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 Louisiana, the Houston, Texas area and the northern, central and panhandle regions of Florida. Loans, net of unearned income, by portfolio are presented in the table below. March 31, December 31, (in thousands) 2018 2017 Commercial non-real estate $ 8,336,222 $ 8,297,937 Commercial real estate - owner occupied 2,185,543 2,142,439 Total commercial & industrial 10,521,765 10,440,376 Commercial real estate - income producing 2,394,862 2,384,599 Construction and land development 1,413,878 1,373,421 Residential mortgages 2,732,821 2,690,472 Consumer 2,029,178 2,115,295 Total loans $ 19,092,504 $ 19,004,163 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 tangible or intangible business assets such as accounts receivable, inventory, ownership , enterprise value 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 m ortgages 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 tables show activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2018 and 2017, as well as the corresponding recorded investment in loans at the end of each period. Charge-off, recovery and provision activity in the purchased credit impaired portfolio previously segregated has been collapsed into the remainder of the portfolio’s activity as it is no longer material, and the respective reclassifications have been made to the prior period to conform to the current presentation. 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 Three Months Ended March 31, 2018 Allowance for loan losses: Beginning balance $ 127,918 $ 12,962 $ 140,880 $ 13,709 $ 7,372 $ 24,844 $ 30,503 $ 217,308 Charge-offs (9,335) (851) (10,186) — (10) (192) (8,048) (18,436) Recoveries 4,146 88 4,234 63 29 116 1,794 6,236 Net provision for loan losses 3,877 1,421 5,298 (787) 2,533 150 5,059 12,253 Reduction as a result of sale of subsidiary — — — — — — (6,648) (6,648) Ending balance $ 126,606 $ 13,620 $ 140,226 $ 12,985 $ 9,924 $ 24,918 $ 22,660 $ 210,713 Allowance at end of period : Individually evaluated for impairment $ 20,356 $ 2,475 $ 22,831 $ 1,261 $ 1 $ 276 $ 232 $ 24,601 Amounts related to purchased credit impaired loans 471 495 966 576 173 11,720 612 14,047 Collectively evaluated for impairment 105,779 10,650 116,429 11,148 9,750 12,922 21,816 172,065 Total allowance $ 126,606 $ 13,620 $ 140,226 $ 12,985 $ 9,924 $ 24,918 $ 22,660 $ 210,713 Loans at end of period : Individually evaluated for impairment $ 323,913 $ 30,318 $ 354,231 $ 14,071 $ 113 $ 8,338 $ 617 $ 377,370 Purchased credit impaired loans 8,510 8,384 16,894 4,361 5,843 116,409 5,876 149,383 Collectively evaluated for impairment 8,003,799 2,146,841 10,150,640 2,376,430 1,407,922 2,608,074 2,022,685 18,565,751 Total loans $ 8,336,222 $ 2,185,543 $ 10,521,765 $ 2,394,862 $ 1,413,878 $ 2,732,821 $ 2,029,178 $ 19,092,504 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 Three Months Ended March 31, 2017 Allowance for loan losses: Beginning balance $ 147,052 $ 11,083 $ 158,135 $ 13,509 $ 6,271 $ 25,361 $ 26,142 $ 229,418 Charge-offs (24,791) (29) (24,820) (7) (91) (348) (8,678) (33,944) Recoveries 938 275 1,213 375 471 113 1,743 3,915 Net provision for loan losses 8,101 193 8,294 (266) 69 376 7,518 15,991 Decrease in FDIC loss share receivable (31) — (31) — — (1,696) (103) (1,830) Ending balance $ 131,269 $ 11,522 $ 142,791 $ 13,611 $ 6,720 $ 23,806 $ 26,622 $ 213,550 Allowance at end of period : Individually evaluated for impairment $ 15,017 $ 76 $ 15,093 $ 1,114 $ 1 $ 94 $ 199 $ 16,501 Amounts related to purchased credit impaired loans 411 787 1,198 213 283 13,286 1,019 15,999 Collectively evaluated for impairment 115,841 10,659 126,500 12,284 6,436 10,426 25,404 181,050 Total allowance $ 131,269 $ 11,522 $ 142,791 $ 13,611 $ 6,720 $ 23,806 $ 26,622 $ 213,550 Loans at end of period : Individually evaluated for impairment $ 231,988 $ 3,894 $ 235,882 $ 13,599 $ 1,592 $ 3,236 $ 2,149 $ 256,458 Purchased credit impaired loans 6,693 12,468 19,161 7,669 4,326 138,260 9,951 179,367 Collectively evaluated for impairment 7,835,606 2,031,089 9,866,695 2,483,836 1,246,749 2,124,767 2,046,996 17,769,043 Total loans $ 8,074,287 $ 2,047,451 $ 10,121,738 $ 2,505,104 $ 1,252,667 $ 2,266,263 $ 2,059,096 $ 18,204,868 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. March 31, December 31, (in thousands) 2018 2017 Commercial non-real estate $ 179,203 $ 152,863 Commercial real estate - owner occupied 27,387 25,989 Total commercial & industrial 206,590 178,852 Commercial real estate - income producing 15,633 14,574 Construction and land development 3,724 3,807 Residential mortgages 35,069 40,480 Consumer 14,163 15,087 Total loans $ 275,179 $ 252,800 Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $ 118.0 million and $ 99.2 million at March 31, 2018 and December 31, 2017, respectively. Total TDRs, both accruing and nonaccruing, were $ 284.5 million at March 31, 2018 and $ 219.7 million at December 31, 2017. All TDRs are individually evaluated for impairment. At March 31, 2018 and December 31, 2017, the Company had unfunded commitments of $8.5 million and $7.3 million, respectively, to borrowers whose loan terms have been modified in a TDR. The table below details by portfolio class TDRs that were modified during the three months ended March 31, 2018 and 2017: Three Months Ended ($ in thousands) March 31, 2018 March 31, 2017 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 13 $ 55,482 $ 55,482 9 $ 38,659 $ 38,659 Commercial real estate - owner occupied 1 5,909 5,909 1 656 656 Total commercial & industrial 14 61,391 61,391 10 39,315 39,315 Commercial real estate - income producing 1 1,564 1,564 2 5,527 5,527 Construction and land development 1 43 43 — — — Residential mortgages — — — 1 250 250 Consumer 1 222 222 — — — Total loans 17 $ 63,220 $ 63,220 13 $ 45,092 $ 45,092 The TDRs modified during the three months ended March 31, 2018 reflected in the table above include $ 48.4 million of loans with extended amortization terms or other payment concessions, $ 14.6 million with significant covenant waivers and $ 0.2 million with other modifications. The TDRs modified during the three months ended March 31, 2017 include $ 27.4 million of loans with extended amortization terms or other payment concessions, $ 10.7 million with significant covenant waivers and $ 6.9 million with other modifications. For the three month periods ended March 31, 2018 and 2017, there were no loans modified in a TDR within the previous twelve months that subsequently defaulted during the respective periods. The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at March 31, 2018 and December 31, 2017. 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. March 31, 2018 Recorded investment Recorded investment Unpaid (in thousands) without an allowance with an allowance principal balance Related allowance Commercial non-real estate $ 108,898 $ 215,015 $ 335,178 $ 20,356 Commercial real estate - owner occupied 6,064 24,254 30,997 2,475 Total commercial & industrial 114,962 239,269 366,175 22,831 Commercial real estate - income producing 6,055 8,016 14,269 1,261 Construction and land development 100 13 114 1 Residential mortgages 5,861 2,477 11,682 276 Consumer 14 603 718 232 Total loans $ 126,992 $ 250,378 $ 392,958 $ 24,601 December 31, 2017 Recorded investment Recorded investment Unpaid (in thousands) without an allowance with an allowance principal balance Related allowance Commercial non-real estate $ 116,682 $ 151,199 $ 285,685 $ 16,129 Commercial real estate - owner occupied 16,927 4,564 24,829 793 Total commercial & industrial 133,609 155,763 310,514 16,922 Commercial real estate - income producing 5,101 10,429 15,687 1,326 Construction and land development 100 263 363 11 Residential mortgages 8,245 2,395 13,855 189 Consumer — 1,292 1,294 118 Total loans $ 147,055 $ 170,142 $ 341,713 $ 18,566 The tables below present the average balances and interest income for total impaired loans for the three months ended March 31, 2018 and 2017. Interest income recognized represents interest on accruing loans modified in a TDR. Three Months Ended March 31, 2018 March 31, 2017 Average Interest Average Interest recorded income recorded income (in thousands) investment recognized investment recognized Commercial non-real estate $ 295,897 $ 1,586 $ 251,625 $ 337 Commercial real estate - owner occupied 25,905 66 5,081 4 Total commercial & industrial 321,802 1,652 256,706 341 Commercial real estate - income producing 14,801 25 14,487 43 Construction and land development 238 — 1,766 — Residential mortgages 9,489 5 3,792 2 Consumer 955 9 2,152 2 Total loans $ 347,285 $ 1,691 $ 278,903 $ 388 Aging Analysis The tables below present the age analysis of past due loans by portfolio class at March 31, 2018 and December 31, 2017. 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 March 31, 2018 past due past due past due past due Current Loans still accruing (in thousands) Commercial non-real estate $ 45,309 $ 18,497 $ 130,360 $ 194,166 $ 8,142,056 $ 8,336,222 $ 20,330 Commercial real estate - owner occupied 7,464 115 22,138 29,717 2,155,826 2,185,543 1,360 Total commercial & industrial 52,773 18,612 152,498 223,883 10,297,882 10,521,765 21,690 Commercial real estate - income producing 928 1,954 8,419 11,301 2,383,561 2,394,862 2,771 Construction and land development 6,537 416 3,115 10,068 1,403,810 1,413,878 259 Residential mortgages 32,815 4,496 20,122 57,433 2,675,388 2,732,821 1,170 Consumer 16,083 5,124 7,542 28,749 2,000,429 2,029,178 573 Total $ 109,136 $ 30,602 $ 191,696 $ 331,434 $ 18,761,070 $ 19,092,504 $ 26,463 Recorded Greater than investment 30-59 days 60-89 days 90 days Total Total > 90 days and December 31, 2017 past due past due past due past due Current Loans still accruing (in thousands) Commercial non-real estate $ 62,766 $ 10,761 $ 92,982 $ 166,509 $ 8,131,428 $ 8,297,937 $ 21,989 Commercial real estate - owner occupied 8,493 648 15,517 24,658 2,117,781 2,142,439 2,032 Total commercial & industrial 71,259 11,409 108,499 191,167 10,249,209 10,440,376 24,021 Commercial real estate - income producing 5,315 2,165 6,081 13,561 2,371,038 2,384,599 489 Construction and land development 4,113 1,056 3,412 8,581 1,364,840 1,373,421 477 Residential mortgages 33,621 10,554 30,537 74,712 2,615,760 2,690,472 2,208 Consumer 22,959 7,816 8,553 39,328 2,075,967 2,115,295 571 Total $ 137,267 $ 33,000 $ 157,082 $ 327,349 $ 18,676,814 $ 19,004,163 $ 27,766 Credit Quality Indicators The following tables present the credit quality indicators by segments and portfolio class of loans at March 31, 2018 and December 31, 2017. March 31, 2018 (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 $ 7,250,715 $ 1,954,384 $ 9,205,099 $ 2,268,358 $ 1,334,456 $ 12,807,913 Pass-Watch 269,657 51,856 321,513 58,092 59,208 438,813 Special Mention 100,005 35,971 135,976 9,344 6,279 151,599 Substandard 715,827 143,332 859,159 59,068 13,935 932,162 Doubtful 18 — 18 — — 18 Total $ 8,336,222 $ 2,185,543 $ 10,521,765 $ 2,394,862 $ 1,413,878 $ 14,330,505 December 31, 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 $ 7,190,604 $ 1,896,366 $ 9,086,970 $ 2,223,245 $ 1,291,638 $ 12,601,853 Pass-Watch 293,069 82,913 375,982 83,444 60,804 520,230 Special Mention 80,649 27,456 108,105 13,244 4,788 126,137 Substandard 733,558 135,704 869,262 64,658 16,191 950,111 Doubtful 57 — 57 8 — 65 Total $ 8,297,937 $ 2,142,439 $ 10,440,376 $ 2,384,599 $ 1,373,421 $ 14,198,396 March 31, 2018 December 31, 2017 (in thousands) Residential mortgage Consumer Total Residential mortgage Consumer Total Performing $ 2,696,582 $ 2,014,442 $ 4,711,024 $ 2,647,784 $ 2,099,637 $ 4,747,421 Nonperforming 36,239 14,736 50,975 42,688 15,658 58,346 Total $ 2,732,821 $ 2,029,178 $ 4,761,999 $ 2,690,472 $ 2,115,295 $ 4,805,767 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 three months ended March 31, 2018 and the year ended December 31, 2017. March 31, 2018 December 31, 2017 Carrying Carrying Amount Accretable Amount Accretable (in thousands) of Loans Yield of Loans Yield Balance at beginning of period $ 153,403 $ 62,517 $ 190,915 $ 113,686 Addition of cost recovery loans - FNBC I — — 15,000 — Payments received, net (8,288) (1,703) (69,591) (7,412) Accretion 4,268 (4,268) 17,079 (17,079) Increase in expected cash flows based on actual cash flows and changes in cash flow assumptions — (956) — (30,379) Net transfers from nonaccretable difference to accretable yield — — — 3,701 Balance at end of period $ 149,383 $ 55,590 $ 153,403 $ 62,517 During the three months ended March 31, 2017, certain of the Company’s purchased credit impaired loans were covered by two loss share agreements with the FDIC. The Company had a receivable representing an indemnification asset arising from the agreements. The receivable was accounted for separately from the covered loans as the agreements were not contractually part of the loans and were not transferrable should the Company have disposed of the loans. The agreements were terminated by the Company during the third quarter of 2017. Residential Mortgage Loans in Process of Foreclosure Included in loans are $ 7.8 million and $ 7.5 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of March 31, 2018 and December 31, 2017, 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 foreclosure, the Company also held $ 3.7 million and $3. 4 million of foreclosed single family residential properties in other real estate owned as of March 31, 2018 and December 31, 2017, respectively. |