FINANCIAL CONDITION. Our asset quality and performance have been affected by the general economic  conditions in the United States, including difficult credit markets, depressed residential and commercial real estate values,  generally depressed consumer confidence, heightened unemployment and decreased consumer spending. Even though the  geographic markets in which the Company operates have been impacted by these economic conditions in recent years, the  effect has not been as severe as those experienced in some areas of the United States. In addition, our loan portfolio is  diversified across various types of loans and collateral throughout the markets in which we operate. Despite a few lingering  problem loans that management is working to resolve, our asset quality has improved over the past few years. Outside of  identified problem assets, management believes that it continues to have a high quality asset base and solid core earnings,  and anticipates that its efforts to run a high quality financial institution with a sound asset base will continue to create a  strong foundation for continued growth and profitability in the future.  ASSET QUALITY AND DISTRIBUTION. Our primary investing activities are the origination of commercial  real estate, commercial and consumer loans and the purchase of investment and mortgage-backed securities. Total assets  increased to $614.1 million at December 31, 2012, compared to $598.2 million at December 31, 2011. Net loans,  excluding loans held for sale, increased to $315.9 million at December 31, 2012 from $310.1 million at December 31, 2011. The $5.8 million increase in net loans was primarily the result of higher outstanding balances of one-to-four family  residential real estate, commercial and construction and land loans. Partially offsetting those increases were lower balances  in our agriculture, commercial real estate, municipal and consumer loans. The decline in these loan balances is the result of  multiple factors, including reduced loan demand from our customers, seasonal factors and early payoffs. Our one-to-four  family residential real estate portfolio increased primarily as a result of loans acquired in The Wellsville Bank acquisition. Generally, we originate fixed-rate, residential mortgage loans with maturities in excess of ten years for sale in the secondary  market. These loans are typically sold soon after the loan closing. We also retain some of our newly originated one-to-four  family residential real estate loans that meet internal criteria as well as secondary market qualifications. We typically only  retain loans with maturities of 15 years or less. While we do not intend to continue to increase our one-to-four family  residential real estate loan portfolio, we are currently slowing the normal runoff of the portfolio by retaining some of the  new loan originations to offset weak commercial loan demand; however, most of the new loan originations will still be sold. We do not originate and warehouse these fixed-rate residential loans for resale in order to speculate on interest rates. The allowance for loan losses is established through a provision for loan losses based on our evaluation of the risk  inherent in the loan portfolio and changes in the nature and volume of our loan activity. This evaluation, which includes a  review of all loans with respect to which full collectability may not be reasonably assured, considers the fair value of the  underlying collateral, economic conditions, historical loan loss experience, level of classified loans and other factors that  warrant recognition in providing for an appropriate allowance for loan losses. At December 31, 2012, our allowance for  loan losses totaled $4.6 million, or 1.43% of gross loans outstanding, as compared to $4.7 million, or 1.50% of gross loans  outstanding, at December 31, 2011. Loans past due 30-89 days and still accruing interest totaled $2.2 million, or 0.69% of gross loans at December 31,  2012 compared to $2.2 million, or 0.71% of gross loans, at December 31, 2011. At December 31, 2012, $9.1 million in  loans were on non-accrual status, or 2.84% of gross loans, compared to a balance of $1.4 million, or 0.45% of gross loans,  at December 31, 2011. Non-accrual loans consist of loans 90 or more days past due and certain impaired loans. The  increase in non-accrual loans was principally associated with a commercial loan relationship consisting of $4.4 million in  real estate and land loans, which was placed on non-accrual status after the borrower declared bankruptcy. A $2.2 million  land loan that was subject to a troubled debt restructuring in 2012 was also classified as non-accrual as of December 31,  2012. In addition, during 2012 a $1.1 million commercial loan was placed on non-accrual status after the Company failed  to raise additional capital required to continue operations. The increase in non-accrual loans did not require an increase in  the allowance for loan losses as the evaluation of the collateral securing the impaired loans did not require an increase in the  specific allowances. There were no loans 90 days delinquent and still accruing interest at December 31, 2012 or December  31, 2011. Our impaired loans totaled $14.5 million at December 31, 2012 compared to $2.5 million at December 31, 2011. The difference in the Company’s non-accrual loan balances and impaired loan balances at December 31, 2012 was related  to troubled debt restructurings that are current but still classified as impaired. During 2012, we had net loan charge-offs of  $2.0 million compared to $2.3 million during 2011. At December 31, 2012, we had eight loan relationships that were classified as troubled debt restructurings  compared to five at December 31, 2011. During 2012, the Company classified a commercial loan relationship consisting of  two commercial loans as a troubled debt restructuring after agreeing to extend the maturity of the loans while the borrower  54 