NOTE 3 - LOANS

Major classifications of loans at March 31, 2012 and December 31, 2011 are summarized as follows:

	2012		2011
Residential real estate	$	218,260	$	221,756
Multifamily real estate		33,237		34,335
Commercial real estate:
Owner occupied		101,607		101,864
Non owner occupied		163,869		166,540
Commercial and industrial		71,566		76,960
Consumer		28,751		30,090
All other		56,709		59,378
	$	673,999	$	690,923

Activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2012 was as follows:

Loan Class	Balance Dec 31, 2011		Provision for loan losses			Loans charged-off		Recoveries		Balance March 31, 2012

Residential real estate	$	2,134	$	276		$	65	$	23	$	2,368
Multifamily real estate		284		150			-		-		434
Commercial real estate:
Owner occupied		918		121			15		-		1,024
Non owner occupied		2,381		(22	)		38		-		2,321
Commercial and industrial		1,880		544			2		-		2,422
Consumer		298		47			66		26		305
All other		1,900		(166	)		335		38		1,437
Total	$	9,795	$	950		$	521	$	87	$	10,311

Activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2011 was as follows:

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

Residential real estate	$	2,666	$	168		$	80	$	6	$	2,760
Multifamily real estate		252		51			-		-		303
Commercial real estate:
Owner occupied		1,141		115			-		2		1,258
Non owner occupied		1,644		267			16		1		1,896
Commercial and industrial		2,421		(151	)		16		8		2,262
Consumer		366		23			28		25		386
All other		1,375		47			40		35		1,417
Total	$	9,865	$	520		$	180	$	77	$	10,282

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 March 31, 2012 and December 31, 2011.

	2012		2011
Residential real estate	$	279	$	282
Multifamily real estate		3,611		3,708
Commercial real estate
Owner occupied		291		1,934
Non owner occupied		6,388		6,427
Commercial and industrial		565		583
All other		1,553		1,925
Total carrying amount	$	12,687	$	14,859

Carrying amount, net of allowance	$	12,687	$	14,859

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 did not increase the allowance for loan losses for the three months ended March 31, 2012 and decreased the allowance for loan losses by $143 for the three months ended March 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 March 31, 2012 and December 31 2011. 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.

March 31, 2012	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing

Residential real estate	$	4,186	$	3,750	$	1,194
Multifamily real estate		4,724		3,048		1,065
Commercial real estate
Owner occupied		6,570		5,751		1,254
Non owner occupied		14,028		10,744		847
Commercial and industrial		4,905		3,366		1,179
Consumer		127		110		9
All other		6,251		2,421		1
Total	$	40,791	$	29,190	$	5,549

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

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 March 31, 2012 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	$	218,260	$	4,129	$	4,135	$	8,264	$	209,996
Multifamily real estate		33,237		3,227		1,915		5,142		28,095
Commercial real estate:
Owner occupied		101,607		1,201		6,427		7,628		93,979
Non owner occupied		163,869		682		6,206		6,888		156,981
Commercial and industrial		71,566		613		4,036		4,649		66,917
Consumer		28,751		272		39		311		28,440
All other		56,709		78		2,418		2,496		54,213
Total	$	673,999	$	10,202	$	25,176	$	35,378	$	638,621

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 balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2012:

	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	$	561	$	1,807	$	-	$	2,368	$	9,974	$	208,007	$	279	$	218,260
Multifamily real estate		-		434		-		434		1,282		28,344		3,611		33,237
Commercial real estate:
Owner occupied		149		875		-		1,024		7,454		93,862		291		101,607
Non-owner occupied		880		1,441		-		2,321		5,241		152,240		6,388		163,869
Commercial and industrial		1,781		641		-		2,422		10,749		60,252		565		71,566
Consumer		37		268		-		305		37		28,714		-		28,751
All other		167		1,270		-		1,437		5,315		49,841		1,553		56,709
Total	$	3,575	$	6,736	$	-	$	10,311	$	40,052	$	621,260	$	12,687	$	673,999

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, 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

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 March 31, 2012. The table includes $12,687 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	$	5,486	$	5,199	$	-
Multifamily real estate		7,108		4,893		-
Commercial real estate
Owner occupied		8,312		7,090		-
Non owner occupied		12,581		9,485		-
Commercial and industrial		4,102		3,038		-
All other		10,496		6,667		-
		48,085		36,372		-
With an allowance recorded:
Residential real estate	$	5,100	$	5,054	$	561
Commercial real estate
Owner occupied		655		655		149
Non owner occupied		2,199		2,144		880
Commercial and industrial		8,586		8,276		1,781
Consumer		37		37		37
All other		201		201		167
		16,778		16,367		3,575
Total	$	64,863	$	52,739	$	3,575

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 the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three months ended March 31, 2012 and March 31, 2011. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended March 31, 2012						Three months ended March 31, 2011
Loan Class	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

Residential real estate	$	10,165	$	128	$	123	$	263	$	2	$	2
Multifamily real estate		8,598		1,307		1,303		6,668		-		-
Commercial real estate:
Owner occupied		9,171		894		885		11,790		13		14
Non-owner occupied		11,602		35		26		11,206		7		7
Commercial and industrial		7,767		107		107		8,379		173		174
Consumer		37		1		1		41		1		1
All other		8,583		97		81		12,743		6		9
Total	$	55,923	$	2,569	$	2,526	$	51,090	$	202	$	207

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 March 31, 2012 and December 31, 2011:

March 31, 2012	TDR's on Non-accrual		Other TDR's		Total TDR's

Residential real estate	$	317	$	1,086	$	1,403
Commercial real estate
Owner occupied		4,486		-		4,486
Non owner occupied		3,053		1,620		4,673
Commercial and industrial		45		2,890		2,935
Consumer		9		1		10
All other		-		2,039		2,039
Total	$	7,910	$	7,636	$	15,546

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

At March 31, 2012 $145,000 in specific reserves was allocated to loans that had restructured terms. At December 31, 2011 $238,000 in specific reserves was allocated to loans that had restructured terms.

The following table presents TDR's that occurred during the three ended March 31, 2012:

	Three months ended March 31, 2012
Loan Class	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Commercial and industrial		2	$	1,999	$	1,999

The troubled debt restructurings described above increased the allowance for loan losses by $40,000 during the period ending March 31, 2012.

During the three months ended March 31, 2012 and the three months ended March 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 March 31, 2012, 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	$	196,506	$	7,131	$	14,373	$	250	$	218,260
Multifamily real estate		23,133		2,212		7,892		-		33,237
Commercial real estate:
Owner occupied		81,948		5,294		14,365		-		101,607
Non-owner occupied		143,810		4,757		15,302		-		163,869
Commercial and industrial		53,249		6,808		11,486		23		71,566
Consumer		28,505		149		60		37		28,751
All other		44,210		1,138		10,583		778		56,709
Total	$	571,361	$	27,489	$	74,061	$	1,088	$	673,999

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