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,
	2018		2017
Commercial and industrial	$	4,120,293	$	3,529,914
Agricultural	430,928		430,886
Commercial real estate:
Office, retail, and industrial	1,820,917		1,979,820
Multi-family	764,185		675,463
Construction	649,337		539,820
Other commercial real estate	1,361,810		1,358,515
Total commercial real estate	4,596,249		4,553,618
Total corporate loans	9,147,470		8,514,418
Home equity	851,607		827,055
1-4 family mortgages	1,017,181		774,357
Installment	430,525		321,982
Total consumer loans	2,299,313		1,923,394
Total loans	$	11,446,783	$	10,437,812
Deferred loan fees included in total loans	$	6,715	$	4,986
Overdrawn demand deposits included in total loans	8,583		8,587

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 the success of the business or economic conditions. 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. 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. Some short-term loans may be made on an unsecured basis.

Agricultural loans are generally provided to meet seasonal production, equipment, and farm real estate borrowing needs of individual and corporate crop and livestock producers. 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. As part of the underwriting process, the Company examines projected future cash flows, financial statement stability, and the value of the underlying collateral.

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

Construction loans are generally made based on estimates of costs and values associated with the completed projects 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 long-term financing, 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. Repayment for these loans is dependent on the borrower's continued financial stability, and is more likely to be impacted by adverse personal circumstances.

The Bank is a member of the FHLB and FRB and has access to financing secured by designated assets that may include qualifying commercial real estate, residential and multi-family mortgages, home equity loans, and certain municipal and mortgage-backed securities. The carrying value of loans that were pledged to secure liabilities as of December 31, 2018 and 2017 are presented below.

Carrying Value of Loans Pledged

(Dollar amounts in thousands)



	As of December 31
	2018		2017
Loans pledged to secure:
FHLB advances (blanket pledge)	$	4,443,268	$	4,587,240
FRB's Discount Window Primary Credit Program	1,166,128		1,099,712
Total	$	5,609,396	$	5,686,952

As of both December 31, 2018 and 2017, based on loans pledged under a blanket pledge agreement noted in the table above, the Bank was eligible to borrow up to $2.5 billion in FHLB advances. As of December 31, 2018 and 2017, the Bank was eligible to borrow up to $881.1 million and $843.6 million, respectively, through the FRB's Discount Window Primary Credit Program based on assets pledged. For additional disclosure related to the Company's outstanding balance of borrowings, see Note 11, "Borrowed Funds."

Loan Sales

The following table presents loan sales for the years ended December 31, 2018, 2017, and 2016.

Loan Sales

(Dollar amounts in thousands)



	As of December 31,
	2018		2017		2016
Corporate loan sales
Proceeds from sales	$	17,900	$	52,974	$	54,681
Less book value of loans sold	17,498		51,781		52,821
Net gains on corporate sales⁽¹⁾	402		1,193		1,860
1-4 family mortgage loan sales
Proceeds from sales	245,967		258,626		290,383
Less book value of loans sold	240,807		252,741		283,312
Net gains on 1-4 family mortgage sales⁽²⁾	5,160		5,885		7,071
Total net gains on loan sales	$	5,562	$	7,078	$	8,931


⁽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 1-4 family 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. For additional disclosure related to the Company's obligations resulting from the sale of certain 1-4 family mortgage loans, see Note 20, "Commitments, Guarantees, and Contingent Liabilities."