FCNCA_10Q_03.31.2015
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015
or
 
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-16715
____________________________________________________
First Citizens BancShares, Inc.
(Exact name of Registrant as specified in its charter)
____________________________________________________
Delaware
56-1528994
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
4300 Six Forks Road, Raleigh, North Carolina
27609
(Address of principle executive offices)
(Zip code)
(919) 716-7000
(Registrant’s telephone number, including area code)
____________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.    Yes  x   No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files)    Yes  x    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of ‘accelerated filer’ and ‘large accelerated filer’ in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
x
 
Accelerated filer
¨
Non-accelerated filer
¨
 
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Class A Common Stock—$1 Par Value—11,005,220 shares
Class B Common Stock—$1 Par Value—1,005,185 shares
(Number of shares outstanding, by class, as of May 6, 2015)


Table of Contents

INDEX
 
 
 
Page No.
 
 
 
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.

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PART I
 
Item 1.
Financial Statements


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, unaudited)
March 31, 2015
 
December 31, 2014
Assets
 
 
 
Cash and due from banks
$
495,901

 
$
604,182

Overnight investments
2,458,923

 
1,724,919

Investment securities available for sale
7,045,109

 
7,171,917

Investment securities held to maturity
441

 
518

Loans held for sale
66,508

 
63,696

Loans and leases
19,091,757

 
18,769,465

Less allowance for loan and lease losses
(205,553
)
 
(204,466
)
Net loans and leases
18,886,204

 
18,564,999

Premises and equipment
1,116,293

 
1,125,081

Other real estate owned:
 
 
 
Covered under loss share agreements
17,302

 
22,982

Not covered under loss share agreements
72,690

 
70,454

Income earned not collected
63,165

 
57,254

FDIC loss share receivable
21,340

 
28,701

Goodwill
139,773

 
139,773

Other intangible assets
101,904

 
106,610

Other assets
368,096

 
394,027

Total assets
$
30,853,649

 
$
30,075,113

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
8,484,192

 
$
8,086,784

Interest-bearing
17,816,638

 
17,591,793

Total deposits
26,300,830

 
25,678,577

Short-term borrowings
941,850

 
987,184

Long-term obligations
468,180

 
351,320

FDIC loss share payable
118,645

 
116,535

Other liabilities
258,767

 
253,903

Total liabilities
28,088,272

 
27,387,519

Shareholders’ equity
 
 
 
Common stock:
 
 
 
Class A - $1 par value (16,000,000 shares authorized; 11,005,220 shares issued and outstanding at March 31, 2015 and December 31, 2014)
11,005

 
11,005

Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2015 and December 31, 2014)
1,005

 
1,005

Surplus
658,918

 
658,918

Retained earnings
2,129,860

 
2,069,647

Accumulated other comprehensive loss
(35,411
)
 
(52,981
)
Total shareholders’ equity
2,765,377

 
2,687,594

Total liabilities and shareholders’ equity
$
30,853,649

 
$
30,075,113


See accompanying Notes to Consolidated Financial Statements.

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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
 
 
Three months ended March 31
(Dollars in thousands, except per share data, unaudited)
2015
 
2014
Interest income
 
 
 
Loans and leases
$
210,862

 
$
161,034

Investment securities interest and dividend income
19,310

 
11,748

Overnight investments
1,338

 
612

Total interest income
231,510

 
173,394

Interest expense
 
 
 
Deposits
5,629

 
6,825

Short-term borrowings
1,934

 
585

Long-term obligations
3,782

 
5,053

Total interest expense
11,345

 
12,463

Net interest income
220,165

 
160,931

Provision (credit) for loan and lease losses
5,792

 
(1,903
)
Net interest income after provision (credit) for loan and lease losses
214,373

 
162,834

Noninterest income
 
 
 
Gain on acquisition
37,555

 

Cardholder services
18,401

 
11,832

Merchant services
18,880

 
13,521

Service charges on deposit accounts
22,058

 
14,440

Wealth management services
20,880

 
14,880

Fees from processing services
50

 
4,861

Securities gains
5,126

 

Other service charges and fees
5,455

 
3,944

Mortgage income
4,549

 
955

Insurance commissions
3,297

 
3,287

ATM income
1,664

 
1,202

Adjustments to FDIC loss share receivable
(1,047
)
 
(12,349
)
Other(1)
8,510

 
5,741

Total noninterest income
145,378

 
62,314

Noninterest expense
 
 
 
Salaries and wages
106,543

 
79,353

Employee benefits
30,146

 
20,100

Occupancy expense
25,620

 
20,410

Equipment expense
23,541

 
18,773

FDIC insurance expense
4,271

 
2,636

Foreclosure-related expenses
2,557

 
5,410

Merger-related expenses
2,997

 
2,453

Other
62,585

 
41,895

Total noninterest expense
258,260

 
191,030

Income before income taxes
101,491

 
34,118

Income taxes(1)
37,675

 
11,639

Net income(1)
$
63,816

 
$
22,479

Average shares outstanding
12,010,405

 
9,618,941

Net income per share(1)
$
5.31

 
$
2.34

(1) Amounts for 2014 period have been updated to reflect the fourth quarter 2014 adoption of Accounting Standard Update (ASU) 2014-01 related to investments in qualified affordable housing projects.

See accompanying Notes to Consolidated Financial Statements.

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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income


 
Three months ended March 31
(Dollars in thousands, unaudited)
2015
 
2014
Net income(1)
$
63,816

 
$
22,479

Other comprehensive income:
 
 
 
Unrealized gains on securities:
 
 
 
Change in unrealized securities gains arising during period
30,415

 
11,899

Tax effect
(11,813
)
 
(4,643
)
Reclassification adjustment for gains included in income before income taxes
(5,126
)
 

Tax effect
1,977

 

Total change in unrealized gains on securities, net of tax
15,453

 
7,256

Change in fair value of cash flow hedges:
 
 
 
Change in unrecognized loss on cash flow hedges
576

 
719

Tax effect
(222
)
 
(278
)
Total change in unrecognized loss on cash flow hedges, net of tax
354

 
441

Change in pension obligation:
 
 
 
Reclassification adjustment for losses included in income before income taxes
2,886

 
1,599

Tax effect
(1,123
)
 
(622
)
Total change in pension obligation, net of tax
1,763

 
977

Other comprehensive income
17,570

 
8,674

Total comprehensive income(1)
$
81,386

 
$
31,153

(1) Amounts for 2014 period have been updated to reflect the fourth quarter 2014 adoption of ASU 2014-01 related to investments in qualified affordable housing projects.

See accompanying Notes to Consolidated Financial Statements.


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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity

 
(Dollars in thousands, unaudited)
Class A
Common Stock
 
Class B
Common Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Shareholders’
Equity
Balance at December 31, 2013
$
8,586

 
$
1,033

 
$
143,766

 
$
1,943,345

 
$
(25,268
)
 
$
2,071,462

Net income(1)

 

 

 
22,479

 

 
22,479

Other comprehensive income, net of tax

 

 

 

 
8,674

 
8,674

Cash dividends ($0.30 per share)

 

 

 
(2,885
)
 

 
(2,885
)
Balance at March 31, 2014
$
8,586

 
$
1,033

 
$
143,766

 
$
1,962,939

 
$
(16,594
)
 
$
2,099,730

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
11,005

 
$
1,005

 
$
658,918

 
$
2,069,647

 
$
(52,981
)
 
$
2,687,594

Net income

 

 

 
63,816

 

 
63,816

Other comprehensive income, net of tax

 

 

 

 
17,570

 
17,570

Cash dividends ($0.30 per share)

 

 

 
(3,603
)
 

 
(3,603
)
Balance at March 31, 2015
$
11,005

 
$
1,005

 
$
658,918

 
$
2,129,860

 
$
(35,411
)
 
$
2,765,377

(1) Amount for the 2014 period has been updated to reflect the fourth quarter 2014 adoption of ASU 2014-01 related to investments in qualified affordable housing projects.
See accompanying Notes to Consolidated Financial Statements.

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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows 
 
Three months ended March 31
(Dollars in thousands, unaudited)
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income(1)
$
63,816

 
$
22,479

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Provision (credit) for loan and lease losses
5,792

 
(1,903
)
Deferred tax benefit(1)
(10,203
)
 
(4,960
)
Net change in current taxes
13,310

 
40,710

Depreciation
21,965

 
17,684

Increase (decrease) in accrued interest payable
176

 
(1,062
)
Net increase in income earned not collected
(5,911
)
 
(1,278
)
Gain on acquisition
(37,555
)
 

Securities gains
(5,126
)
 

Origination of loans held for sale
(126,547
)
 
(67,862
)
Proceeds from sale of loans held for sale
127,203

 
64,009

Gain on sale of loans
(3,468
)
 
(1,054
)
Net writedowns/losses on other real estate
1,978

 
3,441

Net amortization of premiums and discounts(1)
(17,150
)
 
(5,413
)
Amortization of intangible assets
5,206

 
637

FDIC receivable for loss share agreements
8,092

 
4,359

FDIC payable for loss share agreements
2,110

 
1,961

Net change in other assets(1)
19,380

 
(8,891
)
Net change in other liabilities
(336
)
 
225

Net cash provided by operating activities
62,732

 
63,082

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net increase in loans outstanding
(168,341
)
 
(4,788
)
Purchases of investment securities available for sale
(626,268
)
 
(911,409
)
Proceeds from maturities/calls of investment securities held to maturity
77

 
125

Proceeds from maturities/calls of investment securities available for sale
330,500

 
866,803

Proceeds from sales of investment securities available for sale
481,708

 

Net increase in overnight investments
(734,004
)
 
(302,145
)
Cash paid to the FDIC for loss share agreements
(5,762
)
 
(3,490
)
Proceeds from sales of other real estate
22,794

 
10,602

Additions to premises and equipment
(13,177
)
 
(17,326
)
Business acquisition, net of cash acquired
123,137

 
18,194

Net cash used by investing activities
(589,336
)
 
(343,434
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net decrease in time deposits
(189,906
)
 
(51,268
)
Net increase in demand and other interest-bearing deposits
545,807

 
308,876

Net change in short-term borrowings
(50,835
)
 
35,970

Repayment of long-term obligations
(3,140
)
 
(469
)
Origination of long-term obligations
120,000

 

Cash dividends paid
(3,603
)
 
(2,885
)
Net cash provided by financing activities
418,323

 
290,224

Change in cash and due from banks
(108,281
)
 
9,872

Cash and due from banks at beginning of period
604,182

 
533,599

Cash and due from banks at end of period
$
495,901

 
$
543,471

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Transfers of loans to other real estate
$
21,300

 
$
4,832

Dividends declared but not paid
3,603

 
2,885

(1) Amounts for 2014 period have been updated to reflect the fourth quarter 2014 adoption of ASU 2014-01 related to investments in qualified affordable housing projects.
See accompanying Notes to Consolidated Financial Statements.

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First Citizens BancShares, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements


NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

First Citizens BancShares, Inc. ("BancShares") is a financial holding company organized under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company ("FCB"), which is headquartered in Raleigh, North Carolina.

General
These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes included in BancShares' Annual Report on Form 10-K for the year ended December 31, 2014.

Reclassifications
Prior period financial statements reflect the retrospective application of Accounting Standards Update ("ASU") 2014-01, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments Qualified Affordable Housing Projects which was adopted effective in the fourth quarter of 2014 and did not have a material impact on our consolidated financial condition or results of operations. In certain instances other than the retrospective adoption of ASU 2014-01, amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported shareholders' equity or net income.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and different assumptions in the application of these policies could result in material changes in BancShares' consolidated financial position, the consolidated results of its operations or related disclosures. Material estimates that are particularly susceptible to significant change include:
Allowance for loan and lease losses
Fair value of financial instruments, including acquired assets and assumed liabilities
Pension plan assumptions
Cash flow estimates on purchased credit-impaired loans
Receivable from and payable to the FDIC for loss share agreements
Income tax assets, liabilities and expense
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (FASB) ASU 2014-14, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure
This ASU requires a reporting entity to derecognize a mortgage loan and recognize a separate other receivable upon foreclosure if the following conditions are met: the loan has a government guarantee that is not separable from the loan before foreclosure; at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.

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The amendments in this ASU were effective for public entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We adopted this guidance effective in the first quarter of 2015. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations.
FASB ASU 2014-11, Transfers and Servicing (Topic 860)
This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The ASU requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The ASU also requires expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.
The accounting changes in this ASU were effective for fiscal years beginning after December 15, 2014. In addition, the disclosure for certain transactions accounted for as a sale was effective for the fiscal period beginning after December 15, 2014, the disclosures for transactions accounted for as secured borrowings were required to be presented for fiscal periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. We adopted the guidance effective in the first quarter of 2015. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations. The new disclosures required by this ASU are included in Note I.
FASB ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40)
This ASU clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We adopted the guidance effective in the first quarter of 2015. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations. The new disclosures required by this ASU are included in Note F.
FASB ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Qualified Affordable Housing Projects
This ASU permits an accounting policy election to account for investments in qualified affordable housing projects (LIHTC) using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense (benefit).
For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with ASC 970-323.
The decision to apply the proportional amortization method of accounting will be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments.
BancShares early adopted the guidance effective in the fourth quarter of 2014. Previously, LIHTC investments were accounted for under the cost or equity method, and the amortization was recorded as a reduction to other noninterest income, with the tax credits and other benefits received recorded as a component of the provision for income taxes. BancShares believes the proportional amortization method better represents the economics of LIHTC investments and provides users with a better understanding of the returns from such investments than the cost or equity method. LIHTC investments were $65.3 million and $57.1 million at March 31, 2015 and December 31, 2014, respectively, included in "other assets" on the Consolidated Balance Sheets.
The cumulative effect of the retrospective application of the change in amortization method was a $2.4 million decrease to both "other assets" and "retained earnings" on the Consolidated Balance Sheets as of January 1, 2012. Under the new amortization

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method of accounting, amortization expense is recognized in income tax expense in the Consolidated Statements of Income and is offset by the tax effect of tax losses and tax credits received from the investments. This change resulted in a reclassification of expense previously recorded as a reduction in other noninterest income to income tax expense along with additional amortization recognized under the new method of accounting in the Consolidated Statements of Income. An additional change resulting from the new amortization method of accounting was that a deferred tax asset or liability no longer exists as a result of these investments, thus in the retrospective application of the new method, the removal of the deferred tax asset previously reported as well as the additional amortization of the investments, both recorded in other assets, reflected in the Consolidated Balance Sheets were removed. We do not believe the impact of this change in accounting principle is material.
Recently Issued Accounting Pronouncements
FASB ASU 2015-03, Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
This ASU simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.
This ASU is effective for interim and annual periods beginning after December 15, 2015 for public companies, and is to be applied retrospectively. Early adoption is permitted. We will adopt the guidance effective in the first quarter of 2016.
FASB ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis
This ASU improves targeted areas of consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard places more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity ("VIE"), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.
The amendments in this ASU are effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted. We will adopt the guidance effective in the first quarter of 2016 and do not anticipate any significant impact on our consolidated financial position or consolidated results of operations as a result of adoption.
FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements.
The guidance in this ASU is effective for fiscal periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2017 using one of two retrospective application methods.
NOTE B - BUSINESS COMBINATIONS
Capitol City Bank & Trust Company
On February 13, 2015, FCB entered into an agreement with the Federal Deposit Insurance Corporation ("FDIC"), as Receiver, to purchase certain assets and assume certain liabilities of Capitol City Bank & Trust Company ("CCBT") of Atlanta, Georgia. The acquisition expanded FCB's presence in Georgia as Capitol City Bank & Trust Company operated eight branch locations in Atlanta, Stone Mountain, Albany, Augusta and Savannah, Georgia.

The fair value of the assets acquired recorded was $206.6 million, including $149.3 million in loans and $500 thousand of identifiable intangible assets. Liabilities assumed were $272.5 million of which $266.4 million were deposits. As a result of the transaction, FCB recorded a gain on the acquisition of $37.6 million which is included in noninterest income on the Consolidated Statements of Income.

The CCBT transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair values becomes available.

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The following table provides the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.
(Dollars in thousands)
 
As recorded by FCB
Assets
 
 
Cash and cash equivalents
 
$
19,622

Investment securities
 
35,413

Loans
 
149,294

Intangible assets
 
500

Other assets
 
1,731

Total assets acquired
 
206,560

Liabilities
 
 
Deposits
 
266,352

Short-term borrowings
 
5,501

Other liabilities
 
667

Total liabilities assumed
 
272,520

Fair value of net liabilities assumed
 
(65,960
)
Cash received from FDIC
 
103,515

Gain on acquisition of CCBT
 
$
37,555

Merger-related expenses of $213 thousand were recorded in the Consolidated Statement of Income for the first quarter of 2015. Loan-related interest income generated from the CCBT was approximately $1.3 million since the acquisition date.
All loans resulting from the CCBT transaction were recognized upon acquisition date with a discount attributable, at least in part, to credit quality, and are therefore accounted for as purchased credit-impaired (PCI) loans under ASC 310-30.

First Citizens Bancorporation, Inc. and First Citizens Bank and Trust Company, Inc.
On October 1, 2014, BancShares completed the merger of First Citizens Bancorporation, Inc. ("Bancorporation") with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. First Citizens Bank and Trust Company, Inc. merged with and into FCB on January 1, 2015.
Under the terms of the Merger Agreement, each share of Bancorporation common stock was converted into the right to receive 4.00 shares of BancShares' Class A common stock and $50.00 cash, unless the holder elected for each share to be converted into the right to receive 3.58 shares of BancShares' Class A common stock and 0.42 shares of BancShares' Class B common stock. BancShares issued 2,586,762 Class A common shares at a fair value of $560.4 million and 18,202 Class B common shares at a fair value of $3.9 million to Bancorporation shareholders. Also, cash paid to Bancorporation shareholders was $30.4 million. At the time of the merger, Bancorporation owned 32,042 shares of common stock in Bancorporation with an approximate fair value of $29.6 million. The fair value of common stock owned by BancShares in Bancorporation was considered part of the purchase price, and the shares ceased to exist after completion of the merger.
The Bancorporation transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition. Assets acquired, excluding goodwill, totaled $8.28 billion, including $4.49 billion in loans and leases, $2.01 billion of investment securities available for sale, $1.28 billion in cash and overnight investments, and $109.4 million of identifiable intangible assets. Liabilities assumed were $7.66 billion, including $7.17 billion of deposits. Goodwill of $4.2 million was recorded as result of the excess purchase price over the estimated fair value of the net assets acquired.
The following unaudited pro forma financial information reflects the consolidated results of operations of BancShares. These results combine the historical results of Bancorporation in the BancShares' Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place at the beginning of the period presented. The unaudited pro forma information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future results of operations of BancShares.
 
Three months ended March 31
(Dollars in thousands)
2014
Total revenue (interest income plus noninterest income)
$
323,524

Net income
$
37,230


11

Table of Contents

NOTE C - INVESTMENTS
The amortized cost and fair value of investment securities classified as available for sale and held to maturity at March 31, 2015 and December 31, 2014, are as follows:
 
March 31, 2015
(Dollars in thousands)
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
U.S. Treasury
$
2,237,002

 
$
9,966

 
$
2

 
$
2,246,966

Government agency
988,563

 
2,382

 
51

 
990,894

Mortgage-backed securities
3,785,912

 
27,006

 
5,669

 
3,807,249

Total investment securities available for sale
$
7,011,477

 
$
39,354

 
$
5,722

 
$
7,045,109

 
 
 
 
 
 
 
 
 
December 31, 2014
 
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
U.S. Treasury
$
2,626,900

 
$
2,922

 
$
152

 
$
2,629,670

Government agency
908,362

 
702

 
247

 
908,817

Mortgage-backed securities
3,628,187

 
16,964

 
11,847

 
3,633,304

Municipal securities
125

 
1

 

 
126

Total investment securities available for sale
$
7,163,574

 
$
20,589

 
$
12,246

 
$
7,171,917

 
 
 
 
 
 
 
 
 
March 31, 2015
 
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities
$
441

 
$
18

 
$

 
$
459

 
 
 
 
 
 
 
 
 
December 31, 2014
 
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Mortgage-backed securities
$
518

 
$
26

 
$

 
$
544


Investments in mortgage-backed securities primarily represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.The following table provides the amortized cost and fair value by contractual maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Repayments of mortgage-backed securities are dependent on the repayments of the underlying loan balances.
 
March 31, 2015
 
December 31, 2014
(Dollars in thousands)
Cost
 
Fair
value
 
Cost
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
Non-amortizing securities maturing in:
 
 
 
 
 
 
 
One year or less
$
504,826

 
$
505,182

 
$
447,866

 
$
447,992

One through five years
2,720,739

 
2,732,678

 
3,087,521

 
3,090,621

Mortgage-backed securities
3,785,912

 
3,807,249

 
3,628,187

 
3,633,304

Total investment securities available for sale
$
7,011,477

 
$
7,045,109

 
$
7,163,574

 
$
7,171,917

Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities held to maturity
$
441

 
$
459

 
$
518

 
$
544


12

Table of Contents

For each period presented, securities gains (losses) included the following:
 
Three months ended March 31
(Dollars in thousands)
2015
 
2014
Gross gains on sales of investment securities available for sale
$
5,135

 
$

Gross losses on sales of investment securities available for sale
(9
)
 

Total securities gains
$
5,126

 
$


The following table provides information regarding securities with unrealized losses as of March 31, 2015 and December 31, 2014.
 
March 31, 2015
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in thousands)
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
13,024

 
$
2

 
$

 
$

 
$
13,024

 
$
2

Government agency
69,660

 
51

 

 

 
69,660

 
51

Mortgage-backed securities
562,616

 
1,645

 
317,685

 
4,024

 
880,301

 
5,669

Total
$
645,300

 
$
1,698

 
$
317,685

 
$
4,024

 
$
962,985

 
$
5,722

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
Less than 12 months
 
12 months or more
 
Total
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
338,612

 
$
151

 
$
1,015

 
$
1

 
$
339,627

 
$
152

Government agency
261,288

 
247

 

 

 
261,288

 
247

Mortgage-backed securities
573,374

 
1,805

 
831,405

 
10,042

 
1,404,779

 
11,847

Total
$
1,173,274

 
$
2,203

 
$
832,420

 
$
10,043

 
$
2,005,694

 
$
12,246

Investment securities with an aggregate fair value of $317.7 million and $832.4 million had continuous unrealized losses for more than 12 months as of March 31, 2015 and December 31, 2014, with an aggregate unrealized loss of $4.0 million and $10.0 million, respectively. As of March 31, 2015, all 38 of these investments are government sponsored enterprise-issued mortgage-backed securities. None of the unrealized losses identified as of March 31, 2015 or December 31, 2014 relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. For all periods presented, BancShares had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Therefore, none of the securities were deemed to be other than temporarily impaired.
Investment securities having an aggregate carrying value of $4.45 billion at March 31, 2015 and $4.37 billion at December 31, 2014 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.


13

Table of Contents

NOTE D - LOANS AND LEASES
Loans and leases are evaluated at acquisition and where a discount is required at least in part due to credit quality, the nonrevolving loans are accounted for under the guidance in ASC Topic 310-30, Loans and Debt Securities Acquired with
Deteriorated Credit Quality. Loans for which it is probable at acquisition that all required payments will not be collected in accordance with contractual terms are considered PCI loans. PCI loans and leases 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. An allowance is recorded if there is additional credit deterioration after the acquisition date. Conversely, Non-PCI loans include originated commercial, originated noncommercial, purchased revolving,
and purchased non-impaired loans, or loans that do not have a discount, due at least in part, to credit quality at the time of
acquisition. All loans acquired in the CCBT acquisition are accounted for as PCI loans.
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, loans are assigned to loan classes, which further disaggregate loans based upon common risk characteristics.
Commercial Commercial loans include construction and land development, 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.
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.

NoncommercialNoncommercial 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 and revolving lines of credit that can be secured or unsecured, including personal credit cards.



14

Table of Contents

Loans and leases outstanding include the following at March 31, 2015 and December 31, 2014:
(Dollars in thousands)
March 31, 2015
 
December 31, 2014
Non-PCI loans and leases:
 
 
 
Commercial:
 
 
 
Construction and land development
$
608,556

 
$
550,568

Commercial mortgage
7,591,745

 
7,552,948

Other commercial real estate
262,293

 
244,875

Commercial and industrial
2,072,414

 
1,988,934

Lease financing
603,737

 
571,916

Other
354,713

 
353,833

Total commercial loans
11,493,458

 
11,263,074

Noncommercial:
 
 
 
Residential mortgage
2,524,549

 
2,520,542

Revolving mortgage
2,528,257

 
2,561,800

Construction and land development
170,208

 
120,097

Consumer
1,127,942

 
1,117,454

Total noncommercial loans
6,350,956

 
6,319,893

Total non-PCI loans and leases
17,844,414

 
17,582,967

PCI loans:
 
 
 
Commercial:
 
 
 
Construction and land development
70,049

 
78,079

Commercial mortgage
653,846

 
577,518

Other commercial real estate
40,841

 
40,193

Commercial and industrial
24,134

 
27,254

Other
2,886

 
3,079

Total commercial loans
791,756

 
726,123

Noncommercial:
 
 
 
Residential mortgage
380,490

 
382,340

Revolving mortgage
70,363

 
74,109

Construction and land development
874

 
912

Consumer
3,860

 
3,014

Total noncommercial loans
455,587

 
460,375

Total PCI loans
1,247,343

 
1,186,498

Total loans and leases
$
19,091,757

 
$
18,769,465

At March 31, 2015, $3.25 billion in noncovered loans with a lendable collateral value of $2.30 billion are used to secure $290.3 million in Federal Home Loan Bank ("FHLB") of Atlanta advances, resulting in additional borrowing capacity of $2.01 billion. At December 31, 2014, $3.16 billion in noncovered loans with a lendable collateral value of $2.20 billion used to secure $240.3 million in FHLB of Atlanta advances, resulting additional borrowing capacity of $1.96 billion.
At March 31, 2015, $443.1 million of total loans and leases were covered under loss share agreements, compared to $485.3 million at December 31, 2014. At the beginning of the second quarter of 2015, the loss share protection will expire for non-single family residential loans acquired from Sun American Bank ("SAB") and all loans acquired from First Regional Bank ("FRB"). Loan balances at March 31, 2015 for the expiring agreements from SAB and FRB were $43.2 million and $53.9 million, respectively. The loss share protection for Williamsburg First National Bank non-single family residential loans with a balance of $8.4 million at March 31, 2015 will expire at the beginning of the fourth quarter of 2015.

The unamortized discount related to the non-PCI loans and leases acquired in the Bancorporation merger totaled $55.7 million and $61.2 million at March 31, 2015 and December 31, 2014, respectively.



15

Table of Contents

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. Each commercial loan is evaluated annually with more frequent evaluation of 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 no 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 effected 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, 2015 and December 31, 2014 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 and other commercial real estate loans.


16

Table of Contents

Non-PCI loans and leases outstanding at March 31, 2015 and December 31, 2014 by credit quality indicator are provided below:
 
 
March 31, 2015
(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
$
590,298

 
$
7,341,243

 
$
260,592

 
$
1,931,078

 
$
597,464

 
$
350,060

 
$
11,070,735

Special mention
15,679

 
115,411

 
501

 
21,771

 
2,609

 
1,913

 
157,884

Substandard
2,291

 
131,672

 
1,049

 
8,806

 
3,284

 
2,690

 
149,792

Doubtful

 
2,039

 

 
4,402

 
329

 

 
6,770

Ungraded
288

 
1,380

 
151

 
106,357

 
51

 
50

 
108,277

Total
$
608,556

 
$
7,591,745

 
$
262,293

 
$
2,072,414

 
$
603,737

 
$
354,713

 
$
11,493,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
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
$
525,711

 
$
7,284,714

 
$
242,053

 
$
1,859,415

 
$
564,319

 
$
349,111

 
$
10,825,323

Special mention
20,025

 
129,247

 
909

 
27,683

 
3,205

 
1,384

 
182,453

Substandard
4,720

 
134,677

 
1,765

 
8,878

 
3,955

 
3,338

 
157,333

Doubtful

 
2,366

 

 
164

 
365

 

 
2,895

Ungraded
112

 
1,944

 
148

 
92,794

 
72

 

 
95,070

Total
$
550,568

 
$
7,552,948

 
$
244,875

 
$
1,988,934

 
$
571,916

 
$
353,833

 
$
11,263,074


 
March 31, 2015
 
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
$
2,490,453

 
$
2,510,879

 
$
168,199

 
$
1,121,123

 
$
6,290,654

30-59 days past due
21,844

 
10,288

 
2,009

 
4,236

 
38,377

60-89 days past due
2,896

 
2,794

 

 
1,555

 
7,245

90 days or greater past due
9,356

 
4,296

 

 
1,028

 
14,680

Total
$
2,524,549

 
$
2,528,257

 
$
170,208

 
$
1,127,942

 
$
6,350,956

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
Non-PCI noncommercial loans and leases
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total non-PCI noncommercial
loans and leases
Current
$
2,482,281

 
$
2,542,807

 
$
119,094

 
$
1,110,153

 
$
6,254,335

30-59 days past due
23,288

 
11,097

 
370

 
4,577

 
39,332

60-89 days past due
6,018

 
2,433

 
486

 
1,619

 
10,556

90 days or greater past due
8,955

 
5,463

 
147

 
1,105

 
15,670

Total
$
2,520,542

 
$
2,561,800

 
$
120,097

 
$
1,117,454

 
$
6,319,893




17

Table of Contents

 
PCI loans and leases outstanding at March 31, 2015 and December 31, 2014 by credit quality indicator are provided below:
 
March 31, 2015
(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
$
13,832

 
$
333,368

 
$
9,727

 
$
13,525

 
$
683

 
$
371,135

Special mention
4,287

 
118,209

 
16,425

 
2,963

 

 
141,884

Substandard
44,663

 
193,435

 
12,948

 
6,739

 
2,132

 
259,917

Doubtful
4,656

 
8,456

 
1,741

 
513

 
71

 
15,437

Ungraded
2,611

 
378

 

 
394

 

 
3,383

Total
$
70,049

 
$
653,846

 
$
40,841

 
$
24,134

 
$
2,886

 
$
791,756

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
PCI commercial loans
 
Construction
and land
development
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and
industrial
 
Other
 
Total PCI commercial
loans
Pass
$
13,514

 
$
300,187

 
$
11,033

 
$
16,637

 
$
801

 
$
342,172

Special mention
6,063

 
98,724

 
16,271

 
4,137

 

 
125,195

Substandard
53,739

 
171,920

 
12,889

 
6,312

 
2,278

 
247,138

Doubtful
2,809

 
6,302

 

 
130

 

 
9,241

Ungraded
1,954

 
385

 

 
38

 

 
2,377

Total
$
78,079

 
$
577,518

 
$
40,193

 
$
27,254

 
$
3,079

 
$
726,123


 
March 31, 2015
 
PCI noncommercial loans
(Dollars in thousands)
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total PCI noncommercial
loans
Current
$
320,607

 
$
63,579

 
$
592

 
$
3,571

 
$
388,349

30-59 days past due
18,742

 
2,800

 

 
130

 
21,672

60-89 days past due
6,804

 
1,019

 

 
13

 
7,836

90 days or greater past due
34,337

 
2,965

 
282

 
146

 
37,730

Total
$
380,490

 
$
70,363

 
$
874

 
$
3,860

 
$
455,587

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
PCI noncommercial loans
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total PCI noncommercial
loans
Current
$
326,589

 
$
68,548

 
$
506

 
$
2,582

 
$
398,225

30-59 days past due
11,432

 
1,405

 

 
147

 
12,984

60-89 days past due
10,073

 
345

 

 
25

 
10,443

90 days or greater past due
34,246

 
3,811

 
406

 
260

 
38,723

Total
$
382,340

 
$
74,109

 
$
912

 
$
3,014

 
$
460,375





18

Table of Contents

The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2015 and December 31, 2014 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, 2015
(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
$
2,709

 
$
712

 
$
1,044

 
$
4,465

 
$
604,091

 
$
608,556

Commercial mortgage
22,635

 
5,920

 
8,445

 
37,000

 
7,554,745

 
7,591,745

Other commercial real estate
583

 
58

 
196

 
837

 
261,456

 
262,293

Commercial and industrial
6,290

 
1,724

 
570

 
8,584

 
2,063,830

 
2,072,414

Lease financing
476

 
11

 

 
487

 
603,250

 
603,737

Residential mortgage
21,844

 
2,896

 
9,356

 
34,096

 
2,490,453

 
2,524,549

Revolving mortgage
10,288

 
2,794

 
4,296

 
17,378

 
2,510,879

 
2,528,257

Construction and land development - noncommercial
2,009

 

 

 
2,009

 
168,199

 
170,208

Consumer
4,236

 
1,555

 
1,028

 
6,819

 
1,121,123

 
1,127,942

Other
380

 
65

 
133

 
578

 
354,135

 
354,713

Total non-PCI loans and leases
$
71,450

 
$
15,735

 
$
25,068

 
$
112,253

 
$
17,732,161

 
$
17,844,414

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
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
$
1,796

 
$
621

 
$
385

 
$
2,802

 
$
547,766

 
$
550,568

Commercial mortgage
11,367

 
4,782

 
8,061

 
24,210

 
7,528,738

 
7,552,948

Other commercial real estate
206

 
70

 
102

 
378

 
244,497

 
244,875

Commercial and industrial
2,843

 
1,545

 
378

 
4,766

 
1,984,168

 
1,988,934

Lease financing
1,631

 
8

 
2

 
1,641

 
570,275

 
571,916

Residential mortgage
23,288

 
6,018

 
8,955

 
38,261

 
2,482,281

 
2,520,542

Revolving mortgage
11,097

 
2,433

 
5,463

 
18,993

 
2,542,807

 
2,561,800

Construction and land development - noncommercial
370

 
486

 
147

 
1,003

 
119,094

 
120,097

Consumer
4,577

 
1,619

 
1,105

 
7,301

 
1,110,153

 
1,117,454

Other
146

 
1,966

 

 
2,112

 
351,721

 
353,833

Total non-PCI loans and leases
$
57,321

 
$
19,548

 
$
24,598

 
$
101,467

 
$
17,481,500

 
$
17,582,967



19

Table of Contents

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, 2015 and December 31, 2014 for non-PCI loans, were as follows:
 
March 31, 2015
 
December 31, 2014
(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
$
1,497

 
$
202

 
$
343

 
$
111

Commercial mortgage
26,058

 
764

 
24,720

 
1,003

Other commercial real estate
650

 

 
619

 
35

Commercial and industrial
5,691

 
294

 
1,741

 
239

Lease financing
346

 

 
374

 
2

Residential mortgage
19,238

 
1,153

 
14,242

 
3,191

Revolving mortgage
9,837

 
19

 

 
5,463

Construction and land development - noncommercial

 

 

 
147

Consumer
677

 
626

 

 
1,059

Other
2,052

 
31

 
1,966

 

Total non-PCI loans and leases
$
66,046

 
$
3,089

 
$
44,005

 
$
11,250

Purchased credit-impaired loans (PCI) loans
The following table relates to PCI loans acquired in the CCBT acquisition and summarizes the contractually required payments, which include principal and interest, expected cash flows to be collected, and the fair value of PCI loans and leases at the acquisition date.
(Dollars in thousands)
 
Contractually required payments
$
251,800

Cash flows expected to be collected
$
204,480

Fair value of loans at acquisition
$
149,294

The recorded fair values of PCI loans acquired in the CCBT acquisition as of the acquisition date are as follows:
(Dollars in thousands)
 
Commercial:
 
Construction and land development
$
4,221

Commercial mortgage
125,202

Other commercial real estate
3,132

Commercial and industrial
3,049

Total commercial loans
135,604

Noncommercial:
 
Residential mortgage
12,050

Consumer
1,640

Total noncommercial loans
13,690

Total PCI loans and leases
$
149,294

The following table provides changes in the carrying value of all purchased credit-impaired loans during the three months ended March 31, 2015 and March 31, 2014:
(Dollars in thousands)
2015
 
2014
Balance at January 1
$
1,186,498

 
$
1,029,426

Fair value of acquired loans
149,294

 
316,327

Accretion
25,067

 
30,200

Payments received and other changes, net
(113,516
)
 
(105,135
)
Balance at March 31
$
1,247,343

 
$
1,270,818

Unpaid principal balance at March 31
$
2,092,936

 
$
1,727,492

The carrying value of loans on the cost recovery method was $13.0 million at March 31, 2015 and $33.4 million at December 31, 2014. 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.

20

Table of Contents

For PCI loans, improved cash flow estimates and receipt of unscheduled loan payments result in the reclassification of nonaccretable difference to accretable yield. Accretable yield resulting from the improved ability to estimate future cash flows generally does not represent amounts previously identified as nonaccretable difference.

The following table documents changes to the amount of accretable yield for the first three months of 2015 and 2014.
(Dollars in thousands)
2015
 
2014
Balance at January 1
$
418,160

 
$
439,990

Additions from acquisitions
55,186

 
84,295

Accretion
(25,067
)
 
(30,200
)
Reclassifications from nonaccretable difference
1,294

 
6,048

Changes in expected cash flows that do not affect nonaccretable difference
(27,287
)
 
(9,888
)
Balance at March 31
$
422,286

 
$
490,245


NOTE E - ALLOWANCE FOR LOAN AND LEASE LOSSES ("ALLL")

The following tables present the activity in the ALLL for non-PCI loan and lease losses by loan class for the three months ended March 31, 2015 and March 31, 2014:
 
Three months ended March 31, 2015
(Dollars in thousands)
Construction
and land
development
- commercial
 
Commercial
mortgage
 
Other commercial real estate
 
Commercial
and industrial
 
Lease
financing
 
Other
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
- non-
commercial
 
Consumer
 
Total
Non-PCI Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1
$
11,961

 
$
85,189

 
$
732

 
$
30,727

 
$
4,286

 
$
3,184

 
$
10,661

 
$
18,650

 
$
892

 
$
16,555

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