9. Loans and Allowance for Loan Losses

The composition of the loan portfolio is summarized as follows:

	June 30, 2012		December 31, 2011
Commercial, financial and agricultural	$	139,046,623	$	142,209,279
Commercial mortgages		297,158,610		264,589,013
Residential mortgages		194,511,823		193,599,853
Indirect consumer loans		124,061,078		97,165,447
Consumer loans		101,169,118		99,351,585
	$	855,947,252	$	796,915,177

Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans. Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned to the loan, historical loan loss experience and review of specific problem loans (including evaluations of the underlying collateral). Historical loss experience is adjusted by management based on their judgment as to the current impact of qualitative factors including changes in the composition and volume of the loan portfolio, overall portfolio quality, and current economic conditions that may affect the borrowers' ability to pay. Management believes that the allowance for loan losses is adequate to absorb probable incurred losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Management, after considering current information and events regarding a borrower's ability to repay its obligations, classifies a loan as impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. If a loan is impaired, a portion of the allowance is 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. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors. Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five year history of net losses. For all other unclassified loans, the historical loss experience is determined by portfolio class and is based on the actual loss history experienced by the Corporation over the most recent eight quarters. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio class. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial, financial and agricultural; commercial mortgages; residential mortgages; and consumer loans.

Risk Characteristics

Commercial, financial and agricultural loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower's operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, inferring higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties and/or the businesses occupying the properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company's commercial real estate loans and on the value of such properties.

Residential mortgage loans are generally made on the basis of the borrower's ability to make repayment from his or her employment and other income, but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers and the nature of the loan collateral.

The consumer loan segment includes home equity lines of credit and home equity loans, which exhibit many of the same risk characteristics as residential mortgages. Indirect and other consumer loans may entail greater credit risk than residential mortgage and home equity loans, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles or boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

The following tables present activity in the allowance for loan losses by portfolio segment for the three and six-month periods ending June 30, 2012 and June 30, 2011 and by loans originated by the Corporation (referred to as "Legacy" loans) and loans acquired in the merger with Fort Orange Financial Corp. ("FOFC") which was completed on April 8, 2011 (referred to as "Acquired" loans). The Acquired loan allowance represents any valuation allowances established after acquisition for decreases in cash flows expected to be collected on loans acquired with deteriorated credit quality:

Legacy Loans	Six Months Ended June 30, 2012
Allowance for loan losses	Commercial, Financial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Unallocated			Total
Beginning balance:	$	3,143,373		$	2,570,149		$	1,309,649		$	2,192,729		$	443,420		$	9,659,320
Charge Offs:		(5,792	)		(8,295	)		(72,613	)		(273,428	)		-			(360,128	)
Recoveries:		351,763			30,496			-			107,723			-			489,982
Net recoveries (charge offs)		345,971			22,201			(72,613	)		(165,705	)		-			129,854
Provision		(692,788	)		395,618			187,780			447,161			(29,772	)		307,999
Ending balance	$	2,796,556		$	2,987,968		$	1,424,816		$	2,474,185		$	413,648		$	10,097,173

Acquired loans	Six Months Ended June 30, 2012
Allowance for loan losses	Commercial, Financial and Agricultural		Commercial Mortgages			Residential Mortgages		Consumer Loans		Unallocated		Total
Beginning balance:	$	-	$	-		$	-	$	-	$	-	$	-
Reclassification of acquired loan Discount		73,228		50,331			-		-		-		123,559
Charge Offs:		-		(49,057	)		-		-		-		(49,057	)
Recoveries:		-		-			-		-		-		-
Net recoveries		73,228		1,274			-		-		-		74,502
Provision		134,427		86,470			-		-		-		220,897
Ending balance	$	207,655	$	87,744		$	-	$	-	$	-	$	295,399

Legacy Loans	Three Months Ended June 30, 2012
Allowance for loan losses	Commercial, Financial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Unallocated		Total
Beginning balance:	$	3,136,457		$	2,953,632		$	1,417,252		$	2,100,433		$	373,708	$	9,981,482
Charge Offs:		(5,792	)		(8,295	)		(58,273	)		(115,109	)		-		(187,469	)
Recoveries:		179,160			20,261			-			45,741			-		245,162
Net recoveries (charge offs)		173,368			11,966			(58,273	)		(69,368	)		-		57,693
Provision		(513,269	)		22,370			65,837			443,120			39,940		57,998
Ending balance	$	2,796,556		$	2,987,968		$	1,424,816		$	2,474,185		$	413,648	$	10,097,173

Acquired loans	Three Months Ended June 30, 2012
Allowance for loan losses	Commercial, Financial and Agricultural			Commercial Mortgages		Residential Mortgages		Consumer Loans		Unallocated		Total
Beginning balance:	$	224,936		$	76,872	$	-	$	-	$	-	$	301,808
Reclassification of acquired loan Discount		-			-		-		-		-		-
Charge Offs:		-			-		-		-		-		-
Recoveries:		-			-		-		-		-		-
Net charge offs		-			-		-		-		-		-
Provision		(17,281	)		10,872		-		-		-		(6,409	)
Ending balance	$	207,655		$	87,744	$	-	$	-	$	-	$	295,399

	Six Months Ended June 30, 2011
Allowance for loan losses	Commercial, Financial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Unallocated			Total
Beginning balance:	$	2,118,299		$	2,575,058		$	1,301,780		$	2,727,022		$	775,972		$	9,498,131
Charge Offs:		(3003	)		(3,764	)		-			(340,655	)		-			(347,422	)
Recoveries:		205,406			26,103			30,324			93,130			-			354,963
Net recoveries (charge offs)		202,403			22,339			30,324			(247,525	)		-			7,541
Provision		760,731			15,258			(85,224	)		(182,038	)		(258,727	)		250,000
Ending balance	$	3,081,433		$	2,612,655		$	1,246,880		$	2,297,459		$	517,245		$	9,755,672

	Three Months Ended June 30, 2011
Allowance for loan losses	Commercial, Financial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Unallocated			Total
Beginning balance:	$	2,502,200		$	2,657,185		$	1,366,214		$	2,424,312		$	641,040		$	9,590,951
Charge Offs:		(3,003	)		-			-			(133,744	)		-			(136,747	)
Recoveries:		87,941			23,350			15,845			49,332			-			176,468
Net recoveries (charge offs)		84,938			23,350			15,845			(84,412	)		-			39,721
Provision		487,419			(61,004	)		(135,179	)		(42,441	)		(123,795	)		125,000
Ending balance	$	3,081,433		$	2,612,655		$	1,246,880		$	2,297,459		$	517,245		$	9,755,672

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of June 30, 2012 and December 31, 2011. The recorded investment excludes Acquired loans except for those loans acquired with deteriorated credit quality:

	June 30, 2012
Allowance for loan losses	Commercial, Financial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Unallocated		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,195,684	$	134,466	$	2,869	$	-	$	-	$	1,333,019
Collectively evaluated for impairment		1,600,872		2,853,502		1,421,947		2,474,185		413,648		8,764,154
Acquired with deteriorated credit quality		207,655		87,744		-		-		-		247,963
Total ending allowance balance	$	3,004,211	$	3,075,712	$	1,424,816	$	2,474,185	$	413,648	$	10,392,572

	December 31, 2011
Allowance for loan losses	Commercial, Financial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Unallocated		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,528,651	$	413,555	$	-	$	-	$	-	$	1,942,206
Collectively evaluated for impairment		1,614,722		2,156,594		1,309,649		2,192,729		443,420		7,717,114
Total ending allowance balance	$	3,143,373	$	2,570,149	$	1,309,649	$	2,192,729	$	443,420	$	9,659,320

	June 30, 2012
Loans:	Commercial, Financial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,499,767	$	2,065,838	$	140,043	$	-	$	4,705,648
Loans collectively evaluated for impairment		114,594,272		215,053,094		178,839,976		220,242,896		728,730,238
Acquired with deteriorated credit quality		1,197,884		11,433,363		235,555		-		12,866,802
Total ending loans balance	$	118,921,923	$	228,552,295	$	179,215,574	$	220,242,896	$	746,302,688

	December 31, 2011
Loans:	Commercial, Financial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	5,275,043	$	4,603,563	$	179,337	$	-	$	10,057,943
Loans collectively evaluated for impairment		111,532,413		169,658,759		175,405,950		190,904,630		647,501,752
Total ending loans balance	$	116,807,456	$	174,262,322	$	175,585,287	$	190,904,630	$	657,559,695

The following tables present loans individually evaluated for impairment recognized by class of loans as of June 30, 2012 and December 31, 2011, the average recorded investment and interest income recognized by class of loans as of the three and six-month periods ending June 30, 2012 and 2011:

	June 30, 2012						December 31, 2011
	Unpaid Principal Balance		Allowance for Loan Losses Allocated		Recorded Investment		Unpaid Principal Balance		Allowance for Loan Losses Allocated		Recorded Investment
With no related allowance recorded:
Commercial, financial and agricultural:
Commercial & industrial	$	180,672	$	-	$	180,785	$	2,914,401	$	-	$	2,914,776
Commercial mortgages:
Construction		10,454		-		10,454		10,454		-		10,454
Other		928,897		-		915,838		862,815		-		860,648
Residential mortgages		12,038		-		12,038		178,925		-		179,337
With an allowance recorded:
Commercial, financial and agricultural:
Commercial & industrial		2,318,714		1,195,684		2,318,982		2,360,252		1,528,651		2,360,267
Commercial mortgages:
Construction		-		-		-		8,295		8,295		8,295
Other		1,139,635		134,466		1,139,546		3,727,097		405,260		3,724,166
Residential mortgages		128,005		2,869		128,005		-		-		-
Total	$	4,718.415	$	1,333,019	$	4,705,648	$	10,062,239	$	1,942,206	$	10,057,943

	Six-Months Ended June 30, 2012				Six-Months Ended June 30, 2011				Three Months Ended June 30, 2012				Three Months Ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial, financial and agricultural:
Commercial & industrial	$	1,067,170	$	-	$	3,141,620	$	18,759	$	143,367	$	-	$	3,116,317	$	10,933
Commercial mortgages:
Construction		10,454		-		31,128		-		10,454		-		30,559		-
Other		827,553		-		3,451,644		-		811,005		-		3,402,624		-
Residential mortgages		111,368		-		349,501		5,640		77,384		-		320,055		3,266
Consumer loans:
Home equity lines & loans		19,856		2,289		-		-		29,784		1,123		-		-
With an allowance recorded:
Commercial, financial and agricultural:
Commercial & industrial		2,347,963		-		1,306,572		144,242		2,341,810		-		1,948,091		144,242
Commercial mortgages:
Construction		5,530		-		30,318		-		4,148		-		20,008		-
Other		2,109,919		-		703,733		-		1,302,796		-		646,603		-
Residential mortgages		42,668		-		-		-		-		-		-		-
Total	$	6,542,481	$	2,289	$	9,014,516	$	168,641	$	4,720,748	$	1,123	$	9,484,257	$	157,841

The following table presents the recorded investment in non accrual and loans past due over 90 days still on accrual by class of loans as of the periods ending June 30, 2012 and December 31, 2011. This table includes Acquired loans except for those loans with evidence of credit deterioration at the time of the merger:

	June 30, 2012				December 31, 2011
	Non-Accrual		Loans Past Due Over 90 Days Still Accruing		Non-Accrual		Loans Past Due Over 90 Days Still Accruing
Commercial, financial and agricultural:
Commercial & industrial	$	2,903,371	$	-	$	5,611,805	$	-
Commercial mortgages
Construction		419,434		6,269,714		18,749		7,295,104
Other		2,248,954		-		4,778,384		-
Residential mortgages		2,492,865		-		2,611,096		-
Consumer loans
Credit cards		-		6,710		-		9,053
Home equity lines & loans		467,544		-		455,418		-
Indirect consumer loans		22,457		-		22,287		-
Other direct consumer loans		177,886		-		113,349		-
Total	$	8,732,511	$	6,276,424	$	13,611,088	$	7,304,157

The following tables present the aging of the recorded investment in loans past due (including non-accrual loans) by class of loans as of June 30, 2012 and December 31, 2011 and by Legacy loans and Acquired loans:

	June 30, 2012
Legacy Loans:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Acquired with deteriorated credit quality		Loans Not Past Due		Total
Commercial, financial and agricultural:
Commercial & industrial	$	27,835	$	-	$	229,807	$	257,642	$	-	$	116,317,883	$	116,575,525
Agricultural		-		-		-		-		-		518,514		518,514
Commercial mortgages:
Construction		340,910		-		10,454		351,364		-		22,835,834		23,187,198
Other		46,100		-		506,261		552,361		-		193,379,374		193,931,735
Residential mortgages		1,614,383		336,911		770,010		2,721,304		-		176,258,714		178,980,018
Consumer loans:
Credit cards		5,187		5,171		6,710		17,068		-		1,762,968		1,780,036
Home equity lines & loans		121,678		54,119		179,233		355,030		-		76,597,137		76,952,167
Indirect consumer loans		724,477		123,534		135,626		983,637		-		123,425,437		124,409,074
Other direct consumer loans		44,009		7,367		12,977		64,353		-		17,037,265		17,101,618
Total	$	2,924,579	$	527,102	$	1,851,078	$	5,302,759	$	-	$	728,133,127	$	733,435,886

	June 30, 2012
Acquired Loans:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Acquired with deteriorated credit quality		Loans Not Past Due		Total
Commercial, financial and agricultural:
Commercial & industrial	$	168,854	$	124,049	$	313,216	$	606,119	$	1,197,884	$	22,396,047	$	24,200,050
Commercial mortgages:
Construction		-		-		6,678,694		6,678,694		1,190,848		2,475,508		10,345,050
Other		544,679		953,295		193,570		1,691,544		10,242,515		56,718,062		68,652,121
Residential mortgages		857,208		57,966		204,636		1,119,810		235,555		14,685,097		16,040,462
Consumer loans:
Home equity lines & loans		-		-		-		-		-		5,528,355		5,528,355
Other direct consumer loans		-		-		362		362		-		91,599		91,961
Total	$	1,570,741	$	1,135,310	$	7,390,478	$	10,096,529	$	12,866,802	$	101,894,668	$	124,857,999

	December 31, 2011
Legacy Loans:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Acquired with deteriorated credit quality		Loans Not Past Due		Total
Commercial, financial and agricultural:
Commercial & industrial	$	4,571	$	10,940	$	2,920,906	$	2,936,417	$	-	$	113,612,941	$	116,549,358
Agricultural		-		-		-		-		-		258,098		258,098
Commercial mortgages:
Construction		-		-		-		-		-		7,383,731		7,383,731
Other		82,986		-		2,977,010		3,059,996		-		163,818,595		166,878,591
Residential mortgages		1,418,234		293,337		1,221,056		2,932,627		-		172,652,660		175,585,287
Consumer loans:
Credit cards		3,660		8,031		9,053		20,744		-		1,934,471		1,955,215
Home equity lines & loans		368,556		27,717		212,573		608,846		-		76,280,502		76,889,348
Indirect consumer loans		597,180		75,817		85,763		758,760		-		96,781,480		97,540,240
Other direct consumer loans		21,876		10,243		9,644		41,763		-		14,478,064		14,519,827
Total	$	2,497,063	$	426,085	$	7,436,005	$	10,359,153	$	-	$	647,200,542	$	657,559,695

	December 31, 2011
Acquired Loans:	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Acquired with deteriorated credit quality		Loans Not Past Due		Total
Commercial, financial and agricultural:
Commercial & industrial	$	275,121	$	82,677	$	195,687	$	553,485	$	1,499,141	$	25,335,874	$	27,388,500
Commercial mortgages:
Construction		-		418,518		7,295,104		7,713,622		2,022,149		2,715,270		12,451,041
Other		-		-		193,570		193,570		11,063,483		65,836,938		77,093,991
Residential mortgages		405,087		62,017		84,083		551,187		226,937		17,753,898		18,532,022
Consumer loans:
Home equity lines & loans		-		-		-		-		-		6,168,831		6,168,831
Other direct consumer loans		171		-		-		171		-		147,439		147,610
Total	$	680,379	$	563,212	$	7,768,444	$	9,012,035	$	14,811,710	$	117,958,250	$	141,781,995

Troubled Debt Restructurings:

The Corporation has $3 thousand of allocated specific reserves to customers whose loan terms have been modified in troubled debt restructurings which are included in non-accrual loans as of June 30, 2012. The Corporation had $218 thousand allocated specific reserves to customers whose loan terms have been modified in troubled debt restructurings which are included in non-accrual loans as of December 31, 2011. The Corporation has not committed to lend any additional amounts as of June 30, 2012 or December 31, 2011 to customers with outstanding loans that are classified as trouble debt restructurings.

During the six months ended June 30, 2012, one loan in the amount of $59 thousand was modified as a troubled debt restructuring by the Corporation. This loan was paid off during the second quarter of 2012. The modification of the terms of this loan included an extension of the maturity date. During the three months ended June 30, 2012, no loans were modified as troubled debt restructurings by the Corporation. Additionally, there were no payment defaults on any loans previously modified as troubled debt restructurings within twelve months following the modification. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

The Corporation establishes a risk rating at origination for all commercial loans. The main factors considered in assigning risk ratings include, but are not limited to: historic and future debt service coverage, collateral position, operating performance, liquidity, leverage, payment history, management ability, and the customer's industry. Commercial relationship managers monitor all loans in their respective portfolios for any changes in the borrower's ability to service their debt and affirm the risk ratings for the loans at least annually.

For the retail loans, which include lines of credit, installment, mortgage, and home equity loans, once a loan is properly approved and closed, the Corporation evaluates credit quality based upon loan repayment.

The Corporation uses the risk rating system to identify criticized and classified loans. Commercial relationships within the criticized and classified risk ratings are analyzed quarterly. The Corporation uses the following definitions for criticized and classified loans (which are consistent with regulatory guidelines):

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

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capability 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 institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic 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 not rated loans. Based on the analysis's performed as of June 30, 2012 and December 31, 2011, the risk category of the recorded investment of loans by class of loans is as follows:

	June 30, 2012
Legacy Loans:	Not Rated		Pass		Special Mention		Substandard		Doubtful
Commercial, financial and agricultural:
Commercial & industrial	$	-	$	99,732,167	$	12,130,092	$	2,768,639	$	1,944,627
Agricultural		-		518,514		-		-		-
Commercial mortgages:
Construction		-		22,220,989		201,730		764,479		-
Other		-		179,478,529		9,211,037		4,844,286		397,883
Residential mortgages		176,749,755		-		-		2,230,263		-
Consumer loans:
Credit cards		1,780,036		-		-		-		-
Home equity lines & loans		76,399,344		-		-		552,823		-
Indirect consumer loans		124,231,188		-		-		177,886		-
Other direct consumer loans		17,079,524		-		-		22,095		-
Total	$	396,239,847	$	301,950,199	$	21,542,859	$	11,360,471	$	2,342,510

	June 30, 2012
Acquired Loans:		Not Rated		Pass		Loans Acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful
Commercial, financial and agricultural:
Commercial & industrial		$	-		22,078,338	$	1,197,884	$	548,402	$	287,646	$	87,780
Commercial mortgages			-
Construction			-		997,892		1,190,848		6,557,221		1,599,089		-
Other			-		55,072,078		10,242,515		474,202		2,669,756		193,570
Residential mortgages			15,542,306		-		235,555		-		262,601		-
Consumer loans
Home equity lines & loans			5,528,355		-		-		-		-		-
Other direct consumer loans			91,961		-		-		-		-		-
Total		$	21,162,622		78,148,308	$	12,866,802	$	7,579,825	$	4,819,092	$	281,350

	December 31, 2011
Legacy Loans:	Not Rated		Pass		Special Mention		Substandard		Doubtful
Commercial, financial and agricultural:
Commercial & industrial	$	-	$	93,923,356	$	14,957,683	$	4,139,413	$	3,528,906
Agricultural		-		258,098		-		-		-
Commercial mortgages:
Construction		-		6,391,614		208,360		783,757		-
Other		-		152,435,884		6,503,087		7,423,514		516,106
Residential mortgages		173,120,292		-		-		2,464,995		-
Consumer loans:
Credit cards		1,955,215		-		-		-		-
Home equity lines & loans		76,432,196		-		-		457,152		-
Indirect consumer loans		97,426,891		-		-		113,349		-
Other direct consumer loans		14,497,795		-		-		22,032		-
Total	$	363,432,389	$	253,008,952	$	21,669,130	$	15,404,212	$	4,045,012

	December 31, 2011
Acquired Loans:		Not Rated		Pass		Loans Acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful
Commercial, financial and agricultural:
Commercial & industrial		$	-	$	25,164,742	$	1,499,141	$	602,006	$	24,635	$	97,976
Commercial mortgages
Construction			-		1,790,731		2,022,149		7,447,661		1,190,500		-
Other			-		62,684,708		11,063,483		475,036		2,677,194		193,570
Residential mortgages			18,158,984		-		226,937		-		146,101		-
Consumer loans
Home equity lines & loans			6,168,831		-		-		-		-		-
Other direct consumer loans			147,610		-		-		-		-		-
Total		$	24,475,425	$	89,640,181	$	14,811,710	$	8,524,703	$	4,038,430	$	291,546

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of June 30, 2012 and December 31, 2011:

	June 30, 2012
			Consumer Loans
Legacy Loans:	Residential Mortgages		Credit Card		Home Equity Lines & Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	176,749,755	$	1,773,326	$	76,484,390	$	124,231,188	$	17,079,523
Non-Performing		2,230,263		6,710		467,777		177,886		22,095
		178,980,018		1,780,036		76,952,167		124,409,074		17,101,618

Acquired Loans:
Performing	$	15,777,861	$	-	$	5,528,355	$	-	$	91,599
Non-Performing		262,601		-		-		-		362
Total	$	16,040,462	$	-	$	5,528,355	$	-	$	91,961

	December 31, 2011
			Consumer Loans
Legacy Loans:	Residential Mortgages		Credit Card		Home Equity Lines & Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	173,120,292	$	1,946,162	$	76,432,196	$	97,426,891	$	14,497,878
Non-Performing		2,464,995		9,053		457,152		113,349		21,949
Total	$	175,585,287	$	1,955,215	$	76,889,348	$	97,540,240	$	14,519,827

Acquired Loans:
Performing	$	18,385,921	$	-	$	6,168,831	$	-	$	147,610
Non-Performing		146,101		-		-		-		-
Total	$	18,532,022	$	-	$	6,168,831	$	-	$	147,610

Acquired loans include loans acquired with deteriorated credit quality. The Corporation adjusted its estimates of future expected losses, cash flows, and renewal assumptions during the current year. The tables below summarize the changes in total contractually required principal and interest cash payments, management's estimate of expected total cash payments and carrying value of the loans from January 1, 2012 to June 30, 2012 and from March 31, 2012 to June 30, 2012 (in thousands of dollars):

Six Months Ended June 30, 2012	Balance at December 31, 2011			Income Accretion		All Other Adjustments			Balance at June 30, 2012
Contractually required principal and interest	$	21,261		$	-	$	(1,426	)	$	19,835
Contractual cash flows not expected to be collected (nonaccretable discount)		(4,662	)		-		684			(3,978	)
Cash flows expected to be collected		16,599			-		(742	)		15,857
Interest component of expected cash flows (accretable yield)		(1,844	)		1,171		(2,299	)		(2,972	)
Fair value of loans acquired with deteriorating credit quality	$	14,755		$	1,171	$	(3,041	)	$	12,885

Three Months Ended June 30, 2012	Balance at March 31, 2012			Income Accretion		All Other Adjustments			Balance at June 30, 2012
Contractually required principal and interest	$	17,780		$	-	$	2,055		$	19,835
Contractual cash flows not expected to be collected (nonaccretable discount)		(4,222	)		-		244			(3,978	)
Cash flows expected to be collected		13,558			-		2,299			15,857
Interest component of expected cash flows (accretable yield)		(1,417	)		255		(1,810	)		(2,972	)
Fair value of loans acquired with deteriorating credit quality	$	12,141		$	255	$	489		$	12,885