Loans and Leases | LOANS AND LEASES BancShares' accounting methods for loans and leases differ depending on whether they are non-PCI or PCI. Loans that are originated by BancShares and loans that are performing under their contractual obligations at acquisition are classified as Non-PCI. Loans that reflect credit deterioration since origination such that it is probable at acquisition that BancShares will be unable to collect all contractually required payments are classified as PCI. Additionally, acquired loans are recorded at fair value at the date of acquisition, with no corresponding allowance for loan and lease losses. See Note A for additional information on non-PCI and PCI loans and leases. Loans and leases outstanding include the following at December 31, 2018 and 2017 : (Dollars in thousands) December 31, 2018 December 31, 2017 Non-PCI loans and leases: Commercial: Construction and land development $ 757,854 $ 669,215 Commercial mortgage 10,717,234 9,729,022 Other commercial real estate 426,985 473,433 Commercial and industrial and leases 3,938,730 3,625,208 Other 296,424 302,176 Total commercial loans 16,137,227 14,799,054 Noncommercial: Residential mortgage 4,265,687 3,523,786 Revolving mortgage 2,542,975 2,701,525 Construction and land development 257,030 248,289 Consumer 1,713,781 1,561,173 Total noncommercial loans 8,779,473 8,034,773 Total non-PCI loans and leases 24,916,700 22,833,827 PCI loans: Total PCI loans 606,576 762,998 Total loans and leases $ 25,523,276 $ 23,596,825 At December 31, 2018 , $9.12 billion in noncovered loans with a lendable collateral value of $6.36 billion were used to secure $175.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $6.18 billion . At December 31, 2017 , $8.75 billion in noncovered loans with a lendable collateral value of $6.08 billion were used to secure $835.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $5.24 billion . At December 31, 2018 , $2.94 billion in noncovered loans with a lendable collateral value of $2.19 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (FRB). At December 31, 2017 , $2.77 billion in noncovered loans with a lendable collateral value of $2.08 billion were used to secure additional borrowing capacity at the FRB. Certain residential real estate loans are originated to be sold to investors and are recorded in loans held for sale at fair value. Loans held for sale totaled $45.5 million and $51.2 million at December 31, 2018 and 2017 , respectively. We may change our strategy for certain portfolio loans and sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value. During 2018 , total proceeds from sales of residential mortgage loans were $618.1 million of which $608.5 million related to sales of loans held for sale. The remaining $9.6 million related to sales of portfolio loans, which were sold at par. During 2017 , total proceeds from sales of residential mortgage loans were $823.5 million , of which $660.8 million related to sales of loans held for sale. The remaining $162.6 million related to sales of portfolio loans, which resulted in a gain of $1.0 million . Net deferred fees on originated non-PCI loans and leases, including unearned income as well as unamortized costs, were $79 thousand and $1.7 million at December 31, 2018 and December 31, 2017 , respectively. The unamortized discounts related to purchased non-PCI loans in the Capital Commerce, HomeBancorp, Guaranty, Cordia Bancorp, Inc. (Cordia) and First Citizens Bancorporation, Inc. (Bancorporation) acquisitions were $3.1 million , $6.3 million , $10.8 million , $1.4 million and $12.0 million at December 31, 2018 , respectively. At December 31, 2017 , the unamortized discounts related to purchased non-PCI loans and leases from the Guaranty, Cordia and Bancorporation acquisitions were $14.2 million , $2.7 million and $18.1 million , respectively. During the years ended December 31, 2018 and December 31, 2017 , accretion income on purchased non-PCI loans and leases was $12.8 million and $13.6 million , respectively. Loans and leases to borrowers in medical, dental or related fields were $4.98 billion as of December 31, 2018 , which represents 19.5 percent of total loans and leases, compared to $4.86 billion or 20.6 percent of total loans and leases at December 31, 2017 . The credit risk of this industry concentration is mitigated through our underwriting policies, which emphasize reliance on adequate borrower cash flow, rather than underlying collateral value, and our preference for financing secured by owner-occupied real property. Except for this single concentration, no other industry represented more than 10 percent of total loans and leases outstanding at December 31, 2018 . Credit quality indicators Loans and leases are monitored for credit quality on a recurring basis. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments 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. Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. The indicators as of the date presented are based on the most recent assessment performed and are defined below: 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 any 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 affected 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, 2018 and 2017, 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, lease financing and other commercial real estate loans. The credit quality indicators for non-PCI and PCI noncommercial loans are based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases. The composition of the loans and leases outstanding at December 31, 2018 and December 31, 2017 , by credit quality indicator are provided below: December 31, 2018 Non-PCI commercial loans and leases (Dollars in thousands) Construction and land Commercial Other Commercial and Other Total non-PCI commercial loans and leases Pass $ 753,985 $ 10,507,687 $ 422,500 $ 3,778,797 $ 294,700 $ 15,757,669 Special mention 1,369 114,219 3,193 54,814 1,105 174,700 Substandard 2,500 92,743 1,292 30,688 619 127,842 Doubtful — — — 354 — 354 Ungraded — 2,585 — 74,077 — 76,662 Total $ 757,854 $ 10,717,234 $ 426,985 $ 3,938,730 $ 296,424 $ 16,137,227 December 31, 2017 Non-PCI commercial loans and leases Construction and land Commercial Other Commercial and Other Total non-PCI commercial loans and leases Pass $ 665,197 $ 9,521,019 $ 468,942 $ 3,395,086 $ 298,064 $ 14,348,308 Special mention 691 78,643 1,260 48,470 2,919 131,983 Substandard 3,327 128,848 3,224 25,202 1,193 161,794 Doubtful — 262 — 385 — 647 Ungraded — 250 7 156,065 — 156,322 Total $ 669,215 $ 9,729,022 $ 473,433 $ 3,625,208 $ 302,176 $ 14,799,054 December 31, 2018 Non-PCI noncommercial loans and leases (Dollars in thousands) Residential Revolving Construction Consumer Total non-PCI noncommercial Current $ 4,214,783 $ 2,514,269 $ 254,837 $ 1,696,321 $ 8,680,210 30-59 days past due 28,239 12,585 581 10,035 51,440 60-89 days past due 7,357 4,490 21 3,904 15,772 90 days or greater past due 15,308 11,631 1,591 3,521 32,051 Total $ 4,265,687 $ 2,542,975 $ 257,030 $ 1,713,781 $ 8,779,473 December 31, 2017 Non-PCI noncommercial loans and leases Residential Revolving Construction Consumer Total non-PCI noncommercial Current $ 3,465,935 $ 2,674,390 $ 239,648 $ 1,546,473 $ 7,926,446 30-59 days past due 27,886 13,428 7,154 8,812 57,280 60-89 days past due 8,064 3,485 108 2,893 14,550 90 days or greater past due 21,901 10,222 1,379 2,995 36,497 Total $ 3,523,786 $ 2,701,525 $ 248,289 $ 1,561,173 $ 8,034,773 December 31, 2018 December 31, 2017 (Dollars in thousands) PCI commercial loans Pass $ 141,922 $ 201,332 Special mention 48,475 63,257 Substandard 101,447 117,068 Doubtful 4,828 11,735 Ungraded — 27 Total $ 296,672 $ 393,419 December 31, 2018 December 31, 2017 (Dollars in thousands) PCI noncommercial loans Current $ 268,280 $ 318,632 30-89 days past due 11,155 13,343 60-89 days past due 7,708 6,212 90 days or greater past due 22,761 31,392 Total $ 309,904 $ 369,579 The aging of the outstanding non-PCI loans and leases, by class, at December 31, 2018, and December 31, 2017 are provided in the tables below. 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. December 31, 2018 (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: Commercial: Construction and land development - commercial $ 516 $ 9 $ 444 $ 969 $ 756,885 $ 757,854 Commercial mortgage 14,200 2,066 3,237 19,503 10,697,731 10,717,234 Other commercial real estate 91 76 300 467 426,518 426,985 Commercial and industrial and leases 9,655 1,759 2,892 14,306 3,924,424 3,938,730 Other 285 — 89 374 296,050 296,424 Total commercial loans 24,747 3,910 6,962 35,619 16,101,608 16,137,227 Noncommercial: Residential mortgage 28,239 7,357 15,308 50,904 4,214,783 4,265,687 Revolving mortgage 12,585 4,490 11,631 28,706 2,514,269 2,542,975 Construction and land development - noncommercial 581 21 1,591 2,193 254,837 257,030 Consumer 10,035 3,904 3,521 17,460 1,696,321 1,713,781 Total noncommercial loans 51,440 15,772 32,051 99,263 8,680,210 8,779,473 Total non-PCI loans and leases $ 76,187 $ 19,682 $ 39,013 $ 134,882 $ 24,781,818 $ 24,916,700 December 31, 2017 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: Commercial: Construction and land development - commercial $ 491 $ 442 $ 357 $ 1,290 $ 667,925 $ 669,215 Commercial mortgage 12,288 2,375 6,490 21,153 9,707,869 9,729,022 Other commercial real estate 107 — 75 182 473,251 473,433 Commercial and industrial and leases 9,677 1,677 2,239 13,593 3,611,615 3,625,208 Other 188 6 133 327 301,849 302,176 Total commercial loans 22,751 4,500 9,294 36,545 14,762,509 14,799,054 Noncommercial: Residential mortgage 27,886 8,064 21,901 57,851 3,465,935 3,523,786 Revolving mortgage 13,428 3,485 10,222 27,135 2,674,390 2,701,525 Construction and land development - noncommercial 7,154 108 1,379 8,641 239,648 248,289 Consumer 8,812 2,893 2,995 14,700 1,546,473 1,561,173 Total noncommercial loans 57,280 14,550 36,497 108,327 7,926,446 8,034,773 Total non-PCI loans and leases $ 80,031 $ 19,050 $ 45,791 $ 144,872 $ 22,688,955 22,833,827 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, 2018 and December 31, 2017 for non-PCI loans and leases, were as follows: December 31, 2018 December 31, 2017 (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 $ 666 $ — $ 1,040 $ — Commercial mortgage 12,594 — 22,625 397 Other commercial real estate 366 — 916 — Commercial and industrial and leases 4,624 808 4,876 428 Residential mortgage 35,662 — 38,942 — Revolving mortgage 25,563 — 19,990 — Construction and land development - noncommercial 1,823 — 1,989 — Consumer 2,969 2,080 1,992 2,153 Other 279 — 164 — Total non-PCI loans and leases $ 84,546 $ 2,888 $ 92,534 $ 2,978 Purchased non-PCI loans and leases The following table relates to purchased non-PCI loans acquired in the Palmetto Heritage, Capital Commerce and HomeBancorp transactions in 2018 and the Guaranty transaction in 2017. The table summarizes the contractually required payments, which include principal and interest, estimate of contractual cash flows not expected to be collected and fair value of the acquired loans at the acquisition date. (Dollars in thousands) Palmetto Heritage Capital Commerce HomeBancorp Guaranty Contractually required payments $ 142,413 $ 198,568 $ 710,876 $ 703,916 Contractual cash flows not expected to be collected — 5,427 9,845 16,073 Fair value at acquisition date 131,283 173,354 550,618 574,553 The recorded fair values of purchased non-PCI loans acquired in the Palmetto Heritage, Capital Commerce and HomeBancorp transactions in 2018 and the Guaranty transaction in 2017 as of their respective acquisition date were as follows: (Dollars in thousands) Palmetto Heritage Capital Commerce HomeBancorp Guaranty Commercial: Construction and land development $ 13,186 $ 10,299 $ 525 $ — Commercial mortgage 29,225 57,049 188,688 850 Other commercial real estate 753 6,370 55,183 — Commercial and industrial and leases 8,153 34,301 7,931 583 Other 1,039 — — 183,816 Total commercial loans and leases 52,356 108,019 252,327 185,249 Noncommercial: Residential mortgage 59,076 50,630 296,273 309,612 Revolving mortgage 6,175 2,552 51 54,780 Construction and land development 11,103 11,173 — — Consumer 2,573 980 1,967 24,912 Total noncommercial loans and leases 78,927 65,335 298,291 389,304 Total non-PCI loans $ 131,283 $ 173,354 $ 550,618 $ 574,553 PCI loans The following table relates to PCI loans acquired in the Palmetto Heritage, Capital Commerce and HomeBancorp transactions in 2018 and the Guaranty and HCB transactions in 2017. The table summarizes the contractually required payments, which include principal and interest, expected cash flows to be collected, and the fair value of PCI loans at the respective acquisition dates. (Dollars in thousands) Palmetto Heritage Capital Commerce HomeBancorp Guaranty HCB Contractually required payments $ 4,783 $ 13,871 $ 26,651 $ 158,456 $ 111,250 Cash flows expected to be collected 4,112 11,814 19,697 142,000 101,802 Fair value of loans at acquisition 3,863 10,772 15,555 114,533 85,149 The recorded fair values of PCI loans acquired in the Palmetto Heritage, Capital Commerce and HomeBancorp transactions in 2018 and the Guaranty and HCB transactions in 2017 as of their respective acquisition date were as follows: (Dollars in thousands) Palmetto Heritage Capital Commerce HomeBancorp Guaranty HCB Commercial: Construction and land development $ 212 $ 1,482 $ — $ 55 $ 7,061 Commercial mortgage 1,053 1,846 7,815 644 21,836 Other commercial real estate — — — — 6,404 Commercial and industrial 372 922 423 2 19,675 Total commercial loans 1,637 4,250 8,238 701 54,976 Noncommercial: Residential mortgage 2,226 6,503 7,317 80,475 25,857 Revolving mortgage — — — 33,319 3,434 Construction and land development — — — 26 — Consumer — 19 — 12 882 Total noncommercial loans 2,226 6,522 7,317 113,832 30,173 Total PCI loans $ 3,863 $ 10,772 $ 15,555 $ 114,533 $ 85,149 The following table provides changes in the carrying value of all PCI loans during the years ended December 31, 2018 and 2017 : (Dollars in thousands) 2018 2017 2016 Balance at January 1 $ 762,998 $ 809,169 $ 950,516 Fair value of PCI loans acquired during the year 30,190 199,682 80,690 Accretion 61,502 76,594 76,565 Payments received and other changes, net (248,114 ) (322,447 ) (298,602 ) Balance at December 31 $ 606,576 $ 762,998 $ 809,169 Unpaid principal balance at December 31 $ 960,457 $ 1,175,441 $ 1,266,395 The carrying value of PCI loans on the cost recovery method was $3.3 million at December 31, 2018 , and $1.1 million at December 31, 2017 . The recorded investment of PCI loans on nonaccrual status was $1.3 million and $624 thousand at December 31, 2018 , and December 31, 2017 , respectively. During the years ended December 31, 2018 , and December 31, 2017 , accretion income on PCI loans was $61.5 million and $76.6 million , respectively. For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flows not related to credit improvements or deterioration do not affect the nonaccretable difference. The following table summarizes changes to the amount of accretable yield for 2018 and 2017 . (Dollars in thousands) 2018 2017 2016 Balance at January 1 $ 316,679 $ 335,074 $ 343,856 Additions from acquisitions 6,393 44,120 12,488 Accretion (61,502 ) (76,594 ) (76,565 ) Reclassifications from nonaccretable difference 5,980 18,901 29,931 Changes in expected cash flows that do not affect nonaccretable difference 45,344 (4,822 ) 25,364 Balance at December 31 $ 312,894 $ 316,679 $ 335,074 |