Cadence Bancorporation (Form: 10-K/A, Received: 03/08/2019 17:39:51)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment Number 1

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-38058

Cadence Bancorporation

(Exact name of Registrant as specified in its charter)

Delaware		47-1329858
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2800 Post Oak Boulevard, Suite 3800, Houston, Texas		77056
(Address of principal executive office)		(Zip Code)

Registrant’s telephone number, including area code: (713) 871-4000

Securities registered pursuant to Section 12(g) of the Act: Not Applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of Exchange on which registered
Class A Common Stock , $0.01 per share		New York Stock Exchange (‘NYSE”)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act of 1934. Yes ☒ No ☐

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒

As of June 29, 2018, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting shares of common stock held by non-affiliates of the Registrant was approximately $1.4 billion. This figure is based on the closing sale price of $28.87 per share of the Registrant’s Class A common stock, par value $0.01 per share (the “Class A common stock”) on June 29, 2018. For purposes of this calculation, the term “affiliate” refers to all executive officers and directors of the Registrant and all shareholders beneficially owning more than 10% of the Registrant’s common stock.

Number of shares of Class A common stock outstanding as of February 28, 2019: 129,962,749

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement relating to the 2019 Annual Meeting of Shareholders, which will be filed within 120 days after December 31, 2018, are incorporated by reference into Part II, Item 5 and Part III, Items 10-14 of this Annual Report on Form 10-K.

E XPLANATORY NOTE

This Annual Report on Form 10-K/A amends our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2018. This amendment is being filed to correct certain clerical errors that appeared in the original filing including the following: (1) the cover page is being amended to correct the number of shares of Class A common stock outstanding as of February 28, 2019 to 129,962,749; (2) page 79 in the original filing is being revised to delete the sentence within brackets. No other information in the original filing is being revised.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion and analysis presents our results of operations and financial condition on a consolidated basis. This discussion should be read in conjunction with the consolidated financial statements, accompanying footnotes and supplemental financial data included herein. Because we conduct our material business operations through our bank subsidiary, Cadence Bank, N.A., the discussion and analysis relates to activities primarily conducted by the Bank. We generate most of our revenue from interest on loans and investments and fee-based revenues. Our primary source of funding for our loans is deposits. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance primarily through our net income, pre-tax and pre-loan provision earnings, net interest margin, efficiency ratio, ratio of allowance for credit losses to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.

This Report on Form 10-K (“Annual Report”) contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

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business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic market areas;

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economic, market, operational, liquidity, credit and interest rate risks associated with our business;

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deteriorating asset quality and higher loan charge-offs;

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the laws and regulations applicable to our business;

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our ability to achieve organic loan and deposit growth and the composition of such growth;

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increased competition in the financial services industry, nationally, regionally or locally;

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our ability to maintain our historical earnings trends;

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our ability to raise additional capital to implement our business plan;

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material weaknesses in our internal control over financial reporting;

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systems failures or interruptions involving our information technology and telecommunications systems or third-party servicers;

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the composition of our management team and our ability to attract and retain key personnel;

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our ability to monitor our lending relationships;

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the composition of our loan portfolio, including the identity of our borrowers and the concentration of loans in energy-related industries and in our specialized industries;

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the portion of our loan portfolio that is comprised of participations and shared national credits;

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the amount of nonperforming and classified assets we hold;

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time and effort necessary to resolve nonperforming assets;

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our ability to identify potential candidates for, consummate, and achieve synergies resulting from, potential future acquisitions;

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difficulties and delays in integrating our businesses and State Bank or fully realizing cost savings and other benefits;

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our potential exposure to unknown or contingent liabilities of State Bank;

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any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems;

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environmental liability associated with our lending activities ;

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the geographic concentration of our markets in Texas and the southeast United States;

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the commencement and outcome of litigation and other legal proceedings against us or to which we may become subject;

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changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which we refer to as the Dodd-Frank Act, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, and insurance, and the ability to comply with such changes in a timely manner;

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changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve Board

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requirements to remediate adverse examination findings;

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changes in the scope and cost of FDIC deposit insurance premiums;

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implementation of regulatory initiatives regarding bank capital requirements that may require heightened capital;

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the obligations associated with being a public company;

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the fact that we are no longer an “emerging growth company’ and the reduced disclosure requirements applicable to emerging growth companies no longer apply to us;

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changes in accounting principles, policies, practices, or guidelines;

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our success at managing the risks involved in the foregoing items;

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our modeling estimates related to an increased interest rate environment;

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natural disasters, war, or terrorist activities; and

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other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting our operations, pricing, and services.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Overview

Cadence Bancorporation is a financial holding company and a Delaware corporation headquartered in Houston, Texas, and is the parent company of Cadence Bank National Association. With $12.7 billion in assets, $10.1 billion in total loans (net of unearned discounts and fees), $10.7 billion in deposits and $1.4 billion in shareholders’ equity as of December 31, 2018, we operate a network of 66 branch locations across Texas, Alabama, Florida, Mississippi and Tennessee. We focus on middle-market commercial lending, complemented by retail banking and wealth management services, and provide a broad range of banking services to businesses, high net worth individuals and business owners.

On January 1, 2019, we completed our merger with State Bank Financial Corporation ( ” State Bank”) , the holding company for State Bank and Trust Company. Under the terms of the merger agreement, each share of State Bank common stock was converted into 1.271 shares of our Class A common stock. Total consideration paid was approximately $ 8 26 m illion consisting solely of our Class A common stock. With the acquisition of State Bank, we acquired 32 branches in Georgia. At December 31, 2018, State Bank had $ 4.9 billion of assets, $ 3.4 billion of gross loans, $ 4.1 billion in deposits, and $ 0.7 b illion in shareholders’ equity as reported in their regulatory filings.

We operate Cadence Bancorporation through three operating segments: Banking, Financial Services and Corporate. Our Banking Segment, which represented approximately 90% of our total revenues for the three years in the period ended December 31, 2018, consists of our Commercial Banking, Retail Banking and Private Banking lines of business. Our Commercial Banking activities focus on commercial and industrial (“C&I”), community banking, business banking and commercial real estate lending and treasury management services to clients in our geographic footprint in Texas and the southeast United States. Within our Commercial Banking line of business, we focus on select industries, which we refer to as our “specialized industries,” in which we believe we have specialized experience and service capabilities. These industries include franchise restaurant, healthcare and technology. Energy lending is also an important part of our business as energy production and energy related industries are meaningful contributors to the economy in our primary markets. In our Retail Banking business line, we offer a broad range of banking services through our branch network to serve the needs of consumers and small businesses. In our Private Banking business line, we offer banking services, such as deposit services and residential mortgage lending, to affluent clients and business owners. Our Financial Services Segment includes our Trust, Retail Brokerage, Investment Services and Insurance businesses. These businesses offer products independently to their own customers as well as to Banking Segment clients. Investment Services operates through the “Linscomb & Williams” name and Insurance operated though the “Cadence Insurance” name until its sale in 2018. The products offered by the businesses in our Financial Services Segment primarily generate non-banking service fee income. Our Corporate Segment reflects parent-only activities, including debt and capital raising, and intercompany eliminations.

We are focused on organic growth and expanding our position in our markets. We believe that our franchise is positioned for continued growth as a result of prudent lending in our markets through experienced relationship managers and a client-centered, relationship-driven banking model, and our focus and capabilities in serving specialized industries. We believe our continued growth is supported by (i) our attractive geographic footprint, (ii) the stable and cost-efficient deposit funding provided by our acquired franchises (each of which was a long-standing institution with an established customer network), (iii) our veteran board of directors and management team, (iv) our capital position and (v) our credit quality and risk management processes.

Key Factors Affecting Our Business and Financial Statements

We believe our business and results of operations will be impacted in the future by various trends and conditions, including the following:

Interest rates: Based on our asset sensitivity and with interest rates increasing over the past few years, our interest income has increased incrementally more than interest expense required to maintain and grow our deposits and funding sources. While historical trends in rising and falling rate environments can be used as a potential indicator for the necessity and pace of deposit repricing, deposit repricing may vary from historical trends and result in unexpected speeds than would have been experienced historically.

Banking laws and regulations: The banking industry continues to experience intense regulatory focus, and continual revision of rules and regulations. We anticipate that this environment of heightened scrutiny will continue for the industry and for Cadence Bank specifically, since we exceeded $10.0 billion in assets during the quarter ended September 30, 2017, which is included in the “mid-sized” bank category for supervision purposes. Above $10.0 billion in assets, Cadence Bank is subject to additional regulations, including regulation by the CFPB and being subject to the Durbin Amendments.

Asset quality: As our originated loan portfolio has grown and seasoned, our asset quality indicators have matured and normalized, including some negative trending within certain segments of our portfolio. We believe our underwriting practices are prudent and we strive to maintain long-term credit quality metrics that are favorable to peers.

Cost efficiency: Since 2011, we have invested significantly in our infrastructure, including our management, lending teams, systems and integration. As a result, our ratio of expenses to revenue was historically greater than that experienced by many of our peer financial institutions. While we anticipate ongoing investment in our business, the pace of normalized expense growth has increased at a slower rate than our revenue growth, which resulted in a meaningful declining trend in our efficiency ratio (as defined in “Non-GAAP Financial Measures”) since 2013. Given costs associated with the company’s growth trends and ongoing technology spend, , this declining ratio trend may be slowed or not continue over a longer term.

Competition: The industry and businesses in which we operate are highly competitive, and as the economy continues to sho w strength , we anticipate that competition will continue to remain robust and potentially increase. We may see increased competition in different areas including market rates, underwriting, products and structure. While we seek to maintain an appropriate risk-adjusted spread on our business, we anticipate that we may experience continued pressu re on our net interest margins as we operate in this competitive environment.

Acquired loan accretion and costs: As a result of our acquisitions, we have recognized accretion in our interest income as a result of the accretable difference on our acquired credit-impaired (“ACI”) loan portfolio. Total scheduled accretion reflected in interest income was approximately $20 million, $23 million and $31 million for the years ended December 31, 2018, 2017 and 2016, respectively. As these acquired portfolios are reduced through payoffs, paydowns, foreclosures or charge-offs, the scheduled accretion declines. (In addition to scheduled accretion, a portion of our accretion recognized in a period represents recovery income from higher cash flows received than were expected on non-pooled loans, or received sooner than expected. These cash flows vary and are difficult to estimate.) Accordingly, we expect the proportion of our revenues attributable to scheduled accretion to continue to decline as the related assets are reduced and for the recovery income to trend downward. Conversely, we expect the proportion of our revenues attributable to our organically originated portfolio will continue to increase, although this will be impacted by the merger with State Bank adding to our acquired loan portfolios. Total reversal of credit loss provision related to the acquired loan portfolios (both ACI and ANCI) was $(1.4) million, $(1.8) million and $(3.5) million for the years ended December 31, 2018, 2017 and 2016, respectively.

Capital

We manage capital to comply with our internal planning targets and regulatory capital standards. We monitor capital levels on an ongoing basis, perform periodic evaluations under stress scenarios and project capital levels in connection with our growth plans to ensure appropriate capital levels. We evaluate a number of capital ratios, including Tier 1 capital to total adjusted assets (the leverage ratio), Tier 1 capital and common equity Tier 1 capital to risk-weighted assets, and our tangible common equity ratio.

Summary of Results of Operations

Net income for 2018 totaled $166.3 million, a $63.9 million, or 62.4%, increase compared to $102.4 million for 2017. The primary drivers of the net increase included a $61.5 million increase in net interest income and a $35.5 million decrease in income taxes. The resulting earnings per diluted common share for 2018 was $1.97 compared to $1.25 for 2017.

The years 2018 and 2017 included non-routine revenues and expenses, primarily consisting of secondary offering expenses, merger related expenses, gain and expenses related to the sale of the assets of our insurance company, securities losses, impact of tax reform, and other items. These non-routine revenues and expenses resulted in adjusted net income ⁽¹⁾ of $174.8 million for 2018, and adjusted net income of $123.3 million for 2017. Adjusted diluted earnings per share ⁽¹⁾ was $2.07 for 2018, and $1.51 for 2017.

Annualized returns on average assets, common equity and tangible common equity ⁽¹⁾ for 2018 were 1.45%, 12.07%, and 15.73%, respectively, compared to 1.02%, 8.16%, and 11.08% ⁽¹⁾ , respectively, for 2017. Adjusted annualized returns ⁽¹⁾ on average assets, common equity, and tangible common equity for 2018 were 1.52%, 12.69%, and 16.54%, respectively, and exclude the impact of the non-routine items noted above.

Net interest income was $387.7 million for 2018, a $61.5 million, or 18.9%, increase compared to 2017. Our net interest spread decreased to 3.17% for 2018 compared to 3.27% for 2017, and the net interest margin increased 4 basis points to 3.61% from 3.57%. The increases in net interest margin are primarily a result of strong growth in our earning assets combined with our asset sensitive balance sheet, partially offset by timing of recovery accretion income.

Provision for credit losses increased $3.0 million, or 30.5%, to $12.7 million in 2018, compared to $9.7 million in 2017. (See “—Provision for Credit Losses” and “—Asset Quality”). The increase resulted primarily from robust loan growth in 2018 . Annualized net charge-offs were 0.06% of average loans during 2018 and 2017.

Service fees and revenue were $87.0 million in 2018, a decrease of $3.0 million, or 3.4%, from 2017. The decrease resulted from the decrease in insurance revenue after the sale of the assets of the insurance company in the second quarter of 2018 along with a decrease of $1.4 million or 36.4% in mortgage banking income due to fewer mortgages sold in the secondary market. These decreases were partially offset by increases in credit related fees and other service fees related to overall banking expansion.

Noninterest expense for 2018 increased $ 24.9 million, 10.7 %, to $ 258.3 million compared to $ 233.4 million during 2017. I ncluded in 2018 were higher salary and benefits expenses driven by busin ess growth and related incentives, partially offset by lower intangible asset amortization and net costs of operation of other real estate owned. Noninterest expense in 2018 also included $20.8 million in non-routine expenses including a specially designated bonus of $9.8 million, secondary offering expenses of $4.6 million, legal costs of $2.3 million related to a legacy bank litigation settlement, $1.1 million in expenses related to the sale of the assets of our insurance company and $ 3. 0 million in merger related expenses . Non-routine expenses in 2017 included $19.0 million in a tax charge due to tax reform, $2.0 million in legal costs related to the aforementioned legal matter, and $1.3 million in secondary offering expenses .

Our efficiency ratio ⁽¹⁾ was 53.55% for 2018, an improvement over the 54.77% efficiency ratio for 2017. Our adjusted efficiency ratio ⁽¹⁾ was 49.56% for 2018, an improvement over the 54.12% efficiency ratio for 2017. Adjusted efficiency ratios excluded the impact of the non-routine items.

Summary of Financial Condition

Our total loans, net of unearned income, increased $1.8 billion, or 21.8%, from December 31, 2017 to $10.1 billion at December 31, 2018, which was driven by originated loan growth of $1.7 billion and approximately $214 million in acquired mortgage loans as a complement to our CRA lending. Our organic loan growth reflects increases in general C&I, commercial real estate, residential portfolios and small business lending.

From an asset quality perspective, total nonperforming assets (“NPAs”) as a percent of total loans, OREO and other NPAs remained relatively stable ending the year at 0.82% compared to 0.85% as of December 31, 2017. NPAs totaled $82.4 million and $70.7 million as of December 31, 2018 and 2017, respectively. Our allowance for credit losses increased $6.8 million, or 7.8%, from $87.6 million at December 31, 2017 to $94.4 million at December 31, 2018, and represented approximately 1.0% of total loans at December 31, 2018 and 2017.

Total deposits increased $1.70 billion, or 18.8%, to $10.71 billion, at December 31, 2018, from $9.01 billion at December 31, 2017. Over the same period, noninterest-bearing deposits increased $211.3 million, or 9.4%, and comprised 22.9% and 24.9% of total deposits at December 31, 2018 and 2017, respectively. Interest-bearing deposits increased $1.49 billion, or 22.0%, and comprised 77.1% and 75.1% of total deposits at December 31, 2018 and 2017, respectively. There was an increase in brokered deposits of $240.7 million from December 31, 2017.

Our Tier 1 leverage ratio decreased 60 basis points, total risk-based capital ratio decreased 100 basis points and Tier 1 risk-based capital ratio decreased 80 basis points from December 31, 2017. We met all capital adequacy requirements and both Cadence and the Bank continued to exceed the requirements to be considered well-capitalized under regulatory guidelines as of December 31, 2018.

Business Segments

Overview

We operate Cadence Bancorporation through three operating segments: Banking, Financial Services and Corporate.

Our Banking Segment includes our Commercial Banking, Retail Banking and Private Banking lines of business. Our Commercial Banking line of business includes a general business services component primarily focusing on commercial and industrial (“C&I”), community banking, business banking and commercial real estate lending and treasury management services to clients in our geographic footprint in Texas and the southeast United States. In addition, our Commercial Banking line of business includes within C&I a separate component that focuses on select industries (which we refer to as our “specialized industries”) in which we believe we have specialized experience and service capabilities, including restaurant industry, healthcare and technology. We serve clients in these specialized industries both within our geographic footprint and throughout the United States as a result of the national orientation of many of these businesses. Energy lending is also an important part of our business as energy production and energy related industries are meaningful contributors to the economy in certain of our primary markets. Our Retail Banking line of business offers a broad range of retail banking services including mortgage services through our branch network to serve the needs of consumer and small businesses in our geographic footprint. Our Private Banking line of business offers banking services and loan products tailored to the needs of our high-net worth clients in our geographic footprint.

⁽¹⁾	Considered a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measure.

Our Financial Services Segment includes our Trust, Retail Brokerage, Investment Services and Insurance businesses ; however, we sold the assets of our insurance subsidiary during 2 018 . These businesses offer products independently to their own customers as well as to Banking Segment clients. Investment Services operates through the “Linscomb & Williams” name and Insurance operated though the “Cadence Insurance” name. The products of fered by the businesses in our Financial Services Segment primarily generate non-banking service fee income. Our Corporate Segment reflects parent-only activities, including debt and capital raising, and intercompany eliminations.

While this section reviews financial performance from a business segment perspective, it should be read in conjunction with the discussion of Results of Operations, and our consolidated financial statements and notes thereto for a full understanding of our consolidated financial performance.

Business segment results are determined based upon our management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is based on our organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions and the results are not necessarily prepared in accordance with generally accepted accounting principles.

The following table presents the operating results of our segments for the periods presented:

	For the Year Ended December 31, 2018
(In thousands)	Banking		Financial Services			Corporate			Consolidated
Net interest income (expense)	$	407,674	$	(2,307	)	$	(17,626	)	$	387,741
Provision for credit losses		12,700		—			—			12,700
Noninterest income		47,316		46,805			517			94,638
Noninterest expense		215,574		35,679			7,048			258,301
Income tax expense (benefit)		52,464		3,979			(11,326	)		45,117
Net income (loss)	$	174,252	$	4,840		$	(12,831	)	$	166,261

	For the Year Ended December 31, 2017
(In thousands)	Banking		Financial Services			Corporate			Consolidated
Net interest income (expense)	$	344,987	$	(1,347	)	$	(17,424	)	$	326,216
Provision for credit losses		9,735		—			—			9,735
Noninterest income		51,286		47,956			632			99,874
Noninterest expense		194,212		36,178			2,966			233,356
Income tax expense (benefit)		88,417		2,000			(9,771	)		80,646
Net income (loss)	$	103,909	$	8,431		$	(9,987	)	$	102,353

	For the Year Ended December 31, 2016
(In thousands)	Banking		Financial Services			Corporate			Consolidated
Net interest income (expense)	$	297,701	$	(201	)	$	(18,061	)	$	279,439
Provision for credit losses		49,348		—			—			49,348
Noninterest income		45,499		42,727			177			88,403
Noninterest expense		186,874		32,334			972			220,180
Income tax expense (benefit)		37,442		3,567			(8,469	)		32,540
Net income (loss)	$	69,536	$	6,625		$	(10,387	)	$	65,774

Banking Segment

Our Banking Segment is our largest business segment and generates the majority of our net income. Net income for the Banking Segment was $174.3 million, $103.9 million and $69.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Banking Segment’s net income for 2017 includes a one-time tax charge (the “one-time tax charge”) of $20.0 million related to the Tax Cut and Jobs Act (‘Tax Reform”) enacted on December 22, 2017. For additional discussion, please see “—Income Tax Expense.”

Our Banking Segment’s net income is composed of net interest earned on our loan and investment portfolios, in addition to service fees and re venue from our deposit and loan customers. The Banking Segment expense includes all interest expense on our deposit accounts and other bank liabilities, operational and administrative expenses related to the business conducted in this segment and the provi sion for credit losses on our loan portfolio. All of these income and expense components, including noninterest expense, are discussed in greater detail elsewhere in this section.

Financial Services Segment

Our Financial Services Segment primarily generates non-banking fee revenue from trust services, insurance, investment and retail brokerage services. Net income for the Financial Services Segment was $4.8 million, $8.4 million and $6.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. The decline in net income from 2017 to 2018 is related to the sale of the assets of our insurance subsidiary. For additional discussion, please see “—Noninterest income” and “—Noninterest expense.” The Financial Services Segment’s net income for 2017 includes a one-time tax credit of $0.4 million related to Tax Reform.

Corporate Segment

The loss in our Corporate Segment is primarily driven by the interest expense on our corporate senior and subordinated debt. Net loss for the Corporate Segment was $(12.8) million, $(10.0) million and $(10.4) million for the years ended December 31, 2018, 2017 and 2016, respectively. For additional discussion, please refer to “—Net interest income” and “—Borrowing.” The Corporate Segment’s net income for 2017 includes a one-time tax credit of $0.6 million related Tax Reform.

Results of Operations

Earnings

Our net income for 2018 totaled $166.3 million compared to $102.4 million and $65.8 million for 2017 and 2016, respectively.

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Excluding non-routine items, adjusted net income ⁽ ² ⁾ was $174.8 million for 2018, up $51.5 million or 41.8% from $123.3 million for 2017.

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Net income was $1.97 per diluted share for 2018, an increase of $0.72 per share or 57.6% as compared to $1.25 per share in the prior year. Adjusted diluted earnings per share ⁽ ² ⁾ for 2018 was $2.07 per share, an increase of $0.56 per share or 37.1% as compared to $1.51 per share in the prior year.

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Returns on average assets, common equity and tangible common equity ⁽ ² ⁾ for 2018 were 1.45%, 12.07% and 15.73%, respectively, as compared to 1.02%, 8.16% and 11.08%, respectively, for the prior year. Excluding total non-routine items, returns on average assets and average tangible common equity ⁽ ² ⁾ were 1.52% ⁽ ² ⁾ and 16.54% ⁽ ² ⁾ , respectively, for 2018.

The following table presents key earnings data for the periods indicated:

Table 1 – Key Earnings Data


	For the Years Ended December 31,
(In thousands, except per share data)	2018			2017			2016
Net income	$	166,261		$	102,353		$	65,774
Net income per common share
- basic		1.99			1.26			0.88
- diluted ⁽¹⁾		1.97			1.25			0.87
Dividends declared per share		0.55			—			—
Dividend payout ratio		27.64	%		—	%		—	%
Net interest margin		3.61			3.57			3.30
Net interest spread		3.17			3.27			3.08
Return on average assets		1.45			1.02			0.71
Return on average equity		12.07			8.16			6.01
Return on average tangible common equity ⁽²⁾		15.73			11.08			8.68

⁽ ¹ ⁾

Includes common stock equivalents (“CSE”) of 813,180, 532,070 and 294,600 for 2018, 2017, and 2016, respectively.

⁽ ² ⁾

Considered a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

Net Interest Income

The largest component of our net income is net interest income, which is the difference between the income earned on interest-earning assets and interest paid on deposits and borrowings. We manage our interest-earning assets and funding sources to maximize our net interest margin. (See “—Quantitative and Qualitative Disclosures about Market Risk” for a discussion regarding our interest rate risk). Net interest income is determined by the rates earned on our interest-earning assets, rates paid on our interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, the degree of mismatch and the maturity and re-pricing characteristics of our interest-earning assets and interest-bearing liabilities. Net interest income divided by average interest-earning assets represents our net interest margin. The yield on our net earning assets less the yield on our interest bearing liabilities represents our net interest spread.

Interest earned on our loan portfolio is the largest component of our interest income. Our originated and acquired non-credit impaired loans (“ANCI”) portfolios are presented at the principal amount outstanding net of deferred origination fees and unamortized discounts and premiums. Interest income is recognized based on the principal balance outstanding and the stated rate of the loan. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. ANCI loans acquired through our acquisitions were initially recorded at fair value. Discounts or premiums created when the loans were recorded at their estimated fair values at acquisition are being accreted over the remaining term of the loan as an adjustment to the related loan’s yield.

The performance of loans within our ACI portfolio impacts interest income as the remaining discounts and proceeds received in excess of expected cash flow are realized in interest income when these loans are closed through payoff, charge off, workout, sale or foreclosure. At acquisition, the expected shortfall in future cash flows on our ACI portfolio, as compared to the contractual amount due, was recognized as a non-accretable discount. Any excess of expected cash flows over the acquisition date fair value is known as the accretable discount, and is recognized as accretion income over the life of each pool or individual ACI loan. Expected cash flows over the acquisition date fair value are re-estimated quarterly utilizing the same cash flow methodology used at the time of acquisition. Any subsequent decreases to the expected cash flows will generally result in a provision for credit losses charge in the consolidated statements of income. Conversely, subsequent increases in expected cash flows result in a transfer from the non-accretable discount to the accretable discount, which has a positive impact on accretion income prospectively.

The following table summarizes the amount of interest income related to our ACI portfolio for the periods presented:

Table 2 – ACI Interest Income

	For the Year Ended December 31,
(In thousands)	2018			2017			2016
Scheduled accretion for the period	$	19,813		$	23,303		$	30,870
Recovery income for the period		2,247			8,148			5,699
Total interest realized on the ACI portfolio	$	22,060		$	31,451		$	36,569
Yield on ACI Portfolio
Scheduled accretion for the period		8.47	%		8.02	%		8.23	%
Recovery income for the period		0.96			2.80			1.52
Total yield on the ACI portfolio		9.44	%		10.82	%		9.75	%

As of December 31, 2018, the weighted average contractual interest rate on the remaining active ACI portfolio loans was approximately 5.06%.

The following table is a rollforward of the accretable difference on our ACI portfolio for the periods indicated:

Table 3 – Accretable Difference Rollforward

	For the Year Ended December 31,
(In thousands)	2018			2017			2016
Balance at beginning of period	$	78,422		$	98,728		$	122,791
Decreases from accretion, maturities/payoffs, foreclosures and charge-offs		(27,782	)		(34,381	)		(43,760	)
Reclass from nonaccretable difference		16,765			14,075			19,697
Balance at end of period	$	67,405		$	78,422		$	98,728

Years Ended December 31, 201 8 and 201 7

Our net interest income, fully-tax equivalent (FTE), for 2018 and 2017 was $390.3 million and $333.4 million, respectively, an increase of $56.9 million. Our net interest margin for 2018 and 2017 was 3.61% and 3.57%, respectively, an increase of 4 basis points. The yield on our total loan portfolio increased 57 basis points to 5.16% for 2018 compared to 4.59% for 2017 due to an increase in the rate and volume of our originated portfolio. The following table sets forth, on a tax equivalent basis, the components of our net interest income with the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for 2018 and 2017:

Table 4 – Rate/Volume Analysis

	Year Ended December 31,
	2018 vs. 2017
	Net Interest Income				Increase			Changes Due To ⁽¹⁾
(In thousands)	2018		2017		(Decrease)			Rate			Volume
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans:
Originated and ANCI loans	$	448,084	$	327,857	$	120,227		$	56,509		$	63,718
ACI portfolio		22,060		31,451		(9,391	)		(3,706	)		(5,685	)
Interest on securities:
Taxable		23,793		18,089		5,704			1,916			3,788
Tax-exempt ⁽²⁾		12,078		20,554		(8,476	)		(3,276	)		(5,201	)
Interest on fed funds and short-term investments		6,930		3,336		3,594			1,638			1,956
Interest on other investments		2,258		2,774		(516	)		(761	)		246
Total interest income		515,203		404,061		111,142			52,320			58,822
Expense from interest-bearing liabilities:
Interest on demand deposits		57,795		27,030		30,765			26,430			4,335
Interest on savings deposits		560		456		104			105			(1	)
Interest on time deposits		42,093		22,213		19,880			13,118			6,762
Interest on other borrowings		14,678		11,644		3,034			599			2,436
Interest on subordinated debentures		9,799		9,308		491			440			51
Total interest expense		124,925		70,651		54,274			40,692			13,583
Net interest income	$	390,278	$	333,410	$	56,868		$	11,628		$	45,239

⁽¹⁾	The change in interest income due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

⁽²⁾	Interest income and yields are presented on a tax equivalent basis using Federal tax rates of 21% and 35% for 2018 and 2017, respectively, on our state, county and municipal investment portfolios.

Our total interest income (FTE) for 2018 totaled $515.2 million compared to $404.1 million in 2017. This increase is primarily the result of an increase in the volume and yield of our originated loans. The yield on our originated loan portfolio reflects an increase in LIBOR and other index rates in our loan portfolio. The lower FTE yield on our tax-exempt securities reflects the lower Federal tax rate of 21% in 2018 compared to 35% in 2017. In addition, the volume of our securities decreased during 2018 compared to 2017 due to the rebalancing of the municipal securities portfolio which occurred in the second quarter of 2018.

The yield on our ACI portfolio fluctuates due to the volume and timing of cash flows received or expected to be received. The yield on our ACI portfolio for the year ended December 31, 2018 was 9.44% compared to 10.82% for the year ended December 31, 2017. During the year ended December 31, 2018, interest income on the ACI portfolio included $2.2 million in discount and recovery income, compared to $8.1 million for 2017. These amounts were realized on certain individual loans that were settled before expected, or where we received amounts above our estimates. Excluding these amounts, the yield on our ACI loans would have been 8.47% for 2018 compared to 8.02% for 2017. Our total loan yield, excluding this recovery income, would have been 5.13% and 4.49% for 2018 and 2017.

Our interest expense for 2018 and 2017 was $124.9 million and $70.7 million, respectively, an increase of $54.3 million. This increase is primarily related to the impact of higher market rates on our interest-bearing demand accounts and time deposits. Our cost of interest bearing deposits increased to 1.38% for 2018 compared to 0.80% for 2017. Our cost of borrowings increased to 4.33% from 4.25% reflecting an increase in interest rates from the prior period and a higher volume of short-term advances from the Federal Home Loan Bank (“FHLB”).

The following table presents, on a tax equivalent basis, for the years ended December 31, 201 8 and 201 7 , our average balance sheet and our average yields on assets and average costs of liabilities. Average yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis, except for ACI loans, which is a monthly average.

Table 5 – Average Balances, Net Interest Income and Interest Yields/Rates

	Years Ended December 31,
	2018									2017
	Average Balance			Income / Expense			Yield / Rate			Average Balance			Income / Expense			Yield / Rate
ASSETS
Interest-earning assets:
Loans, net of unearned income ⁽¹⁾
Originated and ANCI loans	$	8,882,806		$	448,084			5.04	%	$	7,535,099		$	327,857			4.35	%
ACI portfolio		233,796			22,060			9.44			290,664			31,451			10.82
Total loans		9,116,602			470,144			5.16			7,825,763			359,308			4.59
Investment securities
Taxable		888,341			23,793			2.68			747,590			18,089			2.42
Tax-exempt ⁽²⁾		292,282			12,077			4.13			408,229			20,554			5.03
Total investment securities		1,180,623			35,870			3.04			1,155,819			38,643			3.34
Federal funds sold and short-term investments		465,554			6,930			1.49			313,683			3,336			1.06
Other investments		54,538			2,259			4.14			49,781			2,774			5.57
Total interest-earning assets		10,817,317			515,203			4.76			9,345,046			404,061			4.32
Noninterest-earning assets:
Cash and due from banks		79,560									60,108
Premises and equipment		62,841									65,428
Accrued interest and other assets		629,108									640,075
Allowance for credit losses		(90,813	)								(90,621	)
Total assets	$	11,498,013								$	10,020,036
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits	$	4,983,113			57,795			1.16		$	4,360,252			27,030			0.62
Savings deposits		181,194			560			0.31			181,500			456			0.25
Time deposits		2,119,543			42,093			1.99			1,679,959			22,213			1.32
Total interest-bearing deposits		7,283,850			100,448			1.38			6,221,711			49,699			0.80
Other borrowings		430,159			14,678			3.41			358,413			11,644			3.25
Subordinated debentures		135,499			9,799			7.23			134,783			9,308			6.91
Total interest-bearing liabilities		7,849,508			124,925			1.59			6,714,907			70,651			1.05
Noninterest-bearing liabilities:
Demand deposits		2,137,953									1,965,070
Accrued interest and other liabilities		133,081									86,198
Total liabilities		10,120,542									8,766,175
Shareholders' equity		1,377,471									1,253,861
Total liabilities and shareholders' equity	$	11,498,013								$	10,020,036
Net interest income/net interest spread					390,278			3.17	%					333,410			3.27	%
Net yield on earning assets/net interest margin								3.61	%								3.57	%
Taxable equivalent adjustment:
Investment securities					(2,537	)								(7,194	)
Net interest income				$	387,741								$	326,216

⁽¹⁾	Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.

⁽²⁾	Interest income and yields are presented on a taxable equivalent basis using Federal tax rates of 21% and 35% for 2018 and 2017, respectively, on our state, county, and municipal investment portfolios.

Years Ended December 31, 2017 and 2016

Our net interest income, fully-tax equivalent (FTE), for 2017 and 2016 was $333.4 million and $284.2 million, respectively, an increase of $49.3 million. Our net interest margin for 2017 and 2016 was 3.57% and 3.30%, respectively, an increase of 27 basis points. The yield on our total loan portfolio increased 34 basis points to 4.59% for 2017 compared to 4.25% for 2016 due to an increase in the rate and volume of our originated portfolio, partially offset by the decline of our higher yielding ACI portfolio. The following table sets forth, on a tax equivalent basis, the components of our net interest income with the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for 2017 and 2016:

	Years Ended December 31,
	2017 vs. 2016
	Net Interest Income				Increase			Changes Due To ⁽¹⁾
(In thousands)	2017		2016		(Decrease)			Rate			Volume
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans:
Originated and ANCI loans	$	327,857	$	268,984	$	58,873		$	28,734		$	30,139
ACI portfolio		31,451		36,569		(5,118	)		3,716			(8,834	)
Interest on securities:
Taxable		18,089		15,838		2,251			1,756			495
Tax-exempt ⁽²⁾		20,554		13,464		7,090			456			6,634
Interest on fed funds and short-term investments		3,336		2,419		917			1,318			(401	)
Interest on other investments		2,774		2,688		86			(109	)		195
Total interest income		404,061		339,962		64,099			35,871			28,228
Expense from interest-bearing liabilities:
Interest on demand deposits		27,030		17,832		9,198			8,137			1,061
Interest on savings deposits		456		423		33			23			10
Interest on time deposits		22,213		17,191		5,022			4,875			147
Interest on other borrowings		11,644		11,215		429			(902	)		1,331
Interest on subordinated debentures		9,308		9,150		158			106			52
Total interest expense		70,651		55,811		14,840			12,239			2,601
Net interest income	$	333,410	$	284,151	$	49,259		$	23,632		$	25,627

⁽¹⁾	The change in interest income due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

⁽²⁾	Interest income and yields are presented on a tax equivalent basis using a Federal tax rate of 35% on our state, county and municipal investment portfolios.

Our total interest income (FTE) for 2017 totaled $404.1 million compared to $340.0 million in 2016. This increase is primarily the result of an increase in the volume and yield of our originated loans offset by declines in the volume and yield of our ACI portfolio and an increase in the volume and yield of our investment portfolio. The year-over-year increase in yield is primarily a result of our asset sensitive balance sheet and earning asset yields increasing as a result of the recent rising rate environment.

The yield on our ACI portfolio fluctuates due to the volume and timing of cash flows received or expected to be received. The yield on our ACI portfolio for the year ended December 31, 2017 was 10.82% compared to 9.75% for the year ended December 31, 2016. During the year ended December 31, 2017, interest income on the ACI portfolio included $8.1 million in discount and recovery income, compared to $5.7 million for 2016. These amounts were realized on certain individual loans that were settled before expected, or where we received amounts above our estimates. Excluding these recovery income amounts, the yield on our ACI loans would have been 8.02% for 2017 compared to 8.23% for 2016. Our total loan yield, excluding these amounts, would have been 4.49% and 4.17% for 2017 and 2016.

Our interest expense for 2017 and 2016 was $70.7 million and $55.8 million, respectively, an increase of $14.9 million. This increase is primarily related to higher market rates on our interest bearing demand accounts and time deposits. Our cost of interest bearing deposits increased to 0.80% for 2017 compared to 0.59% for 2016. Our cost of borrowings declined to 4.25% from 4.50% reflecting the repurchase of our senior debt and increases in lower cost FHLB advances.

The following table presents, on a tax equivalent basis, for the years ended December 31, 2017 and 2016, our average balance sheet and our average yields on assets and average costs of liabilities. Average yields are calculated by dividing income or expens e by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis, except for ACI loans, which is a monthly average.

	Years Ended December 31,
	2017									2016
	Average			Income/			Yield/			Average			Income/			Yield/
(In thousands)	Balance			Expense			Rate			Balance			Expense			Rate
ASSETS
Interest-earning assets:
Loans, net of unearned income ⁽¹⁾
Originated and ANCI loans	$	7,535,099		$	327,857			4.35	%	$	6,811,616		$	268,984			3.95	%
ACI portfolio		290,664			31,451			10.82			375,019			36,569			9.75
Total loans		7,825,763			359,308			4.59			7,186,635			305,553			4.25
Investment securities
Taxable		747,590			18,089			2.42			725,100			15,838			2.18
Tax-exempt ⁽²⁾		408,229			20,554			5.03			276,217			13,464			4.87
Total investment securities		1,155,819			38,643			3.34			1,001,317			29,302			2.93
Federal funds sold and short-term investments		313,683			3,336			1.06			368,669			2,419			0.66
Other investments		49,781			2,774			5.57			46,364			2,688			5.80
Total interest-earning assets		9,345,046			404,061			4.32			8,602,985			339,962			3.95
Noninterest-earning assets:
Cash and due from banks		60,108									47,569
Premises and equipment		65,428									69,290
Accrued interest and other assets		640,075									642,049
Allowance for credit losses		(90,621	)								(90,264	)
Total assets	$	10,020,036								$	9,271,629
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits	$	4,360,252		$	27,030			0.62	%	$	4,122,667		$	17,832			0.43	%
Savings deposits		181,500			456			0.25			178,397			423			0.24
Time deposits		1,679,959			22,213			1.32			1,665,833			17,191			1.03
Total interest-bearing deposits		6,221,711			49,699			0.80			5,966,897			35,446			0.59
Other borrowings		358,413			11,644			3.25			318,668			11,215			3.52
Subordinated debentures		134,783			9,308			6.91			134,017			9,150			6.83
Total interest-bearing liabilities		6,714,907			70,651			1.05			6,419,582			55,811			0.87
Noninterest-bearing liabilities:
Demand deposits		1,965,070									1,688,405
Accrued interest and other liabilities		86,198									70,038
Total liabilities		8,766,175									8,178,025
Shareholders' equity		1,253,861									1,093,604
Total liabilities and shareholders' equity	$	10,020,036								$	9,271,629
Net interest income/net interest spread					333,410			3.27	%					284,151			3.08	%
Net yield on earning assets/net interest margin								3.57	%								3.30	%
Taxable equivalent adjustment:
Investment securities					(7,194	)								(4,712	)
Net interest income				$	326,216								$	279,439

⁽¹⁾	Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.

⁽²⁾	Interest income and yields are presented on a taxable equivalent basis using a Federal tax rate of 35% on our state, county, and municipal investment portfolios.

Provision for Credit Losses

The provision for credit losses is based on management’s quarterly assessment of the adequacy of our allowance for credit losses (“ACL”) which, in turn, is based on such factors as the composition of our loan portfolio and its inherent risk characteristics, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of collateral values, and regulatory guidelines. The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management’s best estimate of probable losses inherent in our loan portfolio at the balance sheet date (see “—Allowance for Credit Losses”).

Under accounting standards for business combinations, acquired loans are recorded at fair value with no credit loss allowance on the date of acquisition. A provision for credit losses is recorded in periods after the date of acquisition for the emergence of new probable and estimable losses on acquired non-credit impaired (“ANCI”) loans. A provision for credit losses is recognized on our ACI loans after the date of acquisition based on the re-estimation of expected cash flows. See “—Asset Quality” and “—Critical Accounting Policies and Estimates.”

The provision for credit losses totaled $12.7 million for 2018 compared to $9.7 million and $49.3 million for 2017 and 2016, respectively. The following is a summary of our provision for credit losses for the periods indicated presented by originated, ANCI and ACI portfolios:

Table 7 – Provision for Credit Losses

	Years Ended December 31,
(In thousands)	2018			2017			2016
Originated Loans
Commercial and industrial	$	16,306		$	5,273		$	46,024
Commercial real estate		(1,113	)		2,623			2,378
Consumer		(1,062	)		3,044			1,772
Small business		(72	)		568			2,681
Total originated loans		14,059			11,508			52,855
ANCI Loans
Commercial and industrial		(645	)		613			(169	)
Commercial real estate		(201	)		(139	)		(85	)
Consumer		458			126			225
Small business		(199	)		(199	)		(10	)
Total ANCI		(587	)		401			(39	)
ACI Loans
Commercial and industrial		47			(3	)		(2,073	)
Commercial real estate		(523	)		(747	)		(904	)
Consumer		(296	)		(1,424	)		(491	)
Small business		—			—			—
Total ACI		(772	)		(2,174	)		(3,468	)
Total Loans
Commercial and industrial		15,708			5,883			43,782
Commercial real estate		(1,837	)		1,737			1,389
Consumer		(900	)		1,746			1,506
Small business		(271	)		369			2,671
Total provision for credit losses	$	12,700		$	9,735		$	49,348

Our originated and ANCI loan portfolios are divided into commercial and consumer segments. The commercial allowance estimate is driven by loan level risk ratings. The consumer allowance estimate uses pool level historical loss rates based on certain credit attributes. The primary driver of the originated ACL is the underlying credit quality of the loans, which have seen credit risk migration trends as the portfolio has become more seasoned. We recognized $12.7 million in provision during 2018, which included $14.1 million provision related to the originated portfolio. The $14.1 million in originated loan provision for 2018 is primarily attributable to robust loan growth within the originated portfolios, some credit migration within the General C&I and Restaurant portfolios as these loans have become more seasoned, as well as some changes seen in the qualitative factors related to economic conditions such as oil prices and market volatility.

We recognized $9.7 million in provis ion during 2017, which included $11.5 million provision related to the originated portfolio. The $11.5 million in originated loan provision for 2017 is primarily attributable to loan growth within the originated Specialty Lending and CRE portfolios, as wel l as some credit migration within the General C&I and Consumer portfolios as these loan s become more seasoned.

We recognized $49.3 million in provision during 2016, which included $52.9 million provision related to the originated portfolio. Of the $52.9 million in originated loan provision for 2016, approximately $29.0 million was attributable to our energy credits which included net charge-offs of two energy credits totaling $31.6 million, partially offset by $2.6 million related to positive energy credit migration in the latter part of 2016. An additional $12.2 million in provision was attributable to a single credit in the healthcare sector, and approximately $11.7 million of provision was related to loan growth and other routine credit migration.

The provision for credit losses (impairment reversal) on our ACI portfolio was $(0.8) million for 2018 compared to $(2.2) million for 2017 and $(3.5) million for 2016. These amounts are primarily related to changes in credit quality and payments received in excess of expected cash flows in the commercial real estate portfolio in 2018, the residential real estate portfolio in 2017 and the C&I portfolio in 2016.

Noninterest Income

Noninterest income is a component of our revenue and is comprised primarily of income generated from the services we provide our customers.

Year Ended December 31, 2018 Compared to December 31, 2017

Noninterest income totaled $94.6 million for 2018 compared to $99.9 million for 2017. This decrease in revenue is attributable to insurance revenue and bankcard fees.

The following table compares noninterest income for 2018 and 2017:

Table 8 – Noninterest Income

	Year Ended December 31,
(In thousands)	2018			2017			% Change
Investment advisory revenue	$	21,347		$	20,517			4.0	%
Trust services revenue		17,760			19,264			(7.8	)
Service charges on deposit accounts		15,432			15,272			1.0
Credit related fees		16,124			12,166			32.5
Insurance revenue		2,677			7,378			(63.7	)
Bankcard fees		5,951			7,310			(18.6	)
Mortgage banking income		2,372			3,731			(36.4	)
Other service fees		5,345			4,414			21.1
Total service fees and revenue		87,008			90,052			(3.4	)
Securities losses, net		(1,853	)		(146	)	NM
Other		9,483			9,968			(4.9	)
Total other noninterest income		7,630			9,822			(22.3	)
Total noninterest income	$	94,638		$	99,874			(5.2	)%

NM—not meaningful.

Investment Advisory Revenue. This revenue is comprised largely of investment management and financial planning revenues generated through our subsidiary L&W. Investment advisory revenue grew 4% during 2018 primarily due to growth in assets under management due to both new customer origination and portfolio/market improvements.

Trust Services Revenue . We earn fees from our customers for trust services. During 2018 these fees declined by 7.8% primarily due to the transfer of certain deposit relationships from trust to treasury management. Additionally, the volatility in the equity markets and estate tax reform have slowed the pace of personal trust growth.

Credit-Related Fees. Our credit-related fees primarily include fees related to credit advisory services and unfunded commitment fees. Fo r 2018, credit-related fees increased 32.5% primarily as a result of an increase in unfunded commitment and letter of credit fees resulting from growth in our commercial lend ing .

Insurance Revenue. The decrease in insurance revenue of 63.7% is the result of the sale of the assets of Cadence Insurance in the second quarter of 2018.

Bankcard Fees. Our bankcard fees are comprised primarily of ATM network fees and debit card revenue. Our bankcard fees of $6.0 million for 2018 decreased 18.6% compared to 2017 primarily due to decreased interchange fee rates resulting from imposition of the Durbin Amendment limitation on these fees beginning in the third quarter of 2018, as a result of regulation associated with exceeding $10 billion in assets.

Other Noninterest Income . Other noninterest income decreased 22.3% in 2018 primarily as a result of$1.9 million in securities losses, net.

Year Ended December 31, 2017 Compared to December 31, 2016

Noninterest income totaled $99.9 million for 2017 compared to $88.4 million for 2016. This increase in revenue is attributable to investment advisory revenue, trust services income, service charges on deposits and credit-related fees.

The following table compares noninterest income for 2017 and 2016:

	Year Ended December 31,
(In thousands)	2017			2016		% Change
Investment advisory revenue	$	20,517		$	18,811		9.1	%
Trust services revenue		19,264			16,109		19.6
Service charges on deposit accounts		15,272			13,793		10.7
Credit related fees		12,166			10,729		13.4
Insurance revenue		7,378			7,717		(4.4	)
Bankcard fees		7,310			7,270		0.6
Mortgage banking income		3,731			4,663		(20.0	)
Other service fees		4,414			2,884		53.1
Total service fees and revenue		90,052			81,976		9.9
Securities (losses) gains, net		(146	)		3,736	NM
Other		9,968			2,691	NM
Total other noninterest income		9,822			6,427		52.8
Total noninterest income	$	99,874		$	88,403		13.0	%

NM—not meaningful.

Investment Advisory Revenue. Our investment advisory revenue is comprised largely of investment management and financial planning revenues generated through our subsidiary L&W. Investment advisory revenue increased 9.1% for 2017 primarily due to growth in assets under management due to both new customer origination and portfolio/market improvements.

Trust Services Revenue. For 2017, trust fees increased $3.2 million or 19.6%. The increase was related to customer expansion as assets under management increased during 2017.

Service Charges on Deposit Accounts. For 2017, service charges and fees totaled $15.3 million, an increase of 10.7%, primarily due to an increase in account analysis fees resulting from expanded Treasury Management services.

Credit-Related Fees. Our credit-related fees primarily include fees related to credit advisory services and unfunded commitment fees. For 2017, credit-related fees increased 13.4% primarily as a result of an increase in unfunded commitment, capital market and letter of credit fees related to our corporate banking growth.

Other Noninterest Income. The increase in other income for 2017 is primarily related to the increase in equity investments in certain limited partnership investments, a $1.1 million gain on the sale of the assets of a specialty insurance unit, gain on the sale of a commercial loan, partially offset by a decline in the estimated fair value of a net profits interests in oil and gas reserves due to lower forecasted production.

Noninterest Expenses

Year Ended December 31, 2018 Compared to December 31, 2017

Noninterest expense was $258.3 million for 2018 compared to $233.4 million for 2017. The increase of $24.9 million, or 10.7%, for 2018, compared to 2017 reflects increases in our growth while maintaining our broad efforts to manage expenses.

The following table compares noninterest expense for 2018 and 2017:

Table 9 – Noninterest Expense

	Year Ended December 31,
(In thousands)	2018		2017		% Change
Salaries and employee benefits	$	154,905	$	139,118		11.3	%
Premises and equipment		30,478		28,921		5.4
Merger related expenses		2,983		-	NM
Intangible asset amortization		2,755		4,652		(40.8	)
Net cost of operation of other real estate owned		653		2,251		(71.0	)
Data processing expense		8,775		7,590		15.6
Consulting and professional fees		13,285		9,090		46.1
Loan related expenses		3,145		2,379		32.2
FDIC Insurance		4,645		4,275		8.7
Communications		2,773		2,837		(2.2	)
Advertising and public relations		2,523		2,048		23.2
Legal expenses		3,732		4,274		(12.7	)
Other		27,649		25,921		6.7
Total noninterest expense	$	258,301	$	233,356		10.7	%

Salaries and Employee Benefits. Salaries and employee benefit costs are the largest component of noninterest expense and include employee payroll expense, incentive compensation, health insurance, benefit plans and payroll taxes. Salaries and employee benefits increased $15.8 million, or 11.3%, for 2018, compared to 2017, largely due to short- and long-term incentive costs, as well $9.8 million of specially-designated bonuses, as salary expense remained relatively level. The increase in long-term incentive costs is related to achieving higher levels of performance targets and higher corporate valuation; the short-term incentive is related to business growth. The $9.8 million specially designated bonuses, were granted by the Board of Directors after the Compensation Committee consulted with an independent compensation consultant who identified a strategy for a normalized approach to performance pay programs in comparison to peers and to enhance retention and continuity of senior management. Further, the specially designated bonuses recognized the multi-year performance of management and addressed a design feature of the 2016 performance stock unit awards that caused the awards to not vest despite management’s achievement of performance objectives underlying the awards The following table provides additional detail of our salaries and employee benefits expense for the periods presented:

	Year Ended December 31,
(In thousands)	2018		2017
Salaries and employee benefits
Regular compensation	$	85,084	$	82,475
Incentive compensation		50,932		38,696
Taxes and employee benefits		18,889		17,947
Total salaries and employee benefits	$	154,905	$	139,118

Premises and Equipment. Rent expense, depreciation and maintenance costs comprise the majority of this expense. The 2018 increase of 5.4% resulted from increased maintenance costs and new equipment.

Merger Related Expenses. In 2018, the Company incurred acquisition costs related to the pending merger with State Bank.

Intangible Asset Amortization. In conjunction with our acquisitions, we recorded core deposit and other customer intangible assets of approximately $66.0 million, which are being amortized on an accelerated basis over a seven- to ten-year period.

Data Processing. Data processing expense for our operating systems totaled $8. 8 million for 2018, an increase of 1 5.6 %. The increase reflect s growth in our business a s well as implementations and enhancement of various technologies.

Consulting and Professional Services. For 2018, our consulting and professional services increased $4.2 million, or 46.1%, compared to 2017 as a result of the costs of secondary stock offerings and the engagement of outside consultants related to regulatory compliance and additional costs of being a public company.

Other Noninterest Expenses. Other noninterest expense categories remained consistent with modest increases in loan related expenses, FDIC insurance, advertising and public relations and other expense, offset by decreases in net cost of operations of other real estate owned, communications and legal expenses.

Year Ended December 31, 2017 Compared to December 31, 2016

Noninterest expense was $233.4 million for 2017 compared to $220.2 million for 2016. The increase of $13.2 million, or 6.0%, for 2017, compared to 2016 reflects increases in our growth while maintaining our broad efforts to manage expenses.

The following table compares noninterest expense for 2017 and 2016:

	Years Ended December 31,
(In thousands)	2017		2016		% Change
Salaries and employee benefits	$	139,118	$	125,068		11.2	%
Premises and equipment		28,921		27,982		3.4
Intangible asset amortization		4,652		6,532		(28.8	)
Net cost of operation of other real estate owned		2,251		3,033		(25.8	)
Data processing expense		7,590		6,280		20.9
Consulting and professional fees		9,090		6,728		35.1
Loan related expenses		2,379		3,114		(23.6	)
FDIC Insurance		4,275		7,228		(40.9	)
Communications		2,837		2,656		6.8
Advertising and public relations		2,048		1,369		49.6
Legal expenses		4,274		2,721		57.1
Other		25,921		27,469		(5.6	)
Total Noninterest Expense	$	233,356	$	220,180		6.0	%

	Three Months Ended December 31,
(In thousands)	2017		2016
Salaries and employee benefits
Regular compensation	$	82,475	$	80,269
Incentive compensation		38,696		28,569
Taxes and employee benefits		17,947		16,230
Total salaries and employee benefits	$	139,118	$	125,068

Premises and Equipment. Rent, depreciation and maintenance costs comprise the majority of occupancy and equipment expenses, which increased 3.4%, for 2017. The increase includes the increase in certain maintenance costs and the effect of a one-time lease termination credit recognized in 2016.

Data Processing. Data processing expens e for our operating systems totaled $7.6 million for 2017, an increase of 20.9%. The increase reflect growth in our business as well as implementations and enhancement of various technologies.

Consulting and Professional Services. For 2017, our consulting and professional services increased $2.4 million, or 35.1%, compared to 2016 as a result of the engagement of outside consultants related to regulatory compliance and additional costs of being a public company.

Insurance. For 2017 and 2016, FDIC insurance expense totaled $4.3 million and $7.2, respectively. The decrease is due to the increase in our levels of capital and the reduction in our nonperforming loans and brokered deposits.

Legal Expenses. For 2017, our legal fees increased $1.6 million, or 57.1%, compared to 2016, primarily due to $2.7 million in legal costs associated with certain pre-acquisition related litigation and contingencies related to a legacy acquired bank.

Other Noninterest Expenses. Other noninterest expense categories remained consistent with modest increases in communications and advertising and public relations, offset by decreases in net cost of operations of other real estate owned, loan related expenses and other expenses.

Income Tax Expense

Income tax expense for 2018 was $45.1 million compared to $80.6 million and $32.5 million for 2017 and 2016, respectively. The effective tax rate was 21.3% for 2018 compared to 44.1% and 33.1% for 2017 and 2016, respectively. The decrease in the effective tax rate for 2018 compared to 2017 and 2016 was due to the decrease in the U.S. federal statutory income tax rate from 35% to 21% which became effective January 1, 2018, as a result of the Tax Cut and Jobs Act (“Tax Reform”) enacted on December 22, 2017. See Note 11 to the Consolidated Financial Statements and “— Critical Accounting Policies and Estimates” for additional disclosures and discussion regarding income taxes.

Our effective tax rate is impacted by pre-tax income, tax-exempt income, and the increase in the cash surrender value of bank-owned life insurance. The effective tax rate is also affected by discrete items that may occur in any given period, but are not consistent from period to period, which may impact the comparability of the effective tax rate between periods.

Financial Condition

The following table summarizes selected components of our balance sheet as of the periods indicated.

Table 10 – Financial Condition

	As of December 31,						Average Balance for the Year Ended December 31,
(In thousands)	2018		2017		2016		2018		2017		2016
Total assets	$	12,730,285	$	10,948,926	$	9,530,888	$	11,498,013	$	10,020,036	$	9,271,629
Total interest-earning assets		11,899,165		10,120,137		8,832,706		10,817,317		9,345,046		8,602,985
Total interest-bearing liabilities		8,726,443		7,239,564		6,507,506		7,849,508		6,714,907		6,419,582
Short-term and other investments		592,690		542,113		242,401		465,554		363,464		415,033
Securities available-for-sale		1,187,252		1,257,063		1,133,780		1,180,623		1,155,819		1,001,317
Loans, net of unearned income		10,053,923		8,253,427		7,432,711		9,116,602		7,825,763		7,186,635
Goodwill		307,083		317,817		318,817		311,494		317,817		317,817
Noninterest-bearing deposits		2,454,016		2,242,765		1,840,955		2,137,953		1,965,070		1,688,405
Interest-bearing deposits		8,254,673		6,768,750		6,175,794		7,283,850		6,221,711		5,966,897
Borrowings and subordinated debentures		471,770		470,814		331,712		565,658		493,196		452,685
Shareholders' equity		1,438,274		1,359,056		1,080,498		1,377,471		1,253,861		1,093,604

Investment Portfolio

Our securities available-for-sale portfolio decreased by $69.8 million, or 5.6%, during 2018. Approximately $187.8 million of available-for-sale investment securities were sold during 2018 in an effort to rebalance the portfolio and reduce the target concentration of tax free municipal securities. At December 31, 2018, our securities portfolio was 10.0% of our total interest-earning assets and produced an average taxable equivalent yield of 3.04% for 2018 compared to 3.34% and 2.93% for 2017 and 2016, respectively.

The following table sets forth the fair value of the available-for-sale securities at the dates indicated:

Table 11 - Investment Portfolio

	As of December 31,						Percent Change
(In thousands)	2018		2017		2016		2018 vs 2017			2017 vs 2016
Investment securities available-for-sale:
U.S. Treasury securities	$	96,785	$	96,844	$	96,785		(0.1	)%		0.1	%
Obligations of U.S. government agencies		61,007		81,224		97,528		(24.9	)		(16.7	)
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS):
Residential pass-through:
Guaranteed by GNMA		83,105		106,027		153,153		(21.6	)		(30.8	)
Issued by FNMA and FHLMC		585,201		430,422		265,328		36.0			62.2
Other residential mortgage-backed securities		35,169		46,392		47,561		(24.2	)		(2.5	)
Commercial mortgage-backed securities		109,415		72,195		62,613		51.6			15.3
Total MBS		812,890		655,036		528,655		24.1			23.9
Obligations of states and municipal subdivisions		216,570		423,959		410,812		(48.9	)		3.2
Total investment securities available-for-sale	$	1,187,252	$	1,257,063	$	1,133,780		(5.6	)%		10.9	%

See “—Maturity Distribution of Investment Securities,” for information regarding the contractual maturities and duration of our investment securities portfolio.

The following table summarizes the investment securities with unrealized losses determined to be temporarily impaired at December 31, 2018 by aggregated major security type and length of time in a continuous unrealized loss position:

Table 12 – Investment Securities with Unrealized Losses

	Unrealized Loss Analysis
	Losses < 12 Months				Losses > 12 Months				Total
(In thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
December 31, 2018
U.S. Treasury securities	$	—	$	—	$	96,785	$	3,628	$	96,785	$	3,628
Obligations of U.S. government agencies		25,978		183		10,152		101		36,130		284
Mortgage-backed securities		259,794		2,864		405,974		16,029		665,768		18,893
Obligations of states and municipal subdivisions		74,503		2,501		125,092		10,611		199,595		13,112
Total	$	360,275	$	5,548	$	638,003	$	30,369	$	998,278	$	35,917

None of the unrealized losses relate to the marketability of the securities or the issuer’s ability to honor redemption of the obligations. We have adequate liquidity, no plans to sell securities and the ability and intent to hold securities to maturity resulting in full recovery of the indicated impairment. Accordingly, the unrealized losses on these securities have been determined to be temporary.

Loan Portfolio

We originate commercial and industrial loans, commercial real estate loans (including construction loans), residential mortgages and other consumer loans. A strong emphasis is placed on the commercial portfolio, consisting of commercial and industrial and commercial real estate loan types, with 75% and 76% of the portfolio residing in these loan types as of December 31, 2018 and 2017, respectively. Our commercial portfolio is further diversified by industry concentration and includes loans to clients in specialized industries, including restaurant, healthcare and technology. Additional commercial lending activities include energy, construction, general corporate loans, business banking and community banking loans. Mortgage, wealth management and retail make up the majority of the consumer portfolio.

Total loans at December 31, 2018 increased $1.8 billion or 21.8% from December 31, 2017. Loan growth was driven by an increase in energy, specialized, real estate and general C&I loans.

The following table presents total loans outstanding by portfolio component and class of financing receivable using a risk-based perspective of the loan portfolio. Total loan balances include originated, ANCI loans and ACI loans combined. The subsequent table presents the ACI loans separately.

Table 13 – Loans by Portfolio Component

	Total Loans as of December 31,
(In thousands)	2018			2017			2016			2015			2014
Commercial and Industrial
General C&I	$	3,275,362		$	2,746,454		$	2,416,665		$	2,383,348		$	1,935,457
Energy sector		1,285,775			935,371			939,369			1,067,990			1,088,691
Restaurant industry		1,096,366			1,035,538			864,085			626,197			513,368
Healthcare		539,839			416,423			445,103			461,903			392,731
Total commercial and industrial		6,197,342			5,133,786			4,665,222			4,539,438			3,930,247
Commercial Real Estate
Income producing		1,266,791			1,082,929			1,001,703			831,362			817,598
Land and development		63,948			75,472			71,004			64,546			82,974
Total commercial real estate		1,330,739			1,158,401			1,072,707			895,908			900,572
Consumer
Residential real estate		2,227,653			1,690,814			1,457,170			1,256,850			1,166,808
Other		67,100			74,922			68,689			93,293			98,331
Total consumer		2,294,753			1,765,736			1,525,859			1,350,143			1,265,139
Small Business Lending		266,283			221,855			193,641			151,342			120,478
Total (Gross of Unearned Discount and Fees)		10,089,117			8,279,778			7,457,429			6,936,831			6,216,436
Unearned Discount and Fees		(35,194	)		(26,351	)		(24,718	)		(20,311	)		(23,643	)
Total (Net of Unearned Discount and Fees)	$	10,053,923		$	8,253,427		$	7,432,711		$	6,916,520		$	6,192,793

	Total ACI loans as of December 31,
(In thousands)	2018			2017			2016			2015			2014
Commercial and Industrial
General C&I	$	16,807		$	23,428		$	31,709		$	55,278		$	79,277
Healthcare		—			6,149			6,338			6,715			6,873
Total commercial and industrial		16,807			29,577			38,047			61,993			86,150
Commercial Real Estate
Income producing		65,427			79,861			96,673			129,914			210,724
Land and development		—			—			1,497			4,581			24,357
Total commercial real estate		65,427			79,861			98,170			134,495			235,081
Consumer
Residential real estate		120,495			149,942			186,375			235,131			306,232
Other		546			1,180			1,690			2,525			4,188
Total consumer		121,041			151,122			188,065			237,656			310,420
Total	$	203,275		$	260,560		$	324,282		$	434,144		$	631,651
Percent to total loans		2.02	%		3.16	%		4.36	%		6.28	%		10.20	%

Commercial and Industrial. Total C&I loans increased by $1.1 billion, or 20.7% from December 31, 2017 to December 31, 2018. C&I loans represented 61.6% of the total loan portfolio at December 31, 2018, compared to 62.0% of total loans at December 31, 2017.

As of December 31, 2018, 89.2% of the shared national credit (“SNC”) portfolio, or $2.4 billion, resides in the commercial and industrial segment of the loan portfolio, on a loan balance basis. The largest category of SNC’s is the Energy sector, representing 33% of the SNC portfolio, or $864.9 million as of December 31, 2018, compared to 24% of the SNC portfolio, or $716 million as of December 31, 2017. The next largest category of SNC is the General C&I category of all SNC’s, or $819.0 million, as of December 31, 2018. The remaining amount of the shared national credit portfolio can be found in the other C&I categories and, to a lesser amount, the CRE segment of the loan portfolio. Additionally, all SNC’s are part of the originated loan portfolio.

Our C&I loan growth reflects our strategic focus on this broad loan category. We seek further diversification wit hin C&I loans by industry to mitigate concentration risk in any one industry and/or risk type. Our specialized industries are significant drivers of the growth and diversification of this portion of our loan portfolio. Energy and specialized industries len ding have experienced teams with extensive knowledge o f their particular industry, allowing for quality underwriting and relationship-based lending.

General C&I . As of December 31, 2018, our general C&I category included the following types of loans: finance and insurance, professional services, commodities excluding energy, media and telecom, real estate, manufacturing, transportation and other . Generally, C&I loans typically provide working capital, equipment financing and financing for expansion and are generally secured by assignments of corporate assets including accounts receivable, inventory and/or equipment.

Energy . Energy lending is an important part of our business and our energy team is comprised of experienced lenders with significant product expertise and long-standing relationships. Additionally, energy production and energy related industries are substantial contributors to the economies in the Houston metropolitan area and the state of Texas. We strive for a rigorous and thorough approach to energy underwriting and credit monitoring. The allowance for credit losses for energy loans at December 31, 2018 decreased 56.8% from the year ago period due to a decline in the nonperforming and criticized energy credits. As of December 31, 2018, we had $20.7 million of nonperforming energy credits, all of which were current with their contractual terms compared to $42.8 million of nonperforming energy credits as of December 31, 2017. In addition, 2.5% of the energy portfolio was criticized or classified as of December 31, 2018 compared to 11.5% at December 31, 2017. We recorded recoveries of $ 1.2 million and charge-offs of $6.7 million on our energy portfolio during the year ended December 31, 2018. As presented in the following table our energy lending business is comprised of three areas: Exploration and Production (“E&P”), Midstream and Energy Services:

Table 14 – Energy Loans

	As of December 31,															As of December 31, 2018
(In thousands)	2018			2017			2016			2015			2014			Unfunded Commitments		Criticized/ Classified
Outstanding Balance
E&P	$	366,973		$	278,171		$	371,870		$	520,798		$	563,123		$	139,577	$	26,298
Midstream		738,535			557,800			472,053			414,720			334,737			692,728		6,227
Energy Services		180,267			99,400			95,446			132,472			190,822			129,634		—
Total energy sector	$	1,285,775		$	935,371		$	939,369		$	1,067,990		$	1,088,682		$	961,939	$	32,525
Percent to total loans		12.8	%		11.3	%		12.6	%		15.4	%		17.5	%
Allocated ACL
E&P	$	2,195		$	12,892		$	13,018		$	22,218		$	2,544
Midstream		4,091			1,582			5,878			2,402			1,856
Energy Services		1,051			2,509			5,657			2,481			7,626
Total allocated ACL	$	7,337		$	16,983		$	24,553		$	27,101		$	12,026
ACL as a Percentage of Outstanding Balances
E&P		0.60	%		4.63	%		3.50	%		4.27	%		0.45	%
Midstream		0.55			0.28			1.25			0.58			0.55
Energy Services		0.58			2.52			5.93			1.87			4.00
Total percentage		0.57	%		1.82	%		2.61	%		2.54	%		1.10	%

E&P loans outstanding comprised approximately 28% of outstanding energy loans as of December 31, 2018, compared to 30% of outstanding energy loans as of December 31, 2017. E&P customers are primarily businesses that derive a majority of their revenues from the sale of oil and gas and whose credit needs require technical evaluation of oil and gas reserves. Emphasis for E&P is on high quality, independent producers with proven track records. Our E&P credit underwriting includes a combination of well-by-well analyses, frequent updates to our pricing decks and engaging energy engineers to actively monitor the portfolio and provide credit redeterminations, at a minimum, every six months. At least quarterly, and more frequently during periods of higher commodity price volatility, we adjust the base and sensitivity price decks on which we value our clients’ oil and gas reserves. Generally, we seek to follow the shape of the NYMEX strips for oil and natural gas, but at a discount to the strip. In periods of higher commodity prices, our discount from the strip is higher whereas in lower price periods our discount is lower. The price decks utilized in our engineering analysis are approved by our Senior Credit Risk Management Committee. Borrowing base redeterminations occur every spring and fall, with the spring redeterminations completed prior to the end of the second quarter and fall determinations completed prior to the end of the fourth quarter.

Midstream loans outstanding comprised approximately 58 % of outstanding energy loans as of December 31, 201 8 compared to approximately 6 0% of outstanding energy loans as of December 31, 201 7 . Midstream lending is generally to customers who handle the gathering, treating and processing, storage or transportation of oil and gas. These customers’ businesses are generally less price sensitive than other energy segments given the nature of their fee-based revenue streams. Underwriting guidelines for the Midstream portfolio generally require a first lien on all assets as collateral.

Energy Services loans outstanding comprised approximately 14% of outstanding energy loans as of December 31, 2018 compared to approximately 11% of outstanding energy loans, as of December 31, 2017. Energy Services lending targets oilfield service companies that provide equipment and services used in the exploration for and extraction of oil and natural gas. Customers consist of a wide variety of businesses, including production equipment manufacturers, chemical sales, water transfer, rig equipment and other early and late stage services companies.

Specialized lending . The following table includes our specialized lending portfolio as of the dates presented:

Table 15 – Specialized Lending

	Originated C&I Loans - Specialized Lending
	As of December 31,										Unfunded Commitments as of December 31, 2018
(In thousands)	2018		2017		2016		2015		2014
Specialized Industries
Restaurant industry	$	1,096,366	$	1,035,538	$	864,085	$	626,197	$	513,368	$	262,993
Healthcare		539,839		408,665		434,663		446,792		376,297		182,569
Technology		459,502		411,050		218,162		145,944		215,156		98,058
Total specialized industries	$	2,095,707	$	1,855,253	$	1,516,910	$	1,218,933	$	1,104,821	$	543,620

Restaurant industry, healthcare, and technology are the components of our specialized industries. For these industries we focus on larger corporate clients, who are typically well-known within the industry. The client coverage for both of these components is national in scope, given the size and capital needs of the majority of the clients. Additionally, in the restaurant sector we focus on major franchisees and the operating companies of “branded” restaurant concepts. Our healthcare portfolio focuses on middle market healthcare providers with diversified payer mix, while our technology portfolio focuses on the technology sub-segments of software and services, network and communications infrastructure, and internet and mobility applications. Given these customer profiles, we frequently participate in such credits with two or more banks through syndication.

Commercial Real Estate. Commercial real estate (“CRE”) loans increased by $172.3 million, or 14.9%, since December 31, 2017. CRE loans represented 13.2% of our total loan portfolio at December 31, 2018, compared to 14.0% of total loans at December 31, 2017. Income Producing CRE includes non-owner occupied loans secured by commercial real estate, regardless of the phase of the loan (construction versus completed). Commercial construction loans are primarily included in Income Producing CRE. Additionally, all real estate investment trust and income producing loans are included in the Income Producing CRE segment. Land, lots and homebuilder loans are included in the land and development segment. All owner occupied CRE loans reside in the various C&I segments in which the underlying risk exists. Our CRE lending team is a group of experienced relationship managers focusing on construction and income producing property lending which generally have property or sponsors located in our geographic footprint. CRE loans are secured by a variety of property types, including multi-family dwellings, office buildings, industrial properties and retail facilities.

Consumer . Consumer loans at December 31, 2018 increased by $529.0 million, or 30.0%, from December 2017. Consumer loans represent 22.8% of total loans at December 31, 2018, compared to 21.4% of total loans at December 31, 2017. We originate residential real estate mortgages that are held for investment as well as held for sale in the secondary market. Approximately 17.6% of the consumer portfolio relates to acquired portfolios, compared to 15.1% a year ago. During 2018, we have purchased, as a complement to our originations, $214 million of Community Reinvestment Act (“CRA”) qualified consumer residential real estate loans at a premium of approximately 6%. These loans were evaluated and determined not to be credit impaired before purchase and are classified as ANCI. Our originated consumer loan portfolio totaled $1.9 billion as of December 31, 2018, an increase of $391.7 million from year end 2017.

Small Business. Small Business loans at year end 2018 increased by $ 44 . 4 million, or 20 . 0 % from December 31, 201 7 . Small business loans represent 2. 8 % of the total loan portfolio at December 31, 201 8 , compared to 2. 7 % of total loans at December 31, 201 7 . The small business category is now defined as all commercial loans with a transactional exposure of $1.5 million or less and relationship exposure of $2.0 million or less. These loans are primarily centrally underwritten in the Cadence Loan Center, using defined underwriting standards that are applied consistently throughout the category.

Concentrations of Credit. Our concentrations of credit are closely and consistently monitored by the Company. Individual concentration limits are assessed and established, as needed, on a quarterly basis and measured as a percentage of risk-based capital. All concentrations greater than 25% of risk-based capital require a concentration limit, which is monitored and reported to the Board of Directors on at least a quarterly basis. In addition to the specialized industries, energy, and CRE segments in the loan portfolio, we manage concentration limits for other loans, such as, construction, multifamily, office building, leveraged loans, technology loans, specialty chemical, and non-specialized enterprise value loans. We evaluate the appropriateness of our underwriting standards in response to changes in national and regional economic conditions, including energy prices, interest rates, real estate values, and employment levels. Underwriting standards and credit monitoring activities are assessed and enhanced in response to changes in these conditions.

Asset Quality

We focus on asset quality strength through robust underwriting, proactive monitoring and reporting of the loan portfolio and collaboration between the lines of business, credit risk and enterprise risk management.

Credit risk is governed and reported up through the Board of Directors primarily through our Senior Credit Risk Management Committee. The Senior Credit Risk Management Committee reviews credit portfolio management information such as problem loans, delinquencies, concentrations of credit, asset quality trends, portfolio analysis, policy updates and changes, and other relevant information. Further, both Senior Loan Committee and Credit Transition Committee, the primary channels for credit approvals, report up through Senior Credit Risk Management Committee. The Senior Loan Committee generally approves all loans with relationship exposure greater than $5 million. Dual signature authority between the business unit and the credit officer is utilized for loan approvals below the $5 million threshold. Additionally, the Credit Transition Committee manages all material credit actions for classified credits greater than $5 million. Our Board of Directors receives information concerning asset quality measurements and trends on at least a quarterly basis if not more frequently.

Credit policies have been established for each type of lending activity in which we engage, with a particular focus given to the commercial side of the Bank. Polices are evaluated and updated as needed based on changes in guidance and regulations as well as business needs of the Bank.

Each loan’s creditworthiness is assessed and assigned a risk rating, based on both the borrower strength (probability of default) as well as the collateral protection of the loan (loss given default). Risk rating accuracy and reporting are critical tools for monitoring the portfolio as well as determining the allowance for credit losses. Assigned risk ratings are periodically reviewed for accuracy and adjusted as appropriate for all relationships greater than $2.5 million.

Acquired Loans

Loans acquired in acquisitions are initially recorded at fair value with no carryover of the related allowance for credit losses. The fair value of the loans is determined using market participant assumptions in estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.

Under the accounting model for ACI loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield,” is accreted into interest income over the life of the loans using the effective yield method. Accordingly, ACI loans are not subject to classification as nonaccrual in the same manner as originated loans. Rather, acquired loans are considered to be accruing loans because their interest income relates to the accretable yield recognized and not to contractual interest payments. However, if the timing or amount of the expected cash flows cannot be reasonably estimated an ACI loan may be placed in nonaccruing status. The excess of an ACI loan’s contractually required payments over the cash flows expected to be collected is the nonaccretable difference. As such, charge-offs on ACI loans are first applied to the nonaccretable difference and then to any related allowance for credit losses recognized subsequent to the acquisition. A decrease in expected cash flows in subsequent periods may indicate that the ACI loan pool or specifically reviewed loan is impaired, which would require the establishment of an allowance for credit losses by a charge to the provision for credit losses.

Select asset quality metrics presented below distinguish between the originated, ANCI and ACI portfolios.

Nonperforming Assets.

Nonperforming assets primarily consist of nonperforming loans and property acquired through foreclosures or repossession (or other real estate owned or “OREO”). The following table presents all nonperforming assets (originated, ANCI, and ACI) and additional asset quality data for the dates indicated:

Table 16 – Nonperforming Assets

	As of December 31,
(Recorded Investment in thousands)	2018			2017			2016			2015			2014
Nonperforming loans ("NPLs"):
Commercial and industrial	$	71,353		$	43,085		$	122,416		$	63,234		$	14,462
Commercial real estate		—			225			2,186			2,922			5,533
Consumer		2,555			3,741			3,530			2,845			3,928
Small business		333			642			805			834			444
Total NPLs		74,241			47,693			128,937			69,835			24,367
Foreclosed OREO and other NPAs		8,185			22,965			37,231			32,972			47,460
Total nonperforming assets ("NPAs")	$	82,426		$	70,658		$	166,168		$	102,807		$	71,827
NPLs as a percentage of total loans		0.74	%		0.58	%		1.73	%		1.01	%		0.39	%
NPAs as a percentage of loans plus OREO/other NPAs		0.82	%		0.85	%		2.22	%		1.48	%		1.15	%
NPAs as a percentage of total assets		0.65	%		0.65	%		1.74	%		1.17	%		0.90	%
Originated and ANCI accruing loans 90 days or more past due	$	760		$	827		$	586		$	1,446		$	529
ACI accruing loans 90 days or more past due		5,480			16,988			18,364			24,655			53,041
Total accruing loans 90 days or more past due	$	6,240		$	17,815		$	18,950		$	26,101		$	53,570

Nonperforming Loans. Commercial loans, including small business loans, are generally placed on nonaccrual status when principal or interest is past due 90 days or more unless the loan is well secured and in the process of collection, or when the loan is specifically determined to be impaired. When a commercial loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income.

Consumer loans, including residential first and second lien loans secured by real estate, are generally placed on nonaccrual status when they are 120 or more days past due. When a consumer loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income.

Generally, cash receipts on nonperforming loans are used to reduce principal rather than recorded as interest income. Past due status is determined based upon contractual terms. A nonaccrual loan may be returned to accrual status when repayment is reasonably assured under the terms of the loan or, if applicable, under the terms of the restructured loan. For the years ended December 31, 2018, 2017 and 2016, approximately $8.5 million, $7.3 million and $8.2 million, respectively, of contractual interest accrued on nonperforming loans was not recognized in earnings. However, for the years ended December 31, 2018, 2017, and 2016 approximately $1.7 million, $1.5 million, $1.1 million of contractual interest received was recognized on the cash basis.

Our nonperforming loans have increased slightly to 0.74% of our loan portfolio as of December 31, 2018 compared to 0.58% of our loan portfolio as of December 31, 2017, with the increase primarily due to a construction company credit in the General C&I segment, two credits in the Restaurant segment and one credit in the Healthcare segment within our originated portfolio

The following tabl e includes our originated nonperforming loans and assets for the periods presented.

Table 17 – Originated Nonperforming Assets

	As of December 31,
(Recorded Investment in thousands)	2018			2017			2016			2015			2014
Nonperforming loans ("NPLs"):
General C&I	$	24,103		$	263		$	7,089		$	7,215		$	—
Energy- E&P		14,485			36,896			95,453			36,361			—
- Midstream		6,227			—			10,689			1,580			—
- Energy Services		—			5,926			7,242			9,818			6,182
Restaurant industry		22,042			—			—			—			—
Healthcare		4,496			—			—			—			—
Commercial real estate		—			—			—			66			2
Consumer		1,218			1,519			798			108			174
Small business		104			199			132			90			110
Total NPLs - originated portfolio		72,675			44,803			121,403			55,238			6,468
E&P - net profits interests		5,779			15,833			19,425			—			—
Foreclosed OREO		22			140			—			—			—
Total nonperforming assets ("NPAs") - originated portfolio	$	78,476		$	60,776		$	140,828		$	55,238		$	6,468
NPLs as a percentage of total loans		0.72	%		0.54	%		1.63	%		0.80	%		0.10	%

Other Real Estate Owned. Other real estate owned consists of properties acquired through foreclosure and unutilized bank-owned properties. These properties, as held for sale properties, are initially recorded at fair value, less estimated costs to sell, on the date of foreclosure (establishing a new cost basis for the property). Subsequent to the foreclosure date the OREO is maintained at the lower of cost or fair value. Any write-down to fair value required at the time of foreclosure is charged to the allowance for credit losses. Subsequent gains or losses on other real estate owned resulting from either the sale of the property or additional valuation allowances required due to further declines in fair value are reported in other noninterest expense.

The balance of foreclosed OREO was $2.4 million as of December 31, 2018, compared to $7.1 million as of December 31, 2017, and with 98% related to foreclosures resulting from our ACI loan portfolio. As of December 31, 2018, 2017 and 2016, there had been no additions to OREO resulting from foreclosure or repossession from a shared national credit. However, we did receive during the second and fourth quarters of 2016, $19.1 million in net profits interests (“NPIs”) in certain oil and gas reserves related to energy credit bankruptcies due to two energy portfolio shared national credits that were charged-off in 2016. We recorded the NPIs at estimated fair value using a discounted cash flow analysis applied to the expected cash flows from the producing developed wells. These NPIs are considered financial instruments and recorded at fair value and are subject to the volatility of oil and gas prices and other operational factors outside of our control. The balance of the NPIs was $5.8 million as of December 31, 2018, compared with $15.8 million as of December 31, 2017. The decrease was attributable to the sale of one of the NPIs during the fourth quarter of 2018. The following tables present the balances of our OREO and NPIs as of the dates indicated:

Table 18 – OREO and Other Assets

	As of December 31,
(In thousands)	2018		2017		2016		2015		2014
Acquired through foreclosure
Land	$	36	$	1,393	$	10,183	$	7,469	$	8,435
Residential property		970		2,696		5,138		13,763		20,997
Commercial property		1,400		3,043		2,582		11,740		18,028
Total foreclosed OREO		2,406		7,132		17,903		32,972		47,460
Unutilized bank-owned properties
Land		—		473		756		—		45
Commercial property		—		—		216		3,012		8,481
Total unutilized bank owned property		—		473		972		3,012		8,526
Total OREO		2,406		7,605		18,875		35,984		55,986
Other assets - net profits interests		5,779		15,833		19,425		—		-
Total OREO and other assets	$	8,185	$	23,438	$	38,300	$	35,984	$	55,986

	As of December 31,
(In thousands)	2018		2017		2016		2015		2014
Acquired through foreclosure
Land	$	36	$	1,393	$	10,183	$	7,282	$	8,236
Residential property		925		2,392		4,937		12,429		18,672
Commercial property		1,400		3,020		2,559		11,717		17,987
Total OREO - ACI	$	2,361	$	6,805	$	17,679	$	31,428	$	44,895

Past Due 90 Days and Accruing. We classify certain loans with principal or interest past due 90 days or more as accruing loans if those loans are well secured and in the process of collection or are specifically determined to be impaired as accruing loans. The bulk of the accruing 90 days or more past due loans reside in the ACI portfolio. These loans are monitored on a monthly basis by both the lines of business and credit administration. As of December 31, 2018, 2017 and 2016, there were no SNC loans that were 90 days or more past due and accruing.

Troubled Debt Restructuring. We attempt to work with borrowers when necessary to extend or modify loan terms to better align with the borrower’s ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately. The Bank considers regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. Qualifying criteria and payment terms are structured by the borrower’s current and prospective ability to comply with the modified terms of the loan.

A modification is classified as a troubled debt restructuring (“TDR”) if the borrower is experiencing financial difficulty and it is determined that we have granted a concession to the borrower. We may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future without the modification. Concessions could include reductions of interest rates at a rate lower than the current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, principal forgiveness, forbearance, or other concessions. The assessments of whether a borrower is experiencing or will likely experience financial difficulty and whether a concession has been granted is highly subjective in nature, and management’s judgment is required when determining whether a modification is classified as a TDR.

All TDRs are reported as impaired. An impaired classification may be removed if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. Nonperforming loans and impaired loans have unique definitions. Some loans may be included in both categories, whereas other loans may only be included in one category. As of December 31, 2018 there were 2 SNC borrowers that were considered TDRs, totaling $24.7 million. As of December 31, 2017 there were 4 SNC borrowers that were considered TDRs, totaling $24.8 million. The following table summarizes our TDR activity for the periods indicated:

Table 19 - Originated Loans and ANCI Loans that were modified into TDRs

	2018				2017				2016				2015				2014
(In thousands)	Number of TDRs		Recorded Investment		Number of TDRs		Recorded Investment		Number of TDRs		Recorded Investment		Number of TDRs		Recorded Investment		Number of TDRs		Recorded Investment
Commercial and Industrial
General C&I		—	$	—		2	$	5,010		1	$	5,496		3	$	9,840		1	$	2,773
Energy sector		1		14,486		—		—		5		38,113		2		16,619		—		—
Restaurant industry		2		11,262		1		11,017		—		—		—		—		—		—
Healthcare		1		4,496		—		—		—		—		—		—		—		—
Total commercial and industrial		4		30,244		3		16,027		6		43,609		5		26,459		1		2,773
Consumer
Residential real estate		—		—		1		460		1		334		5		273		7		1,256
Other		—		—		1		279		1		200		1		306		—		—
Total consumer		—		—		2		739		2		534		6		579		7		1,256
Small Business Lending		2		141		1		138		1		552		—		—		1		176
Total		6	$	30,385		6	$	16,904		9	$	44,695		11	$	27,038		9	$	4,205

For the year ended December 31, 2018 there was one commercial specialized lending customer with a combined recorded investment of $11.8 million which experienced payment default. There were no TDRs experiencing payment default during the years ended December 31, 2017 and 2016. For the year ended December 31, 2015, there were two small business lending loans with a combined recorded investment of $459 thousand experiencing payment default. For the year ended December 31, 2014, there were two small business lending loans with a combined recorded investment of $1.1 million and a residential real estate loan of $101 thousand experiencing payment default. Default is defined as the earlier of the troubled debt restructuring being placed on non-accrual status or obtaining 90 day past due status with respect to principal and/or interest payments.

ACI Loans that were modified into TDRs

There were no ACI loans modified in a TDR for the years ended December 31, 2018 and 2017. In the year ended December 31, 2016, there was one ACI loan modified in a TDR with a recorded investment of $954 thousand in income producing commercial real estate. In the year ended December 31, 2015, there was one ACI loan modified in a TDR with a recorded investment of $625 thousand in income producing commercial real estate. There were no TDRs experiencing payment default during the years ended December 31, 2018, 2017 and 2016.

Potential Problem Loans.

Potential problem loans represent loans that are currently performing, but for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future. These loans are not included in the amounts of nonaccrual or restructured loans presented above. We cannot predict the extent to which economic conditions or other factors may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual status, become restructured, or require increased allowance coverage and provision for credit losses. We have identified no significant credits as a potential problem loan at December 31, 2018. Any potential problem loans would be assessed for loss exposure consistent with the methods described in Notes 1 and 4 to our Consolidated Financial Statements.

We expect the levels of nonperforming assets and potential problem loans to fluctuate in response to changing economic and market conditions, and the relative sizes of the respective loan portfolios, along with our degree of success in resolving problem assets. We seek to take a proactive approach with respect to the identification and resolution of problem loans.

Allowance for Credit Losses

The allowance for credit losses (“ACL”) is maintained at a level that management believes is adequate to absorb all probable losses on loans inherent in the loan portfolio as of the reporting date. Events that are not within the Company’s control, such as changes in economic factors, could change subsequent to the reporting date and could cause increases or decreases to the ACL. The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously charged off, which increase the allowance; and the provision for credit losses charged to earnings, which increases the allowance. In

determining the provision for credit losses, management monitors fluctuations in the ACL resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio i n light of current and anticipated economic conditions (see Notes 1 and 4 to the Consolidated Financial Statements). This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.

Total ACL for the period ending December 31, 2018 was $94.4 million, or 0.94% of total loans (net of unearned discounts and fees) of $10.1 billion. This compares with $87.6 million on loans of $8.3 billion, or 1.06% at December 31, 2017. The following tables present the allocation of the allowance for credit losses and the percentage of these loans to total loans. The allocation below is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of any future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb any losses in any category.

Table 20 – Allocation of Allowance for Credit Losses

	Allowance for Credit Losses										Percent of Loans in Each Category to Total Loans
	December 31,										December 31,
(In thousands)	2018		2017		2016		2015		2014		2018			2017			2016			2015			2014
Originated Loans
Commercial and industrial	$	65,965	$	55,050	$	54,213	$	53,169	$	24,825		60.65	%		60.94	%		61.36	%		63.63	%		60.38	%
Commercial real estate		8,758		9,850		7,205		4,825		3,156		12.51			12.83			12.80			10.55			9.78
Consumer		6,937		8,389		5,687		4,325		3,072		18.81			18.11			15.89			13.20			10.76
Small business		3,742		4,367		3,907		2,067		1,189		2.56			2.54			2.47			2.02			1.71
Total originated loans		85,402		77,656		71,012		64,386		32,242		94.54			94.42			92.52			89.40			82.63
ANCI Loans
Commercial and industrial		293		864		299		425		348		0.48			0.19			0.69			0.92			1.47
Commercial real estate		53		130		243		227		51		0.08			0.71			0.27			0.43			0.92
Consumer		541		85		131		105		277		2.81			1.39			2.05			2.84			4.60
Small business		165		317		305		306		799		0.09			0.14			0.12			0.16			0.23
Total ANCI		1,052		1,396		978		1,063		1,475		3.45			2.43			3.13			4.35			7.22
ACI Loans
Commercial and industrial		58		5		176		2,230		3,757		0.17			0.96			0.51			0.89			1.39
Commercial real estate		1,641		2,010		2,655		3,084		3,843		0.65			0.36			1.32			1.94			3.78
Consumer		6,225		6,509		7,447		9,020		12,203		1.20			1.83			2.52			3.42			4.98
Small business		—		—		—		—		—		—			—			—			—			—
Total ACI		7,924		8,524		10,278		14,334		19,803		2.02			3.15			4.35			6.25			10.15
Total Loans
Commercial and industrial		66,316		55,919		54,688		55,824		28,930		61.29			62.01			62.56			65.44			63.24
Commercial real estate		10,452		11,990		10,103		8,136		7,050		13.24			13.98			14.39			12.92			14.48
Consumer		13,703		14,983		13,265		13,450		15,552		22.82			21.33			20.46			19.46			20.34
Small business		3,907		4,684		4,212		2,373		1,988		2.65			2.68			2.59			2.18			1.94
Total allowance for credit losses	$	94,378	$	87,576	$	82,268	$	79,783	$	53,520		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%

Originated ACL. The ACL on our originated loan portfolio totaled $85.4 million, or 0.90% on loans of $9.5 billion as of December 31, 2018 compared to $77.7 million, or 1.00% on loans of $7.8 billion. The primary driver of the originated ACL is the net new loan growth as well as the underlying credit quality of the loans. Our originated and ANCI loan portfolios are divided into commercial and consumer segments for allowance estimation purposes. The commercial allowance estimate is driven by loan level risk ratings. The consumer allowance estimate uses pool level historical loss rates assigned based on certain credit attributes.

As December 31, 2018, $66.0 million, or 77.2% of our originated ACL is attributable to our C&I loan segment compared to $55.1 million, or 70.9%, as of December 31, 2017. The ACL as a percentage of the C&I portfolio was 1.08% as of December 31, 2018 compared to 1.10% as of December 31, 2017. The level of ACL as a percentage of C&I loans as of December 31, 2018 from December 31, 2017 is relatively unchanged and reflects stabilized credit metrics in the overall loan portfolio.

The level of criticized and classified loans in the C&I portfolio is presented in the following tables.

Table 21 –Criticized Originated C&I Loans

	As of December 31, 2018
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
General C&I	$	74,592	$	76,056	$	—	$	150,648
Energy Sector		11,812		6,227		14,486		32,525
Restaurant industry		24,449		26,171		—		50,620
Healthcare		—		4,496		—		4,496
Total	$	110,853	$	112,950	$	14,486	$	238,289

	As of December 31, 2017
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
General C&I	$	80,550	$	41,309	$	—	$	121,859
Energy Sector		—		99,979		7,634		107,613
Restaurant industry		4,536		12,505		—		17,041
Healthcare		—		71		—		71
Total	$	85,086	$	153,864	$	7,634	$	246,584

	As of December 31, 2016
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
General C&I	$	36,419	$	26,968	$	—	$	63,387
Energy Sector		30,433		239,457		789		270,679
Restaurant industry		16,169		—		—		16,169
Healthcare		9,479		—		—		9,479
Total	$	92,500	$	266,425	$	789	$	359,714

	As of December 31, 2015
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
General C&I	$	14,056	$	42,705	$	—	$	56,761
Energy Sector		104,781		241,032		—		345,813
Restaurant industry		25,313		—		—		25,313
Healthcare		212		5,097		—		5,309
Total	$	144,362	$	288,834	$	—	$	433,196

	As of December 31, 2014
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
General C&I	$	991	$	33	$	—	$	1,024
Energy Sector		9,467		19,670		—		29,137
Restaurant industry		13,372		—		—		13,372
Healthcare		—		—		—		—
Total	$	23,830	$	19,703	$	—	$	43,533

As of December 31, 2018, $8.8 million, or 10.3% of our originated ACL is attributable to the CRE loan segment compared to $9.9 million, or 12.7%, as of December 31, 2017. The ACL as a percentage of the CRE portfolio has decreased to 0.70% as of December 31, 2018 from 0.93% as of December 31, 2017, as result of updates to our loss rates along with favorable economic conditions in the markets we serve.

In addition to quantitative elements, certain qualitative and environmental factors are also considered at management’s discretion, which are generally based on a combination of internal and external factors and trends. At December 31, 201 8 , these factors totaled $ 19. 7 million and accounted for approximately 23.1 % of the originated ACL compared to $ 7.6 million, or 9.8 %, as of December 31, 201 7 , with the increase related primarily to the volatility of indices used to measure collateral and oil prices. However, consideri ng the declining stress in the energy industry and improvements in our Energy Sector credit quality , the qualitative and environmental reserves allocated to this portfolio declined to $ 3.0 million at December 31, 201 8 from $ 4.5 million as of December 31, 201 7 .

As of December 31, 2018 and 2017, $21.1 million, or 24.7% and $34.6 million, or 44.6%, respectively of the total originated ACL, was attributable to SNC loans. During 2018, we recorded gross charge-offs of a single energy portfolio credit totaling $6.2 million that is a SNC loan. During the year ended December 31, 2017 we recorded $4.9 million in charge-offs primarily related to three E&P credits that are SNC loans. The ACL is estimated based on the underlying credit quality of the loan, primarily based on its probability of default and loss given default. This methodology is consistent whether or not a loan is a SNC.

The following table includes the charge-off and recoveries on our originated portfolio for the periods presented:

Table 22 –Originated Charge-offs and Recoveries

	Originated Charge-offs and Recoveries
		Year Ended December 31,
(In thousands)		2018		2017		2016		2015		2014
Charge-offs:
Commercial and industrial
Energy
—E&P		$	6,709	$	4,882	$	32,893	$	3,200	$	—
—Midstream			—		—		—		617		—
—Services			—		—		—		4,699		—
Healthcare			—		—		12,207		—		—
Other commercial			—		250		1,268		—		843
Commercial real estate			2		—		—		123		—
Consumer			564		457		634		936		662
Small business			619		157		841		—		—
Total charge-offs			7,894		5,746		47,843		9,575		1,505
Recoveries:
Commercial and industrial			1,319		695		1,386		—		—
Commercial real estate			21		23		3		—		—
Consumer			176		114		225		220		309
Small business			65		50		—		—		—
Total recoveries			1,581		882		1,614		220		309
Net charge-offs		$	6,313	$	4,864	$	46,229	$	9,355	$	1,196

ANCI ACL. The ACL on our ANCI loans totaled $1.1 million on $349.3 million in loans, or 0.30% at December 31, 2018, compared to $1.4 million, or 0.7% at December 31, 2017. The decrease in the ANCI reserve between December 31, 2017 and December 31, 2018 is related to improved credit quality. ANCI loans were recorded at fair value at the date of each acquisition and are pooled for ACL assessment based on risk segment, with the majority of the ANCI loans within the consumer residential category. Any net shortage of credit mark indicates the need for an allowance on that segment of loans with certain loans individually reviewed for specific impairment.

ACI ACL. The ACL on our ACI loans totaled $7.9 million on $203.3 million in loans, or 3.90%, at December 31, 2018, compared to $8.5 million, or 3.3% at December 31, 2017. At the time of our acquisitions, we estimated the fair value of the total acquired loan portfolio by segregating the portfolio into loan pools with similar characteristics and certain specifically-reviewed non-homogeneous loans. The similar characteristics used to establish the pools included:

•

risk rating;

•

the loan type based on regulatory reporting guidelines; namely whether the loan was a residential, construction, consumer, or commercial loan; and

•

the nature of collateral.

Since the acquisition dates, the expected cash flows have been r e-estimated quarterly utilizing the same cash flow methodology used at the time of each acquisition. Any subsequent decreases to the expected cash flows generally result in a provision for credit losses. Conversely, subsequent increases in expected cash fl ows result first in the reversal of any impairment, then in a transfer from the non-accretable discount to the accretable discount, which would have a positive impact on accretion income prospectively. These cash flow evaluations are inherently subjective, as they require material estimates, all of which may be susceptible to significant change.

The largest component of our ACI ACL is attributable to our consumer category, primarily first and second-lien residential loans, that represents 78.6% of the ACI ACL at December 31, 2018 compared to 76.4%, of the ACI ACL at December 31, 2017. This component of the ACL has declined $0.3 million to $6.2 million since December 31, 2017 due to impairment reversals on the residential pools, largely driven by loan pay-offs.

The commercial real estate component comprises 20.7% of the ACI ACL at December 31, 2018 and has decreased $0.4 million to $1.6 million since December 31, 2017. The commercial and industrial component comprises less than 1% of the ACI ACL at December 31, 2018.

The following table summarizes certain information with respect to our ACL on the total loan portfolio and the composition of charge-offs and recoveries for the periods indicated. Subsequent tables present this information separately for the originated, ANCI and ACI portfolios:

Table 23 – Allowance for Credit Losses Roll-forward

	Total Loans
	Year Ended December 31,
(In thousands)	2018			2017			2016			2015			2014
Allowance for credit losses at beginning of period	$	87,576		$	82,268		$	79,783		$	53,520		$	44,269
Charge-offs		(8,045	)		(6,871	)		(49,302	)		(10,734	)		(9,307	)
Recoveries		2,147			2,444			2,439			1,013			4,440
Provision for credit losses		12,700			9,735			49,348			35,984			14,118
Allowance for credit losses at end of period	$	94,378		$	87,576		$	82,268		$	79,783		$	53,520

Loans at end of period, net of unearned income	$	10,053,923		$	8,253,427		$	7,432,711		$	6,916,520		$	6,192,793
Average loans, net of unearned income		9,116,602			7,825,763			7,186,635			6,488,071			5,430,270
Ratio of ending allowance to ending loans		0.94	%		1.06	%		1.11	%		1.15	%		0.86	%
Ratio of net charge-offs to average loans		0.06			0.06			0.65			0.15			0.09
Net charge-offs as a percentage of:
Provision for credit losses		46.44			45.48			94.96			27.01			34.47
Allowance for credit losses		6.25			5.06			56.96			12.18			9.09
Allowance for credit losses as a percentage of nonperforming loans		127.12			183.62			63.80			114.25			219.64

	Originated Loans
	Year Ended December 31,
(In thousands)	2018			2017			2016			2015			2014
Allowance for credit losses at beginning of period	$	77,656		$	71,012		$	64,386		$	32,242		$	14,963
Charge-offs		(7,894	)		(5,746	)		(47,843	)		(9,575	)		(1,505	)
Recoveries		1,581			882			1,614			220			309
Provision for credit losses		14,059			11,508			52,855			41,499			18,475
Allowance for credit losses at end of period	$	85,402		$	77,656		$	71,012		$	64,386		$	32,242

Loans at end of period, net of unearned income	$	9,503,685		$	7,794,943		$	6,878,645		$	6,186,465		$	5,120,227
Ratio of ending allowance to ending loans		0.90	%		1.00	%		1.03	%		1.04	%		0.63	%
Net charge-offs as a percentage of:
Provision for credit losses		44.90			42.27			87.47			22.55			6.47
Allowance for credit losses		7.39			6.26			65.28			14.53			3.71
Allowance for credit losses as a percentage of nonperforming loans		117.51			173.33			58.49			116.56			498.48

	ANCI Loans
	Year Ended December 31,
(In thousands)	2018			2017			2016			2015			2014
Allowance for credit losses at beginning of period	$	1,396		$	978		$	1,063		$	1,475		$	2,091
Charge-offs		(151	)		(618	)		(367	)		(1,001	)		(2,749	)
Recoveries		394			635			321			204			467
Provision for credit losses		(587	)		401			(39	)		385			1,666
Allowance for credit losses at end of period	$	1,052		$	1,396		$	978		$	1,063		$	1,475

Loans at end of period, net of unearned income	$	346,963		$	197,924		$	229,784		$	295,911		$	440,915
Ratio of ending allowance to ending loans		0.30	%		0.71	%		0.43	%		0.36	%		0.33	%
Net charge-offs (recoveries) as a percentage of:
Provision for credit losses		41.40			(4.24	)		(115.38	)		206.49			136.97
Allowance for credit losses		(23.10	)		(1.22	)		4.61			74.65			154.71
Allowance for credit losses as a percentage of nonperforming loans		67.18			52.38			25.29			30.16			35.26

	ACI Loans
	Year Ended December 31,
(In thousands)	2018			2017			2016			2015			2014
Allowance for credit losses at beginning of period	$	8,524		$	10,278		$	14,334		$	19,803		$	27,215
Charge-offs		-			(507	)		(1,092	)		(158	)		(5,053	)
Recoveries		172			927			504			589			3,664
Provision for credit losses		(772	)		(2,174	)		(3,468	)		(5,900	)		(6,023	)
Allowance for credit losses at end of period	$	7,924		$	8,524		$	10,278		$	14,334		$	19,803

Loans at end of period, net of unearned income	$	203,275		$	260,560		$	324,282		$	434,144		$	631,651
Ratio of ending allowance to ending loans		3.90	%		3.27	%		3.17	%		3.30	%		3.14	%
Net charge-offs (recoveries) as a percentage of:
Provision for credit losses		22.28			19.32			(16.96	)		7.31			(23.06	)
Allowance for credit losses		(2.17	)		(4.93	)		5.71			(3.01	)		7.01
Allowance for credit losses as a percentage of nonperforming loans	NM			NM				280.59			129.53			144.38

NM—not meaningful.

Deposits. Our strategy is to fund asset growth primarily with customer deposits in order to maintain a stable liquidity profile and a more competitive cost of funds. We categorize deposits as brokered and non-brokered consistent with the banking industry. All customer deposits are non-brokered. The following table illustrates the growth in our deposits during the periods indicated:

Table 24 – Deposits

							Percent to Total
	December 31,						December 31,									Percentage Change
(In thousands)	2018		2017		2016		2018			2017			2016			2018 vs 2017			2017 vs 2016
Noninterest-bearing demand	$	2,454,016	$	2,242,765	$	1,840,955		22.9	%		24.9	%		23.0	%		9.4	%		21.8	%
Interest-bearing demand		5,727,026		4,675,109		4,541,412		53.4			51.9			56.6			22.5			2.9
Savings		170,910		177,304		180,687		1.6			2.0			2.3			(3.6	)		(1.9	)
Time deposits less than $100,000		1,119,270		869,783		605,579		10.5			9.6			7.6			28.7			43.6
Time deposits greater than $100,000		1,237,467		1,046,554		848,116		11.6			11.6			10.5			18.2			23.4
Total deposits	$	10,708,689	$	9,011,515	$	8,016,749		100.0	%		100.0	%		100.0	%		18.8	%		12.4	%

Total brokered deposits	$	1,037,474	$	796,734	$	1,041,858		9.7	%		8.8	%		13.0	%		30.2	%		(23.5	)%

Domestic time deposits of $250,000 and over were $491.3 million and $382.4 million at December 31, 2018 and 2017, respectively. These amounts represented 4.6% and 4.2% of total deposits at December 31, 2018 and 2017, respectively.

Non-brokered deposit growth primarily resulted from organic customer acquisition with a key focus on the expansion of commercial deposit relationships and treasury management services. State Bank funds on deposit with us amounted to $311 million at December 31, 2018, allowing us to benefit partially from State Bank’s strong liquidity position in the fourth quarter of 2018 in advance of the merger.

The following table sets forth our average deposits and the average rates expensed for the periods indicated:

	Year Ended December 31,
	2018					2017					2016
	Average		Average			Average		Average			Average		Average
	Amount		Rate			Amount		Rate			Amount		Rate
(In thousands)	Outstanding		Paid			Outstanding		Paid			Outstanding		Paid
Noninterest-bearing demand	$	2,137,953		—	%	$	1,965,070		—	%	$	1,688,405		—	%
Interest-bearing deposits:
Interest-bearing demand		4,983,113		1.16			4,360,252		0.62			4,122,667		0.45
Savings		181,194		0.31			181,500		0.25			178,397		0.24
Time deposits		2,119,543		1.99			1,679,959		1.32			1,665,833		1.03
Total interest-bearing deposits		7,283,850		1.38			6,221,711		0.80			5,966,897		0.59
Total average deposits	$	9,421,803		1.07	%	$	8,186,781		0.61	%	$	7,655,302		0.46	%

Borrowings

The following is a summary of our borrowings for the periods indicated:

Table 25 – Borrowings

	December 31,
(In thousands)	2018		2017
Securities sold under repurchase agreements	$	1,106	$	1,026
Advances from FHLB		150,000		150,000
Senior debt		184,801		184,629
Subordinated debt		98,910		98,687
Junior subordinated debentures		36,953		36,472
Total borrowings	$	471,770	$	470,814
Average total borrowings - YTD	$	565,658	$	493,196

At December 31, 2018, the outstanding advance from the FHLB was a short-term fixed rate hybrid advance. At December 31, 2018, we had borrowing availability of $875.1 million from the FHLB.

Our securities sold under agreements to repurchase generally mature within one to seven days from the transaction date. Securities underlying the repurchase agreements remain under the control of the Bank.

On June 16, 2014, we completed a $245 million unregistered multi-tranche debt transaction, and in Mar ch 2015, we completed an unregistered $50 million debt transaction ($10 million senior; $40 million subordinated). These transactions enhanced our liquidity and the Bank’s regulatory capital levels to support balance sheet growth. Details of the debt trans action are as follows (in thousands):

Table 26 – Senior and Subordinated Debt

	As of December 31,
	2018		2017
Senior debt
5-year senior holding company note, interest rate 4.875%, due June 28, 2019	$	135,000	$	135,000
7-year senior holding company note, interest rate 5.375%, due June 28, 2021		50,000		50,000
4-year senior holding company note, interest rate 4.875%, due June 28, 2019		10,000		10,000
Total senior debt issued	$	195,000	$	195,000
Subordinated debt
15-year, 10-year callable, subordinated holding company note, interest rate 7.250%, due June 28, 2029	$	35,000	$	35,000
15-year, 10-year callable, subordinated Bank note, interest rate 6.250%, due June 28, 2029		25,000		25,000
10-year, 5-year callable, subordinated holding company note, interest rate 6.5000% until March 2020, variable rate at 3-month LIBOR plus 4.663% until maturity of March 2025		40,000		40,000
Total subordinated debt issued	$	100,000	$	100,000

The senior transactions completed in 2014 were structured as 5- and 7-year maturities to provide holding company liquidity and to stagger our debt maturity profile. The $25 million and $35 million subordinated debt transactions were structured with a 15-year maturity, 10-year call provision, and fixed-to-floating rate notes to maximize both regulatory capital treatment and flexibility. The $40 million subordinated debt transaction was structured with a 10-year maturity and a 5-year call provision. The senior transaction completed in March 2015 includes a 4-year maturity. The subordinated debt structure was designed to achieve full Tier 2 capital treatment for 10 years.

In conjunction with our acquisitions of Cadence and Encore, we assumed certain junior subordinated debentures, which were marked to their fair value as of the acquisition dates. The related mark is being amortized over the remaining term of the junior subordinated debentures. The following is a list of our junior subordinated debt as of the dates indicated:

Table 27 – Junior Subordinated Debentures

	As of December 31,
	2018			2017
(In thousands)
Junior Subordinated Debentures
3-month LIBOR plus 2.85% junior subordinated debentures, due 2033	$	30,000		$	30,000
3-month LIBOR plus 2.95% junior subordinated debentures, due 2033		5,155			5,155
3-month LIBOR plus 1.75% junior subordinated debentures, due 2037		15,464			15,464
Total par value		50,619			50,619
Purchase accounting adjustment, net of amortization		(13,666	)		(14,147	)
Total junior subordinated debentures	$	36,953		$	36,472

Shareholders’ Equity

As of December 31, 2018, our ratio of shareholders’ equity to total assets was 11.30%, as compared to 12.41% and 11.34% as of December 31, 2017 and 2016, respectively. Our shareholders’ equity increased by $79.2 million in 2018 primarily as a result of earnings of $166.3 million. Cash dividends on common stock reduced shareholders’ equity by $46.0 million and changes in accumulated other comprehensive income reduced shareholders’ equity by $23.9 million due to a decrease of $22.1 million in the estimated fair value of investments available-for-sale (net of income taxes and reclassification adjustments). During 2018, we repurchased approximately 1.1 million shares of our common stock for $22.0 million pursuant to a share repurchase program authorized by the Board of Directors in October 2018, subsequently amended in December 2018. The repurchase program authorized a total amount not to exceed $81 million as part of the Company’s capital management strategies.

Regulatory Capital. We are required to comply with regulatory capital requirements established by F ederal and S tate banking agencies. T hese regulatory capital requirements involve quantitative measures of the Company's assets, liabilities and selected off-balance sheet items, and qualitative judgments by the regulators. Failure to meet minimum capital requirements can subject us to a seri es of increasingly restrictive regulatory actions.

Our regulatory capital amounts and ratios at December 31, 2018 and 2017 are presented in the following tables:

Table 28 – Regulatory Capital Amounts and Ratios

	Consolidated Company					Bank
(In thousands)	Amount		Ratio			Amount		Ratio
December 31, 2018
Actual:
Tier 1 leverage	$	1,209,407		10.1	%	$	1,327,974		11.1	%
Common equity tier 1 capital		1,172,454		9.8			1,277,974		10.7
Tier 1 risk-based capital		1,209,407		10.1			1,327,974		11.1
Total risk-based capital		1,403,311		11.8			1,447,719		12.1
Minimum requirement:
Tier 1 leverage		479,940		4.0	%		479,667		4.0	%
Common equity tier 1 capital		536,930		4.5			536,285		4.5
Tier 1 risk-based capital		715,907		6.0			715,047		6.0
Total risk-based capital		954,542		8.0			953,396		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A				599,584		5.0	%
Common equity tier 1 capital	N/A		N/A				774,634		6.5
Tier 1 risk-based capital		715,907		6.0			953,396		8.0
Total risk-based capital		1,193,178		10.0			1,191,745		10.0

	Consolidated Company					Bank
(In thousands)	Amount		Amount			Amount		Ratio
December 31, 2017
Actual:
Tier 1 leverage	$	1,096,438		10.7	%	$	1,198,234		11.7	%
Common equity tier 1		1,058,888		10.6			1,149,181		11.5
Tier 1 risk-based capital		1,096,438		10.9			1,198,234		12.0
Total risk-based capital		1,283,561		12.8			1,311,376		13.1
Minimum requirement:
Tier 1 leverage		410,770		4.0	%		410,743		4.0	%
Common equity tier 1		450,951		4.5			450,874		4.5
Tier 1 risk-based capital		601,269		6.0			601,165		6.0
Total risk-based capital		801,691		8.0			801,553		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A				513,429		5.0	%
Common equity tier 1	N/A		N/A				651,262	6.5
Tier 1 risk-based capital		601,269		6.0			801,553		8.0
Total risk-based capital		1,002,114		10.0			1,001,941		10.0

Liquidity

Overview

We measure and seek to manage liquidity risk by a variety of processes, including monitoring the composition of our funding mix; monitoring financial ratios specifically designed to measure liquidity risk; maintaining a minimum liquidity cushion; and performing forward cash flow gap forecasts in various liquidity stress testing scenarios designed to simulate possible stressed liquidity environments. We attempt to limit our liquidity risk by setting board-approved concentration limits on sources of funds and limits on liquidity ratios used to measure liquidity risk and maintaining adequate levels of on-hand liquidity. We use the following ratios to monitor and analyze our liquidity:

•

Total Loans to Total Deposits—the ratio of our outstanding loans to total deposits.

•

Non-Brokered Deposits to Total Deposits—the ratio of our deposits that are organically originated through commercial and branch activity to total deposits.

•

Brokered Deposits to Total Deposits—the ratio of our deposits generated through wholesale sources to total deposits.

•

Highly Liquid Assets to Uninsured Large Depositors—the ratio of cash and highly liquid assets to uninsured deposits with a current depository relationship greater than $10,000,000.

•

Wholesale Funds Usage—the ratio of our current borrowings and brokered deposits to all available wholesale sources with potential maturities greater than one day.

•

Wholesale Funds to Total Assets—the ratio of current outstanding wholesale funding to assets.

As of December 31, 2018, all our liquidity measures were within our established guidelines.

The goal of liquidity management is to ensure that we maintain adequate funds to meet changes in loan demand or any deposit withdrawals. Additionally, we strive to maximize our earnings by investing our excess funds in securities and other assets. To meet our short-term liquidity needs, we seek to maintain a targeted cash position and have borrowing capacity through many wholesale sources including the FHLB, correspondent banks and the Federal Reserve Bank. To meet long-term liquidity needs, we additionally depend on the repayment of loans, sales of loans, term wholesale borrowings, brokered deposits and the maturity or sale of investment securities. See “—Maturity Distribution of Investment Securities” and “—Selected Loan Maturity and Interest Rate Sensitivity.”

Maturity Distribution of Investment Securities

The following table shows the scheduled contractual maturities and average book yields (not tax-equivalent) of our investment securities held at December 31, 2018. Within our investment securities portfolio, expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations without call or prepayment penalties in certain instances. During the year ended December 31, 2018, we received cash proceeds from calls/maturities and paydowns on our investment securities portfolio totaling approximately $112 million.

Table 29 – Contractual Maturity of Investment Securities

	Contractual Maturity
(In thousands)	Within One Year			After One but Within Five Years			After Five but Within Ten Years			After Ten Years			Total
Investment securities
U.S. Treasury securities	$	—		$	100,413		$	—		$	—		$	100,413
U.S. agency securities		—			3,949			44,586			12,441			60,975
Mortgage-backed securities		—			727			65,662			764,259			830,648
State, county and municipal securities		—			2,921			8,728			217,825			229,475
Total amortized cost	$	—		$	108,010		$	118,976		$	994,525		$	1,221,511
Yield on investment securities		—	%		1.11	%		3.17	%		3.13	%		2.96	%

Selected Loan Maturity

The repayment of loans as they mature is a source of long-term liquidity for us. The following table sets forth our loans by category maturing within specified intervals as of December 31, 2018. The information presented is based on the contractual maturities of the individual loans, including loans that may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Consequently, management believes this treatment presents fairly the maturity and re-pricing of the loan portfolio.

Table 30 – Contractual Maturity of Loans

									Rate Structure for Loans Maturing Over One Year
(In thousands)	One Year or Less		Over One Year through Five Years		Over Five Years		Total		Fixed Interest Rate		Floating or Adjustable Rate
Commercial and Industrial
General C&I	$	282,507	$	2,623,738	$	369,314	$	3,275,559	$	307,237	$	2,685,815
Energy sector		82,434		1,201,278		2,063		1,285,775		28,415		1,174,926
Restaurant industry		95,379		933,968		66,822		1,096,169		7,937		992,854
Healthcare		69,852		418,091		51,896		539,839		45,064		424,923
Total commercial and industrial		530,172		5,177,075		490,095		6,197,342		388,653		5,278,518
Commercial Real Estate
Income producing		353,468		779,563		133,760		1,266,791		149,684		763,638
Land and development		14,816		34,713		14,419		63,948		6,298		42,834
Total commercial real estate		368,284		814,276		148,179		1,330,739		155,982		806,472
Consumer
Residential real estate		24,595		42,736		2,160,322		2,227,653		1,533,615		669,443
Other		49,477		16,327		1,296		67,100		12,839		4,784
Total consumer		74,072		59,063		2,161,618		2,294,753		1,546,454		674,227
Small Business Lending		55,774		113,318		97,191		266,283		188,040		22,469
Total loans	$	1,028,302	$	6,163,732	$	2,897,083	$	10,089,117	$	2,279,129	$	6,781,686

Maturities of Time Deposits

The aggregate amount of time deposits in denominations of $100,000 or more as of December 31, 2018, 2017 and 2016 was $1.24 billion, $1.05 billion and $0.85 billion, respectively.

At December 31, 2018, the scheduled maturities of time deposits greater than $100,000 were as follows:

Table 31 – Contractual Maturity of Time Deposits Greater than $100,000

	December 31, 2018
(In thousands)	Amount		Average Interest Rate
Under 3 months	$	172,653		2.32	%
3 to 6 months		169,628		2.45
6 to 12 months		499,545		2.40
12 to 24 months		327,424		2.35
24 to 36 months		61,608		2.51
36 to 48 months		4,485		1.31
Over 48 months		2,124		1.88
Total	$	1,237,467		2.39	%

Cash Flow Analysis

Cash and cash equivalents

At December 31, 2018, we had $779.3 million of cash and cash equivalents on hand, an increase of $48.5 million or 6.6% over our cash and cash equivalents of $730.8 million at December 31, 2017. At December 31, 2018, our cash and cash equivalents comprised 6.1% of total assets compared to 6.7% at December 31, 2017. We monitor our liquidity position and increase or decrease our short-term liquid assets as necessary. The higher balance in cash and cash equivalents at December 31, 2018 is due to timing of net loan funding and customer deposits at the end of the quarter.

Year Ended December 31, 2018 Compared to December 31, 2017

As shown in the Consolidated Statements of Cash Flows, operating activities provided $196.5 million in the year ended December 31, 2018 compared to $144.7 million in the year ended December 31, 2017. The increase in operating funds during the year ended December 31, 2018 was due primarily to an increase in net income and an increase in proceeds from sales of loans held for sale.

Investing activities during the year ended December 31, 2018 used $1.8 billion of net funds, due to net loan funding of $1.8 billion as compared to investing activities during the year ended December 31, 2017 using $1.0 billion of net funds, due to net loan funding of $0.8 billion.

Financing activities during the year ended December 31, 2018 provided net funds of $1.6 billion, due to an increase in deposits of $1.7 billion. This compares to financing activities during the year ended December 31, 2017 providing net funds of $1.3 billion, resulting from an increase in deposits of $1.0 billion and an increase in advances from the FHLB of $150.0 million.

Year Ended December 31, 2017 Compared to December 31, 2016

As shown in the Consolidated Statements of Cash Flows, operating activities provided $144.7 million in the year ended December 31, 2017 compared to $118.0 million in the year ended December 31, 2016. The increase in operating funds during the year ended December 31, 2017 was due primarily to an increase in net income.

Investing activities during the year ended December 31, 2017 used $951.1 million of net funds, due to net loan funding of $847.4 million and the purchase of available-for-sale securities as compared to investing activities during the year ended December 31, 2016 using $993.4 million of net funds, due to net loan funding of $913.1 million and the purchase of available-for-sale securities.

Financing activities during the year ended December 31, 2017 provided net funds of $1.3 billion, due to $150.0 million in advances from FHLB and net proceeds of $155.6 million from the issuance of common stock and an increase in deposits of $994.8 million. This compares to financing activities during the year ended December 31, 2016 providing net funds of $657.1 million, resulting from an increase in deposits of $1.0 billion and a decrease in advances from the FHLB of $370.0 million.

Contractual Cash Obligations

We have entered into certain contractual obligations and commercial commitments in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk.

The following tables summarize these relationships as of December 31, 201 8 by contractual cash obligations and commercial c ommitments:

Table 32 – Contractual Cash Obligations

	Payments Due by Period
(In thousands)	Total		Less than One Year		One to Three Years		Four to Five Years		After Five Years
Contractual Cash Obligations
Senior debt	$	195,000	$	145,000	$	50,000	$	—	$	—
Subordinated debt		100,000		—		—		—		100,000
Junior subordinated debentures		50,619		—		—		—		50,619
Operating leases ⁽¹⁾		43,572		10,304		17,778		10,188		5,302
Limited partnership investments ⁽²⁾		37,518		31,187		6,137		74		120
Other ⁽³⁾		3,808		376		760		769		1,903
Total contractual cash obligations	$	430,517	$	186,867	$	74,675	$	11,031	$	157,944

⁽¹⁾	See Note 5 to our 2018 Consolidated Financial Statements. The above includes rent and other cost due under the lease such as property taxes.

⁽²⁾	Includes remaining capital commitments to certain limited partnership investments.

⁽³⁾	Represents unfunded post-retirement benefit obligations of the legacy banks. See Note 13 to our 2018 Consolidated Financial Statements.

The following table includes our commitments to extend credit including home equity lines, overdraft protection lines, and letters of credit as of December 31, 2018.

Table 33 – Commitments to Extend Credit

	Commitments by Period
(In thousands)	Total		Less than One Year		One to Three Years		Four to Five Years		After Five Years
Commitments to extend credit	$	4,078,708	$	581,410	$	1,459,690	$	1,646,374	$	391,234
Commitments to grant loans		103,570		103,570		—		—		—
Standby letters of credit		141,214		63,905		55,842		21,467		—
Performance letters of credit		21,026		6,886		7,642		6,498		—
Commercial letters of credit		11,262		919		611		9,572		160
Total	$	4,355,780	$	756,690	$	1,523,785	$	1,683,911	$	391,394

Such financial instruments are recorded when they are funded and not on the date of entry into the obligation to extend credit. Commitments to extend credit and letters of credit include some exposure to credit loss in the event of default by the customer and exposure to liquidity risk during economic downturns. See “Risk Factors—Risks Relating to Our Business”. The borrowing needs of our clients may increase, especially during a challenging economic environment, which could result in increased borrowing against our contractual obligations to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit policies and procedures for such commitments are the same as those used for lending activities. Because these instruments have fixed maturity dates and because a number expire without being drawn upon, they generally do not present significant liquidity risk in a normal operating environment. No significant losses on commitments were incurred during the three years in the period ended December 31, 2018. We do not currently anticipate any significant future losses as a result of these transactions.

Quantitative and Qualitative Disclosu res about Market Risk

Market risk is the exposure to unanticipated changes in net interest earnings or changes in the fair value of financial instruments due to fluctuations in interest rates, exchange rates and equity prices. Our primary market risk is interest rate risk (“IRR”).

IRR is the risk that changing market interest rates may lead to an unexpected decline in our earnings or capital. The main causes of IRR are the differing structural characteristics of the balance sheet’s assets, liabilities and off-balance sheet obligations and their cumulative net reaction to changing interest rates. These structural characteristics include timing differences in maturity or repricing and the effect of embedded options such as loan prepayments, securities prepayments and calls, interest rate caps and floors, and deposit withdrawal options. In addition to these sources of IRR, basis risk results from differences in the spreads between various market interest rates and changes in the slope of the yield curve which can contribute to additional IRR.

We evaluate IRR and develop guidelines regarding balance sheet composition and re-pricing, funding sources and pricing, and off-balance sheet commitments that aim to moderate IRR. We use financial simulation models that reflect various interest rate scenarios and the related impact on net interest income over specified periods of time. We refer to this process as asset/liability management, or “ALM.”

The primary objective of ALM is to seek to manage interest rate risk and desired risk tolerance for potential fluctuations in net interest income (“NII”) throughout interest rate cycles, which we aim to achieve by maintaining a balance of interest rate sensitive earning assets and liabilities. In general, we seek to maintain a desired risk tolerance with asset and liability balances within maturity and repricing categories to limit our exposure to earnings volatility and changes in the value of assets and liabilities as interest rates fluctuate over time. Adjustments to maturity categories can be accomplished either by lengthening or shortening the duration of either an individual asset or liability category, or externally with interest rate contracts, such as interest rate swaps, caps, collars, and floors. See “—Interest Rate Exposures” for a more detailed discussion of our various derivative positions.

Our asset and liability management strategy is formulated and monitored by our Asset/Liability Management Committee (“ALCO”) in accordance with policies approved by the Board of Directors. The ALCO meets regularly to review, among other things, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, recent purchase and sale activity, maturities of securities and borrowings, and projected future transactions. The ALCO also establishes and approves pricing and funding decisions with respect to overall asset and liability composition. The ALCO reports regularly to our Board of Directors.

Financial simulation models are the primary tools we use to measure IRR exposures. By examining a range of hypothetical deterministic interest rate scenarios, these models provide management with information regarding the potential impact on NII and Economic Value of Equity (“EVE”) caused by changes in interest rates.

The models simulate the cash flows and accounting accruals generated by the financial instruments on our balance sheet at a given month-end, as well as the cash flows generated by the new business we anticipate over a 36-month forecast horizon. Numerous assumptions are made in the modeling process, including balance sheet composition, the pricing, re-pricing and maturity characteristics of existing business and new business. Additionally, loan and investment prepayment, administered rate account elasticity and other option risks are considered as well as the uncertainty surrounding future customer behavior. Because of the limitations inherent in any approach used to measure interest rate risk and because our loan portfolio will be actively managed in the event of a change in interest rates, simulation results, including those discussed in “—Interest Rate Exposures” immediately below, are not intended as a forecast of the actual effect of a change in market interest rates on our net interest income or results of operations or indicative of management’s expectations of actual results in the event of a fluctuation in market interest rates.

Interest Rate Exposures

Based upon the current interest rate environment as of December 31, 2018, our net interest income simulation model projects our sensitivity to an instantaneous increase or decrease in interest rates was as follows:

Table 34 – Interest Rate Sensitivity

	Increase (Decrease)
(in millions)	Net Interest Income							Economic Value of Equity
Change (in Basis Points) in Interest Rates (12-Month Projection)	Amount			Percent				Amount			Percent
+ 200 BP	$	63.0			14.41		%	$	522.7			24.00		%
+ 100 BP		31.7			7.26				288.4			13.24
- 100 BP		(32.6	)		(7.45	)			(366.0	)		(16.81	)
- 200 BP		(68.3	)		(15.62	)			(847.4	)		(38.91	)

Based upon the current interest rate environment as of December 31, 2018, the following table reflects our sensitivity to a gradual increase or decrease in interest rates over a twelve-month period:

	Increase (Decrease)
(in millions)	Net Interest Income
Change (in Basis Points) in Interest Rates (12-Month Projection)	Amount			Percent
+ 200 BP	$	49.9			11.41		%
+ 100 BP		25.1			5.74
- 100 BP		(25.9	)		(5.93	)
- 200 BP		(53.5	)		(12.22	)

Both the NII and EVE simulations include assumptions regarding balances, asset prepayment speeds, deposit repricing and runoff and interest rate relationships among balances that management believes to be reasonable for the various interest rate environments. Differences in actual occurrences from these assumptions, as well as non-parallel changes in the yield curve, may change our market risk exposure.

Post State Bank merger we believe our interest sensitivities to remain directionally the same with a consistent magnitude as a percentage of NII and EVE.

Derivative Positions

Overview. Our Board of Directors has authorized the ALCO to utilize financial futures, forward sales, options, interest rate swaps, caps, collars, and floors, and other instruments to the extent appropriate, in accordance with regulations and our internal policy. We expect to use interest rate swaps, caps, collars, and floors as macro hedges against inherent rate sensitivity in our securities portfolio, our loan portfolio and our liabilities.

Positions for hedging purposes are undertaken primarily as a mitigation of three main areas of risk exposure: (1) mismatches between assets and liabilities; (2) prepayment and other option-type risks embedded in our assets, liabilities and off-balance sheet instruments; and (3) the mismatched commitments for mortgages and funding sources.

We currently intend to engage in only the following types of hedges: (1) those which synthetically alter the maturities or re-pricing characteristics of assets or liabilities to reduce imbalances; (2) those which enable us to transfer the interest rate risk exposure involved in our daily business activities; and (3) those which serve to alter the market risk inherent in our investment portfolio, mortgage pipeline, or liabilities and thus help us to match the effective maturities of the assets and liabilities.

The following is a discussion of our primary derivative positions.

Interest Rate Lock Commitments. We enter into certain commitments with customers in connection with residential mortgage loan applications. Such commitments are considered derivatives under current accounting guidance and are required to be recorded at fair value. The change in fair value of these instruments is reflected currently in earnings in mortgage banking revenue.

Forward Sales Commitment. To mitigate the effect of the interest rate risk inherent in providing interest rate lock commitments to customers, we enter into forward sales commitme nts of mortgage-backed securities (“MBS”) with investors. During the period from commitment date to closing date, we are subject to the risk that market rates of interest may change. In an effort to mitigate such risk, we may establish forward delivery sal es commitments under which we agree to deliver certain MBS. These commitments are non-hedging derivatives in accordance with current accounting guidance and recorded at fair value, with changes in fair value reflected currently in earnings in mortgage bank ing revenue.

Forward Purchase Commitments. If we determine that the amount of our forward sales commitments exceeds the amount necessary to mitigate the interest rate risk in the rate lock commitments, we will seek to enter into forward purchase commitments to purchase MBS on an agreed-upon date and price similar to the terms of forward sales commitments. These commitments are non-hedging derivatives in accordance with current accounting guidance and recorded at fair value, with changes in fair value reflected currently in earnings in mortgage banking revenue.

Interest Rate Swaps/Floor/Cap/Collar Agreements not Designated as Hedging Derivatives. To attempt to meet the financing needs and interest rate risk management needs of our customers, we enter into interest rate swap, floor, collar, or cap agreements related to commercial loans with customers while at the same time entering into offsetting interest rate agreements with other financial institution in order to minimize IRR. These interest rate swap agreements are non-hedging derivatives and are recorded at fair value with changes in fair value reflected in earnings in other noninterest income. The fair value of these derivatives is recorded on the consolidated balance sheet in other assets and other liabilities.

Cash Flow Hedges. Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, caps, floors, and collars to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans (1-Month LIBOR). In June 2015 and March 2016, the Company entered into interest rate swap agreements with notional values totaling $982 million and $350 million, respectively, to manage overall cash flow changes related to interest rate risk exposure on the 1-Month LIBOR rate indexed loans. In 2018 and 2017, interest rate swap agreements matured with notional amounts totaling $382 million and $300 million, respectively. The following is a detail of our cash flow hedges as of December 31, 2018:

Effective Date

Maturity Date

Notional

Amount

(In Thousands)

Fixed Rate

Variable Rate

June 30, 2015

December 31, 2019

300,000

1.51

1 Month LIBOR

March 8, 2016

February 27, 2026

175,000

1.60

1 Month LIBOR

March 8, 2016

February 27, 2026

175,000

1.59

1 Month LIBOR

The following summarizes all derivative positions as of December 31, 2018:

Table 35 – Derivatives

	December 31, 2018						December 31, 2017
			Fair Value						Fair Value
(In thousands)	Notional Amount		Other Assets		Other Liabilities		Notional Amount		Other Assets		Other Liabilities
Derivatives designated as hedging instruments (cash flow hedges):
Commercial loan interest rate swaps	$	650,000	$	—	$	23,968	$	1,032,000	$	—	$	21,394
Derivatives not designated as hedging instruments:
Commercial loan interest rate swaps		1,155,942		4,439		1,777		737,533		2,056		2,056
Commercial loan interest rate caps		88,430		239		239		186,290		153		153
Commercial loan interest rate floors		652,822		5,587		5,587		330,764		1,054		1,054
Commercial loan interest rate collars		80,000		96		96
Mortgage loan held for sale interest rate lock commitments		5,286		72		—		6,119		50		—
Mortgage loan forward sale commitments		1,959		5		—		4,565		10		—
Mortgage loan held for sale floating commitments		14,690		—		—		11,800		—		—
Foreign exchange contracts		46,971		698		683		41,688		635		623
Total derivatives not designated as hedging instruments		2,046,100		11,136		8,382		1,318,759		3,958		3,886
Total derivatives	$	2,696,100	$	11,136	$	32,350	$	2,350,759	$	3,958	$	25,280

Counterparty Credit Risk

Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Our policies require that institutional counterparties must be approved by our ALCO and all positions over and above the minimum transfer amounts are secured by marketable securities or cash.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances.

These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. The critical accounting policies and estimates discussed below involve additional management judgment due to the complexity and sensitivity of the methods and assumptions used.

Business Combinations

We account for transactions that meet the definition of a purchase business combination by recording the assets acquired and liabilities assumed at their fair value upon acquisition. Intangible assets, indemnification contracts and contingent consideration are identified and recognized individually. If the fair value of the assets acquired exceeds the purchase price plus the fair value of the liabilities assumed, a bargain purchase gain is recognized. Conversely, if the purchase price plus the fair value of the liabilities assumed exceeds the fair value of the assets acquired, goodwill is recognized.

Goodwill and Other Intangible Assets

Goodwill is accounted for in accordance with FASB Accounting Standards Codification (“ASC”) Topic 350, and accordingly is not amortized but is evaluated for impairment at least annually, in the fourth quarter or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Under ASC 350-20, a company is required to assign and then test goodwill for impairment at the reporting unit level. A reporting unit is defined as an operating segment or a component of that operating segment, as defined in ASC 280. Reporting units may vary, depending on the level at which performance of the segment is reviewed. No impairment has been identified in any period presented.

Our other identifiable intangible assets consist primarily of the core deposit premiums and customer relationships arising from our acquisitions. These intangibles were established using the discounted cash flow approach and are being amortized using an accelerated method over the estimated remaining life of each intangible recorded at acquisition. These finite-lived intangible assets are reviewed for impairment when events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable from undiscounted future cash flows or that it may exceed its fair value. No impairment has been identified in any period presented.

Fair Value Measurement

We use estimates of fair value in applying various accounting standards for our consolidated financial statements. Fair value measurements are used in one of four ways: (1) in the consolidated balance sheet with changes in fair value recorded in the consolidated statements of operations and other comprehensive income (loss); (2) in the consolidated balance sheet for instruments carried at the lower of cost or fair value with impairment charges recorded in the consolidated statements of operations and other comprehensive income (loss); and (3) in the notes to our consolidated financial statements.

Fair value is defined as the price at which an asset may be sold, or a liability may be transferred in an orderly transaction between willing and able market participants. In general, our policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for our liabilities).

Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.

Allowance for Credit Losses

The ACL represents management’s estimate of probable credit losses inherent in our loan portfolio and the difference between the recorded investment and the present values of our most recent estimates of expected cash flows for purchased impaired loans where we have identified additional impairment subsequent to the date of acquisition. Determining the amount of the ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses based on risk characteristics of loans and consideration of other qualitative factors, all of which may be susceptible to significant change.

The ACL is maintained at a level that management believes is adequate to absorb all probable losses on loans inherent in the loan portfolio as of the reporting date. Events that are not within our control, such as changes in economic factors, could change subsequent to the reporting date and could cause the ACL to be overstated or understated. The amount of the ACL is affected by loan charge-offs, which decrease the ACL; recoveries on loans previously charged off, which increase the ACL; and the provision for credit losses charged to earnings, which increases the ACL. In determining the provision for credit losses, management monitors fluctuations in the ACL resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio in light of current and anticipated economic conditions. See Notes 1 and 3 to the Consolidated Financial Statements for additional disclosure regarding our ACL.

Accounting for Acquired Loans

We account for our acquisitions using the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value as of their respective acquisition dates. No allowance for credit losses related to the acquired loans is recorded on the acquisition date, as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value, exclusive of the impact of guarantees under any applicable loss sharing agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Loans acquired in a transfer, including business combinations, with respect to which there is evidence of credit deterioration since origination and it is probable at the date of acquisition that we will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for ACI loans. We have applied this guidance to each of our acquisitions; including our FDIC-assisted acquisition of the Superior franchise and our open market acquisitions of Cadence and Encore. For each acquisition, we have aggregated the ACI loans into pools of loans with common risk characteristics. Over the life of these acquired loans, we continue to estimate cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics. For each pool of loans, we estimate cash flows expected to be collected over the remaining life of the pool’s loans, based on assumptions about yields, prepayments and magnitude and timing of credit losses, and discount those cash flows to present value using effective interest rates to calculate the carrying value. The difference between our carrying value in the loans and our estimates of cumulative lifetime undiscounted expected cash flows represents the accretable yield. The accretable yield represents the amount we expect to recognize as interest income over the remaining life of the loans. The difference between the cash flows that our customers legally owe us under the contractual terms of their loan agreements and our cumulative lifetime expected cash flows represents the nonaccretable difference. The nonaccretable difference of a pool is a measure of the expected credit loss, prepayments and other factors affecting expected cash flows for that pool.

Each quarter, we estimate the expected cash flows for each pool or specifically reviewed loan and evaluate whether the present value of future expected cash flows for each pool or loan has decreased below its carrying value and, if so, we recognize a provision for credit loss in our consolidated statement of operations for that pool or loan and appropriately adjust the amount of accretable yield. The expected cash flows are estimated based on factors which include loan grades established in our ongoing credit review program, past due status, likelihood of default based on observations of specific loans during the credit review process as well as applicable industry data, loss severity based on updated evaluation of cash flow from available collateral, and the contractual terms of the underlying loan agreement. For any pool or loan where the present value of our most recent estimate of future cumulative lifetime cash flows has increased above its recorded investment, we transfer appropriate estimated cash flows from non-accretable difference to accretable yield, which is then recognized in income first in the reversal of any impairment, then on a prospective basis through an increase in the pool’s or individual loan yield over its remaining life. For further discussion of our acquisitions and loan accounting, see Notes 1 and 3 to our consolidated financial statements.

Deferred Tax Asset

ASC 740-30-25 provides accounting guidance for determining when a company is required to record a valuation allowance on its deferred tax assets. A valuation allowance is required for deferred tax assets if, based on available evidence, it is more likely than not that all or some portion of the asset may not be realized due to the inability to generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the deferred tax asset. In making this assessment, all sources of future taxable income must be considered, including taxable income in prior carryback years, future reversals of existing taxable temporary differences, tax planning strategies, and future taxable income exclusive of reversing taxable temporary differences and carryforwards.

Management assesses the valuation allowance recorded against deferred tax assets at each reporting period. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence. Management concluded, based on the assessment of all of the positive and negative evidence, it was more likely than not the net deferred tax asset of $33.2 million and $30.8 at December 31, 2018 and 2017, respectively, will be realized. This conclusion was based primarily on projections of future taxable income and the expected reversal of existing deferred tax liabilities.

Management’s estimate of future taxable income is based on internal projections, various internal assumptions, as well as certain external data all of which management believes to be reasonable although inherently subject to significant judgment. Projected future taxable income is expected to be generated through loan growth at the bank, revenue growth due to cross selling initiatives, the development of new business, and the reduction of expenses through economies of scale all in the context of a macro-economic environment that continues to trend favorably. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macroeconomic conditions, a valuation allowance may need to be recorded for some or all our deferred tax asset. Such an increase to the deferred tax asset valuation allowance could have a material adverse effect on our financial condition and results of operations.

Recently Issued Accounting Standards

See Note 1—Summary of Accounting Policies to the consolidated financial statements for information regarding recently issued accounting standards.

EXHIBIT INDEX

NUMBER		DESCRIPTION

2.1		Agreement and Plan of Merger, dated as of May 11, 2018, by and between Cadence Bancorporation and State Bank Financial Corporation (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of Cadence Bancorporation, filed with the Securities and Exchange Commission on May 14, 2018).

3.1		Second Amended and Restated Certificate of Incorporation of Cadence Bancorporation (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

3.2		Amended and Restated Bylaws of Cadence Bancorporation (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

4.1		Form of common stock certificate of Cadence Bancorporation (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

4.2		Certain instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request.

4.3		Registration Rights Agreement, dated as of April 19, 2017, by and between Cadence Bancorporation and Cadence Bancorp, LLC (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Cadence Bancorporation, filed with the Securities and Exchange Commission on April 19, 2017).

10.1†		Employment Agreement, dated February 1, 2015, by and between Cadence Bancorporation and Paul B. Murphy, Jr (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.2†		Amended and Restated Employment Agreement, dated March 14, 2017, by and between Cadence Bancorporation and Samuel M. Tortorici (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.3†		Amended and Restated Employment Agreement, dated March 14, 2017, by and between Cadence Bancorporation and R.H. “Hank” Holmes, IV (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.4†		Amended and Restated Employment Agreement, dated March 14, 2017, by and between Cadence Bancorporation and Valerie C. Toalson (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.5†		Amended and Restated Employment Agreement, dated March 14, 2017, by and between Cadence Bancorporation and Jack R. Schultz (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.6†		Cadence Bank 2013 Long-Term Incentive Plan (incorporated by reference to (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.7†		Form of Cadence Bank Long-Term Incentive Award Agreement under the Cadence Bank 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.8†		Amended and Restated Cadence Bancorporation 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8 of Cadence Bancorporation (Registration No. 333-217316), filed with the Securities and Exchange Commission on April 14, 2017).

NUMBER		DESCRIPTION

10. 9 †		Form of Performance-Based Restricted Stock Unit Agreement under the Amended and Restated Cadence Bancorporation 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.10†		Cadence Bancorporation Executive Bonus Plan (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.11†		Cadence Bancorporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.12†		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017).

10.13†		Cadence Bancorporation 2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit A to the Revised Definitive Proxy Statement of Cadence Bancorporation for its 2018 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on March 30, 2018).
10.14†		Services and Covenant Agreement, dated as of June 11, 2018, by and between Cadence Bancorporation and Joseph W. Evans (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Cadence Bancorporation, filed with the Securities and Exchange Commission on January 2, 2019).
10.15†		Services and Covenant Agreement, dated as of June 11, 2018, by and between Cadence Bancorporation and J. Thomas Wiley, Jr. (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of Cadence Bancorporation, filed with the Securities and Exchange Commission on January 2, 2019).

21.1		Subsidiaries of Cadence Bancorporation (incorporated by reference to Exhibit 21.1 to the Registration Statement on Form S-1 of Cadence Bancorporation (Registration No. 333-216809), filed with the Securities and Exchange Commission on March 17, 2017.

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

101		Interactive Financial Data.

†	Indicates a management contract or compensatory plan.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized in Houston, Texas on the 8th day of March, 2019.

CADENCE BANCORPORATION

By:		/s/ Paul B. Murphy, Jr.
		Paul B. Murphy, Jr.
		Chairman and Chief Executive Officer

By:		/s/ Valerie C. Toalson
		Valerie C. Toalson
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 31.1

CERTIFICATIONS

I, Paul B. Murphy, certify that:

I have reviewed this annual report on Form 10-K/A of Cadence Bancorporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 8, 2019

/s/ Paul B. Murphy

Paul B. Murphy

Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Valerie C. Toalson, certify that:

I have reviewed this annual report on Form 10-K/A of Cadence Bancorporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 8, 2019

/s/ Valerie C. Toalson

Valerie C. Toalson

Chief Financial Officer

(Principal Accounting Officer)

Exhibit 32.1

Chief Executive Officer’s Certification required under Section 906 of Sarbanes-Oxley Act of 2002

In connection with the annual report of Cadence Bancorporation (the “Company”) on Form 10-K/A for the period ended December 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Paul B. Murphy, Chief Executive Officer, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: March 8, 2019

/s/ Paul B. Murphy

Paul B. Murphy

Chairman and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Cadence Bancorporation and will be retained by Cadence Bancorporation and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Chief Financial Officer’s Certification required under Section 906 of Sarbanes-Oxley Act of 2002

In connection with the annual report of Cadence Bancorporation (the “Company”) on Form 10-K/A for the period ended December 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Valerie C. Toalson, Chief Financial Officer, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: March 8, 2019

/s/ Valerie C. Toalson

Valerie C. Toalson

Chief Financial Officer

(Principal Accounting Officer)