ALLOWANCE FOR LOAN AND LEASE LOSSES

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



	Non-PCI			PCI			Total
(dollars in thousands)
Balance at December 31, 2012	$	179,046		$	139,972		$	319,018
Reclassification ⁽¹⁾	7,368			—			7,368
Provision (credit) 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
Provision (credit) for loan and lease losses	15,260			(14,620		)	640
Loans and leases charged off	(20,499		)	(17,271		)	(37,770		)
Loans and leases recovered	8,202			—			8,202
Net charge-offs	(12,297		)	(17,271		)	(29,568		)
Balance at December 31, 2014	182,837			21,629			204,466
Provision (credit) for loan and lease losses	22,937			(2,273		)	20,664
Loans and leases charged off	(25,304		)	(3,044		)	(28,348		)
Loans and leases recovered	9,434			—			9,434
Net charge-offs	(15,870		)	(3,044		)	(18,914		)
Balance at December 31, 2015	$	189,904		$	16,312		$	206,216

⁽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:



	For the years ended December 31, 2015, 2014 and 2013
(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			Non- specific			Total
Non-PCI Loans
Allowance for loan and lease losses:
Balance at January 1, 2013	$	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 (credits)	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
Provision (credits)	1,735			(16,746		)	(401		)	10,441			(473		)	3,007			1,219			6,301			245			9,932			—			15,260
Charge-offs	(316		)	(1,147		)	—			(3,014		)	(100		)	(13		)	(1,260		)	(4,744		)	(118		)	(9,787		)	—			(20,499		)
Recoveries	207			2,825			124			938			110			—			191			854			84			2,869			—			8,202
Balance at December 31, 2014	11,961			85,189			732			30,727			4,286			3,184			10,661			18,650			892			16,555			—			182,837
Provision (credits)	4,773			(15,822		)	1,569			17,432			1,602			(1,420		)	4,202			(927		)	541			10,987			—			22,937
Charge-offs	(1,012		)	(1,498		)	(178		)	(5,952		)	(402		)	—			(1,619		)	(2,925		)	(22		)	(11,696		)	—			(25,304		)
Recoveries	566			2,027			45			909			38			91			861			1,173			74			3,650			—			9,434
Balance at December 31, 2015	$	16,288		$	69,896		$	2,168		$	43,116		$	5,524		$	1,855		$	14,105		$	15,971		$	1,485		$	19,496		$	—		$	189,904



	December 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:
ALLL for loans and leases individually evaluated for impairment	$	123	$	3,370	$	289	$	1,118	$	213	$	—	$	1,212	$	299	$	49	$	527	$	7,200
ALLL for loans and leases collectively evaluated for impairment	16,165		66,526		1,879		41,998		5,311		1,855		12,893		15,672		1,436		18,969		182,704
Total allowance for loan and lease losses	$	16,288	$	69,896	$	2,168	$	43,116	$	5,524	$	1,855	$	14,105	$	15,971	$	1,485	$	19,496	$	189,904
Loans and leases:
Loans and leases individually evaluated for impairment	$	3,094	$	95,107	$	427	$	17,910	$	1,755	$	1,183	$	22,986	$	5,883	$	784	$	1,238	$	150,367
Loans and leases collectively evaluated for impairment	617,258		8,179,441		320,594		2,351,048		729,023		313,649		2,672,999		2,517,223		219,289		1,218,583		19,139,107
Total loan and leases	$	620,352	$	8,274,548	$	321,021	$	2,368,958	$	730,778	$	314,832	$	2,695,985	$	2,523,106	$	220,073	$	1,219,821	$	19,289,474



	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
Non-PCI Loans
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	491,513		7,470,145		244,291		1,977,594		571,293		351,833		2,478,145		2,558,125		203,676		1,116,459		17,463,074
Total loan and leases	$	493,133	$	7,552,948	$	244,875	$	1,988,634	$	571,916	$	353,833	$	2,493,058	$	2,561,800	$	205,016	$	1,117,454	$	17,582,667



	For the years ended December 31, 2015, 2014 and 2013
(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, 2013	$	31,186		$	50,275		$	11,234		$	8,897		$	19,837		$	9,754		$	8,287		$	502		$	139,972
Provision (credits)	(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
Provision (credits)	1,284			(7,903		)	(1,385		)	(2,023		)	(5,576		)	1,523			(395		)	(145		)	(14,620		)
Charge-offs	(2,454		)	(11,868		)	106			(2,012		)	(406		)	(483		)	(104		)	(50		)	(17,271		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at December 31, 2014	150			10,135			75			1,240			5,820			3,999			183			27			21,629
Provision (credits)	1,029			(1,426		)	698			(470		)	72			(2,720		)	(183		)	727			(2,273		)
Charge-offs	(97		)	(871		)	—			(325		)	(494		)	(756		)	—			(501		)	(3,044		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at December 31, 2015	$	1,082		$	7,838		$	773		$	445		$	5,398		$	523		$	—		$	253		$	16,312

December 31, 2015
ALLL for loans and leases acquired with deteriorated credit quality	$	1,082		$	7,838		$	773		$	445		$	5,398		$	523		$	—		$	253		$	16,312
Loans and leases acquired with deteriorated credit quality	33,880			525,468			17,076			15,182			302,158			52,471			—			4,281			950,516

December 31, 2014
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			382,340			74,109			912			6,093			1,186,498

At December 31, 2015 and December 31, 2014, $469.3 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 $16.3 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 homogeneous group, including interest income recognized in the period during which the loans and leases were considered impaired.



	December 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	$	1,623	$	1,471	$	3,094	$	4,428	$	123
Commercial mortgage	41,793		53,314		95,107		103,763		3,370
Other commercial real estate	305		122		427		863		289
Commercial and industrial	8,544		9,366		17,910		21,455		1,118
Lease financing	1,651		104		1,755		1,956		213
Other	—		1,183		1,183		1,260		—
Residential mortgage	10,097		12,889		22,986		25,043		1,212
Revolving mortgage	1,105		4,778		5,883		7,120		299
Construction and land development - noncommercial	693		91		784		784		49
Consumer	1,050		188		1,238		1,294		527
Total non-PCI impaired loans and leases	$	66,861	$	83,506	$	150,367	$	167,966	$	7,200

	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 years ended December 31, 2015, 2014 and 2013:



	Year ended December 31, 2015
(Dollars in thousands)	YTD Average Balance		YTD Interest Income Recognized
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	3,164	$	146
Commercial mortgage	89,934		3,129
Other commercial real estate	481		12
Commercial and industrial	14,587		510
Lease financing	1,718		74
Other	1,673		37
Residential mortgage	18,524		557
Revolving mortgage	4,368		97
Construction and land development - noncommercial	829		38
Consumer	1,126		75
Total non-PCI impaired loans and leases	$	136,404	$	4,675

	Year ended December 31, 2014
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	1,689	$	83
Commercial mortgage	86,250		3,698
Other commercial real estate	2,125		80
Commercial and industrial	13,433		580
Lease financing	774		44
Other	528		29
Residential mortgage	15,487		593
Revolving mortgage	3,922		134
Construction and land development - noncommercial	1,678		98
Consumer	1,535		88
Total non-PCI impaired loans and leases	$	127,421	$	5,427

	Year ended December 31, 2013
Non-PCI 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 non-PCI impaired loans and leases	$	151,330	$	7,817

Troubled Debt Restructurings

BancShares accounts for certain loan modifications or restructurings as 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, 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 modification 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.



	December 31, 2015						December 31, 2014
(Dollars in thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial loans
Construction and land development - commercial	$	3,624	$	257	$	3,881	$	2,591	$	446	$	3,037
Commercial mortgage	65,812		18,728		84,540		92,184		8,937		101,121
Other commercial real estate	1,751		89		1,840		2,374		449		2,823
Commercial and industrial	8,833		3,341		12,174		9,864		664		10,528
Lease	1,191		169		1,360		258		365		623
Other	1,183		—		1,183		34		—		34
Total commercial loans	82,394		22,584		104,978		107,305		10,861		118,166
Noncommercial
Residential	25,427		7,129		32,556		22,597		4,655		27,252
Revolving mortgage	3,600		1,705		5,305		3,675		—		3,675
Construction and land development - noncommercial	784		—		784		1,391		—		1,391
Consumer and other	1,091		129		1,220		995		—		995
Total noncommercial loans	30,902		8,963		39,865		28,658		4,655		33,313
Total loans	$	113,296	$	31,547	$	144,843	$	135,963	$	15,516	$	151,479

Total troubled debt restructurings at December 31, 2015, were $144.8 million, of which $30.6 million were PCI and $114.2 million were non-PCI. TDRs at December 31, 2014, were $151.5 million, which consisted of $46.9 million PCI and $104.6 million non-PCI.

The majority of TDRs are included in the special mention, substandard or doubtful grading categories, which results in more elevated loss expectations when projecting 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 or analysis of cash flows.

The following tables provide the types of TDRs made during the year ended December 31, 2015, and 2014, as well as a summary of loans that were modified as a TDR during the year ended December 31, 2015, and 2014 that subsequently defaulted during the year ended December 31, 2015, and 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.



	Year ended December 31, 2015						Year ended December 31, 2014
	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)
Non-PCI loans and leases
Interest only period provided
Commercial mortgage	3	$	185	—	$	—	6	$	1,973	2	$	364
Commercial and industrial	2	776		—	—		3	250		—	—
Lease financing	—	—		—	—		2	118		—	—
Construction and land development - noncommercial	1	91		—	—		—	—		—	—
Other	—	—		—	—		1	34		—	—
Total interest only	6	1,052		—	—		12	2,375		2	364

Loan term extension
Construction and land development - commercial	1	18		1	18		2	187		—	—
Commercial mortgage	12	3,144		2	316		18	4,848		—	—
Commercial and industrial	5	1,380		—	—		5	2,274		—	—
Lease financing	4	146		—	—		6	198		—	—
Residential mortgage	1	110		—	—		19	572		—	—
Revolving mortgage	1	8		—	—		—	—		—	—
Construction and land development - noncommercial	—	—		—	—		7	226		—	—
Consumer	3	52			—		6	99		1	—
Total loan term extension	27	4,858		3	334		63	8,404		1	—

Below market interest rate
Construction and land development - commercial	21	992		3	122		11	372		—	—
Commercial mortgage	37	13,900		3	3,969		44	12,642		3	441
Commercial and industrial	15	2,301		2	1,619		13	751		—	—
Other commercial real estate	2	122		—	—		1	337		—	—
Residential mortgage	116	5,695		14	607		41	2,444		1	45
Revolving mortgage	6	136		—	—		5	217		—	—
Construction & land development - noncommercial	2	253		—	—		12	389		—	—
Consumer	18	146		2	10		10	193		—	—
Other	1	1,183		—	—		—	—		—	—
Total below market interest rate	218	24,728		24	6,327		137	17,345		4	486

Discharged from bankruptcy
Construction and land development - commercial	4	38		1	3		—	—		—	—
Commercial mortgage	4	1,897		2	644		2	949		1	—
Commercial and industrial	3	146		—	—		—	—		—	—
Residential mortgage	29	1,454		4	242		12	1,067		2	268
Revolving mortgage	56	2,714		9	701		17	663		1	—
Construction & land development - noncommercial	—	—		—	—		1	62		1	62
Consumer	25	296		7	75		4	4		—	—
Total discharged from bankruptcy	121	6,545		23	1,665		36	2,745		5	330
Total non-PCI restructurings	372	$	37,183	50	$	8,326	248	$	30,869	12	$	1,180



	Year ended December 31, 2015						Year ended December 31, 2014
	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)
PCI loans
Interest only period provided
Commercial mortgage	—	$	—	—	$	—	2	$	—	2	$	—
Total interest only	—	—		—	—		2	—		2	—

Loan term extension
Construction and land development - commercial	—	—		—	—		1	332		—	—
Residential mortgage	1	178		—	—		2	317		5	53
Construction and land development - noncommercial	—	—		—	—		1	51		—	—
Total loan term extension	1	178		—	—		4	700		5	53

Below market interest rate
Construction and land development - commercial	—	—		—	—		2	116		—	—
Commercial mortgage	—	—		—	—		16	5,783		3	138
Residential mortgage	14	1,187		2	96		29	3,948		3	23
Total below market interest rate	14	1,187		2	96		47	9,847		6	161

Discharged from bankruptcy
Residential mortgage	2	282		—	—		26	1,659		2	—
Revolving mortgage	1	105		—	—		—	—		—	—
Total discharged from bankruptcy	3	387		—	—		26	1,659		2	—
Total PCI restructurings	18	$	1,752	2	$	96	79	$	12,206	15	$	214