Provision for Loan Losses and Credit Quality

The provision for loan losses of $4.4 million recorded for the fourth quarter of 2012 includes approximately a $3.0 million provision for newly originated loans (including the impact of charge-offs of $1.0 million) and an $1.4 million impairment primarily reflecting declines in appraised values and lower expectations for future cash flows from certain residential and construction loans.

The provision for newly originated loans served to increase the allowance to 1.05% of $1.4 billion in originated loans outstanding.

During the fourth quarter, non-performing loans declined from 8.3% to 7.8% of total loans. Acquired impaired loans greater than 90 days past due and still accruing decreased by 7.1% excluding the $49.4 million resulting from the acquisition of Southern Community. Combined, loans greater than 90 days past due and accruing increased by $26.2 million to $352.7 million at the end of the quarter. Nonaccrual loans increased by $2.9 million to $14.0 million during the quarter.

Non-Interest Expense

Non-interest expense decreased to $68.4 million for the fourth quarter of 2012 from $69.6 million for the third quarter and increased from $60.4 for the fourth quarter of 2011. The main driver of the decrease for the quarter was the absence of $2.9 million in losses on extinguishment of debt and $1.8 million of legal settlement expenses as compared to the third quarter along with a decline of $2.6 million in merger, legal, severance and conversion related expense. These reductions were, in part, offset by the addition of Southern Community's operating expenses.

Financial Position

Total assets increased by $1.1 billion to $7.3 billion as of December 31, 2012 from $6.2 billion as of September 30, 2012 due mainly to the addition of approximately $1.3 billion of assets from Southern Community, net of additional paid in capital.     Cash and cash equivalents increased from $462.2 million to $734.9 million as of December 31, 2012, despite payments to acquire Southern Community and pay off its TARP-related securities and FHLB borrowings. The Company's investment securities available for sale was $1.0 billion at December 31, 2012.

Total shareholders' equity increased by $5.9 million during the quarter to $1.2 billion at December 31, 2012. Tangible book value per share was $17.74 as of December 31, 2012.

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