Allowance for Loan and Lease Losses

6 Months Ended

Jun. 30, 2019

NOTE E - ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)

Activity in the allowance for non-PCI loan and lease losses by class of loans is summarized as follows:



	Three months ended June 30, 2019
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial and leases			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	$	37,476		$	45,281		$	2,399		$	57,025		$	2,167		$	16,987		$	21,495		$	2,473		$	34,492		$	219,795
Provision (credits)	(5,544		)	3,714			(57		)	2,699			(174		)	371			(328		)	277			4,877			5,835
Charge-offs	(28		)	(89		)	—			(3,422		)	(31		)	(478		)	(493		)	—			(6,061		)	(10,602		)
Recoveries	40			56			—			599			221			52			447			—			1,797			3,212
Balance at June 30	$	31,944		$	48,962		$	2,342		$	56,901		$	2,183		$	16,932		$	21,121		$	2,750		$	35,105		$	218,240

	Three months ended June 30, 2018
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial and leases			Other			Residential mortgage			Revolving mortgage			Construction and land development - non - commercial			Consumer			Total
Balance at April 1	$	26,718		$	43,833		$	3,423		$	59,317		$	4,842		$	16,489		$	22,104		$	3,913		$	30,181		$	210,820
Provision (credits)	(3,139		)	866			468			3,791			(114		)	1,492			289			50			4,574			8,277
Charge-offs	(8		)	(459		)	(69		)	(2,439		)	(38		)	(289		)	(1,027		)	(37		)	(5,312		)	(9,678		)
Recoveries	93			225			1			642			1			110			520			101			1,330			3,023
Balance at June 30	$	23,664		$	44,465		$	3,823		$	61,311		$	4,691		$	17,802		$	21,886		$	4,027		$	30,773		$	212,442

	Six months ended June 30, 2019
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial and leases			Other			Residential mortgage			Revolving mortgage			Construction and land development - non - commercial			Consumer			Total
Balance at January 1	$	35,270		$	43,451		$	2,481		$	55,620		$	2,221		$	15,472		$	21,862		$	2,350		$	35,841		$	214,568
Provision (credits)	(3,425		)	6,085			(140		)	5,424			(672		)	1,879			(119		)	400			8,317			17,749
Charge-offs	(72		)	(850		)	—			(5,280		)	(31		)	(644		)	(1,456		)	—			(12,423		)	(20,756		)
Recoveries	171			276			1			1,137			665			225			834			—			3,370			6,679
Balance at June 30	$	31,944		$	48,962		$	2,342		$	56,901		$	2,183		$	16,932		$	21,121		$	2,750		$	35,105		$	218,240

	Six months ended June 30, 2018
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial and leases			Other			Residential mortgage			Revolving mortgage			Construction and land development - non - commercial			Consumer			Total
Balance at January 1	$	24,470		$	45,005		$	4,571		$	59,824		$	4,689		$	15,706		$	22,436		$	3,962		$	31,204		$	211,867
Provision (credits)	(914		)	(499		)	(825		)	4,353			—			3,004			755			157			7,497			13,528
Charge-offs	(8		)	(505		)	(69		)	(4,768		)	(41		)	(1,095		)	(2,019		)	(219		)	(10,567		)	(19,291		)
Recoveries	116			464			146			1,902			43			187			714			127			2,639			6,338
Balance at June 30	$	23,664		$	44,465		$	3,823		$	61,311		$	4,691		$	17,802		$	21,886		$	4,027		$	30,773		$	212,442

The following tables present the allowance and recorded investment in loans and leases by class of loans, as well as the associated impairment method at June 30, 2019 and December 31, 2018:



	June 30, 2019
(Dollars in thousands)	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial and leases		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	$	196	$	3,042	$	11	$	1,422	$	104	$	2,566	$	2,704	$	82	$	971	$	11,098
ALLL for loans and leases collectively evaluated for impairment	31,748		45,920		2,331		55,479		2,079		14,366		18,417		2,668		34,134		207,142
Total allowance for loan and lease losses	$	31,944	$	48,962	$	2,342	$	56,901	$	2,183	$	16,932	$	21,121	$	2,750	$	35,105	$	218,240

Loans and leases:
Loans and leases individually evaluated for impairment	$	2,078	$	62,270	$	506	$	12,161	$	315	$	53,137	$	30,040	$	3,059	$	3,107	$	166,673
Loans and leases collectively evaluated for impairment	717,456		11,274,414		506,254		3,968,343		301,031		4,737,499		2,440,613		312,012		1,752,495		26,010,117
Total loan and leases	$	719,534	$	11,336,684	$	506,760	$	3,980,504	$	301,346	$	4,790,636	$	2,470,653	$	315,071	$	1,755,602	$	26,176,790

	December 31, 2018
(Dollars in thousands)	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial and leases		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	$	490	$	2,671	$	42	$	1,137	$	105	$	1,901	$	2,515	$	81	$	885	$	9,827
ALLL for loans and leases collectively evaluated for impairment	34,780		40,780		2,439		54,483		2,116		13,571		19,347		2,269		34,956		204,741
Total allowance for loan and lease losses	$	35,270	$	43,451	$	2,481	$	55,620	$	2,221	$	15,472	$	21,862	$	2,350	$	35,841	$	214,568

Loans and leases:
Loans and leases individually evaluated for impairment	$	2,175	$	55,447	$	860	$	9,868	$	291	$	42,168	$	28,852	$	3,749	$	3,020	$	146,430
Loans and leases collectively evaluated for impairment	755,679		10,661,787		426,125		3,928,862		296,133		4,223,519		2,514,123		253,281		1,710,761		24,770,270
Total loan and leases	$	757,854	$	10,717,234	$	426,985	$	3,938,730	$	296,424	$	4,265,687	$	2,542,975	$	257,030	$	1,713,781	$	24,916,700

PCI allowance activity and balances for the three and six months ended June 30, 2019 and June 30, 2018 is summarized as follows:



(Dollars in thousands)	Three months ended June 30, 2019			Three months ended June 30, 2018
PCI Loans
Allowance for loan losses:
Balance at April 1	$	8,980		$	12,296
(Credit) provision	(637		)	161
Charge-offs	—			(34		)
Recoveries	—			—
Balance at June 30	$	8,343		$	12,423

	Six months ended June 30, 2019			Six months ended June 30, 2018
Balance at January 1	$	9,144		$	10,026
(Credit) provision	(801		)	2,515
Charge-offs	—			(118		)
Recoveries	—			—
Balance at June 30	$	8,343		$	12,423

The following table presents the PCI allowance and recorded investment in loans at June 30, 2019 and December 31, 2018:



(Dollars in thousands)	June 30, 2019		December 31, 2018
ALLL for loans acquired with deteriorated credit quality	$	8,343	$	9,144
Loans acquired with deteriorated credit quality	551,447		606,576

At June 30, 2019 and December 31, 2018, $163.9 million and $186.6 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, exclusive of loans and leases evaluated collectively as a homogeneous group:



	June 30, 2019
(Dollars in thousands)	With a recorded allowance		With no recorded allowance		Total		Unpaid principal balance		Related allowance recorded
Non-PCI impaired loans and leases:
Commercial:
Construction and land development	$	463	$	1,615	$	2,078	$	2,490	$	196
Commercial mortgage	38,793		23,477		62,270		68,477		3,042
Other commercial real estate	197		309		506		595		11
Commercial and industrial and leases	8,155		4,006		12,161		17,333		1,422
Other	249		66		315		336		104
Total commercial loans	47,857		29,473		77,330		89,231		4,775
Noncommercial:
Residential mortgage	43,349		9,788		53,137		56,860		2,566
Revolving mortgage	26,104		3,936		30,040		33,135		2,704
Construction and land development	1,647		1,412		3,059		3,353		82
Consumer	3,039		68		3,107		3,476		971
Total noncommercial loans	74,139		15,204		89,343		96,824		6,323
Total non-PCI impaired loans and leases	$	121,996	$	44,677	$	166,673	$	186,055	$	11,098

	December 31, 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:
Commercial:
Construction and land development	$	1,897	$	278	$	2,175	$	2,606	$	490
Commercial mortgage	34,177		21,270		55,447		61,317		2,671
Other commercial real estate	243		617		860		946		42
Commercial and industrial and leases	7,153		2,715		9,868		14,695		1,137
Other	216		75		291		301		105
Total commercial loans	43,686		24,955		68,641		79,865		4,445
Noncommercial:
Residential mortgage	40,359		1,809		42,168		45,226		1,901
Revolving mortgage	25,751		3,101		28,852		31,371		2,515
Construction and land development	2,337		1,412		3,749		4,035		81
Consumer	2,940		80		3,020		3,405		885
Total noncommercial loans	71,387		6,402		77,789		84,037		5,382
Total non-PCI impaired loans and leases	$	115,073	$	31,357	$	146,430	$	163,902	$	9,827

Non-PCI impaired loans less than $500,000 that were collectively evaluated for impairment totaled $39.9 million and $47.1 million at June 30, 2019 and December 31, 2018, 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, 2019 and June 30, 2018:



	Three months ended June 30, 2019				Three months ended June 30, 2018
(Dollars in thousands)	Average balance		Interest income recognized		Average balance		Interest income recognized
Non-PCI impaired loans and leases:
Commercial:
Construction and land development	$	2,102	$	6	$	1,485	$	17
Commercial mortgage	58,906		538		68,113		659
Other commercial real estate	519		6		1,345		12
Commercial and industrial and leases	11,348		113		9,427		90
Other	328		2		67		—
Total commercial	73,203		665		80,437		778
Noncommercial:
Residential mortgage	48,490		317		42,046		298
Revolving mortgage	29,623		256		26,388		222
Construction and land development	3,547		32		3,526		44
Consumer	3,014		31		2,654		28
Total noncommercial	84,674		636		74,614		592
Total non-PCI impaired loans and leases	$	157,877	$	1,301	$	155,051	$	1,370

	Six months ended June 30, 2019				Six months ended June 30, 2018
(Dollars in thousands)	Average balance		Interest income recognized		Average balance		Interest income recognized
Non-PCI impaired loans and leases:
Commercial:
Construction and land development	$	2,125	$	34	$	1,320	$	28
Commercial mortgage	57,768		1,102		70,190		1,370
Other commercial real estate	602		14		1,529		23
Commercial and industrial and leases	10,674		213		9,594		177
Other	322		4		34		—
Total commercial	71,491		1,367		82,667		1,598
Noncommercial:
Residential mortgage	45,558		642		40,385		573
Revolving mortgage	29,183		503		25,590		423
Construction and land development	3,647		68		3,815		92
Consumer	3,007		60		2,581		56
Total noncommercial	81,395		1,273		72,371		1,144
Total non-PCI impaired loans and leases	$	152,886	$	2,640	$	155,038	$	2,742

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 quality indicators, 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 lower the credit quality indicator, 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. Total TDRs included $18.0 million and $18.2 million of PCI TDRs at June 30, 2019 and December 31, 2018, respectively:



	June 30, 2019						December 31, 2018
(Dollars in thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial loans:
Construction and land development	$	567	$	1,626	$	2,193	$	1,946	$	352	$	2,298
Commercial mortgage	51,374		7,886		59,260		53,270		7,795		61,065
Other commercial real estate	506		—		506		851		9		860
Commercial and industrial and leases	9,851		2,345		12,196		7,986		2,060		10,046
Other	107		208		315		118		173		291
Total commercial loans	62,405		12,065		74,470		64,171		10,389		74,560
Noncommercial:
Residential mortgage	36,260		17,839		54,099		37,903		9,621		47,524
Revolving mortgage	21,203		8,919		30,122		20,492		8,196		28,688
Construction and land development	1,495		1,565		3,060		2,227		110		2,337
Consumer	2,437		669		3,106		2,300		721		3,021
Total noncommercial loans	61,395		28,992		90,387		62,922		18,648		81,570
Total loans	$	123,800	$	41,057	$	164,857	$	127,093	$	29,037	$	156,130

The following table provides the types of TDRs made during the three and six months ended June 30, 2019 and June 30, 2018, as well as a summary of loans that were modified as a TDR during the twelve month periods ended June 30, 2019 and June 30, 2018 that subsequently defaulted during the three and six months ended June 30, 2019 and June 30, 2018. 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, 2019						Three months ended June 30, 2018
	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
Loans and leases
Interest only	4	$	4,343	—	$	—	1	$	154	2	$	821
Loan term extension	4	998		2	183		10	936		7	341
Below market interest rate	67	6,979		30	2,612		53	9,525		33	1,702
Discharged from bankruptcy	40	5,054		30	3,106		37	2,472		24	1,490
Total restructurings	115	$	17,374	62	$	5,901	101	$	13,087	66	$	4,354

	Six months ended June 30, 2019						Six months ended June 30, 2018
	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
Loans and leases
Interest only	4	$	4,343	2	$	3,203	2	$	821	2	$	821
Loan term extension	8	1,437		4	534		17	1,658		8	638
Below market interest rate	125	11,063		61	4,645		139	15,873		64	3,385
Discharged from bankruptcy	102	7,679		53	3,948		91	5,595		55	4,338
Total restructurings	239	$	24,522	120	$	12,330	249	$	23,947	129	$	9,182

For the three and six months ended June 30, 2019 and June 30, 2018, the pre-modification and post-modification outstanding recorded investments of loans modified as TDRs were not materially different.