3. Loans and Allowance for Loan Losses

The presentation of loan disclosures has been modified from prior filings to eliminate segmentation of Acquired (2011 Whitney Holding Corporation transaction) and FDIC Acquired (2009 Peoples First Community Bank transaction) due to the significantly reduced size of these portfolios. The revised presentation reflects purchased credit impaired (“PCI”) loan information in select tables. PCI loans include the total FDIC Acquired portfolio and the portion of the Acquired portfolio deemed credit impaired at acquisition. In addition, the revised presentation includes further segmentation of the commercial real estate portfolio between owner occupied and income producing loans due to the significant differences in risk characteristics of these loans and to conform more closely to regulatory concentration segments and general industry practices. All prior period information has been reclassified to conform to the current period presentation.

Loans, net of unearned income, by portfolio are presented in the table below.



	June 30,		December 31,
(in thousands)	2016		2015

Commercial non-real estate	$	7,132,519	$	6,995,824
Commercial real estate - owner occupied		1,916,200		1,859,469
Total commercial & industrial		9,048,719		8,855,293
Commercial real estate - income producing		2,024,471		1,553,082
Construction and land development		880,588		1,151,950
Residential mortgages		2,017,650		2,049,524
Consumer		2,064,368		2,093,465
Total loans	$	16,035,796	$	15,703,314

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, if secured, on 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

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 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 six months ended June 30, 2016 and 2015, 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

	Six Months Ended June 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)		(23)		(8)		(78)
Recoveries		8		120		128		2		53		3		106		292
Net provision for loan losses		79		(170)		(91)		26		(117)		1,165		(1,290)		(307)
Increase (decrease) in FDIC loss share receivable		39		—		39		—		—		(3,378)		(98)		(3,437)
Non-purchased credit impaired activity:
Charge-offs		(22,212)		(1,199)		(23,411)		(191)		(592)		(592)		(11,268)		(36,054)
Recoveries		1,802		238		2,040		268		1,125		480		3,039		6,952
Net provision for loan losses		61,628		1,857		63,485		6,654		(1,087)		466		8,021		77,539
Ending balance	$	150,772	$	10,676	$	161,448	$	12,799	$	5,006	$	23,474	$	23,359	$	226,086
Ending balance:
Allowance:
Individually evaluated for impairment	$	12,885	$	183	$	13,068	$	72	$	1	$	167	$	41	$	13,349
Amounts related to purchased credit impaired loans		572		1,015		1,587		741		575		15,430		1,257		19,590
Collectively evaluated for impairment		137,315		9,478		146,793		11,986		4,430		7,877		22,061		193,147
Total allowance	$	150,772	$	10,676	$	161,448	$	12,799	$	5,006	$	23,474	$	23,359	$	226,086
Loans:
Individually evaluated for impairment	$	232,785	$	5,898	$	238,683	$	7,803	$	1,247	$	1,068	$	166	$	248,967
Purchased credit impaired loans		10,483		15,428		25,911		10,752		8,761		151,674		12,826		209,924
Collectively evaluated for impairment		6,889,251		1,894,874		8,784,125		2,005,916		870,580		1,864,908		2,051,376		15,576,905
Total loans	$	7,132,519	$	1,916,200		9,048,719	$	2,024,471	$	880,588	$	2,017,650	$	2,064,368	$	16,035,796



			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

	Six Months ended June 30, 2015


Allowance for loan losses:
Beginning balance	$	51,169	$	13,536	$	64,705	$	7,546	$	6,421	$	28,660	$	21,430	$	128,762
Purchased credit impaired activity:
Charge-offs		(1,099)		(15)		(1,114)		(2,353)		(285)		(168)		(140)		(4,060)
Recoveries		14		465		479		—		406		2		136		1,023
Net provision for loan losses		470		(1,171)		(701)		1,102		(733)		272		(889)		(949)
Increase (decrease) in FDIC loss share receivable		347		(396)		(49)		919		(6)		(3,296)		(104)		(2,536)
Non-purchased credit impaired activity:
Charge-offs		(2,215)		(378)		(2,593)		(147)		(828)		(1,292)		(6,729)		(11,589)
Recoveries		2,051		135		2,186		291		1,308		449		2,491		6,725
Net provision for loan losses		9,586		2,812		12,398		(1,858)		(982)		62		4,091		13,711
Ending balance	$	60,323	$	14,988	$	75,311	$	5,500	$	5,301	$	24,689	$	20,286	$	131,087
Ending balance:
Allowance:
Individually evaluated for impairment	$	2,903	$	2,189	$	5,092	$	228	$	73	$	163	$	6	$	5,562
Amounts related to purchased credit impaired loans		643		1,639		2,282		973		390		17,419		2,998		24,062
Collectively evaluated for impairment		56,777		11,160		67,937		4,299		4,838		7,107		17,282		101,463
Total allowance	$	60,323	$	14,988	$	75,311	$	5,500	$	5,301	$	24,689	$	20,286	$	131,087
Loans:
Individually evaluated for impairment	$	32,379	$	21,701	$	54,080	$	12,682	$	4,360	$	1,369	$	116	$	72,607
Purchased credit impaired loans		13,667		24,775		38,442		15,563		19,465		171,107		14,860		259,437
Collectively evaluated for impairment		6,139,638		1,714,266		7,853,904		1,423,846		1,097,122		1,783,361		1,854,475		14,012,708
Total loans	$	6,185,684	$	1,760,742		7,946,426	$	1,452,091	$	1,120,947	$	1,955,837	$	1,869,451	$	14,344,752

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)	2016		2015
Commercial non-real estate	$	209,362	$	88,743
Commercial real estate - owner occupied		11,761		10,001
Total commercial & industrial		221,123		98,744
Commercial real estate - income producing		9,011		10,815
Construction and land development		4,173		17,294
Residential mortgages		22,874		23,799
Consumer		8,541		9,061
Total loans	$	265,722	$	159,713

Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $34.8 million and $8.8 million at June 30, 2016 and December 31, 2015, respectively. Total TDRs, both accruing and nonaccruing, were $70.8 million as of June 30, 2016 and $13.1 million at December 31, 2015.

The table below details TDRs that were modified during the six months ended June 30, 2016 and June 30, 2015 by portfolio class. The TDRs during the six months ended June 30, 2016 and 2015 were extended amortization, other modification of payment terms, or covenant violations. All are individually evaluated for impairment.



	Six Months Ended
($ in thousands)		June 30, 2016					June 30, 2015
			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		17	$	57,915	$	57,915		—	$	—	$	—
Commercial real estate - owner occupied		—		—		—		—		—		—
Total commercial & industrial		17		57,915		57,915		—		—		—
Commercial real estate - income producing		—		—		—		1		482		482
Construction and land development		—		—		—		—		—		—
Residential mortgages		4		432		432		2		68		68
Consumer		—		—		—		1		20		20
Total loans		21	$	58,347	$	58,347		4	$	570	$	570

No TDRs that subsequently defaulted within twelve months of modification were recorded in the six months ended June 30, 2016 or 2015.

The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at June 30, 2016 and December 31, 2015. 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, 2016
		Recorded investment		Recorded investment		Unpaid
(in thousands)		without an allowance		with an allowance		principal balance		Related allowance
Commercial non-real estate	$	101,481	$	131,304	$	244,928	$	12,885
Commercial real estate - owner occupied		3,323		2,575		6,285		183
Total commercial & industrial		104,804		133,879		251,213		13,068
Commercial real estate - income producing		5,265		2,538		8,034		72
Construction and land development		1,228		19		2,089		1
Residential mortgages		—		1,068		1,709		167
Consumer		—		166		166		41
Total loans	$	111,297	$	137,670	$	263,211	$	13,349


	December 31, 2015
		Recorded investment		Recorded investment		Unpaid
(in thousands)		without an allowance		with an allowance		principal balance		Related allowance
Commercial non-real estate	$	34,788	$	46,834	$	84,988	$	19,031
Commercial real estate - owner occupied		4,747		661		5,931		23
Total commercial & industrial		39,535		47,495		90,919		19,054
Commercial real estate - income producing		3,038		8,085		11,363		1,382
Construction and land development		12,461		1,765		14,784		392
Residential mortgages		—		895		1,405		127
Consumer		—		152		152		33
Total loans	$	55,034	$	58,392	$	118,623	$	20,988



	Three Months Ended
	June 30, 2016				June 30, 2015


	Average		Interest		Average			Interest
	recorded		income		recorded			income
(in thousands)	investment		recognized		investment			recognized
Commercial non-real estate	$	216,907	$	493	$	23,473	$	1
Commercial real estate - owner occupied		5,959		14		14,565		12
Total commercial & industrial		222,866		507		38,038		13
Commercial real estate - income producing		8,242		22		12,521		26
Construction and land development		7,660		—		4,371		27
Residential mortgages		976		2		1,896		7
Consumer		112		1		119		1
Total loans	$	239,856	$	532	$	56,945	$	74



	Six Months Ended
	June 30, 2016				June 30, 2015

	Average		Interest		Average			Interest
	recorded		income		recorded			income
(in thousands)	investment		recognized		investment			recognized
Commercial non-real estate	$	179,117	$	847	$	16,977	$	3
Commercial real estate - owner occupied		5,836		29		12,628		23
Total commercial & industrial		184,953		876		29,605		26
Commercial real estate - income producing		9,072		43		10,366		41
Construction and land development		10,905		—		5,664		59
Residential mortgages		932		4		2,149		20
Consumer		109		2		81		3
Total loans	$	205,971	$	925	$	47,865	$	149

Aging Analysis

The tables below present the age analysis of past due loans by portfolio class at June 30, 2016 and December 31, 2015. 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, 2016	past due		past due		past due		past due		Current		Loans		still accruing
(in thousands)
Commercial non-real estate	$	47,859	$	28,591	$	29,000	$	105,450	$	7,027,069	$	7,132,519	$	567
Commercial real estate - owner occupied		2,451		2,106		7,149		11,706		1,904,494		1,916,200		1,495
Total commercial & industrial		50,310		30,697		36,149		117,156		8,931,563		9,048,719		2,062
Commercial real estate - income producing		2,583		467		2,777		5,827		2,018,644		2,024,471		194
Construction and land development		1,386		938		7,647		9,971		870,617		880,588		4,759
Residential mortgages		15,108		7,293		12,549		34,950		1,982,700		2,017,650		143
Consumer		12,012		4,459		6,107		22,578		2,041,790		2,064,368		824
Total	$	81,399	$	43,854	$	65,229	$	190,482	$	15,845,314	$	16,035,796	$	7,982



													Recorded
					Greater than								investment
	30-59 days		60-89 days		90 days		Total				Total		> 90 days and
December 31, 2015	past due		past due		past due		past due		Current		Loans		still accruing
(in thousands)
Commercial non-real estate	$	17,406	$	1,468	$	25,007	$	43,881	$	6,951,943	$	6,995,824	$	3,060
Commercial real estate - owner occupied		5,898		802		6,646		13,346		1,846,123		1,859,469		535
Total commercial & industrial		23,304		2,270		31,653		57,227		8,798,066		8,855,293		3,595
Commercial real estate - income producing		871		603		6,382		7,856		1,545,226		1,553,082		499
Construction and land development		19,886		436		4,043		24,365		1,127,585		1,151,950		1,230
Residential mortgages		18,657		4,360		11,840		34,857		2,014,667		2,049,524		163
Consumer		16,309		4,432		8,645		29,386		2,064,079		2,093,465		2,166
Total	$	79,027	$	12,101	$	62,563	$	153,691	$	15,549,623	$	15,703,314	$	7,653

Credit Quality Indicators

The following tables present the credit quality indicators by segments and portfolio class of loans at June 30, 2016 and December 31, 2015.



	June 30, 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	$	5,968,194	$	1,743,672	$	7,711,866	$	1,961,653	$	847,229	$	10,520,748
Pass-Watch		252,605		39,586		292,191		15,764		16,355		324,310
Special Mention		250,226		37,151		287,377		8,412		537		296,326
Substandard		659,381		95,791		755,172		38,629		16,467		810,268
Doubtful		2,113		—		2,113		13		—		2,126
Total	$	7,132,519	$	1,916,200	$	9,048,719	$	2,024,471	$	880,588	$	11,953,778

	December 31, 2015
(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	$	6,260,863	$	1,718,725	$	7,979,588	$	1,502,484	$	1,095,296	$	10,577,368
Pass-Watch		168,589		31,764		200,353		14,717		6,841		221,911
Special Mention		211,230		41,147		252,377		5,905		12,297		270,579
Substandard		355,098		67,833		422,931		29,960		37,516		490,407
Doubtful		44		—		44		16		—		60
Total	$	6,995,824	$	1,859,469	$	8,855,293	$	1,553,082	$	1,151,950	$	11,560,325



	June 30, 2016						December 31, 2015
(in thousands)	Residential mortgage		Consumer		Total		Residential mortgage		Consumer		Total
Performing	$	1,994,633	$	2,055,003	$	4,049,636	$	2,025,563	$	2,082,238	$	4,107,801
Nonperforming		23,017		9,365		32,382		23,961		11,227		35,188
Total	$	2,017,650	$	2,064,368	$	4,082,018	$	2,049,524	$	2,093,465	$	4,142,989

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 have heightened risk factors that warrant additional monitoring; however, these risk factors have not manifested themselves as potential weaknesses. 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 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 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 – 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 and the related FDIC loss share receivable

Loans purchased in the 2009 acquisition of Peoples First Community Bank (“Peoples First”) were covered by two loss share agreements between the FDIC and the Company. The loss share agreement covering the non-single family portfolio expired in December 2014 and is now in a three year recovery period where 80% of recoveries on reimbursed losses are due to the FDIC. The loss share agreement covering the single family portfolio expires in December 2019. As of June 30, 2016 and June 30, 2015, loans totaling $160.0 million and $170.1 million, respectively, remain covered by the single family loss share agreement.

The receivable arising from the loss share agreements (referred to as the “FDIC loss share receivable” on our consolidated statements of financial condition) is measured separately from the covered loans because the agreements are not contractually part of the loans and are not transferable should the Company choose to dispose of the loans.

The following schedule shows activity in the loss share receivable for the six months ended June 30, 2016 and 2015.



	Six Months Ended
	June 30,		June 30,
(in thousands)	2016		2015
Beginning Balance	$	29,868	$	60,272
Amortization		(3,139)		(2,470)
Charge-offs, write-downs and other recoveries		(2,683)		(4,667)
External expenses qualifying under loss share agreement		307		482
Changes due to changes in cash flow projections		(3,437)		(2,536)
FDIC resolution of denied claims		—		(1,854)
Net payments to (from) FDIC		159		(14,153)
Ending balance	$	21,075	$	35,074

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, 2016 and the year ended December 31, 2015.



	June 30, 2016				December 31, 2015
	Carrying				Carrying
	Amount		Accretable		Amount		Accretable
(in thousands)	of Loans		Yield		of Loans		Yield
Balance at beginning of period	$	225,838	$	129,488	$	313,685	$	187,456
Payments received, net		(26,541)		(6,581)		(115,847)		(21,978)
Accretion		10,627		(10,627)		28,000		(28,000)
Increase (decrease) in expected cash flows based on actual cash flows and changes in cash flow assumptions		—		5,107		—		(4,238)
Net transfers from nonaccretable
Net transfers to (from) nonaccretable difference to accretable yield		—		8,997		—		(3,752)
Balance at end of period	$	209,924	$	126,384	$	225,838	$	129,488

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $7.1 million and $7.4 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of June 30, 2016 and December 31, 2015, respectively. Of these loans, $3.6 million and $4.1 million, respectively, are covered by the FDIC loss share agreement. 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 $5.9 million and $9.3 million of foreclosed single family residential properties in other real estate owned as of June 30, 2016 and December 31, 2015, respectively. Of these foreclosed properties, $0.7 million and $1.6 million as of June 30, 2016 and December 31, 2015, respectively, are also covered by the FDIC loss share agreement.