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 charges to operations and reduced by net charge-offs. While management utilizes 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 has aggregated PCI loans into the following pools: Waccamaw commercial, Waccamaw lines of credit, Peoples commercial, Waccamaw serviced home equity lines, Waccamaw residential, Peoples residential, and Waccamaw consumer. 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, 2014, 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:


(Amounts in thousands)	Allowance Excluding PCI Loans			Allowance for PCI Loans			Total Allowance
Balance, January 1, 2013	$	25,762		$	8		$	25,770
Provision for loan losses		1,142			—			1,142
Benefit attributable to the FDIC indemnification asset		—			—			—

Provision for loan losses charged to operations		1,142			—			1,142
Provision for loan losses recorded through the FDIC indemnification asset		—			—			—
Charge-offs		(2,759	)		—			(2,759	)
Recoveries		697			—			697

Net charge-offs		(2,062	)		—			(2,062	)

Balance, March 31, 2013	$	24,842		$	8		$	24,850

Balance, January 1, 2014	$	23,322		$	755		$	24,077
Provision for loan losses		1,852			(262	)		1,590
Benefit attributable to the FDIC indemnification asset		—			203			203

Provision for loan losses charged to operations		1,852			(59	)		1,793
Provision for 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	)

Balance, March 31, 2014	$	23,305		$	493		$	23,798

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:


				Consumer			Consumer
(Amounts in thousands)	Commercial			Real Estate			and Other			Total
Balance, January 1, 2013	$	17,259		$	7,906		$	597		$	25,762
Provision for loan losses charged to operations		483			480			179			1,142
Loans charged off		(783	)		(1,396	)		(580	)		(2,759	)
Recoveries credited to allowance		283			13			401			697

Net charge-offs		(500	)		(1,383	)		(179	)		(2,062	)

Balance, March 31, 2013	$	17,242		$	7,003		$	597		$	24,842

Balance, January 1, 2014	$	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	)

Balance, March 31, 2014	$	16,339		$	6,393		$	573		$	23,305

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:


				Consumer			Consumer
(Amounts in thousands)	Commercial			Real Estate			and Other		Total
Balance, January 1, 2013	$	8		$	—		$	—	$	8
Purchased impaired provision		—			—			—		—
Benefit attributable to FDIC indemnificaton asset		—			—			—		—

Provision for loan losses charged to operations		—			—			—		—
Provision for loan losses recorded through the FDIC indemnificaton asset		—			—			—		—

Balance, March 31, 2013	$	8		$	—		$	—	$	8

Balance, January 1, 2014	$	77		$	678		$	—	$	755
Purchased impaired provision		(69	)		(193	)		—		(262	)
Benefit attributable to FDIC indemnificaton asset		55			148			—		203

Provision for loan losses charged to operations		(14	)		(45	)		—		(59	)
Provision for loan losses recorded through the FDIC indemnificaton asset		(55	)		(148	)		—		(203	)

Balance, March 31, 2014	$	8		$	485		$	—	$	493

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


	March 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	$	—	$	—	$	56,996	$	1,293
Commercial and industrial		5,235		3,504		91,317		1,312
Multi-family residential		5,601		500		71,451		1,216
Single family non-owner occupied		784		38		138,357		3,431
Non-farm, non-residential		10,017		377		486,594		4,411
Agricultural		—		—		2,255		19
Farmland		351		—		32,876		238

Total commercial loans		21,988		4,419		879,846		11,920
Consumer real estate loans
Home equity lines		462		171		137,869		1,289
Single family owner occupied		6,067		692		498,010		4,029
Owner occupied construction		—		—		34,565		212

Total consumer real estate loans		6,529		863		670,444		5,530
Consumer and other loans
Consumer loans		—		—		72,195		573
Other		—		—		3,968		—

Total consumer and other loans		—		—		76,163		573

Total loans, excluding PCI loans	$	28,517	$	5,282	$	1,626,453	$	18,023


	December 31, 2013
(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	$	—	$	—	$	46,404	$	1,141
Commercial and industrial		5,189		3,794		92,612		1,421
Multi-family residential		—		—		71,669		1,211
Single family non-owner occupied		664		47		136,567		3,502
Non-farm, non-residential		5,952		114		483,126		4,536
Agricultural		—		—		2,488		23
Farmland		351		—		33,136		301

Total commercial loans		12,156		3,955		866,002		12,135
Consumer real estate loans
Home equity lines		472		52		136,896		1,309
Single family owner occupied		6,850		735		502,229		4,295
Owner occupied construction		—		—		29,090		206

Total consumer real estate loans		7,322		787		668,215		5,810
Consumer and other loans
Consumer loans		—		—		71,389		635
Other		—		—		3,926		—

Total consumer and other loans		—		—		75,315		635

Total loans, excluding PCI loans	$	19,478	$	4,742	$	1,609,532	$	18,580

The Company aggregates PCI loans into the following loan pools: Waccamaw commercial, Waccamaw lines of credit, Peoples commercial, Waccamaw serviced home equity lines, Waccamaw residential, Peoples residential, and Waccamaw consumer. The following table presents the Company’s allowance for loan losses and recorded investment in PCI loans, by loan pool, as of the dates indicated:


	March 31, 2014				December 31, 2013
(Amounts in thousands)	Loan Pools		Allowance for Loan Pools With Impairment		Loan Pools		Allowance for Loan Pools With Impairment
Commercial loans
Waccamaw commercial	$	17,755	$	—	$	19,851	$	—
Waccamaw lines of credit		1,950		—		2,594		69
Peoples commercial		7,875		—		7,862		—
Other		1,918		8		1,931		8

Total commercial loans		29,498		8		32,238		77
Consumer real estate loans
Waccamaw serviced home equity lines		41,701		277		43,608		277
Waccamaw residential		4,359		33		4,497		217
Peoples residential		1,321		175		1,334		184

Total consumer real estate loans		47,381		485		49,439		678
Consumer and other loans
Waccamaw consumer		15		—		34		—

Total loans	$	76,894	$	493	$	81,711	$	755