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, the northern, central, and panhandle regions of Florida, and Nashville, Tennessee. Loans, net of unearned income, by portfolio are presented in the table below. March 31, December 31, (in thousands) 2019 2018 Commercial non-real estate $ 8,656,326 $ 8,620,601 Commercial real estate - owner occupied 2,515,428 2,457,748 Total commercial and industrial 11,171,754 11,078,349 Commercial real estate - income producing 2,563,394 2,341,779 Construction and land development 1,340,067 1,548,335 Residential mortgages 2,933,251 2,910,081 Consumer 2,104,372 2,147,867 Total loans $ 20,112,838 $ 20,026,411 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 Construction and land development loans are made to facilitate the 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 tables show activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2019 and 2018, as well as the corresponding recorded investment in loans at the end of each period. Commercial Total Commercial Commercial real estate- commercial real estate- Construction non-real owner and income and land Residential (in thousands) estate occupied industrial producing development mortgages Consumer Total Three Months Ended March 31, 2019 Allowance for loan losses: Beginning balance $ 97,752 $ 13,757 $ 111,509 $ 17,638 $ 15,647 $ 23,782 $ 25,938 $ 194,514 Charge-offs (16,344 ) — (16,344 ) (10 ) — (406 ) (4,231 ) (20,991 ) Recoveries 1,926 17 1,943 2 11 162 1,004 3,122 Net provision for loan losses 14,186 33 14,219 3,173 (1,631 ) (3 ) 2,285 18,043 Ending balance $ 97,520 $ 13,807 $ 111,327 $ 20,803 $ 14,027 $ 23,535 $ 24,996 $ 194,688 Ending balance: Allowance: Individually evaluated for impairment $ 1,775 $ 205 $ 1,980 $ 143 $ 1 $ 219 $ 347 $ 2,690 Amounts related to purchased credit impaired loans 288 185 473 35 78 9,162 341 10,089 Collectively evaluated for impairment 95,457 13,417 108,874 20,625 13,948 14,154 24,308 181,909 Total allowance $ 97,520 $ 13,807 $ 111,327 $ 20,803 $ 14,027 $ 23,535 $ 24,996 $ 194,688 Loans: Individually evaluated for impairment $ 231,506 $ 16,974 $ 248,480 $ 2,668 $ 19 $ 5,397 $ 1,508 $ 258,072 Purchased credit impaired loans 6,445 5,472 11,917 4,267 2,897 102,199 3,615 124,895 Collectively evaluated for impairment 8,418,375 2,492,982 10,911,357 2,556,459 1,337,151 2,825,655 2,099,249 19,729,871 Total loans $ 8,656,326 $ 2,515,428 $ 11,171,754 $ 2,563,394 $ 1,340,067 $ 2,933,251 $ 2,104,372 $ 20,112,838 Commercial Total Commercial Commercial real estate- commercial real estate- Construction non-real owner and 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 Ending balance: Allowance: 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: 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 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) 2019 2018 Commercial non-real estate $ 126,992 $ 110,653 Commercial real estate - owner occupied 14,466 16,895 Total commercial and industrial 141,458 127,548 Commercial real estate - income producing 4,205 4,991 Construction and land development 2,013 2,146 Residential mortgages 39,275 35,866 Consumer 17,880 16,744 Total loans $ 204,831 $ 187,295 Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $105.9 million and $85.5 million at March 31, 2019 and December 31, 2018, respectively. Total TDRs, both accruing and nonaccruing, were $223.4 million at March 31, 2019 and $224.6 million at December 31, 2018. All TDRs are individually evaluated for impairment. At March 31, 2019 and December 31, 2018, the Company had unfunded commitments of $8.5 million and $2.1 million, respectively, to borrowers whose loan terms have been modified in a TDR. The tables below detail by portfolio class TDRs that were modified during the three months ended March 31, 2019 and 2018: Three Months Ended ($ in thousands) March 31, 2019 March 31, 2018 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 7 $ 13,803 $ 13,803 13 $ 55,482 $ 55,482 Commercial real estate - owner occupied 1 167 167 1 5,909 5,909 Total commercial and industrial 8 13,970 13,970 14 61,391 61,391 Commercial real estate - income producing — — — 1 1,564 1,564 Construction and land development — — — 1 43 43 Residential mortgages 5 1,264 1,264 — — — Consumer 2 46 46 1 222 222 Total loans 15 $ 15,280 $ 15,280 17 $ 63,220 $ 63,220 The TDRs modified during the three months ended March 31, 2019 reflected in the table above include $0.1 million of loans with extended amortization terms or other payment concessions, $8.8 million with significant covenant waivers and $6.4 million with other modifications. The TDRs modified during the three months ended March 31, 2018 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. There were no defaults on loans during the three months ended March 31, 2019 or 2018 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 March 31, 2019 and December 31, 2018. 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, 2019 (in thousands) Recorded investment without an allowance Recorded investment with an allowance Unpaid principal balance Related allowance Commercial non-real estate $ 158,767 $ 72,739 $ 278,392 $ 1,775 Commercial real estate - owner occupied 10,442 6,532 20,888 205 Total commercial and industrial 169,209 79,271 299,280 1,980 Commercial real estate - income producing 1,130 1,538 3,403 143 Construction and land development - 19 20 1 Residential mortgages 3,630 1,767 5,942 219 Consumer 471 1,037 1,753 347 Total loans $ 174,440 $ 83,632 $ 310,398 $ 2,690 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 The tables below present the average balances and interest income for total impaired loans for the three months ended March 31, 2019 and 2018. Interest income recognized represents interest on accruing loans modified in a TDR. Three Months Ended March 31, 2019 March 31, 2018 (in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial non-real estate $ 235,445 $ 1,696 $ 295,897 $ 1,586 Commercial real estate - owner occupied 19,320 80 25,905 66 Total commercial and industrial 254,765 1,776 321,802 1,652 Commercial real estate - income producing 2,685 7 14,801 25 Construction and land development 70 — 238 — Residential mortgages 4,637 5 9,489 5 Consumer 1,258 16 955 9 Total loans $ 263,415 $ 1,804 $ 347,285 $ 1,691 Aging Analysis The tables below present the age analysis of past due loans by portfolio class at March 31, 2019 and December 31, 2018. Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be current. March 31, 2019 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 still accruing (in thousands) Commercial non-real estate $ 19,036 $ 2,527 $ 69,249 $ 90,812 $ 8,565,514 $ 8,656,326 $ 13,920 Commercial real estate - owner occupied 4,543 561 16,336 21,440 2,493,988 2,515,428 3,937 Total commercial and industrial 23,579 3,088 85,585 112,252 11,059,502 11,171,754 17,857 Commercial real estate - income producing 6,124 - 5,854 11,978 2,551,416 2,563,394 1,876 Construction and land development 8,328 186 1,757 10,271 1,329,796 1,340,067 721 Residential mortgages 39,534 8,045 19,299 66,878 2,866,373 2,933,251 679 Consumer 15,738 4,120 9,225 29,083 2,075,289 2,104,372 660 Total $ 93,303 $ 15,439 $ 121,720 $ 230,462 $ 19,882,376 $ 20,112,838 $ 21,793 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 still 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 $ 77,690 $ 26,767 $ 132,593 $ 237,050 $ 19,789,361 $ 20,026,411 $ 14,309 Credit Quality Indicators The following tables present the credit quality indicators by segments and portfolio class of loans at March 31, 2019 and December 31, 2018. March 31, 2019 (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 $ 8,028,706 $ 2,342,948 $ 10,371,654 $ 2,450,517 $ 1,319,519 $ 14,141,690 Pass-Watch 166,406 91,434 257,840 81,718 9,743 349,301 Special Mention 62,830 16,159 78,989 10,760 890 90,639 Substandard 398,384 64,887 463,271 20,399 9,915 493,585 Doubtful — — — — — — Total $ 8,656,326 $ 2,515,428 $ 11,171,754 $ 2,563,394 $ 1,340,067 $ 15,075,215 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 March 31, 2019 December 31, 2018 (in thousands) Residential mortgage Consumer Total Residential mortgage Consumer Total Performing $ 2,893,635 $ 2,085,456 $ 4,979,091 $ 2,873,669 $ 2,130,395 $ 5,004,064 Nonperforming 39,616 18,916 58,532 36,412 17,472 53,884 Total $ 2,933,251 $ 2,104,372 $ 5,037,623 $ 2,910,081 $ 2,147,867 $ 5,057,948 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 – accruing loans that have not been modified in a troubled debt restructuring. • Nonperforming – loans for which there are good reasons to doubt that 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. 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, 2019 and the year ended December 31, 2018. March 31, 2019 December 31, 2018 (in thousands) Carrying Amount of Loans Accretable Yield Carrying Amount of Loans Accretable Yield Balance at beginning of period $ 129,596 $ 37,294 $ 153,403 $ 62,517 Payments received, net (8,286 ) (1,100 ) (39,556 ) (5,779 ) Accretion 3,584 (3,584 ) 15,749 (15,749 ) Decrease in expected cash flows based on actual cash flows and changes in cash flow assumptions — (872 ) — (3,695 ) Balance at end of period $ 124,894 $ 31,738 $ 129,596 $ 37,294 Residential Mortgage Loans in Process of Foreclosure Included in loans are $7.3 million and $7.1 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of March 31, 2019 and December 31, 2018, 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 $2.2 million and $1.8 million of foreclosed single family residential properties in other real estate owned at March 31, 2019 and December 31, 2018, respectively. |