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 September 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	ýAccelerated 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 October 31, 2012 was 17,013,008.

INDEX

FIRST BANCORP AND SUBSIDIARIES

	Page
Part I.  Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets - September 30, 2012 and September 30, 2011 (With Comparative Amounts at December 31, 2011)	4
Consolidated Statements of Income - For the Periods Ended September 30, 2012 and 2011	5
Consolidated Statements of Comprehensive Income - For the Periods Ended September 30, 2012 and 2011	6
Consolidated Statements of Shareholders’ Equity - For the Periods Ended September 30, 2012 and 2011	7
Consolidated Statements of Cash Flows - For the Periods Ended September 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	42
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	67
Item 4 – Controls and Procedures	69
Part II.  Other Information
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 6 – Exhibits	70
Signatures	72

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)	September 30, 2012			December 31, 2011 (audited)			September 30, 2011
ASSETS
Cash and due from banks, noninterest-bearing	$	79,991			80,341			75,772
Due from banks, interest-bearing		202,693			135,218			167,053
Federal funds sold		519			608			659
Total cash and cash equivalents		283,203			216,167			243,484
Securities available for sale		161,407			182,626			159,870
Securities held to maturity (fair values of $61,877, $62,754, and $61,512)		56,123			57,988			57,533
Presold mortgages in process of settlement		4,380			6,090			3,823
Loans – non-covered		2,137,074			2,069,152			2,058,724
Loans – covered by FDIC loss share agreement		303,997			361,234			373,824
Total loans		2,441,071			2,430,386			2,432,548
Allowance for loan losses – non-covered		(45,154	)		(35,610	)		(34,397	)
Allowance for loan losses – covered		(4,394	)		(5,808	)		(3,257	)
Total allowance for loan losses		(49,548	)		(41,418	)		(37,654	)
Net loans		2,391,523			2,388,968			2,394,894
Premises and equipment		74,044			69,975			69,862
Accrued interest receivable		10,720			11,779			11,568
FDIC indemnification asset		107,615			121,677			120,950
Goodwill		65,835			65,835			65,835
Other intangible assets		3,335			3,897			4,123
Foreclosed real estate – non-covered		38,065			37,023			32,673
Foreclosed real estate  – covered		58,367			85,272			104,785
Bank-owned life insurance		27,587			2,207			2,170
Other assets		40,473			40,970			31,128
Total assets	$	3,322,677			3,290,474			3,302,698
LIABILITIES
Deposits:   Noninterest bearing checking accounts	$	398,527			335,833			334,109
Interest bearing checking accounts		482,583			423,452			376,999
Money market accounts		539,504			513,832			506,013
Savings accounts		159,189			146,481			146,977
Time deposits of $100,000 or more		717,457			753,233			751,994
Other time deposits		537,204			582,206			613,312
Total deposits		2,834,464			2,755,037			2,729,404
Securities sold under agreements to repurchase		—			17,105			60,498
Borrowings		111,394			133,925			135,759
Accrued interest payable		1,421			1,872			1,938
Other liabilities		32,608			37,385			23,286
Total liabilities		2,979,887			2,945,324			2,950,885
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 63,500 shares		63,500			63,500			63,500
Common stock, no par value per share.  Authorized: 40,000,000 shares
Issued and outstanding:  17,013,008, 16,909,820 and 16,884,617 shares		105,454			104,841			105,518
Retained earnings		181,672			185,491			186,654
Accumulated other comprehensive income (loss)		(7,836	)		(8,682	)		(3,859	)
Total shareholders’ equity		342,790			345,150			351,813
Total liabilities and shareholders’ equity	$	3,322,677			3,290,474			3,302,698

See notes to consolidated financial statements.

Page 4

First Bancorp and Subsidiaries

Consolidated Statements of Income

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands, except share data-unaudited)	2012			2011			2012			2011
INTEREST INCOME
Interest and fees on loans	$	37,037			37,200			107,715			112,471
Interest on investment securities:
Taxable interest income		1,001			1,421			3,408			4,316
Tax-exempt interest income		487			500			1,471			1,499
Other, principally overnight investments		164			107			481			300
Total interest income		38,689			39,228			113,075			118,586
INTEREST EXPENSE
Savings, checking and money market		650			1,020			2,258			3,353
Time deposits of $100,000 or more		2,022			2,479			6,282			7,744
Other time deposits		1,097			1,651			3,535			5,587
Securities sold under agreements to repurchase		—			46			4			144
Borrowings		447			543			1,481			1,475
Total interest expense		4,216			5,739			13,560			18,303
Net interest income		34,473			33,489			99,515			100,283
Provision for loan losses – non-covered		5,970			6,441			29,721			21,618
Provision for loan losses – covered		1,103			2,705			5,374			9,805
Total provision for loan losses		7,073			9,146			35,095			31,423
Net interest income after provision for loan losses		27,400			24,343			64,420			68,860
NONINTEREST INCOME
Service charges on deposit accounts		3,053			3,046			8,867			8,985
Other service charges, commissions and fees		2,275			2,040			6,634			6,025
Fees from presold mortgage loans		785			468			1,685			1,109
Commissions from sales of insurance and financial products		510			383			1,325			1,147
Bank-owned life insurance income		207			9			380			33
Gain from acquisition		—			—			—			10,196
Foreclosed property losses and write-downs – non-covered		(1,020	)		(919	)		(3,026	)		(2,543	)
Foreclosed property losses and write-downs – covered		(1,641	)		(5,176	)		(12,742	)		(12,693	)
FDIC indemnification asset income (expense), net		(1,569	)		3,589			6,094			10,455
Securities gains		189			—			638			74
Other gains		14			46			67			5
Total noninterest income		2,803			3,486			9,922			22,793
NONINTEREST EXPENSES
Salaries		10,370			9,980			30,717			29,385
Employee benefits		2,539			3,086			9,230			9,242
Total personnel expense		12,909			13,066			39,947			38,627
Net occupancy expense		1,670			1,674			4,966			4,944
Equipment related expenses		1,318			1,089			3,652			3,261
Intangibles amortization		224			226			670			676
Acquisition expenses		—			12			—			606
Other operating expenses		7,536			7,891			22,245			23,800
Total noninterest expenses		23,657			23,958			71,480			71,914
Income before income taxes		6,546			3,871			2,862			19,739
Income taxes		2,123			1,314			331			7,081
Net income		4,423			2,557			2,531			12,658
Preferred stock dividends		(688	)		(815	)		(2,277	)		(2,440	)
Accretion of preferred stock discount		—			(2,474	)		—			(2,932	)
Net income (loss) available to common shareholders	$	3,735			(732	)		254			7,286
Earnings (loss) per common share - Basic	$	0.22			(0.04	)		0.01			0.43
Earnings (loss) per common share – Diluted		0.22			(0.04	)		0.01			0.43
Dividends declared per common share	$	0.08			0.08			0.24			0.24
Weighted average common shares outstanding:  Basic		16,988,150			16,875,918			16,955,130			16,843,716
Weighted average common shares outstanding:  Diluted		16,988,150			16,903,031			16,955,130			16,871,010

See notes to consolidated financial statements.

Page 5

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands-unaudited)	2012			2011			2012			2011
Net income	$	4,423			2,557			2,531			12,658
Other comprehensive income (loss):
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period, pretax		635			259			1,536			1,646
Tax expense		(249	)		(101	)		(599	)		(642	)
Reclassification to realized (gains)		(189	)		—			(638	)		(74	)
Tax expense		74			—			249			29
Postretirement Plans:
Amortization of unrecognized net actuarial loss		82			140			465			420
Tax expense		(32	)		(56	)		(181	)		(168	)
Amortization of prior service cost and transition obligation		7			9			24			27
Tax expense		(3	)		(4	)		(10	)		(12	)
Other comprehensive income		325			247			846			1,226
Comprehensive income	$	4,748			2,804			3,377			13,884

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													12,658						12,658
Preferred stock redeemed		(65,000	)																(65,000	)
Preferred stock issued		63,500																	63,500
Common stock issued under stock option plans								2		30									30
Common stock issued into dividend reinvestment plan								53		638									638
Cash dividends declared ($0.24 per common share)													(4,045	)					(4,045	)
Preferred dividends													(2,440	)					(2,440	)
Accretion of preferred stock discount					2,932								(2,932	)					—
Stock-based compensation								29		643									643
Other comprehensive income																1,226			1,226
Balances, September 30, 2011	$	63,500			—			16,885	$	105,518			186,654			(3,859	)		351,813
Balances, January 1, 2012	$	63,500			—			16,910	$	104,841			185,491			(8,682	)		345,150
Net income													2,531						2,531
Common stock issued into dividend reinvestment plan								31		335									335
Repurchases of common stock								—		(2	)								(2	)
Cash dividends declared ($0.24 per common share)													(4,073	)					(4,073	)
Preferred dividends													(2,277	)					(2,277	)
Stock-based compensation								72		280									280
Other comprehensive income																846			846
Balances, September 30, 2012	$	63,500			—			17,013	$	105,454			181,672			(7,836	)		342,790

See notes to consolidated financial statements.

Page 7

First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
($ in thousands-unaudited)	2012			2011
Cash Flows From Operating Activities
Net income	$	2,531			12,658
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses		35,095			31,423
Net security premium amortization		1,397			1,013
Purchase accounting accretion and amortization, net		(10,209	)		(9,921	)
Gain from acquisition		—			(10,196	)
Foreclosed property losses and write-downs		15,768			15,236
Gain on securities available for sale		(638	)		(74	)
Other gains		(67	)		(5	)
Increase in net deferred loan costs		(198	)		(322	)
Depreciation of premises and equipment		3,427			3,302
Stock-based compensation expense		280			643
Amortization of intangible assets		670			676
Origination of presold mortgages in process of settlement		(70,507	)		(53,094	)
Proceeds from sales of presold mortgages in process of settlement		72,217			53,233
Decrease in accrued interest receivable		1,059			2,011
Increase in other assets		(11,412	)		(12,842	)
Decrease in accrued interest payable		(455	)		(144	)
Decrease in other liabilities		(4,225	)		(6,087	)
Net cash provided by operating activities		34,733			27,510
Cash Flows From Investing Activities
Purchases of securities available for sale		(64,269	)		(43,146	)
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		76,161			66,281
Proceeds from maturities/issuer calls of securities held to maturity		1,690			1,053
Purchase of bank-owned life insurance		(25,000	)		—
Net decrease (increase) in loans		(63,868	)		30,476
Proceeds from FDIC loss share agreements		25,116			59,411
Proceeds from sales of foreclosed real estate		46,618			24,650
Purchases of premises and equipment		(7,496	)		(5,407	)
Net cash received in acquisition		9,312			54,037
Net cash provided by investing activities		7,905			186,057
Cash Flows From Financing Activities
Net increase (decrease) in deposits and repurchase agreements		52,979			(109,551	)
Repayments of borrowings, net		(22,500	)		(65,081	)
Cash dividends paid – common stock		(4,065	)		(4,039	)
Cash dividends paid – preferred stock		(2,349	)		(2,582	)
Proceeds from issuance of common stock		335			668
Repurchase of common stock		(2	)		—
Proceeds from issuance of preferred stock		—			63,500
Redemption of preferred stock		—			(65,000	)
Net cash provided (used) by financing activities		24,398			(182,085	)
Increase in cash and cash equivalents		67,036			31,482
Cash and cash equivalents, beginning of period		216,167			212,002
Cash and cash equivalents, end of period	$	283,203			243,484
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	14,011			18,447
Income taxes		12,025			13,943
Non-cash transactions:
Unrealized gain on securities available for sale, net of taxes		548			959
Foreclosed loans transferred to foreclosed real estate		36,523			60,030

See notes to consolidated financial statements.

Page 8

First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) For the Periods Ended September 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 September 30, 2012 and 2011 and the consolidated results of operations and consolidated cash flows for the periods ended September 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 September 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 a discussion of recent accounting pronouncements. The following paragraphs update that information as necessary.

In July 2012, rules related to intangible assets were amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that indefinite-lived intangible assets are impaired. If it is determined to be more likely than not that indefinite-lived intangible assets are impaired, then the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment testing by comparing the fair value with carrying amount. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

In October 2012, rules related to business combinations were amended to address the subsequent accounting for an indemnification asset resulting from a government-assisted acquisition of a financial institution. The guidance indicates that when a reporting entity records an indemnification asset as a result of a government-assisted acquisition of a financial institution involving an indemnification agreement, the indemnification asset should be subsequently measured on the same basis as the asset subject to indemnification. Any amortization of changes in value should be limited to any contractual limitations on the amount and the term of the indemnification agreement. The amendments should be applied prospectively to any new indemnification assets acquired and to changes expected in cash flows of existing indemnification assets occurring on or after the date of adoption. Prior periods would not be adjusted. These changes are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

Note 3 – Reclassifications

Certain amounts reported in the period ended September 30, 2011 have been reclassified to conform to the presentation for September 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 – Acquisitions

On August 24, 2012, the Company completed the purchase of a branch of Gateway Bank & Trust Co. located in Wilmington, North Carolina. The Company assumed the branch’s $9 million in deposits. No loans were acquired in this transaction. The Company also did not purchase the branch building, but instead transferred the acquired accounts to one of the Company’s nearby existing branches. The primary reason for this acquisition was to increase the Company’s presence in Wilmington, North Carolina, where the Company already has five branches. The Company paid a deposit premium for the branch of approximately $107,000, which is the amount of the identifiable intangible asset associated with the fair value of the core deposit base. The intangible asset is being amortized as expense on straight-line basis over a seven year period. This branch’s operations are included in the accompanying Consolidated Statements of Income beginning on the acquisition date of August 24, 2012. Historical pro forma information is not presented due to the immateriality of the transaction.

Page 9

Note 5 – Equity-Based Compensation Plans

At September 30, 2012, the Company had the following equity-based compensation plans: the First Bancorp 2007 Equity Plan, the First Bancorp 2004 Stock Option Plan, and the First Bancorp 1994 Stock Option Plan. The Company’s shareholders approved all equity-based compensation plans. The First Bancorp 2007 Equity Plan became effective upon the approval of shareholders on May 2, 2007. As of September 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 $16,000 to each non-employee director (currently 14 in total) 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.

Pursuant to an employment agreement, the Company granted the chief executive officer 75,000 non-qualified stock options and 40,000 shares of restricted stock during the third quarter of 2012. The option award and the restricted stock award will vest in full on December 31, 2014 and December 31, 2015, respectively, if the Company achieves certain earnings targets for those years, and will be forfeited if the applicable targets are not achieved. Compensation expense for this grant will be recorded over the various periods based on the estimated number of options and restricted stock that are probable to vest. If the awards do not vest, no compensation cost will be recognized and any previously recognized compensation cost will be reversed. Based on current conditions, the Company has concluded that it is not probable that these awards will vest, and thus no compensation expense has been recorded.

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 $29,600 in stock option expense in the first nine months of 2012 in connection with this grant and expects to record $11,800 of expense each quarter thereafter until the awards vest. 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 $24,400 in expense in the first nine months of 2012 in connection with this grant and expects to record $13,000 of expense each quarter thereafter until the awards vest.

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).

Page 10

At September 30, 2012, there were 521,613 options outstanding related to the three First Bancorp plans, with exercise prices ranging from $9.76 to $22.12. At September 30, 2012, there were 758,731 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.

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 nine months ended September 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, 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, 3) 40,000 shares of restricted stock to the chief executive officer on August 28, 2012, at a fair market value of $9.76 per share, which was the closing price of the Company’s common stock on that date, and 4) 75,000 stock options to the chief executive officer on August 28, 2012, at a fair value of $3.65 per share on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

	2012
Expected dividend yield	3.28%
Risk-free interest rate	1.64%
Expected life	10 years
Expected volatility	41.82%

The Company’s equity grants for the nine months ended September 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 $280,000 and $643,000 for the nine month periods ended September 30, 2012 and 2011, respectively. Stock-based compensation expense related to employee grants is recorded as “salaries expense” in the Consolidated Statements of Income and as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized $109,000 and $251,000 of income tax benefits related to stock based compensation expense in the income statement for the nine months ended September 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 11

The following table presents information regarding the activity for the first nine 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		75,000			9.76
Exercised		—			—
Forfeited		—			—
Expired		(47,237	)		16.70
Outstanding at September 30, 2012		521,613		$	17.80		4.2	$	133,000
Exercisable at September 30, 2012		445,613		$	19.15		3.2	$	—

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

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		49,559		$	9.99
Vested during the period		—			—
Forfeited or expired during the period		(2,474	)		12.55
Nonvested at September 30, 2012		54,344		$	10.48

Page 12

Note 6 – 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 September 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	$	3,735		16,988,150	$	0.22	$	(732	)		16,875,918	$	(0.04	)
Effect of Dilutive Securities		—		—				—			27,113
Diluted EPS per common share	$	3,735		16,988,150	$	0.22	$	(732	)		16,903,031	$	(0.04	)

	For the Nine Months Ended September 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	$	254		16,955,130	$	0.01	$	7,286		16,843,716	$	0.43
Effect of Dilutive Securities		—		—				—		27,294
Diluted EPS per common share	$	254		16,955,130	$	0.01	$	7,286		16,871,010	$	0.43

For both the three and nine months ended September 30, 2012, there were 446,613 options, respectively, that were antidilutive because the exercise price exceeded the average market price for the period. For the three and nine month periods ended September 30, 2011, there were 545,347 and 542,916 options, respectively, 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.

Page 13

Note 7 – Securities

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

	September 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	$	20,500		20,614		114		—			34,511		34,665		170		(16	)
Mortgage-backed securities		124,164		128,533		4,369		—			120,032		124,105		4,164		(91	)
Corporate bonds		3,997		3,857		100		(240	)		13,189		12,488		279		(980	)
Equity securities		7,952		8,403		473		(22	)		10,998		11,368		409		(39	)
Total available for sale	$	156,613		161,407		5,056		(262	)		178,730		182,626		5,022		(1,126	)
Securities held to maturity:
State and local governments	$	56,123		61,877		5,754		—			57,988		62,754		4,766		—
Total held to maturity	$	56,123		61,877		5,754		—			57,988		62,754		4,766		—

Included in mortgage-backed securities at September 30, 2012 were collateralized mortgage obligations with an amortized cost of $515,000 and a fair value of $532,000. 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 $7,859,000 at September 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 September 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		—		—		760		240		760		240
Equity securities		—		—		30		22		30		22
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	—		—		790		262		790		262

Page 14

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 September 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 September 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 $7,859,000 at September 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 September 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	$	3,000		3,007		350		355
Due after one year but within five years		20,497		20,704		3,208		3,484
Due after five years but within ten years		—		—		29,677		32,653
Due after ten years		1,000		760		22,888		25,385
Mortgage-backed securities		124,164		128,533		—		—
Total debt securities		148,661		153,004		56,123		61,877
Equity securities		7,952		8,403		—		—
Total securities	$	156,613		161,407		56,123		61,877

At September 30, 2012 investment securities with a book value of $83,557,000 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 nine months ended September 30, 2012, which resulted in a net gain of $439,000. There were $2,518,000 in sales during the nine months ended September 30, 2011, which resulted in a net gain of $8,000. During the nine months ended September 30, 2012 and 2011, the Company recorded a net gain of $200,000 and $71,000, respectively, related to the call of several municipal and corporate bond securities. Also, during the nine months ended September 30, 2012 and 2011, the Company recorded net losses of $1,000 and $5,000, respectively, related to write-downs of the Company’s equity portfolio.

Page 15

Note 8 – 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)	September 30, 2012					December 31, 2011					September 30, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	161,846		7	%		162,099		7	%		161,300		7	%
Real estate – construction, land development & other land loans		329,375		13	%		363,079		15	%		370,735		15	%
Real estate – mortgage – residential (1-4 family) first mortgages		823,069		34	%		805,542		33	%		803,688		33	%
Real estate – mortgage – home equity loans / lines of credit		243,556		10	%		256,509		11	%		258,653		11	%
Real estate – mortgage – commercial and other		807,914		33	%		762,895		31	%		756,568		31	%
Installment loans to individuals		73,833		3	%		78,982		3	%		80,309		3	%
Subtotal		2,439,593		100	%		2,429,106		100	%		2,431,253		100	%
Unamortized net deferred loan costs		1,478					1,280					1,295
Total loans	$	2,441,071					2,430,386					2,432,548

As of September 30, 2012, December 31, 2011 and September 30, 2011, net loans include unamortized premiums of $601,000, $949,000, and $1,065,000, respectively, related to acquired loans.

Page 16

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

($ in thousands)	September 30, 2012					December 31, 2011					September 30, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	154,956		7	%		152,627		8	%		150,252		7	%
Real estate – construction, land development & other land loans		273,985		13	%		290,983		14	%		298,650		14	%
Real estate – mortgage – residential (1-4 family) first mortgages		681,168		32	%		646,616		31	%		637,129		31	%
Real estate – mortgage – home equity loans / lines of credit		223,154		10	%		233,171		11	%		236,578		12	%
Real estate – mortgage – commercial and other		729,310		34	%		666,882		32	%		656,035		32	%
Installment loans to individuals		73,023		4	%		77,593		4	%		78,785		4	%
Subtotal		2,135,596		100	%		2,067,872		100	%		2,057,429		100	%
Unamortized net deferred loan costs		1,478					1,280					1,295
Total non-covered loans	$	2,137,074					2,069,152					2,058,724

The carrying amount of the covered loans at September 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	$	71		148		6,819		8,671		6,890		8,819
Real estate – construction, land development & other land loans		1,577		2,601		53,813		94,481		55,390		97,082
Real estate – mortgage – residential (1-4 family) first mortgages		815		1,908		141,086		168,840		141,901		170,748
Real estate – mortgage – home equity loans / lines of credit		15		308		20,387		25,999		20,402		26,307
Real estate – mortgage – commercial and other		2,265		4,128		76,339		103,399		78,604		107,527
Installment loans to individuals		2		3		808		881		810		884
Total	$	4,745		9,096		299,252		402,271		303,997		411,367

Page 17

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		(42,651	)
Transfers to foreclosed real estate		(15,106	)
Loan charge-offs		(6,816	)
Accretion of loan discount		10,455
Carrying amount of nonimpaired covered loans at September 30, 2012	$	299,252

As reflected in the table above, the Company accreted $10,455,000 of the loan discount on purchased nonimpaired loans into interest income during the first nine months of 2012. As of September 30, 2012, there was remaining loan discount of $62,805,000 related to purchased performing 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. At September 30, 2012, the Company also had $23,070,000 of loan discount related to purchased nonperforming loans. It is not expected that this amount will be accreted. An additional $21,495,000 in partial charge-offs have been recorded on purchased loans outstanding at September 30, 2012.

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 18

($ 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		(330	)		(23	)		(307	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(109	)		(109	)		—
Other		(1,145	)		(1,562	)		417
Balance at September 30, 2012	$	9,096			4,351			4,745

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. For the nine months ended September 30, 2012 and 2011, the Company received $0 and $717,000 in payments that exceeded the initial carrying amount of the purchased impaired loans, which is included in the loan discount accretion amount discussed previously.

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

ASSET QUALITY DATA ($ in thousands)	September 30, 2012		December 31, 2011		September 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	69,413		73,566		75,013
Restructured loans - accruing		38,522		11,720		11,257
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		107,935		85,286		86,270
Foreclosed real estate		38,065		37,023		32,673
Total non-covered nonperforming assets	$	146,000		122,309		118,943
Covered nonperforming assets
Nonaccrual loans (1)	$	37,619		41,472		36,536
Restructured loans - accruing		17,945		14,218		16,912
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		55,564		55,690		53,448
Foreclosed real estate		58,367		85,272		104,785
Total covered nonperforming assets	$	113,931		140,962		158,233
Total nonperforming assets	$	259,931		263,271		277,176

(1) At September 30, 2012, December 31, 2011, and September 30, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $67.9 million, $69.0 million, and $65.0 million, respectively.

Page 19

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

($ in thousands)	As of /for the nine months ended September 30, 2012		As of /for the year ended December 31, 2011		As of /for the nine months ended September 30, 2011
Impaired loans at period end
Non-covered	$	107,935		85,286		86,270
Covered		55,564		55,690		53,448
Total impaired loans at period end	$	163,499		140,976		139,718
Average amount of impaired loans for period
Non-covered	$	92,027		89,023		89,957
Covered		56,228		63,289		65,189
Average amount of impaired loans for period – total	$	148,255		152,312		155,146
Allowance for loan losses related to impaired loans at period end
Non-covered	$	9,410		5,804		5,429
Covered		4,074		5,106		2,287
Allowance for loan losses related to impaired loans - total	$	13,484		10,910		7,716
Amount of impaired loans with no related allowance at period end
Non-covered	$	34,150		35,721		35,897
Covered		40,595		43,702		43,918
Total impaired loans with no related allowance at period end	$	74,745		79,423		79,815

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 September 30, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	104		189		293
Commercial – secured		3,386		3		3,389
Secured by inventory and accounts receivable		701		31		732
Real estate – construction, land development & other land loans		16,858		18,032		34,890
Real estate – residential, farmland and multi-family		21,980		9,013		30,993
Real estate – home equity lines of credit		3,211		726		3,937
Real estate – commercial		20,354		9,556		29,910
Consumer		2,819		69		2,888
Total	$	69,413		37,619		107,032

Page 20

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 September 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	$	289		61		104		36,379		36,833
Commercial - secured		930		336		3,386		108,956		113,608
Secured by inventory and accounts receivable		32		—		701		20,542		21,275
Real estate – construction, land development & other land loans		2,021		1,690		16,858		216,391		236,960
Real estate – residential, farmland, and multi-family		8,532		2,997		21,980		793,444		826,953
Real estate – home equity lines of credit		1,337		315		3,211		198,291		203,154
Real estate - commercial		3,925		756		20,354		615,543		640,578
Consumer		538		238		2,819		52,640		56,235
Total non-covered	$	17,604		6,393		69,413		2,042,186		2,135,596
Unamortized net deferred loan costs										1,478
Total non-covered loans									$	2,137,074
Covered loans	$	5,118		2,583		37,619		258,677		303,997
Total loans	$	22,722		8,976		107,032		2,300,863		2,441,071

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

Page 21

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 22

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and nine months ended September 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 September 30, 2012
Beginning balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
Charge-offs		(571	)		(4,628	)		(1,399	)		(1,098	)		(1,247	)		(307	)		—		(9,250	)
Recoveries		219			487			92			10			21			82			—		911
Provisions		468			1,109			1,731			825			1,354			315			168		5,970
Ending balance	$	5,177			14,787			15,383			1,883			5,847			1,881			196		45,154
As of and for the nine months ended September 30, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(2,633	)		(7,480	)		(5,635	)		(1,830	)		(3,417	)		(993	)		—		(21,988	)
Recoveries		253			801			346			129			68			214			—		1,811
Provisions		3,777			10,160			7,140			1,894			5,782			788			180		29,721
Ending balance	$	5,177			14,787			15,383			1,883			5,847			1,881			196		45,154
Ending balances as of September 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	871			109			369			—			1,276			—			—		2,625
Collectively evaluated for impairment	$	4,306			14,678			15,014			1,883			4,571			1,881			196		42,529
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of September 30, 2012:
Ending balance – total	$	171,716			236,960			826,953			203,154			640,578			56,235			—		2,135,596
Ending balances as of September 30, 2012: Loans
Individually evaluated for impairment	$	951			14,187			5,546			275			29,091			—			—		50,050
Collectively evaluated for impairment	$	170,765			222,773			821,407			202,879			611,487			56,235			—		2,085,546
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

Page 23

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 24

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and nine months ended September 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 September  30, 2011
Beginning balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
Charge-offs		(102	)		(3,937	)		(1,349	)		(189	)		(1,149	)		(173	)		(179	)		(7,078	)
Recoveries		15			220			286			10			5			9			24			569
Provisions		161			3,215			1,456			97			1,303			78			131			6,441
Ending balance	$	3,979			11,288			12,477			1,767			3,018			1,874			(6	)		34,397
As of and for the nine months ended September 30, 2011
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,998	)		(13,519	)		(6,945	)		(953	)		(2,529	)		(533	)		(415	)		(26,892	)
Recoveries		51			471			579			53			33			112			97			1,396
Provisions		1,195			11,816			7,560			(967	)		1,542			334			138			21,618
Ending balance	$	3,979			11,288			12,477			1,767			3,018			1,874			(6	)		34,397
Ending balances as of September 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	145			655			49			—			25			—			—			874
Collectively evaluated for impairment	$	3,834			10,633			12,428			1,767			2,993			1,874			(6	)		33,523
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable as of September 30, 2011:
Ending balance – total	$	169,545			254,361			785,412			211,999			576,459			59,653			—			2,057,429
Ending balances as of September 30, 2011: Loans
Individually evaluated for impairment	$	2,377			39,651			12,940			528			30,833			17			—			86,346
Collectively evaluated for impairment	$	167,168			214,710			772,472			211,471			545,626			59,636			—			1,971,083
Loans acquired with deteriorated credit quality	$	—			922			—			—			—			—			—			922

Page 25

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

($ in thousands)	Covered Loans
As of and for the three months ended September 30, 2012
Beginning balance	$	5,931
Charge-offs		(2,640	)
Recoveries		—
Provisions		1,103
Ending balance	$	4,394
As of and for the nine months ended September 30, 2012
Beginning balance	$	5,808
Charge-offs		(6,788	)
Recoveries		—
Provisions		5,374
Ending balance	$	4,394
Ending balances as of September 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	4,394
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		17
Loans receivable as of September 30, 2012:
Ending balance – total	$	303,997
Ending balances as of September 30, 2012: Loans
Individually evaluated for impairment	$	57,607
Collectively evaluated for impairment		246,390
Loans acquired with deteriorated credit quality		4,745

Page 26

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	$	5,808
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 27

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

($ in thousands)	Covered Loans
As of and for the three months ended September 30, 2011
Beginning balance	$	5,540
Charge-offs		(4,988	)
Recoveries		—
Provisions		2,705
Ending balance	$	3,257
As of and for the six months ended September 30, 2011
Beginning balance	$	11,155
Charge-offs		(17,703	)
Recoveries		—
Provisions		9,805
Ending balance	$	3,257
Ending balances as of September 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	3,257
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		—
Loans receivable as of September 30, 2011:
Ending balance – total	$	373,824
Ending balances as of September 30, 2011: Loans
Individually evaluated for impairment	$	33,163
Collectively evaluated for impairment		340,661
Loans acquired with deteriorated credit quality		9,037

Page 28

The following table presents the Company’s impaired loans as of September 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		—		—		—		108
Secured by inventory and accounts receivable		—		—		—		7
Real estate – construction, land development & other land loans		11,748		16,202		—		9,681
Real estate – residential, farmland, and multi-family		2,346		2,787		—		2,966
Real estate – home equity lines of credit		274		581		—		80
Real estate – commercial		19,782		21,594		—		14,361
Consumer		—		—		—		3
Total non-covered impaired loans with no allowance	$	34,150		41,164		—		27,206
Total covered impaired loans with no allowance	$	40,595		79,150		—		40,417
Total impaired loans with no allowance recorded	$	74,745		120,314		—		67,623
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	103		444		43		199
Commercial - secured		3,386		4,000		980		2,281
Secured by inventory and accounts receivable		701		788		153		680
Real estate – construction, land development & other land loans		10,983		14,508		3,006		14,266
Real estate – residential, farmland, and multi-family		37,696		41,507		3,202		28,018
Real estate – home equity lines of credit		2,960		4,085		155		3,215
Real estate – commercial		15,136		17,543		1,560		13,365
Consumer		2,820		2,859		311		2,797
Total non-covered impaired loans with allowance	$	73,785		85,734		9,410		64,821
Total covered impaired loans with allowance	$	14,969		18,671		4,074		15,811
Total impaired loans with an allowance recorded	$	88,754		104,405		13,484		80,632

Interest income recorded on non-covered and covered impaired loans during the nine months ended September 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 29

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 30

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 31

The following table presents the Company’s recorded investment in loans by credit quality indicators as of September 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	$	10,081		25,473		10		539		626		104		36,833
Commercial - secured		33,284		69,884		1,792		3,943		1,319		3,386		113,608
Secured by inventory and accounts receivable		3,457		15,974		257		767		119		701		21,275
Real estate – construction, land development & other land loans		31,087		162,999		3,891		13,628		8,497		16,858		236,960
Real estate – residential, farmland, and multi-family		246,143		487,571		7,891		29,967		33,401		21,980		826,953
Real estate – home equity lines of credit		126,885		65,701		2,487		2,895		1,975		3,211		203,154
Real estate - commercial		128,567		438,254		28,453		16,365		8,585		20,354		640,578
Consumer		28,553		23,208		78		928		649		2,819		56,235
Total	$	608,057		1,289,064		44,859		69,032		55,171		69,413		2,135,596
Unamortized net deferred loan costs														1,478
Total non-covered  loans													$	2,137,074
Total covered loans	$	48,087		130,986		—		8,580		78,725		37,619		303,997
Total loans	$	656,144		1,420,050		44,859		77,612		133,896		107,032		2,441,071

At September 30, 2012, there was an insignificant amount of covered and non-covered loans that were graded “8” with an accruing status.

Page 32

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 September 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 33

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

($ in thousands)	For the three months ended September 30, 2012				For the nine months ended September 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
Real estate – residential, farmland, and multi-family		6		1,204		7		1,507
Non-covered TDRs - Nonaccrual
Real estate – construction, land development & other land loans		—		—		1		238
Real estate – residential, farmland, and multi-family		5		705		5		705
Real estate – commercial		2		370		2		370
Total non-covered TDRs arising during period		13	$	2,279		16	$	3,120
Total covered TDRs arising during period– Accruing		—	$	—		6	$	7,342
Total covered TDRs arising during period – Nonaccrual		1		1		1		1
Total TDRs arising during period		14	$	2,280		23	$	10,463

Accruing restructured loans that defaulted during the three and nine months ended September 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 foreclosed real estate. As part of a routine regulatory exam that concluded in the third quarter of 2012, the Company reclassified approximately $12 million of performing loans to TDR status in the second quarter of 2012 and another $18 million in the third quarter of 2012. Because these loans were restructured prior to January 1, 2012, they are not included in the above table.

($ in thousands)	For the three months ended September 30, 2012				For the nine months ended September 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural:
Commercial- secured		6	$	601		6	$	601
Real estate – construction, land development & other land loans		2		253		4		917
Real estate – residential, farmland, and multi-family		2		168		3		509
Real estate - commercial		6		2,899		7		3,079
Consumer		1		2		1		2
Total non-covered TDRs that subsequently defaulted		17	$	3,923		21	$	5,108
Total accruing covered TDRs that subsequently defaulted		7	$	407		21	$	3,834
Total accruing TDRs that subsequently defaulted		24	$	4,330		42	$	8,942

Note 9 – Deferred Loan Costs

The amount of loans shown on the Consolidated Balance Sheets includes net deferred loan costs of approximately $1,478,000, $1,280,000, and $1,295,000 at September 30, 2012, December 31, 2011, and September 30, 2011, respectively.

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Note 10 – 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)	September 30, 2012		December 31, 2011		September 30, 2011
Receivable related to claims submitted, not yet received	$	20,722		13,377		13,802
Receivable related to estimated future claims on loans		71,542		90,275		90,258
Receivable related to estimated future claims on foreclosed real estate		15,351		18,025		16,890
FDIC indemnification asset	$	107,615		121,677		120,950

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		14,493
Increase related to reimbursable expenses		5,097
Cash received		(25,116	)
Accretion of loan discount		(8,364	)
Other		(172	)
Balance at September 30, 2012	$	107,615

Note 11 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of September 30, 2012, December 31, 2011, and September 30, 2011 and the carrying amount of unamortized intangible assets as of those same dates. During the third quarter of 2012, the Company recorded a core deposit premium intangible of $107,000 related to a small branch acquisition (see Note 4 for more information).

	September 30, 2012				December 31, 2011				September 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		402		678		357		678		343
Core deposit premiums		7,974		4,916		7,867		4,291		7,867		4,079
Total	$	8,652		5,318		8,545		4,648		8,545		4,422
Unamortizable intangible assets:
Goodwill	$	65,835				65,835				65,835

Amortization expense totaled $224,000 and $226,000 for the three months ended September 30, 2012 and 2011, respectively. Amortization expense totaled $670,000 and $676,000 for the nine months ended September 30, 2012 and 2011, respectively.

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The following table presents the estimated amortization expense for the last quarter 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
October 1 to December 31, 2012	$	227
2013		797
2014		693
2015		638
2016		571
Thereafter		409
Total	$	3,335

Note 12 – 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. In October 2012, the Company froze the benefits associated with each of our two pension plans effective December 31, 2012, which will substantially reduce pension expense beginning in 2013. It is expected that the Company will increase the amounts contributed to the Company’s 401(k) plan, which will partially offset the pension expense savings.

The Company recorded pension expense totaling $410,000 and $816,000 for the three months ended September 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 September 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	$	386			478			67			99		453			577
Interest cost		326			432			61			102		387			534
Expected return on plan assets		(492	)		(444	)		─			─		(492	)		(444	)
Amortization of transition obligation		—			1			─			─		—			1
Amortization of net (gain)/loss		71			114			(17	)		26		54			140
Amortization of prior service cost		3			3			5			5		8			8
Net periodic pension cost	$	294			584			116			232		410			816

The Company recorded pension expense totaling $2,068,000 and $2,496,000 for the nine months ended September 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 Nine Months Ended September 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	$	1,449			1,434			236		345		1,685			1,779
Interest cost		1,125			1,296			219		306		1,344			1,602
Expected return on plan assets		(1,477	)		(1,332	)		─		─		(1,477	)		(1,332	)
Amortization of transition obligation		2			3			─		─		2			3
Amortization of net (gain)/loss		474			342			17		78		491			420
Amortization of prior service cost		9			9			14		15		23			24
Net periodic pension cost	$	1,582			1,752			486		744		2,068			2,496

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 contributed $2,500,000 to the Pension Plan in the third quarter of 2012 and does not expect any further contributions the remainder of the year.

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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 13 – 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)	September 30, 2012			December 31, 2011			September 30, 2011
Unrealized gain (loss) on securities available for sale	$	4,794			3,896			4,047
Deferred tax asset (liability)		(1,870	)		(1,520	)		(1,578	)
Net unrealized gain (loss) on securities available for sale		2,924			2,376			2,469
Additional pension liability		(17,789	)		(18,278	)		(10,460	)
Deferred tax asset		7,029			7,220			4,132
Net additional pension liability		(10,760	)		(11,058	)		(6,328	)
Total accumulated other comprehensive income (loss)	$	(7,836	)		(8,682	)		(3,859	)

Note 14 – 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 September 30, 2012.

($ in thousands)
Description of Financial Instruments	Fair Value at September 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	$	20,614		—		20,614		—
Mortgage-backed securities		128,533		—		128,533		—
Corporate bonds		3,857		—		3,857		—
Equity securities		8,403		454		7,949		—
Total available for sale securities	$	161,407		454		160,953		—
Nonrecurring
Impaired loans – covered	$	55,564		—		—		55,564
Impaired loans – non-covered		107,935		—		—		107,935
Foreclosed real estate – covered		58,367		—		58,367		—
Foreclosed real estate – non-covered		38,065		—		38,065		—

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		—
Foreclosed real estate – covered		85,272		—		85,272		—
Foreclosed 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.

Foreclosed real estate – Foreclosed 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 September 30, 2012 or 2011.

For the nine months ended September 30, 2012 and 2011, the increase in the fair value of securities available for sale was $898,000 and $1,572,000, respectively, which is included in other comprehensive income (tax expense of $350,000 and $613,000, respectively). Fair value measurement methods at September 30, 2012 and 2011 are consistent with those used in prior reporting periods.

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

		September 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	$	79,991		79,991		80,341		80,341
Due from banks, interest-bearing	Level 1		202,693		202,693		135,218		135,218
Federal funds sold	Level 1		519		519		608		608
Securities available for sale	Level 2		161,407		161,407		182,626		182,626
Securities held to maturity	Level 2		56,123		61,877		57,988		62,754
Presold mortgages in process of settlement	Level 1		4,380		4,380		6,090		6,090
Loans – non-covered, net of allowance	Level 3		2,091,920		2,048,424		2,033,542		1,987,979
Loans – covered, net of allowance	Level 3		299,603		299,603		355,426		355,426
FDIC indemnification asset	Level 3		107,615		107,388		121,677		121,004
Accrued interest receivable	Level 1		10,720		10,720		11,779		11,779
Deposits	Level 2		2,834,464		2,838,106		2,755,037		2,759,504
Securities sold under agreements to repurchase	Level 2		—		—		17,105		17,105
Borrowings	Level 2		111,394		86,662		133,925		106,333
Accrued interest payable	Level 2		1,421		1,421		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 15 – 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 “QSBL”. 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 QSBL as compared to the baseline. For quarters subsequent to the issuance in 2011, the Company has paid a dividend rate ranging from 4.3% to 5.0%. Based upon an increase in the level of QSBL over the baseline level calculated under the terms of the related purchase agreement, the dividend rate for the fourth quarter of 2012 is expected to be 3.0% and the dividend rate for the first quarter of 2013 is expected to be 1.2%, 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 QSBL 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 nine months of 2012, the Company accrued approximately $2,277,000 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.

In our 2011 goodwill impairment evaluation, 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. The 2012 evaluation will be performed in the fourth quarter of 2012 and will follow a similar process.

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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 third quarter of 2012 amounted to $3.7 million, or $0.22 per diluted common share, compared to a net loss of $0.7 million, or ($0.04) per diluted common share, recorded in the third quarter of 2011. For the nine months ended September 30, 2012, we reported net income available to common shareholders of $0.3 million, or $0.01 per diluted common share, compared to net income of $7.3 million, or $0.43 per diluted common share, for the nine months ended September 30, 2011.

The results for the third quarter of 2011 were negatively impacted by $2.3 million in accelerated accretion of the discount remaining on preferred stock that was redeemed that quarter. Also impacting comparability from 2011 to 2012 was a $10.2 million bargain purchase gain related to the January 2011 acquisition of The Bank of Asheville in Asheville, North Carolina.

Note Regarding Components of Earnings

Our results of operations 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 third quarter of 2012 amounted to $34.5 million, a 2.9% increase from the $33.5 million recorded in the third quarter of 2011. Net interest income for the nine months ended September 30, 2012 amounted to $99.5 million, a 0.8% decrease from the $100.3 million recorded in the comparable period of 2011.

Our net interest margin (tax-equivalent net interest income divided by average earning assets) in the third quarter of 2012 was 4.86%, a seven basis point increase compared to the 4.79% margin realized in the third quarter of 2011 and an 18 basis point increase from the 4.68% margin realized in the second quarter of 2012. The higher margins were primarily a result of higher amounts of discount accretion on loans purchased in failed bank acquisitions recognized during the respective periods, as well as lower overall funding costs. Our cost of funds has steadily declined from 0.78% in the third quarter of 2011 to 0.57% in the third quarter of 2012.

For the nine month period ended September 30, 2012, our net interest margin was 4.71% compared to 4.77% for the same period in 2011. The lower margin was primarily due to lower loan yields, as well as the mix of our 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.

Provision for Loan Losses and Asset Quality

We recorded total provisions for loan losses of $7.1 million in the third quarter of 2012 compared to $9.1 million for the third quarter of 2011. For the nine months ended September 30, 2012, we recorded total provisions for loan losses of $35.1 million compared to $31.4 million for the comparable period of 2011.

The provision for loan losses on non-covered loans amounted to $6.0 million in the third quarter of 2012 compared to $6.4 million in the third 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 first nine months of 2012, provision for loan losses on non-covered loans amounted to $29.7 million compared to $21.6 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 $1.1 million and $2.7 million for the three months ended September 30, 2012 and 2011, respectively, and $5.4 million and $9.8 million for the nine months ended September 30, 2012 and 2011, respectively. The lower provisions in 2012 were also 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 amounted to $146 million at September 30, 2012 (4.93% of non-covered total assets), an increase of $27 million from the $119 million recorded at September 30, 2011, primarily caused by an increase in troubled debt restructurings (see further discussion in section entitled “Nonperforming Assets”).

Total covered nonperforming assets have generally declined over the past 12 months, amounting to $114 million at September 30, 2012 compared to $158 million at September 30, 2011. Within this category, foreclosed real estate has declined from $105 million at September 30, 2011 to $58 million at September 30, 2012.

Noninterest Income

Total noninterest income for the three months ended September 30, 2012 was $2.8 million compared to $3.5 million for the comparable period of 2011. In the third quarter of 2012, higher loan discount accretion resulted in a write-down of the indemnification asset that more than offset increases to that asset relating to the provision for covered loan losses and foreclosed property losses on covered assets. This resulted in a net of $1.6 million of indemnification asset expense compared to $3.6 million in indemnification asset income recorded in the third quarter of 2011 (see discussion in section entitled “Components of Earnings”).

For the nine months ended September 30, 2012 and 2011, we recorded noninterest income of $9.9 million and $22.8 million, respectively. The significant decrease in noninterest income for the nine 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 $23.7 million in the third quarter of 2012, a 1.3% decrease from the $24.0 million recorded in the third quarter of 2011. Noninterest expenses for the nine months ended September 30, 2012 amounted to $71.5 million, a 0.6% decrease from the $71.9 million recorded in the first nine months of 2011. During 2012, we have emphasized cost control measures to enhance our profitability. (See further discussion in section entitled “Components of Earnings”.)

Balance Sheet and Capital

Total assets at September 30, 2012 amounted to $3.3 billion, a 0.6% increase from a year earlier. Total loans at September 30, 2012 amounted to $2.4 billion, a 0.4% increase from a year earlier, and total deposits amounted to $2.8 billion at September 30, 2012, a 3.8% increase from a year earlier.

For the fifth consecutive quarter, we experienced growth in our non-covered loan portfolio, with non-covered loans increasing by $22 million during the three months ended September 30, 2012. At September 30, 2012, non-covered loans amounted to $2.1 billion, an increase of $78 million, or 3.8%, from a year earlier. We are actively pursuing lending opportunities.

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Our level of non-interest bearing checking accounts amounted to $398.5 million at September 30, 2012, a 19.3% increase from a year earlier, while interest-bearing checking accounts amounted to $482.6 million, an increase of 28.0% 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 of the prohibition on 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.

We remain well-capitalized by all regulatory standards, with a Total Risk-Based Capital Ratio at September 30, 2012 of 16.26% compared to the 10.00% minimum to be considered well-capitalized. Our tangible common equity to tangible assets ratio was 6.46% at September 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 September 30, 2012 amounted to $34.5 million, an increase of $1.0 million, or 2.9%, from the $33.5 million recorded in the third quarter of 2011. Net interest income on a tax-equivalent basis for the three month period ended September 30, 2012 amounted to $34.8 million, an increase of $1.0 million, or 2.9%, from the $33.9 million recorded in the third 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 September 30,
($ in thousands)	2012		2011
Net interest income, as reported	$	34,473		33,489
Tax-equivalent adjustment		376		389
Net interest income, tax-equivalent	$	34,849		33,878

Net interest income for the nine month period ended September 30, 2012 amounted to $99.5 million, a decrease of $0.8 million, or 0.8%, from the $100.3 million recorded in the same period of 2011. Net interest income on a tax-equivalent basis for the nine month period ended September 30, 2012 amounted to $100.7 million, a decrease of $0.8 million, or 0.8%, from the $101.5 million recorded in the same period of 2011.

	Nine Months Ended September 30,
($ in thousands)	2012		2011
Net interest income, as reported	$	99,515		100,283
Tax-equivalent adjustment		1,150		1,162
Net interest income, tax-equivalent	$	100,665		101,445

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 months ended September 30, 2012, the higher net interest income compared to the third quarter of 2011 was primarily due to higher amounts of discount accretion on loans purchased in failed bank acquisitions recognized during the respective periods (see discussion below). For the nine months ended September 30, 2012, the lower net interest income compared to the same period of 2011 was primarily due to a slightly lower net interest margin, which is also 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 September 30,
	2012								2011
($ in thousands)	Average Volume			Average Rate			Interest Earned or Paid		Average Volume		Average Rate			Interest Earned or Paid
Assets
Loans (1)	$	2,432,528			6.06	%	$	37,037	$	2,441,486		6.04	%	$	37,200
Taxable securities		158,749			2.51	%		1,001		163,566		3.45	%		1,421
Non-taxable securities (2)		56,154			6.11	%		863		57,577		6.13	%		889
Short-term investments, principally federal funds		207,652			0.31	%		164		145,576		0.29	%		107
Total interest-earning assets		2,855,083			5.44	%		39,065		2,808,205		5.60	%		39,617
Cash and due from banks		62,950								74,797
Premises and equipment		73,861								69,413
Other assets		322,993								341,343
Total assets	$	3,314,887							$	3,293,758
Liabilities
Interest bearing checking	$	464,260			0.15	%	$	172	$	364,140		0.20	%	$	183
Money market deposits		543,420			0.31	%		418		504,851		0.55	%		696
Savings deposits		159,431			0.15	%		60		146,576		0.38	%		141
Time deposits >$100,000		725,607			1.11	%		2,022		757,213		1.30	%		2,479
Other time deposits		546,733			0.80	%		1,097		628,272		1.04	%		1,651
Total interest-bearing deposits		2,439,451			0.61	%		3,769		2,401,052		0.85	%		5,150
Securities sold under agreements to repurchase		(25	)		—			—		54,657		0.33	%		46
Borrowings		111,263			1.60	%		447		137,164		1.57	%		543
Total interest-bearing liabilities		2,550,689			0.66	%		4,216		2,592,873		0.88	%		5,739
Non-interest-bearing deposits		382,937								323,366
Other liabilities		37,254								21,944
Shareholders’ equity		344,007								355,575
Total liabilities and shareholders’ equity	$	3,314,887							$	3,293,758
Net yield on interest-earning assets and net interest income					4.86	%	$	34,849				4.79	%	$	33,878
Interest rate spread					4.78	%						4.72	%
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 $376,000 and $389,000 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 Nine Months Ended September 30,
	2012							2011
($ in thousands)	Average Volume		Average Rate			Interest Earned or Paid		Average Volume		Average Rate			Interest Earned or Paid
Assets
Loans (1)	$	2,433,964		5.91	%	$	107,715	$	2,471,804		6.08	%	$	112,471
Taxable securities		163,043		2.79	%		3,408		177,798		3.25	%		4,316
Non-taxable securities (2)		56,800		6.16	%		2,621		57,369		6.20	%		2,661
Short-term investments, principally federal funds		201,500		0.32	%		481		134,050		0.30	%		300
Total interest-earning assets		2,855,307		5.34	%		114,225		2,841,021		5.64	%		119,748
Cash and due from banks		59,338							72,097
Premises and equipment		72,885							68,567
Other assets		322,711							340,877
Total assets	$	3,310,241						$	3,322,562
Liabilities
Interest bearing checking	$	452,532		0.17	%	$	568	$	346,314		0.23	%	$	594
Money market deposits		533,572		0.36	%		1,437		507,711		0.57	%		2,161
Savings deposits		157,383		0.21	%		253		153,310		0.52	%		598
Time deposits >$100,000		734,699		1.14	%		6,282		777,663		1.33	%		7,744
Other time deposits		560,475		0.84	%		3,535		656,074		1.14	%		5,587
Total interest-bearing deposits		2,438,661		0.66	%		12,075		2,441,072		0.91	%		16,684
Securities sold under agreements to repurchase		2,227		0.24	%		4		56,599		0.34	%		144
Borrowings		123,225		1.61	%		1,481		118,486		1.66	%		1,475
Total interest-bearing liabilities		2,564,113		0.71	%		13,560		2,616,157		0.94	%		18,303
Non-interest-bearing deposits		365,863							326,150
Other liabilities		35,414							26,873
Shareholders’ equity		344,851							353,382
Total liabilities and shareholders’ equity	$	3,310,241						$	3,322,562
Net yield on interest-earning assets and net interest income				4.71	%	$	100,665				4.77	%	$	101,445
Interest rate spread				4.63	%						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 $1,150,000 and $1,162,000 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 third quarter of 2012 were $2.433 billion, which was 0.4% less than the average loans outstanding for the third quarter of 2011 ($2.441 billion). Average loans outstanding for the nine months ended September 30, 2012 were $2.434 billion, which was 1.5% less than the average loans outstanding for the nine months ended September 30, 2011 ($2.472 billion). The mix of our loan portfolio remained substantially the same at September 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.

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The 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 these covered loans through foreclosure, charge-off, or repayment resulted in a reduction of $70 million in covered loans outstanding since September 30, 2011. We assumed a total of $703 million in covered loans in our two FDIC-assisted transactions, the first of which occurred in June 2009. Subsequent to those acquisitions, our covered loan balance has been reduced by $399 million to $304 million.

Average total deposits outstanding for the third quarter of 2012 were $2.822 billion, which was 3.6% greater than the average deposits outstanding for the third quarter of 2011 ($2.724 billion). Average deposits outstanding for the nine months ended September 30, 2012 were $2.805 billion, which was 1.3% greater than the average deposits outstanding for the nine months ended September 30, 2011 ($2.767 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 third quarter of 2012 was 4.86% compared to 4.79% for the third quarter of 2011. The higher margin was primarily a result of higher amounts of discount accretion on loans purchased in failed bank acquisitions (see discussion below).

For the nine month period ended September 30, 2012, our net interest margin was 4.71% compared to 4.77% for the same period in 2011. The lower margin was 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 table above, average short-term investments amounted to $202 million for the nine months ended September 30, 2012, a 50% increase from the $134 million average from the first nine months of 2011, 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 Bank of Asheville in January 2011. For the three and nine months ended September 30, 2012, we recorded $4,488,000 and $10,209,000, respectively, in net accretion of purchase accounting premiums/discounts that increased net interest income. For the comparable periods of 2011, we recorded $3,356,000 and $9,921,000, 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 Nine Months Ended
$ in thousands	Sept. 30, 2012			Sept. 30, 2011			Sept. 30, 2012			Sept. 30, 2011
Interest income – reduced by premium amortization on loans	$	(116	)		(116	)		(348	)		(337	)
Interest income – increased by accretion of loan discount		4,587			3,339			10,455			9,868
Interest expense – reduced by premium amortization of deposits		17			96			72			279
Interest expense – reduced by premium amortization of borrowings		—			37			30			111
Impact on net interest income	$	4,488			3,356			10,209			9,921

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 $7.1 million for the third quarter of 2012 compared to $9.1 million in the third quarter of 2011. Our total provision for loan losses was $35.1 million for the first nine months of 2012 compared to $31.4 million for the first nine 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 $146 million at September 30, 2012, compared to $122 million at December 31, 2011 and $119 million at September 30, 2011. At September 30, 2012, the ratio of non-covered nonperforming assets to total non-covered assets was 4.93%, compared to 4.30% at December 31, 2011, and 4.21% at September 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 1.57% for the third quarter of 2012 compared to 1.26% in the third quarter of 2011. Our ratio of annualized net charge-offs to average non-covered loans for the nine months ended September 30, 2012 was 1.28% compared to 1.66% for the first nine months of 2011.

Our nonperforming assets that are covered by FDIC loss share agreements have generally declined over the past twelve months, amounting to $158 million at September 30, 2011 compared to $141 million at December 31, 2011 and $114 million at September 30, 2012. We expect covered nonperforming assets to continue to decline (absent additional FDIC-assisted transactions) as we resolve covered nonperforming loans and dispose of covered foreclosed real estate.

Total noninterest income was $2.8 million in the third quarter of 2012 compared to $3.5 million for the third quarter of 2011. For the nine months ended September 30, 2012 and 2011, we recorded noninterest income of $9.9 million and $22.8 million, respectively. In the third quarter of 2012, higher loan discount accretion resulted in a write-down of the indemnification asset that more than offset increases to that asset relating to the provision for covered loan losses and foreclosed property losses on covered assets. This resulted in a net of $1.6 million of indemnification asset expense compared to $3.6 million in indemnification asset income recorded in the third quarter of 2011.

The significant decrease in noninterest income for the nine 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.

Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgages, iv) commissions from financial product sales, and v) bank-owned life insurance income. As presented in the table below, core noninterest income for the third quarter of 2012 was $6.8 million, an increase of 14.9% over the $5.9 million reported for the third quarter of 2011. Core noninterest income for the nine months ended September 30, 2012 amounted to $18.9 million, an increase of 9.2% for the comparable period of 2011.

The following table presents our core noninterest income for the three and nine month periods ending September 30, 2012 and 2011, respectively.

	For the Three Months Ended				For the Nine Months Ended
$ in thousands	Sept. 30, 2012		Sept. 30, 2011		Sept. 30, 2012		Sept. 30, 2011
Service charges on deposit accounts	$	3,053		3,046		8,867		8,985
Other service charges, commissions, and fees		2,275		2,040		6,634		6,025
Fees from presold mortgages		785		468		1,685		1,109
Commissions from sales of insurance and financial products		510		383		1,325		1,147
Bank-owned life insurance income		207		9		380		33
Core noninterest income	$	6,830		5,946		18,891		17,299

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Service charges on deposit accounts amounted to $3.1 million in the third quarter of 2012 compared to $3.0 million in the third quarter of 2011. Service charges on deposit accounts amounted to $8.9 million for the first nine months of 2012 compared to $9.0 million for the first nine months of 2011. The decline in the nine month comparison is primarily due to lower overdraft fees, which 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 third quarter of 2012 compared to $2.0 million in the third quarter of 2011. Other service charges, commissions and fees amounted to $6.6 million for the first nine months of 2012 compared to $6.0 million for the first nine 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 $0.8 million in the third quarter of 2012 compared to $0.5 million in the third quarter of 2011. Fees from presold mortgages amounted to $1.7 million for the first nine months of 2012 compared to $1.1 million for the first nine 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.

Commissions from sales of insurance and financial products amounted to $0.5 million and $0.4 million for the three months ended September 30, 2012 compared to the three month period ended September 30, 2011, respectively. For the nine months ended September 30, 2012, we recorded $1.3 million in commissions compared to $1.1 million for the same period of 2011. The increases in commissions are primarily a result of hiring additional wealth management specialists in order to grow this line of business.

In the second quarter of 2012, we purchased $25 million in bank-owned life insurance on certain employees. Income related to the growth of the cash value of the insurance was $0.2 million and $0.4 million for the three and nine month periods ended September 30, 2012, respectively. We had minimal amounts of bank-owned life insurance prior to 2012.

We continue to experience losses and write-downs on our foreclosed properties due to declining property values in our market area. For the third quarter of 2012, these losses amounted to $1.6 million for covered properties compared to $5.2 million in the third quarter of 2011. For each of the nine month periods ended September 30, 2011 and 2012, losses on covered properties amounted to $12.7 million.

Losses on non-covered foreclosed properties amounted to $1.0 million for the third quarter of 2012 compared to $0.9 million in 2011. For the nine months ended September 30, 2012, losses on non-covered foreclosed properties amounted to $3.0 million compared to $2.5 million for the same period of 2011.

As previously discussed, indemnification asset income (expense) is recorded to reflect additional (decreased) amounts expected to be received from the FDIC due to covered loan and foreclosed property losses arising during the reporting period. In the third quarter of 2012, higher loan discount accretion, which results in a write-down of the indemnification asset, more than offset increases to that asset resulting from loan and foreclosed property losses on covered assets. This resulted in $1.6 million of indemnification asset expense compared to $3.6 million in indemnification asset income recorded in the third quarter of 2011. For the nine months ended September 30, 2012, indemnification asset income amounted to $6.1 million compared to $10.5 million for the same period of 2011.

We recorded $0.6 million in gains on sales of securities during the first nine months of 2012 compared to $0.1 million in the comparable period of 2011.

Noninterest expenses amounted to $23.7 million in the third quarter of 2012, a 1.3% decrease from the $24.0 million recorded in the same period of 2011. Noninterest expenses for the nine months ended September 30, 2012 amounted to $71.5 million, a 0.6% decrease from the $71.9 million recorded in the first nine months of 2011. During 2012, we have emphasized cost control measures to enhance profitability.

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Salaries expense amounted to $10.4 million in the third quarter of 2012 compared to $10.0 million for the third quarter of 2011. Salaries expense amounted to $30.7 million for the first nine months of 2012 compared to $29.4 million for comparable period of 2011. The increase in salaries 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 $2.5 million in the third quarter of 2012 compared to $3.1 million for the third quarter of 2011. This decrease is primarily due to lower pension expense, which amounted to $0.4 million in the third quarter of 2012 compared to $0.8 million in the third quarter of 2011. The $0.4 million in pension expense recorded in the third quarter of 2012 was a decline from the $0.6 million and the $1.0 million in pension expense in the second and first quarters of 2012, respectively. 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 $9.2 million for each of the nine month periods ended September 30, 2012 and 2011. Higher health care costs in 2012 partially offset the lower pension expense in 2012 discussed above. In October 2012, we elected to freeze the benefits associated with each of our two pension plans effective December 31, 2012, which will substantially reduce pension expense beginning in 2013. We expect the Company to increase the amounts contributed to the 401(k) plan, which will partially offset the pension expense savings.

Other operating expenses amounted to $7.5 million and $7.9 million for the third quarters of 2012 and 2011, respectively, and $22.2 million and $23.8 million for nine month periods ended September 30, 2012 and 2011, respectively. Two of the largest categories of expense within this line item are FDIC insurance expense and collections expenses. FDIC insurance expense amounted to $0.7 million for each of the three months ended September 30, 2012 and 2011, and $2.0 million and $2.3 million for the nine months ended September 30, 2012 and 2011, respectively. The decrease in FDIC insurance expense in 2012 was due to a change in the FDIC’s assessment methodology effective April 1, 2011 that was favorable for the Company.

Collection expenses on non-covered assets amounted to $1.1 million for each of the third quarters of 2012 and 2011, and $2.4 million and $2.6 million for the nine month periods ended September 30, 2012 and 2011, respectively. Collection expenses on covered assets (net of FDIC reimbursement) amounted to $0.6 and $0.3 million for the third quarters of 2012 and 2011, respectively, and $1.4 million and $1.7 million for nine months ended September 30, 2012 and 2011, respectively.

Also, for the nine months ended September 30, 2012, we recorded severance expenses of $0.4 million as an “other noninterest expense,” and in the comparable period of 2011, we recorded a fraud loss of $1.0 million in this same line item.

Merger expenses associated with The Bank of Asheville acquisition in January 2011 amounted to $12,000 and $606,000 for the three and nine months ended September 30, 2011. There were no comparable merger expenses in 2012.

For the third quarter of 2012, the provision for income taxes was $2.1 million, an effective tax rate of 32.4%, compared to $1.3 million, an effective tax rate of 33.9%, for the same period of 2011. We recorded an income tax expense of only $0.3 million for the first nine months of 2012, an effective tax rate of 11.6%, which was low due to tax-exempt income that offset the low level of pre-tax earnings. For the first nine months of 2011, the provision for income taxes was $7.1 million, an effective tax rate of 35.9%.

We accrued preferred stock dividends of $0.7 million and $0.8 million for the three months ended September 30, 2012 and 2011, respectively.  We accrued preferred stock dividends of $2.3 million and $2.4 million for the nine months ended September 30, 2012 and 2011, respectively.  These amounts are deducted from net income in computing “net income available to common shareholders.”  The decreases in preferred dividends in 2012 are a result of the September 2011 redemption of $65 million of preferred stock related to our participation in the U.S. Treasury’s Capital Purchase Program (“CPP”, also known as “TARP”), and our concurrent issuance of $63.5 million of preferred stock to the U.S. Treasury in connection with the Treasury’s Small Business Lending Fund (“SBLF”).  Whereas the preferred dividend rate associated with the CPP preferred stock was fixed at 5% for all periods presented, the dividend rate related to the SBLF preferred stock can range from 1% to 5% per anum based upon changes in the level of “Qualified Small Business Lending” (“QSBL”).  Through September 2012, our level of QSBL has resulted in an average dividend rate of approximately 4.8%.  Based upon recent increases in the level of QBSL, we expect our preferred stock dividend rate to be at an annualized rate of 3.0% for the fourth quarter of 2012 and 1.2% for the first quarter of 2013.

Upon the redemption of the CPP preferred stock in 2011, we accreted the remaining discount associated with the issuance of that stock, which amounted to $2.5 million and is also reflected as a reduction in net income available to common shareholders.  There was no discount recorded related to the SBLF preferred stock, and therefore there is not any discount accretion being recorded in connection with that issuance.

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The Consolidated Statements of Comprehensive Income reflect other comprehensive income of $325,000 and $247,000 during the third quarters of 2012 and 2011, respectively, and other comprehensive income of $846,000 and $1,226,000 for the nine months ended September 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 September 30, 2012 amounted to $3.32 billion, 0.6% higher than a year earlier. Total loans at September 30, 2012 amounted to $2.44 billion, a 0.4% increase from a year earlier, and total deposits amounted to $2.83 billion, a 3.8% increase from a year earlier.

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

October 1, 2011 to September 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	$	2,058,724		78,350			—		2,137,074		3.8	%		3.8	%
Loans – Covered		373,824		(69,827	)		—		303,997		-18.7	%		-18.7	%
Total loans	$	2,432,548		8,523			—		2,441,071		0.4	%		0.4	%
Deposits – Noninterest bearing checking	$	334,109		64,128			290		398,527		19.3	%		19.2	%
Deposits – Interest bearing checking		376,999		105,551			33		482,583		28.0	%		28.0	%
Deposits – Money market		502,235		27,223			4,004		533,462		6.2	%		5.4	%
Deposits – Savings		146,977		12,089			123		159,189		8.3	%		8.2	%
Deposits – Brokered		157,177		(10,997	)		—		146,180		-7.0	%		-7.0	%
Deposits – Internet time		40,120		(21,602	)		—		18,518		-53.8	%		-53.8	%
Deposits – Time>$100,000		567,347		(7,999	)		2,897		562,245		-0.9	%		-1.4	%
Deposits – Time<$100,000		604,440		(72,748	)		2,068		533,760		-11.7	%		-12.0	%
Total deposits	$	2,729,404		95,645			9,415		2,834,464		3.8	%		3.5	%
January 1, 2012 to September 30, 2012
Loans – Non-covered	$	2,069,152		67,922			—		2,137,074		3.3	%		3.3	%
Loans – Covered		361,234		(57,237	)		—		303,997		-15.8	%		-15.8	%
Total loans	$	2,430,386		10,685			—		2,441,071		0.4	%		0.4	%
Deposits – Noninterest bearing checking	$	335,833		62,404			290		398,527		18.7	%		18.6	%
Deposits – Interest bearing checking		423,452		59,098			33		482,583		14.0	%		14.0	%
Deposits – Money market		509,801		19,657			4,004		533,462		4.6	%		3.9	%
Deposits – Savings		146,481		12,585			123		159,189		8.7	%		8.6	%
Deposits – Brokered		157,408		(11,228	)		—		146,180		-7.1	%		-7.1	%
Deposits – Internet time		29,902		(11,384	)		—		18,518		-38.1	%		-38.1	%
Deposits – Time>$100,000		575,408		(16,060	)		2,897		562,245		-2.3	%		-2.8	%
Deposits – Time<$100,000		576,752		(45,060	)		2,068		533,760		-7.5	%		-7.8	%
Total deposits	$	2,755,037		70,012			9,415		2,834,464		2.9	%		2.5	%

As derived from the table above, for the twelve months period ending September 30, 2012, our non-covered loans increased by $78 million, or 3.8%, which was partially offset by a $70 million decline in our covered loans. Over that same period, total deposits increased $105 million, or 3.8%. For the first nine months of 2012, non-covered loans increased $68 million, or 3.3%, which was partially offset by a $57 million decline in our covered loans. During the first nine months of 2012, total deposits increased by $79 million, or 2.9%. In the third quarter of 2012, we acquired a branch in Wilmington, North Carolina with approximately $9 million in deposits and no loans (see Note 4 for more information). Although our covered loan balances continue to decline as expected, our non-covered loans have experienced growth for the past five quarters, 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 15 to the consolidated financial statements for more information).

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For the nine and twelve months preceding September 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 $106 million increase in interest bearing checking accounts during the twelve months ended September 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 $60 million at September 30, 2011, $17 million at December 31, 2011 and $0 at September 30, 2012.

The mix of our loan portfolio remains substantially the same at September 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 8 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 foreclosed 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 foreclosed 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)	September 30, 2012		December 31, 2011		September 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	69,413		73,566		75,013
Restructured loans – accruing		38,522		11,720		11,257
Accruing loans >90 days past due		—		—		—
Total non-covered nonperforming loans		107,935		85,286		86,270
Foreclosed real estate		38,065		37,023		32,673
Total non-covered nonperforming assets	$	146,000		122,309		118,943
Covered nonperforming assets (1)
Nonaccrual loans (2)	$	37,619		41,472		36,536
Restructured loans – accruing		17,945		14,218		16,912
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		55,564		55,690		53,448
Foreclosed real estate		58,367		85,272		104,785
Total covered nonperforming assets	$	113,931		140,962		158,233
Total nonperforming assets	$	259,931		263,271		277,176
Asset Quality Ratios – All Assets
Net charge-offs to average loans – annualized		1.80% QTD, 1.48% YTD		2.00% YTD		1.87% QTD, 2.34% YTD
Nonperforming loans to total loans		6.70%		5.80%		5.74%
Nonperforming assets to total assets		7.82%		8.00%		8.39%
Allowance for loan losses to total loans		2.03%		1.70%		1.55%
Allowance for loan losses to nonperforming loans		30.30%		29.38%		26.95%
Asset Quality Ratios – Based on Non-covered Assets only
Net charge-offs to average non-covered loans - annualized		1.57% QTD, 1.28% YTD		1.52% YTD		1.26% QTD, 1.66% YTD
Non-covered nonperforming loans to non-covered loans		5.05%		4.12%		4.19%
Non-covered nonperforming assets to total non-covered assets		4.93%		4.30%		4.21%
Allowance for loan losses to non-covered loans		2.11%		1.72%		1.67%
Allowance for loan losses to non-covered nonperforming loans		41.83%		41.75%		39.87%

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

(2)  At September 30, 2012, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $67.9 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 Sept. 30, 2012		At Dec. 31, 2011		At Sept. 30, 2011
Commercial, financial, and agricultural	$	4,423		3,300		2,798
Real estate – construction, land development, and other land loans		36,598		48,467		47,092
Real estate – mortgage – residential (1-4 family) first mortgages		25,089		24,133		27,346
Real estate – mortgage – home equity loans/lines of credit		5,743		7,255		6,671
Real estate – mortgage – commercial and other		32,299		28,491		24,786
Installment loans to individuals		2,880		3,392		2,856
Total nonaccrual loans	$	107,032		115,038		111,549

The following segregates our nonaccrual loans at September 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	$	231		4,192		4,423
Real estate – construction, land development, and other land loans		18,031		18,567		36,598
Real estate – mortgage – residential (1-4 family) first mortgages		8,242		16,847		25,089
Real estate – mortgage – home equity loans/lines of credit		941		4,802		5,743
Real estate – mortgage – commercial and other		10,113		22,186		32,299
Installment loans to individuals		61		2,819		2,880
Total nonaccrual loans	$	37,619		69,413		107,032

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 September 30, 2012, troubled debt restructurings (covered and non-covered) amounted to $56.5 million, compared to $25.9 million at December 31, 2011, and $28.2 million at September 30, 2011. Troubled debt restructurings (TDRs) are accruing loans for which we have granted concessions to the borrower as a result of the borrower’s financial difficulties. As part of a routine regulatory exam that concluded in the third quarter of 2012, we reclassified approximately $12 million of non-covered performing loans to TDR status in the second quarter of 2012 and another $18 million in the third quarter of 2012. Of the $38.5 million of non-covered TDRs at September 30, 2012, approximately $37.1 million were current or past due less than thirty days. Other than reclassifying these loans to a nonperforming asset category for disclosure purposes, the reclassifications did not impact our financial statements.

Non-covered foreclosed real estate has increased over the past year, amounting to $38.1 million at September 30, 2012, $37.0 million at December 31, 2011, and $32.7 million at September 30, 2011. At September 30, 2012, we also held $58.4 million in foreclosed 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 $104.8 million at September 30, 2011. We believe that the fair values of the items of foreclosed 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 foreclosed real estate at each period end (covered and non-covered):

($ in thousands)	At September 30, 2012		At December 31, 2011		At September 30, 2011
Vacant land	$	60,804		76,341		88,099
1-4 family residential properties		23,126		33,724		37,200
Commercial real estate		12,502		12,230		12,159
Total foreclosed real estate	$	96,432		122,295		137,458

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

($ in thousands)	Covered Foreclosed Real Estate		Non-covered Foreclosed Real Estate		Total Foreclosed Real Estate
Vacant land	$	42,450		18,354		60,804
1-4 family residential properties		9,020		14,106		23,126
Commercial real estate		6,897		5,605		12,502
Total foreclosed real estate	$	58,367		38,065		96,432

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

($ in thousands)	Covered Foreclosed Real Estate		Non-covered Foreclosed Real Estate		Total Foreclosed 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 foreclosed real estate	$	85,272		37,023		122,295

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

	As of September 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)	$	49,172		21,723		70,895	$	529,000		13.4	%
Triangle Region (NC)		—		39,684		39,684		784,000		5.1	%
Triad Region (NC)		—		20,675		20,675		382,000		5.4	%
Charlotte Region (NC)		—		3,760		3,760		95,000		4.0	%
Southern Piedmont Region (NC)		684		6,937		7,621		228,000		3.3	%
Western Region (NC)		5,660		4		5,664		62,000		9.1	%
South Carolina Region		48		7,520		7,568		136,000		5.6	%
Virginia Region		—		6,229		6,229		214,000		2.9	%
Other		—		1,403		1,403		10,000		14.0	%
Total nonaccrual loans and troubled debt restructurings	$	55,564		107,935		163,499	$	2,440,000		6.7	%
Foreclosed Real Estate (1)
Eastern Region (NC)	$	45,604		11,929		57,533
Triangle Region (NC)		—		7,954		7,954
Triad Region (NC)		—		8,146		8,146
Charlotte Region (NC)		—		3,084		3,084
Southern Piedmont Region (NC)		—		1,418		1,418
Western Region (NC)		12,675		—		12,675
South Carolina Region		88		4,779		4,867
Virginia Region		—		755		755
Other		—		—		—
Total foreclosed real estate	$	58,367		38,065		96,432

(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 $35.1 million for the first nine months of 2012 compared to $31.4 million in the first nine 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 $6.0 million in the third quarter of 2012 compared to $6.4 million in the third 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 nine months ended September 30, 2012 and 2011, our provision for loan losses on non-covered loans amounted to $29.7 million and $21.6 million, respectively. The increase resulted from refinements to our loan loss model and internal control changes occurring in the first quarter of 2012 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 September 30, 2012 and 2011, we recorded $1.1 million and $2.7 million, respectively, in provisions for loan losses for covered loans. We recorded $5.4 million and $9.8 million in provisions for loan losses for covered loans for the nine months ended September 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 80% of the amount of the provisions.

For the first nine months of 2012, we recorded $27.0 million in net charge-offs, compared to $43.2 million for the comparable period of 2011. The net charge-offs in 2012 included $6.8 million of covered loans and $20.2 million of non-covered loans, whereas in 2011 net charge-offs included $17.7 million of covered loans and $25.5 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 $49.5 million at September 30, 2012, compared to $41.4 million at December 31, 2011 and $37.7 million at September 30, 2011. At September 30, 2012, December 31, 2011, and September 30, 2011, the allowance for loan losses attributable to covered loans was $4.4 million, $5.8 million, and $3.3 million, respectively. The allowance for loan losses for non-covered loans amounted to $45.2 million, $35.6 million, and $34.4 million at September 30, 2012, December 31, 2011, and September 30, 2011, respectively. The increase in the allowance for losses at September 30, 2012 compared to prior periods is primarily due to the high provision for loan losses recorded in the first quarter of 2012.

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 foreclosed real estate. Such agencies may require us to recognize adjustments to the allowance or the carrying value of foreclosed 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.

	Nine Months Ended September 30,			Twelve Months Ended December 31,			Nine Months Ended September 30,
($ in thousands)	2012			2011			2011
Loans outstanding at end of period	$	2,441,071			2,430,386			2,432,548
Average amount of loans outstanding	$	2,433,964			2,461,995			2,471,804
Allowance for loan losses, at beginning of year	$	41,418			49,430			49,430
Provision for loan losses		35,095			41,301			31,423
		76,513			90,731			80,853
Loans charged off:
Commercial, financial, and agricultural		(2,476	)		(2,358	)		(1,616	)
Real estate – construction, land development & other land loans		(13,533	)		(25,604	)		(24,188	)
Real estate – mortgage – residential (1-4 family) first mortgages		(3,894	)		(12,045	)		(9,344	)
Real estate – mortgage – home equity loans / lines of credit		(2,771	)		(3,195	)		(2,561	)
Real estate – mortgage – commercial and other		(4,512	)		(7,180	)		(5,369	)
Installment loans to individuals		(1,590	)		(1,600	)		(1,517	)
Total charge-offs		(28,776	)		(51,982	)		(44,595	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		49			314			43
Real estate – construction, land development & other land loans		1,054			919			228
Real estate – mortgage – residential (1-4 family) first mortgages		55			492			147
Real estate – mortgage – home equity loans / lines of credit		354			375			334
Real estate – mortgage – commercial and other		51			119			39
Installment loans to individuals		248			450			605
Total recoveries		1,811			2,669			1,396
Net charge-offs		(26,965	)		(49,313	)		(43,199	)
Allowance for loan losses, at end of period	$	49,548			41,418			37,654
Ratios:
Net charge-offs as a percent of average loans (annualized)		1.48	%		2.00	%		2.34	%
Allowance for loan losses as a percent of loans at end of  period		2.03	%		1.70	%		1.55	%

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

	As of and for the nine months ended September 30, 2012
($ in thousands)	Covered			Non-covered			Total
Loans outstanding at end of period	$	303,997			2,137,074			2,441,071
Average amount of loans outstanding	$	332,557			2,101,407			2,433,964
Allowance for loan losses, at beginning of year	$	5,808			35,610			41,418
Provision for loan losses		5,374			29,721			35,095
		11,182			65,331			76,513
Loans charged off:
Commercial, financial, and agricultural		—			(2,476	)		(2,476	)
Real estate – construction, land development & other land loans		(4,799	)		(8,734	)		(13,533	)
Real estate – mortgage – residential (1-4 family) first mortgages		(925	)		(2,969	)		(3,894	)
Real estate – mortgage – home equity loans / lines of credit		(171	)		(2,600	)		(2,771	)
Real estate – mortgage – commercial and other		(742	)		(3,770	)		(4,512	)
Installment loans to individuals		(151	)		(1,439	)		(1,590	)
Total charge-offs		(6,788	)		(21,988	)		(28,776	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		—			49			49
Real estate – construction, land development & other land loans		—			1,054			1,054
Real estate – mortgage – residential (1-4 family) first mortgages		—			55			55
Real estate – mortgage – home equity loans / lines of credit		—			354			354
Real estate – mortgage – commercial and other		—			51			51
Installment loans to individuals		—			248			248
Total recoveries		—			1,811			1,811
Net charge-offs		(6,788	)		(20,177	)		(26,965	)
Allowance for loan losses, at end of period	$	4,394			45,154			49,548

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

	As of and for the nine months ended September 30, 2011
($ in thousands)	Covered			Non-covered			Total
Loans outstanding at end of period	$	373,824			2,058,724			2,432,548
Average amount of loans outstanding	$	420,683			2,051,121			2,471,804
Allowance for loan losses, at beginning of year	$	11,155			38,275			49,430
Provision for loan losses		9,805			21,618			31,423
		20,960			59,893			80,853
Loans charged off:
Commercial, financial, and agricultural		(195	)		(1,421	)		(1,616	)
Real estate – construction, land development & other land loans		(11,240	)		(12,948	)		(24,188	)
Real estate – mortgage – residential (1-4 family) first mortgages		(3,797	)		(5,547	)		(9,344	)
Real estate – mortgage – home equity loans / lines of credit		(868	)		(1,693	)		(2,561	)
Real estate – mortgage – commercial and other		(1,488	)		(3,881	)		(5,369	)
Installment loans to individuals		(115	)		(1,402	)		(1,517	)
Total charge-offs		(17,703	)		(26,892	)		(44,595	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		—			43			43
Real estate – construction, land development & other land loans		—			228			228
Real estate – mortgage – residential (1-4 family) first mortgages		—			147			147
Real estate – mortgage – home equity loans / lines of credit		—			334			334
Real estate – mortgage – commercial and other		—			39			39
Installment loans to individuals		—			605			605
Total recoveries		—			1,396			1,396
Net charge-offs		(17,703	)		(25,496	)		(43,199	)
Allowance for loan losses, at end of period	$	3,257			34,397			37,654

Based on the results of our loan analysis and grading program and our evaluation of the allowance for loan losses at September 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 $389 million line of credit with the Federal Home Loan Bank (of which $65 million was outstanding at September 30, 2012), 2) a $50 million overnight federal funds line of credit with a correspondent bank (none of which was outstanding at September 30, 2012), and 3) an approximately $93 million line of credit through the Federal Reserve Bank of Richmond’s discount window (none of which was outstanding at September 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 September 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 $324 million at September 30, 2012 compared to $227 million at December 31, 2011.

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Our overall liquidity has increased since September 30, 2011. Our deposits have increased $105 million, while our loans have only increased $9 million. As a result, our liquid assets (cash and securities) as a percentage of our total deposits and borrowings increased from 15.8% at September 30, 2011 to 17.0% at September 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 September 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.

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.

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At September 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.

	Sept. 30, 2012			June 30, 2012			Dec. 31, 2011			Sept. 30, 2011
Risk-based capital ratios:
Tier I capital to Tier I risk adjusted assets		14.99	%		14.94	%		15.46	%		15.66	%
Minimum required Tier I capital		4.00	%		4.00	%		4.00	%		4.00	%
Total risk-based capital to Tier II risk-adjusted assets		16.26	%		16.21	%		16.72	%		16.91	%
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		10.06	%		9.98	%		10.21	%		10.26	%
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 September 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 6.46% at September 30, 2012 compared to 6.58% at December 31, 2011 and 6.75% at September 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 August 24, 2012, we reported that we had completed the acquisition of approximately $9 million in deposits from the Gateway Bank & Trust Co. branch located at 901 Military Cutoff Road, Wilmington, North Carolina. The acquired accounts were transferred to a nearby branch of First Bank.

· On September 26, 2012, First Bank entered into an agreement to assume all of the deposits, totaling approximately $64 million, and acquire selected performing loans, totaling approximately $22 million, of the Four Oaks Bank & Trust Company branches located in Southern Pines, North Carolina and Rockingham, North Carolina. We will acquire the Rockingham branch building, while the Southern Pines branch facility will not be acquired. The deposits and loans of the Southern Pines branch will be initially assigned to the First Bank branch located at nearby Pinecrest Plaza. The transaction is expected to close in the first quarter of 2013, subject to regulatory approval.

· We are relocating our Biscoe, North Carolina branch and expect to re-open in a new building on December 3, 2012.

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

· We are closing our Reynolds branch in Asheville, North Carolina on December 28, 2012. We will continue to serve the Asheville market with four branches.

· On August 28, 2012, the Company announced a quarterly cash dividend of $0.08 cents per share payable on October 25, 2012 to shareholders of record on September 30, 2012. This is the same dividend rate as the Company declared in the third quarter of 2011.

SHARE REPURCHASES

We repurchased 148 shares of our common stock during the first nine months of 2012 in two private transactions. At September 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 September 30, 2012) to a high of 7.75% (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 September 30, 2012, approximately 78% 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 September 30, 2012, we had approximately $684 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 September 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 general discussion in the foregoing paragraph applies most directly in a “normal” interest rate environment in which longer term maturity instruments carry higher interest rates than short term maturity instruments, and is less applicable in periods in which there is a “flat” interest rate curve. A “flat yield curve” means that short-term interest rates are substantially the same as long-term interest rates. Due to the prolonged negative economic environment, the Federal Reserve has taken recent steps to suppress the long-term interest rates in an effort to boost the housing market, increase employment, and stimulate the economy. In the marketplace, longer-term interest rates have decreased, while short-term rates have remained relatively stable. For example, from September 30, 2011 to September 30, 2012, the interest rate on three-month treasury bills rose by 8 basis points, but the interest rate for seven-year treasury notes decreased by 39 basis points. This has resulted in a “flattening” of the yield curve and is an unfavorable interest rate environment for many banks, including the Company, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge, the profit spread we realize between loan yields and deposit rates narrows, which reduces our net interest margin.

The Federal Reserve has made no changes to interest rates since 2008, and since that time 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. However, as short-term rates are already near zero, we will be unlikely to continue the trend of reducing our funding costs. We also continue to experience downward pressure on our loan yields due to the interest rate environment described above and competitive pressures.

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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 $10.5 million and $9.9 million for the first nine 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.

Based on our most recent interest rate modeling, which assumes no changes in interest rates for at least the next twelve months (federal funds rate = 0.25%, prime = 3.25%), we project that our net interest margin will experience some compression over the next twelve months. We expect loan yields 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)
July 1, 2012 to July 31, 2012		—		—		—		214,241
August 1, 2012 to August 31, 2012		—		—		—		214,241
September 1, 2012 to September 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 September 30, 2012.

There were no unregistered sales of our securities during the three months ended September 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.

10.a Employment Agreement between the Company and Richard H. Moore dated August 28, 2012. (*)

10.b Purchase and Assumption Agreement among Four Oaks Bank & Trust Company and Four Oaks Fincorp, Inc. and First Bank, dated as of September 26, 2012.

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

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EX-10.A

Exhibit 10.a

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is made and entered into on August 28, 2012 (the “Effective Date”), by and between First Bancorp (the “Company”), and Richard H. Moore (“Employee”).

The Company desires to employ Employee and Employee desires to accept such employment on the terms set forth below.

In consideration of the mutual promises set forth below and other good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, the Company and Employee agree as follows:

1.             EMPLOYMENT. Employee’s employment shall be subject to the terms and conditions set forth in this Agreement.

2.             NATURE OF EMPLOYMENT/DUTIES. Employee shall serve as President and Chief Executive Officer of the Company. He shall report to the Company’s Board of Directors (the “Board”) and shall have such responsibilities and authority as the Board may designate from time to time consistent with his title and position.

2.1             Employee shall perform all duties and exercise all authority in accordance with, and otherwise comply with, all Company policies, procedures, practices and directions.

2.2             Employee shall devote substantially all working time, best efforts, knowledge and experience to perform successfully his duties and advance the Company’s interests. During his employment, Employee shall not engage in any other business activities of any nature whatsoever for which he receives compensation without the Board’s prior written consent; provided, however, this provision does not prohibit him from personally owning and trading in stocks, bonds, securities, real estate, commodities or other investment properties for his own benefit and which do not create actual or potential conflicts of interest with the Company, or from serving on the boards of directors of other entities as long as such entities do not compete with the Company and such board service furthers the interests of the Company. Employee must notify the Chairman of the Company’s Board annually of any such board service.

3.             COMPENSATION.

3.1             Base Salary. Employee’s annual base salary for all services rendered shall be Four Hundred Seventy- Five Thousand and 00/100 Dollars ($475,000.00) (less applicable taxes and withholdings) payable in accordance with the Company’s customary payroll practices as they may exist from time to time (“Base Salary”). The Employee’s Base Salary may be reviewed and increased or decreased by the Board, annually at its discretion, in accordance with the Company’s policies, procedures and practices as they may exist from time to time.

1

3.2             Annual Bonus. Employee shall be eligible for an annual bonus of up to Six Hundred Thousand and 00/100 Dollars ($600,000.00) (“Annual Bonus”). The Annual Bonus shall be awarded in accordance with the terms of the Performance Incentive Plan, attached as Exhibit A. The Annual Bonus shall be provided to Employee provided that Employee is employed by the Company on the last day of the fiscal year for which the award was earned. The Annual Bonus shall be payable no later than two and one-half months following the end of the fiscal year for which it was earned.

3.3             Long-Term Incentive. On the Effective Date, Employee shall be entitled to two performance-based equity awards. The first of these awards shall be an option to acquire 75,000 shares of the Company’s common stock and shall be subject to the terms and conditions of the Stock Option Award Agreement attached hereto as Exhibit B. This option shall vest in full if, as of December 31, 2014, Employee continues to be an employee of the Company and the Company has achieved the target earnings established with respect to the option, and if those target earnings have not been achieved by that date, no part of the option will vest. The second of these awards shall be 40,000 shares of restricted stock and shall be subject to the terms and conditions of the Restricted Stock Award Agreement attached hereto as Exhibit C. The restricted stock shall vest in full if, as of December 31, 2015, Employee continues to be an employee of the Company and the Company has achieved the target earnings established with respect to the restricted stock, and if those target earnings have not been achieved by that date, none of the restricted stock will vest.

3.4             Benefits. Employee may participate in all medical, dental, disability, insurance, 401(k), vacation and other employee benefit plans and programs which may be made available from time to time to Company employees at Employee’s level; provided, however, that Employee’s participation is subject to the applicable terms, conditions and eligibility requirements of these plans and programs as they may exist from time to time. The Company shall reimburse Employee for costs he incurs to participate in the North Carolina State Health Plan (“State Health Plan”) rather than the Company’s group health plans. All such reimbursements shall be made no later than March 15 of the year following the year in which Employee incurred the expense. Nothing in this Agreement shall require the Company to create, continue or refrain from amending, modifying, revising or revoking any of its group plans, programs or benefits that are offered to employees. Employee acknowledges that the Company, in its sole discretion, may amend, modify, revise or revoke any such group plans, programs or benefits and any amendments, modifications, revisions and revocations of these plans, programs and benefits shall apply to Employee.

3.5             Business Expenses. Employee shall be reimbursed for reasonable and necessary expenses actually incurred by him in performing services under this Agreement in accordance with and subject to the terms and conditions of the applicable Company reimbursement policies, procedures and practices as they may exist from time to time. All such reimbursements shall be made no later than March 15 of the year following the year in which Employee incurred the expense.

3.6             Office Costs. Employee shall maintain an office in Raleigh, North Carolina and the Company shall be responsible for the costs of that office.

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3.7             Clawback. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based compensation, or any other compensation, paid to Employee pursuant to this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation or stock exchange listing requirement, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations of that Act, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement). Employee shall, upon written demand by the Company, promptly repay any such incentive-based compensation or other compensation, or take such other action as the Company may require for compliance with this Section.

4.             TERM OF EMPLOYMENT AND TERMINATION. The initial term of this Agreement and Employee’s employment hereunder shall be the one-year period commencing on the Effective Date and terminating on the first anniversary of the Effective Date (the “Initial Term”), provided that, on such anniversary of the Effective Date and on each annual anniversary thereafter, this Agreement shall automatically renew for successive one year periods on the same terms and conditions set forth herein unless: (a) earlier terminated or amended as provided herein or (b) either party gives the other written notice of non-renewal at least sixty (60) days prior to the end of the Initial Term or any renewal term of this Agreement. The Initial Term and all applicable renewals thereof are referred to herein as the “Term.”

4.1             Without Cause, Upon Notice. Either the Company or Employee may terminate Employee’s employment and this Agreement without Cause at any time upon giving the other party thirty (30) days written notice.

4.2             For Cause. The Company may terminate Employee’s employment and this Agreement immediately without notice at any time for “Cause,” which shall mean the following: (i) Employee’s demonstrated gross negligence or willful misconduct in the execution of his duties; (ii) Employee’s refusal to comply with the Company’s policies, procedures, practices or directions, after notice and opportunity to cure within fifteen (15) days after such notice; (iii) Employee’s commission of an act of dishonesty or moral turpitude; (iv) Employee’s being convicted of a felony; or (v) Employee’s breach of this Agreement.

4.3             By Death or Disability. Employee’s employment and this Agreement shall terminate upon Employee’s Disability or death. For purposes of this Agreement, “Disability” shall mean Employee’s physical or mental inability to perform substantially all of Employee’s duties, with or without reasonable accommodation, for a period of ninety (90) days, whether or not consecutive, during any 365-day period, as determined in the Company’s reasonable discretion and in accordance with any applicable law. The Company shall give Employee written notice of termination for Disability and the termination shall be effective as of the date specified in such notice.

4.4             Following a Change in Control, by Employee for Good Reason. Following a Change in Control, as defined herein, Employee may terminate his employment and this Agreement if he has “Good Reason” to do so.

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For purposes of this Agreement, “Good Reason” shall mean: (i) a material diminution in Employee’s authority, duties, or responsibilities from such immediately prior to the Change in Control; (ii) a material change in the geographic location at which Employee must perform his services under this Agreement; and (iii) any other action or inaction that constitutes a material breach by the Company of this Agreement. Provided that, in order for Employee to be able to terminate for Good Reason, Employee must first provide notice to the Company of the condition Employee contends constitutes Good Reason within thirty (30) days of the initial existence of such condition, and the Company must have thirty (30) days in which to remedy the condition, and further, if the condition is not remedied, Employee must terminate his employment within thirty (30) days of the end of the Company’s thirty (30) day remedy period.

4.5           Survival. Section 6 (Confidential Information, Company Property and Competitive Business Activities) of this Agreement shall survive the termination of Employee’s employment and/or the termination of this Agreement, regardless of the reasons for such termination.

5.             COMPENSATION AND BENEFITS UPON TERMINATION.

5.1          By the Company for Cause or by Employee by Notice of Non-Renewal or Without Cause. If Employee’s employment and this Agreement are terminated by the Company for Cause or by Employee by notice of non-renewal or pursuant to Section 4.1 (Without Cause, Upon Notice), then the Company’s obligation to compensate Employee ceases on the effective termination date except as to amounts of Base Salary earned, but unpaid as of the effective termination date.

5.2          By the Company Without Cause. If the Company terminates Employee’s employment and this Agreement without Cause, then the Company shall:

(i) pay Employee any earned, but unpaid compensation due as of the effective termination date; and

(ii) pay Employee a lump sum amount equal to the greater of his then-current Base Salary for three (3) months or the then remaining period of the Term (less applicable taxes and withholdings) and shall reimburse Employee for costs he incurs to continue his participation in the State Health Plan for the period of time equal to the period of time used to calculate the severance pay. Said lump sum payment shall be made on the date immediately following the date on which the required release of claims becomes effective. All such reimbursements shall be made no later than March 15 of the year following the year in which Employee incurred the expense. Said payment and reimbursements are subject to the conditions set forth in Section 5.5 below.

5.3          By the Company by Notice of Non-Renewal or for Disability. If the Company terminates Employee’s employment and this Agreement by notice of non-renewal or for Disability, then the Company shall:

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(i) pay Employee any earned, but unpaid compensation due as of the effective termination date; and

(ii) pay Employee a lump sum amount equal to his then-current Base Salary for three (3) months (less applicable taxes and withholdings). Said lump sum payment shall be made on the date immediately following the date on which the required release of claims becomes effective. Said payment is subject to the conditions set forth in Section 5.5 below.

5.4          Following a Change in Control, by the Company Without Cause or by Notice of Non-Renewal or by Employee for Good Reason. If the Company terminates Employee’s employment without Cause or by notice of non-renewal or if Employee terminates for Good Reason within twelve (12) months following a Change in Control (as defined below), then Employee shall be entitled to receive:

(i) any earned, but unpaid compensation due as of the effective termination date; and

(ii) a lump sum payment equal to two (2) times his then current Base Salary (less applicable taxes and withholdings); and, the Company shall continue to reimburse Employee for costs he incurs to continue his participation in the State Health Plan for twelve (12) months. Said lump sum payment shall be made on the date immediately following the date on which the required release of claims becomes effective. All such reimbursements shall be made no later than March 15 of the year following the year in which Employee incurred the expense. Said payment and reimbursements are subject to the conditions set forth in Section 5.5 below.

For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred on:

(i) the date on which any “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than the Company or any entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company’s common stock, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of shares representing more than 40% of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company; or

(ii) the date on which (i) the Company merges with any other entity, (ii) the Company enters into a statutory share exchange with another entity, or (iii) the Company conveys, transfers or leases all or substantially all of its assets to any person; provided, however, that in the case of subclauses (i) and (ii), a Change of Control shall not be deemed to have occurred if the shareholders of the Company immediately before such transaction own, directly or indirectly immediately following such transaction, more than 60% of the combined voting power of the outstanding securities of the corporation resulting from such transaction in substantially the same proportions as their ownership of securities immediately before such transaction.

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5.5             Required Release. The Company’s obligation to provide any payment or reimbursement under Sections 5.2(ii), 5.3(ii), or 5.4(ii), is conditioned upon Employee’s execution of an enforceable release of all claims and his compliance with Section 6 of this Agreement. If Employee chooses not to execute such a release or fails to comply with that Section, then the Company’s obligation to compensate him ceases on the effective termination date except as to amounts due at that time. The release of claims shall be provided to Employee within seven (7) days of his separation from service and Employee must execute it within the time period specified in the release (which shall not be longer than forty-five (45) days from the date of receipt). Such release shall not be effective until any applicable revocation period has expired. Any payments subject to the release, shall be made or commence, as applicable, within sixty (60) days of Employee’s separation from service with the Company and, if the sixty (60) day period begins in one taxable year and ends in another taxable year, no payment shall be made until the beginning of the second taxable year.

5.6             Benefits in lieu of Other Severance. Employee is not entitled to receive any compensation or benefits upon his termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii) otherwise required by any employee benefit plan in which he participates with the following exception. The benefits afforded Employee under this Agreement are in lieu of any severance benefits to which he otherwise might be entitled pursuant to a severance plan, policy and practice. Nothing in this Agreement, however, is intended to waive or supplant any death, disability, retirement, 401(k) pension benefits, or group health continuation rights, if any, to which he may be entitled under employee benefit plans in which he participates.

6.             TRADE SECRETS, CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND COMPETITIVE BUSINESS ACTIVITIES. Employee acknowledges that: (i) by virtue of his senior management and key leadership position with the Company, Employee has had and will continue to have access to Trade Secrets and Confidential Information, as defined below; (ii) the Company has business operations in multiple states and is engaged in the business of providing financial services and products in retail, commercial, and corporate banking (the “Business”); and (ii) the provisions set forth in this Confidential Information, Company Property and Competitive Business Activities Section are reasonably necessary to protect the Company’s legitimate business interests, are reasonable as to time, territory and scope of activities which are restricted, do not interfere with public policy or public interest and are described with sufficient accuracy and definiteness to enable him to understand the scope of the restrictions imposed upon him.

6.1             Trade Secrets and Confidential Information. Employee acknowledges that: (i) the Company will disclose to him certain Trade Secrets and Confidential Information; (ii) Trade Secrets and Confidential Information are the sole and exclusive property of the Company (or a third party providing such information to the Company) and the Company or such third party owns all worldwide rights therein under patent, copyright, trade secret, confidential information, or other property right; and (iii) the disclosure of Trade Secrets and Confidential Information to Employee does not confer upon him any license, interest or rights of any kind in or to the Trade Secrets or Confidential Information.

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6.1.1             Employee may use the Trade Secrets and Confidential Information only in accordance with applicable Company policies and procedures and solely for the Company’s benefit while he is employed or otherwise retained by the Company. Except as authorized in the performance of services for the Company, Employee will hold in confidence and not directly or indirectly, in any form, by any means, or for any purpose, disclose, reproduce, distribute, transmit, or transfer Trade Secrets or Confidential Information or any portion thereof. Upon the Company’s request, Employee shall return Trade Secrets and Confidential Information and all related materials.

6.1.2             If Employee is required to disclose Trade Secrets or Confidential Information pursuant to a court order or other government process or such disclosure is necessary to comply with applicable law or defend against claims, he shall: (i) notify the Company promptly before any such disclosure is made; (ii) at the Company’s request and expense take all reasonably necessary steps to defend against such disclosure, including defending against the enforcement of the court order, other government process or claims; and (iii) permit the Company to participate with counsel of its choice in any proceeding relating to any such court order, other government process or claims.

6.1.3             Employee’s obligations with regard to Trade Secrets shall remain in effect for as long as such information shall remain a trade secret under applicable law.

6.1.4             Employee’s obligations with regard to Confidential Information shall remain in effect while he is employed or otherwise retained by the Company and for fifteen (15) years thereafter.

6.1.5             As used in this Agreement, “Trade Secrets” means information of the Company, suppliers, customers, or prospective or customers, including, but not limited to, data, formulas, patterns, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, or lists of actual or potential customers or suppliers, which: (i) derives independent actual or potential commercial value, from not being generally known to or readily ascertainable through independent development by persons or entities who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

6.1.6             As used in this Agreement, “Confidential Information” means information other than Trade Secrets, that is of value to its owner and is treated as confidential, including, but not limited to, future business plans, marketing campaigns, and information regarding employees, provided, however, Confidential Information shall not include information which is in the public domain or becomes public knowledge through no fault of Employee.

6.2             Company Property. Upon the termination of his employment or upon Company’s earlier request, Employee shall: (i) deliver to the Company all records, memoranda, data, documents and other property of any description which refer or relate in any way to Trade Secrets or Confidential Information, including all copies thereof, which are in his possession, custody or control; (ii) deliver to the Company all Company property (including, but not limited to, keys, credit cards, customer files, contracts, proposals, work in process, manuals, forms, computer- stored work in process and other computer data, research materials, other items of business information concerning any Company customer, or Company business or business methods, including all copies thereof) which is in his possession, custody or control; (iii) bring all such records, files and other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up his work and transferring that work to other individuals designated by the Company.

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6.3             Competitive Business Activities. Employee agrees that during the Term of this Agreement and for a period of time ending on the date occurring one (1) year after the later of the date his employment terminates and/or this Agreement terminates (irrespective of the circumstances of such termination) (the “Non-Competition Period”), Employee will not engage in the following activities:

(a)             on Employee’s own or another’s behalf, whether as an officer, director, stockholder, partner, associate, owner, employee, consultant or otherwise:

(i)             compete with the Company in the Company’s Business;

(ii)             solicit or do business which is the same, similar to or otherwise in competition with the Company’s Business, from or with persons or entities: (a) who are customers of the Company; (b) who Employee or someone for whom he was responsible solicited, negotiated, contracted, serviced or had contact with on the Company’s behalf; or (c) who were customers of the Company at any time during the last year of Employee’s employment with the Company; or

(iii)             offer employment to or otherwise solicit for employment any employee or other person who had been employed by the Company during the last year of Employee’s employment with the Company;

(b)             be employed (or otherwise engaged) in (i) a management capacity, (ii) other capacity providing the same or similar services which Employee provided to the Company, or (iii) any capacity connected with competitive business activities, by any person or entity that engages in the same, similar or otherwise competitive business as the Company’s Business; or

             (c)             directly or indirectly take any action, which is materially detrimental, or otherwise intended to be adverse to the Company’s goodwill, name, business relations, prospects and operations.

6.3.1             The restrictions set forth in Section 6.3(a)(i) apply to the following geographical areas: (i) within a 60-mile radius of the location of the Company’s headquarters during Employee’s employment with the Company; (ii) any city, metropolitan area, county, or state in which Employee’s substantial services were provided, or for which Employee had substantial responsibility, or in which Employee worked on Company projects, while employed by the Company; (iii) any city, metropolitan area, county, or state in which the Company is located or does or, during Employee’s employment with Company, did business.

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6.3.2             Notwithstanding the foregoing, Employee’s ownership, directly or indirectly, of not more than one percent of the issued and outstanding stock of a corporation the shares of which are regularly traded on a national securities exchange or in the over-the-counter market shall not violate Section 6.3.

6.4             Remedies. Employee acknowledges that his failure to abide by the Confidential Information, Company Property or Competitive Business Activities provisions of this Agreement would cause irreparable harm to the Company for which legal remedies would be inadequate. Therefore, in addition to any legal or other relief to which the Company may be entitled by virtue of Employee’s failure to abide by these provisions; the Company may seek legal and equitable relief, including, but not limited to, preliminary and permanent injunctive relief, for Employee’s actual or threatened failure to abide by these provisions without the necessity of posting any bond, and Employee will indemnify the Company for all expenses including attorneys’ fees in seeking to enforce these provisions.

6.5             Tolling. The period during which Employee must refrain from the activities set forth in Sections 6.1 and 6.3 shall be tolled during any period in which he fails to abide by these provisions.

6.6             Other Agreements. Nothing in this Agreement shall terminate, revoke or diminish Employee’s obligations or the Company’s rights and remedies under law or any agreements relating to trade secrets, confidential information, non-competition and intellectual property which Employee has executed in the past, or may execute in the future or contemporaneously with this Agreement.

7.             EXECUTIVE REPRESENTATION. Employee represents and warrants that his employment and obligations under this Agreement will not (i) breach any duty or obligation he owes to another or (ii) violate any law, recognized ethics standard or recognized business custom.

8.             RESIGNATION OF ALL OTHER POSITIONS. Upon termination of Employee’s employment hereunder, for any reason, Employee shall be deemed to have resigned from all positions that Employee holds as an officer or member of the Board of Directors of the Company or any of its affiliates.

9.             WAIVER OF BREACH. The Company’s or Employee’s waiver of any breach of a provision of this Agreement shall not waive any subsequent breach by the other party.

10.             ENTIRE AGREEMENT. Except as expressly provided in this Agreement, this Agreement: (i) supersedes and cancels all other understandings and agreements, oral or written, with respect to Employee’s employment with the Company including any prior employment agreement; (ii) supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this Agreement; and (iii) constitutes the sole agreement between the parties with respect to this subject matter. Each party acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise not contained in this Agreement shall be valid. No change or modification of this Agreement shall be valid or binding upon the parties unless such change or modification is in writing and is signed by the parties.

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11.             SEVERABILITY. If a court of competent jurisdiction holds that any provision or sub-part thereof contained in this Agreement is invalid, illegal or unenforceable, that invalidity, illegality or unenforceability shall not affect any other provision in this Agreement. Additionally, if any of the provisions, clauses or phrases in Section 6, Trade Secrets, Confidential Information, Company Property and Competitive Business Activities, are held unenforceable by a court of competent jurisdiction, then the parties desire that such provision, clause, or phrase be “blue-penciled” or rewritten by the court to the extent necessary to render it enforceable.

12.             PARTIES BOUND. The terms, provisions, covenants and agreements contained in this Agreement shall apply to, be binding upon and inure to the benefit of the Company’s successors and assigns. Employee may not assign this Agreement.

13.             REMEDIES. Employee acknowledges that his breach of this Agreement would cause the Company irreparable harm for which damages would be difficult, if not impossible, to ascertain and legal remedies would be inadequate. Therefore, in addition to any legal or other relief to which the Company may be entitled by virtue of the Employee’s breach or threatened breach of this Agreement, the Company may seek equitable relief, including but not limited to preliminary and injunctive relief, and such other available remedies.             

14.             GOVERNING LAW. This Agreement and the employment relationship created by it shall be governed by North Carolina law.

15.             SECTION 409A OF THE INTERNAL REVENUE CODE.

15.1             Parties’ Intent. The parties intend that the provisions of this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder (collectively, “Section 409A”) and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause Employee to incur any additional tax or interest under Section 409A, the Company shall, upon the specific request of Employee, use its reasonable business efforts to in good faith reform such provision to comply with Code Section 409A; provided, that to the maximum extent practicable, the original intent and economic benefit to Employee and the Company of the applicable provision shall be maintained, and the Company shall have no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. The Company shall timely use its reasonable business efforts to amend any plan or program in which Employee participates to bring it in compliance with Section 409A. Notwithstanding the foregoing, the Company shall have no liability with regard to any failure to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.

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15.2             Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination also constitutes a “Separation from Service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment,” “separation from service” or like terms shall mean “Separation from Service.”

15.3             Separate Payments. Each installment payment required under this Agreement shall be considered a separate payment for purposes of Section 409A.

15.4             Delayed Distribution to Key Employees. If the Company determines in accordance with Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the Company’s sole discretion, that the Employee is a Key Employee of the Company on the date his employment with the Company terminates and that a delay in benefits provided under this Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance payments and any continuation of benefits or reimbursement of benefit costs provided by this Agreement, and not otherwise exempt from Section 409A, shall be delayed for a period of six (6) months following the date of termination of the Employee’s employment (the “409A Delay Period”). In such event, any severance payments and the cost of any continuation of benefits provided under this Agreement that would otherwise be due and payable to the Employee during the 409A Delay Period shall be paid to the Employee in a lump sum cash amount in the month following the end of the 409A Delay Period. For purposes of this Agreement, “Key Employee” shall mean an employee who, on an Identification Date (“Identification Date” shall mean each December 31) is a key employee as defined in Section 416(i) of the Code without regard to paragraph (5) thereof. If the Employee is identified as a Key Employee on an Identification Date, then Employee shall be considered a Key Employee for purposes of this Agreement during the period beginning on the first April 1 following the Identification Date and ending on the following March 31.

16.             Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, with the same effect as if the signatures affixed thereto were upon the same instrument.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above.

EMPLOYEE

BY:/s/  Richard H. Moore

Richard H. Moore

First Bancorp

BY:/s/  Anna G. Hollers

Title: EVP, Secretary, and Chief Operating Officer

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EXHIBIT A

FIRST BANCORP

PERFORMANCE INCENTIVE PLAN

THIS PERFORMANCE INCENTIVE PLAN (the “PIP”) establishes the terms of the annual bonus opportunity set forth in the employment agreement by and between Richard H. Moore (the “Participant”) and First Bancorp (the “Company”) effective as of September 4, 2012 (the “Employment Agreement”). The PIP provides for the grant of an incentive award opportunity under and subject to the terms of the Company’s 2007 Equity Plan (the “2007 Plan”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the 2007 Plan.

1.              Annual Bonus Opportunity; Determination of Annual Bonus. Each year, the Participant will have the opportunity to earn an annual bonus of up to Six Hundred Thousand Dollars ($600,000). The amount payable will be determined based on performance against the Company’s performance goal with respect to modified earnings per share established by the Committee for the applicable performance year (the “EPS Goal”) and the following scale:

Performance	Award
Threshold	$150,000
Target	$300,000
Maximum	$600,000

The amount payable where performance is greater than Threshold but less than Target or greater than Target but less than Maximum shall be determined on the basis of straight line interpolation between points. Payment of the amount determined to be payable (the “Annual Bonus”) is conditioned on (i) the Participant’s continued employment with the Company through December 31 of the performance year, as described in Section 6 below, and (ii) First Bank’s having achieved a satisfactory regulatory review as of such date as determined by the Board.

2.             Form of Payment. The Annual Bonus shall be paid 50% in cash and 50% in Restricted Stock. The number of shares of Restricted Stock deliverable shall be determined by dividing (x) by (y) where (x) is 50% of the Annual Bonus and (y) is the closing price of a share of Company Stock as reported on the NASDAQ on the trading day immediately preceding the date of grant, rounded down to the nearest whole number. The Restricted Stock shall be granted on the Company’s usual form of Restricted Stock Award Agreement and vest in thirds over three years with one-third vesting on each of the first, second and third anniversaries of December 31 of the performance year; provided, however, that in the event of a Change in Control, any unvested Restricted Stock granted pursuant to this PIP shall immediately vest in full.

3.             Latest Payment Date; Tax Withholding. All Annual Bonus payments, if any, shall be made not later than March 15 of the calendar year following the performance year. The minimum tax withholding amount with respect to the cash and Restricted Stock portions of the Annual Bonus shall be withheld from the cash portion of such payment.

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4.Administration; Nature of Awards. The PIP shall be administered by the Committee as described in the 2007 Plan. The Committee may in its discretion consult with outside advisors or internal Company resources for purposes of making any determinations in connection with its administration of the PIP. The bonus opportunities hereunder are intended to qualify as Performance Unit Awards under the 2007 Plan. The PIP is unfunded and any cash payments by the Company hereunder shall be made from the general assets of the Company.

5.Intent with Respect to Section 162(m). The annual bonus opportunity is intended to qualify for the performance-based compensation exception under Section 162(m) of the Code.

6.Termination of Employment. No Annual Bonus shall be payable to or in respect of a Participant, except as the Committee shall otherwise expressly determine, unless the Participant is employed by the Company on December 31 of the performance year.

7.Availability of Common Stock. If, when an Annual Bonus becomes payable in respect of any performance year, the number of shares of Common Stock needed to grant any Restricted Stock exceeds the number of shares then available under the 2007 Plan, the Company will pay out the value of any Restricted Stock in excess of the number available in cash and determine the cash amount by reversing the calculation under Section 2 above used to determine the number of shares of Restricted Stock deliverable.

8.Clawback. If the participant receives an Annual Bonus payment under the PIP based on financial statements that are subsequently required to be restated in a way that would decrease the amount to which the Participant was entitled, the Participant will refund to the Company the difference between what the Participant received and what the Participant should have received; provided that no refund will be required for Annual Bonus payments made more than three years prior to the date on which the Company is required to prepare the applicable restatement. The value of any difference to be refunded will be determined in a manner consistent with regulations the Securities and Exchange Commission may adopt pursuant to Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

9.Amendment. The PIP, including the EPS Goal once established by the Committee for a given performance year, may be amended by the Company only with the written consent of the Participant.

10.409A. This PIP shall be construed and administered consistent with the intent that it at all times be in compliance with or exempt from the requirements of Section 409A of the Code and the regulations promulgated thereunder.

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The Company hereby certifies that the PIP was adopted effective as of September 4, 2012.

FIRST BANCORP

By: /s/ Anna G. Hollers

Its: EVP, Secretary, and Chief Operating Officer

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EXHIBIT B

FIRST BANCORP

2007 EQUITY PLAN

STOCK OPTION AWARD AGREEMENT

THIS STOCK OPTION AWARD AGREEMENT (this “Agreement”) is made by and between Richard H. Moore (the “Participant”) and First Bancorp (the “Company”), effective as of August 28, 2012 (the “Grant Date”).

WHEREAS, the Participant has entered into an employment agreement, executed and effective as of the date hereof, by and between the Participant and the Company (the “Employment Agreement”); and

WHEREAS, in accordance with the terms of the Employment Agreement, the Compensation Committee of the Company’s Board of Directors (the “Committee”) desires to award a nonqualified stock option to the Participant pursuant to the First Bancorp 2007 Equity Plan (the “Plan”).

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, the parties agree as follows:

1.Grant of Option. Pursuant to the Plan, the Company hereby grants to the Participant, as of the Grant Date, an option (the “Option”) to purchase all or any part of an aggregate of 75,000 shares of the Company’s Common Stock (the “Option Shares”), subject to, and in accordance with, the terms and conditions set forth in this Agreement and the Plan. The exercise price per Option Share (the “Exercise Price”) is $9.76, the Fair Market Value of a share of the Company’s Common Stock on the Grant Date. The Option and this Agreement are subject to all of the terms and conditions of the Plan, which terms and conditions are hereby incorporated by reference, and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. The Option is not intended to constitute an “incentive stock option” as that term is used in Section 422 of the Internal Revenue Code, as amended.

2.Term. Subject to earlier termination as hereinafter provided, the term of the Option shall be ten (10) years (the “Term”).

3.Vesting. Subject to earlier vesting or termination as hereinafter provided, the Option shall become fully vested and exercisable with respect to all the Option Shares on December 31, 2014 (the “Vesting Date”) if, as of such date, the Company’s performance goal with respect to modified earnings per share as established by the Committee on the date hereof for such date (the “EPS Goal”) has been met. If these requirements are not met as of the Vesting Date, the Option will terminate.

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4.Change in Control. Subject to Section 5 below, in the event of a Change in Control, the Committee may accelerate the vesting of the Option in its discretion, except that if the Participant terminates for Good Reason within twelve (12) months following a Change in Control, the Option shall vest in full. For this purpose, “Good Reason” shall have the meaning set forth in the Employment Agreement (as in effect on the date hereof) and the Participant shall have given the Company thirty (30) days notice of the condition the Participant contends constitutes Good Reason and thirty (30) days in which to remedy the condition.

5.Termination of Employment. If the Participant’s employment is terminated by the Company without Cause or as a result of the Participant’s death or Disability, then the Option shall vest in full. Except as set forth in Section 4 above, if the Participant resigns or ceases to be employed by the Company for any other reason, then to the extent not previously vested, the Option shall terminate. For purposes of this Agreement, “Cause” shall have the meaning set forth in the Employment Agreement (as in effect on the date hereof).

6.Termination of Option. In no case will the vested Option be exercised by anyone after the first to occur of the following events:

(a)               The expiration of the Term of the Option;

(b)              The date that is three (3) months after the date of termination of the Participant’s employment for any reason other than death, Disability or Cause;

(c)               The date that is one year after the date of the Participant’s termination as a result of death (during which period the Option may be exercised by the Participant’s Personal Representative) or Disability; or

(d)               The date the Company terminates the Participant’s employment for Cause.

7.Exercise of Option. Subject to the terms of this Agreement and the Plan, the vested Option may be exercised in whole or in part by giving written notice to the Chief Financial Officer of the Company at its corporate headquarters. Such notice shall specify the number of Option Shares that the Participant elects to purchase and shall be accompanied by payment of the Exercise Price for the Option Shares indicated by the Participant’s election. Payment shall be by cash or by check payable as directed by the Company, except as may otherwise be permitted in accordance with such rules and procedures, if any, as established by the Committee for such purpose from time to time. The Option shall not be exercisable if and to the extent the Company determines that such exercise would violate applicable state or federal securities laws or the rules and regulations of any securities exchange on which the Company’s common stock is traded. If the Company makes such a determination, it shall use all reasonable efforts to obtain compliance with such laws, rules and regulations. In making any determination hereunder, the Company may rely on the opinion of counsel for the Company.

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8.No Rights as Shareholder. The Participant shall not have any rights of a shareholder with respect to the Option Shares until a stock certificate has been duly issued following exercise of the Option as provided herein.

9.Nontransferability. Except as otherwise approved by the Committee, the Option granted pursuant to this Agreement is not transferable other than by will, the laws of descent and distribution or a qualified domestic relations order.

10.Beneficiary Designation. Each Participant may name a beneficiary or beneficiaries to receive or exercise the vested Option at the Participant’s death. Unless otherwise provided in the beneficiary designation, each designation will revoke all prior designations made by the same Participant, must be made on a form prescribed by the Committee, and will be effective only when filed in writing with the Committee. If a Participant has not made an effective beneficiary designation, the deceased Participant’s beneficiary will be the Participant’s surviving spouse or, if none, the deceased Participant’s estate. The identity of a Participant’s designated beneficiary will be based only on the information included in the latest beneficiary designation form completed by the Participant and will not be inferred from any other evidence.

11. Administration. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, which shall have all powers with respect to this Agreement as it has with respect to the Plan (to the fullest extent permitted by the Plan). Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons. If and to the extent of a conflict between this Agreement and the terms of the Plan, the terms of this Agreement will govern.

12.No Right to Employment. The granting of the Option shall not be deemed (a) to create any obligation on the part of the Company or any Subsidiary to retain the Participant in the employ of, or continue the provision of services to, the Company or any Subsidiary, or (b) to be evidence of any agreement or understanding, express or implied, that the Participant has a right to continue as an employee for any period of time or at any particular rate of compensation.

13.Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, the minimum statutory amount to satisfy federal, state and local taxes required by law or regulation to be withheld with respect to any taxable event arising as a result of the exercise of the Option. With respect to withholding required upon any taxable event arising as a result of the exercise of the Option, the Participant may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares of Company Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. All such elections shall be irrevocable, made in writing and signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.

14.Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first-class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s corporate headquarters.

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15.Amendment. This Agreement may be amended only by mutual written agreement of the parties.

16.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.

17.Severability.  The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

18.Counterparts; Further Instruments. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.

IN WITNESS WHEREOF, the Participant has executed this Agreement, and the Company has caused this Agreement to be executed in its name and on its behalf, effective as of the Grant Date.

PARTICIPANT

BY:/s/ Richard H. Moore

Richard H. Moore

FIRST BANCORP

BY:/s/ Anna G. Hollers

Its: EVP, Secretary, and Chief Operating Officer

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EXHIBIT C

FIRST BANCORP

2007 EQUITY PLAN

RESTRICTED STOCK AWARD AGREEMENT

THIS RESTRICTED STOCK AWARD AGREEMENT (this “Agreement”) is made by and between Richard H. Moore (the “Participant”) and First Bancorp (the “Company”), effective as of August 28, 2012 (the “Grant Date”).

WHEREAS, the Participant has entered into an employment agreement, executed and effective as of the date hereof, by and between the Participant and the Company (the “Employment Agreement”); and

WHEREAS, in accordance with the terms of the Employment Agreement, the Compensation Committee of the Company’s Board of Directors (the “Committee”) desires to award a nonqualified stock option to the Participant.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, the parties agree as follows

1.Grant of Restricted Stock Award.  Pursuant to the Plan, the Company hereby grants to the Participant, as of the Grant Date, a Restricted Stock Award (the “Award”) for 40,000 shares of the Company’s Company Stock (the “Shares”), subject to, and in accordance with, the terms and conditions set forth in this Agreement and the Plan.  The Award and this Agreement are subject to all of the terms and conditions of the Plan, which terms and conditions are hereby incorporated by reference, and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

2.Restriction Period. Subject to earlier vesting or termination as hereinafter provided, the Award shall become fully vested on December 31, 2015 (the “Vesting Date”) if, as of such date, the Company’s performance goal with respect to modified earnings per share as established by the Committee on the date hereof for such date (the “EPS Goal”) has been met. If these requirements are not met as of the Vesting Date, the Option will terminate. If these requirements are not met as of the Vesting Date, the Award will terminate.

3.Change in Control. Subject to Section 4 below, in the event of a Change in Control, the Committee may accelerate the vesting of the Award in its discretion, except that if the Participant terminates for Good Reason within twelve (12) months following a Change in Control, the Award shall vest in full. For this purpose, “Good Reason” shall have the meaning set forth in the Employment Agreement (as in effect on the date hereof) and the Participant shall have given the Company thirty (30) days notice of the condition the Participant contends constitutes Good Reason and thirty (30) days in which to remedy the condition.

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4.Termination of Employment. If the Participant’s employment is terminated by the Company without Cause or as a result of the Participant’s death or Disability then the Award shall vest in full. Except as set forth in Section 3 above, if the Participant resigns or ceases to be employed by the Company for any other reason, then to the extent not previously vested, the Award shall terminate. For purposes of this Agreement, “Cause” shall have the meaning set forth in the Employment Agreement (as in effect on the date hereof).

5.Settlement of Award.  The Award shall be payable in whole shares of Company Stock upon vesting.

6.Nontransferability of Award and Shares.  The Award shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will, the laws of descent and distribution or a qualified domestic relations order. The designation of a beneficiary does not constitute a transfer. The Participant shall not sell, transfer, assign, pledge or otherwise encumber the Shares subject to the Award until the Restriction Period has expired and all conditions to vesting and transfer have been met.

7.Beneficiary Designation.  Each Participant may name a beneficiary or beneficiaries to receive any vested Award that is unpaid at the Participant’s death.  Unless otherwise provided in the beneficiary designation, each designation will revoke all prior designations made by the same Participant, must be made on a form prescribed by the Committee and will be effective only when filed in writing with the Committee.  If a Participant has not made an effective beneficiary designation, the deceased Participant’s beneficiary will be the Participant’s surviving spouse or, if none, the deceased Participant’s estate.  The identity of a Participant’s designated beneficiary will be based only on the information included in the latest beneficiary designation form completed by the Participant and will not be inferred from any other evidence. 

8.Administration.  The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, which shall have all powers with respect to this Agreement as it has with respect to the Plan (to the fullest extent permitted by the Plan).  Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons. If and to the extent of a conflict between this Agreement and the terms of the Plan, the terms of the Plan will govern.

9.No Right to Employment.  The granting of any Award pursuant to this Agreement shall not be deemed (a) to create any obligation on the part of the Company or any Subsidiary to retain the Participant in the employ of, or continue the provision of services to, the Company or any Subsidiary, or (b) to be evidence of any agreement or understanding, express or implied, that the Participant has a right to continue as an employee for any period of time or at any particular rate of compensation.

10.Certificates for Shares; Rights as Shareholder.  The Shares underlying the Award will be represented in a book entry account in the name of the Participant. The Participant shall be entitled to receive dividends during the Restriction Period and shall have the right to vote such Shares and shall have all other Shareholder rights, with the exception that (i) unless otherwise provided by the Committee, if any dividends are paid with respect to the Shares in shares of Company Stock, those shares will be subject to the same restrictions as the Shares, (ii) the Participant will not be entitled to delivery of any stock certificate evidencing the Shares underlying the Award during the Restriction Period, (iii) the Company will retain custody of the Shares underlying the Award during the Restriction Period, and (iv) a breach of a restriction or a breach of the terms and conditions of this Agreement or the Plan will cause a forfeiture of the Award.

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11.Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, the minimum statutory amount to satisfy federal, state and local taxes required by law or regulation to be withheld with respect to any taxable event arising as a result of the grant of the Award and delivery of the Shares. With respect to withholding required upon any taxable event arising as a result of an Award granted hereunder, a Participant may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares of Company Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. All such elections shall be irrevocable, made in writing and signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.

12.Notices.  Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first-class mail.  Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt.  Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s corporate headquarters.

13.Amendment.  This Agreement may be amended only by mutual written agreement of the parties.

14.Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.

15.Severability.  The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

16.Counterparts; Further Instruments. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.

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IN WITNESS WHEREOF, the Participant has executed this Agreement, and the Company has caused this Agreement to be executed in its name and on its behalf, effective as of the Grant Date.

PARTICIPANT

BY:/s/ Richard H. Moore

Richard H. Moore

FIRST BANCORP

BY:/s/ Anna G. Hollers

Its: EVP, Secretary, and Chief Operating Officer

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EX-10.B

Exhibit 10.b

PURCHASE AND ASSUMPTION AGREEMENT

Between

FOUR OAKS BANK & TRUST COMPANY

(“Seller”)

and

FIRST BANK

(“Purchaser”)

PURCHASE AND ASSUMPTION AGREEMENT

ARTICLE I	TRANSFER OF ASSETS AND LIABILITIES		1
	Section 1.1	Transferred Assets	1
	Section 1.2	Purchase Price	2
	Section 1.3	Deposit Liabilities	4
	Section 1.4	Loans Transferred	7
	Section 1.5	Employee Matters	10
	Section 1.6	Safe Deposit Business	12
	Section 1.7	Records and Data Processing; Security	12
	Section 1.8	Taxes and Fees; Proration of Certain Expenses	13
	Section 1.9	Real Property Matters	13
	Section 1.10	Defects in Tangible Personal Property	16
ARTICLE II	CLOSING AND EFFECTIVE TIME		16
	Section 2.1	Effective Time	16
	Section 2.2	Closing	16
	Section 2.3	Post-Closing Adjustments	18
ARTICLE III	INDEMNIFICATION		19
	Section 3.1	Seller’s Indemnification of Purchaser	19
	Section 3.2	Purchaser’s Indemnification of Seller	20
	Section 3.3	Claims for Indemnity	20
	Section 3.4	Limitations on Indemnification	20
	Section 3.5	Exclusive Remedy	21
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF SELLER		21
	Section 4.1	Corporate Organization	21
	Section 4.2	No Violation	21
	Section 4.3	Corporate Authority	22
	Section 4.4	Enforceable Agreement	22
	Section 4.5	No Brokers	22
	Section 4.6	Loans	22
	Section 4.7	Real and Tangible Personal Property	22
	Section 4.8	Compliance with Certain Laws	23
	Section 4.9	Litigation	24
	Section 4.10	Books and Records	24
	Section 4.11	Community Reinvestment Act Representation	24
	Section 4.12	Limitation of Representations and Warranties	24
	Section 4.13	Seller’s Knowledge	24
ARTICLE V	REPRESENTATIONS AND WARRANTIES OF PURCHASER		24
	Section 5.1	Corporate Organization	24
	Section 5.2	No Violation	25
	Section 5.3	Corporate Authority	25
	Section 5.4	Enforceable Agreement	25
	Section 5.5	No Brokers	25

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ARTICLE VI	OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE TIME		25
	Section 6.1	Access to Information	25
	Section 6.2	Delivery of Magnetic Media Records	26
	Section 6.3	Application for Regulatory Approval	26
	Section 6.4	Conduct of Business; Maintenance of Properties; Insurance	26
	Section 6.5	No Solicitation by Seller	27
	Section 6.6	Further Actions	28
	Section 6.7	Fees and Expenses	28
	Section 6.8	Public Announcements	28
	Section 6.9	Tax Reporting	28
	Section 6.10	Telephone Forwarding	28
	Section 6.11	ATM/Debit Cards	28
ARTICLE VII	CONDITIONS TO PURCHASER’S OBLIGATIONS		29
	Section 7.1	Representations and Warranties True	29
	Section 7.2	Real Property	29
	Section 7.3	Obligations Performed	29
	Section 7.4	No Adverse Litigation	29
	Section 7.5	Regulatory Approval	30
ARTICLE VIII	CONDITIONS TO SELLER’S OBLIGATIONS		30
	Section 8.1	Representations and Warranties True	30
	Section 8.2	Obligations Performed	30
	Section 8.3	No Adverse Litigation	30
	Section 8.4	Regulatory Approval	30
ARTICLE IX	TERMINATION		31
	Section 9.1	Methods of Termination	31
	Section 9.2	Procedure Upon Termination	32
	Section 9.3	Payment of Expenses	32
ARTICLE X	MISCELLANEOUS PROVISIONS		32
	Section 10.1	Amendment and Modification	32
	Section 10.2	Waiver or Extension	32
	Section 10.3	Assignment	33
	Section 10.4	Confidentiality	33
	Section 10.5	Time of Essence	33
	Section 10.6	Notices	33
	Section 10.7	Counterparts	34
	Section 10.8	Headings	34
	Section 10.9	Governing Law	34
	Section 10.10	Sole Agreement	34
	Section 10.11	Severability	34
	Section 10.12	Parties In Interest	34

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PURCHASE AND ASSUMPTION AGREEMENT

THIS PURCHASE AND ASSUMPTION AGREEMENT (this “Agreement”) is entered into as of September 26, 2012 between Four Oaks Bank & Trust Company, a North Carolina chartered bank having its principal offices in Four Oaks, North Carolina (“Seller”), and First Bank, a North Carolina chartered bank having its principal offices in Troy, North Carolina (“Purchaser”).

RECITALS:

A.             Seller wishes to divest, upon the terms and conditions set forth herein, certain assets and certain deposit and other liabilities of two branches of Seller located at 1401 Fayetteville Road, Rockingham, North Carolina (the “Rockingham Branch”), and at 105 Commerce Avenue, Southern Pines, North Carolina (the “Southern Pines Branch”) (collectively the “Branches”).

B.             Purchaser wishes to buy such assets and assume such liabilities upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, Seller and Purchaser agree as follows:

ARTICLE I

TRANSFER OF ASSETS AND LIABILITIES

Section 1.1          Transferred Assets.

(a) As of the Effective Time (as defined in Section 2.1) and upon the terms and conditions set forth herein, Seller will sell, assign, transfer, convey and deliver to Purchaser, and Purchaser will purchase from Seller, all of the transferable rights, title and interest of Seller in the following assets associated with the Branches and identified in this Agreement and the Schedules and Exhibits hereto, and not otherwise excluded from sale pursuant to the provisions of Subsection 1.1(b) or Section 1.10 (collectively, the “Transferred Assets”):

(1) subject to Section 1.9 hereof, all transferable right, title and interest of Seller in and to all real estate and improvements thereon (including buildings located on any leased land) at the Rockingham Branch (the “Real Property”), together with all rights and appurtenances pertaining thereto;

(2) the furniture, fixtures, leasehold improvements, equipment and other tangible personal property located on or affixed to the Real Property as listed on Schedule 1.1(a)(2) (collectively, the “Tangible Personal Property”);

(3) all equipment leases for equipment located at the Rockingham Branch and listed on Schedule 1.1(a)(3) (together with related maintenance agreements, the “Equipment Leases”);

(4) all safe deposit contracts and leases for the safe deposit boxes located at the Branches as of the Effective Time (the “Safe Deposit Contracts”);

(5) all Loans as defined herein and transferred pursuant to Section 1.4;

(6) all coins and currency located at the Rockingham Branch as of the Effective Time (the “Coins and Currency”);

(7) originals or copies of all records of Seller pertaining to the Loans, all deposit accounts, and any other customer relationships transferred to Purchaser; and

(8) Seller’s rights in and to the use of the current telephone numbers of the Branches.

(b) Excluded from the assets, properties and rights being transferred, conveyed and assigned to Purchaser under this Agreement are the assets listed on Schedule 1.1(b) hereto, Seller’s rights in and to the name “Four Oaks Bank & Trust Company,” Seller’s rights to and interest in software installed on computers and computer hardware located at the Rockingham Branch, Seller’s right to recover assets charged off by Seller prior to the Effective Time, including, without limitation, charged off loans and demand deposit overdrafts, demand deposit overdrafts outstanding more than thirty (30) days and not covered by overdraft or bounce protection, and any of Seller’s corporate logos, trademarks, trade names, signs, paper stock, forms and other supplies containing any such logos, trademarks or trade names, and trade names and logos of third parties with whom Seller has contracted to provide services to its customers (the “Excluded Assets”). Seller shall remove the Excluded Assets from the Rockingham Branch on or prior to the Effective Time or, as soon thereafter as practicable. Seller shall use due care in removing the Excluded Assets at its own cost and shall make any repairs necessitated by Seller’s negligence in removing the Excluded Assets.

(c) In the event that (i) a loan account that would otherwise be included in the definition of “Loans” is secured by a deposit liability or security account that is not included in the Deposit Liabilities, or (ii) a deposit liability that would otherwise be included in the definition of “Deposit Liability” secures a loan account that is not purchased by Purchaser, such loan account, deposit liability and/or security account shall be excluded from the Transferred Assets and Deposit Liabilities.

Section 1.2          Purchase Price.

(a) As consideration for the purchase of the Transferred Assets, Purchaser shall pay Seller a purchase price (the “Purchase Price”) equal to the sum of the following:

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(1) The aggregate Net Book Value (as defined in Section 1.2(d) hereof) as of the Effective Time for the Real Property and the Tangible Personal Property;

(2) A premium for the Deposit Liabilities (as defined in Section 1.3(a)) and franchise value related to the Branches equal to one percent (1.0 %) of the Deposit Liabilities, excluding accrued interest, based on the 30-day average for the 30 days prior to and including the day before the Closing; provided, however, that the total premium payable by Purchaser under this Section 1.2(a)(2) shall not exceed $628,000 in the aggregate;

(3) The aggregate Loan Value (as defined in Section 1.2(d) hereof) as of the Effective Time for the Loans as set forth in Section 1.4; and

(4) The aggregate face amount of the Coins and Currency.

(b) In addition, Purchaser shall assume, as of the Effective Time (as defined in Section 2.1), all of the duties, obligations and liabilities of Seller relating to the Real Property, the Equipment Leases, the Safe Deposit Contracts, transferred Loans and Deposit Liabilities (including all accrued interest relating thereto) (the “Assumed Liabilities”); provided, that any cash items paid by Seller and not cleared prior to the Effective Time shall be the responsibility of Seller, subject to the terms of Section 1.3; provided, further, that notwithstanding anything in this Agreement to the contrary, in no event shall Purchaser assume any liability arising from any act or omission of Seller prior to the Effective Time that would otherwise constitute a breach of any representation or warranty of Seller hereunder. Thereafter, Purchaser shall fully and timely discharge the duties and obligations of Seller relating to all periods from and after the Closing Date with respect to the Assumed Liabilities as may arise under applicable laws, regulations, agreements and rules of automated clearing houses and other payment systems which relate thereto, and in accordance with the terms of account agreements or other agreements with depositors applicable to such accounts as such terms and agreements are in effect on the Closing Date, except such terms as, under applicable law and agreement, may be changed after the Closing Date.

(c) Seller shall prepare a balance sheet (the “Pre-Closing Balance Sheet”) in accordance with generally accepted accounting principles consistently applied as of a date not earlier than 30 calendar days prior to the Effective Time anticipated by the parties reflecting the assets to be sold and assigned hereunder and the liabilities to be transferred and assumed hereunder, all based on the estimated Net Book Value or Loan Value, as applicable, of Transferred Assets and estimated Assumed Liabilities as of the Effective Time. Seller agrees to pay to Purchaser at the Closing (as defined in Section 2.1), in immediately available funds, the excess amount of the amount of Deposit Liabilities assumed by Purchaser pursuant to Subsection (b) above, as reflected by the Pre-Closing Balance Sheet, over the aggregate Purchase Price computed in accordance with Subsection (a) above, as reflected by the Pre-Closing Balance Sheet. Amounts paid at Closing shall be subject to subsequent adjustment based on the Post-Closing Balance Sheet (as defined in Section 2.3).

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(d) For purposes of this Agreement, “Net Book Value” means an asset’s historical cost, net of accumulated depreciation, as reflected on the books and records of Seller as of the Closing Date.

For purposes of this Agreement, “Loan Value” means, with respect to a Loan (as defined in Section 1.4) and as of a date, the outstanding principal balance of any such Loan plus accrued interest thereon, net of the interest in such Loan of any participant, as of such date.

Section 1.3          Deposit Liabilities.

(a) “Deposit Liabilities” shall mean all of Seller’s duties, obligations and liabilities relating to the deposit accounts (except as set forth in Section 1.3(b)) located at the Branches as of the Effective Time (including accrued but unpaid or uncredited interest thereon). A projected list of the Deposit Liabilities is attached as Schedule 1.3(a), which shall be updated as soon as practicable after Closing.

(b) Except for those liabilities and obligations specifically assumed by Purchaser under Section 1.2(b) above, Purchaser is not assuming any other liabilities or obligations of Seller. Liabilities not assumed include, but are not limited to, the following:

(1) Seller’s official checks, cashier’s checks, letters of credit, money orders, interest checks and expense checks issued prior to closing, gift cards, consignments of U.S. Government “E” and “EE” bonds, and any and all traveler’s checks.

(2) Liabilities or obligations of Seller with respect to any litigation, suits, claims, demands or governmental proceedings arising, commenced or made known to Seller prior to Closing or arising from events occurring prior to Closing.

(3) Deposit accounts associated with lines of credit that do not become transferred Loans.

(4) Deposit accounts associated with qualified retirement plans where Seller is the trustee of such plan or the sponsor of a prototype plan used by such plan.

(5) Deposit accounts associated with Seller’s national or regional account relationships, if any.

(6) Self-directed individual retirement accounts, if any, it being understood that all other types of IRA Deposit Liabilities are intended to be transferred.

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(7) Deposit accounts with negative balances that the Purchaser elects not to assume by so notifying the Seller within 30 calendar days after the Closing Date.

(c) Seller does not represent or warrant that any deposit customers whose accounts are assumed by Purchaser will become or continue to be customers of Purchaser after the Effective Time.

(d) Purchaser agrees to pay in accordance with law and customary banking practices all properly drawn and presented checks, drafts and withdrawal orders presented to Purchaser by mail, over-the-counter or through the check clearing system of the banking industry, by depositors of the accounts assumed, whether drawn on the check, withdrawal or draft forms provided by Seller or by Purchaser, and in all other respects to discharge, in the usual course of the banking business, the duties and obligations of Seller with respect to the balances due and owing to the depositors whose accounts are assumed by Purchaser.

(e) If, after the Effective Time, any depositor, instead of accepting the obligation of Purchaser to pay the Deposit Liabilities assumed, shall demand payment from Seller for all or any part of any such assumed Deposit Liabilities, Seller shall not be liable or responsible for making any such payment; provided, however, that if Seller shall pay the same, Purchaser agrees to reimburse Seller for any payments. Seller shall not be deemed to have made any representations or warranties to Purchaser with respect to any checks, drafts or withdrawal orders processed after the Effective Time drawn on such Deposit Liabilities, and any such representations or warranties implied by law are hereby expressly disclaimed. Seller and Purchaser shall make arrangements to provide for the daily settlement with immediately available funds by Purchaser of checks, drafts, withdrawal orders, returns and other items presented to and paid by Seller within 60 calendar days after the Effective Time and drawn on or chargeable to accounts that have been assumed by Purchaser; provided, however, that Seller shall be held harmless and indemnified by Purchaser for acting in accordance with such arrangements. For a period of 60 calendar days after the Closing Date, Seller agrees to notify Purchaser within one business day of any return items exceeding $2,500.

(f) Purchaser agrees, at its cost and expense, (1) to assign new account numbers to depositors of assumed accounts, if necessary, (2) to notify such depositors, on or before the Effective Time, in a form and on a date mutually acceptable to Seller and Purchaser, of Purchaser’s assumption of Deposit Liabilities, and (3) to furnish such depositors with checks on the forms of Purchaser and with instructions to utilize Purchaser’s checks and to destroy unused check, draft and withdrawal order forms of Seller. (If Purchaser so elects, Purchaser may offer to buy from such depositors their unused Seller check, draft and withdrawal order forms.) In addition, Seller will notify its affected customers by letter of the pending assignment of the Deposit Liabilities to Purchaser, which notice shall be at Seller’s cost and expense and shall be in a form and mailed at a time mutually agreeable to Seller and Purchaser.

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(g) Purchaser agrees to pay promptly to Seller an amount equivalent to the amount of any checks, drafts or withdrawal orders credited to an assumed account as of the Effective Time that are properly returned to Seller after the Effective Time.

(h) As of and after the Effective Time, Purchaser will assume and discharge Seller’s duties and obligations in accordance with the terms and conditions and laws, rules and regulations that apply to the certificates, accounts and other Deposit Liabilities assumed under this Agreement. At the Effective Time, Seller shall provide to Purchaser a written listing of each stop payment order, tax lien, levy, garnishment, pledge, guardianship agreement, or other hold or restriction then in effect with respect to any of the Deposit Liabilities (the “Holds”), and Purchaser shall honor and comply with the terms of all valid Holds described in the above list. If, following receipt of such list, Purchaser makes any payment in violation of any such Hold, then it shall be solely liable for such payment and shall indemnify, hold harmless, and defend Seller from and against all claims, losses and liabilities, including reasonable attorneys’ fees and expenses, arising out of any such payment. In the event that Purchaser shall make any payment in violation of a Hold initiated prior to the Effective Time but not reflected in the above list, then Seller shall be solely liable for such payment and shall indemnify, hold harmless and defend Purchaser from and against all claims, losses, and liabilities, including reasonable attorneys’ fees and expenses, arising out of any such payment.

(i) As of and after the Effective Time, Purchaser will maintain and safeguard in accordance with applicable law and sound banking practices all account documents, deposit contracts, signature cards, deposit slips, canceled items and other records related to the Deposit Liabilities assumed under this Agreement, subject to Seller’s right of access to such records as provided in this Agreement.

(j) Seller will render a final statement to each depositor of an account assumed under this Agreement as to transactions occurring through the Effective Time; provided, however, that Seller shall not be obligated to render a final statement on any account not ordinarily receiving periodic statements in the ordinary course of Seller’s business. Seller will be entitled to impose normal fees and service charges on a per-item basis at Closing, but Seller will not impose periodic fees or blanket charges in connection with such final statements.

(k) Seller will timely provide to Purchaser 1099 data for Purchaser to comply with all laws, rules and regulations regarding 2012 tax reporting of transactions of such assumed accounts through the Effective Time.

(l) As of the Effective Time, Purchaser, at its expense, will notify all Automated Clearing House (“ACH”) originators of the transfers and assumptions made pursuant to this Agreement; provided, however, that Seller may, at its option, notify all such originators itself (on behalf of Purchaser). For a period of 60 calendar days beginning at the Effective Time, Seller will honor all ACH items related to accounts assumed under this Agreement which are routed or presented to Seller. Seller will make no charge to Purchaser for honoring such items and will electronically transmit such ACH data to Purchaser. If Purchaser cannot receive an electronic transmission, Seller will make available to Purchaser at Seller’s operations center receiving items from the ACH tapes containing such ACH data. Items routed or presented after the 60-day period shall be returned to the presenting party. Seller and Purchaser shall make arrangements to provide for the daily settlement with immediately available funds by Purchaser of any ACH items honored by Seller, and Seller shall be held harmless and indemnified by Purchaser for acting in accordance with this arrangement to accept ACH items.

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(m) With respect to Deposit Liabilities in IRAs, Seller will use reasonable efforts and will cooperate with Purchaser in taking any action reasonably necessary or appropriate to accomplish the appointment of Purchaser (or an Affiliate of Purchaser designated by Purchaser) as successor custodian or trustee or the delegation to Purchaser (or an Affiliate of Purchaser) of Seller’s authority and responsibility as custodian of all such IRA deposits except self-directed IRA deposits, including, but not limited to, sending to the depositors thereof appropriate notices, cooperating with Purchaser (or such Affiliate) in soliciting consents from such depositors, executing assignments reasonably satisfactory to Purchaser, and filing any appropriate applications with applicable regulatory authorities. If any such delegation is made to Purchaser (or such Affiliate), Purchaser (or such Affiliate) will perform all of the duties so delegated and comply with the terms of Seller’s agreement with the depositor of the IRA deposits affected thereby. For purposes of this Agreement, “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through owners of voting securities, by contract or otherwise. For purposes of this Section 1.3(m), “Person” means any individual, entity, partnership, joint venture or trust.

If, notwithstanding the foregoing, as of the Closing Date, Purchaser shall be unable to retain deposit liabilities in respect of an IRA or the account holder has notified Seller or Purchaser of the account holder’s objection to Purchaser acting as custodian or trustee of such IRA, such deposit liabilities shall be excluded from Deposit Liabilities for purposes of this Agreement.

Section 1.4          Loans Transferred.

(a) Seller will transfer to Purchaser as of the Effective Time, subject to the terms and conditions of this Agreement, all of Seller’s right, title and interest in (including collateral relating thereto) the loans set forth on Schedule 1.4(a), as such may be updated from time to time prior to the Effective Time in accordance with this Section 1.4 (collectively, the “Loans”); provided, however, that in no event shall the Loans include any loans described in Subsection (b) below. Prior to the Effective Time, Seller shall inform Purchaser of any loans set forth on Schedule 1.4(a) that become “Identified Loans” (as defined below). Between the date hereof and the date that is 45 calendar days after the Effective Time (the “Option Period”), Purchaser will have the option to remove such Identified Loans from Schedule 1.4(a), subject to the cure process described in Section 1.4(b) below. During the Option Period, Purchaser shall have the option to add any of the loans assigned to the Branches as of the Effective Time to Schedule 1.4(a) and such loans shall become Loans, with it agreed that Seller will continue to assign loans to the Branches up to the Effective Time in accordance with past practices. Notwithstanding the foregoing, the aggregate outstanding balance of the Loans on Schedule 1.4(a) shall not exceed $32 million as of the last day of the Option Period.

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The Loans (as well as any security interest related thereto) shall be transferred by means of a blanket (collective) assignment and not individually (except as may be otherwise required by law). Purchaser shall inform Seller not less than 45 calendar days prior to the proposed Closing of any case in which filing information relating to any collateral for the Loans set forth on Schedule 1.4(a) as of the date hereof will be required for preparation of any assignments of liens; provided, that for Loans added to Schedule 1.4(a) during the Option Period, Purchaser shall inform Seller prior to the expiration of the Option Period.

(b) Notwithstanding the foregoing Section 1.4(a), after the Effective Time and prior to the expiration of the Option Period, Purchaser shall notify Seller in writing of the existence of any of the following material defects relating to the Loans (such defects, the “Material Loan Defects,” and any such Loan being called an “Identified Loan”):

(1) Any file, document or record, which is material to the enforceability of a Loan, has been lost or is missing;

(2) A Loan was not originated or has not been administered in compliance in all material respects with applicable laws or the files, documents, and records pertaining to such Loan are not legal, valid and binding or do not contain the true signature of an obligor;

(3) Seller’s rights in any collateral are not perfected or enforceable, or the priority of such rights are not as reflected on Seller’s records; provided, however, that the absence of any such right of Seller in the collateral securing such a Loan must have a material impact on the foreclosure of the Loan in the event of a default; or

(4) A Loan meets any of the conditions set forth in Section 1.4(c) as of the date set forth in each such condition.

Following receipt of any such notice with respect to Material Loan Defects identified prior to the expiration of the Option Period and at any time prior to the date of notification to the customers of the assignment of the Loans pursuant to applicable law, Seller may in its sole discretion attempt to cure any such Material Loan Defect described in this Section 1.4(b) to Purchaser’s reasonable satisfaction. If Seller is unable or unwilling to cure such Material Loan Defect to Purchaser’s reasonable satisfaction, Purchaser shall have the right to reject such Identified Loan in which case such Identified Loan shall not constitute a “Loan.”

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Notwithstanding anything in this Agreement to the contrary, Seller shall not be required to provide access to or disclose information where such access or disclosure would violate or prejudice the legal rights of any customer or employee or attorney-client privilege or would be contrary to law, rule, regulation or any legal or regulatory order or process or any fiduciary duty or binding agreement entered into prior to the date of this Agreement.

(c) Notwithstanding anything in this Section 1.4 to the contrary, in no event shall the Loans include:

(1) as of immediately prior to the Effective Time, nonaccruals (which term shall mean loans in which the collateral securing same has been repossessed, or in which repossession efforts have been instituted, or claim and delivery or foreclosure proceedings have been filed) and classified loans;

(2) loans 60 calendar days or more past due as of immediately prior to the Effective Time;

(3) loans upon which insurance has been force-placed as of immediately prior to the Effective Time;

(4) loans in connection with which the borrower has filed a petition for relief under the United States Bankruptcy Code prior to the Effective Time;

(5) specific loan loss reserves.

For the avoidance of doubt, and to the extent any loans described in subsection (c) above are included on Schedule 1.4(a), this subsection (c) shall supersede such inclusion and such loans shall not constitute “Loans.”

(d) Seller and Purchaser agree that Purchaser will become the beneficiary of credit life insurance written on direct consumer installment Loans and debt cancellation and disability coverage agreements written on any Loans. If Purchaser becomes the beneficiary of credit life insurance or debt cancellation and disability coverage written on any Loans, Seller and Purchaser agree to cooperate in good faith to develop a mutually satisfactory method by which the current insurer will make rebate payments to and satisfy claims of the holders of such certificates of insurance after the Effective Time. The parties’ obligations in this Section 1.4 are subject to any restrictions contained in existing insurance contracts as well as applicable laws and regulations. The parties shall cooperate to resolve any issues related to payment of premiums. If the parties determine that loans subject to debt cancellation and disability coverage cannot be adequately serviced by Purchaser, the parties shall exclude such Loans from purchase hereunder.

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(e) In connection with the transfer of any Loans requiring notice to the borrower, Purchaser and Seller agree to comply with all notice and reporting requirements of the Loan documents or of any law or regulation.

(f) All Loans transferred to Purchaser shall be valued at their Loan Value, such value to include accrued interest.

(g) All Loans will be transferred without recourse to Purchaser and without any warranties or representations, expressed or implied, including, without limitation, warranties as to their collectability or the creditworthiness of any of the obligors of such Loans.

(h) Purchaser will, at its expense, issue new coupon books for payment of Loans for which Seller provides coupon books and will instruct obligors to utilize Purchaser’s coupons and to destroy coupons furnished by Seller.

(i) For a period of 60 calendar days after the Effective Time, Seller will forward to Purchaser loan payments received by Seller. Purchaser shall reimburse Seller upon demand for checks returned on payments forwarded to Purchaser; however, to the extent possible, Seller will deduct the amount of such returned checks from any amounts owed by Seller to Purchaser.

(j) As of the Effective Time, Seller shall transfer and assign all files, documents and records related to the Loans (the “Records”) to Purchaser, and Purchaser will be responsible thereafter for maintaining and safeguarding all the Records in accordance with applicable law and sound banking practices.

(k) If the balance due on any Loan purchased pursuant to this Section 1.4 has been reduced by Seller as a result of a payment by check received prior to the Effective Time, which item is returned after the Effective Time, the asset value represented by the Loan transferred shall be correspondingly increased and an amount in cash equal to such increase shall be paid by Purchaser to Seller promptly upon demand.

(l) Seller shall grant to Purchaser as of the Effective Time a limited power of attorney, in substantially the form attached as Exhibit 1.4(l) (the “Power of Attorney”).

Section 1.5          Employee Matters.

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(a) Purchaser shall offer employment to all employees that (i) are set forth in Schedule 1.5 and (ii) are employed by Seller at the Branches as of the Effective Time (the “Employees”), in their then-respective current functional positions and locations, with remuneration not less than levels at the Effective Time and benefits generally equivalent to benefits offered by Purchaser to similarly situated employees of Purchaser. Purchaser shall complete and deliver to Seller such Schedule 1.5 on or prior to the 90^th calendar day after the date hereof and in any event no later than two calendar days prior to Closing. Purchaser will consider positions for Employees not listed on Schedule 1.5 and may offer such Employees positions at Purchaser’s branches located within forty-five (45) miles of the Branch where such Employee is currently employed. Employees who become employees of Purchaser as of the Effective Time (“Transferred Employees”) shall receive full credit for their prior service with Seller (and with other entities to the extent service with any such entity is treated by Seller as service with it) under Purchaser’s benefit plans and policies, including its vacation and sick leave policies, to the same extent as if the service had been with Purchaser. As of the Effective Time, the Transferred Employees and their dependents, if any, covered under Seller’s health insurance plan before the Effective Time shall be covered under Purchaser’s health insurance plan without being subject to any pre-existing condition limitations or exclusions. Transferred Employees shall not be required to satisfy the deductible and employee payments required by Purchaser’s comprehensive medical and/or dental plans for the calendar year of the Effective Time (i) to the extent of amounts previously credited during such calendar year under comparable plans maintained by Seller, or (ii) to the extent the same are waived in their entirety by the applicable insurer, as determined by the applicable insurer in its sole discretion. With respect to Purchaser’s qualified and nonqualified pension plans, Transferred Employees shall receive full credit for prior service with Seller (and with other entities to the extent service with any such entity is treated by Seller as service with it) for purposes of determining their participation eligibility and vesting rights to the same extent as if the service had been with Purchaser. Benefits under Purchaser’s pension plans for Transferred Employees shall be determined solely with reference to service with Purchaser. Notwithstanding any of the foregoing, the Transferred Employees will not be eligible to participate in the First Bancorp Employees’ Pension Plan.

(b) Purchaser will provide to any Transferred Employee whom it terminates without cause at any time within one year following the Closing, severance pay in an amount equal to the greater of (i) two weeks’ pay for every full year of service to Seller (and with other entities to the extent service with any such entity is treated by Seller as service with it) at his or her current salary or (ii) four weeks’ pay at his or her current salary. Purchaser’s determination of the presence or absence of cause under this Section 1.5(b) shall be conclusive absent bad faith, and its calculations of severance pay shall be conclusive absent manifest error.

(c) Seller makes no representations or warranties about whether any of the Employees will become and remain employed by Purchaser after the Effective Time. Seller will use commercially reasonable efforts to maintain the Employees as employees of Seller at the Branches until the Effective Time. Purchaser shall have no responsibilities or rights with respect to any employee of Seller whose employment shall be terminated for any reason prior to the Effective Time or who shall elect not to become an employee of Purchaser. Seller agrees that, for a period of 12 months after the Effective Time, it will not solicit for employment any Transferred Employee who remains employed by Purchaser; provided, however, that such prohibition shall not apply to solicitations which are directed to the general public.

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(d) Following the Closing, all Employees that are not Transferred Employees will remain employees of Seller (the “Retained Employees”). In connection with any termination of the Retained Employees by Seller, Seller will provide severance pay in an amount consistent with Seller’s policies and previous practice. Purchaser shall have no obligations or liabilities with respect to the Retained Employees, including without limitation, wages, salaries, payroll taxes, employee benefits, and severance benefits; provided, however, in the event the number of Transferred Employees is less than ten (10) Employees, Purchaser agrees to pay Seller an amount equal to (i) $7,000 multiplied by (ii) the difference between (A) ten (10) and (B) the number of Transferred Employees.

(e) Seller shall permit Purchaser to train prospective Transferred Employees of the Branches before Closing with regard to Purchaser’s operations, policies and procedures at Purchaser’s sole cost and expense, and Purchaser shall reimburse Seller for any incremental employee wages related to periods of time during which the employees are trained, including overtime pay resulting from such training. This training may, as mutually agreed upon by Seller and Purchaser, take place at the Branches or other mutually agreed upon location and may take place during business hours; provided, however, that any training that occurs shall be conducted in a manner not disruptive to operation of the Branches.

Section 1.6          Safe Deposit Business.

(a) As of the Effective Time, Purchaser will assume and discharge Seller’s obligations with respect to the safe deposit box business at the Branches in accordance with the terms and conditions of contracts or rental agreements related to such business, and Purchaser will maintain all facilities necessary for the use of such safe deposit boxes by persons entitled to use them.

(b) As of the Effective Time, Seller shall transfer and assign the records related to such safe deposit box business to Purchaser, and Purchaser shall maintain and safeguard all such records and be responsible for granting access to and protecting the contents of safe deposit boxes at the Branches.

(c) Safe deposit box rental payments (not including late payment fees) collected by Seller before the Effective Time shall be prorated as of the Effective Time.

Section 1.7          Records and Data Processing; Security.

(a) As of the Effective Time, Purchaser shall become responsible for maintaining the files, documents and records referred to in this Agreement. Purchaser will preserve and safekeep them as required by applicable law and sound banking practice. After the Effective Time, Purchaser will permit Seller and its representatives, at reasonable times and upon reasonable notice, to examine, inspect, copy and reproduce (at Seller’s expense) any such files, documents or records as Seller deems reasonably necessary.

(b) As of the Effective Time, Seller will permit Purchaser and its representatives, at reasonable times and upon reasonable notice, to examine, inspect, copy and reproduce (at Purchaser’s expense) files, documents or records retained by Seller regarding the Transferred Assets and Assumed Liabilities as Purchaser deems necessary.

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(c) It is understood that certain of Seller’s records may be available only in the form of photocopies, film copies or other non-original and non-paper media.

(d) As of the Effective Time, Purchaser shall solely be responsible for the security of and insurance on all persons and property located in or about the Rockingham Branch.

Section 1.8          Taxes and Fees; Proration of Certain Expenses.

Purchaser shall be responsible for the payment of all fees and taxes related to this transaction, provided, that Purchaser shall not be responsible for, or have any liability with respect to, taxes on any income to Seller arising out of the transactions herein, and Seller agrees that it shall pay, or represents that it has paid, in a timely manner any and all such income taxes. Purchaser shall not be responsible for any income tax liability of Seller arising from the business or operations of the Branches before the Effective Time, and Seller shall not be responsible for any tax liabilities of Purchaser arising from the Transferred Assets or Assumed Liabilities after the Effective Time. Utility payments, telephone charges, personal property taxes, rent, salaries, deposit insurance premiums, other ordinary operating expenses of the Branches and other expenses related to the liabilities assumed or assets purchased hereunder shall be prorated between the parties as of the Effective Time. To the extent any such item has been prepaid by Seller for a period extending beyond the Effective Time, there shall be a proportionate monetary adjustment in favor of Seller.

Section 1.9          Real Property Matters.

(a) Seller agrees to deliver to Purchaser, as soon as reasonably possible after the execution of this Agreement but no later than ten (10) business days from the date of execution of this Agreement, copies of all title and/or lease information in possession of Seller, including without limitation (i) title information in possession of Seller, including, but not limited to, title insurance policies, attorneys’ opinions on title, surveys, covenants, deeds, notes and mortgages and easements relating to the Real Property, and (ii) reports, surveys, notices, correspondence or other information known to Seller that relate to the environmental condition of the Real Property or violations of laws or regulations relating to the environment. Such delivery shall constitute no warranty by Seller as to the accuracy or completeness thereof or that Purchaser is entitled to rely thereon.

(b) At its option and expense, Purchaser may cause to be conducted, within forty-five (45) calendar days after the date of this Agreement (the “Study Period”), (i) a title examination, physical survey, zoning compliance review, and structural inspection of the Real Property and improvements thereon (the “Property Examination”) and (ii) site inspections, regulatory analyses and Phase I environmental assessments of the Real Property, together with such other studies and analyses as Purchaser shall deem necessary or desirable (the “Environmental Survey”); provided, however, that without the prior written consent of Seller, Purchaser shall not conduct any soil, surface water or groundwater sampling (“Intrusive Testing”).

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(c) If, in the course of the Property Examination or Environmental Survey, Purchaser discovers a “Material Property Defect” (as defined in Section 1.9(d) below) with respect to the Real Property, Purchaser will give prompt written notice thereof to Seller (but in any event prior to 5:00 p.m. on the last day of the Study Period) describing the facts or conditions constituting the Material Property Defect and the measures which Purchaser reasonably believes are necessary to correct such Material Property Defect. If Purchaser provides Seller with written notice of a Material Property Defect within the Study Period, then Seller and Purchaser shall promptly discuss and seek to reach agreement as to an acceptable cure or other resolution of the asserted Material Property Defect. Seller shall respond to Purchaser’s notice before 5:00 p.m. on the tenth (10^th) business day after its receipt, advising Purchaser whether Seller elects to cure the Material Property Defect. If Seller elects to cure, then Seller shall proceed with such cure and shall complete such cure within thirty (30) calendar days thereafter or within such additional period as shall be agreed upon by Seller and Purchaser, provided, that completion of the cure shall be a condition to Purchaser’s obligation to close.

If Seller elects not to cure or is not able to cure any Material Property Defect with respect to the Real Property and the Purchaser and Seller are otherwise unable to agree on how the Material Property Defect will be addressed in order to effect Closing on the Real Property, or if Seller does not consent to any Intrusive Testing reasonably proposed by Purchaser with respect to the Real Property, then Purchaser shall have the option exercisable upon written notice to Seller delivered at least ten (10) business days prior to Closing to (i) waive the Material Property Defect; or (ii) purchase the Transferred Assets (other than the Real Property) and assume the Deposits associated with the affected Branch but, lease such Real Property “as is” without any representation or warranty or liability for existing environmental damage, maintenance, taxes or insurance for a period of up to twelve (12) months, on a month-by-month basis, at a reasonable cost and with reasonable terms to be agreed upon by Seller and Purchaser, in order to allow for relocation of the business of such Branch to another facility.

(d) For purposes of this Agreement a “Material Property Defect” with regard to the Property Examination shall include:

(1) the existence of any uninsurable lien (other than the lien of real property taxes not yet due and payable), encumbrance, easement, covenant, or other restriction, title imperfection or title irregularity, or the existence of any facts or condition that constitutes a material breach of Seller’s representations and warranties contained in Section 4.7 below, in any such case that will materially affect Purchaser’s use of the Real Property for the purpose of the operation of a branch bank or materially affects the value or marketability of the Real Property;

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(2) the encroachment by an improvement on the Real Property onto other property or onto any easement, a violation of any setback requirement, the encroachment of an improvement on any other property onto the Real Property, or the existence of a zoning restriction that does not permit use of the Real Property as a branch banking facility without grandfathering or variance and without site plan review or the construction of any additional improvements; or

(3) the existence of any structural defect or state of disrepair in the improvements on the Real Property (including any equipment, fixtures or other components related thereto) that would cost at least $50,000 to repair or correct.

For purposes of this Section 1.9, a “Material Property Defect” with regard to the Environmental Survey shall include the existence of facts or circumstances relating to the Rockingham Branch demonstrating that any action, including the discharge, disposal, release, or emission by any person of any “Hazardous Material” (as defined below) detected in, on, or under the Real Property in a concentration that violates any applicable Environmental Law (as defined below), has been taken or not taken, or a condition or event likely has occurred or exists, with respect to the Real Property which constitutes or would constitute a violation of any Environmental Law, as to which Purchaser reasonably believes, based on the advice of legal counsel or other consultants, could become responsible or liable for assessment, removal, remediation, monetary damages, or civil, criminal or administrative penalties or other corrective action and in connection with which the amount of expense or liability which it could incur or for which it could become responsible or liable following consummation of the transactions contemplated by this Agreement at any time or over a period of time could equal or exceed $10,000 in the aggregate.

(e) For purposes of this Agreement, “Environmental Laws” shall include all federal, state, and local statutes, regulations, ordinances, orders, decrees, and similar provisions having the force or effect of law relating to or imposing liability, responsibility, or standards of conduct applicable to environmental, health, or safety conditions and/or releases of Hazardous Materials affecting the Real Property, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act; the Superfund Amendment and Reauthorization Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Oil Pollution Act; the Coastal Zone Management Act; any “Superfund” or “Superlien” law; the North Carolina Oil Pollution and Hazardous Substances Control Act; the North Carolina Solid Waste Management Act; and the North Carolina Water and Air Resources Act; including any amendments thereto from time to time; all contractual agreements and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including, without limitation, all standards of conduct and bases of obligations relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, reporting, testing, processing, discharge, release, threatened release, control or clean-up of any Hazardous Substances.

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(f) For purposes of this Agreement, “Hazardous Material” means any materials, substances, wastes, chemical substances, or mixtures presently listed, defined, designated, or classified as hazardous, toxic, or dangerous, or otherwise regulated, under any Environmental Law, whether by type or quantity, including, but not limited to, any pesticides, pollutants, contaminants, toxic chemicals, oil or other petroleum products or byproducts, asbestos or materials containing (or presumed to contain) asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, lead or lead containing paint, radon, or radioactive material.

Section 1.10          Defects in Tangible Personal Property.

Purchaser will be given the opportunity to conduct such other investigations and inspections of the Tangible Personal Property of Seller at the Branches, as Purchaser may reasonably deem appropriate; provided, however, that Purchaser must conduct any such review within forty-five (45) calendar days from the date of this Agreement or, in the case of items that become Tangible Personal Property of Seller at the Branches after such review, within a reasonable time following identification of such Tangible Personal Property and before the Closing. If Purchaser reasonably determines in good faith that any such Tangible Personal Property is unsuitable for Purchaser’s use or of materially less value than its Net Book Value, Purchaser shall have no obligation to accept, assume, or pay for such Tangible Personal Property and such Tangible Personal Property shall not be Transferred Assets, and the Preliminary Closing Statement or the Final Closing Statement shall be adjusted accordingly.

ARTICLE II

CLOSING AND EFFECTIVE TIME

Section 2.1          Effective Time.

The purchase of assets and assumption of liabilities provided for in this Agreement shall occur at a closing (the “Closing”) to be held at a mutually agreeable time and location (i) within 15 calendar days following the date of all approvals by regulatory agencies and after all statutory waiting periods have expired, or (ii) on the day that is the five month anniversary of the date of this Agreement, whichever is later, or at such earlier date on which the parties shall mutually agree.  The parties agree to cause the Closing to occur as expeditiously as reasonably practical after all conditions to Closing have been met. The effective time (the “Effective Time”) shall be 5:00 p.m. local time on the day on which the Closing occurs (the “Closing Date”).

Section 2.2          Closing.

(a) All actions taken and documents delivered at the Closing shall be deemed to have been taken and delivered simultaneously, and no action shall be deemed taken nor any document delivered until all have been taken and delivered.

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(b) At the Closing, subject to all the terms and conditions of this Agreement, Seller shall execute, where appropriate, and deliver or make reasonably available to Purchaser:

(1) The general warranty deed and related documentation or lease and related documentation required pursuant to Section 1.9(c);

(2) A Bill of Sale, in substantially the form attached as Exhibit 2.2(b)(2) (the “Bill of Sale”), transferring to Purchaser all of Seller’s interest in the Tangible Personal Property and other assets;

(3) An Assignment and Assumption Agreement, in substantially the form attached as Exhibit 2.2(b)(3) (the “Assignment and Assumption Agreement”), assigning Seller’s interest in the Equipment Leases, the Safe Deposit Contracts, the Loans and Deposit Liabilities;

(4) Consents from third persons that are required to effect the assignments set forth in the Assignment and Assumption Agreement, including, but not limited to, the lessors under the Equipment Leases (to the extent required by such leases);

(5) Seller’s keys to the safe deposit boxes and Seller’s records related to the safe deposit box business at the Rockingham Branch;

(6) Seller’s files and records related to the Loans;

(7) Seller’s records related to the Deposit Liabilities assumed by Purchaser;

(8) Immediately available funds in the net amount shown as owing to Purchaser by Seller on the Closing Statement, if any;

(9) The Coins and Currency;

(10) Such of the other assets to be purchased as shall be capable of physical delivery;

(11) A certificate of a proper officer of Seller, dated as of the Closing Date, certifying the fulfillment of all conditions which are the obligation of Seller and that all of the representations and warranties of Seller set forth in this Agreement remain true and correct in all material respects as of the Effective Time;

(12) A certified copy of a resolution of the Board of Directors of Seller, or its Executive Committee, approving this Agreement and the transactions contemplated hereby;

(13) Such certificates and other documents as Purchaser and its counsel may reasonably require to evidence (i) the receipt by Seller of all necessary corporate and regulatory authorizations and approvals for the consummation of the transactions provided for in this Agreement, (ii) the transfer and sale to Purchaser of the Assets and (iii) the perfection of Purchaser’s security interest in the Loans;

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(14) A Closing Statement, substantially in the form attached as Exhibit 2.2(b)(14) (the “Closing Statement”); and

(15) The Power of Attorney substantially in the form attached as Exhibit 1.4(l).

It is understood that the items listed in Subsections (b)(5), (9) and (10) shall be transferred after the Branches have closed for business on the Closing Date and that the records listed in Subsections (b)(6) and (7) will be transferred as soon as practicable after the Closing, but in no event more than five (5) business days after the Closing. For purposes of this Agreement, the term “business day” shall mean any day that Seller is open for business.

(c) At the Closing, subject to all the terms and conditions of this Agreement, Purchaser shall execute, where appropriate, and deliver to Seller:

(1) The Assignment and Assumption Agreement;

(2) A certificate and receipt acknowledging the delivery and receipt of possession of the property and records referred to in this Agreement;

(3) Immediately available funds in the net amount shown as owing to Seller by Purchaser on the Closing Statement, if any;

(4) A certificate of a proper officer of Purchaser, dated as of the Closing Date, certifying the fulfillment of all conditions which are the obligation of Purchaser and that all of the representations and warranties of Purchaser set forth in this Agreement remain true and correct in all material respects as of the Effective Time;

(5) A certified copy of a resolution of the Board of Directors of Purchaser, or its Executive Committee, approving this Agreement and the transactions contemplated hereby;

(6) Such certificates and other documents as Seller and its counsel may reasonably require to evidence the receipt by Purchaser of all necessary corporate and regulatory authorizations and approvals for the consummation of the transactions provided for in this Agreement; and

(7) The Closing Statement.

(d) All instruments, agreements and certificates described in this Section 2.2 shall be in form and substance reasonably satisfactory to the parties’ respective legal counsel.

Section 2.3          Post-Closing Adjustments.

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(a) Not later than 100 calendar days after the Effective Time, Seller shall deliver to Purchaser a balance sheet dated as of the Effective Time and prepared in accordance with generally accepted accounting principles consistently applied reflecting the Transferred Assets and the Assumed Liabilities (including any adjustments to the same required by Section 1.4) (the “Post-Closing Balance Sheet”). Additionally, Seller shall deliver to Purchaser within such 100-day period a list of Loans purchased, individually identified by account number, which list shall be appended to the Bill of Sale. Seller shall afford Purchaser and its accountants and attorneys the opportunity to review all work papers and documentation used by Seller in preparing the Post-Closing Balance Sheet. On or before the 15^th business day following delivery of the Post-Closing Balance Sheet (the “Adjustment Payment Date”), Seller and Purchaser shall effect the transfer of any funds as may be necessary to reflect changes in such assets and liabilities between the Pre-Closing Balance Sheet and the Post-Closing Balance Sheet, together with interest thereon computed from the Effective Time to the Adjustment Payment Date at the applicable Federal Funds Rate (as hereinafter defined).

(b) In the event that a dispute arises as to the appropriate amounts to be paid to either party on the Adjustment Payment Date, each party shall pay to the other on such Adjustment Payment Date all amounts other than those as to which a dispute exists. Any disputed amounts retained by a party which are later found to be due to the other party shall be paid to such other party promptly upon resolution with interest thereon from the Adjustment Payment Date to the date paid at the applicable Federal Funds Rate. In the event of an unresolved dispute, either party may submit the matter to a firm of certified public accountants mutually agreeable to Seller and Purchaser (the “Mediator”), which shall determine such dispute in accordance with the terms and conditions of this Agreement within 30 calendar days after the submission. The parties shall each pay one-half of the fees and expenses of the Mediator, except that the Mediator may assess the full amount of its fees and expenses against either party if it determines that such party negotiated the Post-Closing Balance Sheet in bad faith. The Post-Closing Balance Sheet, as agreed upon by the parties and determined under this Subsection, shall be final and binding upon the parties.

(c) The “Federal Funds Rate” shall mean the rate quoted for Federal Funds in the Money Rates Column of the Wall Street Journal, adjusted daily, for the period beginning with the first calendar day following the Effective Time and ending with the Adjustment Payment Date.

ARTICLE III

INDEMNIFICATION

Section 3.1          Seller’s Indemnification of Purchaser.

Subject to limitations in this Article III, Seller shall indemnify, hold harmless and defend Purchaser from and against any costs, expenses, liabilities, losses or damages, including without limitation reasonable attorneys’ fees and expenses, but excluding consequential, punitive, exemplary, special or incidental damages (a “Loss”) incurred by Purchaser and caused by any breach by Seller of any representation or warranty contained herein, and any Loss arising out of any claims, actions, suits or proceedings commenced prior to the Effective Time or arising out of events occurring prior to the Effective Time relating to operations at the Branches, except to the extent of liabilities expressly assumed or payable hereunder by Purchaser. Claims for indemnity must be made within the time frame set forth in Section 3.3(a).

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Section 3.2          Purchaser’s Indemnification of Seller.

Subject to limitations in this Article III, Purchaser shall indemnify, hold harmless and defend Seller from and against any Loss incurred by Seller and caused by any breach by Purchaser of any representation or warranty contained herein and any Loss arising out of any claims, actions, suits or proceedings arising out of events occurring following the Effective Time relating to the Transferred Assets or Assumed Liabilities. Claims for indemnity must be made within the time frame set forth in Section 3.3(a).

Section 3.3          Claims for Indemnity.

(a) A claim for indemnity under Sections 3.1 or 3.2 of this Agreement shall be made by the claiming party prior to the expiration of one (1) year after the Effective Time by giving a notice of claim to the other party. Such notice shall set forth in reasonable detail the basis upon which such claim for indemnity is made. In the event that any such claim is timely made, the indemnity relating to such claim shall survive until the claim is resolved. Claims not made within such one-year period shall cease and no indemnity shall be made therefor.

(b) In the event that prior to the expiration period set forth in Section 3.3(a), any person or entity not a party to this Agreement shall make any demand or claim or file or threaten to file any lawsuit, which demand, claim or lawsuit may result in any liability, damage or loss to one party hereto of the kind for which such party is entitled to indemnification pursuant to Section 3.1 or 3.2, then, after notice is provided by the indemnified party to the indemnifying party of such demand, claim or lawsuit, the indemnifying party shall have the option, at its cost and expense, to retain counsel for the indemnified party to defend any such demand, claim or lawsuit. In the event that the indemnifying party shall fail to respond within ten (10) business days after receipt of such notice of any such demand, claim or lawsuit, then the indemnified party shall retain counsel and conduct the defense of such demand, claim or lawsuit as it may in its discretion deem proper, at the cost and expense of the indemnifying party. In effecting any settlement of any such demand, claim or lawsuit, an indemnified party shall act in good faith, shall consult with the indemnifying party and shall enter into only such settlement as the indemnifying party shall approve (the indemnifying party’s approval will be implied if it does not respond within ten (10) business days of its receipt of the notice of such settlement offer).

Section 3.4          Limitations on Indemnification.

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Notwithstanding anything to the contrary contained in this Article III, neither party shall have been deemed to have incurred any Loss with respect to a claim under this Article III until the Loss arising from such claim exceeds $1,000. Notwithstanding anything to the contrary contained in this Article III, no indemnification shall be required to be made by either party unless and until the aggregate amount of all claims for indemnity by the other party exceeds $35,000, in which case the party shall thereupon be entitled to indemnification for all amounts in excess of such threshold. Notwithstanding anything to the contrary contained in this Article III, the maximum liability of each party, in the aggregate, under this Agreement shall not exceed ten percent (10%) of the Purchase Price. Each of the parties hereto acknowledges and agrees that the foregoing limitations contained in this Section 3.4 do not apply to Losses for fraud, criminal activity or willful misconduct. IN ADDITION, THE PARTIES SHALL HAVE NO OBLIGATIONS UNDER THIS ARTICLE III FOR ANY CONSEQUENTIAL, PUNITIVE, EXEMPLARY, SPECIAL OR INCIDENTAL DAMAGES OR LOSSES THE INDEMNIFIED PARTY MAY SUFFER AS THE RESULT OF ANY DEMAND, CLAIM OR LAWSUIT.

Section 3.5          Exclusive Remedy.

The parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this Article III. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their affiliates and each of their respective representatives arising under or based upon any statute, law, decree, regulation or order of any governmental authority, except pursuant to the indemnification provisions set forth in this Article III. Nothing in this Section 3.5 shall limit any party’s right to seek and obtain any equitable relief to which any party shall be entitled or to seek any remedy on account of any party’s fraudulent, criminal or intentional misconduct.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller makes no representations or warranties to Purchaser except as specifically set forth in this Article IV. Seller hereby represents and warrants to Purchaser as follows:

Section 4.1          Corporate Organization.

Seller is a North Carolina banking corporation and a state chartered member of the Federal Reserve System, validly existing and in good standing under the laws of North Carolina. Seller has the corporate power and authority to own its properties, to carry on its business as currently conducted and to effect the transactions contemplated herein.

Section 4.2          No Violation.

The Branches have been operated in all material respects in accordance with applicable laws, rules and regulations. The execution, delivery and performance of this Agreement by Seller does not, and will not, (i) violate any provision of its charter or bylaws, (ii) violate any provision of any material agreement or any other material restriction of any kind to which Seller is a party or by which Seller is bound, (iii) any provision which will result in a default under, or which will cause the acceleration of the maturity of, any material obligation or loan to which Seller is a party, or (iv) subject to the receipt of the necessary regulatory approvals of the transactions provided in this Agreement, violate or constitute a breach of, or default under, any law, rule, regulation, judgment, decree, ruling or order of any court, government or governmental agency to which Seller is subject or under any agreement or instrument of Seller, or to which Seller is subject or is a party or by which Seller is otherwise bound, or to which any of the Transferred Assets, the Deposit Liabilities, the Equipment Leases, the Safe Deposit Contracts or the Loans (except for any required consents in respect of the transactions herein contemplated) or the Branches are subject, which violation, breach, contravention or default referred to in this clause would be materially disadvantageous or burdensome to Purchaser or could impair the validity or consummation of this Agreement or the transactions contemplated hereby.

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Section 4.3          Corporate Authority.

The execution and delivery of this Agreement, and the consummation of the transactions contemplated herein, have been duly authorized by Seller, and no further corporate authorization is necessary for Seller to consummate the transactions contemplated hereunder.

Section 4.4          Enforceable Agreement.

This Agreement has been duly authorized, executed and delivered by Seller and is the legal, valid and binding agreement of Seller, enforceable against Seller in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

Section 4.5          No Brokers.

In the negotiation of this Agreement, there has been no participation or intervention by any person, firm or corporation engaged by Seller, other than Raymond James, that would give rise to any claim against Purchaser for a finder’s fee, commission, or similar payment.

Section 4.6          Loans.

(i)          Seller has good title to each Loan being purchased by Purchaser and each is a valid loan in conformity with applicable laws and regulation in all material respects; (ii) the documentation relating to each Loan accurately reflects the payment history, the outstanding balance of the Loan, and all receipts pertaining to the Loan from the obligor(s) thereof and all credits to which such obligor(s) are entitled in all material respects; (iii) to Seller’s knowledge, all signatures on and executions of any documents by Seller in connection with each Loan are genuine; (iv) with respect to each Loan that is secured, Seller has a valid and enforceable lien on the collateral described in the documents relating to such Loan, and such lien has the priority described in Seller’s loan files relating to such Loan (except as enforceability may be limited by bankruptcy laws and other similar laws relating to creditors’ rights and principles of equity); (v) no material taxes or other liability of Seller shall accrue against or be collected from Purchaser out of any Loan by reason of the purchase thereof by Purchaser; (vi) Seller has paid or caused to be paid any and all material license, franchise, intangible, stamp or other tax or fee due and owing to any state where a Loan originated, or any political subdivision thereof, arising from or growing out of the acquisition, collection or holding of any such Loan; and (vii) neither Seller nor any of its agents, officers, employees or representatives in any manner has been guilty of any civil or criminal fraud with respect to the creation of any such Loan or with respect to the transfer, assignment and sale of the same to Purchaser hereunder.

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Section 4.7          Real and Tangible Personal Property.

(a) Seller makes the following representations regarding the Real Property:

(1) Seller has not received any notice of any condemnation or eminent domain proceedings or negotiations for the purchase of the Real Property in lieu of condemnation, and to Seller’s Knowledge, no condemnation or eminent domain proceedings or negotiations have been commenced or threatened in connection with the Branches.

(2) Except as specifically set forth herein or disclosed to Purchaser in writing within 30 business days after the execution of this Agreement, Seller has not entered into any agreement regarding the Real Property, and the Real Property is not subject to any claim, demand, suit, lien, proceeding or litigation of any kind (including any pursuant to environmental laws, rules or regulations), pending or outstanding, or to the knowledge of Seller, threatened or likely to be made or instituted, which would in any way be binding upon Purchaser or its successors or assigns or materially affect or limit Purchaser’s or its successors’ or assigns’ use and enjoyment of the Real Property or which would materially limit or restrict Purchaser’s right or ability to enter into this Agreement and consummate the sale and purchase contemplated hereby.

(3) As to the Real Property owned by Seller, Seller has or will have at Closing good and marketable fee simple title to the Real Property and, immediately prior to the Effective Time, will own the Real Property outright subject to no mortgage, pledge, lien, security interest, lease, charge, encumbrance or conditional sales or other title retention agreement except for real property taxes not yet due and payable, and easements and rights of way which do not materially interfere with the use of the Real Property as a Branch. The Real Property complies with applicable zoning regulations.

(b) Except as disclosed in any Phase I and/or other environmental reports made available by Seller to Purchaser, to the knowledge of Seller without further inspection, Seller has not been nor is in material violation of Environmental Law as to the Real Property. Seller makes no representation as to the accuracy of the Phase I environmental reports made available to Purchaser.

(c) Seller owns, and will convey to Purchaser at the Closing, all of Seller’s right, title and interest to all of the Tangible Personal Property free and clear of any claims, mortgages, liens, security interests, pledges or encumbrances of any kind, except as may otherwise be set forth in this Agreement.

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Section 4.8           Compliance with Certain Laws.

The Deposits and Loans were opened, extended or made, and have been maintained, in all material respects in accordance with all applicable federal and state laws, regulations, rules and orders.

Section 4.9           Litigation.

There are no actions, suits or proceedings pending, or to Seller’s knowledge, threatened, against Seller related to the Transferred Assets or the transactions contemplated by this Agreement.

Section 4.10          Books and Records.

Since December 31, 2010, the books, accounts, and records of the Branches have been maintained as required by law in all material respects, in accordance with sound banking practices, and in a manner consistent with past practices, which, as they relate to financial accounting, is in accordance with generally accepted accounting principles to the extent applicable.

Section 4.11          Community Reinvestment Act Representation.

Seller is in compliance with the Community Reinvestment Act and its implementing regulations, and there are no threatened or pending actions, proceedings, or allegations by any person or regulatory agency which may cause any regulatory authority to deny any application required to be filed pursuant to this Agreement. In addition, Seller has not been advised of any supervisory concerns regarding its compliance with the Community Reinvestment Act.

Section 4.12           Limitation of Representations and Warranties.

Except as may be expressly represented or warranted in this Agreement by Seller, Seller makes no representations or warranties whatsoever with regard to any asset being transferred to Purchaser or any liability or obligation being assumed by Purchaser or as to any other matter or thing.

Section 4.13          Seller’s Knowledge.

For the purposes of this Agreement, Seller’s knowledge is limited to the actual and current knowledge of President and Chief Executive Officer Ayden R. Lee, Jr., Chief Banking Officer Jeff D. Pope, and the Branch Managers for each of the Rockingham Branch and the Southern Pines Branch.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

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Section 5.1          Corporate Organization.

Purchaser is a North Carolina chartered bank duly organized, validly existing and in good standing under the laws of the State of North Carolina. Purchaser has the corporate power and authority to own the Transferred Assets, to assume the Assumed Liabilities and to effect the transactions contemplated herein.

Section 5.2          No Violation.

The execution, delivery and performance of this Agreement by Purchaser does not, and will not, (i) violate any provision of its charter or bylaws, (ii) violate any provision of any material agreement or any other material restriction of any kind to which Purchaser is a party or by which Purchaser is bound, (iii) any provision which will result in a default under, or which will cause the acceleration of the maturity of, any material obligation or loan to which Purchaser is a party, or (iv) subject to the receipt of the necessary regulatory approvals of the transactions provided in this Agreement, violate or constitute a breach of, or default under, any law, rule, regulation, judgment, decree, ruling or order of any court, government or governmental agency to which Purchaser is subject or under any agreement or instrument of Purchaser, or to which Purchaser is subject or is a party or by which Purchaser is otherwise bound, which violation, breach, contravention or default referred to in this clause would be materially disadvantageous or burdensome to Seller or could impair the validity or consummation of this Agreement or the transactions contemplated hereby.

Section 5.3          Corporate Authority.

The execution and delivery of this Agreement, and the consummation of the transactions contemplated herein, will have been duly authorized by Purchaser prior to the Effective Time, and no further corporate authorization on the part of Purchaser is necessary to consummate the transactions contemplated hereunder.

Section 5.4          Enforceable Agreement.

This Agreement has been duly authorized, executed and delivered by Purchaser and is the legal, valid and binding agreement of Purchaser enforceable against Purchaser in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

Section 5.5          No Brokers.

In the negotiation of this Agreement, there has been no participation or intervention by any person, firm or corporation engaged by Purchaser, other than Sandler O’Neill, that would give rise to any claim against Seller for a finder’s fee, commission, or similar payment.

ARTICLE VI

OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE TIME

Section 6.1          Access to Information.

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(a) Seller shall afford to the officers and authorized representatives of Purchaser, upon prior notice and subject to Seller’s normal security requirements, access to the properties, books and records of the Branches in order to facilitate the consummation of the transactions herein contemplated; provided, that such access shall be at reasonable times during normal business hours and shall not interfere with the normal business and operations of the Branches or the affairs of Seller relating to the Branches. Nothing in this Section 6.1 shall require Seller to breach any obligation of confidentiality or to reveal any proprietary information, trade secrets or marketing or strategic plans. It is understood that certain of Seller’s records may be available only in the form of photocopies, film copies or other non-original and non-paper media.

(b) Seller and Purchaser each acknowledge and agree that any information provided to it is subject to the terms of the Confidentiality Agreement dated December 17, 2010, between Seller and Purchaser (the “Confidentiality Agreement”).

Section 6.2          Delivery of Magnetic Media Records.

Seller shall prepare or cause to be prepared, at its expense, and make available to Purchaser at Seller’s data processing center magnetic media records in Seller’s field format not later than 45 calendar days after the execution of this Agreement, and further shall make available to Purchaser such records updated two times as of mutually agreeable dates prior to the Closing Date and as of the Closing Date, which records shall contain the information related to the items described in Subsections 2.2(b)(6) and (b)(7). Such updated records shall be made available at such time after Closing as agreed to by the parties. Seller may, with the consent of Purchaser, provide such reports in paper format instead of magnetic media format.

Section 6.3          Application for Regulatory Approval.

Within 30 calendar days following the execution of this Agreement, Purchaser shall prepare and file applications required by law with the appropriate regulatory authorities for approval to purchase the Transferred Assets and assume the Assumed Liabilities and to effect in all other respects the transactions contemplated herein. Purchaser agrees to process such applications in a diligent manner and on a priority basis and to provide Seller promptly with a copy of such applications as filed (except for any confidential portions thereof) and all material notices, orders, opinions, correspondence and other documents with respect thereto, and to use its best efforts to obtain all necessary regulatory approvals. Purchaser knows of no reason why such applications should not receive all such approvals. Purchaser shall promptly notify Seller upon receipt by Purchaser of notification that any application provided for hereunder has been denied. Seller shall provide such assistance and information to Purchaser as shall be reasonably necessary for Purchaser to comply with the requirements of the applicable regulatory authorities.

Section 6.4          Conduct of Business; Maintenance of Properties; Insurance.

(a) From the date hereof until the Effective Time, Seller covenants that it will:

(1) Carry on, or cause to be carried on, the business of the Branches substantially in the same manner as on the date hereof, including maintenance of records in accordance with past practices, use all reasonable efforts to preserve intact its current business organization, and preserve its business relationships with depositors, customers and others having business relationships with it and whose accounts are held at the Branches; provided, that Seller need not, in its sole discretion, advertise or promote new or substantially new customer services in the principal market areas of the Branches;

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(2) Cooperate with and assist Purchaser in assuring the orderly transition of the Transferred Assets and Assumed Liabilities to Purchaser from Seller; and

(3) Maintain the Real Property and the Tangible Personal Property in its current condition, ordinary wear and tear excepted.

(b) Between the date hereof and the Effective Time, Seller shall not, without the prior consent of Purchaser:

(1) Increase or agree to increase the salary, remuneration, compensation or other employment benefits of the Employees other than in accordance with Seller’s customary policies or bank-wide changes consistent with past practices, or pay or agree to pay any uncommitted bonus to any such Employees other than regular bonuses granted based on historical practice;

(2) Change any pricing on deposit accounts at the Branches on other than a regional basis, except as may be required in the ordinary course of business consistent with past practices;

(3) Materially increase the staffing levels at the Branches or effect changes in branch personnel employed as of the Effective Time other than in the ordinary course of business consistent with past practices; or

(4) Sell or transfer any assets or liabilities related to the Branches, except in the ordinary course of business.

Notwithstanding the foregoing, Seller may enter into any agreement to sell or lease all transferable right, title and interest of Seller in and to all real estate and improvements thereon (including buildings located on any leased land) at the Southern Pines Branch, together with all rights and appurtenances pertaining thereto other than Transferred Assets; provided, that such sale or lease shall not be consummated prior to the Closing Date.

(c) As of the Effective Time, Seller will discontinue its insurance coverage maintained in connection with the Rockingham Branch and the activities conducted thereon. Purchaser shall be responsible for all insurance protection for the Rockingham Branch premises and the activities conducted thereon immediately following the Effective Time. Pending the Closing, risk of loss shall be the responsibility of Seller.

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Section 6.5          No Solicitation by Seller.

In consideration of the purchase of the Transferred Assets and assumption of the Assumed Liabilities by Purchaser, neither Seller nor its Affiliates (including their respective directors, officers, employees or principal shareholders), successors or assigns will, for a period of twelve (12) months after the Closing Date, solicit, on behalf of itself or others, deposits from customers whose Deposits are assumed by Purchaser hereunder; provided, however, that nothing contained in this Section 6.5 shall be deemed to prohibit general solicitations in (i) newspapers, (ii) television or (iii) radio, or mass mailings not specifically directed or targeted to customers of the Branches.

Section 6.6          Further Actions.

Each party hereto shall execute and deliver such instruments and take such other actions as the other party may reasonably require in order to carry out the intent of this Agreement.

Section 6.7          Fees and Expenses.

Except as otherwise provided herein, each party shall be responsible for its own attorneys’ and accountants’ fees and expenses and other expenses arising in connection with this Agreement and the transactions contemplated thereby.

Section 6.8          Public Announcements.

Seller and Purchaser agree that, from the date hereof, neither shall make any public announcement or public comment, regarding this Agreement or the transactions contemplated herein without first obtaining the approval of the substance and timing of such announcement or comment by the other party hereto, which approval shall not be unreasonably withheld or delayed, except that nothing contained in this Agreement shall prevent the parties hereto, or the respective holding company of each party hereto, from making any disclosure legally required to comply with any applicable securities laws and regulations or the rules and regulations of any securities exchange upon which the securities of the parties hereto, or the respective holding company of each party hereto, are listed. Further, Seller and Purchaser acknowledge the sensitivity of this transaction to the Employees, and no announcements or communications with the public or the Employees shall be made without the prior approval of Seller.

Section 6.9          Tax Reporting.

Seller shall provide Purchaser all 1099 data for Purchaser to comply with all 2012 tax reporting obligations in connection with Transferred Assets and Assumed Liabilities on or before the Effective Time, and Purchaser shall comply with all tax reporting obligations with respect to the Transferred Assets and Assumed Liabilities after the Effective Time.

Section 6.10          Telephone Forwarding.

Seller shall take all necessary steps to cause the current main telephone number for the Southern Pines Branch to roll to Purchaser’s bank branch located at the Pinecrest Plaza shopping center for a period of three (3) months after the Closing Date.

Section 6.11          ATM/Debit Cards.

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Seller will provide Purchaser with a list of ATM access/debit cards issued  by Seller to depositors associated with the Deposit Liabilities and a data processing record in a format reasonably agreed to by the parties containing all addresses therefor, no later than forty-five (45) calendar days after the date of this Agreement.  At or promptly after the Closing, Seller will provide Purchaser with a revised data processing record.  Seller shall render ATM access/debit cards issued by Seller inactive as of the Effective Time.  Purchaser shall reissue ATM access/debit cards to depositors associated with the Deposit Liabilities prior to the Closing Date, which cards shall be effective as of the Effective Time.

ARTICLE VII

CONDITIONS TO PURCHASER’S OBLIGATIONS

The obligations of Purchaser to complete the transactions contemplated in this Agreement are conditioned upon fulfillment, on or before the Closing, of each of the following conditions:

Section 7.1          Representations and Warranties True.

The representations and warranties made by Seller in this Agreement shall be true in all material respects on and as of the Effective Time as though such representations and warranties were made at and as of such time, except to the extent otherwise provided herein or consented to by Purchaser; provided, however, if a representation or warranty was made as of a specific date, such representation or warranty shall be understood to have been made on and as of such date.

Section 7.2          Real Property.

Purchaser shall have received either (a) a general warranty deed with appropriate documentary stamps affixed conveying each piece of Real Property to Purchaser subject to all matters of record in the public registries of the counties in which each of the Real Property is located, together with such other instruments and documents as may be reasonably required by Purchaser’s title insurance company in order to meet its requirements to issue a commercial title insurance policy with respect to the Real Property, and Seller shall have filed or recorded (or provided to Purchaser for filing and recording) any and all documents necessary to duly vest an equitable title in the Real Property in Purchaser or (b) in the event that (i) Seller is unable to deliver the documentation required in clause (a) above or (ii) as required by Section 1.9(c), a lease for a period of up to twelve (12) months, on a month-by-month basis, at a reasonable cost and with reasonable terms to be agreed upon by Seller and Purchaser “as is” without any representation or warranty or liability for existing environmental damage, maintenance, taxes or insurance.

Section 7.3          Obligations Performed.

Seller shall (a) deliver or make available to Purchaser those items required by Section 2.2, and (b) perform and comply in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or on the Effective Time.

Section 7.4          No Adverse Litigation.

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As of the Effective Time, no action, suit or proceeding shall be pending or threatened against Purchaser or Seller which might materially and adversely affect the transactions contemplated hereunder.

Section 7.5          Regulatory Approval.

(a) Purchaser shall have received all necessary regulatory approvals of the transactions provided in this Agreement, all notice and waiting periods required by law to pass shall have passed, no proceeding to enjoin, restrain, prohibit or invalidate such transactions shall have been instituted or threatened, and any conditions of any such regulatory approval shall have been met.

(b) Such approvals shall not have imposed any condition which is materially disadvantageous or burdensome to Purchaser.

ARTICLE VIII

CONDITIONS TO SELLER’S OBLIGATIONS

The obligations of Seller to complete the transactions contemplated in this Agreement are conditioned upon fulfillment, on or before the Closing, of each of the following conditions:

Section 8.1          Representations and Warranties True.

The representations and warranties made by Purchaser in this Agreement shall be true in all material respects at and as of the Effective Time as though such representations and warranties were made at and as of such time, except to the extent otherwise provided herein or consented to by Seller; provided, however, if a representation or warranty was made as of a specific date, such representation or warranty shall be understood to have been made on and as of such date.

Section 8.2          Obligations Performed.

Purchaser shall (a) deliver to Seller those items required by Section 2.2 and (b) perform and comply in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or on the Effective Time.

Section 8.3          No Adverse Litigation.

As of the Effective Time, no action, suit or proceeding shall be pending or threatened against Purchaser or Seller which might materially and adversely affect the transactions contemplated hereunder.

Section 8.4          Regulatory Approval.

(a) Purchaser shall have received from the appropriate regulatory authorities approval of the transactions contemplated herein, waiting periods required by law to pass shall have passed, no proceeding to enjoin, restrain, prohibit or invalidate such transactions shall have been instituted or threatened, and any conditions of any such regulatory approval shall have been met.

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(b) Such approvals shall not have imposed any condition which is materially disadvantageous or burdensome to Seller.

ARTICLE IX

TERMINATION

Section 9.1          Methods of Termination.

This Agreement may be terminated in any of the following ways:

(a) by either Purchaser or Seller, in writing five calendar days in advance of such termination, if the Closing has not occurred by May 31, 2013; provided, that the failure to close is not caused by the default of the party seeking to terminate this Agreement;

(b) at any time on or prior to the Effective Time by the mutual consent in writing of Purchaser and Seller;

(c) by Purchaser in writing if the conditions set forth in Article VII (with the exception of delivery of items required to be delivered at Closing) of this Agreement shall not have been met by Seller or waived in writing by Purchaser within 30 calendar days following the date all required approvals by regulatory agencies have been received and after all statutory waiting periods have expired;

(d) by Seller in writing if the conditions set forth in Article VIII of this Agreement shall not have been met by Purchaser or waived in writing by Seller within 30 calendar days following the date all required approvals by regulatory agencies have been received and after all statutory waiting periods have expired;

(e) any time prior to the Effective Time, by Purchaser or Seller in writing if the other shall have been in breach of any representation and warranty in any material respect (as if such representation and warranty had been made on and as of the date hereof and on the date of the notice of breach referred to below), or in breach of any covenant, undertaking or obligation contained herein, and such breach has not been cured by the earlier of 30 calendar days after the giving of notice to the breaching party of such breach or the Effective Time; provided, however, that there shall be no cure period in connection with any breach of Section 6.3, so long as such breach by Purchaser was not caused by any action or inaction of Seller, and Seller may terminate this Agreement immediately if regulatory applications are not filed within 30 calendar days after the date of this Agreement as provided in that Section;

(f) by either party in writing at any time after any applicable regulatory authority has denied approval of any application of Purchaser for approval of the transactions contemplated herein; or

31

(g) by Seller or Purchaser in writing if the anticipated aggregate Loan Value of the Loans set forth on Schedule 1.4(a), as updated pursuant to Section 1.4 is less than $18,000,000.

Section 9.2          Procedure Upon Termination.

In the event of termination pursuant to Section 9.1 and except as otherwise stated therein, written notice thereof shall be given to the other party, and this Agreement, except as provided in Section 6.1(b), shall terminate, immediately upon receipt of such notice unless an extension is consented to by the party having the right to terminate. If this Agreement is terminated as provided herein,

(a) each party will return all documents, work papers and other materials of the other party, including photocopies or other duplications thereof, relating to this transaction, whether obtained before or after the execution hereof, to the party furnishing the same; and

(b) all information received by either party hereto with respect to the business of the other party (other than information which is a matter of public knowledge or which has heretofore been published in any publication for public distribution or filed as public information with any governmental authority) shall not at any time be used for any business purpose by such party or disclosed by such party to third persons.

Section 9.3          Payment of Expenses.

Should the transactions contemplated herein not be consummated due to termination of this Agreement pursuant to Section 9.1(e), in addition to such damages as may be recoverable at law or in equity, the non-breaching party shall be entitled to recover from the breaching party, upon demand, itemization and documentation, its reasonable outside legal, accounting, consulting and other out-of-pocket expenses.

ARTICLE X

MISCELLANEOUS PROVISIONS

Section 10.1          Amendment and Modification.

The parties hereto, by mutual consent of their duly authorized officers, may amend, modify and supplement this Agreement in such manner as may be agreed upon by them in writing.

Section 10.2          Waiver or Extension.

Except with respect to required approvals of the applicable governmental authorities, either party, by written instrument signed by a duly authorized officer, may extend the time for the performance of any of the obligations or other acts of the other party and may waive (a) any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto or (b) compliance by the other party with any of the undertakings, obligations, covenants or other acts contained herein.

32

Section 10.3          Assignment.

This Agreement and all of the provisions hereof shall be binding upon, and shall inure to the benefit of, the parties hereto and their permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other.

Section 10.4          Confidentiality

Seller and Purchaser agree that the Confidentiality Agreement shall survive the execution hereof and the consummation of the transactions contemplated herein.

Section 10.5          Time of Essence.

TIME IS OF THE ESSENCE WITH RESPECT TO THE OBLIGATIONS TO BE PERFORMED UNDER THIS AGREEMENT.

Section 10.6          Notices.

All notices, requests, demands, consents and other communications provided for hereunder and under the related documents shall be in writing and transmitted by nationally recognized air courier (charges prepaid), faxed, or personally delivered (with receipt thereof acknowledged), effective upon receipt, to the applicable party at the address indicated below:

If to Seller: Four Oaks Bank & Trust Company

6114 U.S. 301 South

Post Office Box 309

Four Oaks, North Carolina 27524

Attn: Ayden R. Lee, Jr.
Telephone: (919) 963-2177

Fax: (919) 963-2768

With a copy to: Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.

150 Fayetteville Street, Suite 2300

Raleigh, North Carolina 27601

Attn: John L. Jernigan

Telephone: (919) 821-1220

Fax: (919) 821-6800

If to Purchaser: First Bank

341 North Main Street

Troy, North Carolina 27371

Attn: Jerry L. Ocheltree

Telephone: (910) 576-6171

Fax: (910) 576-1070

33

With a copy to: Robinson, Bradshaw & Hinson

Attn: Henry H. Ralston

101 North Tryon St., Suite 1900

Charlotte, North Carolina 28246

Telephone: (704) 377-8313

Fax: (704) 373-3913

or, as to each party, at such other address as shall be designated by such party by notice to the other party complying with the terms of this Section.

Section 10.7          Counterparts.

This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement and any subsequent amendment hereto may be delivered either by a party or its counsel by facsimile machine or by PDF document via email to the other party or its counsel, and the signatures so transmitted shall be deemed to constitute original signatures and are binding on the party so signing. After any such transmission, the parties shall further deliver to each other original or hard copies, with original signatures, of this Agreement or any such amendment, but such further delivery, or failure thereof, shall not affect the validity or timing of this Agreement or any such amendment.

Section 10.8          Headings.

The headings of the Sections and Articles of this Agreement are inserted for convenience only and shall not constitute a part thereof.

Section 10.9          Governing Law.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of North Carolina.

Section 10.10        Sole Agreement.

Except for the Confidentiality Agreement, this Agreement and the exhibits and attachments hereto represent the sole agreement between the parties respecting the transactions contemplated hereby, and all prior or contemporaneous written or oral proposals, agreements in principle, representations, warranties and understandings between the parties with respect to such matters are superseded hereby and merged herein.

Section 10.11         Severability.

If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect.

Section 10.12         Parties In Interest.

34

Nothing in this Agreement, express or implied, including, without limitation the provisions of Section 1.5, is intended or shall be construed to confer upon or give to any person (other than the parties hereto, their successors and permitted assigns) any rights or remedies under or by reason of this Agreement, or any term, provision, condition, undertaking, warranty, representation, indemnity, covenant or agreement contained herein.

[Signature Page Follows.]

35

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers as of the date first written above.

SELLER:

FOUR OAKS BANK & Trust Company

By: /s/ Ayden R. Lee, Jr.

Name: Ayden R. Lee, Jr.

Title: Chairman/President/CEO

PURCHASER:

FIRST BANK

By: /s/ Jerry L. Ocheltree

Name: Jerry L. Ocheltree

Title: President

36

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

SCHEDULE AND EXHIBIT LIST

Schedule No.	Description
1.1(a)(2)	Tangible Personal Property
1.1(a)(3)	Equipment Leases
1.1(b)	Excluded Assets
1.3(a)	Deposit Liabilities
1.4(a)	Loans
1.5	Employees
Exhibit No.	Description
1.4(l)	Power of Attorney
2.2(b)(2)	Form of Bill of Sale
2.2(b)(3)	Form of Assignment and Assumption Agreement
2.2(b)(14)	Form of Closing Statement

SCHEDULE 1.1(a)(2)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

Tangible Personal Property

SCHEDULE 1.1(a)(3)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

Equipment Leases

SCHEDULE 1.1(b)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

Excluded Assets

SCHEDULE 1.3(a)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

Deposit Liabilities

SCHEDULE 1.4(a)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

Loans

SCHEDULE 1.5

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

Employees

EXHIBIT 1.4(l)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

POWER OF ATTORNEY

THIS POWER OF ATTORNEY is dated as of the____________ day of __________ 2012, by Four Oaks Bank & Trust Company, a North Carolina chartered bank (“Seller”), to be effective as of 5:00 p.m. on __________ _______, 2012.

W I T N E S S E T H:

WHEREAS, Seller and ________________ (“Purchaser”) have entered into a Purchase and Assumption Agreement dated as of _______________, 2012 (the “Agreement”), which provides for the sale by Seller to Purchaser of certain personal property; and

WHEREAS, in a Bill of Sale to Purchaser dated ___________, 2012 (the “Bill of Sale”), Seller has agreed, from time to time, at the request of Purchaser to execute, acknowledge and deliver to Purchaser any and all instruments, documents, endorsements, assignments, information, materials and other papers that may be reasonably required to (i) transfer to Purchaser certain Assets (as defined in the Bill of Sale) being acquired by Purchaser pursuant to the Agreement, including loans and the collateral therefor to the extent of Seller’s interest in such collateral and files and records relating to such loans, (ii) enable Purchaser to bill, collect, service and administer the loans transferred thereby and (iii) give full force and effect to the intent and purpose of the Bill of Sale.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Seller hereby irrevocably appoints and authorizes the President or any Vice President, or the Secretary or any Assistant Secretary, of Purchaser as its attorney-in-fact solely for the purpose of endorsing and recording, pursuant to the Bill of Sale, certificates of title for vehicles, amendments to financing statements, continuation statements, financing statements, assignments of deeds of trust and similar documents related to the Transferred Assets transferred pursuant to the Bill of Sale, provided, that such power of attorney is not intended to and does not convey to Purchaser any right to endorse or record any documents relating to collateral other than collateral transferred pursuant to the Bill of Sale as described in the preceding paragraph.

IN WITNESS WHEREOF, Seller has caused this Power of Attorney to be duly executed by its duly authorized officer as of the day and year first above written.

WITNESSES:	FOUR OAKS BANK & TRUST COMPANY
	By:
	Its:

STATE OF NORTH CAROLINA

JOHNSTON COUNTY

Before me, the undersigned Notary Public, in and for the State and County aforesaid, duly commissioned, qualified and acting, personally appeared ____________________, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged him/herself to be ____________________ of Four Oaks Bank & Trust Company, a North Carolina chartered bank, and s/he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the bank by him/herself as such officer

WITNESS my hand and official seal of office at ____________________, ________________, North Carolina, this the ____ day of ____________________, 2012.

	Notary Public
My commission expires:

EXHIBIT 2.2(b)(2)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

BILL OF SALE

THIS BILL OF SALE is dated as of the ____ day of ______________, 2012, by Four Oaks Bank & Trust Company, a North Carolina chartered bank (“Seller”).

W I T N E S S E T H:

WHEREAS, Seller and First Bank, a North Carolina chartered bank (“Purchaser”), have entered into a Purchase and Assumption Agreement dated as of _____________, 2012 (the “Agreement”), which provides for the sale by Seller to Purchaser of certain real and personal property and loans related to Seller’s offices located at 1401 Fayetteville Road, Rockingham, North Carolina, and at 105 Commerce Avenue, Southern Pines, North Carolina, all as set forth in the Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings given such terms in the Agreement.

NOW, THEREFORE, Seller, for good and valuable consideration, receipt of which is hereby acknowledged, does hereby grant, bargain, sell, assign, set over, convey and transfer to Purchaser all of its right, title and interest in and to the following assets (the “Assets”): the Tangible Personal Property, Coins and Currency (as defined in the Agreement), and all of Seller’s files and records related to the Loans and Deposit Liabilities (as defined in the Agreement).

This Bill of Sale is subject to the terms of the Agreement. Seller agrees that the representations, warranties, covenants, agreements and indemnities contained in the Agreement shall not be superseded hereby but shall remain in full force and effect to the full extent provided therein. In the event of any conflict or inconsistency between the terms of the Agreement and the terms hereof, the terms of the Agreement shall govern.

IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be duly executed by its duly authorized officers as of the day and year first above written.

FOUR OAKS BANK & TRUST COMPANY
 

By:

Name:

Title:

EXHIBIT 2.2(b)(3)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into as of the ____ day of _______________, 2012, by and between Four Oaks Bank & Trust Company, a North Carolina chartered bank (“Seller”), and First Bank, a North Carolina chartered bank (“Purchaser”).

W I T N E S S E T H:

WHEREAS, Seller and Purchaser have entered into a Purchase and Assumption Agreement dated as of _____________, 2012 (the “Agreement”), which provides for the assignment by Seller of all of its rights and interests in and to certain deposit accounts and other liabilities related to Seller’s office located at the Branches as defined in the Agreement, and the assumption by Purchaser of Seller’s liabilities and obligations thereunder, all as set forth in the Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings given such terms in the Agreement.

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, receipt of which is hereby acknowledged by Seller and Purchaser, Seller hereby assigns, transfers and sets over to Purchaser all of Seller’s rights and interest in and to, and Purchaser hereby assumes all of Seller’s liabilities and obligations in connection with, the following assets (the “Assets”);

(a) the Deposit Liabilities;

(b) the Loans;

(c) the Equipment Leases; and

(d) the Safe Deposit Contracts.

This Assignment and Assumption Agreement shall be binding upon, and shall inure to the benefit of, Seller, Purchaser, and each of their successors and assigns and shall be subject to the terms and conditions of the Agreement. In the event of a conflict between any of the terms and provisions hereof and the Agreement, the Agreement shall be deemed to control. The Seller makes the representations and warranties with respect to the Assets contained in the Agreement.

This Assignment and Assumption Agreement, and the rights and obligations of the parties hereunder, shall be governed by, and construed in accordance with, the laws of the State of North Carolina.

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be executed by their duly authorized officers as of the day and year first above written.

FOUR OAKS BANK & TRUST COMPANY

By:

Name:

Title:

FIRST BANK

By:

Name:

Title:

EXHIBIT 2.2(b)(14)

PURCHASE AND ASSUMPTION AGREEMENT

Between

Four Oaks Bank & Trust Company

and First Bank

CLOSING STATEMENT

(Pre-Closing Balance Sheet as of ______________)

Cash due Purchaser for:
Deposit liability (including
accrued interest)	$
Total Cash due Purchaser	$
Cash due Seller for:
Coins and Currency
Premium for Deposit Liabilities
Loans (including accrued interest)
Employee severance payments
Prepayments
Total Cash due Seller	$
Net cash due Purchaser	$

[Signature Page Follows.]

Seller and Purchaser hereby approve the Closing Statement and agree to make subsequent adjustments to the extent necessary in accordance with Section 2.3 of the Purchase and Assumption Agreement between Seller and Purchaser dated as of ___________, 2012.

This the ____ day of _______________, 2012.

FOUR OAKS BANK & TRUST COMPANY

By:

Name:

Title:

FIRST BANK

By:

Name:

Title:

EX-12

Exhibit 12

FIRST BANCORP

COMPUTATION OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

($ in thousands, except for ratios)

(Unaudited)

	Nine Months Ended September 30,						Years Ended December 31,
	2012			2011			2011			2010			2009			2008			2007
Including Interest on Deposits:
Earnings:
Income (loss) before income taxes	$	2,862			19,739			21,012			14,942			97,877			35,125			34,960
Fixed charges		13,796			18,438			23,973			32,087			49,075			61,483			69,837
Total earnings	$	16,658			38,177			44,985			47,029			146,952			96,608			104,797
Fixed charges:
Interest on deposits	$	12,075			16,684			21,351			29,930			45,518			53,241			59,553
Interest on borrowings		1,485			1,619			2,214			1,977			3,377			7,947			9,886
Amortization of debt issuance costs		—			—			—			—			—			115			219
Interest portion of rental expense (1)		236			135			408			180			180			180			179
Total fixed charges	$	13,796			18,438			23,973			32,087			49,075			61,483			69,837
Preferred dividend requirements		2,277			2,440			3,234			3,250			3,169			—			—
Total fixed charges and preferred dividends	$	16,073			20,878			27,207			35,337			52,244			61,483			69,837
Ratio of earnings to fixed charges, including interest on deposits		1.21	x		2.07	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		1.04	x		1.83	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	$	2,862			19,739			21,012			14,942			97,877			35,125			34,960
Fixed charges		1,721			1,754			2,622			2,157			3,557			8,242			10,284
Total earnings (loss)	$	4,583			21,493			23,634			17,099			101,434			43,367			45,244
Fixed charges:
Interest on borrowings	$	1,485			1,619			2,214			1,977			3,377			7,947			9,886
Amortization of debt issuance costs		—			—			—			—			—			115			219
Interest portion of rental expense (1)		236			135			408			180			180			180			179
Total fixed charges	$	1,721			1,754			2,622			2,157			3,557			8,242			10,284
Preferred dividend requirements		2,277			2,440			3,234			3,250			3,169			—			—
Total fixed charges and preferred dividends	$	3,998			4,194			5,856			5,407			6,726			8,242			10,284
Ratio of earnings to fixed charges, excluding interest on deposits		2.66	x		12.25	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		1.15	x		5.12	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.

November 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.

November 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 September 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
November 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 September 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
November 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

Earnings Per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic EPS
Net income (loss) available to common shareholders	$ 3,735	$ (732)	$ 254	$ 7,286
Shares (denominator)	16,988,150	16,875,918	16,955,130	16,843,716
Basic EPS	$ 0.22	$ (0.04)	$ 0.01	$ 0.43
Diluted EPS per common share
Effect of Dilutive Securities		27,113		27,294
Income (numerator)	$ 3,735	$ (732)	$ 254	$ 7,286
Shares (denominator)	16,988,150	16,903,031	16,955,130	16,871,010
Diluted EPS per common share	$ 0.22	$ (0.04)	$ 0.01	$ 0.43

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Loans and Asset Quality Information (Details 9) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Provisions	$ 7,073	$ 9,146	$ 35,095	$ 31,423
Ending balance - total	2,137,074	2,058,724	2,137,074	2,058,724	2,069,152
Commercial, financial and agricultural
Beginning balance	5,061	3,905	3,780	4,731	4,731
Charge-offs	(571)	(102)	(2,633)	(1,998)	(2,703)
Recoveries	219	15	253	51	389
Provisions	468	161	3,777	1,195	1,363
Ending balance	5,177	3,979	5,177	3,979	3,780
Individually evaluated for impairment	871	145	871	145	60
Collectively evaluated for impairment	4,306	3,834	4,306	3,834	3,720
Loans acquired with deteriorated credit quality
Ending balance - total	171,716	169,545	171,716	169,545	172,357
Individually evaluated for impairment	951	2,377	951	2,377	2,526
Collectively evaluated for impairment	170,765	167,168	170,765	167,168	169,831
Loans acquired with deteriorated credit quality
Real Estate construction, land development & other land loans
Beginning balance	17,819	11,790
Charge-offs	(4,628)	(3,937)
Recoveries	487	220
Provisions	1,109	3,215
Real estate residential, farmland and mutli-family
Beginning balance	14,959	12,084	13,532	11,283	11,283
Charge-offs	(1,399)	(1,349)	(5,635)	(6,945)	(9,045)
Recoveries	92	286	346	579	719
Provisions	1,731	1,456	7,140	7,560	10,575
Ending balance	15,383	12,477	15,383	12,477	13,532
Individually evaluated for impairment	369	49	369	49	150
Collectively evaluated for impairment	15,014	12,428	15,014	12,428	13,382
Loans acquired with deteriorated credit quality
Ending balance - total	826,953	785,412	826,953	785,412	795,655
Individually evaluated for impairment	5,546	12,940	5,546	12,940	11,880
Collectively evaluated for impairment	821,407	772,472	821,407	772,472	783,775
Loans acquired with deteriorated credit quality
Real estate home equity lines of credit
Beginning balance	2,146	1,849	1,690	3,634	3,634
Charge-offs	(1,098)	(189)	(1,830)	(953)	(1,147)
Recoveries	10	10	129	53	107
Provisions	825	97	1,894	(967)	(904)
Ending balance	1,883	1,767	1,883	1,767	1,690
Individually evaluated for impairment
Collectively evaluated for impairment	1,883	1,767	1,883	1,767	1,690
Loans acquired with deteriorated credit quality
Ending balance - total	203,154	211,999	203,154	211,999	207,436
Individually evaluated for impairment	275	528	275	528	527
Collectively evaluated for impairment	202,879	211,471	202,879	211,471	206,909
Loans acquired with deteriorated credit quality
Real estate commercial
Beginning balance	5,719	2,859	3,414	3,972	3,972
Charge-offs	(1,247)	(1,149)	(3,417)	(2,529)	(3,355)
Recoveries	21	5	68	33	37
Provisions	1,354	1,303	5,782	1,542	2,760
Ending balance	5,847	3,018	5,847	3,018	3,414
Individually evaluated for impairment	1,276	25	1,276	25	200
Collectively evaluated for impairment	4,571	2,993	4,571	2,993	3,214
Loans acquired with deteriorated credit quality
Ending balance - total	640,578	576,459	640,578	576,459	587,183
Individually evaluated for impairment	29,901	30,833	29,901	30,833	30,846
Collectively evaluated for impairment	611,487	545,626	611,487	545,626	556,337
Loans acquired with deteriorated credit quality
Consumer
Beginning balance	1,791	1,960	1,872	1,961	1,961
Charge-offs	(307)	(173)	(993)	(533)	(845)
Recoveries	82	9	214	112	182
Provisions	315	78	788	334	574
Ending balance	1,881	1,874	1,881	1,874	1,872
Individually evaluated for impairment
Collectively evaluated for impairment	1,881	1,874	1,881	1,874	1,872
Loans acquired with deteriorated credit quality
Ending balance - total	56,235	59,653	56,235	59,653	58,436
Individually evaluated for impairment		17		17	12
Collectively evaluated for impairment	56,235	59,636	56,235	59,636	58,424
Loans acquired with deteriorated credit quality
Unallocated
Beginning balance	28	18	16	174	174
Charge-offs		(179)		(415)	(524)
Recoveries		24		97	93
Provisions	168	131	180	138	273
Ending balance	196	(6)	196	(6)	16
Individually evaluated for impairment
Collectively evaluated for impairment	196	(6)	196	(6)	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	47,253	34,465
Charge-offs	(9,250)	(7,078)
Recoveries	911	569
Provisions	5,970	6,441
Real Estate construction, land development and other land loans
Beginning balance			11,306	12,520	12,520
Charge-offs			(7,480)	(13,519)	(16,240)
Recoveries			801	471	1,142
Provisions			10,160	11,816	13,884
Ending balance	14,787	11,288	14,787	11,288	11,306
Individually evaluated for impairment	109	655	109	655	607
Collectively evaluated for impairment	14,678	10,633	14,678	10,633	10,699
Loans acquired with deteriorated credit quality
Ending balance - total	236,960	254,361	236,960	254,361	246,805
Individually evaluated for impairment	14,187	39,651	14,187	39,651	34,750
Collectively evaluated for impairment	222,773	214,710	222,773	214,710	212,055
Loans acquired with deteriorated credit quality		922		922	920
Non-covered
Beginning balance			35,610	38,275	38,275
Charge-offs			(21,988)	(26,892)	(33,859)
Recoveries			1,811	1,396	2,669
Provisions			29,721	21,618	28,525
Ending balance	45,154	34,397	45,154	34,397	35,610
Individually evaluated for impairment	2,625	874	2,625	874	1,017
Collectively evaluated for impairment	42,529	33,523	42,529	33,523	34,593
Loans acquired with deteriorated credit quality
Ending balance - total	2,135,596	2,135,596	2,135,596	2,135,596	2,067,872
Individually evaluated for impairment	50,050	86,346	50,050	86,346	80,541
Collectively evaluated for impairment	2,085,546	1,971,083	2,085,546	1,971,083	1,987,331
Loans acquired with deteriorated credit quality		922		922	920
Non-covered | Real estate residential, farmland and mutli-family
Ending balance - total	826,953		826,953		795,655
Non-covered | Real estate home equity lines of credit
Ending balance - total	203,154		203,154		207,436
Non-covered | Real estate commercial
Ending balance - total	640,578		640,578		587,183
Non-covered | Consumer
Ending balance - total	56,235		56,235		58,436
Non-covered | Real Estate construction, land development and other land loans
Ending balance - total	$ 236,960		$ 236,960		$ 246,805

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Loans and Asset Quality Information (Details 3) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 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	(42,651)	(40,576)
Transfers to foreclosed real estate	(15,106)	(53,999)
Loan charge-offs	(6,816)	(14,797)
Accretion of loan discount	10,455	11,598
Balance, ending, carrying value	$ 299,252	$ 353,370

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Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Recurring | Fair Value
Securities available for sale:
Government-sponsored enterprise securities	$ 20,614	$ 34,665
Mortgage-backed securities	128,533	124,105
Corporate bonds	3,857	12,488
Equity securities	8,403	11,368
Total available for sale securities	161,407	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	454	398
Total available for sale securities	454	398
Recurring | Significant Other Observable Inputs (Level 2)
Securities available for sale:
Government-sponsored enterprise securities	20,614	34,665
Mortgage-backed securities	128,533	124,105
Corporate bonds	3,857	12,488
Equity securities	7,949	10,969
Total available for sale securities	160,953	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	55,564	55,690
Impaired loans - non-covered	107,935	85,286
Other real estate - covered	58,367	85,272
Other real estate - non-covered	38,065	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	58,367	85,272
Other real estate - non-covered	38,065	37,023
Nonrecurring | Significant Unobservable Inputs (Level 3)
Securities available for sale:
Impaired loans - covered	55,564
Impaired loans - non-covered	107,935
Other real estate - covered
Other real estate - non-covered

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Loans and Asset Quality Information (Details 10) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Activity in the allowance for loan losses for covered loans
Provisions	$ 7,073	$ 9,146	$ 35,095	$ 31,423
Ending balance - total	2,137,074	2,058,724	2,137,074	2,058,724	2,069,152
Covered
Activity in the allowance for loan losses for covered loans
Beginning balance	5,931	5,540	5,808	11,155	11,155
Charge-offs	(2,640)	(4,988)	(6,788)	(17,703)	(18,123)
Recoveries
Provisions	1,103	2,705	5,374	9,805	12,776
Ending balance	4,394	3,257	4,394	3,257	5,808
Individually evaluated for impairment	4,394	3,257	4,394	3,257	5,808
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality	17		17		327
Ending balance - total	303,997	373,824	303,997	373,824	361,234
Individually evaluated for impairment	57,607	33,163	57,607	33,163	44,723
Collectively evaluated for impairment	246,390	340,661	246,390	340,661	316,511
Loans acquired with deteriorated credit quality	$ 4,745	$ 9,037	$ 4,745	$ 9,037	$ 7,864

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Loans and Asset Quality Information (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Non-covered loans:
Total loans	$ 2,135,596	$ 2,067,182	$ 2,057,429
Percentage of Loans	100.00%	100.00%	100.00%
Unamortized net deferred loan costs	1,478	1,280	1,295
Loans - non-covered	2,137,074	2,069,152	2,058,724
Commercial, financial and agricultural
Non-covered loans:
Total loans	154,956	152,627	150,252
Percentage of Loans	7.00%	8.00%	7.00%
Real Estate construction, land development & other land loans
Non-covered loans:
Total loans	273,985	290,983	298,650
Percentage of Loans	13.00%	14.00%	14.00%
Real estate mortgage residential (1-4 family) first mortgages
Non-covered loans:
Total loans	681,168	646,616	637,129
Percentage of Loans	32.00%	31.00%	31.00%
Real estate mortgage home equity loans/lines of credit
Non-covered loans:
Total loans	223,154	233,171	236,578
Percentage of Loans	10.00%	11.00%	12.00%
Real estate mortgage commercial and other
Non-covered loans:
Total loans	729,310	666,882	656,035
Percentage of Loans	34.00%	32.00%	32.00%
Installment loans to individual
Non-covered loans:
Total loans	$ 73,023	$ 77,593	$ 78,785
Percentage of Loans	4.00%	4.00%	4.00%

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Acquisitions (Details Narrative) (Gateway Bank & Trust Company, USD $)	9 Months Ended
	Sep. 30, 2012
Gateway Bank & Trust Company
Name of purchased branch	Gateway Bank & Trust Co.
Date of acquisition	Aug. 24, 2012
Assumption of branch deposits	$ 9,000,000
Deposit premium of the branch	$ 107,000

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Loans and Asset Quality Information (Details 12) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Non-covered loans	$ 2,137,074	$ 2,069,152
Unamortized net deferred loan costs	1,478	1,280	1,295
Covered loans	303,997	361,234	373,824
Total loans	2,441,071	2,430,386	2,432,548
Commercial Unsecured
Non-covered loans	36,833	38,778
Commercial Secured
Non-covered loans	113,608	111,751
Secured by Inventory and Accounts Receivable
Non-covered loans	21,275	21,828
Real Estate construction, land development and other land loans
Non-covered loans	236,960	246,805
Real estate residential, farmland and mutli-family
Non-covered loans	826,953	795,655
Real estate home equity lines of credit
Non-covered loans	203,154	207,436
Real estate commercial
Non-covered loans	640,578	587,183
Consumer
Non-covered loans	56,235	58,436
Pass (Grades 1, 2 & 3)
Non-covered loans	608,057	650,801
Covered loans	48,087	62,052
Total loans	656,144	712,853
Pass (Grades 1, 2 & 3) | Commercial Unsecured
Non-covered loans	10,081	13,516
Pass (Grades 1, 2 & 3) | Commercial Secured
Non-covered loans	33,284	36,587
Pass (Grades 1, 2 & 3) | Secured by Inventory and Accounts Receivable
Non-covered loans	3,457	3,756
Pass (Grades 1, 2 & 3) | Real Estate construction, land development and other land loans
Non-covered loans	31,087	37,596
Pass (Grades 1, 2 & 3) | Real estate residential, farmland and mutli-family
Non-covered loans	246,143	257,163
Pass (Grades 1, 2 & 3) | Real estate home equity lines of credit
Non-covered loans	126,885	130,913
Pass (Grades 1, 2 & 3) | Real estate commercial
Non-covered loans	128,567	140,577
Pass (Grades 1, 2 & 3) | Consumer
Non-covered loans	28,553	30,693
Weak Pass (Grade 4)
Non-covered loans	1,289,064	1,182,646
Covered loans	130,986	161,508
Total loans	1,420,050	1,344,154
Weak Pass (Grade 4) | Commercial Unsecured
Non-covered loans	25,473	23,735
Weak Pass (Grade 4) | Commercial Secured
Non-covered loans	69,884	66,105
Weak Pass (Grade 4) | Secured by Inventory and Accounts Receivable
Non-covered loans	15,974	16,197
Weak Pass (Grade 4) | Real Estate construction, land development and other land loans
Non-covered loans	162,999	156,651
Weak Pass (Grade 4) | Real estate residential, farmland and mutli-family
Non-covered loans	487,571	456,188
Weak Pass (Grade 4) | Real estate home equity lines of credit
Non-covered loans	65,701	67,606
Weak Pass (Grade 4) | Real estate commercial
Non-covered loans	438,254	372,614
Weak Pass (Grade 4) | Consumer
Non-covered loans	23,208	23,550
Watch or Standard Loans (Grade 9)
Non-covered loans	44,859	52,156
Covered loans
Total loans	44,859	52,156
Watch or Standard Loans (Grade 9) | Commercial Unsecured
Non-covered loans	10	13
Watch or Standard Loans (Grade 9) | Commercial Secured
Non-covered loans	1,792	1,912
Watch or Standard Loans (Grade 9) | Secured by Inventory and Accounts Receivable
Non-covered loans	257	282
Watch or Standard Loans (Grade 9) | Real Estate construction, land development and other land loans
Non-covered loans	3,891	6,490
Watch or Standard Loans (Grade 9) | Real estate residential, farmland and mutli-family
Non-covered loans	7,891	10,248
Watch or Standard Loans (Grade 9) | Real estate home equity lines of credit
Non-covered loans	2,487	2,422
Watch or Standard Loans (Grade 9) | Real estate commercial
Non-covered loans	28,453	30,722
Watch or Standard Loans (Grade 9) | Consumer
Non-covered loans	78	67
Special Mention Loans (Grade 5)
Non-covered loans	69,032	44,497
Covered loans	8,580	8,033
Total loans	77,612	52,530
Special Mention Loans (Grade 5) | Commercial Unsecured
Non-covered loans	539	217
Special Mention Loans (Grade 5) | Commercial Secured
Non-covered loans	3,943	2,196
Special Mention Loans (Grade 5) | Secured by Inventory and Accounts Receivable
Non-covered loans	767	756
Special Mention Loans (Grade 5) | Real Estate construction, land development and other land loans
Non-covered loans	13,628	9,903
Special Mention Loans (Grade 5) | Real estate residential, farmland and mutli-family
Non-covered loans	29,967	17,687
Special Mention Loans (Grade 5) | Real estate home equity lines of credit
Non-covered loans	2,895	1,868
Special Mention Loans (Grade 5) | Real estate commercial
Non-covered loans	16,365	11,502
Special Mention Loans (Grade 5) | Consumer
Non-covered loans	928	368
Classified Loans (Grades 6,7 & 8)
Non-covered loans	55,171	64,206
Covered loans	78,725	88,169
Total loans	133,896	152,375
Classified Loans (Grades 6,7 & 8) | Commercial Unsecured
Non-covered loans	626	845
Classified Loans (Grades 6,7 & 8) | Commercial Secured
Non-covered loans	1,319	2,761
Classified Loans (Grades 6,7 & 8) | Secured by Inventory and Accounts Receivable
Non-covered loans	119	249
Classified Loans (Grades 6,7 & 8) | Real Estate construction, land development and other land loans
Non-covered loans	8,497	13,393
Classified Loans (Grades 6,7 & 8) | Real estate residential, farmland and mutli-family
Non-covered loans	33,401	28,939
Classified Loans (Grades 6,7 & 8) | Real estate home equity lines of credit
Non-covered loans	1,975	1,466
Classified Loans (Grades 6,7 & 8) | Real estate commercial
Non-covered loans	8,585	15,565
Classified Loans (Grades 6,7 & 8) | Consumer
Non-covered loans	649	988
Nonaccrual Loans
Non-covered loans	69,413	73,566
Covered loans	37,619	41,472
Total loans	107,032	115,038
Nonaccrual Loans | Commercial Unsecured
Non-covered loans	104	452
Nonaccrual Loans | Commercial Secured
Non-covered loans	3,386	2,190
Nonaccrual Loans | Secured by Inventory and Accounts Receivable
Non-covered loans	701	588
Nonaccrual Loans | Real Estate construction, land development and other land loans
Non-covered loans	16,858	22,772
Nonaccrual Loans | Real estate residential, farmland and mutli-family
Non-covered loans	21,980	25,430
Nonaccrual Loans | Real estate home equity lines of credit
Non-covered loans	3,211	3,161
Nonaccrual Loans | Real estate commercial
Non-covered loans	20,354	16,203
Nonaccrual Loans | Consumer
Non-covered loans	2,819	2,770
Non-covered
Non-covered loans	$ 2,135,596	$ 2,067,872

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Fair Value (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Cash and due from banks, noninterest-bearing	$ 79,991	$ 80,341	$ 75,772
Federal funds sold	519	608	659
FDIC indemnification asset	107,615	121,677	120,950
Accrued interest receivable	10,720	11,779	11,568
Deposits	2,834,464	2,755,037	2,729,404
Borrowings	111,394	133,925	135,759
Accrued interest payable	1,421	1,872	1,938
Carrying Amount
Cash and due from banks, noninterest-bearing	79,991	80,341
Due from banks, interest-bearing	202,693	135,218
Federal funds sold	519	608
Securities available for sale	161,407	182,626
Securities held to maturity	56,123	57,988
Presold mortgages in process of settlement	4,380	6,090
Loans - non-covered, net of allowance	2,091,920	2,033,542
Loans - covered, net of allowance	299,603	355,426
FDIC indemnification asset	107,615	121,677
Accrued interest receivable	10,720	11,779
Deposits	2,834,464	2,755,037
Securities sold under agreements to repurchase		17,105
Borrowings	111,394	133,925
Accrued interest payable	1,421	1,872
Fair Value
Cash and due from banks, noninterest-bearing	79,991	80,341
Due from banks, interest-bearing	202,693	135,218
Federal funds sold	519	608
Securities available for sale	161,407	182,626
Securities held to maturity	61,877	62,754
Presold mortgages in process of settlement	4,380	6,090
Loans - non-covered, net of allowance	2,048,424	1,987,979
Loans - covered, net of allowance	299,603	355,426
FDIC indemnification asset	107,615	121,004
Accrued interest receivable	10,720	11,779
Deposits	2,838,106	2,759,504
Securities sold under agreements to repurchase		17,105
Borrowings	86,662	106,333
Accrued interest payable	1,421	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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Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Common Share Tables

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

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 September 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	$	3,735		16,988,150	$	0.22	$	(732	)		16,875,918	$	(0.04	)
Effect of Dilutive Securities		—		—				—			27,113
Diluted EPS per common share	$	3,735		16,988,150	$	0.22	$	(732	)		16,903,031	$	(0.04	)

	For the Nine Months Ended September 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	$	254		16,955,130	$	0.01	$	7,286		16,843,716	$	0.43
Effect of Dilutive Securities		—		—				—		27,294
Diluted EPS per common share	$	254		16,955,130	$	0.01	$	7,286		16,871,010	$	0.43

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Loans and Asset Quality Information (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011		Sep. 30, 2011
ASSET QUALITY DATA
Nonaccrual loans	$ 107,032		$ 115,038		$ 108,627
Foreclosed real estate - non-covered	38,065		37,023		32,673
Foreclosed real estate - covered	58,367		85,272		104,785
Total nonperforming assets	259,931		263,271		277,176
Non-covered nonperforming Assets
ASSET QUALITY DATA
Nonaccrual loans	69,413		73,566		75,013
Restructured loans - accruing	38,522		11,720		11,257
Accruing loans > 90 days past due
Total nonperforming loans	107,935		85,286		86,270
Foreclosed real estate - non-covered	38,065		37,023		32,673
Total nonperforming assets	146,000		122,309		118,943
Covered nonperforming Assets
ASSET QUALITY DATA
Nonaccrual loans	37,619	[1]	41,472	[1]	36,536	[1]
Restructured loans - accruing	17,945		14,218		16,912
Accruing loans > 90 days past due
Total nonperforming loans	55,564		55,690		53,448
Foreclosed real estate - covered	58,367		85,272		104,785
Total nonperforming assets	$ 113,931		$ 140,962		$ 158,233

[1] At September 30, 2012, December 31, 2011, and September 30, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $67.9 million, $69.0 million, and $65 million, respectively.

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Securities (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 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
Securities in an Unrealized Loss Position for More than 12 Months
AFS Fair Value	790	12,097
AFS Unrealized Losses	262	589
Total AFS Fair Value	790	40,575
Total AFS Unrealized Losses	262	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	760	2,773
AFS Unrealized Losses	240	522
Total AFS Fair Value	760	7,361
Total AFS Unrealized Losses	240	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	30	22
AFS Unrealized Losses	22	37
Total AFS Fair Value	30	26
Total AFS Unrealized Losses	$ 22	$ 39

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Equity-Based Compensation Plans (Details 2) (USD $)	9 Months Ended
	Sep. 30, 2012
Equity-Based Compensation Plans Details 2
Nonvested at December 31, 2011	7,259
Granted during the period	49,559
Vested during the period
Forfeited or expired during the period	(2,474)
Nonvested at September 30, 2012	54,344
Nonvested at December 31, 2011	$ 14.54
Granted during the period	$ 9.99
Vested during the period
Forfeited or expired during the period	$ 12.55
Nonvested at September 30, 2012	$ 10.48

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Loans and Asset Quality Information (Details 7) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Nonaccrual loans	$ 107,032	$ 115,038	$ 108,627
Commercial Unsecured
Nonaccrual loans	293	452
Commercial Secured
Nonaccrual loans	3,389	2,548
Secured by Inventory and Accounts Receivable
Nonaccrual loans	732	690
Real Estate construction, land development and other land loans
Nonaccrual loans	34,890	43,976
Real estate residential, farmland and mutli-family
Nonaccrual loans	30,993	36,480
Real estate home equity lines of credit
Nonaccrual loans	3,937	4,229
Real estate commercial
Nonaccrual loans	29,910	23,662
Consumer
Nonaccrual loans	2,888	3,001
Non-covered
Nonaccrual loans	69,413	73,566	69,413
Non-covered | Commercial Unsecured
Nonaccrual loans	104	452
Non-covered | Commercial Secured
Nonaccrual loans	3,386	2,190
Non-covered | Secured by Inventory and Accounts Receivable
Nonaccrual loans	701	588
Non-covered | Real Estate construction, land development and other land loans
Nonaccrual loans	16,858	22,772
Non-covered | Real estate residential, farmland and mutli-family
Nonaccrual loans	21,980	25,430
Non-covered | Real estate home equity lines of credit
Nonaccrual loans	3,211	3,161
Non-covered | Real estate commercial
Nonaccrual loans	20,354	16,203
Non-covered | Consumer
Nonaccrual loans	2,819	2,770
Covered
Nonaccrual loans	37,619	41,472
Covered | Commercial Unsecured
Nonaccrual loans	189
Covered | Commercial Secured
Nonaccrual loans	3	358
Covered | Secured by Inventory and Accounts Receivable
Nonaccrual loans	31	102
Covered | Real Estate construction, land development and other land loans
Nonaccrual loans	18,032	21,204
Covered | Real estate residential, farmland and mutli-family
Nonaccrual loans	9,013	11,050
Covered | Real estate home equity lines of credit
Nonaccrual loans	726	1,068
Covered | Real estate commercial
Nonaccrual loans	9,556	7,459
Covered | Consumer
Nonaccrual loans	$ 69	$ 231

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Pension Plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Pension Plan
Service cost - benefits earned during the period	$ 386	$ 478	$ 1,449	$ 1,434
Interest cost	326	432	1,125	1,296
Expected return on plan assets	(492)	(444)	(1,477)	(1,332)
Amortization of transition obligation		1	2	3
Amortization of net (gain)/loss	71	114	474	342
Amortization of prior service cost	3	3	9	9
Net periodic pension cost	294	584	1,582	1,752
SERP
Service cost - benefits earned during the period	67	99	236	345
Interest cost	61	102	219	306
Expected return on plan assets
Amortization of transition obligation
Amortization of net (gain)/loss	(17)	26	17	78
Amortization of prior service cost	5	5	14	15
Net periodic pension cost	116	232	486	744
2012 Total Both Plans
Service cost - benefits earned during the period	453		1,685
Interest cost	387		1,344
Expected return on plan assets	(492)		(1,477)
Amortization of transition obligation			2
Amortization of net (gain)/loss	54		491
Amortization of prior service cost	8		23
Net periodic pension cost	410		2,068
2011 Total Both Plans
Service cost - benefits earned during the period		577		1,779
Interest cost		534		1,602
Expected return on plan assets		(444)		(1,332)
Amortization of transition obligation		1		3
Amortization of net (gain)/loss		140		420
Amortization of prior service cost		8		24
Net periodic pension cost		$ 816		$ 2,496

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FDIC Indemnification Asset (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Fdic Indemnification Asset Details
Receivable related to claims submitted, not yet received	$ 20,722	$ 13,377	$ 13,802
Receivable related to estimated future claims on loans	71,542	90,275	90,258
Receivable related to estimated future claims on other real estate owned	15,351	18,025	16,890
FDIC indemnification asset	$ 107,615	$ 121,677	$ 120,950

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Loans and Asset Quality Information (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Covered loans:
Impaired Purchased Loans - Carrying Value	$ 4,745	$ 7,864
Impaired Purchased Loans - Unpaid Principal Balance	9,096	17,032
Nonimpaired Purchased Loans - Carrying Value	299,252	335,370
Nonimpaired Purchased Loans - Unpaid Principal Balance	402,271	472,943
Total Covered Loans - Carrying Value	303,997	361,234	373,824
Total Covered Loans - Unpaid Principal Balance	411,367	489,975
Commercial, financial and agricultural
Covered loans:
Impaired Purchased Loans - Carrying Value	71	69
Impaired Purchased Loans - Unpaid Principal Balance	148	319
Nonimpaired Purchased Loans - Carrying Value	6,819	9,403
Nonimpaired Purchased Loans - Unpaid Principal Balance	8,671	11,736
Total Covered Loans - Carrying Value	6,890	9,472
Total Covered Loans - Unpaid Principal Balance	8,819	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	2,601	8,505
Nonimpaired Purchased Loans - Carrying Value	53,813	68,231
Nonimpaired Purchased Loans - Unpaid Principal Balance	94,481	115,489
Total Covered Loans - Carrying Value	55,390	72,096
Total Covered Loans - Unpaid Principal Balance	97,082	123,994
Real estate mortgage residential (1-4 family) first mortgages
Covered loans:
Impaired Purchased Loans - Carrying Value	815	1,214
Impaired Purchased Loans - Unpaid Principal Balance	1,908	2,639
Nonimpaired Purchased Loans - Carrying Value	141,086	157,712
Nonimpaired Purchased Loans - Unpaid Principal Balance	168,840	189,436
Total Covered Loans - Carrying Value	141,901	158,926
Total Covered Loans - Unpaid Principal Balance	170,748	192,075
Real estate mortgage home equity loans/lines of credit
Covered loans:
Impaired Purchased Loans - Carrying Value	15	127
Impaired Purchased Loans - Unpaid Principal Balance	308	577
Nonimpaired Purchased Loans - Carrying Value	20,387	23,211
Nonimpaired Purchased Loans - Unpaid Principal Balance	25,999	29,249
Total Covered Loans - Carrying Value	20,402	23,338
Total Covered Loans - Unpaid Principal Balance	26,307	29,826
Real estate mortgage commercial and other
Covered loans:
Impaired Purchased Loans - Carrying Value	2,265	2,585
Impaired Purchased Loans - Unpaid Principal Balance	4,128	4,986
Nonimpaired Purchased Loans - Carrying Value	76,339	93,428
Nonimpaired Purchased Loans - Unpaid Principal Balance	103,399	125,450
Total Covered Loans - Carrying Value	78,604	96,013
Total Covered Loans - Unpaid Principal Balance	107,527	130,436
Installment loans to individual
Covered loans:
Impaired Purchased Loans - Carrying Value	2	4
Impaired Purchased Loans - Unpaid Principal Balance	3	6
Nonimpaired Purchased Loans - Carrying Value	808	1,385
Nonimpaired Purchased Loans - Unpaid Principal Balance	881	1,583
Total Covered Loans - Carrying Value	810	1,389
Total Covered Loans - Unpaid Principal Balance	$ 884	$ 1,589

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Accounting Policies

9 Months Ended

Sep. 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 a discussion of recent accounting pronouncements. The following paragraphs update that information as necessary.

In July 2012, rules related to intangible assets were amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that indefinite-lived intangible assets are impaired. If it is determined to be more likely than not that indefinite-lived intangible assets are impaired, then the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment testing by comparing the fair value with carrying amount. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

In October 2012, rules related to business combinations were amended to address the subsequent accounting for an indemnification asset resulting from a government-assisted acquisition of a financial institution. The guidance indicates that when a reporting entity records an indemnification asset as a result of a government-assisted acquisition of a financial institution involving an indemnification agreement, the indemnification asset should be subsequently measured on the same basis as the asset subject to indemnification. Any amortization of changes in value should be limited to any contractual limitations on the amount and the term of the indemnification agreement. The amendments should be applied prospectively to any new indemnification assets acquired and to changes expected in cash flows of existing indemnification assets occurring on or after the date of adoption. Prior periods would not be adjusted. These changes are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

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FDIC Indemnification Asset (Details 1) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Fdic Indemnification Asset Details 1
Balance, beginning	$ 121,677
Increase related to unfavorable changes in loss estimates	14,493
Increase related to reimbursable expenses	5,097
Cash received	(25,116)	(59,411)
Accretion of loan discount	(8,364)
Other	(172)
Balance, ending	$ 107,615	$ 120,950

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Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Securities Details 2
Due within one year	$ 3,000
Due after one year but within five years	20,497
Due after five years but within ten years
Due after ten years	1,000
Mortgage-backed securities	124,164
Total debt securities	148,661
Equity securities	7,952
Total securities	156,613	178,730
Due within one year	3,007
Due after one year but within five years	20,704
Due after five years but within ten years
Due after ten years	760
Mortgage-backed securities	128,533
Total debt securities	153,004
Equity securities	8,403
Total securities	161,407	182,626	159,870
Due within one year	350
Due after one year but within five years	3,208
Due after five years but within ten years	29,677
Due after ten years	22,888
Mortgage-backed securities
Total debt securities	56,123
Total securities	56,123	57,988	57,533
Due within one year	355
Due after one year but within five years	3,484
Due after five years but within ten years	32,653
Due after ten years	25,385
Total debt securities	61,877
Total securities	$ 61,877	$ 62,754	$ 61,512

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 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

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

	September 30, 2012				December 31, 2011				September 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		402		678		357		678		343
Core deposit premiums		7,974		4,916		7,867		4,291		7,867		4,079
Total	$	8,652		5,318		8,545		4,648		8,545		4,422
Unamortizable intangible assets:
Goodwill	$	65,835				65,835				65,835

The estimated amortization expense for the five succeeding fiscal years

The following table presents the estimated amortization expense for the last quarter 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
October 1 to December 31, 2012	$	227
2013		797
2014		693
2015		638
2016		571
Thereafter		409
Total	$	3,335

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FDIC Indemnification Asset (Tables)

9 Months Ended

Sep. 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)	September 30, 2012		December 31, 2011		September 30, 2011
Receivable related to claims submitted, not yet received	$	20,722		13,377		13,802
Receivable related to estimated future claims on loans		71,542		90,275		90,258
Receivable related to estimated future claims on foreclosed real estate		15,351		18,025		16,890
FDIC indemnification asset	$	107,615		121,677		120,950

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		14,493
Increase related to reimbursable expenses		5,097
Cash received		(25,116	)
Accretion of loan discount		(8,364	)
Other		(172	)
Balance at September 30, 2012	$	107,615

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Loans and Asset Quality Information (Details 11) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Impaired loans with no related allowance - Recorded Investment	$ 74,745	$ 79,423	$ 79,815
Imapired loans with no related allowance - Unpaid Principal Balance	120,314	124,387
Impaired loans with no related allowance - Average Recorded Investment	67,623	86,265
Impaired loans with allowance - Recorded Investment	88,754	61,553
Impaired loans with allowance - Unpaid Principal Balance	104,405	69,674
Impaired loans with related allowance - Related Allowance	13,484	10,910	7,716
Impaired loans with related allowance - Average Recorded Investment	80,632	66,047
Non-covered
Impaired loans with no related allowance - Recorded Investment	34,150	35,721	35,897
Imapired loans with no related allowance - Unpaid Principal Balance	41,164	45,809
Impaired loans with no related allowance - Average Recorded Investment	27,206	37,235
Impaired loans with allowance - Recorded Investment	73,785	49,565
Impaired loans with allowance - Unpaid Principal Balance	85,734	54,004
Impaired loans with related allowance - Related Allowance	9,410	5,804	5,429
Impaired loans with related allowance - Average Recorded Investment	64,821	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	103	452
Impaired loans with allowance - Unpaid Principal Balance	444	454
Impaired loans with related allowance - Related Allowance	43	59
Impaired loans with related allowance - Average Recorded Investment	199	226
Non-covered | Commercial Secured
Impaired loans with no related allowance - Recorded Investment		295
Imapired loans with no related allowance - Unpaid Principal Balance		478
Impaired loans with no related allowance - Average Recorded Investment	108	504
Impaired loans with allowance - Recorded Investment	3,386	1,895
Impaired loans with allowance - Unpaid Principal Balance	4,000	1,899
Impaired loans with related allowance - Related Allowance	980	295
Impaired loans with related allowance - Average Recorded Investment	2,281	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	7	124
Impaired loans with allowance - Recorded Investment	701	561
Impaired loans with allowance - Unpaid Principal Balance	788	571
Impaired loans with related allowance - Related Allowance	153	156
Impaired loans with related allowance - Average Recorded Investment	680	391
Non-covered | Real Estate construction, land development and other land loans
Impaired loans with no related allowance - Recorded Investment	11,748	15,105
Imapired loans with no related allowance - Unpaid Principal Balance	16,202	20,941
Impaired loans with no related allowance - Average Recorded Investment	9,681	17,876
Impaired loans with allowance - Recorded Investment	10,983	10,360
Impaired loans with allowance - Unpaid Principal Balance	14,508	12,606
Impaired loans with related allowance - Related Allowance	3,006	2,244
Impaired loans with related allowance - Average Recorded Investment	14,266	15,782
Non-covered | Real estate residential, farmland and mutli-family
Impaired loans with no related allowance - Recorded Investment	2,346	3,442
Imapired loans with no related allowance - Unpaid Principal Balance	2,787	4,741
Impaired loans with no related allowance - Average Recorded Investment	2,966	5,278
Impaired loans with allowance - Recorded Investment	37,696	24,460
Impaired loans with allowance - Unpaid Principal Balance	41,507	26,153
Impaired loans with related allowance - Related Allowance	3,202	2,169
Impaired loans with related allowance - Average Recorded Investment	28,018	22,487
Non-covered | Real estate home equity lines of credit
Impaired loans with no related allowance - Recorded Investment	274	46
Imapired loans with no related allowance - Unpaid Principal Balance	581	300
Impaired loans with no related allowance - Average Recorded Investment	80	79
Impaired loans with allowance - Recorded Investment	2,960	3,115
Impaired loans with allowance - Unpaid Principal Balance	4,085	3,141
Impaired loans with related allowance - Related Allowance	155	117
Impaired loans with related allowance - Average Recorded Investment	3,215	2,544
Non-covered | Real estate commercial
Impaired loans with no related allowance - Recorded Investment	19,782	16,794
Imapired loans with no related allowance - Unpaid Principal Balance	21,594	18,817
Impaired loans with no related allowance - Average Recorded Investment	14,361	13,359
Impaired loans with allowance - Recorded Investment	15,136	5,965
Impaired loans with allowance - Unpaid Principal Balance	17,543	6,421
Impaired loans with related allowance - Related Allowance	1,560	283
Impaired loans with related allowance - Average Recorded Investment	13,365	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	3	15
Impaired loans with allowance - Recorded Investment	2,820	2,757
Impaired loans with allowance - Unpaid Principal Balance	2,859	2,759
Impaired loans with related allowance - Related Allowance	311	481
Impaired loans with related allowance - Average Recorded Investment	2,797	2,329
Covered
Impaired loans with no related allowance - Recorded Investment	40,595	43,702	43,918
Imapired loans with no related allowance - Unpaid Principal Balance	79,150	78,578
Impaired loans with no related allowance - Average Recorded Investment	40,417	49,030
Impaired loans with allowance - Recorded Investment	14,969	11,988
Impaired loans with allowance - Unpaid Principal Balance	18,671	15,670
Impaired loans with related allowance - Related Allowance	4,074	5,106	2,287
Impaired loans with related allowance - Average Recorded Investment	$ 15,811	$ 14,259

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Loans and Asset Quality Information (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Jun. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Unamortized premiums on loans	$ 601,000		$ 601,000	$ 1,065,000	$ 949,000
Percentage of loan discount accretion	80.00%		80.00%
Contractual Balance of nonaccruals covered by FDIC loss share agreements	67,900,000		67,900,000	65,000,000	69,000,000
Proceeds from payments that exceeded the initial carrying amount of purchased impaired loans			0	717,000
Partial charge-offs on purchased loans outstanding			21,495,000
Reclassification of perfoming loans to TDR status	18,000,000	12,000,000
Purchased Nonimpaired Loans
Accreted discount on purchased nonimpaired loans into interest income			10,455,000
Loan discount on loans	62,805,000		62,805,000
Purchased Nonperfoming Loans
Loan discount on loans	$ 23,070,000		$ 23,070,000

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Pension Plans (Tables)

9 Months Ended

Sep. 30, 2012

Pension Plans Tables

The following table contains the components of the pension expense

The following table contains the components of the pension expense.

	For the Three Months Ended September 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	$	386			478			67			99		453			577
Interest cost		326			432			61			102		387			534
Expected return on plan assets		(492	)		(444	)		─			─		(492	)		(444	)
Amortization of transition obligation		—			1			─			─		—			1
Amortization of net (gain)/loss		71			114			(17	)		26		54			140
Amortization of prior service cost		3			3			5			5		8			8
Net periodic pension cost	$	294			584			116			232		410			816

The following table contains the components of the pension expense.

	For the Nine Months Ended September 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	$	1,449			1,434			236		345		1,685			1,779
Interest cost		1,125			1,296			219		306		1,344			1,602
Expected return on plan assets		(1,477	)		(1,332	)		─		─		(1,477	)		(1,332	)
Amortization of transition obligation		2			3			─		─		2			3
Amortization of net (gain)/loss		474			342			17		78		491			420
Amortization of prior service cost		9			9			14		15		23			24
Net periodic pension cost	$	1,582			1,752			486		744		2,068			2,496

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Comprehensive Income (Tables)

9 Months Ended

Sep. 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)	September 30, 2012			December 31, 2011			September 30, 2011
Unrealized gain (loss) on securities available for sale	$	4,794			3,896			4,047
Deferred tax asset (liability)		(1,870	)		(1,520	)		(1,578	)
Net unrealized gain (loss) on securities available for sale		2,924			2,376			2,469
Additional pension liability		(17,789	)		(18,278	)		(10,460	)
Deferred tax asset		7,029			7,220			4,132
Net additional pension liability		(10,760	)		(11,058	)		(6,328	)
Total accumulated other comprehensive income (loss)	$	(7,836	)		(8,682	)		(3,859	)

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Basis of Presentation

9 Months Ended

Sep. 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 September 30, 2012 and 2011 and the consolidated results of operations and consolidated cash flows for the periods ended September 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 September 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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Fair Value (Tables)

9 Months Ended

Sep. 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 September 30, 2012.

($ in thousands)
Description of Financial Instruments	Fair Value at September 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	$	20,614		—		20,614		—
Mortgage-backed securities		128,533		—		128,533		—
Corporate bonds		3,857		—		3,857		—
Equity securities		8,403		454		7,949		—
Total available for sale securities	$	161,407		454		160,953		—
Nonrecurring
Impaired loans – covered	$	55,564		—		—		55,564
Impaired loans – non-covered		107,935		—		—		107,935
Foreclosed real estate – covered		58,367		—		58,367		—
Foreclosed real estate – non-covered		38,065		—		38,065		—

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		—
Foreclosed real estate – covered		85,272		—		85,272		—
Foreclosed 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 September 30, 2012 and December 31, 2011 are as follows:

		September 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	$	79,991		79,991		80,341		80,341
Due from banks, interest-bearing	Level 1		202,693		202,693		135,218		135,218
Federal funds sold	Level 1		519		519		608		608
Securities available for sale	Level 2		161,407		161,407		182,626		182,626
Securities held to maturity	Level 2		56,123		61,877		57,988		62,754
Presold mortgages in process of settlement	Level 1		4,380		4,380		6,090		6,090
Loans – non-covered, net of allowance	Level 3		2,091,920		2,048,424		2,033,542		1,987,979
Loans – covered, net of allowance	Level 3		299,603		299,603		355,426		355,426
FDIC indemnification asset	Level 3		107,615		107,388		121,677		121,004
Accrued interest receivable	Level 1		10,720		10,720		11,779		11,779
Deposits	Level 2		2,834,464		2,838,106		2,755,037		2,759,504
Securities sold under agreements to repurchase	Level 2		—		—		17,105		17,105
Borrowings	Level 2		111,394		86,662		133,925		106,333
Accrued interest payable	Level 2		1,421		1,421		1,872		1,872

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Securities (Details Narrative) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Securities Details Narrative
Collateralized mortage obligations, amortized cost	$ 515,000		$ 1,462,000
Collateralized mortage obligations, fair value	532,000		1,515,000
Federal Home Loan Bank Stock, cost	7,859,000		10,904,000
Investment securities, pledged as collateral for public deposits	83,557,000		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	200,000	71,000
Write-downs of equity portfolio	$ 1,000	$ 5,000

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Loans and Asset Quality Information (Details 8) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
30-59 Days Past Due	$ 22,722	$ 22,901
60-89 Days Past Due	8,976	11,385
Nonaccrual loans	107,032	115,038	108,627
Current	2,300,863	2,279,782
Total non-covered loans	2,137,074	2,069,152	2,058,724
[UnamortizedNetDeferredLoanCosts]	1,478	1,280	1,295
Total Covered Loans - Carrying Value	303,997	361,234	373,824
Loans	2,441,071	2,430,386	2,432,548
Commercial Unsecured
Nonaccrual loans	293	452
Commercial Secured
Nonaccrual loans	3,389	2,548
Secured by Inventory and Accounts Receivable
Nonaccrual loans	732	690
Real Estate construction, land development and other land loans
Nonaccrual loans	34,890	43,976
Total non-covered loans	236,960	246,805	254,361
Real estate residential, farmland and mutli-family
Nonaccrual loans	30,993	36,480
Total non-covered loans	826,953	795,655	785,412
Real estate home equity lines of credit
Nonaccrual loans	3,937	4,229
Total non-covered loans	203,154	207,436	211,999
Real estate commercial
Nonaccrual loans	29,910	23,662
Total non-covered loans	640,578	587,183	576,459
Consumer
Nonaccrual loans	2,888	3,001
Total non-covered loans	56,235	58,436	59,653
Non-covered
30-59 Days Past Due		16,390	17,604
60-89 Days Past Due		7,997	6,393
Nonaccrual loans	69,413	73,566	69,413
Current		1,969,919	2,042,186
Total non-covered loans	2,135,596	2,067,872	2,135,596
Non-covered | Commercial Unsecured
30-59 Days Past Due	289	67
60-89 Days Past Due	61	591
Nonaccrual loans	104	452
Current	36,379	37,668
Total non-covered loans	36,833	38,778
Non-covered | Commercial Secured
30-59 Days Past Due	930	672
60-89 Days Past Due	336	207
Nonaccrual loans	3,386	2,190
Current	108,956	108,682
Total non-covered loans	113,608	111,751
Non-covered | Secured by Inventory and Accounts Receivable
30-59 Days Past Due	32	247
60-89 Days Past Due
Nonaccrual loans	701	588
Current	20,542	20,993
Total non-covered loans	21,275	21,828
Non-covered | Real Estate construction, land development and other land loans
30-59 Days Past Due	2,021	1,250
60-89 Days Past Due	1,690	1,411
Nonaccrual loans	16,858	22,772
Current	216,391	221,372
Total non-covered loans	236,960	246,805
Non-covered | Real estate residential, farmland and mutli-family
30-59 Days Past Due	8,532	9,751
60-89 Days Past Due	2,997	4,259
Nonaccrual loans	21,980	25,430
Current	793,444	756,215
Total non-covered loans	826,953	795,655
Non-covered | Real estate home equity lines of credit
30-59 Days Past Due	1,337	1,126
60-89 Days Past Due	315	237
Nonaccrual loans	3,211	3,161
Current	198,291	202,912
Total non-covered loans	203,154	207,436
Non-covered | Real estate commercial
30-59 Days Past Due	3,925	2,620
60-89 Days Past Due	756	1,006
Nonaccrual loans	20,354	16,203
Current	615,543	567,354
Total non-covered loans	640,578	587,183
Non-covered | Consumer
30-59 Days Past Due	538	657
60-89 Days Past Due	238	286
Nonaccrual loans	2,819	2,770
Current	52,640	54,723
Total non-covered loans	56,235	58,436
Covered
30-59 Days Past Due	5,118	6,511
60-89 Days Past Due	2,583	3,388
Nonaccrual loans	37,619	41,472
Current	258,677	309,863
Total non-covered loans	303,997	361,234	373,824
Covered | Commercial Unsecured
Nonaccrual loans	189
Covered | Commercial Secured
Nonaccrual loans	3	358
Covered | Secured by Inventory and Accounts Receivable
Nonaccrual loans	31	102
Covered | Real Estate construction, land development and other land loans
Nonaccrual loans	18,032	21,204
Covered | Real estate residential, farmland and mutli-family
Nonaccrual loans	9,013	11,050
Covered | Real estate home equity lines of credit
Nonaccrual loans	726	1,068
Covered | Real estate commercial
Nonaccrual loans	9,556	7,459
Covered | Consumer
Nonaccrual loans	$ 69	$ 231

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Participation in the Small Business Lending Fund (Narrative Details) (USD $)	3 Months Ended				9 Months Ended		25 Months Ended	55 Months Ended	57 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 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					4.30%		1.00%	1.00%
Dividend rate range, maximum					5.00%		5.00%	7.00%
Dividend rate expected	1.20%	3.00%
Dividend rate increase									9.00%
Accrued preferred dividend payments			$ 688,000	$ 815,000	$ 2,277,000	$ 2,440,000

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
ASSETS
Cash and due from banks, noninterest-bearing	$ 79,991	$ 80,341	$ 75,772
Due from banks, interest-bearing	202,693	135,218	167,053
Federal funds sold	519	608	659
Total cash and cash equivalents	283,203	216,167	243,484
Securities available for sale	161,407	182,626	159,870
Securities held to maturity (fair values of $61,877, $62,754, and $61,512)	56,123	57,988	57,533
Presold mortgages in process of settlement	4,380	6,090	3,823
Loans - non-covered	2,137,074	2,069,152	2,058,724
Loans - covered by FDIC loss share agreement	303,997	361,234	373,824
Total loans	2,441,071	2,430,386	2,432,548
Allowance for loan losses - non-covered	(45,154)	(35,610)	(34,397)
Allowance for loan losses - covered	(4,394)	(5,808)	(3,257)
Total allowance for loan losses	(49,548)	(41,418)	(37,654)
Net loans	2,391,523	2,388,968	2,394,894
Premises and equipment	74,044	69,975	69,862
Accrued interest receivable	10,720	11,779	11,568
FDIC indemnification asset	107,615	121,677	120,950
Goodwill	65,835	65,835	65,835
Other intangible assets	3,335	3,897	4,123
Foreclosed real estate - non-covered	38,065	37,023	32,673
Foreclosed real estate - covered	58,367	85,272	104,785
Bank-owned life insurance	27,587	2,207	2,170
Other assets	40,473	40,970	31,128
Total assets	3,322,677	3,290,474	3,302,698
LIABILITIES
Deposits: Noninterest bearing checking accounts	398,527	335,833	334,109
Interest bearing checking accounts	482,583	423,452	376,999
Money market accounts	539,504	513,832	506,013
Savings accounts	159,189	146,481	146,977
Time deposits of $100,000 or more	717,457	753,233	751,994
Other time deposits	537,204	582,206	613,312
Total deposits	2,834,464	2,755,037	2,729,404
Securities sold under agreements to repurchase		17,105	60,498
Borrowings	111,394	133,925	135,759
Accrued interest payable	1,421	1,872	1,938
Other liabilities	32,608	37,385	23,286
Total liabilities	2,979,887	2,945,324	2,950,885
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 63,500 shares	63,500	63,500	63,500
Common stock, no par value per share. Authorized: 40,000,000 shares Issued and outstanding: 17,013,008, 16,909,820 and 16,884,617 shares	105,454	104,841	105,518
Retained earnings	181,672	185,491	186,654
Accumulated other comprehensive income (loss)	(7,836)	(8,682)	(3,859)
Total shareholders' equity	342,790	345,150	351,813
Total liabilities and shareholders' equity	$ 3,322,677	$ 3,290,474	$ 3,302,698

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Loans and Asset Quality Information (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
All loans (non-covered and covered):
Amount of loans	$ 2,439,593	$ 2,429,106	$ 2,431,253
Percentage of Loans	100.00%	100.00%	100.00%
Unamortized net deferred loan costs	1,478	1,280	1,295
Loans, total	2,441,071	2,430,386	2,432,548
Commercial, financial and agricultural
All loans (non-covered and covered):
Amount of loans	161,846	162,099	161,300
Percentage of Loans	7.00%	7.00%	7.00%
Real Estate construction, land development & other land loans
All loans (non-covered and covered):
Amount of loans	329,375	363,079	370,735
Percentage of Loans	13.00%	15.00%	15.00%
Real estate mortgage residential (1-4 family) first mortgages
All loans (non-covered and covered):
Amount of loans	823,069	805,542	803,688
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	243,556	256,509	258,653
Percentage of Loans	10.00%	11.00%	11.00%
Real estate mortgage commercial and other
All loans (non-covered and covered):
Amount of loans	807,914	762,895	756,568
Percentage of Loans	33.00%	31.00%	31.00%
Installment loans to individual
All loans (non-covered and covered):
Amount of loans	$ 73,833	$ 78,982	$ 80,309
Percentage of Loans	3.00%	3.00%	3.00%

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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			16,801,000			16,801,000
Net income				12,658		12,658
Preferred stock redeemed	(65,000)					(65,000)
Preferred stock issued	63,500					63,500
Common stock issued under stock option plans			30
Common stock issued under stock option plans, shares			2,000
Common stock issued into dividend reinvestment plan			638
Common stock issued into dividend reinvestment plan, shares			53,000
Cash dividends declared ($0.24 per common share)				(4,045)		(4,045)
Preferred dividends				(2,440)		(2,440)
Accretion of preferred stock discount		2,932		(2,932)
Stock-based compensation			643			643
Stock-based compensation, shares			29,000
Other comprehensive income					1,226	1,226
Ending balance at Sep. 30, 2011	63,500		105,518	186,654	(3,859)	351,813
Ending balance, shares at Sep. 30, 2011			16,884,617			16,884,617
Beginning balance at Dec. 31, 2011	63,500		104,481	185,491	(8,682)	345,150
Beginning balance, shares at Dec. 31, 2011			16,909,820			16,909,820
Net income				2,531		2,531
Common stock issued under stock option plans, shares
Common stock issued into dividend reinvestment plan			335
Common stock issued into dividend reinvestment plan, shares			31,000
Cash dividends declared ($0.24 per common share)				(4,073)		(4,073)
Preferred dividends				(2,277)		(2,277)
Stock-based compensation			280
Stock-based compensation, shares			72,000
Other comprehensive income					846	846
Ending balance at Sep. 30, 2012	$ 63,500		$ 105,454	$ 181,672	$ (7,836)	$ 342,790
Ending balance, shares at Sep. 30, 2012			17,013,008			17,013,008

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Loans and Asset Quality Information (Details 14) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	24	42
Subsequently defaulted - Recorded Investment	$ 4,330	$ 8,942
Non-covered
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	17
Subsequently defaulted - Recorded Investment	3,923
Non-covered
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default		21
Subsequently defaulted - Recorded Investment		5,108
Non-covered | Commercial Secured
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	6	6
Subsequently defaulted - Recorded Investment	601	601
Non-covered | Real Estate construction, land development and other land loans
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	2	4
Subsequently defaulted - Recorded Investment	253	917
Non-covered | Real estate residential, farmland and mutli-family
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	2	3
Subsequently defaulted - Recorded Investment	168	509
Non-covered | Real estate commercial
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	6	7
Subsequently defaulted - Recorded Investment	2,899	3,079
Non-covered | Consumer
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	1	1
Subsequently defaulted - Recorded Investment	2	2
Covered
Accruing restructured loans that defaulted in the period:
Number of Contracts - Subsequent Default	7	21
Subsequently defaulted - Recorded Investment	$ 407	$ 3,834

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Equity-Based Compensation Plans (Details)	9 Months Ended
	Sep. 30, 2012
Equity-Based Compensation Plans Details
Expected dividend yield	3.28%
Risk-free interest rate	1.64%
Expected life	10 years
Expected volatility	41.82%

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Goodwill and Other Intangible Assets (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Goodwill And Other Intangible Assets Details 1
October 1 to December 31, 2012	$ 227
2013	797
2014	693
2015	638
2016	571
Thereafter	409
Total	$ 3,335

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Participation in the Small Business Lending Fund

9 Months Ended

Sep. 30, 2012

Participation In Small Business Lending Fund

Participation in the Small Business Lending Fund

Note 15 – 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 “QSBL”. 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 QSBL as compared to the baseline. For quarters subsequent to the issuance in 2011, the Company has paid a dividend rate ranging from 4.3% to 5.0%. Based upon an increase in the level of QSBL over the baseline level calculated under the terms of the related purchase agreement, the dividend rate for the fourth quarter of 2012 is expected to be 3.0% and the dividend rate for the first quarter of 2013 is expected to be 1.2%, 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 QSBL 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 nine months of 2012, the Company accrued approximately $2,277,000 in preferred dividend payments. This amount is deducted from net income in computing “Net income available to common shareholders.”

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Equity-Based Compensation Plans (Details 1) (USD $)	9 Months Ended
	Sep. 30, 2012
Equity-Based Compensation Plans Details 1
Balance, beginning	$ 18.92
Granted	$ 9.76
Exercised
Forfeited
Expired	$ 16.70
Outstanding	$ 17.80
Exercisable	$ 19.15
Balance options outstanding, beginning	493,850
Granted	75,000
Exercised
Forfeited
Expired	(47,237)
Balance options outstanding, end	521,613
Exercisable, end of period	445,613
Weighted- Average Contractual Term (years), outstanding	4 years 2 months
Weighted- Average Contractual Term (years), exercisable	3 years 2 months
Aggregate Intrinsic Value, exercisable
Aggregate Intrinsic Value, outstanding	$ 133,000

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Equity-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2012

Equity-Based Compensation Plans Tables

Schedule of option pricing assumptions

The Black-Scholes option pricing model with the following assumptions:

	2012
Expected dividend yield	3.28%
Risk-free interest rate	1.64%
Expected life	10 years
Expected volatility	41.82%

Schedule of Company's stock options outstanding

The following table presents information regarding the activity for the first nine 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		75,000			9.76
Exercised		—			—
Forfeited		—			—
Expired		(47,237	)		16.70
Outstanding at September 30, 2012		521,613		$	17.80		4.2	$	133,000
Exercisable at September 30, 2012		445,613		$	19.15		3.2	$	—

Schedule of outstanding restricted stock

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		49,559		$	9.99
Vested during the period		—			—
Forfeited or expired during the period		(2,474	)		12.55
Nonvested at September 30, 2012		54,344		$	10.48

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Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Comprehensive Income Details
Unrealized gain (loss) on securities available for sale	$ 4,794	$ 3,896	$ 4,047
Deferred tax asset (liability)	(1,870)	(1,520)	(1,578)
Net unrealized gain (loss) on securities available for sale	2,924	2,376	2,469
Additional pension liability	(17,789)	(18,278)	(10,460)
Deferred tax asset	7,029	7,220	4,132
Net additional pension liability	(10,760)	(11,058)	(6,328)
Total accumulated other comprehensive income (loss)	$ (7,836)	$ (8,682)	$ (3,859)

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows From Operating Activities
Net income	$ 2,531	$ 12,658
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses	35,095	31,423
Net security premium amortization	1,397	1,013
Purchase accounting accretion and amortization, net	(10,209)	(9,921)
Gain from acquisition		(10,196)
Foreclosed property losses and write-downs	15,768	15,236
Gain on securities available for sale	(638)	(74)
Other gains	(67)	(5)
Increase in net deferred loan costs	(198)	(322)
Depreciation of premises and equipment	3,427	3,302
Stock-based compensation expense	280	643
Amortization of intangible assets	670	676
Origination of presold mortgages in process of settlement	(70,507)	(53,094)
Proceeds from sales of presold mortgages in process of settlement	72,217	53,233
Decrease in accrued interest receivable	1,059	2,011
Increase in other assets	(11,412)	(12,842)
Decrease in accrued interest payable	(455)	(144)
Decrease in other liabilities	(4,225)	(6,087)
Net cash provided by operating activities	34,733	27,510
Cash Flows From Investing Activities
Purchases of securities available for sale	(64,269)	(43,146)
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	76,161	66,281
Proceeds from maturities/issuer calls of securities held to maturity	1,690	1,053
Purchase of bank-owned life insurance	(25,000)
Net decrease (increase) in loans	(63,868)	30,476
Proceeds from FDIC loss share agreements	25,116	59,411
Proceeds from sales of foreclosed real estate	46,618	24,650
Purchases of premises and equipment	(7,496)	(5,407)
Net cash received in acquisition	9,312	54,037
Net cash provided by investing activities	7,905	186,057
Cash Flows From Financing Activities
Net increase (decrease) in deposits and repurchase agreements	52,979	(109,551)
Repayments of borrowings, net	(22,500)	(65,081)
Cash dividends paid - common stock	(4,065)	(4,039)
Cash dividends paid - preferred stock	(2,349)	(2,582)
Proceeds from issuance of common stock	335	668
Repurchase of common stock	(2)
Proceeds from issuance of preferred stock		63,500
Redemption of preferred stock		(65,000)
Net cash provided (used) by financing activities	24,398	(182,085)
Increase in cash and cash equivalents	67,036	31,482
Cash and cash equivalents, beginning of period	216,167	212,002
Cash and cash equivalents, end of period	283,203	243,484
Cash paid during the period for:
Interest	14,011	18,447
Income taxes	12,025	13,943
Non-cash transactions:
Unrealized gain on securities available for sale, net of taxes	548	959
Foreclosed loans transferred to foreclosed real estate	$ 36,523	$ 60,030

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Consolidated Balance Sheets Parenthetical
Securities held to maturity fair values	$ 61,877	$ 62,754	$ 61,512
Preferred stock, shares authorized	5,000,000	5,000,000	5,000,000
Preferred stock, shares issued	63,500	63,500	63,500
Preferred stock, shares outstanding	63,500	63,500	63,500
common stock, shares authorized	40,000,000	40,000,000	40,000,000
Common stock, shares issued	17,013,008	16,909,820	16,884,617
Common stock, shares outstanding	17,013,008	16,909,820	16,884,617

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FDIC Indemnification Asset

9 Months Ended

Sep. 30, 2012

Fdic Indemnification Asset

FDIC Indemnification Asset

Note 10 – 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)	September 30, 2012		December 31, 2011		September 30, 2011
Receivable related to claims submitted, not yet received	$	20,722		13,377		13,802
Receivable related to estimated future claims on loans		71,542		90,275		90,258
Receivable related to estimated future claims on foreclosed real estate		15,351		18,025		16,890
FDIC indemnification asset	$	107,615		121,677		120,950

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		14,493
Increase related to reimbursable expenses		5,097
Cash received		(25,116	)
Accretion of loan discount		(8,364	)
Other		(172	)
Balance at September 30, 2012	$	107,615

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 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	Sep. 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		17,013,008
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2012

Goodwill And Other Intangible Assets

Goodwill and Other Intangible Assets

Note 11 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of September 30, 2012, December 31, 2011, and September 30, 2011 and the carrying amount of unamortized intangible assets as of those same dates. During the third quarter of 2012, the Company recorded a core deposit premium intangible of $107,000 related to a small branch acquisition (see Note 4 for more information).

	September 30, 2012				December 31, 2011				September 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		402		678		357		678		343
Core deposit premiums		7,974		4,916		7,867		4,291		7,867		4,079
Total	$	8,652		5,318		8,545		4,648		8,545		4,422
Unamortizable intangible assets:
Goodwill	$	65,835				65,835				65,835

Amortization expense totaled $224,000 and $226,000 for the three months ended September 30, 2012 and 2011, respectively. Amortization expense totaled $670,000 and $676,000 for the nine months ended September 30, 2012 and 2011, respectively.

The following table presents the estimated amortization expense for the last quarter 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
October 1 to December 31, 2012	$	227
2013		797
2014		693
2015		638
2016		571
Thereafter		409
Total	$	3,335

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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
INTEREST INCOME
Interest and fees on loans	$ 37,037	$ 37,200	$ 107,715	$ 112,471
Interest on investment securities:
Taxable interest income	1,001	1,421	3,408	4,316
Tax-exempt interest income	487	500	1,471	1,499
Other, principally overnight investments	164	107	481	300
Total interest income	38,689	39,228	113,075	118,586
INTEREST EXPENSE
Savings, checking and money market	650	1,020	2,258	3,353
Time deposits of $100,000 or more	2,022	2,479	6,282	7,744
Other time deposits	1,097	1,651	3,535	5,587
Securities sold under agreements to repurchase		46	4	144
Borrowings	447	543	1,481	1,475
Total interest expense	4,216	5,739	13,560	18,303
Net interest income	34,473	33,489	99,515	100,283
Provision for loan losses - non-covered	5,970	6,441	29,721	21,618
Provision for loan losses - covered	1,103	2,705	5,374	9,805
Total provision for loan losses	7,073	9,146	35,095	31,423
Net interest income after provision for loan losses	27,400	24,343	64,420	68,860
NONINTEREST INCOME
Service charges on deposit accounts	3,053	3,046	8,867	8,985
Other service charges, commissions and fees	2,275	2,040	6,634	6,025
Fees from presold mortgage loans	785	468	1,685	1,109
Commissions from sales of insurance and financial products	510	383	1,325	1,147
Bank-owned life insurance income	207	9	380	33
Gain from acquisition				10,196
Foreclosed property losses and write-downs - non-covered	(1,020)	(919)	(3,026)	(2,543)
Foreclosed property losses and write-downs - covered	(1,641)	(5,176)	(12,742)	(12,693)
FDIC indemnification asset income (expense), net	(1,569)	3,589	6,094	10,455
Securities gains	189		638	74
Other gains	14	46	67	5
Total noninterest income	2,803	3,486	9,922	22,793
NONINTEREST EXPENSES
Salaries	10,370	9,980	30,717	29,385
Employee benefits	2,539	3,086	9,230	9,242
Total personnel expense	12,909	13,066	39,947	38,627
Net occupancy expense	1,670	1,674	4,966	4,944
Equipment related expenses	1,318	1,089	3,652	3,261
Intangibles amortization	224	226	670	676
Acquisition expenses		12		606
Other operating expenses	7,536	7,891	22,245	23,800
Total noninterest expenses	23,657	23,958	71,480	71,914
Income before income taxes	6,546	3,871	2,862	19,739
Income taxes	2,123	1,314	331	7,081
Net income	4,423	2,557	2,531	12,658
Preferred stock dividends	(688)	(815)	(2,277)	(2,440)
Accretion of preferred stock discount		(2,474)		(2,932)
Net income (loss) available to common shareholders	$ 3,735	$ (732)	$ 254	$ 7,286
Earnings (loss) per common share - Basic	$ 0.22	$ (0.04)	$ 0.01	$ 0.43
Earnings (loss) per common share - Diluted	$ 0.22	$ (0.04)	$ 0.01	$ 0.43
Dividends declared per common share	$ 0.08	$ 0.08	$ 0.24	$ 0.24
Weighted average common shares outstanding: Basic	16,988,150	16,875,918	16,955,130	16,843,716
Weighted average common shares outstanding: Diluted	16,988,150	16,903,031	16,955,130	16,871,010

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Equity-Based Compensation Plans

9 Months Ended

Sep. 30, 2012

Equity-Based Compensation Plans

Equity-Based Compensation Plans

Note 5 – Equity-Based Compensation Plans

At September 30, 2012, the Company had the following equity-based compensation plans: the First Bancorp 2007 Equity Plan, the First Bancorp 2004 Stock Option Plan, and the First Bancorp 1994 Stock Option Plan. The Company’s shareholders approved all equity-based compensation plans. The First Bancorp 2007 Equity Plan became effective upon the approval of shareholders on May 2, 2007. As of September 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 $16,000 to each non-employee director (currently 14 in total) 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.

Pursuant to an employment agreement, the Company granted the chief executive officer 75,000 non-qualified stock options and 40,000 shares of restricted stock during the third quarter of 2012. The option award and the restricted stock award will vest in full on December 31, 2014 and December 31, 2015, respectively, if the Company achieves certain earnings targets for those years, and will be forfeited if the applicable targets are not achieved. Compensation expense for this grant will be recorded over the various periods based on the estimated number of options and restricted stock that are probable to vest. If the awards do not vest, no compensation cost will be recognized and any previously recognized compensation cost will be reversed. Based on current conditions, the Company has concluded that it is not probable that these awards will vest, and thus no compensation expense has been recorded.

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 $29,600 in stock option expense in the first nine months of 2012 in connection with this grant and expects to record $11,800 of expense each quarter thereafter until the awards vest. 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 $24,400 in expense in the first nine months of 2012 in connection with this grant and expects to record $13,000 of expense each quarter thereafter until the awards vest.

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 September 30, 2012, there were 521,613 options outstanding related to the three First Bancorp plans, with exercise prices ranging from $9.76 to $22.12. At September 30, 2012, there were 758,731 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.

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 nine months ended September 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, 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, 3) 40,000 shares of restricted stock to the chief executive officer on August 28, 2012, at a fair market value of $9.76 per share, which was the closing price of the Company’s common stock on that date, and 4) 75,000 stock options to the chief executive officer on August 28, 2012, at a fair value of $3.65 per share on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

	2012
Expected dividend yield	3.28%
Risk-free interest rate	1.64%
Expected life	10 years
Expected volatility	41.82%

The Company’s equity grants for the nine months ended September 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 $280,000 and $643,000 for the nine month periods ended September 30, 2012 and 2011, respectively. Stock-based compensation expense related to employee grants is recorded as “salaries expense” in the Consolidated Statements of Income and as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized $109,000 and $251,000 of income tax benefits related to stock based compensation expense in the income statement for the nine months ended September 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 nine 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		75,000			9.76
Exercised		—			—
Forfeited		—			—
Expired		(47,237	)		16.70
Outstanding at September 30, 2012		521,613		$	17.80		4.2	$	133,000
Exercisable at September 30, 2012		445,613		$	19.15		3.2	$	—

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

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		49,559		$	9.99
Vested during the period		—			—
Forfeited or expired during the period		(2,474	)		12.55
Nonvested at September 30, 2012		54,344		$	10.48

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Acquisitions

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

Acquisitions

Note 4 – Acquisitions

On August 24, 2012, the Company completed the purchase of a branch of Gateway Bank & Trust Co. located in Wilmington, North Carolina. The Company assumed the branch’s $9 million in deposits. No loans were acquired in this transaction. The Company also did not purchase the branch building, but instead transferred the acquired accounts to one of the Company’s nearby existing branches. The primary reason for this acquisition was to increase the Company’s presence in Wilmington, North Carolina, where the Company already has five branches. The Company paid a deposit premium for the branch of approximately $107,000 which is the amount of the identifiable intangible asset associated with the fair value of the core deposit base. The intangible asset is being amortized as expense on straight-line basis over a seven year period. This branch’s operations are included in the accompanying Consolidated Statements of Income beginning on the acquisition date of August 24, 2012. Historical pro forma information is not presented due to the immateriality of the transaction.

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Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Intangible Assets Policy

In July 2012, rules related to intangible assets were amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that indefinite-lived intangible assets are impaired. If it is determined to be more likely than not that indefinite-lived intangible assets are impaired, then the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment testing by comparing the fair value with carrying amount. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

Business Combinations

In October 2012, rules related to business combinations were amended to address the subsequent accounting for an indemnification asset resulting from a government-assisted acquisition of a financial institution. The guidance indicates that when a reporting entity records an indemnification asset as a result of a government-assisted acquisition of a financial institution involving an indemnification agreement, the indemnification asset should be subsequently measured on the same basis as the asset subject to indemnification. Any amortization of changes in value should be limited to any contractual limitations on the amount and the term of the indemnification agreement. The amendments should be applied prospectively to any new indemnification assets acquired and to changes expected in cash flows of existing indemnification assets occurring on or after the date of adoption. Prior periods would not be adjusted. These changes are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

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Pension Plans

9 Months Ended

Sep. 30, 2012

Pension Plans

Pension Plans

Note 12 – 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. In October 2012, the Company froze the benefits associated with each of our two pension plans effective December 31, 2012, which will substantially reduce pension expense beginning in 2013. It is expected that the Company will increase the amounts contributed to the Company’s 401(k) plan, which will partially offset the pension expense savings.

The Company recorded pension expense totaling $410,000 and $816,000 for the three months ended September 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 September 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	$	386			478			67			99		453			577
Interest cost		326			432			61			102		387			534
Expected return on plan assets		(492	)		(444	)		─			─		(492	)		(444	)
Amortization of transition obligation		—			1			─			─		—			1
Amortization of net (gain)/loss		71			114			(17	)		26		54			140
Amortization of prior service cost		3			3			5			5		8			8
Net periodic pension cost	$	294			584			116			232		410			816

The Company recorded pension expense totaling $2,068,000 and $2,496,000 for the nine months ended September 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 Nine Months Ended September 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	$	1,449			1,434			236		345		1,685			1,779
Interest cost		1,125			1,296			219		306		1,344			1,602
Expected return on plan assets		(1,477	)		(1,332	)		─		─		(1,477	)		(1,332	)
Amortization of transition obligation		2			3			─		─		2			3
Amortization of net (gain)/loss		474			342			17		78		491			420
Amortization of prior service cost		9			9			14		15		23			24
Net periodic pension cost	$	1,582			1,752			486		744		2,068			2,496

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 contributed $2,500,000 to the Pension Plan in the third quarter of 2012 and does not expect any further contributions the remainder of the year.

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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Loans and Asset Quality Information

9 Months Ended

Sep. 30, 2012

Loans And Asset Quality Information

Loans and Asset Quality Information Part I

 Note 8 – 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)	September 30, 2012					December 31, 2011					September 30, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	161,846		7	%		162,099		7	%		161,300		7	%
Real estate – construction, land development & other land loans		329,375		13	%		363,079		15	%		370,735		15	%
Real estate – mortgage – residential (1-4 family) first mortgages		823,069		34	%		805,542		33	%		803,688		33	%
Real estate – mortgage – home equity loans / lines of credit		243,556		10	%		256,509		11	%		258,653		11	%
Real estate – mortgage – commercial and other		807,914		33	%		762,895		31	%		756,568		31	%
Installment loans to individuals		73,833		3	%		78,982		3	%		80,309		3	%
Subtotal		2,439,593		100	%		2,429,106		100	%		2,431,253		100	%
Unamortized net deferred loan costs		1,478					1,280					1,295
Total loans	$	2,441,071					2,430,386					2,432,548

As of September 30, 2012, December 31, 2011 and September 30, 2011, net loans include unamortized premiums of $601,000, $949,000, and $1,065,000, respectively, related to acquired loans.

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

($ in thousands)	September 30, 2012					December 31, 2011					September 30, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	154,956		7	%		152,627		8	%		150,252		7	%
Real estate – construction, land development & other land loans		273,985		13	%		290,983		14	%		298,650		14	%
Real estate – mortgage – residential (1-4 family) first mortgages		681,168		32	%		646,616		31	%		637,129		31	%
Real estate – mortgage – home equity loans / lines of credit		223,154		10	%		233,171		11	%		236,578		12	%
Real estate – mortgage – commercial and other		729,310		34	%		666,882		32	%		656,035		32	%
Installment loans to individuals		73,023		4	%		77,593		4	%		78,785		4	%
Subtotal		2,135,596		100	%		2,067,872		100	%		2,057,429		100	%
Unamortized net deferred loan costs		1,478					1,280					1,295
Total non-covered loans	$	2,137,074					2,069,152					2,058,724

The carrying amount of the covered loans at September 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	$	71		148		6,819		8,671		6,890		8,819
Real estate – construction, land development & other land loans		1,577		2,601		53,813		94,481		55,390		97,082
Real estate – mortgage – residential (1-4 family) first mortgages		815		1,908		141,086		168,840		141,901		170,748
Real estate – mortgage – home equity loans / lines of credit		15		308		20,387		25,999		20,402		26,307
Real estate – mortgage – commercial and other		2,265		4,128		76,339		103,399		78,604		107,527
Installment loans to individuals		2		3		808		881		810		884
Total	$	4,745		9,096		299,252		402,271		303,997		411,367

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		(42,651	)
Transfers to foreclosed real estate		(15,106	)
Loan charge-offs		(6,816	)
Accretion of loan discount		10,455
Carrying amount of nonimpaired covered loans at September 30, 2012	$	299,252

As reflected in the table above, the Company accreted $10,455,000 of the loan discount on purchased nonimpaired loans into interest income during the first nine months of 2012. As of September 30, 2012, there was remaining loan discount of $62,805,000 related to purchased performing 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. At September 30, 2012, the Company also had $23,070,000 of loan discount related to purchased nonperforming loans. It is not expected that this amount will be accreted. An additional $21,495,000 in partial charge-offs have been recorded on purchased loans outstanding at September 30, 2012.

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		(330	)		(23	)		(307	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(109	)		(109	)		—
Other		(1,145	)		(1,562	)		417
Balance at September 30, 2012	$	9,096			4,351			4,745

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. For the nine months ended September 30, 2012 and 2011, the Company received $0 and $717,000 in payments that exceeded the initial carrying amount of the purchased impaired loans, which is included in the loan discount accretion amount discussed previously.

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

ASSET QUALITY DATA ($ in thousands)	September 30, 2012		December 31, 2011		September 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	69,413		73,566		75,013
Restructured loans - accruing		38,522		11,720		11,257
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		107,935		85,286		86,270
Foreclosed real estate		38,065		37,023		32,673
Total non-covered nonperforming assets	$	146,000		122,309		118,943
Covered nonperforming assets
Nonaccrual loans (1)	$	37,619		41,472		36,536
Restructured loans - accruing		17,945		14,218		16,912
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		55,564		55,690		53,448
Foreclosed real estate		58,367		85,272		104,785
Total covered nonperforming assets	$	113,931		140,962		158,233
Total nonperforming assets	$	259,931		263,271		277,176

(1) At September 30, 2012, December 31, 2011, and September 30, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $67.9 million, $69.0 million, and $65.0 million, respectively.

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

($ in thousands)	As of /for the nine months ended September 30, 2012		As of /for the year ended December 31, 2011		As of /for the nine months ended September 30, 2011
Impaired loans at period end
Non-covered	$	107,935		85,286		86,270
Covered		55,564		55,690		53,448
Total impaired loans at period end	$	163,499		140,976		139,718
Average amount of impaired loans for period
Non-covered	$	92,027		89,023		89,957
Covered		56,228		63,289		65,189
Average amount of impaired loans for period – total	$	148,255		152,312		155,146
Allowance for loan losses related to impaired loans at period end
Non-covered	$	9,410		5,804		5,429
Covered		4,074		5,106		2,287
Allowance for loan losses related to impaired loans - total	$	13,484		10,910		7,716
Amount of impaired loans with no related allowance at period end
Non-covered	$	34,150		35,721		35,897
Covered		40,595		43,702		43,918
Total impaired loans with no related allowance at period end	$	74,745		79,423		79,815

Loans and Asset Quality Information Part II

 Note 8 – Loans and Asset Quality Information

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 September 30, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	104		189		293
Commercial – secured		3,386		3		3,389
Secured by inventory and accounts receivable		701		31		732
Real estate – construction, land development & other land loans		16,858		18,032		34,890
Real estate – residential, farmland and multi-family		21,980		9,013		30,993
Real estate – home equity lines of credit		3,211		726		3,937
Real estate – commercial		20,354		9,556		29,910
Consumer		2,819		69		2,888
Total	$	69,413		37,619		107,032

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 September 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	$	289		61		104		36,379		36,833
Commercial - secured		930		336		3,386		108,956		113,608
Secured by inventory and accounts receivable		32		—		701		20,542		21,275
Real estate – construction, land development & other land loans		2,021		1,690		16,858		216,391		236,960
Real estate – residential, farmland, and multi-family		8,532		2,997		21,980		793,444		826,953
Real estate – home equity lines of credit		1,337		315		3,211		198,291		203,154
Real estate - commercial		3,925		756		20,354		615,543		640,578
Consumer		538		238		2,819		52,640		56,235
Total non-covered	$	17,604		6,393		69,413		2,042,186		2,135,596
Unamortized net deferred loan costs										1,478
Total non-covered loans									$	2,137,074
Covered loans	$	5,118		2,583		37,619		258,677		303,997
Total loans	$	22,722		8,976		107,032		2,300,863		2,441,071

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at September 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 nine months ended September 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 September 30, 2012
Beginning balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
Charge-offs		(571	)		(4,628	)		(1,399	)		(1,098	)		(1,247	)		(307	)		—		(9,250	)
Recoveries		219			487			92			10			21			82			—		911
Provisions		468			1,109			1,731			825			1,354			315			168		5,970
Ending balance	$	5,177			14,787			15,383			1,883			5,847			1,881			196		45,154
As of and for the nine months ended September 30, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(2,633	)		(7,480	)		(5,635	)		(1,830	)		(3,417	)		(993	)		—		(21,988	)
Recoveries		253			801			346			129			68			214			—		1,811
Provisions		3,777			10,160			7,140			1,894			5,782			788			180		29,721
Ending balance	$	5,177			14,787			15,383			1,883			5,847			1,881			196		45,154
Ending balances as of September 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	871			109			369			—			1,276			—			—		2,625
Collectively evaluated for impairment	$	4,306			14,678			15,014			1,883			4,571			1,881			196		42,529
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of September 30, 2012:
Ending balance – total	$	171,716			236,960			826,953			203,154			640,578			56,235			—		2,135,596
Ending balances as of September 30, 2012: Loans
Individually evaluated for impairment	$	951			14,187			5,546			275			29,091			—			—		50,050
Collectively evaluated for impairment	$	170,765			222,773			821,407			202,879			611,487			56,235			—		2,085,546
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 nine months ended September 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 September  30, 2011
Beginning balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
Charge-offs		(102	)		(3,937	)		(1,349	)		(189	)		(1,149	)		(173	)		(179	)		(7,078	)
Recoveries		15			220			286			10			5			9			24			569
Provisions		161			3,215			1,456			97			1,303			78			131			6,441
Ending balance	$	3,979			11,288			12,477			1,767			3,018			1,874			(6	)		34,397
As of and for the nine months ended September 30, 2011
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,998	)		(13,519	)		(6,945	)		(953	)		(2,529	)		(533	)		(415	)		(26,892	)
Recoveries		51			471			579			53			33			112			97			1,396
Provisions		1,195			11,816			7,560			(967	)		1,542			334			138			21,618
Ending balance	$	3,979			11,288			12,477			1,767			3,018			1,874			(6	)		34,397
Ending balances as of September 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	145			655			49			—			25			—			—			874
Collectively evaluated for impairment	$	3,834			10,633			12,428			1,767			2,993			1,874			(6	)		33,523
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable as of September 30, 2011:
Ending balance – total	$	169,545			254,361			785,412			211,999			576,459			59,653			—			2,057,429
Ending balances as of September 30, 2011: Loans
Individually evaluated for impairment	$	2,377			39,651			12,940			528			30,833			17			—			86,346
Collectively evaluated for impairment	$	167,168			214,710			772,472			211,471			545,626			59,636			—			1,971,083
Loans acquired with deteriorated credit quality	$	—			922			—			—			—			—			—			922

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

($ in thousands)	Covered Loans
As of and for the three months ended September 30, 2012
Beginning balance	$	5,931
Charge-offs		(2,640	)
Recoveries		—
Provisions		1,103
Ending balance	$	4,394
As of and for the nine months ended September 30, 2012
Beginning balance	$	5,808
Charge-offs		(6,788	)
Recoveries		—
Provisions		5,374
Ending balance	$	4,394
Ending balances as of September 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	4,394
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		17
Loans receivable as of September 30, 2012:
Ending balance – total	$	303,997
Ending balances as of September 30, 2012: Loans
Individually evaluated for impairment	$	57,607
Collectively evaluated for impairment		246,390
Loans acquired with deteriorated credit quality		4,745

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	$	5,808
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 nine months ended September 30, 2011.

($ in thousands)	Covered Loans
As of and for the three months ended September 30, 2011
Beginning balance	$	5,540
Charge-offs		(4,988	)
Recoveries		—
Provisions		2,705
Ending balance	$	3,257
As of and for the six months ended September 30, 2011
Beginning balance	$	11,155
Charge-offs		(17,703	)
Recoveries		—
Provisions		9,805
Ending balance	$	3,257
Ending balances as of September 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	3,257
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		—
Loans receivable as of September 30, 2011:
Ending balance – total	$	373,824
Ending balances as of September 30, 2011: Loans
Individually evaluated for impairment	$	33,163
Collectively evaluated for impairment		340,661
Loans acquired with deteriorated credit quality		9,037

The following table presents the Company’s impaired loans as of September 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		—		—		—		108
Secured by inventory and accounts receivable		—		—		—		7
Real estate – construction, land development & other land loans		11,748		16,202		—		9,681
Real estate – residential, farmland, and multi-family		2,346		2,787		—		2,966
Real estate – home equity lines of credit		274		581		—		80
Real estate – commercial		19,782		21,594		—		14,361
Consumer		—		—		—		3
Total non-covered impaired loans with no allowance	$	34,150		41,164		—		27,206
Total covered impaired loans with no allowance	$	40,595		79,150		—		40,417
Total impaired loans with no allowance recorded	$	74,745		120,314		—		67,623
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	103		444		43		199
Commercial - secured		3,386		4,000		980		2,281
Secured by inventory and accounts receivable		701		788		153		680
Real estate – construction, land development & other land loans		10,983		14,508		3,006		14,266
Real estate – residential, farmland, and multi-family		37,696		41,507		3,202		28,018
Real estate – home equity lines of credit		2,960		4,085		155		3,215
Real estate – commercial		15,136		17,543		1,560		13,365
Consumer		2,820		2,859		311		2,797
Total non-covered impaired loans with allowance	$	73,785		85,734		9,410		64,821
Total covered impaired loans with allowance	$	14,969		18,671		4,074		15,811
Total impaired loans with an allowance recorded	$	88,754		104,405		13,484		80,632

Interest income recorded on non-covered and covered impaired loans during the nine months ended September 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 September 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	$	10,081		25,473		10		539		626		104		36,833
Commercial - secured		33,284		69,884		1,792		3,943		1,319		3,386		113,608
Secured by inventory and accounts receivable		3,457		15,974		257		767		119		701		21,275
Real estate – construction, land development & other land loans		31,087		162,999		3,891		13,628		8,497		16,858		236,960
Real estate – residential, farmland, and multi-family		246,143		487,571		7,891		29,967		33,401		21,980		826,953
Real estate – home equity lines of credit		126,885		65,701		2,487		2,895		1,975		3,211		203,154
Real estate - commercial		128,567		438,254		28,453		16,365		8,585		20,354		640,578
Consumer		28,553		23,208		78		928		649		2,819		56,235
Total	$	608,057		1,289,064		44,859		69,032		55,171		69,413		2,135,596
Unamortized net deferred loan costs														1,478
Total non-covered  loans													$	2,137,074
Total covered loans	$	48,087		130,986		—		8,580		78,725		37,619		303,997
Total loans	$	656,144		1,420,050		44,859		77,612		133,896		107,032		2,441,071

At September 30, 2012, there was an insignificant amount of covered and non-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 September 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 nine months ended September 30, 2012.

($ in thousands)	For the three months ended September 30, 2012				For the nine months ended September 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
Real estate – residential, farmland, and multi-family		6		1,204		7		1,507
Non-covered TDRs - Nonaccrual
Real estate – construction, land development & other land loans		—		—		1		238
Real estate – residential, farmland, and multi-family		5		705		5		705
Real estate – commercial		2		370		2		370
Total non-covered TDRs arising during period		13	$	2,279		16	$	3,120
Total covered TDRs arising during period– Accruing		—	$	—		6	$	7,342
Total covered TDRs arising during period – Nonaccrual		1		1		1		1
Total TDRs arising during period		14	$	2,280		23	$	10,463

Accruing restructured loans that defaulted during the three and nine months ended September 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 foreclosed real estate. As part of a routine regulatory exam that concluded in the third quarter of 2012, the Company reclassified approximately $12 million of performing loans to TDR status in the second quarter of 2012 and another $18 million in the third quarter of 2012. Because these loans were restructured prior to January 1, 2012, they are not included in the above table.

($ in thousands)	For the three months ended September 30, 2012				For the nine months ended September 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural:
Commercial- secured		6	$	601		6	$	601
Real estate – construction, land development & other land loans		2		253		4		917
Real estate – residential, farmland, and multi-family		2		168		3		509
Real estate - commercial		6		2,899		7		3,079
Consumer		1		2		1		2
Total non-covered TDRs that subsequently defaulted		17	$	3,923		21	$	5,108
Total accruing covered TDRs that subsequently defaulted		7	$	407		21	$	3,834
Total accruing TDRs that subsequently defaulted		24	$	4,330		42	$	8,942

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Deferred Loan Costs (Details Narrative) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Deferred Loan Costs Details Narrative
Loan Costs - deferred	$ 1,478,000	$ 1,280,000	$ 1,295,000

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Earnings Per Common Share

9 Months Ended

Sep. 30, 2012

Earnings Per Common Share

Earnings Per Common Share

Note 6 – 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 September 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	$	3,735		16,988,150	$	0.22	$	(732	)		16,875,918	$	(0.04	)
Effect of Dilutive Securities		—		—				—			27,113
Diluted EPS per common share	$	3,735		16,988,150	$	0.22	$	(732	)		16,903,031	$	(0.04	)

	For the Nine Months Ended September 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	$	254		16,955,130	$	0.01	$	7,286		16,843,716	$	0.43
Effect of Dilutive Securities		—		—				—		27,294
Diluted EPS per common share	$	254		16,955,130	$	0.01	$	7,286		16,871,010	$	0.43

For both the three and nine months ended September 30, 2012, there were 446,613 options, respectively, that were antidilutive because the exercise price exceeded the average market price for the period. For the three and nine month periods ended September 30, 2011, there were 545,347 and 542,916 options, respectively, 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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Securities

9 Months Ended

Sep. 30, 2012

Securities

Securities

Note 7 – Securities

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

	September 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	$	20,500		20,614		114		—			34,511		34,665		170		(16	)
Mortgage-backed securities		124,164		128,533		4,369		—			120,032		124,105		4,164		(91	)
Corporate bonds		3,997		3,857		100		(240	)		13,189		12,488		279		(980	)
Equity securities		7,952		8,403		473		(22	)		10,998		11,368		409		(39	)
Total available for sale	$	156,613		161,407		5,056		(262	)		178,730		182,626		5,022		(1,126	)
Securities held to maturity:
State and local governments	$	56,123		61,877		5,754		—			57,988		62,754		4,766		—
Total held to maturity	$	56,123		61,877		5,754		—			57,988		62,754		4,766		—

Included in mortgage-backed securities at September 30, 2012 were collateralized mortgage obligations with an amortized cost of $515,000 and a fair value of $532,000. 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 $7,859,000 at September 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 September 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		—		—		760		240		760		240
Equity securities		—		—		30		22		30		22
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	—		—		790		262		790		262

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 September 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 September 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 $7,859,000 at September 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 September 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	$	3,000		3,007		350		355
Due after one year but within five years		20,497		20,704		3,208		3,484
Due after five years but within ten years		—		—		29,677		32,653
Due after ten years		1,000		760		22,888		25,385
Mortgage-backed securities		124,164		128,533		—		—
Total debt securities		148,661		153,004		56,123		61,877
Equity securities		7,952		8,403		—		—
Total securities	$	156,613		161,407		56,123		61,877

At September 30, 2012 investment securities with a book value of $83,557,000 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 nine months ended September 30, 2012, which resulted in a net gain of $439,000. There were $2,518,000 in sales during the nine months ended September 30, 2011, which resulted in a net gain of $8,000. During the nine months ended September 30, 2012 and 2011, the Company recorded a net gain of $200,000 and $71,000, respectively, related to the call of several municipal and corporate bond securities. Also, during the nine months ended September 30, 2012 and 2011, the Company recorded net losses of $1,000 and $5,000, respectively, related to write-downs of the Company’s equity portfolio.

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Deferred Loan Costs

9 Months Ended

Sep. 30, 2012

Deferred Loan Costs

Deferred Loan Costs

Note 9 – Deferred Loan Costs

The amount of loans shown on the Consolidated Balance Sheets includes net deferred loan costs of approximately $1,478,000, $1,280,000, and $1,295,000 at September 30, 2012, December 31, 2011, and September 30, 2011, respectively.

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Goodwill and Other Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Goodwill And Other Intangible Assets Details
Customer lists	$ 678	$ 678	$ 678
Customer Lists Accumulated Amortization	402	357	343
Core deposit premiums	7,974	7,867	7,867
Core Deposit premiums accumulated amortization	4,916	4,291	4,079
[FiniteLivedIntangibleAssetsGross]	8,652	8,545	8,545
FiniteLivedIntangibleAssetsAccumulatedAmortization	5,318	4,648	4,422
Goodwill	$ 65,835	$ 65,835	$ 65,835

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Pension Plans (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Pension Plans Details Narrative
Contribution to the Pension Plan	$ 2,500,000
Pension Expense	$ 410,000	$ 816,000	$ 2,068,000	$ 2,496,000

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Goodwill and Other Intangible Assets (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Goodwill And Other Intangible Assets Details Narrative
Amortization expense of intangible assets	$ 224	$ 226	$ 670	$ 676

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Equity-Based Compensation Plans (Details Narrative) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Stock based compensation expense	$ 280,000	$ 643,000
Balance options outstanding, end	521,613		493,850
Granted options	75,000
Fair value of equity grant, per share	$ 9.99
Stock based compensation, income tax benefit	109,000	251,000
Proceeds from stock options exercised	0	30,000
First Bancorp Plans
Exercise price range - floor	$ 9.76
Exercise prices range - ceiling	$ 22.12
Shares remaining available for grant	758,731
First Bancorp 2007 Equity Plan
Director equity grants granted, value	16,000
First Bancorp 2007 Equity Plan | February 2011 Award
Total compensation expense associated with senior executives grants	105,500
Stock based compensation expense	29,600
Subsequent quarter compensation expense associated with senior executives grants	11,800
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	24,400
Subsequent quarter compensation expense associated with senior executives grants	$ 13,000
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
Restricted Stock | Chief Executive Officer
Equity grants	40,000
Fair value of equity grant, per share	$ 9.76
Stock Options | Chief Executive Officer
Granted options	75,000
Fair value of options granted, per share	$ 3.65

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Loans and Asset Quality Information (Details 6) (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Impaired loans at period end	$ 163,499	$ 139,718	$ 140,976
Average amount of impaired loans for period	148,255	155,146	152,312
Impaired loans with related allowance - Related Allowance	13,484	7,716	10,910
Impaired loans with no related allowance - Recorded Investment	74,745	79,815	79,423
Non-covered
Impaired loans at period end	107,935	86,270	85,286
Average amount of impaired loans for period	92,027	89,957	89,023
Impaired loans with related allowance - Related Allowance	9,410	5,429	5,804
Impaired loans with no related allowance - Recorded Investment	34,150	35,897	35,721
Covered
Impaired loans at period end	55,564	53,448	55,690
Average amount of impaired loans for period	56,228	65,189	63,289
Impaired loans with related allowance - Related Allowance	4,074	2,287	5,106
Impaired loans with no related allowance - Recorded Investment	$ 40,595	$ 43,918	$ 43,702

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Fair Value

9 Months Ended

Sep. 30, 2012

FairValueAbstract

Fair Value

Note 14 – 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.

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

($ in thousands)
Description of Financial Instruments	Fair Value at September 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	$	20,614		—		20,614		—
Mortgage-backed securities		128,533		—		128,533		—
Corporate bonds		3,857		—		3,857		—
Equity securities		8,403		454		7,949		—
Total available for sale securities	$	161,407		454		160,953		—
Nonrecurring
Impaired loans – covered	$	55,564		—		—		55,564
Impaired loans – non-covered		107,935		—		—		107,935
Foreclosed real estate – covered		58,367		—		58,367		—
Foreclosed real estate – non-covered		38,065		—		38,065		—

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		—
Foreclosed real estate – covered		85,272		—		85,272		—
Foreclosed 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.

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.

Foreclosed real estate – Foreclosed 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 September 30, 2012 or 2011.

For the nine months ended September 30, 2012 and 2011, the increase in the fair value of securities available for sale was $898,000 and $1,572,000, respectively, which is included in other comprehensive income (tax expense of $350,000 and $613,000, respectively). Fair value measurement methods at September 30, 2012 and 2011 are consistent with those used in prior reporting periods.

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

		September 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	$	79,991		79,991		80,341		80,341
Due from banks, interest-bearing	Level 1		202,693		202,693		135,218		135,218
Federal funds sold	Level 1		519		519		608		608
Securities available for sale	Level 2		161,407		161,407		182,626		182,626
Securities held to maturity	Level 2		56,123		61,877		57,988		62,754
Presold mortgages in process of settlement	Level 1		4,380		4,380		6,090		6,090
Loans – non-covered, net of allowance	Level 3		2,091,920		2,048,424		2,033,542		1,987,979
Loans – covered, net of allowance	Level 3		299,603		299,603		355,426		355,426
FDIC indemnification asset	Level 3		107,615		107,388		121,677		121,004
Accrued interest receivable	Level 1		10,720		10,720		11,779		11,779
Deposits	Level 2		2,834,464		2,838,106		2,755,037		2,759,504
Securities sold under agreements to repurchase	Level 2		—		—		17,105		17,105
Borrowings	Level 2		111,394		86,662		133,925		106,333
Accrued interest payable	Level 2		1,421		1,421		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)

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.

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Securities (Tables)

9 Months Ended

Sep. 30, 2012

Securities Tables

Book values and approximate fair values of investment securities

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

	September 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	$	20,500		20,614		114		—			34,511		34,665		170		(16	)
Mortgage-backed securities		124,164		128,533		4,369		—			120,032		124,105		4,164		(91	)
Corporate bonds		3,997		3,857		100		(240	)		13,189		12,488		279		(980	)
Equity securities		7,952		8,403		473		(22	)		10,998		11,368		409		(39	)
Total available for sale	$	156,613		161,407		5,056		(262	)		178,730		182,626		5,022		(1,126	)
Securities held to maturity:
State and local governments	$	56,123		61,877		5,754		—			57,988		62,754		4,766		—
Total held to maturity	$	56,123		61,877		5,754		—			57,988		62,754		4,766		—

Schedule of information regarding securities with unrealized losses

The following table presents information regarding securities with unrealized losses at September 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		—		—		760		240		760		240
Equity securities		—		—		30		22		30		22
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	—		—		790		262		790		262

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

Schedule of book values and approximate fair values of investment securities by contractual maturity

The book values and approximate fair values of investment securities at September 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	$	3,000		3,007		350		355
Due after one year but within five years		20,497		20,704		3,208		3,484
Due after five years but within ten years		—		—		29,677		32,653
Due after ten years		1,000		760		22,888		25,385
Mortgage-backed securities		124,164		128,533		—		—
Total debt securities		148,661		153,004		56,123		61,877
Equity securities		7,952		8,403		—		—
Total securities	$	156,613		161,407		56,123		61,877

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Loans and Asset Quality Information (Details 4) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 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	(307)	(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	4,745	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	(330)	(1,620)
Transfer to foreclosed real estate	(7,636)	(19,881)
Change due to loan charge-off	(109)	(7,522)
Other	(1,145)	807
Balance, ending, contractual principal	9,096	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	(23)	(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	$ 4,351	$ 9,532

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Securities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Amortized Cost	$ 156,613	$ 178,730
Fair Value	161,407	182,626	159,870
Unrealized Gain	5,056	5,022
Unrealized (losses)	(262)	(1,126)
Amortized Cost	56,123	57,988	57,533
Fair Value	61,877	62,754	61,512
Unrealized Gain	5,754	4,766
Unrealized (losses)
US Government-sponsored enterprises securities
Amortized Cost	20,500	34,511
Fair Value	20,614	34,665
Unrealized Gain	114	170
Unrealized (losses)		(16)
Mortgage-backed securities
Amortized Cost	124,164	120,032
Fair Value	128,533	124,105
Unrealized Gain	4,369	4,164
Unrealized (losses)		(91)
Corporate bonds
Amortized Cost	3,997	13,189
Fair Value	3,857	12,488
Unrealized Gain	100	279
Unrealized (losses)	(240)	(980)
Equity securities
Amortized Cost	7,952	10,998
Fair Value	8,403	11,368
Unrealized Gain	473	409
Unrealized (losses)	(22)	(39)
States and local governments
Amortized Cost	56,123	57,988
Fair Value	61,877	62,754
Unrealized Gain	5,754	4,766
Unrealized (losses)

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements Of Comprehensive Income
Net income	$ 4,423	$ 2,557	$ 2,531	$ 12,658
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period, pretax	635	259	1,536	1,646
Tax expense	(249)	(101)	(599)	(642)
Reclassification to realized (gains)	(189)		(638)	(74)
Tax expense	74		249	29
Postretirement Plans:
Amortization of unrecognized net actuarial loss	82	140	465	420
Tax expense	(32)	(56)	(181)	(168)
Amortization of prior service cost and transition obligation	7	9	24	27
Tax expense	(3)	(4)	(10)	(12)
Other comprehensive income	325	247	846	1,226
Comprehensive income	$ 4,748	$ 2,804	$ 3,377	$ 13,884

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Reclassifications

9 Months Ended

Sep. 30, 2012

Reclassifications

Reclassifications

Note 3 – Reclassifications

Certain amounts reported in the period ended September 30, 2011 have been reclassified to conform to the presentation for September 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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Loans and Asset Quality Information (Details 13) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs	14	23
TDRs arising during period	$ 2,280	$ 10,463
Non-covered
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs	13
TDRs arising during period	2,279
Non-covered
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs		16
TDRs arising during period		3,120
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
TDRs arising during period - Accruing		300
Number of contracts, TDRs Nonaccrual		1
TDRs arising during period - Nonaccrual		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	6	7
TDRs arising during period - Accruing	1,204	1,507
Number of contracts, TDRs Nonaccrual	5	5
TDRs arising during period - Nonaccrual	705	705
Non-covered | Real estate commercial
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs Nonaccrual	2	2
TDRs arising during period - Nonaccrual	370	370
Covered
Information related to loans modified in a troubled debt restructuring:
Number of contracts, TDRs Accruing		6
TDRs arising during period - Accruing		7,342
Number of contracts, TDRs Nonaccrual	1	1
TDRs arising during period - Nonaccrual	$ 1	$ 1

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Fair Value (Details Narrative) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Fair Value Details Narrative
Increase in fair value of securities available for sale	$ 898,000	$ 1,572,000
Tax expense of increase in the fair value of securities available for sale	$ 350,000	$ 613,000

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Loans and Asset Quality Information (Tables)

9 Months Ended

Sep. 30, 2012

Loans And Asset Quality Information Tables

Summary of the major categories of total loans outstanding

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

($ in thousands)	September 30, 2012					December 31, 2011					September 30, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	161,846		7	%		162,099		7	%		161,300		7	%
Real estate – construction, land development & other land loans		329,375		13	%		363,079		15	%		370,735		15	%
Real estate – mortgage – residential (1-4 family) first mortgages		823,069		34	%		805,542		33	%		803,688		33	%
Real estate – mortgage – home equity loans / lines of credit		243,556		10	%		256,509		11	%		258,653		11	%
Real estate – mortgage – commercial and other		807,914		33	%		762,895		31	%		756,568		31	%
Installment loans to individuals		73,833		3	%		78,982		3	%		80,309		3	%
Subtotal		2,439,593		100	%		2,429,106		100	%		2,431,253		100	%
Unamortized net deferred loan costs		1,478					1,280					1,295
Total loans	$	2,441,071					2,430,386					2,432,548

Summary of the major categories of non-covered loans outstanding

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

($ in thousands)	September 30, 2012					December 31, 2011					September 30, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	154,956		7	%		152,627		8	%		150,252		7	%
Real estate – construction, land development & other land loans		273,985		13	%		290,983		14	%		298,650		14	%
Real estate – mortgage – residential (1-4 family) first mortgages		681,168		32	%		646,616		31	%		637,129		31	%
Real estate – mortgage – home equity loans / lines of credit		223,154		10	%		233,171		11	%		236,578		12	%
Real estate – mortgage – commercial and other		729,310		34	%		666,882		32	%		656,035		32	%
Installment loans to individuals		73,023		4	%		77,593		4	%		78,785		4	%
Subtotal		2,135,596		100	%		2,067,872		100	%		2,057,429		100	%
Unamortized net deferred loan costs		1,478					1,280					1,295
Total non-covered loans	$	2,137,074					2,069,152					2,058,724

Carrying amount of the covered loans

The carrying amount of the covered loans at September 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	$	71		148		6,819		8,671		6,890		8,819
Real estate – construction, land development & other land loans		1,577		2,601		53,813		94,481		55,390		97,082
Real estate – mortgage – residential (1-4 family) first mortgages		815		1,908		141,086		168,840		141,901		170,748
Real estate – mortgage – home equity loans / lines of credit		15		308		20,387		25,999		20,402		26,307
Real estate – mortgage – commercial and other		2,265		4,128		76,339		103,399		78,604		107,527
Installment loans to individuals		2		3		808		881		810		884
Total	$	4,745		9,096		299,252		402,271		303,997		411,367

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

Schedule of 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		(42,651	)
Transfers to foreclosed real estate		(15,106	)
Loan charge-offs		(6,816	)
Accretion of loan discount		10,455
Carrying amount of nonimpaired covered loans at September 30, 2012	$	299,252

Schedule of applied coste recoveru method of purchased impaired 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		(330	)		(23	)		(307	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(109	)		(109	)		—
Other		(1,145	)		(1,562	)		417
Balance at September 30, 2012	$	9,096			4,351			4,745

Summary of nonperforming assets

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

ASSET QUALITY DATA ($ in thousands)	September 30, 2012		December 31, 2011		September 30, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	69,413		73,566		75,013
Restructured loans - accruing		38,522		11,720		11,257
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		107,935		85,286		86,270
Foreclosed real estate		38,065		37,023		32,673
Total non-covered nonperforming assets	$	146,000		122,309		118,943
Covered nonperforming assets
Nonaccrual loans (1)	$	37,619		41,472		36,536
Restructured loans - accruing		17,945		14,218		16,912
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		55,564		55,690		53,448
Foreclosed real estate		58,367		85,272		104,785
Total covered nonperforming assets	$	113,931		140,962		158,233
Total nonperforming assets	$	259,931		263,271		277,176

(1) At September 30, 2012, December 31, 2011, and September 30, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $67.9 million, $69.0 million, and $65.0 million, respectively.

Information related to impaired loans

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

($ in thousands)	As of /for the nine months ended September 30, 2012		As of /for the year ended December 31, 2011		As of /for the nine months ended September 30, 2011
Impaired loans at period end
Non-covered	$	107,935		85,286		86,270
Covered		55,564		55,690		53,448
Total impaired loans at period end	$	163,499		140,976		139,718
Average amount of impaired loans for period
Non-covered	$	92,027		89,023		89,957
Covered		56,228		63,289		65,189
Average amount of impaired loans for period – total	$	148,255		152,312		155,146
Allowance for loan losses related to impaired loans at period end
Non-covered	$	9,410		5,804		5,429
Covered		4,074		5,106		2,287
Allowance for loan losses related to impaired loans - total	$	13,484		10,910		7,716
Amount of impaired loans with no related allowance at period end
Non-covered	$	34,150		35,721		35,897
Covered		40,595		43,702		43,918
Total impaired loans with no related allowance at period end	$	74,745		79,423		79,815

Schedule of nonaccrual loans

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

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	104		189		293
Commercial – secured		3,386		3		3,389
Secured by inventory and accounts receivable		701		31		732
Real estate – construction, land development & other land loans		16,858		18,032		34,890
Real estate – residential, farmland and multi-family		21,980		9,013		30,993
Real estate – home equity lines of credit		3,211		726		3,937
Real estate – commercial		20,354		9,556		29,910
Consumer		2,819		69		2,888
Total	$	69,413		37,619		107,032

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

Schedule of analysis of the payment status of loans

The following table presents an analysis of the payment status of the Company’s loans as of September 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	$	289		61		104		36,379		36,833
Commercial - secured		930		336		3,386		108,956		113,608
Secured by inventory and accounts receivable		32		—		701		20,542		21,275
Real estate – construction, land development & other land loans		2,021		1,690		16,858		216,391		236,960
Real estate – residential, farmland, and multi-family		8,532		2,997		21,980		793,444		826,953
Real estate – home equity lines of credit		1,337		315		3,211		198,291		203,154
Real estate - commercial		3,925		756		20,354		615,543		640,578
Consumer		538		238		2,819		52,640		56,235
Total non-covered	$	17,604		6,393		69,413		2,042,186		2,135,596
Unamortized net deferred loan costs										1,478
Total non-covered loans									$	2,137,074
Covered loans	$	5,118		2,583		37,619		258,677		303,997
Total loans	$	22,722		8,976		107,032		2,300,863		2,441,071

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

Schedule of 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 nine months ended September 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 September 30, 2012
Beginning balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
Charge-offs		(571	)		(4,628	)		(1,399	)		(1,098	)		(1,247	)		(307	)		—		(9,250	)
Recoveries		219			487			92			10			21			82			—		911
Provisions		468			1,109			1,731			825			1,354			315			168		5,970
Ending balance	$	5,177			14,787			15,383			1,883			5,847			1,881			196		45,154
As of and for the nine months ended September 30, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(2,633	)		(7,480	)		(5,635	)		(1,830	)		(3,417	)		(993	)		—		(21,988	)
Recoveries		253			801			346			129			68			214			—		1,811
Provisions		3,777			10,160			7,140			1,894			5,782			788			180		29,721
Ending balance	$	5,177			14,787			15,383			1,883			5,847			1,881			196		45,154
Ending balances as of September 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	871			109			369			—			1,276			—			—		2,625
Collectively evaluated for impairment	$	4,306			14,678			15,014			1,883			4,571			1,881			196		42,529
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of September 30, 2012:
Ending balance – total	$	171,716			236,960			826,953			203,154			640,578			56,235			—		2,135,596
Ending balances as of September 30, 2012: Loans
Individually evaluated for impairment	$	951			14,187			5,546			275			29,091			—			—		50,050
Collectively evaluated for impairment	$	170,765			222,773			821,407			202,879			611,487			56,235			—		2,085,546
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 nine months ended September 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 September  30, 2011
Beginning balance	$	3,905			11,790			12,084			1,849			2,859			1,960			18			34,465
Charge-offs		(102	)		(3,937	)		(1,349	)		(189	)		(1,149	)		(173	)		(179	)		(7,078	)
Recoveries		15			220			286			10			5			9			24			569
Provisions		161			3,215			1,456			97			1,303			78			131			6,441
Ending balance	$	3,979			11,288			12,477			1,767			3,018			1,874			(6	)		34,397
As of and for the nine months ended September 30, 2011
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,998	)		(13,519	)		(6,945	)		(953	)		(2,529	)		(533	)		(415	)		(26,892	)
Recoveries		51			471			579			53			33			112			97			1,396
Provisions		1,195			11,816			7,560			(967	)		1,542			334			138			21,618
Ending balance	$	3,979			11,288			12,477			1,767			3,018			1,874			(6	)		34,397
Ending balances as of September 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	145			655			49			—			25			—			—			874
Collectively evaluated for impairment	$	3,834			10,633			12,428			1,767			2,993			1,874			(6	)		33,523
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable as of September 30, 2011:
Ending balance – total	$	169,545			254,361			785,412			211,999			576,459			59,653			—			2,057,429
Ending balances as of September 30, 2011: Loans
Individually evaluated for impairment	$	2,377			39,651			12,940			528			30,833			17			—			86,346
Collectively evaluated for impairment	$	167,168			214,710			772,472			211,471			545,626			59,636			—			1,971,083
Loans acquired with deteriorated credit quality	$	—			922			—			—			—			—			—			922

Schedule of 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 nine months ended September 30, 2012.

($ in thousands)	Covered Loans
As of and for the three months ended September 30, 2012
Beginning balance	$	5,931
Charge-offs		(2,640	)
Recoveries		—
Provisions		1,103
Ending balance	$	4,394
As of and for the nine months ended September 30, 2012
Beginning balance	$	5,808
Charge-offs		(6,788	)
Recoveries		—
Provisions		5,374
Ending balance	$	4,394
Ending balances as of September 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	4,394
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		17
Loans receivable as of September 30, 2012:
Ending balance – total	$	303,997
Ending balances as of September 30, 2012: Loans
Individually evaluated for impairment	$	57,607
Collectively evaluated for impairment		246,390
Loans acquired with deteriorated credit quality		4,745

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	$	5,808
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 nine months ended September 30, 2011.

($ in thousands)	Covered Loans
As of and for the three months ended September 30, 2011
Beginning balance	$	5,540
Charge-offs		(4,988	)
Recoveries		—
Provisions		2,705
Ending balance	$	3,257
As of and for the six months ended September 30, 2011
Beginning balance	$	11,155
Charge-offs		(17,703	)
Recoveries		—
Provisions		9,805
Ending balance	$	3,257
Ending balances as of September 30, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	3,257
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		—
Loans receivable as of September 30, 2011:
Ending balance – total	$	373,824
Ending balances as of September 30, 2011: Loans
Individually evaluated for impairment	$	33,163
Collectively evaluated for impairment		340,661
Loans acquired with deteriorated credit quality		9,037

Schedule of impaired loans

The following table presents the Company’s impaired loans as of September 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		—		—		—		108
Secured by inventory and accounts receivable		—		—		—		7
Real estate – construction, land development & other land loans		11,748		16,202		—		9,681
Real estate – residential, farmland, and multi-family		2,346		2,787		—		2,966
Real estate – home equity lines of credit		274		581		—		80
Real estate – commercial		19,782		21,594		—		14,361
Consumer		—		—		—		3
Total non-covered impaired loans with no allowance	$	34,150		41,164		—		27,206
Total covered impaired loans with no allowance	$	40,595		79,150		—		40,417
Total impaired loans with no allowance recorded	$	74,745		120,314		—		67,623
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	103		444		43		199
Commercial - secured		3,386		4,000		980		2,281
Secured by inventory and accounts receivable		701		788		153		680
Real estate – construction, land development & other land loans		10,983		14,508		3,006		14,266
Real estate – residential, farmland, and multi-family		37,696		41,507		3,202		28,018
Real estate – home equity lines of credit		2,960		4,085		155		3,215
Real estate – commercial		15,136		17,543		1,560		13,365
Consumer		2,820		2,859		311		2,797
Total non-covered impaired loans with allowance	$	73,785		85,734		9,410		64,821
Total covered impaired loans with allowance	$	14,969		18,671		4,074		15,811
Total impaired loans with an allowance recorded	$	88,754		104,405		13,484		80,632

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 September 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	$	10,081		25,473		10		539		626		104		36,833
Commercial - secured		33,284		69,884		1,792		3,943		1,319		3,386		113,608
Secured by inventory and accounts receivable		3,457		15,974		257		767		119		701		21,275
Real estate – construction, land development & other land loans		31,087		162,999		3,891		13,628		8,497		16,858		236,960
Real estate – residential, farmland, and multi-family		246,143		487,571		7,891		29,967		33,401		21,980		826,953
Real estate – home equity lines of credit		126,885		65,701		2,487		2,895		1,975		3,211		203,154
Real estate - commercial		128,567		438,254		28,453		16,365		8,585		20,354		640,578
Consumer		28,553		23,208		78		928		649		2,819		56,235
Total	$	608,057		1,289,064		44,859		69,032		55,171		69,413		2,135,596
Unamortized net deferred loan costs														1,478
Total non-covered  loans													$	2,137,074
Total covered loans	$	48,087		130,986		—		8,580		78,725		37,619		303,997
Total loans	$	656,144		1,420,050		44,859		77,612		133,896		107,032		2,441,071

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 nine months ended September 30, 2012.

($ in thousands)	For the three months ended September 30, 2012				For the nine months ended September 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
Real estate – residential, farmland, and multi-family		6		1,204		7		1,507
Non-covered TDRs - Nonaccrual
Real estate – construction, land development & other land loans		—		—		1		238
Real estate – residential, farmland, and multi-family		5		705		5		705
Real estate – commercial		2		370		2		370
Total non-covered TDRs arising during period		13	$	2,279		16	$	3,120
Total covered TDRs arising during period– Accruing		—	$	—		6	$	7,342
Total covered TDRs arising during period – Nonaccrual		1		1		1		1
Total TDRs arising during period		14	$	2,280		23	$	10,463

Accruing restructured loans that defaulted in the period

Accruing restructured loans that defaulted during the three and nine months ended September 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 foreclosed real estate.

($ in thousands)	For the three months ended September 30, 2012				For the nine months ended September 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural:
Commercial- secured		6	$	601		6	$	601
Real estate – construction, land development & other land loans		2		253		4		917
Real estate – residential, farmland, and multi-family		2		168		3		509
Real estate - commercial		6		2,899		7		3,079
Consumer		1		2		1		2
Total non-covered TDRs that subsequently defaulted		17	$	3,923		21	$	5,108

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Earnings Per Common Share (Details Narrative)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Common Share Details Narrative
Antidilutive options	446,613	545,347	446,613	542,916

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Comprehensive Income

9 Months Ended

Sep. 30, 2012

Comprehensive Income

Comprehensive Income

Note 13 – 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)	September 30, 2012			December 31, 2011			September 30, 2011
Unrealized gain (loss) on securities available for sale	$	4,794			3,896			4,047
Deferred tax asset (liability)		(1,870	)		(1,520	)		(1,578	)
Net unrealized gain (loss) on securities available for sale		2,924			2,376			2,469
Additional pension liability		(17,789	)		(18,278	)		(10,460	)
Deferred tax asset		7,029			7,220			4,132
Net additional pension liability		(10,760	)		(11,058	)		(6,328	)
Total accumulated other comprehensive income (loss)	$	(7,836	)		(8,682	)		(3,859	)