10-Q
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, 2016
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 4, 2016)


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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Table of Contents

PART I
 
Item 1.
Financial Statements


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, unaudited)
March 31, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
457,758

 
$
534,086

Overnight investments
2,871,105

 
2,063,132

Investment securities available for sale
6,687,289

 
6,861,293

Investment securities held to maturity
194

 
255

Loans held for sale
66,988

 
59,766

Loans and leases
20,417,689

 
20,239,990

Allowance for loan and lease losses
(206,783
)
 
(206,216
)
Net loans and leases
20,210,906

 
20,033,774

Premises and equipment
1,127,371

 
1,135,829

Other real estate owned
65,068

 
65,559

Income earned not collected
73,518

 
70,036

FDIC loss share receivable
7,474

 
4,054

Goodwill
139,773

 
139,773

Other intangible assets
84,743

 
90,986

Other assets
403,470

 
417,391

Total assets
$
32,195,657

 
$
31,475,934

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
9,661,441

 
$
9,274,470

Interest-bearing
17,703,804

 
17,656,285

Total deposits
27,365,245

 
26,930,755

Short-term borrowings
689,236

 
594,733

Long-term obligations
779,087

 
704,155

FDIC loss share payable
128,243

 
126,453

Other liabilities
272,652

 
247,729

Total liabilities
29,234,463

 
28,603,825

Shareholders’ equity
 
 
 
Common stock:
 
 
 
Class A - $1 par value (16,000,000 shares authorized; 11,005,220 shares issued and outstanding at March 31, 2016 and December 31, 2015)
11,005

 
11,005

Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2016 and December 31, 2015)
1,005

 
1,005

Surplus
658,918

 
658,918

Retained earnings
2,314,090

 
2,265,621

Accumulated other comprehensive loss
(23,824
)
 
(64,440
)
Total shareholders’ equity
2,961,194

 
2,872,109

Total liabilities and shareholders’ equity
$
32,195,657

 
$
31,475,934


See accompanying Notes to Consolidated Financial Statements.

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Table of Contents

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
 
 
Three months ended March 31
(Dollars in thousands, except per share data, unaudited)
2016
 
2015
Interest income
 
 
 
Loans and leases
$
216,404

 
$
210,862

Investment securities and dividend income
23,042

 
19,310

Overnight investments
3,666

 
1,338

Total interest income
243,112

 
231,510

Interest expense
 
 
 
Deposits
4,659

 
5,629

Short-term borrowings
434

 
1,934

Long-term obligations
5,299

 
3,782

Total interest expense
10,392

 
11,345

Net interest income
232,720

 
220,165

Provision for loan and lease losses
4,843

 
5,792

Net interest income after provision for loan and lease losses
227,877

 
214,373

Noninterest income
 
 
 
Gain on acquisition
1,704

 
42,930

Cardholder services
19,358

 
18,401

Merchant services
21,977

 
18,880

Service charges on deposit accounts
21,850

 
22,058

Wealth management services
19,634

 
20,880

Securities gains
4,628

 
5,126

Other service charges and fees
6,989

 
5,455

Mortgage income
1,311

 
4,549

Insurance commissions
3,178

 
3,297

ATM income
1,765

 
1,664

Adjustments to FDIC loss share receivable
(2,533
)
 
(1,047
)
Other
5,421

 
8,560

Total noninterest income
105,282

 
150,753

Noninterest expense
 
 
 
Salaries and wages
103,899

 
105,471

Employee benefits
27,350

 
31,218

Occupancy expense
25,012

 
25,620

Equipment expense
22,345

 
23,541

FDIC insurance expense
4,789

 
4,271

Foreclosure-related expenses
1,731

 
2,557

Merger-related expenses
38

 
2,997

Other
66,507

 
62,491

Total noninterest expense
251,671

 
258,166

Income before income taxes
81,488

 
106,960

Income taxes
29,416

 
39,802

Net income
$
52,072

 
$
67,158

Average shares outstanding
12,010,405

 
12,010,405

Net income per share
$
4.34

 
$
5.59


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)
2016
 
2015
Net income
$
52,072

 
$
67,158

Other comprehensive income:
 
 
 
Unrealized gains on securities:
 
 
 
Change in unrealized securities gains arising during period
68,033

 
30,415

Tax effect
(26,016
)
 
(11,813
)
Reclassification adjustment for net gains realized and included in income before income taxes
(4,628
)
 
(5,126
)
Tax effect
1,770

 
1,977

Total change in unrealized gains on securities, net of tax
39,159

 
15,453

Change in fair value of cash flow hedges:
 
 
 
Change in unrecognized loss on cash flow hedges
700

 
576

Tax effect
(263
)
 
(222
)
Total change in unrecognized loss on cash flow hedges, net of tax
437

 
354

Change in pension obligation:
 
 
 
Amortization of actuarial losses and prior service cost
1,652

 
2,886

Tax effect
(632
)
 
(1,123
)
Total change in pension obligation, net of tax
1,020

 
1,763

Other comprehensive income
40,616

 
17,570

Total comprehensive income
$
92,688

 
$
84,728



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, 2014
$
11,005

 
$
1,005

 
$
658,918

 
$
2,069,647

 
$
(52,981
)
 
$
2,687,594

Net income

 

 

 
67,158

 

 
67,158

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

 
$
2,133,202

 
$
(35,411
)
 
$
2,768,719

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
11,005

 
$
1,005

 
$
658,918

 
$
2,265,621

 
$
(64,440
)
 
$
2,872,109

Net income

 

 

 
52,072

 

 
52,072

Other comprehensive income, net of tax

 

 

 

 
40,616

 
40,616

Cash dividends ($0.30 per share)

 

 

 
(3,603
)
 

 
(3,603
)
Balance at March 31, 2016
$
11,005

 
$
1,005

 
$
658,918

 
$
2,314,090

 
$
(23,824
)
 
$
2,961,194


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)
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
52,072

 
$
67,158

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Provision for loan and lease losses
4,843

 
5,792

Deferred tax benefit
(8,806
)
 
(10,203
)
Net change in current taxes
35,678

 
15,437

Depreciation
22,053

 
21,965

Net change in accrued interest payable
324

 
176

Net increase in income earned not collected
(3,482
)
 
(5,988
)
Gain on acquisition
(1,704
)
 
(42,930
)
Securities gains
(4,628
)
 
(5,126
)
Origination of loans held for sale
(144,895
)
 
(126,547
)
Proceeds from sale of loans
140,160

 
127,203

Gain on sale of loans
(2,487
)
 
(3,468
)
Net writedowns/losses on other real estate
2,599

 
1,978

Net amortization of premiums and discounts
(12,201
)
 
(17,150
)
Amortization of intangible assets
5,586

 
5,206

Reduction in FDIC receivable for loss share agreements
4,076

 
8,092

Increase in FDIC payable for loss share agreements
1,790

 
2,110

Net change in other assets
(19,678
)
 
15,223

Net change in other liabilities
3,857

 
3,804

Net cash provided by operating activities
75,157

 
62,732

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net increase in loans outstanding
(131,923
)
 
(168,341
)
Purchases of investment securities available for sale
(1,139,933
)
 
(626,268
)
Proceeds from maturities/calls of investment securities held to maturity
61

 
77

Proceeds from maturities/calls of investment securities available for sale
396,211

 
330,500

Proceeds from sales of investment securities available for sale
987,260

 
481,708

Net change in overnight investments
(805,699
)
 
(734,004
)
Cash paid to the FDIC for loss share agreements
(9,871
)
 
(5,762
)
Proceeds from sales of other real estate
8,202

 
22,794

Additions to premises and equipment
(13,595
)
 
(13,177
)
Business acquisition, net cash acquired
14,745

 
123,137

Net cash used by investing activities
(694,542
)
 
(589,336
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net decrease in time deposits
(84,802
)
 
(189,906
)
Net increase in demand and other interest-bearing deposits
460,086

 
545,807

Net change in short-term borrowings
92,841

 
(50,835
)
Repayment of long-term obligations
(68
)
 
(3,140
)
Origination of long-term obligations
75,000

 
120,000

Cash dividends paid

 
(3,603
)
Net cash provided by financing activities
543,057

 
418,323

Change in cash and due from banks
(76,328
)
 
(108,281
)
Cash and due from banks at beginning of period
534,086

 
604,182

Cash and due from banks at end of period
$
457,758

 
$
495,901

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Transfers of loans to other real estate
$
9,980

 
$
21,300

Dividends declared but not paid
3,603

 
3,603


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, 2015.

Reclassifications
In certain instances, 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 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) Accounting Standards Update (ASU) 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
This ASU eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination and requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts must be calculated as if the accounting had been completed at the acquisition date.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for financial statements that have not been issued. We adopted the guidance effective in the first quarter of 2016. The initial adoption did not have an impact on our consolidated financial position or consolidated results of operations.

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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 fiscal years beginning after December 15, 2015 for public business entities, including interim periods within those fiscal years, and is to be applied retrospectively. We adopted the guidance effective in the first quarter of 2016. The initial adoption did not have an impact on our consolidated financial position or consolidated results of operations.
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 fiscal years beginning after December 15, 2015 for public business entities, including interim periods within those fiscal years. We adopted the guidance effective in the first quarter of 2016. The initial adoption did not have an impact on our consolidated financial position or consolidated results of operations.
Recently Issued Accounting Pronouncements
FASB ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
This ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. Further, the ASU requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognizes through earnings, the unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the new standard and will adopt the guidance during the first quarter of 2017.
FASB ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments
This ASU clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. When a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.
The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We will adopt the guidance during the first quarter of 2017. BancShares does not anticipate any effect on our consolidated financial position or consolidated results of options as a result of adoption.
FASB ASU 2016-02, Leases (Topic 842)
This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between existing standards and this ASU is the requirement for lessees to recognize on their balance sheet all lease contracts with lease terms greater than 12 months, including operating leases. Both a right-of-use asset, representing the right to use the leased asset, and a lease liability, representing the contractual obligation, are required to be recognized on the balance sheet of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the current operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment, but relates to treatment in the statements of income and cash flows. Lessor guidance remains largely

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unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2019.
FASB ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
This ASU addresses certain aspects of recognition, measurement, presentation and disclosure. The amendments in this ASU (1) require equity investments to be measured at fair value with changes in fair value recognized in net income; (2) simplify the impairment assessment of equity investments without readily determinable fair value; (3) require public business entities to use exit prices, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (4) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (5) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (6) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (7) state that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2018.
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. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to improve the operability and understandability of the implementation guidance on principal versus agent considerations.
Per ASU 2015-14, Deferral of the Effective Date, this guidance was deferred and is effective for fiscal periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal periods beginning after December 15, 2016. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2018 using one of two retrospective application methods.
NOTE B - BUSINESS COMBINATIONS
North Milwaukee State Bank
On March 11, 2016, FCB entered into an agreement with the Federal Deposit Insurance Corporation (FDIC), as Receiver, to purchase certain assets and assume certain liabilities of North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin. The acquisition provided FCB with value enhancement.

The NMSB 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.

The fair value of the assets acquired was $52.4 million, including $35.4 million in loans and $240 thousand of identifiable intangible assets. Liabilities assumed were $60.9 million of which $59.2 million were deposits. As a result of the transaction, FCB recorded a gain on the acquisition of $1.7 million which is included in noninterest income in the Consolidated Statements of Income.


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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
 
$
4,545

Overnight investments
 
2,274

Investment securities
 
9,425

Loans
 
35,416

Other real estate owned
 
330

Intangible assets
 
240

Other assets
 
216

Total assets acquired
 
52,446

Liabilities
 
 
Deposits
 
59,206

Short-term borrowings
 
1,662

Other liabilities
 
74

Total liabilities assumed
 
60,942

Fair value of net liabilities assumed
 
(8,496
)
Cash received from FDIC
 
10,200

Gain on acquisition of NMSB
 
$
1,704

Merger-related expenses of $38 thousand were recorded in the Consolidated Statements of Income for the three months ended March 31, 2016. Loan-related interest income generated from NMSB was approximately $123 thousand since the acquisition date.
All loans resulting from the NMSB transaction were recorded at the 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.
 
 
 
 

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NOTE C - INVESTMENTS
The amortized cost and fair value of investment securities classified as available for sale and held to maturity at March 31, 2016 and December 31, 2015, are as follows:
 
March 31, 2016
(Dollars in thousands)
Cost
 
Gross
unrealized gains
 
Gross unrealized
losses
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
U.S. Treasury
$
1,538,907

 
$
2,308

 
$

 
$
1,541,215

Government agency
355,488

 
669

 

 
356,157

Mortgage-backed securities
4,693,313

 
37,375

 
3,406

 
4,727,282

Equity securities
50,066

 
2,314

 
285

 
52,095

Other
10,615

 

 
75

 
10,540

Total investment securities available for sale
$
6,648,389

 
$
42,666

 
$
3,766

 
$
6,687,289

 
 
 
 
 
 
 
 
 
December 31, 2015
 
Cost
 
Gross
unrealized gains
 
Gross unrealized
losses
 
Fair
value
U.S. Treasury
$
1,675,996

 
$
4

 
$
1,118

 
$
1,674,882

Government agency
498,804

 
230

 
374

 
498,660

Mortgage-backed securities
4,692,447

 
5,120

 
29,369

 
4,668,198

Equity securities
7,935

 
968

 
10

 
8,893

Other
10,615

 
45

 

 
10,660

Total investment securities available for sale
$
6,885,797

 
$
6,367

 
$
30,871

 
$
6,861,293

 
 
 
 
 
 
 
 
 
March 31, 2016
 
Cost
 
Gross
unrealized gains
 
Gross unrealized
losses
 
Fair
value
Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities
$
194

 
$
9

 
$

 
$
203

 
 
 
 
 
 
 
 
 
December 31, 2015
 
Cost
 
Gross
unrealized gains
 
Gross unrealized
losses
 
Fair
value
Mortgage-backed securities
$
255

 
$
10

 
$

 
$
265


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. Equity securities do not have a stated maturity date.
 
March 31, 2016
 
December 31, 2015
(Dollars in thousands)
Cost
 
Fair
value
 
Cost
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
Non-amortizing securities maturing in:
 
 
 
 
 
 
 
One year or less
$
1,554,483

 
$
1,556,414

 
$
1,255,714

 
$
1,255,094

One through five years
339,912

 
340,958

 
919,086

 
918,448

Five through 10 years
8,500

 
8,500

 
8,500

 
8,500

Over 10 years
2,115

 
2,040

 
2,115

 
2,160

Mortgage-backed securities
4,693,313

 
4,727,282

 
4,692,447

 
4,668,198

Equity securities
50,066

 
52,095

 
7,935

 
8,893

Total investment securities available for sale
$
6,648,389

 
$
6,687,289

 
$
6,885,797

 
$
6,861,293

Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities held to maturity
$
194

 
$
203

 
$
255

 
$
265


12

Table of Contents

For each period presented, securities gains (losses) included the following:
 
Three months ended March 31
(Dollars in thousands)
2016
 
2015
Gross gains on sales of investment securities available for sale
$
4,933

 
$
5,135

Gross losses on sales of investment securities available for sale
(305
)
 
(9
)
Total securities gains
$
4,628

 
$
5,126


The following table provides information regarding securities with unrealized losses as of March 31, 2016 and December 31, 2015.
 
March 31, 2016
 
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:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
417,711

 
$
1,071

 
$
291,021

 
$
2,335

 
$
708,732

 
$
3,406

Equity securities
13,037

 
285

 

 

 
13,037

 
285

Other
2,040

 
75

 

 

 
2,040

 
75

Total
$
432,788

 
$
1,431

 
$
291,021

 
$
2,335

 
$
723,809

 
$
3,766

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
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
$
1,539,637

 
$
1,118

 
$

 
$

 
$
1,539,637

 
$
1,118

Government agency
229,436

 
374

 

 

 
229,436

 
374

Mortgage-backed securities
3,570,470

 
23,275

 
280,126

 
6,094

 
3,850,596

 
29,369

Equity securities
728

 
10

 

 

 
728

 
10

Total
$
5,340,271

 
$
24,777

 
$
280,126

 
$
6,094

 
$
5,620,397

 
$
30,871

Investment securities with an aggregate fair value of $291.0 million and $280.1 million had continuous unrealized losses for more than 12 months with a corresponding aggregate unrealized loss of $2.3 million and $6.1 million as of March 31, 2016 and December 31, 2015, respectively. As of March 31, 2016, all 52 of these investments are government sponsored enterprise-issued mortgage-backed securities. None of the unrealized losses identified as of March 31, 2016 or December 31, 2015 relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased. 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 $4.94 billion at March 31, 2016 and $4.73 billion at December 31, 2015 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
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, originated 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 a discount due, at least in part, to credit quality 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 PCI loans. PCI loans 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. 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.
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 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.

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 included the following at March 31, 2016 and December 31, 2015:
(Dollars in thousands)
March 31, 2016
 
December 31, 2015
Non-PCI loans and leases:
 
 
 
Commercial:
 
 
 
Construction and land development
$
626,311

 
$
620,352

Commercial mortgage
8,353,631

 
8,274,548

Other commercial real estate
324,858

 
321,021

Commercial and industrial
2,389,946

 
2,368,958

Lease financing
751,292

 
730,778

Other
343,877

 
314,832

Total commercial loans
12,789,915

 
12,630,489

Noncommercial:
 
 
 
Residential mortgage
2,718,208

 
2,695,985

Revolving mortgage
2,521,902

 
2,523,106

Construction and land development
213,232

 
220,073

Consumer
1,228,545

 
1,219,821

Total noncommercial loans
6,681,887

 
6,658,985

Total non-PCI loans and leases
19,471,802

 
19,289,474

PCI loans:
 
 
 
Commercial:
 
 
 
Construction and land development
32,799

 
33,880

Commercial mortgage
526,776

 
525,468

Other commercial real estate
18,050

 
17,076

Commercial and industrial
14,742

 
15,182

Other
1,860

 
2,008

Total commercial loans
594,227

 
593,614

Noncommercial:
 
 
 
Residential mortgage
298,662

 
302,158

Revolving mortgage
50,574

 
52,471

Consumer
2,424

 
2,273

Total noncommercial loans
351,660

 
356,902

Total PCI loans
945,887

 
950,516

Total loans and leases
$
20,417,689

 
$
20,239,990

At March 31, 2016, $258.2 million of total loans and leases were covered under loss share agreements, compared to $272.6 million at December 31, 2015. Loss share protection for United Western Bank (UWB), Atlantic Bank & Trust (ABT) and Colorado Capital Bank (CCB) non-single family residential loans with balances of $113.7 million, $9.0 million and $2.7 million at March 31, 2016 will expire at the beginning of the second quarter of 2016, third quarter of 2016 and fourth quarter of 2016, respectively.
At March 31, 2016, $8.51 billion in noncovered loans with a lendable collateral value of $6.08 billion were used to secure $585.3 million in Federal Home Loan Bank (FHLB) of Atlanta advances, resulting in additional borrowing capacity of $5.50 billion. At December 31, 2015, $8.58 billion in noncovered loans with a lendable collateral value of $6.08 billion were used to secure $510.3 million in FHLB of Atlanta advances, resulting additional borrowing capacity of $5.57 billion.

Net deferred fees on originated non-PCI loans and leases, including unearned income and unamortized costs, fees, premiums and discounts, were $13.2 million and $16.6 million at March 31, 2016 and December 31, 2015, respectively. The unamortized discount related to the non-PCI loans and leases acquired in the First Citizens Bancorporation, Inc. (Bancorporation) merger was $37.9 million and $41.1 million at March 31, 2016 and December 31, 2015, respectively. During the three months ended March 31, 2016 and March 31, 2015, accretion income on non-PCI loans was $3.2 million and $5.6 million, 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, 2016 and December 31, 2015 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, 2016 and December 31, 2015 by credit quality indicator are provided below:
 
March 31, 2016
(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
$
622,312

 
$
8,102,908

 
$
321,375

 
$
2,241,626

 
$
744,585

 
$
341,300

 
$
12,374,106

Special mention
1,926

 
97,425

 
1,294

 
14,003

 
3,698

 
1,334

 
119,680

Substandard
2,073

 
149,651

 
1,030

 
20,070

 
2,639

 
1,243

 
176,706

Doubtful

 
458

 

 
399

 
46

 

 
903

Ungraded

 
3,189

 
1,159

 
113,848

 
324

 

 
118,520

Total
$
626,311

 
$
8,353,631

 
$
324,858

 
$
2,389,946

 
$
751,292

 
$
343,877

 
$
12,789,915

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
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
$
611,314

 
$
8,024,831

 
$
318,187

 
$
2,219,606

 
$
719,338

 
$
311,401

 
$
12,204,677

Special mention
5,191

 
100,220

 
475

 
19,361

 
4,869

 
1,905

 
132,021

Substandard
3,847

 
146,071

 
959

 
21,322

 
6,375

 
1,526

 
180,100

Doubtful

 
599

 

 
408

 
169

 

 
1,176

Ungraded

 
2,827

 
1,400

 
108,261

 
27

 

 
112,515

Total
$
620,352

 
$
8,274,548

 
$
321,021

 
$
2,368,958

 
$
730,778

 
$
314,832

 
$
12,630,489


 
March 31, 2016
 
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
$
2,673,451

 
$
2,501,519

 
$
208,944

 
$
1,220,091

 
$
6,604,005

30-59 days past due
24,701

 
11,219

 
3,121

 
5,339

 
44,380

60-89 days past due
7,041

 
2,396

 
325

 
1,722

 
11,484

90 days or greater past due
13,015

 
6,768

 
842

 
1,393

 
22,018

Total
$
2,718,208

 
$
2,521,902

 
$
213,232

 
$
1,228,545

 
$
6,681,887

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Non-PCI noncommercial loans and leases
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total non-PCI noncommercial
loans and leases
Current
$
2,651,209

 
$
2,502,065

 
$
214,555

 
$
1,210,832

 
$
6,578,661

30-59 days past due
23,960

 
11,706

 
3,211

 
5,545

 
44,422

60-89 days past due
7,536

 
3,704

 
669

 
1,822

 
13,731

90 days or greater past due
13,280

 
5,631

 
1,638

 
1,622

 
22,171

Total
$
2,695,985

 
$
2,523,106

 
$
220,073

 
$
1,219,821

 
$
6,658,985




17

Table of Contents

 PCI loans outstanding at March 31, 2016 and December 31, 2015 by credit quality indicator are provided below:
 
March 31, 2016
(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
$
12,797

 
$
261,904

 
$
8,500

 
$
8,595

 
$
623

 
$
292,419

Special mention
1,781

 
87,801

 
59

 
548

 

 
90,189

Substandard
14,056

 
159,083

 
9,081

 
4,292

 
1,237

 
187,749

Doubtful
4,165

 
17,656

 

 
1,240

 

 
23,061

Ungraded

 
332

 
410

 
67

 

 
809

Total
$
32,799

 
$
526,776

 
$
18,050

 
$
14,742

 
$
1,860

 
$
594,227

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
PCI commercial loans
 
Construction
and land
development
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and
industrial
 
Other
 
Total PCI commercial
loans
Pass
$
14,710

 
$
262,579

 
$
7,366

 
$
9,302

 
$
706

 
$
294,663

Special mention
758

 
87,870

 
60

 
937

 

 
89,625

Substandard
14,131

 
163,801

 
9,229

 
4,588

 
1,302

 
193,051

Doubtful
4,281

 
10,875

 

 
282

 

 
15,438

Ungraded

 
343

 
421

 
73

 

 
837

Total
$
33,880

 
$
525,468

 
$
17,076

 
$
15,182

 
$
2,008

 
$
593,614


 
March 31, 2016
 
PCI noncommercial loans
(Dollars in thousands)
Residential
mortgage
 
Revolving
mortgage
 
Consumer
 
Total PCI noncommercial
loans
Current
$
261,230

 
$
44,401

 
$
2,254

 
$
307,885

30-59 days past due
10,307

 
1,544

 
123

 
11,974

60-89 days past due
3,191

 
1,306

 
45

 
4,542

90 days or greater past due
23,934

 
3,323

 
2

 
27,259

Total
$
298,662

 
$
50,574

 
$
2,424

 
$
351,660

 
 
 
 
 
 
 
 
 
December 31, 2015
 
PCI noncommercial loans
 
Residential
mortgage
 
Revolving
mortgage
 
Consumer
 
Total PCI noncommercial
loans
Current
$
257,207

 
$
47,901

 
$
1,981

 
$
307,089

30-59 days past due
12,318

 
1,127

 
86

 
13,531

60-89 days past due
4,441

 
501

 
132

 
5,074

90 days or greater past due
28,192

 
2,942

 
74

 
31,208

Total
$
302,158

 
$
52,471

 
$
2,273

 
$
356,902





18

Table of Contents

The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2016 and December 31, 2015 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, 2016
(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
$
1,039

 
$
9

 
$
312

 
$
1,360

 
$
624,951

 
$
626,311

Commercial mortgage
14,243

 
1,817

 
17,637

 
33,697

 
8,319,934

 
8,353,631

Other commercial real estate
1,144

 
248

 
27

 
1,419

 
323,439

 
324,858

Commercial and industrial
7,874

 
2,049

 
1,194

 
11,117

 
2,378,829

 
2,389,946

Lease financing
712

 
202

 
44

 
958

 
750,334

 
751,292

Residential mortgage
24,701

 
7,041

 
13,015

 
44,757

 
2,673,451

 
2,718,208

Revolving mortgage
11,219

 
2,396

 
6,768

 
20,383

 
2,501,519

 
2,521,902

Construction and land development - noncommercial
3,121

 
325

 
842

 
4,288

 
208,944

 
213,232

Consumer
5,339

 
1,722

 
1,393

 
8,454

 
1,220,091

 
1,228,545

Other
107

 

 
333

 
440

 
343,437

 
343,877

Total non-PCI loans and leases
$
69,499

 
$
15,809

 
$
41,565

 
$
126,873

 
$
19,344,929

 
$
19,471,802

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
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
$
987

 
$
283

 
$
463

 
$
1,733

 
$
618,619

 
$
620,352

Commercial mortgage
13,023

 
3,446

 
14,495

 
30,964

 
8,243,584

 
8,274,548

Other commercial real estate
884

 

 
142

 
1,026

 
319,995

 
321,021

Commercial and industrial
2,133

 
1,079

 
1,780

 
4,992

 
2,363,966

 
2,368,958

Lease financing
2,070

 
2

 
164

 
2,236

 
728,542

 
730,778

Residential mortgage
23,960

 
7,536

 
13,280

 
44,776

 
2,651,209

 
2,695,985

Revolving mortgage
11,706

 
3,704

 
5,631

 
21,041

 
2,502,065

 
2,523,106

Construction and land development - noncommercial
3,211

 
669

 
1,638

 
5,518

 
214,555

 
220,073

Consumer
5,545

 
1,822

 
1,622

 
8,989

 
1,210,832

 
1,219,821

Other
3

 
164

 
134

 
301

 
314,531

 
314,832

Total non-PCI loans and leases
$
63,522

 
$
18,705

 
$
39,349

 
$
121,576

 
$
19,167,898

 
$
19,289,474



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, 2016 and December 31, 2015 for non-PCI loans and leases, were as follows:
 
March 31, 2016
 
December 31, 2015
(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
$
534

 
$
23

 
$
425

 
$
273

Commercial mortgage
35,861

 
2,671

 
42,116

 
242

Other commercial real estate
134

 

 
239

 

Commercial and industrial
4,127

 
680

 
6,235

 
953

Lease financing
254

 

 
389

 

Residential mortgage
31,262

 
561

 
29,977

 
838

Revolving mortgage
14,159

 

 
12,704

 

Construction and land development - noncommercial
2,224

 

 
2,164

 

Consumer
1,632

 
792

 
1,472

 
1,007

Other
268

 
155

 
133

 
2

Total non-PCI loans and leases
$
90,455

 
$
4,882

 
$
95,854

 
$
3,315

Purchased credit-impaired loans (PCI) loans
The following table relates to PCI loans acquired in the NMSB 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
$
51,098

Cash flows expected to be collected
$
41,592

Fair value of loans at acquisition
$
35,416

The recorded fair values of PCI loans acquired in the NMSB acquisition as of the acquisition date were as follows:
(Dollars in thousands)
 
Commercial:
 
Construction and land development
$
139

Commercial mortgage
25,237

Other commercial real estate
1,479

Commercial and industrial
1,520

Total commercial loans
28,375

Noncommercial:
 
Residential mortgage
6,128

Revolving mortgage
234

Consumer
679

Total noncommercial loans
7,041

Total PCI loans and leases
$
35,416

The following table provides changes in the carrying value of all purchased credit-impaired loans during the three months ended March 31, 2016 and March 31, 2015:
(Dollars in thousands)
2016
 
2015
Balance at January 1
$
950,516

 
$
1,186,498

Fair value of acquired loans
35,416

 
154,496

Accretion
21,398

 
25,067

Payments received and other changes, net
(61,443
)
 
(113,516
)
Balance at March 31
$
945,887

 
$
1,252,545

Unpaid principal balance at March 31
$
1,665,896

 
$
2,092,936

The carrying value of loans on the cost recovery method was $1.1 million at March 31, 2016 and $5.3 million at December 31, 2015. The cost recovery method is applied to loans when the timing of future cash flows is not reasonably estimable due to

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borrower nonperformance or uncertainty in the ultimate disposition of the asset. The recorded investment of PCI loans on nonaccrual status was $7.3 million and $7.6 million at March 31, 2016 and December 31, 2015, respectively.

For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flows 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 2016 and 2015.
(Dollars in thousands)
2016
 
2015
Balance at January 1
$
343,856

 
$
418,160

Additions from acquisitions
6,176

 
55,186

Accretion
(21,398
)
 
(25,067
)
Reclassifications from nonaccretable difference
9,905

 
1,294

Changes in expected cash flows that do not affect nonaccretable difference
4,418

 
(27,287
)
Balance at March 31
$
342,957

 
$
422,286


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, 2016 and March 31, 2015:
 
Three months ended March 31, 2016
(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
$
16,288

 
$
69,896

 
$
2,168

 
$
43,116

 
$
5,524

 
$
1,855

 
$
14,105

 
$
15,971

 
$
1,485

 
$
19,496

 
$
189,904

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