Major classifications of loans at year-end are summarized as follows:

	2011		2010
Residential real estate	$	221,756	$	233,513
Multifamily real estate		34,335		41,037
Commercial real estate:
Owner occupied		101,864		106,924
Non owner occupied		166,540		155,839
Commercial and industrial		76,960		82,591
Consumer		30,090		32,926
All other		59,378		73,134
	$	690,923	$	725,964

Certain directors and executive officers of the Banks and companies in which they have beneficial ownership, were loan customers of the Banks during 2011 and 2010. Such related party loans are governed by federal banking regulations which require such loans to be made in the ordinary course of business.

An analysis of the 2011 activity with respect to all director and executive officer loans is as follows:

Balance, December 31, 2010	$	16,965
Additions, including loans now meeting disclosure requirements		9,723
Amounts collected and loans no longer meeting disclosure requirements		(8,276	)
Balance, December 31, 2011	$	18,412

Activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2011 was as follows:

Loan Class	Balance Dec 31, 2010		Provision for loan losses			Loans charged-off			Recoveries		Balance Dec 31, 2011

Residential real estate	$	2,666	$	(241	)	$	(347	)	$	56	$	2,134
Multifamily real estate		252		11			-			21		284
Commercial real estate:
Owner occupied		1,141		(52	)		(171	)		-		918
Non owner occupied		1,644		1,081			(382	)		38		2,381
Commercial and industrial		2,421		(555	)		(23	)		37		1,880
Consumer		366		(4	)		(152	)		88		298
All other		1,375		3,390			(2,951	)		86		1,900
Total	$	9,865	$	3,630		$	(4,026	)	$	326	$	9,795

Activity in the allowance for loan losses was as follows:

	2010			2009
Balance, beginning of year	$	7,569		$	8,544
Loans charged off		(1,473	)		(2,437	)
Recoveries		472			410
Provision for loan losses		3,297			1,052
Balance, end of year	$	9,865		$	7,569

Purchased Loans

As a result of the acquisition Abigail Adams National Bancorp, the Company holds purchased loans for which there was, at the October 1, 2009 acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at December 31, 2011 and December 31, 2010.

	2011		2010
Residential Real Estate	$	282	$	1,553
Multifamily Real Estate		3,708		4,742
Commercial Real Estate
Owner Occupied		1,934		4,564
Non owner Occupied		6,427		5,189
Commercial and industrial		583		3,522
All other		1,925		9,289
Total carrying amount	$	14,859	$	28,859

Carrying amount, net of allowance	$	14,859	$	28,669

The Company cannot reasonably estimate the cash flows expected to be collected on these loans and therefore has continued to account for these loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment. If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the tables below.

For those purchased loans disclosed above, the Company increased the allowance for loan losses by $149 for the year ended December 31, 2010 and decreased the allowance for loan losses by $190 for the year ended December 31, 2011.

Past Due and Non-performing Loans

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 December 31, 2011 and December 31 2010. The recorded investment in non-accrual loans is less than the principal owed on non-accrual loans due to discounts applied to the carrying value of the loan at time of their acquisition and interest payments made by the borrower which have been used to reduce the recorded investment in the loan rather than recognized as interest income.

December 31, 2011	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing

Residential real estate	$	4,479	$	4,111	$	1,216
Multifamily real estate		13,118		11,139		-
Commercial real estate
Owner occupied		9,970		8,260		851
Non owner occupied		12,938		9,835		1,596
Commercial and industrial		4,756		3,227		814
Consumer		246		237		50
All other		9,198		5,545		-
Total	$	54,705	$	42,354	$	4,527

December 31, 2010	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing

Residential real estate	$	4,845	$	3,764	$	80
Multifamily real estate		6,764		4,742		-
Commercial real estate
Owner occupied		12,680		10,493		-
Non owner occupied		14,624		12,081		-
Commercial and industrial		7,939		5,813		319
Consumer		15		15		15
All other		14,805		10,223		-
Total	$	61,672	$	47,131	$	414

Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

Loan Class	Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due

Residential real estate	$	221,756	$	6,729	$	3,635	$	10,364	$	211,392
Multifamily real estate		34,335		3,249		8,892		12,141		22,194
Commercial real estate:
Owner occupied		101,864		8,081		3,981		12,062		89,802
Non owner occupied		166,540		2,444		6,065		8,509		158,031
Commercial and industrial		76,960		1,714		3,153		4,867		72,093
Consumer		30,090		497		233		730		29,360
All other		59,378		222		5,532		5,754		53,624
Total	$	690,923	$	22,936	$	31,491	$	54,427	$	636,496

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010 by class of loans:

Loan Class	Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due

Residential real estate	$	233,513	$	5,902	$	2,266	$	8,168	$	225,345
Multifamily real estate		41,037		4,471		2,140		6,611		34,426
Commercial real estate:
Owner occupied		106,924		5,638		5,797		11,435		95,489
Non owner occupied		155,839		1,141		6,907		8,048		147,791
Commercial and industrial		82,591		1,216		5,965		7,181		75,410
Consumer		32,926		395		29		424		32,502
All other		73,134		4,852		10,203		15,055		58,079
Total	$	725,964	$	23,615	$	33,307	$	56,922	$	669,042

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011:

	Allowance for Loan Losses								Loan Balances
Loan Class	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total

Residential real estate	$	451	$	1,683	$	-	$	2,134	$	9,795	$	211,679	$	282	$	221,756
Multifamily real estate		-		284		-		284		8,594		22,033		3,708		34,335
Commercial real estate:
Owner occupied		138		780		-		918		8,663		91,267		1,934		101,864
Non-owner occupied		922		1,459		-		2,381		5,147		154,966		6,427		166,540
Commercial and industrial		894		986		-		1,880		3,636		72,741		583		76,960
Consumer		37		261		-		298		37		30,053		-		30,090
All other		605		1,295		-		1,900		8,372		49,081		1,925		59,378
Total	$	3,047	$	6,748	$	-	$	9,795	$	44,244	$	631,820	$	14,859	$	690,923

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2010:

	Allowance for Loan Losses								Loan Balances
Loan Class	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total

Residential real estate	$	48	$	2,618	$	-	$	2,666	$	207	$	231,753	$	1,553	$	233,513
Multifamily real estate		-		252		-		252		-		36,295		4,742		41,037
Commercial real estate:
Owner occupied		280		861		-		1,141		7,328		95,032		4,564		106,924
Non-owner occupied		429		1,025		190		1,644		7,031		143,619		5,189		155,839
Commercial and industrial		1,389		1,032		-		2,421		5,022		74,047		3,522		82,591
Consumer		23		343		-		366		43		32,883		-		32,926
All other		163		1,212		-		1,375		2,163		61,682		9,289		73,134
Total	$	2,332	$	7,343	$	190	$	9,865	$	21,794	$	675,311	$	28,859	$	725,964

In the tables below, total individually evaluated impaired loans include certain purchased loans that were acquired with deteriorated credit quality that are still individually evaluated for impairment.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2011. The table includes $14,859 of loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	5,602	$	5,329	$	-
Multifamily real estate		15,513		12,302		-
Commercial real estate
Owner occupied		10,939		9,291		-
Non owner occupied		12,296		9,383		-
Commercial and industrial		3,392		2,287		-
All other		8,957		5,306		-
		56,699		43,898		-
With an allowance recorded:
Residential real estate	$	4,803	$	4,748	$	451
Commercial real estate
Owner occupied		1,384		1,306		138
Non owner occupied		2,240		2,191		922
Commercial and industrial		2,242		1,932		894
Consumer		37		37		37
All other		4,992		4,991		605
		15,698		15,205		3,047
Total	$	72,397	$	59,103	$	3,047

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010. The table includes $27,306 of loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Unpaid PrincipalBalance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	207	$	10	$	-
Multifamily real estate		6,764		4,742		-
Commercial real estate						-
Owner occupied		10,437		8,720
Non owner occupied		6,338		5,105		-
Commercial and industrial		5,043		3,837		-
All other		13,868		9,289		-
		42,657		31,703		-
With an allowance recorded:
Residential real estate	$	197	$	197	$	48
Commercial real estate
Owner occupied		3,596		3,172		280
Non owner occupied		8,484		7,115		619
Commercial and industrial		5,891		4,707		1,389
Consumer		43		43		23
All other		2,165		2,163		163
		20,376		17,397		2,522
Total	$	63,033	$	49,100	$	2,522

Impaired loans were as follows:

	2011		2010		2009
Impaired loans at year-end with an allowance	$	15,205	$	17,397	$	14,494
Impaired loans at year-end with no allowance		43,898		31,703		49,370
Amount of the allowance for loan losses allocated		3,047		2,522		1,279
Average of impaired loans during the year		53,719		67,942		21,236
Interest income recognized during impairment		1,836		789		2,784
Cash-basis interest income recognized		1,802		733		2,327

The following table presents by loan class, the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the year ended December 31, 2011. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Year ended December 31, 2011
Loan Class	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

Residential real estate	$	2,227	$	84	$	81
Multifamily real estate		8,428		150		151
Commercial real estate:
Owner occupied		12,653		1,083		1,082
Non-owner occupied		11,417		113		84
Commercial and industrial		7,196		217		211
Consumer		43		5		5
All other		11,755		184		188
Total	$	53,719	$	1,836	$	1,802

Troubled Debt Restructurings

A loan is classified as a troubled debt restructuring ("TDR") when loan terms are modified due to a borrower's financial difficulties and a concession is granted to a borrower that would not have otherwise been considered. Most of the Company's loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months. These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment.

The following table presents TDR's as of December 31, 2011 and December 31, 2010:

December 31, 2011	TDR's on Non-accrual		Other TDR's		Total TDR's

Residential real estate	$	59	$	1,371	$	1,430
Commercial real estate
Owner occupied		4,541		-		4,541
Non owner occupied		3,135		1,641		4,776
Commercial and industrial		42		897		939
Consumer		11		1		12
All other		-		2,041		2,041
Total	$	7,788	$	5,951	$	13,739

December 31, 2010	TDR's on Non-accrual		Other TDR's		Total TDR's

Residential real estate	$	-	$	1,078	$	1,078
Commercial real estate
Owner occupied		-		365		365
Non owner occupied		-		511		511
Commercial and industrial		-		292		292
Consumer		-		3		3
All other		-		390		390
Total	$	-	$	2,639	$	2,639

At December 31, 2011, $238,000 in specific reserves was allocated to loans that had restructured terms. At December 31, 2010 $5,000 in specific reserves was allocated to loans that had restructured terms.

The following table presents TDR's that occurred during the year ended December 31, 2011:

	Year ended December 31, 2011
Loan Class	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Residential real estate		1	$	827	$	827
Commercial real estate
Owner occupied		1		4,541		4,541
Non-owner occupied		2		4,689		4,689
Commercial and industrial		2		894		894
All other		1		2,041		2,041
Total		7	$	12,992	$	12,992

The troubled debt restructurings described above increased the allowance for loan losses by $178 during the year ended December 31, 2011.

During the year ended December 31, 2011, there were no TDR's for which there as a payment default within twelve months following the modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

The Company 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 Company analyzes non-homogeneous loans, such as commercial, commercial real estate, multifamily residential and commercial purpose loans secured residential real estate, on a monthly basis. For consumer loans, including consumer loans secured by residential real estate, the analysis involves monitoring the performing status of the loan. At the time such loans become past due by 30 days or more, the Company evaluates the loan to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as 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 loan 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 weaknesses 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 December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loan Class	Pass		Special Mention		Substandard		Doubtful		Total Loans

Residential real estate	$	198,865	$	8,105	$	14,731	$	55	$	221,756
Multifamily real estate		16,798		2,218		15,319		-		34,335
Commercial real estate:
Owner occupied		79,753		5,377		16,600		134		101,864
Non-owner occupied		146,305		4,883		15,352		-		166,540
Commercial and industrial		58,158		8,675		10,095		32		76,960
Consumer		29,753		198		102		37		30,090
All other		43,485		1,052		14,064		777		59,378

Total	$	573,117	$	30,508	$	86,263	$	1,035	$	690,923

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:

Loan Class	Pass		Special Mention		Substandard		Doubtful		Total Loans

Residential real estate	$	210,519	$	13,696	$	9,091	$	207	$	233,513
Multifamily real estate		24,231		5,955		10,851		-		41,037
Commercial real estate:
Owner occupied		79,147		11,024		16,373		380		106,924
Non-owner occupied		136,019		3,086		16,734		-		155,839
Commercial and industrial		56,842		17,112		8,524		113		82,591
Consumer		32,537		233		113		43		32,926
All other		57,106		4,336		11,119		573		73,134

Total	$	596,401	$	55,442	$	72,805	$	1,316	$	725,964