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,
	2016		2015
Commercial and industrial	$	2,827,658	$	2,524,726
Agricultural	389,496		387,440
Commercial real estate:
Office, retail, and industrial	1,581,827		1,395,454
Multi-family	614,034		528,324
Construction	451,540		216,882
Other commercial real estate	979,359		931,190
Total commercial real estate	3,626,760		3,071,850
Total corporate loans	6,843,914		5,984,016
Home equity	732,604		653,468
1-4 family mortgages	416,354		355,854
Installment	237,999		137,602
Total consumer loans	1,386,957		1,146,924
Covered loans ⁽¹⁾	23,274		30,775
Total loans	$	8,254,145	$	7,161,715
Deferred loan fees included in total loans	$	3,838	$	5,191
Overdrawn demand deposits included in total loans	7,836		2,810


⁽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 projected 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 balanced between owner-occupied and investor categories and are diverse in terms of type and geographic location, generally within the Company's markets.

Construction loans are generally based on estimates of costs and values associated with the completed project and are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates, and financial analyses of the developers and property owners. Sources of repayment 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"), which employs a risk-based system to determine the probability that a borrower may default. 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, 2016 and 2015 are presented below.

Carrying Value of Loans Pledged

(Dollar amounts in thousands)



	As of December 31
	2016		2015
Loans pledged to secure:
FHLB advances	$	3,667,202	$	3,057,421
FRB's Discount Window Primary Credit Program	777,950		841,808
Total	$	4,445,152	$	3,899,229

Loan Sales

The following table presents loan sales for the years ended December 31, 2016, 2015, and 2014.

Loan Sales

(Dollar amounts in thousands)



	As of December 31,
	2016		2015		2014
Corporate loan sales
Proceeds from sales	$	54,681	$	31,091	$	23,222
Less book value of loans sold	52,821		29,535		22,924
Net gain on corporate sales ⁽¹⁾	$	1,860	$	1,556	$	298
1-4 family mortgage loan sales
Proceeds from sales	$	290,383	$	185,308	$	148,680
Less book value of loans sold	283,312		180,017		144,909
Net gain on 1-4 family mortgage sales ⁽²⁾	7,071		5,291		3,771
Total net gains on loan sales	$	8,931	$	6,847	$	4,069


⁽¹⁾	Net gains on corporate loan sales are included in other service charges, commissions, and fees in the Consolidated Statements of Income.


⁽²⁾	Net gains on mortgage loan sales are included in mortgage banking income in the Consolidated Statements of Income.

The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. 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."