NOTE E - 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 and six months ended June 30, 2018 and June 30, 2017:



	Three months ended June 30, 2018
(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 April 1	$	26,718		$	43,833		$	3,423		$	53,016		$	6,301		$	4,842		$	16,489		$	22,104		$	3,913		$	30,181		$	210,820
Provision	(3,139		)	866			468			5,670			(1,879		)	(114		)	1,492			289			50			4,574			8,277
Charge-offs	(8		)	(459		)	(69		)	(1,994		)	(445		)	(38		)	(289		)	(1,027		)	(37		)	(5,312		)	(9,678		)
Recoveries	93			225			1			638			4			1			110			520			101			1,330			3,023
Balance at June 30	$	23,664		$	44,465		$	3,823		$	57,330		$	3,981		$	4,691		$	17,802		$	21,886		$	4,027		$	30,773		$	212,442

	Three months ended June 30, 2017
(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
Balance at April 1	$	31,391		$	48,611		$	3,572		$	50,829		$	6,315		$	3,534		$	15,835		$	21,290		$	1,513		$	27,129		$	210,019
Provision	2,372			639			33			968			186			(214		)	155			1,054			(10		)	4,569			9,752
Charge-offs	(413		)	(235		)	—			(3,121		)	(97		)	(64		)	(222		)	(280		)	—			(4,991		)	(9,423		)
Recoveries	209			731			7			2,392			—			46			75			401			—			1,093			4,954
Balance at June 30	$	33,559		$	49,746		$	3,612		$	51,068		$	6,404		$	3,302		$	15,843		$	22,465		$	1,503		$	27,800		$	215,302

	Six months ended June 30, 2018
(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
Balance at January 1	$	24,470		$	45,005		$	4,571		$	53,697		$	6,127		$	4,689		$	15,706		$	22,436		$	3,962		$	31,204		$	211,867
Provision	(914		)	(499		)	(825		)	5,245			(892		)	—			3,004			755			157			7,497			13,528
Charge-offs	(8		)	(505		)	(69		)	(3,469		)	(1,299		)	(41		)	(1,095		)	(2,019		)	(219		)	(10,567		)	(19,291		)
Recoveries	116			464			146			1,857			45			43			187			714			127			2,639			6,338
Balance at June 30	$	23,664		$	44,465		$	3,823		$	57,330		$	3,981		$	4,691		$	17,802		$	21,886		$	4,027		$	30,773		$	212,442

	Six months ended June 30, 2017
(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
Balance at January 1	$	28,877		$	48,278		$	3,269		$	50,225		$	5,907		$	3,127		$	14,447		$	21,013		$	1,596		$	28,287		$	205,026
Provision	4,908			645			337			4,560			761			241			1,506			1,604			(93		)	6,359			20,828
Charge-offs	(490		)	(272		)	(5		)	(6,374		)	(270		)	(187		)	(472		)	(1,105		)	—			(9,019		)	(18,194		)
Recoveries	264			1,095			11			2,657			6			121			362			953			—			2,173			7,642
Balance at June 30	$	33,559		$	49,746		$	3,612		$	51,068		$	6,404		$	3,302		$	15,843		$	22,465		$	1,503		$	27,800		$	215,302

The following tables present the allowance for non-PCI loan and lease losses and the recorded investment in loans, by loan class, based on impairment method as of June 30, 2018 and December 31, 2017:



	June 30, 2018
(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	$	274	$	3,325	$	65	$	985	$	107	$	20	$	3,343	$	1,112	$	66	$	704	$	10,001
ALLL for loans and leases collectively evaluated for impairment	23,390		41,140		3,758		56,345		3,874		4,671		14,459		20,774		3,961		30,069		202,441
Total allowance for loan and lease losses	$	23,664	$	44,465	$	3,823	$	57,330	$	3,981	$	4,691	$	17,802	$	21,886	$	4,027	$	30,773	$	212,442

Loans and leases:
Loans and leases individually evaluated for impairment	$	2,098	$	66,172	$	1,077	$	7,652	$	1,176	$	97	$	43,953	$	27,407	$	2,911	$	2,685	$	155,228
Loans and leases collectively evaluated for impairment	712,913		10,212,569		472,375		3,089,889		612,201		296,517		3,936,892		2,577,548		247,793		1,550,243		23,708,940
Total loan and leases	$	715,011	$	10,278,741	$	473,452	$	3,097,541	$	613,377	$	296,614	$	3,980,845	$	2,604,955	$	250,704	$	1,552,928	$	23,864,168

	December 31, 2017
(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	$	185	$	3,648	$	209	$	665	$	397	$	—	$	2,733	$	1,085	$	68	$	738	$	9,728
ALLL for loans and leases collectively evaluated for impairment	24,285		41,357		4,362		53,032		5,730		4,689		12,973		21,351		3,894		30,466		202,139
Total allowance for loan and lease losses	$	24,470	$	45,005	$	4,571	$	53,697	$	6,127	$	4,689	$	15,706	$	22,436	$	3,962	$	31,204	$	211,867

Loans and leases:
Loans and leases individually evaluated for impairment	$	788	$	73,655	$	1,857	$	7,974	$	1,914	$	521	$	37,842	$	23,770	$	4,551	$	2,774	$	155,646
Loans and leases collectively evaluated for impairment	668,427		9,655,367		471,576		2,722,433		892,887		301,655		3,485,944		2,677,755		243,738		1,558,399		22,678,181
Total loan and leases	$	669,215	$	9,729,022	$	473,433	$	2,730,407	$	894,801	$	302,176	$	3,523,786	$	2,701,525	$	248,289	$	1,561,173	$	22,833,827

The following tables show the activity in the allowance for PCI loan losses for the three and six months ended June 30, 2018 and June 30, 2017.



(Dollars in thousands)	Three months ended June 30, 2018			Three months ended June 30, 2017
PCI Loans
Allowance for loan and lease losses:
Balance at April 1	$	12,296		$	10,924
Provision	161			2,572
Charge-offs	(34		)	—
Recoveries	—			—
Balance at June 30	$	12,423		$	13,496

	Six months ended June 30, 2018			Six months ended June 30, 2017
Balance at January 1	$	10,026		$	13,769
Provision	2,515			(273		)
Charge-offs	(118		)	—
Recoveries	—			—
Balance at June 30	$	12,423		$	13,496

The following table shows the ending balances of PCI loans and related allowance as of June 30, 2018 and December 31, 2017:



(Dollars in thousands)	June 30, 2018		December 31, 2017
ALLL for loans acquired with deteriorated credit quality	$	12,423	$	10,026
Loans acquired with deteriorated credit quality	674,269		762,998

As of June 30, 2018 and December 31, 2017, $160.8 million and $279.8 million, respectively, in PCI loans experienced an adverse change in expected cash flows since the date of acquisition.

The following tables provide information on non-PCI impaired loans and leases individually evaluated as of June 30, 2018 and December 31, 2017.



	June 30, 2018
(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	$	2,098	$	—	$	2,098	$	2,431	$	274
Commercial mortgage	35,934		30,238		66,172		72,467		3,325
Other commercial real estate	375		702		1,077		1,264		65
Commercial and industrial	6,262		1,390		7,652		11,684		985
Lease financing	789		387		1,176		2,808		107
Other	97		—		97		315		20
Residential mortgage	25,529		18,424		43,953		46,684		3,343
Revolving mortgage	10,217		17,190		27,407		30,170		1,112
Construction and land development - noncommercial	544		2,367		2,911		3,633		66
Consumer	1,777		908		2,685		3,004		704
Total non-PCI impaired loans and leases	$	83,622	$	71,606	$	155,228	$	174,460	$	10,001

	December 31, 2017
(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	$	788	$	—	$	788	$	1,110	$	185
Commercial mortgage	39,135		34,520		73,655		78,936		3,648
Other commercial real estate	1,351		506		1,857		2,267		209
Commercial and industrial	6,326		1,648		7,974		10,475		665
Lease financing	1,890		24		1,914		2,571		397
Other	—		521		521		521		—
Residential mortgage	19,135		18,707		37,842		39,946		2,733
Revolving mortgage	5,875		17,895		23,770		25,941		1,085
Construction and land development - noncommercial	592		3,959		4,551		5,224		68
Consumer	2,107		667		2,774		3,043		738
Total non-PCI impaired loans and leases	$	77,199	$	78,447	$	155,646	$	170,034	$	9,728

Non-PCI impaired loans less than $500,000 that are collectively evaluated were $44.1 million and $49.1 million at June 30, 2018 and December 31, 2017, respectively.

The following tables show the average non-PCI impaired loan balance and the interest income recognized by loan class for the three and six months ended June 30, 2018 and June 30, 2017:



	Three months ended June 30, 2018				Three months ended June 30, 2017
(Dollars in thousands)	Average balance		Interest income recognized		Average balance		Interest income recognized
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	1,485	$	17	$	970	$	11
Commercial mortgage	68,113		659		74,121		651
Other commercial real estate	1,345		12		1,525		9
Commercial and industrial	7,585		76		10,159		98
Lease financing	1,842		14		1,911		14
Other	67		—		434		5
Residential mortgage	42,046		298		36,767		272
Revolving mortgage	26,388		222		8,484		62
Construction and land development - noncommercial	3,526		44		3,185		33
Consumer	2,654		28		2,052		24
Total non-PCI impaired loans and leases	$	155,051	$	1,370	$	139,608	$	1,179

	Six months ended June 30, 2018				Six months ended June 30, 2017
(Dollars in thousands)	Average balance		Interest income recognized		Average balance		Interest income recognized
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	1,320	$	28	$	1,013	$	23
Commercial mortgage	70,190		1,370		74,715		1,293
Other commercial real estate	1,529		23		1,555		17
Commercial and industrial	7,554		152		10,844		202
Lease financing	2,040		25		1,740		28
Other	34		—		315		7
Residential mortgage	40,385		573		34,864		525
Revolving mortgage	25,590		423		8,227		119
Construction and land development - noncommercial	3,815		92		2,895		66
Consumer	2,581		56		1,976		47
Total non-PCI impaired loans and leases	$	155,038	$	2,742	$	138,144	$	2,327

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. The majority of TDRs are included in the special mention, substandard or doubtful credit 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. The more severely graded the loan, the lower the estimated expected cash flows and the greater the allowance recorded. All TDRs are individually evaluated for impairment through review of collateral values or analysis of cash flows at least annually.

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



	June 30, 2018						December 31, 2017
(Dollars in thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial loans
Construction and land development - commercial	$	2,050	$	228	$	2,278	$	4,089	$	483	$	4,572
Commercial mortgage	58,877		10,304		69,181		62,358		15,863		78,221
Other commercial real estate	1,039		39		1,078		1,012		788		1,800
Commercial and industrial	6,673		988		7,661		7,598		910		8,508
Lease financing	677		429		1,106		722		1,048		1,770
Other	44		126		170		521		—		521
Total commercial TDRs	69,360		12,114		81,474		76,300		19,092		95,392
Noncommercial
Residential mortgage	38,266		9,958		48,224		34,067		9,475		43,542
Revolving mortgage	19,752		6,778		26,530		17,673		5,180		22,853
Construction and land development - noncommercial	2,821		90		2,911		—		—		—
Consumer and other	2,111		574		2,685		2,351		423		2,774
Total noncommercial TDRs	62,950		17,400		80,350		54,091		15,078		69,169
Total TDRs	$	132,310	$	29,514	$	161,824	$	130,391	$	34,170	$	164,561

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



(Dollars in thousands)	June 30, 2018		December 31, 2017
Accruing TDRs:
PCI	$	18,546	$	18,163
Non-PCI	113,764		112,228
Total accruing TDRs	132,310		130,391
Nonaccruing TDRs:
PCI	253		272
Non-PCI	29,261		33,898
Total nonaccruing TDRs	29,514		34,170
All TDRs:
PCI	18,799		18,435
Non-PCI	143,025		146,126
Total TDRs	$	161,824	$	164,561

The following table provides the types of non-PCI and PCI TDRs made during the three and six months ended June 30, 2018 and June 30, 2017, as well as a summary of loans that were modified as a TDR during the twelve month periods ended June 30, 2018 and June 30, 2017 that subsequently defaulted during the three and six months ended June 30, 2018 and June 30, 2017. 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 June 30, 2018						Three months ended June 30, 2017
	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 and PCI loans and leases
Interest only	1	154		2	821		3	571		1	332
Loan term extension	10	936		7	341		13	1,397		1	32
Below market interest rate	53	9,525		33	1,702		73	4,440		32	2,800
Discharged from bankruptcy	37	2,472		24	1,490		40	1,442		24	615
Total non-PCI and PCI restructurings	101	$	13,087	66	$	4,354	129	$	7,850	58	$	3,779



	Six months ended June 30, 2018						Six months ended June 30, 2017
	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 and PCI loans and leases
Interest only	2	821		2	821		3	571		1	332
Loan term extension	17	1,658		8	638		21	2,070		1	32
Below market interest rate	139	15,873		64	3,385		159	12,582		49	4,231
Discharged from bankruptcy	91	5,595		55	4,338		97	3,005		42	2,091
Total non-PCI and PCI restructurings	249	$	23,947	129	$	9,182	280	$	18,228	93	$	6,686

For the three and six months ended June 30, 2018 and June 30, 2017, the pre-modification and post-modification outstanding recorded investments of loans modified as TDRs were not materially different.