Note 4. Allowance for Loan Losses

Transactions in the allowance for loan losses for the six months ended June 30, 2013 and 2012 and for the year ended December 31, 2012 were as follows:


	(in thousands)
	June 30, 2013			December 31, 2012			June 30, 2012
Balance at beginning of year	$	13,075		$	12,937		$	12,937
Provision charged to operating expense		2,250			3,555			2,650
Loan recoveries		498			376			196
Loan charge-offs		(3,345	)		(3,793	)		(1,784	)

Balance at end of period	$	12,478		$	13,075		$	13,999

The following tables present, as of June 30, 2013, December 31, 2012 and June 30, 2012, the total allowance for loan losses, the allowance by impairment methodology and loans by impairment methodology.


	June 30, 2013
	(in thousands)
	Construction and Land Development			Secured by 1-4 Family Residential			Other Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
Allowance for loan losses:
Beginning Balance, December 31, 2012	$	2,481		$	3,712		$	6,163		$	608		$	111		$	13,075
Charge-offs		(2,308	)		(172	)		(798	)		—			(67	)		(3,345	)
Recoveries		—			6			206			176			110			498
Provision for loan losses		3,097			179			(561	)		(399	)		(66	)		2,250

Ending Balance, June 30, 2013	$	3,270		$	3,725		$	5,010		$	385		$	88		$	12,478


Ending Balance:
Individually evaluated for impairment		747			195			161			19			—			1,122
Collectively evaluated for impairment		2,523			3,530			4,849			366			88			11,356

Loans:
Ending Balance		44,305			145,628			159,834			19,701			8,045			377,513

Individually evaluated for impairment		3,595			1,940			5,219			90			—			10,844
Collectively evaluated for impairment		40,710			143,688			154,615			19,611			8,045			366,669


	December 31, 2012
	(in thousands)
	Construction and Land Development			Secured by 1-4 Family Residential			Other Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
Allowance for loan losses:
Beginning Balance, December 31, 2011	$	2,843		$	3,766		$	5,192		$	963		$	173		$	12,937
Charge-offs		(431	)		(761	)		(2,154	)		(261	)		(186	)		(3,793	)
Recoveries		1			68			64			35			208			376
Provision for (recovery of) loan losses		68			639			3,061			(129	)		(84	)		3,555

Ending Balance, December 31, 2012	$	2,481		$	3,712		$	6,163		$	608		$	111		$	13,075


Ending Balance:
Individually evaluated for impairment		567			306			930			35			—			1,838
Collectively evaluated for impairment		1,914			3,406			5,233			573			111			11,237

Loans:
Ending Balance		43,524			134,964			176,573			20,718			7,815			383,594

Individually evaluated for impairment		2,516			3,776			10,528			160			—			16,980
Collectively evaluated for impairment		41,008			131,188			166,045			20,558			7,815			366,614


	June 30, 2012
	(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, 2011	$	963		$	5,192		$	2,843		$	3,766		$	173		$	12,937
Charge-offs		(74	)		(674	)		(369	)		(562	)		(105	)		(1,784	)
Recoveries		16			52			1			2			125			196
Provision for loan losses		(264	)		1,285			700			993			(64	)		2,650

Ending Balance, June 30, 2012	$	641		$	5,855		$	3,175		$	4,199		$	129		$	13,999


Ending Balance:
Individually evaluated for impairment		55			1,033			1,145			972			—			3,205
Collectively evaluated for impairment		586			4,822			2,030			3,227			129			10,794

Loans:
Ending Balance		24,937			174,212			47,843			128,229			8,914			384,135

Individually evaluated for impairment		402			10,813			5,256			5,460			—			21,931
Collectively evaluated for impairment		24,535			163,399			42,587			122,769			8,914			362,204

Impaired loans and the related allowance at June 30, 2013 and December 31, 2012, were as follows:


	June 30, 2013
	(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	$	6,245	$	2,678	$	917	$	3,595	$	747	$	5,059	$	20
Secured by 1-4 family		2,864		856		1,084		1,940		195		3,047		14
Other real estate loans		6,242		3,877		1,342		5,219		161		8,682		90
Commercial and industrial		91		—		90		90		19		87		2
Consumer and other loans		—		—		—		—		—		—		—

Total	$	15,442	$	7,411	$	3,433	$	10,844	$	1,122	$	16,875	$	126


	December 31, 2012
	(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	$	2,947	$	622	$	1,894	$	2,516	$	567	$	5,691	$	99
Secured by 1-4 family		4,706		1,690		2,086		3,776		306		4,821		163
Other real estate loans		14,861		4,886		5,642		10,528		930		10,148		276
Commercial and industrial		161		—		160		160		35		330		10
Consumer and other loans		—		—		—		—		—		—		—

	$	22,675	$	7,198	$	9,782	$	16,980	$	1,838	$	20,990	$	548

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.

As of June 30, 2013, loans classified as troubled debt restructurings (TDRs) and included in impaired loans in the disclosure above totaled $2.2 million. At June 30, 2013, $838 thousand of the loans classified as TDRs were performing under the restructured terms and were not considered non-performing assets. There were $6.3 million in TDRs at December 31, 2012, $1.6 million of which were performing under the restructured terms. Modified terms under TDRs may include rate reductions, extension of terms that are considered to be below market, conversion to interest only, and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. There were no new loans modified as TDRs during the three and six month periods ended June 30, 2013 and 2012.

For the three and six months ended June 30, 2013 and 2012, there were no troubled debt restructurings that subsequently defaulted within twelve months of the loan modification. Management defines default as over ninety days past due during the twelve month period subsequent to the modification.