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Allowance for Loan Losses</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The following table details activity in the Allowance for Loan Losses ("Allowance") for the six month period ending June 30, 2011: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="28%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Home equity</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Real estate</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">lines and other</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="left">Six months ended June 30, 2011</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Commercial</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">construction</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Real estate term</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">consumer</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Unallocated</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Total</td> <td style="border-bottom: #000000 1px solid;"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="6" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Balance, beginning of period</div></td> <td> </td> <td align="left">$</td> <td align="right">6,374</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,035</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,270</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">741</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,986</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">14,406</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Charge-Offs</div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(564</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(90</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(65</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(719</td> <td nowrap="nowrap">)</td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Recoveries</div></td> <td> </td> <td> </td> <td align="right">699</td> <td> </td> <td> </td> <td> </td> <td align="right">13</td> <td> </td> <td> </td> <td> </td> <td align="right">53</td> <td> </td> <td> </td> <td> </td> <td align="right">23</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">788</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Provision</div></td> <td> </td> <td> </td> <td align="right">194</td> <td> </td> <td> </td> <td> </td> <td align="right">584</td> <td> </td> <td> </td> <td> </td> <td align="right">737</td> <td> </td> <td> </td> <td> </td> <td align="right">220</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(636</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">1,099</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="25" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Balance, end of period</div></td> <td> </td> <td align="left">$</td> <td align="right">6,703</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,632</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,970</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">919</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,350</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">15,574</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Balance, end of period: Individually evaluated for impairment</div></td> <td> </td> <td align="left">$</td> <td align="right">513</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">183</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">696</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="25" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Balance, end of period: Collectively evaluated for impairment</div></td> <td> </td> <td align="left">$</td> <td align="right">6,190</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,449</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,970</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">919</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,350</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">14,878</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="25" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The following is a detail of the recorded investment in the loan portfolio, segregated by amounts evaluated individually or collectively in the Allowance at June 30, 2011: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="40%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Home equity</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Real estate</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">lines and other</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Commercial</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">construction</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Real estate term</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">consumer</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Total</td> <td style="border-bottom: #000000 1px solid;"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Balance, end of period</div></td> <td> </td> <td align="left">$</td> <td align="right">232,765</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">47,639</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">314,093</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">42,458</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">636,955</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Balance, end of period: Individually evaluated for impairment</div></td> <td> </td> <td align="left">$</td> <td align="right">4,843</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,949</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,688</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">209</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">12,689</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left"> </div></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Balance, end of period: Collectively evaluated for impairment</div></td> <td> </td> <td align="left">$</td> <td align="right">227,922</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">44,690</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">309,405</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">42,249</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">624,266</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="21" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The following represents the balance of the Allowance as June 30, 2011 segregated by segment and class: </div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="28%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Home equity</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Real estate</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Real estate</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">lines and other</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Total</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Commercial</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Construction</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">term</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">consumer</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Unallocated</td> <td style="border-bottom: #000000 1px solid;"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="6" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Individually evaluated for impairment:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Risk Code 6 - Substandard</div></td> <td> </td> <td align="left">$</td> <td align="right">240</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">57</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">183</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Risk Code 7 - Doubtful</div></td> <td> </td> <td align="left">$</td> <td align="right">456</td> <td> </td> <td> </td> <td> </td> <td align="right">456</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Collectively evaluated for impairment:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Risk Code 3 - Satisfactory</div></td> <td> </td> <td> </td> <td align="right">9,512</td> <td> </td> <td> </td> <td> </td> <td align="right">3,809</td> <td> </td> <td> </td> <td> </td> <td align="right">1,041</td> <td> </td> <td> </td> <td> </td> <td align="right">4,094</td> <td> </td> <td> </td> <td> </td> <td align="right">568</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Risk Code 4 - Watch</div></td> <td> </td> <td> </td> <td align="right">513</td> <td> </td> <td> </td> <td> </td> <td align="right">143</td> <td> </td> <td> </td> <td> </td> <td align="right">68</td> <td> </td> <td> </td> <td> </td> <td align="right">13</td> <td> </td> <td> </td> <td> </td> <td align="right">289</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Risk Code 5 - Special Mention</div></td> <td> </td> <td> </td> <td align="right">2,271</td> <td> </td> <td> </td> <td> </td> <td align="right">2,180</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">31</td> <td> </td> <td> </td> <td> </td> <td align="right">60</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Risk Code 6 - Substandard</div></td> <td> </td> <td> </td> <td align="right">1,232</td> <td> </td> <td> </td> <td> </td> <td align="right">58</td> <td> </td> <td> </td> <td> </td> <td align="right">340</td> <td> </td> <td> </td> <td> </td> <td align="right">832</td> <td> </td> <td> </td> <td> </td> <td align="right">2</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Risk Code 7 - Doubtful</div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Unallocated</div></td> <td> </td> <td> </td> <td align="right">1,350</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">1,350</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="25" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td align="left">$</td> <td align="right">15,574</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">6,703</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,632</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,970</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">919</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,350</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="25" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     At June 30, 2011, the Allowance was $15.6 million, and the Company's ratio of nonperforming loans compared to portfolio loans was 1.85%. The Company's ratio of Allowance compared to portfolio loans at June 30, 2011 was 2.46%.</div></div> 444000 218000 451000 235000 84000 102000 769000 868000 109000 181000 835000 435000 916000 467000 951000 530000 1093000 593000 3000 109000 -2000 182000 -11000 218000 -4000 270000 -3000 11000 8843000 8697000 8556000 296000 150000 311000 158000 -27000 -28000 1883000 780000 -68000 110000 202000 130000 161000 82000 62000 -40000 -881000 -742000 407000 406000 2000 407000 2000 2000000

10754000

16531000

14743000

1242000

648000

1169000

52484000

52658000

52953000

102000

38000

153000

141000

1007164000

1054529000

1049337000

168029000

214010000

182878000

-99000

521000

66721000

105065000

66033000

143831000

38344000

77798000

22316000

15953000

33101000

10000000

6371000

6386925

6387000

6427237

6427000

6433438

6433000

6386925

6427237

6433438

6387000

6427000

6433000

4077000

6380000

136000

222000

272743000

289061000

296508000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>8. Deposit Activities</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     Total deposits at June 30, 2011, December 31, 2010 and June 30, 2010 were $884.2 million, $892.1 million and $851.5 million, respectively. The only deposit category with stated maturity dates is certificates of deposit. At June 30, 2011, the Company had $128.8 million in certificates of deposit as compared to certificates of deposit of $138.2 million and $146.2 million, for the periods ending December 31, 2010 and June 30, 2010, respectively. At June 30, 2011, $89.2 million, or 69%, of the Company's certificates of deposits are scheduled to mature over the next 12 months as compared to $103.7 million, or 75%, of total certificates of deposit at December 31, 2010, and $107.6 million, or 74%, of total certificates of deposit at June 30, 2010. </div></div>

851485000

892136000

884170000

126841000

149104000

152004000

71167000

77411000

74142000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>9. Stock Incentive Plan</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company set aside 325,000 shares of authorized stock for the 2010 Stock Incentive Plan ("2010 Plan") under which it may grant stock options and restricted stock units. The Company's policy is to issue new shares to cover awards. The total number of stock options and restricted stock units outstanding under the 2010 Plan and previous stock incentive plans at June 30, 2011 was 332,417. Under the 2010 plan and previous stock incentive plans, certain key employees have been granted the option to purchase set amounts of common stock at the market price on the day the option was granted. Optionees, at their own discretion, may cover the cost of exercise through the exchange, at the fair market value, of already owned shares of the Company's stock. Options are granted for a 10-year period and vest on a pro rata basis over the initial three years from grant. In addition to stock options, the Company has granted restricted stock units to certain key employees under the 2010 Plan and previous stock incentive plans. These restricted stock grants cliff vest at the end of a three-year time period. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company recognized expenses of $112,000 and $94,000 on the fair value of restricted stock units and $17,000 and $35,000 on the fair value of stock options for a total of $129,000 and $129,000 in stock-based compensation expense for the three-month periods ending June 30, 2011 and 2010, respectively. For the six-month periods ending June 30, 2011 and 2010, the Company recognized expenses of $229,000 and $189,000 on the fair value of restricted stock units and $34,000 and $69,000 on the fair value of stock options for a total of $263,000 and $258,000 in stock-based compensation expense. </div></div> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     Proceeds from the exercise of stock options for the three months ended June 30, 2011 were $103,000. The Company withheld shares valued at $103,000 to pay for stock option exercises or income taxes that resulted from the exercise of stock options or the vesting of restricted stock units for the three-month period ending June 30, 2011. The Company recognized tax deductions of $20,000 related to the exercise of these stock options during the quarter ended June 30, 2011. There were no exercises of stock options in the second quarter of 2010. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     For the six months ending June 30, 2011 and 2010, proceeds from the exercise of stock options were $179,000 and $497,000, respectively. The Company withheld shares valued at $179,000 and $496,000 to pay for stock option exercises or income taxes that resulted from the exercise of stock options or the vesting of restricted stock units for the six-month periods ending June 30, 2011 and 2010, respectively. The Company recognized tax deductions of $38,000 and $102,000 related to the exercise of these stock options during the six months ended June 30, 2011 and 2010, respectively. </div></div>

1293000

1564000

15000

20000

0.63

0.34

0.88

0.49

0.62

0.33

0.86

0.49

517000

244000

596000

292000

102000

38000

102000

38000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>10. Fair Value of Assets and Liabilities</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     <u>Level 1</u>: Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal agency securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     <u>Level 2</u>: Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     <u>Level 3</u>: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's estimation of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The following methods and assumptions were used to estimate fair value disclosures. All financial instruments are held for other than trading purposes. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Cash, due from banks and overnight investments</i>: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Investment securities</i>: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Investments in Federal Home Loan Bank stock are recorded at cost, which also represents fair value. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Loans held for sale</i>: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Loans</i>: Fair value adjustments for loans are mainly related to credit risk, interest rate risk, required equity return, and liquidity risk. Credit risk is primarily addressed in the financial statements through the Allowance (see Note 5). Loans are valued using a discounted cash flow methodology and are pooled based on type of interest rate (fixed or adjustable) and maturity. A discount rate was developed based on the relative risk of the cash flows, taking into account the maturity of the loans and liquidity risk. Impaired loans are carried at fair value. Specific valuation allowances are included in the Allowance. </div></div> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Purchased receivables</i>: Fair values for purchased receivables are based on their carrying amounts due to their short duration and repricing frequency. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Accrued interest receivable</i>: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Deposit liabilities</i>: The fair values of demand and savings deposits are equal to the carrying amount at the reporting date. The carrying amount for variable-rate time deposits approximate their fair value. Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies currently offered interest rates to a schedule of aggregate expected monthly maturities of time deposits. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Accrued interest payable</i>: Due to the short term nature of these instruments, the carrying amounts reported in the balance sheet represent their fair values. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Securities sold under repurchase agreements</i>: Fair values for securities sold under repurchase agreements are based on their carrying amounts due to their short duration and repricing frequency. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Borrowings</i>: Due to the short term nature of these instruments, the carrying amount of short-term borrowings reported in the balance sheet approximate the fair value. Fair values for fixed-rate long-term borrowings are estimated using a discounted cash flow calculation that applies currently offered interest rates to a schedule of aggregate expected monthly payments. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Junior subordinated debentures</i>: Fair value adjustments for junior subordinated debentures are based on discounted cash flows to maturity using current interest rates for similar financial instruments. Management utilized a market approach to determine the appropriate discount rate for junior subordinated debentures. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Assets subject to nonrecurring adjustment to fair value</i>: The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets or OREO at fair value on a nonrecurring basis in accordance with GAAP. Any nonrecurring adjustments to fair value usually result from the write down of individual assets. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and impaired loans as of each reporting date. In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs. The Company's determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company uses external sources to estimate fair value for projects that are not fully constructed as of the date of valuation. These projects are generally valued as if complete, with an appropriate allowance for cost of completion, including contingencies developed from external sources such as vendors, engineers and contractors. The Company believes that recording other real estate owned that is not fully constructed based on as if complete values is more appropriate than recording other real estate owned that is not fully constructed using as is values. We concluded that as if complete values are appropriate for these types of projects based on the accounting guidance for capitalization of project costs and subsequent measurement of the value of real estate. GAAP specifically states that estimates and cost allocations must be reviewed at the end of each reporting period and reallocated based on revised estimates. The Company adjusts the carry value of other real estate owned in accordance with this guidance for increases in estimated cost to complete that exceed the fair value of the real estate at the end of each reporting period. </div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Commitments to extend credit and standby letters of credit</i>: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Limitations</i>: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     Estimated fair values as of June 30, 2011 and December 31, 2010 are as follows: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="6" nowrap="nowrap" align="center">June 30, 2011</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="6" nowrap="nowrap" align="center">December 31, 2010</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Carrying</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Fair</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Carrying</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Fair</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Amount</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Value</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Amount</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Value</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="6" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Financial assets:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Cash, due from banks and overnight investments</div></td> <td> </td> <td align="left">$</td> <td align="right">143,831</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">143,831</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">66,033</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">66,033</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Investment securities</div></td> <td> </td> <td> </td> <td align="right">188,020</td> <td> </td> <td> </td> <td> </td> <td align="right">188,216</td> <td> </td> <td> </td> <td> </td> <td align="right">220,135</td> <td> </td> <td> </td> <td> </td> <td align="right">222,299</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Investment in Federal Home Loan Bank stock</div></td> <td> </td> <td> </td> <td align="right">2,003</td> <td> </td> <td> </td> <td> </td> <td align="right">2,003</td> <td> </td> <td> </td> <td> </td> <td align="right">2,003</td> <td> </td> <td> </td> <td> </td> <td align="right">2,003</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Loans</div></td> <td> </td> <td> </td> <td align="right">618,556</td> <td> </td> <td> </td> <td> </td> <td align="right">615,464</td> <td> </td> <td> </td> <td> </td> <td align="right">662,964</td> <td> </td> <td> </td> <td> </td> <td align="right">659,650</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Loans held for sale</div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">5,558</td> <td> </td> <td> </td> <td> </td> <td align="right">5,558</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Purchased receivables</div></td> <td> </td> <td> </td> <td align="right">14,743</td> <td> </td> <td> </td> <td> </td> <td align="right">14,743</td> <td> </td> <td> </td> <td> </td> <td align="right">16,531</td> <td> </td> <td> </td> <td> </td> <td align="right">16,531</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Accrued interest receivable</div></td> <td> </td> <td> </td> <td align="right">2,745</td> <td> </td> <td> </td> <td> </td> <td align="right">2,745</td> <td> </td> <td> </td> <td> </td> <td align="right">3,401</td> <td> </td> <td> </td> <td> </td> <td align="right">3,401</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Financial liabilities:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Deposits</div></td> <td> </td> <td align="left">$</td> <td align="right">884,170</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">883,317</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">892,136</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">890,729</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Accrued interest payable</div></td> <td> </td> <td> </td> <td align="right">239</td> <td> </td> <td> </td> <td> </td> <td align="right">239</td> <td> </td> <td> </td> <td> </td> <td align="right">300</td> <td> </td> <td> </td> <td> </td> <td align="right">300</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Securities sold under repurchase agreements</div></td> <td> </td> <td> </td> <td align="right">11,616</td> <td> </td> <td> </td> <td> </td> <td align="right">11,616</td> <td> </td> <td> </td> <td> </td> <td align="right">12,874</td> <td> </td> <td> </td> <td> </td> <td align="right">12,874</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Borrowings</div></td> <td> </td> <td> </td> <td align="right">4,696</td> <td> </td> <td> </td> <td> </td> <td align="right">3,993</td> <td> </td> <td> </td> <td> </td> <td align="right">5,386</td> <td> </td> <td> </td> <td> </td> <td align="right">4,759</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Junior subordinated debentures</div></td> <td> </td> <td> </td> <td align="right">18,558</td> <td> </td> <td> </td> <td> </td> <td align="right">15,106</td> <td> </td> <td> </td> <td> </td> <td align="right">18,558</td> <td> </td> <td> </td> <td> </td> <td align="right">15,106</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Unrecognized financial instruments:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Commitments to extend credit<sup style="font-size: 85%; vertical-align: text-top;">(1)</sup></div></td> <td> </td> <td align="left">$</td> <td align="right">204,899</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,049</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">181,305</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,813</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Standby letters of credit<sup style="font-size: 85%; vertical-align: text-top;">(1)</sup></div></td> <td> </td> <td> </td> <td align="right">18,240</td> <td> </td> <td> </td> <td> </td> <td align="right">182</td> <td> </td> <td> </td> <td> </td> <td align="right">19,085</td> <td> </td> <td> </td> <td> </td> <td align="right">191</td> <td> </td></tr> <tr style="font-size: 1px;" valign="bottom"><td style="border-bottom: #000000 3px double;"> </td> <td style="border-bottom: #000000 3px double;"> </td> <td style="border-bottom: #000000 3px double;" colspan="6" nowrap="nowrap" align="center"> </td> <td style="border-bottom: #000000 3px double;"> </td> <td style="border-bottom: #000000 3px double;"> </td> <td style="border-bottom: #000000 3px double;" colspan="6" nowrap="nowrap" align="center"> </td> <td> </td></tr></table></div> <div align="left"> <div style="margin-top: 6pt; width: 18%; font-size: 3pt; border-top: #000000 0px solid;"> </div></div> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="3%"> </td> <td width="1%"> </td> <td width="96%"> </td></tr> <tr valign="top"><td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top;">(1) </sup></td> <td> </td> <td>Carrying amounts reflect the notional amount of credit exposure under these financial instruments.</td></tr></table> <p> </p>     The following table sets forth the balances as of June 30, 2011 and 2010, respectively, of assets and liabilities measured at fair value on a recurring basis: </div> <div style="font-family: 'Times New Roman',Times,serif;"> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Quoted Prices in</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Signifcant</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Active Markets</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Other</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Significant</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">for Identical</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Observable</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Unobservable Inputs</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Total</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Assets (Level 1)</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Inputs (Level 2)</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">(Level 3)</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left">2011:</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="6" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Available for sale securities</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">U.S. Treasury and government sponsored</div></td> <td> </td> <td align="left">$</td> <td align="right">138,126</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">138,126</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Municipal securities</div></td> <td> </td> <td> </td> <td align="right">14,402</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">14,402</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">U.S. Agency mortgage-backed securities</div></td> <td> </td> <td> </td> <td align="right">60</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">60</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Corporate bonds</div></td> <td> </td> <td> </td> <td align="right">30,290</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">30,290</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="17" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">182,878</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">182,878</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="17" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">2010:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Available for sale securities</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">U.S. Treasury and government sponsored</div></td> <td> </td> <td align="left">$</td> <td align="right">126,804</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">126,804</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Municipal securities</div></td> <td> </td> <td> </td> <td align="right">6,369</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">6,369</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">U.S. Agency mortgage-backed securities</div></td> <td> </td> <td> </td> <td align="right">81</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">81</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Corporate bonds</div></td> <td> </td> <td> </td> <td align="right">34,775</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">34,775</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="17" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">168,029</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">168,029</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="17" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     As of and for the six months ending June 30, 2011 and 2010, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis, except for certain assets as shown in the following table: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="40%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Quoted Prices in</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Active Markets</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Significant Other</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Significant</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">for Identical</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Observable</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Unobservable Inputs</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Total (gains)</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Total</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Assets (Level 1)</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Inputs (Level 2)</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">(Level 3)</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">losses</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"> <p align="left">2011:</p></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Loans measured for impairment<sup style="font-size: 85%; vertical-align: text-top;">1</sup></div></td> <td> </td> <td align="left">$</td> <td align="right">2,532</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">1,636</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">896</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">313</td> <td> </td></tr> <tr style="font-size: 1px;"><td> </td> <td> </td> <td style="border-top: #000000 1px solid;" colspan="19" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">2,532</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">1,636</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">896</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">313</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">2010:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td align="right"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Loans measured for impairment<sup style="font-size: 85%; vertical-align: text-top;">1</sup></div></td> <td> </td> <td align="left">$</td> <td align="right">5,081</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">4,237</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">844</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">($864</td> <td nowrap="nowrap">)</td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Other real estate owned<sup style="font-size: 85%; vertical-align: text-top;">2</sup></div></td> <td> </td> <td> </td> <td align="right">498</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right"> </td> <td align="right">498</td> <td> </td> <td> </td> <td> </td> <td align="right">176</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">5,579</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">4,237</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">1,342</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">($688</td> <td nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="21" align="left"> </td></tr></table></div> <div align="left"> <div style="margin-top: 6pt; width: 18%; font-size: 3pt; border-top: #000000 0px solid;"> </div></div> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="3%"> </td> <td width="1%"> </td> <td width="96%"> </td></tr> <tr valign="top"><td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top;">1</sup></td> <td> </td> <td>Relates to certain impaired collateral dependant loans. The impairment was measured based on the fair value of collateral, in accordance with U.S. GAAP.</td></tr> <tr style="font-size: 3pt;"><td> </td></tr> <tr valign="top"><td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top;">2</sup></td> <td> </td> <td>Relates to certain impaired other real estate owned. This impairment arose from an adjustment to the Company's estimate of the fair market value of these properties based on changes in estimated costs to complete the projects and changes in market conditions.</td></tr></table> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     For loans measured for impairment, the Company classifies fair value measurements using observable inputs, such as external appraisals, as level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as level 3 valuations in the fair value hierarchy. </div></div>

2003000

1462000

762000

1118000

594000

153000

77000

141000

71000

413000

263000

413000

132000

263000

-5888000

-7294000

281000

805000

980000

422000

731000

295000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>6. Goodwill and Other Intangibles</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company performs goodwill impairment testing annually in accordance with the policy described in Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2010. There was no indication of impairment as of June 30, 2011. The Company continues to monitor the Company's goodwill for potential impairment on an ongoing basis. No assurance can be given that there will not be an impairment charge to earnings during 2011 for goodwill impairment, if, for example, our stock price declines and trades at a significant discount to its book value, although there are many qualitative and quantitative factors that we analyze in determining the impairment of goodwill. </div></div>

7018000

6125000

5142000

176000

5790000

3162000

8091000

4513000

7000

2844000

1614000

912000

2232000

1198000

-237000

-656000

-2156000

396000

443000

207000

-1623000

-7966000

2138000

-1258000

300000

346000

-58000

4000

-128000

-561000

435000

215000

517000

277000

25343000

12569000

23138000

11486000

2499000

1245000

1534000

663000

145000

70000

120000

59000

22634000

11212000

21396000

10709000

120826000

138072000

130736000

82749000

50080000

110730000

2936000

1466000

1881000

904000

65000

42000

85000

52000

3000

22407000

11103000

21257000

10582000

909000

595000

1191000

565000

2934000

1942000

3749000

3401000

2745000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>3. Investment Securities</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The carrying values and approximate fair values of investment securities at June 30, 2011 and 2010, respectively, are presented below. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. There were five and four securities with unrealized losses as of June 30, 2011 and 2010, respectively, that had been in a loss position for less than twelve months. There were no securities with unrealized losses as of June 30, 2011 and 2010 that had been in a loss position for more than twelve months. Because the Company does not intend to sell, nor is it required to sell these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired. </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Gross</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Gross</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Amortized</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Unrealized</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Unrealized</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="left">June 30,</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Cost</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Gains</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Losses</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Fair Value</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="14" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">2011:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Securities available for sale</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">U.S. Treasury and government sponsored entities</div></td> <td> </td> <td align="left">$</td> <td align="right">137,256</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">874</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">138,126</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">Muncipal securities</div></td> <td> </td> <td> </td> <td align="right">14,023</td> <td> </td> <td> </td> <td> </td> <td align="right">379</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">14,402</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">U.S. Agency mortgage-backed securities</div></td> <td> </td> <td> </td> <td align="right">58</td> <td> </td> <td> </td> <td> </td> <td align="right">2</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">60</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">Corporate bonds</div></td> <td> </td> <td> </td> <td align="right">29,553</td> <td> </td> <td> </td> <td> </td> <td align="right">785</td> <td> </td> <td> </td> <td> </td> <td align="right">48</td> <td> </td> <td> </td> <td> </td> <td align="right">30,290</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="17" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total securities available for sale</div></td> <td> </td> <td align="left">$</td> <td align="right">180,890</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,040</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">52</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">182,878</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="17" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Securities held to maturity</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">Municipal securities</div></td> <td> </td> <td align="left">$</td> <td align="right">5,142</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">196</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">5,338</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="17" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total securities held to maturity</div></td> <td> </td> <td align="left">$</td> <td align="right">5,142</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">196</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">5,338</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="17" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">2010:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Securities available for sale</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">U.S. Treasury and government sponsored entities</div></td> <td> </td> <td align="left">$</td> <td align="right">126,042</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">827</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">65</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">126,804</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">Muncipal securities</div></td> <td> </td> <td> </td> <td align="right">6,174</td> <td> </td> <td> </td> <td> </td> <td align="right">195</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">6,369</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">U.S. Agency mortgage-backed securities</div></td> <td> </td> <td> </td> <td align="right">79</td> <td> </td> <td> </td> <td> </td> <td align="right">2</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">81</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">Corporate bonds</div></td> <td> </td> <td> </td> <td align="right">33,625</td> <td> </td> <td> </td> <td> </td> <td align="right">1,187</td> <td> </td> <td> </td> <td> </td> <td align="right">37</td> <td> </td> <td> </td> <td> </td> <td align="right">34,775</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="17" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total securities available for sale</div></td> <td> </td> <td align="left">$</td> <td align="right">165,920</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,211</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">102</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">168,029</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="17" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Securities held to maturity</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 45px;" align="left">Municipal securities</div></td> <td> </td> <td align="left">$</td> <td align="right">7,018</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">243</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">7,261</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="17" align="left"> <p align="left"> </p></td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total securities held to maturity</div></td> <td> </td> <td align="left">$</td> <td align="right">7,018</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">243</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">7,261</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="17" align="left"> </td></tr></table></div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The amortized cost and fair values of debt securities at June 30, 2011, are distributed by contractual maturity as shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Weighted</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Amortized</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Average</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Cost</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Fair Value</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Yield</td> <td style="border-bottom: #000000 1px solid;"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="10" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">US Treasury and government sponsored entities</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Within 1 year</div></td> <td> </td> <td align="left">$</td> <td align="right">43,321</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">43,626</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">1.09</td> <td nowrap="nowrap">%</td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">1-5 years</div></td> <td> </td> <td> </td> <td align="right">93,935</td> <td> </td> <td> </td> <td> </td> <td align="right">94,500</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">0.98</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="13" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">137,256</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">138,126</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">1.01</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="13" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">U.S. Agency mortgage-backed securities</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">5-10 years</div></td> <td> </td> <td align="left">$</td> <td align="right">58</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">60</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">4.45</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="13" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">58</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">60</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">4.45</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="13" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Corporate bonds</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">1-5 years</div></td> <td> </td> <td align="left">$</td> <td align="right">23,938</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">24,498</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">2.41</td> <td nowrap="nowrap">%</td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">5-10 years</div></td> <td> </td> <td> </td> <td align="right">5,615</td> <td> </td> <td> </td> <td> </td> <td align="right">5,792</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">2.02</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="13" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">29,553</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">30,290</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">2.34</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="13" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Municipal securities</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Within 1 year</div></td> <td> </td> <td align="left">$</td> <td align="right">2,040</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,049</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">2.76</td> <td nowrap="nowrap">%</td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">1-5 years</div></td> <td> </td> <td> </td> <td align="right">5,405</td> <td> </td> <td> </td> <td> </td> <td align="right">5,571</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">2.90</td> <td nowrap="nowrap">%</td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">5-10 years</div></td> <td> </td> <td> </td> <td align="right">8,570</td> <td> </td> <td> </td> <td> </td> <td align="right">8,864</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">4.45</td> <td nowrap="nowrap">%</td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Over 10 years</div></td> <td> </td> <td> </td> <td align="right">3,150</td> <td> </td> <td> </td> <td> </td> <td align="right">3,256</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">4.79</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="13" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">19,165</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">19,740</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">3.89</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="13" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the six months ending June 30, 2011 and 2010, respectively, are as follows: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Gross</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Gross</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="left">June 30,</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Proceeds</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Gains</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Losses</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="10" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">2011:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Available for sale securities</div></td> <td> </td> <td align="left">$</td> <td align="right">6,987</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">263</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">2010:</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Available for sale securities</div></td> <td> </td> <td align="left">$</td> <td align="right">19,363</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">413</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="13" align="left"> </td></tr></table></div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     A summary of interest income for the six months ending June 30, 2011 and 2010 on available for sale investment securities is as follows: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="76%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="left"> <p align="left">June 30,</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">2011</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">2010</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="6" nowrap="nowrap" align="center"> <p align="left"><i>(In Thousands)</i></p></td> <td> <p align="left"> </p></td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">US Treasury and government sponsored entities</div></td> <td> </td> <td align="left">$</td> <td align="right">816</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,652</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">U.S. Agency mortgage-backed securities</div></td> <td> </td> <td> </td> <td align="right">1</td> <td> </td> <td> </td> <td> </td> <td align="right">2</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Other</div></td> <td> </td> <td> </td> <td align="right">482</td> <td> </td> <td> </td> <td> </td> <td align="right">701</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="9" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total taxable interest income</div></td> <td> </td> <td align="left">$</td> <td align="right">1,299</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,355</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="9" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Municipal securities</div></td> <td> </td> <td> </td> <td align="right">235</td> <td> </td> <td> </td> <td> </td> <td align="right">144</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="9" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total tax-exempt interest income</div></td> <td> </td> <td> </td> <td align="right">235</td> <td> </td> <td> </td> <td> </td> <td align="right">144</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="9" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">1,534</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,499</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="9" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     For the periods ending June 30, 2011, December 31, 2010 and June 30, 2010, we held Federal Home Loan Bank of Seattle ("FHLB") stock with a book value approximately equal to its market value in the amount of $2.0 million for each period. The Company evaluated its investment in FHLB stock for other-than-temporary impairment as of June 30, 2011, consistent with its accounting policy. Based on the Company's evaluation of the underlying investment, including the long-term nature of the investment, the liquidity position of the FHLB of Seattle, the actions being taken by the FHLB of Seattle to address its regulatory capital situation, and the Company's intent and ability to hold the investment for a period of time sufficient to recover the par value, the Company did not recognize an other-than-temporary impairment loss. Even though the Company did not recognize an other-than-temporary impairment loss during the six-month period ending June 30, 2011, continued deterioration in the FHLB of Seattle's financial position may result in future impairment losses. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company has never had any investment in the common or preferred stock of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, which are commonly known as Fannie Mae and Freddie Mac, respectively. Additionally, we held no securities of any single issuer (other than government sponsored entities) that exceeded 10% of our shareholders' equity at June 30, 2011, December 31, 2010 or June 30, 2010. </div></div>

18558000

11022000

5402000

10516000

5200000

893140000

937407000

927328000

1007164000

1054529000

1049337000

14427000

14406000

15574000

628373000

671812000

634130000

8210000

5558000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>4. Loans</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">          The composition of the loan portfolio, excluding loans held for resale, is presented below:</div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="28%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td> <td width="5%"> <p align="left"> </p></td> <td width="1%"> <p align="left"> </p></td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="6" nowrap="nowrap" align="center"> <p align="left">June 30, 2011</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="6" nowrap="nowrap" align="center"> <p align="left">December 31, 2010</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="6" nowrap="nowrap" align="center"> <p align="left">June 30, 2010</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="2" nowrap="nowrap" align="center"> <p align="left">Dollar</p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="2" nowrap="nowrap" align="center"> <p align="left">Percent</p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="2" nowrap="nowrap" align="center"> <p align="left">Dollar</p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="2" nowrap="nowrap" align="center"> <p align="left">Percent</p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="2" nowrap="nowrap" align="center"> <p align="left">Dollar</p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="2" nowrap="nowrap" align="center"> <p align="left">Percent</p></td> <td> <p align="left"> </p></td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">Amount</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">of Total</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">Amount</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">of Total</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">Amount</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center"> <p align="left">of Total</p></td> <td style="border-bottom: #000000 1px solid;"> <p align="left"> </p></td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td colspan="6" nowrap="nowrap" align="center"> <p align="left"><i>(In Thousands)</i></p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td> <td> <p align="left"> </p></td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Commercial</div></td> <td> </td> <td align="left">$</td> <td align="right">232,765</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">37</td> <td nowrap="nowrap">%</td> <td> </td> <td align="left">$</td> <td align="right">256,971</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">38</td> <td nowrap="nowrap">%</td> <td> </td> <td align="left">$</td> <td align="right">244,316</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">39</td> <td nowrap="nowrap">%</td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Real estate construction</div></td> <td> </td> <td> </td> <td align="right">47,639</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">8</td> <td nowrap="nowrap">%</td> <td> </td> <td> </td> <td align="right">62,620</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">9</td> <td nowrap="nowrap">%</td> <td> </td> <td> </td> <td align="right">49,122</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">8</td> <td nowrap="nowrap">%</td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Real estate term</div></td> <td> </td> <td> </td> <td align="right">314,093</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">50</td> <td nowrap="nowrap">%</td> <td> </td> <td> </td> <td align="right">312,128</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">46</td> <td nowrap="nowrap">%</td> <td> </td> <td> </td> <td align="right">290,122</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">46</td> <td nowrap="nowrap">%</td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Home equity lines and other consumer</div></td> <td> </td> <td> </td> <td align="right">42,458</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">7</td> <td nowrap="nowrap">%</td> <td> </td> <td> </td> <td align="right">43,264</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">6</td> <td nowrap="nowrap">%</td> <td> </td> <td> </td> <td align="right">47,311</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">8</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="25" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Subtotal</div></td> <td> </td> <td align="left">$</td> <td align="right">636,955</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">674,983</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">630,871</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Less: Unearned origination fee, net of origination costs</div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,825</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">0</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(3,171</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">0</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,498</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">0</td> <td nowrap="nowrap">%</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="25" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Total loans</div></td> <td> </td> <td align="left">$</td> <td align="right">634,130</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">671,812</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">628,373</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="25" align="left"> </td></tr></table></div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     At June 30, 2011, approximately 31% of the portfolio was scheduled to mature over the next 12 months, and 23% was scheduled to mature between July 1, 2012, and June 30, 2016. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends in past due and nonaccrual loans, gross and net charge offs, and movement in loan balances within the risk classifications. The Company utilizes a risk grading matrix to assign a risk classification to each of its loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the 8 risk classifications are as follows: </div> <div style="margin-top: 6pt;"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 1 — Excellent: Loans in this grade are those where the borrower has substantial financial capacity, above average profit margins, and excellent liquidity. Cash flow has been consistent and is well in excess of debt servicing requirements. Loans in this grade be may secured by cash and/or negotiable securities having a readily ascertainable market value and may also be fully guaranteed by the U.S. Government, and other approved governments and financial institutions. Loans in this grade have borrowers with exceptional credit ratings and would compare to AA ratings as established by Standard & Poor's.</td></tr> <tr><td style="font-size: 6pt;"> </td></tr> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 2 — Good: Loans in this grade are those to borrowers who have demonstrated satisfactory asset quality, earnings history, liquidity and other adequate margins of creditor protection. Borrowers exhibit positive fundamentals in terms of working capital, cash flow sufficient to service the debt, and debt to worth ratios. Borrowers for loans in this grade are capable of absorbing normal economic or other setbacks without difficulty. The borrower may exhibit some weaknesses or varying historical profitability. Management is considered adequate in all cases. Borrowing facilities may be unsecured or secured by customary acceptable collateral with well-defined market values. Additional support for the loan is available from secondary repayment sources and/or adequate guarantors.</td></tr> <tr><td style="font-size: 6pt;"> </td></tr> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 3 — Satisfactory: Loans in this grade represent moderate credit risk due to some instability in borrower capacity and financial condition. These loans generally require average loan officer attention. Characteristics of assets in this classification may include: marginal debt service coverage, newly established ventures, limited or unstable earnings history, some difficulty in absorbing normal setbacks, and atypical maturities, collateral or other exceptions to established loan policies. In all cases, such weaknesses are offset by well secured collateral positions and/or acceptable guarantors.</td></tr> <tr><td style="font-size: 6pt;"> </td></tr> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 4 — Watch List: Loans in this grade are acceptable, but additional attention is needed. This is an interim classification reserved for loans that are intrinsically creditworthy but which require specific attention. Loans may have documentation deficiencies that are deemed correctable, may be contrary to current lending policies, or may have insufficient credit or financial information. Loans in this grade may also be characterized by borrower failure to comply with loan covenants or to provide other required information. If such conditions are not resolved within 90 days from the date of the assignment of Risk Code 4, the loan may warrant further downgrade.</td></tr> <tr><td style="font-size: 6pt;"> </td></tr> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 5 — Special Mention: Loans in this grade have had a deterioration of financial condition or collateral value, but are still reasonably secured by collateral or net worth of the borrower. Although the Company is presently protected from loss, potential weaknesses are apparent which, if not corrected, could cause future problems. Loans in this classification warrant more than the ordinary amount of attention but have not yet reached the point of concern for loss. Loans in this category have deteriorated sufficiently that they would have difficulty in refinancing. Loans in this classification may show one or more of the following characteristics: inadequate loan documentation, deteriorating financial condition or control over collateral, economic or market conditions which may adversely impact the borrower in the future, unreliable or insufficient credit or collateral information, adverse trends in operations that are not yet jeopardizing repayment, or adverse trends in secondary repayment sources.</td></tr></table></div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt;"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 6 — Substandard: Loans in this grade are no longer adequately protected due to declining net worth of the borrower, lack of earning capacity, or insufficient collateral. The possibility for loss of some portion of the loan principal cannot be ruled out. Loans in this grade exhibit well-defined weaknesses that bring normal repayment into doubt. Some of these weaknesses may include: unprofitable or poor earnings trends of the borrower or property, declining liquidity, excessive debt, significant unfavorable industry comparisons, secondary repayment sources are not available, or there is a possibility of a protracted work-out.</td></tr> <tr><td style="font-size: 6pt;"> </td></tr> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 7 — Doubtful: Loans in this grade exhibit the same weaknesses as those classified Substandard, but the traits are more pronounced. Collection in full is improbable, however the extent of the loss may be indeterminable due to pending factors which may yet occur that could salvage the loan, such as possible pledge of additional collateral, sale of assets, merger, acquisition or refinancing. Borrowers in this grade may be on the verge of insolvency or bankruptcy, and stringent action is required on the part of the loan officer.</td></tr> <tr><td style="font-size: 6pt;"> </td></tr> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="2%" nowrap="nowrap" align="left"><b></b></td> <td width="1%"> </td> <td>Risk Code 8 — Loss: Loans in this grade are those that are largely non-collectible or those in which ultimate recovery is too distant in the future to warrant continuance as a bankable asset. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer charging the loan off even though recovery may be affected in the future.</td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     A risk rating is assigned for each loan at origination. The risk ratings for commercial, real estate construction, and real estate term loans may change throughout the life of the loan as a multitude of risk factors change. The risk rating for consumer loans may change as loans become delinquent. Delinquent loans are those that are thirty days or more past due. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The loan portfolio, segmented by risk class at June 30, 2011, is shown below: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="40%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Home equity</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Real estate</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">lines and</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Commercial</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">construction</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Real estate term</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">other consumer</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Total</td> <td style="border-bottom: #000000 1px solid;"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 1 - Excellent</div></td> <td> </td> <td align="left">$</td> <td align="right">725</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">704</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,429</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 2 - Good</div></td> <td> </td> <td> </td> <td align="right">75,285</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">58,182</td> <td> </td> <td> </td> <td> </td> <td align="right">908</td> <td> </td> <td> </td> <td> </td> <td align="right">134,375</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 3 - Satisfactory</div></td> <td> </td> <td> </td> <td align="right">131,788</td> <td> </td> <td> </td> <td> </td> <td align="right">33,918</td> <td> </td> <td> </td> <td> </td> <td align="right">240,814</td> <td> </td> <td> </td> <td> </td> <td align="right">37,698</td> <td> </td> <td> </td> <td> </td> <td align="right">444,218</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 4 - Watch</div></td> <td> </td> <td> </td> <td align="right">8,842</td> <td> </td> <td> </td> <td> </td> <td align="right">3,431</td> <td> </td> <td> </td> <td> </td> <td align="right">1,285</td> <td> </td> <td> </td> <td> </td> <td align="right">2,193</td> <td> </td> <td> </td> <td> </td> <td align="right">15,751</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 5 - Special Mention</div></td> <td> </td> <td> </td> <td align="right">10,834</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">3,260</td> <td> </td> <td> </td> <td> </td> <td align="right">496</td> <td> </td> <td> </td> <td> </td> <td align="right">14,590</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 6 - Substandard</div></td> <td> </td> <td> </td> <td align="right">4,822</td> <td> </td> <td> </td> <td> </td> <td align="right">10,290</td> <td> </td> <td> </td> <td> </td> <td align="right">10,552</td> <td> </td> <td> </td> <td> </td> <td align="right">459</td> <td> </td> <td> </td> <td> </td> <td align="right">26,123</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 7 - Doubtful</div></td> <td> </td> <td> </td> <td align="right">469</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">469</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Subtotal</div></td> <td> </td> <td align="left">$</td> <td align="right">232,765</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">47,639</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">314,093</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">42,458</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">636,955</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Less: Unearned origination fees, net of origination costs</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,825</td> <td nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">634,130</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="21" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     Loans are carried at their principal amount outstanding, net of unamortized fees and direct loan origination costs. Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status. All classes of loans are placed on nonaccrual when management believes doubt exists as to the collectability of the interest or principal. Cash payments received on nonaccrual loans are directly applied to the principal balance. Generally, a loan may be returned to accrual status when the delinquent principal and interest are brought current in accordance with the terms of the loan agreement and certain ongoing performance criteria have been met. </div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     Nonaccrual loans totaled $9.6 million, $11.4 million and $14.4 million at June 30, 2011, December 31, 2010, and June 30, 2010, respectively. Nonaccrual loans at June 30, 2011, by major loan type, are presented below: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="5" align="left">  |</td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Commercial</div></td> <td> </td> <td align="left">$</td> <td align="right">4,218</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Real estate construction</div></td> <td> </td> <td> </td> <td align="right">2,033</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Real estate term</div></td> <td> </td> <td> </td> <td align="right">3,094</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Home equity lines and other consumer</div></td> <td> </td> <td> </td> <td align="right">286</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="5" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">9,631</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="5" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     Past due loans and nonaccrual loans at June 30, 2011 are presented below by loan class: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="bottom"><td width="23%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="4%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">30-59</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center"> </td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">DaysPast</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">60-89 Days</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Greater Than</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Total Past</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Total</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Due Still</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Past Due Still</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">90 Days Still</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Due and</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Financing</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Accruing</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Accruing</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Accruing</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Nonaccrual</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Nonaccrual</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Total Current</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Receivables</td> <td style="border-bottom: #000000 1px solid;"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="6" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 1 - Excellent</div></td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,429</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,429</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 2 - Good</div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">134,375</td> <td> </td> <td> </td> <td> </td> <td align="right">134,375</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 3 - Satisfactory</div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">444,218</td> <td> </td> <td> </td> <td> </td> <td align="right">444,218</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 4 - Watch</div></td> <td> </td> <td> </td> <td align="right">99</td> <td> </td> <td> </td> <td> </td> <td align="right">22</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">121</td> <td> </td> <td> </td> <td> </td> <td align="right">15,630</td> <td> </td> <td> </td> <td> </td> <td align="right">15,751</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 5 - Special Mention</div></td> <td> </td> <td> </td> <td align="right">240</td> <td> </td> <td> </td> <td> </td> <td align="right">443</td> <td> </td> <td> </td> <td> </td> <td align="right">225</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">908</td> <td> </td> <td> </td> <td> </td> <td align="right">13,682</td> <td> </td> <td> </td> <td> </td> <td align="right">14,590</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 6 - Substandard</div></td> <td> </td> <td> </td> <td align="right">1,247</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">9,163</td> <td> </td> <td> </td> <td> </td> <td align="right">10,410</td> <td> </td> <td> </td> <td> </td> <td align="right">15,713</td> <td> </td> <td> </td> <td> </td> <td align="right">26,123</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Risk Code 7 - Doubtful</div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">468</td> <td> </td> <td> </td> <td> </td> <td align="right">468</td> <td> </td> <td> </td> <td> </td> <td align="right">1</td> <td> </td> <td> </td> <td> </td> <td align="right">469</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="29" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Subtotal</div></td> <td> </td> <td align="left">$</td> <td align="right">1,586</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">465</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">225</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">9,631</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">11,907</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">625,048</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">636,955</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td colspan="5" align="left"> <p align="left">Less: Unearned origination fees, net of origination costs</p></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,825</td> <td nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="29" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">634,130</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="29" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loan's collateral. Nonperforming loans greater than $50,000 are individually evaluated for impairment based upon the borrower's overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors. </div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     At June 30, 2011, December 31, 2010 and June 30, 2010, the recorded investment in loans that are considered to be impaired was $12.7 million, $18.3 million, and $25.1 million, respectively. The following table presents information about impaired loans as of June 30, 2011: </div> <div align="center"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr valign="top"><td width="40%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Unpaid</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Average</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Interest</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Recorded</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Principal</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Related</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Recorded</td> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" align="center">Income</td> <td> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Investment</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Balance</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Allowance</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Investment</td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;"> </td> <td style="border-bottom: #000000 1px solid;" colspan="2" nowrap="nowrap" align="center">Recognized</td> <td style="border-bottom: #000000 1px solid;"> </td></tr> <tr style="font-size: 8pt;" valign="bottom"><td> </td> <td> </td> <td colspan="18" nowrap="nowrap" align="center"><i>(In Thousands)</i></td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">With no related allowance recorded</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Commercial</div></td> <td> </td> <td align="left">$</td> <td align="right">3,879</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,477</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,019</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">36</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Real estate construction</div></td> <td> </td> <td> </td> <td align="right">1,381</td> <td> </td> <td> </td> <td> </td> <td align="right">1,460</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">1,407</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Real estate term</div></td> <td> </td> <td> </td> <td align="right">4,688</td> <td> </td> <td> </td> <td> </td> <td align="right">4,778</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">4,718</td> <td> </td> <td> </td> <td> </td> <td align="right">51</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Home equity lines and other consumer</div></td> <td> </td> <td> </td> <td align="right">209</td> <td> </td> <td> </td> <td> </td> <td align="right">209</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">163</td> <td> </td> <td> </td> <td> </td> <td align="right">2</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td align="left">$</td> <td align="right">10,157</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">10,924</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">10,307</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">89</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">With an allowance recorded</div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Commercial</div></td> <td> </td> <td align="left">$</td> <td align="right">964</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">964</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">513</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,153</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Real estate construction</div></td> <td> </td> <td> </td> <td align="right">1,568</td> <td> </td> <td> </td> <td> </td> <td align="right">1,613</td> <td> </td> <td> </td> <td> </td> <td align="right">183</td> <td> </td> <td> </td> <td> </td> <td align="right">1,573</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Real estate term</div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Home equity lines and other consumer</div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;" align="left">Total</div></td> <td> </td> <td align="left">$</td> <td align="right">2,532</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,577</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">696</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,726</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Commercial</div></td> <td> </td> <td align="left">$</td> <td align="right">4,843</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">5,441</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">513</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">5,172</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">36</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Real estate construction</div></td> <td> </td> <td> </td> <td align="right">2,949</td> <td> </td> <td> </td> <td> </td> <td align="right">3,073</td> <td> </td> <td> </td> <td> </td> <td align="right">183</td> <td> </td> <td> </td> <td> </td> <td align="right">2,980</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Real estate term</div></td> <td> </td> <td> </td> <td align="right">4,688</td> <td> </td> <td> </td> <td> </td> <td align="right">4,778</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">4,718</td> <td> </td> <td> </td> <td> </td> <td align="right">51</td> <td> </td></tr> <tr valign="bottom"><td> <div style="text-indent: -15px; margin-left: 30px;" align="left">Home equity lines and other consumer</div></td> <td> </td> <td> </td> <td align="right">209</td> <td> </td> <td> </td> <td> </td> <td align="right">209</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">163</td> <td> </td> <td> </td> <td> </td> <td align="right">2</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 1px solid;" colspan="21" align="left"> </td></tr> <tr style="background: #cceeff;" valign="bottom"><td> <div style="text-indent: -15px; margin-left: 15px;"> </div></td> <td> </td> <td align="left">$</td> <td align="right">12,689</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">13,501</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">696</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">13,033</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">89</td> <td> </td></tr> <tr style="font-size: 1px;"><td style="border-top: #000000 3px double;" colspan="21" align="left"> </td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The unpaid principle balance included in the table above represents the recorded investment at June 30, 2011 and amounts charged off for book purposes. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     <i>Loans held for sale</i>: The Company has purchased residential loans from our mortgage affiliate, Residential Mortgage Holding Company LLC ("RML"), from time to time since 1998. The Company then sells these loans in the secondary market. During 2009, the Company renewed its agreement with RML in anticipation of higher than normal refinance activity in the Anchorage market. The Company did not purchase or sell any loans in the second quarter of 2011. The Company sold $5.6 million in loans in the six-month period ending June 30, 2011 and did not purchase any loans in the six-month period ending June 30, 2011. The Company purchased $8.2 million and did not sell any loans in the six-month period ending June 30, 2010. </div></div>

622156000

662964000

618556000

175047000

220135000

188020000

878000

439000

880000

443000

43000

50000

42000

141000

230000

-856000

-11650000

36763000

76797000

2437000

12651000

4040000

2140000

5637000

3182000

136000

110000

222000

133000

19657000

9728000

20158000

10032000

19682000

9788000

17915000

8589000

5815000

3222000

5848000

3070000

1816000

897000

1907000

997000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>1. Basis of Presentation</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The accompanying unaudited consolidated financial statements have been prepared by Northrim BanCorp, Inc. (the "Company") in accordance with accounting principles generally accepted in the United States of America ("GAAP") and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to prior year amounts to maintain consistency with the current year with no impact on net income or total shareholders' equity. The Company determined that it operates as a single operating segment. Operating results for the interim period ended June 30, 2011, are not necessarily indicative of the results anticipated for the year ending December 31, 2011. These consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2010.</div></div></div></div></div>

38642000

35362000

35026000

5532000

5386000

4696000

98000

117000

8694000

8453000

8288000

1905000

905000

1908000

943000

1133000

588000

1060000

585000

2000000

1278000

1544000

141000

230000

91037000

56832000

517000

3900000

-1786000

178000

594000

100000

33000

8210000

2500000

1000

780000

992000

24604000

37115000

-55000

-690000

101318000

88987000

5558000

565000

323000

675000

338000

4176000

2250000

5859000

3315000

27932000

29048000

28774000

2750000

1375000

1099000

550000

12973000

10355000

5083000

53868000

57339000

61412000

<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>7. Variable Interest Entities</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company has analyzed all of its affiliate relationships in accordance with GAAP and determined that Elliott Cove Capital Management LLC ("Elliott Cove") is a variable interest entity ("VIE"). However, the Company does not have a controlling interest in Elliott Cove. The Company owns a 40.8% equity interest in Elliott Cove, an investment advisory services company, through its wholly—owned subsidiary, Northrim Investment Services Company ("NISC"). The Company determined that Elliott Cove is a VIE based on the fact that the Company provides Elliott Cove with a line of credit for which the majority owner of Elliott Cove provides additional subordinated financial support in the form of a 50% guarantee. This line of credit has a committed amount of $750,000 and an outstanding balance of $432,000 as of June 30, 2011. Furthermore, Elliott Cove does not have access to any other financial support through other institutions, nor is it likely that it would be able to obtain additional lines of credit based on its operational losses to date and its resulting lack of equity. As such, it appears that Elliott Cove cannot finance its activities without additional subordinated financial support and is therefore considered a VIE under GAAP. However, the Company has determined that it does not have a controlling interest in Elliott Cove based on the following facts and circumstances: </div> <div style="margin-top: 6pt;"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="6%"> </td> <td width="1%" nowrap="nowrap" align="left">a.</td> <td width="1%"> </td> <td>Neither the Company nor any members of the Company's management have control over the budgeting or operational processes of Elliott Cove.</td></tr> <tr><td style="font-size: 6pt;"> </td></tr> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="6%"> </td> <td width="1%" nowrap="nowrap" align="left">b.</td> <td width="1%"> </td> <td>While the President, CEO and Chairman of the Company is a member of Elliott Cove's board, he does not exert influence on decisions beyond Northrim Investment Services Company's ownership percentage in Elliott Cove.</td></tr></table></div></div> <p> </p> <div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 6pt;"> <table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr style="background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" valign="top"><td style="background: none transparent scroll repeat 0% 0%;" width="3%"> </td> <td width="1%" nowrap="nowrap" align="left">c.</td> <td width="1%"> </td> <td>The Company has no veto rights with respect to decisions affecting the operations of Elliott Cove.</td></tr></table></div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company has the obligation to absorb losses of Elliott Cove up to its ownership percentage of 40.8%. There are no caps or guarantees on returns, and there are no protections to limit any investor's share of losses. Additionally, the Company provides Elliott Cove with a $750,000 line of credit. This line includes a 50% personal guarantee by the majority owner of Elliott Cove. Therefore, the Company does have the obligation to absorb losses and the right to receive benefits that could be significant to Elliott Cove and which, as a result of its exposure to 50% of any losses incurred on the line of credit that the Company has extended to Elliott Cove, may be greater than the Company's 40.8% ownership therein. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     However, GAAP requires that the Company have both the power to control the activities of Elliott Cove that most significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits from Elliott Cove that could potentially be significant to Elliott Cove. The Company has determined that the facts and circumstances of its relationship with Elliott Cove including its overall involvement in the operations, decision-making capabilities and proportionate share in earnings and losses does not satisfy the criteria for a controlling interest because it does not have the power to direct the activities of Elliott Cove according to GAAP. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company also provides a line of credit to our mortgage affiliate, RML. While the Company also provides a line of credit to RML, which is also guaranteed by the other owners of RML, RML has other available lines of credit with unrelated financial institutions which have been in place for many years. Additionally, RML has a history of profitability and has sufficient capital to support its operations. RML had $19.9 million in equity, $108.4 million in assets and net income of $5.9 million as of and for the year ended December 31, 2010 (see Note 9 in the Company's Form 10-K for the year ended December 31, 2010). As such, the total equity investment in the entity, which is provided by the Company and the other owners, is adequate to finance the activities of RML. Therefore, the Company has concluded that RML is not a VIE. </div></div>

8871000

12874000

11616000

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<div style="font-family: 'Times New Roman',Times,serif;"> <div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>2. Significant Accounting Policies and Recent Accounting Pronouncements</b> </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     The Company's significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     In April 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-02, "A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring" ("ASU 2011-02"). ASU 2011-02 provides guidance on a creditor's evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties in order to determine when a restructured loan is a troubled debt restructuring. This ASU is effective for the Company's financial statements for annual and interim periods beginning on or after June 15, 2011, and must be applied retrospectively to the beginning of the period of adoption. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position or results of operations. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"). Some of amendments contained in ASU 2011-04 clarify FASB's intent about the application of existing fair value measurement requirements, and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This ASU is effective for the Company's financial statements for annual and interim periods beginning on or after December 15, 2011, and must be applied prospectively. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position or results of operations. </div> <div style="margin-top: 6pt; font-size: 10pt;" align="left">     In June 2011, the FASB issued ASU 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"). ASU 2001-05 amends Topic 220, "Comprehensive Income", to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects. This ASU is effective for the Company's financial statements for annual and interim periods beginning on or after December 15, 2011, and must be applied retrospectively. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position or results of operations.</div></div>

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