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 segments and credit risk is evaluated separately in each segment. 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 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 allowance consists of four elements: (1) specific reserves for loans evaluated individually for impairment; (2) general reserves for each portfolio segment 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 for each portfolio segment; and (4) unallocated reserves. All outstanding loans are considered in evaluating the appropriateness of the allowance. A breakdown of the allowance for loan losses as of March 31, 2012, December 31, 2011, and March 31, 2011, by class of financing receivable and allowance element, is presented in the following tables:

As of March 31, 2012	Specific Reserves on Loans Evaluated Individually for Impairment		General Reserves Based on Historical Loss Experience		Reserves for Qualitative Factors		Unallocated Reserves		Total Reserves
Commercial
Real estate	$	944,000	$	2,648,000	$	2,270,000	$	-	$	5,862,000
Construction		117,000		316,000		271,000		-		704,000
Other		480,000		886,000		759,000		-		2,125,000
Municipal		-		-		19,000		-		19,000
Residential
Term		592,000		185,000		459,000		-		1,236,000
Construction		49,000		2,000		8,000		-		59,000
Home equity line of credit		156,000		176,000		350,000		-		682,000
Consumer		10,000		319,000		239,000		-		568,000
Unallocated		-		-		-		1,699,000		1,699,000
	$	2,348,000	$	4,532,000	$	4,375,000	$	1,699,000	$	12,954,000

As of December 31, 2011	Specific Reserves on Loans 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 March 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	$	593,000	$	2,536,000	$	3,181,000	$	-	$	6,310,000
Construction		-		284,000		355,000		-		639,000
Other		326,000		980,000		1,229,000		-		2,535,000
Municipal		-		-		19,000		-		19,000
Residential
Term		381,000		457,000		567,000		-		1,405,000
Construction		106,000		18,000		22,000		-		146,000
Home equity line of credit		139,000		67,000		472,000		-		678,000
Consumer		76,000		380,000		257,000		-		713,000
Unallocated		-		-		-		1,555,000		1,555,000
	$	1,621,000	$	4,722,000	$	6,102,000	$	1,555,000	$	14,000,000

Commercial loans are comprised of three major classes, 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. 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.

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 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.

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.

	Commercial Real Estate		Commercial Construction		Commercial Other		Municipal Loans		All Risk- Rated Loans
1 Strong	$	23,000	$	-	$	486,000	$	1,911,000	$	2,420,000
2 Above Average		19,788,000		-		4,418,000		7,602,000		31,808,000
3 Satisfactory		32,903,000		1,396,000		12,183,000		3,819,000		50,301,000
4 Average		105,446,000		19,130,000		31,412,000		2,629,000		158,617,000
5 Watch		42,680,000		3,530,000		19,473,000		-		65,683,000
6 OAEM		18,302,000		538,000		4,644,000		-		23,484,000
7 Substandard		34,887,000		6,234,000		12,158,000		-		53,279,000
8 Doubtful		679,000		-		693,000		-		1,372,000
Total	$	254,708,000	$	30,828,000	$	85,467,000	$	15,961,000	$	386,964,000

	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

	Commercial Real Estate		Commercial Construction		Commercial Other		Municipal Loans		All Risk- Rated Loans
1 Strong	$	30,000	$	-	$	462,000	$	2,448,000	$	2,940,000
2 Above Average		21,270,000		10,000		4,399,000		11,417,000		37,096,000
3 Satisfactory		45,331,000		10,000		17,258,000		4,023,000		66,622,000
4 Average		120,462,000		14,650,000		40,071,000		2,946,000		178,129,000
5 Watch		26,660,000		5,896,000		12,425,000		-		44,981,000
6 OAEM		18,797,000		3,948,000		6,700,000		-		29,445,000
7 Substandard		31,250,000		4,802,000		20,447,000		-		56,499,000
8 Doubtful		-		-		-		-		-
Total	$	263,800,000	$	29,316,000	$	101,762,000	$	20,834,000	$	415,712,000

Residential loans are comprised of two classes: 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 classes. Certain loans in the residential, home equity lines of credit and consumer classes 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 classes. 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.

For the three months ended	Commercial							Municipal		Residential					Home Equity		Consumer		Unallocated			Total
March 31, 2012	Real Estate		Construction			Other				Term		Construction			Line of Credit
Allowance for loan losses:
Beginning 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
Charge offs		-		-			2,002,000		-		239,000		-			49,000		180,000		-			2,470,000
Recoveries		-		246,000			2,000		-		1,000		-			-		75,000		-			324,000
Provision		203,000		(200,000	)		2,062,000		-		315,000		(196,000	)		136,000		89,000		(309,000	)		2,100,000
Ending balance	$	5,862,000	$	704,000		$	2,125,000	$	19,000	$	1,236,000	$	59,000		$	682,000	$	568,000	$	1,699,000		$	12,954,000
Ending balance specifically evaluated for impairment	$	944,000	$	117,000		$	480,000	$	-	$	592,000	$	49,000		$	156,000	$	10,000	$	-		$	2,348,000
Ending balance collectively evaluated for impairment	$	4,918,000	$	587,000		$	1,645,000	$	19,000	$	644,000	$	10,000		$	526,000	$	558,000	$	1,699,000		$	10,606,000
Related loan balances:
Ending balance	$	254,708,000	$	30,828,000		$	85,467,000	$	15,961,000	$	358,394,000	$	6,451,000		$	103,372,000	$	15,711,000	$	-		$	870,892,000
Ending balance specifically evaluated for impairment	$	14,295,000	$	2,093,000		$	3,886,000	$	-	$	18,054,000	$	1,454,000		$	1,336,000	$	15,000	$	-		$	41,133,000
Ending balance collectively evaluated for impairment	$	240,413,000	$	28,735,000		$	81,581,000	$	15,961,000	$	340,340,000	$	4,997,000		$	102,036,000	$	15,696,000	$	-		$	829,759,000

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			6,492,000		-		1,421,000		505,000		415,000		381,000		-		11,179,000
Recoveries		23,000		-			60,000		-		7,000		-		1,000		222,000		-		313,000
Provision		1,995,000		(8,000	)		6,118,000		-		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 specifically 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 specifically 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 three months ended	Commercial							Municipal		Residential				Home Equity		Consumer		Unallocated			Total
March 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		289,000		-			161,000		-		457,000		505,000		1,000		100,000		-			1,513,000
Recoveries		5,000		-			17,000		-		3,000		-		-		72,000		-			97,000
Provision		1,334,000		(373,000	)		302,000		-		451,000		607,000		9,000		95,000		(325,000	)		2,100,000
Ending balance	$	6,310,000	$	639,000		$	2,535,000	$	19,000	$	1,405,000	$	146,000	$	678,000	$	713,000	$	1,555,000		$	14,000,000
Ending balance specifically evaluated for impairment	$	593,000	$	-		$	326,000	$	-	$	381,000	$	106,000	$	139,000	$	76,000	$	-		$	1,621,000
Ending balance collectively evaluated for impairment	$	5,717,000	$	639,000		$	2,209,000	$	19,000	$	1,024,000	$	40,000	$	539,000	$	637,000	$	1,555,000		$	12,379,000
Related loan balances:
Ending balance	$	263,800,000	$	29,316,000		$	101,762,000	$	20,834,000	$	340,841,000	$	13,370,000	$	106,172,000	$	18,589,000	$	-		$	894,684,000
Ending balance specifically evaluated for impairment	$	7,482,000	$	813,000		$	1,604,000	$	-	$	13,948,000	$	2,248,000	$	604,000	$	115,000	$	-		$	26,814,000
Ending balance collectively evaluated for impairment	$	256,318,000	$	28,503,000		$	100,158,000	$	20,834,000	$	326,893,000	$	11,122,000	$	105,568,000	$	18,474,000	$	-		$	867,870,000

A troubled debt restructure ("TDR") constitutes a restructuring of debt if the Company, 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:

As of March 31, 2012, the Company had 71 loans with a value of $20,647,000 that have been classified as TDRs. This compares to 59 loans with a value of $22,858,000 and 36 loans with a value of $6,021,000 classified as TDRs as of December 31, 2011 and March 31, 2011, respectively. 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 March 31, 2012:

As of March 31, 2012, 11 of the loans classified as TDRs with a total balance of $2,258,000 were more than 30 days past due. Of these loans, 7 loans with an outstanding balance of $1,733,000 had been placed on TDR status in the previous 12 months. The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of March 31, 2012:

In the first three months of 2012, 14 loans were placed on TDR status with an outstanding balance of $3,007,000. 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 by class of loan and the associated specific reserve included in the allowance for loan losses as of March 31, 2012:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate		7	$	2,438,000	$	2,404,000	$	-
Construction		-		-		-		-
Other		3		12,000		12,000		-
Municipal		-		-		-		-
Residential
Term		4		557,000		557,000		16,000
Construction		-		-		-		-
Home equity line of credit		-		-		-		-
Consumer		-		-		-		-
Unallocated		-		-		-		-
		14	$	3,007,000	$	2,973,000	$	16,000