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, 2016 and June 30, 2015:



	Three months ended June 30, 2016
(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	$	16,885		$	70,456		$	2,207		$	44,479		$	5,422		$	1,777		$	14,727		$	16,125		$	1,575		$	19,373		$	193,026
Provision	291			701			(79		)	81			343			37			1,487			1,470			78			2,299			6,708
Charge-offs	(136		)	(44		)	—			(1,177		)	—			(88		)	(179		)	(1,081		)	—			(3,136		)	(5,841		)
Recoveries	129			500			10			525			1			29			41			214			—			1,111			2,560
Balance at June 30	$	17,169		$	71,613		$	2,138		$	43,908		$	5,766		$	1,755		$	16,076		$	16,728		$	1,653		$	19,647		$	196,453

	Three months ended June 30, 2015
	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	$	13,108		$	82,038		$	1,031		$	36,954		$	4,293		$	2,981		$	11,328		$	17,529		$	1,056		$	17,616		$	187,934
Provision	88			(1,878		)	(227		)	4,547			408			(1,824		)	1,162			31			74			6,613			8,994
Charge-offs	(221		)	(47		)	(9		)	(2,318		)	(6		)	—			(90		)	(616		)	—			(2,743		)	(6,050		)
Recoveries	104			323			9			209			11			31			305			346			3			630			1,971
Balance at June 30	$	13,079		$	80,436		$	804		$	39,392		$	4,706		$	1,188		$	12,705		$	17,290		$	1,133		$	22,116		$	192,849

	Six months ended June 30, 2016
	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	$	16,288		$	69,896		$	2,168		$	43,116		$	5,524		$	1,855		$	14,105		$	15,971		$	1,485		$	19,496		$	189,904
Provision	1,234			1,096			(184		)	2,282			62			(290		)	2,262			2,628			165			4,293			13,548
Charge-offs	(562		)	(134		)	—			(2,494		)	—			(160		)	(352		)	(2,116		)	—			(6,243		)	(12,061		)
Recoveries	209			755			154			1,004			180			350			61			245			3			2,101			5,062
Balance at June 30	$	17,169		$	71,613		$	2,138		$	43,908		$	5,766		$	1,755		$	16,076		$	16,728		$	1,653		$	19,647		$	196,453

	Six months ended June 30, 2015
	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	$	11,961		$	85,189		$	732		$	30,727		$	4,286		$	3,184		$	10,661		$	18,650		$	892		$	16,555		$	182,837
Provision	1,191			(5,557		)	231			12,093			419			(2,042		)	1,975			(431		)	192			9,579			17,650
Charge-offs	(239		)	(280		)	(178		)	(4,031		)	(21		)	—			(374		)	(1,409		)	(22		)	(5,526		)	(12,080		)
Recoveries	166			1,084			19			603			22			46			443			480			71			1,508			4,442
Balance at June 30	$	13,079		$	80,436		$	804		$	39,392		$	4,706		$	1,188		$	12,705		$	17,290		$	1,133		$	22,116		$	192,849

The following tables present the allowance for non-PCI loan losses and the recorded investment in loans, by loan class, based on impairment method as of June 30, 2016 and December 31, 2015:



	June 30, 2016
(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	$	333	$	4,248	$	119	$	971	$	45	$	—	$	1,992	$	868	$	—	$	683	$	9,259
ALLL for loans and leases collectively evaluated for impairment	16,836		67,365		2,019		42,937		5,721		1,755		14,084		15,860		1,653		18,964		187,194
Total allowance for loan and lease losses	$	17,169	$	71,613	$	2,138	$	43,908	$	5,766	$	1,755	$	16,076	$	16,728	$	1,653	$	19,647	$	196,453

Loans and leases:
Loans and leases individually evaluated for impairment	$	3,299	$	77,620	$	1,551	$	10,220	$	1,233	$	695	$	26,780	$	7,113	$	411	$	1,471	$	130,393
Loans and leases collectively evaluated for impairment	621,507		8,427,639		336,067		2,375,939		783,628		364,574		2,751,083		2,526,415		225,911		1,277,948		19,690,711
Total loan and leases	$	624,806	$	8,505,259	$	337,618	$	2,386,159	$	784,861	$	365,269	$	2,777,863	$	2,533,528	$	226,322	$	1,279,419	$	19,821,104

	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
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

The following tables show the activity in the allowance for PCI loan and lease losses by loan class for the three and six months ended June 30, 2016 and June 30, 2015.



	Three months ended June 30, 2016
(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 April 1	$	733		$	6,750		$	770		$	225		$	4,680		$	415		$	—		$	184		$	13,757
Provision	(453		)	(935		)	(154		)	60			(382		)	(177		)	—			(105		)	(2,146		)
Charge-offs	—			(56		)	—			—			—			—			—			—			(56		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at June 30	$	280		$	5,759		$	616		$	285		$	4,298		$	238		$	—		$	79		$	11,555

	Three months ended June 30, 2015
(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
Balance at April 1	$	341		$	8,876		$	194		$	11		$	4,872		$	3,271		$	31		$	23		$	17,619
Provision	325			(2,065		)	(125		)	399			1,165			(1,112		)	(31		)	169			(1,275		)
Charge-offs	(97		)	(383		)	—			(87		)	(195		)	(108		)	—			(6		)	(876		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at June 30	$	569		$	6,428		$	69		$	323		$	5,842		$	2,051		$	—		$	186		$	15,468

	Six months ended June 30, 2016
(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
Balance at January 1	$	1,082		$	7,838		$	773		$	445		$	5,398		$	523		$	—		$	253		$	16,312
Provision	(802		)	(1,914		)	(152		)	(160		)	(729		)	(285		)	—			(101		)	(4,143		)
Charge-offs	—			(165		)	(5		)	—			(371		)	—			—			(73		)	(614		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at June 30	$	280		$	5,759		$	616		$	285		$	4,298		$	238		$	—		$	79		$	11,555

	Six months ended June 30, 2015
(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
Balance at January 1	$	150		$	10,135		$	75		$	1,240		$	5,820		$	3,999		$	183		$	27		$	21,629
Provision	516			(2,990		)	(6		)	(632		)	302			(1,767		)	(183		)	621			(4,139		)
Charge-offs	(97		)	(717		)	—			(285		)	(280		)	(181		)	—			(462		)	(2,022		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at June 30	$	569		$	6,428		$	69		$	323		$	5,842		$	2,051		$	—		$	186		$	15,468

The following tables show the ending balances of PCI loans and leases and related allowance by class of loans as of June 30, 2016 and December 31, 2015:



	June 30, 2016
(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
ALLL for loans and leases acquired with deteriorated credit quality	$	280	$	5,759	$	616	$	285	$	4,298	$	238	$	—	$	79	$	11,555

Loans and leases acquired with deteriorated credit quality	27,742		513,021		20,166		12,854		294,625		47,230		467		5,362		921,467

	December 31, 2015
(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
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

As of June 30, 2016, and December 31, 2015, $394.6 million and $469.3 million, respectively, in PCI loans experienced an adverse change in expected cash flows since the date of acquisition. The corresponding valuation reserve was $11.6 million and $16.3 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, as of June 30, 2016 and December 31, 2015 including interest income recognized in the period during which the loans and leases were considered impaired.



	June 30, 2016
(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	$	2,164	$	1,135	$	3,299	$	3,800	$	333
Commercial mortgage	37,960		39,660		77,620		84,095		4,248
Other commercial real estate	578		973		1,551		1,875		119
Commercial and industrial	6,529		3,691		10,220		10,670		971
Lease financing	1,209		24		1,233		1,233		45
Other	—		695		695		783		—
Residential mortgage	14,734		12,046		26,780		27,772		1,992
Revolving mortgage	4,654		2,459		7,113		8,607		868
Construction and land development - noncommercial	—		411		411		411		—
Consumer	1,307		164		1,471		1,558		683
Total non-PCI impaired loans and leases	$	69,135	$	61,258	$	130,393	$	140,804	$	9,259

	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

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, 2016 and June 30, 2015:



	Three months ended June 30, 2016				Three months ended June 30, 2015
(Dollars in thousands)	Average balance		Interest income recognized		Average balance		Interest income recognized
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	3,236	$	40	$	3,134	$	35
Commercial mortgage	79,442		616		86,253		840
Other commercial real estate	878		7		403		—
Commercial and industrial	9,938		84		14,088		146
Lease financing	1,214		15		1,463		16
Other	813		10		1,835		—
Residential mortgage	24,982		178		16,819		135
Revolving mortgage	6,421		40		4,015		23
Construction and land development - noncommercial	413		5		779		9
Consumer	1,422		20		1,154		20
Total non-PCI impaired loans and leases	$	128,759	$	1,015	$	129,943	$	1,224

	Six months ended June 30, 2016				Six months ended June 30, 2015
(Dollars in thousands)	Average balance		Interest income recognized		Average balance		Interest income recognized
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	3,200	$	81	$	3,093	$	70
Commercial mortgage	86,193		1,382		83,115		1,602
Other commercial real estate	651		12		477		1
Commercial and industrial	12,744		235		12,220		249
Lease financing	1,436		35		1,527		34
Other	943		24		1,913		—
Residential mortgage	24,240		350		16,092		260
Revolving mortgage	6,365		72		3,501		39
Construction and land development - noncommercial	485		11		719		16
Consumer	1,344		38		1,088		39
Total non-PCI impaired loans and leases	$	137,601	$	2,240	$	123,745	$	2,310

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 grant. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. In accordance with GAAP, acquired loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, are not initially considered to be TDRs, but can be classified as such if a modification is made subsequent to acquisition. Subsequent modifications 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.



	June 30, 2016						December 31, 2015
(Dollars in thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial loans
Construction and land development - commercial	$	3,444	$	451	$	3,895	$	3,624	$	257	$	3,881
Commercial mortgage	62,232		15,623		77,855		65,812		18,728		84,540
Other commercial real estate	2,747		93		2,840		1,751		89		1,840
Commercial and industrial	7,466		692		8,158		8,833		3,341		12,174
Lease financing	1,064		44		1,108		1,191		169		1,360
Other	610		85		695		1,183		—		1,183
Total commercial TDRs	77,563		16,988		94,551		82,394		22,584		104,978
Noncommercial
Residential mortgage	28,334		7,476		35,810		25,427		7,129		32,556
Revolving mortgage	5,593		1,469		7,062		3,600		1,705		5,305
Construction and land development - noncommercial	411		—		411		784		—		784
Consumer and other	1,268		204		1,472		1,091		129		1,220
Total noncommercial TDRs	35,606		9,149		44,755		30,902		8,963		39,865
Total TDRs	$	113,169	$	26,137	$	139,306	$	113,296	$	31,547	$	144,843

The majority of TDRs are included in the special mention, substandard or doubtful grading categories. 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 table shows the accrual status of non-PCI and PCI TDRs.



(Dollars in thousands)	June 30, 2016		December 31, 2015
Accruing TDRs:
PCI	$	23,369	$	29,231
Non-PCI	89,800		84,065
Total accruing TDRs	113,169		113,296
Nonaccruing TDRs:
PCI	952		1,420
Non-PCI	25,185		30,127
Total nonaccruing TDRs	26,137		31,547
All TDRs:
PCI	24,321		30,651
Non-PCI	114,985		114,192
Total TDRs	$	139,306	$	144,843

The following tables provide the types of TDRs made during the three and six months ended June 30, 2016 and June 30, 2015, as well as a summary of loans that were modified as a TDR during the twelve months ended June 30, 2016 and June 30, 2015 that subsequently defaulted during the three and six months ended June 30, 2016 and June 30, 2015. 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, 2016						Three months ended June 30, 2015
	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 loans and leases
Interest only period provided
Commercial mortgage	—	$	—	—	$	—	2	$	69	—	$	—
Total interest only	—	—		—	—		2	69		—	—

Loan term extension
Commercial mortgage	2	808		—	—		2	840		—	—
Other commercial real estate	1	841		—	—		—	—		—	—
Commercial and industrial	—	—		1	—		—	—		—	—
Residential mortgage	5	678		1	52		—	—		—	—
Total loan term extension	8	2,327		2	52		2	840		—	—

Below market interest rate
Construction and land development - commercial	4	317		2	209		3	251		—	—
Commercial mortgage	12	1,741		5	577		6	1,510		—	—
Other commercial real estate	1	498		1	12		—	—		—	—
Commercial and industrial	8	694		5	197		4	521		1	142
Residential mortgage	42	2,473		20	1,337		15	646		1	15
Revolving mortgage	2	59		—	—		—	—		—	—
Consumer	1	16		1	—		3	40		—	—
Other	—	—		1	85		—	—		—	—
Total below market interest rate	70	5,798		35	2,417		31	2,968		2	157

Discharged from bankruptcy
Commercial mortgage	2	283		—	—		—	—		—	—
Commercial and industrial	2	49		—	—		1	17		—	—
Residential mortgage	5	147		7	506		2	35		—	—
Revolving mortgage	13	1,461		5	59		7	203		3	60
Consumer	10	144		7	79		3	45		—	—
Total discharged from bankruptcy	32	2,084		19	644		13	300		3	60

Total non-PCI restructurings	110	$	10,209	56	$	3,113	48	$	4,177	5	$	217



	Six months ended June 30, 2016						Six months ended June 30, 2015
	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 loans and leases
Interest only period provided
Commercial mortgage	1	$	249	1	$	249	2	$	69	—	$	—
Commercial and industrial	—	—		—	—		1	1,872		1	1,872
Total interest only	1	249		1	249		3	1,941		1	1,872

Loan term extension
Construction and land development - commercial	1	401		—	—		1	212		1	212
Commercial mortgage	4	1,096		—	—		5	1,371		—	—
Other commercial real estate	1	841		—	—		—	—		—	—
Commercial and industrial	—	—		1	—		—	—		—	—
Residential mortgage	7	978		1	52		—	—		—	—
Revolving mortgage	—	—		—	—		1	9		—	—
Consumer	—	—		—	—		1	5		—	—
Total loan term extension	13	3,316		2	52		8	1,597		1	212

Below market interest rate
Construction and land development - commercial	6	414		3	227		5	296		—	—
Commercial mortgage	22	2,866		9	1,078		16	5,226		1	498
Other commercial real estate	1	498		1	12		—	—		—	—
Commercial and industrial	11	704		5	197		7	673		1	142
Residential mortgage	94	5,998		32	2,107		42	1,698		3	58
Revolving mortgage	4	141		—	—		3	63		—	—
Construction and land development - noncommercial	—	—		—	—		2	253		—	—
Consumer	3	20		1	—		7	85		—	—
Other	1	85		1	85		1	1,732		—	—
Total below market interest rate	142	10,726		52	3,706		83	10,026		5	698

Discharged from bankruptcy
Construction and land development - commercial	—	—		1	14		—	—		—	—
Commercial mortgage	2	283		—	—		1	622		—	—
Commercial and industrial	2	49		—	—		1	17		—	—
Residential mortgage	11	721		7	506		8	434		—	—
Revolving mortgage	25	1,695		12	151		16	632		5	158
Construction and land development - noncommercial	—	—		—	—		—	—		—	—
Consumer	25	290		10	95		4	48		—	—
Total discharged from bankruptcy	65	3,038		30	766		30	1,753		5	158

Total non-PCI restructurings	221	$	17,329	85	$	4,773	124	$	15,317	12	$	2,940



	Three months ended June 30, 2016						Three months ended June 30, 2015
	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
PCI loans
Below market interest rate
Residential mortgage	1	$	48	1	$	54	1	$	60	—	$	—
Total below market interest rate	1	48		1	54		1	60		—	—

Total PCI restructurings	1	$	48	1	$	54	1	$	60	—	$	—



	Six months ended June 30, 2016						Six months ended June 30, 2015
	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
PCI loans
Below market interest rate
Construction and land development - commercial	1	$	55	—	$	—	—	$	—	—	$	—
Commercial mortgage	3	2,027		—	—		—	—		—	—
Residential mortgage	1	48		1	54		8	545		—	—
Total below market interest rate	5	2,130		1	54		8	545		—	—

Discharged from bankruptcy
Residential mortgage	—	—		—	—		1	78		—	—
Total discharged from bankruptcy	—	—		—	—		1	78		—	—
Total PCI restructurings	5	$	2,130	1	$	54	9	$	623	—	$	—

For the three and six months ended June 30, 2016 and June 30, 2015, the recorded investment in TDRs subsequent to modification was not materially impacted by the modification since forgiveness of principal is not a restructuring option frequently used by BancShares.