Note 6.

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 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 December 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, 2012	$	26,004		$	201		$	26,205
Provision for loan losses charged to operations		5,871			(193	)		5,678
Charge-offs		(7,504	)		—			(7,504	)
Recoveries		1,391			—			1,391

Net charge-offs		(6,113	)		—			(6,113	)

Balance, December 31, 2012	$	25,762		$	8		$	25,770

Balance, January 1, 2013	$	25,762		$	8		$	25,770
Provision for loan losses		7,912			747			8,659
Benefit attributable to the FDIC indemnification asset		—			(451	)		(451	)

Provision for loan losses charged to operations		7,912			296			8,208
Provision for loan losses recorded through the FDIC indemnification asset		—			451			451
Charge-offs		(12,527	)		—			(12,527	)
Recoveries		2,175			—			2,175

Net charge-offs		(10,352	)		—			(10,352	)

Balance, December 31, 2013	$	23,322		$	755		$	24,077

Balance, January 1, 2014	$	23,322		$	755		$	24,077
Removal of loans transferred		(682	)		—			(682	)
Provision for loan losses		420			(697	)		(277	)
Benefit attributable to the FDIC indemnification asset		—			422			422

Provision for loan losses charged to operations		420			(275	)		145
Provision for loan losses recorded through the FDIC indemnification asset		—			(422	)		(422	)
Charge-offs		(6,481	)		—			(6,481	)
Recoveries		3,590			—			3,590

Net charge-offs		(2,891	)		—			(2,891	)

Balance, December 31, 2014	$	20,169		$	58		$	20,227

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:


(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total
Balance, January 1, 2012	$	17,551		$	7,711		$	742		$	26,004
Provision for loan losses charged to operations		2,896			2,608			367			5,871
Loans charged off		(3,814	)		(2,702	)		(988	)		(7,504	)
Recoveries credited to allowance		626			289			476			1,391

Net charge-offs		(3,188	)		(2,413	)		(512	)		(6,113	)

Balance, December 31, 2012	$	17,259		$	7,906		$	597		$	25,762

Balance, January 1, 2013	$	17,259		$	7,906		$	597		$	25,762
Provision for loan losses charged to operations		5,643			1,364			905			7,912
Loans charged off		(7,743	)		(3,115	)		(1,669	)		(12,527	)
Recoveries credited to allowance		931			442			802			2,175

Net charge-offs		(6,812	)		(2,673	)		(867	)		(10,352	)

Balance, December 31, 2013	$	16,090		$	6,597		$	635		$	23,322

Balance, January 1, 2014	$	16,090		$	6,597		$	635		$	23,322
Removal of loans transferred		(418	)		(244	)		(20	)		(682	)
(Recovery of) provision for loan losses charged to operations		(1,988	)		1,273			1,135			420
Loans charged off		(2,928	)		(1,873	)		(1,680	)		(6,481	)
Recoveries credited to allowance		2,254			736			600			3,590

Net charge-offs		(674	)		(1,137	)		(1,080	)		(2,891	)

Balance, December 31, 2014	$	13,010		$	6,489		$	670		$	20,169

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:


(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other		Total
Balance, January 1, 2012	$	201		$	—		$	—	$	201
Provision for loan losses charged to operations		(193	)		—			—		(193	)

Balance, December 31, 2012	$	8		$	—		$	—	$	8

Balance, January 1, 2013	$	8		$	—		$	—	$	8
Purchased impaired provision		69			678			—		747
Benefit attributable to FDIC indemnificaton asset		(55	)		(396	)		—		(451	)

Provision for loan losses charged to operations		14			282			—		296
Provision for loan losses recorded through the FDIC indemnificaton asset		55			396			—		451

Balance, December 31, 2013	$	77		$	678		$	—	$	755

Balance, January 1, 2014	$	77		$	678		$	—	$	755
Purchased impaired provision		(40	)		(657	)		—		(697	)
Benefit attributable to FDIC indemnificaton asset		26			396			—		422

Recovery of loan losses charged to operations		(14	)		(261	)		—		(275	)
Recovery of loan losses recorded through the FDIC indemnificaton asset		(26	)		(396	)		—		(422	)

Balance, December 31, 2014	$	37		$	21		$	—	$	58

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:


	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


	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:


	December 31,
	2014				2013
(Amounts in thousands)	Loan Pools With Impairment		Allowance for Loans Pools With Impairment		Loan Pools With Impairment		Allowance for Loans Pools With Impairment
Commercial loans
Waccamaw commercial	$	13,392	$	37	$	19,851	$	—
Waccamaw lines of credit		461		—		2,594		69
Peoples commercial		5,875		—		7,862		—
Other		1,358		—		1,931		8

Total commercial loans		21,086		37		32,238		77
Consumer real estate loans
Waccamaw serviced home equity lines		37,342		—		43,608		277
Waccamaw residential		2,638		—		4,497		217
Peoples residential		1,215		21		1,334		184

Total consumer real estate loans		41,195		21		49,439		678
Consumer and other loans
Waccamaw consumer		2		—		34		—

Total loans	$	62,283	$	58	$	81,711	$	755