Good asset quality is critical to the success of a community bank. The economic environment has been difficult the last several years and this has had a negative impact on losses experienced within banks’ loan portfolios. Your company has not been immune from these forces and has also experienced losses in excess of our historical levels. However, we have made great progress on these problem loans over the past few years and have maintained our problem loans at a very manageable level. In 2012 we saw our non-performing loans to gross outstanding loans increase to 2.84% at year end from 0.45% at December 31, 2011. Similarly, total non-performing assets to total assets increased to 1.88% at year end 2012 compared to 0.80% at year end 2011. During 2012 management identified five criticized commercial and commercial real estate loans that were performing loans, but were not making progress at the rate needed toward repayment at a satisfactory level. These loans had been on the books for an extended period of time and their ability to repay was simply not getting better. As a result, management entered into negotiations with three of these borrowers to restructure the loans in a manner that should allow them to repay in a satisfactory manner going forward. Additionally, we had a commercial loan that failed to raise additional capital in order to continue operations. the sluggish economic growth and relatively high unemployment which we believe is stifling consumer spending and business expansion, which in turn is limiting loan opportunities. Your management is concerned that this may be the new normal, at least until the consumer has had an opportunity to deleverage their balance sheet and unemployment returns to a lower level, even if it may be at a higher rate than what we have historically thought of as full employment. In response to this changing environment, in the latter part of 2011 we began focusing considerable time and resources on refining our new business recruitment systems and efforts. We have developed the sales and calling skills of our commercial bankers to enable them to have greater success in their new business generation efforts.We began to see these efforts payoff in the latter part of 2012 as we saw commercial loans increase approximately $8.5 million in the third and fourth quarter. Our commercial loan pipeline continues to grow and we expect loans to grow throughout 2013. Needless to say, we are paying close attention to underwriting requirements and the credit worthiness of our customers. We are targeting top quality credits within our markets. We will not be sacrificing credit quality in order to achieve loan growth. We realize we must continue to improve in our business recruitment systems and skills if we are to achieve our goals of quality loan growth in today’s slow growth environment. As a result, we took control of the collateral after the first of the year and are engaged in an orderly liquidation. Management has recognized the amounts that were not adequately collateralized in the loans discussed above and wrote the under secured amount off prior to year end. Finally, we had a commercial real estate borrower declare Chapter 11 bankruptcy, resulting in those loans being classified as non-accrual. However, current appraisals indicate that we are well secured on this credit relationship, and we expect the credit to be resolved during 2013. In summary, we have taken action to remedy the weaker commercial credits within our portfolio, charged off balances that were not adequately secured, and expect the asset quality indicators to reflect those efforts as we move forward in 2013. The balance of the portfolio is performing well as reflected by the loans 30-89 days delinquent and still accruing to gross loans outstanding ratio of 0.69% at year end compared to 0.71% at December 31, 2011. Earlier, I mentioned the need to grow loans in order to help combat the net interest margin pressures resulting from continued low interest rates. I also commented on I am pleased that we continue to see increases in fees and service charges. I mentioned earlier that fees from servicing residential real estate loans for others increased approximately $121,000. Additionally, other fees and service charges also increased $264,000. This is particularly noteworthy in the current regulatory environment that has had the effect of curtailing both fees that banks can earn on debit card interchange and deposit accounts in general. We have worked hard in this area to improve our systems and procedures so the impact of these increased regulations to our income flow will be as minimal as possible. Additionally, our efforts to increase the number of core deposit transaction accounts is also playing a positive role in this year over year increase in non-interest income. We continue to look at our retail checking account structures and make changes where appropriate to insure that our deposit account products are competitive and that we continue to grow our core deposits in a profitable manner and at the same time provide for a long term,low cost,stable source of funding. 2