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, which 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. Loans acquired in business combinations that are deemed impaired at acquisition are grouped into pools and evaluated separately from the non-PCI portfolio. The PCI loan provision is 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 is available for use against any loan loss management deems appropriate, excluding reserves allocated to specific loans and PCI loan pools. As of March 31, 2016, management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio.

The following tables present the activity in the allowance for loan losses, by loan segment, in the periods indicated:


	Three Months Ended March 31, 2016
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Allowance, excluding PCI
Beginning balance	$	13,133		$	6,356		$	690		$	20,179
Provision for loan losses charged to operations		308			774			144			1,226
Charge-offs		(284	)		(690	)		(254	)		(1,141	)
Recoveries		113			30			123			179

Net charge-offs		(171	)		(660	)		(131	)		(962	)

Ending balance	$	13,270		$	6,470		$	703		$	20,443


PCI allowance
Beginning balance	$	—		$	54		$	—		$	54
Recovery of loan losses		—			(30	)		—			(30	)
Benefit attributable to the FDIC indemnification asset		—			(9	)		—			(9	)

Recovery of loan losses charged to operations		—			(39	)		—			(39	)
Provision for loan losses recorded through the FDIC indemnification asset		—			9			—			9

Ending balance	$	—		$	24		$	—		$	24


Total allowance
Beginning balance	$	13,133		$	6,410		$	690		$	20,233
Provision for loan losses		308			744			144			1,196
Benefit attributable to the FDIC indemnification asset		—			(9	)		—			(9	)

Provision for loan losses charged to operations		308			735			144			1,187
Provision for loan losses recorded through the FDIC indemnification asset		—			9			—			9
Charge-offs		(284	)		(690	)		(254	)		(1,141	)
Recoveries		113			30			123			179

Net charge-offs		(171	)		(660	)		(131	)		(962	)

Ending balance	$	13,270		$	6,494		$	703		$	20,467


	Three Months Ended March 31, 2015
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Allowance, excluding PCI
Beginning balance	$	13,010		$	6,489		$	670		$	20,169
Provision for loan losses charged to operations		650			215			225			1,090
Charge-offs		(681	)		(402	)		(495	)		(1,578	)
Recoveries		75			144			238			457

Net charge-offs		(606	)		(258	)		(257	)		(1,121	)

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


PCI allowance
Beginning balance	$	37		$	21		$	—		$	58
(Recovery of) provision for loan losses		(37	)		93			—			56
Benefit attributable to the 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


Total allowance
Beginning balance	$	13,047		$	6,510		$	670		$	20,227
Provision for loan losses		613			308			225			1,146
Benefit attributable to the FDIC indemnification asset		29			(75	)		—			(46	)

Provision for loan losses charged to operations		642			233			225			1,100
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset		(29	)		75			—			46
Charge-offs		(681	)		(402	)		(495	)		(1,578	)
Recoveries		75			144			238			457

Net charge-offs		(606	)		(258	)		(257	)		(1,121	)

Ending balance	$	13,054		$	6,560		$	638		$	20,252

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, 2016
(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	$	—	$	—	$	56,847	$	1,125
Commercial and industrial		—		—		93,251		510
Multi-family residential		—		—		111,388		1,585
Single family non-owner occupied		1,137		18		149,359		3,194
Non-farm, non-residential		13,331		1,529		513,781		5,097
Agricultural		—		—		3,684		28
Farmland		—		—		27,645		184

Total commercial loans		14,468		1,547		955,955		11,723
Consumer real estate loans
Home equity lines		—		—		124,785		1,131
Single family owner occupied		5,559		771		498,696		4,293
Owner occupied construction		346		3		40,712		272

Total consumer real estate loans		5,905		774		664,193		5,696
Consumer and other loans
Consumer loans		—		—		73,613		703
Other		—		—		7,451		—

Total consumer and other loans		—		—		81,064		703

Total loans, excluding PCI loans	$	20,373	$	2,321	$	1,701,212	$	18,122


	December 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	$	—	$	—	$	53,437	$	1,119
Commercial and industrial		—		—		89,885		504
Multi-family residential		—		—		95,486		1,535
Single family non-owner occupied		1,401		124		147,209		3,245
Non-farm, non-residential		14,094		1,568		478,839		4,825
Agricultural		—		—		2,945		22
Farmland		—		—		28,183		190

Total commercial loans		15,495		1,692		895,984		11,440
Consumer real estate loans
Home equity lines		—		—		126,691		1,091
Single family owner occupied		6,874		672		495,761		4,297
Owner occupied construction		349		7		43,323		290

Total consumer real estate loans		7,223		679		665,775		5,678
Consumer and other loans
Consumer loans		—		—		72,084		690
Other		—		—		7,338		—

Total consumer and other loans		—		—		79,422		690

Total loans, excluding PCI loans	$	22,718	$	2,371	$	1,641,181	$	17,808

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, 2016				December 31, 2015
(Amounts in thousands)	Recorded Investment		Allowance for Loan Pools With Impairment		Recorded Investment		Allowance for Loan Pools With Impairment
Commercial loans
Waccamaw commercial	$	3,732	$	—	$	3,788	$	—
Peoples commercial		5,734		—		5,525		—
Other		1,227		—		1,254		—

Total commercial loans		10,693		—		10,567		—
Consumer real estate loans
Waccamaw serviced home equity lines		27,404		—		29,241		—
Waccamaw residential		1,609		12		1,678		1
Peoples residential		1,138		12		1,156		53

Total consumer real estate loans		30,151		24		32,075		54

Total PCI loans	$	40,844	$	24	$	42,642	$	54