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 Louisi ana, the Houston, Texas area, the north ern, central and panhandle regions of Florida , and Nashville, Tennessee . Loans, net of unearned income, by portfolio are presented in the table below. June 30, December 31, (in thousands) 2018 2017 Commercial non-real estate $ 8,410,961 $ 8,297,937 Commercial real estate - owner occupied 2,233,794 2,142,439 Total commercial and industrial 10,644,755 10,440,376 Commercial real estate - income producing 2,342,192 2,384,599 Construction and land development 1,515,233 1,373,421 Residential mortgages 2,780,359 2,690,472 Consumer 2,088,378 2,115,295 Total loans $ 19,370,917 $ 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 six months ended June 30 , 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 and industrial producing development mortgages Consumer Total Six Months Ended June 30, 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 (11,845) (6,804) (18,649) (1,604) (220) (498) (12,964) (33,935) Recoveries 12,476 275 12,751 65 38 712 3,095 16,661 Net provision for loan losses (1,981) 7,727 5,746 1,975 3,121 (862) 11,164 21,144 Reduction as a result of sale of subsidiary — — — — — — (6,648) (6,648) Ending balance $ 126,568 $ 14,160 $ 140,728 $ 14,145 $ 10,311 $ 24,196 $ 25,150 $ 214,530 Ending balance: Allowance: Individually evaluated for impairment $ 19,369 $ 824 $ 20,193 $ 407 $ 1 $ 99 $ 130 $ 20,830 Amounts related to purchased credit impaired loans 427 420 847 46 115 10,873 497 12,378 Collectively evaluated for impairment 106,772 12,916 119,688 13,692 10,195 13,224 24,523 181,322 Total allowance $ 126,568 $ 14,160 $ 140,728 $ 14,145 $ 10,311 $ 24,196 $ 25,150 $ 214,530 Loans: Individually evaluated for impairment $ 291,071 $ 26,967 $ 318,038 $ 8,820 $ 113 $ 3,733 $ 599 $ 331,303 Purchased credit impaired loans 8,221 6,630 14,851 3,800 4,769 111,805 5,381 140,606 Collectively evaluated for impairment 8,111,669 2,200,197 10,311,866 2,329,572 1,510,351 2,664,821 2,082,398 18,899,008 Total loans $ 8,410,961 $ 2,233,794 $ 10,644,755 $ 2,342,192 $ 1,515,233 $ 2,780,359 $ 2,088,378 $ 19,370,917 Commercial Commercial Commercial real estate- Total real estate- Construction non-real owner commercial income and land Residential (in thousands) estate occupied and industrial producing development mortgages Consumer Total Six Months Ended June 30, 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 (26,218) (517) (26,735) (160) (172) (776) (15,260) (43,103) Recoveries 1,818 336 2,154 398 755 281 3,546 7,134 Net provision for loan losses 14,758 1,196 15,954 (207) 195 858 14,142 30,942 Decrease in FDIC loss share receivable (47) — (47) — — (2,344) (135) (2,526) Ending balance $ 137,363 $ 12,098 $ 149,461 $ 13,540 $ 7,049 $ 23,380 $ 28,435 $ 221,865 Ending balance: Allowance: Individually evaluated for impairment $ 22,758 $ 280 $ 23,038 $ 1,402 $ 1 $ 172 $ 283 $ 24,896 Amounts related to purchased credit impaired loans 395 742 1,137 192 239 12,622 942 15,132 Collectively evaluated for impairment 114,210 11,076 125,286 11,946 6,809 10,586 27,210 181,837 Total allowance $ 137,363 $ 12,098 $ 149,461 $ 13,540 $ 7,049 $ 23,380 $ 28,435 $ 221,865 Loans: Individually evaluated for impairment $ 250,256 $ 7,480 $ 257,736 $ 14,913 $ 847 $ 3,466 $ 1,053 $ 278,015 Purchased credit impaired loans 5,422 9,848 15,270 6,247 4,160 129,198 8,280 163,155 Collectively evaluated for impairment 7,837,426 2,061,004 9,898,430 2,380,513 1,308,515 2,361,259 2,083,954 18,032,671 Total loans $ 8,093,104 $ 2,078,332 $ 10,171,436 $ 2,401,673 $ 1,313,522 $ 2,493,923 $ 2,093,287 $ 18,473,841 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. June 30, December 31, (in thousands) 2018 2017 Commercial non-real estate $ 155,051 $ 152,863 Commercial real estate - owner occupied 26,216 25,989 Total commercial and industrial 181,267 178,852 Commercial real estate - income producing 10,500 14,574 Construction and land development 4,174 3,807 Residential mortgages 31,393 40,480 Consumer 14,347 15,087 Total loans $ 241,681 $ 252,800 Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $ 98.8 million and $ 99.2 million at June 30 , 2018 and December 31, 2017, respectively. Total TDRs, both accruing and nonaccruing, were $ 251.3 million at June 30 , 2018 and $ 219.7 million at December 31, 2017. All TDRs are individually evaluated for impairment. At June 30 , 2018 and December 31, 2017, the Company had unfunded commitments of $9.7 million and $7.3 million, respectively, to borrowers whose loan terms have been modified in a TDR. The table s below detail by portfolio class TDRs that were modified during the three and six months ended June 30 , 2018 and 2017: Three Months Ended ($ in thousands) June 30, 2018 June 30, 2017 Pre-Modification Post-Modification Pre-Modification Post-Modification Number Outstanding Outstanding Number Outstanding Outstanding of Recorded Recorded of Recorded Recorded Troubled Debt Restructurings: Contracts Investment Investment Contracts Investment Investment Commercial non-real estate 5 $ 6,477 $ 6,477 28 54,317 54,317 Commercial real estate - owner occupied — — — 3 3,078 3,078 Total commercial and industrial 5 6,477 6,477 31 57,395 57,395 Commercial real estate - income producing — — — 3 959 959 Construction and land development — — — — — — Residential mortgages 2 75 75 5 848 848 Consumer — — — 1 40 42 Total loans 7 $ 6,552 $ 6,552 40 59,242 59,244 Six Months Ended ($ in thousands) June 30, 2018 June 30, 2017 Pre-Modification Post-Modification Pre-Modification Post-Modification Number Outstanding Outstanding Number Outstanding Outstanding of Recorded Recorded of Recorded Recorded Troubled Debt Restructurings: Contracts Investment Investment Contracts Investment Investment Commercial non-real estate 18 $ 61,959 $ 61,959 37 $ 92,976 $ 92,976 Commercial real estate - owner occupied 1 5,909 5,909 4 3,734 3,734 Total commercial and industrial 19 67,868 67,868 41 96,710 96,710 Commercial real estate - income producing 1 1,564 1,564 5 6,486 6,486 Construction and land development — — — — — — Residential mortgages 3 118 118 6 1,098 1,098 Consumer 1 222 222 1 40 42 Total loans 24 $ 69,772 $ 69,772 53 $ 104,334 $ 104,336 The TDRs modified during the six months ended June 30 , 2018 reflected in the table above include $ 49.6 million of loans with extended amortization terms or other payment concessions, $ 14.6 million with significant covenant waivers and $5 .6 million with other modifications. The TDRs modified during the six months ended June 30 , 2017 include $ 28.4 million of loans with extended amortization terms or other payment concessions, $4 0.2 million with significant covenant waivers and $35 .7 million with other modifications. One residential mortgage totaling $0.2 million that defaulted during the three and six months ended June 30, 2018 was modified in a TDR during the twelve months prior to default. There were no defaults on loans during the three and six months ended June 30, 2017 that had been modified in a TDR during the prior twelve months. The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at June 30 , 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. June 30, 2018 Recorded investment Recorded investment Unpaid (in thousands) without an allowance with an allowance principal balance Related allowance Commercial non-real estate $ 125,440 $ 165,631 $ 302,314 $ 19,369 Commercial real estate - owner occupied 8,742 18,225 28,214 824 Total commercial and industrial 134,182 183,856 330,528 20,193 Commercial real estate - income producing 1,765 7,055 9,840 407 Construction and land development 100 13 113 1 Residential mortgages 2,430 1,303 6,748 99 Consumer — 599 599 130 Total loans $ 138,477 $ 192,826 $ 347,828 $ 20,830 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 and 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 and six months ended June 30, 2018 and 2017. Interest income recognized represents interest on accruing loans modified in a TDR. Three Months Ended June 30, 2018 June 30, 2017 (in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial non-real estate $ 307,492 $ 2,002 $ 241,122 $ 597 Commercial real estate - owner occupied 28,643 102 5,687 18 Total commercial and industrial 336,135 2,104 246,809 615 Commercial real estate - income producing 11,446 24 14,257 34 Construction and land development 113 — 1,219 — Residential mortgages 6,036 5 3,352 3 Consumer 608 9 1,601 3 Total loans $ 354,338 $ 2,142 $ 267,238 $ 655 Six Months Ended June 30, 2018 June 30, 2017 (in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial non-real estate $ 301,695 $ 3,588 $ 246,374 $ 934 Commercial real estate - owner occupied 27,274 168 5,384 22 Total commercial and industrial 328,969 3,756 251,758 956 Commercial real estate - income producing 13,123 49 14,372 77 Construction and land development 176 — 1,492 — Residential mortgages 7,762 10 3,572 5 Consumer 781 18 1,876 5 Total loans $ 350,811 $ 3,833 $ 273,070 $ 1,043 Aging Analysis The tables below present the age analysis of past due loans by portfolio class at June 30 , 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 June 30, 2018 past due past due past due past due Current Loans still accruing (in thousands) Commercial non-real estate $ 15,299 $ 19,264 $ 94,065 $ 128,628 $ 8,282,333 $ 8,410,961 $ 4,483 Commercial real estate - owner occupied 1,622 1,441 23,274 26,337 2,207,457 2,233,794 2,880 Total commercial and industrial 16,921 20,705 117,339 154,965 10,489,790 10,644,755 7,363 Commercial real estate - income producing 2,133 426 6,666 9,225 2,332,967 2,342,192 1,822 Construction and land development 7,044 723 2,870 10,637 1,504,596 1,515,233 49 Residential mortgages 26,947 10,244 16,549 53,740 2,726,619 2,780,359 118 Consumer 13,566 5,384 7,591 26,541 2,061,837 2,088,378 503 Total $ 66,611 $ 37,482 $ 151,015 $ 255,108 $ 19,115,809 $ 19,370,917 $ 9,855 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 and 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 June 30 , 2018 and December 31, 2017. June 30, 2018 (in thousands) Commercial non-real estate Commercial real estate - owner-occupied Total commercial and industrial Commercial real estate - income producing Construction and land development Total commercial Grade: Pass $ 7,492,452 $ 2,040,720 $ 9,533,172 $ 2,242,250 $ 1,441,146 $ 13,216,568 Pass-Watch 249,892 43,185 293,077 38,906 56,240 388,223 Special Mention 70,464 26,511 96,975 8,982 7,434 113,391 Substandard 598,136 123,378 721,514 52,054 10,413 783,981 Doubtful 17 — 17 — — 17 Total $ 8,410,961 $ 2,233,794 $ 10,644,755 $ 2,342,192 $ 1,515,233 $ 14,502,180 December 31, 2017 (in thousands) Commercial non-real estate Commercial real estate - owner-occupied Total commercial and 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 June 30, 2018 December 31, 2017 (in thousands) Residential mortgage Consumer Total Residential mortgage Consumer Total Performing $ 2,748,848 $ 2,073,528 $ 4,822,376 $ 2,647,784 $ 2,099,637 $ 4,747,421 Nonperforming 31,511 14,850 46,361 42,688 15,658 58,346 Total $ 2,780,359 $ 2,088,378 $ 4,868,737 $ 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 six months ended June 30 , 2018 and the year ended December 31, 2017. June 30, 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 (21,082) (3,215) (69,591) (7,412) Accretion 8,285 (8,285) 17,079 (17,079) Decrease in expected cash flows based on actual cash flows and changes in cash flow assumptions — (1,889) — (30,379) Net transfers from nonaccretable difference to accretable yield — — — 3,701 Balance at end of period $ 140,606 $ 49,128 $ 153,403 $ 62,517 During the six months ended June 30, 2017, certain of the Company’s purchased credit impaired loans were covered by a loss share agreement with the FDIC. The agreement was terminated by the Company during the third quarter of 2017. Prior to termination of the agreement, t he Company carried a receivable from the FDIC representing an indemnification a sset arising from the agreement . The receivable was accounted for separately from the covered loans as the agreement was not contractually part of the loans and were not transferrable should the Company have disposed of the loans. Residential Mortgage Loans in Process of Foreclosure Included in loans are $ 6.2 million and $ 7.5 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of June 30 , 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 $ 2.5 million and $3. 4 million of foreclosed single family residential properties in other real estate owned as of June 30 , 2018 and December 31, 2017, respectively. |