4. LOANS

Loans outstanding, by general ledger classification, as of June 30, 2011 and December 31, 2010, consisted of the following:

			% of Total					% of Total
(In Thousands)	2011		Loans			2010		Loans
Residential Mortgage	$	432,735		44.8	%	$	419,653		45.0	%
Commercial Mortgage		316,197		32.7			288,183		30.9
Commercial Loans		128,839		13.3			131,408		14.1
Construction Loans		15,385		1.6			25,367		2.7
Home Equity Lines of Credit		48,805		5.1			45,775		4.9
Consumer Loans, Including
Fixed Rate Home Equity Loans		20,184		2.1			20,622		2.2
Other Loans		3,612		0.4			1,489		0.2
Total Loans	$	965,757		100.0	%	$	932,497		100.0	%

Included in the totals above for June 30, 2011 are $1.0 million of unamortized discount and $2.5 million of deferred origination costs net of deferred origination fees as compared to $1.4 million of unamortized discount and $2.3 million of deferred origination costs net of deferred origination fees for December 31, 2010.

The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan losses as of June 30, 2011 and December 31, 2010:

June 30, 2011
	Total		Ending ALLL		Total		Ending ALLL
	Loans		Attributable		Loans		Attributable
	Individually		to Loans		Collectively		to Loans				Total
	Evaluated		Individually		Evaluated		Collectively
	for		Evaluated for		for		Evaluated for		Total		Ending
(In Thousands)	Impairment		Impairment		Impairment		Impairment		Loans		ALLL
Primary
Residential
Mortgage	$	5,083	$	91	$	441,627	$	1,571	$	446,710	$	1,662
Home Equity Lines
of Credit		26		-		48,779		186		48,805		186
Junior Lien Loan
On Residence		525		-		13,674		209		14,199		209
Multifamily
Property		286		-		87,092		463		87,378		463
Owner-Occupied
Commercial
Real Estate		9,822		1,444		102,572		2,078		112,394		3,522
Investment Commercial
Real Estate		5,474		-		194,983		4,099		200,457		4,099
Commercial and
Industrial		1,899		175		24,869		2,224		26,768		2,399
Commercial
Construction		-		-		15,370		794		15,370		794
Consumer and
Other		-		-		13,676		98		13,676		98
Unallocated		-		-		-		624		-		624
Total ALLL	$	23,115	$	1,710	$	942,642	$	12,346	$	965,757	$	14,056

December 31, 2010
	Total		Ending ALLL		Total		Ending ALLL
	Loans		Attributable		Loans		Attributable
	Individually		to Loans		Collectively		to Loans				Total
	Evaluated		Individually		Evaluated		Collectively
	for		Evaluated for		for		Evaluated for		Total		Ending
(In Thousands)	Impairment		Impairment		Impairment		Impairment		Loans		ALLL
Primary
Residential
Mortgage	$	4,578	$	-	$	428,466	$	1,502	$	433,044	$	1,502
Home Equity Lines
of Credit		85		-		45,730		160		45,815		160
Junior Lien Loan
On Residence		537		-		14,981		228		15,518		228
Multifamily
Property		691		26		40,327		277		41,018		303
Owner-Occupied
Commercial
Real Estate		7,972		504		114,634		2,740		117,685		3,244
Investment Commercial
Real Estate		6,979		1,141		203,692		3,151		215,592		4,292
Commercial and
Industrial		2,330		308		25,448		2,411		27,778		2,719
Commercial
Construction		5,225		500		20,149		746		25,374		1,246
Consumer and
Other		-		-		10,673		66		10,673		66
Unallocated		-		-		-		522		-		522
Total ALLL	$	28,397	$	2,479	$	904,100	$	11,803	$	932,497	$	14,282

Impaired loans include non-accrual loans of $14.9 million at June 30, 2011 and $18.1 million at December 31, 2010. Impaired loans also includes performing commercial mortgage and commercial troubled debt restructured loans of $8.2 million at June 30, 2011 and $5.2 million at December 31, 2010. Allowance allocated to these troubled debt restructured loans totaled $324 thousand and $268 thousand, as of June 30, 2011 and December 31, 2010, respectively. All troubled debt restructured loans were paying in accordance with restructured terms as of June 30, 2011. The Corporation has not committed to lend additional amounts as of June 30, 2011 and December 31, 2010 to customers with outstanding loans that are classified as loan restructurings.

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2011 and December 31, 2010:

June 30, 2011
	Unpaid
	Principal		Recorded		Specific
(In Thousands)	Balance		Investment		Reserves
With No Related Allowance Recorded:
Primary Residential Mortgage	$	3,783	$	3,183	$	-
Multifamily Property		312		286		-
Owner-Occupied Commercial Real Estate		3,600		3,091		-
Investment Commercial Real Estate		5,855		5,474		-
Commercial and Industrial		2,626		1,667		-
Home Equity Lines of Credit		100		26		-
Junior Lien Loan on Residence		660		525		-
Total Loans with No Related Allowance	$	16,936	$	14,252	$	-
With Related Allowance Recorded:
Primary Residential Mortgage		2,015		1,900		91
Owner-Occupied Commercial Real Estate		7,907		6,731		1,444
Commercial and Industrial		587		232		175
Total Loans with Related Allowance	$	10,509	$	8,863	$	1,710
Total Loans Individually Evaluated for
Impairment	$	27,445	$	23,115	$	1,710

December 31, 2010
	Unpaid
	Principal		Recorded		Specific
(In Thousands)	Balance		Investment		Reserves
With No Related Allowance Recorded:
Primary Residential Mortgage	$	5,080	$	4,578	$	-
Home Equity Lines of Credit		100		85		-
Junior Lien Loan on Residence		660		537		-
Total Loans with No Related Allowance	$	5,840	$	5,200	$	-
With Related Allowance Recorded:
Multifamily Property		713		691		26
Owner-Occupied Commercial Real Estate		8,238		7,972		505
Investment Commercial Real Estate		6,979		6,979		1,141
Commercial and Industrial		3,464		2,330		307
Commercial Construction		8,199		5,225		500
Total Loans with Related Allowance	$	27,593	$	23,197	$	2,479
Total Loans Individually Evaluated for
Impairment	$	33,433	$	28,397	$	2,479

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2011 and December 31, 2010:

June 30, 2011
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In Thousands)	Nonaccrual		Interest
Primary Residential Mortgage	$	5,083	$	-
Home Equity Lines of Credit		25		-
Junior Lien Loan on Residence		525		88
Multifamily Property		286		50
Owner-Occupied Commercial Real Estate		6,619		-
Investment Commercial Real Estate		1,046		-
Commercial and Industrial		1,359		274
Total	$	14,943	$	412

December 31, 2010
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In Thousands)	Nonaccrual		Interest
Primary Residential Mortgage	$	4,578	$	-
Home Equity Lines of Credit		85		-
Junior Lien Loan on Residence		537		-
Multifamily Property		378		361
Owner-Occupied Commercial Real Estate		1,594		305
Investment Commercial Real Estate		3,966		-
Commercial and Industrial		1,751		-
Commercial Construction		5,225		-
Total	$	18,114	$	666

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following tables present the aging of the recorded investment in past due loans as of June 30, 2011 and December 31, 2010 by class of loans, excluding nonaccrual loans:

June 30, 2011
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In Thousands)	Past Due		Past Due		Past Due		Past Due
Primary Residential Mortgage	$	4,560	$	1,228	$	-	$	5,788
Home Equity Lines of Credit		137		-		-		137
Junior Lien Loan on Residence		-		162		88		250
Multifamily Property		-		-		50		50
Owner-Occupied Commercial
Real Estate		-		1,347		-		1,347
Investment Commercial
Real Estate		270		-		-		270
Commercial and Industrial		300		192		274		766
Consumer and Other		3		1		-		4
Total	$	5,270	$	2,930	$	412	$	8,612

December 31, 2010
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In Thousands)	Past Due		Past Due		Past Due		Past Due
Primary Residential Mortgage	$	3,490	$	162	$	-	$	3,652
Junior Lien Loan on Residence		-		-		-		-
Multifamily Property		-		-		361		361
Owner-Occupied Commercial
Real Estate		820		-		305		1,125
Investment Commercial
Real Estate		728		-		-		728
Commercial and Industrial		274		-		-		274
Consumer and Other		1		-		-		1
Total	$	5,313	$	162	$	666	$	6,141

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes all commercial loans with an outstanding balance of $150 thousand or more. The risk rating analysis of loans is performed (i) when the loan is initially underwritten, (ii) annually for loans in excess of $500,000, (iii) on a random quarterly basis from either internal reviews with the Senior Credit Officer or externally through an independent loan review firm, or (iv) whenever management otherwise identifies a potentially negative trend or issue relating to a borrower. The Corporation uses the following definitions for risk ratings:

Special Mention: Loans subject to special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution's credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weakness inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
(In Thousands)	Pass		Mention		Substandard		Doubtful
Primary Residential Mortgage	$	435,766	$	5,861	$	5,083	$	-
Home Equity Lines of Credit		48,385		-		420		-
Junior Lien Loan on Residence		13,585		89		525		-
Multifamily Property		86,480		164		734		-
Owner-Occupied Commercial
Real Estate		84,696		6,948		20,750		-
Investment Commercial
Real Estate		167,038		11,998		21,421		-
Commercial and Industrial		23,118		997		2,534		119
Commercial Construction		11,320		4,050		-		-
Consumer and Other Loans		13,176		500		-		-
Total	$	883,564	$	30,607	$	51,467	$	119

As of December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
(In Thousands)	Pass		Mention		Substandard		Doubtful
Primary Residential Mortgage	$	422,972	$	5,495	$	4,578	$	-
Home Equity Lines of Credit		45,730		-		85		-
Junior Lien Loan on Residence		14,877		104		537		-
Multifamily Property		39,709		166		1,142		-
Owner-Occupied Commercial
Real Estate		89,136		14,722		13,827		-
Investment Commercial
Real Estate		187,201		14,468		13,923		-
Commercial and Industrial		23,284		1,864		2,630		-
Commercial Construction		20,149		-		5,225		-
Consumer and Other Loans		10,673		-		-		-
Total	$	853,731	$	36,819	$	41,947	$	-

At June 30, 2011, $23.1 million of the $51.6 million of the classified loans were also considered impaired as compared to December 31, 2010, when $28.4 million of the $41.9 million of the classified loans were also considered impaired.

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loans, the Corporation also evaluated credit quality based on the aging status of the loan, which was previously presented.

A summary of the allowance for loan losses for the quarterly periods indicated follows (in thousands):

	June 30,			March 31,			December 31,			September 30,			June 30,
	2011			2011			2010			2010			2010

Allowance for loan losses:
Beginning of period	$	14,386		$	14,282		$	14,025		$	13,856		$	13,720
Provision for loan losses		2,000			2,000			2,850			2,000			2,750
Charge-offs, net		(2,330	)		(1,896	)		(2,593	)		(1,831	)		(2,614	)
End of period	$	14,056		$	14,386		$	14,282		$	14,025		$	13,856

Allowance for loan losses as a %
of total loans		1.46	%		1.51	%		1.53	%		1.49	%		1.44	%
Allowance for loan losses as a %
of nonperforming loans		91.54	%		73.79	%		76.05	%		78.02	%		65.68	%

The activity in the allowance for loan losses for the three months ended June 30, 2011 is summarized below:



	March 31,										June 30,
	2011										2011
	Ending										Ending
(In Thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary
Residential
Mortgage	$	1,573	$	(115	)	$	-	$	204		$	1,662
Home Equity Lines
of Credit		174		-			-		12			186
Junior Lien Loan
On Residence		208		(1	)		14		(12	)		209
Multifamily
Property		367		-			-		96			463
Owner-Occupied
Commercial
Real Estate		3,387		(1,554	)		39		1,650			3,522
Investment Commercial
Real Estate		4,712		(618	)		1		4			4,099
Commercial and
Industrial		2,451		(29	)		24		(47	)		2,399
Commercial
Construction		903		(86	)		-		(23	)		794
Consumer and
Other		90		(5	)		-		13			98
Unallocated		521		-			-		103			624
Total ALLL	$	14,386	$	(2,408	)	$	78	$	2,000		$	14,056

The activity in the allowance for loan losses for the six months ended June 30, 2011 is summarized below:



	December 31,										June 30,
	2010										2011
	Ending										Ending
(In Thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary
Residential
Mortgage	$	1,502	$	(288	)	$	-	$	448		$	1,662
Home Equity Lines
of Credit		160		(60	)		-		86			186
Junior Lien Loan
On Residence		228		(13	)		14		(20	)		209
Multifamily
Property		303		(84	)		8		236			463
Owner-Occupied
Commercial
Real Estate		2,777		(1,554	)		39		2,260			3,522
Investment Commercial
Real Estate		4,759		(1,632	)		1		971			4,099
Commercial and
Industrial		2,719		(96	)		26		(250	)		2,399
Commercial
Construction		1,246		(586	)		11		123			794
Consumer and
Other		66		(12	)		-		44			98
Unallocated		522		-			-		102			624
Total ALLL	$	14,282	$	(4,325	)	$	99	$	4,000		$	14,056