Note 6 – Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

Changes in the allowance for loan losses and the reserve for unfunded lending commitments for each of the years in the three-year period ended December 31, 2011, are presented below:

	Years Ended December 31,
(in thousands)	2011			2010			2009

Allowance for Loan Losses
Balance, beginning of year	$	8,420		$	8,166		$	7,824
Provision for loan losses		3,170			1,490			1,662
Charge-offs		(1,863	)		(1,531	)		(1,601	)
Recoveries		802			295			281
Balance, end of year	$	10,529		$	8,420		$	8,166

	Years Ended December 31,
		2011			2010			2009
Reserve for Unfunded Lending Commitments
Balance, beginning of year	$	218		$	260		$	475
Provision for unfunded commitments		( 18	)		( 42	)		-
Charge-offs		-			-			215
Balance, end of year	$	200		$	218		$	260

The reserve for unfunded loan commitments is included in other liabilities.

The following table presents the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment.

		Commercial	Residential
	Commercial	Real Estate	Real Estate	Consumer	Total
(in thousands)

Allowance for Loan Losses
Balance as of December 31, 2010	$ 751	$ 4,631	$ 2,921	$ 117	$ 8,420
Charge-offs	(163)	(702)	(871)	(127)	(1,863)
Recoveries	373	306	50	73	802
Provision	275	1,484	1,312	99	3,170
Balance as of December 31, 2011	$ 1,236	$ 5,719	$ 3,412	$ 162	$ 10,529

Balance as of December 31, 2011:

Allowance for Loan Losses
Individually evaluated for impairment	$ -	$ 129	$ 1	$ -	$ 130
Collectively evaluated for impairment	1,236	5,590	3,411	162	10,399
Total	$ 1,236	$ 5,719	$ 3,412	$ 162	$ 10,529

Loans
Individually evaluated for impairment	$ -	$ 1,894	$ 1,295	$ 49	$ 3,238
Collectively evaluated for impairment	131,755	381,175	266,421	8,142	787,493
Loans acquired with deteriorated credit quality	2,411	23,325	8,291	-	34,027
Total	$ 134,166	$ 406,394	$ 276,007	$ 8,191	$ 824,758

Balances at December 31, 2010:

Allowance for Loan Losses
Individually evaluated for impairment	$ -	$ -	$ -	$ -	$ -
Collectively evaluated for impairment	751	4,631	2,921	117	8,420
Total	$ 751	$ 4,631	$ 2,921	$ 117	$ 8,420

Loans
Individually evaluated for impairment	$ 231	$ 329	$ -	$ -	$ 560
Collectively evaluated for impairment	84,820	247,103	180,399	7,707	520,029
Loans acquired with deteriorated credit quality	-	129	63	-	192
Total	$ 85,051	$ 247,561	$ 180,462	$ 7,707	$ 520,781

The allowance for loan losses is allocated to loan segments based upon historical loss factors, risk grades on individual loans, portfolio analyses of smaller balance, homogenous loans, and qualitative factors. Qualitative factors include trends in delinquencies, nonaccrual loans, and loss rates; trends in volume and terms of loans, effects of changes in risk selection, underwriting standards, and lending policies; experience of lending officers and other lending staff; national and local economic trends and conditions; and concentrations of credit.