4. 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.

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, by portfolio are presented in the table below.



	March 31,		December 31,
(in thousands)	2017		2016

Commercial non-real estate	$	8,074,287	$	7,613,917
Commercial real estate - owner occupied		2,047,451		1,906,821
Total commercial & industrial		10,121,738		9,520,738
Commercial real estate - income producing		2,505,104		2,013,890
Construction and land development		1,252,667		1,010,879
Residential mortgages		2,266,263		2,146,713
Consumer		2,059,096		2,059,931
Total loans	$	18,204,868	$	16,752,151

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 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 three months ended March 31, 2017 and 2016, 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
	Three months ended March 31, 2017

Allowance for loan losses:
Beginning balance	$	147,052	$	11,083	$	158,135	$	13,509	$	6,271	$	25,361	$	26,142	$	229,418
Purchased credit impaired activity:
Charge-offs		—		—		—		—		(54)		(59)		(139)		(252)
Recoveries		2		75		77		—		23		5		29		134
Net provision for loan losses		(46)		(182)		(228)		(40)		(92)		(7)		(39)		(406)
Decrease in FDIC loss share receivable		(31)		—		(31)		—		—		(1,696)		(103)		(1,830)
Non-purchased credit impaired activity:
Charge-offs		(24,791)		(29)		(24,820)		(7)		(37)		(289)		(8,539)		(33,692)
Recoveries		936		200		1,136		375		448		108		1,714		3,781
Net provision for loan losses		8,147		375		8,522		(226)		161		383		7,557		16,397
Ending balance	$	131,269	$	11,522	$	142,791	$	13,611	$	6,720	$	23,806	$	26,622	$	213,550
Ending balance:
Allowance:
Individually evaluated for impairment	$	15,017	$	76	$	15,093	$	1,114	$	1	$	94	$	199	$	16,501
Amounts related to purchased credit impaired loans		411		787		1,198		213		283		13,286		1,019		15,999
Collectively evaluated for impairment		115,841		10,659		126,500		12,284		6,436		10,426		25,404		181,050
Total allowance	$	131,269	$	11,522	$	142,791	$	13,611	$	6,720	$	23,806	$	26,622	$	213,550
Loans:
Individually evaluated for impairment	$	231,988	$	3,894	$	235,882	$	13,599	$	1,592	$	3,236	$	2,149	$	256,458
Purchased credit impaired loans		6,693		12,468		19,161		7,669		4,326		138,260		9,951		179,367
Collectively evaluated for impairment		7,835,606		2,031,089		9,866,695		2,483,836		1,246,749		2,124,767		2,046,996		17,769,043
Total loans	$	8,074,287	$	2,047,451	$	10,121,738	$	2,505,104	$	1,252,667	$	2,266,263	$	2,059,096	$	18,204,868



			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
	Three months ended March 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)		—		—		(47)
Recoveries		3		35		38		1		35		1		39		114
Net provision for loan losses		7		(194)		(187)		(109)		(151)		1,130		(1,179)		(496)
Decrease in FDIC loss share receivable		(17)		—		(17)		—		—		(2,153)		(19)		(2,189)
Non-purchased credit impaired activity:
Charge-offs		(17,667)		(783)		(18,450)		(115)		(110)		(175)		(5,843)		(24,693)
Recoveries		809		41		850		144		605		301		1,494		3,394
Net provision for loan losses		52,096		5,667		57,763		1,632		(1,627)		235		2,529		60,532
Ending balance	$	144,659	$	14,596	$	159,255	$	7,593	$	4,376	$	24,692	$	21,878	$	217,794
Ending balance:
Allowance:
Individually evaluated for impairment	$	26,502	$	67	$	26,569	$	1,272	$	185	$	125	$	16	$	28,167
Amounts related to purchased credit impaired loans		439		906		1,345		605		523		16,641		1,388		20,502
Collectively evaluated for impairment		117,718		13,623		131,341		5,716		3,668		7,926		20,474		169,125
Total allowance	$	144,659	$	14,596	$	159,255	$	7,593	$	4,376	$	24,692	$	21,878	$	217,794
Loans:
Individually evaluated for impairment	$	201,029	$	6,018	$	207,047	$	8,681	$	14,072	$	883	$	58	$	230,741
Purchased credit impaired loans		12,659		15,864		28,523		11,185		8,930		161,078		12,177		221,893
Collectively evaluated for impairment		6,931,718		1,901,465		8,833,183		1,732,879		1,072,412		1,839,006		2,048,010		15,525,490
Total loans	$	7,145,406	$	1,923,347	$	9,068,753	$	1,752,745	$	1,095,414	$	2,000,967	$	2,060,245	$	15,978,124

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)	2017		2016
Commercial non-real estate	$	198,137	$	249,037
Commercial real estate - owner occupied		11,167		14,413
Total commercial & industrial		209,304		263,450
Commercial real estate - income producing		13,348		13,954
Construction and land development		3,561		4,550
Residential mortgages		23,012		23,665
Consumer		13,424		12,351
Total loans	$	262,649	$	317,970

Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $112.6 million and $81.9 million at March 31, 2017 and December 31, 2016, respectively. Total TDRs, both accruing and nonaccruing, were $159.9 million as of March 31, 2017 and $121.7 million at December 31, 2016. All TDRs are individually evaluated for impairment.

The table below details TDRs that were modified during the three months ended March 31, 2017 and March 31, 2016 by portfolio class.



	Three months Ended
($ in thousands)		March 31, 2017						March 31, 2016
			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		9	$	38,659	$	38,659		11	$	51,246	$	51,246
Commercial real estate - owner occupied		1		656		656		—		—		—
Total commercial & industrial		10		39,315		39,315		11		51,246		51,246
Commercial real estate - income producing		2		5,527		5,527		—		—		—
Construction and land development		—		—		—		—		—		—
Residential mortgages		1		250		250		—		—		—
Consumer		—		—		—		—		—		—
Total loans		13	$	45,092	$	45,092		11	$	51,246	$	51,246

The TDRs during the three months ended March 31, 2017 reflected in the table above include $27.4 million of loans with extended amortization terms or other payment concessions, $10.7 million of loans with significant covenant waivers and $6.9 million with other modifications. The TDRs during the three months ended March 31, 2016 include $26.8 million of loans with extended terms or other payment concessions and $24.6 million of other modifications.

No TDRs that subsequently defaulted within twelve months of modification were recorded in the three months ended March 31, 2017 or 2016.

The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at March 31, 2017 and December 31, 2016. 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, 2017
		Recorded investment		Recorded investment		Unpaid
(in thousands)		without an allowance		with an allowance		principal balance		Related allowance
Commercial non-real estate	$	120,166	$	111,822	$	244,153	$	15,017
Commercial real estate - owner occupied		2,801		1,093		4,265		76
Total commercial & industrial		122,967		112,915		248,418		15,093
Commercial real estate - income producing		5,740		7,859		13,934		1,114
Construction and land development		1,576		16		2,556		1
Residential mortgages		2,158		1,078		3,761		94
Consumer		1,243		906		2,149		199
Total loans	$	133,684	$	122,774	$	270,818	$	16,501


	December 31, 2016
		Recorded investment		Recorded investment		Unpaid
(in thousands)		without an allowance		with an allowance		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



	Three Months Ended
	March 31, 2017				March 31, 2016
	Average		Interest		Average			Interest
	recorded		income		recorded			income
(in thousands)	investment		recognized		investment			recognized
Commercial non-real estate	$	251,625	$	337	$	141,326	$	182
Commercial real estate - owner occupied		5,081		4		5,713		14
Total commercial & industrial		256,706		341		147,039		196
Commercial real estate - income producing		14,487		43		9,902		22
Construction and land development		1,766		—		14,149		—
Residential mortgages		3,792		2		889		2
Consumer		2,152		2		105		1
Total loans	$	278,903	$	388	$	172,084	$	221

Aging Analysis

The tables below present the age analysis of past due loans by portfolio class at March 31, 2017 and December 31, 2016. 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
March 31, 2017	past due		past due		past due		past due		Current		Loans		still accruing
(in thousands)
Commercial non-real estate	$	52,677	$	15,530	$	60,536	$	128,743	$	7,945,544	$	8,074,287	$	245
Commercial real estate - owner occupied		3,907		1,726		5,578		11,211		2,036,240		2,047,451		35
Total commercial & industrial		56,584		17,256		66,114		139,954		9,981,784		10,121,738		280
Commercial real estate - income producing		4,365		1,688		4,814		10,867		2,494,237		2,505,104		185
Construction and land development		14,845		343		2,944		18,132		1,234,535		1,252,667		25
Residential mortgages		18,104		5,104		15,655		38,863		2,227,400		2,266,263		—
Consumer		16,446		5,537		7,736		29,719		2,029,377		2,059,096		100
Total	$	110,344	$	29,928	$	97,263	$	237,535	$	17,967,333	$	18,204,868	$	590



													Recorded
					Greater than								investment
	30-59 days		60-89 days		90 days		Total				Total		> 90 days and
December 31, 2016	past due		past due		past due		past due		Current		Loans		still 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	$	67,482	$	18,968	$	108,657	$	195,107	$	16,557,044	$	16,752,151	$	3,039

Credit Quality Indicators

The following tables present the credit quality indicators by segments and portfolio class of loans at March 31, 2017 and December 31, 2016.



	March 31, 2017
(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	$	6,839,049	$	1,840,799	$	8,679,848	$	2,292,057	$	1,139,772	$	12,111,677
Pass-Watch		296,914		46,048		342,962		141,063		93,309		577,334
Special Mention		182,128		55,919		238,047		30,360		8,311		276,718
Substandard		744,326		104,685		849,011		41,614		11,275		901,900
Doubtful		11,870		—		11,870		10		—		11,880
Total	$	8,074,287	$	2,047,451	$	10,121,738	$	2,505,104	$	1,252,667	$	13,879,509

	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



	March 31, 2017						December 31, 2016
(in thousands)	Residential mortgage		Consumer		Total		Residential mortgage		Consumer		Total
Performing	$	2,243,251	$	2,045,572	$	4,288,823	$	2,123,048	$	2,046,757	$	4,169,805
Nonperforming		23,012		13,524		36,536		23,665		13,174		36,839
Total	$	2,266,263	$	2,059,096	$	4,325,359	$	2,146,713	$	2,059,931	$	4,206,644

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 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

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, 2017 and the year ended December 31, 2016.



	March 31, 2017				December 31, 2016
	Carrying				Carrying
	Amount		Accretable		Amount		Accretable
(in thousands)	of Loans		Yield		of Loans		Yield
Balance at beginning of period	$	190,915	$	113,686	$	225,838	$	129,488
Payments received, net		(16,422)		(1,477)		(55,194)		(11,024)
Accretion		4,874		(4,874)		20,271		(20,271)
Increase (decrease) in expected cash flows based on actual cash flows and changes in cash flow assumptions		—		4,318		—		5,358
Net transfers to (from) nonaccretable difference to accretable yield		—		3,422		—		10,135
Balance at end of period	$	179,367	$	115,075	$	190,915	$	113,686

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 March 31, 2017 and March 31, 2016, loans totaling $143.8 million and $168.1 million, respectively, were covered by the single family loss share agreement, providing considerable protection against credit risk.

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 three months ended March 31, 2017 and 2016.



	Three months Ended
	March 31,		March 31,
(in thousands)	2017		2016
Beginning Balance	$	16,219	$	29,868
Amortization		(1,100)		(1,613)
Charge-offs, write-downs and other recoveries		(1,231)		(1,005)
External expenses qualifying under loss share agreement		131		465
Changes due to changes in cash flow projections		(1,830)		(2,189)
Net payments to FDIC		1,131		302
Ending balance	$	13,320	$	25,828

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $7.5 million and $10.1 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of March 31, 2017 and December 31, 2016, respectively. Of these loans, $3.7 million and $4.9 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 $3.1 million of foreclosed single family residential properties in other real estate owned as of March 31, 2017 and December 31, 2016. Of these foreclosed properties, $0.7 million and $0.9 million as of March 31, 2017 and December 31, 2016, respectively, are also covered by the FDIC loss share agreement.