FCNCA_10Q_03.31.2013
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, 2013
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—8,586,058 shares
Class B Common Stock—$1 Par Value—1,032,883 shares
(Number of shares outstanding, by class, as of May 9, 2013)

Table of Contents

INDEX
 
 
 
Page(s)
 
 
 
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.

2
Table of Contents

Part 1
 
Item 1.
Financial Statements (Unaudited)

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
 
 
March 31*
2013
 
December 31#
2012
 
March 31*
2012
 
(thousands, except share data)
Assets
 
 
 
 
 
Cash and due from banks
$
460,217

 
$
639,730

 
$
552,663

Overnight investments
954,232

 
443,180

 
752,334

Investment securities available for sale
5,279,678

 
5,226,228

 
4,457,739

Investment securities held to maturity
1,229

 
1,342

 
1,688

Loans held for sale
86,351

 
86,333

 
73,457

Loans and leases:
 
 
 
 
 
Covered under loss share agreements
1,621,327

 
1,809,235

 
2,183,869

Not covered under loss share agreements
11,509,080

 
11,576,115

 
11,489,529

Less allowance for loan and lease losses
273,019

 
319,018

 
272,500

Net loans and leases
12,857,388

 
13,066,332

 
13,400,898

Premises and equipment
872,045

 
882,768

 
864,466

Other real estate owned:
 
 
 
 
 
Covered under loss share agreements
101,901

 
102,577

 
142,418

Not covered under loss share agreements
44,828

 
43,513

 
48,092

Income earned not collected
47,255

 
47,666

 
52,406

Receivable from FDIC for loss share agreements
195,942

 
270,192

 
492,384

Goodwill
102,625

 
102,625

 
102,625

Other intangible assets
2,884

 
3,556

 
6,076

Other assets
344,437

 
367,610

 
278,415

Total assets
$
21,351,012

 
$
21,283,652

 
$
21,225,661

Liabilities
 
 
 
 
 
Deposits:
 
 
 
 
 
Noninterest-bearing
$
4,915,038

 
$
4,885,700

 
$
4,572,300

Interest-bearing
13,149,883

 
13,200,325

 
13,187,192

Total deposits
18,064,921

 
18,086,025

 
17,759,492

Short-term borrowings
573,102

 
568,505

 
677,993

Long-term obligations
444,252

 
444,921

 
649,818

Payable to FDIC for loss share agreements
98,870

 
101,641

 
82,033

Other liabilities
251,286

 
218,553

 
164,202

Total liabilities
19,432,431

 
19,419,645

 
19,333,538

Shareholders’ Equity
 
 
 
 
 
Common stock:
 
 
 
 
 
Class A - $1 par value (11,000,000 shares authorized; 8,586,058 shares issued and outstanding at March 31, 2013; 8,588,031 shares issued and outstanding at December 31, 2012; 8,644,307 shares issued and outstanding at March 31, 2012)
8,586

 
8,588

 
8,644

Class B - $1 par value (2,000,000 shares authorized; 1,032,883 shares issued and outstanding at March 31, 2013; 1,032,883 shares issued and outstanding at December 31, 2012; 1,631,424 shares issued and outstanding at March 31, 2012)
1,033

 
1,033

 
1,631

Surplus
143,766

 
143,766

 
143,766

Retained earnings
1,845,101

 
1,792,726

 
1,804,498

Accumulated other comprehensive loss, net
(79,905
)
 
(82,106
)
 
(66,416
)
Total shareholders’ equity
1,918,581

 
1,864,007

 
1,892,123

Total liabilities and shareholders’ equity
$
21,351,012

 
$
21,283,652

 
$
21,225,661

 * Unaudited
# Derived from 2012 Annual Report on Form 10-K.
See accompanying Notes to Consolidated Financial Statements.

3
Table of Contents

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
 
 
Three months ended March 31
 
2013
 
2012
 
(thousands, except share and per share data, unaudited)
Interest income
 
 
 
Loans and leases
$
211,763

 
$
238,137

Investment securities:
 
 
 
U. S. Treasury
496

 
739

Government agency
3,326

 
4,332

Residential mortgage-backed securities
4,579

 
1,889

Corporate bonds
—

 
1,199

State, county and municipal
6

 
12

Other
77

 
131

Total investment securities interest and dividend income
8,484

 
8,302

Overnight investments
357

 
313

Total interest income
220,604

 
246,752

Interest expense
 
 
 
Deposits
10,313

 
16,472

Short-term borrowings
704

 
1,391

Long-term obligations
4,705

 
7,937

Total interest expense
15,722

 
25,800

Net interest income
204,882

 
220,952

Provision for loan and lease losses
(18,606
)
 
30,715

Net interest income after provision for loan and lease losses
223,488

 
190,237

Noninterest income
 
 
 
Cardholder and merchant services
23,557

 
22,450

Service charges on deposit accounts
14,999

 
14,846

Wealth management services
14,515

 
13,755

Fees from processing services
5,619

 
8,562

Securities gains (losses)
58

 
(45
)
Other service charges and fees
3,766

 
3,441

Mortgage income
3,788

 
2,924

Insurance commissions
2,980

 
2,756

ATM income
1,168

 
1,455

Adjustment for FDIC receivable for loss share agreements
(24,053
)
 
(26,796
)
Other
11,116

 
3,595

Total noninterest income
57,513

 
46,943

Noninterest expense
 
 
 
Salaries and wages
76,119

 
75,684

Employee benefits
25,019

 
20,249

Occupancy expense
18,809

 
18,607

Equipment expense
18,946

 
18,166

FDIC insurance expense
2,666

 
3,057

Foreclosure-related expenses
4,305

 
4,590

Other
48,491

 
42,978

Total noninterest expense
194,355

 
183,331

Income before income taxes
86,646

 
53,849

Income taxes
31,061

 
18,354

Net income
$
55,585

 
$
35,495

Average shares outstanding
9,618,985

 
10,283,842

Net income per share
$
5.78

 
$
3.45


See accompanying Notes to Consolidated Financial Statements.

4
Table of Contents

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


 
Three months ended March 31
 
2013
 
2012
 
(thousands, unaudited)
Net income
$
55,585

 
$
35,495

 
 
 
 
Other comprehensive income
 
 
 
Unrealized gains on securities:
 
 
 
Change in unrealized securities gains arising during period
(1,418
)
 
(2,898
)
Deferred tax benefit
542

 
1,123

Reclassification adjustment for gains included in income before income taxes
(58
)
 
—

Deferred tax expense
23

 
—

Total change in unrealized gains on securities, net of tax
(911
)
 
(1,775
)
 
 
 
 
Change in fair value of cash flow hedges:
 
 
 
Change in unrecognized loss on cash flow hedges
2

 
(359
)
Deferred tax expense
(1
)
 
141

Reclassification adjustment for gains included in income before income taxes
813

 
749

Deferred tax benefit
(321
)
 
(296
)
Total change in unrecognized loss on cash flow hedges, net of tax
493

 
235

 
 
 
 
Change in pension obligation:
 
 
 
Reclassification adjustment for gains included in income before income taxes
4,304

 
2,790

Deferred tax expense
(1,685
)
 
(1,092
)
Total change in pension obligation, net of tax
2,619

 
1,698

 
 
 
 
Other comprehensive income
2,201

 
158

 
 
 
 
Total comprehensive income
$
57,786

 
$
35,653

 
 
 
 

See accompanying Notes to Consolidated Financial Statements.


5
Table of Contents

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

 
 
Class A
Common Stock
 
Class B
Common Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
(thousands, except share data, unaudited)
Balance at December 31, 2011
$
8,644

 
$
1,640

 
$
143,766

 
$
1,773,652

 
$
(66,574
)
 
$
1,861,128

Net income
—

 
—

 
—

 
35,495

 
—

 
35,495

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
158

 
158

Repurchase of 8,388 shares of Class B common stock
—

 
(9
)
 
—

 
(1,564
)
 
—

 
(1,573
)
Cash dividends ($0.30 per share)
—

 
—

 
—

 
(3,085
)
 
—

 
(3,085
)
Balance at March 31, 2012
$
8,644

 
$
1,631

 
$
143,766

 
$
1,804,498

 
$
(66,416
)
 
$
1,892,123

Balance at December 31, 2012
$
8,588

 
$
1,033

 
$
143,766

 
$
1,792,726

 
$
(82,106
)
 
$
1,864,007

Net income
—

 
—

 
—

 
55,585

 
—

 
55,585

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
2,201

 
2,201

Repurchase of 1,973 shares of Class A common stock
(2
)
 
—

 
—

 
(319
)
 
—

 
(321
)
Cash dividends ($0.30 per share)
—

 
—

 
—

 
(2,891
)
 
—

 
(2,891
)
Balance at March 31, 2013
$
8,586

 
$
1,033

 
$
143,766

 
$
1,845,101

 
$
(79,905
)
 
$
1,918,581

See accompanying Notes to Consolidated Financial Statements.


6
Table of Contents

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows 
 
 
 
Three months ended March 31
 
2013
 
2012
 
(thousands, unaudited)
OPERATING ACTIVITIES
 
 
 
Net income
$
55,585

 
$
35,495

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Provision for loan and lease losses
(18,606
)
 
30,715

Deferred tax (benefit) expense
7,733

 
(5,692
)
Change in current taxes payable
31,625

 
22,857

Depreciation
17,994

 
16,620

Change in accrued interest payable
(2,700
)
 
(2,233
)
Change in income earned not collected
411

 
(10,190
)
Gain on sale of processing services, net
(4,085
)
 
—

Securities losses (gains)
(58
)
 
45

Origination of loans held for sale
(117,981
)
 
(135,897
)
Proceeds from sale of loans held for sale
121,523

 
158,391

Gain on sale of loans
(3,560
)
 
(3,412
)
Loss on sale of other real estate
1,350

 
1,495

Net amortization of premiums and discounts
(47,236
)
 
(35,480
)
FDIC receivable for loss share agreements
5,619

 
(18,274
)
Net change in other assets
(6,980
)
 
23,564

Net change in other liabilities
32,662

 
6,487

Net cash provided by operating activities
73,296

 
84,491

INVESTING ACTIVITIES
 
 
 
Net change in loans outstanding
269,428

 
277,719

Purchases of investment securities available for sale
(736,923
)
 
(1,681,584
)
Proceeds from maturities of investment securities held to maturity
113

 
134

Proceeds from maturities of investment securities available for sale
674,606

 
1,275,014

Proceeds from sales of investment securities available for sale
1,582

 
—

Net change in overnight investments
(511,052
)
 
(317,359
)
Cash received from the FDIC for loss share agreements
42,519

 
123,204

Proceeds from sale of other real estate
36,019

 
23,853

Additions to premises and equipment
(8,713
)
 
(26,610
)
Net cash used by investing activities
(232,421
)
 
(325,629
)
FINANCING ACTIVITIES
 
 
 
Net change in time deposits
(195,381
)
 
(306,338
)
Net change in demand and other interest-bearing deposits
174,277

 
488,556

Net change in short-term borrowings
4,597

 
62,771

Repayment of long-term obligations
(669
)
 
(37,781
)
Repurchase of common stock
(321
)
 
(1,573
)
Cash dividends paid
(2,891
)
 
(3,085
)
Net cash provided (used) by financing activities
(20,388
)
 
202,550

Change in cash and due from banks
(179,513
)
 
(38,588
)
Cash and due from banks at beginning of period
639,730

 
590,801

Cash and due from banks at end of period
$
460,217

 
$
552,213

CASH PAYMENTS FOR:
 
 
 
Interest
$
18,422

 
$
28,033

Income taxes
3,364

 
84

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Change in unrealized securities gains (losses)
$
(1,476
)
 
$
(2,898
)
Change in fair value of cash flow hedge
815

 
389

Change in pension obligation
4,304

 
2,790

Transfers of loans to other real estate
38,008

 
26,840


See accompanying Notes to Consolidated Financial Statements.

7
Table of Contents

First Citizens BancShares, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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 are presented in accordance with the instructions for Form 10-Q 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 statement of the consolidated financial position and consolidated results of operations have been made. The information contained in the financial statements and footnotes included in BancShares Annual Report on Form 10-K for the year ended December 31, 2012, should be referred to in connection with these unaudited interim consolidated financial statements.

BancShares evaluates all subsequent events prior to filing this Form 10-Q.

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 cash flows, 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 and/or consolidated results of operations and related disclosures. Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan and lease losses, determination of fair value for financial instruments, other real estate owned (OREO), cash flow estimates on acquired loans receivable and payable from/to FDIC for loss share agreements, purchase accounting related adjustments, and income tax assets, liabilities, and expense.

Goodwill Impairment

Annual impairment tests are conducted as of July 31 each year. Based on the third quarter 2012 impairment test, management concluded there was no impairment of goodwill. In addition to the annual testing requirement, impairment tests are performed for various other events including significant adverse changes in the business climate, considering various qualitative and quantitative factors to determine whether impairment exists.

Recent Accounting and Regulatory Pronouncements

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU ) 2013-01, “Balance Sheet”

This ASU's objective is to clarify that the scope of ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, would apply to derivatives including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or are subject to a master netting arrangement or similar agreement.


8
Table of Contents

BancShares is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. The effective date is the same as the effective date of Update 2011-11. BancShares has adopted the methodologies prescribed by this ASU by the date required, and the ASU did not have a material effect on its financial position or results of operations.

FASB ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.”

This ASU requires BancShares to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, BancShares is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts.

For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. BancShares has adopted the methodologies prescribed by this ASU by the date required, and the ASU did not have a material effect on its financial position or results of operations. BancShares has included the required disclosures in Note L.

FASB ASU 2013-04, “Liabilities”

This ASU provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this Update is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP.

The guidance requires BancShares to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this Update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.

The amendments in this update are effective for fiscal years beginning after December 31, 2013. Early adoption is permitted. BancShares will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.








9
Table of Contents

Note B
Investments
The aggregate values of investment securities at March 31, 2013, December 31, 2012, and March 31, 2012, 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
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
U. S. Treasury
$
749,284

 
$
474

 
$
1

 
$
749,757

Government agency
3,147,363

 
2,952

 
274

 
3,150,041

Residential mortgage-backed securities
1,348,765

 
10,849

 
1,512

 
1,358,102

Equity securities
543

 
19,860

 
—

 
20,403

State, county and municipal
546

 
1

 
—

 
547

Other
844

 
1

 
17

 
828

Total investment securities available for sale
$
5,247,345

 
$
34,137

 
$
1,804

 
$
5,279,678

December 31, 2012
 
 
 
 
 
 
 
U. S. Treasury
$
823,241

 
$
403

 
$
12

 
$
823,632

Government agency
3,052,040

 
3,501

 
337

 
3,055,204

Residential mortgage-backed securities
1,315,211

 
14,787

 
341

 
1,329,657

Equity securities
543

 
15,822

 
—

 
16,365

State, county and municipal
546

 
4

 
—

 
550

Other
838

 
—

 
18

 
820

Total investment securities available for sale
$
5,192,419

 
$
34,517

 
$
708

 
$
5,226,228

March 31, 2012
 
 
 
 
 
 
 
U. S. Treasury
$
1,065,035

 
$
306

 
$
305

 
$
1,065,036

Government agency
2,859,197

 
1,228

 
5,040

 
2,855,385

Corporate bonds
225,214

 
1,214

 
—

 
226,428

Residential mortgage-backed securities
282,706

 
8,393

 
191

 
290,908

Equity securities
894

 
18,049

 
—

 
18,943

State, county and municipal
1,026

 
14

 
1

 
1,039

Total investment securities available for sale
$
4,434,072

 
$
29,204

 
$
5,537

 
$
4,457,739

Investment securities held to maturity
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
1,229

 
$
120

 
$
27

 
$
1,322

December 31, 2012
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
1,342

 
$
133

 
$
27

 
$
1,448

March 31, 2012
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
1,688

 
$
183

 
$
27

 
$
1,844

 
 
 
 
 
 
 
 

Investments in residential mortgage-backed securities primarily represent 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 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 the expected maturity distribution for residential mortgage-backed securities and the contractual maturity distribution of other investment securities as of the dates indicated. Callable securities are assumed to mature on their earliest call date.


10
Table of Contents

 
March 31, 2013
 
December 31, 2012
 
March 31, 2012
 
Cost
 
Fair
value
 
Cost
 
Fair
value
 
Cost
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
 
 
 
 
Maturing in:
 
 
 
 
 
 
 
 
 
 
 
One year or less
$
2,350,896

 
$
2,352,328

 
$
2,288,556

 
$
2,289,859

 
$
2,750,247

 
$
2,748,710

One through five years
2,233,407

 
2,237,530

 
2,323,222

 
2,329,207

 
1,469,876

 
1,469,236

Five through 10 years
181,370

 
182,281

 
194,398

 
196,371

 
67,229

 
67,683

Over 10 years
481,129

 
487,136

 
385,700

 
394,426

 
145,826

 
153,167

Equity securities
543

 
20,403

 
543

 
16,365

 
894

 
18,943

Total investment securities available for sale
$
5,247,345

 
$
5,279,678

 
$
5,192,419

 
$
5,226,228

 
$
4,434,072

 
$
4,457,739

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
Maturing in:
 
 
 
 
 
 
 
 
 
 
 
One through five years
$
1,132

 
$
1,188

 
$
1,242

 
$
1,309

 
$
379

 
$
393

Five through 10 years
18

 
10

 
18

 
11

 
1,201

 
1,306

Over 10 years
79

 
124

 
82

 
128

 
108

 
145

Total investment securities held to maturity
$
1,229

 
$
1,322

 
$
1,342

 
$
1,448

 
$
1,688

 
$
1,844

For each period presented, securities gains (losses) include the following:
 
 
Three months ended March 31
 
2013
 
2012
Gross gains on sales of investment securities available for sale
$
58

 
$
—

Gross losses on sales of investment securities available for sale
—

 
—

Other than temporary impairment loss on equity securities
—

 
(45
)
Total securities gains (losses)
$
58

 
$
(45
)


11
Table of Contents

The following table provides information regarding securities with unrealized losses as of March 31, 2013, December 31, 2012, and March 31, 2012:
 
 
Less than 12 months
 
12 months or more
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U. S. Treasury
$
25,060

 
$
1

 
$
—

 
$
—

 
$
25,060

 
$
1

Government agency
548,618

 
274

 
—

 
—

 
548,618

 
274

Residential mortgage-backed securities
349,746

 
1,379

 
10,089

 
133

 
359,835

 
1,512

Other
828

 
17

 
—

 
—

 
828

 
17

Total
$
924,252

 
$
1,671

 
$
10,089

 
$
133

 
$
934,341

 
$
1,804

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

 
$
—

 
$
16

 
$
27

 
$
16

 
$
27

December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U. S. Treasury
$
120,045

 
$
12

 
$
—

 
$
—

 
$
120,045

 
$
12

Government agency
407,498

 
337

 
—

 
—

 
407,498

 
337

Residential mortgage-backed securities
135,880

 
214

 
9,433

 
127

 
145,313

 
341

Other
820

 
18

 
—

 
—

 
820

 
18

Total
$
664,243

 
$
581

 
$
9,433

 
$
127

 
$
673,676

 
$
708

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

 
$
—

 
$
17

 
$
27

 
$
17

 
$
27

March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
579,673

 
$
305

 
$
—

 
$
—

 
$
579,673

 
$
305

Government agency
2,143,742

 
5,040

 
—

 
—

 
2,143,742

 
5,040

Residential mortgage-backed securities
28,595

 
156

 
1,113

 
35

 
29,708

 
191

State, county and municipal
127

 
1

 
10

 
—

 
137

 
1

Total
$
2,752,137

 
$
5,502

 
$
1,123

 
$
35

 
$
2,753,260

 
$
5,537

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

 
$
—

 
$
20

 
$
27

 
$
20

 
$
27

Investment securities with an aggregate fair value of $10,105 have had continuous unrealized losses for more than 12 months as of March 31, 2013, with an aggregate unrealized loss of $160. These 30 investments are residential mortgage-backed securities. None of the unrealized losses identified as of March 31, 2013, December 31, 2012, or March 31, 2012, 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.

12
Table of Contents

Investment securities having an aggregate carrying value of $2,558,079 at March 31, 2013, $2,351,072 at December 31, 2012, and $2,540,463 at March 31, 2012, 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 C
Loans and Leases
Loans and leases outstanding include the following as of the dates indicated:
 
 
March 31, 2013
 
December 31, 2012
 
March 31, 2012
Covered loans
$
1,621,327

 
$
1,809,235

 
$
2,183,869

Noncovered loans and leases:
 
 
 
 
 
Commercial:
 
 
 
 
 
Construction and land development
300,497

 
309,190

 
346,557

Commercial mortgage
5,352,594

 
5,341,839

 
5,127,948

Other commercial real estate
176,456

 
160,980

 
150,316

Commercial and industrial
1,662,124

 
1,726,126

 
1,739,724

Lease financing
336,329

 
330,679

 
315,704

Other
194,186

 
125,681

 
149,792

Total commercial loans
8,022,186

 
7,994,495

 
7,830,041

Noncommercial:
 
 
 
 
 
Residential mortgage
834,879

 
822,889

 
793,612

Revolving mortgage
2,150,800

 
2,210,133

 
2,282,138

Construction and land development
115,628

 
131,992

 
132,677

Consumer
385,587

 
416,606

 
451,061

Total noncommercial loans
3,486,894

 
3,581,620

 
3,659,488

Total noncovered loans and leases
11,509,080

 
11,576,115

 
11,489,529

Total loans and leases
$
13,130,407

 
$
13,385,350

 
$
13,673,398

 


13
Table of Contents

 
March 31, 2013
 
December 31, 2012
 
March 31, 2012
 
Impaired at
acquisition
date
 
All other
covered loans
 
Total
 
Impaired at
acquisition
date
 
All other
covered loans
 
Total
 
Impaired at
acquisition
date
 
All other
covered loans
 
Total
Covered loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
$
53,209

 
$
151,315

 
$
204,524

 
$
71,225

 
$
166,681

 
$
237,906

 
$
100,736

 
$
209,865

 
$
310,601

Commercial mortgage
101,397

 
847,055

 
948,452

 
107,281

 
947,192

 
1,054,473

 
122,876

 
1,072,665

 
1,195,541

Other commercial real estate
30,191

 
63,041

 
93,232

 
35,369

 
71,750

 
107,119

 
31,727

 
113,251

 
144,978

Commercial and industrial
6,149

 
39,544

 
45,693

 
3,932

 
45,531

 
49,463

 
17,397

 
75,864

 
93,261

Lease financing
—

 
—

 
—

 
—

 
—

 
—

 
—

 
45

 
45

Other
—

 
1,042

 
1,042

 
—

 
1,074

 
1,074

 
—

 
1,283

 
1,283

Total commercial loans
190,946

 
1,101,997

 
1,292,943

 
217,807

 
1,232,228

 
1,450,035

 
272,736

 
1,472,973

 
1,745,709

Noncommercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
43,924

 
235,073

 
278,997

 
48,077

 
249,849

 
297,926

 
46,905

 
251,633

 
298,538

Revolving mortgage
9,788

 
27,351

 
37,139

 
9,606

 
29,104

 
38,710

 
14,125

 
35,891

 
50,016

Construction and land development
10,609

 
415

 
11,024

 
15,136

 
5,657

 
20,793

 
56,722

 
28,833

 
85,555

Consumer
—

 
1,224

 
1,224

 
—

 
1,771

 
1,771

 
1,453

 
2,598

 
4,051

Total noncommercial loans
64,321

 
264,063

 
328,384

 
72,819

 
286,381

 
359,200

 
119,205

 
318,955

 
438,160

Total covered loans
$
255,267

 
$
1,366,060

 
$
1,621,327

 
$
290,626

 
$
1,518,609

 
$
1,809,235

 
$
391,941

 
$
1,791,928

 
$
2,183,869



At March 31, 2013, $2,522,055 in noncovered loans were pledged to secure debt obligations, compared to $2,570,773 at December 31, 2012, and $2,398,476 at March 31, 2012.

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, noncommercial 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 all 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 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.


14
Table of Contents

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 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 March 31, 2013, relate to business credit cards and tobacco buyout loans classified as commercial and industrial loans. Business credit card loans with an outstanding balance of $78,041 at March 31, 2013, are subject to automatic charge off when they become 120 days past due in the same manner as unsecured consumer lines of credit. Tobacco buyout loans with an outstanding balance of $21,304 at March 31, 2013, 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 made by the Commodity Credit Corporation, which is part of the United States Department of Agriculture.

The credit quality indicators for noncovered, noncommercial 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 March 31, 2013, December 31, 2012, and March 31, 2012, 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 noncovered loans and leases
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
274,917

 
$
5,050,073

 
$
168,885

 
$
1,519,890

 
$
332,790

 
$
192,489

 
$
7,539,044

Special mention
13,878

 
149,904

 
1,771

 
15,121

 
1,084

 
1,391

 
183,149

Substandard
11,501

 
139,262

 
5,158

 
24,176

 
1,689

 
17

 
181,803

Doubtful
73

 
9,600

 
98

 
1,252

 
728

 
—

 
11,751

Ungraded
128

 
3,755

 
544

 
101,685

 
38

 
289

 
106,439

Total
$
300,497

 
$
5,352,594

 
$
176,456

 
$
1,662,124

 
$
336,329

 
$
194,186

 
$
8,022,186

December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
274,480

 
$
5,018,677

 
$
151,549

 
$
1,564,862

 
$
325,626

 
$
124,083

 
$
7,459,277

Special mention
14,666

 
161,789

 
2,812

 
18,368

 
1,601

 
837

 
200,073

Substandard
18,761

 
145,980

 
5,038

 
24,059

 
1,663

 
756

 
196,257

Doubtful
952

 
12,822

 
98

 
1,693

 
771

 
—

 
16,336

Ungraded
331

 
2,571

 
1,483

 
117,144

 
1,018

 
5

 
122,552

Total
$
309,190

 
$
5,341,839

 
$
160,980

 
$
1,726,126

 
$
330,679

 
$
125,681

 
$
7,994,495

March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
303,018

 
$
4,744,063

 
$
136,776

 
$
1,554,112

 
$
309,681

 
$
147,767

 
$
7,195,417

Special mention
20,097

 
243,495

 
6,805

 
35,497

 
3,336

 
2,018

 
311,248

Substandard
21,297

 
130,815

 
6,068

 
27,057

 
2,453

 
—

 
187,690

Doubtful
1,821

 
6,588

 
365

 
1,676

 
—

 
—

 
10,450

Ungraded
324

 
2,987

 
302

 
121,382

 
234

 
7

 
125,236

Total
$
346,557

 
$
5,127,948

 
$
150,316

 
$
1,739,724

 
$
315,704

 
$
149,792

 
$
7,830,041


15
Table of Contents

 
Noncommercial noncovered loans and leases
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total noncommercial
noncovered loans
March 31, 2013
 
 
 
 
 
 
 
 
 
Current
$
802,439

 
$
2,130,189

 
$
114,077

 
$
381,769

 
$
3,428,474

30-59 days past due
19,663

 
14,022

 
217

 
1,815

 
35,717

60-89 days past due
789

 
2,998

 
63

 
968

 
4,818

90 days or greater past due
11,988

 
3,591

 
1,271

 
1,035

 
17,885

Total
$
834,879

 
$
2,150,800

 
$
115,628

 
$
385,587

 
$
3,486,894

December 31, 2012
 
 
 
 
 
 
 
 
 
Current
$
786,626

 
$
2,190,186

 
$
128,764

 
409,218

 
$
3,514,794

30-59 days past due
15,711

 
12,868

 
1,941

 
4,405

 
34,925

60-89 days past due
7,559

 
3,200

 
490

 
1,705

 
12,954

90 days or greater past due
12,993

 
3,879

 
797

 
1,278

 
18,947

Total
$
822,889

 
$
2,210,133

 
$
131,992

 
$
416,606

 
$
3,581,620

March 31, 2012
 
 
 
 
 
 
 
 
 
Current
$
763,411

 
$
2,274,091

 
$
130,561

 
$
446,421

 
$
3,614,484

30-59 days past due
14,001

 
2,349

 
808

 
1,885

 
19,043

60-89 days past due
2,812

 
1,212

 
446

 
1,028

 
5,498

90 days or greater past due
13,388

 
4,486

 
862

 
1,727

 
20,463

Total
$
793,612

 
$
2,282,138

 
$
132,677

 
$
451,061

 
$
3,659,488

 
 
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
noncommercial
 
Consumer
and other
 
Total covered
loans
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
11,396

 
$
343,535

 
$
31,031

 
$
17,131

 
$
—

 
$
163,937

 
$
27,657

 
$
262

 
$
1,492

 
$
596,441

Special mention
25,886

 
233,026

 
12,832

 
10,822

 
—

 
14,687

 
1,926

 
—

 
30

 
299,209

Substandard
94,938

 
298,647

 
37,862

 
12,060

 
—

 
75,082

 
7,556

 
9,326

 
240

 
535,711

Doubtful
69,782

 
72,572

 
11,507

 
5,366

 
—

 
3,255

 
—

 
1,436

 
—

 
163,918

Ungraded
2,522

 
672

 
—

 
314

 
—

 
22,036

 
—

 
—

 
504

 
26,048

Total
$
204,524

 
$
948,452

 
$
93,232

 
$
45,693

 
$
—

 
$
278,997

 
$
37,139

 
$
11,024

 
$
2,266

 
$
1,621,327

December 31, 2012