Note 4.

Allowance for Loan Losses

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


	(in thousands)
	September 30, 2013			December 31, 2012			September 30, 2012
Balance at beginning of year	$	13,075		$	12,937		$	12,937
Provision charged to operating expense		2,525			3,555			3,455
Loan recoveries		575			376			240
Loan charge-offs		(4,300	)		(3,793	)		(2,583	)

Balance at end of period	$	11,875		$	13,075		$	14,049

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


	September 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		(2,923	)		(260	)		(976	)		(31	)		(110	)		(4,300	)
Recoveries		—			47			214			177			137			575
Provision for loan losses		3,385			(332	)		(89	)		(359	)		(80	)		2,525

Ending Balance, September 30, 2013	$	2,943		$	3,167		$	5,312		$	395		$	58		$	11,875


Ending Balance:
Individually evaluated for impairment		743			81			201			56			—			1,081
Collectively evaluated for impairment		2,200			3,086			5,111			339			58			10,794

Loans:
Ending Balance		34,404			142,446			156,691			21,316			11,970			366,827

Individually evaluated for impairment		7,217			3,439			6,690			244			—			17,590
Collectively evaluated for impairment		27,187			139,007			150,001			21,072			11,970			349,237


	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


	September 30, 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		(369	)		(761	)		(1,042	)		(261	)		(150	)		(2,583	)
Recoveries		1			2			58			24			155			240
Provision for loan losses		1,059			992			1,531			(75	)		(52	)		3,455

Ending Balance, September 30, 2012	$	3,534		$	3,999		$	5,739		$	651		$	126		$	14,049


Ending Balance:
Individually evaluated for impairment		1,728			709			762			40			—			3,239
Collectively evaluated for impairment		1,806			3,290			4,977			611			126			10,810

Loans:
Ending Balance		44,725			128,354			175,122			24,216			8,335			380,752

Individually evaluated for impairment		6,353			4,758			8,597			164			—			19,872
Collectively evaluated for impairment		38,372			123,596			166,525			24,052			8,335			360,880

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


	September 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	$	9,441	$	5,406	$	1,811	$	7,217	$	743	$	4,469	$	217
Secured by 1-4 family		4,339		2,533		906		3,439		81		2,673		105
Other real estate loans		7,855		4,883		1,807		6,690		201		6,817		197
Commercial and industrial		245		16		228		244		56		795		9
Consumer and other loans		—		—		—		—		—		—		—

Total	$	21,880	$	12,838	$	4,752	$	17,590	$	1,081	$	14,754	$	528


	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 September 30, 2013, loans classified as troubled debt restructurings (TDRs) and included in impaired loans in the disclosure above totaled $2.1 million. At September 30, 2013, $834 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 nine month periods ended September 30, 2013 and 2012.

For the three and nine months ended September 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.