LOANS AND LEASES

BancShares reports purchased credit-impaired ("PCI") and non-PCI loan portfolios separately, and each portfolio is further divided into commercial and non-commercial based on the type of borrower, purpose, collateral, and/or our underlying credit management processes. Additionally, loans are assigned to loan classes, which further disaggregate loans based upon common risk characteristics.

Commercial – Commercial loans include construction and land development, mortgage, other commercial real estate, commercial and industrial, lease financing and other.

Construction and land development – Construction and land development consists of loans to finance land for development, investment, and use in a commercial business enterprise; multifamily apartments; and other commercial buildings that may be owner-occupied or income generating investments for the owner.

Commercial mortgage – Commercial mortgage consists of loans to purchase or refinance owner-occupied nonresidential and investment properties. Investment properties include office buildings and other facilities that are rented or leased to unrelated parties.

Other commercial real estate – Other commercial real estate consists of loans secured by farmland (including residential farms and other improvements) and multifamily (5 or more) residential properties.

Commercial and industrial – Commercial and industrial consists of loans or lines of credit to finance corporate credit cards, accounts receivable, inventory and other general business purposes.

Lease financing – Lease financing consists solely of lease financing agreements.

Other – Other consists of all other commercial loans not classified in one of the preceding classes. These typically include loans to non-profit organizations such as churches, hospitals, educational and charitable organizations.

Noncommercial – Noncommercial consist of residential and revolving mortgage, construction and land development, and consumer loans.

Residential mortgage – Residential real estate consists of loans to purchase, construct or refinance the borrower's primary dwelling, second residence or vacation home.

Revolving mortgage – Revolving mortgage consists of home equity lines of credit that are secured by first or second liens on the borrower's primary residence.

Construction and land development – Construction and land development consists of loans to construct the borrower's primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date.

Consumer – Consumer loans consist of installment loans to finance purchases of vehicles, unsecured home improvements and revolving lines of credit that can be secured or unsecured, including personal credit cards.

Loans and leases are evaluated at acquisition and where a discount is required at least in part due to credit quality, the non-revolving loans are accounted for under the guidance in ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Loans for which it is probable at acquisition that all required payments will not be collected in accordance with contractual terms are considered PCI loans. PCI loans and leases are recorded at fair value at the date of acquisition. No allowance for loan and lease losses is recorded on the acquisition date as the fair value of the acquired assets incorporates assumptions regarding credit risk. An allowance is recorded if there is additional credit deterioration after the acquisition date. Conversely, Non-PCI loans include originated commercial, originated noncommercial, purchased revolving, and purchased non-impaired loans, or loans that do not have a discount, due at least in part, to credit quality at the time of acquisition. Substantially all loans acquired in the Bancorporation acquisition are accounted for as non-PCI loans. Note A of BancShares' Notes to Consolidated Financial Statements provides additional information.

Loans and leases outstanding include the following as of the dates indicated:



(Dollars in thousands)	December 31, 2014		December 31, 2013
Loans and leases (non-PCI)⁽¹⁾:
Commercial:
Construction and land development	550,568		319,847
Commercial mortgage	7,552,948		6,362,490
Other commercial real estate	244,875		178,754
Commercial and industrial	1,988,934		1,081,158
Lease financing	571,916		381,763
Other	353,833		175,336
Total commercial loans	11,263,074		8,499,348
Noncommercial:
Residential mortgage	2,520,542		982,421
Revolving mortgage	2,561,800		2,113,285
Construction and land development	120,097		122,792
Consumer	1,117,454		386,452
Total noncommercial loans	6,319,893		3,604,950
Total non-PCI loans and leases	17,582,967		12,104,298

Purchased credit-impaired (PCI) loans:
Commercial:
Construction and land development	$	78,079	$	78,915
Commercial mortgage	577,518		642,891
Other commercial real estate	40,193		41,381
Commercial and industrial	27,254		17,254
Other	3,079		866
Total commercial loans	726,123		781,307
Noncommercial:
Residential mortgage	382,340		213,851
Revolving mortgage	74,109		30,834
Construction and land development	912		2,583
Consumer	3,014		851
Total noncommercial loans	460,375		248,119
Total PCI loans	1,186,498		1,029,426
Total loans and leases	$	18,769,465	$	13,133,724

⁽¹⁾Non-PCI loans include originated and purchased non-impaired loans, including non-accrual and TDR loans.

At December 31, 2014, $3.16 billion in noncovered loans with a lendable collateral value of $2.20 billion were used to secure $240.3 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $1.96 billion, compared to $2.56 billion in noncovered loans with a lendable collateral value of $1.38 billion used to secure $240.3 million in FHLB of Atlanta advances, resulting additional borrowing capacity of $1.14 billion at December 31, 2013.

At December 31, 2014, $485.3 million in total loans were covered under loss share agreements, compared to $1.03 billion at December 31, 2013. The loss share protection expired for non-single family residential loans acquired from Temecula Valley Bank ("TVB") and Venture Bank ("VB") during the third quarter of 2014. Also, the loss share protection expired for non-single family residential loans from Georgian Bank ("GB"), a portfolio of loans acquired through the Bancorporation merger. The loan balances at December 31, 2014 for the expired agreements from TVB, VB, and GB are $177.3 million, $61.4 million, and $40.9 million respectively. The remaining decrease in covered loans is due to pay downs and payoffs.

During the first quarter of 2015, the loss share protection will expire for non-single family residential loans acquired from Sun American Bank ("SAB") and all loans acquired from First Regional Bank ("First Regional"). The loan balances at December 31, 2014 for the expiring agreements from SAB and First Regional are $41.1 million and $73.2 million, respectively. During the third quarter of 2015, the loss share protection will expire for non-single family residential loans from Williamsburg First National Bank ("WFNB"), a portfolio of loans acquired through the Bancorporation merger. Loan balances at December 31, 2014 for the expiring agreements from WFNB are $9.1 million.

Credit quality indicators

Loans and leases are monitored for credit quality on a recurring basis. The credit quality indicators used are dependent on the portfolio segment to which the loan relates. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segment being evaluated. The credit quality indicators for non-PCI and PCI commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Each commercial loan is evaluated annually with more frequent evaluation of more severely criticized loans or leases. The credit quality indicators for PCI and non-PCI noncommercial loans are based on the delinquency status of the borrower. As the borrower becomes more delinquent, the likelihood of loss increases. The indicators represent the rating for loans or leases as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:

Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.

Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.

Loss – Assets classified as loss are considered uncollectible and of such little value that it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full charge-off even though partial recovery may be effected in the future.

Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at December 31, 2014 and December 31, 2013 relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage and other commercial real estate loans. As of December 31, 2013, ungraded loans also included tobacco buyout loans classified as commercial and industrial loans. Final payment from the Commodity Credit Corporation was received during January 2014 for tobacco buyout loans held by FCB.

The composition of the loans and leases outstanding at December 31, 2014, and December 31, 2013, by credit quality indicator is provided below:



	Non-PCI commercial loans and leases
(Dollars in thousands)	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Total non-PCI commercial loans and leases
Grade:
December 31, 2014
Pass	$	525,711	$	7,284,714	$	242,053	$	1,859,415	$	564,319	$	349,111	$	10,825,323
Special mention	20,025		129,247		909		27,683		3,205		1,384		182,453
Substandard	4,720		134,677		1,765		8,878		3,955		3,338		157,333
Doubtful	—		2,366		—		164		365		—		2,895
Ungraded	112		1,944		148		92,794		72		—		95,070
Total	$	550,568	$	7,552,948	$	244,875	$	1,988,934	$	571,916	$	353,833	$	11,263,074
December 31, 2013
Pass	$	308,231	$	6,094,505	$	174,913	$	964,840	$	375,371	$	174,314	$	8,092,174
Special mention	8,620		119,515		1,362		14,686		2,160		982		147,325
Substandard	2,944		141,913		2,216		6,352		3,491		40		156,956
Doubtful	52		5,159		75		144		592		—		6,022
Ungraded	—		1,398		188		95,136		149		—		96,871
Total	$	319,847	$	6,362,490	$	178,754	$	1,081,158	$	381,763	$	175,336	$	8,499,348



	Non-PCI noncommercial loans and leases
(Dollars in thousands)	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total non-PCI noncommercial loans and leases
December 31, 2014
Current	$	2,482,281	$	2,542,807	$	119,094	$	1,110,153	$	6,254,335
30-59 days past due	23,288		11,097		370		4,577		39,332
60-89 days past due	6,018		2,433		486		1,619		10,556
90 days or greater past due	8,955		5,463		147		1,105		15,670
Total	$	2,520,542	$	2,561,800	$	120,097	$	1,117,454	$	6,319,893
December 31, 2013
Current	$	955,300	$	2,095,480	$	121,026	$	382,710	$	3,554,516
30-59 days past due	12,885		10,977		1,193		2,114		27,169
60-89 days past due	4,658		2,378		317		955		8,308
90 days or greater past due	9,578		4,450		256		673		14,957
Total	$	982,421	$	2,113,285	$	122,792	$	386,452	$	3,604,950



	December 31, 2014
(Dollars in thousands)	PCI commercial loans
Grade:	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Other		Total PCI commercial loans
Pass	$	13,514	$	300,187	$	11,033	$	16,637	$	801	$	342,172
Special mention	6,063		98,724		16,271		4,137		—		125,195
Substandard	53,739		171,920		12,889		6,312		2,278		247,138
Doubtful	2,809		6,302		—		130		—		9,241
Ungraded	1,954		385		—		38		—		2,377
Total	$	78,079	$	577,518	$	40,193	$	27,254	$	3,079	$	726,123

	December 31, 2013
	PCI commercial loans
	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Other		Total PCI commercial loans
Pass	$	2,619	$	296,824	$	22,225	$	8,021	$	866	$	330,555
Special mention	15,530		125,295		3,431		2,585		—		146,841
Substandard	52,228		179,657		7,012		5,225		—		244,122
Doubtful	7,436		40,471		8,713		1,257		—		57,877
Ungraded	1,102		644		—		166		—		1,912
Total	$	78,915	$	642,891	$	41,381	$	17,254	$	866	$	781,307



	PCI noncommercial loans and leases
(Dollars in thousands)	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total non-PCI noncommercial loans
December 31, 2014
Current	$	326,589	$	68,548	$	506	$	2,582	$	398,225
30-59 days past due	11,432		1,405		—		147		12,984
60-89 days past due	10,073		345		—		25		10,443
90 days or greater past due	34,246		3,811		406		260		38,723
Total	$	382,340	$	74,109	$	912	$	3,014	$	460,375
December 31, 2013
Current	$	162,771	$	26,642	$	1,925	841		$	192,179
30-59 days past due	15,261		2,138		—		3		17,402
60-89 days past due	6,544		—		—		—		6,544
90 days or greater past due	29,275		2,054		658		7		31,994
Total	$	213,851	$	30,834	$	2,583	$	851	$	248,119

The aging of the outstanding non-PCI loans and leases, by class, at December 31, 2014, and December 31, 2013 is provided in the table below. The calculation of days past due begins on the day after payment is due and includes all days through which all required interest or principal has not been paid. Loans and leases 30 days or less past due are considered current due to various grace periods that allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.



	December 31, 2014
(Dollars in thousands)	30-59 days past due		60-89 days past due		90 days or greater		Total past due		Current		Total loans and leases
Non-PCI loans and leases:
Construction and land development - commercial	$	1,796	$	621	$	385	$	2,802	$	547,766	$	550,568
Commercial mortgage	11,367		4,782		8,061		24,210		7,528,738		7,552,948
Other commercial real estate	206		70		102		378		244,497		244,875
Commercial and industrial	2,843		1,545		378		4,766		1,984,168		1,988,934
Lease financing	1,631		8		2		1,641		570,275		571,916
Residential mortgage	23,288		6,018		8,955		38,261		2,482,281		2,520,542
Revolving mortgage	11,097		2,433		5,463		18,993		2,542,807		2,561,800
Construction and land development - noncommercial	370		486		147		1,003		119,094		120,097
Consumer	4,577		1,619		1,105		7,301		1,110,153		1,117,454
Other	146		1,966		—		2,112		351,721		353,833
Total non-PCI loans and leases	$	57,321	$	19,548	$	24,598	$	101,467	$	17,481,500	$	17,582,967

	December 31, 2013
	30-59 days past due		60-89 days past due		90 days or greater		Total past due		Current		Total loans and leases
Non-PCI loans and leases:
Construction and land development - commercial	$	1,603	$	9	$	457	$	2,069	$	317,778	$	319,847
Commercial mortgage	11,131		3,601		14,407		29,139		6,333,351		6,362,490
Other commercial real estate	139		210		470		819		177,935		178,754
Commercial and industrial	3,336		682		436		4,454		1,076,704		1,081,158
Lease financing	789		1,341		101		2,231		379,532		381,763
Residential mortgage	12,885		4,658		9,578		27,121		955,300		982,421
Revolving mortgage	10,977		2,378		4,450		17,805		2,095,480		2,113,285
Construction and land development - noncommercial	1,193		317		256		1,766		121,026		122,792
Consumer	2,114		955		673		3,742		382,710		386,452
Other	—		85		—		85		175,251		175,336
Total non-PCI loans and leases	$	44,167	$	14,236	$	30,828	$	89,231	$	12,015,067	$	12,104,298

The recorded investment, by class, in loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at December 31, 2014 and December 31, 2013 for non-PCI loans, were as follows:



	December 31, 2014				December 31, 2013
(Dollars in thousands)	Nonaccrual loans and leases		Loans and leases > 90 days and accruing		Nonaccrual loans and leases		Loans and leases > 90 days and accruing
Non-PCI loans and leases:
Construction and land development - commercial	$	343	$	111	$	544	$	—
Commercial mortgage	24,720		1,003		33,529		1,113
Commercial and industrial	1,741		239		1,428		294
Lease financing	374		2		832		—
Other commercial real estate	619		35		1,610		—
Construction and land development - noncommercial	—		147		457		256
Residential mortgage	14,242		3,191		14,701		1,998
Revolving mortgage	—		5,463		—		4,450
Consumer	—		1,059		69		673
Other	1,966		—		—		—
Total non-PCI loans and leases	$	44,005	$	11,250	$	53,170	$	8,784

Purchased credit-impaired (PCI) loans

The following table relates to PCI loans acquired in the Bancorporation and 1st Financial mergers, and summarizes the contractually required payments, which include principal and interest, expected cash flows to be collected, and the fair value of PCI loans and leases at the respective merger date.



(Dollars in thousands)
Contractually required payments	$	828,156
Cash flows expected to be collected	$	735,381
Fair value of loans at acquisition	$	623,408

The recorded fair values of PCI loans acquired in the Bancorporation and 1st Financial transaction as of their respective merger dates are as follows:



(Dollars in thousands)
Commercial:
Construction and land development	$	69,789
Commercial mortgage	176,841
Other commercial real estate	15,425
Commercial and industrial	37,583
Other	2,219
Total commercial loans	301,857
Noncommercial:
Residential mortgage	287,675
Revolving mortgage	29,777
Construction and land development	199
Consumer	3,900
Total noncommercial loans	321,551
Total PCI loans	$	623,408

The following table provides changes in the carrying value of purchased credit-impaired loans during the years ended December 31, 2014 and 2013:



(Dollars in thousands)	2014			2013
Balance at January 1	$	1,029,426		$	1,809,235
Fair value of PCI loans acquired during the year	623,408			—
Accretion	112,368			224,672
Payments received and other changes, net	(578,704		)	(1,004,481		)
Balance at December 31	$	1,186,498		$	1,029,426
Unpaid principal balance at December 31	$	2,057,691		$	1,833,955

The carrying value of loans on the cost recovery method was $33.4 million at December 31, 2014, and $28.5 million at December 31, 2013. The cost recovery method is applied to loans when the timing of future cash flows is not reasonably estimable due to borrower nonperformance or uncertainty in the ultimate disposition of the asset.

For PCI loans, improved cash flow estimates and receipt of unscheduled loan payments result in the reclassification of nonaccretable difference to accretable yield. Accretable yield resulting from the improved ability to estimate future cash flows generally does not represent amounts previously identified as nonaccretable difference.

The following table documents changes to the amount of accretable yield for 2014 and 2013.



(Dollars in thousands)	2014			2013
Balance at January 1	$	439,990		$	539,564
Additions from acquisitions	111,973			—
Accretion	(112,368		)	(224,672		)
Reclassifications from nonaccretable difference	7,865			92,349
Changes in expected cash flows that do not affect nonaccretable difference	(29,300		)	32,749
Balance at December 31	$	418,160		$	439,990

Purchased non-impaired loans and leases

The following table relates to purchased non-impaired loans and leases and provides the contractually required payments, estimate of contractual cash flows not expected to be collected and fair value of the acquired loans at the merger date.



(Dollars in thousands)
Contractually required payments	$	4,708,681
Contractual cash flows not expected to be collected	$	59,187
Fair value at acquisition date	$	4,175,586

The recorded fair values of purchased non-impaired loans and leases acquired in the Bancorporation transaction as of the merger date is as follows:



(Dollars in thousands)
Commercial:
Construction and land development	$	134,941
Commercial mortgage	951,794
Other commercial real estate	61,856
Commercial and industrial	431,367
Lease financing	72,563
Other	95,379
Total commercial loans and leases	1,747,900
Noncommercial:
Residential mortgage	1,305,140
Revolving mortgage	419,106
Construction and land development	7,165
Consumer	696,275
Total noncommercial loans and leases	2,427,686
Total non-PCI loans and leases	$	4,175,586

The unamortized discount related to the purchased non-impaired loans and leases acquired in the Bancorporation merger totaled $61.2 million at December 31, 2014.