Allowance for Loan and Lease Losses

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:



	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
Noncovered Loans
Allowance for loan and lease losses:
Nine months ended September 30, 2012
Balance at January 1	$	5,467		$	67,486		$	2,169		$	23,723		$	3,288		$	1,315		$	8,879		$	27,045		$	1,427		$	25,962		$	14,122		$	180,883
Charge-offs	(9,504		)	(5,448		)	(254		)	(3,766		)	(335		)	(28		)	(3,381		)	(7,885		)	(914		)	(7,590		)	—			(39,105		)
Recoveries	370			1,230			6			616			75			4			433			501			168			1,366			—			4,769
Provision	10,134			6,839			318			4,392			419			(115		)	1,255			6,726			1,441			6,944			1,147			39,500
Balance at September 30	$	6,467		$	70,107		$	2,239		$	24,965		$	3,447		$	1,176		$	7,186		$	26,387		$	2,122		$	26,682		$	15,269		$	186,047
Nine months ended September 30, 2011
Balance at January 1	$	10,512		$	64,772		$	2,200		$	24,089		$	3,384		$	1,473		$	7,009		$	18,016		$	1,751		$	29,448		$	13,863		$	176,517
Charge-offs	(6,977		)	(3,810		)	—			(4,659		)	(341		)	(43		)	(4,026		)	(10,454		)	(1,432		)	(9,417		)	—			(41,159		)
Recoveries	153			914			17			826			100			2			835			530			173			1,272			—			4,822
Provision	1,478			6,081			(56		)	3,818			112			(149		)	5,192			17,525			934			4,036			(17		)	38,954
Balance at September 30	$	5,166		$	67,957		$	2,161		$	24,074		$	3,255		$	1,283		$	9,010		$	25,617		$	1,426		$	25,339		$	13,846		$	179,134
Three months ended September 30, 2012
Balance at July 1	$	5,056		$	70,966		$	2,413		$	24,915		$	3,515		$	1,183		$	7,639		$	26,700		$	1,815		$	24,988		$	15,942		$	185,132
Charge-offs	(283		)	(1,428		)	—			(720		)	—			—			(1,090		)	(1,613		)	(239		)	(2,307		)	—			(7,680		)
Recoveries	101			222			6			179			27			—			121			87			16			439			—			1,198
Provision	1,593			347			(180		)	591			(95		)	(7		)	516			1,213			530			3,562			(673		)	7,397
Balance at September 30	$	6,467		$	70,107		$	2,239		$	24,965		$	3,447		$	1,176		$	7,186		$	26,387		$	2,122		$	26,682		$	15,269		$	186,047
Three months ended September 30, 2011
Balance at July 1	$	9,692		$	67,123		$	2,268		$	24,918		$	3,358		$	1,351		$	7,404		$	22,020		$	1,324		$	27,079		$	14,078		$	180,615
Charge-offs	(6,213		)	(1,184		)	—			(1,010		)	(77		)	(6		)	(1,624		)	(3,686		)	(358		)	(2,901		)	—			(17,059		)
Recoveries	74			211			6			236			52			1			44			184			12			447			—			1,267
Provision	1,613			1,807			(113		)	(70		)	(78		)	(63		)	3,186			7,099			448			714			(232		)	14,311
Balance at September 30	$	5,166		$	67,957		$	2,161		$	24,074		$	3,255		$	1,283		$	9,010		$	25,617		$	1,426		$	25,339		$	13,846		$	179,134



	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
Allowance for loan and lease losses:
September 30, 2012
ALLL for loans and leases individually evaluated for impairment	$	2,977	$	10,471	$	292	$	1,888	$	202	$	59	$	984	$	1	$	298	$	78	$	—	$	17,250
ALLL for loans and leases collectively evaluated for impairment	3,490		59,636		1,947		23,077		3,245		1,117		6,202		26,386		1,824		26,604		—		153,528
Non-specific ALLL	—		—		—		—		—		—		—		—		—		—		15,269		15,269
Total allowance for loan and lease losses	$	6,467	$	70,107	$	2,239	$	24,965	$	3,447	$	1,176	$	7,186	$	26,387	$	2,122	$	26,682	$	15,269	$	186,047
December 31, 2011
ALLL for loans and leases individually evaluated for impairment	$	1,139	$	5,266	$	283	$	640	$	17	$	14	$	411	$	—	$	145	$	47	$	—	$	7,962
ALLL for loans and leases collectively evaluated for impairment	4,328		62,220		1,886		23,083		3,271		1,301		8,468		27,045		1,282		25,915		—		158,799
Non-specific ALLL	—		—		—		—		—		—		—		—		—		—		14,122		14,122
Total allowance for loan and lease losses	$	5,467	$	67,486	$	2,169	$	23,723	$	3,288	$	1,315	$	8,879	$	27,045	$	1,427	$	25,962	$	14,122	$	180,883
September 30, 2011
ALLL for loans and leases individually evaluated for impairment	$	310	$	4,641	$	43	$	433	$	25	$	—	$	1,025	$	—	$	92	$	45	$	—	$	6,614
ALLL for loans and leases collectively evaluated for impairment	4,856		63,316		2,118		23,641		3,230		1,283		7,985		25,617		1,334		25,294		—		158,674
Non-specific ALLL	—		—		—		—		—		—		—		—		—		—		13,846		13,846
Total allowance for loan and lease losses	$	5,166	$	67,957	$	2,161	$	24,074	$	3,255	$	1,283	$	9,010	$	25,617	$	1,426	$	25,339	$	13,846	$	179,134



Loans and leases:
September 30, 2012
Loans and leases individually evaluated for impairment	$	24,175	$	118,928	$	3,309	$	18,333	$	745	$	730	$	17,533	$	3,593	$	3,012	$	1,140	$	—	$	191,498
Loans and leases collectively evaluated for impairment	295,568		5,053,036		155,458		1,722,102		321,163		131,025		797,344		2,240,866		129,340		417,833		—		11,263,735
Total loan and leases	$	319,743	$	5,171,964	$	158,767	$	1,740,435	$	321,908	$	131,755	$	814,877	$	2,244,459	$	132,352	$	418,973	$	—	$	11,455,233
December 31, 2011
Loans and leases individually evaluated for impairment	$	26,782	$	92,872	$	5,686	$	15,996	$	328	$	193	$	9,776	$	—	$	3,676	$	992	$	—	$	156,301
Loans and leases collectively evaluated for impairment	354,381		5,012,121		139,085		1,748,411		312,541		158,176		774,342		2,296,306		133,595		496,378		—		11,425,336
Total loan and leases	$	381,163	$	5,104,993	$	144,771	$	1,764,407	$	312,869	$	158,369	$	784,118	$	2,296,306	$	137,271	$	497,370	$	—	$	11,581,637
September 30, 2011
Loans and leases individually evaluated for impairment	$	22,001	$	66,588	$	580	$	14,222	$	339	$	—	$	12,033	$	—	$	2,844	$	992	$	—	$	119,599
Loans and leases collectively evaluated for impairment	394,718		4,929,448		143,958		1,783,359		303,700		158,782		804,705		2,302,482		136,341		526,434		—		11,483,927
Total loan and leases	$	416,719	$	4,996,036	$	144,538	$	1,797,581	$	304,039	$	158,782	$	816,738	$	2,302,482	$	139,185	$	527,426	$	—	$	11,603,526



	Construction and Land Development - Commercial			Commercial Mortgage			Other Commercial Real Estate			Commercial and Industrial			Lease Financing			Residential Mortgage			Revolving Mortgage			Construction and Land Development - Non-commercial			Consumer and Other			Total
Covered Loans
Allowance for loan and lease losses (1):
Nine months ended September 30, 2012
Balance at January 1	$	16,693		$	39,557		$	16,862		$	5,500		$	13		$	5,433		$	77		$	4,652		$	474		$	89,261
Charge-offs	(6,460		)	(18,398		)	(831		)	(7,916		)	—			(3,431		)	—			(301		)	(66		)	(37,403		)
Recoveries	—			—			—			—			—			142			—			—			—			142
Provision	7,502			19,985			(11,477		)	6,125			(13		)	7,366			5,417			2,577			1,025			38,507
Balance at September 30	$	17,735		$	41,144		$	4,554		$	3,709		$	—		$	9,510		$	5,494		$	6,928		$	1,433		$	90,507
Nine months ended September 30, 2011
Balance at January 1	$	20,654		$	13,199		$	4,148		$	6,828		$	—		$	113		$	676		$	5,607		$	23		$	51,248
Charge-offs	(20,711		)	(32,735		)	(14,160		)	(3,067		)	—			(4,143		)	—			(6,078		)	(89		)	(80,983		)
Recoveries	57			75			477			12			—			94			—			—			—			715
Provision	17,032			49,493			21,955			3,162			1			8,108			(544		)	4,741			122			104,070
Balance at September 30	$	17,032		$	30,032		$	12,420		$	6,935		$	1		$	4,172		$	132		$	4,270		$	56		$	75,050
Three months ended September 30, 2012
Balance at July 1	15,983			35,991			9,194			14,724			—			5,575			2,548			3,780			2			$	87,797
Charge-offs	(1,434		)	(3,006		)	(34		)	(1,901		)	—			(819		)	—			(292		)	(30		)	(7,516		)
Recoveries	—			—			—			—			—			—			—			—			—			—
Provision	3,186			8,159			(4,606		)	(9,114		)	—			4,754			2,946			3,440			1,461			10,226
Balance at September 30	$	17,735		$	41,144		$	4,554		$	3,709		$	—		$	9,510		$	5,494		$	6,928		$	1,433		$	90,507
Three months ended September 30, 2011
Balance at July 1	$	24,234		$	22,093		$	12,841		$	1,872		$	—		$	3,653		$	10		$	4,720		$	12		$	69,435
Charge-offs	(10,759		)	(8,728		)	(2,686		)	(624		)	—			(1,409		)	—			(1,034		)	(15		)	(25,255		)
Recoveries	57			60			386			—			—			50			—			—						553
Provision	3,500			16,607			1,879			5,687			1			1,878			122			584			59			30,317
Balance at September 30	$	17,032		$	30,032		$	12,420		$	6,935		$	1		$	4,172		$	132		$	4,270		$	56		$	75,050
Allowance for loan and lease losses (1):
September 30, 2012
ALLL for loans and leases acquired with deteriorated credit quality	$	17,735		$	41,144		$	4,554		$	3,709		$	—		$	9,510		$	5,494		$	6,928		$	1,433		$	90,507
December 31, 2011
ALLL for loans and leases acquired with deteriorated credit quality	16,693			39,557			16,862			5,500			13			5,433			77			4,652			474			89,261
September 30, 2011
ALLL for loans and leases acquired with deteriorated credit quality	17,032			30,032			12,420			6,935			1			4,172			132			4,270			56			75,050
Loans and leases:
September 30, 2012
Loans and leases acquired with deteriorated credit quality	258,388			1,109,048			113,954			59,787			—			289,160			37,280			26,408			3,072			1,897,097
December 31, 2011
Loans and leases acquired with deteriorated credit quality	338,873			1,260,589			158,394			113,442			57			327,568			51,552			105,536			6,141			2,362,152
September 30, 2011
Loans and leases acquired with deteriorated credit quality	405,658			1,310,083			159,007			137,253			162			380,405			39,709			115,126			10,047			2,557,450

(1) The allowance of $16,452 at September 30, 2012, and $1,099 at December 31, 2011, relating to pooled loans is included in the loan classes above based on the primary loan class within each pool. No such allowance existed as of September 30, 2011.

The following tables provide information on noncovered 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.



	With a recorded allowance		With no recorded allowance		Total		Unpaid principal balance		Related allowance recorded
September 30, 2012
Impaired noncovered loans and leases
Construction and land development - commercial	$	13,305	$	9,835	$	23,140	$	39,181	$	2,912
Commercial mortgage	40,140		58,435		98,575		100,477		9,639
Other commercial real estate	1,383		800		2,183		2,183		207
Commercial and industrial	6,380		7,198		13,578		13,638		1,606
Lease financing	171		514		685		685		198
Other	729		—		729		729		59
Revolving mortgage	1,239		2,354		3,593		3,593		1
Residential mortgage	11,078		4,539		15,617		16,254		905
Construction and land development - non-commercial	1,311		1,701		3,012		3,012		298
Consumer	240		900		1,140		1,140		78
Total impaired noncovered loans and leases	$	75,976	$	86,276	$	162,252	$	180,892	$	15,903
December 31, 2011
Impaired noncovered loans and leases
Construction and land development - commercial	$	24,994	$	—	$	24,994	$	30,756	$	1,027
Commercial mortgage	53,687		11,840		65,527		66,463		3,813
Other commercial real estate	1,558		1,022		2,580		322		114
Commercial and industrial	7,157		7,111		14,268		12,674		549
Lease financing	322		—		322		992		16
Other	—		—		—		—		—
Residential mortgage	9,776		—		9,776		2,580		411
Construction and land development - non-commercial	3,676		—		3,676		14,268		145
Consumer	992		—		992		3,676		47
Total impaired noncovered loans and leases	$	102,162	$	19,973	$	122,135	$	131,731	$	6,122
September 30, 2011
Impaired noncovered loans and leases
Construction and land development - commercial	$	4,897	$	17,104	$	22,001	$	27,162	$	310
Commercial mortgage	59,491		7,097		66,588		66,906		4,641
Other commercial real estate	580		—		580		580		43
Commercial and industrial	7,099		7,123		14,222		14,222		433
Lease financing	339		—		339		339		25
Other	—		—		—		—		—
Residential mortgage	12,033		—		12,033		12,033		1,025
Construction and land development - non-commercial	2,844		—		2,844		2,844		92
Consumer	992		—		992		992		45
Total impaired noncovered loans and leases	$	88,275	$	31,324	$	119,599	$	125,078	$	6,614



	Average Balance		Unpaid Principal Balance		Interest Income Recognized
Nine months ended September 30, 2012
Noncovered impaired loans and leases:
Construction and land development - commercial	$	24,595	$	39,181	$	756
Commercial mortgage	90,544		100,477		3,621
Other commercial real estate	2,502		2,183		83
Commercial and industrial	11,847		13,638		682
Lease financing	412		685		22
Other	327		729		—
Revolving mortgage	2,507		3,593		40
Residential mortgage	15,278		16,254		536
Construction and land development - non-commercial	3,017		3,012		122
Consumer	1,631		1,140		23
Total noncovered impaired loans and leases	$	152,660	$	180,892	$	5,885
Three months ended September 30, 2012
Noncovered impaired loans and leases:
Construction and land development - commercial	$	24,046	$	39,181	$	239
Commercial mortgage	100,751		100,477		1,332
Other commercial real estate	2,191		2,183		33
Commercial and industrial	13,414		13,638		186
Lease financing	689		685		11
Other	734		729		—
Revolving mortgage	3,592		3,593		20
Residential mortgage	16,111		16,254		206
Construction and land development - non-commercial	3,012		3,012		33
Consumer	1,978		1,140		7
Total noncovered impaired loans and leases	$	166,518	$	180,892	$	2,067
Nine months ended September 30, 2011
Noncovered impaired loans and leases:
Construction and land development - commercial	$	27,151	$	27,162	$	109
Commercial mortgage	66,110		66,906		1,375
Other commercial real estate	1,065		580		25
Commercial and industrial	12,741		14,222		372
Lease financing	653		339		15
Other	38		—		—
Residential mortgage	9,121		12,033		276
Construction and land development - non-commercial	1,608		2,844		83
Consumer	547		992		12
Total noncovered impaired loans and leases	$	119,034	$	125,078	$	2,267
Three months ended September 30, 2011
Noncovered impaired loans and leases:
Construction and land development - commercial	$	24,311	$	27,162	$	5
Commercial mortgage	68,436		66,906		297
Other commercial real estate	1,175		580		—
Commercial and industrial	14,142		14,222		149
Lease financing	478		339		3
Other	—		—		—
Residential mortgage	11,567		12,033		100
Construction and land development - non-commercial	2,703		2,844		38
Consumer	993		992		2
Total noncovered impaired loans and leases	$	123,805	$	125,078	$	594

Noncovered impaired loans presented in the preceding table exclude troubled debt restructurings of $29,245 at September 30, 2012, and $42,246 at September 30, 2011, that are considered performing as a result of the loans carrying a market interest rate and evidence of sustained performance after restructuring.

Noncovered impaired loans increased $75,579 during the second quarter of 2012 as the result of a change in estimation methodology that now includes loans above $500 in the individual impairment analysis compared to only loans above $1,000 in previous periods.

At September 30, 2012, covered loans of $766,627 have had no adverse change in expected cash flows since the date of acquisition and have no allowance for loan losses recorded.

Troubled Debt Restructurings

The following table provides the types of troubled debt restructurings made for the three- and nine-month periods ended September 30, 2012, as well as the loans restructured during those periods that have experienced payment default subsequent to restructuring.



	Three months ended September 30, 2012						Nine months ended September 30, 2012
	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
Noncovered loans
Interest only period provided
Construction and land development - commercial	—	$	—	—	$	—	2	316		—	—
Commercial mortgage	3	1,009		—	—		12	4,562		2	952
Commercial and industrial	2	580		—	—		2	580		—	—
Residential mortgage	—	—		—	—		1	338		1	338
Total interest only	5	1,589		—	—		17	5,796		3	1,290

Loan term extension
Construction and land development - commercial	—	—		—	—		2	7,606		—	—
Commercial mortgage	10	3,505		4	1,220		45	16,314		10	3,389
Other commercial real estate	—	—		—	—		3	1,334		—	—
Commercial and industrial	2	513		—	—		10	1,371		3	150
Lease financing	—	—		—	—		3	172		—	—
Residential mortgage	2	133		—	—		7	493		1	47
Construction and land development - non-commercial	—	—		—	—		1	1,701		—	—
Consumer	1	22		—	—		6	1,124		—	—
Total loan term extension	15	4,173		4	1,220		77	30,115		14	3,586

Below market interest rate
Construction and land development - commercial	—	—		—	—		1	228		—	—
Commercial mortgage	3	1,385		—	—		6	4,708		—	—
Commercial and industrial	1	113		—	—		5	980		—	—
Residential mortgage	1	8		—	—		10	1,853		3	785
Revolving mortgage	—	—		—	—		1	49		1	49
Consumer	—	—		—	—		2	11		—	—
Total below market interest rate	5	1,506		—	—		25	7,829		4	834

Other concession
Commercial mortgage	—	—		—	—		2	924		—	—
Residential mortgage	—	—		—	—		1	385		—	—
Total other concession	—	—		—	—		3	1,309		—	—
Total noncovered restructurings	25	$	7,268	4	$	1,220	122	$	45,049	21	$	5,710



	Three months ended September 30, 2012						Nine months ended September 30, 2012
	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
Covered loans
Interest only period provided
Construction and land development - commercial	1	$	336	1	$	336	2	$	474	1	$	336
Commercial mortgage	3	3,822		1	159		4	12,317		1	159
Commercial and industrial	—	—		—	—		1	158		—	—
Residential mortgage	—	—		—	—		1	100		—	—
Total interest only	4	4,158		2	495		8	13,049		2	495

Loan term extension
Construction and land development - commercial	—	—		—	—		9	5,449		1	2,634
Commercial mortgage	—	—		—	—		2	1,413		—	—
Commercial and industrial	1	118		—	—		2	147		—	—
Residential mortgage	3	5,078		1	4,606		4	5,125		1	4,606
Total loan term extension	4	5,196		1	4,606		17	12,134		2	7,240

Below market interest rate
Construction and land development - commercial	2	52		—	—		10	1,464		2	929
Commercial mortgage	5	3,173		1	1,015		14	13,493		5	2,747
Other commercial real estate	—	—		—	—		2	1,766		—	—
Commercial and industrial	1	1,137		—	—		4	1,137		2	—
Residential mortgage	10	170		4	11		18	1,522		7	72
Construction and land development - non-commercial	—	—		—	—		1	—		1	—
Total below market interest rate	18	4,532		5	1,026		49	19,382		17	3,748
Total covered restructurings	26	$	13,886	8	$	6,127	74	$	44,565	21	$	11,483

For the three- and nine-month periods ended September 30, 2012, the recorded investment in troubled debt restructurings subsequent to modification was not materially impacted by the modification since forgiveness of principal is not a restructuring option frequently used by BancShares.

Total troubled debt restructurings at September 30, 2012, equaled $298,495, of which $155,063 were covered and $143,432 were noncovered. Troubled debt restructurings at December 31, 2011, totaled $323,061, which consisted of $169,731 covered by loss share agreements and $153,330 that were noncovered. At September 30, 2011, total troubled debt restructurings were $277,699; $159,429 were covered by loss share agreements and $118,270 were noncovered.

The majority of troubled debt restructurings 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, troubled debt restructurings over $500 and graded substandard or lower are evaluated individually for impairment through review of collateral values.