Edgar Filing: FIRST CITIZENS BANCSHARES INC /DE/

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FORM 10-Q

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 June 30, 2011

¨	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:

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—8,756,778 shares

Class B Common Stock—$1 Par Value—1,639,987 shares

(Number of shares outstanding, by class, as of August 8, 2011)

INDEX


		Page(s)

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets at June 30, 2011, December 31, 2010 and June 30, 2010		3

	Consolidated Statements of Income for the three- and six- month periods ended June 30, 2011 and June 30, 2010		4

	Consolidated Statements of Changes in Shareholders’ Equity for the six month periods ended June 30, 2011 and June 30, 2010		5

	Consolidated Statements of Cash Flows for the six month periods ended June 30, 2011 and June 30, 2010		6

	Notes to Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		58

Item 4.	Controls and Procedures		58

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors		59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64

Item 6.	Exhibits		64

Part 1

Item 1.

Financial Statements (Unaudited)

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets


	June 30* 2011			December 31# 2010			June 30* 2010
	(thousands, except share data)
Assets
Cash and due from banks	$	537,717		$	460,178		$	625,857
Overnight investments		741,654			398,390			736,896
Investment securities available for sale		4,014,241			4,510,076			3,768,777
Investment securities held to maturity		2,098			2,532			3,084
Loans held for sale		56,004			88,933			91,076
Loans and leases:
Covered under loss share agreements		2,399,738			2,007,452			2,367,090
Not covered under loss share agreements		11,528,854			11,480,577			11,622,494
Less allowance for loan and lease losses		250,050			227,765			188,169

Net loans and leases		13,678,542			13,260,264			13,801,415
Premises and equipment		842,911			842,745			846,702
Other real estate owned:
Covered under loss share agreements		150,636			112,748			98,416
Not covered under loss share agreements		49,028			52,842			46,763
Income earned not collected		50,876			83,644			77,186
Receivable from FDIC for loss share agreements		522,507			623,261			692,242
Goodwill		102,625			102,625			102,625
Other intangible assets		8,234			9,897			12,936
Other assets		264,577			258,524			201,794

Total assets	$	21,021,650		$	20,806,659		$	21,105,769


Liabilities
Deposits:
Noninterest-bearing	$	4,166,886		$	3,976,366		$	3,730,321
Interest-bearing		13,496,080			13,658,900			14,056,920

Total deposits		17,662,966			17,635,266			17,787,241
Short-term borrowings		655,808			546,597			541,709
Long-term obligations		792,661			809,949			918,930
Other liabilities		100,026			81,885			162,525

Total liabilities		19,211,461			19,073,697			19,410,405
Shareholders’ Equity
Common stock:
Class A - $1 par value (8,756,778 shares issued and outstanding for all periods)		8,757			8,757			8,757
Class B - $1 par value (1,639,987 issued and outstanding at June 30, 2011, 1,677,675 shares issued and outstanding at December 31, 2010 and June 30, 2010)		1,640			1,678			1,678
Surplus		143,766			143,766			143,766
Retained earnings		1,685,477			1,615,290			1,563,720
Accumulated other comprehensive loss		(29,451	)		(36,529	)		(22,557	)

Total shareholders’ equity		1,810,189			1,732,962			1,695,364

Total liabilities and shareholders’ equity	$	21,021,650		$	20,806,659		$	21,105,769

Unaudited

#	Derived from the 2010 Annual Report on Form 10-K.

See accompanying Notes to Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Income


	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(thousands, except share and per share data, unaudited)
Interest income
Loans and leases	$	233,731		$	202,541		$	465,184		$	389,615
Investment securities:
U. S. Treasury		2,259			6,927			5,469			14,346
Government agency		4,863			3,323			9,910			5,255
Residential mortgage backed securities		2,104			1,873			4,757			3,437
Corporate bonds		2,119			2,198			4,295			4,333
State, county and municipal		12			15			25			48
Other		200			12			459			82

Total investment securities interest and dividend income		11,557			14,348			24,915			27,501
Overnight investments		316			546			705			1,019

Total interest income		245,604			217,435			490,804			418,135
Interest expense
Deposits		27,081			41,091			56,901			79,207
Short-term borrowings		1,482			640			3,179			1,396
Long-term obligations		9,666			10,842			19,362			21,634

Total interest expense		38,229			52,573			79,442			102,237

Net interest income		207,375			164,862			411,362			315,898
Provision for loan and lease losses		53,977			31,826			98,396			48,756

Net interest income after provision for loan and lease losses		153,398			133,036			312,966			267,142
Noninterest income
Gain on acquisitions		0			0			64,984			136,000
Cardholder and merchant services		30,543			28,505			57,323			52,294
Service charges on deposit accounts		15,778			19,513			31,568			38,340
Wealth management services		14,119			14,222			27,407			25,956
Fees from processing services		7,595			7,226			14,841			14,449
Securities gains (losses)		(96	)		(186	)		(545	)		945
Other service charges and fees		5,960			5,110			11,917			9,758
Mortgage income		2,530			1,924			4,845			3,334
Insurance commissions		2,280			1,794			4,814			4,600
ATM income		1,370			1,699			2,960			3,354
Adjustments for FDIC receivable for loss share agreements		(13,747	)		12,940			(24,126	)		15,527
Other		317			(125	)		1,751			14

Total noninterest income		66,649			92,622			197,739			304,571
Noninterest expense
Salaries and wages		76,124			74,475			151,928			146,635
Employee benefits		18,708			15,839			38,357			34,150
Occupancy expense		18,487			18,517			36,800			36,353
Equipment expense		17,515			16,604			34,906			32,419
FDIC insurance expense		2,501			6,609			10,726			11,496
Foreclosure-related expenses		3,747			4,014			9,235			8,075
Other		50,400			45,718			95,558			85,598

Total noninterest expense		187,482			181,776			377,510			354,726

Income before income taxes		32,565			43,882			133,195			216,987
Income taxes		11,265			15,280			49,216			81,774

Net income	$	21,300		$	28,602		$	83,979		$	135,213

Average shares outstanding		10,422,857			10,434,453			10,428,623			10,434,453
Net income per share	$	2.04		$	2.74		$	8.05		$	12.96

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

First Citizens BancShares, Inc. and Subsidiaries


	Class A Common Stock		Class B Common Stock			Surplus		Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total Shareholders’ Equity
	(thousands, except share data unaudited)
Balance at December 31, 2009	$	8,757	$	1,678		$	143,766	$	1,429,863		$	(24,949	)	$	1,559,115
Adjustment resulting from adoption of a change in accounting for QSPEs and controlling financial interests effective January 1, 2010		0		0			0		4,904			0			4,904
Comprehensive income:
Net income		0		0			0		135,213			0			135,213
Change in unrealized securities gains arising during period, net of $2,608 deferred tax		0		0			0		0			6,563			6,563
Less reclassification adjustment for gains included in net income, net of $370 deferred tax benefit		0		0			0		0			(575	)		(575	)
Change in unrecognized loss on cash flow hedges, net of $2,346 deferred tax benefit		0		0			0		0			(3,596	)		(3,596	)

Total comprehensive income															137,605

Cash dividends		0		0			0		(6,260	)		0			(6,260	)

Balance at June 30, 2010	$	8,757	$	1,678		$	143,766	$	1,563,720		$	(22,557	)	$	1,695,364


Balance at December 31, 2010	$	8,757	$	1,678		$	143,766	$	1,615,290		$	(36,529	)	$	1,732,962
Comprehensive income:
Net income		0		0			0		83,979			0			83,979
Change in unrealized securities gains arising during period, net of $3,168 deferred tax		0		0			0		0			4,929			4,929
Reclassification adjustment for losses included in net income, net of $215 deferred tax		0		0			0		0			330			330
Change in unrecognized loss on cash flow hedges, net of $122 deferred tax benefit		0		0			0		0			(186	)		(186	)
Change in pension obligation, net of $1,291 deferred tax		0		0			0		0			2,005			2,005

Total comprehensive income															91,057

Repurchase of 37,688 shares of Class B common stock		—		(38	)		—		(7,537	)		—			(7,575	)
Cash dividends		—		—			—		(6,255	)		—			(6,255	)

Balance at June 30, 2011	$	8,757	$	1,640		$	143,766	$	1,685,477		$	(29,451	)	$	1,810,189

See accompanying Notes to Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows


	For the six months ended June 30,
	2011			2010
	(thousands, unaudited)
OPERATING ACTIVITIES
Net income	$	83,979		$	135,213
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of intangibles		2,200			3,164
Provision for loan and lease losses		98,396			48,756
Deferred tax (benefit) expense		(17,133	)		(34,105	)
Change in current taxes payable		19,774			13,899
Depreciation		32,408			30,296
Change in accrued interest payable		(5,755	)		2,771
Change in income earned not collected		38,043			(8,842	)
Gain on acquisitions		(64,984	)		(136,000	)
Securities losses (gains)		545			(945	)
Origination of loans held for sale		(182,184	)		(255,495	)
Proceeds from sale of loans		218,533			235,171
Gain on sale of loans		(3,420	)		(3,371	)
Loss on sale of other real estate		1,349			720
Net amortization of premiums and discounts		(85,752	)		21,550
FDIC receivable for loss share agreements		237,468			78,451
Net change in other assets		96,562			35,462
Net change in other liabilities		(7,836	)		43,115

Net cash provided by operating activities		462,193			209,810

INVESTING ACTIVITIES
Net change in loans outstanding		260,861			311,122
Purchases of investment securities available for sale		(632,041	)		(1,603,861	)
Proceeds from maturities of investment securities held to maturity		433			518
Proceeds from maturities of investment securities available for sale		1,214,988			797,949
Proceeds from sales of investment securities available for sale		191,697			24,137
Net change in overnight investments		(343,264	)		(13,636	)
Proceeds from sale of other real estate		24,748			40,943
Additions to premises and equipment		(32,574	)		(39,916	)
Net cash received from acquisitions		974,043			106,489

Net cash provided (used) by investing activities		1,658,891			(376,255	)

FINANCING ACTIVITIES
Net change in time deposits		(617,419	)		86,680
Net change in demand and other interest-bearing deposits		(959,739	)		655,263
Net change in short-term borrowings		(227,642	)		(505,105	)
Net change in long-term obligations		(224,915	)		81,482
Repurchase of common stock		(7,575	)		0
Cash dividends paid		(6,255	)		(6,260	)

Net cash provided (used) by financing activities		(2,043,545	)		312,060

Change in cash and due from banks		77,539			145,615
Cash and due from banks at beginning of period		460,178			480,242

Cash and due from banks at end of period	$	537,717		$	625,857

CASH PAYMENTS FOR:
Interest	$	85,197		$	99,466
Income taxes		17,349			46,041

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized securities gains	$	8,642		$	8,226
Unrealized (loss) on cash flow hedge		(308	)		(5,942	)
Prepaid pension benefit		3,296			0
Transfers of loans to other real estate		77,780			55,559
Acquisitions:
Assets acquired		2,226,880			2,291,659
Liabilities assumed		2,161,896			2,155,861
Net assets acquired		64,984			135,798

See accompanying Notes to Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note A

Accounting Policies and Other Matters

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements.

In the opinion of management, the consolidated financial statements contain all material adjustments necessary to present fairly the financial position of First Citizens BancShares, Inc. and Subsidiaries (BancShares) as of and for each of the periods presented, and all such adjustments are of a normal recurring nature. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the period. Actual results could differ from those estimates.

Management has evaluated subsequent events through the filing date of the Quarterly Report on Form 10-Q.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in BancShares’ 2010 Form 10-K. Certain amounts for prior periods have been reclassified to conform with statement presentations for 2011. The reclassifications have no effect on shareholders’ equity or net income as previously reported. Fair values are subject to refinement for up to one year after the closing date of the transaction as additional information regarding closing date fair values becomes available. We have increased previously reported amounts of net income and retained earnings for the six months ended June 30, 2010 by $2,005 as a result of adjustments made to the fair value of assets acquired in the first quarter of 2010.

FDIC-Assisted Transactions

US GAAP requires that the acquisition method of accounting be used for all business combinations, including those resulting from FDIC-assisted transactions and that an acquirer be identified for each business combination. Under US GAAP, the acquirer is the entity that obtains control of one or more businesses in the business combination, and the acquisition date is the date the acquirer achieves control. US GAAP requires that the acquirer recognize the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date. In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred.

During 2011, 2010 and 2009, BancShares’ wholly-owned subsidiary, First-Citizens Bank & Trust Company (FCB), acquired assets and assumed liabilities of five entities as noted below (collectively referred to as “the Acquisitions”) with the assistance of the Federal Deposit Insurance Corporation (FDIC), which had been appointed Receiver of each entity by its respective state banking authority.


Name of entity	Headquarters location	Date of transaction
United Western Bank (United Western)	Denver, Colorado	January 21, 2011
Sun American Bank (SAB)	Boca Raton, Florida	March 5, 2010
First Regional Bank (First Regional)	Los Angeles, California	January 29, 2010
Venture Bank (VB)	Lacey, Washington	September 11, 2009
Temecula Valley Bank (TVB)	Temecula, California	July 17, 2009

The acquired assets and assumed liabilities were recorded at estimated fair value. Management made significant estimates and exercised significant judgment in accounting for the Acquisitions. Management judgmentally assigned risk ratings to loans based on credit quality, appraisals and estimated collateral values, estimated expected cash flows, and applied appropriate liquidity and coupon discounts to measure fair values for loans. Other real estate acquired through foreclosure was valued based upon pending sales contracts and appraised values, adjusted for current market conditions. FCB also recorded identifiable intangible assets representing the estimated values of the assumed core deposits and other customer relationships. Management used quoted or current market prices to determine the fair value of investment securities. Fair values of short-term borrowings and long-term obligations were estimated inclusive of any prepayment penalties.

Loans and Leases

Loans and leases that are held for investment purposes are carried at the principal amount outstanding. Interest on substantially all loans is accrued and credited to interest income on a constant yield basis based upon the daily principal amount outstanding.

Loans that are classified as held for sale represent mortgage loans originated or purchased and are carried at the lower of aggregate cost or fair value. Gains and losses on sales of mortgage loans are included in mortgage income.

Acquired loans are recorded at fair value at the date of acquisition. The fair values are recorded net of a nonaccretable difference and, if appropriate, an accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is the nonaccretable difference, which is included as a reduction to the carrying amount of acquired loans. Subsequent decreases to expected cash flows will generally result in recognition of an allowance by a charge to provision for loan and lease losses. Any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan when there is a reasonable expectation regarding the amount and timing of such cash flows. Subsequent increases in expected cash flows result in either a reversal of the provision for loan and lease losses to the extent of prior charges, or a reclassification of the difference from nonaccretable to accretable with a positive impact on the accretable yield.

BancShares did not initially estimate the amount and timing of cash flows for loans acquired from TVB and VB at the dates of the acquisitions and, therefore, the cost recovery method is being applied to these loans. Cash flow analyses were performed on loans acquired from First Regional, SAB, and United Western in order to determine the cash flows expected to be collected. Loans from these transactions that were determined to be impaired at acquisition date are accruing interest under the accretion method and are, thus not reported as nonaccrual. BancShares is accounting for substantially all acquired loans on a loan level basis since the majority of the portfolios acquired consist of large non-homogeneous commercial loans.

Receivable from FDIC for Loss Share Agreements

The receivable from the FDIC for loss share agreements is measured separately from the related covered assets as it is not contractually embedded in the assets and is not transferable should the assets be sold. Fair value at acquisition was estimated using projected cash flows related to the loss share agreements based on the expected reimbursements for losses using the applicable loss share percentages and the estimated true-up payment at the expiration of the loss share agreements, if applicable. These cash flows were discounted to reflect the estimated timing of the receipt of the loss share reimbursements from the FDIC and any applicable true-up payment owed to the FDIC for transactions that include claw-back provisions. The FDIC receivable has been reviewed and updated prospectively as loss estimates related to covered loans and other real estate owned change, and as reimbursements are received or expected to be received from the FDIC. Post-acquisition adjustments to the FDIC receivable are charged or credited to noninterest income.

Other Real Estate Owned Covered by Loss Share Agreements

Other real estate owned (OREO) covered by loss share agreements with the FDIC is reported exclusive of expected reimbursement cash flows from the FDIC. Subsequent downward adjustments to the estimated recoverable value of covered OREO result in a reduction of covered OREO, a charge to other noninterest expense and an increase in the FDIC receivable for the estimated amount to be reimbursed, with a corresponding amount recorded as an adjustment to other noninterest income. OREO is presented at the estimated present value that management expects to receive when the property is sold, net of related costs of disposal. Management used appraisals of properties to determine fair values and applied additional discounts where appropriate for passage of time or, in certain cases, for subsequent events occurring after the appraisal date.

Recently Adopted Accounting Policies and Other Regulatory Issues

In July 2010, the FASB issued Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Loss (ASU 2010-20). In an effort to provide financial statement users with greater transparency about the allowance for loan and lease losses, ASU 2010-20 requires enhanced disclosures regarding the nature of credit risk inherent in the portfolio, how risk is analyzed and assessed in determining the amount of the allowance, and descriptions of any changes in the allowance calculation. The end-of-period disclosures were effective for BancShares on December 31, 2010 with the exception of disclosures related to troubled debt restructurings which become effective for interim and annual periods beginning after June 15, 2011. The disclosures related to activity during a period are effective during 2011. The provisions of ASU 2010-20 have affected disclosures regarding the allowance for loan and lease losses, but have had no impact on financial condition, results of operations or liquidity.

Note B

Federally Assisted Transactions

On January 21, 2011, FCB entered into an agreement with the FDIC, as Receiver, to purchase substantially all the assets and assume the majority of the liabilities of United Western Bank (United Western) of Denver, Colorado at a discount of $213,000 with no deposit premium. United Western operated in Denver, Colorado, with eight branch locations in Boulder, Centennial, Cherry Creek, downtown Denver, Hampden at Interstate 25, Fort Collins, Longmont and Loveland. The Purchase and Assumption Agreement with the FDIC includes loss share agreements on the covered loans and other real estate purchased by FCB which provides protection against losses to FCB.

Loss share agreements between the FDIC and FCB (one for single family residential mortgage loans and the other for all other loans and OREO excluding Consumer loans) provide significant loss protection to FCB for all non-consumer loans and OREO. Under the loss share agreement for single family residential mortgage loans (SFRs), the FDIC will cover 80 percent of covered loan losses up to $32,489; 0 percent from $32,489 up to $57,653 and 80 percent of losses in excess of $57,653. The loss share agreement for all other non-consumer loans and OREO will cover 80 percent of covered loan and OREO losses up to $111,517; 30 percent of losses from $111,517 to $227,032; and 80 percent of losses in excess of $227,032. Consumer loans are not covered under the FDIC loss share agreements.

The SFR loss share agreement covers losses recorded during the ten years following the date of the transaction, while the term for the loss share agreement covering all other covered loans and OREO is five years. The SFR loss share agreement also covers recoveries received for ten years following the date of the transaction, while recoveries of all other covered loans and OREO will be shared with the FDIC for a five-year period. The losses reimbursable by the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the loss share agreements.

The loss share agreements include a true-up payment in the event FCB’s losses do not reach the Total Intrinsic Loss Estimate of $294,000. On March 17, 2021, the true-up measurement date, FCB is required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of the following calculation: A-(B+C+D), where (A) equals 20 percent of the Total Intrinsic Loss Estimate, or $58,800; (B) equals 20 percent of the Net Loss Amount; (C) equals 25 percent of the asset (discount) bid, or ($52,898); and (D) equals 3.5 percent of total Shared Loss Assets at Bank Closing, or $37,936. Current loss estimates suggest that a true-up payment of $11,423 will be paid to the FDIC during 2021.

The FDIC-assisted acquisition of United Western was accounted for under the acquisition method of accounting. The statement of net assets acquired, adjustments to the acquisition date fair values made in the second quarter and the resulting acquisition gain is presented in the following table. As indicated in the explanatory notes that accompany the following table, the purchased assets, assumed liabilities and identifiable intangible assets were recorded at their respective acquisition date estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the transaction as additional information regarding closing date fair values becomes available. During this one year period, the cause of any change in cash flow estimates is considered to determine whether the change results from circumstances that existed as of the acquisition date or if the change results from an event that occurred after the acquisition. Adjustments to the estimated fair values made in the second quarter were based on additional information regarding the acquisition date fair values, which included updated appraisals on properties that either secure an acquired loan or are in OREO. The FDIC also repurchased 18 loans that were included in the original acquisition but which FCB had requested be excluded from the portfolio of acquired loans due to cross collateralization with other loans retained by the FDIC.

First quarter 2011 noninterest income includes a bargain purchase gain of $64,984 that resulted from the United Western FDIC-assisted acquisition. The gain resulted from the difference between the estimated fair value of acquired assets and assumed liabilities. During the second quarter of 2011, adjustments were made to the gain based on additional information regarding the acquisition date fair values. These second quarter adjustments were made retroactive to the first quarter of 2011, resulting in an adjusted gain of $64,984. FCB recorded a deferred tax liability for the gain of $25,448 resulting from differences between the financial statement and tax bases of assets acquired and liabilities assumed in this transaction. To the extent there are additional adjustments to the acquisition date fair values for up to one year following the acquisition; there will be additional adjustments to the gain.


	January 21, 2011
	As recorded by United Western			Fair value adjustments at date of acquisition				Subsequent acquisition-date adjustments				As recorded by FCB

Assets
Cash and due from banks	$	420,902		$	—			$	—			$	420,902
Investment securities available for sale		281,862			—				—				281,862
Loans covered by loss share agreements (1)		1,034,074			(278,913	)	a		4,190		i		759,351
Other real estate owned covered by loss share agreements		37,812			(10,252	)	b		1,203		i		28,763
Income earned not collected		5,275			—								5,275
Receivable from FDIC for loss share agreements		—			140,285		c		(4,985	)	i		135,300
FHLB stock		22,783			—								22,783
Mortgage servicing rights		4,925			(1,489	)	d						3,436
Core deposit intangible		—			537		e						537
Other assets		15,421			109		f						15,530

Total assets acquired	$	1,823,054		$	(149,723	)		$	408			$	1,673,739

Liabilities													—
Deposits:
Noninterest-bearing	$	101,875		$	—			$	—			$	101,875
Interest-bearing		1,502,983			—				—				1,502,983

Total deposits		1,604,858			—				—				1,604,858
Short-term borrowings		336,853			—				—				336,853
Long-term obligations		206,838			789		g		—				207,627
Deferred tax liability		1,351			(565	)	h		—				786
Other liabilities		11,772			—				—				11,772

Total liabilities assumed		2,161,672			224				—				2,161,896

Excess (shortfall) of assets acquired over liabilities assumed	$	(338,618	)

Aggregate fair value adjustments				$	(149,947	)		$	408

Cash received from the FDIC (2)												$	553,141
Gain on acquisition of United Western												$	64,984

(1)	Excludes $11,998 in loans repurchased by FDIC during the second quarter of 2011

(2)	Cash received includes cash received from loans repurchased by the FDIC during the second quarter of 2011

Explanation of fair value adjustments

a - Adjustment reflects the fair value adjustments based on FCB’s evaluation of the acquired loan portfolio.

b - Adjustment reflects the estimated OREO losses based on FCB’s evaluation of the acquired OREO.

c - Adjustment reflects the estimated fair value of payments FCB will receive from the FDIC under the loss share agreements.

d - Adjustment reflects the fair value adjustment based on evaluation of mortgage servicing rights.

e - Adjustment reflects the estimated value of intangible assets, which includes core deposit intangibles.

f - Adjustment reflects amount needed to adjust the carrying value of other assets to estimated fair value.

g - Adjustment reflects the amount of the prepayment penalty assessed on early payoff of long-term obligations.

h - Adjustment reflects the fair value adjustment on FCB’s evaluation of the deferred tax liability assumed in the transaction.

i - Adjustment to acquisition date fair value based on additional information received post-acquisition regarding acquisition date fair value and adjustments resulting from loans repurchased by the FDIC.

Results of operations for United Western prior to its acquisition date are not included in the income statement.

Due to the significant amount of fair value adjustments, the resulting accretion of those fair value adjustments and the protection resulting from the FDIC loss share agreements, historical results of United Western are not relevant to BancShares’ results of operations. Therefore, no pro forma information is presented.

On July 8, 2011, FCB entered into an agreement with the FDIC to purchase substantially all the assets and assume the majority of the liabilities of Colorado Capital Bank (CCB) of Castle Rock, Colorado at a discount of $154,900, with no deposit premium. The FDIC serves as Receiver of CCB. The Purchase and Assumption Agreement with the FDIC includes loss share agreements on the loans and OREO purchased by FCB which provides protection against losses to FCB.

The loans and OREO purchased from CCB are covered by two loss share agreements between the FDIC and FCB (one for single family residential mortgage loans and the other for all other loans and OREO excluding consumer loans and CD secured loans), which afford FCB significant loss protection. Under the loss share agreements, the FDIC will cover 80 percent of combined covered loan losses up to $230,991; 0 percent from $230,991 up to $285,947; and 80 percent of losses in excess of $285,947.

CCB operated in Castle Rock, Colorado, and in six branch locations in Boulder, Castle Pines, Cherry Creek, Colorado Springs, Edwards, and Parker.

The acquisition of CCB is being accounted for under the acquisition method of accounting. The reported balances of significant assets acquired and liabilities assumed as of the acquisition date are presented in the following table. These amounts are based on the FDIC settlement and do not include adjustments to reflect the assets and liabilities at their fair value at the date of acquisition. The calculations to determine fair values were incomplete at the time of filing of this Form 10-Q. In addition to the assets and liabilities listed below BancShares received $103,478 in cash from the FDIC at settlement.

Colorado Capital Bank

Schedule of Significant Assets Acquired and Liabilities Assumed (Unaudited)


	July 8,2011
Cash and due from banks	$	74,736
Investment securities		40,187
Loans and leases		540,342
Deposits		607,111
Long-term obligations		15,008

Note C

Investments

The aggregate values of investment securities at June 30, 2011 December 31, 2010, and June 30, 2010 along with unrealized gains and losses determined on an individual security basis are as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale
June 30, 2011
U. S. Treasury	$	1,286,978	$	2,309	$	5	$	1,289,282
Government agency		1,904,135		1,846		1,140		1,904,843
Corporate bonds		461,756		5,258		43		466,971
Residential mortgage-backed securities		327,531		6,403		451		333,483
Equity securities		965		17,644		—		18,609
State, county and municipal		1,037		19		3		1,053

Total investment securities available for sale	$	3,982,402	$	33,481	$	1,642	$	4,014,241

December 31, 2010
U. S. Treasury	$	1,935,666	$	4,041	$	307	$	1,939,400
Government agency		1,930,469		361		10,844		1,919,986
Corporate bonds		479,160		7,498		—		486,658
Residential mortgage-backed securities		139,291		4,522		268		143,545
Equity securities		1,055		18,176		—		19,231
State, county and municipal		1,240		20		4		1,256

Total investment securities available for sale	$	4,486,881	$	34,618	$	11,423	$	4,510,076

June 30, 2010
U. S. Treasury	$	2,173,759	$	9,219	$	—	$	2,182,978
Government agency		899,375		2,387		23		901,739
Corporate bonds		480,738		8,845		—		489,583
Residential mortgage-backed securities		168,307		6,313		104		174,516
Equity securities		1,358		17,333		—		18,691
State, county and municipal		1,242		30		2		1,270

Total investment securities available for sale	$	3,724,779	$	44,127	$	129	$	3,768,777


Investment securities held to maturity
June 30, 2011
Residential mortgage-backed securities	$	2,098	$	206	$	26	$	2,278

December 31, 2010
Residential mortgage-backed securities	$	2,532	$	235	$	26	$	2,741

June 30, 2010
Residential mortgage-backed securities	$	2,933	$	276	$	26	$	3,183
State, county and municipal		151		—		—		151

Total investment securities held to maturity	$	3,084	$	276	$	26	$	3,334

Investments in residential mortgage-backed securities represent primarily securities issued by the Government National Mortgage Association, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation.

Investments in corporate bonds represent debt securities that were issued by various financial institutions under the Temporary Liquidity Guarantee Program. These debt obligations were issued with the full faith and credit of the United States of America. The guarantee for these securities is triggered when an issuer defaults on a scheduled payment.

The following table provides maturity information for investment securities as of the dates indicated. Callable securities are assumed to mature on their earliest call date.


	June 30, 2011				December 31, 2010				June 30, 2010
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Investment securities available for sale
Maturing in:
One year or less	$	3,133,236	$	3,140,002	$	3,441,185	$	3,436,818	$	2,342,011	$	2,351,171
One through five years		549,912		551,647		916,101		921,536		1,220,914		1,232,535
Five through 10 years		99,834		100,387		1,683		1,710		1,912		1,946
Over 10 years		198,456		203,596		126,857		130,781		158,584		164,434
Equity securities		965		18,609		1,055		19,231		1,358		18,691

Total investment securities available for sale	$	3,982,402	$	4,014,241	$	4,486,881	$	4,510,076	$	3,724,779	$	3,768,777


Investment securities held to maturity
Maturing in:
One through five years	$	8	$	6	$	—	$	—	$	151	$	151
Five through 10 years		1,973		2,110		2,404		2,570		2,797		3,005
Over 10 years		117		162		128		171		136		178

Total investment securities held to maturity	$	2,098	$	2,278	$	2,532	$	2,741	$	3,084	$	3,334

For each period presented, securities gains (losses) include the following:


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Gross gains on sales of investment securities available for sale	$	—		$	—		$	156		$	2,860
Gross losses on sales of investment securities available for sale		(96	)		—			(701	)		(1,729	)
Other that temporary impairment loss on equity securities		—			(186	)		—			(186	)

Total securities gains (losses)	$	(96	)	$	(186	)	$	(545	)	$	945

The following table provides information regarding securities with unrealized losses as of June 30, 2011 and June 30, 2010:


	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2011
Investment securities available for sale:

U. S. Treasury	$	50,307	$	5	$	—	$	—	$	50,307	$	5
Government agency		507,210		1,140		—		—		507,210		1,140
Corporate bonds		9,957		43		—		—		9,957		43
Residential mortgage-backed securities		80,866		401		2,016		50		82,882		451
State, county and municipal		529		3		10		—		539		3

Total	$	648,869	$	1,592	$	2,026	$	50	$	650,895	$	1,642

Investment securities held to maturity:
Residential mortgage-backed securities	$	—	$	—	$	24	$	26	$	24	$	26

June 30, 2010
Investment securities available for sale:
Government agency	$	4,005	$	23	$	—	$	—	$	4,005	$	23
Residential mortgage-backed securities		5,151		81		1,152		23		6,303		104
State, county and municipal		—		—		439		2		439		2

Total	$	9,156	$	104	$	1,591	$	25	$	10,747	$	129

Investment securities held to maturity:
Residential mortgage-backed securities	$	—	$	—	$	29	$	26	$	29	$	26

Investment securities with an aggregate fair value of $2,050 have had continuous unrealized losses for more than twelve months as of June 30, 2011 with an aggregate unrealized loss of $76. These 18 investments include residential mortgage-backed and state, county and municipal securities. None of the unrealized losses identified as of June 30, 2011 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 $2,684,107 at June 30, 2011, $2,096,850 at December 31, 2010 and $1,694,084 at June 30, 2010 were pledged as collateral to secure public funds on deposit, to secure certain short-term borrowings and for other purposes as required by law.

Note D

Loans and Leases

Loans and leases outstanding include the following as of the dates indicated:


	June 30, 2011		December 31, 2010		June 30, 2010
Covered loans	$	2,399,738	$	2,007,452	$	2,367,090
Noncovered loans and leases:
Commercial:
Construction and land development		407,134		338,929		492,805
Commercial mortgage		4,861,457		4,737,862		4,625,351
Other commercial real estate		148,977		149,710		157,333
Commercial and industrial		1,805,812		1,869,490		1,801,465
Lease financing		303,104		301,289		300,047
Other		170,758		182,015		186,067

Total commercial loans		7,697,242		7,579,295		7,563,068
Non-commercial:
Residential mortgage		825,610		878,792		921,346
Revolving mortgage		2,303,687		2,233,853		2,187,978
Construction and land development		145,445		192,954		135,094
Consumer		556,870		595,683		815,008

Total non-commercial loans		3,831,612		3,901,282		4,059,426

Total noncovered loans and leases		11,528,854		11,480,577		11,622,494

Total loans and leases	$	13,928,592	$	13,488,029	$	13,989,584


	June 30, 2011						December 31, 2010						June 30, 2010
	Impaired at acquisition date		All other acquired loans		Total		Impaired at acquisition date		All other acquired loans		Total		Impaired at acquisition date		All other acquired loans		Total
Covered loans:
Commercial:
Construction and land development	$	83,844	$	254,806	$	338,650	$	102,988	$	265,432	$	368,420	$	146,418	$	429,190	$	575,608
Commercial mortgage		120,916		1,186,859		1,307,775		120,240		968,824		1,089,064		121,134		947,197		1,068,331
Other commercial real estate		35,347		138,259		173,606		34,704		175,957		210,661		35,346		197,740		233,086
Commercial and industrial		7,990		117,502		125,492		9,087		123,390		132,477		9,195		211,669		220,864
Lease financing		6		218		224		—		—		—		—		—		—
Other		—		1,675		1,675		—		1,510		1,510		72		4,739		4,811

Total commercial loans		248,103		1,699,319		1,947,422		267,019		1,535,113		1,802,132		312,165		1,790,535		2,102,700
Non-commercial:
Residential mortgage		19,635		334,398		354,033		11,026		63,469		74,495		33,853		40,144		73,997
Revolving mortgage		483		11,450		11,933		8,400		9,466		17,866		128		25,041		25,169
Construction and land development		42,056		40,121		82,177		44,260		61,545		105,805		25,838		131,812		157,650
Consumer		122		4,051		4,173		—		7,154		7,154		133		7,441		7,574

Total non-commercial loans		62,296		390,020		452,316		63,686		141,634		205,320		59,952		204,438		264,390

Total covered loans	$	310,399	$	2,089,339	$	2,399,738	$	330,705	$	1,676,747	$	2,007,452	$	372,117	$	1,994,973	$	2,367,090

At June 30, 2011, $2,346,460 in noncovered loans were pledged to secure debt obligations, compared to $3,744,067 at December 31, 2010 and $3,442,983 at June 30, 2010.

Description of segment and class risks

Each portfolio segment and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of the loan and lease portfolio. Management has identified the most significant risks as described below which are generally similar among the segments and classes. While the list in not exhaustive, it provides a description of the risks that management has determined are the most significant.

Commercial loans and leases

Each commercial loan or lease is centrally underwritten based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. A complete understanding of the borrower’s businesses including the experience and background of the principals is obtained prior to approval. To the extent that the loan or lease is secured by collateral, which is a predominant feature of the majority of commercial loans and leases, an understanding of the likely value of the collateral and what level of strength the collateral brings to the transaction is evaluated. To the extent that the principals or other parties provide personal guarantees, the relative financial strength and liquidity of each guarantor is assessed. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within the markets BancShares serves, as well as risks that are specific to each transaction including demand for products and services, personal events such as disability or change in marital status, and reductions in the value of collateral. Due to the concentration of loans in the medical, dental, and related fields, BancShares is susceptible to risks that legislative and governmental actions will fundamentally alter the economic structure of the medical care industry in the United States.

In addition to these common risks for the majority of commercial loans and leases, additional risks are inherent in certain classes of commercial loans and leases.

Commercial construction and land development

Commercial construction and land development loans are highly dependent on the supply and demand for commercial real estate in the markets served by BancShares as well as the demand for newly constructed residential homes and lots that customers are developing. Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for customers.

Commercial mortgage, commercial and industrial and lease financing

Commercial mortgage and commercial and industrial loans and lease financing are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for the loan to be serviced on a basis consistent with the contractual terms may be at risk. While these loans and leases are generally secured by real property, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.

Other commercial real estate

Other commercial real estate loans consist primarily of loans secured by multifamily housing and agricultural loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in customers having to provide rental rate concessions to achieve adequate occupancy rates. The performance of agricultural loans is highly dependent on favorable weather, reasonable costs for seed and fertilizer, and the ability to successfully market the product at a profitable margin. The demand for these products is also dependent on macroeconomic conditions that are beyond the control of the borrower.

Non-commercial loans

Each non-commercial loan is centrally underwritten using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use, and recent credit inquiries. To the extent that the loan is secured by collateral, the likely value of that collateral is evaluated. Common risks to each class of non-commercial loans include risks that are not specific to individual transactions such as general economic conditions within the markets BancShares serves, particularly unemployment and potential declines in real estate values. Personal events such as disability or change in marital status also add risk to non-commercial loans.

In addition to these common risks for the majority of non-commercial loans, additional risks are inherent in certain classes of non-commercial loans.

Revolving mortgage

Revolving mortgage loans are often secured by second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render a second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lienholders that may further weaken the collateral position. Further, the open-end structure of these loans creates the risk that customers may draw on the lines in excess of the collateral value if there have been significant declines since origination.

Consumer

The consumer loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.

Residential mortgage and non-commercial construction and land development

Residential mortgage and non-commercial construction and land development loans are made to individuals and are typically secured by 1-4 family residential property, undeveloped land, and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral. Such a decline in values has led to unprecedented levels of foreclosures and losses within the banking industry. Non-commercial construction and land development projects can experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can routinely result in foreclosure of partially completed and unmarketable collateral.

Covered loans

The risks associated with covered loans are generally consistent with the risks identified for commercial and non-commercial loans and the classes of loans within those segments. An additional risk with respect to covered loans relates to the FDIC loss share agreements, specifically the ability to receive timely and full reimbursement from the FDIC for losses and related expenses that are believed to be covered by the loss share agreements. Further, these loans were underwritten by other institutions with weaker lending standards. Therefore, there is a significant risk that the loans are not adequately supported by the paying capacity of the borrower or the values of underlying collateral at the time of origination.

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 loans and leases, non-commercial loans and leases, and covered loans have different credit quality indicators as a result of the methods used to monitor each of these loan segments.

The credit quality indicators for commercial loans and leases and covered loans and leases are developed through review of individual borrowers on an ongoing basis. Each borrower is evaluated at least annually with more frequent evaluation of more severely criticized loans or leases. 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 obligor 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 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 loss are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. 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 write-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 noncovered, ungraded loans at June 30, 2011 relate to business credit cards and tobacco buyout loans. Tobacco buyout loans with an outstanding balance of $61,618 at June 30, 2011 are secured by assignments of receivables made pursuant to the Fair and Equitable Tobacco Reform Act of 2004. The credit risk associated with these loans is considered low as the payments that began in 2005 and continue through 2014 are to be made by the Commodity Credit Corporation which is part of the United States Department of Agriculture.

The credit quality indicators for noncovered, non-commercial loans are based on the delinquency status of the borrower. As the borrower becomes more delinquent, the likelihood of loss increases.

The composition of the loans and leases outstanding at June 30, 2011 and December 31, 2010 by credit quality indicator is provided below:


	Commercial noncovered loans and leases
Grade:	Construction and Land Development		Commercial Mortgage		Other Commercial Real Estate		Commercial and Industrial		Lease Financing		Other		Total Commercial Loans Not Covered by Loss Share
June 30, 2011
Pass	$	362,202	$	4,505,768	$	134,686	$	1,590,496	$	294,134	$	170,133	$	7,057,419
Special mention		11,923		229,564		8,352		38,466		5,619		602		294,526
Substandard		32,494		116,267		5,398		27,881		3,124		—		185,164
Doubtful		515		6,435		401		804		182		—		8,337
Ungraded		—		3,423		140		148,165		45		23		151,796

Total	$	407,134	$	4,861,457	$	148,977	$	1,805,812	$	303,104	$	170,758	$	7,697,242


December 31, 2010
Pass	$	285,988	$	4,390,634	$	137,570	$	1,633,775	$	291,476	$	181,044	$	6,920,487
Special mention		20,957		229,581		6,531		42,639		6,888		846		307,442
Substandard		29,714		108,239		5,103		24,686		2,496		90		170,328
Doubtful		2,270		7,928		401		748		414		—		11,761
Ungraded		—		1,480		105		167,642		15		35		169,277

Total	$	338,929	$	4,737,862	$	149,710	$	1,869,490	$	301,289	$	182,015	$	7,579,295


	Non-commercial noncovered loans and leases
	Residential Mortgage		Revolving Mortgage		Construction and Land Development		Consumer		Total Non- commercial Noncovered Loans
June 30, 2011
Current	$	806,439	$	2,291,153	$	143,376	$	551,606	$	3,792,574
31-60 days past due		3,376		3,500		381		2,633		9,890
61-90 days past due		2,897		1,732		1,120		1,128		6,877
Over 90 days past due		12,898		7,302		568		1,503		22,271

Total	$	825,610	$	2,303,687	$	145,445	$	556,870	$	3,831,612


December 31, 2010
Current	$	840,328	$	2,226,427	$	187,918		579,227	$	3,833,900
31-60 days past due		13,051		3,682		1,445		12,798		30,976
61-90 days past due		4,762		1,424		548		2,611		9,345
Over 90 days past due		20,651		2,320		3,043		1,047		27,061

Total	$	878,792	$	2,233,853	$	192,954	$	595,683	$	3,901,282


	Covered loans
Grade:	Construction and Land Development - Commercial		Commercial Mortgage		Other Commercial Real Estate		Commercial and Industrial		Lease Financing		Residential Mortgage		Revolving Mortgage		Construction and Land Development Non-commercial		Consumer and Other		Total Covered Loans
June 30, 2011
Pass	$	57,074	$	561,871	$	60,738	$	51,519	$	218	$	266,349	$	11,307	$	5,883	$	3,987	$	1,018,946
Special mention		99,051		304,731		41,616		46,944		—		25,153		143		21,654		251		539,543
Substandard		91,247		377,263		47,081		20,832		—		45,439		483		42,395		144		624,884
Doubtful		89,761		63,775		24,171		6,197		6		8,648		—		12,245		872		205,675
Ungraded		1,517		135		—		—		—		8,444		—		—		594		10,690

Total	$	338,650	$	1,307,775	$	173,606	$	125,492	$	224	$	354,033	$	11,933	$	82,177	$	5,848	$	2,399,738


December 31, 2010
Pass	$	98,449	$	430,526	$	77,162	$	46,450	$	—	$	39,492	$	5,051	$	—	$	6,296	$	703,426
Special mention		90,203		261,273		40,756		36,566		—		17,041		3,630		3,549		1,231		454,249
Substandard		79,631		326,036		65,896		41,936		—		11,609		3,462		67,594		691		596,855
Doubtful		100,137		71,175		26,847		7,525		—		6,353		1,837		34,662		438		248,974
Ungraded		—		54		—		—		—		—		3,886		—		8		3,948

Total	$	368,420	$	1,089,064	$	210,661	$	132,477	$	—	$	74,495	$	17,866	$	105,805	$	8,664	$	2,007,452

The aging of the outstanding loans and leases, by class, at June 30, 2011 and December 31, 2010 (excluding loans impaired at acquisition date) 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 have not been paid. Loans and leases 30 days or less past due are considered current due to certain grace periods that allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.


	31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans and Leases
June 30, 2011

Noncovered loans and leases:
Construction and land development - commercial	$	876	$	763	$	3,150	$	4,789	$	402,345	$	407,134
Commercial mortgage		12,985		5,580		21,467		40,032		4,821,425		4,861,457
Other commercial real estate		270		54		586		910		148,067		148,977
Commercial and industrial		3,102		909		2,402		6,413		1,799,399		1,805,812
Lease financing		337		82		359		778		302,326		303,104
Other		—		—		—		—		170,758		170,758
Residential mortgage		3,376		2,897		12,898		19,171		806,439		825,610
Revolving mortgage		3,500		1,732		7,302		12,534		2,291,153		2,303,687
Construction and land development - non-commercial		381		1,120		568		2,069		143,376		145,445
Consumer		2,633		1,128		1,503		5,264		551,606		556,870

Total noncovered loans and leases		27,460		14,265		50,235		91,960		11,436,894		11,528,854

Covered loans:
Construction and land development - commercial		8,087		17,421		46,356		71,864		182,942		254,806
Commercial mortgage		36,054		25,562		108,136		169,752		1,017,107		1,186,859
Other commercial real estate		5,306		9,265		7,918		22,489		115,770		138,259
Commercial and industrial		4,369		3,093		11,824		19,286		98,216		117,502
Lease financing		—		—		—		—		218		218
Residential mortgage		10,148		2,952		26,961		40,061		294,337		334,398
Revolving mortgage		—		—		—		—		11,450		11,450
Construction and land development - non-commercial		—		741		16,777		17,518		22,603		40,121
Consumer and other		27		279		972		1,278		4,448		5,726

Total covered loans		63,991		59,313		218,944		342,248		1,747,091		2,089,339

Total loans and leases	$	91,451	$	73,578	$	269,179	$	434,208	$	13,183,985	$	13,618,193


December 31, 2010
Noncovered loans and leases:
Construction and land development - commercial	$	3,047	$	6,092	$	4,208	$	13,347	$	325,582	$	338,929
Commercial mortgage		22,913		7,521		20,425		50,859		4,687,003		4,737,862
Other commercial real estate		35		290		621		946		148,764		149,710
Commercial and industrial		4,434		1,473		3,744		9,651		1,859,839		1,869,490
Lease financing		2,266		141		630		3,037		298,252		301,289
Other		40		75		—		115		181,900		182,015
Residential mortgage		13,051		4,762		20,651		38,464		840,328		878,792
Revolving mortgage		3,682		1,424		2,320		7,426		2,226,427		2,233,853
Construction and land development - non-commercial		1,445		548		3,043		5,036		187,918		192,954
Consumer		12,798		2,611		1,047		16,456		579,227		595,683

Total noncovered loans and leases		63,711		24,937		56,689		145,337		11,335,240		11,480,577

Covered loans:
Construction and land development - commercial		64,372		8,985		73,997		147,354		118,078		265,432
Commercial mortgage		43,570		20,308		88,525		152,403		816,421		968,824
Other commercial real estate		15,008		2,477		20,453		37,938		138,019		175,957
Commercial and industrial		9,267		5,899		28,780		43,946		79,444		123,390
Residential mortgage		4,459		1,352		3,979		9,790		53,679		63,469
Revolving mortgage		382		—		337		719		8,747		9,466
Construction and land development - non-commercial		7,701		—		36,412		44,113		17,432		61,545
Consumer and other		430		1,649		978		3,057		5,607		8,664

Total covered loans		145,189		40,670		253,461		439,320		1,237,427		1,676,747

Total loans and leases	$	208,900	$	65,607	$	310,150	$	584,657	$	12,572,667	$	13,157,324

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 June 30, 2011 and December 31, 2010 (excluding loans and leases impaired as acquisition date) is as follows:


	June 30, 2011				December 31, 2010
	Nonaccrual loans and leases		Loans and leases > 90 days and accruing		Nonaccrual loans and leases		Loans and leases > 90 days and accruing
Noncovered loans and leases:
Construction and land development - commercial	$	24,675	$	78	$	26,796	$	68
Commercial mortgage		30,960		2,757		32,723		4,347
Commercial and industrial		2,408		588		3,320		1,850
Lease financing		605		28		806		298
Other commercial real estate		847		1		777		80
Construction and land development - non-commercial		49		519		1,330		1,122
Residential mortgage		13,897		2,462		13,062		6,640
Revolving mortgage		—		7,282		—		2,301
Consumer		—		1,493		—		1,795

Total noncovered loans and leases	$	73,441	$	15,208	$	78,814	$	18,501

Covered loans and leases:
Construction and land development - commercial	$	69,621	$	21,309	$	20,609	$	55,503
Commercial mortgage		108,853		57,467		75,633		37,819
Other commercial real estate		22,986		6,754		7,299		15,068
Commercial and industrial		3,774		9,390		8,488		22,829
Residential mortgage		27,351		6,333		3,594		2,010
Revolving mortgage		—		—		403		190
Construction and land development - non-commercial		14,104		1,966		43,836		7,460
Consumer and other		879		649		162		824

Total covered loans and leases	$	247,568	$	103,868	$	160,024	$	141,703

Total loans and leases	$	321,231	$	119,075	$	238,838	$	160,204

Acquired Loans

When the fair values of covered loans were established, certain loans were identified as impaired. The following table provides changes in the carrying value of acquired loans during the six months ended June 30, 2011 and 2010:


	2011						2010
	Impaired at acquisition date			All other acquired loans			Impaired as acquisition date			All other acquired loans
Balance, January 1	$	330,705		$	1,676,747		$	75,368		$	1,097,652
Fair value of acquired loans covered by loss share agreements		99,344			660,007			412,627			1,152,134
Reductions for repayments, foreclosures and decreases in fair value		(119,650	)		(247,415	)		(115,878	)		(254,813	)

Balance, June 30	$	310,399		$	2,089,339		$	372,117		$	1,994,973


Outstanding principal balance at June 30	$	1,100,257		$	2,937,273		$	807,288		$	2,726,588

Cash flow analyses were prepared for acquired loans deemed impaired at acquisition and those analyses are used to determine the amount of accretable yield recognized on those loans.

The following table documents changes to the amount of accretable yield for the first six months of 2011 and 2010. For acquired loans, improved cash flow estimates and receipt of unscheduled loan payments result in the reclassification of nonaccretable yield to accretable yield.


	2011			2010
Balance, January 1	$	164,586		$	—
Additions		53,426			45,523
Accretion		(122,755	)		(12,170	)
Reclassifications from nonaccretable difference		60,452			2,795
Disposals		—			(1,070	)

Balance, June 30	$	155,709		$	35,078

For loans acquired in the United Western transaction, the contractually required payments including principal and interest, expected cash flows to be collected and fair values as of the acquisition date were as follows:


	Impaired at Acquisition Date		All Other Acquired Loans
Contractually required payments	$	304,001	$	789,083
Cash flows expected to be collected		167,291		673,499
Fair value at acquisition date		99,344		660,007

The recorded values of loans acquired in the United Western transaction as of the acquisition date by loan class were as follows:


	January 21, 2011

Commercial:
Construction and land development	$	52,889
Commercial mortgage		304,769
Other commercial real estate		8,434
Commercial and industrial		75,523
Lease financing		316

Total commercial loans		441,931
Non-commercial:
Residential mortgage		260,389
Revolving mortgage		12,073
Construction and land development		39,827
Consumer		5,131

Total non-commercial loans		317,420

Total covered loans acquired	$	759,351

Note E

Allowance for Loan and Lease Losses

Activity in the allowance for loan and lease losses, ending balances of loans and leases and related allowance by class of loans is summarized as follows:


Noncovered Loans	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			Non- specific			Total
2011
Allowance for loan and lease losses:
Three months ended June 30, 2011
Balance at April 1	$	10,728		$	66,190		$	2,204		$	24,365		$	3,369		$	1,419		$	7,129		$	19,363		$	1,328		$	27,778		$	14,095		$	177,968
Charge-offs		(308	)		(825	)		—			(1,592	)		(252	)		—			(713	)		(4,404	)		(363	)		(3,221	)		—			(11,678	)
Recoveries		13			546			6			277			37			—			3			159			70			433			—			1,544
Provision		(741	)		1,212			58			1,868			204			(68	)		985			6,902			289			2,089			(17	)		12,781

Balance at June 30	$	9,692		$	67,123		$	2,268		$	24,918		$	3,358		$	1,351		$	7,404		$	22,020		$	1,324		$	27,079		$	14,078		$	180,615

Six months ended June 30, 2011
Balance at January 1	$	10,512		$	64,772		$	2,200		$	24,089		$	3,384		$	1,473		$	7,009		$	18,016		$	1,751		$	29,448		$	13,863		$	176,517
Charge-offs		(395	)		(3,961	)		(83	)		(2,613	)		(252	)		—			(719	)		(4,446	)		(373	)		(9,289	)		—			(22,131	)
Recoveries		37			555			6			282			37			—			4			159			73			433			—			1,586
Provision		(462	)		5,757			145			3,160			189			(122	)		1,110			8,291			(127	)		6,487			215			24,643

Balance at June 30	$	9,692		$	67,123		$	2,268		$	24,918		$	3,358		$	1,351		$	7,404		$	22,020		$	1,324		$	27,079		$	14,078		$	180,615


ALLL for loans and leases individually evaluated for impairment	$	5,526		$	5,272		$	56		$	430		$	48		$	—		$	455		$	—		$	93		$	45		$	—		$	11,925
ALLL for loans and leases collectively evaluated for impairment		4,166			61,851			2,212			24,488			3,310			1,351			6,949			22,020			1,231			27,034			—			154,612
Non-specific ALLL		—			—			—			—			—			—			—			—			—			—			14,078			14,078

Total allowance for loan and lease losses	$	9,692		$	67,123		$	2,268		$	24,918		$	3,358		$	1,351		$	7,404		$	22,020		$	1,324		$	27,079		$	14,078		$	180,615


Loans and leases:

Loans and leases individually evaluated for impairment	$	28,274		$	69,806		$	1,770		$	14,063		$	617		$	—		$	11,102		$	—		$	2,562		$	994		$	—		$	129,188

Loans and leases collectively evaluated for impairment		378,860			4,791,651			147,207			1,791,749			302,487			170,758			814,508			2,303,687			142,883			555,876			—			11,399,666

Total loan and leases	$	407,134		$	4,861,457		$	148,977		$	1,805,812		$	303,104		$	170,758		$	825,610		$	2,303,687		$	145,445		$	556,870		$	—		$	11,528,854

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company