Note 4. Allowance for Loan Losses

Transactions in the allowance for loan losses for the years ended December 31, 2011, 2010 and 2009 were as follows:


	(in thousands)
	2011			2010			2009
Balance at beginning of year	$	16,036		$	7,106		$	5,650
Provision charged to operating expense		12,380			11,731			2,300
Loan recoveries		310			261			298
Loan charge-offs		(15,789	)		(3,062	)		(1,142	)

Balance at end of year	$	12,937		$	16,036		$	7,106

The following tables present, as of December 31, 2011 and 2010, the total allowance for loan losses, the allowance by impairment methodology and loans by impairment methodology.


	December 31, 2011
	(in thousands)
	Commercial and Industrial			Other Real Estate			Construction and Land Development			Secured by 1-4 Family Residential			Consumer and Other Loans			Total
Allowance for loan losses:
Beginning Balance, December 31, 2010	$	858		$	9,187		$	4,050		$	1,681		$	260		$	16,036
Charge-offs		(348	)		(7,551	)		(2,983	)		(4,639	)		(268	)		(15,789	)
Recoveries		3			—			50			6			251			310
Provision for loan losses		450			3,556			1,726			6,718			(70	)		12,380

Ending Balance, December 31, 2011	$	963		$	5,192		$	2,843		$	3,766		$	173		$	12,937


Ending Balance:
Individually evaluated for impairment		309			351			930			848			—			2,438
Collectively evaluated for impairment		654			4,841			1,913			2,918			173			10,499

Loans:
Ending Balance		29,446			181,141			48,363			122,339			11,151			392,440

Individually evaluated for impairment		480			10,940			7,640			6,860			—			25,920
Collectively evaluated for impairment		28,966			170,201			40,723			115,479			11,151			366,520


	December 31, 2010
	(in thousands)
	Commercial and Industrial		Other Real Estate		Construction and Land Development		Secured by 1-4 Family Residential		Consumer and Other Loans		Total
Allowance for loan losses:
Ending Balance	$	858	$	9,187	$	4,050	$	1,681	$	260	$	16,036

Ending Balance:
Individually evaluated for impairment		36		5,020		3,006		536		—		8,597
Collectively evaluated for impairment		822		4,167		1,044		1,145		260		7,439

Loans:
Ending Balance		40,683		207,371		52,591		121,506		12,879		435,030

Ending Balance:
Individually evaluated for impairment		48		28,426		9,709		5,682		—		43,865
Collectively evaluated for impairment		40,635		178,945		42,882		115,824		12,879		391,165

Impaired loans and the related allowance at December 31, 2011 and 2010, were as follows:


	December 31, 2011 (in thousands)
	Unpaid Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Real estate loans:
Construction and land development	$	8,106	$	3,531	$	4,109	$	7,640	$	930	$	7,077	$	367
Secured by 1-4 family		8,566		3,495		3,365		6,860		848		6,519		301
Other real estate loans		15,165		8,135		2,805		10,940		351		23,918		396
Commercial and industrial		480		—		480		480		309		660		27
Consumer and other loans		—		—		—		—		—		—		—

Total	$	32,317	$	15,161	$	10,758	$	25,920	$	2,438	$	38,174	$	1,091


	December 31, 2010 (in thousands)
	Unpaid Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Real estate loans:
Construction and land development	$	10,440	$	1,217	$	8,492	$	9,709	$	3,006	$	2,920	$	374
Secured by 1-4 family		5,701		595		5,087		5,682		536		795		222
Other real estate loans		29,480		7,904		20,522		28,426		5,020		18,432		1,345
Commercial and industrial		48		—		48		48		36		163		4
Consumer and other loans		—		—		—		—		—		—		—

Total	$	45,669	$	9,716	$	34,149	$	43,865	$	8,597	$	22,310	$	1,945

The "Recorded Investment" amounts in the table above represent the outstanding principal balance on each loan represented in the table. The "Unpaid Principal Balance" represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged off on each loan and/or payments that have been applied towards principal on non-accrual loans.

During the first quarter of 2011, the Bank adjusted its allowance for loan losses methodology by expanding the historical loss period that is applied to the general component of the allowance from one year to three years. The Company decreased the loss history to one year after significant deterioration in economic conditions in 2008. Since then, the Company determined that a three-year loss history is more appropriate to reflect a reasonable estimate of loss inherent in the loan portfolio.

As of December 31, 2011, loans classified as troubled debt restructurings (TDRs) and included in impaired loans in the disclosure above totaled $11.4 million. At December 31, 2011, $4.8 million of the loans classified as TDRs were performing under the restructured terms and were not considered non-performing assets. There were $14.4 million in TDRs at December 31, 2010. The following table provides further information regarding loans modified under TDRs during the year ended December 31, 2011:


	For the year ended December 31, 2011
	(dollars in thousands)
	Number of Contracts		Pre-modification outstanding recorded investment		Post- modification outstanding recorded investment
Real estate loans:
Construction and land development		1	$	701	$	357
Secured by 1-4 family		4		2,667		2,667
Other real estate loans		14		12,829		12,855
Commercial and industrial		—		—		—
Consumer and other loans		—		—		—

Total		19	$	16,197	$	15,879

The table below shows troubled debt restructurings that subsequently defaulted as of December 31, 2011:


	December 31, 2011
	(dollars in thousands)
	Number of Contracts		Recorded investment
Real estate loans:
Construction and land development		1	$	235
Secured by 1-4 family		—		—
Other real estate loans		3		361
Commercial and industrial		—		—
Consumer and other loans		—		—

Total		4	$	596

For purposes of this disclosure, default is defined as over ninety days past due during the twelve month period subsequent to the modification.

Non-accrual loans excluded from impaired loan disclosure amounted to $103 thousand, $2 thousand and $196 thousand at December 31, 2011, 2010 and 2009, respectively. If interest on these loans had been accrued, such income would have approximated $4 thousand and $6 thousand for 2011 and 2009, respectively. For 2010, there was no income that would have been accrued on these loans.