FCNCA_10Q_09.30.2014
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 September 30, 2014
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 September 30, 2014)

Table of Contents

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

2
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PART I
 
Item 1.
Financial Statements


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, unaudited)
September 30, 2014
 
December 31, 2013
Assets
 
 
 
Cash and due from banks
$
400,993

 
$
533,599

Overnight investments
707,352

 
859,324

Investment securities available for sale
5,648,094

 
5,387,703

Investment securities held to maturity
607

 
907

Loans held for sale
43,612

 
47,271

Loans and leases:
 
 
 
Acquired
996,280

 
1,029,426

Originated
12,806,511

 
12,104,298

Allowance for loan and lease losses
(200,905
)
 
(233,394
)
Net loans and leases
13,601,886

 
12,900,330

Premises and equipment
891,722

 
876,522

Other real estate owned:
 
 
 
Covered under loss share agreements
29,272

 
47,081

Not covered under loss share agreements
43,186

 
36,898

Income earned not collected
48,511

 
48,390

FDIC loss share receivable
45,140

 
93,397

Goodwill
127,140

 
102,625

Other intangible assets
3,291

 
1,247

Other assets
351,685

 
263,797

Total assets
$
21,942,491

 
$
21,199,091

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
5,844,786

 
$
5,241,817

Interest-bearing
12,562,155

 
12,632,249

Total deposits
18,406,941

 
17,874,066

Short-term borrowings
798,169

 
511,418

Long-term obligations
313,768

 
510,769

FDIC loss share payable
116,924

 
109,378

Other liabilities
139,982

 
116,785

Total liabilities
19,775,784

 
19,122,416

Shareholders’ Equity
 
 
 
Common stock:
 
 
 
Class A - $1 par value (16,000,000 and 11,000,000 shares authorized; 8,586,058 shares issued and outstanding at September 30, 2014 and December 31, 2013)
8,586

 
8,586

Class B - $1 par value (2,000,000 shares authorized; 1,032,883 shares issued and outstanding at September 30, 2014 and December 31, 2013)
1,033

 
1,033

Surplus
143,766

 
143,766

Retained earnings
2,015,180

 
1,948,558

Accumulated other comprehensive loss
(1,858
)
 
(25,268
)
Total shareholders’ equity
2,166,707

 
2,076,675

Total liabilities and shareholders’ equity
$
21,942,491

 
$
21,199,091


See accompanying Notes to Consolidated Financial Statements.

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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
 
 
Three months ended September 30
 
Nine months ended September 30
(Dollars in thousands, except per share data, unaudited)
2014
 
2013
 
2014
 
2013
Interest income
 
 
 
 
 
 
 
Loans and leases
$
164,259

 
$
182,201

 
$
489,401

 
$
579,115

Investment securities interest and dividend income
12,707

 
9,696

 
36,902

 
26,299

Overnight investments
655

 
737

 
2,023

 
1,750

Total interest income
177,621

 
192,634

 
528,326

 
607,164

Interest expense
 
 
 
 
 
 
 
Deposits
5,703

 
7,923

 
18,534

 
27,233

Short-term borrowings
2,694

 
744

 
4,830

 
2,128

Long-term obligations
3,002

 
4,784

 
12,111

 
14,210

Total interest expense
11,399

 
13,451

 
35,475

 
43,571

Net interest income
166,222

 
179,183

 
492,851

 
563,593

Provision (credit) for loan and lease losses
1,537

 
(7,683
)
 
(7,665
)
 
(39,531
)
Net interest income after provision (credit) for loan and lease losses
164,685

 
186,866

 
500,516

 
603,124

Noninterest income
 
 
 
 
 
 
 
Cardholder services
13,248

 
12,791

 
38,337

 
35,887

Merchant services
15,556

 
14,887

 
44,112

 
42,619

Service charges on deposit accounts
15,489

 
15,546

 
45,194

 
45,428

Wealth management services
15,657

 
15,112

 
46,352

 
44,724

Fees from processing services
7,303

 
4,539

 
17,846

 
15,209

Other service charges and fees
4,001

 
4,043

 
12,195

 
11,775

Mortgage income
1,164

 
2,277

 
3,329

 
9,734

Insurance commissions
2,422

 
2,772

 
7,962

 
8,146

ATM income
1,199

 
1,316

 
3,661

 
3,798

Adjustments to FDIC loss share receivable
(4,386
)
 
(23,298
)
 
(32,030
)
 
(61,790
)
Other
5,737

 
21,933

 
16,995

 
38,896

Total noninterest income
77,390

 
71,918

 
203,953

 
194,426

Noninterest expense
 
 
 
 
 
 
 
Salaries and wages
81,825

 
76,463

 
243,017

 
228,384

Employee benefits
19,797

 
21,889

 
59,638

 
70,136

Occupancy expense
20,265

 
18,844

 
60,975

 
56,117

Equipment expense
18,767

 
18,822

 
57,121

 
56,466

FDIC insurance expense
2,915

 
2,706

 
8,191

 
7,795

Foreclosure-related expenses
4,838

 
4,287

 
13,787

 
12,059

Merger-related expenses
1,505

 
—

 
7,352

 
—

Other
51,898

 
49,132

 
141,779

 
144,108

Total noninterest expense
201,810

 
192,143

 
591,860

 
575,065

Income before income taxes
40,265

 
66,641

 
112,609

 
222,485

Provision for income taxes
13,902

 
25,659

 
37,330

 
82,012

Net income
$
26,363

 
$
40,982

 
$
75,279

 
$
140,473

Average shares outstanding
9,618,941

 
9,618,941

 
9,618,941

 
9,618,955

Net income per share
$
2.74

 
$
4.26

 
$
7.83

 
$
14.60


See accompanying Notes to Consolidated Financial Statements.

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


 
Three months ended September 30
 
Nine months ended September 30
(Dollars in thousands, unaudited)
2014
 
2013
 
2014
 
2013
Net income
$
26,363

 
$
40,982

 
$
75,279

 
$
140,473

 
 
 
 
 
 
 
 
Other comprehensive (loss) income
 
 
 
 
 
 
 
Unrealized (losses) gains on securities:
 
 
 
 
 
 
 
Change in unrealized securities (losses) gains arising during period
(11,444
)
 
3,470

 
32,006

 
(36,998
)
Tax effect
4,444

 
(1,177
)
 
(12,425
)
 
14,657

Total change in unrealized (losses) gains on securities, net of tax
(7,000
)
 
2,293

 
19,581

 
(22,341
)
 
 
 
 
 
 
 
 
Change in fair value of cash flow hedges:
 
 
 
 
 
 
 
Change in unrecognized loss on cash flow hedges
949

 
287

 
2,236

 
2,489

Tax effect
(367
)
 
(186
)
 
(863
)
 
(1,055
)
Total change in unrecognized loss on cash flow hedges, net of tax
582

 
101

 
1,373

 
1,434

 
 
 
 
 
 
 
 
Change in pension obligation:
 
 
 
 
 
 
 
Reclassification adjustment for gains included in income before income taxes
822

 
4,298

 
4,019

 
12,896

Tax effect
(319
)
 
(2,061
)
 
(1,563
)
 
(5,428
)
Total change in pension obligation, net of tax
503

 
2,237

 
2,456

 
7,468

 
 
 
 
 
 
 
 
Other comprehensive (loss) income
(5,915
)
 
4,631

 
23,410

 
(13,439
)
 
 
 
 
 
 
 
 
Total comprehensive income
$
20,448

 
$
45,613

 
$
98,689

 
$
127,034


See accompanying Notes to Consolidated Financial Statements.


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

 
(Dollars in thousands, unaudited)
Class A
Common Stock
 
Class B
Common Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Shareholders’
Equity
Balance at December 31, 2012
$
8,588

 
$
1,033

 
$
143,766

 
$
1,792,726

 
$
(82,106
)
 
$
1,864,007

Net income
—

 
—

 
—

 
140,473

 
—

 
140,473

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
(13,439
)
 
(13,439
)
Repurchase of 1,973 shares of Class A common stock
(2
)
 
—

 
—

 
(319
)
 
—

 
(321
)
Cash dividends ($0.90 per share)
—

 
—

 
—

 
(8,663
)
 
—

 
(8,663
)
Balance at September 30, 2013
$
8,586

 
$
1,033

 
$
143,766

 
$
1,924,217

 
$
(95,545
)
 
$
1,982,057

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
8,586

 
$
1,033

 
$
143,766

 
$
1,948,558

 
$
(25,268
)
 
$
2,076,675

Net income
—

 
—

 
—

 
75,279

 
—

 
75,279

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
23,410

 
23,410

Cash dividends ($0.90 per share)
—

 
—

 
—

 
(8,657
)
 
—

 
(8,657
)
Balance at September 30, 2014
$
8,586

 
$
1,033

 
$
143,766

 
$
2,015,180

 
$
(1,858
)
 
$
2,166,707

See accompanying Notes to Consolidated Financial Statements.

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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows 
 
Nine months ended September 30
(Dollars in thousands, unaudited)
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
75,279

 
$
140,473

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
(Credit) provision for loan and lease losses
(7,665
)
 
(39,531
)
Deferred tax benefit
(23,030
)
 
(18,000
)
Change in current taxes payable
(24,716
)
 
(37,737
)
Depreciation
53,249

 
52,212

Change in accrued interest payable
(1,434
)
 
(3,302
)
Change in income earned not collected
(121
)
 
1,556

Gain on sale of processing services, net
—

 
(4,085
)
Origination of loans held for sale
(198,134
)
 
(323,665
)
Proceeds from sale of loans held for sale
206,310

 
376,395

Gain on sale of loans
(3,334
)
 
(9,451
)
Net writedowns/losses on other real estate
9,770

 
4,574

Net amortization of premiums and discounts
(35,342
)
 
(96,091
)
FDIC receivable for loss share agreements
16,708

 
58,802

FDIC payable for loss share agreements
7,546

 
5,862

Net change in other assets
(34,872
)
 
107,757

Net change in other liabilities
27,327

 
47,692

Net cash provided by operating activities
67,541

 
263,461

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net change in loans outstanding
(329,925
)
 
364,916

Purchases of investment securities available for sale
(1,999,666
)
 
(1,940,198
)
Proceeds from maturities/calls of investment securities held to maturity
300

 
329

Proceeds from maturities/calls of investment securities available for sale
1,993,051

 
1,951,735

Net change in overnight investments
151,972

 
(910,951
)
Cash (paid to) received from the FDIC for loss share agreements
(5,479
)
 
45,103

Proceeds from sale of other real estate
55,478

 
120,712

Additions to premises and equipment
(65,763
)
 
(38,887
)
Business acquisition, net of cash acquired
18,194

 
—

Net cash used by investing activities
(181,838
)
 
(407,241
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net change in time deposits
(301,849
)
 
(529,675
)
Net change in demand and other interest-bearing deposits
202,853

 
506,969

Net change in short-term borrowings
91,345

 
35,930

Repayment of long-term obligations
(2,001
)
 
(3,958
)
Origination of long-term obligations
—

 
70,000

Repurchase of common stock
—

 
(321
)
Cash dividends paid
(8,657
)
 
(5,777
)
Net cash (used) provided by financing activities
(18,309
)
 
73,168

Change in cash and due from banks
(132,606
)
 
(70,612
)
Cash and due from banks at beginning of period
533,599

 
639,730

Cash and due from banks at end of period
$
400,993

 
$
569,118

CASH PAYMENTS FOR:
 
 
 
Interest
$
36,909

 
$
46,873

Income taxes
112,836

 
99,398

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Transfers of loans to other real estate
42,136

 
78,303

Dividends declared but not paid
2,886

 
2,886

Reclassification of long-term obligations to short-term borrowings
195,000

 
—

See accompanying Notes to Consolidated Financial Statements.

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


NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

General
These consolidated financial statements and notes are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes included in BancShares' Annual Report on Form 10-K for the year ended December 31, 2013.

Reclassifications
In certain instances, amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported shareholders' equity or net income.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and different assumptions in the application of these policies could result in material changes in BancShares' consolidated financial position, the consolidated results of its operations or related disclosures. Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan and lease losses; determination of the fair value of financial instruments; pension plan assumptions; cash flow estimates on acquired loans; the receivable from and payable to the Federal Deposit Insurance Corporation (FDIC) for loss share agreements; purchase accounting-related adjustments; and income tax assets, liabilities and expense.
Recent Accounting Pronouncements
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-14, “Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure”
This ASU requires a reporting entity to derecognize a mortgage loan and recognize a separate other receivable upon foreclosure if the following conditions are met: the loan has a government guarantee that is not separable from the loan before foreclosure; at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.
The amendments in this ASU are effective for public entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2015.
FASB ASU 2014-11, “Transfers and Servicing (Topic 860)”
This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The ASU

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requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The ASU also requires expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.
The accounting changes in this ASU are effective for fiscal years beginning after December 15, 2014. In addition, the disclosure for certain transactions accounted for as a sale is effective for the fiscal period beginning after December 15, 2014, the disclosures for transactions accounted for as secured borrowings are required to be presented for fiscal periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is not permitted. BancShares will adopt the guidance effective in the first quarter of 2015, and is currently evaluating the impact of the new standard on the financial statement disclosures. BancShares does not anticipate any effect on our consolidated financial position or consolidated results of operations as a result of adoption.
FASB ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”
In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements.
The guidance in this ASU is effective for fiscal periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2017 using one of two retrospective application methods.
FASB ASU 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40)”
This ASU clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. BancShares will adopt the guidance effective in the first quarter of 2015, and is currently evaluating the impact of the new standard on the financial statement disclosures. BancShares does not anticipate any significant impact on our consolidated financial position or consolidated results of operations as a result of adoption.
FASB ASU 2014-01 "Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Qualified Affordable Housing Projects”
This ASU permits an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense (benefit).
For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with Subtopic 970-323.
The decision to apply the proportional amortization method of accounting will be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments.
The amendments in this ASU should be applied retrospectively to all periods presented and are effective for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. BancShares is currently evaluating the impact of the new standard and is targeting a December 31, 2014 adoption and implementation for qualifying affordable housing project investments.

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FASB ASU 2013-11, “Income Taxes (Topic 740)”
This ASU states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require BancShares to use, and BancShares does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date.
The provisions of this ASU were effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. BancShares adopted the guidance effective in the first quarter of 2014. The initial adoption had no effect on our consolidated financial position or consolidated results of operations.
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 ASU is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP.
The amendments in this update were effective for fiscal years beginning after December 31, 2013. BancShares adopted the guidance effective first quarter of 2014. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations.

NOTE B - BUSINESS COMBINATIONS

Merger with First Citizens Bancorporation, Inc.

On October 1, 2014, BancShares completed the merger of First Citizens Bancorporation, Inc. (Bancorporation) with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. First Citizens Bank and Trust Company, Inc. (FCB-SC) is expected to merge with and into FCB during the first quarter of 2015.

Under the terms of the Merger Agreement, each share of Bancorporation common stock will be converted into the right to receive 4.00 shares of BancShares' Class A common stock and $50.00 cash, unless the holder elects for each share to be converted into the right to receive 3.58 shares of BancShares' Class A common stock and 0.42 shares of BancShares' Class B common stock. Bancorporation shareholders have until December 5, 2014 to make this election.

The merger between BancShares and Bancorporation creates a more diversified financial institution that is better equipped to respond to economic and industry developments. Additionally, cost savings, efficiencies and other benefits are expected from the combined operations.

The merger will be accounted for in accordance with the acquisition method of accounting. BancShares is undertaking a comprehensive review and determination of the fair value of the assets and liabilities of Bancorporation to ensure that they conform to the measurement and reporting guidance set forth for the accounting for business combinations. Determining the fair value of asset and liabilities, especially in the loan portfolio, is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values. Accordingly, the initial accounting for the merger is not complete. A Current Report on Form 8-K was filed on October 1, 2014 with respect to completion of the merger.

BancShares incurred merger expenses of $1.2 million and $2.4 million for the three and nine months ended September 30, 2014 for the merger with Bancorporation.
 
 
 
 
 
 
 
 
1st Financial Services Corporation Merger

On January 1, 2014, FCB completed its merger with 1st Financial Services Corporation (1st Financial) of Hendersonville, NC and its wholly-owned subsidiary, Mountain 1st Bank & Trust Company (Mountain 1st). The merger allowed FCB to expand its presence in Western North Carolina. Mountain 1st had twelve branches located in Asheville, Brevard, Columbus, Etowah, Fletcher, Forest City, Hendersonville, Hickory, Marion, Shelby and Waynesville. FCB requested and received approval from the North Carolina Commissioner of Banks and the FDIC to close seven Mountain 1st branches due to their proximity to

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legacy FCB branches. The branches in Asheville, Brevard, Fletcher, Forest City, Hendersonville, Hickory and Marion were closed in May. All customer relationships assigned to those branches were transferred to the nearest FCB branch.

FCB paid $10.0 million to acquire 1st Financial, including payments of $8.0 million to the U.S. Treasury to acquire and subsequently retire 1st Financial's Troubled Asset Relief Program (TARP) obligation and $2.0 million paid to the shareholders of 1st Financial. As a result of the merger, FCB recorded $24.5 million in goodwill and $3.8 million in core deposit intangibles.

The 1st Financial transaction was accounted for under the acquisition method of accounting, and the purchased assets, assumed liabilities and identifiable intangible assets were recorded at their estimated fair values as of the acquisition date. 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 the third quarter of 2014, no adjustments were deemed necessary.

The following table provides the carrying value of acquired assets and assumed liabilities, as recorded by 1st Financial, the fair value adjustments calculated at the time of the merger and the resulting fair value recorded by FCB.
 
January 1, 2014
(Dollars in thousands)
As recorded by
1st Financial
 
Fair value adjustments
 
As recorded by FCB
Assets
 
 
 
 
 
Cash and cash equivalents
$
28,194

 
$
—

 
$
28,194

Investment securities
246,890

 
(9,452
)
 
237,438

Loans held for sale
1,183

 
—

 
1,183

Restricted equity securities
3,105

 
671

 
3,776

Loans
338,170

 
(21,843
)
 
316,327

Less: allowance for loan losses
(7,796
)
 
7,796

 
—

Premises and equipment
3,871

 
(1,185
)
 
2,686

Other real estate owned
12,896

 
(1,305
)
 
11,591

Intangible assets
—

 
3,780

 
3,780

Other assets
16,811

 
(465
)
 
16,346

Total assets acquired
$
643,324

 
$
(22,003
)
 
$
621,321

Liabilities
 
 
 
 
 
Deposits:
 
 
 
 
 
Noninterest-bearing
$
152,444

 
$
—

 
$
152,444

Interest-bearing
477,881

 
1,546

 
479,427

Total deposits
630,325

 
1,546

 
631,871

Short-term borrowings
406

 
—

 
406

Other liabilities
3,392

 
167

 
3,559

Total liabilities assumed
$
634,123

 
$
1,713

 
635,836

Fair value of net liabilities assumed

 

 
14,515

Cash paid to shareholders
 
 
 
 
2,000

Cash paid to acquire TARP securities
 
 
 
 
8,000

Goodwill recorded for 1st Financial
 
 
 
 
$
24,515


Goodwill recorded for 1st Financial represents future revenues to be derived from the existing customer base, including efficiencies that will result from combining operations and other non-identifiable intangible assets. The 1st Financial transaction is a taxable asset acquisition, and goodwill resulting from the transaction is deductible for income tax purposes.

Merger costs related to the 1st Financial transaction incurred were $0.3 million and $5.0 million for the three and nine months ended September 30, 2014. Loan related interest income generated from 1st Financial was approximately $4.1 million for the third quarter of 2014 and $12.7 million for the year to date period.

All loans acquired with the 1st Financial transaction are accounted for under the expected cash flow method (ASC 310-30).


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For loans acquired from 1st Financial, the contractually required payments including principal and interest, cash flows expected to be collected and fair values as of the merger date were:
(Dollars in thousands)
January 1, 2014
Contractually required payments
$
414,233

Cash flows expected to be collected
400,622

Fair value at acquisition date
316,327


The recorded fair values of loans acquired in the 1st Financial transaction as of the merger date were as follows:
(Dollars in thousands)
January 1, 2014
Commercial:
 
Construction and land development
$
41,516

Commercial mortgage
123,925

Other commercial real estate
6,698

Commercial and industrial
29,126

Total commercial loans
201,265

Noncommercial:
 
Residential mortgage
113,177

Consumer
1,885

Total noncommercial loans
115,062

Total loans acquired from 1st Financial
$
316,327




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NOTE C - INVESTMENTS
The amortized cost and fair value of investment securities classified as available for sale and held to maturity at September 30, 2014 and December 31, 2013, are as follows:
 
September 30, 2014
(Dollars in thousands)
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
U.S. Treasury
$
1,888,647

 
$
583

 
$
1,420

 
$
1,887,810

Government agency
1,128,752

 
1,294

 
393

 
1,129,653

Mortgage-backed securities
2,591,641

 
7,322

 
21,498

 
2,577,465

Equity securities
543

 
29,485

 
—

 
30,028

Municipal securities
125

 
1

 
—

 
126

Other
23,012

 
—

 
—

 
23,012

Total investment securities available for sale
$
5,632,720

 
$
38,685

 
$
23,311

 
$
5,648,094

 
 
 
 
 
 
 
 
 
December 31, 2013
 
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
U.S. Treasury
$
373,223

 
$
259

 
$
45

 
$
373,437

Government agency
2,543,223

 
1,798

 
792

 
2,544,229

Mortgage-backed securities
2,486,297

 
4,526

 
43,950

 
2,446,873

Equity securities
543

 
21,604

 
—

 
22,147

Municipal securities
186

 
1

 
—

 
187

Other
863

 
—

 
33

 
830

Total investment securities available for sale
$
5,404,335

 
$
28,188

 
$
44,820

 
$
5,387,703

 
 
 
 
 
 
 
 
 
September 30, 2014
 
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities
$
607

 
$
31

 
$
—

 
$
638

 
 
 
 
 
 
 
 
 
December 31, 2013
 
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Mortgage-backed securities
$
907

 
$
67

 
$
—

 
$
974


As of September 30, 2014, equity securities included an investment in Bancorporation stock of $29.6 million. Pursuant to the Merger Agreement, the shares of capital stock of Bancorporation held were canceled and ceased to exist when the merger became effective October 1, 2014. Included in Other at September 30, 2014 are Trust Preferred Securities issued by a former business trust subsidiary of Bancorporation, FCB/SC Capital Trust II, which were purchased by BancShares during the third quarter of 2014 with a contractual maturity of June 15, 2034. These are the only securities included within Other as the previous amount was a single subordinated debt security that was called during the second quarter of 2014. Upon completion of the merger with Bancorporation on October 1, 2014, the issuer of the Trust Preferred Securities became a subsidiary of BancShares and, for future financial statement purposes, the investment in the Trust Preferred Securities will be eliminated in consolidation at BancShares.

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

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The following table provides the amortized cost and fair value by contractual maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Repayments of mortgage-backed securities are dependent on the repayments of the underlying loan balances. Equity securities do not have a stated maturity date.
 
September 30, 2014
 
December 31, 2013
(Dollars in thousands)
Cost
 
Fair
value
 
Cost
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
Non-amortizing securities maturing in:
 
 
 
 
 
 
 
One year or less
$
529,931

 
$
530,363

 
$
839,956

 
$
840,883

One through five years
2,487,593

 
2,487,226

 
2,077,539

 
2,077,800

Over 10 years
23,012

 
23,012

 
—

 
—

Mortgage-backed securities
2,591,641

 
2,577,465

 
2,486,297

 
2,446,873

Equity securities
543

 
30,028

 
543

 
22,147

Total investment securities available for sale
$
5,632,720

 
$
5,648,094

 
$
5,404,335

 
$
5,387,703

Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities held to maturity
$
607

 
$
638

 
$
907

 
$
974

There were no realized securities gains (losses) during any period presented.  
 
 
 
 
The following table provides information regarding securities with unrealized losses as of September 30, 2014 and December 31, 2013.
 
September 30, 2014
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in thousands)
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
999,783

 
$
1,420

 
$
—

 
$
—

 
$
999,783

 
$
1,420

Government agency
291,783

 
393

 
—

 
—

 
291,783

 
393

Mortgage-backed securities
486,678

 
2,210

 
1,090,467

 
19,288

 
1,577,145

 
21,498

Total
$
1,778,244

 
$
4,023

 
$
1,090,467

 
$
19,288

 
$
2,868,711

 
$
23,311

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
Less than 12 months
 
12 months or more
 
Total
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
102,105

 
$
45

 
$
—

 
$
—

 
$
102,105

 
$
45

Government agency
780,552

 
761

 
29,969

 
31

 
810,521

 
792

Mortgage-backed securities
2,221,213

 
42,876

 
26,861

 
1,074

 
2,248,074

 
43,950

Other
830

 
33

 
—

 
—

 
830

 
33

Total
$
3,104,700

 
$
43,715

 
$
56,830

 
$
1,105

 
$
3,161,530

 
$
44,820

Investment securities with an aggregate fair value of $1.09 billion and $56.8 million had continuous unrealized losses for more than 12 months as of September 30, 2014 and December 31, 2013, with an aggregate unrealized loss of $19.3 million and $1.1 million, respectively. As of September 30, 2014, all 107 of these investments are U.S. government agency and government sponsored enterprise-issued mortgage-backed securities. None of the unrealized losses identified as of September 30, 2014 or December 31, 2013 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 $2.78 billion at September 30, 2014 and $2.75 billion at December 31, 2013 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

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NOTE D - LOANS AND LEASES

BancShares reports acquired and originated loan portfolios separately, and each portfolio is further divided into commercial and non-commercial based on the type of borrower, purpose, collateral, and/or our underlying credit management processes. Additionally, loans are assigned to loan classes, which further disaggregate loans based upon common risk characteristics.
Commercial – Commercial loans include construction and land development, mortgage, other commercial real estate, commercial and industrial, lease financing and other.

Construction and land development – Construction and land development consists of loans to finance land for development, investment, and use in a commercial business enterprise; multifamily apartments; and other commercial buildings that may be owner-occupied or income generating investments for the owner.

Commercial mortgage – Commercial mortgage consists of loans to purchase or refinance owner-occupied nonresidential and investment properties. Investment properties include office buildings and other facilities that are rented or leased to unrelated parties.

Other commercial real estate – Other commercial real estate consists of loans secured by farmland (including residential farms and other improvements) and multifamily (5 or more) residential properties.

Commercial and industrial – Commercial and industrial consists of loans or lines of credit to finance corporate credit cards, accounts receivable, inventory and other general business purposes.

Lease financing – Lease financing consists solely of lease financing agreements.

Other – Other consists of all other commercial loans not classified in one of the preceding classes. These typically include loans to non-profit organizations such as churches, hospitals, educational and charitable organizations.

Noncommercial – Noncommercial consist of residential and revolving mortgage, construction and land development, and consumer loans.

Residential mortgage – Residential real estate consists of loans to purchase, construct or refinance the borrower's primary dwelling, second residence or vacation home.

Revolving mortgage – Revolving mortgage consists of home equity lines of credit that are secured by first or second liens on the borrower's primary residence.

Construction and land development – Construction and land development consists of loans to construct the borrower's primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date.

Consumer – Consumer loans consist of installment loans to finance purchases of vehicles, unsecured home improvements and revolving lines of credit that can be secured or unsecured, including personal credit cards.


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Loans and leases outstanding include the following at September 30, 2014 and December 31, 2013:
 
(Dollars in thousands)
September 30, 2014
 
December 31, 2013
Acquired loans
 
 
 
Commercial:
 
 
 
Construction and land development
$
59,808

 
$
78,915

Commercial mortgage
579,435

 
642,891

Other commercial real estate
36,043

 
41,381

Commercial and industrial
25,813

 
17,254

Other
1,662

 
866

Total commercial loans
702,761

 
781,307

Noncommercial:
 
 
 
Residential mortgage
240,681

 
213,851

Revolving mortgage
50,048

 
30,834

Construction and land development
1,144

 
2,583

Consumer
1,646

 
851

Total noncommercial loans
293,519

 
248,119

Total acquired loans
996,280

 
1,029,426

Originated loans and leases:
 
 
 
Commercial:
 
 
 
Construction and land development
382,775

 
319,847

Commercial mortgage
6,475,366

 
6,362,490

Other commercial real estate
177,681

 
178,754

Commercial and industrial
1,359,945

 
1,081,158

Lease financing
443,318

 
381,763

Other
213,224

 
175,336

Total commercial loans
9,052,309

 
8,499,348

Noncommercial:
 
 
 
Residential mortgage
1,141,049

 
982,421

Revolving mortgage
2,120,167

 
2,113,285

Construction and land development
117,209

 
122,792

Consumer
375,777

 
386,452

Total noncommercial loans
3,754,202

 
3,604,950

Total originated loans and leases
12,806,511

 
12,104,298

Total loans and leases
$
13,802,791

 
$
13,133,724


At September 30, 2014, $467.9 million in acquired loans were covered under loss share agreements, compared to $1.03 billion at December 31, 2013. The remaining acquired loans at September 30, 2014 are primarily related to loans from the 1st Financial merger or with expired loss share agreements. The loss share protection expired for non-single family residential loans acquired from Temecula Valley Bank (TVB) and Venture Bank (VB) during the third quarter of 2014. The acquired loan balances at September 30, 2014 for the expired agreements from TVB and VB are $191.7 million and $64.4 million, respectively. During the first quarter of 2015, the loss share protection will expire for non-single family residential loans acquired from Sun American Bank (SAB) and all loans acquired from First Regional Bank (FRB). The acquired loan balance at September 30, 2014 for the agreements from SAB and FRB are $50.8 million and $80.3 million, respectively. We will process all necessary filings in accordance with the agreements before expiration to collect the earned loss share receivables.

At September 30, 2014, $2.70 billion in originated loans with a lendable collateral value of $1.47 billion are used to secure $240.3 million in Federal Home Loan Bank (FHLB) of Atlanta advances, resulting in additional borrowing capacity of $1.23 billion, compared to $2.56 billion in originated loans with a lendable collateral value of $1.38 billion used to secure $240.3 million in FHLB of Atlanta advances, resulting additional borrowing capacity of $1.14 billion at December 31, 2013.


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Table of Contents

Credit quality indicators

Loans and leases are monitored for credit quality on a recurring basis. The credit quality indicators used are dependent on the portfolio segment to which the loan relates. Originated commercial loans and leases, originated noncommercial loans and leases and acquired loans have different credit quality indicators as a result of the unique characteristics relative to each loan segment being evaluated.

The credit quality indicators for commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Each commercial loan is evaluated annually with more frequent evaluation of more severely criticized loans or leases. The credit quality indicators for noncommercial loans are based on the delinquency status of the borrower. As the borrower becomes more delinquent, the likelihood of loss increases. Acquired loans are bifurcated into commercial and noncommercial segments and credit quality indicators are developed through a review of individual borrowers on an ongoing basis. 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 one in which repayment is considered highly likely and there are no observable weaknesses in the asset. Such an asset does not meet any of the characteristics for classification.

Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.

Loss – Assets classified as loss are considered uncollectible and of such little value that it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full charge-off even though partial recovery may be effected in the future.

Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of originated, ungraded loans at September 30, 2014 and December 31, 2013 relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage loans and other commercial real estate loans. As of December 31, 2013, ungraded loans also included tobacco buyout loans classified as commercial and industrial loans. Final payment from the Commodity Credit Corporation was received during January 2014 for tobacco buyout loans held by FCB. As of September 30, 2014, ungraded also includes $91.5 million of loans resulting from the 1st Financial merger.


17
Table of Contents

Originated loans and leases outstanding at September 30, 2014 and December 31, 2013 by credit quality indicator are provided below:
 
 
September 30, 2014
(Dollars in thousands)
Originated commercial loans and leases
Grade:
Construction  and land
development
 
Commercial
mortgage
 
Other
commercial real estate
 
Commercial  and
industrial
 
Lease financing
 
Other
 
Total originated commercial loans and leases
Pass
$
371,835

 
$
6,218,527

 
$
174,039

 
$
1,253,945

 
$
434,915

 
$
213,184

 
$
8,666,445

Special mention
6,028

 
112,342

 
889

 
19,804

 
4,783

 
—

 
143,846

Substandard
4,912

 
140,703

 
2,590

 
5,461

 
3,204

 
40

 
156,910

Doubtful
—

 
2,494

 
—

 
19

 
399

 
—

 
2,912

Ungraded
—

 
1,300

 
163

 
80,716

 
17

 
—

 
82,196

Total
$
382,775

 
$
6,475,366

 
$
177,681

 
$
1,359,945

 
$
443,318

 
$
213,224

 
$
9,052,309

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
Originated commercial loans and leases
 
Construction  and land
development
 
Commercial
mortgage
 
Other
commercial real estate
 
Commercial  and
industrial
 
Lease financing
 
Other
 
Total originated commercial loans and leases
Pass
$
308,231

 
$
6,094,505

 
$
174,913

 
$
964,840

 
$
375,371

 
$
174,314

 
$
8,092,174

Special mention
8,620

 
119,515

 
1,362

 
14,686

 
2,160

 
982

 
147,325

Substandard
2,944

 
141,913

 
2,216

 
6,352

 
3,491

 
40

 
156,956

Doubtful
52

 
5,159

 
75

 
144

 
592

 
—

 
6,022

Ungraded
—

 
1,398

 
188

 
95,136

 
149

 
—

 
96,871

Total
$
319,847

 
$
6,362,490

 
$
178,754

 
$
1,081,158

 
$
381,763

 
$
175,336

 
$
8,499,348


 
September 30, 2014
 
Originated noncommercial loans and leases
(Dollars in thousands)
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total originated noncommercial
loans
Current
$
1,111,371

 
$
2,104,212

 
$
116,377

 
$
372,348

 
$
3,704,308

30-59 days past due
18,528

 
8,941

 
458

 
2,045

 
29,972

60-89 days past due
3,380

 
2,064

 
117

 
828

 
6,389

90 days or greater past due
7,770

 
4,950

 
257

 
556

 
13,533

Total
$
1,141,049

 
$
2,120,167

 
$
117,209

 
$
375,777

 
$
3,754,202

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
Originated noncommercial loans and leases
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total originated noncommercial
loans
Current
$
955,300

 
$
2,095,480

 
$
121,026

 
$
382,710

 
$
3,554,516

30-59 days past due
12,885

 
10,977

 
1,193

 
2,114

 
27,169

60-89 days past due
4,658

 
2,378

 
317

 
955

 
8,308

90 days or greater past due
9,578

 
4,450

 
256

 
673

 
14,957

Total
$
982,421

 
$
2,113,285

 
$
122,792

 
$
386,452

 
$
3,604,950




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Table of Contents

 
Acquired loans and leases outstanding at September 30, 2014 and December 31, 2013 by credit quality indicator are provided below:

 
September 30, 2014
(Dollars in thousands)
Acquired loans
Grade:
Construction
and land
development -
commercial
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and
industrial
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development -
noncommercial
 
Consumer
and other
 
Total acquired
loans
Pass
$
7,883

 
$
318,221

 
$
11,249

 
$
20,208

 
$
131,302

 
$
22,811

 
$
70

 
$
1,416

 
$
513,160

Special mention
5,669

 
103,276

 
16,005

 
2,685

 
4,148

 
3,396

 
—

 
—

 
135,179

Substandard
40,876

 
144,810

 
8,789

 
2,767

 
32,636

 
2,588

 
50

 
240

 
232,756

Doubtful
2,766

 
12,737

 
—

 
153

 
771

 
965

 
294

 
—

 
17,686

Ungraded
2,614

 
391

 
—

 
—

 
71,824

 
20,288

 
730

 
1,652

 
97,499

Total
$
59,808

 
$
579,435

 
$
36,043

 
$
25,813

 
$
240,681

 
$
50,048

 
$
1,144

 
$
3,308

 
$
996,280

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
Acquired loans
 
Construction
and land
development -
commercial
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and
industrial
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development -
noncommercial
 
Consumer
and other
 
Total acquired
loans
Pass
$
2,619

 
$
296,824

 
$
22,225

 
$
8,021

 
$
135,326

 
$
26,322

 
$
149

 
$
1,345

 
$
492,831

Special mention
15,530

 
125,295

 
3,431

 
2,585

 
6,301

 
2,608

 
—

 
—

 
155,750

Substandard
52,228

 
179,657

 
7,012

 
5,225

 
52,774

 
1,013

 
2,139

 
—

 
300,048

Doubtful
7,436

 
40,471

 
8,713

 
1,257

 
2,058

 
891

 
295

 
—

 
61,121

Ungraded
1,102

 
644

 
—

 
166

 
17,392

 
—

 
—

 
372

 
19,676

Total
$
78,915

 
$
642,891

 
$
41,381

 
$
17,254

 
$
213,851

 
$
30,834

 
$
2,583

 
$
1,717

 
$
1,029,426





19
Table of Contents

The aging of the outstanding loans and leases, by class, at September 30, 2014 and December 31, 2013 (excluding loans and leases acquired with deteriorated credit quality) is provided in the table below.

The calculation of days past due begins on the day after payment is due and includes all days through which all required interest or principal has not been paid. Loans and leases 30 days or less past due are considered current as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.

 
September 30, 2014
(Dollars in thousands)
30-59 days
past due
 
60-89 days
past due
 
90 days or greater
 
Total past
due
 
Current
 
Total loans
and leases
Originated loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Construction and land development - commercial
$
379

 
$
13

 
$
313

 
$
705

 
$
382,070

 
$
382,775

Commercial mortgage
11,337

 
4,536

 
11,009

 
26,882

 
6,448,484

 
6,475,366

Other commercial real estate
808

 
67

 
—

 
875

 
176,806

 
177,681

Commercial and industrial
5,366

 
634

 
845

 
6,845

 
1,353,100

 
1,359,945

Lease financing
527

 
322

 
513

 
1,362

 
441,956

 
443,318

Other
—

 
—

 
—

 
—

 
213,224

 
213,224

Residential mortgage
18,528

 
3,380

 
7,770

 
29,678

 
1,111,371

 
1,141,049

Revolving mortgage
8,941

 
2,064

 
4,950

 
15,955

 
2,104,212

 
2,120,167

Construction and land development - noncommercial
458

 
117

 
257

 
832

 
116,377

 
117,209

Consumer
2,045

 
828

 
556

 
3,429

 
372,348

 
375,777

Total originated loans and leases
$
48,389

 
$
11,961

 
$
26,213

 
$
86,563

 
$
12,719,948

 
$
12,806,511

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
30-59 days
past due
 
60-89 days
past due
 
90 days or greater
 
Total past
due
 
Current
 
Total loans
and leases
Originated loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Construction and land development - commercial
$
1,603

 
$
9

 
$
457

 
$
2,069

 
$
317,778

 
$
319,847

Commercial mortgage
11,131

 
3,601

 
14,407

 
29,139

 
6,333,351

 
6,362,490

Other commercial real estate
139

 
210

 
470

 
819

 
177,935

 
178,754

Commercial and industrial
3,336

 
682

 
436

 
4,454

 
1,076,704

 
1,081,158

Lease financing
789

 
1,341

 
101

 
2,231

 
379,532

 
381,763

Other
—