Note 5. Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems adequate to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by provisions charged to operations and reduced by net charge-offs. While management uses its best judgment and information available, the ultimate adequacy of the allowance is dependent on a variety of factors that may be beyond the Company’s control: the performance of the Company’s loan portfolio, the economy, changes in interest rates, the view of regulatory authorities towards loan classifications, and other factors. These uncertainties may result in a material change to the allowance for loan losses in the near term; however, the amount of the change cannot reasonably be estimated.

The Company’s allowance is comprised of specific reserves related to loans individually evaluated, including credit relationships, and general reserves related to loans not individually evaluated that are segmented into groups with similar risk characteristics, based on an internal risk grading matrix. General reserve allocations are based on management’s judgments of qualitative and quantitative factors about macro and micro economic conditions reflected within the loan portfolio and the economy. For loans acquired in a business combination, loans identified as credit impaired at the acquisition date are grouped into pools and evaluated separately from the non-PCI portfolio. The Company aggregates PCI loans into the following pools: Waccamaw commercial, Waccamaw lines of credit, Waccamaw serviced home equity lines, Waccamaw residential, Waccamaw consumer, Peoples commercial, and Peoples residential. The Company closed the Waccamaw consumer loan pool during the first quarter of 2015 due to an insignificant remaining balance. Provisions calculated for PCI loans are offset by an adjustment to the FDIC indemnification asset to reflect the indemnified portion, 80%, of the post-acquisition exposure. While allocations are made to various portfolio segments, the allowance for loan losses, excluding reserves allocated to specific loans and PCI loan pools, is available for use against any loan loss management deems appropriate. As of March 31, 2015, management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio.

The following table presents the aggregate activity in the allowance for loan losses in the periods indicated:


	Allowance Excluding PCI Loans			Allowance for PCI Loans			Total Allowance
(Amounts in thousands)
Three months ended March 31, 2014
Beginning balance	$	23,322		$	755		$	24,077
Provision for (recovery of) loan losses		1,852			(262	)		1,590
Benefit attributable to the FDIC indemnification asset		—			203			203

Provision for (recovery of) loan losses charged to operations		1,852			(59	)		1,793
Recovery of loan losses recorded through the FDIC indemnification asset		—			(203	)		(203	)
Charge-offs		(2,216	)		—			(2,216	)
Recoveries		347			—			347

Net charge-offs		(1,869	)		—			(1,869	)

Ending balance	$	23,305		$	493		$	23,798

Three months ended March 31, 2015
Beginning balance	$	20,169		$	58		$	20,227
Provision for loan losses		1,090			56			1,146
Benefit attributable to the FDICindemnification asset		—			(46	)		(46	)

Provision for loan losses charged to operations		1,090			10			1,100
Provision for loan losses recorded through the FDIC indemnification asset		—			46			46
Charge-offs		(1,578	)		—			(1,578	)
Recoveries		457			—			457

Net charge-offs		(1,121	)		—			(1,121	)

Ending balance	$	20,138		$	114		$	20,252

The following table presents the components of the activity in the allowance for loan losses, excluding PCI loans, by loan segment, in the periods indicated:


	Commercial			Consumer Real Estate			Consumer and Other			Total
(Amounts in thousands)
Three months ended March 31, 2014
Beginning balance	$	16,090		$	6,597		$	635		$	23,322
Provision for loan losses charged to operations		1,218			485			149			1,852
Loans charged off		(1,051	)		(710	)		(455	)		(2,216	)
Recoveries credited to allowance		82			21			244			347

Net charge-offs		(969	)		(689	)		(211	)		(1,869	)

Ending balance	$	16,339		$	6,393		$	573		$	23,305

Three months ended March 31, 2015
Beginning balance	$	13,010		$	6,489		$	670		$	20,169
Provision for loan losses charged to operations		650			215			225			1,090
Loans charged off		(681	)		(402	)		(495	)		(1,578	)
Recoveries credited to allowance		75			144			238			457

Net chargeoffs		(606	)		(258	)		(257	)		(1,121	)

Ending balance	$	13,054		$	6,446		$	638		$	20,138


The following table presents the components of the activity in the allowance for loan losses for PCI loans, by loan segment, in the periods indicated:

	Commercial			Consumer Real Estate			Consumer and Other			Total
(Amounts in thousands)
Three months ended March 31, 2014
Beginning balance	$	77		$	678		$	—		$	755
Purchased impaired recovery		(69	)		(193	)		—			(262	)
Benefit attributable to FDIC indemnification asset		55			148			—			203

Recovery of loan losses charged to operations		(14	)		(45	)		—			(59	)
Recovery of loan losses recorded through the FDIC indemnification asset		(55	)		(148	)		—			(203	)

Ending balance	$	8		$	485		$	—		$	493

Three months ended March 31, 2015
Beginning balance	$	37		$	21		$	—		$	58
Purchased impaired (recovery) provision		(37	)		93			—			56
Benefit attributable to FDIC indemnification asset		29			(75	)		—			(46	)

(Recovery of) provision for loan losses charged to operations		(8	)		18			—			10
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset		(29	)		75			—			46

Ending balance	$	—		$	114		$	—		$	114

The following tables present the Company’s allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the dates indicated:


	March 31, 2015
(Amounts in thousands)	Loans Individually Evaluated for Impairment		Allowance for Loans Individually Evaluated		Loans Collectively Evaluated for Impairment		Allowance for Loans Collectively Evaluated
Commercial loans
Construction, development, and other land	$	—	$	—	$	47,281	$	1,253
Commercial and industrial		—		—		80,480		541
Multi-family residential		—		—		97,803		1,772
Single family non-owner occupied		828		40		136,621		3,103
Non-farm, non-residential		12,881		1,198		460,597		4,949
Agricultural		—		—		1,713		13
Farmland		—		—		29,341		185

Total commercial loans		13,709		1,238		853,836		11,816
Consumer real estate loans
Home equity lines		—		—		131,002		1,290
Single family owner occupied		6,060		517		494,584		4,404
Owner occupied construction		—		—		35,503		235

Total consumer real estate loans		6,060		517		661,089		5,929
Consumer and other loans
Consumer loans		—		—		69,169		638
Other		—		—		7,236		—

Total consumer and other loans		—		—		76,405		638

Total loans, excluding PCI loans	$	19,769	$	1,755	$	1,591,330	$	18,383


	December 31, 2014
(Amounts in thousands)	Loans Individually Evaluated for Impairment		Allowance for Loans Individually Evaluated		Loans Collectively Evaluated for Impairment		Allowance for Loans Collectively Evaluated
Commercial loans
Construction, development, and other land	$	—	$	—	$	51,608	$	1,151
Commercial and industrial		—		—		85,353		690
Multi-family residential		—		—		98,880		1,917
Single family non-owner occupied		833		45		135,223		3,183
Non-farm, non-residential		9,477		1,000		475,353		4,805
Agricultural		—		—		1,642		13
Farmland		—		—		30,233		206

Total commercial loans		10,310		1,045		878,292		11,965
Consumer real estate loans
Home equity lines		—		—		134,006		1,330
Single family owner occupied		5,738		437		489,820		4,498
Owner occupied construction		—		—		32,983		224

Total consumer real estate loans		5,738		437		656,809		6,052
Consumer and other loans
Consumer loans		—		—		69,429		670
Other		—		—		6,555		—

Total consumer and other loans		—		—		75,984		670

Total loans, excluding PCI loans	$	16,048	$	1,482	$	1,611,085	$	18,687

The following table presents the Company’s allowance for loan losses related to PCI loans and recorded investment in PCI loans, by loan pool, as of the dates indicated:


	March 31, 2015				December 31, 2014
(Amounts in thousands)	Loan Pools		Allowance for Loan Pools With Impairment		Loan Pools		Allowance for Loan Pools With Impairment
Commercial loans
Waccamaw commercial	$	13,210	$	—	$	13,392	$	37
Waccamaw lines of credit		429		—		461		—
Peoples commercial		5,753		—		5,875		—
Other		1,332		—		1,358		—

Total commercial loans		20,724		—		21,086		37
Consumer real estate loans
Waccamaw serviced home equity lines		35,571		—		37,342		—
Waccamaw residential		2,439		94		2,638		—
Peoples residential		1,201		20		1,215		21

Total consumer real estate loans		39,211		114		41,195		21
Consumer and other loans
Waccamaw consumer		—		—		2		—

Total loans	$	59,935	$	114	$	62,283	$	58