The composition of loans is summarized as follows:

Changes in the allowance for loan losses during the years ended December 31, 2011, 2010 and 2009, respectively are as follows:

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based on management’s evaluation of the loan portfolios, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. Allocation of the allowance is made for specific loans, but the entire allowance is available for any loan that in management’s judgment deteriorates and is uncollectible. The unallocated portion of the reserve is management’s evaluation of potential future losses that would arise in the loan portfolio should management’s assumption about qualitative and environmental conditions materialize. The unallocated portion of the allowance for loan losses is based on management’s judgment regarding various external and internal factors including macroeconomic trends, management’s assessment of the Bank’s loan growth prospects, and evaluations of internal risk controls.

Changes in the allowance for loan losses, segregated by loan type, during the years ended December 31, 2011 and 2010, respectively, are as follows:

Loans by credit quality indicator as of December 31, 2011 and 2010 are as follows:

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions defined as follows:

Loans by performance status as of December 31, 2011 and 2010 are as follows:

Loans by past-due status as of December 31, 2011 and 2010 are as follows:

The following table presents details of the Company’s loans evaluated for impairment, and those determined to be impaired, as of December 31, 2011 and December 31, 2010, and for the year ended December 31, 2011. Loans which have been fully charged off do not appear in the tables.

December 31, 2011

The average amount of impaired loans was $52.1 million during 2010 and $21.8 million during 2009. Interest income recognized on impaired loans was $2.2 million and $584,000 for 2010 and 2009, respectively.

During the third quarter of 2011, the Company adopted the provisions of the FASB ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“TDR”). Management applied the guidance on determining whether any restructurings that occurred from January 1, 2011 or later met the definition of a TDR. TDRs at December 31, 2011 and 2010 totaled $4.5 million and $3.1 million, respectively. At December 31, 2011, the Company had a related allowance for loan losses of $439,000 allocated to these TDRs, compared to $487,000 at December 31, 2010. All loans classified as TDRs as of December 31, 2011 are performing as agreed under the terms of their restructured plans. For the years ended December 31, 2011 and 2010, there were no loans modified as a TDR for which there was a payment default during the year. The following table presents an analysis of TDRs as of December 31, 2011 and December 31, 2010.

In the ordinary course of business, the Company has granted loans to certain related parties, including directors, executive officers, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the year ended December 31, 2011 and 2010 are as follows: