			30,296
Total assets	$	3,328,755			3,290,474			3,333,749
LIABILITIES
Deposits:   Noninterest bearing checking accounts	$	381,353			335,833			323,223
Interest bearing checking accounts		472,342			423,452			371,693
Money market accounts		545,356			513,832			499,286
Savings accounts		160,137			146,481			145,576
Time deposits of $100,000 or more		725,699			753,233			765,787
Other time deposits		553,411			582,206			641,853
Total deposits		2,838,298			2,755,037			2,747,418
Securities sold under agreements to repurchase		—			17,105			68,608
Borrowings		111,394			133,925			138,796
Accrued interest payable		1,549			1,872			2,208
Other liabilities		37,440			37,385			24,421
Total liabilities		2,988,681			2,945,324			2,981,451
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Preferred stock, no par value per share.  Authorized: 5,000,000 shares
Issued and outstanding:  63,500, 63,500, and 65,000 shares		63,500			63,500			65,000
Discount on preferred stock		—			—			(2,474	)
Common stock, no par value per share.  Authorized: 40,000,000 shares
Issued and outstanding:  16,973,008, 16,909,820 and 16,862,536 shares		105,437			104,841			105,141
Retained earnings		179,298			185,491			188,737
Accumulated other comprehensive income (loss)		(8,161	)		(8,682	)		(4,106	)
Total shareholders’ equity		340,074			345,150			352,298
Total liabilities and shareholders’ equity	$	3,328,755			3,290,474			3,333,749

See notes to consolidated financial statements.

Page 4

First Bancorp and Subsidiaries

Consolidated Statements of Income

	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands, except share data-unaudited)	2012			2011			2012			2011
INTEREST INCOME
Interest and fees on loans	$	35,636			38,464			70,678			75,271
Interest on investment securities:
Taxable interest income		1,149			1,463			2,407			2,895
Tax-exempt interest income		491			499			984			999
Other, principally overnight investments		178			103			317			193
Total interest income		37,454			40,529			74,386			79,358
INTEREST EXPENSE
Savings, checking and money market		759			1,103			1,608			2,333
Time deposits of $100,000 or more		2,085			2,661			4,260			5,265
Other time deposits		1,169			1,767			2,438			3,936
Securities sold under agreements to repurchase		—			48			4			98
Borrowings		490			470			1,034			932
Total interest expense		4,503			6,049			9,344			12,564
Net interest income		32,951			34,480			65,042			66,794
Provision for loan losses – non-covered		5,194			7,607			23,751			15,177
Provision for loan losses – covered		1,273			3,327			4,271			7,100
Total provision for loan losses		6,467			10,934			28,022			22,277
Net interest income after provision for loan losses		26,484			23,546			37,020			44,517
NONINTEREST INCOME
Service charges on deposit accounts		2,967			3,294			5,814			5,939
Other service charges, commissions and fees		2,340			2,070			4,532			3,985
Fees from presold mortgage loans		489			346			900			641
Commissions from sales of insurance and financial products		432			409			815			764
Gain from acquisition		─			─			—			10,196
Foreclosed property losses and write-downs – non-covered		(1,318	)		(271	)		(2,006	)		(1,624	)
Foreclosed property losses and write-downs – covered		(6,554	)		(2,583	)		(11,101	)		(7,517	)
FDIC indemnification asset income, net		3,558			1,826			7,663			6,866
Securities gains (losses)		(3	)		60			449			74
Other gains (losses)		(141	)		(37	)		53			(17	)
Total noninterest income		1,770			5,114			7,119			19,307
NONINTEREST EXPENSES
Salaries		10,173			9,694			20,347			19,405
Employee benefits		2,777			2,954			6,691			6,156
Total personnel expense		12,950			12,648			27,038			25,561
Net occupancy expense		1,615			1,598			3,296			3,270
Equipment related expenses		1,164			1,110			2,334			2,172
Intangibles amortization		223			226			446			450
Acquisition expenses		—			243			—			594
Other operating expenses		7,496			7,088			14,709			15,909
Total noninterest expenses		23,448			22,913			47,823			47,956
Income (loss) before income taxes		4,806			5,747			(3,684	)		15,868
Income taxes (benefit)		1,516			2,021			(1,792	)		5,767
Net income (loss)		3,290			3,726			(1,892	)		10,101
Preferred stock dividends		(829	)		(812	)		(1,589	)		(1,625	)
Accretion of preferred stock discount		—			(229	)		—			(458	)
Net income (loss) available to common shareholders	$	2,461			2,685			(3,481	)		8,018
Earnings (loss) per common share:
Basic	$	0.15			0.16			(0.21	)		0.48
Diluted		0.15			0.16			(0.21	)		0.48
Dividends declared per common share	$	0.08			0.08			0.16			0.16
Weighted average common shares outstanding:
Basic		16,952,624			16,841,289			16,938,620			16,827,615
Diluted		16,952,624			16,868,571			16,938,620			16,855,027

See notes to consolidated financial statements.

Page 5

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands-unaudited)	2012			2011			2012			2011
Net income (loss)	$	3,290			3,726			(1,892	)		10,101
Other comprehensive income (loss):
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period, pretax		186			1,198			901			1,387
Tax benefit		(72	)		(467	)		(350	)		(541	)
Reclassification to realized losses (gains)		3			(60	)		(449	)		(74	)
Tax expense (benefit)		(1	)		23			175			29
Postretirement Plans:
Amortization of unrecognized net actuarial loss		82			140			383			280
Tax expense		(32	)		(56	)		(149	)		(112	)
Amortization of prior service cost and transition obligation		8			9			17			18
Tax expense		(3	)		(4	)		(7	)		(8	)
Other comprehensive income		171			783			521			979
Comprehensive income (loss)	$	3,461			4,509			(1,371	)		11,080

See notes to consolidated financial statements.

Page 6

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(In thousands, except per share - unaudited)	Preferred		Preferred Stock			Common Stock					Retained			Accumulated Other Comprehensive			Total Share- holders’
	Stock		Discount			Shares		Amount			Earnings			Income (Loss)			Equity
Balances, January 1, 2011	$	65,000		(2,932	)		16,801	$	104,207			183,413			(5,085	)		344,603
Net income												10,101						10,101
Common stock issued under stock option plans							2		30									30
Common stock issued into dividend reinvestment plan							30		421									421
Cash dividends declared ($0.16 per common share)												(2,694	)					(2,694	)
Preferred dividends												(1,625	)					(1,625	)
Accretion of preferred stock discount				458								(458	)					—
Stock-based compensation							29		483									483
Other comprehensive income															979			979
Balances, June 30, 2011	$	65,000		(2,474	)		16,862	$	105,141			188,737			(4,106	)		352,298
Balances, January 1, 2012	$	63,500		—			16,910	$	104,841			185,491			(8,682	)		345,150
Net income (loss)												(1,892	)					(1,892	)
Common stock issued into dividend reinvestment plan							31		335									335
Repurchases of common stock							—		(2	)								(2	)
Cash dividends declared ($0.16 per common share)												(2,712	)					(2,712	)
Preferred dividends												(1,589	)					(1,589	)
Stock-based compensation							32		263									263
Other comprehensive income															521			521
Balances, June 30, 2012	$	63,500		—			16,973	$	105,437			179,298			(8,161	)		340,074

See notes to consolidated financial statements.

Page 7

First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

	Six Months Ended June 30,
($ in thousands-unaudited)	2012			2011
Cash Flows From Operating Activities
Net income (loss)	$	(1,892	)		10,101
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses		28,022			22,277
Net security premium amortization		907			748
Purchase accounting accretion and amortization, net		(5,721	)		(6,565	)
Gain from acquisition		—			(10,196	)
Foreclosed property losses and write-downs		13,107			9,141
Gain on securities available for sale		(449	)		(74	)
Other losses (gains)		(53	)		17
Increase in net deferred loan costs		(96	)		(323	)
Depreciation of premises and equipment		2,278			2,182
Stock-based compensation expense		263			483
Amortization of intangible assets		446			450
Origination of presold mortgages in process of settlement		(41,858	)		(35,532	)
Proceeds from sales of presold mortgages in process of settlement		43,895			37,028
Decrease in accrued interest receivable		847			1,579
Increase in other assets		(13,188	)		(6,866	)
Increase (decrease) in accrued interest payable		(323	)		126
Increase (decrease) in other liabilities		415			(5,238	)
Net cash provided by operating activities		26,600			19,338
Cash Flows From Investing Activities
Purchases of securities available for sale		(47,395	)		(23,721	)
Purchases of securities held to maturity		—			(3,816	)
Proceeds from sales of securities available for sale		9,641			2,518
Proceeds from maturities/issuer calls of securities available for sale		48,590			34,829
Proceeds from maturities/issuer calls of securities held to maturity		1,685			1,053
Purchase of bank-owned life insurance		(25,000	)		—
Net decrease (increase) in loans		(42,993	)		45,905
Proceeds from FDIC loss share agreements		15,286			32,468
Proceeds from sales of foreclosed real estate		25,767			16,425
Purchases of premises and equipment		(5,945	)		(3,323	)
Net cash received in acquisition		—			54,037
Net cash provided (used) by investing activities		(20,364	)		156,375
Cash Flows From Financing Activities
Net increase (decrease) in deposits and repurchase agreements		66,211			(83,523	)
Repayments of borrowings, net		(22,500	)		(62,081	)
Cash dividends paid – common stock		(2,708	)		(2,690	)
Cash dividends paid – preferred stock		(1,554	)		(1,625	)
Proceeds from issuance of common stock		335			451
Repurchase of common stock		(2	)		—
Net cash provided (used) by financing activities		39,782			(149,468	)
Increase in cash and cash equivalents		46,018			26,245
Cash and cash equivalents, beginning of period		216,167			212,002
Cash and cash equivalents, end of period	$	262,185			238,247
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	9,667			12,438
Income taxes		5,275			11,710
Non-cash transactions:
Unrealized gain on securities available for sale, net of taxes		277			801
Foreclosed loans transferred to other real estate		25,324			42,984

See notes to consolidated financial statements.

Page 8

First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

 (unaudited)   For the Periods Ended June 30, 2012 and 2011

Note 1 - Basis of Presentation

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of June 30, 2012 and 2011 and the consolidated results of operations and consolidated cash flows for the periods ended June 30, 2012 and 2011. All such adjustments were of a normal, recurring nature. Reference is made to the 2011 Annual Report on Form 10-K filed with the SEC for a discussion of accounting policies and other relevant information with respect to the financial statements. The results of operations for the periods ended June 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated all subsequent events through the date the financial statements were issued.

Note 2 – Accounting Policies

Note 1 to the 2011 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and discussion of recent accounting pronouncements. During the first six months of 2012, there were no new standards or guidance issued by the regulatory authorities relevant to the Company.

Note 3 – Reclassifications

Certain amounts reported in the period ended June 30, 2011 have been reclassified to conform to the presentation for June 30, 2012. These reclassifications had no effect on net income or shareholders’ equity for the periods presented, nor did they materially impact trends in financial information.

Note 4 – Equity-Based Compensation Plans

At June 30, 2012, the Company had the following equity-based compensation plans: the First Bancorp 2007 Equity Plan, the First Bancorp 2004 Stock Option Plan, the First Bancorp 1994 Stock Option Plan, and one plan that was assumed from an acquired entity. The Company’s shareholders approved all equity-based compensation plans, except for those assumed from acquired companies. The First Bancorp 2007 Equity Plan became effective upon the approval of shareholders on May 2, 2007. As of June 30, 2012, the First Bancorp 2007 Equity Plan was the only plan that had shares available for future grants.

The First Bancorp 2007 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans’ participants with those of the Company and its shareholders. The First Bancorp 2007 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity grants to employees have either had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost will be reversed. As it relates to director equity grants, the Company grants common shares, valued at approximately $226,000 in the aggregate on the date of the grant, to non-employee directors in June of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no vesting conditions.

Page 9

The Company granted long-term restricted shares of common stock to certain senior executives on February 24, 2011 and February 23, 2012 with a two year minimum vesting period. The total compensation expense associated with the February 24, 2011 grant was $105,500 and the grant will fully vest on February 24, 2013. The Company recorded $22,000 in stock option expense in the first six months of 2012 and will record $9,700 in each subsequent quarter of 2012 related to this grant. The total compensation expense associated with the February 23, 2012 grant was $89,700 and the grant will fully vest on February 23, 2014. The Company recorded $14,900 in the first six months of 2012 and will record $11,200 in each subsequent quarter of 2012 related to this grant.

Under the terms of the predecessor plans and the First Bancorp 2007 Equity Plan, options can have a term of no longer than ten years, and all options granted thus far under these plans have had a term of ten years. The Company’s options provide for immediate vesting if there is a change in control (as defined in the plans).

At June 30, 2012, there were 476,624 options outstanding related to the three First Bancorp plans, with exercise prices ranging from $14.35 to $22.12. At June 30, 2012, there were 871,257 shares remaining available for grant under the First Bancorp 2007 Equity Plan. The Company also has a stock option plan as a result of a corporate acquisition. At June 30, 2012, there were 4,788 stock options outstanding in connection with the acquired plan, with option prices ranging from $10.66 to $15.22.

The Company issues new shares of common stock when options are exercised.

The Company measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The Company determines the assumptions used in the Black-Scholes option pricing model as follows: the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant; the dividend yield is based on the Company’s dividend yield at the time of the grant (subject to adjustment if the dividend yield on the grant date is not expected to approximate the dividend yield over the expected life of the option); the volatility factor is based on the historical volatility of the Company’s stock (subject to adjustment if future volatility is reasonably expected to differ from the past); and the weighted-average expected life is based on the historical behavior of employees related to exercises, forfeitures and cancellations.

The Company’s equity grants for the six months ended June 30, 2012 were the issuance of 1) 9,559 shares of long-term restricted stock to certain senior executives on February 23, 2012, at a fair market value of $10.96 per share, which was the closing price of the Company’s common stock on that date, and 2) 25,452 shares of common stock to non-employee directors on June 1, 2012 (1,818 shares per director), at a fair market value of $8.86 per share, which was the closing price of the Company’s common stock on that date.

The Company’s equity grants for the six months ended June 30, 2011 were the issuance of 1) 7,259 shares of long-term restricted stock to certain senior executives on February 24, 2011, at a fair market value of $14.54 per share, which was the closing price of the Company’s common stock on that date, and 2) 21,210 shares of common stock to non-employee directors on June 1, 2011 (1,414 shares per director), at a fair market value of $11.39 per share, which was the closing price of the Company’s common stock on that date.

The Company recorded total stock-based compensation expense of $263,000 and $483,000 for the six month periods ended June 30, 2012 and 2011, respectively, which relates to the employee grants discussed above and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized $103,000 and $188,000 of income tax benefits related to stock based compensation expense in the income statement for the six months ended June 30, 2012 and 2011, respectively.

As noted above, certain of the Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company has elected to recognize compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for the entire award. Compensation expense is based on the estimated number of stock options and awards that will ultimately vest. Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all options granted without performance conditions will become vested.

Page 10

The following table presents information regarding the activity for the first six months of 2012 related to all of the Company’s stock options outstanding:

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value
Balance at December 31, 2011		493,850		$	18.92
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(12,438	)		18.71
Outstanding at June 30, 2012		481,412		$	18.92		3.2	$	—
Exercisable at June 30, 2012		480,412		$	18.92		3.2	$	—

The Company did not have any stock option exercises during the six months ended June 30, 2012 and received $30,000 as a result of stock option exercises during the six months ended June 30, 2011. The Company recorded no tax benefits from the exercise of nonqualified stock options during the six months ended June 30, 2012 or 2011.

As discussed above, the Company granted 7,259 and 9,559 long-term restricted shares of common stock to certain senior executives on February 24, 2011 and February 23, 2012, respectively.

Page 11

The following table presents information regarding the activity during 2012 related to the Company’s outstanding restricted stock:

	Long-Term Restricted Stock
	Number of Units			Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2011		7,259		$	14.54
Granted during the period		9,559		$	10.96
Vested during the period		—			—
Forfeited or expired during the period		(2,474	)		12.55
Nonvested at June 30, 2012		14,344		$	12.50

Note 5 – Earnings Per Common Share

Basic earnings per common share were computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. Currently, the Company’s potentially dilutive common stock issuances relate to grants under the Company’s equity-based compensation plans, including stock options and restricted stock. The following is a reconciliation of the numerators and denominators used in computing basic and diluted earnings per common share:

	For the Three Months Ended June 30,
	2012						2011
($ in thousands except per share amounts)	Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount
Basic EPS
Net income available to common shareholders	$	2,461		16,952,624	$	0.15	$	2,685		16,841,289	$	0.16
Effect of Dilutive Securities		—		—				—		27,282
Diluted EPS per common share	$	2,461		16,952,624	$	0.15	$	2,685		16,868,571	$	0.16

	For the Six Months Ended June 30,
	2012								2011
($ in thousands except per share amounts)	Income (Numer- ator)			Shares (Denom- inator)		Per Share Amount			Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount
Basic EPS
Net income (loss) available to common shareholders	$	(3,481	)		16,938,620	$	(0.21	)	$	8,018		16,827,615	$	0.48
Effect of Dilutive Securities		—			—					—		27,412
Diluted EPS per common share	$	(3,481	)		16,938,620	$	(0.21	)	$	8,018		16,855,027	$	0.48

Page 12

For both the three and six months ended June 30, 2012, there were 386,662 options, respectively, that were antidilutive because the exercise price exceeded the average market price for the period. For both the three and six month periods ended June 30, 2011, there were 542,916 options that were antidilutive because the exercise price exceeded the average market price for the period. Antidilutive options have been omitted from the calculation of diluted earnings per share for the respective periods.

Note 6 – Securities

The book values and approximate fair values of investment securities at June 30, 2012 and December 31, 2011 are summarized as follows:

	June 30, 2012									December 31, 2011
	Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
($ in thousands)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Securities available for sale:
Government-sponsored enterprise securities	$	29,504		29,626		122		—			34,511		34,665		170		(16	)
Mortgage-backed securities		115,674		119,536		3,862		—			120,032		124,105		4,164		(91	)
Corporate bonds		13,186		13,139		253		(300	)		13,189		12,488		279		(980	)
Equity securities		9,195		9,606		438		(27	)		10,998		11,368		409		(39	)
Total available for sale	$	167,559		171,907		4,675		(327	)		178,730		182,626		5,022		(1,126	)
Securities held to maturity:
State and local governments	$	56,182		61,676		5,494		—			57,988		62,754		4,766		—
Total held to maturity	$	56,182		61,676		5,494		—			57,988		62,754		4,766		—

Included in mortgage-backed securities at June 30, 2012 were collateralized mortgage obligations with an amortized cost of $663,000 and a fair value of $684,000. Included in mortgage-backed securities at December 31, 2011 were collateralized mortgage obligations with an amortized cost of $1,462,000 and a fair value of $1,515,000. All of the Company’s mortgage-backed securities, including collateralized mortgage obligations, were issued by government-sponsored corporations.

The Company owned Federal Home Loan Bank (FHLB) stock with a cost and fair value of $9,102,000 at June 30, 2012 and $10,904,000 at December 31, 2011, which is included in equity securities above and serves as part of the collateral for the Company’s line of credit with the FHLB. The investment in this stock is a requirement for membership in the FHLB system.

The following table presents information regarding securities with unrealized losses at June 30, 2012:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	—		—		—		—		—		—
Mortgage-backed securities		—		—		—		—		—		—
Corporate bonds		—		—		5,029		300		5,029		300
Equity securities		—		—		31		27		31		27
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	—		—		5,060		327		5,060		327

Page 13

The following table presents information regarding securities with unrealized losses at December 31, 2011:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	8,984		16		—		—		8,984		16
Mortgage-backed securities		14,902		61		9,302		30		24,204		91
Corporate bonds		4,588		458		2,773		522		7,361		980
Equity securities		4		2		22		37		26		39
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	28,478		537		12,097		589		40,575		1,126

In the above tables, all of the non-equity securities that were in an unrealized loss position at June 30, 2012 and December 31, 2011 are bonds that the Company has determined are in a loss position due to interest rate factors, the overall economic downturn in the financial sector, and the broader economy in general. The Company has evaluated the collectability of each of these bonds and has concluded that there is no other-than-temporary impairment. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost. The Company has also concluded that each of the equity securities in an unrealized loss position at June 30, 2012 and December 31, 2011 was in such a position due to temporary fluctuations in the market prices of the securities. The Company’s policy is to record an impairment charge for any of these equity securities that remains in an unrealized loss position for twelve consecutive months unless the amount is insignificant.

The aggregate carrying amount of cost-method investments was $9,102,000 at June 30, 2012 and $10,904,000 at December 31, 2011, respectively, which was the FHLB stock discussed above. The Company determined that none of its cost-method investments were impaired at either period end.

The book values and approximate fair values of investment securities at June 30, 2012, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value
Debt securities
Due within one year	$	3,004		3,040		350		358
Due after one year but within five years		26,497		26,679		2,958		3,210
Due after five years but within ten years		3,000		3,000		29,731		32,673
Due after ten years		10,189		10,046		23,143		25,435
Mortgage-backed securities		115,674		119,536		—		—
Total debt securities		158,364		162,301		56,182		61,676
Equity securities		9,195		9,606		—		—
Total securities	$	167,559		171,907		56,182		61,676

At June 30, 2012 investment securities with a book value of $86,865,000 were pledged as collateral for public deposits. At December 31, 2011, investment securities with a book value of $47,418,000 were pledged as collateral for public and private deposits and securities sold under agreements to repurchase.

There were $9,641,000 in sales of securities during the six months ended June 30, 2012, which resulted in a net gain of $439,000. There were $2,518,000 in sales during the six months ended June 30, 2011, which resulted in a net gain of $8,000. During the six months ended June 30, 2012 and 2011, the Company recorded a net gain of $11,000 and $71,000, respectively, related to the call of several municipal and bond securities. Also, during the six months ended June 30, 2012 and 2011, the Company recorded a net loss of $1,000 and $5,000, respectively, related to write-downs of the Company’s equity portfolio.

Page 14

Note 7 – Loans and Asset Quality Information

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company’s banking subsidiary, First Bank, which afford First Bank significant loss protection. (See the Company’s 2011 Annual Report on Form 10-K for more information regarding these transactions.) Because of the loss protection provided by the FDIC, the risk of the Cooperative Bank and The Bank of Asheville loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

The following is a summary of the major categories of total loans outstanding:

($ in thousands)	June 30, 2012				December 31, 2011				June 30, 2011
	Amount		Percentage		Amount		Percentage		Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	163,761		7%		162,099		7%		158,303		6%
Real estate – construction, land development & other land loans		343,620		14%		363,079		15%		386,354		16%
Real estate – mortgage – residential (1-4 family) first mortgages		815,605		34%		805,542		33%		803,209		33%
Real estate – mortgage – home equity loans / lines of credit		250,627		10%		256,509		11%		266,995		11%
Real estate – mortgage – commercial and other		789,290		32%		762,895		31%		745,858		31%
Installment loans to individuals		73,522		3%		78,982		3%		80,423		3%
Subtotal		2,436,425		100%		2,429,106		100%		2,441,142		100%
Unamortized net deferred loan costs		1,376				1,280				1,298
Total loans	$	2,437,801				2,430,386				2,442,440

As of June 30, 2012, December 31, 2011 and June 30, 2011, net loans include unamortized premiums of $717,000, $949,000, and $1,182,000, respectively, related to acquired loans.

Page 15

The following is a summary of the major categories of non-covered loans outstanding:

($ in thousands)	June 30, 2012				December 31, 2011				June 30, 2011
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	155,879		7%		152,627		8%		145,811		7%
Real estate – construction, land development & other land loans		283,818		13%		290,983		14%		306,140		15%
Real estate – mortgage – residential (1-4 family) first mortgages		669,088		32%		646,616		31%		631,640		31%
Real estate – mortgage – home equity loans / lines of credit		229,415		11%		233,171		11%		241,973		12%
Real estate – mortgage – commercial and other		702,717		33%		666,882		32%		635,103		31%
Installment loans to individuals		72,613		4%		77,593		4%		78,749		4%
Subtotal		2,113,530		100%		2,067,872		100%		2,039,416		100%
Unamortized net deferred loan costs		1,376				1,280				1,298
Total non-covered loans	$	2,114,906				2,069,152				2,040,714

The carrying amount of the covered loans at June 30, 2012 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	68		146		7,814		9,885		7,882		10,031
Real estate – construction, land development & other land loans		1,577		2,606		58,225		99,332		59,802		101,938
Real estate – mortgage – residential (1-4 family) first mortgages		827		1,915		145,690		173,707		146,517		175,622
Real estate – mortgage – home equity loans / lines of credit		12		309		21,200		26,400		21,212		26,709
Real estate – mortgage – commercial and other		2,332		4,153		84,241		113,936		86,573		118,089
Installment loans to individuals		3		4		906		990		909		994
Total	$	4,819		9,133		318,076		424,250		322,895		433,383

Page 16

The carrying amount of the covered loans at December 31, 2011 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	69		319		9,403		11,736		9,472		12,055
Real estate – construction, land development & other land loans		3,865		8,505		68,231		115,489		72,096		123,994
Real estate – mortgage – residential (1-4 family) first mortgages		1,214		2,639		157,712		189,436		158,926		192,075
Real estate – mortgage – home equity loans / lines of credit		127		577		23,211		29,249		23,338		29,826
Real estate – mortgage – commercial and other		2,585		4,986		93,428		125,450		96,013		130,436
Installment loans to individuals		4		6		1,385		1,583		1,389		1,589
Total	$	7,864		17,032		353,370		472,943		361,234		489,975

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2010. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2010	$	366,521
Additions due to acquisition of The Bank of Asheville (at fair value)		84,623
Principal repayments		(40,576	)
Transfers to foreclosed real estate		(53,999	)
Loan charge-offs		(14,797	)
Accretion of loan discount		11,598
Carrying amount of nonimpaired covered loans at December 31, 2011	$	353,370
Principal repayments		(25,012	)
Transfers to foreclosed real estate		(11,974	)
Loan charge-offs		(4,176	)
Accretion of loan discount		5,868
Carrying amount of nonimpaired covered loans at June 30, 2012	$	318,076

As reflected in the table above, the Company accreted $5,868,000 of the loan discount on purchased nonimpaired loans into interest income during the first six months of 2012. As of June 30, 2012, there was remaining loan discount of $73,519,000 related to purchased nonimpaired loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income.

The following table presents information regarding all purchased impaired loans since December 31, 2010, substantially all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

Page 17

($ in thousands) Purchased Impaired Loans	Contractual Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
Balance at December 31, 2010	$	8,080			2,329			5,751
Additions due to acquisition of The Bank of Asheville		38,452			20,807			17,645
Change due to payments received		(1,620	)		(327	)		(1,293	)
Transfer to foreclosed real estate		(19,881	)		(9,308	)		(10,573	)
Change due to loan charge-off		(7,522	)		(4,193	)		(3,329	)
Other		807			224			583
Balance at December 31, 2011	$	18,316			9,532			8,784
Change due to payments received		(287	)		(54	)		(233	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(109	)		(109	)		—
Other		(1,151	)		(1,568	)		417
Balance at June 30, 2012	$	9,133			4,314			4,819

Each of the purchased impaired loans is on nonaccrual status and considered to be impaired. 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. During the first six months of 2012 and 2011, the Company received no payments that exceeded the initial carrying amount of the purchased impaired loans.

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, and other real estate. Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	73,918		73,566		71,570
Restructured loans - accruing		20,684		11,720		16,893
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		94,602		85,286		88,463
Other real estate		37,895		37,023		31,849
Total non-covered nonperforming assets	$	132,497		122,309		120,312
Covered nonperforming assets
Nonaccrual loans (1)	$	39,075		41,472		37,057
Restructured loans - accruing		19,054		14,218		24,325
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		58,129		55,690		61,382
Other real estate		70,850		85,272		102,883
Total covered nonperforming assets	$	128,979		140,962		164,265
Total nonperforming assets	$	261,476		263,271		284,577

(1) At June 30, 2012, December 31, 2011, and June 30, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $60.4 million, $69.0 million, and $69.4 million, respectively.

Page 18

The following table presents information related to the Company’s impaired loans.

($ in thousands)	As of /for the six months ended June 30, 2012		As of /for the year ended December 31, 2011		As of /for the six months ended June 30, 2011
Impaired loans at period end
Non-covered	$	94,602		85,286		88,463
Covered		58,129		55,690		61,382
Total impaired loans at period end	$	152,731		140,976		149,845
Average amount of impaired loans for period
Non-covered	$	86,723		89,023		91,187
Covered		56,449		63,289		69,102
Average amount of impaired loans for period – total	$	143,172		152,312		160,289
Allowance for loan losses related to impaired loans at period end
Non-covered	$	11,051		5,804		6,019
Covered		5,158		5,106		4,727
Allowance for loan losses related to impaired loans - total	$	16,209		10,910		10,746
Amount of impaired loans with no related allowance at period end
Non-covered	$	22,235		35,721		31,514
Covered		40,613		43,702		49,755
Total impaired loans with no related allowance at period end	$	62,848		79,423		81,269

All of the impaired loans noted in the table above were on nonaccrual status at each respective period end except for those classified as restructured loans (see table on previous page for balances).

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

The following table presents the Company’s nonaccrual loans as of June 30, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	211		188		399
Commercial – secured		2,227		—		2,227
Secured by inventory and accounts receivable		637		—		637
Real estate – construction, land development & other land loans		19,781		16,963		36,744
Real estate – residential, farmland and multi-family		24,146		10,084		34,230
Real estate – home equity lines of credit		3,878		758		4,636
Real estate – commercial		20,277		11,009		31,286
Consumer		2,761		73		2,834
Total	$	73,918		39,075		112,993

Page 19

The following table presents the Company’s nonaccrual loans as of December 31, 2011.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		—		452
Commercial - secured		2,190		358		2,548
Secured by inventory and accounts receivable		588		102		690
Real estate – construction, land development & other land loans		22,772		21,204		43,976
Real estate – residential, farmland and multi-family		25,430		11,050		36,480
Real estate – home equity lines of credit		3,161		1,068		4,229
Real estate - commercial		16,203		7,459		23,662
Consumer		2,770		231		3,001
Total	$	73,566		41,472		115,038

The following table presents an analysis of the payment status of the Company’s loans as of June 30, 2012.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	83		58		211		37,991		38,343
Commercial - secured		446		443		2,227		110,248		113,364
Secured by inventory and accounts receivable		55		—		637		21,277		21,969
Real estate – construction, land development & other land loans		1,544		425		19,781		222,973		244,723
Real estate – residential, farmland, and multi-family		6,648		2,109		24,146		777,203		810,106
Real estate – home equity lines of credit		1,759		460		3,878		201,589		207,686
Real estate - commercial		4,715		381		20,277		597,135		622,508
Consumer		690		181		2,761		51,199		54,831
Total non-covered	$	15,940		4,057		73,918		2,019,615		2,113,530
Unamortized net deferred loan costs										1,376
Total non-covered loans									$	2,114,906
Covered loans	$	5,253		2,147		39,075		276,420		322,895
Total loans	$	21,193		6,204		112,993		2,296,035		2,437,801

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 2012.

Page 20

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2011.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	67		591		452		37,668		38,778
Commercial - secured		672		207		2,190		108,682		111,751
Secured by inventory and accounts receivable		247		—		588		20,993		21,828
Real estate – construction, land development & other land loans		1,250		1,411		22,772		221,372		246,805
Real estate – residential, farmland, and multi-family		9,751		4,259		25,430		756,215		795,655
Real estate – home equity lines of credit		1,126		237		3,161		202,912		207,436
Real estate - commercial		2,620		1,006		16,203		567,354		587,183
Consumer		657		286		2,770		54,723		58,436
Total non-covered	$	16,390		7,997		73,566		1,969,919		2,067,872
Unamortized net deferred loan costs										1,280
Total non-covered loans									$	2,069,152
Covered loans	$	6,511		3,388		41,472		309,863		361,234
Total loans	$	22,901		11,385		115,038		2,279,782		2,430,386

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2011.

Page 21

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated		Total
As of and for the three months ended June 30, 2012
Beginning balance	$	4,954			16,419			15,369			2,132			5,737			1,826			18		46,455
Charge-offs		(744	)		(174	)		(2,145	)		(281	)		(805	)		(334	)		—		(4,483	)
Recoveries		18			126			60			85			6			62			—		357
Provisions		833			1,448			1,675			210			781			237			10		5,194
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
As of and for the six months ended June 30, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(2,062	)		(2,852	)		(4,236	)		(732	)		(2,170	)		(686	)		—		(12,738	)
Recoveries		34			314			254			119			47			132			—		900
Provisions		3,309			9,051			5,409			1,069			4,428			473			12		23,751
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
Ending balances as of June 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	869			4,819			635			439			1,480			—			—		8,242
Collectively evaluated for impairment	$	4,192			13,000			14,324			1,707			4,239			1,791			28		39,281
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of June 30, 2012:
Ending balance – total	$	173,676			244,723			810,106			207,686			622,508			54,831			—		2,113,530
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	1,009			23,860			9,508			1,331			21,918			—			—		57,626
Collectively evaluated for impairment	$	172,667			220,863			800,598			206,355			600,590			54,831			—		2,055,904
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

Page 22

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi-family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(2,703	)		(16,240	)		(9,045	)		(1,147	)		(3,355	)		(845	)		(524	)		(33,859	)
Recoveries		389			1,142			719			107			37			182			93			2,669
Provisions		1,363			13,884			10,575			(904	)		2,760			574			273			28,525
Ending balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16			35,610
Ending balances:  Allowance for loan losses
Individually evaluated for impairment	$	60			607			150			—			200			—			—			1,017
Collectively evaluated for impairment	$	3,720			10,699			13,382			1,690			3,214			1,872			16			34,593
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable:
Ending balance – total	$	172,357			246,805			795,655			207,436			587,183			58,436			—			2,067,872
Ending balances: Loans
Individually evaluated for impairment	$	2,526			34,750			11,880			527			30,846			12			—			80,541
Collectively evaluated for impairment	$	169,831			212,055			783,775			206,909			556,337			58,424			—			1,987,331
Loans acquired with deteriorated credit quality	$	—			920			—			—			—			—			—			920

Page 23

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
As of and for the three months ended June 30, 2011
Beginning balance	$	4,142			10,203			12,463			3,359			3,359			2,223			24			35,773
Charge-offs		(740	)		(5,589	)		(2,248	)		(141	)		(313	)		(157	)		(121	)		(9,309	)
Recoveries		28			219			61			37			—			20			29			394
Provisions		475			6,957			1,808			(1,406	)		(187	)		(126	)		86			7,607
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
As of and for the six months ended June 30, 2011
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,896	)		(9,582	)		(5,596	)		(764	)		(1,380	)		(360	)		(236	)		(19,814	)
Recoveries		36			251			293			43			28			103			73			827
Provisions		1,034			8,601			6,104			(1,064	)		239			256			7			15,177
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
Ending balances as of June 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	50			1,221			235			—			340			—			—			1,846
Collectively evaluated for impairment	$	3,855			10,569			11,849			1,849			2,519			1,960			18			32,619
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable as of June 30, 2011:
Ending balance – total	$	165,091			267,346			774,448			213,920			558,879			59,732			—			2,039,416
Ending balances as of June 30, 2011: Loans
Individually evaluated for impairment	$	2,049			47,181			7,656			531			34,198			20			—			91,635
Collectively evaluated for impairment	$	163,042			220,165			766,792			213,389			524,681			59,712			—			1,947,781
Loans acquired with deteriorated credit quality	$	—			1,234			—			—			—			—			—			1,234

Page 24

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2012
Beginning balance	$	6,372
Charge-offs		(1,714	)
Recoveries		—
Provisions		1,273
Ending balance	$	5,931
As of and for the six months ended June 30, 2012
Beginning balance	$	5,808
Charge-offs		(4,148	)
Recoveries		—
Provisions		4,271
Ending balance	$	5,931
Ending balances as of June 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	5,914
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		17
Loans receivable as of June 30, 2012:
Ending balance – total	$	322,895
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	42,598
Collectively evaluated for impairment		280,297
Loans acquired with deteriorated credit quality		4,819

Page 25

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2011.

($ in thousands)	Covered Loans
As of and for the year ended December 31, 2011
Beginning balance	$	11,155
Charge-offs		(18,123	)
Recoveries		—
Provisions		12,776
Ending balance	$	5,808
Ending balances as of December 31, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	5,481
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		327
Loans receivable as of December 31, 2011:
Ending balance – total	$	361,234
Ending balances as of December 31, 2011: Loans
Individually evaluated for impairment	$	44,723
Collectively evaluated for impairment		316,511
Loans acquired with deteriorated credit quality		7,864

Page 26

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2011
Beginning balance	$	7,002
Charge-offs		(4,789	)
Recoveries		—
Provisions		3,327
Ending balance	$	5,540
As of and for the six months ended June 30, 2011
Beginning balance	$	11,155
Charge-offs		(12,715	)
Recoveries		—
Provisions		7,100
Ending balance	$	5,540
Ending balances as of June 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	5,540
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		—
Loans receivable as of June 30, 2011:
Ending balance – total	$	401,726
Ending balances as of June 30, 2011: Loans
Individually evaluated for impairment	$	37,149
Collectively evaluated for impairment		364,577
Loans acquired with deteriorated credit quality		13,538

Page 27

The following table presents the Company’s impaired loans as of June 30, 2012.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		69		225		—		144
Secured by inventory and accounts receivable		—		—		—		9
Real estate – construction, land development & other land loans		6,950		11,676		—		8,992
Real estate – residential, farmland, and multi-family		4,242		6,010		—		3,172
Real estate – home equity lines of credit		—		—		—		15
Real estate – commercial		10,974		12,683		—		12,554
Consumer		—		—		—		4
Total non-covered impaired loans with no allowance	$	22,235		30,594		—		24,890
Total covered impaired loans with no allowance	$	40,613		75,350		—		40,357
Total impaired loans with no allowance recorded	$	62,848		105,944		—		65,247
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	211		612		40		231
Commercial - secured		2,158		2,436		315		1,912
Secured by inventory and accounts receivable		637		1,112		143		673
Real estate – construction, land development & other land loans		18,156		22,302		6,093		15,360
Real estate – residential, farmland, and multi-family		23,476		26,658		2,361		24,792
Real estate – home equity lines of credit		3,877		4,493		453		3,300
Real estate – commercial		21,089		24,102		1,309		12,776
Consumer		2,763		2,801		337		2,789
Total non-covered impaired loans with allowance	$	72,367		84,516		11,051		61,833
Total covered impaired loans with allowance	$	17,516		19,421		5,158		16,092
Total impaired loans with an allowance recorded	$	89,883		103,937		16,209		77,925

Interest income recorded on non-covered and covered impaired loans during the six months ended June 30, 2012 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

Page 28

The following table presents the Company’s impaired loans as of December 31, 2011.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		295		478		—		504
Secured by inventory and accounts receivable		27		493		—		124
Real estate – construction, land development & other land loans		15,105		20,941		—		17,876
Real estate – residential, farmland, and multi-family		3,442		4,741		—		5,278
Real estate – home equity lines of credit		46		300		—		79
Real estate – commercial		16,794		18,817		—		13,359
Consumer		12		39		—		15
Total non-covered impaired loans with no allowance	$	35,721		45,809		—		37,235
Total covered impaired loans with no allowance	$	43,702		78,578		—		49,030
Total impaired loans with no allowance recorded	$	79,423		124,387		—		86,265
Non-covered  loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		454		59		226
Commercial - secured		1,895		1,899		295		1,427
Secured by inventory and accounts receivable		561		571		156		391
Real estate – construction, land development & other land loans		10,360		12,606		2,244		15,782
Real estate – residential, farmland, and multi-family		24,460		26,153		2,169		22,487
Real estate – home equity lines of credit		3,115		3,141		117		2,544
Real estate – commercial		5,965		6,421		283		6,602
Consumer		2,757		2,759		481		2,329
Total non-covered impaired loans with allowance	$	49,565		54,004		5,804		51,788
Total covered impaired loans with allowance	$	11,988		15,670		5,106		14,259
Total impaired loans with an allowance recorded	$	61,553		69,674		10,910		66,047

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2011 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

Page 29

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

	Numerical Risk Grade	Description
Pass:
	1	Cash secured loans.
	2	Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
	3	Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:
	4	Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:
	9	Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.  This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:
	5	Existing loans with major exceptions that cannot be mitigated.
Classified:
	6	Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
	7	Loans that have a well-defined weakness that make the collection or liquidation improbable.
	8	Loans that are considered uncollectible and are in the process of being charged-off.

Page 30

The following table presents the Company’s recorded investment in loans by credit quality indicators as of June 30, 2012.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	11,933		25,351		12		323		513		211		38,343
Commercial - secured		34,861		69,630		1,705		2,481		2,460		2,227		113,364
Secured by inventory and accounts receivable		3,688		16,539		265		695		145		637		21,969
Real estate – construction, land development & other land loans		32,230		161,242		5,304		11,971		14,195		19,781		244,723
Real estate – residential, farmland, and multi-family		250,715		476,852		9,105		17,883		31,405		24,146		810,106
Real estate – home equity lines of credit		131,210		66,044		2,521		2,338		1,695		3,878		207,686
Real estate - commercial		135,080		417,454		27,537		13,025		9,135		20,277		622,508
Consumer		28,153		22,676		86		514		641		2,761		54,831
Total	$	627,870		1,255,788		46,535		49,230		60,189		73,918		2,113,530
Unamortized net deferred loan costs														1,376
Total non-covered  loans													$	2,114,906
Total covered loans	$	51,912		137,930		—		8,459		85,519		39,075		322,895
Total loans	$	679,782		1,393,718		46,535		57,689		145,708		112,993		2,437,801

At June 30, 2012, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At June 30, 2012, there were no covered loans that were graded “8” with an accruing status.

Page 31

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2011.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	13,516		23,735		13		217		845		452		38,778
Commercial - secured		36,587		66,105		1,912		2,196		2,761		2,190		111,751
Secured by inventory and accounts receivable		3,756		16,197		282		756		249		588		21,828
Real estate – construction, land development & other land loans		37,596		156,651		6,490		9,903		13,393		22,772		246,805
Real estate – residential, farmland, and multi-family		257,163		456,188		10,248		17,687		28,939		25,430		795,655
Real estate – home equity lines of credit		130,913		67,606		2,422		1,868		1,466		3,161		207,436
Real estate - commercial		140,577		372,614		30,722		11,502		15,565		16,203		587,183
Consumer		30,693		23,550		67		368		988		2,770		58,436
Total	$	650,801		1,182,646		52,156		44,497		64,206		73,566		2,067,872
Unamortized net deferred loan costs														1,280
Total non-covered  loans													$	2,069,152
Total covered loans	$	62,052		161,508		—		8,033		88,169		41,472		361,234
Total loans	$	712,853		1,344,154		52,156		52,530		152,375		115,038		2,430,386

At December 31, 2011, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At December 31, 2011, there were no covered loans that were graded “8” with an accruing status.

Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

The vast majority of the Company’s troubled debt restructurings modified during the period ended June 30, 2012 related to interest rate reductions combined with restructured amortization schedules. The Company does not grant principal forgiveness.

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

Page 32

The following table presents information related to loans modified in a troubled debt restructuring during the three and six months ended June 30, 2012.

($ in thousands)	For the three months ended June 30, 2012				For the six months ended June 30, 2012
	Number of Contracts		Restructured Balances		Number of Contracts		Restructured Balances
Non-covered TDRs – Accruing
Real estate – construction, land development & other land loans		1	$	300		1	$	300
Real estate – residential, farmland, and multi-family		1		303		1		303
Non-covered TDRs - Nonaccrual
Real estate – construction, land development & other land loans		1		238		1		238
Total non-covered TDRs arising during period		3	$	841		3	$	841
Total covered TDRs arising during period– Accruing		3	$	5,428		6	$	7,342
Total covered TDRs arising during period – Nonaccrual		—		—		—		—
Total TDRs arising during period		6	$	6,269		9	$	8,183

Accruing restructured loans that defaulted during the three and six months ended June 30, 2012 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned.

($ in thousands)	For the three months ended June 30, 2012				For the six months ended June 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Real estate – construction, land development & other land loans		—	$	—		2	$	664
Real estate – residential, farmland, and multi-family		1		341		1		341
Real estate - commercial		1		180		1		180
Total non-covered TDRs that subsequently defaulted		2	$	521		4	$	1,185
Total accruing covered TDRs that subsequently defaulted		3	$	716		14	$	3,427
Total accruing TDRs that subsequently defaulted		5	$	1,237		18	$	4,612

Note 8 – Deferred Loan Costs

The amount of loans shown on the Consolidated Balance Sheets includes net deferred loan costs of approximately $1,376,000, $1,280,000, and $1,298,000 at June 30, 2012, December 31, 2011, and June 30, 2011, respectively.

Page 33

Note 9 – FDIC Indemnification Asset

The FDIC indemnification asset is the estimated amount that the Company will receive from the FDIC under loss share agreements associated with two FDIC-assisted failed bank acquisitions. See page 38 of the Company’s 2011 Annual Report on Form 10-K for a detailed explanation of this asset.

The FDIC indemnification asset was comprised of the following components as of the dates shown:

($ in thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Receivable related to claims submitted, not yet received	$	18,574		13,377		27,668
Receivable related to estimated future claims on loans		79,308		90,275		100,953
Receivable related to estimated future claims on other real estate owned		19,020		18,025		14,273
FDIC indemnification asset	$	116,902		121,677		142,894

The following presents a rollforward of the FDIC indemnification asset since December 31, 2011.

($ in thousands)
Balance at December 31, 2011	$	121,677
Increase related to unfavorable changes in loss estimates		12,298
Increase related to reimbursable expenses		3,183
Cash received		(15,286	)
Accretion of loan discount		(4,694	)
Other		(276	)
Balance at June 30, 2012	$	116,902

Note 10 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of June 30, 2012, December 31, 2011, and June 30, 2011 and the carrying amount of unamortized intangible assets as of those same dates.

	June 30, 2012				December 31, 2011				June 30, 2011
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizable intangible assets:
Customer lists	$	678		387		678		357		678		328
Core deposit premiums		7,867		4,707		7,867		4,291		7,867		3,868
Total	$	8,545		5,094		8,545		4,648		8,545		4,196
Unamortizable intangible assets:
Goodwill	$	65,835				65,835				65,835

Amortization expense totaled $223,000 and $226,000 for the three months ended June 30, 2012 and 2011, respectively. Amortization expense totaled $446,000 and $450,000 for the six months ended June 30, 2012 and 2011, respectively

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The following table presents the estimated amortization expense for the last three quarters of calendar year 2012 and for each of the four calendar years ending December 31, 2016 and the estimated amount amortizable thereafter. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

($ in thousands)	Estimated Amortization Expense
July 1 to December 31, 2012	$	446
2013		781
2014		678
2015		622
2016		555
Thereafter		369
Total	$	3,451

Note 11 – Pension Plans

The Company sponsors two defined benefit pension plans – a qualified retirement plan (the “Pension Plan”) which is generally available to all employees, and a Supplemental Executive Retirement Plan (the “SERP”), which is for the benefit of certain senior management executives of the Company.

The Company recorded pension expense totaling $619,000 and $832,000 for the three months ended June 30, 2012 and 2011, respectively, related to the Pension Plan and the SERP. The following table contains the components of the pension expense.

	For the Three Months Ended June 30,
	2012			2011			2012		2011		2012 Total			2011 Total
($ in thousands)	Pension Plan			Pension Plan			SERP		SERP		Both Plans			Both Plans
Service cost – benefits earned during the period	$	457			478			76		115		533			593
Interest cost		363			432			70		102		433			534
Expected return on plan assets		(492	)		(444	)		─		─		(492	)		(444	)
Amortization of transition obligation		1			1			─		─		1			1
Amortization of net (gain)/loss		136			114			─		26		136			140
Amortization of prior service cost		3			3			5		5		8			8
Net periodic pension cost	$	468			584			151		248		619			832

The Company recorded pension expense totaling $1,658,000 and $1,664,000 for the six months ended June 30, 2012 and 2011, respectively, related to the Pension Plan and the SERP. The following table contains the components of the pension expense.

	For the Six Months Ended June 30,
	2012			2011			2012		2011		2012 Total			2011 Total
($ in thousands)	Pension Plan			Pension Plan			SERP		SERP		Both Plans			Both Plans
Service cost – benefits earned during the period	$	1,061			956			170		230		1,231			1,186
Interest cost		799			864			157		204		956			1,068
Expected return on plan assets		(984	)		(888	)		─		─		(984	)		(888	)
Amortization of transition obligation		2			2			─		─		2			2
Amortization of net (gain)/loss		403			228			34		52		437			280
Amortization of prior service cost		6			6			10		10		16			16
Net periodic pension cost	$	1,287			1,168			371		496		1,658			1,664

The Company’s contributions to the Pension Plan are based on computations by independent actuarial consultants and are intended to provide the Company with the maximum deduction for income tax purposes. The contributions are invested to provide for benefits under the Pension Plan. The Company expects that it will contribute $2,500,000 to the Pension Plan in 2012.

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The Company’s funding policy with respect to the SERP is to fund the related benefits from the operating cash flow of the Company.

Note 12 – Comprehensive Income

Comprehensive income is defined as the change in equity during a period for non-owner transactions and is divided into net income and other comprehensive income. Other comprehensive income includes revenues, expenses, gains, and losses that are excluded from earnings under current accounting standards. The components of accumulated other comprehensive income (loss) for the Company are as follows:

($ in thousands)	June 30, 2012			December 31, 2011			June 30, 2011
Unrealized gain (loss) on securities available for sale	$	4,348			3,896			3,790
Deferred tax asset (liability)		(1,694	)		(1,520	)		(1,478	)
Net unrealized gain (loss) on securities available for sale		2,654			2,376			2,312
Additional pension liability		(17,879	)		(18,278	)		(10,608	)
Deferred tax asset		7,064			7,220			4,190
Net additional pension liability		(10,815	)		(11,058	)		(6,418	)
Total accumulated other comprehensive income (loss)	$	(8,161	)		(8,682	)		(4,106	)

Note 13 – Fair Value

Relevant accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at June 30, 2012.

($ in thousands)
Description of Financial Instruments	Fair Value at June 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	29,626		—		29,626		—
Mortgage-backed securities		119,536		—		119,536		—
Corporate bonds		13,139		—		13,139		—
Equity securities		9,606		423		9,183		—
Total available for sale securities	$	171,907		423		171,484		—
Nonrecurring
Impaired loans – covered	$	58,129		—		—		58,129
Impaired loans – non-covered		94,602		—		—		94,602
Other real estate – covered		70,850		—		70,850		—
Other real estate – non-covered		37,895		—		37,895		—

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2011.

($ in thousands)
Description of Financial Instruments	Fair Value at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	34,665		—		34,665		—
Mortgage-backed securities		124,105		—		124,105		—
Corporate bonds		12,488		—		12,488		—
Equity securities		11,368		398		10,969		—
Total available for sale securities	$	182,626		398		182,227		—
Nonrecurring
Impaired loans – covered	$	55,690		—		55,690		—
Impaired loans – non-covered		85,286		—		85,286		—
Other real estate – covered		85,272		—		85,272		—
Other real estate – non-covered		37,023		—		37,023		—

The following is a description of the valuation methodologies used for instruments measured at fair value.

Securities — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. Level 1 securities for the Company include certain equity securities. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage obligations, government-sponsored entity securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

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Impaired loans —Fair values for impaired loans in the above table are collateral dependent and are estimated based on underlying collateral values, as determined by third-party appraisers, which are then adjusted for the cost related to liquidation of the collateral.

Other real estate – Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.

Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the three months ended June 30, 2012 or 2011.

For the six months ended June 30, 2012 and 2011, the increase in the fair value of securities available for sale was $452,000 and $1,313,000, respectively, which is included in other comprehensive income (tax expense of $175,000 and $512,000, respectively). Fair value measurement methods at June 30, 2012 and 2011 are consistent with those used in prior reporting periods.

The carrying amounts and estimated fair values of financial instruments at June 30, 2012 and December 31, 2011 are as follows:

		June 30, 2012					December 31, 2011
($ in thousands)	Level in Fair Value Hierarchy		Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
Cash and due from banks, noninterest-bearing	Level 1		$	58,872		58,872			80,341		80,341
Due from banks, interest-bearing	Level 1			203,313		203,313			135,218		135,218
Federal funds sold	Level 1			—		—			608		608
Securities available for sale	Level 2			171,907		171,907			182,626		182,626
Securities held to maturity	Level 2			56,182		61,676			57,988		62,754
Presold mortgages in process of settlement	Level 1			4,053		4,053			6,090		6,090
Loans – non-covered, net of allowance	Level 3			2,067,383		2,006,670			2,033,542		1,987,979
Loans – covered, net of allowance	Level 3			316,964		316,964			355,426		355,426
FDIC indemnification asset	Level 3			116,902		116,501			121,677		121,004
Accrued interest receivable	Level 1			10,932		10,932			11,779		11,779
Deposits	Level 2			2,838,298		2,841,563			2,755,037		2,759,504
Securities sold under agreements to repurchase	Level 2			—		—			17,105		17,105
Borrowings	Level 2			111,394		86,451			133,925		106,333
Accrued interest payable	Level 2			1,549		1,549			1,872		1,872

Fair value methods and assumptions are set forth below for the Company’s financial instruments.

Cash and Due from Banks, Federal Funds Sold, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable - The carrying amounts approximate their fair value because of the short maturity of these financial instruments. (Level 1)

Available for Sale and Held to Maturity Securities - Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or matrix pricing. (Level 2)

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Loans – For non-impaired loans, fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. (Level 3)

As discussed above, fair values for impaired loans are estimated based on estimated proceeds expected upon liquidation of the collateral. (Level 3)

FDIC Indemnification Asset – Fair value is equal to the FDIC reimbursement rate of the expected losses to be incurred and reimbursed by the FDIC and then discounted over the estimated period of receipt. (Level 3)

Deposits and Securities Sold Under Agreements to Repurchase - The fair value of securities sold under agreements to repurchase and deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, checking, and money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. (Level 2)

Borrowings - The fair value of borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered by the Company’s lenders for debt of similar remaining maturities. (Level 2)

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as foreclosed properties, deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Note 14 – Participation in the Small Business Lending Fund

On September 1, 2011, the Company completed the sale of $63.5 million of Series B preferred stock to the Secretary of the Treasury under the Small Business Lending Fund (SBLF). The fund was established under the Small Business Jobs Act of 2010 that was created to encourage lending to small businesses by providing capital to qualified community banks with assets less than $10 billion.

Under the terms of the stock purchase agreement, the Treasury received 63,500 shares of non-cumulative perpetual preferred stock with a liquidation value of $1,000 per share, in exchange for $63.5 million.

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The Series B preferred stock qualifies as Tier 1 capital. The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first 10 quarters during which the Series B preferred stock is outstanding, based upon changes in the level of “Qualified Small Business Lending” or “QBSL”. For the first nine quarters after issuance, the dividend rate can range from one percent (1%) to five percent (5%) per annum based upon the increase in QBSL as compared to the baseline. For quarters subsequent to the issuance in 2011, the Company has paid a dividend rate ranging from 4.8% to 5.0%. Based upon an increase in the level of QBSL over the baseline level calculated under the terms of the related purchase agreement, the dividend rate for the next dividend period (which will end on September 30, 2012) is expected to be 5.0%, subject to confirmation by Treasury. For the tenth calendar quarter through four and one half years after issuance, the dividend rate will be fixed at between one percent (1%) and seven percent (7%) based upon the level of QBSL compared to the baseline. After four and one half years from the issuance, the dividend rate will increase to nine percent (9%). Subject to regulatory approval, the Company is generally permitted to redeem the Series B preferred shares at par plus unpaid dividends.

There was no discount recorded related to the SBLF preferred stock (because no warrants were issued in connection with this preferred stock issuance), and therefore there will be no future amounts recorded for preferred stock discount accretion.

For the first six months of 2012, the Company accrued approximately $1,589,000 in preferred dividend payments. This amount is deducted from net income in computing “Net income available to common shareholders.”

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

Critical Accounting Policies

The accounting principles we follow and our methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices followed by the banking industry. Certain of these principles involve a significant amount of judgment and may involve the use of estimates based on our best assumptions at the time of the estimation. The allowance for loan losses, intangible assets, and the fair value and discount accretion of loans acquired in FDIC-assisted transactions are three policies we have identified as being more sensitive in terms of judgments and estimates, taking into account their overall potential impact to our consolidated financial statements.

Allowance for Loan Losses

Due to the estimation process and the potential materiality of the amounts involved, we have identified the accounting for the allowance for loan losses and the related provision for loan losses as an accounting policy critical to our consolidated financial statements. The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance considered adequate to absorb losses inherent in the portfolio.

Our determination of the adequacy of the allowance is based primarily on a mathematical model that estimates the appropriate allowance for loan losses. This model has two components. The first component involves a review, and an estimation of losses, on loans or loan relationships that are significant in size and that are impaired (“impaired loans”). A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The estimated valuation allowance is the difference, if any, between the loan balance outstanding and the value of the impaired loan as determined by either 1) an estimate of the cash flows that we expect to receive from the borrower discounted at the loan’s effective rate, or 2) in the case of a collateral-dependent loan, the fair value of the collateral.

The second component of the allowance model is an estimate of losses for smaller balance impaired loans and all loans not considered to be impaired loans (“general reserve loans”). General reserve loans having normal credit risk are segregated by loan type, and estimated loss percentages are assigned to each loan type, based on the historical losses, current economic conditions, and operational conditions specific to each loan type. For loans that we have risk graded as having more than “standard” risk, loss percentages are based on a multiple of the estimated loss rate for loans of a similar loan type with normal risk. The multiples assigned vary by type of loan, depending on risk, and we have consulted with an external credit review firm in assigning those multiples.

The reserve estimated for impaired loans is then added to the reserve estimated for general reserve loans. This becomes our “allocated allowance.” In addition to the allocated allowance derived from the model, we also evaluate other data such as the ratio of the allowance for loan losses to total loans, net loan growth information, nonperforming asset levels and trends in such data. Based on this additional analysis, we may determine that an additional amount of allowance for loan losses is necessary to reserve for probable losses. This additional amount, if any, is our “unallocated allowance.” The sum of the allocated allowance and the unallocated allowance is compared to the actual allowance for loan losses recorded on our books and any adjustment necessary for the recorded allowance to equal the computed allowance is recorded as a provision for loan losses. The provision for loan losses is a direct charge to earnings in the period recorded.

Loans covered under loss share agreements are recorded at fair value at acquisition date. Therefore, amounts deemed uncollectible at acquisition date become a part of the fair value calculation and are excluded from the allowance for loan losses. Subsequent decreases in the amount expected to be collected result in a provision for loan losses with a corresponding increase in the allowance for loan losses. Subsequent increases in the amount expected to be collected are accreted into income over the life of the loan. Proportional adjustments are also recorded to the FDIC indemnification asset.

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Although we use the best information available to make evaluations, future material adjustments may be necessary if economic, operational, or other conditions change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on the examiners’ judgment about information available to them at the time of their examinations.

For further discussion, see “Nonperforming Assets” and “Summary of Loan Loss Experience” below.

Intangible Assets

Due to the estimation process and the potential materiality of the amounts involved, we have also identified the accounting for intangible assets as an accounting policy critical to our consolidated financial statements.

When we complete an acquisition transaction, the excess of the purchase price over the amount by which the fair market value of assets acquired exceeds the fair market value of liabilities assumed represents an intangible asset. We must then determine the identifiable portions of the intangible asset, with any remaining amount classified as goodwill. Identifiable intangible assets associated with these acquisitions are generally amortized over the estimated life of the related asset, whereas goodwill is tested annually for impairment, but not systematically amortized. Assuming no goodwill impairment, it is beneficial to our future earnings to have a lower amount assigned to identifiable intangible assets and higher amount of goodwill as opposed to having a higher amount considered to be identifiable intangible assets and a lower amount classified as goodwill.

The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangible, whereas when we acquire an insurance agency, the primary identifiable intangible asset is the value of the acquired customer list. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. We typically engage a third party consultant to assist in each analysis. For the whole bank and bank branch transactions recorded to date, the core deposit intangibles have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. For insurance agency acquisitions, the identifiable intangible assets related to the customer lists were determined to have a life of ten to fifteen years, with amortization occurring on a straight-line basis.

Subsequent to the initial recording of the identifiable intangible assets and goodwill, we amortize the identifiable intangible assets over their estimated average lives, as discussed above. In addition, on at least an annual basis, goodwill is evaluated for impairment by comparing the fair value of our reporting units to their related carrying value, including goodwill (our community banking operation is our only material reporting unit). If the carrying value of a reporting unit were ever to exceed its fair value, we would determine whether the implied fair value of the goodwill, using a discounted cash flow analysis, exceeded the carrying value of the goodwill. If the carrying value of the goodwill exceeded the implied fair value of the goodwill, an impairment loss would be recorded in an amount equal to that excess. Performing such a discounted cash flow analysis would involve the significant use of estimates and assumptions.

At our last goodwill impairment evaluation as of September 30, 2011, we determined the fair value of our community banking operation was approximately $18.50 per common share, or 8% higher, than the $17.08 stated book value of our common stock at the date of valuation. To assist us in computing the fair value of our community banking operation, we engaged a consulting firm who used various valuation techniques as part of their analysis, which resulted in the conclusion of the $18.50 value.

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We review identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.

Fair Value and Discount Accretion of Loans Acquired in FDIC-Assisted Transactions

We consider the determination of the initial fair value of loans acquired in FDIC-assisted transactions, the initial fair value of the related FDIC indemnification asset, and the subsequent discount accretion of the purchased loans to involve a high degree of judgment and complexity. We determine fair value accounting estimates of newly assumed assets and liabilities in accordance with relevant accounting guidance. However, the amount that we realize on these assets could differ materially from the carrying value reflected in our financial statements, based upon the timing of collections on the acquired loans in future periods. To the extent the actual values realized for the acquired loans are different from the estimates, the FDIC indemnification asset will generally be impacted in an offsetting manner due to the loss-sharing support from the FDIC.

Because of the inherent credit losses associated with the acquired loans in a failed bank acquisition, the amount that we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the “discount” on the acquired loans. We have applied the cost recovery method of accounting to all purchased impaired loans due to the uncertainty as to the timing of expected cash flows. This will result in the recognition of interest income on these impaired loans only when the cash payments received from the borrower exceed the recorded net book value of the related loans.

For nonimpaired purchased loans, we accrete the discount over the lives of the loans in a manner consistent with the guidance for accounting for loan origination fees and costs.

Current Accounting Matters

See Note 2 to the Consolidated Financial Statements above for information about accounting standards that we have recently adopted.

RESULTS OF OPERATIONS

Overview

Net income available to common shareholders for the second quarter of 2012 amounted to $2.5 million, or $0.15 per diluted common share, compared to $2.7 million, or $0.16 per diluted common share, recorded in the second quarter of 2011. For the six months ended June 30, 2012, we reported a net loss available to common shareholders of $3.5 million, or ($0.21) per diluted common share, compared to net income of $8.0 million, or $0.48 per diluted common share, for the six months ended June 30, 2011. The net loss reported for the first six months of 2012 was caused primarily by a higher provision for loan losses in the first quarter of 2012 related to non-covered loans.

Also impacting comparability from 2011 to 2012 was a significant gain we recorded in 2011. In the first quarter of 2011, we realized a $10.2 million bargain purchase gain related to the acquisition of The Bank of Asheville in Asheville, North Carolina. The after-tax impact of this gain was $6.2 million, or $0.37 per diluted common share.

Note Regarding Components of Earnings

Our results of operation are significantly affected by the on-going accounting for two FDIC-assisted failed bank acquisitions. In the discussion below, the term “covered” is used to describe assets included as part of FDIC loss share agreements, which generally result in the FDIC reimbursing the Company for 80% of losses incurred on those assets. The term “non-covered” refers to the Company’s legacy assets, which are not included in any type of loss share arrangement.

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For covered loans that deteriorate in terms of repayment expectations, we record immediate allowances through the provision for loan losses. For covered loans that experience favorable changes in credit quality compared to what was expected at the acquisition date, including loans that payoff, we record positive adjustments to interest income over the life of the respective loan – also referred to as loan discount accretion. For foreclosed properties that are sold at gains or losses or that are written down to lower values, we record the gains/losses within noninterest income.

The adjustments discussed above are recorded within the income statement line items noted without consideration of the FDIC loss share agreements. Because favorable changes in covered assets result in lower expected FDIC claims, and unfavorable changes in covered assets result in higher expected FDIC claims, the FDIC indemnification asset is adjusted to reflect those expectations. The net increase or decrease in the indemnification asset is reflected within noninterest income.

The adjustments noted above can result in volatility within individual income statement line items. Because of the FDIC loss share agreements and the associated indemnification asset, pretax income resulting from amounts recorded as provisions for loan losses on covered loans, discount accretion, and losses from covered foreclosed properties is generally only impacted by 20% of these amounts due to the corresponding adjustments made to the indemnification asset.

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2012 amounted to $33.0 million, a 4.4% decrease from the $34.5 million recorded in the second quarter of 2011. Net interest income for the six months ended June 30, 2012 amounted to $65.0 million, a 2.6% decrease from the $66.8 million recorded in the comparable period of 2011.

The Company’s net interest margin (tax-equivalent net interest income divided by average earning assets) in the second quarter of 2012 was 4.68%, a 24 basis point decrease compared to the 4.92% margin realized in the second quarter of 2011. For the six month period ended June 30, 2012, the Company’s net interest margin was 4.64% compared to 4.77% for the same period in 2011. The lower margins were primarily due to lower loan yields, as well as the mix of the Company’s earning assets being more concentrated in lower yielding short-term investments in 2012 compared to a larger concentration of higher yielding loans and securities in 2011.

The 4.68% net interest margin realized in the second quarter of 2012 was a nine basis point increase from the 4.59% margin realized in the first quarter of 2012. The increase was primarily a result of higher amounts of discount accretion on loans purchased in failed bank acquisitions recognized during the respective periods. As previously discussed, the impact of the changes in discount accretion on pretax income is only 20% of the gross amount of the change.

Provision for Loan Losses and Asset Quality

We recorded total provisions for loan losses of $6.5 million in the second quarter of 2012 compared to $10.9 million for the second quarter of 2011. For the six months ended June 30, 2012, we recorded total provisions for loan losses of $28.0 million compared to $22.3 million for the comparable period of 2011.

The provision for loan losses on non-covered loans amounted to $5.2 million in the second quarter of 2012 compared to $7.6 million in the second quarter of 2011. This decline in provision was primarily due to stabilization in our assessment of the losses associated with our nonperforming non-covered loans. For the first six months of 2012 the provision for loan losses on non-covered loans amounted to $23.8 million compared to $15.2 million for the same period of 2011. The higher provision for loan losses was primarily a result of an internal review of non-covered loans that occurred in the first quarter of 2012 that applied more conservative assumptions to estimate the probable losses associated with some of our nonperforming loan relationships, which we believe may lead to a more timely resolution of the related credits.

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Our provisions for loan losses for covered loans amounted to $1.3 million and $3.3 million for the three months ended June 30, 2012 and 2011, respectively, and $4.3 million and $7.1 million for the six months ended June 30, 2012 and 2011, respectively. The lower provisions in 2012 were due to stabilization in our assessment of the losses associated with our nonperforming covered loans. The majority of the provisions for loan losses on covered loans in 2011 and 2012 relate to loans assumed in the Company’s June 2009 acquisition of Cooperative Bank. As previously discussed, the provision for loan losses related to covered loans is offset by an 80% increase to the FDIC indemnification asset, which increases noninterest income.

Total non-covered nonperforming assets have remained fairly stable over the past five quarter ends, ranging from $117 million to $132 million, or approximately 4.5% of total non-covered assets at June 30, 2012. During the three months ended June 30, 2012, as a part of a routine regulatory exam, we reclassified approximately $12 million of performing loans to “restructured loans – accruing” that had been renewed or modified in prior periods. Other than reclassifying these loans to a nonperforming asset category for disclosure purposes, this reclassification did not impact our financial statements.

Covered nonperforming assets have generally declined over the past 12 months, amounting to $129 million at June 30, 2012 compared to $164 million at June 30, 2011.

Noninterest Income

Total noninterest income for the three months ended June 30, 2012 and 2011 was $1.8 million and $5.1 million, respectively, a decrease of $3.3 million, or 65.4%, which was primarily attributable to losses and write-downs on foreclosed properties (see discussion in section entitled “Components of Earnings”). For the six months ended June 30, 2012 and 2011, we recorded noninterest income of $7.1 million and $19.3 million, respectively. The significant decrease in noninterest income for the six month period comparison is primarily the result of the previously discussed $10.2 million bargain purchase gain recorded in the acquisition of The Bank of Asheville during the first quarter of 2011.

Noninterest Expenses

Noninterest expenses amounted to $23.4 million in the second quarter of 2012, a 2.3% increase from the $22.9 million recorded in the same period of 2011. Noninterest expenses for the six months ended June 30, 2012 amounted to $47.8 million, a 0.3% decrease from the $48.0 million recorded in the first six months of 2011. (See further discussion in section entitled “Components of Earnings”.)

Balance Sheet and Capital

Total assets at June 30, 2012 amounted to $3.3 billion, a 0.1% decrease from a year earlier. Total loans at June 30, 2012 amounted to $2.4 billion, a 0.2% decrease from a year earlier, and total deposits amounted to $2.8 billion at June 30, 2012, a 3.3% increase from a year earlier.

For the fourth consecutive quarter, we experienced growth in our non-covered loan portfolio, with non-covered loans increasing by $20 million during the three months ended June 30, 2012. At June 30, 2012, non-covered loans amounted to $2.1 billion, an increase of $74 million, or 3.6%, from a year earlier. We are actively pursuing lending opportunities.

Our level of non-interest bearing checking accounts amounted to $381.4 million at June 30, 2012, an 18.0% increase from a year earlier, while interest-bearing checking accounts amounted to $472.3 million, an increase of 27.1% from a year earlier. Contributing to the increase in interest-bearing checking accounts was a shift into this category from customer repurchase agreements as a result of the repeal on the prohibition of banks paying interest on commercial deposit accounts. The overall growth in checking and other transaction accounts has allowed us to reduce our reliance on higher cost time deposits.

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In September 2011, we issued $63.5 million in preferred stock to the U.S. Treasury as part of the Company’s participation in the Small Business Lending Fund (“SBLF”). The goal of the SBLF is to incentivize healthy banks to make loans to small businesses. Depending on the Bank’s success in making small business loans, the dividend rate on the preferred stock could range from 5% to as low as 1% for several years. For the third quarter of 2012, we expect to pay a dividend rate of 4.3%.

We remain well-capitalized by all regulatory standards, with a Total Risk-Based Capital Ratio at June 30, 2012 of 16.23% compared to the 10.00% minimum to be considered well-capitalized. Our tangible common equity to tangible assets ratio was 6.36% at June 30, 2012, a decrease of 29 basis points from a year earlier.

Components of Earnings

Net interest income is the largest component of earnings, representing the difference between interest and fees generated from earning assets and the interest costs of deposits and other funds needed to support those assets. Net interest income for the three month period ended June 30, 2012 amounted to $33.0 million, a decrease of $1.5 million, or 4.4%, from the $34.5 million recorded in the second quarter of 2011. Net interest income on a tax-equivalent basis for the three month period ended June 30, 2012 amounted to $33.3 million, a decrease of $1.5 million, or 4.4%, from the $34.9 million recorded in the second quarter of 2011. We believe that analysis of net interest income on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest income amounts in different periods without taking into account the different mix of taxable versus non-taxable investments that may have existed during those periods.

	Three Months Ended June 30,
($ in thousands)	2012		2011
Net interest income, as reported	$	32,951		34,480
Tax-equivalent adjustment		387		388
Net interest income, tax-equivalent	$	33,338		34,868

Net interest income for the six month period ended June 30, 2012 amounted to $65.0 million, a decrease of $1.8 million, or 2.6%, from the $66.8 million recorded in the second quarter of 2011. Net interest income on a tax-equivalent basis for the six month period ended June 30, 2012 amounted to $65.8 million, a decrease of $1.8 million, or 2.6%, from the $67.6 million recorded in the second quarter of 2011.

	Six Months Ended June 30,
($ in thousands)	2012		2011
Net interest income, as reported	$	65,042		66,794
Tax-equivalent adjustment		774		773
Net interest income, tax-equivalent	$	65,816		67,567

There are two primary factors that cause changes in the amount of net interest income we record - 1) changes in our loans and deposits balances, and 2) our net interest margin (tax-equivalent net interest income divided by average interest-earning assets).

For the three and six months ended June 30, 2012, the lower net interest income compared to the same periods of 2011 was primarily due to a lower net interest margin, which is discussed in more detail below.

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The following table presents net interest income analysis on a tax-equivalent basis.

	For the Three Months Ended June 30,
	2012						2011
($ in thousands)	Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid
Assets
Loans (1)	$	2,438,471		5.88%	$	35,636	$	2,471,915		6.24%	$	38,464
Taxable securities		164,053		2.82%		1,149		184,125		3.19%		1,463
Non-taxable securities (2)		56,650		6.23%		878		57,720		6.16%		887
Short-term investments, principally federal funds		204,692		0.35%		178		129,057		0.32%		103
Total interest-earning assets		2,863,866		5.31%		37,841		2,842,817		5.77%		40,917
Cash and due from banks		56,310						74,610
Premises and equipment		73,096						68,336
Other assets		320,492						341,475
Total assets	$	3,313,764					$	3,327,238
Liabilities
Interest bearing checking	$	454,923		0.17%	$	190	$	350,094		0.21%	$	184
Money market deposits		536,288		0.37%		491		507,381		0.57%		723
Savings deposits		159,850		0.20%		78		154,624		0.51%		196
Time deposits >$100,000		733,630		1.14%		2,085		778,235		1.37%		2,661
Other time deposits		559,810		0.84%		1,169		660,551		1.07%		1,767
Total interest-bearing deposits		2,444,501		0.66%		4,013		2,450,885		0.91%		5,531
Securities sold under agreements to repurchase		—		—		—		56,756		0.34%		48
Borrowings		127,878		1.54%		490		109,481		1.72%		470
Total interest-bearing liabilities		2,572,379		0.70%		4,503		2,617,122		0.93%		6,049
Non-interest-bearing deposits		367,172						335,113
Other liabilities		31,861						22,384
Shareholders’ equity		342,352						352,619
Total liabilities and shareholders’ equity	$	3,313,764					$	3,327,238
Net yield on interest-earning assets and net interest income				4.68%	$	33,338				4.92%	$	34,868
Interest rate spread				4.61%						4.84%
Average prime rate				3.25%						3.25%

(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.

(2) Includes tax-equivalent adjustments of $387,000 and $388,000 in 2012 and 2011, respectively, to reflect the tax benefit that we receive related to tax-exempt securities, which carry interest rates lower than similar taxable investments due to their tax exempt status. This amount has been computed assuming a 39% tax rate and is reduced by the related nondeductible portion of interest expense.

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The following table presents net interest income analysis on a tax-equivalent basis.

	For the Six Months Ended June 30,
	2012						2011
($ in thousands)	Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid
Assets
Loans (1)	$	2,434,682		5.84%	$	70,678	$	2,486,963		6.10%	$	75,271
Taxable securities		165,190		2.93%		2,407		184,914		3.16%		2,895
Non-taxable securities (2)		57,123		6.19%		1,758		57,265		6.24%		1,772
Short-term investments, principally federal funds		198,424		0.32%		317		128,287		0.30%		193
Total interest-earning assets		2,855,419		5.29%		75,160		2,857,429		5.66%		80,131
Cash and due from banks		57,532						70,747
Premises and equipment		72,397						68,144
Other assets		322,570						340,644
Total assets	$	3,307,918					$	3,336,964
Liabilities
Interest bearing checking	$	446,668		0.18%	$	396	$	337,401		0.25%	$	411
Money market deposits		528,648		0.39%		1,019		509,141		0.58%		1,465
Savings deposits		156,359		0.25%		193		156,677		0.59%		457
Time deposits >$100,000		739,245		1.16%		4,260		787,888		1.35%		5,265
Other time deposits		567,346		0.86%		2,438		669,975		1.18%		3,936
Total interest-bearing deposits		2,438,266		0.69%		8,306		2,461,082		0.95%		11,534
Securities sold under agreements to repurchase		3,353		0.24%		4		57,570		0.34%		98
Borrowings		129,206		1.61%		1,034		109,147		1.72%		932
Total interest-bearing liabilities		2,570,825		0.73%		9,344		2,627,799		0.96%		12,564
Non-interest-bearing deposits		357,326						327,542
Other liabilities		34,494						29,338
Shareholders’ equity		345,273						352,285
Total liabilities and shareholders’ equity	$	3,307,918					$	3,336,964
Net yield on interest-earning assets and net interest income				4.64%	$	65,816				4.77%	$	67,567
Interest rate spread				4.56%						4.70%
Average prime rate				3.25%						3.25%

(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.

(2) Includes tax-equivalent adjustments of $774,000 and $773,000 in 2012 and 2011, respectively, to reflect the tax benefit that we receive related to tax-exempt securities, which carry interest rates lower than similar taxable investments due to their tax exempt status. This amount has been computed assuming a 39% tax rate and is reduced by the related nondeductible portion of interest expense.

Average loans outstanding for the second quarter of 2012 were $2.438 billion, which was 1.4% less than the average loans outstanding for the second quarter of 2011 ($2.472 billion). Average loans outstanding for the six months ended June 30, 2012 were $2.435 billion, which was 2.1% less than the average loans outstanding for the six months ended June 30, 2011 ($2.487 billion). The mix of our loan portfolio remained substantially the same at June 30, 2012 compared to December 31, 2011, with approximately 90% of our loans being real estate loans, 7% being commercial, financial, and agricultural loans, and the remaining 3% being consumer installment loans. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan.

The slightly lower amount of average loans outstanding in 2012 is primarily due to the resolution of loans within our “covered loan” portfolio that we assumed in two failed bank acquisitions. The resolution of $79 million of these covered loans through foreclosure, charge-off, or repayment since June 30, 2011 offset $74 million in non-covered loan growth that occurred during that same period.

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Average total deposits outstanding for the second quarter of 2012 were $2.812 billion, which was 0.9% greater than the average deposits outstanding for the second quarter of 2011 ($2.786 billion). Average deposits outstanding for the six months ended June 30, 2012 were $2.796 billion, which was 0.2% greater than the average deposits outstanding for the six months ended June 30, 2011 ($2.789 billion). Generally, we can reinvest funds from deposits at higher yields than the interest rate being paid on those deposits, and therefore increases in deposits typically result in higher amounts of net interest income.

Our net interest margin (tax-equivalent net interest income divided by average earning assets) for the second quarter of 2012 was 4.68% compared to 4.92% for the second quarter of 2011. For the six month period ended June 30, 2012, our net interest margin was 4.64% compared to 4.77% for the same period in 2011. The lower margins were primarily due to lower loan yields, as well as the mix of the Company’s earning assets being more concentrated in lower yielding short-term investments in 2012 compared to a larger concentration of higher yielding loans and securities in 2011. As can be seen in the above table, average short-term investments amounted to $205 million for the second quarter of 2012, a 59% increase from the second quarter of 2011 average of $129 million, while average loan and securities balances declined during that same period. Our higher level of short-term investments was due to declining loan balances and our decision not to deploy our excess cash into higher yielding, but longer-term, securities due to the historically low interest rate environment that has been in effect.

Our net interest margin benefitted from the net accretion of purchase accounting premiums/discounts associated with the Cooperative acquisition in June 2009 and, to a lesser degree, the acquisition of Great Pee Dee Bancorp in April 2008 and the Bank of Asheville in January 2011. For the three and six months ended June 30, 2012, we recorded $3,196,000 and $5,721,000, respectively, in net accretion of purchase accounting premiums/discounts that increased net interest income. For the comparable periods of 2011, we recorded $4,065,000 and $6,565,000, respectively, in net accretion of purchase accounting premiums/discounts. The following table presents the detail of the purchase accounting adjustments that impacted net interest income.

	For the Three Months Ended						For the Six Months Ended
$ in thousands	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Interest income – reduced by premium amortization on loans	$	(116	)		(116	)		(232	)		(221	)
Interest income – increased by accretion of loan discount		3,290			4,014			5,868			6,529
Interest expense – reduced by premium amortization of deposits		22			130			55			183
Interest expense – reduced by premium amortization of borrowings		—			37			30			74
Impact on net interest income	$	3,196			4,065			5,721			6,565

See additional information regarding net interest income in the section entitled “Interest Rate Risk.”

Our provisions for loan losses and nonperforming assets remain at what we believe to be elevated levels, primarily due to high unemployment rates and declining property values in our market area that negatively impact collateral dependent real estate loans.

Our total provision for loan losses was $6.5 million for the second quarter of 2012 compared to $10.9 million in the second quarter of 2011. Our total provision for loan losses was $28.0 million for the first six months of 2012 compared to $22.3 million for the first six months of 2011. The total provision for loan losses is comprised of provision for loan losses for non-covered loans and provision for loan losses for covered loans. (See section entitled “Summary of Loan Loss Experience” below for further discussion.)

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Our non-covered nonperforming assets amounted to $132 million at June 30, 2012, compared to $122 million at December 31, 2011 and $120 million at June 30, 2011. At June 30, 2012, the ratio of non-covered nonperforming assets to total non-covered assets was 4.51%, compared to 4.30% at December 31, 2011, and 4.25% at June 30, 2011. Our outlook for nonperforming non-covered assets is consistent with the recent trend, which is that we do not expect material improvement, nor deterioration, in the near future.

Our ratio of annualized net charge-offs to average non-covered loans was 0.79% for the second quarter of 2012 compared to 1.75% in the second quarter of 2011. Our ratio of annualized net charge-offs for the six months ended June 30, 2012 was 1.14% compared to 1.87% for the first six months of 2011.

Our nonperforming assets that are covered by FDIC loss share agreements have generally declined over the past twelve months, amounting to $164 million at June 30, 2011 compared to $141 million at December 31, 2011 and $129 million at June 30, 2012. We expect covered nonperforming assets to continue to decline as we resolve covered nonperforming loans and dispose of covered other real estate owned.

Total noninterest income was $1.8 million in the second quarter of 2012 compared to $5.1 million for the second quarter of 2011, a decrease of $3.3 million that was primarily attributable to losses and write-downs on foreclosed properties (see discussion below). For the six months ended June 30, 2012 and 2011, we recorded noninterest income of $7.1 million and $19.3 million, respectively. The decrease for the six month period comparison is primarily the result of a $10.2 million bargain purchase gain recorded in the first quarter of 2011 related to our acquisition of The Bank of Asheville.

Service charges on deposit accounts amounted to $3.0 million in the second quarter of 2012 compared to $3.3 million in the second quarter of 2011. Service charges on deposit accounts amounted to $5.8 million for the first six months of 2012 compared to $5.9 million for the first six months of 2011. The decline in this category is primarily due to lower overdraft fees. The lower level of overdraft fees is primarily attributable to new regulations that took effect on July 1, 2011 that limit our ability to charge overdraft fees.

Other service charges, commissions and fees amounted to $2.3 million in the second quarter of 2012 compared to $2.1 million in the second quarter of 2011. Other service charges, commissions and fees amounted to $4.5 million for the first six months of 2012 compared to $4.0 million for the first six months of 2011. The increases in 2012 are primarily attributable to increased debit card usage by our customers. We earn a small fee each time our customers make a debit card transaction.

Fees from presold mortgages amounted to $0.5 million in the second quarter of 2012 compared to $0.3 million in the second quarter of 2011. Fees from presold mortgages amounted to $0.9 million for the first six months of 2012 compared to $0.6 million for the first six months of 2011. The increase in these fees is primarily attributable to the low interest rate environment for home loans, which has increased refinance activity.

We continue to experience losses and write-downs on our foreclosed properties due to declining property values in our market area. For the second quarter of 2012, these losses amounted to $6.6 million for covered properties compared to $2.6 million in the second quarter of 2011. For the first six months of 2012, losses on covered properties amounted to $11.1 million compared to $7.5 million for the same period in 2011.

Losses on non-covered foreclosed properties amounted to $1.3 million for the second quarter of 2012 compared to $0.3 million in 2011. For the six months ended June 30, 2012, losses on non-covered foreclosed properties amounted to $2.0 million compared to $1.6 million for the same period of 2011.

As previously discussed, indemnification asset income is recorded to reflect additional amounts expected to be received from the FDIC due to covered loan and foreclosed property losses arising during the period. For the second quarter of 2012, indemnification asset income totaled $3.6 million compared to $1.8 million in the second quarter of 2011. For the six months ended June 30, 2012, indemnification asset income amounted to $7.7 million compared to $6.9 million for the same period of 2011.

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We recorded $0.4 million in gains on sales of securities during the first six months of 2012 compared to $0.1 million in the comparable period of 2011.

Noninterest expenses amounted to $23.4 million in the second quarter of 2012, a 2.3% increase from the $22.9 million recorded in the same period of 2011. Noninterest expenses for the six months ended June 30, 2012 amounted to $47.8 million, a 0.3% decrease from the $48.0 million recorded in the first six months of 2011.

Salaries expense amounted to $10.2 million in the second quarter of 2012 compared to $9.7 million for the second quarter of 2011. Salaries expense amounted to $20.3 million for the first half of 2012 compared to $19.4 million for comparable period of 2011. The increase in salary expense in 2012 is primarily associated with the hiring of additional employees in order to build our infrastructure and an initiative to expand our wealth management capabilities.

Employee benefit expense amounted to $2.8 million in the second quarter of 2012 compared to $3.0 million for the second quarter of 2011. This decrease is primarily due lower pension expense, which amounted to $0.6 million in the second quarter of 2012 compared to $0.8 million in the second quarter of 2011. The $0.6 million in pension expense we recorded in the second quarter of 2012 was a decline from the $1.0 million in pension expense in the first quarter of 2012. During the second quarter of 2012, we reviewed and adjusted certain assumptions used to calculate pension expense. These included a change in expected salary increases, which was changed from 5% to 3.5%, and a change in the assumption that all employees retire at age 65, which was changed to assume retirements occur on a graded basis from age 58 to age 70 based on a study of actual historical retirements. Employee benefit expense amounted to $6.7 million for the first half of 2012 compared to $6.2 million for comparable period of 2011. The increase was primarily due to higher health care costs in 2012.

Other operating expenses amounted to $7.5 million and $7.1 million for the second quarters of 2012 and 2011, respectively, and $14.7 million and $15.9 million for six month periods ended June 30, 2012 and 2011, respectively. The increase in the second quarter of 2012 compared to the second quarter of 2011 was due to generally higher expenses, with other operating expenses for the second quarter of 2011 being somewhat lower than most recent quarters. The decline in other operating expenses when comparing the first half of 2012 to the first half of 2011 was primarily due to lower FDIC insurance premiums as a result of a change in the FDIC’s assessment methodology that was effective April 1, 2011.

One of the largest categories of other operating expenses is collection expenses. Collection expenses on non-covered assets remained relatively stable for the periods presented amounting to approximately $0.8 million for both the second quarter of 2012 and 2011, and $1.45 million for the first half of both 2012 and 2011. Collection expenses on covered assets (net of FDIC reimbursement) decreased in both periods and amounted to $0.3 and $0.8 million for the three and six months ended June 30, 2012, respectively, compared to $0.6 million and $1.4 million for the three and six months ended June 30, 2011, respectively.

Merger expenses associated with The Bank of Asheville acquisition in January 2011 amounted to $243,000 and $594,000 for the three and six months ended June 30, 2011. There were no comparable merger expenses in 2012.

For the second quarter of 2012, the provision for income taxes was $1.5 million, an effective tax rate of 31.5%, compared to $2.0 million, an effective tax rate of 35.2%, for the same period of 2011. We recorded an income tax benefit of $1.8 million for the first six months of 2012 due to the net loss reported in the first quarter of 2012. For the first six months of 2011, the provision for income taxes was $5.8 million, an effective tax rate of 36.3%.

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The Consolidated Statements of Comprehensive Income reflect other comprehensive income of $171,000 and $783,000 during the second quarters of 2012 and 2011, respectively, and other comprehensive income of $521,000 and $979,000 for the six months ended June 30, 2012 and 2011, respectively. The primary component of other comprehensive income for the periods presented was changes in unrealized holding gains of our available for sale securities. Our available for sale securities portfolio is predominantly comprised of fixed rate bonds that generally increase in value when market yields for fixed rate bonds decrease and decline in value when market yields for fixed rate bonds increase. Management has evaluated any unrealized losses on individual securities at each period end and determined that there is no other-than-temporary impairment.

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FINANCIAL CONDITION

Total assets at June 30, 2012 amounted to $3.33 billion, 0.1% lower than a year earlier. Total loans at June 30, 2012 amounted to $2.44 billion, a 0.2% decrease from a year earlier, and total deposits amounted to $2.84 billion, a 3.3% increase from a year earlier.

The following table presents information regarding the nature of our growth for the twelve months ended June 30, 2012 and for the first six months of 2012.

July 1, 2011 to June 30, 2012	Balance at beginning of period		Internal Growth			Growth from Acquisitions		Balance at end of period		Total percentage growth		Percentage growth, excluding acquisitions
	($ in thousands)
Loans – Non-covered	$	2,040,714		74,192			—		2,114,906		3.6%		3.6%
Loans – Covered		401,726		(78,831	)		—		322,895		-19.6%		-19.6%
Total loans	$	2,442,440		(4,639	)		—		2,437,801		-0.2%		-0.2%
Deposits – Noninterest bearing checking	$	323,223		58,130			—		381,353		18.0%		18.0%
Deposits – Interest bearing checking		371,693		100,649			—		472,342		27.1%		27.1%
Deposits – Money market		497,112		44,207			—		541,319		8.9%		8.9%
Deposits – Savings		145,576		14,561			—		160,137		10.0%		10.0%
Deposits – Brokered		175,161		(23,074	)		—		152,087		-13.2%		-13.2%
Deposits – Internet time		40,677		(17,238	)		—		23,439		-42.4%		-42.4%
Deposits – Time>$100,000		567,722		(9,894	)		—		557,828		-1.7%		-1.7%
Deposits – Time<$100,000		626,254		(76,461	)		—		549,793		-12.2%		-12.2%
Total deposits	$	2,747,418		90,880			—		2,838,298		3.3%		3.3%
January 1, 2012 to June 30, 2012
Loans – Non-covered	$	2,069,152		45,754			—		2,114,906		2.2%		2.2%
Loans – Covered		361,234		(38,339	)		—		322,895		-10.6%		-10.6%
Total loans	$	2,430,386		7,415			—		2,437,801		0.3%		0.3%
Deposits – Noninterest bearing checking	$	335,833		45,520			—		381,353		13.6%		13.6%
Deposits – Interest bearing checking		423,452		48,890			—		472,342		11.5%		11.5%
Deposits – Money market		509,801		31,518			—		541,319		6.2%		6.2%
Deposits – Savings		146,481		13,656			—		160,137		9.3%		9.3%
Deposits – Brokered		157,408		(5,321	)		—		152,087		-3.4%		-3.4%
Deposits – Internet time		29,902		(6,463	)		—		23,439		-21.6%		-21.6%
Deposits – Time>$100,000		575,408		(17,580	)		—		557,828		-3.1%		-3.1%
Deposits – Time<$100,000		576,752		(26,959	)		—		549,793		-4.7%		-4.7%
Total deposits	$	2,755,037		83,261			—		2,838,298		3.0%		3.0%

As derived from the table above, for the twelve months preceding June 30, 2012, our non-covered loans increased by $74 million, or 3.6%, which was offset by declines in our covered loans of $79 million. Over that same period, total deposits increased $91 million, or 3.3%. For the first six months of 2012, non-covered loans increased $46 million, or 2.2%, which was partially offset by declines in our covered loans of $38 million. During the first six months of 2012, total deposits increased by $83 million, or 3.0%. We had no acquisitions during the periods presented. We have experienced growth in our non-covered loan portfolio during the periods presented, and we are actively pursuing lending opportunities in order to improve our asset yields, as well as to potentially decrease the dividend rate on our SBLF preferred stock (see Note 14 to the consolidated financial statements for more information).

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For the six and twelve months preceding June 30, 2012, internal growth in our lowest cost deposits outpaced the decline in our higher cost deposits, which resulted in a net increase in deposits. A portion of the $101 million increase in interest bearing checking accounts during the twelve months preceding June 30, 2012 was caused by the shifting of repurchase agreements (securities sold under agreements to repurchase) to interest bearing checking accounts during late 2011 and early 2012. In July 2011, the Dodd-Frank Act repealed certain sections of the Federal Reserve Act that prohibited payment of interest on commercial demand accounts. With this prohibition removed, we began to pay interest on certain types of commercial demand accounts, as we encouraged our customers with repurchase agreements to switch to commercial checking accounts, which eliminated the need to sell/pledge our investment securities. Securities sold under agreements to repurchase were $69 million at June 30, 2011, $17 million at December 31, 2011 and $0 at June 30, 2012.

The mix of our loan portfolio remains substantially the same at June 30, 2012 compared to December 31, 2011. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan.

Note 7 to the consolidated financial statements presents additional detailed information regarding our mix of loans, including a break-out between loans covered by FDIC loss share agreements and non-covered loans.

Nonperforming Assets

Nonperforming assets include nonaccrual loans, troubled debt restructurings, loans past due 90 or more days and still accruing interest, and other real estate. As previously discussed, as a result of two FDIC-assisted transactions, we entered into loss share agreements that afford us significant protection from losses from all loans and other real estate acquired in those acquisitions.

Because of the loss protection provided by the FDIC, the financial risk of the acquired loans and foreclosed real estate is significantly different from the risk associated with assets not covered under the loss share agreements. Accordingly, we present separately nonperforming assets subject to the loss share agreements as “covered” nonperforming assets, and nonperforming assets that are not subject to the loss share agreements as “non-covered.”

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Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	73,918		73,566		71,570
Restructured loans – accruing		20,684		11,720		16,893
Accruing loans >90 days past due		—		—		—
Total non-covered nonperforming loans		94,602		85,286		88,463
Other real estate		37,895		37,023		31,849
Total non-covered nonperforming assets	$	132,497		122,309		120,312
Covered nonperforming assets (1)
Nonaccrual loans (2)	$	39,075		41,472		37,057
Restructured loans – accruing		19,054		14,218		24,325
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		58,129		55,690		61,382
Other real estate		70,850		85,272		102,883
Total covered nonperforming assets	$	128,979		140,962		164,265
Total nonperforming assets	$	261,476		263,271		284,577
Asset Quality Ratios – All Assets
Net charge-offs to average loans – annualized		0.96% QTD, 1.32% YTD		1.00% YTD		2.22% QTD, 2.57% YTD
Nonperforming loans to total loans		6.27%		5.80%		6.14%
Nonperforming assets to total assets		7.86%		8.00%		8.54%
Allowance for loan losses to total loans		2.19%		1.70%		1.64%
Allowance for loan losses to nonperforming loans		35.00%		29.38%		27.31%
Asset Quality Ratios – Based on Non-covered Assets only
Net charge-offs to average non-covered loans - annualized		0.79% QTD, 1.14% YTD		1.09% YTD		1.74% QTD, 1.87% YTD
Non-covered nonperforming loans to non-covered loans		4.47%		4.12%		4.33%
Non-covered nonperforming assets to total non-covered assets		4.51%		4.30%		4.25%
Allowance for loan losses to non-covered loans		2.25%		1.72%		1.69%
Allowance for loan losses to non-covered nonperforming loans		50.23%		41.75%		38.96%

(1) Covered nonperforming assets consist of assets that are included in loss share agreements with the FDIC.

(2) At June 30, 2012, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $60.4 million.

We have reviewed the collateral for our nonperforming assets, including nonaccrual loans, and have included this review among the factors considered in the evaluation of the allowance for loan losses discussed below.

Consistent with the weak economy in our market area, we have experienced high levels of loan losses, delinquencies and nonperforming assets compared to our historical averages.

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The following is the composition, by loan type, of all of our nonaccrual loans (covered and non-covered) at each period end, as classified for regulatory purposes:

($ in thousands)	At June 30, 2012		At December 31, 2011		At June 30, 2011
Commercial, financial, and agricultural	$	3,270		3,300		2,755
Real estate – construction, land development, and other land loans		40,051		48,467		45,694
Real estate – mortgage – residential (1-4 family) first mortgages		25,453		24,133		27,981
Real estate – mortgage – home equity loans/lines of credit		7,574		7,255		6,534
Real estate – mortgage – commercial and other		33,819		28,491		22,907
Installment loans to individuals		2,826		3,392		2,756
Total nonaccrual loans	$	112,993		115,038		108,627

The following segregates our nonaccrual loans at June 30, 2012 into covered and non-covered loans, as classified for regulatory purposes:

($ in thousands)	Covered Nonaccrual Loans		Non-covered Nonaccrual Loans		Total Nonaccrual Loans
Commercial, financial, and agricultural	$	195		3,075		3,270
Real estate – construction, land development, and other land loans		16,963		23,088		40,051
Real estate – mortgage – residential (1-4 family) first mortgages		9,184		16,269		25,453
Real estate – mortgage – home equity loans/lines of credit		910		6,664		7,574
Real estate – mortgage – commercial and other		11,759		22,060		33,819
Installment loans to individuals		64		2,762		2,826
Total nonaccrual loans	$	39,075		73,918		112,993

The following segregates our nonaccrual loans at December 31, 2011 into covered and non-covered loans, as classified for regulatory purposes:

($ in thousands)	Covered Nonaccrual Loans		Non-covered Nonaccrual Loans		Total Nonaccrual Loans
Commercial, financial, and agricultural	$	469		2,831		3,300
Real estate – construction, land development, and other land loans		21,203		27,264		48,467
Real estate – mortgage – residential (1-4 family) first mortgages		10,134		13,999		24,133
Real estate – mortgage – home equity loans/lines of credit		1,231		6,024		7,255
Real estate – mortgage – commercial and other		8,212		20,279		28,491
Installment loans to individuals		223		3,169		3,392
Total nonaccrual loans	$	41,472		73,566		115,038

At June 30, 2012, troubled debt restructurings (covered and non-covered) amounted to $39.7 million, compared to $25.9 million at December 31, 2011, and $41.2 million at June 30, 2011. During the three months ended June 30, 2012, as a part of a routine regulatory exam, we reclassified approximately $12 million of performing loans to “restructured loans – accruing” that had been renewed or modified in prior periods. The reclassification was for disclosure purposes only and did not impact our financial statements beyond the reclassification of these assets to a nonperforming asset category.

Other real estate includes foreclosed, repossessed, and idled properties. Non-covered other real estate has increased over the past year, amounting to $37.9 million at June 30, 2012, $37.0 million at December 31, 2011, and $31.8 million at June 30, 2011. At June 30, 2012, we also held $70.9 million in other real estate that is subject to the loss share agreements with the FDIC, which is a decline from $85.3 million at December 31, 2011 and $102.9 million at June 30, 2011. We believe that the fair values of the items of other real estate, less estimated costs to sell, equal or exceed their respective carrying values at the dates presented.

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The following table presents the detail of all of our other real estate at each period end (covered and non-covered):

($ in thousands)	At June 30, 2012		At December 31, 2011		At June 30, 2011
Vacant land	$	67,128		76,341		88,239
1-4 family residential properties		28,475		33,724		37,349
Commercial real estate		13,142		12,230		9,144
Total other real estate	$	108,745		122,295		134,732

The following segregates our other real estate at June 30, 2012 into covered and non-covered:

($ in thousands)	Covered Other Real Estate		Non-covered Other Real Estate		Total Other Real Estate
Vacant land	$	50,572		16,556		67,128
1-4 family residential properties		12,870		15,605		28,475
Commercial real estate		7,408		5,734		13,142
Total other real estate	$	70,850		37,895		108,745

The following segregates our other real estate at December 31, 2011 into covered and non-covered:

($ in thousands)	Covered Other Real Estate		Non-covered Other Real Estate		Total Other Real Estate
Vacant land	$	59,994		16,347		76,341
1-4 family residential properties		17,362		16,362		33,724
Commercial real estate		7,916		4,314		12,230
Total other real estate	$	85,272		37,023		122,295

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The following table presents geographical information regarding our nonperforming assets at June 30, 2012.

	As of June 30, 2012
($ in thousands)	Covered		Non-covered		Total		Total Loans		Nonperforming Loans to Total Loans
Nonaccrual loans and Troubled Debt Restructurings (1)
Eastern Region (NC)	$	51,367		26,960		78,327	$	542,000		14.5	%
Triangle Region (NC)		—		29,953		29,953		780,000		3.8	%
Triad Region (NC)		—		14,722		14,722		383,000		3.8	%
Charlotte Region (NC)		—		3,546		3,546		97,000		3.7	%
Southern Piedmont Region (NC)		642		3,440		4,082		219,000		1.9	%
Western Region (NC)		6,072		5		6,077		62,000		9.8	%
South Carolina Region		48		9,397		9,445		135,000		7.0	%
Virginia Region		—		5,170		5,170		210,000		2.5	%
Other		—		1,409		1,409		10,000		14.1	%
Total nonaccrual loans and troubled debt restructurings	$	58,129		94,602		152,731	$	2,438,000		6.3	%
Other Real Estate (1)
Eastern Region (NC)	$	57,263		10,492		67,755
Triangle Region (NC)		—		8,426		8,426
Triad Region (NC)		—		8,481		8,481
Charlotte Region (NC)		—		3,638		3,638
Southern Piedmont Region (NC)		—		1,259		1,259
Western Region (NC)		13,499		—		13,499
South Carolina Region		88		4,890		4,978
Virginia Region		—		709		709
Other		—		—		—
Total other real estate		70,850		37,895		108,745

(1)

The counties comprising each region are as follows:

Eastern North Carolina Region - New Hanover, Brunswick, Duplin, Dare, Beaufort, Onslow, Carteret Triangle North Carolina Region - Moore, Lee, Harnett, Chatham, Wake Triad North Carolina Region - Montgomery, Randolph, Davidson, Rockingham, Guilford, Stanly Southern Piedmont North Carolina Region - Anson, Richmond, Scotland, Robeson, Bladen, Columbus Western North Carolina Region – Buncombe South Carolina Region - Chesterfield, Dillon, Florence, Horry Virginia Region - Wythe, Washington, Montgomery, Pulaski Charlotte North Carolina Region - Iredell, Cabarrus, Rowan

Summary of Loan Loss Experience

The allowance for loan losses is created by direct charges to operations. Losses on loans are charged against the allowance in the period in which such loans, in management’s opinion, become uncollectible. The recoveries realized during the period are credited to this allowance.

We have no foreign loans, few agricultural loans and do not engage in significant lease financing or highly leveraged transactions. Commercial loans are diversified among a variety of industries. The majority of our real estate loans are primarily personal and commercial loans where real estate provides additional security for the loan. Collateral for virtually all of these loans is located within our principal market area.

The current economic environment has resulted in an increase in our classified and nonperforming assets, which has led to elevated provisions for loan losses. Our total provision for loan losses was $28.0 million for the first six months of 2012 compared to $22.3 million in the first six months of 2011. The total provision for loan losses is comprised of provisions for loan losses for non-covered loans and provisions for loan losses for covered loans, as discussed in the following paragraphs.

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The provision for loan losses on non-covered loans amounted to $5.2 million in the second quarter of 2012 compared to $7.6 million in the second quarter of 2011. The decline in provision was primarily due to stabilization in our assessment of the losses associated with our nonperforming non-covered loans. For the six months ended June 30, 2012 and 2011, our provision for loan losses on non-covered loans amounted to $23.8 million and $15.2 million, respectively. The increase resulted from refinements to our loan loss model and internal control changes that resulted in a realignment of departmental responsibilities for determining our allowance for loan losses.  As a result of the changes, an internal review of selected nonperforming loan relationships was conducted, which applied more conservative assumptions to estimate the probable losses.  We believe that the additional reserves established may lead to a more timely resolution of the related credits.

A part of the departmental realignment involved a reassignment of the responsibility for determining our allowance for loan loss amount at period end.  Concurrent with this change, we performed a new review of the Company’s nonperforming loans and significant classified lending relationships.  As a result of this review, approximately 30 loan relationships were identified in which additional provisions for loan losses were necessary when more conservative judgments were applied to the repayment assumptions associated with the borrowers.  The total additional provisions for losses associated with these borrowers was approximately $11 million.  The majority of the additional provision was concentrated in construction and land development real estate, commercial real estate, and residential real estate loan categories.  

For the three months ended June 30, 2012 and 2011, we recorded $1.3 million and $3.3 million in provisions for loan losses for covered loans, respectively. We recorded $4.3 million and $7.1 million in provisions for loan losses for covered loans for the six months ended June 30, 2012 and 2011, respectively. The lower provisions in 2012 were due to stabilization in our assessment of the losses associated with our nonperforming covered loans. Because of the FDIC loss-share agreements in place for these loans, the FDIC indemnification asset was adjusted upwards by recording noninterest income of $1.0 million and $2.7 million in the second quarters of 2012 and 2011, respectively, and $3.4 million and $5.7 million for the first six months of 2012 and 2011, respectively, or 80% of the amount of the provisions.

For the first six months of 2012, we recorded $16.0 million in net charge-offs, compared to $31.7 million for the comparable period of 2011. The net charge-offs in 2012 included $4.1 million of covered loans and $11.8 million of non-covered loans, whereas in 2011 net charge-offs included $12.7 million of covered loans and $19.0 million of non-covered loans. During 2011, a large amount of loans that had specific reserves due to concerns about collectability were determined to be confirmed losses and partial charge-offs were recorded. The charge-offs in 2012 continue a trend that began in 2010, with charge-offs being concentrated in the construction and land development real estate categories. These types of loans have been impacted the most by the recession and decline in new housing.

The allowance for loan losses amounted to $53.5 million at June 30, 2012, compared to $41.4 million at December 31, 2011 and $40.0 million at June 30, 2011. At June 30, 2012, December 31, 2011, and June 30, 2011, the allowance for loan losses attributable to covered loans was $5.9 million, $5.8 million, and $5.5 million, respectively. The allowance for loan losses for non-covered loans amounted to $47.5 million, $35.6 million, and $34.5 million at June 30, 2012, December 31, 2011, and June 30, 2011, respectively. The increase in the allowance for losses at June 30, 2012 compared to prior periods is primarily due to the high provision for loan losses recorded in the first quarter of 2012 that was recorded as an addition to the allowance for loan losses without a corresponding increase in charge-offs.

We believe our reserve levels are adequate to cover probable loan losses on the loans outstanding as of each reporting date. It must be emphasized, however, that the determination of the reserve using our procedures and methods rests upon various judgments and assumptions about economic conditions and other factors affecting loans. No assurance can be given that we will not in any particular period sustain loan losses that are sizable in relation to the amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for loan losses or future charges to earnings. See “Critical Accounting Policies – Allowance for Loan Losses” above.

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In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses and value of other real estate. Such agencies may require us to recognize adjustments to the allowance or the carrying value of other real estate based on their judgments about information available at the time of their examinations.

For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, changes in the allowance for loan losses arising from charge-offs and recoveries, additions to the allowance for loan losses that have been charged to expense, and additions that were recorded related to acquisitions.

	Six Months Ended June 30,			Twelve Months Ended December 31,			Six Months Ended June 30,
($ in thousands)	2012			2011			2011
Loans outstanding at end of period	$	2,437,801			2,430,386			2,442,440
Average amount of loans outstanding	$	2,434,682			2,461,995			2,486,963
Allowance for loan losses, at beginning of year	$	41,418			49,430			49,430
Provision for loan losses		28,022			41,301			22,277
		69,440			90,731			71,707
Loans charged off:
Commercial, financial, and agricultural		(1,627	)		(2,358	)		(1,077	)
Real estate – construction, land development & other land loans		(6,773	)		(25,604	)		(17,528	)
Real estate – mortgage – residential (1-4 family) first mortgages		(3,007	)		(12,045	)		(7,966	)
Real estate – mortgage – home equity loans / lines of credit		(1,261	)		(3,195	)		(1,458	)
Real estate – mortgage – commercial and other		(2,939	)		(7,180	)		(3,434	)
Installment loans to individuals		(1,279	)		(1,600	)		(1,066	)
Total charge-offs		(16,886	)		(51,982	)		(32,529	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		31			314			27
Real estate – construction, land development & other land loans		490			919			255
Real estate – mortgage – residential (1-4 family) first mortgages		50			492			140
Real estate – mortgage – home equity loans / lines of credit		146			375			121
Real estate – mortgage – commercial and other		29			119			32
Installment loans to individuals		154			450			252
Total recoveries		900			2,669			827
Net charge-offs		(15,986	)		(49,313	)		(31,702	)
Allowance for loan losses, at end of period	$	53,454			41,418			40,005
Ratios:
Net charge-offs as a percent of average loans		1.32%			2.00%			2.57%
Allowance for loan losses as a percent of loans at end of  period		2.19%			1.70%			1.64%

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The following table discloses the activity in the allowance for loan losses for the six months ended June 30, 2012, segregated into covered and non-covered.

	As of and for the six months ended June 30, 2012
($ in thousands)	Covered			Non-covered			Total
Loans outstanding at end of period	$	322,895			2,114,906			2,437,801
Average amount of loans outstanding	$	342,077			2,092,605			2,434,682
Allowance for loan losses, at beginning of year	$	5,808			35,610			41,418
Provision for loan losses		4,271			23,751			28,022
		10,079			59,361			69,440
Loans charged off:
Commercial, financial, and agricultural		—			(1,627	)		(1,627	)
Real estate – construction, land development & other land loans		(2,522	)		(4,251	)		(6,773	)
Real estate – mortgage – residential (1-4 family) first mortgages		(881	)		(2,126	)		(3,007	)
Real estate – mortgage – home equity loans / lines of credit		(153	)		(1,108	)		(1,261	)
Real estate – mortgage – commercial and other		(445	)		(2,494	)		(2,939	)
Installment loans to individuals		(147	)		(1,132	)		(1,279	)
Total charge-offs		(4,148	)		(12,738	)		(16,886	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		—			31			31
Real estate – construction, land development & other land loans		—			490			490
Real estate – mortgage – residential (1-4 family) first mortgages		—			50			50
Real estate – mortgage – home equity loans / lines of credit		—			146			146
Real estate – mortgage – commercial and other		—			29			29
Installment loans to individuals		—			154			154
Total recoveries		—			900			900
Net charge-offs		(4,148	)		(11,838	)		(15,986	)
Allowance for loan losses, at end of period	$	5,931			47,523			53,454

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The following table discloses the activity in the allowance for loan losses for the six months ended June 30, 2011, segregated into covered and non-covered.

	As of and for the six months ended June 30, 2011
($ in thousands)	Covered			Non-covered			Total
Loans outstanding at end of period	$	401,726			2,040,714			2,442,440
Average amount of loans outstanding	$	436,859			2,050,104			2,486,963
Allowance for loan losses, at beginning of year	$	11,155			38,275			49,430
Provision for loan losses		7,100			15,177			22,277
		18,255			53,452			71,707
Loans charged off:
Commercial, financial, and agricultural		(13	)		(1,064	)		(1,077	)
Real estate – construction, land development & other land loans		(7,954	)		(9,574	)		(17,528	)
Real estate – mortgage – residential (1-4 family) first mortgages		(3,393	)		(4,573	)		(7,966	)
Real estate – mortgage – home equity loans / lines of credit		(198	)		(1,260	)		(1,458	)
Real estate – mortgage – commercial and other		(1,052	)		(2,382	)		(3,434	)
Installment loans to individuals		(105	)		(961	)		(1,066	)
Total charge-offs		(12,715	)		(19,814	)		(32,529	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		—			27			27
Real estate – construction, land development & other land loans		—			255			255
Real estate – mortgage – residential (1-4 family) first mortgages		—			140			140
Real estate – mortgage – home equity loans / lines of credit		—			121			121
Real estate – mortgage – commercial and other		—			32			32
Installment loans to individuals		—			252			252
Total recoveries		—			827			827
Net charge-offs		(12,715	)		(18,987	)		(31,702	)
Allowance for loan losses, at end of period	$	5,540			34,465			40,005

Based on the results of our loan analysis and grading program and our evaluation of the allowance for loan losses at June 30, 2012, there have been no material changes to the allocation of the allowance for loan losses among the various categories of loans since December 31, 2011.

Liquidity, Commitments, and Contingencies

Our liquidity is determined by our ability to convert assets to cash or acquire alternative sources of funds to meet the needs of our customers who are withdrawing or borrowing funds, and to maintain required reserve levels, pay expenses and operate the Company on an ongoing basis. Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold and other short-term investments. Our securities portfolio is comprised almost entirely of readily marketable securities, which could also be sold to provide cash.

In addition to internally generated liquidity sources, we have the ability to obtain borrowings from the following sources - 1) an approximately $393 million line of credit with the Federal Home Loan Bank (of which $65 million was outstanding at June 30, 2012), 2) a $50 million overnight federal funds line of credit with a correspondent bank (none of which was outstanding at June 30, 2012), and 3) an approximately $92 million line of credit through the Federal Reserve Bank of Richmond’s discount window (none of which was outstanding at June 30, 2012). In addition to the outstanding borrowings from the FHLB that reduce the available borrowing capacity of that line of credit, our borrowing capacity was further reduced by $143 million at June 30, 2012 and $203 million at December 31, 2011, as a result of our pledging letters of credit for public deposits at each of those dates. Unused and available lines of credit amounted to $327 million at June 30, 2012 compared to $227 million at December 31, 2011.

Page 62

Our overall liquidity has increased since June 30, 2011. Our loans have decreased $5 million, while our deposits have increased by $91 million. As a result, our liquid assets (cash and securities) as a percentage of our total deposits and borrowings increased from 15.8% at June 30, 2011 to 16.6% at June 30, 2012.

We believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future. We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.

The amount and timing of our contractual obligations and commercial commitments has not changed materially since December 31, 2011, detail of which is presented in Table 18 on page 80 of our 2011 Annual Report on Form 10-K.

We are not involved in any legal proceedings that, in our opinion, are likely to have a material effect on our consolidated financial position.

Off-Balance Sheet Arrangements and Derivative Financial Instruments

Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities.

Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in derivative activities through June 30, 2012, and have no current plans to do so.

Capital Resources

We are regulated by the Board of Governors of the Federal Reserve Board (FED) and are subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. Our banking subsidiary is regulated by the Federal Deposit Insurance Corporation (FDIC) and the North Carolina Office of the Commissioner of Banks. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

We must comply with regulatory capital requirements established by the FED and FDIC. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. These capital standards require us to maintain minimum ratios of “Tier 1” capital to total risk-weighted assets and total capital to risk-weighted assets of 4.00% and 8.00%, respectively. Tier 1 capital is comprised of total shareholders’ equity calculated in accordance with generally accepted accounting principles, excluding accumulated other comprehensive income (loss), less intangible assets, and total capital is comprised of Tier 1 capital plus certain adjustments, the largest of which is our allowance for loan losses. Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in FED and FDIC regulations.

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In addition to the risk-based capital requirements described above, we are subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution’s composite ratings as determined by its regulators. The FED has not advised us of any requirement specifically applicable to us.

At June 30, 2012, our capital ratios exceeded the regulatory minimum ratios discussed above. The following table presents our capital ratios and the regulatory minimums discussed above for the periods indicated.

	June 30, 2012		March 31, 2012		December 31, 2011		June 30, 2011
Risk-based capital ratios:
Tier I capital to Tier I risk adjusted assets		14.96%		15.07%		15.46%		15.74%
Minimum required Tier I capital		4.00%		4.00%		4.00%		4.00%
Total risk-based capital to Tier II risk-adjusted assets		16.23%		16.34%		16.72%		17.00%
Minimum required total risk-based capital		8.00%		8.00%		8.00%		8.00%
Leverage capital ratios:
Tier I leverage capital to adjusted most recent quarter average assets		9.98%		9.97%		10.21%		10.17%
Minimum required Tier I leverage capital		4.00%		4.00%		4.00%		4.00%

Our bank subsidiary is also subject to capital requirements similar to those discussed above. The bank subsidiary’s capital ratios do not vary materially from our capital ratios presented above. At June 30, 2012, our bank subsidiary exceeded the minimum ratios established by the FED and FDIC.

In addition to regulatory capital ratios, we also closely monitor our ratio of tangible common equity to tangible assets (“TCE Ratio”). Our TCE ratio was 6.36% at June 30, 2012 compared to 6.58% at December 31, 2011 and 6.65% at June 30, 2011.

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BUSINESS DEVELOPMENT MATTERS

The following is a list of business development and other miscellaneous matters affecting First Bancorp and First Bank, our bank subsidiary.

· On April 30, 2012, First Bank entered into an agreement to assume all of the deposits and acquire certain loans of the Gateway Bank & Trust Co. branch located in Wilmington, North Carolina. The acquired accounts will be transferred to one of our existing branches that is located nearby. The transaction is subject to regulatory approval and is expected to occur in the third quarter of 2012.

· On July 2, 2012, we opened our new branch in Salem, Virginia. This branch is our 7^th branch in southwestern Virginia.

· On July 3, 2012, the Branch Purchase and Assumption Agreement between Waccamaw Bank and First Bank was terminated. Waccamaw Bank was closed by the North Carolina Commissioner of Banks, which named the Federal Deposit Insurance Corporation as receiver, during June 2012.

· We are relocating our Biscoe, North Carolina branch and expect completion of the new building in the fourth quarter of 2012.

· We expect to complete the relocation of our branch in Fort Chiswell, Virginia in the fourth quarter of 2012.

· On June 18, 2012, the Company announced a quarterly cash dividend of $0.08 cents per share payable on July 25, 2012 to shareholders of record on June 30, 2012. This is the same dividend rate as the Company declared in the second quarter of 2011.

SHARE REPURCHASES

We repurchased 148 shares of our common stock during the first six months of 2012 in two private transactions. At June 30, 2012, we had approximately 214,000 shares available for repurchase under existing authority from our board of directors. We may repurchase these shares in open market and privately negotiated transactions, as market conditions and our liquidity warrants, subject to compliance with applicable regulations. See also Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds.”

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

INTEREST RATE RISK (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK)

Net interest income is our most significant component of earnings. Notwithstanding changes in volumes of loans and deposits, our level of net interest income is continually at risk due to the effect that changes in general market interest rate trends have on interest yields earned and paid with respect to our various categories of earning assets and interest-bearing liabilities. It is our policy to maintain portfolios of earning assets and interest-bearing liabilities with maturities and repricing opportunities that will afford protection, to the extent practical, against wide interest rate fluctuations. Our exposure to interest rate risk is analyzed on a regular basis by management using standard GAP reports, maturity reports, and an asset/liability software model that simulates future levels of interest income and expense based on current interest rates, expected future interest rates, and various intervals of “shock” interest rates. Over the years, we have been able to maintain a fairly consistent yield on average earning assets (net interest margin). Over the past five calendar years, our net interest margin has ranged from a low of 3.74% (realized in 2008) to a high of 4.72% (realized in 2011). During that five year period, the prime rate of interest has ranged from a low of 3.25% (which was the rate as of June 30, 2012) to a high of 8.25% (2007). The consistency of the net interest margin is aided by the relatively low level of long-term interest rate exposure that we maintain. At June 30, 2012, approximately 83% of our interest-earning assets are subject to repricing within five years (because they are either adjustable rate assets or they are fixed rate assets that mature) and substantially all of our interest-bearing liabilities reprice within five years.

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Using stated maturities for all fixed rate instruments except mortgage-backed securities (which are allocated in the periods of their expected payback) and securities and borrowings with call features that are expected to be called (which are shown in the period of their expected call), at June 30, 2012, we had approximately $594 million more in interest-bearing liabilities that are subject to interest rate changes within one year than we had in earning assets. This generally would indicate that net interest income would experience downward pressure in a rising interest rate environment and would benefit from a declining interest rate environment. However, this method of analyzing interest sensitivity only measures the magnitude of the timing differences and does not address earnings, market value, or management actions. Also, interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In addition to the effects of “when” various rate-sensitive products reprice, market rate changes may not result in uniform changes in rates among all products. For example, included in interest-bearing liabilities subject to interest rate changes within one year at June 30, 2012 are deposits totaling $1.2 billion comprised of checking, savings, and certain types of money market deposits with interest rates set by management. These types of deposits historically have not repriced with, or in the same proportion, as general market indicators.

Overall we believe that in the near term (twelve months), net interest income will not likely experience significant downward pressure from rising interest rates. Similarly, we would not expect a significant increase in near term net interest income from falling interest rates. Generally, when rates change, our interest-sensitive assets that are subject to adjustment reprice immediately at the full amount of the change, while our interest-sensitive liabilities that are subject to adjustment reprice at a lag to the rate change and typically not to the full extent of the rate change. In the short term (less than six months), this results in us being asset-sensitive, meaning that our net interest income benefits from an increase in interest rates and is negatively impacted by a decrease in interest rates. However, in the twelve-month horizon, the impact of having a higher level of interest-sensitive liabilities lessens the short-term effects of changes in interest rates.

The Federal Reserve has made no changes to interest rates since 2008, and since that time the difference between market driven short-term interest rates and longer-term interest rates has generally widened, with short-term interest rates steadily declining and longer-term interest rates not declining by as much. The higher long term interest rate environment enhanced our ability to require higher interest rates on loans. As it relates to funding, we have been able to reprice many of our maturing time deposits at lower interest rates. We were also able to generally decrease the rates we paid on other categories of deposits as a result of declining short-term interest rates in the marketplace and an increase in liquidity that lessened our need to offer premium interest rates.

As previously discussed in the section entitled “Net Interest Income and Net Interest Margin,” our net interest income was impacted by certain purchase accounting adjustments related primarily to our acquisitions of Cooperative Bank and The Bank of Asheville. The purchase accounting adjustments related to the premium amortization on loans, deposits and borrowings are based on amortization schedules and are thus systematic and predictable. The accretion of the loan discount on loans acquired from Cooperative Bank and The Bank of Asheville, which amounted to $5.9 million and $6.5 million for the first six months of 2012 and 2011, respectively, is less predictable and could be materially different among periods. This is because of the magnitude of the discounts that were initially recorded ($280 million in total) and the fact that the accretion being recorded is dependent on both the credit quality of the acquired loans and the impact of any accelerated loan repayments, including payoffs. If the credit quality of the loans declines, some or all of the remaining discount will cease to be accreted into income. If the underlying loans experience accelerated paydowns or are paid off, the remaining discount will be accreted into income on an accelerated basis, which in the event of total payoff will result in the remaining discount being entirely accreted into income in the period of the payoff. Each of these factors is difficult to predict and susceptible to volatility.

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Based on our most recent interest rate modeling, which assumes no changes in interest rates for 2012 (federal funds rate = 0.25%, prime = 3.25%), we project that our net interest margin for the remainder of 2012 will remain relatively consistent with the net interest margins recently realized. We expect loan yields and deposit costs to continue to trend downwards.

We have no market risk sensitive instruments held for trading purposes, nor do we maintain any foreign currency positions.

See additional discussion regarding net interest income, as well as discussion of the changes in the annual net interest margin in the section entitled “Net Interest Income and Net Interest Margin” above.

Item 4 – Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, which are our controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports with the SEC is recorded, processed, summarized and reported within the required time periods.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is communicated to our management to allow timely decisions regarding required disclosure.  Based on the evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in allowing timely decisions regarding disclosure to be made about material information required to be included in our periodic reports with the SEC. In addition, no change in our internal control over financial reporting has occurred during, or subsequent to, the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (2)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1, 2012 to April 30, 2012	─	─	─	214,241
May 1, 2012 to May 31, 2012	─	─	─	214,241
June 1, 2012 to June 30, 2012	─	─	─	214,241
Total	─	─	─	214,241

Footnotes to the Above Table

(1) All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. On July 30, 2004, the Company announced that its board of directors had approved the repurchase of 375,000 shares of the Company’s common stock. The repurchase authorization does not have an expiration date. There are no plans or programs the Company has determined to terminate prior to expiration, or under which we do not intend to make further purchases.

(2) The table above does not include shares that were used by option holders to satisfy the exercise price of the call options issued by the Company to its employees and directors pursuant to the Company’s stock option plans. There were no such exercises during the three months ended June 30, 2012.

There were no unregistered sales of our securities during the three months ended June 30, 2012.

Item 6 - Exhibits

The following exhibits are filed with this report or, as noted, are incorporated by reference. Management contracts, compensatory plans and arrangements are marked with an asterisk (*).

3.a Articles of Incorporation of the Company and amendments thereto were filed as Exhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and are incorporated herein by reference.

3.b Amended and Restated Bylaws of the Company were filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 23, 2009, and are incorporated herein by reference.

4.a Form of Common Stock Certificate was filed as Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and is incorporated herein by reference.

4.b Form of Certificate for Series A Preferred Stock was filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and is incorporated herein by reference.

4.c Warrant for Purchase of Shares of Common Stock was filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and is incorporated herein by reference.

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4.d Form of Certificate for Series B Preferred Stock was filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and is incorporated herein by reference.

12 Computation of Ratio of Earnings to Fixed Charges.

31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. (1)

Copies of exhibits are available upon written request to: First Bancorp, Anna G. Hollers, Executive Vice President, P.O. Box 508, Troy, NC 27371

(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.

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SIGNATURES

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

	FIRST BANCORP
August 9, 2012	BY:/s/ Richard H. Moore
	Richard H. Moore
	President
	(Principal Executive Officer),
	Treasurer and Director
August 9, 2012	BY:/s/ Anna G. Hollers
	Anna G. Hollers
	Executive Vice President,
	Secretary
	and Chief Operating Officer
August 9, 2012	BY:/s/ Eric P. Credle
	Eric P. Credle
	Executive Vice President
	and Chief Financial Officer

Page 70

EX-12

Exhibit 12

FIRST BANCORP

COMPUTATION OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

($ in thousands, except for ratios)

(Unaudited)

	Six Months Ended June 30,						Years Ended December 31,
	2012			2011			2011			2010			2009			2008			2007
Including Interest on Deposits:
Earnings:
Income (loss) before income taxes	$	(3,684	)		15,868			21,012			14,942			97,877			35,125			34,960
Fixed charges		9,501			12,654			23,973			32,087			49,075			61,483			69,837
Total earnings	$	5,817			28,522			44,985			47,029			146,952			96,608			104,797
Fixed charges:
Interest on deposits	$	8,306			11,534			21,351			29,930			45,518			53,241			59,553
Interest on borrowings		1,038			1,030			2,214			1,977			3,377			7,947			9,886
Amortization of debt issuance costs		—			—			—			—			—			115			219
Interest portion of rental expense (1)		157			90			408			180			180			180			179
Total fixed charges	$	9,501			12,654			23,973			32,087			49,075			61,483			69,837
Preferred dividend requirements		1,589			1,625			3,234			3,250			3,169			—			—
Total fixed charges and preferred dividends	$	11,090			14,279			27,207			35,337			52,244			61,483			69,837
Ratio of earnings to fixed charges, including interest on deposits		0.61	x		2.25	x		1.88	x		1.47	x		2.99	x		1.57	x		1.50	x
Ratio of earnings to fixed charges and preferred dividends, including interest on deposits		0.52	x		2.00	x		1.65	x		1.33	x		2.81	x		1.57	x		1.50	x
Excluding Interest on Deposits:
Earnings:
Income (loss) before income taxes	$	(3,684	)		15,868			21,012			14,942			97,877			35,125			34,960
Fixed charges		1,195			1,120			2,622			2,157			3,557			8,242			10,284
Total earnings (loss)	$	(2,489	)		16,988			23,634			17,099			101,434			43,367			45,244
Fixed charges:
Interest on borrowings	$	1,038			1,030			2,214			1,977			3,377			7,947			9,886
Amortization of debt issuance costs		—			—			—			—			—			115			219
Interest portion of rental expense (1)		157			90			408			180			180			180			179
Total fixed charges	$	1,195			1,120			2,622			2,157			3,557			8,242			10,284
Preferred dividend requirements		1,589			1,625			3,234			3,250			3,169			—			—
Total fixed charges and preferred dividends	$	2,784			2,745			5,856			5,407			6,726			8,242			10,284
Ratio of earnings to fixed charges, excluding interest on deposits		(2.08	x)		15.17	x		9.01	x		7.93	x		28.52	x		5.26	x		4.40	x
Ratio of earnings to fixed charges and preferred dividends, excluding interest on deposits		(0.89	x)		6.19	x		4.04	x		3.16	x		15.08	x		5.26	x		4.40	x

(1) Estimated to be one-third of rental expense.

EX-31.1

Exhibit 31.1

Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

I, Richard H. Moore, certify that:

1.     I have reviewed this Form 10-Q of First Bancorp;

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 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 registrant’s board of directors:

(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.

August 9, 2012	/s/ Richard H. Moore
	Richard H. Moore
	Chief Executive Officer

EX-31.2

Exhibit 31.2

Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

I, Eric P. Credle, certify that:

1.     I have reviewed this Form 10-Q of First Bancorp;

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 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 registrant’s board of directors:

(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.

August 9, 2012	/s/ Eric P. Credle
	Eric P. Credle
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Chief Executive Officer

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of First Bancorp (the "Company") on Form 10-Q for the period ending June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard H. Moore, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Richard H. Moore
Richard H. Moore
Chief Executive Officer
August 9, 2012

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to First Bancorp and will be retained by First Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Chief Financial Officer

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of First Bancorp (the "Company") on Form 10-Q for the period ending June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eric P. Credle, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Eric P. Credle
Eric P. Credle
Chief Financial Officer
August 9, 2012

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to First Bancorp and will be retained by First Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Securities (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Securities Details Narrative
Collateralized mortage obligations, amortized cost	$ 663,000		$ 1,462,000
Collateralized mortage obligations, fair value	684,000		1,515,000
Federal Home Loan Bank Stock, cost	9,102,000		10,904,000
Investment securities, pledged as collateral for public deposits	86,865,000		47,418,000
Sales of investment securities	9,641,000	2,518,000
Net realized gains of investment securities	439,000	8,000
Net realized gain on the call of municipal securities	11,000	71,000
Write-downs of equity portfolio	$ 1,000	$ 5,000

XML

Loans and Asset Quality Information (Details 14) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	5	18
Subsequently defaulted - Recorded Investment	$ 1,237	$ 4,612
Non-covered
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	2	4
Subsequently defaulted - Recorded Investment	521	1,185
Non-covered | Real Estate construction, land development and other land loans
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	0	2
Subsequently defaulted - Recorded Investment		664
Non-covered | Real estate residential, farmland and mutli-family
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	1	1
Subsequently defaulted - Recorded Investment	341	341
Non-covered | Real estate commercial
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	1	1
Subsequently defaulted - Recorded Investment	180	180
Covered
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	3	14
Subsequently defaulted - Recorded Investment	$ 716	$ 3,427

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Loans and Asset Quality Information (Details 8) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
30-59 Days Past Due	$ 21,193	$ 22,901
60-89 Days Past Due	6,204	11,385
Nonaccrual loans	112,993	115,038	108,627
Current	2,296,035	2,279,782
Total non-covered loans	2,114,906	2,069,152	2,040,714
[UnamortizedNetDeferredLoanCosts]	1,376	1,280	1,298
Total Covered Loans - Carrying Value	322,895	361,234	401,726
Loans	2,437,801	2,430,386	2,442,440
Commercial Unsecured
Nonaccrual loans	399	452
Commercial Secured
Nonaccrual loans	2,227	2,548
Secured by Inventory and Accounts Receivable
Nonaccrual loans	637	690
Real Estate construction, land development and other land loans
Nonaccrual loans	36,744	43,976
Total non-covered loans	244,723	246,805	267,346
Real estate residential, farmland and mutli-family
Nonaccrual loans	34,230	36,480
Total non-covered loans	810,106	795,655	774,448
Real estate home equity lines of credit
Nonaccrual loans	4,636	4,229
Total non-covered loans	207,686	207,436	213,920
Real estate commercial
Nonaccrual loans	31,286	23,662
Total non-covered loans	622,508	587,183	558,879
Consumer
Nonaccrual loans	2,834	3,001
Total non-covered loans	54,831	58,436	59,732
Non-covered
30-59 Days Past Due		16,390	15,940
60-89 Days Past Due		7,997	4,057
Nonaccrual loans	73,918	73,566	73,918
Current		1,969,919	2,019,615
Total non-covered loans	2,113,530	2,067,872	2,113,530
Non-covered | Commercial Unsecured
30-59 Days Past Due	83	67
60-89 Days Past Due	58	591
Nonaccrual loans	211	452
Current	37,991	37,668
Total non-covered loans	38,343	38,778
Non-covered | Commercial Secured
30-59 Days Past Due	446	672
60-89 Days Past Due	443	207
Nonaccrual loans	2,227	2,190
Current	110,248	108,682
Total non-covered loans	113,364	111,751
Non-covered | Secured by Inventory and Accounts Receivable
30-59 Days Past Due	55	247
60-89 Days Past Due
Nonaccrual loans	637	588
Current	21,277	20,993
Total non-covered loans	21,969	21,828
Non-covered | Real Estate construction, land development and other land loans
30-59 Days Past Due	1,544	1,250
60-89 Days Past Due	425	1,411
Nonaccrual loans	19,781	22,772
Current	222,973	221,372
Total non-covered loans	244,723	246,805
Non-covered | Real estate residential, farmland and mutli-family
30-59 Days Past Due	6,648	9,751
60-89 Days Past Due	2,109	4,259
Nonaccrual loans	24,146	25,430
Current	777,203	756,215
Total non-covered loans	810,106	795,655
Non-covered | Real estate home equity lines of credit
30-59 Days Past Due	1,759	1,126
60-89 Days Past Due	460	237
Nonaccrual loans	3,878	3,161
Current	201,589	202,912
Total non-covered loans	207,686	207,436
Non-covered | Real estate commercial
30-59 Days Past Due	4,715	2,620
60-89 Days Past Due	381	1,006
Nonaccrual loans	20,277	16,203
Current	597,135	567,354
Total non-covered loans	622,508	587,183
Non-covered | Consumer
30-59 Days Past Due	690	657
60-89 Days Past Due	181	286
Nonaccrual loans	2,761	2,770
Current	51,199	54,723
Total non-covered loans	54,831	58,436
Covered
30-59 Days Past Due	5,253	6,511
60-89 Days Past Due	2,147	3,388
Nonaccrual loans	39,075	41,472
Current	276,420	309,863
Total non-covered loans	322,895	361,234	401,726
Covered | Commercial Unsecured
Nonaccrual loans	188
Covered | Commercial Secured
Nonaccrual loans		358
Covered | Secured by Inventory and Accounts Receivable
Nonaccrual loans		102
Covered | Real Estate construction, land development and other land loans
Nonaccrual loans	16,963	21,204
Covered | Real estate residential, farmland and mutli-family
Nonaccrual loans	10,084	11,050
Covered | Real estate home equity lines of credit
Nonaccrual loans	758	1,068
Covered | Real estate commercial
Nonaccrual loans	11,009	7,459
Covered | Consumer
Nonaccrual loans	$ 73	$ 231

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Loans and Asset Quality Information (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Loans And Asset Quality Information Details Narrative
Unamortized premiums on loans	$ 717,000	$ 949,000	$ 1,182,000
Accreted discount on purchased nonimpaired loans into interest income	5,868,000
Loan discount on purchased nonimpaired loans	73,519,000
Percentage of loan discount accretion	80.00%
Contractual Balance of nonaccruals covered by FDIC loss share agreements	$ 60,400,000	$ 69,000,000	$ 69,400,000

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Loans and Asset Quality Information (Details 6) (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Impaired loans at period end	$ 152,731	$ 149,845	$ 140,976
Average amount of impaired loans for period	143,172	160,289	152,312
Impaired loans with related allowance - Related Allowance	16,209	10,746	10,910
Impaired loans with no related allowance - Recorded Investment	62,848	81,269	79,423
Non-covered
Impaired loans at period end	94,602	88,463	85,286
Average amount of impaired loans for period	86,723	91,187	89,023
Impaired loans with related allowance - Related Allowance	11,051	6,019	5,804
Impaired loans with no related allowance - Recorded Investment	22,235	31,514	35,721
Covered
Impaired loans at period end	58,129	61,382	55,690
Average amount of impaired loans for period	56,449	69,102	63,289
Impaired loans with related allowance - Related Allowance	5,158	4,727	5,106
Impaired loans with no related allowance - Recorded Investment	$ 40,613	$ 49,755	$ 43,702

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Equity-Based Compensation Plans (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Stock based compensation expense	$ 263,000	$ 483,000
Balance options outstanding, end	481,412		493,850
Fair value of equity grant, per share	$ 10.96
Stock based compensation, income tax benefit	103,000	188,000
Proceeds from stock options exercised	0	30,000
First Bancorp Plans
Balance options outstanding, end	476,624
Exercise price range - floor	$ 14.35
Exercise prices range - ceiling	$ 22.12
Acquired Plan
Balance options outstanding, end	4,788
Exercise price range - floor	$ 10.66
Exercise prices range - ceiling	$ 15.22
First Bancorp 2007 Equity Plan
Director equity grants granted, value	226,000
Shares remaining available for grant	871,257
First Bancorp 2007 Equity Plan | February 2011 Award
Total compensation expense associated with senior executives grants	105,500
Stock based compensation expense	22,000
Subsequent quarter compensation expense associated with senior executives grants	9,700
Equity grants	7,259
Fair value of equity grant, per share	$ 14.54
First Bancorp 2007 Equity Plan | June 2011 Award
Equity grants		21,210
Fair value of equity grant, per share		$ 11.39
Director equity grants granted, per director number of award options		1,414
First Bancorp 2007 Equity Plan | February 2012 Award
Total compensation expense associated with senior executives grants	89,700
Stock based compensation expense	14,900
Subsequent quarter compensation expense associated with senior executives grants	$ 11,200
Equity grants	9,559
Fair value of equity grant, per share	$ 10.96
First Bancorp 2007 Equity Plan | June 2012 Award
Equity grants	25,452
Fair value of equity grant, per share	$ 8.86
Director equity grants granted, per director number of award options	1,818

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FDIC Indemnification Asset (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Fdic Indemnification Asset Details
Receivable related to claims submitted, not yet received	$ 18,574	$ 13,377	$ 27,668
Receivable related to estimated future claims on loans	79,308	90,275	100,953
Receivable related to estimated future claims on other real estate owned	19,020	18,025	14,273
FDIC indemnification asset	$ 116,902	$ 121,677	$ 142,894

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Loans and Asset Quality Information (Tables)

6 Months Ended

Jun. 30, 2012

Loans And Asset Quality Information Tables

Summary of the major categories of total loans outstanding

($ in thousands)	June 30, 2012				December 31, 2011				June 30, 2011
	Amount		Percentage		Amount		Percentage		Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	163,761		7%		162,099		7%		158,303		6%
Real estate – construction, land development & other land loans		343,620		14%		363,079		15%		386,354		16%
Real estate – mortgage – residential (1-4 family) first mortgages		815,605		34%		805,542		33%		803,209		33%
Real estate – mortgage – home equity loans / lines of credit		250,627		10%		256,509		11%		266,995		11%
Real estate – mortgage – commercial and other		789,290		32%		762,895		31%		745,858		31%
Installment loans to individuals		73,522		3%		78,982		3%		80,423		3%
Subtotal		2,436,425		100%		2,429,106		100%		2,441,142		100%
Unamortized net deferred loan costs		1,376				1,280				1,298
Total loans	$	2,437,801				2,430,386				2,442,440

Summary of the major categories of non-covered loans outstanding

($ in thousands)	June 30, 2012				December 31, 2011				June 30, 2011
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	155,879		7%		152,627		8%		145,811		7%
Real estate – construction, land development & other land loans		283,818		13%		290,983		14%		306,140		15%
Real estate – mortgage – residential (1-4 family) first mortgages		669,088		32%		646,616		31%		631,640		31%
Real estate – mortgage – home equity loans / lines of credit		229,415		11%		233,171		11%		241,973		12%
Real estate – mortgage – commercial and other		702,717		33%		666,882		32%		635,103		31%
Installment loans to individuals		72,613		4%		77,593		4%		78,749		4%
Subtotal		2,113,530		100%		2,067,872		100%		2,039,416		100%
Unamortized net deferred loan costs		1,376				1,280				1,298
Total non-covered loans	$	2,114,906				2,069,152				2,040,714

Carrying amount of the covered loans

The carrying amount of the covered loans at June 30, 2012 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	68		146		7,814		9,885		7,882		10,031
Real estate – construction, land development & other land loans		1,577		2,606		58,225		99,332		59,802		101,938
Real estate – mortgage – residential (1-4 family) first mortgages		827		1,915		145,690		173,707		146,517		175,622
Real estate – mortgage – home equity loans / lines of credit		12		309		21,200		26,400		21,212		26,709
Real estate – mortgage – commercial and other		2,332		4,153		84,241		113,936		86,573		118,089
Installment loans to individuals		3		4		906		990		909		994
Total	$	4,819		9,133		318,076		424,250		322,895		433,383

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Index

The carrying amount of the covered loans at December 31, 2011 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	69		319		9,403		11,736		9,472		12,055
Real estate – construction, land development & other land loans		3,865		8,505		68,231		115,489		72,096		123,994
Real estate – mortgage – residential (1-4 family) first mortgages		1,214		2,639		157,712		189,436		158,926		192,075
Real estate – mortgage – home equity loans / lines of credit		127		577		23,211		29,249		23,338		29,826
Real estate – mortgage – commercial and other		2,585		4,986		93,428		125,450		96,013		130,436
Installment loans to individuals		4		6		1,385		1,583		1,389		1,589
Total	$	7,864		17,032		353,370		472,943		361,234		489,975

Covered purchased nonimpaired loans

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2010. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2010	$	366,521
Additions due to acquisition of The Bank of Asheville (at fair value)		84,623
Principal repayments		(40,576	)
Transfers to foreclosed real estate		(53,999	)
Loan charge-offs		(14,797	)
Accretion of loan discount		11,598
Carrying amount of nonimpaired covered loans at December 31, 2011	$	353,370
Principal repayments		(25,012	)
Transfers to foreclosed real estate		(11,974	)
Loan charge-offs		(4,176	)
Accretion of loan discount		5,868
Carrying amount of nonimpaired covered loans at June 30, 2012	$	318,076

Purchased impaired loans

($ in thousands) Purchased Impaired Loans	Contractual Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
Balance at December 31, 2010	$	8,080			2,329			5,751
Additions due to acquisition of The Bank of Asheville		38,452			20,807			17,645
Change due to payments received		(1,620	)		(327	)		(1,293	)
Transfer to foreclosed real estate		(19,881	)		(9,308	)		(10,573	)
Change due to loan charge-off		(7,522	)		(4,193	)		(3,329	)
Other		807			224			583
Balance at December 31, 2011	$	18,316			9,532			8,784
Change due to payments received		(287	)		(54	)		(233	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(109	)		(109	)		—
Other		(1,151	)		(1,568	)		417
Balance at June 30, 2012	$	9,133			4,314			4,819

Summary of nonperforming assets

ASSET QUALITY DATA ($ in thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	73,918		73,566		71,570
Restructured loans - accruing		20,684		11,720		16,893
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		94,602		85,286		88,463
Other real estate		37,895		37,023		31,849
Total non-covered nonperforming assets	$	132,497		122,309		120,312
Covered nonperforming assets
Nonaccrual loans (1)	$	39,075		41,472		37,057
Restructured loans - accruing		19,054		14,218		24,325
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		58,129		55,690		61,382
Other real estate		70,850		85,272		102,883
Total covered nonperforming assets	$	128,979		140,962		164,265
Total nonperforming assets	$	261,476		263,271		284,577

Information related to impaired loans

The following table presents information related to the Company’s impaired loans.

($ in thousands)	As of /for the six months ended June 30, 2012		As of /for the year ended December 31, 2011		As of /for the six months ended June 30, 2011
Impaired loans at period end
Non-covered	$	94,602		85,286		88,463
Covered		58,129		55,690		61,382
Total impaired loans at period end	$	152,731		140,976		149,845
Average amount of impaired loans for period
Non-covered	$	86,723		89,023		91,187
Covered		56,449		63,289		69,102
Average amount of impaired loans for period – total	$	143,172		152,312		160,289
Allowance for loan losses related to impaired loans at period end
Non-covered	$	11,051		5,804		6,019
Covered		5,158		5,106		4,727
Allowance for loan losses related to impaired loans - total	$	16,209		10,910		10,746
Amount of impaired loans with no related allowance at period end
Non-covered	$	22,235		35,721		31,514
Covered		40,613		43,702		49,755
Total impaired loans with no related allowance at period end	$	62,848		79,423		81,269

Schedule of nonaccrual loans

The following table presents the Company’s nonaccrual loans as of June 30, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	211		188		399
Commercial – secured		2,227		—		2,227
Secured by inventory and accounts receivable		637		—		637
Real estate – construction, land development & other land loans		19,781		16,963		36,744
Real estate – residential, farmland and multi-family		24,146		10,084		34,230
Real estate – home equity lines of credit		3,878		758		4,636
Real estate – commercial		20,277		11,009		31,286
Consumer		2,761		73		2,834
Total	$	73,918		39,075		112,993

Page

Index

The following table presents the Company’s nonaccrual loans as of December 31, 2011.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		—		452
Commercial - secured		2,190		358		2,548
Secured by inventory and accounts receivable		588		102		690
Real estate – construction, land development & other land loans		22,772		21,204		43,976
Real estate – residential, farmland and multi-family		25,430		11,050		36,480
Real estate – home equity lines of credit		3,161		1,068		4,229
Real estate - commercial		16,203		7,459		23,662
Consumer		2,770		231		3,001
Total	$	73,566		41,472		115,038

Analysis of the payment status of loans

The following table presents an analysis of the payment status of the Company’s loans as of June 30, 2012.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	83		58		211		37,991		38,343
Commercial - secured		446		443		2,227		110,248		113,364
Secured by inventory and accounts receivable		55		—		637		21,277		21,969
Real estate – construction, land development & other land loans		1,544		425		19,781		222,973		244,723
Real estate – residential, farmland, and multi-family		6,648		2,109		24,146		777,203		810,106
Real estate – home equity lines of credit		1,759		460		3,878		201,589		207,686
Real estate - commercial		4,715		381		20,277		597,135		622,508
Consumer		690		181		2,761		51,199		54,831
Total non-covered	$	15,940		4,057		73,918		2,019,615		2,113,530
Unamortized net deferred loan costs										1,376
Total non-covered loans									$	2,114,906
Covered loans	$	5,253		2,147		39,075		276,420		322,895
Total loans	$	21,193		6,204		112,993		2,296,035		2,437,801

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 2012.

Page

Index

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2011.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	67		591		452		37,668		38,778
Commercial - secured		672		207		2,190		108,682		111,751
Secured by inventory and accounts receivable		247		—		588		20,993		21,828
Real estate – construction, land development & other land loans		1,250		1,411		22,772		221,372		246,805
Real estate – residential, farmland, and multi-family		9,751		4,259		25,430		756,215		795,655
Real estate – home equity lines of credit		1,126		237		3,161		202,912		207,436
Real estate - commercial		2,620		1,006		16,203		567,354		587,183
Consumer		657		286		2,770		54,723		58,436
Total non-covered	$	16,390		7,997		73,566		1,969,919		2,067,872
Unamortized net deferred loan costs										1,280
Total non-covered loans									$	2,069,152
Covered loans	$	6,511		3,388		41,472		309,863		361,234
Total loans	$	22,901		11,385		115,038		2,279,782		2,430,386

Activity in the allowance for loan losses for non-covered loans

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated		Total
As of and for the three months ended June 30, 2012
Beginning balance	$	4,954			16,419			15,369			2,132			5,737			1,826			18		46,455
Charge-offs		(744	)		(174	)		(2,145	)		(281	)		(805	)		(334	)		—		(4,483	)
Recoveries		18			126			60			85			6			62			—		357
Provisions		833			1,448			1,675			210			781			237			10		5,194
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
As of and for the six months ended June 30, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(2,062	)		(2,852	)		(4,236	)		(732	)		(2,170	)		(686	)		—		(12,738	)
Recoveries		34			314			254			119			47			132			—		900
Provisions		3,309			9,051			5,409			1,069			4,428			473			12		23,751
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
Ending balances as of June 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	869			4,819			635			439			1,480			—			—		8,242
Collectively evaluated for impairment	$	4,192			13,000			14,324			1,707			4,239			1,791			28		39,281
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of June 30, 2012:
Ending balance – total	$	173,676			244,723			810,106			207,686			622,508			54,831			—		2,113,530
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	1,009			23,860			9,508			1,331			21,918			—			—		57,626
Collectively evaluated for impairment	$	172,667			220,863			800,598			206,355			600,590			54,831			—		2,055,904
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

Page

Index

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi-family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(2,703	)		(16,240	)		(9,045	)		(1,147	)		(3,355	)		(845	)		(524	)		(33,859	)
Recoveries		389			1,142			719			107			37			182			93			2,669
Provisions		1,363			13,884			10,575			(904	)		2,760			574			273			28,525
Ending balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16			35,610
Ending balances:  Allowance for loan losses
Individually evaluated for impairment	$	60			607			150			—			200			—			—			1,017
Collectively evaluated for impairment	$	3,720			10,699			13,382			1,690			3,214			1,872			16			34,593
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable:
Ending balance – total	$	172,357			246,805			795,655			207,436			587,183			58,436			—			2,067,872
Ending balances: Loans
Individually evaluated for impairment	$	2,526			34,750			11,880			527			30,846			12			—			80,541
Collectively evaluated for impairment	$	169,831			212,055			783,775			206,909			556,337			58,424			—			1,987,331
Loans acquired with deteriorated credit quality	$	—			920			—			—			—			—			—			920

Page

Index

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
As of and for the three months ended June 30, 2011
Beginning balance	$	4,142			10,203			12,463			3,359			3,359			2,223			24			35,773
Charge-offs		(740	)		(5,589	)		(2,248	)		(141	)		(313	)		(157	)		(121	)		(9,309	)
Recoveries		28			219			61			37			—			20			29			394
Provisions		475			6,957			1,808			(1,406	)		(187	)		(126	)		86			7,607
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
As of and for the six months ended June 30, 2011
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,896	)		(9,582	)		(5,596	)		(764	)		(1,380	)		(360	)		(236	)		(19,814	)
Recoveries		36			251			293			43			28			103			73			827
Provisions		1,034			8,601			6,104			(1,064	)		239			256			7			15,177
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
Ending balances as of June 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	50			1,221			235			—			340			—			—			1,846
Collectively evaluated for impairment	$	3,855			10,569			11,849			1,849			2,519			1,960			18			32,619
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable as of June 30, 2011:
Ending balance – total	$	165,091			267,346			774,448			213,920			558,879			59,732			—			2,039,416
Ending balances as of June 30, 2011: Loans
Individually evaluated for impairment	$	2,049			47,181			7,656			531			34,198			20			—			91,635
Collectively evaluated for impairment	$	163,042			220,165			766,792			213,389			524,681			59,712			—			1,947,781
Loans acquired with deteriorated credit quality	$	—			1,234			—			—			—			—			—			1,234

Activity in the allowance for loan losses for covered loans

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2012
Beginning balance	$	6,372
Charge-offs		(1,714	)
Recoveries		—
Provisions		1,273
Ending balance	$	5,931
As of and for the six months ended June 30, 2012
Beginning balance	$	5,808
Charge-offs		(4,148	)
Recoveries		—
Provisions		4,271
Ending balance	$	5,931
Ending balances as of June 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	5,914
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		17
Loans receivable as of June 30, 2012:
Ending balance – total	$	322,895
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	42,598
Collectively evaluated for impairment		280,297
Loans acquired with deteriorated credit quality		4,819

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Index

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2011.

($ in thousands)	Covered Loans
As of and for the year ended December 31, 2011
Beginning balance	$	11,155
Charge-offs		(18,123	)
Recoveries		—
Provisions		12,776
Ending balance	$	5,808
Ending balances as of December 31, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	5,481
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		327
Loans receivable as of December 31, 2011:
Ending balance – total	$	361,234
Ending balances as of December 31, 2011: Loans
Individually evaluated for impairment	$	44,723
Collectively evaluated for impairment		316,511
Loans acquired with deteriorated credit quality		7,864

Page

Index

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2011
Beginning balance	$	7,002
Charge-offs		(4,789	)
Recoveries		—
Provisions		3,327
Ending balance	$	5,540
As of and for the six months ended June 30, 2011
Beginning balance	$	11,155
Charge-offs		(12,715	)
Recoveries		—
Provisions		7,100
Ending balance	$	5,540
Ending balances as of June 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	5,540
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		—
Loans receivable as of June 30, 2011:
Ending balance – total	$	401,726
Ending balances as of June 30, 2011: Loans
Individually evaluated for impairment	$	37,149
Collectively evaluated for impairment		364,577
Loans acquired with deteriorated credit quality		13,538

Schedule of impaired loans

The following table presents the Company’s impaired loans as of June 30, 2012.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		69		225		—		144
Secured by inventory and accounts receivable		—		—		—		9
Real estate – construction, land development & other land loans		6,950		11,676		—		8,992
Real estate – residential, farmland, and multi-family		4,242		6,010		—		3,172
Real estate – home equity lines of credit		—		—		—		15
Real estate – commercial		10,974		12,683		—		12,554
Consumer		—		—		—		4
Total non-covered impaired loans with no allowance	$	22,235		30,594		—		24,890
Total covered impaired loans with no allowance	$	40,613		75,350		—		40,357
Total impaired loans with no allowance recorded	$	62,848		105,944		—		65,247
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	211		612		40		231
Commercial - secured		2,158		2,436		315		1,912
Secured by inventory and accounts receivable		637		1,112		143		673
Real estate – construction, land development & other land loans		18,156		22,302		6,093		15,360
Real estate – residential, farmland, and multi-family		23,476		26,658		2,361		24,792
Real estate – home equity lines of credit		3,877		4,493		453		3,300
Real estate – commercial		21,089		24,102		1,309		12,776
Consumer		2,763		2,801		337		2,789
Total non-covered impaired loans with allowance	$	72,367		84,516		11,051		61,833
Total covered impaired loans with allowance	$	17,516		19,421		5,158		16,092
Total impaired loans with an allowance recorded	$	89,883		103,937		16,209		77,925

Interest income recorded on non-covered and covered impaired loans during the six months ended June 30, 2012 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

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Index

The following table presents the Company’s impaired loans as of December 31, 2011.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		295		478		—		504
Secured by inventory and accounts receivable		27		493		—		124
Real estate – construction, land development & other land loans		15,105		20,941		—		17,876
Real estate – residential, farmland, and multi-family		3,442		4,741		—		5,278
Real estate – home equity lines of credit		46		300		—		79
Real estate – commercial		16,794		18,817		—		13,359
Consumer		12		39		—		15
Total non-covered impaired loans with no allowance	$	35,721		45,809		—		37,235
Total covered impaired loans with no allowance	$	43,702		78,578		—		49,030
Total impaired loans with no allowance recorded	$	79,423		124,387		—		86,265
Non-covered  loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		454		59		226
Commercial - secured		1,895		1,899		295		1,427
Secured by inventory and accounts receivable		561		571		156		391
Real estate – construction, land development & other land loans		10,360		12,606		2,244		15,782
Real estate – residential, farmland, and multi-family		24,460		26,153		2,169		22,487
Real estate – home equity lines of credit		3,115		3,141		117		2,544
Real estate – commercial		5,965		6,421		283		6,602
Consumer		2,757		2,759		481		2,329
Total non-covered impaired loans with allowance	$	49,565		54,004		5,804		51,788
Total covered impaired loans with allowance	$	11,988		15,670		5,106		14,259
Total impaired loans with an allowance recorded	$	61,553		69,674		10,910		66,047

Recorded investment in loans by credit quality indicators

The following table presents the Company’s recorded investment in loans by credit quality indicators as of June 30, 2012.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	11,933		25,351		12		323		513		211		38,343
Commercial - secured		34,861		69,630		1,705		2,481		2,460		2,227		113,364
Secured by inventory and accounts receivable		3,688		16,539		265		695		145		637		21,969
Real estate – construction, land development & other land loans		32,230		161,242		5,304		11,971		14,195		19,781		244,723
Real estate – residential, farmland, and multi-family		250,715		476,852		9,105		17,883		31,405		24,146		810,106
Real estate – home equity lines of credit		131,210		66,044		2,521		2,338		1,695		3,878		207,686
Real estate - commercial		135,080		417,454		27,537		13,025		9,135		20,277		622,508
Consumer		28,153		22,676		86		514		641		2,761		54,831
Total	$	627,870		1,255,788		46,535		49,230		60,189		73,918		2,113,530
Unamortized net deferred loan costs														1,376
Total non-covered  loans													$	2,114,906
Total covered loans	$	51,912		137,930		—		8,459		85,519		39,075		322,895
Total loans	$	679,782		1,393,718		46,535		57,689		145,708		112,993		2,437,801

At June 30, 2012, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At June 30, 2012, there were no covered loans that were graded “8” with an accruing status.

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Index

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2011.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	13,516		23,735		13		217		845		452		38,778
Commercial - secured		36,587		66,105		1,912		2,196		2,761		2,190		111,751
Secured by inventory and accounts receivable		3,756		16,197		282		756		249		588		21,828
Real estate – construction, land development & other land loans		37,596		156,651		6,490		9,903		13,393		22,772		246,805
Real estate – residential, farmland, and multi-family		257,163		456,188		10,248		17,687		28,939		25,430		795,655
Real estate – home equity lines of credit		130,913		67,606		2,422		1,868		1,466		3,161		207,436
Real estate - commercial		140,577		372,614		30,722		11,502		15,565		16,203		587,183
Consumer		30,693		23,550		67		368		988		2,770		58,436
Total	$	650,801		1,182,646		52,156		44,497		64,206		73,566		2,067,872
Unamortized net deferred loan costs														1,280
Total non-covered  loans													$	2,069,152
Total covered loans	$	62,052		161,508		—		8,033		88,169		41,472		361,234
Total loans	$	712,853		1,344,154		52,156		52,530		152,375		115,038		2,430,386

Information related to loans modified in a troubled debt restructuring

The following table presents information related to loans modified in a troubled debt restructuring during the three and six months ended June 30, 2012.

($ in thousands)	For the three months ended June 30, 2012				For the six months ended June 30, 2012
	Number of Contracts		Restructured Balances		Number of Contracts		Restructured Balances
Non-covered TDRs – Accruing
Real estate – construction, land development & other land loans		1	$	300		1	$	300
Real estate – residential, farmland, and multi-family		1		303		1		303
Non-covered TDRs - Nonaccrual
Real estate – construction, land development & other land loans		1		238		1		238
Total non-covered TDRs arising during period		3	$	841		3	$	841
Total covered TDRs arising during period– Accruing		3	$	5,428		6	$	7,342
Total covered TDRs arising during period – Nonaccrual		—		—		—		—
Total TDRs arising during period		6	$	6,269		9	$	8,183

Accruing restructured loans that defaulted in the period

Accruing restructured loans that defaulted during the three and six months ended June 30, 2012 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned.

($ in thousands)	For the three months ended June 30, 2012				For the six months ended June 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Real estate – construction, land development & other land loans		—	$	—		2	$	664
Real estate – residential, farmland, and multi-family		1		341		1		341
Real estate - commercial		1		180		1		180
Total non-covered TDRs that subsequently defaulted		2	$	521		4	$	1,185
Total accruing covered TDRs that subsequently defaulted		3	$	716		14	$	3,427
Total accruing TDRs that subsequently defaulted		5	$	1,237		18	$	4,612

XML

Loans and Asset Quality Information (Details 10) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Activity in the allowance for loan losses for covered loans
Provisions	$ 6,467	$ 10,934	$ 28,022	$ 22,277
Ending balance - total	2,114,906	2,040,714	2,114,906	2,040,714	2,069,152
Covered
Activity in the allowance for loan losses for covered loans
Beginning balance	6,372	7,002	5,808	11,155	11,155
Charge-offs	(1,714)	(4,789)	(4,148)	(12,715)	(18,123)
Recoveries
Provisions	1,273	3,327	4,271	7,100	12,776
Ending balance	5,931	5,540	5,931	5,540	5,808
Individually evaluated for impairment	5,914	5,540	5,914	5,540	5,481
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality	17		17		327
Ending balance - total	322,895	401,726	322,895	401,726	361,234
Individually evaluated for impairment	42,598	37,149	42,598	37,149	44,723
Collectively evaluated for impairment	280,297	364,577	280,297	364,577	316,511
Loans acquired with deteriorated credit quality	$ 4,819	$ 13,538	$ 4,819	$ 13,538	$ 7,864

XML

Loans and Asset Quality Information (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Covered loans:
Impaired Purchased Loans - Carrying Value	$ 4,819	$ 7,864
Impaired Purchased Loans - Unpaid Principal Balance	9,133	17,032
Nonimpaired Purchased Loans - Carrying Value	318,076	335,370
Nonimpaired Purchased Loans - Unpaid Principal Balance	424,250	472,943
Total Covered Loans - Carrying Value	322,895	361,234	401,726
Total Covered Loans - Unpaid Principal Balance	433,383	489,975
Commercial, financial and agricultural
Covered loans:
Impaired Purchased Loans - Carrying Value	68	69
Impaired Purchased Loans - Unpaid Principal Balance	146	319
Nonimpaired Purchased Loans - Carrying Value	7,814	9,403
Nonimpaired Purchased Loans - Unpaid Principal Balance	9,885	11,736
Total Covered Loans - Carrying Value	7,882	9,472
Total Covered Loans - Unpaid Principal Balance	10,031	12,055
Real Estate construction, land development & other land loans
Covered loans:
Impaired Purchased Loans - Carrying Value	1,577	3,865
Impaired Purchased Loans - Unpaid Principal Balance	2,606	8,505
Nonimpaired Purchased Loans - Carrying Value	58,225	68,231
Nonimpaired Purchased Loans - Unpaid Principal Balance	99,332	115,489
Total Covered Loans - Carrying Value	59,802	72,096
Total Covered Loans - Unpaid Principal Balance	101,938	123,994
Real estate mortgage residential (1-4 family) first mortgages
Covered loans:
Impaired Purchased Loans - Carrying Value	827	1,214
Impaired Purchased Loans - Unpaid Principal Balance	1,915	2,639
Nonimpaired Purchased Loans - Carrying Value	145,690	157,712
Nonimpaired Purchased Loans - Unpaid Principal Balance	173,707	189,436
Total Covered Loans - Carrying Value	146,517	158,926
Total Covered Loans - Unpaid Principal Balance	175,622	192,075
Real estate mortgage home equity loans/lines of credit
Covered loans:
Impaired Purchased Loans - Carrying Value	12	127
Impaired Purchased Loans - Unpaid Principal Balance	309	577
Nonimpaired Purchased Loans - Carrying Value	21,200	23,211
Nonimpaired Purchased Loans - Unpaid Principal Balance	26,400	29,249
Total Covered Loans - Carrying Value	21,212	23,338
Total Covered Loans - Unpaid Principal Balance	26,709	29,826
Real estate mortgage commercial and other
Covered loans:
Impaired Purchased Loans - Carrying Value	2,332	2,585
Impaired Purchased Loans - Unpaid Principal Balance	4,153	4,986
Nonimpaired Purchased Loans - Carrying Value	84,241	93,428
Nonimpaired Purchased Loans - Unpaid Principal Balance	113,936	125,450
Total Covered Loans - Carrying Value	86,573	96,013
Total Covered Loans - Unpaid Principal Balance	118,089	130,436
Installment loans to individual
Covered loans:
Impaired Purchased Loans - Carrying Value	3	4
Impaired Purchased Loans - Unpaid Principal Balance	4	6
Nonimpaired Purchased Loans - Carrying Value	906	1,385
Nonimpaired Purchased Loans - Unpaid Principal Balance	990	1,583
Total Covered Loans - Carrying Value	909	1,389
Total Covered Loans - Unpaid Principal Balance	$ 994	$ 1,589

XML

Securities (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Securities in an Unrealized Loss Position for Less than 12 Months
AFS Fair Value		$ 28,478
AFS Unrealized Losses		537
Held to maturity Fair Value
Held to maturity Unrealized Losses
Securities in an Unrealized Loss Position for More than 12 Months
AFS Fair Value	5,060	12,097
AFS Unrealized Losses	327	589
Held to maturity Fair Value
Held to maturity Unrealized Losses
Total AFS Fair Value	5,060	40,575
Total AFS Unrealized Losses	327	1,126
Total HTM Fair Value
Total HTM Unrealized Losses
Total Securities in an Unrealized Loss Position for Less than 12 Months Fair Value		28,478
Total Securities in an Unrealized Loss Position for Less than 12 Months Unrealized Losses		537
Total Securities in an Unrealized Loss Position for More than 12 Months Fair Value	5,060	12,097
Total Securities in an Unrealized Loss Position for More than 12 Months Unrealized Losses	327	589
Total Fair Value	5,060	40,575
Total Unrealized Losses	327	1,126
US Government-sponsored enterprises securities
Securities in an Unrealized Loss Position for Less than 12 Months
AFS Fair Value		8,984
AFS Unrealized Losses		16
Securities in an Unrealized Loss Position for More than 12 Months
AFS Fair Value
AFS Unrealized Losses
Total AFS Fair Value		8,984
Total AFS Unrealized Losses		16
Mortgage-backed securities
Securities in an Unrealized Loss Position for Less than 12 Months
AFS Fair Value		14,902
AFS Unrealized Losses		61
Securities in an Unrealized Loss Position for More than 12 Months
AFS Fair Value		9,302
AFS Unrealized Losses		30
Total AFS Fair Value		24,204
Total AFS Unrealized Losses		91
Corporate bonds
Securities in an Unrealized Loss Position for Less than 12 Months
AFS Fair Value		4,588
AFS Unrealized Losses		458
Securities in an Unrealized Loss Position for More than 12 Months
AFS Fair Value	5,029	2,773
AFS Unrealized Losses	300	522
Total AFS Fair Value	5,029	7,361
Total AFS Unrealized Losses	300	980
Equity securities
Securities in an Unrealized Loss Position for Less than 12 Months
AFS Fair Value		4
AFS Unrealized Losses		2
Securities in an Unrealized Loss Position for More than 12 Months
AFS Fair Value	31	22
AFS Unrealized Losses	27	37
Total AFS Fair Value	31	26
Total AFS Unrealized Losses	27	39
States and local governments
Securities in an Unrealized Loss Position for Less than 12 Months
Held to maturity Fair Value
Held to maturity Unrealized Losses
Securities in an Unrealized Loss Position for More than 12 Months
Held to maturity Fair Value
Held to maturity Unrealized Losses
Total HTM Fair Value
Total HTM Unrealized Losses

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Loans and Asset Quality Information (Details 12) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Non-covered loans	$ 2,114,906	$ 2,069,152
Unamortized net deferred loan costs	1,376	1,280	1,298
Covered loans	322,895	361,234	401,726
Total loans	2,437,801	2,430,386	2,442,440
Commercial Unsecured
Non-covered loans	38,343	38,778
Commercial Secured
Non-covered loans	113,364	111,751
Secured by Inventory and Accounts Receivable
Non-covered loans	21,969	21,828
Real Estate construction, land development and other land loans
Non-covered loans	244,723	246,805
Real estate residential, farmland and mutli-family
Non-covered loans	810,106	795,655
Real estate home equity lines of credit
Non-covered loans	207,686	207,436
Real estate commercial
Non-covered loans	622,508	587,183
Consumer
Non-covered loans	54,831	58,436
Pass (Grades 1, 2 & 3)
Non-covered loans	627,870	650,801
Covered loans	51,912	62,052
Total loans	679,782	712,853
Pass (Grades 1, 2 & 3) | Commercial Unsecured
Non-covered loans	11,933	13,516
Pass (Grades 1, 2 & 3) | Commercial Secured
Non-covered loans	34,861	36,587
Pass (Grades 1, 2 & 3) | Secured by Inventory and Accounts Receivable
Non-covered loans	3,688	3,756
Pass (Grades 1, 2 & 3) | Real Estate construction, land development and other land loans
Non-covered loans	32,230	37,596
Pass (Grades 1, 2 & 3) | Real estate residential, farmland and mutli-family
Non-covered loans	250,715	257,163
Pass (Grades 1, 2 & 3) | Real estate home equity lines of credit
Non-covered loans	131,210	130,913
Pass (Grades 1, 2 & 3) | Real estate commercial
Non-covered loans	135,080	140,577
Pass (Grades 1, 2 & 3) | Consumer
Non-covered loans	28,153	30,693
Weak Pass (Grade 4)
Non-covered loans	1,255,788	1,182,646
Covered loans	137,930	161,508
Total loans	1,393,718	1,344,154
Weak Pass (Grade 4) | Commercial Unsecured
Non-covered loans	25,351	23,735
Weak Pass (Grade 4) | Commercial Secured
Non-covered loans	69,630	66,105
Weak Pass (Grade 4) | Secured by Inventory and Accounts Receivable
Non-covered loans	16,539	16,197
Weak Pass (Grade 4) | Real Estate construction, land development and other land loans
Non-covered loans	161,242	156,651
Weak Pass (Grade 4) | Real estate residential, farmland and mutli-family
Non-covered loans	476,852	456,188
Weak Pass (Grade 4) | Real estate home equity lines of credit
Non-covered loans	66,044	67,606
Weak Pass (Grade 4) | Real estate commercial
Non-covered loans	417,454	372,614
Weak Pass (Grade 4) | Consumer
Non-covered loans	22,676	23,550
Watch or Standard Loans (Grade 9)
Non-covered loans	46,535	52,156
Covered loans
Total loans	46,535	52,156
Watch or Standard Loans (Grade 9) | Commercial Unsecured
Non-covered loans	12	13
Watch or Standard Loans (Grade 9) | Commercial Secured
Non-covered loans	1,705	1,912
Watch or Standard Loans (Grade 9) | Secured by Inventory and Accounts Receivable
Non-covered loans	265	282
Watch or Standard Loans (Grade 9) | Real Estate construction, land development and other land loans
Non-covered loans	5,304	6,490
Watch or Standard Loans (Grade 9) | Real estate residential, farmland and mutli-family
Non-covered loans	9,105	10,248
Watch or Standard Loans (Grade 9) | Real estate home equity lines of credit
Non-covered loans	2,521	2,422
Watch or Standard Loans (Grade 9) | Real estate commercial
Non-covered loans	27,537	30,722
Watch or Standard Loans (Grade 9) | Consumer
Non-covered loans	86	67
Special Mention Loans (Grade 5)
Non-covered loans	49,230	44,497
Covered loans	8,459	8,033
Total loans	57,689	52,530
Special Mention Loans (Grade 5) | Commercial Unsecured
Non-covered loans	323	217
Special Mention Loans (Grade 5) | Commercial Secured
Non-covered loans	2,481	2,196
Special Mention Loans (Grade 5) | Secured by Inventory and Accounts Receivable
Non-covered loans	695	756
Special Mention Loans (Grade 5) | Real Estate construction, land development and other land loans
Non-covered loans	11,971	9,903
Special Mention Loans (Grade 5) | Real estate residential, farmland and mutli-family
Non-covered loans	17,883	17,687
Special Mention Loans (Grade 5) | Real estate home equity lines of credit
Non-covered loans	2,338	1,868
Special Mention Loans (Grade 5) | Real estate commercial
Non-covered loans	13,025	11,502
Special Mention Loans (Grade 5) | Consumer
Non-covered loans	514	368
Classified Loans (Grades 6,7 & 8)
Non-covered loans	60,189	64,206
Covered loans	85,519	88,169
Total loans	145,708	152,375
Classified Loans (Grades 6,7 & 8) | Commercial Unsecured
Non-covered loans	513	845
Classified Loans (Grades 6,7 & 8) | Commercial Secured
Non-covered loans	2,460	2,761
Classified Loans (Grades 6,7 & 8) | Secured by Inventory and Accounts Receivable
Non-covered loans	145	249
Classified Loans (Grades 6,7 & 8) | Real Estate construction, land development and other land loans
Non-covered loans	14,195	13,393
Classified Loans (Grades 6,7 & 8) | Real estate residential, farmland and mutli-family
Non-covered loans	31,405	28,939
Classified Loans (Grades 6,7 & 8) | Real estate home equity lines of credit
Non-covered loans	1,695	1,466
Classified Loans (Grades 6,7 & 8) | Real estate commercial
Non-covered loans	9,135	15,565
Classified Loans (Grades 6,7 & 8) | Consumer
Non-covered loans	641	988
Nonaccrual Loans
Non-covered loans	73,918	73,566
Covered loans	39,075	41,472
Total loans	112,993	115,038
Nonaccrual Loans | Commercial Unsecured
Non-covered loans	211	452
Nonaccrual Loans | Commercial Secured
Non-covered loans	2,227	2,190
Nonaccrual Loans | Secured by Inventory and Accounts Receivable
Non-covered loans	637	588
Nonaccrual Loans | Real Estate construction, land development and other land loans
Non-covered loans	19,781	22,772
Nonaccrual Loans | Real estate residential, farmland and mutli-family
Non-covered loans	24,146	25,430
Nonaccrual Loans | Real estate home equity lines of credit
Non-covered loans	3,878	3,161
Nonaccrual Loans | Real estate commercial
Non-covered loans	20,277	16,203
Nonaccrual Loans | Consumer
Non-covered loans	2,761	2,770
Non-covered
Non-covered loans	$ 2,113,530	$ 2,067,872

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Fair Value (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Fair Value Details Narrative
Increase in fair value of securities available for sale	$ 452,000	$ 1,313,000
Tax expense of increase in the fair value of securities available for sale	$ 175,000	$ 512,000

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Goodwill and Other Intangible Assets (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Goodwill And Other Intangible Assets Details Narrative
Amortization expense of intangible assets	$ 223	$ 226	$ 446	$ 450

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Loans and Asset Quality Information (Details 7) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Nonaccrual loans	$ 112,993	$ 115,038	$ 108,627
Commercial Unsecured
Nonaccrual loans	399	452
Commercial Secured
Nonaccrual loans	2,227	2,548
Secured by Inventory and Accounts Receivable
Nonaccrual loans	637	690
Real Estate construction, land development and other land loans
Nonaccrual loans	36,744	43,976
Real estate residential, farmland and mutli-family
Nonaccrual loans	34,230	36,480
Real estate home equity lines of credit
Nonaccrual loans	4,636	4,229
Real estate commercial
Nonaccrual loans	31,286	23,662
Consumer
Nonaccrual loans	2,834	3,001
Non-covered
Nonaccrual loans	73,918	73,566	73,918
Non-covered | Commercial Unsecured
Nonaccrual loans	211	452
Non-covered | Commercial Secured
Nonaccrual loans	2,227	2,190
Non-covered | Secured by Inventory and Accounts Receivable
Nonaccrual loans	637	588
Non-covered | Real Estate construction, land development and other land loans
Nonaccrual loans	19,781	22,772
Non-covered | Real estate residential, farmland and mutli-family
Nonaccrual loans	24,146	25,430
Non-covered | Real estate home equity lines of credit
Nonaccrual loans	3,878	3,161
Non-covered | Real estate commercial
Nonaccrual loans	20,277	16,203
Non-covered | Consumer
Nonaccrual loans	2,761	2,770
Covered
Nonaccrual loans	39,075	41,472
Covered | Commercial Unsecured
Nonaccrual loans	188
Covered | Commercial Secured
Nonaccrual loans		358
Covered | Secured by Inventory and Accounts Receivable
Nonaccrual loans		102
Covered | Real Estate construction, land development and other land loans
Nonaccrual loans	16,963	21,204
Covered | Real estate residential, farmland and mutli-family
Nonaccrual loans	10,084	11,050
Covered | Real estate home equity lines of credit
Nonaccrual loans	758	1,068
Covered | Real estate commercial
Nonaccrual loans	11,009	7,459
Covered | Consumer
Nonaccrual loans	$ 73	$ 231

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Accounting Policies

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Accounting Policies

Note 2 - Accounting Policies

Note 1 to the 2011 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and discussion of recent accounting pronouncements. During the first six months of 2012, there were no new standards or guidance issued by the regulatory authorities relevant to the Company.

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Pension Plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Pension Plan
Service cost - benefits earned during the period	$ 457	$ 478	$ 1,061	$ 956
Interest cost	363	432	799	864
Expected return on plan assets	(492)	(444)	(984)	(888)
Amortization of transition obligation	1	1	2	2
Amortization of net (gain)/loss	136	114	403	228
Amortization of prior service cost	3	3	6	6
Net periodic pension cost	468	584	1,287	1,168
SERP
Service cost - benefits earned during the period	76	115	170	230
Interest cost	70	102	157	204
Expected return on plan assets
Amortization of transition obligation
Amortization of net (gain)/loss		26	34	52
Amortization of prior service cost	5	5	10	10
Net periodic pension cost	151	248	371	496
2012 Total Both Plans
Service cost - benefits earned during the period	533		1,231
Interest cost	433		956
Expected return on plan assets	(492)		(984)
Amortization of transition obligation	1		2
Amortization of net (gain)/loss	136		437
Amortization of prior service cost	8		16
Net periodic pension cost	619		1,658
2011 Total Both Plans
Service cost - benefits earned during the period		593		1,186
Interest cost		534		1,068
Expected return on plan assets		(444)		(888)
Amortization of transition obligation		1		2
Amortization of net (gain)/loss		140		280
Amortization of prior service cost		8		16
Net periodic pension cost		$ 832		$ 1,664

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Loans and Asset Quality Information (Details 3) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Additions due to acquisition of The Bank of Asheville (at fair value)		$ 17,645
Transfers to foreclosed real estate	(4,149)	(10,573)
Loan charge-offs		(3,329)
Covered
Carrying amount of nonimpaired covered loans, beginning balance	353,370	366,521
Additions due to acquisition of The Bank of Asheville (at fair value)		84,623
Principal repayments	(25,012)	(40,576)
Transfers to foreclosed real estate	(11,974)	(53,999)
Loan charge-offs	(4,176)	(14,797)
Accretion of loan discount	5,868	11,598
Balance, ending, carrying value	$ 318,076	$ 353,370

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Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2012

Comprehensive Income Tables

The components of accumulated other comprehensive income (loss)

The components of accumulated other comprehensive income (loss) for the Company are as follows:

($ in thousands)	June 30, 2012			December 31, 2011			June 30, 2011
Unrealized gain (loss) on securities available for sale	$	4,348			3,896			3,790
Deferred tax asset (liability)		(1,694	)		(1,520	)		(1,478	)
Net unrealized gain (loss) on securities available for sale		2,654			2,376			2,312
Additional pension liability		(17,879	)		(18,278	)		(10,608	)
Deferred tax asset		7,064			7,220			4,190
Net additional pension liability		(10,815	)		(11,058	)		(6,418	)
Total accumulated other comprehensive income (loss)	$	(8,161	)		(8,682	)		(4,106	)

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Pension Plans (Tables)

6 Months Ended

Jun. 30, 2012

Pension Plans Tables

The following table contains the components of the pension expense

	For the Three Months Ended June 30,
	2012			2011			2012		2011		2012 Total			2011 Total
($ in thousands)	Pension Plan			Pension Plan			SERP		SERP		Both Plans			Both Plans
Service cost - benefits earned during the period	$	457			478			76		115		533			593
Interest cost		363			432			70		102		433			534
Expected return on plan assets		(492	)		(444	)		─		─		(492	)		(444	)
Amortization of transition obligation		1			1			─		─		1			1
Amortization of net (gain)/loss		136			114			─		26		136			140
Amortization of prior service cost		3			3			5		5		8			8
Net periodic pension cost	$	468			584			151		248		619			832

The Company recorded pension expense totaling $1,658,000 and $1,664,000 for the six months ended June 30, 2012 and 2011, respectively, related to the Pension Plan and the SERP. The following table contains the components of the pension expense.

	For the Six Months Ended June 30,
	2012			2011			2012		2011		2012 Total			2011 Total
($ in thousands)	Pension Plan			Pension Plan			SERP		SERP		Both Plans			Both Plans
Service cost - benefits earned during the period	$	1,061			956			170		230		1,231			1,186
Interest cost		799			864			157		204		956			1,068
Expected return on plan assets		(984	)		(888	)		─		─		(984	)		(888	)
Amortization of transition obligation		2			2			─		─		2			2
Amortization of net (gain)/loss		403			228			34		52		437			280
Amortization of prior service cost		6			6			10		10		16			16
Net periodic pension cost	$	1,287			1,168			371		496		1,658			1,664

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Deferred Loan Costs (Details Narrative) (USD $)	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Deferred Loan Costs Details Narrative
Loan Costs - deferred	$ 1,376,000	$ 1,280,000	$ 1,298,000

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Loans and Asset Quality Information (Details 4) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Balance, beginning, carrying value	$ 8,784	$ 5,751
Additions due to acquisition of The Bank of Asheville		17,645
Change due to payments received	(233)	(1,293)
Transfer to foreclosed real estate	(4,149)	(10,573)
Change due to loan charge-off		(3,329)
Other	417	583
Balance, ending, carrying value	4,819	8,784
Contractual Principal Receivable
Balance, beginning, contractual principal	18,316	8,080
Additions due to acquisition of The Bank of Asheville		38,452
Change due to payments received	(287)	(1,620)
Transfer to foreclosed real estate	(7,636)	(19,881)
Change due to loan charge-off	(109)	(7,522)
Other	(1,151)	807
Balance, ending, contractual principal	9,133	18,316
Fair Value Adjustment Write Down
Balance, beginning, FMV	9,532	2,329
Additions due to acquisition of The Bank of Asheville		20,807
Change due to payments received	(54)	(327)
Transfer to foreclosed real estate	(3,487)	(9,308)
Change due to loan charge-off	(109)	(4,193)
Other	(1,568)	224
Balance, ending, FMV	$ 4,314	$ 9,532

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Fair Value (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Tables

Financial instruments that were measured at fair value on a recurring and nonrecurring basis

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at June 30, 2012.

($ in thousands)
Description of Financial Instruments	Fair Value at June 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	29,626		—		29,626		—
Mortgage-backed securities		119,536		—		119,536		—
Corporate bonds		13,139		—		13,139		—
Equity securities		9,606		423		9,183		—
Total available for sale securities	$	171,907		423		171,484		—
Nonrecurring
Impaired loans – covered	$	58,129		—		—		58,129
Impaired loans – non-covered		94,602		—		—		94,602
Other real estate – covered		70,850		—		70,850		—
Other real estate – non-covered		37,895		—		37,895		—

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2011.

($ in thousands)
Description of Financial Instruments	Fair Value at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	34,665		—		34,665		—
Mortgage-backed securities		124,105		—		124,105		—
Corporate bonds		12,488		—		12,488		—
Equity securities		11,368		398		10,969		—
Total available for sale securities	$	182,626		398		182,227		—
Nonrecurring
Impaired loans – covered	$	55,690		—		55,690		—
Impaired loans – non-covered		85,286		—		85,286		—
Other real estate – covered		85,272		—		85,272		—
Other real estate – non-covered		37,023		—		37,023		—

The carrying amounts and estimated fair values of financial instruments

The carrying amounts and estimated fair values of financial instruments at June 30, 2012 and December 31, 2011 are as follows:

		June 30, 2012					December 31, 2011
($ in thousands)	Level in Fair Value Hierarchy		Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
Cash and due from banks, noninterest-bearing	Level 1		$	58,872		58,872			80,341		80,341
Due from banks, interest-bearing	Level 1			203,313		203,313			135,218		135,218
Federal funds sold	Level 1			—		—			608		608
Securities available for sale	Level 2			171,907		171,907			182,626		182,626
Securities held to maturity	Level 2			56,182		61,676			57,988		62,754
Presold mortgages in process of settlement	Level 1			4,053		4,053			6,090		6,090
Loans – non-covered, net of allowance	Level 3			2,067,383		2,006,670			2,033,542		1,987,979
Loans – covered, net of allowance	Level 3			316,964		316,964			355,426		355,426
FDIC indemnification asset	Level 3			116,902		116,501			121,677		121,004
Accrued interest receivable	Level 1			10,932		10,932			11,779		11,779
Deposits	Level 2			2,838,298		2,841,563			2,755,037		2,759,504
Securities sold under agreements to repurchase	Level 2			—		—			17,105		17,105
Borrowings	Level 2			111,394		86,451			133,925		106,333
Accrued interest payable	Level 2			1,549		1,549			1,872		1,872

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Equity-Based Compensation Plans (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Equity-Based Compensation Plans Details
Balance, beginning	$ 18.92
Granted
Exercised
Forfeited
Expired	$ 18.71
Outstanding	$ 18.92
Exercisable	$ 18.92
Balance options outstanding, beginning	493,850
Granted
Exercised		2
Forfeited
Expired	(12,438)
Balance options outstanding, end	481,412
Exercisable, end of period	480,412
Weighted- Average Contractual Term (years), outstanding	3 years 2 months 12 days
Weighted- Average Contractual Term (years), exercisable	3 years 2 months 12 days
Aggregate Intrinsic Value, exercisable
Aggregate Intrinsic Value, outstanding

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis Of Presentation

Basis of Presentation

Note 1 - Basis of Presentation

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of June 30, 2012 and 2011 and the consolidated results of operations and consolidated cash flows for the periods ended June 30, 2012 and 2011. All such adjustments were of a normal, recurring nature. Reference is made to the 2011 Annual Report on Form 10-K filed with the SEC for a discussion of accounting policies and other relevant information with respect to the financial statements. The results of operations for the periods ended June 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated all subsequent events through the date the financial statements were issued.

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Equity-Based Compensation Plans (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2012
Equity-Based Compensation Plans Details 1
Nonvested at December 31, 2011	7,259
Granted during the period	9,559
Vested during the period
Forfeited or expired during the period	(2,474)
Nonvested at June 30, 2012	14,344
Nonvested at December 31, 2011	$ 14.54
Granted during the period	$ 10.96
Vested during the period
Forfeited or expired during the period	$ 12.55
Nonvested at June 30, 2012	$ 12.50

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Loans and Asset Quality Information (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
All loans (non-covered and covered):
Amount of loans	$ 2,436,425	$ 2,429,106	$ 2,441,142
Percentage of Loans	100.00%	100.00%	100.00%
Unamortized net deferred loan costs	1,376	1,280	1,298
Loans, total	2,437,801	2,430,386	2,442,440
Commercial, financial and agricultural
All loans (non-covered and covered):
Amount of loans	163,761	162,099	158,303
Percentage of Loans	7.00%	7.00%	6.00%
Real Estate construction, land development & other land loans
All loans (non-covered and covered):
Amount of loans	343,620	363,079	386,354
Percentage of Loans	14.00%	15.00%	16.00%
Real estate mortgage residential (1-4 family) first mortgages
All loans (non-covered and covered):
Amount of loans	815,605	805,542	803,209
Percentage of Loans	34.00%	33.00%	33.00%
Real estate mortgage home equity loans/lines of credit
All loans (non-covered and covered):
Amount of loans	250,627	256,509	266,995
Percentage of Loans	10.00%	11.00%	11.00%
Real estate mortgage commercial and other
All loans (non-covered and covered):
Amount of loans	789,290	762,895	745,858
Percentage of Loans	32.00%	31.00%	31.00%
Installment loans to individual
All loans (non-covered and covered):
Amount of loans	$ 73,522	$ 78,982	$ 80,423
Percentage of Loans	3.00%	3.00%	3.00%

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Loans and Asset Quality Information (Details 13) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs	6	9
TDRs arising during period	$ 6,269	$ 8,183
Non-covered
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs	3	3
TDRs arising during period	841	841
Non-covered | Real Estate construction, land development and other land loans
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs Accruing	1	1
TDRs arising during period - Accruing	300	300
Number of contracts, TDRs Nonaccrual	1	1
TDRs arising during period - Nonaccrual	238	238
Non-covered | Real estate residential, farmland and mutli-family
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs Accruing	1	1
TDRs arising during period - Accruing	303	303
Covered
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs Accruing	3	6
TDRs arising during period - Accruing	$ 5,428	$ 7,342

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
ASSETS
Cash and due from banks, noninterest-bearing	$ 58,872	$ 80,341	$ 73,676
Due from banks, interest-bearing	203,313	135,218	163,414
Federal funds sold		608	1,157
Total cash and cash equivalents	262,185	216,167	238,247
Securities available for sale	171,907	182,626	171,844
Securities held to maturity (fair values of $61,676, $62,754, and $59,860)	56,182	57,988	57,593
Presold mortgages in process of settlement	4,053	6,090	2,466
Loans - non-covered	2,114,906	2,069,152	2,040,714
Loans - covered by FDIC loss share agreement	322,895	361,234	401,726
Total loans	2,437,801	2,430,386	2,442,440
Allowance for loan losses - non-covered	(47,523)	(35,610)	(34,465)
Allowance for loan losses - covered	(5,931)	(5,808)	(5,540)
Total allowance for loan losses	(53,454)	(41,418)	(40,005)
Net loans	2,384,347	2,388,968	2,402,435
Premises and equipment	73,642	69,975	68,898
Accrued interest receivable	10,932	11,779	12,000
FDIC indemnification asset	116,902	121,677	142,894
Goodwill	65,835	65,835	65,835
Other intangible assets	3,452	3,897	4,349
Other real estate owned - non-covered	37,895	37,023	31,849
Other real estate owned - covered	70,850	85,272	102,883
Bank-owned life insurance	27,380	2,207	2,160
Other assets	43,193	40,970	30,296
Total assets	3,328,755	3,290,474	3,333,749
LIABILITIES
Deposits: Noninterest bearing checking accounts	381,353	335,833	323,223
Interest bearing checking accounts	472,342	423,452	371,693
Money market accounts	545,356	513,832	499,286
Savings accounts	160,137	146,481	145,576
Time deposits of $100,000 or more	725,699	753,233	765,787
Other time deposits	553,411	582,206	641,853
Total deposits	2,838,298	2,755,037	2,747,418
Securities sold under agreements to repurchase		17,105	68,608
Borrowings	111,394	133,925	138,796
Accrued interest payable	1,549	1,872	2,208
Other liabilities	37,440	37,385	24,421
Total liabilities	2,988,681	2,945,324	2,981,451
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value per share. Authorized: 5,000,000 shares issued and outstanding: 63,500, 63,500, and 65,000 shares	63,500	63,500	65,000
Discount on preferred stock			(2,474)
Common stock, no par value per share. Authorized: 40,000,000 shares issued and outstanding: 16,937,008, 16,909,820 and 16,862,536 shares	105,437	104,841	105,141
Retained earnings	179,298	185,491	188,737
Accumulated other comprehensive income (loss)	(8,161)	(8,682)	(4,106)
Total shareholders' equity	340,074	345,150	352,298
Total liabilities and shareholders' equity	$ 3,328,755	$ 3,290,474	$ 3,333,749

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Loans and Asset Quality Information (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011		Jun. 30, 2011
ASSET QUALITY DATA
Nonaccrual loans	$ 112,993		$ 115,038		$ 108,627
Other real estate	37,895		37,023		31,849
Total nonperforming assets	261,476		263,271		284,577
Non-covered nonperforming Assets
ASSET QUALITY DATA
Nonaccrual loans	73,918		73,566		71,570
Restructured loans - accruing	20,684		11,720		16,893
Accruing loans > 90 days past due
Total nonperforming loans	94,602		85,286		88,463
Other real estate	37,895		37,023		31,849
Total nonperforming assets	132,497		122,309		120,312
Covered nonperforming Assets
ASSET QUALITY DATA
Nonaccrual loans	39,075	[1]	41,472	[1]	37,057	[1]
Restructured loans - accruing	19,054		14,218		24,325
Accruing loans > 90 days past due
Total nonperforming loans	58,129		55,690		61,382
Other real estate	70,850		85,272		102,883
Total nonperforming assets	$ 128,979		$ 140,962		$ 164,265

[1] At March 31, 2012, December 31, 2011, and March 31, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $68.3 million, $69.0 million, and $106.5 million, respectively.

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Consolidated Statements of Shareholders' Equity (Unaudited) (USD $) In Thousands, except Share data	Preferred Stock	Preferred Stock Discount	Common Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning balance at Dec. 31, 2010	$ 65,000	$ (2,932)	$ 104,207	$ 183,413	$ (5,085)	$ 344,603
Beginning balance, shares at Dec. 31, 2010			16,801			16,801
Net income				10,101		10,101
Common stock issued under stock option plans			30
Common stock issued under stock option plans, shares			2			2
Common stock issued into dividend reinvestment plan			421
Common stock issued into dividend reinvestment plan, shares			30			30
Cash dividends declared ($0.16 per common share)				(2,694)
Preferred dividends				(1,625)
Accretion of preferred stock discount		458		(458)
Stock-based compensation			483
Stock-based compensation, shares			29			29
Other comprehensive income					979	979
Ending balance at Jun. 30, 2011	65,000	(2,474)	105,141	188,737	(4,106)	352,298
Ending balance, shares at Jun. 30, 2011			16,862			16,862
Beginning balance at Dec. 31, 2011	63,500		104,841	185,491	(8,682)	345,150
Beginning balance, shares at Dec. 31, 2011			16,910			16,910
Net income				(1,892)		(1,892)
Common stock issued under stock option plans, shares
Common stock issued into dividend reinvestment plan			335
Common stock issued into dividend reinvestment plan, shares			31			31
Repurchases of common stock			(2)
Repurchases of common stock, shares
Cash dividends declared ($0.16 per common share)				(2,712)
Preferred dividends				(1,589)
Stock-based compensation			263
Stock-based compensation, shares			32			32
Other comprehensive income					521	521
Ending balance at Jun. 30, 2012	$ 63,500		$ 105,437	$ 179,298	$ (8,161)	$ 340,074
Ending balance, shares at Jun. 30, 2012			16,973			16,973

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Goodwill and Other Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Goodwill And Other Intangible Assets Details
Customer lists	$ 678	$ 678	$ 678
Customer Lists Accumulated Amortization	387	357	328
Core deposit premiums	7,867	7,867	7,867
Core Deposit premiums accumulated amortization	4,707	4,291	3,868
[FiniteLivedIntangibleAssetsGross]	8,545	8,545	8,545
FiniteLivedIntangibleAssetsAccumulatedAmortization	5,094	4,648	4,196
Goodwill	$ 65,835	$ 65,835	$ 65,835

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Earnings Per Common Share (Details Narrative)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Common Share Details Narrative
Antidilutive options	386,662	542,916	386,662	542,916

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Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Recurring | Fair Value
Securities available for sale:
Government-sponsored enterprise securities	$ 29,626	$ 34,665
Mortgage-backed securities	119,536	124,105
Corporate bonds	13,139	12,488
Equity securities	9,606	11,368
Total available for sale securities	171,907	182,626
Recurring | Quoted Prices in Market for Identical Assets (Level 1)
Securities available for sale:
Government-sponsored enterprise securities
Mortgage-backed securities
Corporate bonds
Equity securities	423	398
Total available for sale securities	423	398
Recurring | Significant Other Observable Inputs (Level 2)
Securities available for sale:
Government-sponsored enterprise securities	29,626	34,665
Mortgage-backed securities	119,536	124,105
Corporate bonds	13,139	12,488
Equity securities	9,183	10,969
Total available for sale securities	171,484	182,227
Recurring | Significant Unobservable Inputs (Level 3)
Securities available for sale:
Government-sponsored enterprise securities
Mortgage-backed securities
Corporate bonds
Equity securities
Total available for sale securities
Nonrecurring | Fair Value
Securities available for sale:
Impaired loans - covered	58,129	55,690
Impaired loans - non-covered	94,602	85,286
Other real estate - covered	70,850	85,272
Other real estate - non-covered	37,895	37,023
Nonrecurring | Quoted Prices in Market for Identical Assets (Level 1)
Securities available for sale:
Impaired loans - covered
Impaired loans - non-covered
Other real estate - covered
Other real estate - non-covered
Nonrecurring | Significant Other Observable Inputs (Level 2)
Securities available for sale:
Impaired loans - covered		55,690
Impaired loans - non-covered		85,286
Other real estate - covered	70,850	85,272
Other real estate - non-covered	37,895	37,023
Nonrecurring | Significant Unobservable Inputs (Level 3)
Securities available for sale:
Impaired loans - covered	58,129
Impaired loans - non-covered	94,602
Other real estate - covered
Other real estate - non-covered

XML

Equity-Based Compensation Plans (Tables)

6 Months Ended

Jun. 30, 2012

Equity-Based Compensation Plans Tables

Company's stock options outstanding

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value
Balance at December 31, 2011		493,850		$	18.92
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(12,438	)		18.71
Outstanding at June 30, 2012		481,412		$	18.92		3.2	$	—
Exercisable at June 30, 2012		480,412		$	18.92		3.2	$	—

Outstanding restricted stock

	Long-Term Restricted Stock
	Number of Units			Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2011		7,259		$	14.54
Granted during the period		9,559		$	10.96
Vested during the period		—			—
Forfeited or expired during the period		(2,474	)		12.55
Nonvested at June 30, 2012		14,344		$	12.50

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Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Amortized Cost	$ 167,559	$ 178,730
Fair Value	171,907	182,626	171,844
Unrealized Gain	4,675	5,022
Unrealized (losses)	(327)	(1,126)
Amortized Cost	56,182	57,988	57,593
Fair Value	61,676	62,754	59,860
Unrealized Gain	5,494	4,766
Unrealized (losses)
US Government-sponsored enterprises securities
Amortized Cost	29,504	34,511
Fair Value	29,626	34,665
Unrealized Gain	122	170
Unrealized (losses)		(16)
Mortgage-backed securities
Amortized Cost	115,674	120,032
Fair Value	119,536	124,105
Unrealized Gain	3,862	4,164
Unrealized (losses)		(91)
Corporate bonds
Amortized Cost	13,186	13,189
Fair Value	13,139	12,488
Unrealized Gain	253	279
Unrealized (losses)	(300)	(980)
Equity securities
Amortized Cost	9,195	10,998
Fair Value	9,606	11,368
Unrealized Gain	438	409
Unrealized (losses)	(27)	(39)
States and local governments
Amortized Cost	56,182	57,988
Fair Value	61,676	62,754
Unrealized Gain	5,494	4,766
Unrealized (losses)

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Securities (Tables)

6 Months Ended

Jun. 30, 2012

Securities Tables

Book values and approximate fair values of investment securities

	June 30, 2012									December 31, 2011
	Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
($ in thousands)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Securities available for sale:
Government-sponsored enterprise securities	$	29,504		29,626		122		—			34,511		34,665		170		(16	)
Mortgage-backed securities		115,674		119,536		3,862		—			120,032		124,105		4,164		(91	)
Corporate bonds		13,186		13,139		253		(300	)		13,189		12,488		279		(980	)
Equity securities		9,195		9,606		438		(27	)		10,998		11,368		409		(39	)
Total available for sale	$	167,559		171,907		4,675		(327	)		178,730		182,626		5,022		(1,126	)
Securities held to maturity:
State and local governments	$	56,182		61,676		5,494		—			57,988		62,754		4,766		—
Total held to maturity	$	56,182		61,676		5,494		—			57,988		62,754		4,766		—

Information regarding securities with unrealized losses

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	—		—		—		—		—		—
Mortgage-backed securities		—		—		—		—		—		—
Corporate bonds		—		—		5,029		300		5,029		300
Equity securities		—		—		31		27		31		27
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	—		—		5,060		327		5,060		327

The following table presents information regarding securities with unrealized losses at December 31, 2011:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	8,984		16		—		—		8,984		16
Mortgage-backed securities		14,902		61		9,302		30		24,204		91
Corporate bonds		4,588		458		2,773		522		7,361		980
Equity securities		4		2		22		37		26		39
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	28,478		537		12,097		589		40,575		1,126

Book values and approximate fair values of investment securities by contractual maturity

	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value
Debt securities
Due within one year	$	3,004		3,040		350		358
Due after one year but within five years		26,497		26,679		2,958		3,210
Due after five years but within ten years		3,000		3,000		29,731		32,673
Due after ten years		10,189		10,046		23,143		25,435
Mortgage-backed securities		115,674		119,536		—		—
Total debt securities		158,364		162,301		56,182		61,676
Equity securities		9,195		9,606		—		—
Total securities	$	167,559		171,907		56,182		61,676

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Participation in the Small Business Lending Fund (Narrative Details) (USD $)	3 Months Ended		6 Months Ended		25 Months Ended	55 Months Ended	57 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Sep. 30, 2013	Mar. 31, 2016	Jun. 30, 2018	Sep. 01, 2011
Participation In Small Business Lending Fund Narrative Details
Sale of Series B preferred stock to the Secretary of Treasury								$ 63,500,000
Qualified community banks with assets less than								10,000,000,000
Liquidation value non-cumulative perpetual preferred stock, per share								$ 1,000
Non-cumulative perpetual preferred stock received by Treasury								63,500
Dividend rate range, minimum					1.00%	1.00%
Dividend rate range, maximum					5.00%	7.00%
Dividend rate expected	5.00%
Dividend rate increase							9.00%
Accrued preferred dividend payments	$ 829,000	$ 812,000	$ 1,589,000	$ 1,625,000

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash Flows From Operating Activities
Net income	$ (1,892)	$ 10,101
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses	28,022	22,277
Net security premium amortization	907	748
Purchase accounting accretion and amortization, net	(5,721)	(6,565)
Gain from acquisition		(10,196)
Foreclosed property losses and write-downs	13,107	9,141
Gain on securities available for sale	(449)	(74)
Other gains	(53)	17
Increase in net deferred loan costs	(96)	(323)
Depreciation of premises and equipment	2,278	2,182
Stock-based compensation expense	263	483
Amortization of intangible assets	446	450
Origination of presold mortgages in process of settlement	(41,858)	(35,532)
Proceeds from sales of presold mortgages in process of settlement	43,895	37,028
Decrease in accrued interest receivable	847	1,579
Increase in other assets	(13,188)	(6,866)
Increase (decrease) in accrued interest payable	(323)	126
Decrease in other liabilities	415	(5,238)
Net cash provided (used) by operating activities	26,600	19,338
Cash Flows From Investing Activities
Purchases of securities available for sale	(47,395)	(23,721)
Purchases of securities held to maturity		(3,816)
Proceeds from sales of securities available for sale	9,641	2,518
Proceeds from maturities/issuer calls of securities available for sale	48,590	34,829
Proceeds from maturities/issuer calls of securities held to maturity	1,685	1,053
Purchase of bank-owned life insurance	(25,000)
Net decrease (increase) in loans	(42,993)	45,905
Proceeds from FDIC loss share agreements	15,286	32,468
Proceeds from sales of foreclosed real estate	25,767	16,425
Purchases of premises and equipment	(5,945)	(3,323)
Net cash received in acquisition		54,037
Net cash provided (used) by investing activities	(20,364)	156,375
Cash Flows From Financing Activities
Net increase in deposits and repurchase agreements	66,211	(83,523)
Repayments of borrowings, net	(22,500)	(62,081)
Cash dividends paid - common stock	(2,708)	(2,690)
Cash dividends paid - preferred stock	(1,554)	(1,625)
Proceeds from issuance of common stock	335	451
Repurchase of common stock	(2)
Net cash provided (used) by financing activities	39,782	(149,468)
Increase in cash and cash equivalents	46,018	26,245
Cash and cash equivalents, beginning of period	216,167	212,002
Cash and cash equivalents, end of period	262,185	238,247
Cash paid during the period for:
Interest	9,667	12,438
Income taxes	5,275	11,710
Non-cash transactions:
Unrealized gain on securities available for sale, net of taxes	277	801
Foreclosed loans transferred to other real estate	$ 25,324	$ 42,984

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Consolidated Balance Sheets Parenthetical
Securities held to maturity fair values	$ 61,676	$ 62,754	$ 59,860
Preferred stock, shares authorized	5,000,000	5,000,000	5,000,000
Preferred stock, shares issued	63,500	63,500	65,000
Preferred stock, shares outstanding	63,500	63,500	65,000
common stock, shares authorized	40,000,000	40,000,000	40,000,000
Common stock, shares issued	16,973,008	16,909,820	16,862,536
Common stock, shares outstanding	16,973	16,910	16,862

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill And Other Intangible Assets

Goodwill and Other Intangible Assets

Note 10 - Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of June 30, 2012, December 31, 2011, and June 30, 2011 and the carrying amount of unamortized intangible assets as of those same dates.

	June 30, 2012				December 31, 2011				June 30, 2011
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizable intangible assets:
Customer lists	$	678		387		678		357		678		328
Core deposit premiums		7,867		4,707		7,867		4,291		7,867		3,868
Total	$	8,545		5,094		8,545		4,648		8,545		4,196
Unamortizable intangible assets:
Goodwill	$	65,835				65,835				65,835

Amortization expense totaled $223,000 and $226,000 for the three months ended June 30, 2012 and 2011, respectively. Amortization expense totaled $446,000 and $450,000 for the six months ended June 30, 2012 and 2011, respectively

The following table presents the estimated amortization expense for the last three quarters of calendar year 2012 and for each of the four calendar years ending December 31, 2016 and the estimated amount amortizable thereafter. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

($ in thousands)	Estimated Amortization Expense
July 1 to December 31, 2012	$	446
2013		781
2014		678
2015		622
2016		555
Thereafter		369
Total	$	3,451

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document And Entity Information
Entity Registrant Name	FIRST BANCORP /NC/
Entity Central Index Key	0000811589
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		16,975,481
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

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Pension Plans

6 Months Ended

Jun. 30, 2012

Pension Plans

Pension Plans

Note 11 - Pension Plans

The Company sponsors two defined benefit pension plans - a qualified retirement plan (the "Pension Plan") which is generally available to all employees, and a Supplemental Executive Retirement Plan (the "SERP"), which is for the benefit of certain senior management executives of the Company.

The Company recorded pension expense totaling $619,000 and $832,000 for the three months ended June 30, 2012 and 2011, respectively, related to the Pension Plan and the SERP. The following table contains the components of the pension expense.

	For the Three Months Ended June 30,
	2012			2011			2012		2011		2012 Total			2011 Total
($ in thousands)	Pension Plan			Pension Plan			SERP		SERP		Both Plans			Both Plans
Service cost - benefits earned during the period	$	457			478			76		115		533			593
Interest cost		363			432			70		102		433			534
Expected return on plan assets		(492	)		(444	)		─		─		(492	)		(444	)
Amortization of transition obligation		1			1			─		─		1			1
Amortization of net (gain)/loss		136			114			─		26		136			140
Amortization of prior service cost		3			3			5		5		8			8
Net periodic pension cost	$	468			584			151		248		619			832

The Company recorded pension expense totaling $1,658,000 and $1,664,000 for the six months ended June 30, 2012 and 2011, respectively, related to the Pension Plan and the SERP. The following table contains the components of the pension expense.

	For the Six Months Ended June 30,
	2012			2011			2012		2011		2012 Total			2011 Total
($ in thousands)	Pension Plan			Pension Plan			SERP		SERP		Both Plans			Both Plans
Service cost - benefits earned during the period	$	1,061			956			170		230		1,231			1,186
Interest cost		799			864			157		204		956			1,068
Expected return on plan assets		(984	)		(888	)		─		─		(984	)		(888	)
Amortization of transition obligation		2			2			─		─		2			2
Amortization of net (gain)/loss		403			228			34		52		437			280
Amortization of prior service cost		6			6			10		10		16			16
Net periodic pension cost	$	1,287			1,168			371		496		1,658			1,664

The Company's contributions to the Pension Plan are based on computations by independent actuarial consultants and are intended to provide the Company with the maximum deduction for income tax purposes. The contributions are invested to provide for benefits under the Pension Plan. The Company expects that it will contribute $2,500,000 to the Pension Plan in 2012.

The Company's funding policy with respect to the SERP is to fund the related benefits from the operating cash flow of the Company.

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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
INTEREST INCOME
Interest and fees on loans	$ 35,636	$ 38,464	$ 70,678	$ 75,271
Interest on investment securities:
Taxable interest income	1,149	1,463	2,407	2,895
Tax-exempt interest income	491	499	984	999
Other, principally overnight investments	178	103	317	193
Total interest income	37,454	40,529	74,386	79,358
INTEREST EXPENSE
Savings, checking and money market	759	1,103	1,608	2,333
Time deposits of $100,000 or more	2,085	2,661	4,260	5,265
Other time deposits	1,169	1,767	2,438	3,936
Securities sold under agreements to repurchase		48	4	98
Borrowings	490	470	1,034	932
Total interest expense	4,503	6,049	9,344	12,564
Net interest income	32,951	34,480	65,042	66,794
Provision for loan losses - non-covered	5,194	7,607	23,751	15,177
Provision for loan losses - covered	1,273	3,327	4,271	7,100
Total provision for loan losses	6,467	10,934	28,022	22,277
Net interest income after provision for loan losses	26,484	23,546	37,020	44,517
NONINTEREST INCOME
Service charges on deposit accounts	2,967	3,294	5,814	5,939
Other service charges, commissions and fees	2,340	2,070	4,532	3,985
Fees from presold mortgage loans	489	346	900	641
Commissions from sales of insurance and financial products	432	409	815	764
Gain from acquisition				10,196
Foreclosed property losses and write-downs - non-covered	(1,318)	(271)	(2,006)	(1,624)
Foreclosed property losses and write-downs - covered	(6,554)	(2,583)	(11,101)	(7,517)
FDIC indemnification asset income, net	3,558	1,826	7,663	6,866
Securities gains	(3)	60	449	74
Other gains	(141)	(37)	53	(17)
Total noninterest income	1,770	5,114	7,119	19,307
NONINTEREST EXPENSES
Salaries	10,173	9,694	20,347	19,405
Employee benefits	2,777	2,954	6,691	6,156
Total personnel expense	12,950	12,648	27,038	25,561
Net occupancy expense	1,615	1,598	3,296	3,270
Equipment related expenses	1,164	1,110	2,334	2,172
Intangibles amortization	223	226	446	450
Acquisition expenses		243		594
Other operating expenses	7,496	7,088	14,709	15,909
Total noninterest expenses	23,448	22,913	47,823	47,956
Income before income taxes	4,806	5,747	(3,684)	15,868
Income taxes	1,516	2,021	(1,792)	5,767
Net income	3,290	3,726	(1,892)	10,101
Preferred stock dividends	(829)	(812)	(1,589)	(1,625)
Accretion of preferred stock discount		(229)		(458)
Net income (loss) available to common shareholders	$ 2,461	$ 2,685	$ (3,481)	$ 8,018
Earnings (loss) per common share:
Basic	$ 0.15	$ 0.16	$ (0.21)	$ 0.48
Diluted	$ 0.15	$ 0.16	$ (0.21)	$ 0.48
Dividends declared per common share	$ 0.08	$ 0.08	$ 0.16	$ 0.16
Weighted average common shares outstanding:
Basic	16,952,624	16,841,289	16,938,620	16,827,615
Diluted	16,952,624	16,868,571	16,938,620	16,855,027

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2012

Earnings Per Common Share

Earnings Per Common Share

Note 5 - Earnings Per Common Share

Basic earnings per common share were computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. Currently, the Company's potentially dilutive common stock issuances relate to grants under the Company's equity-based compensation plans, including stock options and restricted stock. The following is a reconciliation of the numerators and denominators used in computing basic and diluted earnings per common share:

	For the Three Months Ended June 30,
	2012						2011
($ in thousands except per share amounts)	Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount
Basic EPS
Net income available to common shareholders	$	2,461		16,952,624	$	0.15	$	2,685		16,841,289	$	0.16
Effect of Dilutive Securities		—		—				—		27,282
Diluted EPS per common share	$	2,461		16,952,624	$	0.15	$	2,685		16,868,571	$	0.16

	For the Six Months Ended June 30,
	2012								2011
($ in thousands except per share amounts)	Income (Numer- ator)			Shares (Denom- inator)		Per Share Amount			Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount
Basic EPS
Net income (loss) available to common shareholders	$	(3,481	)		16,938,620	$	(0.21	)	$	8,018		16,827,615	$	0.48
Effect of Dilutive Securities		—			—					—		27,412
Diluted EPS per common share	$	(3,481	)		16,938,620	$	(0.21	)	$	8,018		16,855,027	$	0.48

For both the three and six months ended June 30, 2012, there were 386,662 options, respectively, that were antidilutive because the exercise price exceeded the average market price for the period. For both the three and six month periods ended June 30, 2011, there were 542,916 options that were antidilutive because the exercise price exceeded the average market price for the period. Antidilutive options have been omitted from the calculation of diluted earnings per share for the respective periods.

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Equity-Based Compensation Plans

6 Months Ended

Jun. 30, 2012

Equity-Based Compensation Plans

Equity-Based Compensation Plans

Note 4 - Equity-Based Compensation Plans

At June 30, 2012, the Company had the following equity-based compensation plans: the First Bancorp 2007 Equity Plan, the First Bancorp 2004 Stock Option Plan, the First Bancorp 1994 Stock Option Plan, and one plan that was assumed from an acquired entity. The Company's shareholders approved all equity-based compensation plans, except for those assumed from acquired companies. The First Bancorp 2007 Equity Plan became effective upon the approval of shareholders on May 2, 2007. As of June 30, 2012, the First Bancorp 2007 Equity Plan was the only plan that had shares available for future grants.

The First Bancorp 2007 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans' participants with those of the Company and its shareholders. The First Bancorp 2007 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity grants to employees have either had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost will be reversed. As it relates to director equity grants, the Company grants common shares, valued at approximately $226,000 in the aggregate on the date of the grant, to non-employee directors in June of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no vesting conditions.

The Company granted long-term restricted shares of common stock to certain senior executives on February 24, 2011 and February 23, 2012 with a two year minimum vesting period. The total compensation expense associated with the February 24, 2011 grant was $105,500 and the grant will fully vest on February 24, 2013. The Company recorded $22,000 in stock option expense in the first six months of 2012 and will record $9,700 in each subsequent quarter of 2012 related to this grant. The total compensation expense associated with the February 23, 2012 grant was $89,700 and the grant will fully vest on February 23, 2014. The Company recorded $14,900 in the first six months of 2012 and will record $11,200 in each subsequent quarter of 2012 related to this grant.

Under the terms of the predecessor plans and the First Bancorp 2007 Equity Plan, options can have a term of no longer than ten years, and all options granted thus far under these plans have had a term of ten years. The Company's options provide for immediate vesting if there is a change in control (as defined in the plans).

At June 30, 2012, there were 476,624 options outstanding related to the three First Bancorp plans, with exercise prices ranging from $14.35 to $22.12. At June 30, 2012, there were 871,257 shares remaining available for grant under the First Bancorp 2007 Equity Plan. The Company also has a stock option plan as a result of a corporate acquisition. At June 30, 2012, there were 4,788 stock options outstanding in connection with the acquired plan, with option prices ranging from $10.66 to $15.22.

The Company issues new shares of common stock when options are exercised.

The Company measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The Company determines the assumptions used in the Black-Scholes option pricing model as follows: the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant; the dividend yield is based on the Company's dividend yield at the time of the grant (subject to adjustment if the dividend yield on the grant date is not expected to approximate the dividend yield over the expected life of the option); the volatility factor is based on the historical volatility of the Company's stock (subject to adjustment if future volatility is reasonably expected to differ from the past); and the weighted-average expected life is based on the historical behavior of employees related to exercises, forfeitures and cancellations.

The Company's equity grants for the six months ended June 30, 2012 were the issuance of 1) 9,559 shares of long-term restricted stock to certain senior executives on February 23, 2012, at a fair market value of $10.96 per share, which was the closing price of the Company's common stock on that date, and 2) 25,452 shares of common stock to non-employee directors on June 1, 2012 (1,818 shares per director), at a fair market value of $8.86 per share, which was the closing price of the Company's common stock on that date.

The Company's equity grants for the six months ended June 30, 2011 were the issuance of 1) 7,259 shares of long-term restricted stock to certain senior executives on February 24, 2011, at a fair market value of $14.54 per share, which was the closing price of the Company's common stock on that date, and 2) 21,210 shares of common stock to non-employee directors on June 1, 2011 (1,414 shares per director), at a fair market value of $11.39 per share, which was the closing price of the Company's common stock on that date.

The Company recorded total stock-based compensation expense of $263,000 and $483,000 for the six month periods ended June 30, 2012 and 2011, respectively, which relates to the employee grants discussed above and is recorded as "salaries expense." Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company's Consolidated Statement of Cash Flows. The Company recognized $103,000 and $188,000 of income tax benefits related to stock based compensation expense in the income statement for the six months ended June 30, 2012 and 2011, respectively.

As noted above, certain of the Company's stock option grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company has elected to recognize compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for the entire award. Compensation expense is based on the estimated number of stock options and awards that will ultimately vest. Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all options granted without performance conditions will become vested.

The following table presents information regarding the activity for the first six months of 2012 related to all of the Company's stock options outstanding:

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value
Balance at December 31, 2011		493,850		$	18.92
Granted		-			-
Exercised		—			—
Forfeited		—			—
Expired		(12,438	)		18.71
Outstanding at June 30, 2012		481,412		$	18.92		3.2	$	—
Exercisable at June 30, 2012		480,412		$	18.92		3.2	$	—

The Company did not have any stock option exercises during the six months ended June 30, 2012 and received $30,000 as a result of stock option exercises during the six months ended June 30, 2011. The Company recorded no tax benefits from the exercise of nonqualified stock options during the six months ended June 30, 2012 or 2011.

As discussed above, the Company granted 7,259 and 9,559 long-term restricted shares of common stock to certain senior executives on February 24, 2011 and February 23, 2012, respectively.

The following table presents information regarding the activity during 2012 related to the Company's outstanding restricted stock:

	Long-Term Restricted Stock
	Number of Units			Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2011		7,259		$	14.54
Granted during the period		9,559		$	10.96
Vested during the period		—			—
Forfeited or expired during the period		(2,474	)		12.55
Nonvested at June 30, 2012		14,344		$	12.50

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Common Share Tables

Reconciliation of the numerators and denominators used in computing basic and diluted earnings per common share

	For the Three Months Ended June 30,
	2012						2011
($ in thousands except per share amounts)	Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount
Basic EPS
Net income available to common shareholders	$	2,461		16,952,624	$	0.15	$	2,685		16,841,289	$	0.16
Effect of Dilutive Securities		-		-				-		27,282
Diluted EPS per common share	$	2,461		16,952,624	$	0.15	$	2,685		16,868,571	$	0.16

	For the Six Months Ended June 30,
	2012								2011
($ in thousands except per share amounts)	Income (Numer- ator)			Shares (Denom- inator)		Per Share Amount			Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount
Basic EPS
Net income (loss) available to common shareholders	$	(3,481	)		16,938,620	$	(0.21	)	$	8,018		16,827,615	$	0.48
Effect of Dilutive Securities		-			-					-		27,412
Diluted EPS per common share	$	(3,481	)		16,938,620	$	(0.21	)	$	8,018		16,855,027	$	0.48

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Comprehensive Income

6 Months Ended

Jun. 30, 2012

Comprehensive Income

Comprehensive Income

Note 12 – Comprehensive Income

Comprehensive income is defined as the change in equity during a period for non-owner transactions and is divided into net income and other comprehensive income. Other comprehensive income includes revenues, expenses, gains, and losses that are excluded from earnings under current accounting standards. The components of accumulated other comprehensive income (loss) for the Company are as follows:

($ in thousands)	June 30, 2012			December 31, 2011			June 30, 2011
Unrealized gain (loss) on securities available for sale	$	4,348			3,896			3,790
Deferred tax asset (liability)		(1,694	)		(1,520	)		(1,478	)
Net unrealized gain (loss) on securities available for sale		2,654			2,376			2,312
Additional pension liability		(17,879	)		(18,278	)		(10,608	)
Deferred tax asset		7,064			7,220			4,190
Net additional pension liability		(10,815	)		(11,058	)		(6,418	)
Total accumulated other comprehensive income (loss)	$	(8,161	)		(8,682	)		(4,106	)

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Deferred Loan Costs

6 Months Ended

Jun. 30, 2012

Deferred Loan Costs

Deferred Loan Costs

Note 8 - Deferred Loan Costs

The amount of loans shown on the Consolidated Balance Sheets includes net deferred loan costs of approximately $1,376,000, $1,280,000, and $1,298,000 at June 30, 2012, December 31, 2011, and June 30, 2011, respectively.

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Goodwill and Other Intangible Assets (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Goodwill And Other Intangible Assets Details 1
April 1 to December 31, 2012	$ 446
2013	781
2014	678
2015	622
2016	555
Thereafter	369
Total	$ 3,451

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Securities

6 Months Ended

Jun. 30, 2012

Securities

Securities

Note 6 - Securities

The book values and approximate fair values of investment securities at June 30, 2012 and December 31, 2011 are summarized as follows:

	June 30, 2012									December 31, 2011
	Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
($ in thousands)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Securities available for sale:
Government-sponsored enterprise securities	$	29,504		29,626		122		—			34,511		34,665		170		(16	)
Mortgage-backed securities		115,674		119,536		3,862		—			120,032		124,105		4,164		(91	)
Corporate bonds		13,186		13,139		253		(300	)		13,189		12,488		279		(980	)
Equity securities		9,195		9,606		438		(27	)		10,998		11,368		409		(39	)
Total available for sale	$	167,559		171,907		4,675		(327	)		178,730		182,626		5,022		(1,126	)
Securities held to maturity:
State and local governments	$	56,182		61,676		5,494		—			57,988		62,754		4,766		—
Total held to maturity	$	56,182		61,676		5,494		—			57,988		62,754		4,766		—

Included in mortgage-backed securities at June 30, 2012 were collateralized mortgage obligations with an amortized cost of $663,000 and a fair value of $684,000. Included in mortgage-backed securities at December 31, 2011 were collateralized mortgage obligations with an amortized cost of $1,462,000 and a fair value of $1,515,000. All of the Company's mortgage-backed securities, including collateralized mortgage obligations, were issued by government-sponsored corporations.

The Company owned Federal Home Loan Bank (FHLB) stock with a cost and fair value of $9,102,000 at June 30, 2012 and $10,904,000 at December 31, 2011, which is included in equity securities above and serves as part of the collateral for the Company's line of credit with the FHLB. The investment in this stock is a requirement for membership in the FHLB system.

The following table presents information regarding securities with unrealized losses at June 30, 2012:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	—		—		—		—		—		—
Mortgage-backed securities		—		—		—		—		—		—
Corporate bonds		—		—		5,029		300		5,029		300
Equity securities		—		—		31		27		31		27
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	—		—		5,060		327		5,060		327

The following table presents information regarding securities with unrealized losses at December 31, 2011:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	8,984		16		—		—		8,984		16
Mortgage-backed securities		14,902		61		9,302		30		24,204		91
Corporate bonds		4,588		458		2,773		522		7,361		980
Equity securities		4		2		22		37		26		39
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	28,478		537		12,097		589		40,575		1,126

In the above tables, all of the non-equity securities that were in an unrealized loss position at June 30, 2012 and December 31, 2011 are bonds that the Company has determined are in a loss position due to interest rate factors, the overall economic downturn in the financial sector, and the broader economy in general. The Company has evaluated the collectability of each of these bonds and has concluded that there is no other-than-temporary impairment. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost. The Company has also concluded that each of the equity securities in an unrealized loss position at June 30, 2012 and December 31, 2011 was in such a position due to temporary fluctuations in the market prices of the securities. The Company's policy is to record an impairment charge for any of these equity securities that remains in an unrealized loss position for twelve consecutive months unless the amount is insignificant.

The aggregate carrying amount of cost-method investments was $9,102,000 at June 30, 2012 and $10,904,000 at December 31, 2011, respectively, which was the FHLB stock discussed above. The Company determined that none of its cost-method investments were impaired at either period end.

The book values and approximate fair values of investment securities at June 30, 2012, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value
Debt securities
Due within one year	$	3,004		3,040		350		358
Due after one year but within five years		26,497		26,679		2,958		3,210
Due after five years but within ten years		3,000		3,000		29,731		32,673
Due after ten years		10,189		10,046		23,143		25,435
Mortgage-backed securities		115,674		119,536		—		—
Total debt securities		158,364		162,301		56,182		61,676
Equity securities		9,195		9,606		—		—
Total securities	$	167,559		171,907		56,182		61,676

At June 30, 2012 investment securities with a book value of $86,865,000 were pledged as collateral for public deposits. At December 31, 2011, investment securities with a book value of $47,418,000 were pledged as collateral for public and private deposits and securities sold under agreements to repurchase.

There were $9,641,000 in sales of securities during the six months ended June 30, 2012, which resulted in a net gain of $439,000. There were $2,518,000 in sales during the six months ended June 30, 2011, which resulted in a net gain of $8,000. During the six months ended June 30, 2012 and 2011, the Company recorded a net gain of $11,000 and $71,000, respectively, related to the call of several municipal and bond securities. Also, during the six months ended June 30, 2012 and 2011, the Company recorded a net loss of $1,000 and $5,000, respectively, related to write-downs of the Company's equity portfolio.

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Loans and Asset Quality Information

6 Months Ended

Jun. 30, 2012

Loans And Asset Quality Information

Loans and Asset Quality Information

Note 7 – Loans and Asset Quality Information

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company’s banking subsidiary, First Bank, which afford First Bank significant loss protection. (See the Company’s 2011 Annual Report on Form 10-K for more information regarding these transactions.) Because of the loss protection provided by the FDIC, the risk of the Cooperative Bank and The Bank of Asheville loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

The following is a summary of the major categories of total loans outstanding:

($ in thousands)	June 30, 2012				December 31, 2011				June 30, 2011
	Amount		Percentage		Amount		Percentage		Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	163,761		7%		162,099		7%		158,303		6%
Real estate – construction, land development & other land loans		343,620		14%		363,079		15%		386,354		16%
Real estate – mortgage – residential (1-4 family) first mortgages		815,605		34%		805,542		33%		803,209		33%
Real estate – mortgage – home equity loans / lines of credit		250,627		10%		256,509		11%		266,995		11%
Real estate – mortgage – commercial and other		789,290		32%		762,895		31%		745,858		31%
Installment loans to individuals		73,522		3%		78,982		3%		80,423		3%
Subtotal		2,436,425		100%		2,429,106		100%		2,441,142		100%
Unamortized net deferred loan costs		1,376				1,280				1,298
Total loans	$	2,437,801				2,430,386				2,442,440

As of June 30, 2012, December 31, 2011 and June 30, 2011, net loans include unamortized premiums of $717,000, $949,000, and $1,182,000, respectively, related to acquired loans.

The following is a summary of the major categories of non-covered loans outstanding:

($ in thousands)	June 30, 2012				December 31, 2011				June 30, 2011
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	155,879		7%		152,627		8%		145,811		7%
Real estate – construction, land development & other land loans		283,818		13%		290,983		14%		306,140		15%
Real estate – mortgage – residential (1-4 family) first mortgages		669,088		32%		646,616		31%		631,640		31%
Real estate – mortgage – home equity loans / lines of credit		229,415		11%		233,171		11%		241,973		12%
Real estate – mortgage – commercial and other		702,717		33%		666,882		32%		635,103		31%
Installment loans to individuals		72,613		4%		77,593		4%		78,749		4%
Subtotal		2,113,530		100%		2,067,872		100%		2,039,416		100%
Unamortized net deferred loan costs		1,376				1,280				1,298
Total non-covered loans	$	2,114,906				2,069,152				2,040,714

The carrying amount of the covered loans at June 30, 2012 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	68		146		7,814		9,885		7,882		10,031
Real estate – construction, land development & other land loans		1,577		2,606		58,225		99,332		59,802		101,938
Real estate – mortgage – residential (1-4 family) first mortgages		827		1,915		145,690		173,707		146,517		175,622
Real estate – mortgage – home equity loans / lines of credit		12		309		21,200		26,400		21,212		26,709
Real estate – mortgage – commercial and other		2,332		4,153		84,241		113,936		86,573		118,089
Installment loans to individuals		3		4		906		990		909		994
Total	$	4,819		9,133		318,076		424,250		322,895		433,383

The carrying amount of the covered loans at December 31, 2011 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	69		319		9,403		11,736		9,472		12,055
Real estate – construction, land development & other land loans		3,865		8,505		68,231		115,489		72,096		123,994
Real estate – mortgage – residential (1-4 family) first mortgages		1,214		2,639		157,712		189,436		158,926		192,075
Real estate – mortgage – home equity loans / lines of credit		127		577		23,211		29,249		23,338		29,826
Real estate – mortgage – commercial and other		2,585		4,986		93,428		125,450		96,013		130,436
Installment loans to individuals		4		6		1,385		1,583		1,389		1,589
Total	$	7,864		17,032		353,370		472,943		361,234		489,975

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2010. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2010	$	366,521
Additions due to acquisition of The Bank of Asheville (at fair value)		84,623
Principal repayments		(40,576	)
Transfers to foreclosed real estate		(53,999	)
Loan charge-offs		(14,797	)
Accretion of loan discount		11,598
Carrying amount of nonimpaired covered loans at December 31, 2011	$	353,370
Principal repayments		(25,012	)
Transfers to foreclosed real estate		(11,974	)
Loan charge-offs		(4,176	)
Accretion of loan discount		5,868
Carrying amount of nonimpaired covered loans at June 30, 2012	$	318,076

As reflected in the table above, the Company accreted $5,868,000 of the loan discount on purchased nonimpaired loans into interest income during the first six months of 2012. As of June 30, 2012, there was remaining loan discount of $73,519,000 related to purchased nonimpaired loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income.

The following table presents information regarding all purchased impaired loans since December 31, 2010, substantially all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

($ in thousands) Purchased Impaired Loans	Contractual Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
Balance at December 31, 2010	$	8,080			2,329			5,751
Additions due to acquisition of The Bank of Asheville		38,452			20,807			17,645
Change due to payments received		(1,620	)		(327	)		(1,293	)
Transfer to foreclosed real estate		(19,881	)		(9,308	)		(10,573	)
Change due to loan charge-off		(7,522	)		(4,193	)		(3,329	)
Other		807			224			583
Balance at December 31, 2011	$	18,316			9,532			8,784
Change due to payments received		(287	)		(54	)		(233	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(109	)		(109	)		—
Other		(1,151	)		(1,568	)		417
Balance at June 30, 2012	$	9,133			4,314			4,819

Each of the purchased impaired loans is on nonaccrual status and considered to be impaired. 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. During the first six months of 2012 and 2011, the Company received no payments that exceeded the initial carrying amount of the purchased impaired loans.

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, and other real estate. Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	73,918		73,566		71,570
Restructured loans - accruing		20,684		11,720		16,893
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		94,602		85,286		88,463
Other real estate		37,895		37,023		31,849
Total non-covered nonperforming assets	$	132,497		122,309		120,312
Covered nonperforming assets
Nonaccrual loans (1)	$	39,075		41,472		37,057
Restructured loans - accruing		19,054		14,218		24,325
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		58,129		55,690		61,382
Other real estate		70,850		85,272		102,883
Total covered nonperforming assets	$	128,979		140,962		164,265
Total nonperforming assets	$	261,476		263,271		284,577

(1) At June 30, 2012, December 31, 2011, and June 30, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $60.4 million, $69.0 million, and $69.4 million, respectively.

The following table presents information related to the Company’s impaired loans.

($ in thousands)	As of /for the six months ended June 30, 2012		As of /for the year ended December 31, 2011		As of /for the six months ended June 30, 2011
Impaired loans at period end
Non-covered	$	94,602		85,286		88,463
Covered		58,129		55,690		61,382
Total impaired loans at period end	$	152,731		140,976		149,845
Average amount of impaired loans for period
Non-covered	$	86,723		89,023		91,187
Covered		56,449		63,289		69,102
Average amount of impaired loans for period – total	$	143,172		152,312		160,289
Allowance for loan losses related to impaired loans at period end
Non-covered	$	11,051		5,804		6,019
Covered		5,158		5,106		4,727
Allowance for loan losses related to impaired loans - total	$	16,209		10,910		10,746
Amount of impaired loans with no related allowance at period end
Non-covered	$	22,235		35,721		31,514
Covered		40,613		43,702		49,755
Total impaired loans with no related allowance at period end	$	62,848		79,423		81,269

All of the impaired loans noted in the table above were on nonaccrual status at each respective period end except for those classified as restructured loans (see table on previous page for balances).

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

The following table presents the Company’s nonaccrual loans as of June 30, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	211		188		399
Commercial – secured		2,227		—		2,227
Secured by inventory and accounts receivable		637		—		637
Real estate – construction, land development & other land loans		19,781		16,963		36,744
Real estate – residential, farmland and multi-family		24,146		10,084		34,230
Real estate – home equity lines of credit		3,878		758		4,636
Real estate – commercial		20,277		11,009		31,286
Consumer		2,761		73		2,834
Total	$	73,918		39,075		112,993

The following table presents the Company’s nonaccrual loans as of December 31, 2011.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		—		452
Commercial - secured		2,190		358		2,548
Secured by inventory and accounts receivable		588		102		690
Real estate – construction, land development & other land loans		22,772		21,204		43,976
Real estate – residential, farmland and multi-family		25,430		11,050		36,480
Real estate – home equity lines of credit		3,161		1,068		4,229
Real estate - commercial		16,203		7,459		23,662
Consumer		2,770		231		3,001
Total	$	73,566		41,472		115,038

The following table presents an analysis of the payment status of the Company’s loans as of June 30, 2012.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	83		58		211		37,991		38,343
Commercial - secured		446		443		2,227		110,248		113,364
Secured by inventory and accounts receivable		55		—		637		21,277		21,969
Real estate – construction, land development & other land loans		1,544		425		19,781		222,973		244,723
Real estate – residential, farmland, and multi-family		6,648		2,109		24,146		777,203		810,106
Real estate – home equity lines of credit		1,759		460		3,878		201,589		207,686
Real estate - commercial		4,715		381		20,277		597,135		622,508
Consumer		690		181		2,761		51,199		54,831
Total non-covered	$	15,940		4,057		73,918		2,019,615		2,113,530
Unamortized net deferred loan costs										1,376
Total non-covered loans									$	2,114,906
Covered loans	$	5,253		2,147		39,075		276,420		322,895
Total loans	$	21,193		6,204		112,993		2,296,035		2,437,801

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 2012.

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2011.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	67		591		452		37,668		38,778
Commercial - secured		672		207		2,190		108,682		111,751
Secured by inventory and accounts receivable		247		—		588		20,993		21,828
Real estate – construction, land development & other land loans		1,250		1,411		22,772		221,372		246,805
Real estate – residential, farmland, and multi-family		9,751		4,259		25,430		756,215		795,655
Real estate – home equity lines of credit		1,126		237		3,161		202,912		207,436
Real estate - commercial		2,620		1,006		16,203		567,354		587,183
Consumer		657		286		2,770		54,723		58,436
Total non-covered	$	16,390		7,997		73,566		1,969,919		2,067,872
Unamortized net deferred loan costs										1,280
Total non-covered loans									$	2,069,152
Covered loans	$	6,511		3,388		41,472		309,863		361,234
Total loans	$	22,901		11,385		115,038		2,279,782		2,430,386

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2011.

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated		Total
As of and for the three months ended June 30, 2012
Beginning balance	$	4,954			16,419			15,369			2,132			5,737			1,826			18		46,455
Charge-offs		(744	)		(174	)		(2,145	)		(281	)		(805	)		(334	)		—		(4,483	)
Recoveries		18			126			60			85			6			62			—		357
Provisions		833			1,448			1,675			210			781			237			10		5,194
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
As of and for the six months ended June 30, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(2,062	)		(2,852	)		(4,236	)		(732	)		(2,170	)		(686	)		—		(12,738	)
Recoveries		34			314			254			119			47			132			—		900
Provisions		3,309			9,051			5,409			1,069			4,428			473			12		23,751
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
Ending balances as of June 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	869			4,819			635			439			1,480			—			—		8,242
Collectively evaluated for impairment	$	4,192			13,000			14,324			1,707			4,239			1,791			28		39,281
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of June 30, 2012:
Ending balance – total	$	173,676			244,723			810,106			207,686			622,508			54,831			—		2,113,530
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	1,009			23,860			9,508			1,331			21,918			—			—		57,626
Collectively evaluated for impairment	$	172,667			220,863			800,598			206,355			600,590			54,831			—		2,055,904
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi-family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(2,703	)		(16,240	)		(9,045	)		(1,147	)		(3,355	)		(845	)		(524	)		(33,859	)
Recoveries		389			1,142			719			107			37			182			93			2,669
Provisions		1,363			13,884			10,575			(904	)		2,760			574			273			28,525
Ending balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16			35,610
Ending balances:  Allowance for loan losses
Individually evaluated for impairment	$	60			607			150			—			200			—			—			1,017
Collectively evaluated for impairment	$	3,720			10,699			13,382			1,690			3,214			1,872			16			34,593
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable:
Ending balance – total	$	172,357			246,805			795,655			207,436			587,183			58,436			—			2,067,872
Ending balances: Loans
Individually evaluated for impairment	$	2,526			34,750			11,880			527			30,846			12			—			80,541
Collectively evaluated for impairment	$	169,831			212,055			783,775			206,909			556,337			58,424			—			1,987,331
Loans acquired with deteriorated credit quality	$	—			920			—			—			—			—			—			920

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
As of and for the three months ended June 30, 2011
Beginning balance	$	4,142			10,203			12,463			3,359			3,359			2,223			24			35,773
Charge-offs		(740	)		(5,589	)		(2,248	)		(141	)		(313	)		(157	)		(121	)		(9,309	)
Recoveries		28			219			61			37			—			20			29			394
Provisions		475			6,957			1,808			(1,406	)		(187	)		(126	)		86			7,607
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
As of and for the six months ended June 30, 2011
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,896	)		(9,582	)		(5,596	)		(764	)		(1,380	)		(360	)		(236	)		(19,814	)
Recoveries		36			251			293			43			28			103			73			827
Provisions		1,034			8,601			6,104			(1,064	)		239			256			7			15,177
Ending balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
Ending balances as of June 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	50			1,221			235			—			340			—			—			1,846
Collectively evaluated for impairment	$	3,855			10,569			11,849			1,849			2,519			1,960			18			32,619
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable as of June 30, 2011:
Ending balance – total	$	165,091			267,346			774,448			213,920			558,879			59,732			—			2,039,416
Ending balances as of June 30, 2011: Loans
Individually evaluated for impairment	$	2,049			47,181			7,656			531			34,198			20			—			91,635
Collectively evaluated for impairment	$	163,042			220,165			766,792			213,389			524,681			59,712			—			1,947,781
Loans acquired with deteriorated credit quality	$	—			1,234			—			—			—			—			—			1,234

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2012
Beginning balance	$	6,372
Charge-offs		(1,714	)
Recoveries		—
Provisions		1,273
Ending balance	$	5,931
As of and for the six months ended June 30, 2012
Beginning balance	$	5,808
Charge-offs		(4,148	)
Recoveries		—
Provisions		4,271
Ending balance	$	5,931
Ending balances as of June 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	5,914
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		17
Loans receivable as of June 30, 2012:
Ending balance – total	$	322,895
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	42,598
Collectively evaluated for impairment		280,297
Loans acquired with deteriorated credit quality		4,819

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2011.

($ in thousands)	Covered Loans
As of and for the year ended December 31, 2011
Beginning balance	$	11,155
Charge-offs		(18,123	)
Recoveries		—
Provisions		12,776
Ending balance	$	5,808
Ending balances as of December 31, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	5,481
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		327
Loans receivable as of December 31, 2011:
Ending balance – total	$	361,234
Ending balances as of December 31, 2011: Loans
Individually evaluated for impairment	$	44,723
Collectively evaluated for impairment		316,511
Loans acquired with deteriorated credit quality		7,864

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2011.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2011
Beginning balance	$	7,002
Charge-offs		(4,789	)
Recoveries		—
Provisions		3,327
Ending balance	$	5,540
As of and for the six months ended June 30, 2011
Beginning balance	$	11,155
Charge-offs		(12,715	)
Recoveries		—
Provisions		7,100
Ending balance	$	5,540
Ending balances as of June 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	5,540
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		—
Loans receivable as of June 30, 2011:
Ending balance – total	$	401,726
Ending balances as of June 30, 2011: Loans
Individually evaluated for impairment	$	37,149
Collectively evaluated for impairment		364,577
Loans acquired with deteriorated credit quality		13,538

 The following table presents the Company’s impaired loans as of June 30, 2012.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		69		225		—		144
Secured by inventory and accounts receivable		—		—		—		9
Real estate – construction, land development & other land loans		6,950		11,676		—		8,992
Real estate – residential, farmland, and multi-family		4,242		6,010		—		3,172
Real estate – home equity lines of credit		—		—		—		15
Real estate – commercial		10,974		12,683		—		12,554
Consumer		—		—		—		4
Total non-covered impaired loans with no allowance	$	22,235		30,594		—		24,890
Total covered impaired loans with no allowance	$	40,613		75,350		—		40,357
Total impaired loans with no allowance recorded	$	62,848		105,944		—		65,247
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	211		612		40		231
Commercial - secured		2,158		2,436		315		1,912
Secured by inventory and accounts receivable		637		1,112		143		673
Real estate – construction, land development & other land loans		18,156		22,302		6,093		15,360
Real estate – residential, farmland, and multi-family		23,476		26,658		2,361		24,792
Real estate – home equity lines of credit		3,877		4,493		453		3,300
Real estate – commercial		21,089		24,102		1,309		12,776
Consumer		2,763		2,801		337		2,789
Total non-covered impaired loans with allowance	$	72,367		84,516		11,051		61,833
Total covered impaired loans with allowance	$	17,516		19,421		5,158		16,092
Total impaired loans with an allowance recorded	$	89,883		103,937		16,209		77,925

Interest income recorded on non-covered and covered impaired loans during the six months ended June 30, 2012 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

The following table presents the Company’s impaired loans as of December 31, 2011.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		295		478		—		504
Secured by inventory and accounts receivable		27		493		—		124
Real estate – construction, land development & other land loans		15,105		20,941		—		17,876
Real estate – residential, farmland, and multi-family		3,442		4,741		—		5,278
Real estate – home equity lines of credit		46		300		—		79
Real estate – commercial		16,794		18,817		—		13,359
Consumer		12		39		—		15
Total non-covered impaired loans with no allowance	$	35,721		45,809		—		37,235
Total covered impaired loans with no allowance	$	43,702		78,578		—		49,030
Total impaired loans with no allowance recorded	$	79,423		124,387		—		86,265
Non-covered  loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		454		59		226
Commercial - secured		1,895		1,899		295		1,427
Secured by inventory and accounts receivable		561		571		156		391
Real estate – construction, land development & other land loans		10,360		12,606		2,244		15,782
Real estate – residential, farmland, and multi-family		24,460		26,153		2,169		22,487
Real estate – home equity lines of credit		3,115		3,141		117		2,544
Real estate – commercial		5,965		6,421		283		6,602
Consumer		2,757		2,759		481		2,329
Total non-covered impaired loans with allowance	$	49,565		54,004		5,804		51,788
Total covered impaired loans with allowance	$	11,988		15,670		5,106		14,259
Total impaired loans with an allowance recorded	$	61,553		69,674		10,910		66,047

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2011 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

	Numerical Risk Grade	Description
Pass:
	1	Cash secured loans.
	2	Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
	3	Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:
	4	Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:
	9	Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.  This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:
	5	Existing loans with major exceptions that cannot be mitigated.
Classified:
	6	Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
	7	Loans that have a well-defined weakness that make the collection or liquidation improbable.
	8	Loans that are considered uncollectible and are in the process of being charged-off.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of June 30, 2012.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	11,933		25,351		12		323		513		211		38,343
Commercial - secured		34,861		69,630		1,705		2,481		2,460		2,227		113,364
Secured by inventory and accounts receivable		3,688		16,539		265		695		145		637		21,969
Real estate – construction, land development & other land loans		32,230		161,242		5,304		11,971		14,195		19,781		244,723
Real estate – residential, farmland, and multi-family		250,715		476,852		9,105		17,883		31,405		24,146		810,106
Real estate – home equity lines of credit		131,210		66,044		2,521		2,338		1,695		3,878		207,686
Real estate - commercial		135,080		417,454		27,537		13,025		9,135		20,277		622,508
Consumer		28,153		22,676		86		514		641		2,761		54,831
Total	$	627,870		1,255,788		46,535		49,230		60,189		73,918		2,113,530
Unamortized net deferred loan costs														1,376
Total non-covered  loans													$	2,114,906
Total covered loans	$	51,912		137,930		—		8,459		85,519		39,075		322,895
Total loans	$	679,782		1,393,718		46,535		57,689		145,708		112,993		2,437,801

At June 30, 2012, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At June 30, 2012, there were no covered loans that were graded “8” with an accruing status.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2011.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	13,516		23,735		13		217		845		452		38,778
Commercial - secured		36,587		66,105		1,912		2,196		2,761		2,190		111,751
Secured by inventory and accounts receivable		3,756		16,197		282		756		249		588		21,828
Real estate – construction, land development & other land loans		37,596		156,651		6,490		9,903		13,393		22,772		246,805
Real estate – residential, farmland, and multi-family		257,163		456,188		10,248		17,687		28,939		25,430		795,655
Real estate – home equity lines of credit		130,913		67,606		2,422		1,868		1,466		3,161		207,436
Real estate - commercial		140,577		372,614		30,722		11,502		15,565		16,203		587,183
Consumer		30,693		23,550		67		368		988		2,770		58,436
Total	$	650,801		1,182,646		52,156		44,497		64,206		73,566		2,067,872
Unamortized net deferred loan costs														1,280
Total non-covered  loans													$	2,069,152
Total covered loans	$	62,052		161,508		—		8,033		88,169		41,472		361,234
Total loans	$	712,853		1,344,154		52,156		52,530		152,375		115,038		2,430,386

At December 31, 2011, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At December 31, 2011, there were no covered loans that were graded “8” with an accruing status.

Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

The vast majority of the Company’s troubled debt restructurings modified during the period ended June 30, 2012 related to interest rate reductions combined with restructured amortization schedules. The Company does not grant principal forgiveness.

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

The following table presents information related to loans modified in a troubled debt restructuring during the three and six months ended June 30, 2012.

($ in thousands)	For the three months ended June 30, 2012				For the six months ended June 30, 2012
	Number of Contracts		Restructured Balances		Number of Contracts		Restructured Balances
Non-covered TDRs – Accruing
Real estate – construction, land development & other land loans		1	$	300		1	$	300
Real estate – residential, farmland, and multi-family		1		303		1		303
Non-covered TDRs - Nonaccrual
Real estate – construction, land development & other land loans		1		238		1		238
Total non-covered TDRs arising during period		3	$	841		3	$	841
Total covered TDRs arising during period– Accruing		3	$	5,428		6	$	7,342
Total covered TDRs arising during period – Nonaccrual		—		—		—		—
Total TDRs arising during period		6	$	6,269		9	$	8,183

Accruing restructured loans that defaulted during the three and six months ended June 30, 2012 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned.

($ in thousands)	For the three months ended June 30, 2012				For the six months ended June 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Real estate – construction, land development & other land loans		—	$	—		2	$	664
Real estate – residential, farmland, and multi-family		1		341		1		341
Real estate - commercial		1		180		1		180
Total non-covered TDRs that subsequently defaulted		2	$	521		4	$	1,185
Total accruing covered TDRs that subsequently defaulted		3	$	716		14	$	3,427
Total accruing TDRs that subsequently defaulted		5	$	1,237		18	$	4,612

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FDIC Indemnification Asset

6 Months Ended

Jun. 30, 2012

Fdic Indemnification Asset

FDIC Indemnification Asset

Note 9 - FDIC Indemnification Asset

The FDIC indemnification asset is the estimated amount that the Company will receive from the FDIC under loss share agreements associated with two FDIC-assisted failed bank acquisitions. See page 38 of the Company's 2011 Annual Report on Form 10-K for a detailed explanation of this asset.

The FDIC indemnification asset was comprised of the following components as of the dates shown:

($ in thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Receivable related to claims submitted, not yet received	$	18,574		13,377		27,668
Receivable related to estimated future claims on loans		79,308		90,275		100,953
Receivable related to estimated future claims on other real estate owned		19,020		18,025		14,273
FDIC indemnification asset	$	116,902		121,677		142,894

The following presents a rollforward of the FDIC indemnification asset since December 31, 2011.

($ in thousands)
Balance at December 31, 2011	$	121,677
Increase related to unfavorable changes in loss estimates		12,298
Increase related to reimbursable expenses		3,183
Cash received		(15,286	)
Accretion of loan discount		(4,694	)
Other		(276	)
Balance at June 30, 2012	$	116,902

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Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Comprehensive Income Details
Unrealized gain (loss) on securities available for sale	$ 4,348	$ 3,896	$ 3,790
Deferred tax asset (liability)	(1,694)	(1,520)	(1,478)
Net unrealized gain (loss) on securities available for sale	2,654	2,376	2,312
Additional pension liability	(17,879)	(18,278)	(10,608)
Deferred tax asset	7,064	7,220	4,190
Net additional pension liability	(10,815)	(11,058)	(6,418)
Total accumulated other comprehensive income (loss)	$ (8,161)	$ (8,682)	$ (4,106)

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Fair Value (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Cash and due from banks, noninterest-bearing	$ 58,872	$ 80,341	$ 73,676
Federal funds sold		608	1,157
FDIC indemnification asset	116,902	121,677	142,894
Accrued interest receivable	10,932	11,779	12,000
Deposits	2,838,298	2,755,037	2,747,418
Borrowings	111,394	133,925	138,796
Accrued interest payable	1,549	1,872	2,208
Carrying Amount
Cash and due from banks, noninterest-bearing	58,872	80,341
Due from banks, interest-bearing	203,313	135,218
Federal funds sold		608
Securities available for sale	171,907	182,626
Securities held to maturity	56,182	57,988
Presold mortgages in process of settlement	4,053	6,090
Loans - non-covered, net of allowance	2,067,383	2,033,542
Loans - covered, net of allowance	316,964	355,426
FDIC indemnification asset	116,902	121,677
Accrued interest receivable	10,932	11,779
Deposits	2,838,298	2,755,037
Securities sold under agreements to repurchase		17,105
Borrowings	111,394	133,925
Accrued interest payable	1,549	1,872
Fair Value
Cash and due from banks, noninterest-bearing	58,872	80,341
Due from banks, interest-bearing	203,313	135,218
Federal funds sold		608
Securities available for sale	171,907	182,626
Securities held to maturity	61,676	62,754
Presold mortgages in process of settlement	4,053	6,090
Loans - non-covered, net of allowance	2,006,670	1,987,979
Loans - covered, net of allowance	316,964	355,426
FDIC indemnification asset	116,501	121,004
Accrued interest receivable	10,932	11,779
Deposits	2,841,563	2,759,504
Securities sold under agreements to repurchase		17,105
Borrowings	86,451	106,333
Accrued interest payable	1,549	1,872
Level in Fair Value Hierachy
Cash and due from banks, noninterest-bearing	1	1
Due from banks, interest-bearing	1	1
Federal funds sold	1	1
Securities available for sale	2	2
Securities held to maturity	2	2
Presold mortgages in process of settlement	1	1
Loans - non-covered, net of allowance	3	3
Loans - covered, net of allowance	3	3
FDIC indemnification asset	3	3
Accrued interest receivable	1	1
Deposits	2	2
Securities sold under agreements to repurchase	2	2
Borrowings	2	2
Accrued interest payable	$ 2	$ 2

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Pension Plans (Details Narrative) (USD $)	Jun. 30, 2012
Pension Plans Details Narrative
Expected contribution to the Pension Plan in 2012	$ 2,500,000

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Earnings Per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Basic EPS
Net income (loss) available to common shareholders	$ 2,461	$ 2,685	$ (3,481)	$ 8,018
Shares (denominator)	16,952,624	16,841,289	16,938,620	16,827,615
Basic EPS	$ 0.15	$ 0.16	$ (0.21)	$ 0.48
Diluted EPS per common share
Effect of Dilutive Securities		27,282		27,412
Income (numerator)	$ 2,461	$ 2,685	$ (3,481)	$ 8,018
Shares (denominator)	16,952,624	16,868,571	16,938,620	16,855,027
Diluted EPS per common share	$ 0.15	$ 0.16	$ (0.21)	$ 0.48

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Loans and Asset Quality Information (Details 11) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Impaired loans with no related allowance - Recorded Investment	$ 62,848	$ 79,423	$ 81,269
Imapired loans with no related allowance - Unpaid Principal Balance	105,944	124,387
Impaired loans with no related allowance - Average Recorded Investment	65,247	86,265
Impaired loans with allowance - Recorded Investment	89,883	61,553
Impaired loans with allowance - Unpaid Principal Balance	103,937	69,674
Impaired loans with related allowance - Related Allowance	16,209	10,910	10,746
Impaired loans with related allowance - Average Recorded Investment	77,925	66,047
Non-covered
Impaired loans with no related allowance - Recorded Investment	22,235	35,721	31,514
Imapired loans with no related allowance - Unpaid Principal Balance	30,594	45,809
Impaired loans with no related allowance - Average Recorded Investment	24,890	37,235
Impaired loans with allowance - Recorded Investment	72,367	49,565
Impaired loans with allowance - Unpaid Principal Balance	84,516	54,004
Impaired loans with related allowance - Related Allowance	11,051	5,804	6,019
Impaired loans with related allowance - Average Recorded Investment	61,833	51,788
Non-covered | Commercial Unsecured
Impaired loans with no related allowance - Recorded Investment
Imapired loans with no related allowance - Unpaid Principal Balance
Impaired loans with no related allowance - Average Recorded Investment
Impaired loans with allowance - Recorded Investment	211	452
Impaired loans with allowance - Unpaid Principal Balance	612	454
Impaired loans with related allowance - Related Allowance	40	59
Impaired loans with related allowance - Average Recorded Investment	231	226
Non-covered | Commercial Secured
Impaired loans with no related allowance - Recorded Investment	69	295
Imapired loans with no related allowance - Unpaid Principal Balance	225	478
Impaired loans with no related allowance - Average Recorded Investment	144	504
Impaired loans with allowance - Recorded Investment	2,158	1,895
Impaired loans with allowance - Unpaid Principal Balance	2,436	1,899
Impaired loans with related allowance - Related Allowance	315	295
Impaired loans with related allowance - Average Recorded Investment	1,912	1,427
Non-covered | Secured by Inventory and Accounts Receivable
Impaired loans with no related allowance - Recorded Investment		27
Imapired loans with no related allowance - Unpaid Principal Balance		493
Impaired loans with no related allowance - Average Recorded Investment	9	124
Impaired loans with allowance - Recorded Investment	637	561
Impaired loans with allowance - Unpaid Principal Balance	1,112	571
Impaired loans with related allowance - Related Allowance	143	156
Impaired loans with related allowance - Average Recorded Investment	673	391
Non-covered | Real Estate construction, land development and other land loans
Impaired loans with no related allowance - Recorded Investment	6,950	15,105
Imapired loans with no related allowance - Unpaid Principal Balance	11,676	20,941
Impaired loans with no related allowance - Average Recorded Investment	8,992	17,876
Impaired loans with allowance - Recorded Investment	18,156	10,360
Impaired loans with allowance - Unpaid Principal Balance	22,302	12,606
Impaired loans with related allowance - Related Allowance	6,093	2,244
Impaired loans with related allowance - Average Recorded Investment	15,360	15,782
Non-covered | Real estate residential, farmland and mutli-family
Impaired loans with no related allowance - Recorded Investment	4,242	3,442
Imapired loans with no related allowance - Unpaid Principal Balance	6,010	4,741
Impaired loans with no related allowance - Average Recorded Investment	3,172	5,278
Impaired loans with allowance - Recorded Investment	23,476	24,460
Impaired loans with allowance - Unpaid Principal Balance	26,658	26,153
Impaired loans with related allowance - Related Allowance	2,361	2,169
Impaired loans with related allowance - Average Recorded Investment	24,792	22,487
Non-covered | Real estate home equity lines of credit
Impaired loans with no related allowance - Recorded Investment		46
Imapired loans with no related allowance - Unpaid Principal Balance		300
Impaired loans with no related allowance - Average Recorded Investment	15	79
Impaired loans with allowance - Recorded Investment	3,877	3,115
Impaired loans with allowance - Unpaid Principal Balance	4,493	3,141
Impaired loans with related allowance - Related Allowance	453	117
Impaired loans with related allowance - Average Recorded Investment	3,300	2,544
Non-covered | Real estate commercial
Impaired loans with no related allowance - Recorded Investment	10,974	16,794
Imapired loans with no related allowance - Unpaid Principal Balance	12,683	18,817
Impaired loans with no related allowance - Average Recorded Investment	12,554	13,359
Impaired loans with allowance - Recorded Investment	21,089	5,965
Impaired loans with allowance - Unpaid Principal Balance	24,102	6,421
Impaired loans with related allowance - Related Allowance	1,309	283
Impaired loans with related allowance - Average Recorded Investment	12,776	6,602
Non-covered | Consumer
Impaired loans with no related allowance - Recorded Investment		12
Imapired loans with no related allowance - Unpaid Principal Balance		39
Impaired loans with no related allowance - Average Recorded Investment	4	15
Impaired loans with allowance - Recorded Investment	2,763	2,757
Impaired loans with allowance - Unpaid Principal Balance	2,801	2,759
Impaired loans with related allowance - Related Allowance	337	481
Impaired loans with related allowance - Average Recorded Investment	2,789	2,329
Covered
Impaired loans with no related allowance - Recorded Investment	40,613	43,702	49,755
Imapired loans with no related allowance - Unpaid Principal Balance	75,350	78,578
Impaired loans with no related allowance - Average Recorded Investment	40,357	49,030
Impaired loans with allowance - Recorded Investment	17,516	11,988
Impaired loans with allowance - Unpaid Principal Balance	19,421	15,670
Impaired loans with related allowance - Related Allowance	5,158	5,106	4,727
Impaired loans with related allowance - Average Recorded Investment	$ 16,092	$ 14,259

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Participation in the Small Business Lending Fund

6 Months Ended

Jun. 30, 2012

Participation In Small Business Lending Fund

Participation in the Small Business Lending Fund

Note 14 - Participation in the Small Business Lending Fund

On September 1, 2011, the Company completed the sale of $63.5 million of Series B preferred stock to the Secretary of the Treasury under the Small Business Lending Fund (SBLF). The fund was established under the Small Business Jobs Act of 2010 that was created to encourage lending to small businesses by providing capital to qualified community banks with assets less than $10 billion.

Under the terms of the stock purchase agreement, the Treasury received 63,500 shares of non-cumulative perpetual preferred stock with a liquidation value of $1,000 per share, in exchange for $63.5 million.

The Series B preferred stock qualifies as Tier 1 capital. The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first 10 quarters during which the Series B preferred stock is outstanding, based upon changes in the level of "Qualified Small Business Lending" or "QBSL". For the first nine quarters after issuance, the dividend rate can range from one percent (1%) to five percent (5%) per annum based upon the increase in QBSL as compared to the baseline. For quarters subsequent to the issuance in 2011, the Company has paid a dividend rate ranging from 4.8% to 5.0%. Based upon an increase in the level of QBSL over the baseline level calculated under the terms of the related purchase agreement, the dividend rate for the next dividend period (which will end on September 30, 2012) is expected to be 5.0%, subject to confirmation by Treasury. For the tenth calendar quarter through four and one half years after issuance, the dividend rate will be fixed at between one percent (1%) and seven percent (7%) based upon the level of QBSL compared to the baseline. After four and one half years from the issuance, the dividend rate will increase to nine percent (9%). Subject to regulatory approval, the Company is generally permitted to redeem the Series B preferred shares at par plus unpaid dividends.

There was no discount recorded related to the SBLF preferred stock (because no warrants were issued in connection with this preferred stock issuance), and therefore there will be no future amounts recorded for preferred stock discount accretion.

For the first six months of 2012, the Company accrued approximately $1,589,000 in preferred dividend payments. This amount is deducted from net income in computing "Net income available to common shareholders."

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FDIC Indemnification Asset (Tables)

6 Months Ended

Jun. 30, 2012

Fdic Indemnification Asset Tables

FDIC indemnification asset components

The FDIC indemnification asset was comprised of the following components as of the dates shown:

($ in thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Receivable related to claims submitted, not yet received	$	18,574		13,377		27,668
Receivable related to estimated future claims on loans		79,308		90,275		100,953
Receivable related to estimated future claims on other real estate owned		19,020		18,025		14,273
FDIC indemnification asset	$	116,902		121,677		142,894

Rollforward of the FDIC indemnification asset

The following presents a rollforward of the FDIC indemnification asset since December 31, 2011.

($ in thousands)
Balance at December 31, 2011	$	121,677
Increase related to unfavorable changes in loss estimates		12,298
Increase related to reimbursable expenses		3,183
Cash received		(15,286	)
Accretion of loan discount		(4,694	)
Other		(276	)
Balance at June 30, 2012	$	116,902

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Loans and Asset Quality Information (Details 9) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Provisions	$ 6,467	$ 10,934	$ 28,022	$ 22,277
Ending balance - total	2,114,906	2,040,714	2,114,906	2,040,714	2,069,152
Commercial, financial and agricultural
Beginning balance	4,954	4,142	3,780	4,731	4,731
Charge-offs	(744)	(740)	(2,062)	(1,896)	(2,703)
Recoveries	18	28	34	36	389
Provisions	833	475	3,309	1,034	1,363
Ending balance	5,061	3,905	5,061	3,905	3,780
Individually evaluated for impairment	869	50	869	50	60
Collectively evaluated for impairment	4,192	3,855	4,192	3,855	3,720
Loans acquired with deteriorated credit quality
Ending balance - total	173,676	165,091	173,676	165,091	172,357
Individually evaluated for impairment	1,009	2,049	1,009	2,049	2,526
Collectively evaluated for impairment	172,667	163,042	172,667	163,042	169,831
Loans acquired with deteriorated credit quality
Real Estate construction, land development & other land loans
Beginning balance	16,419	10,203
Charge-offs	(174)	(5,589)
Recoveries	126	219
Provisions	1,448	6,957
Ending balance	17,819	11,790	17,819	11,790
Individually evaluated for impairment	4,819	1,221	4,819	1,221
Collectively evaluated for impairment	13,000	10,569	13,000	10,569
Loans acquired with deteriorated credit quality
Ending balance - total	244,723	267,346	244,723	267,346
Individually evaluated for impairment	23,860	47,181	23,860	47,181
Collectively evaluated for impairment	220,863	220,165	220,863	220,165
Loans acquired with deteriorated credit quality		1,234		1,234
Real estate residential, farmland and mutli-family
Beginning balance	15,369	12,463	13,532	11,283	11,283
Charge-offs	(2,145)	(2,248)	(4,236)	(5,596)	(9,045)
Recoveries	60	61	254	293	719
Provisions	1,675	1,808	5,409	6,104	10,575
Ending balance	14,959	12,084	14,959	12,084	13,532
Individually evaluated for impairment	635	235	635	235	150
Collectively evaluated for impairment	14,324	11,849	14,324	11,849	13,382
Loans acquired with deteriorated credit quality
Ending balance - total	810,106	774,448	810,106	774,448	795,655
Individually evaluated for impairment	9,508	7,656	9,508	7,656	11,880
Collectively evaluated for impairment	800,598	766,792	800,598	766,792	783,775
Loans acquired with deteriorated credit quality
Real estate home equity lines of credit
Beginning balance	2,132	3,359	1,690	3,634	3,634
Charge-offs	(281)	(141)	(732)	(764)	(1,147)
Recoveries	85	37	119	43	107
Provisions	210	(1,406)	1,069	(1,064)	(904)
Ending balance	2,146	1,849	2,146	1,849	1,690
Individually evaluated for impairment	439		439
Collectively evaluated for impairment	1,707	1,849	1,707	1,849	1,690
Loans acquired with deteriorated credit quality
Ending balance - total	207,686	213,920	207,686	213,920	207,436
Individually evaluated for impairment	1,331	531	1,331	531	527
Collectively evaluated for impairment	206,355	213,389	206,355	213,389	206,909
Loans acquired with deteriorated credit quality
Real estate commercial
Beginning balance	5,737	3,359	3,414	3,972	3,972
Charge-offs	(805)	(313)	(2,170)	(1,380)	(3,355)
Recoveries	6		47	28	37
Provisions	781	(187)	4,428	239	2,760
Ending balance	5,719	2,859	5,719	2,859	3,414
Individually evaluated for impairment	1,480	340	1,480	340	200
Collectively evaluated for impairment	4,239	2,519	4,239	2,519	3,214
Loans acquired with deteriorated credit quality
Ending balance - total	622,508	558,879	622,508	558,879	587,183
Individually evaluated for impairment	21,918	34,198	21,918	34,198	30,846
Collectively evaluated for impairment	600,590	524,681	600,590	524,681	556,337
Loans acquired with deteriorated credit quality
Consumer
Beginning balance	1,826	2,223	1,872	1,961	1,961
Charge-offs	(334)	(157)	(686)	(360)	(845)
Recoveries	62	20	132	103	182
Provisions	237	(126)	473	256	574
Ending balance	1,791	1,960	1,791	1,960	1,872
Individually evaluated for impairment
Collectively evaluated for impairment	1,791	1,960	1,791	1,960	1,872
Loans acquired with deteriorated credit quality
Ending balance - total	54,831	59,732	54,831	59,732	58,436
Individually evaluated for impairment		20		20	12
Collectively evaluated for impairment	54,831	59,712	54,831	59,712	58,424
Loans acquired with deteriorated credit quality
Unallocated
Beginning balance	18	24	16	174	174
Charge-offs		(121)		(236)	(524)
Recoveries		29		73	93
Provisions	10	86	12	7	273
Ending balance	28	18	28	18	16
Individually evaluated for impairment
Collectively evaluated for impairment	28	18	28	18	16
Loans acquired with deteriorated credit quality
Ending balance - total
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Non-covered
Beginning balance	46,455	35,773
Charge-offs	(4,483)	(9,309)
Recoveries	357	394
Provisions	5,194	7,607
Ending balance	47,523	34,465	47,523	34,465
Individually evaluated for impairment	8,242	1,846	8,242	1,846
Collectively evaluated for impairment	39,281	32,619	39,281	32,619
Loans acquired with deteriorated credit quality
Ending balance - total	2,113,530	2,039,416	2,113,530	2,039,416
Individually evaluated for impairment	57,626	91,635	57,626	91,635
Collectively evaluated for impairment	2,055,904	1,947,781	2,055,904	1,947,781
Loans acquired with deteriorated credit quality		1,234		1,234
Real Estate construction, land development and other land loans
Beginning balance			11,306	12,520	12,520
Charge-offs			(2,852)	(9,582)	(16,240)
Recoveries			314	251	1,142
Provisions			9,051	8,601	13,884
Ending balance	17,819	11,790	17,819	11,790	11,306
Individually evaluated for impairment	4,819	1,221	4,819	1,221	607
Collectively evaluated for impairment	13,000	10,569	13,000	10,569	10,699
Loans acquired with deteriorated credit quality
Ending balance - total	244,723	267,346	244,723	267,346	246,805
Individually evaluated for impairment	23,860	47,181	23,860	47,181	34,750
Collectively evaluated for impairment	220,863	220,165	220,863	220,165	212,055
Loans acquired with deteriorated credit quality		1,234		1,234	920
Non-covered
Beginning balance			35,610	38,275	38,275
Charge-offs			(12,738)	(19,814)	(33,859)
Recoveries			900	827	2,669
Provisions			23,751	15,177	28,525
Ending balance	47,523	34,465	47,523	34,465	35,610
Individually evaluated for impairment	8,242	1,846	8,242	1,846	1,017
Collectively evaluated for impairment	39,281	32,619	39,281	32,619	34,593
Loans acquired with deteriorated credit quality
Ending balance - total	2,113,530	2,113,530	2,113,530	2,113,530	2,067,872
Individually evaluated for impairment	57,626	91,635	57,626	91,635	80,541
Collectively evaluated for impairment	2,055,904	1,947,781	2,055,904	1,947,781	1,987,331
Loans acquired with deteriorated credit quality		1,234		1,234	920
Non-covered | Real estate residential, farmland and mutli-family
Ending balance - total	810,106		810,106		795,655
Non-covered | Real estate home equity lines of credit
Ending balance - total	207,686		207,686		207,436
Non-covered | Real estate commercial
Ending balance - total	622,508		622,508		587,183
Non-covered | Consumer
Ending balance - total	54,831		54,831		58,436
Non-covered | Real Estate construction, land development and other land loans
Ending balance - total	$ 244,723		$ 244,723		$ 246,805

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Loans and Asset Quality Information (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Non-covered loans:
Total loans	$ 2,113,530	$ 2,067,182	$ 2,039,416
Percentage of Loans	100.00%	100.00%	100.00%
Unamortized net deferred loan costs	1,376	1,280	1,298
Loans - non-covered	2,114,906	2,069,152	2,040,714
Commercial, financial and agricultural
Non-covered loans:
Total loans	155,879	152,627	145,811
Percentage of Loans	7.00%	8.00%	7.00%
Real Estate construction, land development & other land loans
Non-covered loans:
Total loans	283,818	290,983	306,140
Percentage of Loans	13.00%	14.00%	15.00%
Real estate mortgage residential (1-4 family) first mortgages
Non-covered loans:
Total loans	669,088	646,616	631,640
Percentage of Loans	32.00%	31.00%	31.00%
Real estate mortgage home equity loans/lines of credit
Non-covered loans:
Total loans	229,415	233,171	241,973
Percentage of Loans	11.00%	11.00%	12.00%
Real estate mortgage commercial and other
Non-covered loans:
Total loans	702,717	666,882	635,103
Percentage of Loans	33.00%	32.00%	31.00%
Installment loans to individual
Non-covered loans:
Total loans	$ 72,613	$ 77,593	$ 78,749
Percentage of Loans	4.00%	4.00%	4.00%

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements Of Comprehensive Income
Net income	$ 3,290	$ 3,726	$ (1,892)	$ 10,101
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period, pretax	186	1,198	901	1,387
Tax benefit	(72)	(467)	(350)	(541)
Reclassification to realized gains	3	(60)	(449)	(74)
Tax expense	(1)	23	175	29
Postretirement Plans:
Amortization of unrecognized net actuarial loss	82	140	383	280
Tax expense	(32)	(56)	(149)	(112)
Amortization of prior service cost and transition obligation	8	9	17	18
Tax expense	(3)	(4)	(7)	(8)
Other comprehensive income	171	783	521	979
Comprehensive income	$ 3,461	$ 4,509	$ (1,371)	$ 11,080

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Reclassifications

6 Months Ended

Jun. 30, 2012

Reclassifications

Reclassifications

Note 3 - Reclassifications

Certain amounts reported in the period ended June 30, 2011 have been reclassified to conform to the presentation for June 30, 2012. These reclassifications had no effect on net income or shareholders' equity for the periods presented, nor did they materially impact trends in financial information.

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FDIC Indemnification Asset (Details 1) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Fdic Indemnification Asset Details 1
Balance, beginning	$ 121,677	$ 142,894
Increase related to unfavorable changes in loss estimates	12,298
Increase related to reimbursable expenses	3,183
Cash received	(15,286)
Accretion of loan discount	(4,694)
Other	(276)
Balance, ending	$ 116,902	$ 142,894

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill And Other Intangible Assets Tables

Summary of the gross carrying amount and accumulated amortization of amortizable intangible assets and the carrying amount of unamortized intangible assets

	June 30, 2012				December 31, 2011				June 30, 2011
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizable intangible assets:
Customer lists	$	678		387		678		357		678		328
Core deposit premiums		7,867		4,707		7,867		4,291		7,867		3,868
Total	$	8,545		5,094		8,545		4,648		8,545		4,196
Unamortizable intangible assets:
Goodwill	$	65,835				65,835				65,835

The estimated amortization expense for the five succeeding fiscal years

($ in thousands)	Estimated Amortization Expense
July 1 to December 31, 2012	$	446
2013		781
2014		678
2015		622
2016		555
Thereafter		369
Total	$	3,451

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Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Securities Details 2
Due within one year	$ 3,004
Due after one year but within five years	26,497
Due after five years but within ten years	3,000
Due after ten years	10,189
Mortgage-backed securities	115,674
Total debt securities	158,364
Equity securities	9,195
Total securities	167,559	178,730
Due within one year	3,040
Due after one year but within five years	26,679
Due after five years but within ten years	3,000
Due after ten years	10,046
Mortgage-backed securities	119,536
Total debt securities	162,301
Equity securities	9,606
Total securities	171,907	182,626	171,844
Due within one year	350
Due after one year but within five years	2,958
Due after five years but within ten years	29,731
Due after ten years	23,143
Mortgage-backed securities
Total debt securities	56,182
Total securities	56,182	57,988	57,593
Due within one year	358
Due after one year but within five years	3,210
Due after five years but within ten years	32,673
Due after ten years	25,435
Total debt securities	61,676
Total securities	$ 61,676	$ 62,754	$ 59,860

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Fair Value

6 Months Ended

Jun. 30, 2012

FairValueAbstract

Fair Value

Note 13 – Fair Value

Relevant accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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Index

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at June 30, 2012.

($ in thousands)
Description of Financial Instruments	Fair Value at June 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	29,626		—		29,626		—
Mortgage-backed securities		119,536		—		119,536		—
Corporate bonds		13,139		—		13,139		—
Equity securities		9,606		423		9,183		—
Total available for sale securities	$	171,907		423		171,484		—
Nonrecurring
Impaired loans – covered	$	58,129		—		—		58,129
Impaired loans – non-covered		94,602		—		—		94,602
Other real estate – covered		70,850		—		70,850		—
Other real estate – non-covered		37,895		—		37,895		—

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2011.

($ in thousands)
Description of Financial Instruments	Fair Value at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	34,665		—		34,665		—
Mortgage-backed securities		124,105		—		124,105		—
Corporate bonds		12,488		—		12,488		—
Equity securities		11,368		398		10,969		—
Total available for sale securities	$	182,626		398		182,227		—
Nonrecurring
Impaired loans – covered	$	55,690		—		55,690		—
Impaired loans – non-covered		85,286		—		85,286		—
Other real estate – covered		85,272		—		85,272		—
Other real estate – non-covered		37,023		—		37,023		—

The following is a description of the valuation methodologies used for instruments measured at fair value.

Securities — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. Level 1 securities for the Company include certain equity securities. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage obligations, government-sponsored entity securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

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Index

Impaired loans —Fair values for impaired loans in the above table are collateral dependent and are estimated based on underlying collateral values, as determined by third-party appraisers, which are then adjusted for the cost related to liquidation of the collateral.

Other real estate – Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.

Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the three months ended June 30, 2012 or 2011.

For the six months ended June 30, 2012 and 2011, the increase in the fair value of securities available for sale was $452,000 and $1,313,000, respectively, which is included in other comprehensive income (tax expense of $175,000 and $512,000, respectively). Fair value measurement methods at June 30, 2012 and 2011 are consistent with those used in prior reporting periods.

The carrying amounts and estimated fair values of financial instruments at June 30, 2012 and December 31, 2011 are as follows:

		June 30, 2012					December 31, 2011
($ in thousands)	Level in Fair Value Hierarchy		Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
Cash and due from banks, noninterest-bearing	Level 1		$	58,872		58,872			80,341		80,341
Due from banks, interest-bearing	Level 1			203,313		203,313			135,218		135,218
Federal funds sold	Level 1			—		—			608		608
Securities available for sale	Level 2			171,907		171,907			182,626		182,626
Securities held to maturity	Level 2			56,182		61,676			57,988		62,754
Presold mortgages in process of settlement	Level 1			4,053		4,053			6,090		6,090
Loans – non-covered, net of allowance	Level 3			2,067,383		2,006,670			2,033,542		1,987,979
Loans – covered, net of allowance	Level 3			316,964		316,964			355,426		355,426
FDIC indemnification asset	Level 3			116,902		116,501			121,677		121,004
Accrued interest receivable	Level 1			10,932		10,932			11,779		11,779
Deposits	Level 2			2,838,298		2,841,563			2,755,037		2,759,504
Securities sold under agreements to repurchase	Level 2			—		—			17,105		17,105
Borrowings	Level 2			111,394		86,451			133,925		106,333
Accrued interest payable	Level 2			1,549		1,549			1,872		1,872

Fair value methods and assumptions are set forth below for the Company’s financial instruments.

Cash and Due from Banks, Federal Funds Sold, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable - The carrying amounts approximate their fair value because of the short maturity of these financial instruments. (Level 1)

Available for Sale and Held to Maturity Securities - Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or matrix pricing. (Level 2)

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Index

Loans – For non-impaired loans, fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. (Level 3)

As discussed above, fair values for impaired loans are estimated based on estimated proceeds expected upon liquidation of the collateral. (Level 3)

FDIC Indemnification Asset – Fair value is equal to the FDIC reimbursement rate of the expected losses to be incurred and reimbursed by the FDIC and then discounted over the estimated period of receipt. (Level 3)

Deposits and Securities Sold Under Agreements to Repurchase - The fair value of securities sold under agreements to repurchase and deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, checking, and money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. (Level 2)

Borrowings - The fair value of borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered by the Company’s lenders for debt of similar remaining maturities. (Level 2)

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as foreclosed properties, deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.