Loans and Allowance for Loan Losses | Note 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, the northern, central and panhandle regions of Florida, and Nashville, Tennessee. Loans, net of unearned income, consisted of the follo wing at December 31, 2018 and 2017: (in thousands) 2018 2017 Commercial non-real estate $ 8,620,601 $ 8,297,937 Commercial real estate - owner occupied 2,457,748 2,142,439 Total commercial and industrial 11,078,349 10,440,376 Commercial real estate - income producing 2,341,779 2,384,599 Construction and land development 1,548,335 1,373,421 Residential mortgages 2,910,081 2,690,472 Consumer 2,147,867 2,115,295 Total loans $ 20,026,411 $ 19,004,163 The Bank makes loans in the normal course of business to directors and executive officers of the Company and the Bank and to their associates. L oans to such related parties are made on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unrelated parties and do not involve more than normal risk of collectability when originated. Balances of loans to the Company’s directors, executive officers and their associates at December 31, 201 8 and 201 7 were approximately $ 37.5 million and $33 .6 million, respectiv ely. Related party loan activity for 2018 includes new loans of $16 .3 million and repayments of $12.3 million. The Bank has a line of credit with the Federal Home Loan Bank of Dallas that is secured by blanket pledges of certain qualifying loan types. The Bank had borrowings on this line of $1.2 b illion and $1.1 b illion at December 31, 2018 and 2017 , respectively. The following schedules show activity in the allowance for loan losses for the years ended December 31, 201 8 and 201 7 by portfolio segment , and the corresponding recorded investment in loans as of December 31, 201 8 and 201 7 . Commercial Non-Real Estate Commercial Real Estate- Owner Occupied Total Commercial and Industrial Commercial Real Estate- Income Producing Construction and Land Development Residential Mortgages Consumer Total (in thousands) Year Ended December 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 (40,069) (8,059) (48,128) (1,633) (334) (614) (23,913) (74,622) Recoveries 14,385 317 14,702 221 96 2,179 5,162 22,360 Net provision for loan losses (4,482) 8,537 4,055 5,341 8,513 (2,627) 20,834 36,116 Other — — — — — — (6,648) (6,648) Ending balance $ 97,752 $ 13,757 $ 111,509 $ 17,638 $ 15,647 $ 23,782 $ 25,938 $ 194,514 Ending balance: Allowance: Individually evaluated for impairment $ 3,636 $ 607 $ 4,243 $ 210 $ 1 $ 444 $ 216 $ 5,114 Amounts related to purchased credit impaired loans 239 215 454 43 83 9,766 388 10,734 Collectively evaluated for impairment 93,877 12,935 106,812 17,385 15,563 13,572 25,334 178,666 Total allowance $ 97,752 $ 13,757 $ 111,509 $ 17,638 $ 15,647 $ 23,782 $ 25,938 $ 194,514 Loans: Individually evaluated for impairment $ 239,384 $ 21,666 $ 261,050 $ 2,701 $ 121 $ 3,876 $ 1,007 $ 268,755 Purchased credit impaired loans 6,629 6,212 12,841 3,757 3,387 105,430 4,181 129,596 Collectively evaluated for impairment 8,374,588 2,429,870 10,804,458 2,335,321 1,544,827 2,800,775 2,142,679 19,628,060 Total loans $ 8,620,601 $ 2,457,748 $ 11,078,349 $ 2,341,779 $ 1,548,335 $ 2,910,081 $ 2,147,867 $ 20,026,411 Commercial Non-Real Estate Commercial Real Estate- Owner Occupied Total Commercial and Industrial Commercial Real Estate- Income Producing Construction and Land Development Residential Mortgages Consumer Total (in thousands) Year Ended December 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 (51,479) (558) (52,037) (259) (696) (2,839) (31,430) (87,261) Recoveries 7,526 848 8,374 988 1,603 1,064 6,680 18,709 Net provision for loan losses 24,866 1,589 26,455 (529) 194 3,602 29,246 58,968 Increase (decrease) in FDIC loss share receivable (47) — (47) — — (2,344) (135) (2,526) Ending balance $ 127,918 $ 12,962 $ 140,880 $ 13,709 $ 7,372 $ 24,844 $ 30,503 $ 217,308 Ending balance: Allowance: Individually evaluated for impairment $ 16,129 $ 793 $ 16,922 $ 1,326 $ 11 $ 189 $ 118 $ 18,566 Amounts related to purchased credit impaired loans 525 465 990 41 172 12,258 646 14,107 Collectively evaluated for impairment 111,264 11,704 122,968 12,342 7,189 12,397 29,739 184,635 Total allowance $ 127,918 $ 12,962 $ 140,880 $ 13,709 $ 7,372 $ 24,844 $ 30,503 $ 217,308 Loans: Individually evaluated for impairment $ 267,881 $ 21,491 $ 289,372 $ 15,530 $ 363 $ 10,640 $ 1,292 $ 317,197 Purchased credit impaired loans 5,941 7,294 13,235 2,742 5,829 119,553 6,178 147,537 Collectively evaluated for impairment 8,024,115 2,113,654 10,137,769 2,366,327 1,367,229 2,560,279 2,107,825 18,539,429 Total loans $ 8,297,937 $ 2,142,439 $ 10,440,376 $ 2,384,599 $ 1,373,421 $ 2,690,472 $ 2,115,295 $ 19,004,163 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. December 31, (in thousands) 2018 2017 Commercial non-real estate $ 110,653 $ 152,863 Commercial real estate - owner occupied 16,895 25,989 Total commercial and industrial 127,548 178,852 Commercial real estate - income producing 4,991 14,574 Construction and land development 2,146 3,807 Residential mortgages 35,866 40,480 Consumer 16,744 15,087 Total loans $ 187,295 $ 252,800 Nonacc rual loans include loans modified in troubled debt restructurings (TDRs) of $85.5 million and $99 .2 million, respectively, at December 31, 2018 and 2017 . Total TDRs, both accruing and nonaccruing, were $224.6 million at December 31, 201 8 and $ 219.7 million at December 31, 201 7 . The table below details the T DRs that were modified during the years ended December 31, 201 8, 201 7 and 2016 by portfolio segment. All such loans are individually evaluated for impairment. Years Ended December 31, ($ in thousands) 2018 2017 2016 Outstanding Recorded Investment Outstanding Recorded Investment Outstanding Recorded Investment Troubled Debt Restructurings: Number of Contracts Pre- Modification Post- Modification Number of Contracts Pre- Modification Post- Modification Number of Contracts Pre- Modification Post- Modification Commercial non-real estate 29 $ 85,306 $ 85,306 52 $ 162,909 $ 162,909 38 $ 128,449 $ 128,449 Commercial real estate - owner occupied 2 6,138 6,138 5 5,684 5,684 1 148 148 Total commercial and industrial 31 91,444 91,444 57 168,593 168,593 39 128,597 128,597 Commercial real estate - income producing 1 1,564 1,564 5 5,625 5,625 1 2,943 2,943 Construction and land development — — — — — — — — — Residential mortgages 14 1,297 1,297 15 2,812 2,812 7 694 694 Consumer 10 455 455 1 40 40 — — — Total loans 56 $ 94,760 $ 94,760 78 $ 177,070 $ 177,070 47 $ 132,234 $ 132,234 The TDRs modified during the year ended December 31, 201 8 reflected in the table above include $50.8 million of loans with extended amortization terms or other payment concessions, $14.6 million of loans with significant covenant waivers and $29.4 million with other modifications. The TDRs modified during the year ended December 31, 2017 include $98.1 million of loans with extended terms or other payment concessions of $76.2 mllion of loans with significant convenant waivers, and $2.8 million with other modifications. The TDRs modified during the year ended December 31, 201 6 include $108.9 million of loans with extended terms or other payment concessions of $22.8 million of loans with significant covenant waivers, and $0.5 million of other modifications. At December 31, 2018 and 2017, the Company had unfunded commitments of approximately $2.1 million and $7.3 million, respectively, to borrowers whose loan terms had been modified in TDRs. One residential mortgage totaling $0.2 million, one owner-occupied commercial real estate loan totaling $1.8 million and one consumer loan totaling less than $ 0 .1 million defaulted within 12 months of the modification for December 31, 2018 . No TDRs modified during the year end December 31, 2017 subsequently defaulted within twelve months of modification. Four commercial non-real estate loans modified in TDRs during the year ended December 31, 2016 defaulted within twelve months of modification. The loans were part of a single relationship and had an aggregate carrying balance of $20.8 million at the time of default. Th e tables below present loans that are individually evaluated for impairment disaggregat ed by class at December 31, 2018 and 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. December 31, 2018 (in thousands) Recorded Investment Without an Allowance Recorded Investment With an Allowance Unpaid Principal Balance Related Allowance Commercial non-real estate $ 144,625 $ 94,759 $ 273,290 $ 3,636 Commercial real estate - owner occupied 13,027 8,639 25,888 607 Total commercial and industrial 157,652 103,398 299,178 4,243 Commercial real estate - income producing 1,138 1,563 3,428 210 Construction and land development 100 21 121 1 Residential mortgages 2,058 1,818 4,421 444 Consumer 279 728 1,253 216 Total loans $ 161,227 $ 107,528 $ 308,401 $ 5,114 December 31, 2017 (in thousands) Recorded Investment Without an Allowance Recorded Investment With an Allowance Unpaid 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 years ended December 31, 2018 and 2017. Interest income recognized represents interest on accruing loans modified in a TDR. Years Ended December 31, 2018 December 31, 2017 (in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial non-real estate $ 286,146 $ 7,919 $ 255,710 $ 2,774 Commercial real estate - owner occupied 25,325 343 7,901 62 Total commercial and industrial 311,471 8,262 263,611 2,836 Commercial real estate - income producing 9,155 71 14,565 146 Construction and land development 145 - 1,018 2 Residential mortgages 5,598 18 5,784 18 Consumer 814 39 1,558 13 Total loans $ 327,183 $ 8,390 $ 286,536 $ 3,015 Aging Analysis The following table presents the age analysis of past due loans at December 31, 201 8 and 201 7 . Purchased credit impaired loans with an accretable yield are considered to be current in the following delinquency table: December 31, 2018 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days past due Total Past Due Current Total Loans Recorded Investment > 90 Days and Accruing (in thousands) Commercial non-real estate $ 12,257 $ 3,895 $ 77,551 $ 93,703 $ 8,526,898 $ 8,620,601 $ 10,823 Commercial real estate - owner occupied 2,394 1,570 14,542 18,506 2,439,242 2,457,748 380 Total commercial and industrial 14,651 5,465 92,093 112,209 10,966,140 11,078,349 11,203 Commercial real estate - income producing 2,371 772 5,495 8,638 2,333,141 2,341,779 1,844 Construction and land development 7,397 1,129 2,165 10,691 1,537,644 1,548,335 644 Residential mortgages 32,869 14,706 23,175 70,750 2,839,331 2,910,081 — Consumer 20,402 4,695 9,665 34,762 2,113,105 2,147,867 618 Total loans $ 77,690 $ 26,767 $ 132,593 $ 237,050 $ 19,789,361 $ 20,026,411 $ 14,309 December 31, 2017 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 Days and 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 loans $ 137,267 $ 33,000 $ 157,082 $ 327,349 $ 18,676,814 $ 19,004,163 $ 27,766 Credit Quality Indicators The following table presents the credit quality indicators of the Co mpany’s various classes of loans at December 31, 2018 and December 31, 2017 . December 31, 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 $ 7,875,588 $ 2,274,211 $ 10,149,799 $ 2,265,087 $ 1,487,599 $ 13,902,485 Pass-Watch 260,510 84,271 344,781 46,535 49,099 440,415 Special Mention 75,752 23,149 98,901 5,510 816 105,227 Substandard 408,751 76,117 484,868 24,647 10,821 520,336 Doubtful — — — — — — Total $ 8,620,601 $ 2,457,748 $ 11,078,349 $ 2,341,779 $ 1,548,335 $ 14,968,463 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 December 31, 2018 December 31, 2017 (in thousands) Residential Mortgage Consumer Total Residential Mortgage Consumer Total Performing $ 2,873,669 $ 2,130,395 $ 5,004,064 $ 2,647,784 $ 2,099,637 $ 4,747,421 Nonperforming 36,412 17,472 53,884 42,688 15,658 58,346 Total $ 2,910,081 $ 2,147,867 $ 5,057,948 $ 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 an 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 ple dged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They ar e 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 nor 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 – accruing loans that have not been modified in a troubled debt restructuring . · Nonperforming – loans for which there are good reasons to doubt tha t payments will be made in full. All loans with nonaccrual status and all loans that have been modified in a troubled debt restructuring are classified as nonperforming. The Company assigns risk ratings at loan origination and reviews these ratings at minimum on annual basis, or at any point management becomes aware of information that may affect a borrower’s ability to service its debt. Credit Review uses a risk-focused continuous monitoring program that provides for an independent, objective and timely review of credit risk within the Company. Purchased Credit Impaired Loans Changes in the carrying amount of purchased credit impaired loans not individually evaluated for impairment and accretable yield are presented in the following table for the years ended December 31, 201 8 and 201 7 : 2018 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 Additions — — 15,000 — Payments received, net (39,556) (5,779) (69,591) (7,412) Accretion 15,749 (15,749) 17,079 (17,079) Increase (decrease) in expected cash flows based on actual cash flow and changes in cash flow assumptions — (3,695) — (30,379) Net transfers from nonaccretable difference to accretable yield — — — 3,701 Balance at end of period $ 129,596 $ 37,294 $ 153,403 $ 62,517 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, the Company carried a receivable from the FDIC representing an indemnification asset 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 Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. Included in loans are $7.1 million and $ 7.5 million of consumer loans secured by single family residential mortgage real estate that are in process of foreclosure as of December 31, 201 8 and 201 7 , respectively. In addition to the single family residential real estate loans in process of foreclosure, the Company also held $1.8 million and $ 3.4 million of foreclosed single family residential properties in other real estate owned as of December 31, 201 8 and 201 7 , respectively. Loans Held for Sale Loans held for sale totaled $28.1 million and $ 39.9 million, respectively, at December 31, 201 8 and 201 7 . Substantially all loans held for sale are residential mortgage loans originated on a best-efforts basis, whereby a commitment by a third party to purchase the loan has been received concurrent with the Bank’s commitment to the borrower to originate the loan. |