Number of shares of common stock outstanding at ~~October 31, 2012: 16,346,247~~

April 30, 2013: 16,424,481

LAKELAND FINANCIAL CORPORATION

Form 10-Q Quarterly Report

Table of Contents

PART I.

				Page Number
Item 1.		Financial Statements		1
Item 2.		Management’s Discussion and Analysis of
	Financial Condition and Results of Operations		4744
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		6357
Item 4.		Controls and Procedures		6457

PART II.

			Page Number
Item 1.		Legal Proceedings	6559
Item 1A.		Risk Factors	6559
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	6559
Item 3.		Defaults Upon Senior Securities	6659
Item 4.		Mine Safety Disclosures	6660
Item 5.		Other Information	6660
Item 6.	Exhibits	~~Exhibits~~	6660

Form 10-Q		Signature Page	67

PART 1

LAKELAND FINANCIAL CORPORATION

ITEM 1 – FINANCIAL STATEMENTS

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

As of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~

2012

(in thousands except for share data)

(Page 1 of 2)

September 30,
2012 December 31,
2011
(Unaudited)
ASSETS
Cash and due from banks $ 134,785 $ 56,909
Short-term investments 46,617 47,675
Total cash and cash equivalents 181,402 104,584

Securities available for sale (carried at fair value) 481,256 467,391
Real estate mortgage loans held for sale 6,707 2,953

Loans, net of allowance for loan losses of $51,912 and $53,400 2,151,476 2,180,309

Land, premises and equipment, net 34,969 34,736
Bank owned life insurance 40,848 39,959
Accrued income receivable 9,735 9,612
Goodwill 4,970 4,970
Other intangible assets 60 99
Other assets 40,785 45,075
Total assets $ 2,952,208 $ 2,889,688

~~(continued)~~

	March 31,	December 31,
	2013	2012
	(Unaudited)
ASSETS
Cash and due from banks	$ 66,776	$ 156,666
Short-term investments	8,891	75,571
Total cash and cash equivalents	75,667	232,237

Securities available for sale (carried at fair value)	482,704	467,021
Real estate mortgage loans held for sale	6,629	9,452

Loans, net of allowance for loan losses of $50,818 and $51,445	2,211,642	2,206,075

Land, premises and equipment, net	34,502	34,840
Bank owned life insurance	61,574	61,112
Accrued income receivable	9,235	8,491
Goodwill	4,970	4,970
Other intangible assets	35	47
Other assets	40,744	39,899
Total assets	$ 2,927,702	$ 3,064,144

(continued)

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

As of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~

2012

(in thousands except for share data)

(Page 2 of 2)

September 30, December 31,
2012 2011
(Unaudited)
LIABILITIES AND EQUITY

LIABILITIES
Noninterest bearing deposits $ 357,531 $ 356,682
Interest bearing deposits 2,118,566 2,056,014
Total deposits 2,476,097 2,412,696

Short-term borrowings
Federal funds purchased 0 10,000
Securities sold under agreements to repurchase 118,552 131,990
Total short-term borrowings 118,552 141,990

Accrued expenses payable 15,414 13,550
Other liabilities 1,189 2,195
Long-term borrowings 15,038 15,040
Subordinated debentures 30,928 30,928
Total liabilities 2,657,218 2,616,399

EQUITY
Common stock: 90,000,000 shares authorized, no par value
16,346,247 shares issued and 16,260,259 outstanding as of September 30, 2012
16,217,019 shares issued and 16,145,772 outstanding as of December 31, 2011 89,255 87,380
Retained earnings 200,615 181,903
Accumulated other comprehensive income 6,644 5,139
Treasury stock, at cost (2012 - 85,988 shares, 2011 - 71,247 shares) (1,613 ) (1,222 )
Total stockholders' equity 294,901 273,200

Noncontrolling interest 89 89
Total equity 294,990 273,289
Total liabilities and equity $ 2,952,208 $ 2,889,688

	March 31,	December 31,
	2013	2012
	(Unaudited)
LIABILITIES AND EQUITY

LIABILITIES
Noninterest bearing deposits	$ 386,509	$ 407,926
Interest bearing deposits	2,064,679	2,173,830
Total deposits	2,451,188	2,581,756

Short-term borrowings
Securities sold under agreements to repurchase	113,515	121,883
Total short-term borrowings	113,515	121,883

Accrued expenses payable	18,116	15,321
Other liabilities	7,244	1,390
Long-term borrowings	37	15,038
Subordinated debentures	30,928	30,928
Total liabilities	2,621,028	2,766,316

EQUITY
Common stock: 90,000,000 shares authorized, no par value
16,424,481 shares issued and 16,333,922 outstanding as of March 31, 2013
16,377,247 shares issued and 16,290,136 outstanding as of December 31, 2012	90,459	90,039
Retained earnings	212,900	203,654
Accumulated other comprehensive income	4,988	5,689
Treasury stock, at cost (2013 - 90,559 shares, 2012 - 87,111 shares)	(1,762)	(1,643)
Total stockholders' equity	306,585	297,739

Noncontrolling interest	89	89
Total equity	306,674	297,828
Total liabilities and equity	$ 2,927,702	$ 3,064,144

The accompanying notes are an integral part of these consolidated financial statements.

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2013 and ~~Nine Months Ended September 30,~~ 2012 ~~and 2011~~

(in thousands except for share and per share data)

(Unaudited)

(Page 1 of 2)

Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
NET INTEREST INCOME
Interest and fees on loans
Taxable $ 25,803 $ 26,390 $ 77,789 $ 78,555
Tax exempt 109 114 333 357
Interest and dividends on securities
Taxable 2,034 3,217 7,425 10,635
Tax exempt 698 692 2,094 2,068
Interest on short-term investments 16 18 43 114
Total interest income 28,660 30,431 87,684 91,729

Interest on deposits 5,989 7,090 19,352 20,868
Interest on borrowings
Short-term 112 159 329 477
Long-term 399 361 1,198 1,084
Total interest expense 6,500 7,610 20,879 22,429

NET INTEREST INCOME 22,160 22,821 66,805 69,300

Provision for loan losses 0 2,400 1,299 10,900

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 22,160 20,421 65,506 58,400

NONINTEREST INCOME
Wealth advisory fees 959 866 2,770 2,613
Investment brokerage fees 695 741 2,435 2,093
Service charges on deposit accounts 2,045 2,036 5,937 5,938
Loan, insurance and service fees 1,421 1,259 4,062 3,595
Merchant card fee income 297 253 902 775
Other income 669 362 1,614 1,380
Mortgage banking income 590 440 1,574 594
Net securities losses (380 ) (1 ) (377 ) (167 )
Other than temporary impairment loss on available-for-sale securities:
Total impairment losses recognized on securities (67 ) (33 ) (1,052 ) (154 )
Loss recognized in other comprehensive income 0 0 26 0
Net impairment loss recognized in earnings (67 ) (33 ) (1,026 ) (154 )
Total noninterest income 6,229 5,923 17,891 16,667

~~(continued)~~

	Three Months Ended
	March 31,
	2013	2012
NET INTEREST INCOME
Interest and fees on loans
Taxable	$ 24,486	$ 26,191
Tax exempt	102	112
Interest and dividends on securities
Taxable	945	2,764
Tax exempt	735	697
Interest on short-term investments	24	11
Total interest income	26,292	29,775

Interest on deposits	4,637	6,761
Interest on borrowings
Short-term	91	113
Long-term	307	404
Total interest expense	5,035	7,278

NET INTEREST INCOME	21,257	22,497

Provision for loan losses	0	799

NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES	21,257	21,698

NONINTEREST INCOME
Wealth advisory fees	944	914
Investment brokerage fees	949	800
Service charges on deposit accounts	1,971	1,881
Loan, insurance and service fees	1,456	1,189
Merchant card fee income	276	316
Other income	1,375	665
Mortgage banking income	509	592
Net securities gains	1	3
Other than temporary impairment loss on available-for-sale securities:
Total impairment losses recognized on securities	0	(510)
Loss recognized in other comprehensive income	0	0
Net impairment loss recognized in earnings	0	(510)
Total noninterest income	7,481	5,850

(continued)

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2013 and ~~Nine Months Ended September 30,~~ 2012 ~~and 2011~~

(in thousands except for share and per share data)

(Unaudited)

(Page 2 of 2)

Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
NONINTEREST EXPENSE
Salaries and employee benefits 8,569 8,611 26,007 24,802
Net occupancy expense 803 746 2,519 2,373
Equipment costs 641 536 1,854 1,600
Data processing fees and supplies 1,143 729 3,044 2,820
Other expense 3,146 2,857 9,807 10,025
Total noninterest expense 14,302 13,479 43,231 41,620

INCOME BEFORE INCOME TAX EXPENSE 14,087 12,865 40,166 33,447

Income tax expense 4,740 4,418 13,374 11,046

NET INCOME $ 9,347 $ 8,447 $ 26,792 $ 22,401

BASIC WEIGHTED AVERAGE COMMON SHARES 16,340,425 16,208,889 16,312,896 16,201,900

BASIC EARNINGS PER COMMON SHARE $ 0.57 $ 0.52 $ 1.64 $ 1.38

DILUTED WEIGHTED AVERAGE COMMON SHARES 16,490,390 16,324,058 16,470,485 16,309,814

DILUTED EARNINGS PER COMMON SHARE $ 0.57 $ 0.52 $ 1.63 $ 1.37

	Three Months Ended
	March 31,
	2013	2012
NONINTEREST EXPENSE
Salaries and employee benefits	9,165	9,075
Net occupancy expense	846	885
Equipment costs	609	617
Data processing fees and supplies	1,293	841
Other expense	2,980	3,262
Total noninterest expense	14,893	14,680

INCOME BEFORE INCOME TAX EXPENSE	13,845	12,868

Income tax expense	4,599	4,242

NET INCOME	$ 9,246	$ 8,626


BASIC WEIGHTED AVERAGE COMMON SHARES	16,408,710	16,280,416

BASIC EARNINGS PER COMMON SHARE	$ 0.56	$ 0.53

DILUTED WEIGHTED AVERAGE COMMON SHARES	16,527,171	16,439,243

DILUTED EARNINGS PER COMMON SHARE	$ 0.56	$ 0.52

The accompanying notes are an integral part of these consolidated financial statements.

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2013 and ~~Nine Months Ended September 30,~~ 2012 ~~and 2011~~

(in thousands)

(Unaudited)

Three months ended September 30, Nine months ended September 30,
2012 2011 2012 2011
Net income $ 9,347 $ 8,447 $ 26,792 $ 22,401
Other comprehensive income
Change in securities available for sale:
Unrealized holding gain (loss) on securities available for sale arising during the period (251 ) 4,857 818 8,651
Reclassification adjustment for losses included in net income 380 1 377 167
Reclassification adjustment for other than temporary impairment 67 33 1,026 154
Net securities gain activity during the period 196 4,891 2,221 8,972
Tax effect (76 ) (1,889 ) (880 ) (3,462 )
Net of tax amount 120 3,002 1,341 5,510
Defined benefit pension plans:
Net gain(loss) on defined benefit pension plans 0 0 110 (233 )
Amortization of net actuarial loss 55 62 164 132
Net gain /(loss) activity during the period 55 62 274 (101 )
Tax effect (22 ) (26 ) (110 ) 41
Net of tax amount 33 36 164 (60 )

Total other comprehensive income, net of tax 153 3,038 1,505 5,450

Comprehensive income $ 9,500 $ 11,485 $ 28,297 $ 27,851

			Three months ended March 31,
			2013	2012
Net income			$ 9,246	$ 8,626
Other comprehensive income (loss)
	Change in securities available for sale:
		Unrealized holding gain (loss) on securities available for sale
		arising during the period	(1,040)	1,250
		Reclassification adjustment for gains included in net income	(1)	(3)
		Reclassification adjustment for other than temporary impairment	0	510
		Net securities gain (loss) activity during the period	(1,041)	1,757
		Tax effect	397	(746)
		Net of tax amount	(644)	1,011
	Defined benefit pension plans:
		Net gain (loss) on defined benefit pension plans	(151)	110
		Amortization of net actuarial loss	55	44
		Net gain (loss) activity during the period	(96)	154
		Tax effect	39	(63)
		Net of tax amount	(57)	91

		Total other comprehensive income (loss), net of tax	(701)	1,102

Comprehensive income			$ 8,545	$ 9,728

The accompanying notes are an integral part of these consolidated financial statements.

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011~~

(in thousands except for share and per share data)

~~(Unaudited)~~

Accumulated
Other Total
Common Retained Comprehensive Treasury Stockholders'
Stock Earnings Income Stock Equity

Balance at January 1, 2011 $ 85,766 $ 161,299 $ 1,350 $ (1,418 ) $ 246,997
Comprehensive income:
Net income 22,401 22,401
Other comprehensive income (loss), net of tax 5,450 5,450
Comprehensive income 27,851
Common stock cash dividends declared, $0.465 per share (7,546 ) (7,546 )
Treasury shares purchased under deferred directors' plan (10,187 shares) 233 (233 ) 0
Treasury shares sold under deferred directors' plan (30,100 shares) (440 ) 440 0
Stock activity under stock compensation plans (42,200 shares) 395 395
Stock compensation expense 1,061 1,061
Balance at September 30, 2011 $ 87,015 $ 176,154 $ 6,800 $ (1,211 ) $ 268,758

Balance at January 1, 2012 $ 87,380 $ 181,903 $ 5,139 $ (1,222 ) $ 273,200
Comprehensive income:
Net income 26,792 26,792
Other comprehensive income (loss), net of tax 1,505 1,505
Comprehensive income 28,297
Common stock cash dividends declared, $0.495 per share (8,080 ) (8,080 )

Treasury shares purchased under deferred directors' plan (14,741 shares) 391 (391 ) 0
Stock activity under stock compensation plans, net of taxes (129,228 shares) 323 323
Stock compensation expense 1,161 1,161
Balance at September 30, 2012 $ 89,255 $ 200,615 $ 6,644 $ (1,613 ) $ 294,901

(Unaudited)

				Accumulated
				Other		Total
	Common		Retained	Comprehensive	Treasury	Stockholders'
	Stock		Earnings	Income (Loss)	Stock	Equity


Balance at January 1, 2012	$ 87,380		$ 181,903	$ 5,139	$ (1,222)	$ 273,200
Net income			8,626			8,626
Other comprehensive income (loss), net of tax				1,102		1,102
Common stock cash dividends declared, $.155 per share			(2,515)			(2,515)
Treasury shares purchased under deferred directors' plan
(6,683 shares)	172				(172)	0
Stock activity under stock compensation plans (98,581 shares)	30					30
Stock compensation expense	428					428
Balance at March 31, 2012	$ 88,010		$ 188,014	$ 6,241	$ (1,394)	$ 280,871

Balance at January 1, 2013	$ 90,039		$ 203,654	$ 5,689	$ (1,643)	$ 297,739
Net income			9,246			9,246
Other comprehensive income (loss), net of tax				(701)		(701)
Treasury shares purchased under deferred directors' plan
(6,466 shares)	173	��			(173)	0
Treasury stock sold and distributed under deferred directors' plan
(3,018 shares)	(54)				54	0
Stock activity under stock compensation plans, net of taxes (47,234 shares)	(138)					(138)
Stock compensation expense	439					439
Balance at March 31, 2013	$ 90,459		$ 212,900	$ 4,988	$ (1,762)	$ 306,585

The accompanying notes are an integral part of these consolidated financial statements

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011~~

(in thousands)

(Unaudited)

(Page 1 of 2)

2012 2011
Cash flows from operating activities:
Net income $ 26,792 $ 22,401
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 2,029 1,660
Provision for loan losses 1,299 10,900
Loss on sale and write down of other real estate owned 214 358
Amortization of intangible assets 39 41
Amortization of loan servicing rights 541 427
Net change in loan servicing rights valuation allowance 84 162
Loans originated for sale (89,595 ) (48,294 )
Net gain on sales of loans (1,926 ) (1,004 )
Proceeds from sale of loans 87,180 49,086
Net loss on sales of premises and equipment 4 17
Net loss on sales and calls of securities available for sale 377 167
Impairment on available for sale securities 1,026 154
Net securities amortization 5,210 2,255
Stock compensation expense 1,161 1,061
Earnings on life insurance (708 ) (726 )
Tax benefit of stock option exercises (535 ) (96 )
Net change:
Accrued income receivable (123 ) 179
Accrued expenses payable 2,027 1,259
Other assets 2,322 (1,565 )
Other liabilities (615 ) (192 )
Total adjustments 10,011 15,849
Net cash from operating activities 36,803 38,250

Cash flows from investing activities:
Proceeds from sale of securities available for sale 27,492 73,318
Proceeds from maturities, calls and principal paydowns of securities available for sale 82,499 58,668
Purchases of securities available for sale (128,249 ) (147,042 )
Purchase of life insurance (210 ) (162 )
Net (increase) decrease in total loans 27,238 (95,690 )
Proceeds from sales of land, premises and equipment 2 33
Purchases of land, premises and equipment (2,268 ) (2,965 )
Proceeds from sales of other real estate 1,698 1,254
Net cash from investing activities 8,202 (112,586 )

~~(Continued)~~

	2013	2012
Cash flows from operating activities:
Net income	$ 9,246	$ 8,626
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation	679	666
Provision for loan losses	0	799
Loss on sale and write down of other real estate owned	0	3
Amortization of intangible assets	12	13
Amortization of loan servicing rights	168	170
Net change in loan servicing rights valuation allowance	(37)	(62)
Loans originated for sale	(29,409)	(25,041)
Net gain on sales of loans	(1,021)	(573)
Proceeds from sale of loans	32,949	23,821
Net gain on sales and calls of securities available for sale	(1)	(3)
Impairment on available for sale securities	0	510
Net securities amortization	2,720	1,504
Stock compensation expense	439	428
Earnings on life insurance	(383)	(310)
Tax benefit of stock option exercises	(14)	(267)
Net change:
Accrued income receivable	(744)	135
Accrued expenses payable	2,738	3,659
Other assets	(261)	381
Other liabilities	6,027	(486)
Total adjustments	13,862	5,347
Net cash from operating activities	23,108	13,973

Cash flows from investing activities:
Proceeds from maturities, calls and principal paydowns of
securities available for sale	38,293	22,538
Purchases of securities available for sale	(57,736)	(31,610)
Purchase of life insurance	(79)	(6)
Net (increase) decrease in total loans	(5,567)	6,727
Purchases of land, premises and equipment	(341)	(950)
Proceeds from sales of other real estate	0	81
Net cash from investing activities	(25,430)	(3,220)

(Continued)

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011~~

(in thousands)

(Unaudited)

(Page 2 of 2)

2012 2011
Cash flows from financing activities:
Net increase in total deposits 63,401 155,334
Net decrease in short-term borrowings (23,438 ) (32,476 )
Payments on long-term borrowings (2 ) (1 )
Common dividends paid (8,067 ) (7,533 )
Preferred dividends paid (13 ) (13 )
Proceeds from stock option exercise 323 395
Purchase of treasury stock (391 ) (233 )
Net cash from financing activities 31,813 115,473
Net change in cash and cash equivalents 76,818 41,137
Cash and cash equivalents at beginning of the period 104,584 60,141
Cash and cash equivalents at end of the period $ 181,402 $ 101,278
Cash paid during the period for:
Interest $ 19,937 $ 22,095
Income taxes 11,028 14,629
Supplemental non-cash disclosures:
Loans transferred to other real estate 296 807

	2013	2012
Cash flows from financing activities:
Net increase (decrease) in total deposits	(130,568)	71,174
Net increase (decrease) in short-term borrowings	(8,368)	(16,825)
Payments on long-term borrowings	(15,001)	(2)
Common dividends paid	0	(2,515)
Proceeds (payments) related to stock compensation plans	(138)	30
Purchase of treasury stock	(173)	(172)
Net cash from financing activities	(154,248)	51,690
Net change in cash and cash equivalents	(156,570)	62,443
Cash and cash equivalents at beginning of the period	232,237	104,584
Cash and cash equivalents at end of the period	$ 75,667	$ 167,027
Cash paid during the period for:
Interest	$ 5,232	$ 6,211
Income taxes	0	0
Supplemental non-cash disclosures:
Loans transferred to other real estate	0	78
Security purchased not settled	5,216	0

The accompanying notes are an integral part of these consolidated financial statements.

LAKELAND FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2012~~

March 31, 2013

(Table amounts in thousands except for share and per share data)

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

This report is filed for Lakeland Financial Corporation (the “Company”) and its wholly owned ~~subsidiary,~~subsidiaries, Lake City Bank (the “Bank”)., and LCB Risk Management, a captive insurance company. All significant inter-company balances and transactions have been eliminated in consolidation. Also included is the Bank’s wholly owned subsidiary, LCB Investments II, Inc. (“LCB Investments”). LCB Investments also owns LCB Funding, Inc. (“LCB Funding”), a real estate investment trust.

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and are unaudited. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three-month ~~and nine-month periods~~period ending ~~September 30, 2012~~March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2012.~~2013. The ~~2011~~2012 Lakeland Financial Corporation Annual Report on Form 10-K should be read in conjunction with these statements.

NOTE 2. EARNINGS PER SHARE

Basic earnings per common share is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options, stock awards and warrants.

Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
Weighted average shares outstanding for basic earnings per common share 16,340,425 16,208,889 16,312,896 16,201,900
Dilutive effect of stock options, awards and warrants 149,965 115,169 157,589 107,914
Weighted average shares outstanding for diluted earnings per common share 16,490,390 16,324,058 16,470,485 16,309,814

Basic earnings per common share $ 0.57 $ 0.52 $ 1.64 $ 1.38
Diluted earnings per common share $ 0.57 $ 0.52 $ 1.63 $ 1.37

Stock options for 0 and 70,000 shares for both the three-month and nine-month periods ended September 30, 2012 and 2011, respectively, were not considered in computing diluted earnings per common share because they were antidilutive.

	Three Months Ended March 31,
	2013	2012
Weighted average shares outstanding for basic earnings per common share	16,408,710	16,280,416
Dilutive effect of stock options, awards and warrants	118,461	158,827
Weighted average shares outstanding for diluted earnings per common share	16,527,171	16,439,243

Basic earnings per common share	$ 0.56	$ 0.53
Diluted earnings per common share	$ 0.56	$ 0.52

NOTE 3. LOANS

September 30, December 31,
2012 2011
Commercial and industrial loans:
Working capital lines of credit loans $ 445,981 20.2 % $ 373,768 16.7 %
Non-working capital loans 382,850 17.4 377,388 16.9
Total commercial and industrial loans 828,831 37.6 751,156 33.6

Commercial real estate and multi-family residential loans:
Construction and land development loans 87,949 4.0 82,284 3.7
Owner occupied loans 363,673 16.5 346,669 15.5
Nonowner occupied loans 308,146 14.0 385,090 17.2
Multifamily loans 25,482 1.2 38,477 1.7
Total commercial real estate and multi-family residential loans 785,250 35.6 852,520 38.2

Agri-business and agricultural loans:
Loans secured by farmland 119,524 5.4 118,224 5.3
Loans for agricultural production 94,563 4.3 119,705 5.4
Total agri-business and agricultural loans 214,087 9.7 237,929 10.7

Other commercial loans 44,982 2.0 58,278 2.6
Total commercial loans 1,873,150 85.0 1,899,883 85.0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 106,147 4.8 106,999 4.8
Open end and junior lien loans 168,507 7.6 175,694 7.9
Residential construction and land development loans 11,303 0.5 5,462 0.2
Total consumer 1-4 family mortgage loans 285,957 13.0 288,155 12.9

Other consumer loans 44,691 2.0 45,999 2.1
Total consumer loans 330,648 15.0 334,154 15.0
Subtotal 2,203,798 100.0 % 2,234,037 100.0 %
Less: Allowance for loan losses (51,912 ) (53,400 )
Net deferred loan fees (410 ) (328 )
Loans, net $ 2,151,476 $ 2,180,309

	March 31,			December 31,
	2013			2012
Commercial and industrial loans:
Working capital lines of credit loans	$ 437,295	19.3	%	$ 439,638	19.5	%
Non-working capital loans	404,934	17.9		407,184	18.0
Total commercial and industrial loans	842,229	37.2		846,822	37.5

Commercial real estate and multi-family residential loans:
Construction and land development loans	97,263	4.3		82,494	3.7
Owner occupied loans	365,619	16.2		358,617	15.9
Nonowner occupied loans	339,030	15.0		314,889	13.9
Multifamily loans	46,270	2.0		45,011	2.0
Total commercial real estate and multi-family residential loans	848,182	37.5		801,011	35.5

Agri-business and agricultural loans:
Loans secured by farmland	99,537	4.4		109,147	4.8
Loans for agricultural production	105,312	4.7		115,572	5.1
Total agri-business and agricultural loans	204,849	9.1		224,719	10.0

Other commercial loans	48,867	2.2		56,807	2.5
Total commercial loans	1,944,127	85.9		1,929,359	85.5

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	116,164	5.1		109,823	4.9
Open end and junior lien loans	154,773	6.8		161,366	7.1
Residential construction and land development loans	6,110	0.3		11,541	0.5
Total consumer 1-4 family mortgage loans	277,047	12.2		282,730	12.5

Other consumer loans	41,891	1.9		45,755	2.0
Total consumer loans	318,938	14.1		328,485	14.5
Subtotal	2,263,065	100.0	%	2,257,844	100.0	%
Less: Allowance for loan losses	(50,818)			(51,445)
Net deferred loan fees	(605)			(324)
Loans, net	$2,211,642			$2,206,075

NOTE 4. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The following table presents the activity in the allowance for loan losses by portfolio segment for the three-month ~~and nine-month periods~~period ended ~~September 30, 2012,~~March 31, 2013, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of ~~September 30, 2012:~~

Commercial
Real Estate Consumer
Commercial and Multifamily Agri-business Other 1-4 Family Other
and Industrial Residential and Agricultural Commercial Mortgage Consumer Unallocated Total
Three Months Ended September 30, 2012 (in thousands)
Balance July 1, $ 19,696 $ 24,083 $ 1,419 $ 176 $ 2,412 $ 523 $ 3,508 $ 51,817
Provision for loan losses 1,532 (1,236 ) (76 ) (207 ) 356 114 (483 ) 0
Loans charged-off (98 ) (112 ) 0 0 (196 ) (77 ) 0 (483 )
Recoveries 224 120 1 182 21 30 0 578
Net loans charged-off 126 8 1 182 (175 ) (47 ) 0 95
Balance September 30, $ 21,354 $ 22,855 $ 1,344 $ 151 $ 2,593 $ 590 $ 3,025 $ 51,912
Nine Months Ended September 30, 2012
Balance January 1, $ 22,830 $ 23,489 $ 695 $ 65 $ 2,322 $ 645 $ 3,354 $ 53,400
Provision for loan losses 380 158 648 (100 ) 417 125 (329 ) 1,299
Loans charged-off (2,552 ) (959 ) 0 0 (288 ) (268 ) 0 (4,067 )
Recoveries 696 167 1 186 142 88 0 1,280
Net loans charged-off (1,856 ) (792 ) 1 186 (146 ) (180 ) 0 (2,787 )
Balance September 30, $ 21,354 $ 22,855 $ 1,344 $ 151 $ 2,593 $ 590 $ 3,025 $ 51,912

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ 6,571 $ 8,869 $ 67 $ 0 $ 459 $ 18 $ 0 $ 15,984
Collectively evaluated for impairment 14,783 13,986 1,277 151 2,134 572 3,025 35,928

Total ending allowance balance $ 21,354 $ 22,855 $ 1,344 $ 151 $ 2,593 $ 590 $ 3,025 $ 51,912

Loans:
Loans individually evaluated for impairment $ 20,319 $ 37,924 $ 820 $ 0 $ 2,194 $ 46 $ 0 $ 61,303
Loans collectively evaluated for impairment 808,700 746,439 213,350 44,974 284,027 44,595 0 2,142,085

Total ending loans balance $ 829,019 $ 784,363 $ 214,170 $ 44,974 $ 286,221 $ 44,641 $ 0 $ 2,203,388

March 31, 2013:

		Commercial
		Real Estate			Consumer
	Commercial	and Multifamily	Agri-business	Other	1-4 Family	Other
	and Industrial	Residential	and Agricultural	Commercial	Mortgage	Consumer	Unallocated	Total
Three Months Ended March 31, 2013
Balance January 1,	$ 22,342	$ 20,812	$ 1,403	$ 240	$ 2,682	$ 609	$ 3,357	$ 51,445
Provision for loan losses	(359)	253	(142)	(17)	270	(23)	18	0
Loans charged-off	(133)	(906)	0	0	(108)	(59)	0	(1,206)
Recoveries	263	261	2	0	22	31	0	579
Net loans charged-off	130	(645)	2	0	(86)	(28)	0	(627)
Balance March 31,	$ 22,113	$ 20,420	$ 1,263	$ 223	$ 2,866	$ 558	$ 3,375	$ 50,818

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 4,757	$ 6,621	$ 43	$ 0	$ 412	$ 28	$ 0	$ 11,861
Collectively evaluated for impairment	17,356	13,799	1,220	223	2,454	530	3,375	38,957

Total ending allowance balance	$ 22,113	$ 20,420	$ 1,263	$ 223	$ 2,866	$ 558	$ 3,375	$ 50,818


Loans:
Loans individually evaluated for impairment	$ 16,650	$ 27,394	$ 975	$ 0	$ 2,594	$ 80	$ 0	$ 47,693
Loans collectively evaluated for impairment	825,817	819,624	203,970	48,863	274,727	41,766	0	2,214,767

Total ending loans balance	$ 842,467	$ 847,018	$ 204,945	$ 48,863	$ 277,321	$ 41,846	$ 0	$ 2,262,460

The recorded investment in loans does not include accrued interest.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three-month ~~and nine-month periods~~period ended ~~September 30, 2011:~~

March 31, 2012:

		Commercial
		Real Estate			Consumer
	Commercial	and Multifamily	Agri-business	Other	1-4 Family	Other
	and Industrial	Residential	and Agricultural	Commercial	Mortgage	Consumer	Unallocated	Total
Three Months Ended March 31, 2012
Balance January 1,	$ 22,830	$ 23,489	$ 695	$ 65	$ 2,322	$ 645	$ 3,354	$ 53,400
Provision for loan losses	(104)	565	(157)	119	171	(54)	259	799
Loans charged-off	(778)	(847)	0	0	(14)	(94)	0	(1,733)
Recoveries	186	29	0	2	48	26	0	291
Net loans charged-off	(592)	(818)	0	2	34	(68)	0	(1,442)
Balance March 31,	$ 22,134	$ 23,236	$ 538	$ 186	$ 2,527	$ 523	$ 3,613	$ 52,757

The recorded investment in loans does not include accrued interest.

The following table presents ~~the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2011 and~~ the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, ~~2011:~~

Commercial
Real Estate Consumer
Commercial and Multifamily Agri-business Other 1-4 Family Other
and Industrial Residential and Agricultural Commercial Mortgage Consumer Unallocated Total
(in thousands)
Balance January 1 $ 21,479 $ 15,893 $ 1,318 $ 270 $ 1,694 $ 682 $ 3,671 $ 45,007
Provision for loan losses 3,112 9,748 (520 ) (205 ) 1,632 350 (317 ) 13,800
Loans charged-off (2,587 ) (2,514 ) (103 ) 0 (1,050 ) (575 ) 0 (6,829 )
Recoveries 826 362 0 0 46 188 0 1,422
Net loans charged-off (1,761 ) (2,152 ) (103 ) 0 (1,004 ) (387 ) 0 (5,407 )
Balance December 31 $ 22,830 $ 23,489 $ 695 $ 65 $ 2,322 $ 645 $ 3,354 $ 53,400

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ 9,443 $ 8,382 $ 213 $ - $ 288 $ 0 $ 0 $ 18,326
Collectively evaluated for impairment 13,387 15,107 482 65 2,034 645 3,354 35,074

Total ending allowance balance $ 22,830 $ 23,489 $ 695 $ 65 $ 2,322 $ 645 $ 3,354 $ 53,400

Loans:
Loans individually evaluated for impairment $ 24,204 $ 35,794 $ 853 $ 0 $ 2,665 $ 0 $ 0 $ 63,516
Loans collectively evaluated for impairment 727,160 815,883 237,150 58,249 285,791 45,960 0 2,170,193

Total ending loans balance $ 751,364 $ 851,677 $ 238,003 $ 58,249 $ 288,456 $ 45,960 $ 0 $ 2,233,709

2012:

		Commercial
		Real Estate			Consumer
	Commercial	and Multifamily	Agri-business	Other	1-4 Family	Other
	and Industrial	Residential	and Agricultural	Commercial	Mortgage	Consumer	Unallocated	Total

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 5,542	$ 8,559	$ 63	$ 0	$ 607	$ 34	$ 0	$ 14,805
Collectively evaluated for impairment	16,800	12,253	1,340	240	2,075	575	3,357	36,640

Total ending allowance balance	$ 22,342	$ 20,812	$ 1,403	$ 240	$ 2,682	$ 609	$ 3,357	$ 51,445


Loans:
Loans individually evaluated for impairment	$ 18,281	$ 36,919	$ 797	$ 0	$ 2,853	$ 92	$ 0	$ 58,942
Loans collectively evaluated for impairment	828,728	763,279	224,008	56,810	280,141	45,612	0	2,198,578

Total ending loans balance	$ 847,009	$ 800,198	$ 224,805	$ 56,810	$ 282,994	$ 45,704	$ 0	$ 2,257,520

The recorded investment in loans does not include accrued interest.

The allowance for loan losses to total loans at ~~September 30,~~March 31, 2013 and 2012 was 2.25% and ~~2011 was 2.36% and 2.39%~~2.37%, respectively. The allowance for loan losses to total loans at December 31, ~~2011~~2012 was ~~2.39%~~2.28%.

The following table presents loans individually evaluated for impairment as of and for the three-month ~~and nine-month periods~~period ended ~~September 30, 2012 and 2011:~~

Three Months Ended September 30, 2012 Nine Months Ended September 30, 2012
Cash Basis Cash Basis
Unpaid Allowance for Average Interest Interest Average Interest Interest
Principal Recorded Loan Losses Recorded Income Income Recorded Income Income
Balance Investment Allocated Investment Recognized Recognized Investment Recognized Recognized
With no related allowance recorded:
Commercial and industrial loans:
Non-working capital loans $ 70 $ 70 $ 0 $ 70 $ 0 $ 0 $ 136 $ 0 $ 0

Commercial real estate and multi-family residential loans:
Owner occupied loans 781 601 0 611 0 0 513 0 0
Nonowner occupied loans 385 385 0 385 10 13 217 10 13

Agri-business and agricultural loans:
Loans secured by farmland 666 487 0 489 0 0 252 0 0
Loans for ag production 0 0 0 0 0 0 68 0 0

Consumer 1-4 family loans:
Closed end first mortgage loans 277 276 0 417 1 0 432 1 0
Open end and junior lien loans 0 0 0 0 0 0 20 0 0

Other consumer loans 1 1 0 0 0 0 0 0 0

With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans 5,915 3,074 1,417 3,059 13 10 4,420 42 38
Non-working capital loans 19,357 17,175 5,154 17,072 171 168 17,353 528 528

Commercial real estate and multi-family residential loans:
Construction and land development loans 3,786 3,396 672 2,436 18 13 1,814 35 30
Owner occupied loans 6,900 6,287 1,527 5,702 30 19 4,859 48 35
Nonowner occupied loans 27,957 27,255 6,670 27,382 78 77 28,115 280 281

Agri-business and agricultural loans:
Loans secured by farmland 654 333 67 343 0 0 437 0 0
Loans for agricultural production 0 0 0 63 0 0 91 0 0

Other commercial loans 0 0 0 0 0 0 0 0 0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 1,562 1,564 267 1,730 12 10 1,787 32 32
Open end and junior lien loans 354 354 192 353 0 0 340 0 0

Other consumer loans 45 45 18 30 1 1 14 1 1

Total $ 68,710 $ 61,303 $ 15,984 $ 60,142 $ 334 $ 311 $ 60,868 $ 977 $ 958

March 31, 2013:

				Three Months Ended March 31, 2013
						Cash Basis
	Unpaid		Allowance for	Average	Interest	Interest
	Principal	Recorded	Loan Losses	Recorded	Income	Income
	Balance	Investment	Allocated	Investment	Recognized	Recognized

With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$ 65	$ 65	$ 0	$ 65	$ 0	$ 0
Non-working capital loans	25	25	0	34	0	0

Commercial real estate and multi-family residential loans:
Owner occupied loans	742	562	0	566	0	0

Agri-business and agricultural loans:
Loans secured by farmland	828	649	0	521	0	0

Consumer 1-4 family loans:
Closed end first mortgage loans	57	57	0	58	0	0
Open end and junior lien loans	41	41	0	41	0	0

Other consumer loans	1	1	0	1	0	0

With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	5,488	2,879	1,252	3,170	13	13
Non-working capital loans	15,536	13,681	3,505	14,412	135	137

Commercial real estate and multi-family residential loans:
Construction and land development loans	5,728	5,339	996	4,528	45	52
Owner occupied loans	2,330	2,330	695	4,300	29	31
Nonowner occupied loans	19,153	19,163	4,930	24,299	84	87

Agri-business and agricultural loans:
Loans secured by farmland	646	326	43	327	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	3,443	2,473	397	2,499	0	19
Open end and junior lien loans	52	23	15	40	0	0

Other consumer loans	79	79	28	80	0	0

Total	$ 54,214	$ 47,693	$ 11,861	$ 55,132	$ 306	$ 339

The recorded investment in loans does not include accrued interest.

The following table presents loans individually evaluated for impairment as of and for the three-month period ended March 31, 2012:

				Three Months Ended March 31, 2012
						Cash Basis
	Unpaid		Allowance for	Average	Interest	Interest
	Principal	Recorded	Loan Losses	Recorded	Income	Income
	Balance	Investment	Allocated	Investment	Recognized	Recognized

With no related allowance recorded:
Commercial and industrial loans:
Non-working capital loans	$ 196	$ 196	$ 0	$ 171	$ 0	$ 0

Commercial real estate and multi-family residential loans:
Owner occupied loans	292	292	0	290	0	0

Consumer 1-4 family loans:
Closed end first mortgage loans	301	301	0	297	0	0
Open end and junior lien loans	40	40	0	40	0	0

With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	5,503	5,502	3,023	5,805	16	15
Non-working capital loans	17,282	17,284	5,455	17,723	180	182

Commercial real estate and multi-family residential loans:
Construction and land development loans	2,060	2,059	550	969	0	0
Owner occupied loans	4,175	4,174	1,169	4,588	12	10
Nonowner occupied loans	27,598	27,597	6,555	29,401	98	99
Multifamily loans	0	0	0	0	0	0

Agri-business and agricultural loans:
Loans secured by farmland	618	618	120	622	0	0
Loans for agricultural production	208	208	18	210	0	0

Other commercial loans	0	0	0	0	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	2,445	2,447	329	1,797	11	11
Open end and junior lien loans	270	270	149	354	0	0
Residential construction loans	0	0	0	0	0	0

Other consumer loans	7	7	5	7	0	0

Total	$ 60,995	$ 60,995	$ 17,373	$ 62,274	$ 317	$ 317

The recorded investment in loans does not include accrued interest.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, ~~2011:~~

Cash Basis
Unpaid Allowance for Average Interest Interest
Principal Recorded Loan Losses Recorded Income Income
Balance Investment Allocated Investment Recognized Recognized

With no related allowance recorded:
Commercial and industrial loans:
Non-working capital loans $ 116 $ 116 $ 0 $ 30 $ 0 $ 0

Commercial real estate and multi-family residential loans:
Nonowner occupied loans 0 0 0 425 0 0

With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans 7,831 5,969 3,206 5,649 23 25
Non-working capital loans 20,867 18,119 6,237 17,202 616 625

Commercial real estate and multi-family residential loans:
Construction and land development loans 816 429 125 1,319 0 0
Owner occupied loans 5,874 5,082 1,566 3,082 41 45
Nonowner occupied loans 30,769 30,283 6,691 24,108 246 252
Multifamily loans 0 0 0 0 0 0

Agri-business and agricultural loans:
Loans secured by farmland 1,126 628 195 610 0 0
Loans for agricultural production 225 225 18 410 0 0

Other commercial loans 0 0 0 129 0 0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 2,461 2,256 285 1,872 44 48
Open end and junior lien loans 409 409 3 118 0 0
Residential construction loans 0 0 0 0 0 0

Other consumer loans 0 0 0 0 0 0

Total $ 70,494 $ 63,516 $ 18,326 $ 54,954 $ 970 $ 995

2012:


	Unpaid		Allowance for
	Principal	Recorded	Loan Losses
	Balance	Investment	Allocated
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$ 61	$ 61	$ 0
Non-working capital loans	0	0	0
Commercial real estate and multi-family residential loans:
Construction and land development loans
Owner occupied loans	754	574	0
Nonowner occupied loans	385	385	0
Multifamily loans	410	286	0
Agri-business and agricultural loans:
Loans secured by farmland	645	466	0
Loans for ag production	0	0	0
Other commercial loans	0	0	0

Consumer 1-4 family loans:
Closed end first mortgage loans	59	59	0
Open end and junior lien loans	41	41	0
Residential construction loans

Other consumer loans	1	1	0

With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	5,833	3,224	1,516
Non-working capital loans	16,763	14,996	4,026
Commercial real estate and multi-family residential loans:
Construction and land development loans	3,352	2,960	934
Owner occupied loans	5,869	5,869	1,476
Nonowner occupied loans	26,835	26,845	6,149
Multifamily loans	0	0	0
Agri-business and agricultural loans:
Loans secured by farmland	651	331	63
Loans for agricultural production	0	0	0
Other commercial loans	0	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	3,387	2,403	415
Open end and junior lien loans	379	350	192
Residential construction loans	0	0	0

Other consumer loans	91	91	34
Total	$ 65,516	$ 58,942	$ 14,805

The recorded investment in loans does not include accrued interest.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011:~~

September 30, 2012 December 31, 2011
Loans Past Due Loans Past Due
Over 90 Days Over 90 Days
Still Still
Nonaccrual Accruing Nonaccrual Accruing

Commercial and industrial loans:
Working capital lines of credit loans $ 2,012 $ 0 $ 4,743 $ 0
Non-working capital loans 5,349 0 5,433 0

Commercial real estate and multi-family residential loans:
Construction and land development loans 1,890 0 429 0
Owner occupied loans 2,876 0 4,371 0
Nonowner occupied loans 19,575 0 21,971 0
Multifamily loans 0 0 0 0

Agri-business and agricultural loans:
Loans secured by farmland 820 0 628 0
Loans for agricultural production 0 0 225 0

Other commercial loans 0 0 0 0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 459 107 1,193 52
Open end and junior lien loans 424 2 452 0
Residential construction loans 0 0 0 0

Other consumer loans 54 0 7 0

Total $ 33,459 $ 109 $ 39,452 $ 52

2012:

	March 31, 2013		December 31, 2012
		Loans Past Due		Loans Past Due
		Over 90 Days		Over 90 Days
		Still		Still
	Nonaccrual	Accruing	Nonaccrual	Accruing

Commercial and industrial loans:
Working capital lines of credit loans	$ 1,858	$ 0	$ 1,899	$ 0
Non-working capital loans	3,692	0	4,812	50

Commercial real estate and multi-family residential loans:
Construction and land development loans	390	0	398	0
Owner occupied loans	2,582	0	2,461	0
Nonowner occupied loans	11,568	0	19,200	0
Multifamily loans	0	0	286	0

Agri-business and agricultural loans:
Loans secured by farmland	975	0	797	0
Loans for agricultural production	0	0	0	0

Other commercial loans	0	0	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	533	0	504	0
Open end and junior lien loans	64	0	391	0
Residential construction loans	0	0	0	0

Other consumer loans	65	0	77	0

Total	$ 21,727	$ 0	$ 30,825	$ 50

The recorded investment in loans does not include accrued interest.

The following table presents the aging of the recorded investment in past due loans as of ~~September 30, 2012~~March 31, 2013 by class of loans:

30-89 Greater than
Days 90 Days Total Loans Not
Past Due Past Due Past Due Past Due Total

Commercial and industrial loans:
Working capital lines of credit loans $ 332 $ 2,012 $ 2,344 $ 443,804 $ 446,148
Non-working capital loans 246 5,349 5,595 377,276 382,871

Commercial real estate and multi-family residential loans:
Construction and land development loans 0 1,890 1,890 85,856 87,746
Owner occupied loans 860 2,876 3,736 359,747 363,483
Nonowner occupied loans 0 19,575 19,575 288,125 307,700
Multifamily loans 0 0 0 25,434 25,434

Agri-business and agricultural loans:
Loans secured by farmland 0 820 820 118,717 119,537
Loans for agricultural production 0 0 0 94,633 94,633

Other commercial loans 0 0 0 44,974 44,974

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 2,123 566 2,689 103,210 105,899
Open end and junior lien loans 197 426 623 168,424 169,047
Residential construction loans 44 0 44 11,231 11,275

Other consumer loans 235 54 289 44,352 44,641

Total $ 4,037 $ 33,568 $ 37,605 $ 2,165,783 $ 2,203,388

	30-89	Greater than
	Days	90 Days	Total	Loans Not
	Past Due	Past Due	Past Due	Past Due	Total

Commercial and industrial loans:
Working capital lines of credit loans	$ 0	$ 1,858	$ 1,858	$ 435,657	$ 437,515
Non-working capital loans	7	3,692	3,699	401,253	404,952

Commercial real estate and multi-family residential loans:
Construction and land development loans	0	390	390	96,498	96,888
Owner occupied loans	152	2,582	2,734	362,661	365,395
Nonowner occupied loans	507	11,568	12,075	326,466	338,541
Multifamily loans	0	0	0	46,194	46,194

Agri-business and agricultural loans:
Loans secured by farmland	0	975	975	98,574	99,549
Loans for agricultural production	0	0	0	105,396	105,396

Other commercial loans	0	0	0	48,863	48,863

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	1,273	533	1,806	114,087	115,893
Open end and junior lien loans	206	64	270	155,058	155,328
Residential construction loans	54	0	54	6,046	6,100

Other consumer loans	658	65	723	41,123	41,846

Total	$ 2,857	$ 21,727	$ 24,584	$ 2,237,876	$ 2,262,460

The recorded investment in loans does not include accrued interest.

The following table presents the aging of the recorded investment in past due loans as of December 31, ~~2011~~2012 by class of loans:

30-89 Greater than
Days 90 Days Total Loans Not
Past Due Past Due Past Due Past Due Total
(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans $ 1,051 $ 4,743 $ 5,794 $ 368,098 $ 373,892
Non-working capital loans 21 5,433 5,454 372,018 377,472

Commercial real estate and multi-family residential loans:
Construction and land development loans 0 429 429 81,650 82,079
Owner occupied loans 104 4,371 4,475 342,068 346,543
Nonowner occupied loans 0 21,971 21,971 362,710 384,681
Multifamily loans 0 0 0 38,374 38,374

Agri-business and agricultural loans:
Loans secured by farmland 0 628 628 117,619 118,247
Loans for agricultural production 0 225 225 119,531 119,756

Other commercial loans 0 0 0 58,249 58,249

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 2,569 1,245 3,814 102,970 106,784
Open end and junior lien loans 254 452 706 175,517 176,223
Residential construction loans 34 0 34 5,415 5,449

Other consumer loans 192 7 199 45,761 45,960

Total $ 4,225 $ 39,504 $ 43,729 $ 2,189,980 $ 2,233,709

	30-89	Greater than
	Days	90 Days	Total	Loans Not
	Past Due	Past Due	Past Due	Past Due	Total

Commercial and industrial loans:
Working capital lines of credit loans	$ 233	$ 1,899	$ 2,132	$ 437,705	$ 439,837
Non-working capital loans	48	4,862	4,910	402,262	407,172

Commercial real estate and multi-family residential loans:
Construction and land development loans	998	398	1,396	80,954	82,350
Owner occupied loans	1,023	2,461	3,484	354,921	358,405
Nonowner occupied loans	38	19,200	19,238	295,243	314,481
Multifamily loans	0	286	286	44,676	44,962

Agri-business and agricultural loans:
Loans secured by farmland	0	797	797	108,359	109,156
Loans for agricultural production	0	0	0	115,649	115,649

Other commercial loans	0	0	0	56,810	56,810

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	1,475	504	1,979	107,583	109,562
Open end and junior lien loans	361	391	752	161,172	161,924
Residential construction loans	0	0	0	11,508	11,508

Other consumer loans	81	77	158	45,546	45,704

Total	$ 4,257	$ 30,875	$ 35,132	$ 2,222,388	$ 2,257,520

The recorded investment in loans does not include accrued interest.

Troubled Debt Restructurings:

Troubled debt restructured loans are included in the totals for impaired loans. The Company has allocated ~~$14.7~~$10.9 million and ~~$15.7~~$12.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011.~~2012. The Company is not committed to ~~lend~~lending additional funds to debtors whose loans have been modified in a troubled debt restructuring.

September 30, December 31,
2012 2011

Accruing troubled debt restructured loans $ 26,106 $ 22,177
Nonaccrual troubled debt restructured loans 28,979 34,273
Total troubled debt restructured loans $ 55,085 $ 56,450

	March 31	December 31,
	2013	2012

Accruing troubled debt restructured loans	$ 23,605	$ 22,332
Nonaccrual troubled debt restructured loans	19,607	28,506
Total troubled debt restructured loans	$ 43,212	$ 50,838

During the ~~three and nine months~~quarter ending ~~September 30, 2012 certain~~March 31, 2013, loans totaling $1.8 million were modified as troubled debt ~~restructurings~~.restructurings. The modified terms of ~~these~~the loans ~~include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a reduction~~included reductions in the interest ~~rate on a loan~~rates to one that would not be readily available in the marketplace for borrowers with a similar risk ~~profile; a modification~~profile and modifications of the repayment ~~terms which delays principal repayment for some period; or renewal terms offered~~terms. These restructured loans were provided to related borrowers ~~in financial distress where no additional credit enhancements were obtained at the time of renewal.~~

There were renewal terms on several loans offered to borrowers under financial distress which did not require additional compensation or consideration and would not have been readily available in the marketplace for loans bearing similar risk profiles. In this instance, it was determined that a concession had been granted. It is difficult to quantify the concession granted due to an absence in market terms to be used for comparison. The renewals during the first three months were to one borrowerwho are engaged in ~~construction and~~ land development, where the aggregate recorded investment totaled $1.6 million. The renewal during the three months ended June 30, 2012, was a non-working capital term loan with a recorded investment of $1.1 million. During the three months ended September 30, 2012, the Bank renegotiated terms on a loan where the collateral securing the original note was sold for an amount that did not satisfy the balance. The Bank agreed to release its collateral interest to facilitate the sale, and renegotiated another consumer loan with a recorded investment of $17,000 for the remaining balance of the loan. The terms offered in the renegotiated unsecured loan were an exception to bank policy, therefore it was determined that a concession had been granted. These loans are included in the table of all modifications below.

Renegotiated interest rates include loans with a reduction in rate for a short-term (part of the remaining life of the loan) or long-term (life of loan). There were modifications to borrowers at rates that were readily available in the market, but to borrowers who would not have qualified for the terms offered in the modification without a concession being granted. Also included are borrowers who received interest rate concessions that were below market rates.

development.

Delays in principal repayment include loans which were intended to be amortizing during the period, but due to financial hardship the borrowers under these loans were unable to meet the original or intended repayment terms. These include loans with principal deferrals for a prolonged period or those with modified payments which are an exception to bank policy.

The following table presents loans by class modified as troubled debt restructurings that occurred during the ~~nine month and~~ three month ~~periods~~period ending ~~September 30, 2012~~March 31, 2013:

Modifications
Nine Months Ended September 30, 2012
All Modifications
Pre-Modification Post-Modification
Outstanding Outstanding
Number of Recorded Recorded
Loans Investment Investment
Troubled Debt Restructurings

Commercial and industrial loans:
Non-working capital loans 1 $ 942 $ 1,060

Commercial real estate and multi-family residential loans:
Construction and land development loans 5 1,638 1,638
Owner occupied loans 2 2,260 2,260
Nonowner occupied loans 1 385 385

Consumer 1-4 family loans:
Closed end first mortgage loans 1 39 39

Other consumer loans 1 17 17

Total 11 $ 5,281 $ 5,399

Interest Rate Reductions Modified Repayment Terms
Interest at Interest at Extension
Number of Pre-Modification Post-Modification Number of Period or
Loans Rate Rate Loans Range
(in months)
Troubled Debt Restructurings

Commercial and industrial loans:
Non-working capital loans 0 $ 0 $ 0 0 0

Commercial real estate and multi-family residential loans:
Owner occupied loans 1 440 117 1 18
Nonowner occupied loans 0 0 0 1 14

Consumer 1-4 family loans:
Closed end first mortgage loans 1 76 15 0 0

Other consumer loans 0 0 0 0 0

Total 2 $ 516 $ 132 2 14-18

Modifications
Three Months Ended September 30, 2012
All Modifications
Pre-Modification Post-Modification
Outstanding Outstanding
Number of Recorded Recorded
Loans Investment Investment
Troubled Debt Restructurings

Commercial real estate and multi-family residential loans:
Owner occupied loans 1 $ 1,411 $ 1,411

Other consumer loans 1 17 17

Total 2 $ 1,428 $ 1,428

Modifications

Three Months Ended March 31, 2013

All Modifications

Interest Rate Reductions

Modified Repayment Terms

Pre-Modification

Post-Modification

Outstanding

Interest at

Extension

Number of

Recorded

Number of

Pre-Modification

Post-Modification

Number of

Period or

Loans

Investment

Loans

Rate

Loans

Range

(in months)

Troubled Debt Restructurings

Commercial real estate and multi-family residential loans:

Construction and land development loans

$ 2,198

$ 85

$ 63

Total

$ 2,198

$ 85

$ 63

Modified Repayment Terms
Extension
Number of Period or
Loans Range
(in months)
Troubled Debt Restructurings

Commercial real estate and multi-family residential loans:
Owner occupied loans 1 18

Other consumer loans 0 0

Total 1 18

For the three month period ending ~~September 30, 2012 the commercial and industrial loan troubled debt restructurings described above decreased the allowance for loan losses by $15,000,~~March 31, 2013 the commercial real estate and multi-family residential loan troubled debt restructuring described above ~~increased~~decreased the allowance for loan losses by ~~$11,000,~~$287,000.

The troubled debt restructurings described above had a charge-off of $365,000 during the ~~consumer 1-4 family~~period ending March 31, 2013.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three month period ending March 31, 2012:

		Modifications
		Three Months Ended March 31, 2012

		All Modifications

			Pre-Modification	Post-Modification
			Outstanding	Outstanding
		Number of	Recorded	Recorded
		Loans	Investment	Investment

Troubled Debt Restructurings

	Commercial real estate and multi-family residential loans:
	Construction and land development loans	5	1,638	1,638

	Total	5	$ 1,638	$ 1,638

For the three month period ending March 31, 2012 the commercial real estate and multi-family residential loan troubled debt ~~restructurings~~restructuring described above decreased the allowance for loan losses by ~~$1,000 and the other consumer loan troubled debt restructuring described above increased the allowance for loan losses by $4,000.~~

~~For the nine month period ending September 30, 2012 the commercial and industrial loan troubled debt restructurings described above decreased the allowance for loan losses by $534,000, the~~$500,000.

The commercial real estate and multi-family residential loan troubled debt restructurings described above decreased the allowance for loan losses by $18,000, the consumer 1-4 family loan troubled debt restructurings described above increased the allowance for loan losses by $5,000 and other consumer loan trouble debt restructuring described above increased the allowance for loan losses by $4,000.

Nodid not result in any charge offs ~~resulted from any troubled debt restructurings described above~~ during the three ~~and nine month periods~~months ending ~~September 30,~~March 31, 2012.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification which occurred during the three month ~~and nine month periods~~period ending ~~September 30, 2012:~~

Modifications
Three months ended September 30, 2012 Nine months ended September 30, 2012
Number of Recorded Number of Recorded
Loans Investment Loans Investment

Troubled Debt Restructurings that Subsequently Defaulted

Consumer 1-4 family loans:
Closed end first mortgage loans 0 $ 0 1 $ 65

Total 0 $ 0 1 $ 65

March 31, 2013:

		Modifications
		Three Months ended March 31, 2013

		Number of	Recorded
		Loans	Investment

Troubled Debt Restructurings that Subsequently Defaulted

	Consumer 1-4 family loans:
	Closed end first mortgage loans	1	$ 1,249

	Total	1	$ 1,249

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings described above that subsequently defaulted increased the allowance for loan losses by $15,000 and did not result in any charge offs during the three periods ending March 31, 2013.

		Number of	Recorded
		Loans	Investment

Troubled Debt Restructurings that Subsequently Defaulted

	Consumer 1-4 family loans:
	Closed end first mortgage loans	1	$ 65

	Total	1	$ 65

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by ~~$17,000~~$1,000 and did not result in any charge offs during the three ~~and nine month~~ periods ending ~~September 30,~~March 31, 2012.

During the year ending December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. The modified terms of these loans included one or a combination of the following: a reduction of the stated interest rate of the loan below market rates; principal and interest forgiveness; a modification of repayment terms that delays principal repayment for some period; or inadequate compensation for the terms of the restructure. Clarifications in the accounting guidance for troubled debt restructurings that became effective in the third quarter of 2011 resulted in $15.6 million being added to total troubled debt restructured loans in 2011. Of the $15.6 million added, $15.3 million was included in nonperforming and impaired loans at December 31, 2010.

Loans with renegotiated interest rates include reductions in rate for a short-term (part of the remaining life of the loan) or long-term (life of loan). Included are modifications to borrowers at a rate that is readily available in the market, but for borrowers who would not have otherwise qualified for the terms offered in the modification without a concession being granted. Also included are borrowers who received interest rate concessions that are below market rates.

Delays in principal repayment include loans that were intended to be amortizing during the period, but, due to financial hardship, these borrowers were unable to meet the original or intended repayment terms. These include loans with principal deferrals for a prolonged period or those with modified payments, which are an exception to bank policy.

Inadequate compensation for the terms of the restructure were identified in some loans where terms offered would not have been readily available in the marketplace for loans bearing similar risk profiles, including loans that were renewed under terms similar to original terms. In some instances it was determined that a concession had been granted; however, it is difficult to quantify these concessions due to an absence in market terms to be used for comparison. These loans included two non-working capital loans with a recorded investment of $636,000, one non-owner occupied loan with a recorded investment of $642,000 and one loan secured by farmland with a recorded investment of $413,000. These loans are included in the table of all modifications below.

~~The following tables present loans by class modified as troubled debt restructurings that occurred during the period ending December 31, 2011:~~

All Modifications Classified as Troubled Debt Restructurings
Pre-Modification Post-Modification
Outstanding Outstanding
Number of Recorded Recorded
Loans Investment Investment
Troubled Debt Restructurings

Commercial and industrial loans:
Working capital lines of credit loans 3 $ 639 $ 639
Non-working capital loans 6 6,187 6,261

Commercial real estate and multi-family residential loans:
Construction and land development loans
Owner occupied loans 8 6,648 6,651
Nonowner occupied loans 8 23,767 23,767

Agri-business and agricultural loans:
Loans secured by farmland 2 683 683

Consumer 1-4 family loans:
Closed end first mortgage loans 6 942 849

Total 33 $ 38,866 $ 38,850

Interest Rate Reductions Principal and Interest Forgiveness Modified Repayment Terms
Interest at Interest at Principal at Principal at Interest at Interest at Extension
Number of Pre-Modification Post-Modification Number of Pre-Modification Post-Modification Pre-Modification Post-Modification Number of Period or
Loans Rate Rate Loans Rate Rate Rate Rate Loans Range
(in thousands) (in months)
Troubled Debt Restructurings

Commercial and industrial loans:
Working capital lines of credit loans 0 $ 0 $ 0 0 $ 0 $ 0 $ 0 $ 0 3 11-60
Non-working capital loans 0 0 0 0 0 0 0 0 4 12-36

Commercial real estate and
multi-family residential loans:
Owner occupied loans 0 0 0 1 2,125 2,125 641 429 7 20-70
Nonowner occupied loans 0 0 0 0 0 0 0 0 7 6-36

Agri-business and agricultural loans:
Loans secured by farmland 0 0 0 0 0 0 0 0 1 22

Consumer 1-4 family loans:
Closed end first mortgage loans 5 402 324 1 550 450 66 57 0 0

Total 5 $ 402 $ 324 2 $ 2,675 $ 2,575 $ 707 $ 486 22 6-70

~~All of the commercial and industrial loan troubled debt restructurings described above also had inadequate compensation of additional collateral as part of the restructuring.~~

For the period ending December 31, 2011, the commercial and industrial loan troubled debt restructurings described above decreased the allowance for loan losses by $112,000, the commercial real estate and multi-family residential loan troubled debt restructurings described above increased the allowance for loan losses by $3.2 million, the agri-business and agricultural loan troubled debt restructurings described above decreased the allowance for loan losses by $11,000 and the consumer 1-4 family loan troubled debt restructurings described above increased the allowance for loan losses by $76,000. The five commercial and industrial loans and one agri-business and agricultural loan that decreased the provision during 2011 had modifications during the first five months of the year and had improved their positions during the remainder of the year warranting the decrease in allocation.

The commercial real estate and multi-family residential loan troubled debt restructurings described above also resulted in charge offs of $667,000 during the period ending December 31, 2011. No charge offs resulted from any other troubled debt restructurings described above during the period ending December 31, 2011.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $250,000.

The Company uses the following definitions for risk ratings:

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

Substandard.Loans classified as ~~substandard~~Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful.Loans classified as ~~doubtful~~Doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans. Loans listed as Not Rated are consumer loans included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status. As of ~~September 30, 2012~~March 31, 2013 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Special Not
Pass Mention Substandard Doubtful Rated
(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans $ 420,757 $ 12,274 $ 13,117 $ 0 $ 0
Non-working capital loans 342,447 7,664 31,484 0 1,276

Commercial real estate and multi-family residential loans:
Construction and land development loans 71,130 5,520 11,096 0 0
Owner occupied loans 334,835 7,161 21,437 0 50
Nonowner occupied loans 271,419 9,827 26,454 0 0
Multifamily loans 24,235 1,199 0 0 0

Agri-business and agricultural loans:
Loans secured by farmland 118,012 70 1,436 0 19
Loans for agricultural production 94,633 0 0 0 0

Other commercial loans 44,856 0 118 0 0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 21,380 329 423 0 83,767
Open end and junior lien loans 11,494 300 0 0 157,253
Residential construction loans 0 0 0 0 11,275

Other consumer loans 8,282 356 497 0 35,506

Total $ 1,763,480 $ 44,700 $ 106,062 $ 0 $ 289,146

		Special			Not
	Pass	Mention	Substandard	Doubtful	Rated
			(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans	$ 400,217	$ 23,496	$ 13,802	$ 0	$ 0
Non-working capital loans	356,623	23,004	25,260	65	0

Commercial real estate and multi-family residential loans:
Construction and land development loans	80,756	5,370	10,762	0	0
Owner occupied loans	322,868	23,209	17,836	0	1,482
Nonowner occupied loans	304,529	14,747	19,265	0	0
Multifamily loans	45,854	340	0	0	0

Agri-business and agricultural loans:
Loans secured by farmland	97,958	0	1,573	0	18
Loans for agricultural production	105,396	0	0	0	0

Other commercial loans	48,744	1	118	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	23,688	1,053	1,618	0	89,534
Open end and junior lien loans	5,221	2,100	0	0	148,007
Residential construction loans	0	0	0	0	6,100

Other consumer loans	8,016	358	511	0	32,961

Total	$ 1,799,870	$ 93,678	$ 90,745	$ 65	$ 278,102

The recorded investment in loans does not include accrued interest.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans. Loans listed as Not Rated are consumer loans included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status. As of December 31, ~~2011~~2012 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Special Not
Pass Mention Substandard Doubtful Rated
(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans $ 352,055 $ 5,625 $ 16,212 $ 0 $ 0
Non-working capital loans 331,881 7,437 36,751 0 1,403

Commercial real estate and multi-family residential loans:
Construction and land development loans 64,808 3,296 13,976 0 0
Owner occupied loans 318,191 5,913 22,400 0 38
Nonowner occupied loans 337,090 8,875 38,716 0 0
Multifamily loans 37,127 1,247 0 0 0

Agri-business and agricultural loans:
Loans secured by farmland 116,742 70 1,415 0 20
Loans for agricultural production 119,531 0 225 0 0

Other commercial loans 58,061 66 120 0 2

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 17,307 53 974 0 88,450
Open end and junior lien loans 11,569 319 0 0 164,335
Residential construction loans 0 0 0 0 5,449

Other consumer loans 7,416 375 497 0 37,672

Total $ 1,771,778 $ 33,276 $ 131,286 $ 0 $ 297,369

		Special			Not
	Pass	Mention	Substandard	Doubtful	Rated
			(in thousands)
Commercial and industrial loans:
Working capital lines of credit loans	$ 403,778	$ 22,591	$ 13,468	$ 0	$ 0
Non-working capital loans	355,772	23,192	26,857	66	1,285

Commercial real estate and multi-family residential loans:
Construction and land development loans	67,002	4,595	10,753	0	0
Owner occupied loans	315,672	24,589	18,144	0	0
Nonowner occupied loans	282,108	6,345	26,028	0	0
Multifamily loans	43,425	345	1,192	0	0

Agri-business and agricultural loans:
Loans secured by farmland	107,734	0	1,404	0	18
Loans for agricultural production	115,649	0	0	0	0

Other commercial loans	56,692	0	118	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	18,685	343	729	0	89,805
Open end and junior lien loans	7,932	300	0	0	153,692
Residential construction loans	0	0	0	0	11,508

Other consumer loans	10,168	378	497	0	34,661

Total	$ 1,784,617	$ 82,678	$ 99,190	$ 66	$ 290,969

The recorded investment in loans does not include accrued interest.

NOTE 5. SECURITIES

Information related to the fair value and amortized cost of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) is provided in the tables below.

Gross Gross
Fair Unrealized Unrealized Amortized
Value Gain Losses Cost
September 30, 2012
U.S. Treasury securities $ 1,042 $ 40 $ 0 $ 1,002
U.S. government sponsored agencies 5,316 288 0 5,028
Agency residential mortgage-backed securities 385,298 9,051 (1,511 ) 377,758
Non-agency residential mortgage-backed securities 6,982 267 0 6,715
State and municipal securities 82,618 5,740 (43 ) 76,921
Total $ 481,256 $ 15,386 $ (1,554 ) $ 467,424

December 31, 2011
U.S. Treasury securities $ 1,055 $ 52 $ 0 $ 1,003
U.S. government sponsored agencies 5,277 244 0 5,033
Agency residential mortgage-backed securities 350,102 8,989 (923 ) 342,036
Non-agency residential mortgage-backed securities 32,207 191 (2,225 ) 34,241
State and municipal securities 78,750 5,292 (9 ) 73,467
Total $ 467,391 $ 14,768 $ (3,157 ) $ 455,780

~~Total other-than-temporary impairment recognized in accumulated other comprehensive income was $0 at September 30, 2012 and $213,000 at December 31, 2011.~~

		Gross	Gross
	Fair	Unrealized	Unrealized	Amortized
	Value	Gain	Losses	Cost
March 31, 2013
U.S. Treasury securities	$ 1,032	$ 31	$ 0	$ 1,001
U.S. government sponsored agencies	5,289	265	0	5,024
Agency residential mortgage-backed securities	375,468	7,446	(1,400)	369,422
Non-agency residential mortgage-backed securities	5,885	202	0	5,683
State and municipal securities	95,030	5,139	(531)	90,422
Total	$ 482,704	$ 13,083	$ (1,931)	$ 471,552

December 31, 2012
U.S. Treasury securities	$ 1,037	$ 35	$ 0	$ 1,002
U.S. government sponsored agencies	5,304	278	0	5,026
Agency residential mortgage-backed securities	365,644	7,813	(1,495)	359,326
Non-agency residential mortgage-backed securities	6,453	242	0	6,211
State and municipal securities	88,583	5,509	(189)	83,263
Total	$ 467,021	$ 13,877	$ (1,684)	$ 454,828

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of ~~September 30, 2012~~March 31, 2013 is presented below. Maturity information is based on contractual maturity for all securities other than mortgage-backed securities. Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without a prepayment penalty.

Amortized Fair
Cost Value
Due in one year or less $ 2,118 $ 2,106
Due after one year through five years 23,461 25,108
Due after five years through ten years 35,516 38,272
Due after ten years 21,856 23,490
82,951 88,976
Mortgage-backed securities 384,473 392,280
Total debt securities $ 467,424 $ 481,256

~~Security proceeds, gross gains and gross losses are presented below.~~

Nine months ended September 30,
2012 2011
Sales of securities available for sale
Proceeds $ 28,877 $ 73,318
Gross gains 823 4,005
Gross losses (1,203 ) (4,171 )

Three months ended September 30,
2012 2011
Sales of securities available for sale
Proceeds $ 28,877 $ 0
Gross gains 823 0
Gross losses (1,203 ) 0

~~The Company sold eleven~~

	Amortized	Fair
	Cost	Value
Due in one year or less	$ 3,294	$ 3,298
Due after one year through five years	24,585	26,255
Due after five years through ten years	39,703	42,175
Due after ten years	28,865	29,623
	96,447	101,351
Mortgage-backed securities	375,105	381,353
Total debt securities	$ 471,552	$ 482,704

There were no securities ~~with a total book value of $29.3 million and a total fair value of $28.9 million~~sales during the first ~~nine~~three months of 2013 and 2012. ~~The sales included nine non-agency residential mortgage backed securities, including all five on which~~All of the ~~Company had previously recognized other-than-temporary impairment. The remaining~~ gains ~~during the first nine months of~~in 2013 and 2012 were from calls. The Company sold 36 securities with a total book value of $73.5 million and a total fair value of $73.3 million during the first nine months of 2011. The sales in 2011 included eight non-agency residential mortgage backed securities. The securities sales in both 2012 and 2011 were related to a strategic realignment of the securities portfolio.

Purchase premiums or discounts are recognized in interest income using the interest method over the terms of the securities or over estimated lives for mortgage-backed securities. Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of ~~$199.3~~$192.4 million and ~~$249.8~~$230.4 million were pledged as of ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ as collateral for deposits of public funds, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~2012 is presented below. The tables ~~distribute~~divide the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

Less than 12 months 12 months or more Total
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
September 30, 2012

Agency residential mortgage-backed securities $ 85,988 $ (998 ) $ 31,206 $ (513 ) $ 117,194 $ (1,511 )
State and municipal securities 4,250 (42 ) 50 (1 ) 4,300 (43 )
Total temporarily impaired $ 90,238 $ (1,040 ) $ 31,256 $ (514 ) $ 121,494 $ (1,554 )

Less than 12 months 12 months or more Total
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
December 31, 2011

Agency residential mortgage-backed securities $ 74,463 $ (860 ) $ 4,813 $ (63 ) $ 79,276 $ (923 )
Non-agency residential mortgage-backed securities 3,379 (4 ) 23,885 (2,221 ) 27,264 (2,225 )
State and municipal securities 341 (2 ) 1,003 (7 ) 1,344 (9 )
Total temporarily impaired $ 78,183 $ (866 ) $ 29,701 $ (2,291 ) $ 107,884 $ (3,157 )

	Less than 12 months		12 months or more		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
	Value	Losses	Value	Losses	Value	Losses
March 31, 2013
Agency residential mortgage-backed
securities	$ 108,460	$ (923)	$ 28,997	$ (477)	$ 137,457	$ (1,400)
State and municipal securities	18,052	(522)	469	(9)	18,521	(531)
Total temporarily impaired	$ 126,512	$ (1,445)	$ 29,466	$ (486)	$ 155,978	$ (1,931)

December 31, 2012
Agency residential mortgage-backed
securities	$ 92,974	$ (1,066)	$ 20,422	$ (429)	$ 113,396	$ (1,495)
State and municipal securities	10,791	(188)	50	(1)	10,841	(189)
Total temporarily impaired	$ 103,765	$ (1,254)	$ 20,472	$ (430)	$ 124,237	$ (1,684)

The number of securities with unrealized losses as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~2012 is presented below.

Less than 12 months
12 months or more Total
September 30, 2012

Agency residential mortgage-backed securities 21 11 32
State and municipal securities 22 1 23
Total temporarily impaired 43 12 55

Less than 12 months
12 months or more Total
December 31, 2011

Agency residential mortgage-backed securities 21 1 22
Non-agency residential mortgage-backed securities 2 9 11
State and municipal securities 3 2 5
Total temporarily impaired 26 12 38

~~All of the~~

	Less than	12 months
	12 months	or more	Total
March 31, 2013
Agency residential mortgage-backed securities	25	11	36
State and municipal securities	42	6	48
Total temporarily impaired	67	17	84

	Less than	12 months
	12 months	or more	Total
December 31, 2012
Agency residential mortgage-backed securities	29	9	38
State and municipal securities	29	1	30
Total temporarily impaired	58	10	68

The following factors are considered to determine whether or not the impairment of these securities is other-than-temporary. Ninety-eight percent of the securities are backed by the U.S. government, government agencies, government sponsored agencies or are AA- rated or better by Moody’s, S&P or Fitch, except for certain non-local or local municipal securities, which are not rated. Mortgage-backed securities which are not issued by the U.S. government or government sponsored agencies (non-agency residential mortgage-backed securities) met specific criteria set by the Asset Liability Management Committee at their time of purchase, including having the highest rating available by either Moody’s, S&P or ~~S&P.~~Fitch. None of the securities have call provisions (with the exception of the municipal securities) and all payments ~~on the securities have been~~as originally agreed are being received on their original terms. For the government, government-sponsored agency and municipal securities, management ~~was~~did not ~~concerned about the risk~~have concerns of credit losses, and there was nothing to indicate that full ~~payment of the~~ principal will not be received. Management considered the unrealized losses on these securities to be primarily interest rate driven and does not expect material losses given current market conditions unless the securities are sold. However, at this time management does not have the intent to sell, and it is more likely than not that it will not be required to sell these securities before the recovery of their amortized cost basis.

As of ~~September 30,~~March 31, 2013, the Company had $5.9 million of non-agency residential mortgage-backed securities which were not issued by the U.S. government or government sponsored agencies, but which were rated AAA by S&P or Fitch and/or Aaa by Moody’s at the time of purchase. As of December 31, 2012, the Company had ~~$7.0~~$6.5 million of non-agency residential mortgage-backed securities which were not issued by the federal government or government sponsored agencies, but which were rated AAA by S&P and/or Aaa by Moody’s at the time of purchase. At December 31, 2011, the Company had $32.2 million of these non-agency residential mortgage-backed securities. During the third quarter of 2012 the Company sold nine of the non-agency residential mortgage backed securities as part of a strategic realignment of the investment portfolio. The securities sold had a book value of $20.7 million and a fair value of $19.5 million. The sales included all five of the securities on which the Company had previously recognized other-than-temporary impairment. None of the five ~~remaining~~ non-agency residential ~~mortgage backed~~mortgage-backed securities were still rated AAA/Aaa as of ~~September 30, 2012~~March 31, 2013 by at least one of the rating agencies ~~S&P, Moody’s~~ and ~~Fitch, however, none of the five have~~one had been downgraded to below investment grade by ~~any~~at least one of those rating agencies.

For these non-agency residential mortgage-backed securities, additional analysis is performed to determine if ~~the~~any impairment is temporary or other-than-temporary, in which case impairment would need to be recorded for these securities. The Company performs an independent analysis of the cash flows of the individual securities based upon assumptions as to collateral defaults, prepayment speeds, expected losses and the severity of potential losses. Based upon the initial review, securities may be identified for further analysis by computing the net present value using an appropriate discount rate (the current accounting yield) and comparing it to the book value of the security to determine if there is any other-than-temporary impairment that must be recorded. Based on this analysis of the non-agency residential mortgage-backed securities, the Company recorded an other-than-temporary impairment of $67,000 and $1.0 million, respectively, relating to four securities in the three-months and nine-months ended September 30, 2012, which is equal to the credit loss, establishing a new, lower amortized cost basis. All of the securities on which the Company had recognized other-than-temporary impairment were sold during the third quarter of 2012. Nonenone of the five ~~remaining~~ non-agency ~~mortgage backed~~mortgage-backed securities had any unrealized losses or other-than-temporary impairment at ~~September 30, 2012.~~

March 31, 2013.

The following table provides information about debt securities for which only a credit loss was recognized in income and for which other losses are recorded in other comprehensive income. The table represents the three months ended March 31, 2013 and ~~nine months ended September 30, 2012~~2012.

	2013	2012
Balance January 1,	$ 0	$ 359
Additions related to other-than-temporary impairment losses
not previously recognized	0	449
Additional increases to the amount of credit loss for which
other-than-temporary impairment was previously recognized	0	61
Reductions for previous credit losses realized on
securities sold during the year	0	0
Balance March 31,	$ 0	$ 869

Information on securities with at least one rating below investment grade at March 31, 2013 is presented below.

3/31/2013

1-Month

3-Month

6-Month

Other Than

March 31, 2013

Lowest

Constant

Temporary

Par

Amortized

Fair

Unrealized

Credit

Default

Credit

Description

CUSIP

Impairment

Value

Cost

Value

Gain/(Loss)

Rating

Rate

Support

RALI 2004-QS7 A3

76110HTX7

$ 0

$ 2,739

$ 2,722

$ 2,790

$ 68

BB+

3.96

3.22

4.31

10.03

This security is a super senior/senior tranche non-agency residential mortgage-backed security. The credit support is the credit support percentage for a tranche from other subordinated tranches, which is the amount of principal in the subordinated tranches expressed as a percentage of the remaining principal in the super senior/senior tranche. The super senior/senior tranches receive the prepayments and ~~2011.~~

Three Months Ended September 30,
2012 2011
Balance July 1, $ 1,318 $ 194
Additions related to other-than-temporary impairment losses not previously recognized 0 0
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized 67 33
Reductions for previous credit losses realized on securities sold during the year (1,385 ) 0
Balance September 30, $ 0 $ 227

the subordinate tranches absorb the losses. The super senior/senior tranches do not absorb losses until the subordinate tranches are extinguished.

Nine Months Ended September 30,
2012 2011
Balance January 1, $ 359 $ 1,812
Additions related to other-than-temporary impairment losses not previously recognized 747 0
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized 279 154
Reductions for previous credit losses realized on securities sold during the year (1,385 ) (1,739 )
Balance September 30, $ 0 $ 227

The Company does not have a history of actively trading securities but ~~keeps the~~continues to hold securities available for sale should liquidity or other needs develop that would warrant the sale of securities. While these securities are held in the available for sale portfolio, it is management’s current intent ~~and ability~~ to hold them until a recovery in fair value or maturity.

NOTE 6. EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost:

Nine Months Ended September 30,
Pension Benefits SERP Benefits
2012 2011 2012 2011
Interest cost $ 95 $ 105 $ 38 $ 46
Expected return on plan assets (102 ) (119 ) (56 ) (60 )
Recognized net actuarial loss 102 80 62 52
Net pension expense $ 95 $ 66 $ 44 $ 38

Three Months Ended September 30,
Pension Benefits SERP Benefits
2012 2011 2012 2011
Interest cost $ 31 $ 33 $ 12 $ 12
Expected return on plan assets (34 ) (41 ) (18 ) (20 )
Recognized net actuarial loss 35 40 20 22
Net pension expense $ 32 $ 32 $ 14 $ 14

	Three Months Ended March 31,
	Pension Benefits		SERP Benefits
	2013	2012	2013	2012
Interest cost	$ 32	$ 35	$ 13	$ 16
Expected return on plan assets	(35)	(40)	(19)	(20)
Recognized net actuarial loss	34	27	21	17
Net pension expense	$ 31	$ 22	$ 15	$ 13

The Company previously disclosed in its financial statements for the year ended December 31, ~~2011~~2012 that it expected to contribute ~~$170,000~~$211,000 to its pension plan and ~~$114,000~~$80,000 to its SERP plan in ~~2012.~~2013. The Company has contributed ~~$121,000~~$59,000 to its pension plan and ~~$114,000~~$80,000 to its SERP plan as of ~~September 30, 2012.~~March 31, 2013. The Company expects to contribute an additional ~~$49,000~~$152,000 to its pension plan during the remainder of ~~2012.~~2013. The Company does not expect to make any additional contributions to its SERP plan during the remainder of ~~2012.~~

2013.

NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS

In ~~May 2011,~~February 2013, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~an amendment~~updated guidance related to ~~achieve common fair value measurement and~~ disclosure ~~requirements between U.S. and international accounting principles.~~of reclassification amounts out of other comprehensive income. The ~~amendment results~~standard requires that companies present, either in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a resultsingle note or parenthetically on the face of the ~~amendment are as follows: (1) The concepts~~financial statements, the effect of ~~highest~~significant amounts reclassified from each component of accumulated other comprehensive income based on its source and ~~best use and valuation premise are only relevant when measuring~~ the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. The amendment extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) The exception aligns the fair value measurement of instruments classified within an entity’s stockholders’ equity with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for recurring Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes usedincome statement line items affected by the ~~entity,~~reclassification. The new requirements will take effect for public companies in fiscal years, and ~~to describe the sensitivity of fair value measurements to changes in unobservable inputs and interrelationships between~~interim periods within those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The provisions of the amendment are effective for the Company’s interim and annual periodsyears, beginning ~~on or~~ after December 15, ~~2011.~~2012. The ~~adoption of~~Company adopted this standard on January 1, 2013. Adopting this standard did not have a ~~material~~significant impact on the Company’s ~~statements~~financial condition or results of ~~income and condition and the disclosure requirements are already included.~~

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. In December 2011, the FASB deferred the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income. The adoption of the remaining amendments changed the presentation of the components of comprehensive income for the Company as part of Note 9 into two consecutive statements. These amendments are effective for interim and annual periods beginning on or after December 15, 2011. The adoption of this standard did not have a material impact on the Company’s statements of income and condition.

In September 2011, the FASB amended existing guidance relating to goodwill impairment testing. The amendment permits an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing these events or circumstances, it is concluded that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in this guidance are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard did not have a material impact on the Company’s statements of income and condition.

operations.

NOTE 8. FAIR VALUE DISCLOSURES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:


Level 1		Quoted prices (unadjusted) for 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 company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Securities: Securities available for sale are valued primarily by a third party pricing service. The fair values of securities available for sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or pricing models ~~utilizing~~which utilize significant observable inputs such as matrix ~~pricing, which~~pricing. This 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 (Level 2 inputs). These models utilize the market approach with standard inputs that include, but are not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain non-agency residential mortgage-backed securities where observable inputs about the specific issuer are not available, fair values are estimated using observable data from other non-agency residential mortgage-backed securities presumed to be similar or other market data on other non-agency residential mortgage-backed securities (Level 3 inputs). For certain municipal securities that are not rated and observable inputs about the specific issuer are not available, fair values are estimated using observable data from other municipal securities presumed to be similar or other market data on other non-rated municipal securities (Level 3 inputs). There were no transfers ~~from or into~~between Level 1,1and Level 2 ~~or Level 3~~ during the first ~~nine~~three months of ~~2012.~~

2013.

Mortgage banking derivatives: The fair value of mortgage banking derivatives are based on observable market data as of the measurement date (Level 2).

Interest rate swap derivatives: The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Currently, none of the Company’s derivatives are designated in qualifying hedging relationships, as the derivatives are not used to manage risks within the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings. The fair value of interest rate swap derivatives is determined by pricing or valuation models using observable market data as of the measurement date (Level 2).

Impaired loans: Impaired loans with specific allocations of the allowance for loan losses are generally based on the fair value of the underlying collateral if repayment is expected solely from the collateral. Fair value is determined using several methods. Generally, the fair value of real estate is based on appraisals by qualified third party appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and result in a Level 3 classification of the inputs for determining fair value. In addition, the Company’s management routinely applies internal discount factors to the value of appraisals used in the fair value evaluation of impaired loans. The deductions to the appraisals take into account changing business factors and market conditions, as well as value impairment in cases where the appraisal date predates a likely change in market conditions. Commercial real estate is generally discounted from its appraised value by 0-50% with the higher discounts applied to real estate that is determined to have a thin trading market or to be specialized collateral. In addition to real estate, the Company’s management evaluates other types of collateral as follows: Raw and finished inventory is discounted from its cost or book value by 35-65%, depending on the marketability of the goods. Finished goods are generally discounted by 30-60%, depending on the ease of marketability, cost of transportation or scope of use of the finished good. Work in process inventory is typically discounted by 50-100%, depending on the length of manufacturing time, types of components used in the completion process, and the breadth of the user base. Equipment is valued at a percentage of depreciated book value or recent appraised value, if available, and is typically discounted at 30-70% after various considerations including age and condition of the equipment, marketability, breadth of use, and whether the equipment includes unique components or add-ons. Marketable securities are discounted by 10-30%, depending on the type of investment, age of valuation report and general market conditions. This methodology is based on a market approach and typically results in a Level 3 classification of the inputs for determining fair value.

Mortgage servicing rights: As of ~~September 30, 2012~~March 31, 2013 the fair value of the Company’s Level 3 servicing assets for residential mortgage loans was ~~$2.0~~$2.5 million, some of which are not currently impaired and therefore carried at amortized cost. These residential mortgage loans have a weighted average interest rate of ~~4.58%~~4.28%, a weighted average maturity of 19 years and are secured by homes generally within the Company’s market area, which is primarily Northern Indiana. A valuation model is used to estimate fair value, which is based on an income approach. The inputs used include estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, late fees, and float income. The most significant assumption used to value mortgage servicing rights is prepayment rate. Prepayment rates are estimated based on published industry consensus prepayment rates. The most significant unobservable assumption is the discount rate. At ~~September 30,~~March 31, 2013, the constant prepayment speed (PSA) used was 311 and the discount rate used was 9.3%. At December 31, 2012, the constant prepayment speed (PSA) used was ~~447~~392 and the discount rate used was 9.2%. ~~At December 31, 2011 the constant prepayment speed (PSA) used was 387 and the discount rate used was 9.2%.~~

Other real estate owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property and are reviewed by the Company’s internal appraisal officer. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales. Such adjustments are usually significant and result in a Level 3 classification. In addition, the Company’s management may apply discount factors to the appraisals to take into account changing business factors and market conditions, as well as value impairment in cases where the appraisal date predates a likely change in market conditions. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Real estate mortgage loans held for sale: Real estate mortgage loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from third party investors, and results in a Level 2 classification.

The table below presents the balances of assets measured at fair value on a recurring basis:

September 30, 2012
Fair Value Measurements Using Assets
Assets Level 1 Level 2 Level 3 at Fair Value

U.S. Treasury securities $ 1,042 $ 0 $ 0 $ 1,042
U.S. Government sponsored agencies 0 5,316 0 5,316
Residential mortgage-backed securities 0 385,298 0 385,298
Non-agency residential mortgage-backed securities 0 6,982 0 6,982
State and municipal securities 0 81,981 637 82,618
Total Securities 1,042 479,577 637 481,256

Mortgage banking derivative 0 917 0 917

Total assets $ 1,042 $ 480,494 $ 637 $ 482,173

Liabilities

Mortgage banking derivative $ 0 $ (319 ) $ 0 $ (319 )

December 31, 2011
Fair Value Measurements Using Assets
Assets Level 1 Level 2 Level 3 at Fair Value

U.S. Treasury securities $ 1,055 $ 0 $ 0 $ 1,055
U.S. Government sponsored agencies 0 5,277 0 5,277
Residential mortgage-backed securities 0 350,102 0 350,102
Non-agency residential mortgage-backed securities 0 32,207 0 32,207
State and municipal securities 0 78,064 686 78,750
Total Securities 1,055 465,650 686 467,391

Mortgage banking derivative 0 406 0 406

Total assets $ 1,055 $ 466,056 $ 686 $ 467,797

Liabilities

Mortgage banking derivative $ 0 $ (81 ) $ 0 $ (81 )

	March 31, 2013
	Fair Value Measurements Using			Assets
	Level 1	Level 2	Level 3	at Fair Value
Assets

U.S. Treasury securities	$ 1,032	$ 0	$ 0	$ 1,032
U.S. Government sponsored agencies	0	5,289	0	5,289
Mortgage-backed securities	0	375,468	0	375,468
Non-agency residential mortgage-backed securities	0	0	5,885	5,885
State and municipal securities	0	94,044	986	95,030
Total Securities	1,032	474,801	6,871	482,704

Mortgage banking derivative	0	371	0	371
Interest rate swap derivative	0	878	0	878

Total assets	$ 1,032	$ 476,050	$ 6,871	$ 483,953

Liabilities

Mortgage banking derivative	0	25	0	25
Interest rate swap derivative	0	881	0	881

Total liabilities	$ 0	$ 906	$ 0	$ 906

	December 31, 2012
	Fair Value Measurements Using			Assets
	Level 1	Level 2	Level 3	at Fair Value
Assets
U.S. Treasury securities	$ 1,037	$ 0	$ 0	$ 1,037
U.S. Government sponsored agencies	0	5,304	0	5,304
Mortgage-backed securities	0	365,644	0	365,644
Non-agency residential mortgage-backed securities	0	3,594	2,859	6,453
State and municipal securities	0	87,595	988	88,583
Total Securities	1,037	462,137	3,847	467,021

Mortgage banking derivative	0	739	0	739

Total assets	$ 1,037	$ 462,876	$ 3,847	$ 467,760

Liabilities
Mortgage banking derivative	$ 0	$ 12	$ 0	$ 12

There were no transfers ~~from or into~~between Level 1 and Level 2 ~~or Level 3~~ during ~~2012~~the three months ended March 31, 2013 and there were no transfers ~~from or into~~between Level 1 orand Level 2 during ~~the nine months ended September 30, 2011.~~

2012.

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and 2012:

State and
Municipal
Securities
September 30, 2012

Balance or recurring Level 3 assets at January 1 $ 686
Change in fair value of securities (4 )
Principal payments (45 )
Balance or recurring Level 3 assets at September 30 $ 637

	Non-Agency Residential
	Mortgage-Backed Securities		State and Municipal Securities
	2013	2012	2013	2012
Balance of recurring Level 3 assets at January 1	$ 2,859	$ 0	$ 988	$ 686
Transfers into Level 3	3,334	0	0	0
Changes in fair value of securities	(17)	0	(2)	(3)
Principal payments	(291)	0	0	(45)
Balance of recurring Level 3 assets at March 31	$ 5,885	$ 0	$ 986	$ 638

The fair value of ~~3 state and municipal~~two non-agency residential mortgage-backed securities with a fair value of ~~$686,000~~$3.3 million as of ~~December~~March 31, ~~2011~~2013 were transferred out of Level 2 and into Level 3 because of a lack of observable market data for these investments. The Company’s policy is to recognize transfers as of the end of the reporting period. As a result, the fair value for these non-agency residential mortgage-backed securities and state and municipal securities was transferred into Level 3 on ~~December~~March 31, ~~2011.~~

2013.

The state and municipal securities measured at fair value included below are ~~nonrated~~non-rated Indiana municipal revenue bonds and are not actively traded.

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at Range
9/30/2012 Valuation Technique Unobservable Input (Weighted Average)
(in thousands)

State and municipal securities $ 637 Price to type, par, call Discount to benchmark index 1 %

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at			Range of Inputs
	3/31/2013	Valuation Technique	Unobservable Input	(Average)

Non-agency residential mortgage-backed securities	$ 5,885	Discounted cash flow	Constant prepayment rate	5.00-30.00
				(8.69)

			Average life (years)	0.09-2.78
				(1.70)

			Swap/EDSF spread	283-340
				(308)


State and municipal securities	$ 986	Price to type, par, call	Discount to benchmark index	1-10%
				(3.41%)

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at			Range of Inputs
	12/31/2012	Valuation Technique	Unobservable Input	(Average)

Non-agency residential mortgage-backed securities	$ 2,859	Discounted cash flow	Constant prepayment rate	5.00-9.00
				(6.00)

			Average life (years)	0.20-2.86
				(2.70)

			Swap/EDSF spread	297-339
				(328)


State and municipal securities	$ 988	Price to type, par, call	Discount to benchmark index	1-11%
				(4%)

The Company’s Controlling Department, which is responsible for all accounting and SEC compliance, and the Company’s Treasury Department, which is responsible for investment portfolio management and asset/liability modeling, are the two areas that decide the Company’s valuation policies and procedures. Both of these areas report directly to the President and Chief Financial Officer of the Company. For assets or liabilities that may be considered for Level 3 fair value measurement on a recurring basis, these two ~~areas~~departments and the President and Chief Financial Officer determine the appropriate level of the assets or liabilities under consideration. If there are assets or liabilities that are determined asto be Level 3 by this group, the Risk Management Committee of the Company and the Audit Committee of the Board of Directors are made aware of such assets at their next scheduled meeting.

Securities pricing is obtained from a third party pricing service and is tested at least annually against prices from another third party provider and reviewed with a market value tolerance variance of 3%. If any securities fall above this tolerance threshold, they are reviewed in more detail to determine why the variance exists. Changes in market value are reviewed monthly in aggregate yield by security type and any material differences are reviewed to determine why they exist. At least annually, the pricing methodology of the pricing service is received and reviewed to support the fair value levels used by the Company. A detailed pricing evaluation is requested and reviewed on any security determined to be fair ~~value~~valued using unobservable inputs by the pricing service.

The significant unobservable inputs used in the fair value measurement of the Company’s non-agency residential mortgage-backed securities classified as Level 3 are constant prepayment rates, average life, and a Swap/EDSF spread. Significant increases/(decreases) in any of those inputs in isolation would result in a significantly lower/(higher) fair value measurement.

The primary methodology used in the fair value measurement of the Company’s state and municipal securities classified as Level 3 is a discount to the AAA municipal benchmark index. Significant increases or (decreases) in this index as well as the degree to which the security differs in ratings, coupon, call and duration will result in a higher or (lower) fair value measurement for those securities that are not callable. For those securities that are continuously callable, a slight premium to par is used.

The table below presents the balances of assets measured at fair value on a nonrecurring basis:

September 30, 2012
Fair Value Measurements Using Assets
Assets Level 1 Level 2 Level 3 at Fair Value
(in thousands)
Impaired loans:
Commercial and industrial loans:
Working capital lines of credit loans $ 0 $ 0 $ 1,657 $ 1,657
Non-working capital loans 0 0 5,275 5,275

Commercial real estate and multi-family residential loans:
Construction and land development loans 0 0 2,724 2,724
Owner occupied loans 0 0 4,760 4,760
Nonowner occupied loans 0 0 20,585 20,585
Multifamily loans 0 0 0 0

Agri-business and agricultural loans:
Loans secured by farmland 0 0 266 266
Loans for agricultural production 0 0 0 0

Other commercial loans 0 0 0 0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 0 0 241 241
Open end and junior lien loans 0 0 162 162
Residential construction loans 0 0 0 0

Other consumer loans 0 0 27 27

Total impaired loans $ 0 $ 0 $ 35,697 $ 35,697

Mortgage servicing rights 0 0 1,969 1,969
Other real estate owned 0 0 81 81

Total assets $ 0 $ 0 $ 37,747 $ 37,747

	March 31, 2013
	Fair Value Measurements Using			Assets
Assets	Level 1	Level 2	Level 3	at Fair Value
		(in thousands)
Impaired loans:
Commercial and industrial loans:
Working capital lines of credit loans	$ 0	$ 0	$ 897	$ 897
Non-working capital loans	0	0	2,917	2,917

Commercial real estate and multi-family residential loans:
Construction and land development loans	0	0	4,343	4,343
Owner occupied loans	0	0	1,134	1,134
Nonowner occupied loans	0	0	12,189	12,189
Multifamily loans	0	0	0	0

Agri-business and agricultural loans:
Loans secured by farmland	0	0	283	283
Loans for agricultural production	0	0	0	0

Other commercial loans	0	0	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	0	0	448	448
Open end and junior lien loans	0	0	8	8
Residential construction loans	0	0	0	0

Other consumer loans	0	0	40	40

Total impaired loans	$ 0	$ 0	$ 22,259	$ 22,259

Mortgage servicing rights	0	0	9	9
Other real estate owned	0	0	75	75

Total assets	$ 0	$ 0	$ 22,343	$ 22,343

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at ~~September 30,~~March 31, 2013:

	Fair Value	Valuation Methodology	Unobservable Inputs	Average	Range of Inputs

Impaired Loans:
Commercial and industrial:	$ 3,814	Collateral based	Discount to reflect	33%	(13% - 88%)
		measurements	current market conditions
			and ultimate collectability

Impaired loans:
Commercial real estate:	17,666	Collateral based	Discount to reflect	24%	(3% - 43%)
		measurements	current market conditions
			and ultimate collectability

Impaired loans:
Agri-business and agricultural:	283	Collateral based	Discount to reflect	13%
		measurements	current market conditions
			and ultimate collectability

Impaired loans:
Consumer 1-4 family mortgage	456	Collateral based	Discount to reflect	23%	(8% - 100%)
		measurements	current market conditions
			and ultimate collectability
Impaired loans:
Other consumer	40	Collateral based	Discount to reflect	38%	(21% - 91%)
		measurements	current market conditions
			and ultimate collectability

Mortgage servicing rights	9	Discounted cash flows	Discount rate	9.50%


Other real estate owned	75	Appraisal	Discount to reflect	49%
			current market conditions

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at December 31, 2012:

Range of Inputs
Fair Value Valuation Methodology Unobservable Inputs (Average)

Impaired Loans:
Commercial and industrial: $ 6,932 Collateral based Discount to reflect 0% - 83%
measurements current market conditions (25)%
and ultimate collectability

Impaired loans:
Commercial real estate: 28,069 Collateral based Discount to reflect 0% - 88%
measurements current market conditions (40)%
and ultimate collectability

Impaired loans:
Agri-business and agricultural: 266 Collateral based Discount to reflect 9% - 24%
measurements current market conditions (16)%
and ultimate collectability

Impaired loans:
Consumer 1-4 family mortgage 403 Collateral based Discount to reflect 0% - 20%
measurements current market conditions (8)%
and ultimate collectability

Impaired loans:
Other consumer 27 Collateral based Discount to reflect 40%
measurements current market conditions
and ultimate collectability

Mortgage servicing rights 1,969 Discounted cash flows Discount rate 9.1% - 9.5%
(9.2)%

Other real estate owned 81 Appraisals Discount to reflect 49% - 61%
current market conditions (50)%

December 31, 2011
Fair Value Measurements Using Assets
Assets Level 1 Level 2 Level 3 at Fair Value
(in thousands)
Impaired loans:
Commercial and industrial loans:
Working capital lines of credit loans $ 0 $ 0 $ 2,762 $ 2,762
Non-working capital loans 0 0 11,885 11,885

Commercial real estate and multi-family residential loans:
Construction and land development loans 0 0 303 303
Owner occupied loans 0 0 3,515 3,515
Nonowner occupied loans 0 0 23,591 23,591
Multifamily loans 0 0 0 0

Agri-business and agricultural loans:
Loans secured by farmland 0 0 433 433
Loans for agricultural production 0 0 207 207

Other commercial loans 0 0 0 0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 0 0 878 878
Open end and junior lien loans 0 0 406 406
Residential construction loans 0 0 0 0

Other consumer loans 0 0 0 0

Total impaired loans $ 0 $ 0 $ 43,980 $ 43,980

Mortgage servicing rights 0 0 1,734 1,734
Other real estate owned 0 0 730 730

Total assets $ 0 $ 0 $ 46,444 $ 46,444

	Fair Value	Valuation Methodology	Unobservable Inputs	Average	Range of Inputs

Impaired Loans:
Commercial and industrial:	$ 3,980	Collateral based	Discount to reflect	35%	(10% - 99%)
		measurements	current market conditions
			and ultimate collectability

Impaired loans:
Commercial real estate:	24,560	Collateral based	Discount to reflect	23%	(4% - 57%)
		measurements	current market conditions
			and ultimate collectability

Impaired loans:
Agri-business and agricultural:	268	Collateral based	Discount to reflect	19%
		measurements	current market conditions
			and ultimate collectability

Impaired loans:
Consumer 1-4 family mortgage	510	Collateral based	Discount to reflect	39%	(8% - 100%)
		measurements	current market conditions
			and ultimate collectability
Impaired loans:
Other consumer	46	Collateral based	Discount to reflect	40%	(29% - 100%)
		measurements	current market conditions
			and ultimate collectability

Mortgage servicing rights	1,906	Discounted cash flows	Discount rate	9.20%	(9.10% - 9.50%)


Other real estate owned	75	Appraisals	Discount to reflect	49%
			current market conditions

	December 31, 2012
	Fair Value Measurements Using			Assets
Assets	Level 1	Level 2	Level 3	at Fair Value
		(in thousands)
Impaired loans:
Commercial and industrial loans:
Working capital lines of credit loans	$ 0	$ 0	$ 990	$ 990
Non-working capital loans	0	0	2,990	2,990

Commercial real estate and multi-family residential loans:
Construction and land development loans	0	0	2,026	2,026
Owner occupied loans	0	0	3,892	3,892
Nonowner occupied loans	0	0	18,642	18,642
Multifamily loans	0	0	0	0

Agri-business and agricultural loans:
Loans secured by farmland	0	0	268	268
Loans for agricultural production	0	0	0	0

Other commercial loans	0	0	0	0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans	0	0	352	352
Open end and junior lien loans	0	0	158	158
Residential construction loans	0	0	0	0

Other consumer loans	0	0	46	46

Total impaired loans	$ 0	$ 0	$ 29,364	$ 29,364

Mortgage servicing rights	0	0	1,906	1,906
Other real estate owned	0	0	75	75

Total assets	$ 0	$ 0	$ 31,345	$ 31,345

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a gross carrying amount of ~~$50.2~~$29.9 million, with a valuation allowance of ~~$14.5~~$7.7 million at ~~September 30, 2012,~~March 31, 2013, resulting in a net recovery in the provision for loan losses of ~~$200,000 and $3.8~~$2.3 million ~~respectively,~~ for the three months ~~and nine months~~ ended ~~September 30, 2012.~~March 31, 2013. At ~~September 30, 2011,~~March 31, 2012, impaired loans had a carrying amount of ~~$56.4~~$51.3 million, with a valuation allowance of ~~$16.6~~$16.5 million, resulting in ~~an additional~~a net recovery in the provision for loans losses of ~~$7.8~~$1.7 million ~~and $5.3 million, respectively,~~ for the three months ~~and nine months~~ ending ~~September 30, 2011.~~

March 31, 2012.

Mortgage servicing rights, which are carried at the lower of cost or fair value, included a portion carried at their fair value of ~~$2.0 million,~~$9,000, which is made up of the outstanding balance of ~~$2.2 million,~~$13,000, net of a valuation allowance of ~~$192,000~~$5,000 at ~~September 30, 2012,~~March 31, 2013, resulting in net recovery of $37,000 impairment of $84,000 for the ~~nine~~three months ended ~~September 30, 2012.~~March 31, 2013. The Company realized a net recovery of impairment of ~~mortgage servicing rights of $162,000~~$62,000 for the ~~nine~~three months ended ~~September 30, 2011.~~

March 31, 2012.

The Company also recognized a $72,000 reduction in the value of other real estate owned during the nine months ended September 30, 2012. During the nine months ended September 30, 2011, the Company recognized a $76,000 reduction in the value of other real estate owned.

The following table contains the estimated fair values and the related carrying values of the Company’s financial instruments. Items which are not financial instruments are not included.

September 30, 2012
Carrying Estimated Fair Value
Value Level 1 Level 2 Level 3 Total

Financial Assets:
Cash and cash equivalents $ 181,402 $ 181,402 $ 0 $ 0 $ 181,402
Securities available for sale 481,256 1,042 479,577 637 481,256
Real estate mortgages held for sale 6,707 0 6,826 0 6,826
Loans, net 2,151,476 0 0 2,179,321 2,179,321
Federal Home Loan Bank stock 7,313 N/A N/A N/A N/A
Federal Reserve Bank stock 3,420 N/A N/A N/A N/A
Accrued interest receivable 9,729 4 1,774 7,951 9,729
Financial Liabilities:
Certificates of deposit (948,410 ) 0 (964,427 ) 0 (964,427 )
All other deposits (1,527,687 ) (1,527,687 ) 0 0 (1,527,687 )
Securities sold under agreements to repurchase (118,552 ) 0 (118,552 ) 0 (118,552 )
Long-term borrowings (15,038 ) 0 (15,690 ) 0 (15,690 )
Subordinated debentures (30,928 ) 0 0 (31,232 ) (31,232 )
Standby letters of credit (360 ) 0 0 (360 ) (360 )
Accrued interest payable (5,718 ) (289 ) (5,426 ) (3 ) (5,718 )

December 31, 2011
Carrying Estimated
Value Fair Value

Financial Assets:
Cash and cash equivalents $ 104,584 $ 104,584
Securities available for sale 467,391 467,391
Real estate mortgages held for sale 2,953 2,998
Loans, net 2,180,309 2,141,459
Federal Home Loan Bank stock 7,313 N/A
Federal Reserve Bank stock 3,420 N/A
Accrued interest receivable 9,604 9,604
Financial Liabilities:
Certificates of deposit (910,381 ) (925,619 )
All other deposits (1,502,315 ) (1,502,315 )
Securities sold under agreements to repurchase (131,990 ) (131,990 )
Other short-term borrowings (10,000 ) (10,000 )
Long-term borrowings (15,040 ) (16,079 )
Subordinated debentures (30,928 ) (31,240 )
Standby letters of credit (247 ) (247 )
Accrued interest payable (5,574 ) (5,574 )

	March 31, 2013
	Carrying	Estimated Fair Value
	Value	Level 1	Level 2	Level 3	Total

Financial Assets:
Cash and cash equivalents	$ 75,667	$ 75,667	$ 0	$ 0	$ 75,667
Securities available for sale	482,704	1,033	474,800	6,871	482,704
Real estate mortgages held for sale	6,629	0	6,726	0	6,726
Loans, net	2,211,642	0	0	2,235,744	2,235,744
Federal Home Loan Bank stock	7,313	N/A	N/A	N/A	N/A
Federal Reserve Bank stock	3,420	N/A	N/A	N/A	N/A
Accrued interest receivable	9,227	12	2,064	7,151	9,227
Financial Liabilities:
Certificates of deposit	(850,629)	0	(863,641)	0	(863,641)
All other deposits	(1,600,559)	(1,600,559)	0	0	(1,600,559)
Securities sold under agreements to repurchase	(113,515)	0	(113,515)	0	(113,515)
Long-term borrowings	(37)	0	(45)	0	(45)
Subordinated debentures	(30,928)	0	0	(31,211)	(31,211)
Standby letters of credit	(286)	0	0	(286)	(286)
Accrued interest payable	(4,560)	(230)	(4,327)	(3)	(4,560)

	December 31, 2012
	Carrying	Estimated Fair Value
	Value	Level 1	Level 2	Level 3	Total

Financial Assets:
Cash and cash equivalents	$ 232,237	$ 232,237	$ 0	$ 0	$ 232,237
Securities available for sale	467,021	1,037	462,137	3,847	467,021
Real estate mortgages held for sale	9,452	0	9,663	0	9,663
Loans, net	2,206,075	0	0	2,230,993	2,230,993
Federal Home Loan Bank stock	7,313	N/A	N/A	N/A	N/A
Federal Reserve Bank stock	3,420	N/A	N/A	N/A	N/A
Accrued interest receivable	8,485	6	2,215	6,264	8,485
Financial Liabilities:
Certificates of deposit	(907,505)	0	(922,397)	0	(922,397)
All other deposits	(1,674,251)	(1,674,251)	0	0	(1,674,251)
Securities sold under agreements to repurchase	(121,883)	0	(121,883)	0	(121,883)
Long-term borrowings	(15,038)	0	(15,607)	0	(15,607)
Subordinated debentures	(30,928)	0	0	(31,223)	(31,223)
Standby letters of credit	(262)	0	0	(262)	(262)
Accrued interest payable	(4,757)	(298)	(4,456)	(3)	(4,757)

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and cash equivalents - The carrying amount of cash and cash equivalents approximate fair value and are classified as Level 1.

Loans, net – Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using current market rates applied to the estimated life resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Federal Home Loan Bank stock and Federal Reserve Bank stock– It is not practical to determine the fair value of Federal Home Loan Bank stock and Federal Reserve Bank stock due to restrictions placed on its transferability.

Certificates of deposit - Fair values of certificates of deposit are estimated using discounted cash flow analyses using current market rates applied to the estimated life resulting in a Level 2 classification.

All other deposits- The fair values for all other deposits other than certificates of deposit are equal to the amount payable on demand (the carrying value) resulting in a Level 1 classification.

Securities sold under agreements to repurchase – The carrying amount of borrowings under repurchase agreements approximate their fair values resulting in a Level 2 classification.

Long-term borrowings– The fair value of long-term borrowings is estimated using discounted cash flow analyses based on current borrowing rates resulting in a Level 2 classification.

Subordinated debentures- The fair value of subordinated debentures is based on the rates currently available to the Company with similar term and remaining maturity and credit spread resulting in a Level 3 classification.

Standby letters of credit – The fair value of off-balance sheet items is based on the current fees and costs that would be charged to enter into or terminate such arrangements resulting in a Level 3 classification.

Accrued interest receivable/payable – The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification which is consistent with its associated asset/liability.

NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following ~~table summarizes~~tables summarize the changes within each classification of accumulated other comprehensive income for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and ~~2011:~~

Current
Balance Period Balance
at December 31, 2011 Change at September 30, 2012
Unrealized loss on securities available for sale without other than temporary impairment $ 7,688 $ 818 $ 8,506
Unrealized loss on securities available for sale with other than temporary impairment (523 ) 523 0

Total unrealized loss on securities available for sale 7,165 1,341 8,506

Unrealized loss on defined benefit pension plans (2,026 ) 164 (1,862 )

Total $ 5,139 $ 1,505 $ 6,644

Current
Balance Period Balance
at December 31, 2010 Change at September 30, 2011
Unrealized loss on securities available for sale without other than temporary impairment $ 4,285 $ 4,372 $ 8,657
Unrealized loss on securities available for sale with other than temporary impairment (1,425 ) 1,138 (287 )

Total unrealized loss on securities available for sale 2,860 5,510 8,370

Unrealized loss on defined benefit pension plans (1,510 ) (60 ) (1,570 )

Total $ 1,350 $ 5,450 $ 6,800

2012:

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BY COMPONENT(a)


	Unrealized
	Gains and
	Losses on	Defined
	Available-	Benefit
	for-Sales	Pension
	Securities	Items	Total
	(in thousands)

Balance at December 31, 2012	$ 7,517	$ (1,828)	$ 5,689

Other comprehensive income
before reclassification	(643)	(90)	(733)

Amounts reclassified from
accumulated other
comprehensive income	(1)	33	32

Net current period other
comprehensive income	(644)	(57)	(701)

Balance at March 31, 2013	$ 6,873	$ (1,885)	$ 4,988

(a) All amounts are net of tax.

		Current
	Balance	Period	Balance
	at December 31, 2011	Change	at March 31, 2012

Unrealized loss on securities available for sale
without other than temporary impairment	$ 7,688	$ 1,065	$ 8,753
Unrealized loss on securities available for sale
with other than temporary impairment	(523)	(54)	(577)

Total unrealized loss on securities available for sale	7,165	1,011	8,176

Unrealized loss on defined benefit pension plans	(2,026)	91	(1,935)

Total	$ 5,139	$ 1,102	$ 6,241

Reclassifications out of accumulated comprehensive income for the three months ended March 31, 2013 are as follows:

45 RELCASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME(a)


Details about	Amount		Affected Line Item
Accumulated other	Reclassified From		in the Statement
Comprehensive	Accumulated Other		Where Net
Income Components	Comprehensive Income		Income is Presented
	(in thousands)

Unrealized gains and losses on
available-for-sale securities
	$ 1		Net securities gains

	0		Income tax expense

	$ 1		Net of tax

Amortization of defined benefit
pension items
Actuarial loss	$ (55)	(b)

	22		Income tax expense

	$ (33)		Net of tax

Total reclassifications for the period	$ (32)		Net of tax


(a) Amounts in parenthesis indicate debits to profit/loss.
(b) Included in the computation of net periodic benefit cost (see employee benefit plans footnote for additional details).

NOTE 10. OFFSETTING ASSETS AND LIABILITIES

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. Other than the additional disclosure requirements, the adoption of these changes had no impact on the Consolidated Financial Statements.

Offsetting of Financial Assets and Derivative Assets
	March 31, 2013
	(in thousands)
				Gross Amounts Not Offset in the Statement of Financial Position

	Gross Amounts of Recognized Assets	Gross Amounts Offset in the Statement of Financial Position	Net Amounts of Assets presented in the Statement of Financial Position	Financial Instruments	Cash Collateral Received	Net Amount
Description
Interest Rate Swap Derivatives	$ 878	$ 0	$ 878	$ 0	$ 0	$ 878
Total	$ 878	$ 0	$ 878	$ 0	$ 0	$ 878

Offsetting of Financial Liabilities and Derivative Liabilities

	March 31, 2013
	(in thousands)
				Gross Amounts Not Offset in the Statement of Financial Position

	Gross Amounts of Recognized Liabilities	Gross Amounts Offset in the Statement of Financial Position	Net Amounts of Liabilities presented in the Statement of Financial Position	Financial Instruments	Cash Collateral Pledged	Net Amount
Description
Interest Rate Swap Derivatives	$ 881	$ 0	$ 881	$ 0	$ (881)	$ 0
Repurchase Agreements	113,515	0	113,515	(113,515)	0	0
Total	$ 114,396	$ 0	$ 114,396	$ (113,515)	$ (881)	$ 0

Offsetting of Financial Liabilities and Derivative Liabilities

	December 31, 2012
	(in thousands)
				Gross Amounts Not Offset in the Statement of Financial Position

	Gross Amounts of Recognized Liabilities	Gross Amounts Offset in the Statement of Financial Position	Net Amounts of Liabilities presented in the Statement of Financial Position	Financial Instruments	Cash Collateral Pledged	Net Amount
Description
Repurchase Agreements	$ 121,883	$ 0	$ 121,883	$ (121,883)	$ 0	$ 0
Total	$ 121,883	$ 0	$ 121,883	$ (121,883)	$ 0	$ 0


There were no interest rate swap derivatives as of December 31, 2012.

If an event of default occurs causing an early termination of an interest rate swap derivative, any early termination amount payable to one party by the other party may be reduced by set-off against any other amount payable by the one party to the other party. If a default in performance of any obligation of a repurchase agreement occurs, each party will set-off property held in respect of transactions against obligations owing in respect of any other transactions.

NOTE ~~10.~~11. SUBSEQUENT EVENTS

There were no subsequent events that would have a material impact toon the financial statements presented in this Form 10-Q.

NOTE ~~11.~~12. RECLASSIFICATIONS

Certain amounts appearing in the financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassification had no effect on net income or stockholders’ equity as previously reported.

Part 1

LAKELAND FINANCIAL CORPORATION

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

and

RESULTS OF OPERATIONS

~~September 30, 2012~~

March 31, 2013

OVERVIEW

Lakeland Financial Corporation is the holding company for Lake City Bank. The Company is headquartered in Warsaw, Indiana and operates 45 offices in 13 counties in Northern and Central Indiana. The Company earned ~~$26.8~~$9.2 million for the first ~~nine~~three months of ~~2012,~~2013, versus ~~$22.4~~$8.6 million in the same period of ~~2011,~~2012, an increase of ~~19.6%~~7.2%. Net income was positively impacted by an increase in noninterest income of $1.6 million and a ~~$9.6 million~~$799,000 decrease in the provision for loan ~~losses and an increase in noninterest income of $1.2 million.~~losses. Offsetting these positive impacts were a decrease in net interest income of ~~$2.5~~$1.2 million and an increase of ~~$1.6 million~~$213,000 in noninterest expense. Basic earnings per common share for the first ~~nine~~three months of ~~2012~~2013 were ~~$1.64~~$0.56 per share versus ~~$1.38~~$0.53 per share for the first ~~nine~~three months of ~~2011,~~2012, an increase of ~~18.8%~~5.7%. Diluted earnings per common share reflect the potential dilutive impact of stock options, stock awards and warrants. Diluted earnings per common share for the first ~~nine~~three months of ~~2012~~2013 were ~~$1.63 per share, versus $1.37 for the first nine months of 2011, an increase of 19.0%.~~

Net income for the third quarter of 2012 was $9.3 million, an increase of 10.7% versus $8.4 million for the comparable period of 2011. The increase was driven by a $2.4 million decrease in the provision for loan losses and an increase in noninterest income of $306,000. Offsetting these positive impacts was an increase of $823,000 in noninterest expense as well as a decrease of $661,000 in net interest income. Basic earnings per common share for the third quarter of 2012 were $0.57$0.56 per share versus $0.52 ~~per share~~ for the ~~third quarter~~first three months of ~~2011. Diluted earnings per common share for the third quarter of~~ 2012, ~~were $0.57 per share, versus $0.52 per share for the third quarter of 2011,~~ an increase of ~~9.6%~~7.7%.

RESULTS OF OPERATIONS

Net Interest Income

For the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, net interest income totaled ~~$66.8~~$21.3 million, a decrease of ~~3.6%~~5.5%, or ~~$2.5~~$1.2 million, versus the first ~~nine~~three months of ~~2011.~~2012. This decrease was primarily due to a 2624 basis point decrease in the Company’s net interest margin to ~~3.34%~~3.17% for the ~~nine~~three month period ended ~~September 30, 2012,~~March 31, 2013, versus ~~3.60%~~3.41% for the comparable period of ~~2011.~~2012. During the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, average earning assets increased by ~~$101.0~~$64.7 million, or ~~3.9%~~2.4%, to ~~$2.717~~$2.768 billion. For the third quarter of 2012, net interest income totaled $22.2 million, a decrease of 2.9%, or $661,000, versus the third quarter of 2011. This decrease was primarily due to an 18 basis point decrease in the Company’s net interest margin to 3.30% for the third quarter of 2012, versus 3.48% for the third quarter of 2011. Average earning assets increased $78.0 million, or 3.0%, to $2.718 billion in the third quarter of 2012, versus the third quarter of 2011.

Given the Company’s mix of interest earning assets and interest bearing liabilities at ~~September 30, 2012,~~March 31, 2013, the Company would generally be considered to have a relatively neutral balance sheet structure. The Company’s balance sheet structure would normally be expected to produce a stable or declining net interest margin in a declining rate environment. As the Company’s balance sheet has become more neutral in structure, management believes rate movements and other factors such as deposit mix, market deposit rate pricing and non-bank deposit products could have an impact on net interest margin. As a result of the prolonged and unprecedented low interest rate environment, and given recent indications by the Federal Reserve Bank regarding its intentions to maintain current target rate levels, the Company expects to experience continued pressure on its net interest margin. Also contributing to this net interest margin compression is a recent trend of aggressive loan pricing by the Company’s competitors in its markets on both variable and fixed rate commercial loans. As a result of this competitive pricing influence, the Company believes that its yields on the commercial loan portfolio will continue to experience downward pressure. Over time, the Company’s mix of deposits has shifted to more reliance on transaction accounts such as Rewards Checking, as well as Rewards Savings and corporate and public fund money market and repurchase agreements, which generally carry a higher interest rate cost than other types of interest bearing deposits. The Company believes that this deposit strategy provides for an appropriate funding strategy.

During the first ~~nine~~three months of ~~2012,~~2013, total interest and dividend income decreased by ~~$4.0~~$3.5 million, or ~~4.4%~~11.7%, to ~~$87.7~~$26.3 million, versus ~~$91.7~~$29.8 million during the first ~~nine~~three months of ~~2011.~~2012. This decrease was primarily the result of a 3858 basis point decrease in the tax equivalent yield on average earning assets to ~~4.4%~~3.9%, versus ~~4.8%~~4.5% for the same period of ~~2011.~~2012. Average earning assets increased by ~~$101.0~~$64.7 million, or ~~3.9%~~2.4%, during the first ~~nine~~three months of ~~2012~~2013 versus the same period of 2011. During the third quarter of 2012, total interest and dividend income decreased by $1.8 million, or 5.8%, to $28.7 million, versus $30.4 million during the third quarter of 2011. This decrease was primarily the result of a 38 basis point decrease in the tax equivalent yield on average earning assets to 4.3% in the third quarter of 2012, versus 4.6% for the same period of 2011. Average earning assets increased by $78.0 million, or 3.0%, in the third quarter of 2012 versus the same period of 2011.

2012.

During the first ~~nine~~three months of ~~2012,~~2013, loan interest income decreased by ~~$790,000,~~$1.7 million, or ~~1.0%~~6.5%, to ~~$78.1~~$24.6 million, versus ~~$78.9~~$26.3 million during the first ~~nine~~three months of ~~2011.~~2012. The decrease was driven by a 2435 basis point decrease in the tax equivalent yield on loans, to ~~4.7%~~4.4%, versus ~~5.0%~~4.8% in the first ~~nine~~three months of 2011. During the third quarter of 2012, loan interest income decreased by $592,000, or 2.2%, to $25.9 million, versus $26.5 million during the third quarter of 2011. The decrease was driven by a 22 basis point decrease in the tax equivalent yield on loans, to 4.7%, versus 4.9% in the third quarter of 2011.

2012.

The average daily securities balances for the first ~~nine~~three months of ~~2012~~2013 increased ~~$33.3~~$8.1 million, or ~~7.5%~~1.7%, to ~~$475.0~~$478.1 million, versus ~~$441.8~~$470.0 million for the same period of ~~2011.~~2012. During the same periods, income from securities decreased by ~~$3.2~~$1.8 million, or ~~25.1%~~51.5%, to ~~$9.5~~$1.7 million versus ~~$12.7~~$3.5 million during the first ~~nine~~three months of ~~2011.~~2012. The decrease was primarily the result of a ~~119~~152 basis point decrease in the tax equivalent yield on securities, to ~~3.0%~~1.7%, versus ~~4.2%~~3.3% in the first ~~nine~~three months of 2011. The average daily securities balances for the third quarter of 2012 increased $18.5 million, or 4.1%, to $475.9 million, versus $457.4 million for the same period of 2011. During the same periods, income from securities decreased by $1.2 million, or 30.1%, to $2.7 million versus $3.9 million during the third quarter of 2011. The decrease was primarily the result of a 112 basis point decrease in the tax equivalent yield on securities, to 2.6%, versus 3.7% in the third quarter of 2011.2012. The prolonged low interest rate environment has driven accelerated prepayments in the Company’s portfolio of mortgage backed securities. Those prepayments must then be reinvested in securities at current, lower market yields, resulting in less income from securities despite the higher average securities balances. In addition, the prepayments have the effect of accelerating premium amortization of those mortgage backed securities which were purchased at a premium. Due to the unprecedented low interest rate environment, the Company is currently reevaluating its investment strategy. The reevaluation includes considering the purchase of good quality, higher yielding alternative investments. Given the strength of the Company’s balance sheet and the likelihood of the low interest rate environment persisting into the future, the Company believes that this would be an appropriate and prudent strategy, although the Company does not expect this will result in a significant change in strategy.

Total interest expense decreased ~~$1.6~~$2.2 million, or ~~6.9%~~30.8%, to ~~$20.9~~$5.0 million for the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, from ~~$22.4~~$7.3 million for the comparable period in ~~2011.~~2012. The decrease was primarily the result of a 1630 basis point decrease in the Company’s daily cost of funds to ~~1.1%~~0.8%, versus ~~1.2%~~1.1% for the same period of 2011. Total interest expense decreased $1.1 million, or 14.6%, to $6.5 million for the third quarter of 2012, versus $7.6 million for the third quarter of 2011. The decrease was primarily the result of a 23 basis point decrease in the Company’s cost of funds to 1.0%, from 1.2% for the same period of 2011.

2012.

On an average daily basis, total deposits (including demand deposits) increased ~~$198.5~~$45.4 million, or ~~8.7%~~1.9%, to ~~$2.491~~$2.473 billion for the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, versus ~~$2.293~~$2.428 billion during the same period in ~~2011. The average daily balances for the third quarter of 2012 increased $175.7 million, or 7.6%, to $2.492 billion from $2.316 billion during the third quarter of 2011.~~2012. On an average daily basis, noninterest bearing demand deposits were ~~$348.3~~$380.8 million for the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, versus ~~$302.2~~$334.4 million for the same period in ~~2011. The average daily noninterest bearing demand deposit balances for the third quarter of 2012 were $364.6 million, versus $317.9 million for the third quarter of 2011.~~2012. On an average daily basis, interest bearing transaction accounts increased ~~$147.6~~$47.3 million, or ~~17.5%~~5.0%, to ~~$992.0~~$999.3 million for the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, versus the same period in ~~2011. Average daily interest bearing transaction accounts increased $131.4 million, or 15.5%, to $981.8 million for the third quarter of 2012, versus $850.3 million for the third quarter of 2011.~~2012. When comparing the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 with the same period of ~~2011,~~2012, the average daily balance of time deposits, which pay a higher rate of interest compared to demand deposits and non-Rewards Checking transaction accounts, decreased ~~$21.4~~$77.2 million. The average rate paid on time deposit accounts decreased ~~three~~41 basis points to ~~1.6%~~1.3% for the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, versus the same period in ~~2011. During the third quarter of 2012, the average daily balance of time deposits decreased $30.4 million, and the rate paid decreased 12 basis points to 1.5%, versus the third quarter of 2011.~~2012. Despite the low interest rate environment, the Company has been able to attract and retain retail deposit customers through offering innovative deposit products such as Rewards Checking and Savings. These products pay somewhat higher interest rates but also encourage certain customer behaviors such as using debit cards and electronic statements, which have the effect of generating additional related fee income and reducing the Company’s processing costs.

The Company’s funding strategy is generally focused on leveraging its retail branch network to grow traditional retail deposits and on its presence with commercial customers and public fund entities in its Indiana markets to generate deposits. In addition, the Company has utilized the Certificate of Deposit Account Registry Service (CDARS) program and out-of-market brokered certificates of deposit. Due to the Company’s historical loan growth, the Company sought these deposits and has expanded its funding strategy over time to include these types of non-core deposit programs although its reliance on these types of deposits has reduced significantly over the past several years. The Company believes that these deposit programs represent an appropriate tool in the overall liquidity and funding strategy but will continue to focus on funding loan and investment growth with in-market deposits whenever possible. On an average daily basis, total brokered certificates of deposit decreased ~~$107.2~~$26.5 million to ~~$42.5~~$28.0 million for the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, versus ~~$149.7~~$54.5 million for the same period in ~~2011. During the third quarter of 2012, average daily brokered certificates of deposit were $30.4 million, versus $125.1 million during the third quarter of 2011.~~2012. On an average daily basis, total public fund certificates of deposit ~~decreased $4.8~~increased $31.5 million to ~~$97.9~~$114.8 million for the ~~nine-month~~three-month period ended ~~September 30, 2012,~~March 31, 2013, versus ~~$102.7~~$83.3 million for the same period in ~~2011. During the third quarter of 2012, average daily public fund certificates of deposit were $108.2 million, versus $104.6 million during the third quarter of 2011.~~2012. In addition, the Company had average public fund interest bearing transaction accounts of ~~$190.5~~$193.1 million ~~and $189.5 million, respectively,~~ in the ~~nine months and~~ three months ended ~~September 30, 2012,~~March 31, 2013, versus ~~$105.6 million and $108.9 million~~$192.7 for the comparable ~~periods~~period of ~~2011.~~2012. Availability of public fund deposits can be cyclical, primarily due to the timing differences between when real estate property taxes are collected versus when those tax revenues are spent, as well as the intense competition for these funds.

Average daily balances of borrowings were ~~$163.0~~$150.9 million during the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, versus ~~$193.2~~$172.6 million during the same period of ~~2011,~~2012, and the rate paid on borrowings ~~increased 17~~decreased 13 basis points to 1.3%. During the third quarter of 2012 the average daily balances of borrowings decreased $35.1 million to $158.7 million, versus $193.7 million for the same period of 2011, and the rate paid on borrowings increased 22 basis points to 1.3%1.1%. On an average daily basis, total deposits (including demand deposits) and purchased funds increased ~~6.8% and 5.6%, respectively,~~1.1% during the ~~nine-month and~~ three-month ~~periods~~period ended ~~September 30, 2012~~March 31, 2013 versus the same ~~periods~~period in ~~2011.~~

2012.

The Board of Directors and management recognize the importance of liquidity during times of normal operations and in times of stress. In 2010, the Company formalized and expanded upon its extensive Contingency Funding Plan (“CFP”). The formal CFP was developed to help ensure that the multiple liquidity sources available to the Company are detailed. The CFP identifies the potential funding sources, which include the Federal Home Loan Bank of Indianapolis, The Federal Reserve Bank, brokered certificates of deposit, certificates of deposit available from the CDARS program, repurchase agreements, and Fed Funds. The CFP also addresses the role of the securities portfolio in liquidity.

Further, the plan identifies CFP team members and expressly details their respective roles. Potential risk scenarios are identified and the plan includes multiple scenarios, including short-term and long-term funding crisis situations. Under the long-term funding crisis, two additional scenarios are identified: a moderate risk scenario and a highly stressed scenario. The CFP indicates the responsibilities and the actions to be taken by the CFP team under each scenario. Monthly reports to management and the Board of Directors under the CFP include an early warning indicator matrix and pro forma cash flows for the various scenarios. The Company will continue to carefully monitor its liquidity planning and will consider adjusting its plans as circumstances warrant.

The following tables set forth consolidated information regarding average balances and rates:

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
(in thousands of dollars)

	Three Months Ended March 31,
		2013				2012
	Average	Interest			Average	Interest
	Balance	Income	Yield (1)		Balance	Income	Yield (1)
ASSETS
Earning assets:
Loans:
Taxable (2)(3)	$ 2,246,688	$ 24,486	4.42	%	$ 2,205,774	$ 26,191	4.78	%
Tax exempt (1)	8,817	154	7.08		9,830	167	6.88
Investments: (1)
Available for sale	478,098	2,045	1.73		469,979	3,778	3.26
Short-term investments	9,157	2	0.09		16,065	4	0.10
Interest bearing deposits	25,168	22	0.35		1,577	7	1.79

Total earning assets	2,767,928	26,709	3.91	%	2,703,225	30,147	4.49	%

Nonearning assets:
Cash and due from banks	82,210	0			113,376	0
Premises and equipment	34,716	0			34,860	0
Other nonearning assets	110,558	0			95,978	0
Less allowance for loan losses	(51,645)	0			(54,119)	0

Total assets	$ 2,943,767	$ 26,709			$ 2,893,320	$ 30,147

~~DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;~~

~~INTEREST RATES AND INTEREST DIFFERENTIAL~~

~~(in thousands of dollars)~~

Nine Months Ended September 30,
2012 2011
Average Interest Average Interest
Balance Income Yield (1) Balance Income Yield (1)
ASSETS
Earning assets:
Loans:
Taxable (2)(3) $ 2,207,594 $ 77,789 4.71 % $ 2,121,294 $ 78,555 4.95 %
Tax exempt (1) 9,634 498 6.91 10,471 529 6.76
Investments: (1)
Available for sale 475,028 10,562 2.97 441,771 13,745 4.16
Short-term investments 22,891 16 0.09 17,219 18 0.14
Interest bearing deposits 2,178 27 1.66 25,606 96 0.50

Total earning assets 2,717,325 88,892 4.37 % 2,616,361 92,943 4.75 %

Nonearning assets:
Cash and due from banks 162,385 0 65,115 0
Premises and equipment 34,995 0 30,752 0
Other nonearning assets 94,853 0 95,007 0
Less allowance for loan losses (53,076 ) 0 (49,469 ) 0

Total assets $ 2,956,482 $ 88,892 $ 2,757,766 $ 92,943

(1)

Tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for ~~2012~~2013 and ~~2011.~~2012. The tax equivalent rate for tax exempt loans and tax exempt securities included the TEFRA adjustment applicable to nondeductible interest expenses.

~~(2)~~

~~Loan fees, which are immaterial in relation to total taxable loan interest income for the nine months ended September 30, 2012 and 2011, are included as taxable loan interest income.~~

~~(3)~~

~~Nonaccrual loans are included in the average balance of taxable loans.~~

~~DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;~~

~~INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)~~

~~(in thousands of dollars)~~

Nine Months Ended September 30,
2012 2011
Average Interest Average Interest
Balance Expense Yield Balance Expense Yield
LIABILITIES AND STOCKHOLDERS' EQUITY

Interest bearing liabilities:
Savings deposits $ 192,969 $ 530 0.37 % $ 166,740 $ 686 0.55 %
Interest bearing checking accounts 992,045 7,139 0.96 844,488 7,994 1.27
Time deposits:
In denominations under $100,000 395,807 5,384 1.82 348,557 5,125 1.97
In denominations over $100,000 562,157 6,299 1.50 630,820 7,063 1.50
Miscellaneous short-term borrowings 117,002 329 0.38 147,263 477 0.43
Long-term borrowings and subordinated debentures 45,966 1,198 3.48 45,968 1,084 3.15

Total interest bearing liabilities 2,305,946 20,879 1.21 % 2,183,836 22,429 1.37 %

Noninterest bearing liabilities and stockholders' equity:
Demand deposits 348,280 0 302,170 0
Other liabilities 17,760 0 14,931 0
Stockholders' equity 284,496 0 256,829 0
Total liabilities and stockholders' equity $ 2,956,482 $ 20,879 $ 2,757,766 $ 22,429

Net interest differential - yield on average daily earning assets $ 68,013 3.34 % $ 70,514 3.60 %

~~DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;~~

~~INTEREST RATES AND INTEREST DIFFERENTIAL~~

~~(in thousands of dollars)~~

Three Months Ended September 30,
2012 2011
Average Interest Average Interest
Balance Income Yield (1) Balance Income Yield (1)
ASSETS
Earning assets:
Loans:
Taxable (2)(3) $ 2,206,051 $ 25,803 4.65 % $ 2,150,201 $ 26,390 4.87 %
Tax exempt (1) 9,406 164 6.93 9,806 170 6.88
Investments: (1)
Available for sale 475,899 3,074 2.57 457,360 4,254 3.69
Short-term investments 24,595 6 0.10 12,082 3 0.10
Interest bearing deposits 2,367 10 1.68 10,849 15 0.55

Total earning assets 2,718,318 29,057 4.25 % 2,640,298 30,832 4.63 %

Nonearning assets:
Cash and due from banks 165,790 0 77,111 0
Premises and equipment 35,043 0 31,203 0
Other nonearning assets 93,258 0 93,763 0
Less allowance for loan losses (52,046 ) 0 (52,184 ) 0

Total assets $ 2,960,363 $ 29,057 $ 2,790,191 $ 30,832

~~(1)~~

Tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2012 and 2011. The tax equivalent rate for tax exempt loans and tax exempt securities included the TEFRA adjustment applicable to nondeductible interest expenses.

(2)

Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ are included as taxable loan interest income.

(3)

Nonaccrual loans are included in the average balance of taxable loans.

~~DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;~~

~~INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)~~

~~(in thousands of dollars)~~

Three Months Ended September 30,
2012 2011
Average Interest Average Interest
Balance Expense Yield Balance Expense Yield
LIABILITIES AND STOCKHOLDERS' EQUITY

Interest bearing liabilities:
Savings deposits $ 197,322 $ 160 0.32 % $ 169,281 $ 239 0.56 %
Interest bearing checking accounts 981,770 2,174 0.88 850,343 2,769 1.29
Time deposits:
In denominations under $100,000 388,516 1,684 1.72 360,060 1,773 1.95
In denominations over $100,000 559,855 1,971 1.40 618,718 2,309 1.48
Miscellaneous short-term borrowings 112,722 112 0.40 147,771 159 0.43
Long-term borrowings and subordinated debentures 45,966 399 3.45 45,967 361 3.12

Total interest bearing liabilities 2,286,151 6,500 1.13 % 2,192,140 7,610 1.38 %

Noninterest bearing liabilities and stockholders' equity:
Demand deposits 364,579 0 317,921 0
Other liabilities 18,120 0 15,670 0
Stockholders' equity 291,513 0 264,460 0
Total liabilities and stockholders' equity $ 2,960,363 $ 6,500 $ 2,790,191 $ 7,610

Net interest differential - yield on average daily earning assets $ 22,557 3.30 % $ 23,222 3.48 %

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)
(in thousands of dollars)

	Three Months Ended March 31,
		2013				2012
	Average	Interest			Average	Interest
	Balance	Expense	Yield		Balance	Expense	Yield
LIABILITIES AND STOCKHOLDERS'
EQUITY

Interest bearing liabilities:
Savings deposits	$ 216,828	$ 172	0.32	%	$ 187,890	$ 211	0.55	%
Interest bearing checking accounts	999,319	1,640	0.67		951,992	2,482	1.25
Time deposits:
In denominations under $100,000	352,509	1,300	1.50		397,410	1,871	1.89
In denominations over $100,000	523,738	1,525	1.18		556,056	2,197	1.59
Miscellaneous short-term borrowings	114,105	91	0.32		126,628	113	0.36
Long-term borrowings
and subordinated debentures	36,798	307	3.38		45,967	404	3.53

Total interest bearing liabilities	2,243,297	5,035	0.91	%	2,265,943	7,278	1.29	%

Noninterest bearing liabilities
and stockholders' equity:
Demand deposits	380,759	0			334,362	0
Other liabilities	16,485	0			15,834	0
Stockholders' equity	303,226	0			277,181	0
Total liabilities and stockholders'
equity	$ 2,943,767	$ 5,035			$ 2,893,320	$ 7,278

Net interest differential - yield on
average daily earning assets		$ 21,674	3.17	%		$ 22,869	3.41	%

Provision for Loan Losses

Based on management’s review of the adequacy of the allowance for loan losses, provisions for loan losses of ~~$1.3 million and~~ $0 were recorded during the ~~nine-month and~~ three-month ~~periods~~period ended ~~September 30, 2012,~~March 31, 2013, versus provisions of ~~$10.9 million and $2.4 million~~$799,000 recorded during the same ~~periods~~period of ~~2011.~~2012. Factors impacting the provision included the amount and status of classified and watch list credits, the level of charge-offs, management’s overall view on current credit quality and the regional and national economic conditions impacting credit quality, the amount and status of impaired loans, the amount and status of past due accruing loans (90 days or more), and overall loan growth as discussed in more detail below in the analysis relating to the Company’s financial condition.

Noninterest Income

Noninterest income categories for the ~~nine-month and~~ three-month periods ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011~~ are shown in the following table:

Nine Months Ended
September 30,
Percent
2012 2011 Change

Wealth advisory fees $ 2,770 $ 2,613 6.0 %
Investment brokerage fees 2,435 2,093 16.3
Service charges on deposit accounts 5,937 5,938 0.0
Loan, insurance and service fees 4,062 3,595 13.0
Merchant card fee income 902 775 16.4
Other income 1,614 1,380 17.0
Mortgage banking income 1,574 594 165.0
Net securities losses (377 ) (167 ) 125.7
Impairment on available-for-sale securities (includes total losses of $1,026 and $154, net of $0 and $0 recognized in other comprehensive income, pre-tax) (1,026 ) (154 ) 566.2
Total noninterest income $ 17,891 $ 16,667 7.3 %

Three Months Ended
September 30,
Percent
2012 2011 Change

Wealth advisory fees $ 959 $ 866 10.7 %
Investment brokerage fees 695 741 (6.2 )
Service charges on deposit accounts 2,045 2,036 0.4
Loan, insurance and service fees 1,421 1,259 12.9
Merchant card fee income 297 253 17.4
Other income 669 362 84.8
Mortgage banking income 590 440 34.1
Net securities losses (380 ) (1 ) N/A
Impairment on available-for-sale securities (includes total losses of $67 and $33, net of $0 and $0 recognized in other comprehensive income, pre-tax) (67 ) (33 ) 103.0
Total noninterest income $ 6,229 $ 5,923 5.2 %

	Three Months Ended
	March 31,
			Percent
	2013	2012	Change

Wealth advisory fees	$ 944	$ 914	3.3	%
Investment brokerage fees	949	800	18.6
Service charges on deposit accounts	1,971	1,881	4.8
Loan, insurance and service fees	1,456	1,189	22.5
Merchant card fee income	276	316	(12.7)
Other income	1,375	665	106.8
Mortgage banking income	509	592	(14.0)
Net securities gains (losses)	1	3	(66.7)
Impairment on available-for-sale securities (includes total losses of $0 and $510
net of $0 and $0 recognized in other comprehensive income, pre-tax)	0	(510)	N/A
Total noninterest income	$ 7,481	$ 5,850	27.9	%

Noninterest income increased ~~$1.2~~$1.6 million ~~and $306,000 respectively,~~ for the ~~nine-month and~~ three-month ~~periods~~period ended ~~September 30, 2012~~March 31, 2013 versus the same periods in ~~2011. Mortgage banking~~2012. Noninterest income ~~increased~~was positively impacted by ~~$980,000 and $150,000, respectively,~~a $710,000 increase in other income driven by ~~a larger pipeline of refinance mortgage loans due~~$590,000 in fees related to the ~~continued low~~Company’s interest rate ~~environment.~~swap program for clients. During the first quarter, the Company introduced a new swap derivative product which is offered to certain commercial banking customers. Loan, insurance and service fees increased ~~$467,000~~by $267,000, and ~~$162,000, respectively,~~were driven by ~~greater~~higher fee income on increased debit card activity. Investment brokerage fees increased by $149,000 due to a favorable mix in product sales and ~~credit card usage and ancillary fees.~~higher trading volumes. In addition, ~~other~~noninterest income ~~was positively impacted by gains on~~in the ~~sale of other real estate during the third~~first quarter of 2012 ~~versus write downs of other real estate during the third quarter of 2011. Noninterest income~~ was negatively impacted by ~~$380,000~~$510,000 in ~~net losses~~other-than-temporary impairment on ~~securities sales related to a strategic realignment in the investment portfolio, which included the sale of nine~~several non-agency mortgage backed securities. ~~The sale included all five of the non-agency mortgage backed securities on which the Company had previously recognized other-than-temporary impairment.~~

Noninterest Expense

Noninterest expense categories for the ~~nine-month~~three-month period ended March 31, 2013 and ~~three-month periods ended September 30,~~ 2012 ~~and 2011~~ are shown in the following table:

Nine Months Ended
September 30,
Percent
2012 2011 Change

Salaries and employee benefits $ 26,007 $ 24,802 4.9 %
Occupancy expense 2,519 2,373 6.2
Equipment costs 1,854 1,600 15.9
Data processing fees and supplies 3,044 2,820 7.9
Other expense 9,807 10,025 (2.2 )
Total noninterest expense $ 43,231 $ 41,620 3.9 %

Three Months Ended
September 30,
Percent
2012 2011 Change

Salaries and employee benefits $ 8,569 $ 8,611 (0.5 )%
Occupancy expense 803 746 7.6
Equipment costs 641 536 19.6
Data processing fees and supplies 1,143 729 56.8
Other expense 3,146 2,857 10.1
Total noninterest expense $ 14,302 $ 13,479 6.1 %

	Three Months Ended
	March 31,
			Percent
	2013	2012	Change

Salaries and employee benefits	$ 9,165	$ 9,075	1.0	%
Occupancy expense	846	885	(4.4)
Equipment costs	609	617	(1.3)
Data processing fees and supplies	1,293	841	53.7
Other expense	2,980	3,262	(8.6)
Total noninterest expense	$ 14,893	$ 14,680	1.5	%

The Company's noninterest expense increased ~~$1.6 million and $823,000, respectively,~~$213,000 in the ~~nine-month and~~ three-month ~~periods~~period ended ~~September 30, 2012~~March 31, 2013 versus the same periods of ~~2011. Salaries and employee benefits~~2012. Data processing fees increased by $1.2 million and decreased $42,000, respectively, in the nine-month and three-month periods ended September 30, 2012 versus the same period of 2011. The increase in the nine month period was driven by staff additions, normal merit increases and employee health insurance increases. In addition, the Company’s performance based compensation expense increased due to performance versus corporate objectives and increased recognition levels. Other factors behind the increase in noninterest expense included higher data processing fees$452,000, driven by a larger customer base as well as greater utilization of services ~~priced on a per unit basis by~~from the Company’s core ~~processor, and higher equipment costs due to higher depreciation expense.~~

processor. Other expenses decreased by $282,000, driven by lower FDIC deposit insurance premiums as well as lower professional fees.

Income Tax Expense

Income tax expense increased ~~$2.3 million,~~$357,000, or ~~21.1%~~8.4%, for the first ~~nine~~three months of ~~2012,~~2013, compared to the same period in ~~2011.~~2012. The combined state franchise tax expense and the federal income tax expense, as a percentage of income before income tax expense, increased to ~~33.3%~~33.2% during the first ~~nine~~three months of ~~2012~~2013 compared to 33.0% during the same period of ~~2011.~~2012. The ~~combined tax expense decreased to 33.6% in the third quarter of 2012, versus 34.3% during the same period of 2011. The changes were~~change was driven by fluctuations in the percentage of revenue being derived from tax-advantaged sources in the ~~nine-month and three-month periods~~first three months of ~~2012,~~2013, compared to the same ~~periods~~period in ~~2011.~~

2012.

CRITICAL ACCOUNTING POLICIES

Certain of the Company’s accounting policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Some of the facts and circumstances which could affect these judgments include changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses, the valuation of mortgage servicing rights and the valuation and other-than-temporary impairment of investment securities. The Company’s critical accounting policies are discussed in detail in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2011.~~

2012.

FINANCIAL CONDITION

Total assets of the Company were ~~$2.952~~$2.928 billion as of ~~September 30, 2012, an increase~~March 31, 2013, a decrease of ~~$62.5~~$136.4 million, or ~~2.2%~~4.5%, when compared to ~~$2.890~~$3.064 billion as of December 31, ~~2011.~~

2012.

Total cash and cash equivalents ~~increased~~decreased by ~~$76.8~~$156.6 million, or ~~73.5%~~67.4%, to ~~$181.4~~$75.7 million at ~~September 30, 2012~~March 31, 2013 from ~~$104.6~~$232.2 million at December 31, ~~2011.~~2012. The ~~increase~~decrease resulted from ~~an increase~~a decrease in total deposits ~~primarily transaction accounts. In addition, the Company experienced seasonal reductions in agri-business loans~~ as well as ~~an anticipated~~reductions in borrowed funds. Historically, the Company maintained higher compensating balances with correspondent financial institutions in order to avoid certain service fees. During a periodic review of this strategy during the first quarter of 2013, the Company determined that it would be more beneficial to maintain lower compensating balances although this may result in paying slightly higher service fees. The reduction in the ~~portfolio~~compensating balances resulted in a lower level of ~~commercial real estate loans.~~

cash and cash equivalents at March 31, 2013 compared to December 31, 2012.

Total securities available-for-sale increased by ~~$13.9~~$15.7 million, or ~~3.0%~~3.4%, to ~~$481.3~~$482.7 million at ~~September 30, 2012~~March 31, 2013 from ~~$467.4~~$467.0 million at December 31, ~~2011.~~2012. The increase was a result of a number of transactions in the securities portfolio. Securities purchases totaled ~~$128.2~~$57.7 million. Offsetting this increase were securities paydowns totaling ~~$78.7 million, securities sales totaling $27.9~~$35.6 million, maturities and calls of securities totaling ~~$3.8~~$2.7 million and securities amortization net of accretion was ~~$5.2 million and other-than-temporary impairment of $1.0 million was recognized on four non-agency residential mortgage-backed securities.~~$2.7 million. In addition, the net unrealized gain of the securities portfolio ~~increased~~decreased by ~~$2.2~~$1.0 million. The ~~increase~~decrease in fair market value was primarily driven by ~~higher~~lower market values for agency residential mortgage-backed securities ~~due to the lower interest rate environment.~~and state and municipal securities. The investment portfolio is generally managed to limit the Company’s exposure to risk by containing mostly mortgage-backed securities backed by the federal government, other securities which are either directly or indirectly backed by the federal government or a local municipal government and collateralized mortgage obligations rated AAA by S&P and/or Aaa by Moody’s at the time of purchase. As of ~~September 30, 2012,~~March 31, 2013, the Company had ~~$7.0~~$5.9 million of non-agency residential mortgage-backed securities which were not backed by the federal government, but were rated AAA by S&P and/or Aaa by Moody’s at the time of purchase.

None of the five ~~remaining~~ non-agency residential mortgage backed securities were still rated AAA/Aaa as of ~~September 30, 2012~~March 31, 2013 by at least one of the rating agencies, S&P, Moody’s and Fitch, ~~however, none of the five have~~and one had been downgraded to below investment grade by ~~any of those~~at least one rating ~~agencies. On a monthly basis, the~~agency. The Company performs an analysis of the cash flows of these securities on a monthly basis based on assumptions as to collateral defaults, prepayment speeds, expected losses and the severity of potential losses. Based upon the initial ~~analysis,~~review, securities may be identified for further analysis computing the net present value using an appropriate discount rate (the current accounting yield) and comparing it to the book value to determine if there is any other-than-temporary impairment to be recorded. Based on this analysis of the ~~analyses as of September 30, 2012,~~non-agency residential mortgage-backed securities, there was no ~~other-than-temporary-impairment~~other-than-temporary impairment or any unrealized loss on any of the five remaining non-agency residential ~~mortgage backed securities.~~

mortgage-backed securities at March 31, 2013.

Real estate mortgage loans held-for-sale ~~increased~~decreased by ~~$3.8~~$2.8 million, or ~~127.1%~~29.9%, to ~~$6.7~~$6.6 million at ~~September 30, 2012~~March 31, 2013 from ~~$3.0~~$9.5 million at December 31, ~~2011.~~2012. The balance of this asset category is subject to a high degree of variability depending on, among other things, recent mortgage loan rates and the timing of loan sales into the secondary market. During the ~~nine~~three months ended ~~September 30, 2012, $89.6~~March 31, 2013, $29.4 million in real estate mortgages were originated for sale and ~~$85.3~~$31.9 million in mortgages were sold.

Total loans, excluding real estate mortgage loans held for sale, ~~decreased~~increased by ~~$30.3~~$4.9 million to ~~$2.203~~$2.262 billion at ~~September 30, 2012~~March 31, 2013 from ~~$2.234~~$2.258 billion at December 31, 2011. During the nine months ended September 30, 2012, the Company experienced seasonal reductions in agri-business loans as favorable commodity prices and overall performance resulted in strong results for these borrowers. In addition, the portfolio of commercial real estate was reduced through the anticipated and successful placement of interim project financings with long-term, non-bank institutional lenders.2012. Management expects loan growth to be moderate as the economic recovery moves along. The portfolio ~~breakdowns~~breakdown at ~~both September 30, 2012~~March 31, 2013 reflected 86% commercial and ~~December 31, 2011 reflected~~industrial, including commercial real estate and agri-business, 12% residential real estate and home equity and 2% consumer loans, versus 85% commercial and industrial, including commercial real estate and agri-business, 13% residential real estate and home equity and 2% consumer ~~loans.~~

loans at December 31, 2012.

The Company has a relatively high percentage of commercial and commercial real estate loans, most of which are extended to small or medium-sized ~~businesses.~~businesses from a wide variety of industries. Commercial loans represent higher dollar amount loans to fewer customers and therefore higher credit risk than other types of loans. Pricing is adjusted to manage the higher credit risk associated with these types of loans. The ~~Company also generally requires new and renewed variable rate commercial loans to have floor rates. The~~ majority of ~~fixed rate~~fixed-rate residential mortgage loans, which represent increased interest rate risk, are sold in the secondary market, as well as some variable rate residential mortgage loans. The remainder of the variable rate residential mortgage loans and a small number of ~~fixed rate~~fixed-rate residential mortgage loans are retained.

Management believes the allowance for loan losses is at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions do not continue to improve, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses.

Loans are charged against the allowance for loan losses when management believes that the principal is uncollectible. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb probable incurred credit losses relating to specifically identified loans based on an evaluation of the loans by management, as well as other probable incurred losses inherent in the loan portfolio. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower’s ability to repay. Management also considers trends in adversely classified loans based upon a monthly review of those credits. An appropriate level of general allowance is determined after considering the following factors: application of historical loss percentages, emerging market risk, commercial loan focus and large credit concentrations, new industry lending activity and current economic conditions. Federal regulations require insured institutions to classify their own assets on a regular basis. The regulations provide for three categories of classified loans – ~~substandard, doubtful~~Substandard, Doubtful and ~~loss.~~Loss. The regulations also contain a ~~special mention~~Special Mention category. Special ~~mention~~Mention is defined as loans that do not currently expose an insured institution to a sufficient degree of risk to warrant classification as Substandard, Doubtful or Loss but do possess credit deficiencies or potential weaknesses deserving management’s close attention. The Company’s policy is to establish a specific allowance for loan losses for any assets where management has identified conditions or circumstances that indicate an asset is impaired. If an asset or portion thereof is classified as loss, the Company’s policy is to either establish specified allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or ~~charge off~~charge-off such amount.

At ~~September 30, 2012,~~March 31, 2013, on the basis of management’s review of the loan portfolio, the Company had ~~loans~~110 credits totaling ~~$150.1~~$183.0 million on the classified loan list versus ~~$164.6~~104 credits totaling $181.9 million on December 31, ~~2011, a decrease of 8.3%.~~2012. As of ~~September 30, 2012,~~March 31, 2013, the Company had ~~$44.7~~$93.7 million of assets classified ~~special mention, $106.1~~as Special Mention, $90.7 million classified as ~~substandard, $0~~Substandard, $65,000 classified as ~~doubtful~~Doubtful and $0 classified as ~~loss~~Loss as compared to ~~$35.4~~$82.7 million, ~~$131.3~~$99.2 million, $0$66,000 and $0, respectively at December 31, ~~2011. In addition,~~2012. As of March 31, 2013, the Company ~~has allocated $14.7~~had 38 loans totaling $43.2 million ~~and $15.7 million of specific reserves to customers whose loan terms have been modified in~~accounted for as troubled debt ~~restructurings as~~restructurings. Included in the classified loan amounts above was one installment loan totaling $15,000 with an allocation of ~~September 30, 2012~~$4,000, 13 mortgage loans totaling $1.4 million with total allocations of $247,000, and ~~December 31, 2011.~~24 commercial loans totaling $41.8 million with total allocations of $10.6 million. The Company ~~is not committed~~has no commitments to lend additional funds to ~~debtors whose~~any of the borrowers. At December 31, 2012, the Company had 41 loans ~~have been modified in a~~totaling $50.8 million accounted for as troubled debt ~~restructuring.~~

restructurings - one installment loan totaling $16,000 with an allocation of $4,000, 12 mortgage loans totaling $1.4 million with total allocations of $247,000, and 28 commercial loans totaling $49.4 million with total allocations of $12.2 million. The $7.6 million decrease of loans accounted for as troubled debt restructurings at March 31, 2013, as compared to December 31, 2012, was primarily due to the removal of two commercial credits totaling $8.4 million since the loans were modified at a market rate and were performing as of December 31, 2012. Offsetting this decrease was the addition of a $920,000 commercial credit to the impaired category.

Allowance estimates are developed by management taking into account actual loss experience, adjusted for current economic conditions. The Company generally has regular discussions regarding this methodology with regulatory authorities. Allowance estimates are considered a prudent measurement of the risk in the Company’s loan portfolio and are applied to individual loans based on loan type. In accordance with current accounting guidance, the allowance is provided for losses that have been incurred as of the balance sheet date and is based on past events and current economic conditions, and does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.

Net ~~recoveries~~charge-offs totaled ~~$96,000~~$626,000 in the ~~third~~first quarter of ~~2012,~~2013, versus net charge-offs of ~~$1.6 million during the third quarter of 2011 and~~ $1.4 million during the ~~second~~first quarter of 2012 and $1.7 million during the fourth quarter of 2012.

The allowance for loan losses decreased ~~2.8%~~1.2%, or ~~$1.5 million,~~$627,000, from ~~$53.4~~$51.4 million at December 31, ~~2011~~2012 to ~~$51.9~~$50.8 million at ~~September 30, 2012.~~March 31, 2013. Pooled loan allocations increased from ~~$31.7~~$36.6 million at December 31, ~~2011~~2012 to ~~$32.9~~$39.0 million at ~~September 30, 2012,~~March 31, 2013, which was primarily a result of management’s overall view on current credit ~~quality.~~quality and the current economic environment, which included a change at March 31, 2013 in the lookback period for the determination of the qualitative factors from a three year lookback to a higher of a three year or five year lookback. Management believes it is prudent when determining the qualitative factors to consider the higher historical loss periods included in the five year lookback period that are now running off in the three year lookback period. Impaired loan allocations decreased ~~$2.1~~$2.9 million from ~~$18.3~~$14.8 million at December 31, ~~2011~~2012 to ~~$16.2~~$11.9 million at ~~September 30, 2012.~~March 31, 2013. This decrease in impaired allocations was primarily due to decreases in the allocations of existing impaired loans as well as reductions to the impaired loans category. The unallocated component of the allowance for loan losses ~~decreased slightly from~~was unchanged at $3.4 million at March 31, 2013 and December 31, ~~2011~~2012 primarily due to ~~$3.0 million at September 30, 2012, based on management’s assessment of~~stabilization in the current economic conditions and ~~other qualitative factors impacting~~improvement in our borrowers’ performance and future prospects. While general trends in credit quality were stable or favorable, the ~~loan portfolio,~~Company believes that the unallocated component is appropriate given the uncertainty that exists regarding near term economic conditions, including the ~~ongoing general~~slow economic challenges in the Company’s market areas. While management has begun to see some positive trends, including general stabilization and a decline in watchlist credits and a decline in non-performing loans, management anticipates a continued slow recovery. Management believes the allowance for loan losses at ~~September 30, 2012~~March 31, 2013 was at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions do not continue to improve, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses.

Total impaired loans decreased by ~~$2.2~~$11.2 million, or ~~3.5%~~19.1%, to ~~$61.3~~$47.7 million at ~~September 30, 2012~~March 31, 2013 from ~~$63.5~~$58.9 million at December 31, ~~2011.~~2012. A loan is impaired when full payment under the original loan terms is not expected. Impairment is evaluated in the aggregate for smaller-balance loans of similar nature such as residential mortgage, and consumer loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The decrease in the impaired loans category was primarily due to ~~charge-offs~~the removal of ~~$3.0~~three commercial credits totaling $10.5 million ~~taken on four commercial credits. In addition, one commercial credit of $989,000 paid off.~~for the impaired category. The following table summarizes nonperforming assets at ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011.~~

September 30, December 31,
2012 2011
(in thousands)
NONPERFORMING ASSETS:
Nonaccrual loans including nonaccrual troubled debt restructured loans $ 33,226 $ 39,425
Loans past due over 90 days and still accruing 109 52
Total nonperforming loans $ 33,335 $ 39,477
Other real estate owned 681 2,075
Repossessions 5 33
Total nonperforming assets $ 34,021 $ 41,585

Impaired loans including troubled debt restructurings $ 61,294 $ 63,518

Nonperforming loans to total loans 1.51 % 1.77 %
Nonperforming assets to total assets 1.15 % 1.44 %

Nonperforming troubled debt restructured loans (included in nonaccrual loans) $ 28,979 $ 34,272
Performing troubled debt restructured loans 26,106 22,177
Total troubled debt restructured loans $ 55,085 $ 56,449

2012.

	March 31,	December 31,
	2013	2012
	(in thousands)
NONPERFORMING ASSETS:
Nonaccrual loans including nonaccrual troubled debt restructured loans	$ 21,730	$ 30,829
Loans past due over 90 days and still accruing	0	50
Total nonperforming loans	$ 21,730	$ 30,879
Other real estate owned	667	667
Repossessions	13	23
Total nonperforming assets	$ 22,410	$ 31,569

Impaired loans including troubled debt restructurings	$ 47,685	$ 58,935

Nonperforming loans to total loans	0.96%	1.37%
Nonperforming assets to total assets	0.77%	1.03%

Nonperforming troubled debt restructured loans (included in nonaccrual loans)	$ 19,607	$ 28,506
Performing troubled debt restructured loans	23,605	22,332
Total troubled debt restructured loans	$ 43,212	$ 50,838

Total nonperforming assets decreased by ~~$7.6~~$9.2 million, or ~~18.2%~~29.0%, to ~~$34.0~~$22.4 million during the ~~nine-month~~three-month period ended ~~September 30, 2012.~~March 31, 2013. The decrease was primarily due to the aforementioned ~~charge-offs and pay-off as well as sales~~reclassification of ~~other real estate owned. In addition, a~~three commercial ~~relationship consisting of two loans totaling $2.3 million was upgraded~~credits from impaired to ~~performing status, although the loans are still considered impaired.~~non-impaired. The loan upgrades also shifted two of the ~~two~~ loans from the ~~nonperforming~~ troubled debt restructured loan ~~category to the performing~~category. The third loan was never a troubled debt ~~restructured loan category.~~

~~Four~~restructuring.

Three commercial relationships represented ~~78.5%~~73.4% of total nonperforming loans.A ~~$13.2~~commercial relationship consisting of three loans totaling $6.9 million represented the largest exposure in the nonperforming category. The borrower is engaged in commercial real estate development. Borrower collateral, including real estate and the personal guarantees of its principals, support the credit. The Company has not taken any charge-offs related to this credit.

A $5.3 million commercial relationship consisting of ~~four~~three loans represents the second largest exposure in the nonperforming category. The borrower is engaged in real estate development.Borrower collateral, including real estate and the personal guarantees of its principals, support the credit. The Company took a $1.7 million charge-off related to this credit in the fourth quarter of 2009, and no charge-offs were taken in 2010 or 2011. The Company took a $601,000 charge-off related to this credit in the first quarter of 2012.

A ~~commercial relationship consisting of three loans totaling $7.1 million represented the second largest exposure in the nonperforming category.~~The borrower is engaged in commercial real estate development. Borrower collateral, including real estate and the personal guarantees of its principals, support the credit. The Company has not taken any charge-offs related to this credit.

~~A $3.9~~$3.7 million credit to a manufacturer tied to the housing industry represented the third largest exposure in the nonperforming category. The credit is accounted for as a troubled debt restructuring. Borrower collateral including real estate, receivables, inventory and equipment support the credit, however, there are no guarantors. The Company took a $906,000 charge-off related to this credit in 2008, ~~and~~ a $1.7 million charge-off related to this credit in ~~the second quarter of 2012.~~

~~A commercial relationship consisting of three loans totaling $2.0 million represented the fourth largest exposure in the nonperforming category.The borrower is engaged in commercial real estate development. Borrower collateral, including real estate~~2012 and ~~the personal guarantees of its principals, support the credit. The Company has not taken any charge-offs~~an $88,000 charge-off related to this ~~credit.~~

credit in the first quarter of 2013.

There can be no assurances that full repayment of the loans discussed above will ~~result.~~occur. Although economic conditions in the Company’s markets have stabilized and in some areas improved, management ~~does~~has not ~~foresee~~observed a rapid recovery asin certain industries, including residential and commercial real estate development and recreational vehicle and mobile home manufacturing, ~~and other regional industries continue to experience slow growth.~~although each of these sectors has improved. The Company’s growth strategy has promoted diversification among industries as well as a continued focus on enforcement of a strong credit environment and an aggressive position on loan work-out situations. While the Company believes that the impact on the Company of these industry-specific issues ~~affecting real estate development and recreational vehicle and mobile home manufacturers~~ will be somewhat mitigated by the Company’s overall growth strategy, the economic factors impacting its entire geographic ~~footprint~~market will continue to present challenges. Additionally, the Company’s overall asset quality position can be influenced by a small number of credits due to the focus on commercial lending activity and the granularity inherent in this strategy.

The Company has begun offering a new derivative product to certain commercial banking customers. This product allows the commercial banking customers to enter into an agreement with the Company to swap a variable rate loan to a fixed rate. These derivative products are designed to reduce, eliminate or modify the borrower's interest rate exposure. The extension of credit incurred in connection with these derivative products is subject to the same approval and underwriting standards as traditional credit products. The Company limits its risk exposure by simultaneously entering into a similar, offsetting swap agreement with a separate, well-capitalized and highly rated counterparty previously approved by the Asset Liability Committee. By using these interest rate swap arrangements, the Company is also better insulated from the interest rate risk associated with underwriting fixed-rate loans and is better able to meet customer demand for fixed rate loans. These derivative contracts are not designated against specific assets or liabilities and, therefore, do not qualify for hedge accounting. The derivatives are recorded as assets and liabilities on the balance sheet at fair value with changes in fair value recorded in non-interest income for both the commercial banking customer swaps and the related offsetting swaps.

Total deposits ~~increased~~decreased by ~~$63.4~~$130.6 million, or ~~2.6%~~5.1%, to ~~$2.476~~$2.451 billion at ~~September 30, 2012~~March 31, 2013 from ~~$2.413~~$2.582 billion at December 31, ~~2011.~~2012. The ~~increase~~decrease resulted from ~~increases~~decreases of ~~$58.5~~$61.2 million in interest bearing transaction accounts, $22.4 million in public fund certificates of deposit of $100,000 or more, ~~$42.7~~$21.4 million in ~~interest bearing transaction accounts, $19.3~~demand deposits, $17.3 million in ~~savings accounts, $12.4~~other certificates of deposit, $12.7 million in certificates of deposit of $100,000 and over, ~~$5.6~~$10.3 million in money market accounts and $4.5 million in CDARS certificates of ~~deposit and $849,000 in demand deposits.~~deposit. Offsetting these decreases were increases ~~were decreases~~ of ~~$37.5~~$19.2 million in ~~money market accounts, $30.4 million in brokered deposits and $8.0 million in other certificates of deposit.~~

savings accounts.

Total short-term borrowings decreased by ~~$23.4~~$8.4 million, or ~~16.5%~~6.9%, to ~~$118.6~~$113.5 million at ~~September 30, 2012~~March 31, 2013 from ~~$142.0~~$121.9 million at December 31, ~~2011.~~2012. The decrease resulted ~~primarily~~ from decreases of ~~$13.4~~$8.4 million in securities sold under agreements to repurchase. ~~In addition, federal funds purchased decreased by $10.0 million.~~

Total equity increased by ~~$21.7~~$8.8 million, or ~~7.9%~~3.0%, to ~~$295.0~~$306.7 million at ~~September 30, 2012~~March 31, 2013 from ~~$273.3~~$297.8 million at December 31, ~~2011.~~2012. The increase in total equity resulted from net income of ~~$26.8~~$9.2 million, ~~plus~~minus the ~~increase~~decrease in the accumulated other comprehensive income of ~~$1.5 million, less dividends of $8.1 million,~~$701,000, plus ~~$1.2 million~~$439,000 in stock compensation expense, ~~plus $323,000 for~~minus $138,000 related to stock ~~issued through~~ options ~~exercised~~exercises (including tax benefit).

The FDIC’s risk-based capital regulations require that all insured banking organizations maintain an 8.0% total risk-based capital ratio. The FDIC has also established definitions of “well capitalized” as a 5.0% Tier I leverage capital ratio, a 6.0% Tier I risk-based capital ratio and a 10.0% total risk-based capital ratio. As of ~~September 30, 2012,~~March 31, 2013, the Bank had regulatory capital in excess of these minimum requirements with a Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio of ~~10.4%~~10.9%, ~~13.1%~~13.3% and ~~14.4%~~14.5%, respectively. The Federal Reserve also has established minimum “well capitalized” regulatory capital requirements for bank holding companies. As of ~~September 30, 2012,~~March 31, 2013, the Company had ~~regulatory capital in excess of these minimum requirements with~~ a Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio of ~~10.6%~~11.1%, ~~13.3%~~13.5% and ~~14.6%~~14.8%, respectively.

~~In June 2012,~~ These ratios exceeded the ~~federal bank regulatory agencies issued joint proposed rules that would increase minimum capital ratios, add a new minimum common equity ratio, add a new capital conservation buffer,~~Federal Reserve’s “well capitalized” minimums of 5.0%, 6.0% and change the risk-weightings of certain assets. The proposed changes, if implemented, would be phased in from 2013 through 2019. The comment period on the proposed rules expired on October 22, 2012. Various community bank associations have provided comments for the regulatory agencies regarding the additional regulatory burdens the proposals would place on community banks, and it is currently uncertain when and in what form the proposed rules will ultimately be adopted. Management is currently assessing the effect of the proposed rules on the Company and the Bank's capital position and will continue to monitor developments with respect to the proposed rules.

10.0%, respectively

FORWARD-LOOKING STATEMENTS

This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries, are detailed in the “Risk Factors” section included under Item ~~1a.~~1A. of Part I of our Form 10-K. In addition to the risk factors described in that section, there are other factors that may impact any public company, including ours, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries. These additional factors include, but are not limited to, the following:

Legislative or regulatory changes or actions, including the “Dodd-Frank Wall Street Reform and Consumer Protection Act” and the regulations required to be promulgated thereunder, as well as rules recently proposed by the federal banking regulatory agencies concerning certain increased capital requirements, which may adversely affect the business of the Company and its subsidiaries.

The costs, effects and outcomes of existing or future litigation.

Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board.

The ability of the Company to manage risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk represents the Company’s primary market risk exposure. The Company does not have a material exposure to foreign currency exchange risk, does not have any material amount of derivative financial instruments and does not maintain a trading portfolio. The board of directors annually reviews and approves the policy used to manage interest rate risk. The policy was last reviewed and approved in May 2012. The policy sets guidelines for balance sheet structure, which are designed to protect the Company from the impact that interest rate changes could have on net income, but does not necessarily indicate the effect on future net interest income. The Company, through its Asset and Liability Committee, manages interest rate risk by monitoring the computer simulated earnings impact of various rate scenarios and general market conditions. The Company then modifies its long-term risk parameters by attempting to generate the ~~type~~types of loans, investments, and deposits that currently fit the Company’s needs, as determined by the Asset and Liability Committee. This computer simulation analysis measures the net interest income impact of various interest rate scenario changes during the next twelve months. If the change in net interest income is less than 3% of primary capital, the balance sheet structure is considered to be within acceptable risk levels. As of ~~September 30, 2012,~~March 31, 2013, the Company’s potential pretax exposure was within the Company’s policy limit and not significantly different from the potential pretax exposure from December 31, ~~2011.~~

2012.

ITEM 4 – CONTROLS AND PROCEDURES

As required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of ~~September 30, 2012.~~March 31, 2013. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

During the quarter ended ~~September 30, 2012,~~March 31, 2013, there were no changes to the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

LAKELAND FINANCIAL CORPORATION

FORM 10-Q

~~September 30, 2012~~

March 31, 2013

Part II - Other Information

Item 1.Legal proceedings

There are no material pending legal proceedings to which the Company or its subsidiaries is a party other than ordinary ~~routine litigation~~routinelitigation incidental to their respective businesses.

Item 1A.Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A1A. of Part I of the Company’s ~~2011~~2012 Form 10-K. Please refer to that section of the Company’s Form 10-K for disclosures regarding the risks and uncertainties related to the Company’s business.

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

The following table provides information as of ~~September 30, 2012~~March 31, 2013 with respect to shares of common stock repurchased by the Company during the quarter then ended:

Issuer Purchases of Equity Securities(a)

Maximum Number (or
Total Number of Appropriate Dollar
Shares Purchased as Value) of Shares that
Part of Publicly May Yet Be Purchased
Total Number of Average Price Announced Plans or Under the Plans or
Period Shares Purchased Paid per Share Programs Programs

July 1-31 7,004 $ 27.29 0 $ 0
August 1-31 533 27.14 0 0
September 1-30 0 0 0 0

Total 7,537 $ 27.28 0 $ 0

				Maximum Number (or
			Total Number of	Appropriate Dollar
			Shares Purchased as	Value) of Shares that
			Part of Publicly	May Yet Be Purchased
	Total Number of	Average Price	Announced Plans or	Under the Plans or
Period	Shares Purchased	Paid per Share	Programs	Programs

January 1-31	6,466	$ 26.75	0	$ 0
February 1-28	0	0	0	0
March 1-31	0	0	0	0

Total	6,466	$ 26.75	0	$ 0

(a)	The shares purchased during the periods were credited to the deferred share accounts of
	non-employee directors under the Company’s directors’ deferred compensation plan. These shares were purchased in the ordinary course of business and consistent with past practice.

Item 3.Defaults Upon Senior Securities

None

Item 4.Mine Safety Disclosures

N/A

Item 5.Other Information

None

Item 6.Exhibits

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)

31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)

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

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

101*	Interactive Data File

	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011;~~2012; (ii) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2012~~March 31, 2013 and ~~September 30, 2011;~~March 31, 2012; (iii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2012~~March 31, 2013 and ~~September 30, 2011;~~March 31, 2012; (iv) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and ~~September 30, 2011;~~March 31, 2012; and (v) Notes to Unaudited Consolidated Financial Statements.

	*As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Sections 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.

LAKELAND FINANCIAL CORPORATION

FORM 10-Q

~~September 30, 2012~~

March 31, 2013

Part II - Other Information

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.

LAKELAND FINANCIAL CORPORATION

(Registrant)

Date: ~~November 7, 2012~~May 10, 2013	/s/ Michael L. Kubacki
	Michael L. Kubacki – Chief Executive Officer

Date: ~~November 7, 2012~~May 10, 2013	/s/ David M. Findlay
	David M. Findlay –President
	and Chief Financial Officer

Date: ~~November 7, 2012~~May 10, 2013	/s/ Teresa A. Bartman
	Teresa A. Bartman – Senior Vice President-
	Finance and Controller

Indiana	0-11487	35-1559596
(State or Other Jurisdiction	(Commission File Number)	(IRS Employer
of Incorporation or Organization)		Identification No.)

	September 30, 2012		December 31, 2011
	(Unaudited)
ASSETS
Cash and due from banks	$	134,785	$	56,909
Short-term investments		46,617		47,675
Total cash and cash equivalents		181,402		104,584

Securities available for sale (carried at fair value)		481,256		467,391
Real estate mortgage loans held for sale		6,707		2,953

Loans, net of allowance for loan losses of $51,912 and $53,400		2,151,476		2,180,309

Land, premises and equipment, net		34,969		34,736
Bank owned life insurance		40,848		39,959
Accrued income receivable		9,735		9,612
Goodwill		4,970		4,970
Other intangible assets		60		99
Other assets		40,785		45,075
Total assets	$	2,952,208	$	2,889,688

	September 30,			December 31,
	2012			2011
	(Unaudited)
LIABILITIES AND EQUITY

LIABILITIES
Noninterest bearing deposits	$	357,531		$	356,682
Interest bearing deposits		2,118,566			2,056,014
Total deposits		2,476,097			2,412,696

Short-term borrowings
Federal funds purchased		0			10,000
Securities sold under agreements to repurchase		118,552			131,990
Total short-term borrowings		118,552			141,990

Accrued expenses payable		15,414			13,550
Other liabilities		1,189			2,195
Long-term borrowings		15,038			15,040
Subordinated debentures		30,928			30,928
Total liabilities		2,657,218			2,616,399

EQUITY
Common stock: 90,000,000 shares authorized, no par value
16,346,247 shares issued and 16,260,259 outstanding as of September 30, 2012
16,217,019 shares issued and 16,145,772 outstanding as of December 31, 2011		89,255			87,380
Retained earnings		200,615			181,903
Accumulated other comprehensive income		6,644			5,139
Treasury stock, at cost (2012 - 85,988 shares, 2011 - 71,247 shares)		(1,613	)		(1,222	)
Total stockholders' equity		294,901			273,200

Noncontrolling interest		89			89
Total equity		294,990			273,289
Total liabilities and equity	$	2,952,208		$	2,889,688

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
NET INTEREST INCOME
Interest and fees on loans
Taxable	$	25,803		$	26,390		$	77,789		$	78,555
Tax exempt		109			114			333			357
Interest and dividends on securities
Taxable		2,034			3,217			7,425			10,635
Tax exempt		698			692			2,094			2,068
Interest on short-term investments		16			18			43			114
Total interest income		28,660			30,431			87,684			91,729

Interest on deposits		5,989			7,090			19,352			20,868
Interest on borrowings
Short-term		112			159			329			477
Long-term		399			361			1,198			1,084
Total interest expense		6,500			7,610			20,879			22,429

NET INTEREST INCOME		22,160			22,821			66,805			69,300

Provision for loan losses		0			2,400			1,299			10,900

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		22,160			20,421			65,506			58,400

NONINTEREST INCOME
Wealth advisory fees		959			866			2,770			2,613
Investment brokerage fees		695			741			2,435			2,093
Service charges on deposit accounts		2,045			2,036			5,937			5,938
Loan, insurance and service fees		1,421			1,259			4,062			3,595
Merchant card fee income		297			253			902			775
Other income		669			362			1,614			1,380
Mortgage banking income		590			440			1,574			594
Net securities losses		(380	)		(1	)		(377	)		(167	)
Other than temporary impairment loss on available-for-sale securities:
Total impairment losses recognized on securities		(67	)		(33	)		(1,052	)		(154	)
Loss recognized in other comprehensive income		0			0			26			0
Net impairment loss recognized in earnings		(67	)		(33	)		(1,026	)		(154	)
Total noninterest income		6,229			5,923			17,891			16,667

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Net income	$	9,347		$	8,447		$	26,792		$	22,401
Other comprehensive income
Change in securities available for sale:
Unrealized holding gain (loss) on securities available for sale arising during the period		(251	)		4,857			818			8,651
Reclassification adjustment for losses included in net income		380			1			377			167
Reclassification adjustment for other than temporary impairment		67			33			1,026			154
Net securities gain activity during the period		196			4,891			2,221			8,972
Tax effect		(76	)		(1,889	)		(880	)		(3,462	)
Net of tax amount		120			3,002			1,341			5,510
Defined benefit pension plans:
Net gain(loss) on defined benefit pension plans		0			0			110			(233	)
Amortization of net actuarial loss		55			62			164			132
Net gain /(loss) activity during the period		55			62			274			(101	)
Tax effect		(22	)		(26	)		(110	)		41
Net of tax amount		33			36			164			(60	)

Total other comprehensive income, net of tax		153			3,038			1,505			5,450

Comprehensive income	$	9,500		$	11,485		$	28,297		$	27,851

							Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
											Cash Basis						Cash Basis
	Unpaid				Allowance for		Average		Interest		Interest		Average		Interest		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Income		Recorded		Income		Income
	Balance		Investment		Allocated		Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Non-working capital loans	$	70	$	70	$	0	$	70	$	0	$	0	$	136	$	0	$	0

Commercial real estate and multi-family residential loans:
Owner occupied loans		781		601		0		611		0		0		513		0		0
Nonowner occupied loans		385		385		0		385		10		13		217		10		13

Agri-business and agricultural loans:
Loans secured by farmland		666		487		0		489		0		0		252		0		0
Loans for ag production		0		0		0		0		0		0		68		0		0

Consumer 1-4 family loans:
Closed end first mortgage loans		277		276		0		417		1		0		432		1		0
Open end and junior lien loans		0		0		0		0		0		0		20		0		0

Other consumer loans		1		1		0		0		0		0		0		0		0

With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		5,915		3,074		1,417		3,059		13		10		4,420		42		38
Non-working capital loans		19,357		17,175		5,154		17,072		171		168		17,353		528		528

Commercial real estate and multi-family residential loans:
Construction and land development loans		3,786		3,396		672		2,436		18		13		1,814		35		30
Owner occupied loans		6,900		6,287		1,527		5,702		30		19		4,859		48		35
Nonowner occupied loans		27,957		27,255		6,670		27,382		78		77		28,115		280		281

Agri-business and agricultural loans:
Loans secured by farmland		654		333		67		343		0		0		437		0		0
Loans for agricultural production		0		0		0		63		0		0		91		0		0

Other commercial loans		0		0		0		0		0		0		0		0		0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		1,562		1,564		267		1,730		12		10		1,787		32		32
Open end and junior lien loans		354		354		192		353		0		0		340		0		0

Other consumer loans		45		45		18		30		1		1		14		1		1

Total	$	68,710	$	61,303	$	15,984	$	60,142	$	334	$	311	$	60,868	$	977	$	958

	September 30, 2012				December 31, 2011
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
			Still				Still
	Nonaccrual		Accruing		Nonaccrual		Accruing

Commercial and industrial loans:
Working capital lines of credit loans	$	2,012	$	0	$	4,743	$	0
Non-working capital loans		5,349		0		5,433		0

Commercial real estate and multi-family residential loans:
Construction and land development loans		1,890		0		429		0
Owner occupied loans		2,876		0		4,371		0
Nonowner occupied loans		19,575		0		21,971		0
Multifamily loans		0		0		0		0

Agri-business and agricultural loans:
Loans secured by farmland		820		0		628		0
Loans for agricultural production		0		0		225		0

Other commercial loans		0		0		0		0

Consumer 1-4 family mortgage loans:
Closed end first mortgage loans		459		107		1,193		52
Open end and junior lien loans		424		2		452		0
Residential construction loans		0		0		0		0

Other consumer loans		54		0		7		0

Total	$	33,459	$	109	$	39,452	$	52

	Interest Rate Reductions						Principal and Interest Forgiveness										Modified Repayment Terms
			Interest at		Interest at				Principal at		Principal at		Interest at		Interest at				Extension
	Number of		Pre-Modification		Post-Modification		Number of		Pre-Modification		Post-Modification		Pre-Modification		Post-Modification		Number of		Period or
	Loans		Rate		Rate		Loans		Rate		Rate		Rate		Rate		Loans		Range
									(in thousands)										(in months)
Troubled Debt Restructurings

Commercial and industrial loans:
Working capital lines of credit loans		0	$	0	$	0		0	$	0	$	0	$	0	$	0		3		11-60
Non-working capital loans		0		0		0		0		0		0		0		0		4		12-36

Commercial real estate and
multi-family residential loans:
Owner occupied loans		0		0		0		1		2,125		2,125		641		429		7		20-70
Nonowner occupied loans		0		0		0		0		0		0		0		0		7		6-36

Agri-business and agricultural loans:
Loans secured by farmland		0		0		0		0		0		0		0		0		1		22

Consumer 1-4 family loans:
Closed end first mortgage loans		5		402		324		1		550		450		66		57		0		0

Total		5	$	402	$	324		2	$	2,675	$	2,575	$	707	$	486		22		6-70

	State and
	Municipal
	Securities
	September 30, 2012

Balance or recurring Level 3 assets at January 1	$	686
Change in fair value of securities		(4	)
Principal payments		(45	)
Balance or recurring Level 3 assets at September 30	$	637

	December 31, 2011
		Carrying			Estimated
		Value			Fair Value

Financial Assets:
Cash and cash equivalents	$	104,584		$	104,584
Securities available for sale		467,391			467,391
Real estate mortgages held for sale		2,953			2,998
Loans, net		2,180,309			2,141,459
Federal Home Loan Bank stock		7,313			N/A
Federal Reserve Bank stock		3,420			N/A
Accrued interest receivable		9,604			9,604
Financial Liabilities:
Certificates of deposit		(910,381	)		(925,619	)
All other deposits		(1,502,315	)		(1,502,315	)
Securities sold under agreements to repurchase		(131,990	)		(131,990	)
Other short-term borrowings		(10,000	)		(10,000	)
Long-term borrowings		(15,040	)		(16,079	)
Subordinated debentures		(30,928	)		(31,240	)
Standby letters of credit		(247	)		(247	)
Accrued interest payable		(5,574	)		(5,574	)