ALLOWANCE FOR LOAN AND LEASE LOSSES

Activity in the allowance for loan and lease losses is summarized as follows:



	Originated			Acquired			Total
	(dollars in thousands)
Balance at December 31, 2010	$	176,517		$	51,248		$	227,765
Provision for loan and lease losses	57,799			174,478			232,277
Loans and leases charged off	(59,287		)	(137,553		)	(196,840		)
Loans and leases recovered	5,854			1,088			6,942
Net charge-offs	(53,433		)	(136,465		)	(189,898		)
Balance at December 31, 2011	180,883			89,261			270,144
Provision for loan and lease losses	42,046			100,839			142,885
Loans and leases charged off	(50,208		)	(50,270		)	(100,478		)
Loans and leases recovered	6,325			142			6,467
Net charge-offs	(43,883		)	(50,128		)	(94,011		)
Balance at December 31, 2012	179,046			139,972			319,018
Reclassification ⁽¹⁾	7,368			—			7,368
Provision for loan and lease losses	19,289			(51,544		)	(32,255		)
Loans and leases charged off	(33,118		)	(34,908		)	(68,026		)
Loans and leases recovered	7,289			—			7,289
Net charge-offs	(25,829		)	(34,908		)	(60,737		)
Balance at December 31, 2013	$	179,874		$	53,520		$	233,394

⁽¹⁾ Reclassification results from enhancements to the ALLL calculation during the second quarter of 2013 that resulted in the allocation of $15.8 million previously designated as 'nonspecific' to other loan classes and the absorption of $7.4 million of the reserve for unfunded commitments related to unfunded, revocable loan commitments into the ALLL. Further discussion is contained in Note A.

Activity in the allowance for loan and lease losses, ending balances of loans and leases and related allowance by class of loans is summarized as follows:



	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial			Lease financing			Other			Residential mortgage			Revolving mortgage			Construction and land development - non- commercial			Consumer			Non- specific			Total
	(dollars in thousands)
Originated Loans
Allowance for loan and lease losses:
Balance at January 1, 2012	$	5,467		$	67,486		$	2,169		$	23,723		$	3,288		$	1,315		$	8,879		$	27,045		$	1,427		$	25,962		$	14,122		$	180,883
Provision	9,665			18,198			130			(4,982		)	498			(116		)	(782		)	8,783			1,161			7,763			1,728			42,046
Charge-offs	(9,546		)	(7,081		)	(254		)	(5,472		)	(361		)	(28		)	(4,790		)	(11,341		)	(1,047		)	(10,288		)	—			(50,208		)
Recoveries	445			1,626			14			781			96			4			529			698			180			1,952			—			6,325
Balance at December 31, 2012	6,031			80,229			2,059			14,050			3,521			1,175			3,836			25,185			1,721			25,389			15,850			179,046
Reclassification⁽¹⁾	5,141			27,421			(815		)	7,551			(253		)	(1,288		)	5,717			(9,838		)	(478		)	(10,018		)	(15,772		)	7,368
Provision	2,809			(4,485		)	(32		)	4,333			1,646			308			2,786			6,296			(379		)	6,085			(78		)	19,289
Charge-offs	(4,685		)	(3,904		)	(312		)	(4,785		)	(272		)	(6		)	(2,387		)	(6,064		)	(392		)	(10,311		)	—			(33,118		)
Recoveries	1,039			996			109			1,213			107			1			559			660			209			2,396			—			7,289
Balance at December 31, 2013	$	10,335		$	100,257		$	1,009		$	22,362		$	4,749		$	190		$	10,511		$	16,239		$	681		$	13,541		$	—		$	179,874



	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Residential mortgage		Revolving mortgage		Construction and land development - non-commercial		Consumer		Non- specific		Total
	(dollars in thousands)
Allowance for loan and lease losses:
December 31, 2013
ALLL for loans and leases individually evaluated for impairment	$	103	$	6,873	$	209	$	771	$	54	$	—	$	1,586	$	372	$	72	$	121	$	—	$	10,161
ALLL for loans and leases collectively evaluated for impairment	10,232		93,384		800		21,591		4,695		190		8,925		15,867		609		13,420		—		169,713
Nonspecific ALLL	—		—		—		—		—		—		—		—		—		—		—		—
Total allowance for loan and lease losses	$	10,335	$	100,257	$	1,009	$	22,362	$	4,749	$	190	$	10,511	$	16,239	$	681	$	13,541	$	—	$	179,874
December 31, 2012
ALLL for loans and leases individually evaluated for impairment	$	2,469	$	11,697	$	298	$	2,133	$	202	$	53	$	959	$	1	$	287	$	256	$	—	$	18,355
ALLL for loans and leases collectively evaluated for impairment	3,562		68,532		1,761		11,917		3,319		1,122		2,877		25,184		1,434		25,133		—		144,841
Nonspecific ALLL	—		—		—		—		—		—		—		—		—		—		15,850		15,850
Total allowance for loan and lease losses	$	6,031	$	80,229	$	2,059	$	14,050	$	3,521	$	1,175	$	3,836	$	25,185	$	1,721	$	25,389	$	15,850	$	179,046



	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Residential mortgage		Revolving mortgage		Construction and land development - non-commercial		Consumer		Non- specific		Total
	(dollars in thousands)
Loans and leases:
December 31, 2013
Loans and leases individually evaluated for impairment	$	2,272	$	97,111	$	1,878	$	9,300	$	188	$	—	$	15,539	$	3,596	$	1,108	$	1,154	$	—	$	132,146
Loans and leases collectively evaluated for impairment	317,575		6,265,379		176,876		1,071,858		381,575		175,336		966,882		2,109,689		121,684		385,298		—		11,972,152
Total loan and leases	$	319,847	$	6,362,490	$	178,754	$	1,081,158	$	381,763	$	175,336	$	982,421	$	2,113,285	$	122,792	$	386,452	$	—	$	12,104,298
December 31, 2012
Loans and leases individually evaluated for impairment	$	17,075	$	133,804	$	3,375	$	22,619	$	804	$	707	$	15,836	$	4,203	$	1,321	$	2,509	$	—	$	202,253
Loans and leases collectively evaluated for impairment	292,115		5,895,631		157,605		1,015,911		329,875		124,974		807,053		2,205,930		130,671		414,097		—		11,373,862
Total loan and leases	$	309,190	$	6,029,435	$	160,980	$	1,038,530	$	330,679	$	125,681	$	822,889	$	2,210,133	$	131,992	$	416,606	$	—	$	11,576,115



	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial			Lease financing			Residential mortgage			Revolving mortgage			Construction and land development - noncommercial			Consumer and other			Total
	(dollars in thousands)
Acquired Loans
Allowance for loan and lease losses:
Balance at January 1, 2012	$	16,693		$	39,557		$	16,862		$	5,500		$	13		$	5,433		$	77		$	4,652		$	474		$	89,261
Provision	23,160			34,227			(4,372		)	11,839			(13		)	18,401			10,796			6,520			281			100,839
Charge-offs	(8,667		)	(23,509		)	(1,256		)	(8,442		)	—			(4,139		)	(1,119		)	(2,885		)	(253		)	(50,270		)
Recoveries	—			—			—			—			—			142			—			—			—			142
Balance at December 31, 2012	31,186			50,275			11,234			8,897			—			19,837			9,754			8,287			502			139,972
Provision	(22,942		)	(3,872		)	(8,949		)	470			—			(5,487		)	(6,399		)	(4,170		)	(195		)	(51,544		)
Charge-offs	(6,924		)	(16,497		)	(931		)	(4,092		)	—			(2,548		)	(396		)	(3,435		)	(85		)	(34,908		)
Recoveries	—			—			—			—			—			—			—			—			—			—
Balance at December 31, 2013	$	1,320		$	29,906		$	1,354		$	5,275		$	—		$	11,802		$	2,959		$	682		$	222		$	53,520
Allowance for loan and lease losses:
December 31, 2013
ALLL for loans and leases acquired with deteriorated credit quality	$	1,320		$	29,906		$	1,354		$	5,275		$	—		$	11,802		$	2,959		$	682		$	222		$	53,520
December 31, 2012
ALLL for loans and leases acquired with deteriorated credit quality	31,186			50,275			11,234			8,897			—			19,837			9,754			8,287			502			139,972
Loans and leases:
December 31, 2013
Loans and leases acquired with deteriorated credit quality	78,915			642,891			41,381			17,254			—			213,851			30,834			2,583			1,717			1,029,426
December 31, 2012
Loans and leases acquired with deteriorated credit quality	237,906			1,054,473			107,119			49,463			—			297,926			38,710			20,793			2,845			1,809,235

The following tables provide information on originated impaired loans and leases, exclusive of loans and leases evaluated collectively as a homogeneous group, including interest income recognized in the period during which the loans and leases were considered impaired.



	With a recorded allowance		With no recorded allowance		Total		Unpaid principal balance		Related allowance recorded
	(dollars in thousands)
December 31, 2013
Impaired originated loans and leases
Construction and land development - commercial	$	1,025	$	1,247	$	2,272	$	7,306	$	103
Commercial mortgage	57,819		39,292		97,111		103,522		6,873
Other commercial real estate	783		1,095		1,878		2,279		209
Commercial and industrial	7,197		2,103		9,300		10,393		771
Lease financing	133		55		188		188		54
Residential mortgage	11,534		4,005		15,539		15,939		1,586
Revolving mortgage	3,382		214		3,596		3,596		372
Construction and land development - noncommercial	651		457		1,108		1,108		72
Consumer	1,154		—		1,154		1,154		121
Total impaired originated loans and leases	$	83,678	$	48,468	$	132,146	$	145,485	$	10,161
December 31, 2012
Impaired originated loans and leases
Construction and land development - commercial	$	5,941	$	11,134	$	17,075	$	32,898	$	2,469
Commercial mortgage	39,648		94,156		133,804		136,743		11,697
Other commercial real estate	1,425		1,950		3,375		3,475		298
Commercial and industrial	7,429		15,190		22,619		22,619		2,133
Lease financing	665		139		804		804		202
Other	—		707		707		707		53
Residential mortgage	9,346		6,490		15,836		16,229		959
Revolving mortgage	1,238		2,965		4,203		4,203		1
Construction and land development - noncommercial	1,162		159		1,321		1,321		287
Consumer	1,609		900		2,509		2,509		256
Nonspecific	—		—		—		—		—
Total impaired originated loans and leases	$	68,463	$	133,790	$	202,253	$	221,508	$	18,355



	YTD Average Balance		YTD Interest Income Recognized
	(dollars in thousands)
Year ended December 31, 2013
Originated impaired loans and leases:
Construction and land development - commercial	$	6,414	$	270
Commercial mortgage	105,628		5,702
Other commercial real estate	2,658		144
Commercial and industrial	12,772		642
Lease financing	350		22
Other	—		—
Residential mortgage	15,470		444
Revolving mortgage	5,653		485
Construction and land development - noncommercial	958		55
Consumer	1,427		53
Total originated impaired loans and leases	$	151,330	$	7,817
Year ended December 31, 2012
Originated impaired loans and leases:
Construction and land development - commercial	$	22,493	$	399
Commercial mortgage	96,082		4,630
Other commercial real estate	2,690		142
Commercial and industrial	13,658		788
Lease financing	497		37
Other	424		23
Residential mortgage	14,951		586
Revolving mortgage	2,931		68
Construction and land development - noncommercial	2,850		41
Consumer	1,850		21
Total originated impaired loans and leases	$	158,426	$	6,735
Year ended December 31, 2011
Originated impaired loans and leases:
Construction and land development - commercial	$	26,612	$	56
Commercial mortgage	65,729		1,330
Other commercial real estate	1,368		55
Commercial and industrial	12,984		456
Lease financing	587		21
Other	38		—
Residential mortgage	9,252		300
Revolving mortgage	—		—
Construction and land development - noncommercial	2,022		105
Consumer	636		18
Total originated impaired loans and leases	$	119,228	$	2,341

At December 31, 2013, acquired loans that have had an adverse change in expected cash flows since the date of acquisition equaled $459.9 million, for which $53.5 million in related allowance for loan losses has been recorded.

Troubled Debt Restructurings

BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (TDRs). In general, the modification or restructuring of a loan is considered a TDR if, for economic reasons or legal reasons related to a borrower's financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. In accordance with GAAP, loans acquired under ASC 310-30, Loans and Debt Securities Acquired

with Deteriorated Credit Quality, are not initially considered to be TDRs, but can be classified as such if a modification is made subsequent to acquisition. The following table provides a summary of total TDRs by accrual status.



	December 31, 2013						December 31, 2012
	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
	(dollars in thousands)
Commercial loans
Construction and land development - commercial	$	21,032	$	1,002	$	22,034	$	47,368	$	26,920	$	74,288
Commercial mortgage	113,323		23,387		136,710		151,728		37,603		189,331
Other commercial real estate	3,470		1,150		4,620		10,137		2,194		12,331
Commercial and industrial	9,838		1,142		10,980		10,940		7,237		18,177
Lease	49		—		49		224		—		224
Total commercial loans	147,712		26,681		174,393		220,397		73,954		294,351
Noncommercial
Residential	23,343		3,663		27,006		28,777		5,828		34,605
Revolving mortgage	3,095		—		3,095		48		—		48
Construction and land development - noncommercial	651		457		1,108		1,657		—		1,657
Consumer and other	1,154		—		1,154		2,509		—		2,509
Total noncommercial loans	28,243		4,120		32,363		32,991		5,828		38,819
Total loans	$	175,955	$	30,801	$	206,756	$	253,388	$	79,782	$	333,170

Total troubled debt restructurings at December 31, 2013, equaled $206.8 million, of which $102.3 million were acquired and $104.4 million were originated. TDRs at December 31, 2012, totaled $333.2 million, which consisted of $193.2 million acquired and $140.0 million that were originated.

The majority of TDRs are included in the special mention, substandard or doubtful grading categories, which results in more elevated loss expectations when determining the expected cash flows that are used to determine the allowance for loan losses associated with these loans. When a restructured loan subsequently defaults, it is evaluated and downgraded if appropriate. The more severely graded the loan, the lower the estimated expected cash flows and the greater the allowance recorded. Further, TDRs over $500,000 and graded substandard or lower are evaluated individually for impairment through a review of collateral values.

The following tables provide the types of TDRs made during the three months ended December 31, 2013, and 2012, as well as a summary of loans that were modified as a TDR during the 12 months ended December 31, 2013, and 2012 that subsequently defaulted during the three months ended December 31, 2013, and 2012. BancShares defines payment default as movement of the TDR to nonaccrual status, foreclosure or charge-off, whichever occurs first.



	Three months ended December 31, 2013						Three months ended December 31, 2012
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
	Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end
	(dollars in thousands)
Originated loans
Interest only period provided
Commercial mortgage	1	$	305	1	$	—	1	$	861	1	$	595
Commercial and industrial	1	198		—	—		2	337		1	746
Residential mortgage	—	—		—	—		—	—		1	559
Construction and land development-noncommercial	—	—		—	—		1	476		—	—
Total interest only	2	503		1	—		4	1,674		3	1,900

Loan term extension
Commercial mortgage	1	770		—	—		7	2,319		3	122
Commercial and industrial	—	—		—	—		1	24		1	24
Residential mortgage	3	241		—	—		1	16		1	108
Consumer	—	—		—	—		1	8		—	—
Total loan term extension	4	1,011		—	—		10	2,367		5	254

Below market interest rate
Commercial mortgage	8	3,964		1	295		8	3,444		1	490
Commercial and industrial	—	—		—	—		3	311		—	—
Residential mortgage	6	347		—	—		2	130		1	59
Revolving mortgage	6	496		2	378		—	—		—	—
Consumer	—	—		—	—		2	16		—	—
Total below market interest rate	20	4,807		3	673		15	3,901		2	549

Discharged from bankruptcy
Residential mortgage	1	32		—	—		—	—		—	—
Revolving mortgage	—	—		3	130		—	—		—	—
Total discharged from bankruptcy	1	32		3	130		—	—		—	—

Total originated restructurings	27	$	6,353	7	$	803	29	$	7,942	10	$	2,703



	Three months ended December 31, 2013						Three months ended December 31, 2012
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
	Number of loans	Recorded investment at period end		Number of loans	Recorded investment at period end		Number of loans	Recorded investment at period end		Number of loans	Recorded investment at period end
	(dollars in thousands)
Acquired loans
Interest only period provided
Commercial mortgage	2	$	403	—	$	—	—	$	—	—	$	—
Other commercial real estate	—	—		—	—		1	2,994		—	—
Total interest only	2	403		—	—		1	2,994		—	—

Loan term extension
Construction and land development - commercial	1	100		—	—		—	—		—	—
Commercial mortgage	—	—		1	157		—	—		—	—
Residential mortgage	—	—		—	—		—	—		1	66
Total loan term extension	1	100		1	157		—	—		1	66

Below market interest rate
Construction and land development - commercial	—	—		—	—		3	17,615		3	7,050
Commercial mortgage	1	165		2	2,183		4	2,715		1	1,229
Commercial and industrial	—	—		—	—		1	253		—	—
Residential mortgage	1	100		—	—		3	2,542		3	122
Total below market interest rate	2	265		2	2,183		11	23,125		7	8,401

Other concession
Residential mortgage	—	—		—	—		—	—		1	54
Total other concession	—	—		—	—		—	—		1	54
Total restructurings	5	$	768	3	$	2,340	12	$	26,119	9	$	8,521

For the three months ended December 31, 2013, the recorded investment in troubled debt restructurings subsequent to modification was not materially impacted by the modification since forgiveness of principal is not a restructuring option frequently used by BancShares.

The following tables provide the types of TDRs made during the twelve months ended December 31, 2013, and 2012, as well as a summary of loans that were modified as a TDR during the 12 months ended December 31, 2013, and 2012 that subsequently defaulted during the

twelve months ended December 31, 2013, and 2012. BancShares defines payment default as movement of the TDR to nonaccrual status, foreclosure or charge-off, whichever occurs first.



	Year ended December 31, 2013						Year ended December 31, 2012
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
	Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end
	(dollars in thousands)
Originated loans
Interest only period provided
Construction and land development - commercial	—	$	—	—	$	—	2	$	316	—	$	—
Commercial mortgage	6	1,520		1	—		12	3,891		3	1,440
Commercial and industrial	2	397		—	—		2	574		—	—
Other commercial real estate	1	—		—	—		—	—		—	—
Residential mortgage	1	630		—	—		2	893		2	893
Total interest only	10	2,547		1	—		18	5,674		5	2,333

Loan term extension
Construction and land development - commercial	—	—		—	—		2	7,667		—	—
Commercial mortgage	9	3,270		—	—		50	16,818		13	3,456
Other commercial real estate	—	—		—	—		3	1,318		—	—
Commercial and industrial	1	47		—	—		11	1,363		4	169
Lease financing	—	—		—	—		3	166		—	—
Residential mortgage	11	539		—	—		9	521		2	155
Construction and land development - noncommercial	—	—		—	—		1	158		—	—
Consumer	2	62		—	—		7	1,132		—	—
Total loan term extension	23	3,918		—	—		86	29,143		19	3,780

Below market interest rate
Construction and land development - commercial	3	609		—	—		1	227		—	—
Commercial mortgage	28	10,873		1	295		12	7,333		1	490
Commercial and industrial	3	851		—	—		11	1,584		1	—
Other commercial real estate	2	378		—	—		—	—		—	—
Residential mortgage	21	1,235		—	—		13	1,887		5	828
Revolving mortgage	13	801		3	451		1	48		1	48
Construction & land development - noncommercial	4	269		—	—		—	—		—	—
Consumer	3	219		—	—		4	17		1	—
Total below market interest rate	77	15,235		4	746		42	11,096		9	1,366

Discharged from bankruptcy
Residential mortgage	7	510		2	60		—	—		—	—
Revolving mortgage	31	2,577		6	274		—	—		—	—
Total discharged from bankruptcy	38	3,087		8	334		—	—		—	—

Other concession
Commercial mortgage	—	—		—	—		3	1,036		—	—
Residential mortgage	—	—		—	—		1	384		—	—
Total other concession	—	—		—	—		4	1,420		—	—
Total originated restructurings	148	$	24,787	13	$	1,080	150	$	47,333	33	$	7,479



	Year ended December 31, 2013						Year ended December 31, 2012
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
	Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end
	(dollars in thousands)
Acquired loans
Interest only period provided
Construction and land development - commercial	1	$	2,590	1	$	2,590	2	$	496	1	$	356
Commercial mortgage	5	2,880		1	299		4	10,404		1	234
Other commercial real estate	—	—		—	—		1	2,994		—	—
Commercial and industrial	1	21		—	—		1	170		—	—
Residential mortgage	1	39		—	—		1	98		—	—
Total interest only	8	5,530		2	2,889		9	14,162		2	590

Loan term extension
Construction and land development - commercial	6	2,247		—	—		9	7,294		1	3,703
Commercial mortgage	1	157		1	157		4	2,584		—	—
Commercial and industrial	2	1,080		—	—		2	158		—	—
Residential mortgage	3	5,153		2	5,120		4	5,111		2	4,629
Total loan term extension	12	8,637		3	5,277		19	15,147		3	8,332

Below market interest rate
Construction and land development - commercial	2	106		—	—		13	19,953		5	8,781
Commercial mortgage	12	7,513		4	2,418		18	19,100		6	3,906
Other commercial real estate	—	—		—	—		2	1,954		—	—
Commercial and industrial	2	493		—	—		5	1,299		2	—
Residential mortgage	10	2,088		5	1,475		21	4,622		10	490
Construction and land development - noncommercial	—	—		—	—		1	—		1	—
Total below market interest rate	26	10,200		9	3,893		60	46,928		24	13,177

Other concession
Commercial mortgage	1	110		—	—		—	—		—	—
Residential mortgage	—	—		—	—		1	54		1	54
Total other concession	1	110		—	—		1	54		1	54
Total acquired restructurings	47	$	24,477	14	$	12,059	89	$	76,291	30	$	22,153