Note D –Allowance For Loan Losses

The following summarizes the activity in the allowance for loan loss, by portfolio segment, for the six months ended June 30, 2011. The following also presents the balance in the allowance for loan loss disaggregated on the basis of the Company's impairment measurement method and the related recorded investment in loans, by portfolio segment, as of June 30, 2011 and December 31, 2010.

(In thousands)	Commercial and industrial	Commercial real estate	Residential real estate	Home equity	Consumer	DDA overdrafts	Previously securitized loans	Total
Allowance for loan loss:
Beginning balance	$ 1,864	$ 8,488	$ 4,149	$ 2,640	$ 95	$ 988	$ -	$ 18,224
Charge-offs	(75)	(200)	(927)	(405)	(58)	(826)	-	(2,491)
Recoveries	6	28	18	5	49	733	-	839
Provision	(851)	1,707	1,062	437	4	13	-	2,372
Ending balance	$ 944	$ 10,023	$ 4,302	$ 2,677	$ 90	$ 908	$ -	$ 18,944

As of June 30, 2011:
Allowance for loan loss
Evaluated for impairment:
Individually	$ -	$ 2,800	$ -	$ -	$ -	$ -	$ -	$ 2,800
Collectively	944	7,223	4,302	2,677	90	908	-	16,144
Total	$ 944	$ 10,023	$ 4,302	$ 2,677	$ 90	$ 908	$ -	$ 18,944

Loans
Evaluated for impairment:
Individually	$ 36	$ 26,096	$ 479	$ 298	$ -	$ -	$ -	$ 26,909
Collectively	121,113	667,863	621,639	420,454	36,626	2,415	325	1,870,435
Total	$ 121,149	$ 693,959	$ 622,118	$ 420,752	$ 36,626	$ 2,415	$ 325	$1,897,344

As of December 31, 2010:
Allowance for loan loss
Evaluated for impairment:
Individually	$ -	$ 150	$ -	$ -	$ -	$ -	$ -	$ 150
Collectively	1,864	8,338	4,149	2,640	95	988	-	18,074
Total	$ 1,864	$ 8,488	$ 4,149	$ 2,640	$ 95	$ 988	$ -	$ 18,224

Loans
Evaluated for impairment:
Individually	$ -	$ 15,909	$ 483	$ 1,047	$ -	$ -	$ -	$ 17,439
Collectively	134,612	645,849	609,886	415,125	38,424	2,876	789	1,847,561
Total	$ 134,612	$ 661,758	$ 610,369	$ 416,172	$ 38,424	$ 2,876	$ 789	$1,865,000

Credit Quality Indicators

All commercial loans within the portfolio are subject to internal risk grading. All non-commercial loans are evaluated based on payment history. The Company's internal risk ratings are: Exceptional, Good, Acceptable, Pass/Watch, Special Mention, Substandard and Doubtful. Each internal risk rating is defined in the loan policy using the following criteria: balance sheet yields, ratios and leverage, cash flow spread and coverage, prior history, capability of management, market position/industry, potential impact of changing economic, legal, regulatory or environmental conditions, purpose structure, collateral support, and guarantor support. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company's internal loan review process. Based on an individual loan's risk grade, estimated loss percentages are applied to the outstanding balance of the loan to determine the amount of probable loss.

The Company categorizes loans into risk categories based on relevant information regarding the customer's debt service ability, capacity, overall collateral position along with other economic trends, and historical payment performance. The risk grades for each credit are updated when the Company receives current financial information, the loan is reviewed by the Company's internal loan review/credit administration departments, or the loan becomes delinquent or impaired. The risk grades are updated a minimum of annually for loans rated exceptional, good, acceptable, or pass/watch. Loans rated special mention, substandard or doubtful are reviewed at least quarterly. The Company uses the following definitions for risk ratings:

Risk Rating	Description

Exceptional	Loans classified as exceptional are secured with liquid collateral conforming to the internal loan policy. Loans rated within this category pose minimal risk of loss to the bank and the risk grade within this pool of loans is generally updated on an annual basis.

Good	Loans classified as good have similar characteristics that include a strong balance sheet, satisfactory debt service coverage ratios, strong management and/or guarantors, and little exposure to economic cycles. Loans within this category are generally reviewed on an annual basis. Loans in this category generally have a low chance of loss to the bank.

Acceptable	Loans classified as acceptable have acceptable liquidity levels, adequate debt service coverage ratios, experienced management, and have average exposure to economic cycles. Loans within this category generally have a low risk of loss to the bank.

Pass/watch	Loans classified as pass/watch have erratic levels of leverage and/or liquidity, cash flow is volatile and the borrower is subject to moderate economic risk. A borrower in this category poses a low to moderate risk of loss to the bank.

Special mention	Loans classified as special mention have a potential weakness(es) that deserves management's close attention. The potential weakness could result in deterioration of the loan repayment or the bank's credit position at some future date. A loan rated in this category poses a moderate loss risk to the bank.

Substandard	Loans classified as substandard reflect a customer with a well defined weakness that jeopardizes the liquidation of the debt. Loans in this category have the possibility that the bank will sustain some loss if the deficiencies are not corrected and the bank's collateral value is weakened by the financial deterioration of the borrower.

Doubtful	Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that make collection of the full contract amount highly improbable. Loans rated in this category are most likely to cause the bank to have a loss due to a collateral shortfall or a negative capital position.

The following presents loans by the Company's credit quality indicators as of June 30, 2011 and December 31, 2010:

(In thousands)	Commercial and industrial	Commercial real estate	Residential real estate	Home equity	Consumer	DDA overdrafts	Previously securitized loans	Total
June 30, 2011:
Risk Grade
Exceptional	$ 3,673	$ 44	-	-	-	-	-	$ 3,717
Good	6,879	68,341	-	-	-	-	-	75,220
Acceptable	82,158	421,932	-	-	-	-	-	504,090
Pass/watch	26,541	150,110	-	-	-	-	-	176,651
Special mention	396	17,906	-	-	-	-	-	18,302
Substandard	1,373	35,529	-	-	-	-	-	36,902
Doubtful	129	97	-	-	-	-	-	226
Total	$ 121,149	$ 693,959						815,108

Payment Activity
Performing	-	-	$ 620,490	$ 419,244	$ 36,626	$ 2,415	$ 311	1,079,086
Non-performing	-	-	1,628	1,508	-	-	14	3,150
Total	-	-	$ 622,118	$ 420,752	$ 36,626	$ 2,415	$ 325	$1,897,344

December 31, 2010:
Risk Grade
Exceptional	$ 3,241	$ 47	-	-	-	-	-	$ 3,288
Good	5,693	68,417	-	-	-	-	-	74,110
Acceptable	98,067	396,072	-	-	-	-	-	494,139
Pass/watch	20,675	142,223	-	-	-	-	-	162,898
Special mention	4,030	28,547	-	-	-	-	-	32,577
Substandard	2,693	26,354	-	-	-	-	-	29,047
Doubtful	213	98	-	-	-	-	-	311
Total	$ 134,612	$ 661,758						796,370

Payment Activity
Performing	-	-	$ 608,422	$ 414,599	$ 38,419	$ 2,875	$ 604	1,064,919
Non-performing	-	-	1,947	1,573	5	1	185	3,711
Total	-	-	$ 610,369	$ 416,172	$ 38,424	$ 2,876	$ 789	$1,865,000

Aging Analysis of Accruing and Non-Accruing Loans

The following presents an aging analysis of the Company's accruing and non-accruing loans as of June 30, 2011 and December 31, 2010:

(In thousands)	Commercial and industrial	Commercial real estate	Residential real estate	Home equity	Consumer	DDA overdrafts	Previously securitized loans	Total
June 30, 2011:
30 – 59 days past due	$ 476	$ 2,010	$ 4,675	$ 2,126	$ 156	$ 277	$ 252	$ 9,972
60 – 89 days past due	-	176	159	122	29	2	53	541
Over 90 days past due	-	-	137	51	-	-	-	188
Non-accrual	256	20,194	1,139	1,575	-	-	14	23,178
	732	22,380	6,110	3,874	185	279	319	33,879
Current	120,417	671,579	616,008	416,878	36,441	2,136	6	1,863,465
Total	$ 121,149	$ 693,959	$ 622,118	$ 420,752	$ 36,626	$ 2,415	$ 325	$ 1,897,344

December 31, 2010:
30 – 59 days past due	$ -	$ 775	$ 3,512	$ 1,817	$ 122	$ 354	$ 247	$ 6,827
60 – 89 days past due	-	-	667	278	20	6	44	1,015
Over 90 days past due	-	-	595	181	5	1	54	836
Non-accrual	237	7,705	1,352	1,392	-	-	131	10,817
	237	8,480	6,126	3,668	147	361	476	19,495
Current	134,375	653,278	604,243	412,504	38,277	2,515	313	1,845,505
Total	$ 134,612	$ 661,758	$ 610,369	$ 416,172	$ 38,424	$ 2,876	$ 789	$ 1,865,000

Impaired Loans

The following presents the Company's impaired loans as of June 30, 2011 and December 31, 2010:

(In thousands)	Commercial and industrial	Commercial real estate	Residential real estate	Home equity	Consumer	DDA overdrafts	Previously securitized loans	Total
June 30, 2011:
With no related allowance recorded
Recorded investment	$ 36	$ 12,013	$ 479	$ 1,046	$ -	$ -	$ -	$ 13,574
Unpaid principal
balance	36	14,631	479	1,046	-	-	-	16,192

With an allowance recorded
Recorded investment	$ 220	$ 17,847	$ 1,289	$ 877	$ -	$ -	$ -	$ 20,233
Unpaid principal
balance	220	17,847	1,289	877	-	-	-	20,233
Related allowance	87	3,765	322	219	-	-	-	4,393

December 31, 2010:
With no related allowance recorded
Recorded investment	$ -	$ 13,755	$ 483	$ 1,048	$ -	$ -	$ -	$ 15,286
Unpaid principal
balance	-	18,390	483	1,048	-	-	-	19,921

With an allowance recorded
Recorded investment	$ 237	$ 3,670	$ 1,947	$ 824	$ 5	$ 1	$ 185	$ 6,869
Unpaid principal
balance	237	4,199	1,947	824	5	1	185	7,398
Related allowance	113	554	487	206	1	1	46	$1,408

The following table presents information related to the average recorded investment and interest income recognized on the Company's impaired loans for the six months ended June 30, 2011:

(In thousands)	Commercial and industrial	Commercial real estate	Residential real estate	Home equity	Consumer	DDA overdrafts	Previously securitized loans	Total
June 30, 2011:
With no related allowance recorded
Average recorded
investment	$ -	$ 12,047	$ 479	$ 1,047	$ -	$ -	$ -	$ 13,573
Interest income
recognized	-	206	15	5	-	-	-	226

With an allowance recorded
Average recorded
investment	$ 129	$ 17,166	$ 700	$ 314	$ -	$ -	$ -	$ 18,309
Interest income
recognized	-	157	-	-	-	-	-	157

Approximately $0.1 million of interest income would have been recognized during each of the three and six months ended June 30, 2011, if such loans had been current in accordance with their original terms. There were no commitments to provide additional funds on non-accrual, impaired or other potential problem loans at June 30, 2011.

During the third quarter of 2011, the Company became the beneficiary of a life insurance policy carried by one of the Company's commercial borrowers. The Company had previously placed several loans to this customer on non-accrual status and taken the charge-offs related to these credits. The Company anticipates recoveries associated with these loans during the third or fourth quarter of 2011 in the amount of approximately $1.5 million.