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Loans and Leases | 3 Months Ended
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Mar. 31, 2018
Loans and Leases Receivable Disclosure [Abstract] |
Loans and Leases | LOANS AND LEASES BancShares' accounting methods for loans and leases differ depending on whether they are purchased credit-impaired (PCI) or non-PCI. Non-PCI loans and leases include originated commercial and noncommercial, purchased non-impaired loans, purchased leases and certain purchased revolving credit. For purchased non-impaired loans to be included as non-PCI, it must be determined that the loans do not have any credit deterioration at the time of acquisition. Conversely, loans for which it is probable at acquisition that all required payments will not be collected in accordance with contractual terms are considered impaired and, therefore, classified as PCI loans. PCI loans are accounted for under the guidance in ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. PCI loans 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 over the life of the loans. An allowance is recorded if there is additional credit deterioration after the acquisition date. 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, commercial and non-commercial loans are assigned to loan classes, which further disaggregate loans based upon common risk characteristics. Commercial – Commercial loan classes include construction and land development, commercial 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 for business equipment, vehicles and other assets. 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, and certain loans repurchased with government guarantees. Noncommercial – Noncommercial loan classes 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, student loans and revolving lines of credit that can be secured or unsecured, including personal credit cards. Loans and leases outstanding included the following at March 31, 2018 and December 31, 2017:
(Dollars in thousands) | March 31, 2018 |  | December 31, 2017
Non-PCI loans and leases: |  |  |
Commercial: |  |  |
Construction and land development | $ | 738,413 |  |  | $ | 669,215 |
Commercial mortgage | 9,859,136 |  |  | 9,729,022 |
Other commercial real estate | 386,734 |  |  | 473,433 |
Commercial and industrial | 2,695,205 |  |  | 2,730,407 |
Lease financing | 910,589 |  |  | 894,801 |
Other | 281,485 |  |  | 302,176 |
Total commercial loans | 14,871,562 |  |  | 14,799,054 |
Noncommercial: |  |  |
Residential mortgage | 3,587,791 |  |  | 3,523,786 |
Revolving mortgage | 2,651,648 |  |  | 2,701,525 |
Construction and land development | 243,114 |  |  | 248,289 |
Consumer | 1,554,025 |  |  | 1,561,173 |
Total noncommercial loans | 8,036,578 |  |  | 8,034,773 |
Total non-PCI loans and leases | 22,908,140 |  |  | 22,833,827 |
PCI loans: |  |  |
Commercial: |  |  |
Construction and land development | 9,316 |  |  | 10,135 |
Commercial mortgage | 325,073 |  |  | 358,103 |
Other commercial real estate | 16,179 |  |  | 17,124 |
Commercial and industrial | 3,732 |  |  | 6,374 |
Other | 1,628 |  |  | 1,683 |
Total commercial loans | 355,928 |  |  | 393,419 |
Noncommercial: |  |  |
Residential mortgage | 282,338 |  |  | 299,318 |
Revolving mortgage | 60,388 |  |  | 63,908 |
Construction and land development | 3,006 |  |  | 4,163 |
Consumer | 2,177 |  |  | 2,190 |
Total noncommercial loans | 347,909 |  |  | 369,579 |
Total PCI loans | 703,837 |  |  | 762,998 |
Total loans and leases | $ | 23,611,977 |  |  | $ | 23,596,825 |
At March 31, 2018, $65.5 million of total residential loans and leases were covered under shared-loss agreements with the FDIC, compared to $67.8 million at December 31, 2017. The shared-loss agreements, for their terms, protect BancShares from a substantial portion of the credit and asset quality risk that would otherwise be incurred. At March 31, 2018, $9.11 billion in noncovered loans with a lendable collateral value of $6.26 billion were used to secure $85.2 million in Federal Home Loan Bank (FHLB) of Atlanta advances, resulting in additional borrowing capacity of $6.17 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 March 31, 2018, $2.86 billion in noncovered loans with a lendable collateral value of $2.16 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 $46.7 million and $51.2 million at March 31, 2018 and December 31, 2017, respectively. In addition, 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 the lower of amortized cost or market. During the first quarter of 2018, total proceeds from sales of loans held for sale were $138.5 million and there were no transfers to loans held for sale from the residential mortgage portfolio. During the first quarter of 2017, total proceeds from sales of loans held for sale were $195.1 million of which $32.3 million in sales were transferred to loans held for sale from the residential mortgage portfolio, resulting in a gain of $164 thousand. Net deferred fees on originated non-PCI loans and leases, including unearned income as well as unamortized costs and fees, were $1.5 million and $1.7 million at March 31, 2018 and December 31, 2017, respectively. The unamortized discount related to purchased non-PCI loans and leases in the Guaranty Bank (Guaranty), Cordia Bancorp Inc. (Cordia) and First Citizens Bancorporation, Inc. (Bancorporation) acquisitions was $13.3 million, $2.5 million and $16.4 million, respectively, at March 31, 2018. At December 31, 2017, the unamortized discount related to purchased non-PCI loans and leases from the Guaranty, Cordia and Bancorporation acquisitions was $14.2 million, $2.7 million and $18.1 million, respectively. During the three months ended March 31, 2018 and March 31, 2017, accretion income on purchased non-PCI loans and leases was $2.9 million and $3.2 million, 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. Commercial loans are evaluated periodically with more frequent evaluations done on 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 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 March 31, 2018 and December 31, 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. Non-PCI loans and leases outstanding at March 31, 2018 and December 31, 2017 by credit quality indicator are provided below:
| March 31, 2018
(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 | $ | 733,253 |  |  | $ | 9,661,079 |  |  | $ | 382,679 |  |  | $ | 2,476,337 |  |  | $ | 900,464 |  |  | $ | 278,367 |  |  | $ | 14,432,179 |
Special mention | 483 |  |  | 81,680 |  |  | 1,187 |  |  | 37,571 |  |  | 3,347 |  |  | 1,107 |  |  | 125,375 |
Substandard | 4,639 |  |  | 115,039 |  |  | 2,868 |  |  | 19,357 |  |  | 6,734 |  |  | 1,889 |  |  | 150,526 |
Doubtful | — |  |  | 1,338 |  |  | — |  |  | 836 |  |  | — |  |  | 72 |  |  | 2,246 |
Ungraded | 38 |  |  | — |  |  | — |  |  | 161,104 |  |  | 44 |  |  | 50 |  |  | 161,236 |
Total | $ | 738,413 |  |  | $ | 9,859,136 |  |  | $ | 386,734 |  |  | $ | 2,695,205 |  |  | $ | 910,589 |  |  | $ | 281,485 |  |  | $ | 14,871,562 |
| December 31, 2017
| 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 | $ | 665,197 |  |  | $ | 9,521,019 |  |  | $ | 468,942 |  |  | $ | 2,511,307 |  |  | $ | 883,779 |  |  | $ | 298,064 |  |  | $ | 14,348,308 |
Special mention | 691 |  |  | 78,643 |  |  | 1,260 |  |  | 44,130 |  |  | 4,340 |  |  | 2,919 |  |  | 131,983 |
Substandard | 3,327 |  |  | 128,848 |  |  | 3,224 |  |  | 18,617 |  |  | 6,585 |  |  | 1,193 |  |  | 161,794 |
Doubtful | — |  |  | 262 |  |  | — |  |  | 385 |  |  | — |  |  | — |  |  | 647 |
Ungraded | — |  |  | 250 |  |  | 7 |  |  | 155,968 |  |  | 97 |  |  | — |  |  | 156,322 |
Total | $ | 669,215 |  |  | $ | 9,729,022 |  |  | $ | 473,433 |  |  | $ | 2,730,407 |  |  | $ | 894,801 |  |  | $ | 302,176 |  |  | $ | 14,799,054 |
| March 31, 2018
| 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 | $ | 3,542,327 |  |  | $ | 2,628,122 |  |  | $ | 239,107 |  |  | $ | 1,541,749 |  |  | $ | 7,951,305 |
30-59 days past due | 23,833 |  |  | 9,364 |  |  | 2,885 |  |  | 6,935 |  |  | 43,017 |
60-89 days past due | 2,429 |  |  | 3,636 |  |  | — |  |  | 2,440 |  |  | 8,505 |
90 days or greater past due | 19,202 |  |  | 10,526 |  |  | 1,122 |  |  | 2,901 |  |  | 33,751 |
Total | $ | 3,587,791 |  |  | $ | 2,651,648 |  |  | $ | 243,114 |  |  | $ | 1,554,025 |  |  | $ | 8,036,578 |
| December 31, 2017
| Non-PCI noncommercial loans and leases
| Residential mortgage |  | Revolving mortgage |  | Construction and land development |  | Consumer |  | Total non-PCI noncommercial loans and leases
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 |
PCI loans outstanding at March 31, 2018 and December 31, 2017 by credit quality indicator are provided below:
| March 31, 2018
(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 | $ | 3,691 |  |  | $ | 157,187 |  |  | $ | 12,739 |  |  | $ | 1,642 |  |  | $ | 254 |  |  | $ | 175,513 |
Special mention | 338 |  |  | 61,443 |  |  | 307 |  |  | 488 |  |  | 928 |  |  | 63,504 |
Substandard | 4,231 |  |  | 101,734 |  |  | 2,615 |  |  | 1,492 |  |  | 446 |  |  | 110,518 |
Doubtful | 1,056 |  |  | 4,709 |  |  | 518 |  |  | 81 |  |  | — |  |  | 6,364 |
Ungraded | — |  |  | — |  |  | — |  |  | 29 |  |  | — |  |  | 29 |
Total | $ | 9,316 |  |  | $ | 325,073 |  |  | $ | 16,179 |  |  | $ | 3,732 |  |  | $ | 1,628 |  |  | $ | 355,928 |
| December 31, 2017
| PCI commercial loans
| Construction and land development |  | Commercial mortgage |  | Other commercial real estate |  | Commercial and industrial |  | Other |  | Total PCI commercial loans
Pass | $ | 1,817 |  |  | $ | 181,353 |  |  | $ | 13,830 |  |  | $ | 4,057 |  |  | $ | 275 |  |  | $ | 201,332 |
Special mention | 320 |  |  | 61,295 |  |  | 323 |  |  | 374 |  |  | 945 |  |  | 63,257 |
Substandard | 5,792 |  |  | 106,807 |  |  | 2,163 |  |  | 1,843 |  |  | 463 |  |  | 117,068 |
Doubtful | 2,206 |  |  | 8,648 |  |  | 808 |  |  | 73 |  |  | — |  |  | 11,735 |
Ungraded | — |  |  | — |  |  | — |  |  | 27 |  |  | — |  |  | 27 |
Total | $ | 10,135 |  |  | $ | 358,103 |  |  | $ | 17,124 |  |  | $ | 6,374 |  |  | $ | 1,683 |  |  | $ | 393,419 |
| March 31, 2018
| PCI noncommercial loans
(Dollars in thousands) | Residential mortgage |  | Revolving mortgage |  | Construction and land development |  | Consumer |  | Total PCI noncommercial loans
Current | $ | 249,443 |  |  | $ | 53,885 |  |  | $ | 2,420 |  |  | $ | 2,095 |  |  | $ | 307,843 |
30-59 days past due | 9,196 |  |  | 1,662 |  |  | 19 |  |  | 40 |  |  | 10,917 |
60-89 days past due | 1,436 |  |  | 851 |  |  | — |  |  | — |  |  | 2,287 |
90 days or greater past due | 22,263 |  |  | 3,990 |  |  | 567 |  |  | 42 |  |  | 26,862 |
Total | $ | 282,338 |  |  | $ | 60,388 |  |  | $ | 3,006 |  |  | $ | 2,177 |  |  | $ | 347,909 |
| December 31, 2017
| PCI noncommercial loans
| Residential mortgage |  | Revolving mortgage |  | Construction and land development |  | Consumer |  | Total PCI noncommercial loans
Current | $ | 257,166 |  |  | $ | 55,871 |  |  | $ | 3,521 |  |  | $ | 2,074 |  |  | $ | 318,632 |
30-59 days past due | 10,525 |  |  | 2,767 |  |  | — |  |  | 51 |  |  | 13,343 |
60-89 days past due | 4,846 |  |  | 701 |  |  | 642 |  |  | 23 |  |  | 6,212 |
90 days or greater past due | 26,781 |  |  | 4,569 |  |  | — |  |  | 42 |  |  | 31,392 |
Total | $ | 299,318 |  |  | $ | 63,908 |  |  | $ | 4,163 |  |  | $ | 2,190 |  |  | $ | 369,579 |
The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2018 and December 31, 2017 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, 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: |  |  |  |  |  |  |  |  |  |  |
Construction and land development - commercial | $ | 2,011 |  |  | $ | 771 |  |  | $ | 357 |  |  | $ | 3,139 |  |  | $ | 735,274 |  |  | $ | 738,413 |
Commercial mortgage | 9,813 |  |  | 4,738 |  |  | 7,058 |  |  | 21,609 |  |  | 9,837,527 |  |  | 9,859,136 |
Other commercial real estate | 94 |  |  | 22 |  |  | 73 |  |  | 189 |  |  | 386,545 |  |  | 386,734 |
Commercial and industrial | 8,273 |  |  | 1,844 |  |  | 1,503 |  |  | 11,620 |  |  | 2,683,585 |  |  | 2,695,205 |
Lease financing | 3,677 |  |  | 45 |  |  | 1,512 |  |  | 5,234 |  |  | 905,355 |  |  | 910,589 |
Residential mortgage | 23,833 |  |  | 2,429 |  |  | 19,202 |  |  | 45,464 |  |  | 3,542,327 |  |  | 3,587,791 |
Revolving mortgage | 9,364 |  |  | 3,636 |  |  | 10,526 |  |  | 23,526 |  |  | 2,628,122 |  |  | 2,651,648 |
Construction and land development - noncommercial | 2,885 |  |  | — |  |  | 1,122 |  |  | 4,007 |  |  | 239,107 |  |  | 243,114 |
Consumer | 6,935 |  |  | 2,440 |  |  | 2,901 |  |  | 12,276 |  |  | 1,541,749 |  |  | 1,554,025 |
Other | 46 |  |  | 47 |  |  | 129 |  |  | 222 |  |  | 281,263 |  |  | 281,485 |
Total non-PCI loans and leases | $ | 66,931 |  |  | $ | 15,972 |  |  | $ | 44,383 |  |  | $ | 127,286 |  |  | $ | 22,780,854 |  |  | $ | 22,908,140 |
| 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: |  |  |  |  |  |  |  |  |  |  |
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 | 6,694 |  |  | 1,510 |  |  | 1,266 |  |  | 9,470 |  |  | 2,720,937 |  |  | 2,730,407 |
Lease financing | 2,983 |  |  | 167 |  |  | 973 |  |  | 4,123 |  |  | 890,678 |  |  | 894,801 |
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 |
Other | 188 |  |  | 6 |  |  | 133 |  |  | 327 |  |  | 301,849 |  |  | 302,176 |
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 March 31, 2018 and December 31, 2017 for non-PCI loans and leases, were as follows:
| March 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 | $ | 1,059 |  |  | $ | — |  |  | $ | 1,040 |  |  | $ | — |
Commercial mortgage | 20,505 |  |  | 32 |  |  | 22,625 |  |  | 397 |
Other commercial real estate | 616 |  |  | — |  |  | 916 |  |  | — |
Commercial and industrial | 2,928 |  |  | 721 |  |  | 2,884 |  |  | 428 |
Lease financing | 1,687 |  |  | — |  |  | 1,992 |  |  | — |
Residential mortgage | 37,038 |  |  | — |  |  | 38,942 |  |  | — |
Revolving mortgage | 21,421 |  |  | — |  |  | 19,990 |  |  | — |
Construction and land development - noncommercial | 1,722 |  |  | — |  |  | 1,989 |  |  | — |
Consumer | 2,082 |  |  | 2,277 |  |  | 1,992 |  |  | 2,153 |
Other | 202 |  |  | — |  |  | 164 |  |  | — |
Total non-PCI loans and leases | $ | 89,260 |  |  | $ | 3,030 |  |  | $ | 92,534 |  |  | $ | 2,978 |
The following table provides changes in the carrying value of PCI loans during the three months ended March 31, 2018 and March 31, 2017:
(Dollars in thousands) | 2018 |  | 2017
Balance at January 1 | $ | 762,998 |  |  | $ | 809,169 |
Fair value of acquired loans | — |  |  | 85,149 |
Accretion | 17,973 |  |  | 19,351 |
Payments received and other changes, net | (77,134 | ) |  | (64,853 | )
Balance at March 31 | $ | 703,837 |  |  | $ | 848,816 |
Unpaid principal balance at March 31 | $ | 1,108,379 |  |  | $ | 1,155,034 |
The carrying value of loans on the cost recovery method was $1.3 million at March 31, 2018 and $1.1 million at December 31, 2017. 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. The recorded investment of PCI loans on nonaccrual status was $1.6 million and $624 thousand at March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018 and March 31, 2017, accretion income on PCI loans was $18.0 million and $19.4 million, respectively. For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flow not related to credit improvements or deterioration do not affect the nonaccretable difference. The following table documents changes to the amount of accretable yield for the first three months of 2018 and 2017.
(Dollars in thousands) | 2018 |  | 2017
Balance at January 1 | $ | 316,679 |  |  | $ | 335,074 |
Additions from acquisitions | — |  |  | 16,653 |
Accretion | (17,973 | ) |  | (19,351 | )
Reclassifications (to) from nonaccretable difference | (929 | ) |  | 11,277 |
Changes in expected cash flows that do not affect nonaccretable difference | 11,568 |  |  | (2,179 | )
Balance at March 31 | $ | 309,345 |  |  | $ | 341,474 |

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