Our non-performing assets adversely affect our net income in various ways. We do not record interest income on  nonaccrual loans or other real estate, thereby adversely affecting our net income and returns on assets and equity, increasing  our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure and  similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These  non-performing loans and other real estate also increase our risk profile and the capital our regulators believe is appropriate  in light of such risks. The resolution of non-performing assets requires significant time commitments from management and  can be detrimental to the performance of their other responsibilities. If we experience increases in non-performing loans  and non-performing assets, our net interest income may be negatively impacted and our loan administration costs could  increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and  equity.  Real estate lending (including commercial, construction, land and residential) is a large portion of our loan  portfolio. These categories were $200.7 million, or approximately 62.6% of our total loan portfolio as of December 31,  2012, as compared to $194.6 million, or approximately 61.9%, as of December 31, 2011. The market value of real estate  can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real  estate is located. Although a significant portion of such loans are secured by a secondary form of collateral, adverse  developments affecting real estate values in one or more of our markets could increase the credit risk associated with our  loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts and the repayment of the  loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating  expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender  could negatively impact the future cash flow and market values of the affected properties. If the loans that are collateralized by real estate become troubled during a time when market conditions are  declining or have declined, then we may not be able to realize the amount of security that we anticipated at the time of  originating the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results  and financial condition. In particular, if the general declines in values that have occurred in the past few years in the  residential and commercial real estate markets continue, particularly within our market area, the value of collateral securing  our real estate loans could decline further. In light of the uncertainty that exists in the economy and credit markets  nationally, there can be no guarantee that we will not experience additional deterioration resulting from the downturn in  credit performance by our real estate loan customers. We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our  operations. We anticipate that our existing capital resources will satisfy our capital requirements for the foreseeable future  and this is a major reason why we did not participate in the U.S. Department of Treasury’s Capital Purchase Program. However, we may at some point need to raise additional capital to support continuing growth. Our ability to raise additional  capital is particularly important to our strategy of continual growth through acquisitions. Our ability to raise additional  capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor  perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition  and performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed on terms acceptable  to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal  growth and acquisitions could be materially impaired.  We expect that other banking and financial service companies, many of which have significantly greater resources  than us, will compete with us in acquiring other financial institutions if we pursue such acquisitions. This competition could  increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory  approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that  we believe is in our best interests. Among other things, our regulators consider our capital, liquidity, profitability,  41  Our loan portfolio has a large concentration of real estate loans, which involve risks specific to real estate value.  Our growth or future losses may require us to raise additional capital in the future, but that capital may not be  available when it is needed.  Attractive acquisition opportunities may not be available to us in the future. 