Allowance for Loan Losses

6 Months Ended

Jun. 30, 2011

Allowance for Loan Losses

Note 4. Allowance for Loan Losses

A summary of transactions in the allowance for loan losses follows:

	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Balance, beginning of period	$	5,786		$	3,836		$	6,095		$	4,510
Provisions charged to operating expenses		2,200			1,800			1,100			900
Loan losses:
Commercial		(453	)		(216	)		(143	)		(181	)
Consumer		(355	)		(101	)		(309	)		(32	)
Real Estate		(706	)		(450	)		(229	)		(320	)
Home Equity		(56	)		(19	)		(56	)		—
Total Loan Losses		(1,570	)		(786	)		(737	)		(533	)
Recoveries:
Commercial		32			—			16			—
Consumer		24			40			6			13
Real Estate		9			—			1			—
Home Equity		27			—			27			—
Total recoveries		92			40			50			13
Net loan losses		(1,478	)		(746	)		(687	)		(520	)
Balance, End of Period	$	6,508		$	4,890		$	6,508		$	4,890

Allowance for Loan Losses (in thousands)

Six Months Ended June 30, 2011	Commercial			Real Estate			Home Equity			Credit Cards			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	1,724		$	1,814		$	407		$	59		$	111		$	1,671	$	5,786
Charge-offs		(453	)		(706	)		(56	)		(45	)		(310	)		—		(1,570	)
Recoveries		32			9			27			14			10			—		92
Provision		509			667			3			29			624			368		2,200
Ending Balance	$	1,812		$	1,784		$	381		$	57		$	435		$	2,039	$	6,508
Individually evaluated for impairment (specific reserve)		40			997			84			—			325			—		1,446
Collectively evaluated for impairment		1,772			787			297			57			110			2,039		5,062
Three Months Ended June 30, 2011		Commercial			Real Estate			Home Equity			Credit Cards			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	1,696		$	1,490		$	425		$	64		$	649		$	1,771	$	6,095
Charge-offs		(143	)		(229	)		(56	)		(10	)		(299	)		—		(737	)
Recoveries		16			1			27			4			2			—		50
Provision		243			522			(15	)		(1	)		83			268		1,100
Ending Balance	$	1,812		$	1,784		$	381		$	57		$	435		$	2,039	$	6,508
Individually evaluated for impairment (specific reserve)		40			997			84			—			325			—		1,446
Collectively evaluated for impairment		1,772			787			297			57			110			2,039		5,062

Recorded Investment in Loan Receivables (in thousands)

June 30, 2011	Commercial		Real Estate		Home Equity		Credit Cards		Consumer		Unallocated		Total
Loan Receivable:	$	164,137	$	220,582	$	56,141	$	2,672	$	15,398	$	—	$	458,930
Individually evaluated for impairment	$	14,693	$	25,003	$	1,331	$	—	$	852	$	—	$	41,879
Collectively evaluated for impairment	$	149,444	$	195,579	$	54,810	$	2,672	$	14,546	$	—	$	417,051

Allowance for Loan Losses and Recorded Investment in Loan Receivables (in thousands)

December 31, 2010	Commercial		Real Estate		Home Equity		Credit Cards		Consumer		Unallocated		Total
Allowance for loan losses:
Ending Balance	$	1,724	$	1,814	$	407	$	59	$	111	$	1,671	$	5,786
Ending Balance:
Individually evaluated for impairment (specific reserve)		161		1,003		118		—		1		—		1,283
Collectively evaluated for impairment		1,563		811		289		59		110		1,671		4,503
Loans Receivable:	$	153,511	$	214,906	$	54,593	$	2,771	$	19,366	$	—	$	445,147
Individually evaluated for impairment	$	12,406	$	16,806	$	1,538	$	—	$	1,099	$	—	$	31,849
Collectively evaluated for impairment	$	141,105	$	198,100	$	53,055	$	2,771	$	18,267	$	—	$	413,298

Aging of Past Due Loans Receivable (in thousands) as of June 30, 2011

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Total Past Due		Non-Accrual Loans		Current		Total Loans Receivable
Commercial	$	3,706	$	311	$	315	$	4,332	$	4,729	$	155,076	$	164,137
Real Estate		3,679		1,665		1,781		7,125		2,896		210,560		220,581
Home Equity		815		131		468		1,414		366		54,361		56,141
Credit Cards		27				3		30		—		2,642		2,672
Consumer		201		108		73		382		1,769		13,248		15,399
Total	$	8,428	$	2,215	$	2,640	$	13,283	$	9,760	$	435,887	$	458,930

Aging of Past Due Loans Receivable (in thousands) as of December 31, 2010

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Total Past Due		Non-Accrual Loans		Current		Total Loans Receivable
Commercial	$	756	$	382	$	4,581	$	5,719	$	1,656	$	146,137	$	153,512
Real Estate		6,303		1,395		3,021		10,719		5,189		198,998		214,906
Home Equity		1,302		595		588		2,485		715		51,392		54,592
Credit Cards		19		6		—		25		—		2,746		2,771
Consumer		1,240		67		54		1,361		30		17,975		19,366
Total	$	9,620	$	2,445	$	8,244	$	20,309	$	7,590	$	417,248	$	445,147

Credit quality indicators as of June 30, 2011

	JUNE 30, 2011
Corporate Credit Exposure
Credit Risk Profile by Creditworthiness Category
		Real Estate		Commercial		Home Equity
Grade 1 - Minimal Risk	$	65	$	162	$	—
Grade 2 - Modest Risk		1,913		2,542		425
Grade 3 - Average Risk		24,211		16,650		7,768
Grade 4 - Acceptable Risk		98,329		90,222		38,744
Grade 5 - Marginally Acceptable		47,096		29,930		6,148
Grade 6 – Watch		19,763		9,829		1,192
Grade 7 – Substandard		29,120		14,669		1,864
Grade 8 – Doubtful		84		133		—
Total	$	220,581	$	164,137	$	56,141
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
				Credit Cards		Consumer
Performing			$	2,672	$	15,326
Non performing (past due 90 days or greater)				—		73
Total			$	2,672	$	15,399

See following page for description of loan grades.

	DECEMBER 31, 2010
Corporate Credit Exposure
Credit Risk Profile by Creditworthiness Category
	Real Estate	Commercial	Home Equity
Grade 1 - Minimal Risk	$                         69	$                       175	$                         -
Grade 2 - Modest Risk	818	1,679	575
Grade 3 - Average Risk	30,042	16,254	7,943
Grade 4 - Acceptable Risk	107,028	77,472	37,848
Grade 5 - Marginally Acceptable	40,163	40,908	5,473
Grade 6 – Watch	16,785	7,781	905
Grade 7 – Substandard	19,719	8,640	1,849
Grade 8 – Doubtful	282	603	-
Total	$                214,906	$                153,512	$               54,593
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
		Credit Cards	Consumer
Performing		$             2,771	$                19,312
Non performing (past due 90 days or greater)		-	55
Total		$                    2,771	$               19,367

Credit quality indicators as of December 31, 2010

Description of loan grades:

Grade 1 - Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

Grade 2 - Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

Grade 3 - Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.

Grade 4 - Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must by covered through additional long term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.

Grade 5 - Marginally acceptable: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed, but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.

Grade 6 - Watch: Loans are currently protected, but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve managements close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 - Substandard: Loans’ having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Grade 8 - Doubtful: The loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful