LOANS AND LEASES

Loans and leases are evaluated at acquisition and where a discount is required at least in part due to credit quality, the nonrevolving 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. All loans acquired in the CCBT acquisition are accounted for as PCI loans.

BancShares reports 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 outstanding include the following at March 31, 2015 and December 31, 2014:



(Dollars in thousands)	March 31, 2015		December 31, 2014
Non-PCI loans and leases:
Commercial:
Construction and land development	$	608,556	$	550,568
Commercial mortgage	7,591,745		7,552,948
Other commercial real estate	262,293		244,875
Commercial and industrial	2,072,414		1,988,934
Lease financing	603,737		571,916
Other	354,713		353,833
Total commercial loans	11,493,458		11,263,074
Noncommercial:
Residential mortgage	2,524,549		2,520,542
Revolving mortgage	2,528,257		2,561,800
Construction and land development	170,208		120,097
Consumer	1,127,942		1,117,454
Total noncommercial loans	6,350,956		6,319,893
Total non-PCI loans and leases	17,844,414		17,582,967
PCI loans:
Commercial:
Construction and land development	70,049		78,079
Commercial mortgage	653,846		577,518
Other commercial real estate	40,841		40,193
Commercial and industrial	24,134		27,254
Other	2,886		3,079
Total commercial loans	791,756		726,123
Noncommercial:
Residential mortgage	380,490		382,340
Revolving mortgage	70,363		74,109
Construction and land development	874		912
Consumer	3,860		3,014
Total noncommercial loans	455,587		460,375
Total PCI loans	1,247,343		1,186,498
Total loans and leases	$	19,091,757	$	18,769,465

At March 31, 2015, $3.25 billion in noncovered loans with a lendable collateral value of $2.30 billion are used to secure $290.3 million in Federal Home Loan Bank ("FHLB") of Atlanta advances, resulting in additional borrowing capacity of $2.01 billion. At December 31, 2014, $3.16 billion in noncovered loans with a lendable collateral value of $2.20 billion used to secure $240.3 million in FHLB of Atlanta advances, resulting additional borrowing capacity of $1.96 billion.

At March 31, 2015, $443.1 million of total loans and leases were covered under loss share agreements, compared to $485.3 million at December 31, 2014. At the beginning of the second 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 ("FRB"). Loan balances at March 31, 2015 for the expiring agreements from SAB and FRB were $43.2 million and $53.9 million, respectively. The loss share protection for Williamsburg First National Bank non-single family residential loans with a balance of $8.4 million at March 31, 2015 will expire at the beginning of the fourth quarter of 2015.

The unamortized discount related to the non-PCI loans and leases acquired in the Bancorporation merger totaled $55.7 million and $61.2 million at March 31, 2015 and December 31, 2014, respectively.

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 non-PCI and 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 March 31, 2015 and December 31, 2014 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.

Non-PCI loans and leases outstanding at March 31, 2015 and December 31, 2014 by credit quality indicator are provided below:



	March 31, 2015
(Dollars in thousands)	Non-PCI commercial loans and leases
Grade:	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Total non-PCI commercial loans and leases
Pass	$	590,298	$	7,341,243	$	260,592	$	1,931,078	$	597,464	$	350,060	$	11,070,735
Special mention	15,679		115,411		501		21,771		2,609		1,913		157,884
Substandard	2,291		131,672		1,049		8,806		3,284		2,690		149,792
Doubtful	—		2,039		—		4,402		329		—		6,770
Ungraded	288		1,380		151		106,357		51		50		108,277
Total	$	608,556	$	7,591,745	$	262,293	$	2,072,414	$	603,737	$	354,713	$	11,493,458

	December 31, 2014
	Non-PCI commercial loans and leases
	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Total non-PCI commercial loans and leases
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



	March 31, 2015
	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
Current	$	2,490,453	$	2,510,879	$	168,199	$	1,121,123	$	6,290,654
30-59 days past due	21,844		10,288		2,009		4,236		38,377
60-89 days past due	2,896		2,794		—		1,555		7,245
90 days or greater past due	9,356		4,296		—		1,028		14,680
Total	$	2,524,549	$	2,528,257	$	170,208	$	1,127,942	$	6,350,956

	December 31, 2014
	Non-PCI noncommercial loans and leases
	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total non-PCI noncommercial loans and leases
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

PCI loans and leases outstanding at March 31, 2015 and December 31, 2014 by credit quality indicator are provided below:



	March 31, 2015
(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	$	13,832	$	333,368	$	9,727	$	13,525	$	683	$	371,135
Special mention	4,287		118,209		16,425		2,963		—		141,884
Substandard	44,663		193,435		12,948		6,739		2,132		259,917
Doubtful	4,656		8,456		1,741		513		71		15,437
Ungraded	2,611		378		—		394		—		3,383
Total	$	70,049	$	653,846	$	40,841	$	24,134	$	2,886	$	791,756

	December 31, 2014
	PCI commercial loans
	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



	March 31, 2015
	PCI noncommercial loans
(Dollars in thousands)	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total PCI noncommercial loans
Current	$	320,607	$	63,579	$	592	$	3,571	$	388,349
30-59 days past due	18,742		2,800		—		130		21,672
60-89 days past due	6,804		1,019		—		13		7,836
90 days or greater past due	34,337		2,965		282		146		37,730
Total	$	380,490	$	70,363	$	874	$	3,860	$	455,587

	December 31, 2014
	PCI noncommercial loans
	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total PCI noncommercial loans
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

The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2015 and December 31, 2014 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 as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.



	March 31, 2015
(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	$	2,709	$	712	$	1,044	$	4,465	$	604,091	$	608,556
Commercial mortgage	22,635		5,920		8,445		37,000		7,554,745		7,591,745
Other commercial real estate	583		58		196		837		261,456		262,293
Commercial and industrial	6,290		1,724		570		8,584		2,063,830		2,072,414
Lease financing	476		11		—		487		603,250		603,737
Residential mortgage	21,844		2,896		9,356		34,096		2,490,453		2,524,549
Revolving mortgage	10,288		2,794		4,296		17,378		2,510,879		2,528,257
Construction and land development - noncommercial	2,009		—		—		2,009		168,199		170,208
Consumer	4,236		1,555		1,028		6,819		1,121,123		1,127,942
Other	380		65		133		578		354,135		354,713
Total non-PCI loans and leases	$	71,450	$	15,735	$	25,068	$	112,253	$	17,732,161	$	17,844,414

	December 31, 2014
	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

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 March 31, 2015 and December 31, 2014 for non-PCI loans, were as follows:



	March 31, 2015				December 31, 2014
(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	$	1,497	$	202	$	343	$	111
Commercial mortgage	26,058		764		24,720		1,003
Other commercial real estate	650		—		619		35
Commercial and industrial	5,691		294		1,741		239
Lease financing	346		—		374		2
Residential mortgage	19,238		1,153		14,242		3,191
Revolving mortgage	9,837		19		—		5,463
Construction and land development - noncommercial	—		—		—		147
Consumer	677		626		—		1,059
Other	2,052		31		1,966		—
Total non-PCI loans and leases	$	66,046	$	3,089	$	44,005	$	11,250

Purchased credit-impaired loans (PCI) loans

The following table relates to PCI loans acquired in the CCBT acquisition 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 acquisition date.



(Dollars in thousands)
Contractually required payments	$	251,800
Cash flows expected to be collected	$	204,480
Fair value of loans at acquisition	$	149,294

The recorded fair values of PCI loans acquired in the CCBT acquisition as of the acquisition date are as follows:



(Dollars in thousands)
Commercial:
Construction and land development	$	4,221
Commercial mortgage	125,202
Other commercial real estate	3,132
Commercial and industrial	3,049
Total commercial loans	135,604
Noncommercial:
Residential mortgage	12,050
Consumer	1,640
Total noncommercial loans	13,690
Total PCI loans and leases	$	149,294

The following table provides changes in the carrying value of all purchased credit-impaired loans during the three months ended March 31, 2015 and March 31, 2014:



(Dollars in thousands)	2015			2014
Balance at January 1	$	1,186,498		$	1,029,426
Fair value of acquired loans	149,294			316,327
Accretion	25,067			30,200
Payments received and other changes, net	(113,516		)	(105,135		)
Balance at March 31	$	1,247,343		$	1,270,818
Unpaid principal balance at March 31	$	2,092,936		$	1,727,492

The carrying value of loans on the cost recovery method was $13.0 million at March 31, 2015 and $33.4 million at December 31, 2014. 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 the first three months of 2015 and 2014.



(Dollars in thousands)	2015			2014
Balance at January 1	$	418,160		$	439,990
Additions from acquisitions	55,186			84,295
Accretion	(25,067		)	(30,200		)
Reclassifications from nonaccretable difference	1,294			6,048
Changes in expected cash flows that do not affect nonaccretable difference	(27,287		)	(9,888		)
Balance at March 31	$	422,286		$	490,245