LOANS

Loans Held-for-Investment

The following table presents the Company's loans held-for-investment by class.

Loan Portfolio

(Dollar amounts in thousands)



	As of December 31,
	2014		2013
Commercial and industrial	$	2,253,556	$	1,830,638
Agricultural	358,249		321,702
Commercial real estate:
Office, retail, and industrial	1,478,379		1,353,685
Multi-family	564,421		332,873
Construction	204,236		186,197
Other commercial real estate	887,897		807,071
Total commercial real estate	3,134,933		2,679,826
Total corporate loans	5,746,738		4,832,166
Home equity	543,185		427,020
1-4 family mortgages	291,463		275,992
Installment	76,032		44,827
Total consumer loans	910,680		747,839
Total loans, excluding covered loans	6,657,418		5,580,005
Covered loans ⁽¹⁾	79,435		134,355
Total loans	$	6,736,853	$	5,714,360
Deferred loan fees included in total loans	$	3,922	$	4,656
Overdrawn demand deposits included in total loans	3,438		5,047


⁽¹⁾	For information on covered loans, see Note 6, "Acquired and Covered Loans."

The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower's ability to operate its business. As part of the underwriting process, the Company examines current and expected future cash flows to determine the ability of the borrower to repay its obligation. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrower may not be as expected, and the collateral securing these loans may fluctuate in value due to economic or other factors. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may incorporate a personal guarantee. Some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans substantially depend on the ability of the borrower to collect amounts due from its customers.

Agricultural loans are generally provided to meet seasonal production, equipment, and farm real estate borrowing needs of individual and corporate crop and livestock producers. As part of the underwriting process, the Company examines expected future cash flows, financial statement stability, and the value of the underlying collateral. Seasonal crop production loans are repaid by the liquidation of the financed crop that is typically covered by crop insurance. Equipment and real estate term loans are repaid through cash flows of the farming operation.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. The repayment of commercial real estate loans depends on the successful operation of the property securing the loan or the business conducted on the property securing the loan. This category of loans may be more adversely affected by conditions in the real estate market. Management monitors and evaluates commercial real estate loans based on cash flow, collateral, geography, and risk rating criteria. The mix of properties securing the loans in our commercial real estate portfolio are further classified into owner-occupied and investor categories and are diverse in terms of type and geographic location within the Company's markets.

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates, and financial analyses of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the completed project. Sources of repayment for these loans may be permanent loans from long-term lenders, sales of developed property, or an interim loan commitment until permanent financing is obtained. Generally, construction loans have a higher risk profile than other real estate loans since repayment is impacted by real estate values, interest rate changes, governmental regulation of real property, demand and supply of alternative real estate, the availability of long-term financing, and changes in general economic conditions.

Consumer loans are centrally underwritten using a credit scoring model developed by the Fair Isaac Corporation ("FICO"). It uses a risk-based system to determine the probability that a borrower may default on financial obligations to the lender. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements. The home equity category consists mainly of revolving lines of credit secured by junior liens on owner-occupied real estate. Loan-to-value ratios on home equity loans and 1-4 family mortgages are based on the current appraised value of the collateral.

The carrying value of loans that were pledged to secure liabilities as of December 31, 2014 and 2013 are presented below.

Carrying Value of Loans Pledged

(Dollar amounts in thousands)



	As of December 31
	2014		2013
Loans pledged to secure:
FHLB advances	$	1,952,736	$	1,632,069
FRB's Discount Window Primary Credit Program	845,974		766,870
Total	$	2,798,710	$	2,398,939

Loan Sales

The following table presents loan sales for the years ended December 31, 2014, 2013, and 2012.

Loan Sales

(Dollar amounts in thousands)



	Proceeds		Book Value		Charge-offs ⁽¹⁾			Net Gains ⁽²⁾
Loan sales in 2014
Mortgage loans	$	148,680	$	144,909	$	—		$	3,771
Non-performing loans	17,750		21,200		(3,450		)	—
Total loan sales in 2014	$	166,430	$	166,109	$	(3,450	)	$	3,771
Loan sales in 2013
Mortgage loans	$	152,130	$	147,413	$	—		$	4,717
Non-performing loans	1,275		2,835		(1,560		)	—
Total loan sales in 2013	$	153,405	$	150,248	$	(1,560	)	$	4,717
Loan sales in 2012
Bulk loan sales	$	94,470	$	169,577	$	(80,260	)	$	5,153
Mortgage loans	52,595		50,326		—			2,269
Non-performing loans	4,200		6,587		(2,387		)	—
Total loan sales in 2012	$	151,265	$	226,490	$	(82,647	)	$	7,422


⁽¹⁾	Amount represents charge-offs to the allowance for loan and covered loan losses at the time the loans were identified for sale.


⁽²⁾	The net gains on the bulk loan sales represent gains realized subsequent to the transfer to held-for-sale and are included as a separate component of noninterest income in the Consolidated Statements of Income. Net gains on mortgage loan sales are included in mortgage banking income in the Consolidated Statements of Income.

Mortgage Loan Sales

During the year ended December 31, 2014, a gain of $3.8 million was recognized on the sale of $144.9 million of mortgage loans, of which $92.5 million were originated with the intent to sell. For the year ended December 31, 2013, the Company sold $147.4 million of mortgage loans, resulting in a gain of $4.7 million. The Company retained servicing responsibilities on the majority of mortgages sold and collects servicing fees equal to a percentage of the outstanding principal balance of the loans being serviced. The Company also retained limited recourse for credit losses on the sold loans. A description of the recourse obligation is presented in Note 21, "Commitments, Guarantees, and Contingent Liabilities."

Bulk Loan Sales

During the third quarter of 2012, the Company identified certain non-performing and performing potential problem loans for accelerated disposition through bulk loan sales and transferred them into the held-for-sale category at the lower of the recorded investment or the estimated fair value, which resulted in charge-offs of $80.3 million and a provision for loan and covered loan losses of $62.3 million. The fair value was determined by the estimated bid price of the potential sale. The bulk loan sales were completed in the fourth quarter of 2012, and net gains realized on the sales are included as a separate component of noninterest income in the Consolidated Statements of Income.