	June 30,		December 31,
	2011		2010

Commercial	$	36,860,487	$	31,045,424
Commercial real estate		137,273,305		133,494,431
Residential real estate		207,328,143		213,834,818
Consumer		12,059,910		13,058,124
		393,521,845		391,432,797
Deduct:
Allowance for loan losses		3,851,369		3,727,935
Unearned net loan fees		38,803		74,351
Loans held-for-sale		1,555,288		2,363,938
		5,445,460		6,166,224
Net Loans	$	388,076,385	$	385,266,573

			90 Days		Total						Over 90 Days
	30-89 Days		or More		Past Due		Current		Total Loans		and Accruing
June 30, 2011

Commercial	$	563,870	$	107,318	$	671,188	$	36,189,299	$	36,860,487	$	4,838
Commercial real estate		1,003,076		817,168		1,820,244		135,453,061		137,273,305		393,707
Residential real estate		1,753,750		2,257,280		4,011,030		201,761,825		205,772,855		778,759
Consumer		107,179		1,228		108,407		11,951,503		12,059,910		1,228
Total	$	3,427,875	$	3,182,994	$	6,610,869	$	385,355,688	$	391,966,557	$	1,178,532

December 31, 2010
			90 Days		Total						Over 90 Days
	30-89 Days		or More		Past Due		Current		Total Loans		and Accruing

Commercial	$	915,924	$	54,376	$	970,300	$	30,075,124	$	31,045,424	$	29,446
Commercial real estate		939,910		130,512		1,070,422		132,424,009		133,494,431		94,982
Residential real estate		6,117,292		2,108,870		8,226,162		203,244,718		211,470,880		1,194,477
Consumer		242,742		38,466		281,208		12,776,916		13,058,124		38,466
Total	$	8,215,868	$	2,332,224	$	10,548,092	$	378,520,767	$	389,068,859	$	1,357,371

The general component of the allowance for loan losses is based on historical loss experience, adjusted for qualitative factors and stratified by the following loan segments: commercial, commercial real estate, residential real estate, and consumer loans. Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of commercial real estate loans. This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available. There were no changes in the Company’s policies or methodology pertaining to the general component for loan losses since December 31, 2010.

Commercial – Loans in this segment include commercial and industrial loans and to a lesser extent loans to finance agricultural production. Commercial loans are made to businesses and are generally secured by assets of the business, including trade assets and equipment. While not the primary collateral, in many cases these loans may also be secured by the real estate of the business. Repayment is expected from the cash flows of the business. A weakened economy, soft consumer spending, unfavorable foreign trade conditions and the rising cost of labor or raw materials are examples of issues that can impact the credit quality in this segment.

Commercial Real Estate – Loans in this segment are principally made to businesses and are generally secured by either owner-occupied, or non-owner occupied commercial real estate. A relatively small portion of this segment includes farm loans secured by farm land and buildings. As with commercial loans, repayment of owner-occupied commercial real estate loans is expected from the cash flows of the business and the segment would be impacted by similar issues. The non-owner occupied commercial real estate portion includes both residential and commercial construction loans, vacant land and real estate development loans and multi-family dwelling and commercial rental property loans. Repayment of construction loans is expected from permanent financing takeout; the Company generally requires a commitment or eligibility for the take-out financing prior to construction loan origination. Real estate development loans are generally repaid from the sale of the subject real property as the project progresses. Construction and development lending run additional risks, including the project exceeding budget, not being constructed according to plans, not receiving permits, or the pre-leasing or occupancy rate not meeting expectations. Repayment of multi-family loans and commercial rental property loans is expected from the cash flow generated by rental payments received from the individuals or businesses occupying the real estate. Commercial real estate loans are impacted by issues such as competitive market forces, vacancy rates, cap rates, net operating incomes, lease renewals and overall economic demand. In addition, loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. Commercial real estate lending also carries a higher degree of environmental risk than other real estate lending.

Consumer – Loans in this segment are made to individuals for consumer and household purposes. This segment includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured. This segment also includes overdrafts, which are extensions of credit made to both individuals and business to cover temporary shortages in their deposit accounts and are generally unsecured. The Company maintains policies restricting the size and length of these extensions of credit. The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

The specific component relates to loans that are impaired. A specific allowance is established when a loan’s impaired basis is less than the carrying value of the loan. A loan is considered impaired when, based on current information and events, in management’s estimation it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans are loan(s) to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status or are troubled debt restructurings (TDR). Factors considered by management in determining impairment include payment status, collateral value and probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management evaluates the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and frequency of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis, by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Impaired loans may also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two.

For the second quarter ended June 30, 2011
				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Unallocated			Total

Allowance for loan losses
Beginning balance	$	256,448		$	1,396,946		$	1,756,119		$	151,865		$	148,540		$	3,709,918
Charge-offs		(2,427	)		0			(82,646	)		(26,523	)		0			(111,596	)
Recoveries		3,416			1,091			600			10,440			0			15,547
Provisions		(10,870	)		(2,687	)		291,867			(3,250	)		(37,560	)		237,500
Ending balance	$	246,567		$	1,395,350		$	1,965,940		$	132,532		$	110,980		$	3,851,369

For the six months ended June 30, 2011
				Commercial		Residential
	Commercial			Real Estate		Real Estate			Consumer			Unallocated		Total

Allowance for loan losses
Beginning balance	$	302,421		$	1,391,898	$	1,830,816		$	151,948		$	50,852	$	3,727,935
Charge-offs		(3,127	)		0		(271,446	)		(64,113	)		0		(338,686	)
Recoveries		11,522			2,181		600			22,817			0		37,120
Provisions		(64,249	)		1,271		405,970			21,880			60,128		425,000
Ending balance	$	246,567		$	1,395,350	$	1,965,940		$	132,532		$	110,980	$	3,851,369

Individually evaluated for impairment	$	0		$	6,100	$	366,300		$	0		$	0	$	372,400
Collectively evaluated for impairment		246,567			1,389,250		1,599,640			132,532			110,980		3,478,969
Total	$	246,567		$	1,395,350	$	1,965,940		$	132,532		$	110,980	$	3,851,369

Loans
Individually evaluated for impairment	$	856,643		$	1,471,703	$	2,644,713		$	0				$	4,973,059
Collectively evaluated for impairment		36,003,844			135,801,602		204,683,430			12,059,910				$	388,548,786
Total	$	36,860,487		$	137,273,305	$	207,328,143		$	12,059,910				$	393,521,845

			Commercial		Residential
December 31, 2010	Commercial		Real Estate		Real Estate		Consumer		Unallocated		Total

Allowance for loan losses
Individually evaluated for impairment	$	3,700	$	51,200	$	337,800	$	0	$	0	$	392,700
Collectively evaluated for impairment		298,721		1,340,698		1,493,016		151,948		50,852		3,335,235
Total	$	302,421	$	1,391,898	$	1,830,816	$	151,948	$	50,852	$	3,727,935

Loans
Individually evaluated for impairment	$	61,226	$	1,145,194	$	3,219,911	$	0			$	4,426,331
Collectively evaluated for impairment		30,984,199		132,349,237		210,614,907		13,058,124				387,006,467
Total	$	31,045,425	$	133,494,431	$	213,834,818	$	13,058,124			$	391,432,798

			Unpaid				Average		Interest
June 30, 2011	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*

With no related allowance recorded
Commercial	$	856,643	$	859,175			$	294,667	$	0
Commercial real estate		1,260,762		1,276,902				480,280		0
Residential real estate		865,299		1,058,921				1,323,348		0

With an allowance recorded
Commercial		0		0		0		42,028		0
Commercial real estate		210,941		210,941		6,100		833,777		0
Residential real estate		1,779,414		2,176,749		366,300		1,655,730		0

Total
Commercial	$	856,643	$	859,175	$	0	$	336,695	$	0
Commercial real estate	$	1,471,703	$	1,487,843	$	6,100	$	1,314,057	$	0
Residential real estate	$	2,644,713	$	3,235,670	$	366,300	$	2,979,078	$	0
Total	$	4,973,059	$	5,582,688	$	372,400	$	4,629,830	$	0

			Unpaid				Average		Interest
December 31, 2010	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*

With no related allowance recorded
Commercial	$	24,930	$	61,460	$	0	$	106,737	$	0
Commercial real estate		0		0		0		494,150		0
Residential real estate		1,138,290		1,527,508		0		1,186,068		0

With an allowance recorded
Commercial		36,296		39,856		3,700		37,300		0
Commercial real estate		1,145,194		1,145,672		51,200		1,158,924		0
Residential real estate		2,081,621		2,303,744		337,800		1,661,441		0

Total
Commercial	$	61,226	$	101,316	$	3,700	$	144,037	$	0
Commercial real estate	$	1,145,194	$	1,145,672	$	51,200	$	1,653,074	$	0
Residential real estate	$	3,219,911	$	3,831,252	$	337,800	$	2,847,509	$	0
Total	$	4,426,331	$	5,078,240	$	392,700	$	4,644,620	$	0

In developing the allowance for loan losses, management uses credit quality grouping to help evaluate trends in credit quality. The Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool.

Group A loans - Acceptable Risk – are loans that are expected to perform as agreed under their respective terms. Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial loans that are individually risk rated and retail loans that are rated by pool. Group A retail loans include both performing consumer and residential real estate loans. Residential real estate loans are loans to individuals secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances fully secured by deposit accounts or that are fully guaranteed by the Federal Government are considered acceptable risk.

Group B loans – Management Involved - are loans that require greater attention than the acceptable loans in Group A. Characteristics of such loans may include, but are not limited to, borrowers that are experiencing negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market conditions such as increased competition or regulatory burden, or that have had unexpected or adverse changes in management. These loans have a greater likelihood of migrating to an unacceptable risk level if these characteristics are left unchecked. Group B is limited to commercial loans that are individually risk rated.

Group C loans – Unacceptable Risk – are loans that have distinct shortcomings that require a greater degree of management attention. Examples of these shortcomings include a borrower's inadequate capacity to service debt, poor operating performance, or insolvency. These loans are more likely to result in repayment through collateral liquidation. Group C loans range from those that are likely to sustain some loss if the shortcomings are not corrected, to those for which loss is imminent and non-accrual treatment is warranted. Group C loans include individually rated commercial purpose loans, and retail loans adversely rated in accordance with the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy. Group C retail loans include 1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios greater than 60%, home equity loans 90 days or more past due where bank does not hold first mortgage, irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly consumer loans that are 90 days or more past due.

Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the borrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record history. Assessment of expected future payment performance requires consideration of numerous factors. While past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management. Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions. There are uncertainties inherent in this process.

Credit risk ratings are dynamic and require updating whenever relevant information is received. The risk ratings of larger or more complex loans, and Group B and C rated loans, are assessed at the time of their respective annual reviews, during quarterly updates, in action plans or at any other time that relevant information warrants update. Lenders are required to make immediate disclosure to the Chief Credit Officer of any increase in loan risk, even if considered temporary in nature.