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Loans

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements [Abstract]

Note 5. Loans

The following table shows the composition of the Company's loan portfolio as of December 31, 2011 and 2010:

	December 31, 2011				December 31, 2010
Commercial
Real estate	$	255,424,000	29.5	%	$	245,540,000	27.7	%
Construction		32,574,000	3.8	%		41,869,000	4.7	%
Other		86,982,000	10.1	%		101,462,000	11.4	%
Municipal		16,221,000	1.9	%		21,833,000	2.5	%
Residential
Term		341,286,000	39.5	%		337,927,000	38.1	%
Construction		10,469,000	1.2	%		15,512,000	1.7	%
Home equity line of credit		105,244,000	12.1	%		105,297,000	11.9	%
Consumer		16,788,000	1.9	%		18,156,000	2.0	%
Total loans	$	864,988,000	100.0	%	$	887,596,000	100.0	%

Loan balances include net deferred loan costs of $1,386,000 in 2011 and $1,341,000 in 2010. Pursuant to collateral agreements, qualifying first mortgage loans, which were valued at $211,597,000 and $192,911,000 at December 31, 2011 and 2010, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In addition, commercial, construction and home equity loans totaling $218,417,000 at December 31, 2011 were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.

At December 31, 2011 and 2010, non-accrual loans were $27,806,000 and $21,175,000, respectively. As of December 31, 2011, 2010 and 2009, interest income which would have been recognized on these loans, if interest had been accrued, was $1,052,000, $1,334,000, and $1,297,000, respectively. Loans more than 90 days past due accruing interest totaled $1,170,000 at December 31, 2011 and $1,116,000 at December 31, 2010. The Company continues to

accrue interest on these loans because it believes collection of principal and interest is reasonably assured.

Loans to directors, officers and employees totaled $37,935,000 at December 31, 2011 and $40,015,000 at December 31, 2010. A summary of loans to directors and executive officers, which in the aggregate exceed $60,000, is as follows:

For the years ended December 31,	2011			2010
Balance at beginning of year	$	25,525,000		$	25,375,000
New loans		237,000			934,000
Repayments		(1,211,000	)		(784,000	)
Balance at end of year	$	24,551,000		$	25,525,000

Information on the past-due status of loans as of December 31, 2011, is presented in the following table:

	30-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	2,872,000	$	3,992,000	$	6,864,000	$	248,560,000	$	255,424,000	$	-
Construction		174,000		1,603,000		1,777,000		30,797,000		32,574,000		-
Other		1,431,000		1,192,000		2,623,000		84,359,000		86,982,000		52,000
Municipal		-		-		-		16,221,000		16,221,000		-
Residential
Term		3,331,000		8,843,000		12,174,000		329,112,000		341,286,000		1,118,000
Construction		-		1,198,000		1,198,000		9,271,000		10,469,000		-
Home equity line of credit		480,000		1,134,000		1,614,000		103,630,000		105,244,000		-
Consumer		331,000		16,000		347,000		16,441,000		16,788,000		-
Total	$	8,619,000	$	17,978,000	$	26,597,000	$	838,391,000	$	864,988,000	$	1,170,000

Information on the past-due status of loans as of December 31, 2010, is presented in the following table:

	30-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	2,055,000	$	4,000,000	$	6,055,000	$	239,485,000	$	245,540,000	$	-
Construction		120,000		937,000		1,057,000		40,812,000		41,869,000		-
Other		3,070,000		1,370,000		4,440,000		97,022,000		101,462,000		524,000
Municipal		-		-		-		21,833,000		21,833,000		-
Residential
Term		4,535,000		7,696,000		12,231,000		325,696,000		337,927,000		585,000
Construction		104,000		1,724,000		1,828,000		13,684,000		15,512,000		-
Home equity line of credit		1,564,000		474,000		2,038,000		103,259,000		105,297,000		-
Consumer		259,000		7,000		266,000		17,890,000		18,156,000		7,000
Total	$	11,707,000	$	16,208,000	$	27,915,000	$	859,681,000	$	887,596,000	$	1,116,000

For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.

Information on nonaccrual loans as of December 31, 2011 and 2010 is presented in the following table:

	As of December 31
	2011		2010
Commercial
Real estate	$	7,064,000	$	5,946,000
Construction		2,350,000		937,000
Other		5,784,000		1,753,000
Municipal		-		-
Residential
Term		10,194,000		8,347,000
Construction		1,198,000		3,567,000
Home equity line of credit		1,163,000		519,000
Consumer		53,000		106,000
Total	$	27,806,000	$	21,175,000

Information regarding impaired loans is as follows:

For the years ended December 31,	2011		2010		2009
Average investment in impaired loans	$	28,777,000	$	25,836,000	$	16,263,000
Interest income recognized on impaired loans, all on cash basis		598,000		143,000		70,000

As of December 31,	2011			2010
Balance of impaired loans	$	42,120,000		$	25,283,000
Less portion for which no allowance for loan losses is allocated		(27,897,000	)		(15,773,000	)
Portion of impaired loan balance for which an allowance for loan losses is allocated	$	14,223,000		$	9,510,000
Portion of allowance for loan losses allocated to the impaired loan balance	$	2,058,000		$	1,256,000

Impaired loans include restructured loans and loans placed on non-accrual status when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is typically established for the difference. The change in present value of expected future cash flows due to the passage of time is recorded to the provision for loan losses.

A breakdown of impaired loans by category as of December 31, 2011, is presented in the following table:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	5,584,000	$	5,584,000	$	-	$	5,212,000	$	23,000
Construction		5,172,000		5,172,000		-		1,072,000		143,000
Other		6,022,000		6,022,000		-		1,918,000		28,000
Municipal		-		-		-		-		-
Residential
Term		9,875,000		9,875,000		-		9,493,000		54,000
Construction		468,000		468,000		-		961,000		-
Home equity line of credit		739,000		739,000		-		646,000		-
Consumer		37,000		37,000		-		39,000		-
	$	27,897,000	$	27,897,000	$	-	$	19,341,000	$	248,000
With an Allowance Recorded
Commercial
Real estate	$	4,557,000	$	4,557,000	$	808,000	$	2,307,000	$	103,000
Construction		530,000		530,000		33,000		247,000		-
Other		1,020,000		1,020,000		402,000		681,000		19,000
Municipal		-		-		-		-		-
Residential
Term		6,946,000		6,946,000		478,000		5,628,000		228,000
Construction		730,000		730,000		235,000		244,000		-
Home equity line of credit		424,000		424,000		91,000		272,000		-
Consumer		16,000		16,000		11,000		57,000		-
	$	14,223,000	$	14,223,000	$	2,058,000	$	9,436,000	$	350,000
Total
Commercial
Real estate	$	10,141,000	$	10,141,000	$	808,000	$	7,519,000	$	126,000
Construction		5,702,000		5,702,000		33,000		1,318,000		143,000
Other		7,042,000		7,042,000		402,000		2,600,000		47,000
Municipal		-		-		-		-		-
Residential
Term		16,821,000		16,821,000		478,000		15,121,000		282,000
Construction		1,198,000		1,198,000		235,000		1,205,000		-
Home equity line of credit		1,163,000		1,163,000		91,000		918,000		-
Consumer		53,000		53,000		11,000		96,000		-
	$	42,120,000	$	42,120,000	$	2,058,000	$	28,777,000	$	598,000

Substantially all interest income recognized on impaired loans for all classes of financing receivables was recognized on a cash basis as received.

A breakdown of impaired loans by category as of December 31, 2010, is presented in the following table:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	3,531,000	$	3,531,000	$	-	$	3,967,000	$	-
Construction		257,000		257,000		-		271,000		-
Other		1,256,000		1,256,000		-		1,484,000		-
Municipal		-		-		-		-		-
Residential
Term		6,804,000		6,804,000		-		7,814,000		-
Construction		3,567,000		3,567,000		-		2,573,000		-
Home equity line of credit		319,000		319,000		-		196,000		-
Consumer		39,000		39,000		-		20,000		-
	$	15,773,000	$	15,773,000	$	-	$	16,325,000	$	-
With an Allowance Recorded
Commercial
Real estate	$	2,415,000	$	2,415,000	$	192,000	$	2,925,000	$	13,000
Construction		680,000		680,000		152,000		305,000		-
Other		497,000		497,000		291,000		912,000		-
Municipal		-		-		-		-		-
Residential
Term		5,651,000		5,651,000		432,000		4,869,000		127,000
Construction		-		-		-		281,000		-
Home equity line of credit		200,000		200,000		122,000		87,000		3,000
Consumer		67,000		67,000		67,000		132,000		-
	$	9,510,000	$	9,510,000	$	1,256,000	$	9,511,000	$	143,000
Total
Commercial
Real estate	$	5,946,000	$	5,946,000	$	192,000	$	6,892,000	$	13,000
Construction		937,000		937,000		152,000		576,000		-
Other		1,753,000		1,753,000		291,000		2,396,000		-
Municipal		-		-		-		-		-
Residential
Term		12,455,000		12,455,000		432,000		12,683,000		127,000
Construction		3,567,000		3,567,000		-		2,854,000		-
Home equity line of credit		519,000		519,000		122,000		283,000		3,000
Consumer		106,000		106,000		67,000		152,000		-
	$	25,283,000	$	25,283,000	$	1,256,000	$	25,836,000	$	143,000

Note 6. Allowance for Loan Losses

The Company provides for loan losses through the establishment of an allowance for loan losses which represents an estimated reserve for existing losses in the loan portfolio. A systematic methodology is used for determining the allowance that includes a quarterly review process, risk rating changes, and adjustments to the allowance. The loan portfolio is classified in eight classes and credit risk is evaluated separately in each class. The appropriate level of the allowance is evaluated continually based on a review of significant loans, with a particular emphasis on nonaccruing, past due, and other loans that may require special attention. Other factors considered for each class include general conditions in local and national economies; loan portfolio composition and asset quality indicators; and internal factors such as changes in underwriting policies, credit administration practices, experience, ability and depth of lending management, among others. The following table summarizes the composition of the allowance for loan losses, by loan portfolio segment and class, as of December 31, 2011 and 2010:

As of December 31,	2011		2010
Allowance for Loans Evaluated Individually for Impairment
Commercial
Real estate	$	808,000	$	192,000
Construction		33,000		152,000
Other		402,000		291,000
Municipal		-		-
Residential
Term		478,000		432,000
Construction		235,000		-
Home equity line of credit		91,000		122,000
Consumer		11,000		67,000
Total	$	2,058,000	$	1,256,000
Allowance for Loans Evaluated Collectively for Impairment
Commercial
Real estate	$	4,851,000	$	5,068,000
Construction		625,000		860,000
Other		1,661,000		2,086,000
Municipal		19,000		19,000
Residential
Term		681,000		976,000
Construction		20,000		44,000
Home equity line of credit		504,000		548,000
Consumer		573,000		579,000
Unallocated		2,008,000		1,880,000
Total	$	10,942,000	$	12,060,000
Total Allowance for Loan Losses
Commercial
Real estate	$	5,659,000	$	5,260,000
Construction		658,000		1,012,000
Other		2,063,000		2,377,000
Municipal		19,000		19,000
Residential
Term		1,159,000		1,408,000
Construction		255,000		44,000
Home equity line of credit		595,000		670,000
Consumer		584,000		646,000
Unallocated		2,008,000		1,880,000
Total	$	13,000,000	$	13,316,000

The allowance consists of four elements: (1) specific reserves for loans evaluated individually for impairment; (2) general reserves for types or portfolios of loans based on historical loan loss experience, (3) qualitative reserves judgmentally adjusted for local and national economic conditions, concentrations, portfolio composition, volume and severity of delinquencies and nonaccrual loans, trends of criticized and classified loans, changes in credit policies, and underwriting standards, credit administration practices, and other factors as applicable; and (4) unallocated reserves. All outstanding loans are considered in evaluating the adequacy of the allowance. A breakdown of the allowance for loan losses as of December 31, 2011 and 2010, by loan segment and allowance element, is presented in the following tables:

As of December 31, 2011	Specific Reserves Evaluated Individually for Impairment		General Reserves Based on Historical Loss Experience		Reserves for Qualitative Factors		Unallocated Reserves		Total Reserves
Commercial
Real estate	$	808,000	$	2,578,000	$	2,273,000	$	-	$	5,659,000
Construction		33,000		332,000		293,000		-		658,000
Other		402,000		883,000		778,000		-		2,063,000
Municipal		-		-		19,000		-		19,000
Residential
Term		478,000		222,000		459,000		-		1,159,000
Construction		235,000		6,000		14,000		-		255,000
Home equity line of credit		91,000		149,000		355,000		-		595,000
Consumer		11,000		331,000		242,000		-		584,000
Unallocated		-		-		-		2,008,000		2,008,000
	$	2,058,000	$	4,501,000	$	4,433,000	$	2,008,000	$	13,000,000

As of December 31, 2010	Specific Reserves Evaluated Individually for Impairment		General Reserves Based on Historical Loss Experience		Reserves for Qualitative Factors		Unallocated Reserves		Total Reserves
Commercial
Real estate	$	192,000	$	2,183,000	$	2,885,000	$	-	$	5,260,000
Construction		152,000		370,000		490,000		-		1,012,000
Other		291,000		899,000		1,187,000		-		2,377,000
Municipal		-		-		19,000		-		19,000
Residential
Term		432,000		401,000		575,000		-		1,408,000
Construction		-		18,000		26,000		-		44,000
Home equity line of credit		122,000		72,000		476,000		-		670,000
Consumer		67,000		324,000		255,000		-		646,000
Unallocated		-		-		-		1,880,000		1,880,000
	$	1,256,000	$	4,267,000	$	5,913,000	$	1,880,000	$	13,316,000

Risk Characteristics

Commercial loans are comprised of three major categories, commercial real estate loans, commercial construction loans and other commercial loans. Commercial real estate is primarily comprised of loans to small businesses collateralized by owner-occupied real estate, while other commercial is primarily comprised of loans to small businesses collateralized by plant and equipment, commercial fishing vessels and gear, and limited inventory-based lending. Commercial real estate loans typically have a maximum loan-to-value of 75% based upon current appraisal information at the time the loan is made. Commercial construction loans comprise a very small portion of the portfolio, and at 26.4% of capital are well under the regulatory guidance of 100.0% of capital. Construction and non-owner-occupied

commercial real estate loans are at 89.6% of total capital, well under regulatory guidance of 300.0% of capital. Municipal loans are comprised of loans to municipalities in Maine for capitalized expenditures, construction projects or tax-anticipation notes. All municipal loans are considered general obligations of the municipality and as such are collateralized by the taxing ability of the municipality for repayment of debt.

The process of establishing the allowance with respect to our commercial loan portfolio begins when a loan officer initially assigns each loan a risk rating, using established credit criteria. Approximately 50% of our outstanding loans and commitments are subject to review and validation annually by an independent consulting firm, as well as periodically by our internal credit review function. The methodology employs Management's judgment as to the level of losses on existing loans based on our internal review of the loan portfolio, including an analysis of a borrower's current financial position, and the consideration of current and anticipated economic conditions and their potential effects on specific borrowers and or lines of business. In determining our ability to collect certain loans, we also consider the fair value of underlying collateral. The risk rating system has eight levels, defined as follows:

1 Strong

Credits rated "1" are characterized by borrowers fully responsible for the credit with excellent capacity to pay principal and interest. Loans rated "1" may be secured with acceptable forms of liquid collateral.

2 Above Average

Credits rated "2" are characterized by borrowers that have better than average liquidity, capitalization, earnings and/or cash flow with a consistent record of solid financial performance.

3 Satisfactory

Credits rated "3" are characterized by borrowers with favorable liquidity, profitability and financial condition with adequate cash flow to pay debt service.

4 Average

Credits rated "4" are characterized by borrowers that present risk more than 1, 2 and 3 rated loans and merit an ordinary level of ongoing monitoring. Financial condition is on par or somewhat below industry averages while cash flow is generally adequate to meet debt service requirements.

5 Watch

Credits rated "5" are characterized by borrowers that warrant greater monitoring due to financial condition or unresolved and identified risk factors.

6 Other Assets Especially Mentioned (OAEM)

Loans in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. OAEM have potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the Bank's credit position at some future date.

7 Substandard

Loans in this category are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize full repayment upon the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank may sustain some loss if the deficiencies are not corrected.

8 Doubtful

Loans classified "Doubtful" have the same weaknesses as those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

The following table summarizes the risk ratings for the Company's commercial construction, commercial real estate, commercial other and municipal loans as of December 31, 2011:

	Commercial Real Estate		Commercial Construction		Commercial Other		Municipal Loans		All Risk- Rated Loans
1 Strong	$	23,000	$	-	$	465,000	$	2,158,000	$	2,646,000
2 Above average		21,334,000		-		4,229,000		7,509,000		33,072,000
3 Satisfactory		33,119,000		1,365,000		10,981,000		3,861,000		49,326,000
4 Average		106,171,000		17,125,000		31,600,000		2,693,000		157,589,000
5 Watch		44,215,000		3,287,000		17,893,000		-		65,395,000
6 OAEM		18,309,000		2,320,000		5,303,000		-		25,932,000
7 Substandard		31,575,000		7,323,000		16,362,000		-		55,260,000
8 Doubtful		678,000		1,154,000		149,000		-		1,981,000
Total	$	255,424,000	$	32,574,000	$	86,982,000	$	16,221,000	$	391,201,000

The following table summarizes the risk ratings for the Company's commercial construction, commercial real estate, commercial other and municipal loans as of December 31, 2010:

	Commercial Real Estate		Commercial Construction		Commercial Other		Municipal Loans		All Risk- Rated Loans
1 Strong	$	48,000	$	-	$	395,000	$	2,481,000	$	2,924,000
2 Above average		20,365,000		10,000		4,483,000		11,453,000		36,311,000
3 Satisfactory		42,600,000		4,694,000		16,052,000		4,900,000		68,246,000
4 Average		107,167,000		22,177,000		41,972,000		2,999,000		174,315,000
5 Watch		27,898,000		6,347,000		12,203,000		-		46,448,000
6 OAEM		19,496,000		3,715,000		6,463,000		-		29,674,000
7 Substandard		27,966,000		4,926,000		19,894,000		-		52,786,000
8 Doubtful		-		-		-		-		-
Total	$	245,540,000	$	41,869,000	$	101,462,000	$	21,833,000	$	410,704,000

Commercial loans are generally charged off when all or a portion of the principal amount is determined to be uncollectable. This determination is based on circumstances specific to a borrower including repayment ability, analysis of collateral and other factors as applicable.

Residential loans are comprised of two categories: term loans, which include traditional amortizing home mortgages, and construction loans, which include loans for owner-occupied residential construction. Residential loans typically have a 75% to 80% loan to value based upon current appraisal information at the time the loan is made. Home equity loans and lines of credit are typically written to the same underwriting standards. Consumer loans are primarily amortizing loans to individuals collateralized by automobiles, pleasure craft and recreation vehicles, typically with a maximum loan to value of 80%-90% of the purchase price of the collateral. Consumer loans also include a small amount of unsecured short-term time notes to individuals.

Residential loans, consumer loans and home equity lines of credit are segregated into homogeneous pools with similar risk characteristics. Trends and current conditions are analyzed and historical loss experience is adjusted accordingly. Quantitative and qualitative adjustment factors for these segments are consistent with those for the commercial and municipal segments. Certain loans in the residential, home equity lines of credit and consumer segments identified as having the potential for further deterioration are analyzed individually to confirm impairment status, and to determine the need for a specific reserve, however there is no formal rating system used for these segments. Consumer loans greater than 120 days past due are generally charged off. Residential loans 90 days or more past due are placed on non-accrual status unless the loans are both well secured and in the process of collection.

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the year ended December 31, 2011. Allowance for loan losses transactions for the years ended December 31, 2011, 2010 and 2009 were as follows:

For the year ended	Commercial							Municipal		Residential				Home Equity		Consumer		Unallocated		Total
December 31, 2011	Real Estate		Construction			Other				Term		Construction		Line of Credit
Allowance for loan losses:
Beginning balance	$	5,260,000	$	1,012,000		$	2,377,000	$	19,000	$	1,408,000	$	44,000	$	670,000	$	646,000	$	1,880,000	$	13,316,000
Charge offs		1,619,000		346,000			6,473,000		19,000		1,421,000		505,000		415,000		381,000		-		11,179,000
Recoveries		23,000		-			42,000		18,000		7,000		-		1,000		222,000		-		313,000
Provision		1,995,000		(8,000	)		6,117,000		1,000		1,165,000		716,000		339,000		97,000		128,000		10,550,000
Ending balance	$	5,659,000	$	658,000		$	2,063,000	$	19,000	$	1,159,000	$	255,000	$	595,000	$	584,000	$	2,008,000	$	13,000,000
Ending balance individually evaluated for impairment	$	808,000	$	33,000		$	402,000	$	-	$	478,000	$	235,000	$	91,000	$	11,000	$	-	$	2,058,000
Ending balance collectively evaluated for impairment	$	4,851,000	$	625,000		$	1,661,000	$	19,000	$	681,000	$	20,000	$	504,000	$	573,000	$	2,008,000	$	10,942,000
Related loan balances:
Ending balance	$	255,424,000	$	32,574,000		$	86,982,000	$	16,221,000	$	341,286,000	$	10,469,000	$	105,244,000	$	16,788,000	$	-	$	864,988,000
Ending balance individually evaluated for impairment	$	10,141,000	$	5,702,000		$	7,042,000	$	-	$	16,821,000	$	1,198,000	$	1,163,000	$	53,000	$	-	$	42,120,000
Ending balance collectively evaluated for impairment	$	245,283,000	$	26,872,000		$	79,940,000	$	16,221,000	$	324,465,000	$	9,271,000	$	104,081,000	$	16,735,000	$	-	$	822,868,000

For the year ended	Commercial						Municipal			Residential				Home Equity		Consumer		Unallocated		Total
December 31, 2010	Real Estate		Construction		Other					Term		Construction		Line of Credit
Allowance for loan losses:
Beginning balance	$	4,986,000	$	807,000	$	3,363,000	$	23,000		$	1,198,000	$	174,000	$	515,000	$	717,000	$	1,854,000	$	13,637,000
Charge offs		4,005,000		175,000		1,125,000		-			392,000		2,361,000		8,000		951,000		-		9,017,000
Recoveries		4,000		-		69,000		-			4,000		-		-		219,000		-		296,000
Provision		4,275,000		380,000		70,000		(4,000	)		598,000		2,231,000		163,000		661,000		26,000		8,400,000
Ending balance	$	5,260,000	$	1,012,000	$	2,377,000	$	19,000		$	1,408,000	$	44,000	$	670,000	$	646,000	$	1,880,000	$	13,316,000
Ending balance individually evaluated for impairment	$	192,000	$	152,000	$	291,000	$	-		$	432,000	$	-	$	122,000	$	67,000	$	-	$	1,256,000
Ending balance collectively evaluated for impairment	$	5,068,000	$	860,000	$	2,086,000	$	19,000		$	976,000	$	44,000	$	548,000	$	579,000	$	1,880,000	$	12,060,000
Related loan balances:
Ending balance	$	245,540,000	$	41,869,000	$	101,462,000	$	21,833,000		$	337,927,000	$	15,512,000	$	105,297,000	$	18,156,000	$	-	$	887,596,000
Ending balance individually evaluated for impairment	$	5,946,000	$	937,000	$	1,753,000	$	-		$	12,455,000	$	3,567,000	$	519,000	$	106,000	$	-	$	25,283,000
Ending balance collectively evaluated for impairment	$	239,594,000	$	40,932,000	$	99,709,000	$	21,833,000		$	325,472,000	$	11,945,000	$	104,778,000	$	18,050,000	$	-	$	862,313,000

For the year ended	Commercial						Municipal			Residential				Home Equity		Consumer		Unallocated		Total
December 31, 2009	Real Estate		Construction		Other					Term		Construction		Line of Credit
Allowance for loan losses:
Beginning balance	$	3,471,000	$	551,000	$	2,181,000	$	20,000		$	716,000	$	41,000	$	482,000	$	662,000	$	676,000	$	8,800,000
Charge offs		2,430,000		-		2,329,000		-			1,767,000		47,000		177,000		826,000		-		7,576,000
Recoveries		-		-		79,000		-			59,000		-		1,000		114,000		-		253,000
Provision		3,945,000		256,000		3,432,000		3,000			2,190,000		180,000		209,000		767,000		1,178,000		12,160,000
Ending balance	$	4,986,000	$	807,000	$	3,363,000	$	23,000		$	1,198,000	$	174,000	$	515,000	$	717,000	$	1,854,000	$	13,637,000
Ending balance individually evaluated for impairment	$	701,000	$	36,000	$	987,000	$	-		$	271,000	$	125,000	$	-	$	76,000	$	-	$	2,196,000
Ending balance collectively evaluated for impairment	$	4,285,000	$	771,000	$	2,376,000	$	23,000		$	927,000	$	49,000	$	515,000	$	641,000	$	1,854,000	$	11,441,000
Related loan balances:
Ending balance	$	240,178,000	$	48,714,000	$	114,486,000	$	45,952,000		$	367,267,000	$	17,361,000	$	94,324,000	$	24,210,000	$	-	$	952,492,000
Ending balance individually evaluated for impairment	$	6,198,000	$	458,000	$	2,638,000	$	-		$	13,149,000	$	3,182,000	$	143,000	$	75,000	$	-	$	25,843,000
Ending balance collectively evaluated for impairment	$	233,980,000	$	48,256,000	$	111,848,000	$	45,952,000		$	354,118,000	$	14,179,000	$	94,181,000	$	24,135,000	$	-	$	926,649,000

A TDR constitutes a restructuring of debt if the Bank, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. To determine whether or not a loan should be classified as a TDR, Management evaluates a loan based upon the following criteria:

�	The borrower demonstrates financial difficulty; common indicators include past due status with bank obligations, substandard credit bureau reports, or an inability to refinance with another lender, and

�	The Bank has granted a concession; common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

The Bank applies the same interest accrual policy to TDRs as it does for all classes of loans. As of December 31, 2011 we had 59 loans with a value of $22.9 million that have been restructured. This compares to 32 loans with a value of $5.5 million classified as TDRs as of December 31, 2010. The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the cashflow modification on the loan, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell. The following table shows TDRs by class and the specific reserve as of December 31, 2011:

	Number of Loans		Balance		Specific Reserves
Commercial
Real estate		4	$	3,078,000	$	273,000
Construction		3		4,506,000		-
Other		9		5,350,000		97,000
Municipal		-		-		-
Residential
Term		43		9,924,000		363,000
Construction		-		-		-
Home equity line of credit		-		-		-
Consumer		-		-		-
Unallocated		-		-		-
		59	$	22,858,000	$	733,000

During the year ending December 31, 2011, 31 loans were placed on TDR status with an outstanding balance of $18.3 million. These were considered to be TDRs because concessions had been granted to borrowers experiencing financial difficulties. Concessions include reductions in interest rates, principal and/or interest forbearance, payment extensions, or combinations thereof. The following table shows loans placed on TDR status in 2011 by type of loan and the associated specific reserve included in the allowance for loan losses as of December 31, 2011:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate		4	$	3,078,000	$	3,078,000	$	273,000
Construction		3		4,506,000		4,506,000		-
Other		9		5,350,000		5,350,000		97,000
Municipal		-		-		-		-
Residential
Term		15		5,391,000		5,391,000		258,000
Construction		-		-		-		-
Home equity line of credit		-		-		-		-
Consumer		-		-		-		-
Unallocated		-		-		-		-
		31	$	18,325,000	$	18,325,000	$	628,000

As of December 31, 2011, Management is aware of six loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $1,035,000. As of December 31, 2011, there were 19 loans with an outstanding balance of $3.4 million that were classified as TDRs and were on non-accrual status.