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 allowance’s ultimate adequacy 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 consists of specific reserves on loans individually evaluated, including credit relationships, and general reserves on 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. Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of September 30, 2016.

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


	Three Months Ended September 30, 2016
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Allowance, excluding PCI
Beginning balance	$	13,689		$	6,625		$	773		$	21,087
(Recovery of) provision for loan losses charged to operations		(726	)		(575	)		147			(1,154	)
Charge-offs		(272	)		(207	)		(293	)		(772	)
Recoveries		295			89			76			460

Net recoveries (charge-offs)		23			(118	)		(217	)		(312	)

Ending balance	$	12,986		$	5,932		$	703		$	19,621

PCI allowance
Beginning balance	$	—		$	12		$	—		$	12
Recovery of loan losses		—			—			—			—
Benefit attributable to the FDIC indemnification asset		—			—			—			—

Recovery of loan losses charged to operations		—			—			—			—
Recovery of loan losses recorded through the FDIC indemnification asset		—			—			—			—

Ending balance	$	—		$	12		$	—		$	12

Total allowance
Beginning balance	$	13,689		$	6,637		$	773		$	21,099
(Recovery of) provision for loan losses		(726	)		(575	)		147			(1,154	)
Benefit attributable to the FDIC indemnification asset		—			—			—			—

(Recovery of) provision for loan losses charged to operations		(726	)		(575	)		147			(1,154	)
Recovery of loan losses recorded through the FDIC indemnification asset		—			—			—			—
Charge-offs		(272	)		(207	)		(293	)		(772	)
Recoveries		295			89			76			460

Net recoveries (charge-offs)		23			(118	)		(217	)		(312	)

Ending balance	$	12,986		$	5,944		$	703		$	19,633


	Three Months Ended September 30, 2015
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Allowance, excluding PCI
Beginning balance	$	12,995		$	6,468		$	681		$	20,144
Provision for loan losses charged to operations		6			20			374			400
Charge-offs		(150	)		(130	)		(409	)		(689	)
Recoveries		102			86			64			252

Net charge-offs		(48	)		(44	)		(345	)		(437	)

Ending balance	$	12,953		$	6,444		$	710		$	20,107

PCI allowance
Beginning balance	$	—		$	114		$	—		$	114
Recovery of loan losses		—			(94	)		—			(94	)
Benefit attributable to the FDIC indemnification asset		—			75			—			75

Recovery of loan losses charged to operations		—			(19	)		—			(19	)
Recovery of loan losses recorded through the FDIC indemnification asset		—			(75	)		—			(75	)

Ending balance	$	—		$	20		$	—		$	20

Total allowance
Beginning balance	$	12,995		$	6,582		$	681		$	20,258
Provision for (recovery of) loan losses		6			(74	)		374			306
Benefit attributable to the FDIC indemnification asset		—			75			—			75

Provision for loan losses charged to operations		6			1			374			381
Recovery of loan losses recorded through the FDIC indemnification asset		—			(75	)		—			(75	)
Charge-offs		(150	)		(130	)		(409	)		(689	)
Recoveries		102			86			64			252

Net charge-offs		(48	)		(44	)		(345	)		(437	)

Ending balance	$	12,953		$	6,464		$	710		$	20,127


	Nine Months Ended September 30, 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
(Recovery of) provision for loan losses charged to operations		(200	)		436			560			796
Charge-offs		(747	)		(1,135	)		(809	)		(2,691	)
Recoveries		800			275			262			1,337

Net recoveries (charge-offs)		53			(860	)		(547	)		(1,354	)

Ending balance	$	12,986		$	5,932		$	703		$	19,621

PCI allowance
Beginning balance	$	—		$	54		$	—		$	54
Recovery of loan losses		—			(42	)		—			(42	)
Benefit attributable to the FDIC indemnification asset		—			1			—			1

Recovery of loan losses charged to operations		—			(41	)		—			(41	)
Recovery of loan losses recorded through the FDIC indemnification asset		—			(1	)		—			(1	)

Ending balance	$	—		$	12		$	—		$	12

Total allowance
Beginning balance	$	13,133		$	6,410		$	690		$	20,233
(Recovery of) provision for loan losses		(200	)		394			560			754
Benefit attributable to the FDIC indemnification asset		—			1			—			1

(Recovery of) provision for loan losses charged to operations		(200	)		395			560			755
Recovery of loan losses recorded through the FDIC indemnification asset		—			(1	)		—			(1	)
Charge-offs		(747	)		(1,135	)		(809	)		(2,691	)
Recoveries		800			275			262			1,337

Net recoveries (charge-offs)		53			(860	)		(547	)		(1,354	)

Ending balance	$	12,986		$	5,944		$	703		$	19,633


	Nine Months Ended September 30, 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		754			136			876			1,766
Charge-offs		(1,111	)		(622	)		(1,207	)		(2,940	)
Recoveries		300			441			371			1,112

Net charge-offs		(811	)		(181	)		(836	)		(1,828	)

Ending balance	$	12,953		$	6,444		$	710		$	20,107

PCI allowance
Beginning balance	$	37		$	21		$	—		$	58
Recovery of loan losses		(37	)		(1	)		—			(38	)
Benefit attributable to the FDIC indemnification asset		30			(1	)		—			29

Recovery of loan losses charged to operations		(7	)		(2	)		—			(9	)
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset		(30	)		1			—			(29	)

Ending balance	$	—		$	20		$	—		$	20

Total allowance
Beginning balance	$	13,047		$	6,510		$	670		$	20,227
Provision for loan losses		717			135			876			1,728
Benefit attributable to the FDIC indemnification asset		30			(1	)		—			29

Provision for loan losses charged to operations		747			134			876			1,757
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset		(30	)		1			—			(29	)
Charge-offs		(1,111	)		(622	)		(1,207	)		(2,940	)
Recoveries		300			441			371			1,112

Net charge-offs		(811	)		(181	)		(836	)		(1,828	)

Ending balance	$	12,953		$	6,464		$	710		$	20,127

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


	September 30, 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	$	—	$	—	$	53,181	$	813
Commercial and industrial		—		—		91,274		473
Multi-family residential		292		—		127,176		1,259
Single family non-owner occupied		1,131		107		141,624		2,553
Non-farm, non-residential		9,809		1,843		589,975		5,706
Agricultural		—		—		5,812		41
Farmland		—		—		32,386		191

Total commercial loans		11,232		1,950		1,041,428		11,036
Consumer real estate loans
Home equity lines		—		—		124,589		967
Single family owner occupied		5,220		853		498,561		3,766
Owner occupied construction		342		—		43,744		346

Total consumer real estate loans		5,562		853		666,894		5,079
Consumer and other loans
Consumer loans		—		—		76,443		703
Other		—		—		3,029		—

Total consumer and other loans		—		—		79,472		703

Total loans, excluding PCI loans	$	16,794	$	2,803	$	1,787,794	$	16,818


	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 allowance for loan losses on PCI loans and recorded investment in PCI loans, by loan pool, as of the dates indicated:


	September 30, 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	$	1,208	$	—	$	3,788	$	—
Peoples commercial		4,694		—		5,525		—
Other		1,121		—		1,254		—

Total commercial loans		7,023		—		10,567		—
Consumer real estate loans
Waccamaw serviced home equity lines		22,256		—		29,241		—
Waccamaw residential		1,413		—		1,678		1
Peoples residential		1,104		12		1,156		53

Total consumer real estate loans		24,773		12		32,075		54

Total PCI loans	$	31,796	$	12	$	42,642	$	54