Loans and Allowance for Loan Losses | 4. Loans and Allowance for Loan Losses The Company generally makes loans in its market areas of south Mississippi, southern and central Alabama, south Lou isiana, the Houston, Texas area and the northern, central and panhandle regions of Florida. Loans, net of unearned income, by portfolio are p resented in the table below. September 30, December 31, (in thousands) 2017 2016 Commercial non-real estate $ 8,129,429 $ 7,613,917 Commercial real estate - owner occupied 2,076,014 1,906,821 Total commercial & industrial 10,205,443 9,520,738 Commercial real estate - income producing 2,511,808 2,013,890 Construction and land development 1,373,048 1,010,879 Residential mortgages 2,596,692 2,146,713 Consumer 2,099,294 2,059,931 Total loans $ 18,786,285 $ 16,752,151 The following briefly describes the composition of each loan category. Commercial and industrial Commercial and industrial loans are made available to businesses for working capital (including financing of inventory and receivables), business expansion, to facilitate the acquisition of a business, and the purchase of equipment and machinery, including equipment leasing. These loans are primarily made based on the identified cash flows of the borrower and, when secured, have the added strength of the underlying collateral. Commercial non-real estate loans may be secured by the assets being financed or other business assets such as accounts receivable, inventory, ownership or commodity interests, and may incorporate a personal or corporate guarantee; however, some short-term loans may be made on an unsecured basis, including a small portfolio of corporate credit cards, generally issued as a part of overall customer relationships. Commercial real estate – owner occupied loans consist of commercial mortgages on properties where repayment is generally dependent on the cash flow from the ongoing operations and activities of the borrower. Like commercial non-real estate, these loans are primarily made based on the identified cash flows of the borrower, but also have the added strength of the value of underlying real estate collateral. Commercial real estate – income producing Commercial real estate – income producing loans consist of loans secured by commercial mortgages on properties where the loan is made to real estate developers or investors and repayment is dependent on the sale, refinance, or income generated from the operation of the property. Properties financed include retail, office, multifamily, senior housing, hotel/motel, skilled nursing facilities and other commercial properties. Construction and land development C onstruction and land development loans are made to facilitate t he acquisition, development, improvement and construction of both commercial and residential-purpose properties. Such loans are made to builders and investors where repayment is expected to be made from the sale, refinance or operation of the property or to businesses to be used in their business operations. This portfolio also includes a small amount of residential construction loans and loans secured by raw land not yet under development. Residential Mortgages Residential mortgages consist of closed-end loans secured by first liens on 1- 4 family residential properties. The portfolio includes both fixed and adjustable rate loans, although most longer term, fixed rate loans originated are sold in the secondary mortgage market . Consumer Consumer loans include second lien mortgage home loans, home equity lines of credit and nonresidential consumer purpose loans. Nonresidential consumer loans include both direct and indirect loans. Direct nonresidential consumer loans are made to finance the purchase of personal property, including automobiles, recreational vehicles and boats, and for other personal purposes (secured and unsecured), and deposit account secured loans. Indirect nonresidential consumer loans include automobile financing provided to the consumer through an agreement with automobile dealerships. Consumer loans also include a small portfolio of credit card receivables issued on the basis of applications received through referrals from the Bank’s branches, online and other marketing efforts. Allowance for Loan Losses The following schedule shows activity in the allowance for loan losses by portfolio class for the nine months ended September 30, 2017 and 2016, as well as the corresponding recorded investment in loans at the end of each period. Commercial Commercial Commercial real estate- Total real estate- Construction non-real owner commercial & income and land Residential (in thousands) estate occupied industrial producing development mortgages Consumer Total Nine Months Ended September 30, 2017 Allowance for loan losses: Beginning balance $ 147,052 $ 11,083 $ 158,135 $ 13,509 $ 6,271 $ 25,361 $ 26,142 $ 229,418 Purchased credit impaired activity: Charge-offs — — — — (77) (102) (153) (332) Recoveries 5 110 115 — 49 23 72 259 Net provision for loan losses (27) (220) (247) (54) (124) 175 (192) (442) Decrease in FDIC loss share receivable (47) — (47) — — (2,344) (135) (2,526) Non-purchased credit impaired activity: Charge-offs (35,247) (527) (35,774) (160) (593) (2,383) (22,691) (61,601) Recoveries 6,437 337 6,774 655 1,001 316 5,176 13,922 Net provision for loan losses 15,922 2,776 18,698 540 54 3,988 21,144 44,424 Ending balance $ 134,095 $ 13,559 $ 147,654 $ 14,490 $ 6,581 $ 25,034 $ 29,363 $ 223,122 Ending balance: Allowance: Individually evaluated for impairment $ 20,880 $ 477 $ 21,357 $ 1,321 $ 1 $ 406 $ 405 $ 23,490 Amounts related to purchased credit impaired loans 417 784 1,201 199 254 12,795 863 15,312 Collectively evaluated for impairment 112,798 12,298 125,096 12,970 6,326 11,833 28,095 184,320 Total allowance $ 134,095 $ 13,559 $ 147,654 $ 14,490 $ 6,581 $ 25,034 $ 29,363 $ 223,122 Loans: Individually evaluated for impairment $ 271,024 $ 6,351 $ 277,375 $ 14,295 $ 480 $ 8,942 $ 1,306 $ 302,397 Purchased credit impaired loans 20,186 13,021 33,207 5,353 6,670 123,244 7,637 176,111 Collectively evaluated for impairment 7,838,219 2,056,642 9,894,861 2,492,160 1,365,898 2,464,506 2,090,351 18,307,777 Total loans $ 8,129,429 $ 2,076,014 $ 10,205,443 $ 2,511,808 $ 1,373,048 $ 2,596,692 $ 2,099,294 $ 18,786,285 Commercial Commercial Commercial real estate- Total real estate- Construction non-real owner commercial & income and land Residential (in thousands) estate occupied industrial producing development mortgages Consumer Total Nine Months Ended September 30, 2016 Allowance for loan losses: Beginning balance $ 109,428 $ 9,858 $ 119,286 $ 6,041 $ 5,642 $ 25,353 $ 24,857 $ 181,179 Purchased credit impaired activity: Charge-offs — (28) (28) (1) (18) (91) (8) (146) Recoveries 76 163 239 2 98 33 112 484 Net provision for loan losses 54 (140) (86) (436) (253) 1,685 (1,633) (723) (Decrease) increase in FDIC loss share receivable (2) — (2) — — (3,341) 316 (3,027) Non-purchased credit impaired activity: Charge-offs (27,504) (1,660) (29,164) (191) (827) (908) (17,403) (48,493) Recoveries 2,709 287 2,996 673 1,422 497 4,272 9,860 Net provision for loan losses 74,500 2,303 76,803 4,862 (216) 964 14,514 96,927 Ending balance $ 159,261 $ 10,783 $ 170,044 $ 10,950 $ 5,848 $ 24,192 $ 25,027 $ 236,061 Ending balance: Allowance: Individually evaluated for impairment $ 20,665 $ 223 $ 20,888 $ 57 $ 6 $ 94 $ 85 $ 21,130 Amounts related to purchased credit impaired loans 574 1,088 1,662 279 484 15,949 1,334 19,708 Collectively evaluated for impairment 138,022 9,472 147,494 10,614 5,358 8,149 23,608 195,223 Total allowance $ 159,261 $ 10,783 $ 170,044 $ 10,950 $ 5,848 $ 24,192 $ 25,027 $ 236,061 Loans: Individually evaluated for impairment $ 235,039 $ 6,458 $ 241,497 $ 7,655 $ 2,062 $ 3,864 $ 1,485 $ 256,563 Purchased credit impaired loans 11,534 16,417 27,951 8,087 8,436 145,273 12,045 201,792 Collectively evaluated for impairment 6,887,355 1,878,950 8,766,305 1,974,567 936,094 1,888,025 2,047,475 15,612,466 Total loans $ 7,133,928 $ 1,901,825 $ 9,035,753 $ 1,990,309 $ 946,592 $ 2,037,162 $ 2,061,005 $ 16,070,821 Impaired Loans The following table shows the composition of nonaccrual loans by portfolio class. Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be performing and are excluded from the table. September 30, December 31, (in thousands) 2017 2016 Commercial non-real estate $ 188,982 $ 249,037 Commercial real estate - owner occupied 14,305 14,413 Total commercial & industrial 203,287 263,450 Commercial real estate - income producing 14,360 13,954 Construction and land development 3,292 4,550 Residential mortgages 34,674 23,665 Consumer 14,063 12,351 Total loans $ 269,676 $ 317,970 Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $ 119.3 million and $81.9 million at September 30, 2017 and December 31, 2016, respectively. Total TDRs, both accruing and nonaccruing, were $ 216.0 million as of September 30, 2017 and $121.7 million at December 31, 2016. All TDRs are individually evaluated for impairment. The table below details by portfolio class TDRs that were modified during the nine months ended September 30, 2017 and 2016 . Nine Months Ended ($ in thousands) September 30, 2017 September 30, 2016 Pre-Modification Post-Modification Pre-Modification Post-Modification Outstanding Outstanding Outstanding Outstanding Number of Recorded Recorded Number of Recorded Recorded Troubled Debt Restructurings: Contracts Investment Investment Contracts Investment Investment Commercial non-real estate 50 $ 135,926 $ 135,926 17 $ 57,915 $ 57,915 Commercial real estate - owner occupied 4 3,734 3,734 — — — Total commercial & industrial 54 139,660 139,660 17 57,915 57,915 Commercial real estate - income producing 5 5,684 5,684 — — — Construction and land development — — — — — — Residential mortgages 13 2,068 2,068 6 532 532 Consumer 1 40 42 — — — Total loans 73 $ 147,452 $ 147,454 23 $ 58,447 $ 58,447 The TDRs modified during the nine months ended September 30, 2017 reflected in the table above include $ 96.1 million of loans with extended amortization terms or other payment concessions, $ 50.1 million of loans with significant covenant waivers and $ 1.3 million with other modifications. The TDRs modified during the nine months ended September 30, 2016 include $43.4 million of loans with extended amortization terms or other payment concessions , $14.7 million of loans with significant covenant waivers and $ 0.4 million of other modifications. No TDRs recorded during the nine months ended September 30, 2017 and 2016 subsequently defaulted within twelve months of modification. The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at September 30, 2017 and December 31, 2016. Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate relationship balances of $1 million or more. September 30, 2017 Recorded investment Recorded investment Unpaid (in thousands) without an allowance with an allowance principal balance Related allowance Commercial non-real estate $ 92,583 $ 178,441 $ 276,879 $ 20,880 Commercial real estate - owner occupied 3,599 2,752 6,353 477 Total commercial & industrial 96,182 181,193 283,232 21,357 Commercial real estate - income producing 5,160 9,135 14,451 1,321 Construction and land development 464 16 1,445 1 Residential mortgages 6,311 2,630 11,961 406 Consumer 1 1,305 1,308 405 Total loans $ 108,118 $ 194,279 $ 312,397 $ 23,490 December 31, 2016 Recorded investment Recorded investment Unpaid (in thousands) without an allowance with an allowance principal balance Related allowance Commercial non-real estate $ 150,650 $ 120,612 $ 295,445 $ 28,187 Commercial real estate - owner occupied 4,261 2,007 6,646 246 Total commercial & industrial 154,911 122,619 302,091 28,433 Commercial real estate - income producing 10,447 4,929 15,708 466 Construction and land development 1,106 832 2,903 38 Residential mortgages 2,877 1,470 4,865 91 Consumer — 2,154 2,155 267 Total loans $ 169,341 $ 132,004 $ 327,722 $ 29,295 The tables below present the average balances and interest income for total impaired loans for the three and nine months ended September 30, 2017 and 2016. Interest income recognized represents interest on accruing loans modified in a TDR. Three Months Ended September 30, 2017 September 30, 2016 Average Interest Average Interest recorded income recorded income (in thousands) investment recognized investment recognized Commercial non-real estate $ 260,640 $ 872 $ 233,913 $ 155 Commercial real estate - owner occupied 6,916 24 6,374 10 Total commercial & industrial 267,556 896 240,287 165 Commercial real estate - income producing 14,604 35 7,729 24 Construction and land development 663 1 1,655 — Residential mortgages 6,204 7 2,466 3 Consumer 1,179 4 826 2 Total loans $ 290,206 $ 943 $ 252,963 $ 194 Nine Months Ended September 30, 2017 September 30, 2016 Average Interest Average Interest recorded income recorded income (in thousands) investment recognized investment recognized Commercial non-real estate $ 251,129 $ 1,806 $ 197,382 $ 1,002 Commercial real estate - owner occupied 5,895 46 6,015 39 Total commercial & industrial 257,024 1,852 203,397 1,041 Commercial real estate - income producing 14,449 112 8,624 67 Construction and land development 1,216 1 7,821 — Residential mortgages 4,449 12 1,444 7 Consumer 1,644 9 348 4 Total loans $ 278,782 $ 1,986 $ 221,634 $ 1,119 Aging Analysis The tables below present the age analysis of past due loans by portfolio class at September 30, 2017 and December 31, 2016. Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be current. Recorded Greater than investment 30-59 days 60-89 days 90 days Total Total > 90 days and September 30, 2017 past due past due past due past due Current Loans still accruing (in thousands) Commercial non-real estate $ 31,634 $ 3,880 $ 104,334 $ 139,848 $ 7,989,581 $ 8,129,429 $ 24,400 Commercial real estate - owner occupied 18,579 303 8,950 27,832 2,048,182 2,076,014 767 Total commercial & industrial 50,213 4,183 113,284 167,680 10,037,763 10,205,443 25,167 Commercial real estate - income producing 1,540 3,731 5,676 10,947 2,500,861 2,511,808 2,907 Construction and land development 5,018 1,031 2,861 8,910 1,364,138 1,373,048 417 Residential mortgages 39,081 10,575 24,415 74,071 2,522,621 2,596,692 41 Consumer 15,574 7,426 7,710 30,710 2,068,584 2,099,294 318 Total $ 111,426 $ 26,946 $ 153,946 $ 292,318 $ 18,493,967 $ 18,786,285 $ 28,850 Recorded Greater than investment 30-59 days 60-89 days 90 days Total Total > 90 days and December 31, 2016 past due past due past due past due Current Loans still accruing (in thousands) Commercial non-real estate $ 19,722 $ 1,909 $ 68,505 $ 90,136 $ 7,523,781 $ 7,613,917 $ 384 Commercial real estate - owner occupied 3,008 581 6,310 9,899 1,896,922 1,906,821 52 Total commercial & industrial 22,730 2,490 74,815 100,035 9,420,703 9,520,738 436 Commercial real estate - income producing 838 50 5,026 5,914 2,007,976 2,013,890 216 Construction and land development 694 171 5,300 6,165 1,004,714 1,010,879 1,563 Residential mortgages 24,599 8,816 14,369 47,784 2,098,929 2,146,713 1 Consumer 18,621 7,441 9,147 35,209 2,024,722 2,059,931 823 Total $ 67,482 $ 18,968 $ 108,657 $ 195,107 $ 16,557,044 $ 16,752,151 $ 3,039 Credit Quality Indicators The following tables present the credit quality indicators by segments and portfolio class of loans at September 30, 2017 and December 31, 2016. September 30, 2017 (in thousands) Commercial non-real estate Commercial real estate - owner-occupied Total commercial & industrial Commercial real estate - income producing Construction and land development Total commercial Grade: Pass $ 6,941,591 $ 1,840,553 $ 8,782,144 $ 2,327,685 $ 1,278,648 $ 12,388,477 Pass-Watch 345,073 83,808 428,881 107,568 73,538 609,987 Special Mention 122,023 41,270 163,293 12,802 7,484 183,579 Substandard 717,436 110,383 827,819 63,744 13,378 904,941 Doubtful 3,306 — 3,306 9 — 3,315 Total $ 8,129,429 $ 2,076,014 $ 10,205,443 $ 2,511,808 $ 1,373,048 $ 14,090,299 December 31, 2016 (in thousands) Commercial non-real estate Commercial real estate - owner-occupied Total commercial & industrial Commercial real estate - income producing Construction and land development Total commercial Grade: Pass $ 6,364,348 $ 1,719,114 $ 8,083,462 $ 1,873,644 $ 968,505 $ 10,925,611 Pass-Watch 203,311 47,676 250,987 78,309 22,592 351,888 Special Mention 181,763 40,299 222,062 22,492 4,142 248,696 Substandard 846,793 99,732 946,525 39,434 15,640 1,001,599 Doubtful 17,702 — 17,702 11 — 17,713 Total $ 7,613,917 $ 1,906,821 $ 9,520,738 $ 2,013,890 $ 1,010,879 $ 12,545,507 September 30, 2017 December 31, 2016 (in thousands) Residential mortgage Consumer Total Residential mortgage Consumer Total Performing $ 2,561,977 $ 2,084,913 $ 4,646,890 $ 2,123,048 $ 2,046,757 $ 4,169,805 Nonperforming 34,715 14,381 49,096 23,665 13,174 36,839 Total $ 2,596,692 $ 2,099,294 $ 4,695,986 $ 2,146,713 $ 2,059,931 $ 4,206,644 Below are the definitions of the Company’s internally assigned grades: Commercial : · Pass – loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk. · Pass-Watch – credits in this category are of sufficient risk to cause concern. This category is reserved for credits that display negative performance trends. The “Watch” grade should be regarded as a transition category. · Special Mention – a criticized asset category defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Special mention credits are not considered part of the Classified credit categories and do not expose the institution to sufficient risk to warrant adverse classification. · Substandard – an asset that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. · Doubtful – an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. · Loss – credits classified as Loss are considered uncollectable and are charged off promptly once so classified. Residential and Consumer: · Performing – loans on which payments of principal and interest are less than 90 days past due. · Nonperforming – a nonperforming loan is a loan that is in default or close to being in default and there are good reasons to doubt that payments will be made in full. All loans rated as nonaccrual loans are also classified as nonperforming. Purchased Credit Impaired Loans Changes in the carrying amount of purchased credit impaired loans and related accretable yield are presented in the following table for the nine months ended September 30, 2017 and the year ended December 31, 2016. September 30, 2017 December 31, 2016 Carrying Carrying Amount Accretable Amount Accretable (in thousands) of Loans Yield of Loans Yield Balance at beginning of period $ 190,915 $ 113,686 $ 225,838 $ 129,488 Addition of cost recovery loans 23,431 — — — Payments received, net (51,040) (6,651) (55,194) (11,024) Accretion 12,805 (12,805) 20,271 (20,271) Increase in expected cash flows based on actual cash flows and changes in cash flow assumptions — 4,149 — 5,358 Net transfers from nonaccretable difference to accretable yield — 8,095 — 10,135 Balance at end of period $ 176,111 $ 106,474 $ 190,915 $ 113,686 Loans Acquired in an FDIC-Assisted Transaction and the Related FDIC Loss Share Receivable Loans purchased in the 2009 acquisition of Peoples First Community Bank were covered by two loss share agreements between the FDIC and the Company. In the third quarter of 2017, the Company terminated the agreement s with the FDIC on the remaining covered loan balances totaling $154 million at June 30, 2017. The indemnification asset was written down to the final settlement amount of $3.2 million in the second quarter of 2017. The final cash settlement was received from the FDIC in July 2017. The following schedule shows activity in the FDIC loss share receivable for the nine months ended September 30, 2017 and 2016 . September 30, September 30, (in thousands) 2017 2016 Beginning Balance $ 16,219 $ 29,868 Amortization (2,427) (4,678) Charge-offs, write-downs and other recoveries (2,442) (5,569) External expenses qualifying under loss share agreements 79 1,000 Adjustment due to changes in cash flow projections (2,526) (3,027) Net payments to FDIC 934 436 Write-down for termination of loss share agreements (6,603) — Cash received from FDIC for final settlement of agreements (3,234) — Ending balance $ — $ 18,030 Residential Mortgage Loans in Process of Foreclosure Included in loans are $8 .0 million and $10. 1 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of September 30, 2017 and December 31, 2016, respectively. Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. In addition to the single family residential real estate loans in process of forec is losure, the Company also held $ 2. 5 million and $3.1 million of foreclosed single family residential properties in other real estate owned as of September 30, 2017 and December 31, 2016, respectively. |