Allowance for Loan Losses

12 Months Ended

Dec. 31, 2011

Allowance For Loan Losses Disclosure [Abstract]

Allowance for Credit Losses [Text Block]

Note 4. Allowance for Loan Losses

The following is a summary of transactions in the allowance for loan losses for 2011, 2010 and 2009 (in thousands):

	2011			2010			2009
Balance at beginning of year	$	5 012		$	5 718		$	4 079
Provision charged to operating expense		3 343			1 599			6 690
Recoveries added to the allowance		183			321			232
Loan losses charged to the allowance		(4 054	)		(2 626	)		(5 283	)
Balance at end of year	$	4 484		$	5 012		$	5 718

Allowance for Loan Losses – By Segment
December 31, 2011
(in thousands)

							Commercial												All
	Farmland			Commercial			Real Estate			Construction			Consumer			Residential			Other			Unallocated			Total
Beginning balance	$	166		$	239		$	859		$	2 022		$	20		$	1 691		$	1		$	14		$	5 012
Charge-offs		- -			(20	)		(653	)		(1 673	)	(172		)		(1 536	)		- -			- -			(4 054	)
Recoveries		- -			30			6			5			131			11			- -			- -			183
Provision		(149	)		(93	)		670			152			105			2 673			(1	)		(14	)		3 343

Ending balance	$	17		$	156		$	882		$	506		$	84		$	2 839		$	0		$	0		$	4 484

Individually evaluated
for impairment	$	0		$	161		$	122		$	102		$	39		$	349		$	- -		$	- -		$	773
Collectively evaluated
for impairment		17			(5	)		760			404			45			2 490			- -			- -			3 711
	$	17		$	156		$	882		$	506		$	84		$	2 839		$	0		$	0		$	4 484

Financing receivables:
Ending balance	$	598		$	8 361		$	76 882		$	19 179		$	6 165		$	95 944		$	116		$	- -		$	207 245

Ending balance:
Individually evaluated
for impairment	$	- -		$	161		$	6 995		$	5 250		$	109		$	5 662		$	- -		$	- -		$	18 177
Collectively evaluated
for impairment		598			8 200			69 887			13 929		6 056				90 282		116				- -			189 068
Total	$	598		$	8 361		$	76 882		$	19 179		$	6 165		$	95 944		$	116		$	- -		$	207 245

Allowance for Loan Losses – By Segment
December 31, 2010
(in thousands)

							Commercial												All
	Farmland			Commercial			Real Estate			Construction			Consumer			Residential			Other			Unallocated			Total
Ending balance	$	166		$	239		$	859		$	2 022		$	20		$	1 691		$	1		$	14		$	5 012

Individually evaluated
for impairment	$	161		$	217		$	528		$	1 812		$	- -		$	429		$	- -		$	- -		$	3 147
Collectively evaluated
for impairment		5			22			331			210			20			1 262			1			14			1 865
	$	166		$	239		$	859		$	2 022		$	20		$	1 691		$	1		$	14		$	5 012

Financing receivables:
Ending balance	$	792		$	7 920		$	79 615		$	24 174		$	6 800		$	99 513		$	436		$	- -		$	219 250

Ending balance:
Individually evaluated
for impairment	$	539		$	367		$	9 398		$	11 484		$	- -		$	2 874		$	- -		$	- -		$	24 662
Collectively evaluated
for impairment		253			7 553			70 217			12 690		6 800				96 639			436			- -			194 588
Total	$	792		$	7 920		$	79 615		$	24 174		$	6 800		$	99 513		$	436		$	- -		$	219 250

Credit Quality Information – By Class
December 31, 2011
(in thousands)

			Special		Sub-
Internal Risk Rating Grades	Pass		Mention		Standard		Doubtful		Loss
Commercial – non real estate
Commercial and industrial	$	8 094	$	105	$	162	$	- -	$	- -
Commercial real estate
Owner occupied		39 405		12 768		8 817		96		- -
Non-owner occupied		14 824		333		583		56		- -
Construction
Residential		1 986		- -		506		- -		- -
Commercial		10 077		2 123		4 397		90		- -
Real estate
Farmland		598		- -		- -		- -		- -
Consumer
Titled vehicles		N/A		N/A		N/A		N/A		N/A
Deposit accounts		N/A		N/A		N/A		N/A		N/A
All other		N/A		25		N/A		N/A		N/A
Residential
Revolving open end		N/A		1 276		224		N/A		N/A
1-4 family – first liens		N/A		2 894		2 351		N/A		N/A
1-4 family – junior liens		N/A		172		94		N/A		N/A
5 or more family		N/A		N/A		N/A		N/A		N/A

Totals	$	74 984	$	19 696	$	17 134	$	242	$	- -

As a matter of practice, we do not risk rate consumer or residential mortgage loans. Any of these loans listed in the risk rating table above are associated with commercial loans that have been risk rated as per our policy. When a loan is designated as a loss, the loss portion is charged off, and if applicable the remaining balance classified as substandard.

Credit Quality Information – By Class
December 31, 2011
(in thousands)

Non Risk Rated Loans	Performing		Nonperforming
Consumer – non real estate
Titled vehicles	$	2 645	$	5
Deposit accounts		617		- -
All other		2 870		3
Residential
Revolving open end		3 498		17
1-4 family – first liens		74 227		839
1-4 Family – junior liens		7 264		- -
5 or more family		3 088		- -
All other		116		- -
Totals	$	94 325	$	864

Credit Quality Information – By Class
December 31, 2010
(in thousands)

			Special		Sub-
Internal Risk Rating Grades	Pass		Mention		Standard		Doubtful		Loss
Commercial – non real estate
Commercial and industrial	$	7 373	$	180	$	95	$	106	$	166
Commercial real estate
Owner occupied		53 078		5 041		3 829		5 375		194
Non-owner occupied		11 470		628		- -		- -		- -
Construction
Residential		282		489		4 005		1 095		51
Commercial		10 348		2 789		3 575		1 363		- -
Real estate
Farmland		253		- -		- -		539		- -
Consumer
Titled vehicles		N/A		N/A		N/A		N/A		N/A
Deposit accounts		N/A		N/A		N/A		N/A		N/A
All other		N/A		N/A		N/A		N/A		N/A
Residential
Revolving open end		N/A		N/A		N/A		N/A		N/A
1-4 family – first liens		N/A		3 234		956		1 434		242
1-4 family – junior liens		N/A		187		42		175		25
5 or more family		N/A		308		- -		- -		- -

Totals	$	82 804	$	12 856	$	12 502	$	10 087	$	678

Credit Quality Information – By Class
December 31, 2010
(in thousands)

Non Risk Rated Loans	Performing		Nonperforming
Consumer – non real estate
Titled vehicles	$	3 705	$	8
Deposit accounts		737		- -
All other		2 345		5
Residential
Revolving open end		5 962		13
1-4 family – first liens		75 901		1 101
1-4 Family – junior liens		8 442		- -
5 or more family		1 668		- -
All other		436		- -
Totals	$	99 196	$	1 127

Impaired Loans – By Class
December 31, 2011
(in thousands)

With no related allowance:
							Average		Interest
	Unpaid		Recorded		Related		Recorded		Income
	Principal		Investment		Allowance		Investment		Recognized
Commercial – non real estate
Commercial and industrial	$	- -	$	- -	$	N/A	$	67	$	- -
Commercial real estate
Owner occupied		4 622		4 440		N/A		3 752		217
Non-owner occupied		587		583		N/A		132		11
Construction
Residential		512		506		N/A		799		14
Commercial		4 106		3 976		N/A		3 353		168
Real estate
Farmland		- -		- -		N/A		- -		- -
Residential
Revolving open end		225		224		N/A		160		15
1 to 4 family –first liens		948		870		N/A		1 257		26
1 to 4 family – junior liens		- -		- -		N/A		177		- -
5 or more family		- -		- -		N/A		- -		- -
Consumer
Titled vehicles		- -		- -		N/A		- -		- -
Deposit accounts		- -		- -		N/A		- -		- -
All other consumer		- -		- -		N/A		4		- -
All other		- -		- -		N/A		- -		- -
	$	11 000	$	10 599	$	N/A	$	9 701	$	451

With an allowance recorded:
							Average		Interest
	Unpaid		Recorded		Related		Recorded		Income
	Principal		Investment		Allowance		Investment		Recognized
Commercial – non real estate
Commercial and industrial	$	163	$	161	$	161	$	187	$	8
Commercial real estate
Owner occupied		1 989		1 972		122		4 800		93
Non-owner occupied		- -		- -		- -		163		- -
Construction
Residential		- -		- -		- -		979		- -
Commercial		771		768		102		2 443		30
Real estate
Farmland		- -		- -		- -		108		- -
Residential
Revolving open end		1 277		1 274		31		331		65
1 to 4 family – first liens		2 550		2 540		299		2 342		102
1 to 4 family – junior liens		758		754		19		311		28
5 or more family		- -		- -		- -		- -		- -
Consumer
Titled vehicles		- -		- -		- -		- -		- -
Deposit accounts		- -		- -		- -		- -		- -
All other consumer		109		109		39		37		3
All other		- -		- -		- -		- -		- -
	$	7 617	$	7 578	$	773	$	11 701	$	329

Totals:
Commercial – non real estate	$	163	$	161	$	161	$	254	$	8
Commercial real estate		7 198		6 995		122		8 847		321
Construction		5 389		5 250		102		7 574		212
Real estate –farmland		- -		- -		- -		108		- -
Residential		5 758		5 662		349		4 578		236
Consumer		109		109		39		41		3
All other		- -		- -		- -		- -		- -
	$	18 617	$	18 177	$	773	$	21 402	$	780

Impaired Loans – By Class
December 31, 2010
(in thousands)

With no related allowance:
							Average		Interest
	Unpaid		Recorded		Related		Recorded		Income
	Principal		Investment		Allowance		Investment		Recognized
Commercial – non real estate
Commercial and industrial	$	117	$	95	$	N/A	$	53	$	- -
Commercial real estate
Owner occupied		4 206		4 256		N/A		3 591		158
Non-owner occupied		75		- -		N/A		15		- -
Construction
Residential		1 188		1 183		N/A		1 769		52
Commercial		2 641		2 631		N/A		3 655		112
Real estate
Farmland		- -		- -		N/A		- -		- -
Residential
Revolving open end		- -		- -		N/A		- -		- -
1 to 4 family –first liens		1 259		1 242		N/A		1 351		15
1 to 4 family – junior liens		175		175		N/A		142		3
5 or more family		- -		- -		N/A		- -		- -
Consumer
Titled vehicles		- -		- -		N/A		- -		- -
Deposit accounts		- -		- -		N/A		- -		- -
All other consumer		- -		- -		N/A		- -		- -
All other		- -		- -		N/A		- -		- -
	$	9 661	$	9 582	$	N/A	$	10 576	$	340

With an allowance recorded:
							Average		Interest
	Unpaid		Recorded		Related		Recorded		Income
	Principal		Investment		Allowance		Investment		Recognized
Commercial – non real estate
Commercial and industrial	$	274	$	272	$	217	$	355	$	6
Commercial real estate
Owner occupied		5 201		5 142		528		4 972		272
Non-owner occupied		- -		- -		- -		- -		- -
Construction
Residential		2 786		2 767		600		3 910		175
Commercial		4 924		4 903		1 212		3 242		216
Real estate
Farmland		549		539		161		547		- -
Residential
Revolving open end		- -		- -		- -		- -		- -
1 to 4 family – first liens		1 412		1 390		362		1 186		56
1 to 4 family – junior liens		71		67		67		220		- -
5 or more family		- -		- -		- -		- -		- -
Consumer
Titled vehicles		- -		- -		- -		- -		- -
Deposit accounts		- -		- -		- -		- -		- -
All other consumer		- -		- -		- -		4		- -
All other		- -		- -		- -		- -		- -
	$	15 217	$	15 080	$	3 147	$	14 436	$	725

Totals:
Commercial – non real estate	$	391	$	367	$	217	$	408	$	6
Commercial real estate		9 482		9 398		528		8 578		430
Construction		11 539		11 484		1 812		12 576		555
Real estate –farmland		549		539		161		547		- -
Residential		2 917		2 874		429		2 899		74
Consumer		- -		- -		- -		4		- -
All other		- -		- -		- -		- -		- -
	$	24 878	$	24 662	$	3 147	$	25 012	$	1 065

The following is a summary of information pertaining to impaired loans as of December 31, 2009 (in thousands):

	2009
Impaired loans without a valuation allowance	$	12 397
Impaired loans with a valuation allowance		14 985
Total impaired loans	$	27 382

Valuation allowance related to impaired loans	$	3 799

Total nonaccrual loans	$	3 819

Total loans past due ninety days or more and still accruing	$	- -

	2009
Average investment in impaired loans	$	16 262
Interest income recognized on impaired loans	$	1 233
Interest income recognized on a cash basis on impaired loans	$	68

No additional funds are committed to be advanced in connection with impaired loans. Nonaccrual loans excluded from impaired loans at December 31, 2011 and 2010 totaled $1.1 million and $1.1 million, respectively. If interest had been accrued on these nonaccrual loans, such income would have approximated $56 thousand in 2011 and $44 thousand in 2010.

Modifications
(in thousands except number of contracts)

For the Year Ended
December 31, 2011

		Pre-		Post-
		Modification		Modification
	Number	Outstanding		Outstanding
Troubled Debt Restructurings	Of	Recorded		Recorded
	Contracts	Investment		Investment
Commercial – non real estate
Commercial and industrial	- -	$	- -	$	- -
Commercial real estate
Owner Occupied	6		725		725
Non owner occupied	1		583		583
Construction
Residential	1		121		121
Commercial	9		684		684
Real Estate
Farmland	- -		- -		- -
Residential
Revolving open end 1 to 4 family	- -		- -		- -
1 to 4 family – first liens	19		2 371		2 484
1 to 4 family – junior liens	23		808		808
5 or more family	- -		- -		- -
Consumer
Titled Vehicles	- -		- -		- -
Deposit Accounts	- -		- -		- -
All other consumer	3		77		77
All Other	- -		- -		- -
Totals	62	$	5 369	$	5 482


Troubled Debt Restructurings	Number of	Recorded
That Subsequently Defaulted	Contracts	Investment
Commercial – non real estate
Commercial and industrial	- -	$	- -
Commercial real estate
Owner Occupied	1		220
Non owner occupied	- -		- -
Construction
Residential	1		121
Commercial	- -		- -
Real Estate
Farmland	- -		- -
Residential
Revolving open end 1 to 4 family	- -		- -
1 to 4 family – first liens	6		1 132
1 to 4 family – junior liens	6		247
5 or more family	- -		- -
Consumer
Titled Vehicles	- -		- -
Deposit Accounts	- -		- -
All other consumer	- -		- -
All Other	- -		- -
Totals	14	$	1 720

As of December 31, 2011 there are five TDRs in non-performing assets with balances totaling $2.9 million. In addition, two TDRs with balances totaling $107k are 30 or more days past due.

Granting a concession and assessing financial difficulty (ASU 2011-02) are effective for the first interim or annual period beginning on or after June 15, 2011. ASU 2011-2 is to be applied retrospectively to the beginning of the annual period of adoption. As of December 31, 2010 there were $7.3 million of TDRs outstanding.

Nonaccrual and Past Due Loans – By Class
December 31, 2011
(in thousands)

													90 Days
	30-59		60-89		90 Days								Past Due
	Days		Days		or More		Total				Total		Still		Non-
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing		Accrual
Commercial – non real estate
Commercial and industrial	$	- -	$	6	$	- -	$	6	$	8 355	$	8 361	$	- -	$	93
Commercial real estate
Owner occupied		2 376		996		344		3 716		57 370		61 086		- -		1 339
Non owner occupied		- -		- -		179		179		15 617		15 796		- -		179
Construction
Residential		- -		- -		385		385		2 107		2 492		- -		506
Commercial		19		44		1 602		1 665		15 022		16 687		143		3 693
Real estate
Farmland		- -		- -		- -		- -		598		598		- -		- -
Residential
Revolving open end		- -		- -		- -		- -		5 015		5 015		- -		17
1 to 4 family – first liens		1 386		139		360		1 885		78 426		80 311		61		1 408
1 to 4 family – junior liens		176		- -		- -		176		7 354		7 530		- -		- -
5 or more family		- -		- -		- -		- -		3 088		3 088		- -		- -
Consumer
Titled vehicles		1		15		- -		16		2 634		2 650		- -		5
Deposit accounts		- -		- -		- -		- -		617		617		- -		- -
All other consumer		8		4		3		15		2 883		2 898		- -		3
All other		- -		- -		- -		- -		116		116		- -		- -
Totals	$	3 966	$	1 204	$	2 873	$	8 043	$	199 202	$	207 245	$	204	$	7 243

Percentage to Total Loans		1.91%		0.58%		1.39%		3.88%		96.12%				0.10%		3.49%

Included in the 30 or more days past due loans are certain non-accrual loans in the amount of $3.7 million. The remaining non-accrual loans of $3.5 million are in current status.

Nonaccrual and Past Due Loans – By Class
December 31, 2010
(in thousands)

													90 Days
	30-59		60-89		90 Days								Past Due
	Days		Days		or More		Total				Total		Still		Non-
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing		Accrual
Commercial – non real estate
Commercial and industrial	$	80	$	92	$	2	$	174	$	7 746	$	7 920	$	- -	$	97
Commercial real estate
Owner occupied		612		- -		- -		612		66 905		67 517		- -		- -
Non owner occupied		194		- -		- -		194		11 904		12 098		- -		- -
Construction
Residential		238		- -		- -		238		5 684		5 922		- -		- -
Commercial		115		- -		285		400		17 852		18 252		- -		405
Real estate
Farmland		- -		- -		539		539		253		792		- -		539
Residential
Revolving open end		- -		- -		- -		- -		5 975		5 975		- -		38
1 to 4 family – first liens		2 269		416		881		3 566		79 125		82 691		- -		1 099
1 to 4 family – junior liens		135		19		- -		154		8 717		8 871		- -		42
5 or more family		- -		- -		- -		- -		1 976		1 976		- -		- -
Consumer
Titled vehicles		37		2		- -		39		3 674		3 713		- -		8
Deposit accounts		11		- -		- -		11		726		737		- -		- -
All other consumer		3		- -		5		8		2 342		2 350		- -		5
All other		- -		- -		- -		- -		436		436		- -		- -
Totals	$	3 694	$	529	$	1 712	$	5 935	$	213 315	$	219 250	$	- -	$	2 233

Percentage to Total Loans		1.69%		0.24%		0.78%		2.71%		97.29%				- -%		1.02%

Included in the 30 or more days past due loans are certain non-accrual loans in the amount of $1.8 million. The remaining non-accrual loans of $429 thousand are in current status.

The past due policy of the bank is to report all classes of loans past due in the following categories:

30 to 59 days past due (principal or interest)
60 to 89 days past due (principal or interest)
90 days or more past due (principal or interest)
Nonaccrual status.

POTOMAC BANCSHARES INC 10-K