Note 3. Loans

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.

The Company generally makes loans in its market areas of south Mississippi, southern and central Alabama, south Louisiana, the Houston, Texas areas and the northern, central and panhandle regions of Florida. Loans, net of unearned income, consisted of the following:



	December 31,
(in thousands)	2016		2015
Commercial non-real estate	$	7,613,917	$	6,995,824
Commercial real estate - owner occupied		1,906,821		1,859,469
Total commercial & industrial		9,520,738		8,855,293
Commercial real estate - income producing		2,013,890		1,553,082
Construction and land development		1,010,879		1,151,950
Residential mortgages		2,146,713		2,049,524
Consumer		2,059,931		2,093,465
Total loans	$	16,752,151	$	15,703,314

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. Loans 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, 2016 and 2015 were approximately $15.3 million and $17.4 million, respectively. Related party loan activity for 2016 includes new loans of $25.5 million and repayments of $27.6 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 $865 million and $900 million at December 31, 2016 and 2015, respectively.

The following schedules show activity in the allowance for loan losses for 2016 and 2015 by portfolio segment and the corresponding recorded investment in loans as of December 31, 2016 and December 31, 2015.



	Commercial non-real estate		Commercial real estate- owner occupied		Total commercial & industrial		Commercial real estate- income producing		Construction and land development		Residential mortgages		Consumer		Total
(in thousands)	Year Ended December 31, 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)		(323)		(8)		(378)
Recoveries		115		269		384		2		361		36		189		972
Net provision for loan losses		(44)		(440)		(484)		(462)		(594)		1,876		(1,740)		(1,404)
(Decrease) increase in FDIC loss share receivable		(31)		—		(31)		—		—		(4,209)		283		(3,957)
Non-purchased credit impaired activity:
Charge-offs		(42,620)		(1,819)		(44,439)		(346)		(964)		(1,040)		(26,099)		(72,888)
Recoveries		3,969		480		4,449		989		1,725		859		5,809		13,831
Net provision for loan losses		76,235		2,763		78,998		7,286		119		2,809		22,851		112,063
Ending balance	$	147,052	$	11,083	$	158,135	$	13,509	$	6,271	$	25,361	$	26,142	$	229,418
Ending balance:
Allowance:
Individually evaluated for impairment	$	28,187	$	246	$	28,433	$	466	$	38	$	91	$	267	$	29,295
Amounts related to purchased credit impaired loans		486		894		1,380		253		406		15,043		1,271		18,353
Collectively evaluated for impairment		118,379		9,943		128,322		12,790		5,827		10,227		24,604		181,770
Total allowance	$	147,052	$	11,083	$	158,135	$	13,509	$	6,271	$	25,361	$	26,142	$	229,418
Loans:
Individually evaluated for impairment	$	271,262	$	6,268	$	277,530	$	15,376	$	1,938	$	4,347	$	2,154	$	301,345
Purchased credit impaired loans		11,368		13,323		24,691		7,928		5,271		141,992		11,033		190,915
Collectively evaluated for impairment		7,331,287		1,887,230		9,218,517		1,990,586		1,003,670		2,000,374		2,046,744		16,259,891
Total loans	$	7,613,917	$	1,906,821	$	9,520,738	$	2,013,890	$	1,010,879	$	2,146,713	$	2,059,931	$	16,752,151



	Commercial non-real estate		Commercial real estate- owner occupied		Total commercial & industrial		Commercial real estate- income producing		Construction and land development		Residential mortgages		Consumer		Total

(in thousands)	Year Ended December 31, 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		(1,427)		(390)		(1,817)		(2,353)		(410)		(772)		(143)		(5,495)
Recoveries		1,704		971		2,675		21		910		84		196		3,886
Net provision for loan losses		(1,018)		(1,848)		(2,866)		822		(845)		1,147		(1,313)		(3,055)
Increase (decrease) in FDIC loss share receivable		276		(396)		(120)		919		(6)		(3,405)		(188)		(2,800)
Non-purchased credit impaired activity:
Charge-offs		(6,934)		(1,002)		(7,936)		(480)		(2,424)		(1,635)		(16,688)		(29,163)
Recoveries		3,342		1,663		5,005		742		2,179		687		4,338		12,951
Net provision for loan losses		62,316		(2,676)		59,640		(1,176)		(183)		587		17,225		76,093
Ending balance	$	109,428	$	9,858	$	119,286	$	6,041	$	5,642	$	25,353	$	24,857	$	181,179
Ending balance:
Allowance:
Individually evaluated for impairment	$	19,031	$	23	$	19,054	$	1,382	$	392	$	127	$	33	$	20,988
Amounts related to purchased credit impaired loans		446		1,093		1,539		714		657		17,663		2,547		23,120
Collectively evaluated for impairment		89,951		8,742		98,693		3,945		4,593		7,563		22,277		137,071
Total allowance	$	109,428	$	9,858	$	119,286	$	6,041	$	5,642	$	25,353	$	24,857	$	181,179
Loans:
Individually evaluated for impairment	$	81,622	$	5,409	$	87,031	$	11,122	$	14,226	$	895	$	152	$	113,426
Purchased credit impaired loans		12,004		17,431		29,435		9,193		12,103		162,268		12,839		225,838
Collectively evaluated for impairment		6,902,198		1,836,629		8,738,827		1,532,767		1,125,621		1,886,361		2,080,474		15,364,050
Total loans	$	6,995,824	$	1,859,469	$	8,855,293	$	1,553,082	$	1,151,950	$	2,049,524	$	2,093,465	$	15,703,314

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)	2016		2015
Commercial non-real estate	$	249,037	$	88,743
Commercial real estate - owner occupied		14,413		10,001
Total commercial & industrial		263,450		98,744
Commercial real estate - income producing		13,954		10,815
Construction and land development		4,550		17,294
Residential mortgages		23,665		23,799
Consumer		12,351		9,061
Total loans	$	317,970	$	159,713

Nonaccrual loans include loans modified in troubled debt restructurings (TDRs) of $81.9 million and $8.8 million, respectively, at December 31, 2016 and 2015. Total TDRs, both accruing and nonaccruing, were $121.7 million at December 31, 2016 and $13.1 million at December 31, 2015.

The table below details the TDRs that occurred during 2016 and 2015 by portfolio segment. All are individually evaluated for impairment.



	Years Ended
($ in thousands)	2016					2015
		Outstanding Recorded Investment					Outstanding Recorded Investment
Troubled Debt Restructurings:	Number of Contracts	Pre- Modification		Post- Modification		Number of Contracts	Pre- Modification		Post- Modification
Commercial non-real estate	38	$	128,449	$	128,449	1	$	4,420	$	4,420
Commercial real estate - owner occupied	1		148		148	—		—		—
Total commercial & industrial	39		128,597		128,597	1		4,420		4,420
Commercial real estate - income producing	1		2,943		2,943	1		485		482
Construction and land development	—		—		—	—		—		—
Residential mortgages	7		694		694	4		195		185
Consumer	—		—		—	1		20		20
Total loans	47	$	132,234	$	132,234	7	$	5,120	$	5,107

The TDRs during the twelve months ended December 31, 2016 reflected in the table above include $108.9 million of loans with extended amortization terms or other payment concessions, $22.8 million of loans with significant covenant waivers and $0.5 million with other modifications. The TDRs during the twelve months ended December 31, 2015 include $5.0 million of loans with extended terms or other payment concessions and $0.1 million of other modifications.

No TDRs subsequently defaulted within twelve months of modification for the years ended December 31, 2016 and December 31, 2015.

The tables below present loans that are individually evaluated for impairment disaggregated by class at December 31, 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.



	December 31, 2016
(in thousands)	Recorded investment without an allowance		Recorded investment with an allowance		Unpaid principal balance		Related allowance
Commercial non-real estate	$	150,650	$	120,612	$	295,445	$	28,187
Commercial real estate - owner occupied		4,261		2,007		6,646		246
Total commercial & industrial		154,911		122,619		302,091		28,433
Commercial real estate - income producing		10,447		4,929		15,708		466
Construction and land development		1,106		832		2,903		38
Residential mortgages		2,877		1,470		4,865		91
Consumer		—		2,154		2,155		267
Total loans	$	169,341	$	132,004	$	327,722	$	29,295



	December 31, 2015
(in thousands)	Recorded investment without an allowance		Recorded investment with an allowance		Unpaid 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



	Years Ended
	December 31, 2016				December 31, 2015
(in thousands)	Average Recorded Investment		Interest income recognized		Average Recorded Investment		Interest income recognized
Commercial non-real estate	$	211,324	$	1,164	$	41,274	$	11
Commercial real estate - owner occupied		6,151		44		14,269		54
Total commercial & industrial		217,475		1,208		55,543		65
Commercial real estate - income producing		9,347		106		11,396		85
Construction and land development		6,366		1		5,508		66
Residential mortgages		2,109		10		1,618		22
Consumer		716		5		119		4
Total loans	$	236,013	$	1,330	$	74,184	$	242

Aging Analysis

The following table presents the age analysis of past due loans at December 31, 2016 and December 31, 2015. Purchased credit impaired loans with an accretable yield are considered to be current in the following delinquency table:



December 31, 2016	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	$	19,722	$	1,909	$	68,505	$	90,136	$	7,523,781	$	7,613,917	$	384
Commercial real estate - owner occupied		3,008		581		6,310		9,899		1,896,922		1,906,821		52
Total commercial & industrial		22,730		2,490		74,815		100,035		9,420,703		9,520,738		436
Commercial real estate - income producing		838		50		5,026		5,914		2,007,976		2,013,890		216
Construction and land development		694		171		5,300		6,165		1,004,714		1,010,879		1,563
Residential mortgages		24,599		8,816		14,369		47,784		2,098,929		2,146,713		1
Consumer		18,621		7,441		9,147		35,209		2,024,722		2,059,931		823
Total loans	$	67,482	$	18,968	$	108,657	$	195,107	$	16,557,044	$	16,752,151	$	3,039



December 31, 2015	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	$	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 loans	$	79,027	$	12,101	$	62,563	$	153,691	$	15,549,623	$	15,703,314	$	7,653

Credit Quality Indicators

The following table presents the credit quality indicators of the Company’s various classes of loans at December 31, 2016 and December 31, 2015.



	December 31, 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	$	6,364,348	$	1,719,114	$	8,083,462	$	1,873,644	$	968,505	$	10,925,611
Pass-Watch		203,311		47,676		250,987		78,309		22,592		351,888
Special Mention		181,763		40,299		222,062		22,492		4,142		248,696
Substandard		846,793		99,732		946,525		39,434		15,640		1,001,599
Doubtful		17,702		—		17,702		11		—		17,713
Total	$	7,613,917	$	1,906,821	$	9,520,738	$	2,013,890	$	1,010,879	$	12,545,507



	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



	December 31, 2016						December 31, 2015
(in thousands)	Residential mortgage		Consumer		Total		Residential mortgage		Consumer		Total
Performing	$	2,123,048	$	2,046,757	$	4,169,805	$	2,025,563	$	2,082,238	$	4,107,801
Nonperforming		23,665		13,174		36,839		23,961		11,227		35,188
Total	$	2,146,713	$	2,059,931	$	4,206,644	$	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 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 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.

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 acquired-impaired loans and accretable yield are presented in the following table for the years ended December 31, 2016 and 2015:



	Years Ended
		December 31, 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			(55,194)		(11,024)		(115,847)		(21,978)
Accretion			20,271		(20,271)		28,000		(28,000)
Increase (decrease) in expected cash flows based on actual
cash flow and changes in cash flow assumptions			—		5,358		—		(4,238)
Net transfers from nonaccretable difference
to accretable yield			—		10,135		—		(3,752)
Balance at end of period		$	190,915	$	113,686	$	225,838	$	129,488

Loans acquired in an FDIC-assisted transaction and the related FDIC loss share receivable

Loans purchased in the 2009 acquisition of Peoples First Community Bank 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 December 31, 2016, $149 million of purchased credit impaired loans were covered by the single family loss share agreement, providing considerable protection against credit risk.

The receivable arising from the loss-sharing 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 FDIC loss share receivable for 2016 and 2015:



	Years Ended December 31,
(in thousands)	2016		2015
Balance, January 1	$	29,868	$	60,272
Amortization		(5,918)		(5,747)
Charge-offs, write-downs and other (recoveries) losses		(8,264)		(8,072)
External expenses qualifying under loss share agreement		1,356		2,677
Changes due to changes in cash flow projections		(3,957)		(2,800)
FDIC resolution of denied claims		—		(2,411)
Net payments to (from) FDIC		3,134		(14,051)
Balance, December 31	$	16,219	$	29,868

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $10.1 million and $7.4 million of consumer loans secured by single family residential mortgage real estate that are in process of foreclosure as of December 31, 2016 and December 31, 2015, respectively. Of these loans, $4.9 million and $4.1 million, respectively, are covered by an FDIC loss share agreement that provides significant protection against losses. 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 $3.1 million and $9.3 million of foreclosed single family residential properties in other real estate owned as of December 31, 2016 and December 31, 2015, respectively. Of these foreclosed properties, $0.9 million and $1.6 million as of December 31, 2016 and December 31, 2015, respectively, are also covered by the FDIC loss share agreement.

Loans Held for Sale

Loans held for sale totaled $34.1 million and $20.4 million, respectively, at December 31, 2016 and 2015. 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.