Loans And Allowance For Loan Losses

3 Months Ended

Mar. 31, 2012

Loans And Allowance For Loan Losses [Abstract]

NOTE C – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at March 31, 2012 and December 31, 2011 consisted of the following:


	For the Three Months Ended
	March 31, 2012		December 31, 2011
	(Dollars in Thousands)
Commercial	$	19,445	$	21,525
Commercial - real estate
Construction		7,238		7,291
Owner occupied		47,373		50,116
Non-owner occupied		51,694		50,817

Total commercial loans		125,750		129,749

Consumer		16,498		16,844
Residential real estate		96,948		97,142
Residential construction		4,399		4,632

Total consumer loans		117,845		118,618

TOTAL LOANS	$	243,595	$	248,367

Loans are categorized into one of nine loan grades with grades 1 through 5 representing various levels of acceptable loans, or "Pass" grades, and grades 6 through 9 representing various levels of credit deterioration.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with both internal and external oversight. The Credit Administration Department is responsible for the timely and accurate risk rating of the loan portfolio at origination and on an ongoing basis. As part of this process the Company's loan officers are responsible for providing the Credit Administration Department with all necessary information needed to accurately risk rate the loans in excess of $250,000 in their portfolios at origination and on an ongoing basis. Loans under $250,000 are assigned a predetermined risk rating set by The Credit Administration Department based upon the class and risk characteristics of the loan. The Company's approving Committees review risk ratings when approving a loan. Additionally, on a quarterly basis any risk rating changes are reported to the Discount Committee and the Board of Directors, except those made within the pass risk ratings. The Company engages an external consultant to conduct loan review on a quarterly basis. Generally, the external consultant reviews commercial relationships that equal or exceed $250,000, but not less than 75% of the total commercial portfolio, and all adversely classified commercial credits. Detailed problem loan reports, including plans for resolution, are completed on loans classified as Special Mention ("OAEM") and Substandard greater than $250,000 on a quarterly basis. The Company's process requires the review and evaluation of impaired loans greater than $250,000 and all troubled debt restructures to be updated at least quarterly.

6 — Special Mention (OAEM)

A special mention asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Loans graded a 6 may be experiencing adverse operating trends such as declining revenues or margins or an ill-proportioned balance sheet caused by increasing accounts receivable and/or inventory balances not supported by an increase in sales revenue. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material structural weakness.

7 — Substandard

Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally graded 7 when they have unsatisfactory characteristics causing more than acceptable levels of risk. A loan graded 7 normally has one or more well-defined weakness that could jeopardize repayment of the debt. The following are examples of situations that might cause a loan to be graded 7:

•

Cash flow deficiencies jeopardize future loan payments.

•

Sale of non-collateral assets has become a primary source of loan repayment.

•

The relationship has deteriorated to the point that sale of collateral is now the bank's primary source of repayment.

•

The borrower is bankrupt, or for any other reason, future repayment is dependent on court action.

8 — Doubtful

Loans are graded 8 if they contain weaknesses so serious that collection or liquidation in full is questionable. An 8 classification will result in the loan being placed in non-accrual.

9 — Loss

A 9 rating is assigned to loans considered uncollectible and of such little value that their continuance as an active bank asset is not warranted. This rating does not mean that the asset has no recovery or salvage value, but rather that the asset should be charged off now, even though partial or full recovery may be possible in the future.

The following tables present loans by credit quality indicator at March 31, 2012 and December 31, 2011. There were no loans classified as Doubtful at March 31, 2012 or December 31, 2011.


	March 31, 2012
	Pass		Special Mention		Substandard		Total
	(Dollars in Thousands)
Commercial	$	17,629	$	27	$	1,789	$	19,445
Commercial real estate
Construction		2,290		—		4,948		7,238
Owner occupied		34,972		8,718		3,683		47,373
Non-owner occupied		48,393		759		2,542		51,694
Consumer		16,197		74		227		16,498
Residential real estate		90,519		274		6,155		96,948
Residential construction		3,832		—		567		4,399

TOTAL	$	213,832	$	9,852	$	19,911	$	243,595


	December 31, 2011
	Pass		Special Mention		Substandard		Total
	(Dollars in Thousands)
Commercial	$	19,524	$	65	$	1,936	$	21,525
Commercial real estate
Construction		2,343		—		4,948		7,291
Owner occupied		37,028		5,371		7,717		50,116
Non-owner occupied		47,284		767		2,766		50,817
Consumer		16,527		86		231		16,844
Residential real estate		90,968		281		5,893		97,142
Residential construction		4,063		—		569		4,632

TOTAL	$	217,737	$	6,570	$	24,060	$	248,367

The following table presents loans by past due status at March 31, 2012.


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due and Still Accruing
	(Dollars in Thousands)
Commercial	$	72	$	—	$	1,053	$	1,125	$	18,320	$	19,445	$	42
Commercial real estate
Construction		—		—		4,948		4,948		2,290		7,238		—
Owner occupied		588		174		3,515		4,277		43,096		47,373		—
Non-owner occupied		73		—		1,849		1,922		49,772		51,694		—
Consumer		186		26		56		268		16,230		16,498		36
Residential real estate		1,848		589		1,825		4,262		92,686		96,948		656
Residential construction		70		—		471		541		3,858		4,399		—

TOTAL	$	2,837	$	789	$	13,717	$	17,343	$	226,252	$	243,595	$	734

The following table presents loans by past due status at December 31, 2011.


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due and Still Accruing
	(Dollars in Thousands)
Commercial	$	157	$	233	$	1,169	$	1,559	$	19,966	$	21,525	$	—
Commercial real estate
Construction		—		—		4,948		4,948		2,343		7,291		—
Owner occupied		681		174		3,047		3,902		46,214		50,116		—
Non-owner occupied		123		—		1,827		1,950		48,867		50,817		—
Consumer		136		88		61		285		16,559		16,844		42
Residential real estate		1,607		999		1,999		4,605		92,537		97,142		765
Residential construction		47		—		476		523		4,109		4,632		23

TOTAL	$	2,751	$	1,494	$	13,527	$	17,772	$	230,595	$	248,367	$	830

The following table presents impaired loans at March 31, 2012.


	Carrying Amount		Unpaid Principal Balance		Associated Allowance		Average Carrying Amount		Interest Income Recognized
	(Dollars in Thousands)
With no related allowance recorded:
Commercial	$	18	$	268	$	—	$	19	$	—
Commercial Real Estate
Construction		—		—		—		—		—
Owner occupied		—		—		—		—		—
Nonowner occupied		—		—		—		—		—

Total Commercial	$	18	$	268	$	—	$	19	$	—

Consumer	$	13	$	13	$	—	$	13	$	—
Residential real estate		959		959		—		974		—
Residential construction		452		452		—		452		—

Total Consumer	$	1,424	$	1,424	$	—	$	1,439	$	—

With an allowance recorded:
Commercial	$	993	$	993	$	348	$	996	$	—
Commercial Real Estate
Construction		4,948		4,948		768		4,948		—
Owner occupied		4,240		4,240		451		4,182		80
Nonowner occupied		1,292		1,292		81		1,292		—

Total Commercial	$	11,473	$	11,473	$	1,648	$	11,418	$	80

Consumer	$	24	$	24	$	1	$	25	$	—
Residential real estate		617		617		79		621		8
Residential construction		33		33		3		33		1

Total Consumer	$	674	$	674	$	83	$	679	$	9

Total:
Commercial	$	1,011	$	1,261	$	348	$	1,015	$	—
Commercial Real Estate
Construction		4,948		4,948		768		4,948		—
Owner occupied		4,240		4,240		451		4,182		80
Nonowner occupied		1,292		1,292		81		1,292		—

Total Commercial	$	11,491	$	11,741	$	1,648	$	11,437	$	80

Consumer	$	37	$	37	$	1	$	38	$	—
Residential real estate		1,576		1,576		79		1,595		8
Residential construction		485		485		3		485		1

Total Consumer	$	2,098	$	2,098	$	83	$	2,118	$	9

The following table presents impaired loans at December 31, 2011.


	Carrying Amount		Unpaid Principal Balance		Associated Allowance		Average Carrying Amount		Interest Income Recognized
	(Dollars in Thousands)
With no related allowance recorded:
Commercial	$	19	$	269	$	—	$	19	$	1
Commercial Real Estate
Owner occupied		499		499		—		513		—
Nonowner occupied		123		123		—		127		—

Total Commercial	$	641	$	891	$	—	$	659	$	1

Consumer	$	14	$	14	$	—	$	14	$	—
Residential real estate		983		983		—		1,013		9
Residential construction		452		452		—		452		—

Total Consumer	$	1,449	$	1,449	$	—	$	1,479	$	9

With an allowance recorded:
Commercial	$	1,154	$	1,273	$	469	$	1,132	$	—
Commercial Real Estate
Construction		4,948		4,948		768		4,948		—
Owner occupied		3,046		3,046		33		3,078		15
Nonowner occupied		2,613		2,613		463		2,612		29

Total Commercial	$	11,761	$	11,880	$	1,733	$	11,770	$	44

Consumer	$	26	$	26	$	1	$	36	$	2
Residential real estate		624		624		81		635		28
Residential construction		33		33		3		33		2

Total Consumer	$	683	$	683	$	85	$	704	$	32

Total:
Commercial	$	1,173	$	1,542	$	469	$	1,151	$	1
Commercial Real Estate
Construction		4,948		4,948		768		4,948		—
Owner occupied		3,545		3,545		33		3,591		15
Nonowner occupied		2,736		2,736		463		2,739		29

Total Commercial	$	12,402	$	12,771	$	1,733	$	12,429	$	45

Consumer	$	40	$	40	$	1	$	50	$	2
Residential real estate		1,607		1,607		81		1,648		37
Residential construction		485		485		3		485		2

Total Consumer	$	2,132	$	2,132	$	85	$	2,183	$	41

The following table presents the composition of nonaccrual loans at March 31, 2012 and December 31, 2011.


	March 31, 2012		December 31, 2011
	(Dollars in Thousands)
Commercial	$	1,192	$	1,354
Commercial - Real Estate
Construction		4,948		4,948
Owner Occupied		3,020		3,669
Non-Owner Occupied		1,727		1,827

Total Commercial Loans		10,887		11,798
Consumer		24		26
Residential Real Estate		1,792		1,551
Residential Construction		471		452

Total Consumer Loans		2,287		2,029

TOTAL NONACCRUAL LOANS	$	13,174	$	13,827

In addition to the review of credit quality through the credit review process, we construct a comprehensive allowance analysis for the loan portfolio at least quarterly. The procedures that we use entail preparation of a loan "watch" list and assigning each loan a classification. Commercial loans with an aggregate loan balance in excess of $250,000 that meet one or more of the following conditions require the completion of a Problem Loan Report and an impairment analysis by the responsible lender. The conditions are as follows:

a.	Commercial loans graded OAEM, Substandard, Doubtful or Loss

b.	Commercial loan in non-accrual status

c.	Commercial loans deemed impaired

d.	Commercial loans past due greater than 90 days

e.	Trouble debt restructures

f.	Other mitigating circumstances i.e. bankruptcy, death of borrower/guarantor, etc.

The loans specified on the loan "watch" list have been assigned a classification that is intended to be representative of the degree of risk associated with that particular loan(s). An on-going three-year migration analysis of the pools of loans graded OAEM, Substandard, Doubtful and Loss as compared to their historical charge-offs is completed annually. This three year average percentage is then applied to the respective loan pool.

The remaining portfolio is segregated into loan pools consisting of commercial loans, commercial real estate owner occupied loans, commercial real estate non-owner occupied loans, commercial construction and land development loans, residential real estate loans, residential construction loans and consumer loans. The historical net charge-off percentage of each category is compiled for ten successive years. This data is then used to establish an average charge-off percentage for each category.

Also, we review concentrations of credit, classes of loans and pledged collateral to determine the existence of any deterioration. In addition, we consider volume and trends in delinquencies and nonaccrual loans, the loan portfolio composition, loan volume and maturity of the portfolio, national and local economic conditions and the experience, ability and depth of our lending management and staff.

The following tables summarize changes in the allowance for loan losses applicable to each category of the loan portfolio:


	For the Three Months Ended March 31, 2012
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Construction		Unallocated			Total
	(Dollars in Thousands)
Balance at beginning of quarter	$	764		$	1,528		$	477		$	1,135		$	891	$	110		$	4,905
Provision for loan losses		311			232			(88	)		(16	)		1		(76	)		364
Recoveries on loans previously charged off		4			14			27			—			—		—			45
Loans charged off		(205	)		(109	)		(37	)		(58	)		—		—			(409	)

Balance at end of quarter	$	874		$	1,665		$	379		$	1,061		$	892	$	34		$	4,905


	For the Three Months Ended March 31, 2011
	Commercial		Commercial Real Estate		Consumer			Residential Real Estate			Construction			Unallocated		Total
	(Dollars in Thousands)
Balance at beginning of quarter	$	1,758	$	1,966	$	588		$	1,206		$	283		$	74	$	5,875
Provision for loan losses		1		168		(4	)		(16	)		(125	)		55		79
Recoveries on loans previously charged off		—		10		15			—			—			—		25
Loans charged off		—		—		(34	)		(70	)		—			—		(104	)

Balance at end of quarter	$	1,759	$	2,144	$	565		$	1,120		$	158		$	129	$	5,875

The following tables present the allocation of the allowance for loan losses at March 31, 2012 and 2011.


	March 31 2012
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Construction		Unallocated		Total
	(Dollars in Thousands)
Reserve ending balance:	$	874	$	1,665	$	379	$	1,061	$	892	$	34	$	4,905
Individually evaluated for Impairment	$	348	$	532	$	1	$	79	$	771	$	—	$	1,731
Collectively evaluated for Impairment	$	526	$	1,133	$	378	$	982	$	121	$	34	$	3,174

Principal balance outstanding:
Individually evaluated for Impairment	$	1,011	$	5,532	$	37	$	1,576	$	5,433	$	—	$	13,589
Collectively evaluated for Impairment	$	18,434	$	93,535	$	16,461	$	95,372	$	6,204	$	—	$	230,006

Total loans	$	19,445	$	99,067	$	16,498	$	96,948	$	11,637	$	—	$	243,595


	March 31 2011
	Commercial		Commercial Real Estate		Consumer		Residential Real Estate		Construction		Unallocated		Total
	(Dollars in Thousands)
Reserve ending balance:	$	1,759	$	2,144	$	565	$	1,120	$	158	$	129	$	5,875
Individually evaluated for Impairment	$	1,240	$	1,242	$	1	$	110	$	3	$	—	$	2,596
Collectively evaluated for Impairment	$	519	$	902	$	564	$	1,010	$	155	$	129	$	3,279

Principal balance outstanding:
Individually evaluated for Impairment	$	3,485	$	6,399	$	46	$	942	$	5,434	$	—	$	16,306
Collectively evaluated for Impairment	$	25,035	$	99,966	$	17,919	$	92,687	$	10,321	$	—	$	245,928

Total loans	$	28,520	$	106,365	$	17,965	$	93,629	$	15,755	$	—	$	262,234

The Company's loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company's collection activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower's sustained repayment performance for a reasonable period, generally six months.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole remaining source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan, net of charge-offs, deferred loan fees or costs and unamortized premium or discount, impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan's classification at origination.

The following tables include the recorded investment and number of modifications for these loans. The Company reports the recorded investment in the loans prior to modifications and also the recorded investment in the loans after the loans were restructured. There were no modifications for troubled debt restructurings within the last year where concessions were made that subsequently defaulted in the current reporting period.

Troubled debt restructurings

For the three months ended March 31, 2012 and 2011.


	2012						2011
	Number Of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Number Of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification
	(Dollars in Thousands)
Loan Term Extension:
Commercial - real estate
Non-owner Occupied		1	$	688	$	434		—	$	—	$	—

TOTAL		1	$	688	$	434		—	$	—	$	—

- Definition

The entire disclosure for claims held for amounts due a company. Examples include trade accounts receivables, notes receivables, loans receivables.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 310

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5066-111524

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 03

-Paragraph 7

-Article 9

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Statement of Position (SOP)

-Number 01-6

-Paragraph 13

-Subparagraph d

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 310

-SubTopic 10

-Section 50

-Paragraph 11

-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5162-111524

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 02

-Paragraph 3, 4

-Article 5

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 235

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.4-08.(k))

-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 210

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.5-02.3,4)

-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Article 4

-Section 08

-Paragraph k

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 310

-SubTopic 10

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5074-111524

+ Details

FIRST CENTURY BANKSHARES INC 10-Q