Upon adoption of ASC 326, BancShares recorded a net decrease of $37.9 million in the ACL which included a decrease of $56.9 million in the ACL on non-PCD loans, offset by an increase of $19.0 million in the ACL on PCD loans. The largest changes as a result of adoption were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives. The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into ACL.

The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended December 31, 2020 the primary reason for the ACL change since the adoption of ASC 326, was a $36.1 million reserve build due to the potential economic impact of COVID-19 and its estimated impact on credit losses. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. Assumptions revert to long term historic averages over a one year period. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our model results consider baseline, adverse and upside scenarios. To calculate the ACL, we utilized the baseline scenario, which considers government stimulus and incorporates significant improvements to the most significant forecast assumptions when compared on the COVID-19-impacted levels from early in 2020. This result was calibrated using management’s expectation of borrower performance based upon COVID-19 residual risk by industry. These loss estimates were also influenced by BancShares strong credit quality, low net charge-offs and recent credit trends, which remained stable through the latter half of year ended December 31, 2020, despite potential impacts from COVID-19.


	Year ended December 31, 2020
(Dollars in thousands)	Construction and land development - commercial		Owner occupied commercial mortgage		Non-owner occupied commercial mortgage		Commercial and industrial and leases		Residential mortgage		Revolving mortgage		Construction and land development - consumer		Consumer auto		Consumer other		PCD		Total
Allowance for credit losses:
Balance at December 31, 2019	$	33,213	$	36,444	$	11,102	$	61,610	$	18,232	$	19,702	$	2,709	$	4,292	$	30,301	$	7,536	$	225,141
Adoption of ASC 326	(31,061)		(19,316)		460		(37,637)		17,118		3,665		(1,291)		1,100		10,037		19,001		(37,924)
Balance at January 1, 2020	2,152		17,128		11,562		23,973		35,350		23,367		1,418		5,392		40,338		26,537		187,217
Provision (credits)	4,301		6,729		12,917		13,816		9,684		1,134		266		6,297		10,410		(7,202)		58,352
Initial allowance on PCD loans	—		—		—		—		—		—		—		—		—		1,193		1,193
Charge-offs	(138)		(593)		(1,951)		(14,904)		(1,653)		(1,662)		(70)		(3,646)		(17,188)		(3,300)		(45,105)
Recoveries	431		401		124		4,894		717		1,918		117		1,417		5,879		6,759		22,657
Balance at December 31, 2020	$	6,746	$	23,665	$	22,652	$	27,779	$	44,098	$	24,757	$	1,731	$	9,460	$	39,439	$	23,987	$	224,314


	Years ended December 31, 2019 and 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		PCI		Total
Allowance for credit losses:
Balance at January 1, 2018	$	24,470	$	45,005	$	4,571	$	59,824	$	4,689	$	15,706	$	22,436	$	3,962	$	31,204	$	10,026	$	221,893
Provision (credits)	10,533		(1,490)		(2,171)		2,511		(2,827)		897		1,112		(1,520)		22,187		(765)		28,467
Charge-offs	(44)		(1,140)		(69)		(10,211)		(130)		(1,689)		(3,235)		(219)		(22,817)		(117)		(39,671)
Recoveries	311		1,076		150		3,496		489		558		1,549		127		5,267		—		13,023
Balance at December 31, 2018	35,270		43,451		2,481		55,620		2,221		15,472		21,862		2,350		35,841		9,144		223,712
Provision (credits)	(2,171)		2,384		(285)		14,212		(754)		3,481		(788)		359		16,611		(1,608)		31,441
Charge-offs	(196)		(1,096)		—		(13,352)		(100)		(1,137)		(2,584)		—		(24,562)		—		(43,027)
Recoveries	310		596		15		2,894		869		416		1,212		—		6,703		—		13,015
Balance at December 31, 2019	$	33,213	$	45,335	$	2,211	$	59,374	$	2,236	$	18,232	$	19,702	$	2,709	$	34,593	$	7,536	$	225,141

BancShares individually reviews loans greater than $500 thousand that are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by business assets, while the remaining loan classes are collateralized by real property.

The following table presents information on collateral-dependent loans by class and includes the amortized cost of collateral-dependent loans and leases, the net realizable value of the collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as of December 31, 2020 were as follows:


(Dollars in thousands)	Collateral-Dependant Loans		Net Realizable Value of Collateral		Collateral Coverage		Allowance for Credit Losses
Commercial loans:
Construction and land development	$	1,424	$	1,795	126.1	%	$	—
Owner occupied commercial mortgage	9,792		14,253		145.6		—
Non-owner occupied commercial mortgage	5,556		7,577		136.4		—

Total commercial loans	16,772		23,625		140.9		—
Consumer:
Residential mortgage	23,011		29,775		129.4		131





Total non-PCD loans	39,783		53,400		134.2		131
PCD	19,042		27,872		146.4		—
Total collateral-dependent loans	$	58,825	$	81,272	138.2	%	$	131

Prior to adoption of ASC 326, management calculated estimated loan losses through the allowance for loan and lease losses (“ALLL”). The ALLL represented management’s best estimate of inherent credit losses within the loan and lease portfolio at the balance sheet date. Management determined the ALLL based on an ongoing evaluation of the loan portfolio. Estimates for loan losses were determined by analyzing quantitative and qualitative components, such as: economic conditions, historical loan losses, historical loan migration to charge-off experience, current trends in delinquencies and charge-offs, expected cash flows on PCI loans, current assessment of impaired loans, and changes in the size, composition and/or risk within the loan portfolio. Adjustments to the ALLL were recorded with a corresponding entry to provision for loan and lease losses. Loan balances considered uncollectible were charged-off against the ALLL. Recoveries of amounts previously charged-off were generally credited to the ALLL.

A primary component of determining the allowance on non-PCI loans collectively evaluated was the actual loss history of the various loan classes. Loan loss factors were based on historical experience and, when necessary, were adjusted for significant factors, that in management’s judgment, affect the collectability of principal and interest at the balance sheet date. Loan loss factors were monitored quarterly and, when necessary, adjusted based on changes in the level of historical net charge-offs and updates by management, such as the number of periods included in the calculation of loss factors, loss severity, loss emergence period and portfolio attrition.

For commercial non-PCI loans, management incorporated historical net loss data to develop the applicable loan loss factors. General reserves for collective impairment were based on incurred loss estimates for the loan class based on average loss rates by credit quality indicators, which were estimated using historical loss experience and credit risk rating migrations. Credit quality indicators include borrower classification codes and facility risk ratings. Incurred loss estimates were adjusted through a qualitative assessment to reflect current economic conditions and portfolio trends including credit quality, concentrations, aging of the portfolio and significant policy and underwriting changes.

For noncommercial non-PCI loans, management incorporated specific loan class and delinquency status trends into the loan loss factors. General reserve estimates of incurred losses were based on historical loss experience and the migration of loans through the various delinquency pools applied to the current risk mix.

Non-PCI loans were considered to be impaired when, based on current information and events, it was probable that a borrower would be unable to pay all amounts due according to the contractual terms of the loan agreement. Generally, management considered the following loans to be impaired: all TDR loans and all loan relationships which were on nonaccrual or 90+ days past due and greater than $500,000. Non-PCI impaired loans greater than $500,000 were evaluated individually for impairment while others were evaluated collectively.

The impairment assessment and determination of the related specific reserve for each impaired loan was based on the loan’s characteristics. Impairment measurement for loans dependent on borrower cash flow for repayment was based on the present value of expected cash flows discounted at the interest rate implicit in the original loan agreement. Impairment measurement for most real estate loans, particularly when a loan was considered to be a probable foreclosure, was based on the fair value of the underlying collateral. Collateral was appraised and market value (appropriately adjusted for an assessment of the sales and marketing costs) was used to calculate a fair value estimate. A specific valuation allowance was established or partial charge-off was recorded for the difference between the excess recorded investment in the loan and the loan’s estimated fair value less costs to sell.

The ALLL for PCI loans was estimated based on the expected cash flows over the life of the loan. BancShares estimated and updated cash flows expected to be collected on individual loans or pools of loans sharing common risk characteristics. BancShares compared the carrying value of all PCI loans to the present value at each balance sheet date. If the present value was less than the carrying value, the shortfall reduced the remaining credit discount and if it was in excess of the remaining credit discount, an ALLL was recorded through the recognition of provision expense. The ALLL for PCI loans with subsequent increases in expected cash flows to be collected was reduced and any remaining excess was recorded as an adjustment to the accretable yield over the loan’s or pool’s remaining life.


	December 31, 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	$	463	$	3,650	$	39	$	1,379	$	103	$	3,278	$	2,722	$	174	$	1,107	$	12,915
ALLL for loans and leases collectively evaluated for impairment	32,750		41,685		2,172		57,995		2,133		14,954		16,980		2,535		33,486		204,690
Total allowance for loan and lease losses	$	33,213	$	45,335	$	2,211	$	59,374	$	2,236	$	18,232	$	19,702	$	2,709	$	34,593	$	217,605
Loans and leases:
Loans and leases individually evaluated for impairment	$	4,655	$	70,149	$	1,268	$	12,182	$	639	$	60,442	$	28,869	$	3,882	$	3,513	$	185,599
Loans and leases collectively evaluated for impairment	1,008,799		12,212,486		540,760		4,391,610		309,454		5,233,475		2,310,203		353,503		1,776,891		28,137,181
Total loan and leases	$	1,013,454	$	12,282,635	$	542,028	$	4,403,792	$	310,093	$	5,293,917	$	2,339,072	$	357,385	$	1,780,404	$	28,322,780




















	December 31, 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	$	1,851	$	2,804	$	4,655	$	5,109	$	463
Commercial mortgage	42,394		27,755		70,149		74,804		3,650
Other commercial real estate	318		950		1,268		1,360		39
Commercial and industrial and leases	7,547		4,635		12,182		13,993		1,379
Other	406		233		639		661		103
Total commercial loans	52,516		36,377		88,893		95,927		5,634
Noncommercial:
Residential mortgage	48,796		11,646		60,442		64,741		3,278
Revolving mortgage	26,104		2,765		28,869		31,960		2,722
Construction and land development	2,470		1,412		3,882		4,150		174
Consumer	3,472		41		3,513		3,821		1,107
Total noncommercial loans	80,842		15,864		96,706		104,672		7,281
Total non-PCI impaired loans and leases	$	133,358	$	52,241	$	185,599	$	200,599	$	12,915


	2019			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		$	3,915	$	53	$	1,734	$	84
Commercial mortgage		64,363		2,188		65,943		2,569
Other commercial real estate		919		27		1,225		43
Commercial and industrial and leases		11,884		482		9,560		364
Other		396		11		135		3
Total commercial		81,477		2,761		78,597		3,063
Noncommercial:
Residential mortgage		52,045		1,386		41,368		1,237
Revolving mortgage		29,516		1,009		26,759		900
Construction and land development		3,589		116		3,677		172
Consumer		3,311		138		2,722		116
Total noncommercial		88,461		2,649		74,526		2,425
Total non-PCI impaired loans and leases		$	169,938	$	5,410	$	153,123	$	5,488

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 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. Within our allowance for credit loss models, TDRs are not individually evaluated unless determined to be collateral-dependent and are included in the definition of default which provides for a 100% probability of default applied within the models. As a result, subsequent changes in default status do not impact the calculation of the allowance for credit losses on TDR loans.

The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing COVID-19-related financial difficulty. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs.

The following tables provides a summary of total TDRs by accrual status. Total TDRs at December 31, 2020 were $208.2 million. Total TDRs at December 31, 2019, were $171.2 million, of which $154.0 million were non-PCI and $17.2 million were PCI. Total TDRs at December 31, 2018, were $156.1 million, of which $137.9 million were non-PCI and $18.2 million were PCI.


	December 31, 2020
(Dollars in thousands)	Accruing		Nonaccruing		Total
Commercial loans:
Construction and land development	$	578	$	54	$	632
Owner occupied commercial mortgage	37,574		10,889		48,463
Non-owner occupied commercial mortgage	18,336		1,649		19,985
Commercial and industrial and leases	29,131		3,528		32,659
Total commercial loans	85,619		16,120		101,739
Consumer:
Residential mortgage	29,458		19,380		48,838
Revolving mortgage	20,124		7,128		27,252
Construction and land development	1,573		9		1,582
Consumer auto	2,018		696		2,714
Consumer other	955		137		1,092
Total consumer loans	54,128		27,350		81,478
PCD loans	17,617		7,346		24,963
Total loans	$	157,364	$	50,816	$	208,180


	December 31, 2019			December 31, 2018
(Dollars in thousands)		Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial loans:
Construction and land development		$	487	$	2,279	$	2,766	$	1,946	$	352	$	2,298
Commercial mortgage		50,819		11,116		61,935		53,270		7,795		61,065
Other commercial real estate		571		—		571		851		9		860
Commercial and industrial and leases		9,430		2,409		11,839		7,986		2,060		10,046
Other		320		105		425		118		173		291
Total commercial loans		61,627		15,909		77,536		64,171		10,389		74,560
Noncommercial:
Residential mortgage		41,813		16,048		57,861		37,903		9,621		47,524
Revolving mortgage		21,032		7,367		28,399		20,492		8,196		28,688
Construction and land development		1,452		2,430		3,882		2,227		110		2,337
Consumer		2,826		688		3,514		2,300		721		3,021
Total noncommercial loans		67,123		26,533		93,656		62,922		18,648		81,570
Total loans		$	128,750	$	42,442	$	171,192	$	127,093	$	29,037	$	156,130

The following tables provide the types of modifications designated TDRs made during the years ended December 31, 2020, 2019 and 2018, as well as a summary of loans that were modified as a TDR during the years ended December 31, 2020, 2019 and 2018 that subsequently defaulted during the years ended December 31, 2020, 2019 and 2018. BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due, foreclosure or charge-off, whichever occurs first.


	2020						2019						2018
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
	Number of loans	Amortized cost at period end		Number of loans	Amortized cost at period end		Number of loans	Amortized cost at period end		Number of loans	Amortized cost at period end		Number of loans	Amortized cost at period end		Number of loans	Amortized cost at period end
(Dollars in thousands)
Loans and leases
Interest only period provided
Commercial loans	31	$	28,145	4	$	4,498	11	$	1,595	1	$	238	3	$	1,003	—	$	—
Consumer loans	6	4,169		5	2,569		7	4,018		2	2,717		—	—		—	—
Total interest only	37	32,314		9	7,067		18	5,613		3	2,955		3	1,003		—	—

Loan term extension
Commercial loans	26	5,444		5	1,471		16	3,904		5	533		21	3,933		4	675
Consumer loans	66	5,689		43	3,241		2	342		1	306		21	1,554		4	190
Total loan term extension	92	11,133		48	4,712		18	4,246		6	839		42	5,487		8	865

Below market interest rate
Commercial loans	98	33,870		26	1,912		90	13,932		24	2,634		85	12,859		24	2,998
Consumer loans	156	6,074		60	3,897		176	12,458		66	4,014		184	15,545		68	5,461
Total below market interest rate	254	39,944		86	5,809		266	26,390		90	6,648		269	28,404		92	8,459

Discharged from bankruptcy
Commercial loans	30	1,168		17	286		25	5,571		20	5,028		26	2,043		8	825
Consumer loans	186	8,129		66	2,928		178	10,349		71	4,239		151	6,617		56	3,169
Total discharged from bankruptcy	216	9,297		83	3,214		203	15,920		91	9,267		177	8,660		64	3,994

Total restructurings	599	$	92,688	226	$	20,802	505	$	52,169	190	$	19,709	491	$	43,554	164	$	13,318