ALLOWANCE FOR LOAN AND LEASE LOSSES ("ALLL")

The following tables present the activity in the ALLL for non-PCI loan and lease losses by loan class for the three months ended March 31, 2015 and March 31, 2014:



	Three months ended March 31, 2015
(Dollars in thousands)	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			Total
Non-PCI Loans
Allowance for loan and lease losses:
Balance at January 1	$	11,961		$	85,189		$	732		$	30,727		$	4,286		$	3,184		$	10,661		$	18,650		$	892		$	16,555		$	182,837
Provision	1,103			(3,679		)	458			7,546			11			(218		)	813			(462		)	118			2,966			8,656
Charge-offs	(18		)	(233		)	(169		)	(1,713		)	(15		)	—			(284		)	(793		)	(22		)	(2,783		)	(6,030		)
Recoveries	62			761			10			394			11			15			138			134			68			878			2,471
Balance at March 31	$	13,108		$	82,038		$	1,031		$	36,954		$	4,293		$	2,981		$	11,328		$	17,529		$	1,056		$	17,616		$	187,934

	Three months ended March 31, 2014
	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			Total
Balance at January 1	$	10,335		$	100,257		$	1,009		$	22,362		$	4,749		$	190		$	10,511		$	16,239		$	681		$	13,541		$	179,874
Provision	1,885			(6,979		)	(74		)	1,976			(524		)	272			609			1,353			577			1,275			370
Charge-offs	—			(168		)	—			(496		)	(58		)	(8		)	(184		)	(1,260		)	(71		)	(2,177		)	(4,422		)
Recoveries	26			1,107			10			179			16			—			8			76			62			643			2,127
Balance at March 31	$	12,246		$	94,217		$	945		$	24,021		$	4,183		$	454		$	10,944		$	16,408		$	1,249		$	13,282		$	177,949

The commercial mortgage loan class had a net provision credit of $3.7 million for the three months ended March 31, 2015, compared to a net provision credit of $7.0 million for the same period of 2014. The decrease in the net provision credit was primarily due to loan growth in the first quarter of 2015 compared to a decline in loans in the first quarter of 2014. This loan class continues to experience credit quality improvement, which drives the credit in provision.

The provision expense for commercial and industrial loans totaled $7.5 million for the three months ended March 31, 2015, compared to $2.0 million for the same period of 2014. Loan growth of $83.5 million since December 31, 2014 was the primary reason for the increase in provision expense.

The revolving mortgage loan class had a net provision credit of $0.5 million for the three months ended March 31, 2015, compared to provision expense of $1.4 million for the three months ended March 31, 2014. The decrease was due to lower charge-offs and lower credit default trends within the loan class.

The provision for consumer loans totaled $3.0 million and $1.3 million for the three months ended March 31, 2015 and March 31, 2014, respectively. The increase in provision expense was primarily due to loan growth in the first quarter of 2015 compared to a decline in loans in the first quarter of 2014.

The following tables present the allowance for non-PCI loan losses and the recorded investment in loans, by loan class, based on impairment method as of March 31, 2015 and December 31, 2014:



	March 31, 2015
(Dollars in thousands)	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		Total
Allowance for loan and lease losses:
ALLL for loans and leases individually evaluated for impairment	$	182	$	7,494	$	104	$	2,809	$	236	$	1,955	$	1,177	$	108	$	90	$	531	$	14,686
ALLL for loans and leases collectively evaluated for impairment	12,926		74,544		927		34,145		4,057		1,026		10,151		17,421		966		17,085		173,248
Total allowance for loan and lease losses	$	13,108	$	82,038	$	1,031	$	36,954	$	4,293	$	2,981	$	11,328	$	17,529	$	1,056	$	17,616	$	187,934

Loans and leases:
Loans and leases individually evaluated for impairment	$	2,972	$	77,291	$	543	$	13,969	$	1,492	$	1,977	$	15,195	$	2,922	$	733	$	984	$	118,078
Loans and leases collectively evaluated for impairment	605,584		7,514,454		261,750		2,058,445		602,245		352,736		2,509,354		2,525,335		169,475		1,126,958		17,726,336
Total loan and leases	$	608,556	$	7,591,745	$	262,293	$	2,072,414	$	603,737	$	354,713	$	2,524,549	$	2,528,257	$	170,208	$	1,127,942	$	17,844,414

	December 31, 2014
(Dollars in thousands)	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		Total
Allowance for loan and lease losses:
ALLL for loans and leases individually evaluated for impairment	$	92	$	8,610	$	112	$	1,743	$	150	$	1,972	$	1,360	$	1,052	$	71	$	555	$	15,717
ALLL for loans and leases collectively evaluated for impairment	11,869		76,579		620		28,984		4,136		1,212		9,301		17,598		821		16,000		167,120
Total allowance for loan and lease losses	$	11,961	$	85,189	$	732	$	30,727	$	4,286	$	3,184	$	10,661	$	18,650	$	892	$	16,555	$	182,837

Loans and leases:
Loans and leases individually evaluated for impairment	$	1,620	$	82,803	$	584	$	11,040	$	623	$	2,000	$	14,913	$	3,675	$	1,340	$	995	$	119,593
Loans and leases collectively evaluated for impairment	548,948		7,470,145		244,291		1,977,894		571,293		351,833		2,505,629		2,558,125		118,757		1,116,459		17,463,374
Total loan and leases	$	550,568	$	7,552,948	$	244,875	$	1,988,934	$	571,916	$	353,833	$	2,520,542	$	2,561,800	$	120,097	$	1,117,454	$	17,582,967

The following tables show the activity in the allowance for PCI loan and lease losses by loan class for the three months ended March 31, 2015 and March 31, 2014.



	Three months ended March 31, 2015
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial			Residential mortgage			Revolving mortgage			Construction and land development - noncommercial			Consumer and other			Total
PCI Loans
Allowance for loan and lease losses:
Balance at January 1	$	150		$	10,135		$	75		$	1,240		$	5,820		$	3,999		$	183		$	27		$	21,629
Provision	191			(925		)	119			(1,031		)	(863		)	(655		)	(152		)	452			(2,864		)
Charge-offs	—			(334		)	—			(198		)	(85		)	(73		)	—			(456		)	(1,146		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at March 31	$	341		$	8,876		$	194		$	11		$	4,872		$	3,271		$	31		$	23		$	17,619

	Three months ended March 31, 2014
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial			Residential mortgage			Revolving mortgage			Construction and land development - noncommercial			Consumer and other			Total
Balance at January 1	$	1,320		$	29,906		$	1,354		$	5,275		$	11,802		$	2,959		$	682		$	222		$	53,520
Provision	3,355			(3,386		)	(150		)	(336		)	(2,300		)	634			(99		)	9			(2,273		)
Charge-offs	(199		)	(3,517		)	—			(2,683		)	262			(100		)	—			(17		)	(6,254		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at March 31	$	4,476		$	23,003		$	1,204		$	2,256		$	9,764		$	3,493		$	583		$	214		$	44,993

The following tables show the ending balances of PCI loans and leases and related allowance by class of loans as of March 31, 2015 and December 31, 2014:



	March 31, 2015
(Dollars in thousands)	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial		Residential mortgage		Revolving mortgage		Construction and land development - noncommercial		Consumer and other		Total
ALLL for loans and leases acquired with deteriorated credit quality	$	341	$	8,876	$	194	$	11	$	4,872	$	3,271	$	31	$	23	$	17,619

Loans and leases acquired with deteriorated credit quality	70,049		653,846		40,841		24,134		380,490		70,363		874		6,746		1,247,343

	December 31, 2014
(Dollars in thousands)	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial		Residential mortgage		Revolving mortgage		Construction and land development - noncommercial		Consumer and other		Total
ALLL for loans and leases acquired with deteriorated credit quality	$	150	$	10,135	$	75	$	1,240	$	5,820	$	3,999	$	183	$	27	$	21,629

Loans and leases acquired with deteriorated credit quality	78,079		577,518		40,193		27,254		382,339		74,109		912		6,094		1,186,498

As of March 31, 2015, and December 31, 2014, $438.2 million and $285.6 million, respectively, in PCI loans experienced an adverse change in expected cash flows since the date of acquisition. The corresponding valuation reserve was $17.6 million and $21.6 million, respectively.

The following tables provide information on non-PCI impaired loans and leases, exclusive of loans and leases evaluated collectively as a homogenous group, as of March 31, 2015 and December 31, 2014 including interest income recognized in the period during which the loans and leases were considered impaired.



	March 31, 2015
(Dollars in thousands)	With a recorded allowance		With no recorded allowance		Total		Unpaid principal balance		Related allowance recorded
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	2,114	$	858	$	2,972	$	4,228	$	182
Commercial mortgage	53,220		24,071		77,291		81,826		7,494
Other commercial real estate	104		439		543		847		104
Commercial and industrial	13,123		846		13,969		14,939		2,809
Lease financing	1,221		271		1,492		1,492		236
Other	1,977		—		1,977		1,977		1,955
Residential mortgage	8,662		6,533		15,195		15,852		1,177
Revolving mortgage	1,439		1,483		2,922		3,925		108
Construction and land development - noncommercial	733		—		733		733		90
Consumer	904		80		984		1,004		531
Total non-PCI impaired loans and leases	$	83,497	$	34,581	$	118,078	$	126,823	$	14,686

	December 31, 2014
(Dollars in thousands)	With a recorded allowance		With no recorded allowance		Total		Unpaid principal balance		Related allowance recorded
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	996	$	624	$	1,620	$	6,945	$	92
Commercial mortgage	57,324		25,479		82,803		87,702		8,610
Other commercial real estate	112		472		584		913		112
Commercial and industrial	10,319		721		11,040		12,197		1,743
Lease financing	319		304		623		623		150
Other	2,000		—		2,000		2,000		1,972
Residential mortgage	10,198		4,715		14,913		15,746		1,360
Revolving mortgage	3,675		—		3,675		4,933		1,052
Construction and land development - noncommercial	1,077		263		1,340		1,340		71
Consumer	987		8		995		1,067		555
Total non-PCI impaired loans and leases	$	87,007	$	32,586	$	119,593	$	133,466	$	15,717

The following tables show the average non-PCI impaired loan balance and the interest income recognized by loan class for the three months ended March 31, 2015 and March 31, 2014:



	Three months ended March 31, 2015				Three months ended March 31, 2014
(Dollars in thousands)	Average balance		Interest income recognized		Average balance		Interest income recognized
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	3,052	$	35	$	1,031	$	15
Commercial mortgage	80,553		769		94,547		1,120
Other commercial real estate	551		1		1,796		21
Commercial and industrial	14,229		103		10,234		118
Lease financing	1,590		18		284		4
Other	1,990		—		—		—
Residential mortgage	15,364		125		16,482		174
Revolving mortgage	2,986		16		3,892		27
Construction and land development - noncommercial	658		7		2,322		29
Consumer	1,022		19		1,059		5
Total non-PCI impaired loans and leases	$	121,995	$	1,093	$	131,647	$	1,513

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 grant. 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, excluding pooled loans, are not initially considered to be TDRs, but can be classified as such if a modification is made subsequent to acquisition. Subsequent modifications of a PCI loan accounted for in a pool that would otherwise meet the definition of a TDR is not reported, or accounted for, as a TDR since pooled PCI loans are excluded from the scope of TDR accounting.

The following table provides a summary of total TDRs by accrual status.



	March 31, 2015						December 31, 2014
(Dollars in thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial loans
Construction and land development - commercial	$	3,425	$	490	$	3,915	$	2,591	$	446	$	3,037
Commercial mortgage	88,889		11,326		100,215		92,184		8,937		101,121
Other commercial real estate	2,123		423		2,546		2,374		449		2,823
Commercial and industrial	9,248		4,768		14,016		9,864		664		10,528
Lease	1,163		329		1,492		258		365		623
Other	—		—		—		34		—		34
Total commercial TDRs	104,848		17,336		122,184		107,305		10,861		118,166
Noncommercial
Residential	23,060		5,097		28,157		22,597		4,655		27,252
Revolving mortgage	1,871		1,112		2,983		3,675		—		3,675
Construction and land development - noncommercial	733		—		733		1,391		—		1,391
Consumer and other	954		1,980		2,934		995		—		995
Total noncommercial TDRs	26,618		8,189		34,807		28,658		4,655		33,313
Total TDRs	$	131,466	$	25,525	$	156,991	$	135,963	$	15,516	$	151,479

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 table shows the accrual status of non-PCI and PCI TDRs.



(Dollars in thousands)	March 31, 2015		December 31, 2014
Accruing TDRs:
PCI	$	44,582	$	44,647
Non-PCI	86,884		91,316
Total accruing TDRs	131,466		135,963
Nonaccruing TDRs:
PCI	1,999		2,225
Non-PCI	23,526		13,291
Total nonaccruing TDRs	25,525		15,516
All TDRs:
PCI	46,581		46,872
Non-PCI	110,410		104,607
Total TDRs	$	156,991	$	151,479

The following tables provide the types of TDRs made during the three months ended March 31, 2015 and March 31, 2014, as well as a summary of loans that were modified as a TDR during the twelve months ended March 31, 2015 and March 31, 2014 that subsequently defaulted during the three months ended March 31, 2015 and March 31, 2014. BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due for TDRs, foreclosure or charge-off, whichever occurs first.



	Three months ended March 31, 2015						Three months ended March 31, 2014
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
(Dollars in thousands)	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
Non-PCI loans and leases
Interest only period provided
Commercial mortgage	—	$	—	—	$	—	4	$	1,911	2	$	410
Commercial and industrial	1	3,796		1	3,796		1	196		—	—
Lease financing	—	—		—	—		2	146		—	—
Total interest only	1	3,796		1	3,796		7	2,253		2	410

Loan term extension
Construction and land development - commercial	1	220		1	220		—	—		—	—
Commercial mortgage	3	535		—	—		5	2,620		—	—
Lease financing	—	—		—	—		2	234		—	—
Revolving mortgage	1	10		—	—		—	—		—	—
Residential mortgage	—	—		—	—		5	338		—	—
Consumer	1	5		—	—		—	—		1	41
Total loan term extension	6	770		1	220		12	3,192		1	41

Below market interest rate
Construction and land development - commercial	2	47		—	—		1	82		—	—
Commercial mortgage	9	3,541		2	733		12	4,677		1	449
Commercial and industrial	3	172		—	—		2	110		—	—
Residential mortgage	23	708		2	45		8	451		3	127
Revolving mortgage	2	18		—	—		5	278		—	—
Construction and land development - noncommercial	2	396		—	—		—	—		—	—
Consumer	3	34		—	—		—	—		—	—
Other	1	1,950		—	—		—	—		—	—
Total below market interest rate	45	6,866		4	778		28	5,598		4	576

Discharged from bankruptcy
Commercial mortgage	—	—		—	—		1	1,003		—	—
Residential mortgage	2	68		—	—		7	708		2	288
Revolving mortgage	5	218		2	147		4	229		—	—
Construction and land development-noncommercial	—	—		—	—		1	62		—	—
Consumer	—	—		—	—		1	18		—	—
Total discharged from bankruptcy	7	286		2	147		14	2,020		2	288
Total non-PCI restructurings	59	$	11,718	8	$	4,941	61	$	13,063	9	$	1,315



	Three months ended March 31, 2015						Three months ended March 31, 2014
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
(Dollars in thousands)	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
PCI loans
Interest only period provided
Commercial mortgage	—	$	—	—	$	—	2	$	15,906	2	$	15,906
Total interest only	—	—		—	—		2	15,906		2	15,906

Loan term extension
Construction and land development - commercial	—	—		—	—		1	281		—	—
Total loan term extension	—	—		—	—		1	281		—	—

Below market interest rate
Construction and land development - commercial	—	—		—	—		1	37		—	—
Commercial mortgage	—	—		—	—		4	5,439		1	47
Commercial and industrial	—	—		1	65		—	—		—	—
Residential mortgage	7	470		—	—		1	102		1	436
Total below market interest rate	7	470		1	65		6	5,578		2	31,812
Total PCI restructurings	7	$	470	1	$	65	9	$	21,765	4	$	47,718

For the three months ended March 31, 2015 and March 31, 2014, the recorded investment in TDRs subsequent to modification was not materially impacted by the modification since forgiveness of principal is not a restructuring option frequently used by BancShares.