Edgar Filing: FIRST CITIZENS BANCSHARES INC /DE/

FCNCA_10Q_03.31.2015

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________

FORM 10-Q

____________________________________________________

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-16715

____________________________________________________

First Citizens BancShares, Inc.

(Exact name of Registrant as specified in its charter)

____________________________________________________



Delaware	56-1528994
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

4300 Six Forks Road, Raleigh, North Carolina	27609
(Address of principle executive offices)	(Zip code)

(919) 716-7000

(Registrant’s telephone number, including area code)

____________________________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files) Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of ‘accelerated filer’ and ‘large accelerated filer’ in Rule 12b-2 of the Exchange Act:



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Class A Common Stock—$1 Par Value—11,005,220 shares

Class B Common Stock—$1 Par Value—1,005,185 shares

(Number of shares outstanding, by class, as of May 6, 2015)

Table of Contents

INDEX



		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets (Unaudited)	3

	Consolidated Statements of Income (Unaudited)	4

	Consolidated Statements of Comprehensive Income (Unaudited)	5

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6

	Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56

Item 4.	Controls and Procedures	56

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 6.	Exhibits	58

Table of Contents

PART I


Item 1.	Financial Statements

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets



(Dollars in thousands, unaudited)	March 31, 2015			December 31, 2014
Assets
Cash and due from banks	$	495,901		$	604,182
Overnight investments	2,458,923			1,724,919
Investment securities available for sale	7,045,109			7,171,917
Investment securities held to maturity	441			518
Loans held for sale	66,508			63,696
Loans and leases	19,091,757			18,769,465
Less allowance for loan and lease losses	(205,553		)	(204,466		)
Net loans and leases	18,886,204			18,564,999
Premises and equipment	1,116,293			1,125,081
Other real estate owned:
Covered under loss share agreements	17,302			22,982
Not covered under loss share agreements	72,690			70,454
Income earned not collected	63,165			57,254
FDIC loss share receivable	21,340			28,701
Goodwill	139,773			139,773
Other intangible assets	101,904			106,610
Other assets	368,096			394,027
Total assets	$	30,853,649		$	30,075,113
Liabilities
Deposits:
Noninterest-bearing	$	8,484,192		$	8,086,784
Interest-bearing	17,816,638			17,591,793
Total deposits	26,300,830			25,678,577
Short-term borrowings	941,850			987,184
Long-term obligations	468,180			351,320
FDIC loss share payable	118,645			116,535
Other liabilities	258,767			253,903
Total liabilities	28,088,272			27,387,519
Shareholders’ equity
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 11,005,220 shares issued and outstanding at March 31, 2015 and December 31, 2014)	11,005			11,005
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2015 and December 31, 2014)	1,005			1,005
Surplus	658,918			658,918
Retained earnings	2,129,860			2,069,647
Accumulated other comprehensive loss	(35,411		)	(52,981		)
Total shareholders’ equity	2,765,377			2,687,594
Total liabilities and shareholders’ equity	$	30,853,649		$	30,075,113

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Income



	Three months ended March 31
(Dollars in thousands, except per share data, unaudited)	2015			2014
Interest income
Loans and leases	$	210,862		$	161,034
Investment securities interest and dividend income	19,310			11,748
Overnight investments	1,338			612
Total interest income	231,510			173,394
Interest expense
Deposits	5,629			6,825
Short-term borrowings	1,934			585
Long-term obligations	3,782			5,053
Total interest expense	11,345			12,463
Net interest income	220,165			160,931
Provision (credit) for loan and lease losses	5,792			(1,903		)
Net interest income after provision (credit) for loan and lease losses	214,373			162,834
Noninterest income
Gain on acquisition	37,555			—
Cardholder services	18,401			11,832
Merchant services	18,880			13,521
Service charges on deposit accounts	22,058			14,440
Wealth management services	20,880			14,880
Fees from processing services	50			4,861
Securities gains	5,126			—
Other service charges and fees	5,455			3,944
Mortgage income	4,549			955
Insurance commissions	3,297			3,287
ATM income	1,664			1,202
Adjustments to FDIC loss share receivable	(1,047		)	(12,349		)
Other⁽¹⁾	8,510			5,741
Total noninterest income	145,378			62,314
Noninterest expense
Salaries and wages	106,543			79,353
Employee benefits	30,146			20,100
Occupancy expense	25,620			20,410
Equipment expense	23,541			18,773
FDIC insurance expense	4,271			2,636
Foreclosure-related expenses	2,557			5,410
Merger-related expenses	2,997			2,453
Other	62,585			41,895
Total noninterest expense	258,260			191,030
Income before income taxes	101,491			34,118
Income taxes⁽¹⁾	37,675			11,639
Net income⁽¹⁾	$	63,816		$	22,479
Average shares outstanding	12,010,405			9,618,941
Net income per share⁽¹⁾	$	5.31		$	2.34

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

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income



	Three months ended March 31
(Dollars in thousands, unaudited)	2015			2014
Net income⁽¹⁾	$	63,816		$	22,479
Other comprehensive income:
Unrealized gains on securities:
Change in unrealized securities gains arising during period	30,415			11,899
Tax effect	(11,813		)	(4,643		)
Reclassification adjustment for gains included in income before income taxes	(5,126		)	—
Tax effect	1,977			—
Total change in unrealized gains on securities, net of tax	15,453			7,256
Change in fair value of cash flow hedges:
Change in unrecognized loss on cash flow hedges	576			719
Tax effect	(222		)	(278		)
Total change in unrecognized loss on cash flow hedges, net of tax	354			441
Change in pension obligation:
Reclassification adjustment for losses included in income before income taxes	2,886			1,599
Tax effect	(1,123		)	(622		)
Total change in pension obligation, net of tax	1,763			977
Other comprehensive income	17,570			8,674
Total comprehensive income⁽¹⁾	$	81,386		$	31,153

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

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity



(Dollars in thousands, unaudited)	Class A Common Stock		Class B Common Stock		Surplus		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity
Balance at December 31, 2013	$	8,586	$	1,033	$	143,766	$	1,943,345		$	(25,268	)	$	2,071,462
Net income⁽¹⁾	—		—		—		22,479			—			22,479
Other comprehensive income, net of tax	—		—		—		—			8,674			8,674
Cash dividends ($0.30 per share)	—		—		—		(2,885		)	—			(2,885		)
Balance at March 31, 2014	$	8,586	$	1,033	$	143,766	$	1,962,939		$	(16,594	)	$	2,099,730

Balance at December 31, 2014	$	11,005	$	1,005	$	658,918	$	2,069,647		$	(52,981	)	$	2,687,594
Net income	—		—		—		63,816			—			63,816
Other comprehensive income, net of tax	—		—		—		—			17,570			17,570
Cash dividends ($0.30 per share)	—		—		—		(3,603		)	—			(3,603		)
Balance at March 31, 2015	$	11,005	$	1,005	$	658,918	$	2,129,860		$	(35,411	)	$	2,765,377

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

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows



	Three months ended March 31
(Dollars in thousands, unaudited)	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income⁽¹⁾	$	63,816		$	22,479
Adjustments to reconcile net income to cash provided by operating activities:
Provision (credit) for loan and lease losses	5,792			(1,903		)
Deferred tax benefit⁽¹⁾	(10,203		)	(4,960		)
Net change in current taxes	13,310			40,710
Depreciation	21,965			17,684
Increase (decrease) in accrued interest payable	176			(1,062		)
Net increase in income earned not collected	(5,911		)	(1,278		)
Gain on acquisition	(37,555		)	—
Securities gains	(5,126		)	—
Origination of loans held for sale	(126,547		)	(67,862		)
Proceeds from sale of loans held for sale	127,203			64,009
Gain on sale of loans	(3,468		)	(1,054		)
Net writedowns/losses on other real estate	1,978			3,441
Net amortization of premiums and discounts⁽¹⁾	(17,150		)	(5,413		)
Amortization of intangible assets	5,206			637
FDIC receivable for loss share agreements	8,092			4,359
FDIC payable for loss share agreements	2,110			1,961
Net change in other assets⁽¹⁾	19,380			(8,891		)
Net change in other liabilities	(336		)	225
Net cash provided by operating activities	62,732			63,082
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans outstanding	(168,341		)	(4,788		)
Purchases of investment securities available for sale	(626,268		)	(911,409		)
Proceeds from maturities/calls of investment securities held to maturity	77			125
Proceeds from maturities/calls of investment securities available for sale	330,500			866,803
Proceeds from sales of investment securities available for sale	481,708			—
Net increase in overnight investments	(734,004		)	(302,145		)
Cash paid to the FDIC for loss share agreements	(5,762		)	(3,490		)
Proceeds from sales of other real estate	22,794			10,602
Additions to premises and equipment	(13,177		)	(17,326		)
Business acquisition, net of cash acquired	123,137			18,194
Net cash used by investing activities	(589,336		)	(343,434		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in time deposits	(189,906		)	(51,268		)
Net increase in demand and other interest-bearing deposits	545,807			308,876
Net change in short-term borrowings	(50,835		)	35,970
Repayment of long-term obligations	(3,140		)	(469		)
Origination of long-term obligations	120,000			—
Cash dividends paid	(3,603		)	(2,885		)
Net cash provided by financing activities	418,323			290,224
Change in cash and due from banks	(108,281		)	9,872
Cash and due from banks at beginning of period	604,182			533,599
Cash and due from banks at end of period	$	495,901		$	543,471
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfers of loans to other real estate	$	21,300		$	4,832
Dividends declared but not paid	3,603			2,885

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

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

General

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

Reclassifications

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

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and different assumptions in the application of these policies could result in material changes in BancShares' consolidated financial position, the consolidated results of its operations or related disclosures. Material estimates that are particularly susceptible to significant change include:


•	Allowance for loan and lease losses


•	Fair value of financial instruments, including acquired assets and assumed liabilities


•	Pension plan assumptions


•	Cash flow estimates on purchased credit-impaired loans


•	Receivable from and payable to the FDIC for loss share agreements


•	Income tax assets, liabilities and expense

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board (FASB) ASU 2014-14, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure

This ASU requires a reporting entity to derecognize a mortgage loan and recognize a separate other receivable upon foreclosure if the following conditions are met: the loan has a government guarantee that is not separable from the loan before foreclosure; at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.

Table of Contents

The amendments in this ASU were effective for public entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We adopted this guidance effective in the first quarter of 2015. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations.

FASB ASU 2014-11, Transfers and Servicing (Topic 860)

This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The ASU requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The ASU also requires expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.

The accounting changes in this ASU were effective for fiscal years beginning after December 15, 2014. In addition, the disclosure for certain transactions accounted for as a sale was effective for the fiscal period beginning after December 15, 2014, the disclosures for transactions accounted for as secured borrowings were required to be presented for fiscal periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. We adopted the guidance effective in the first quarter of 2015. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations. The new disclosures required by this ASU are included in Note I.

FASB ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40)

This ASU clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We adopted the guidance effective in the first quarter of 2015. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations. The new disclosures required by this ASU are included in Note F.

FASB ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Qualified Affordable Housing Projects

This ASU permits an accounting policy election to account for investments in qualified affordable housing projects (LIHTC) using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense (benefit).

For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with ASC 970-323.

The decision to apply the proportional amortization method of accounting will be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments.

BancShares early adopted the guidance effective in the fourth quarter of 2014. Previously, LIHTC investments were accounted for under the cost or equity method, and the amortization was recorded as a reduction to other noninterest income, with the tax credits and other benefits received recorded as a component of the provision for income taxes. BancShares believes the proportional amortization method better represents the economics of LIHTC investments and provides users with a better understanding of the returns from such investments than the cost or equity method. LIHTC investments were $65.3 million and $57.1 million at March 31, 2015 and December 31, 2014, respectively, included in "other assets" on the Consolidated Balance Sheets.

The cumulative effect of the retrospective application of the change in amortization method was a $2.4 million decrease to both "other assets" and "retained earnings" on the Consolidated Balance Sheets as of January 1, 2012. Under the new amortization

Table of Contents

method of accounting, amortization expense is recognized in income tax expense in the Consolidated Statements of Income and is offset by the tax effect of tax losses and tax credits received from the investments. This change resulted in a reclassification of expense previously recorded as a reduction in other noninterest income to income tax expense along with additional amortization recognized under the new method of accounting in the Consolidated Statements of Income. An additional change resulting from the new amortization method of accounting was that a deferred tax asset or liability no longer exists as a result of these investments, thus in the retrospective application of the new method, the removal of the deferred tax asset previously reported as well as the additional amortization of the investments, both recorded in other assets, reflected in the Consolidated Balance Sheets were removed. We do not believe the impact of this change in accounting principle is material.

Recently Issued Accounting Pronouncements

FASB ASU 2015-03, Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs

This ASU simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.

This ASU is effective for interim and annual periods beginning after December 15, 2015 for public companies, and is to be applied retrospectively. Early adoption is permitted. We will adopt the guidance effective in the first quarter of 2016.

FASB ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis

This ASU improves targeted areas of consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard places more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity ("VIE"), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

The amendments in this ASU are effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted. We will adopt the guidance effective in the first quarter of 2016 and do not anticipate any significant impact on our consolidated financial position or consolidated results of operations as a result of adoption.

FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements.

The guidance in this ASU is effective for fiscal periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2017 using one of two retrospective application methods.

NOTE B - BUSINESS COMBINATIONS

Capitol City Bank & Trust Company

On February 13, 2015, FCB entered into an agreement with the Federal Deposit Insurance Corporation ("FDIC"), as Receiver, to purchase certain assets and assume certain liabilities of Capitol City Bank & Trust Company ("CCBT") of Atlanta, Georgia. The acquisition expanded FCB's presence in Georgia as Capitol City Bank & Trust Company operated eight branch locations in Atlanta, Stone Mountain, Albany, Augusta and Savannah, Georgia.

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

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

Table of Contents

The following table provides the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.



(Dollars in thousands)	As recorded by FCB
Assets
Cash and cash equivalents	$	19,622
Investment securities	35,413
Loans	149,294
Intangible assets	500
Other assets	1,731
Total assets acquired	206,560
Liabilities
Deposits	266,352
Short-term borrowings	5,501
Other liabilities	667
Total liabilities assumed	272,520
Fair value of net liabilities assumed	(65,960		)
Cash received from FDIC	103,515
Gain on acquisition of CCBT	$	37,555

Merger-related expenses of $213 thousand were recorded in the Consolidated Statement of Income for the first quarter of 2015. Loan-related interest income generated from the CCBT was approximately $1.3 million since the acquisition date.

All loans resulting from the CCBT transaction were recognized upon acquisition date with a discount attributable, at least in part, to credit quality, and are therefore accounted for as purchased credit-impaired (PCI) loans under ASC 310-30.

First Citizens Bancorporation, Inc. and First Citizens Bank and Trust Company, Inc.

On October 1, 2014, BancShares completed the merger of First Citizens Bancorporation, Inc. ("Bancorporation") with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. First Citizens Bank and Trust Company, Inc. merged with and into FCB on January 1, 2015.

Under the terms of the Merger Agreement, each share of Bancorporation common stock was converted into the right to receive 4.00 shares of BancShares' Class A common stock and $50.00 cash, unless the holder elected for each share to be converted into the right to receive 3.58 shares of BancShares' Class A common stock and 0.42 shares of BancShares' Class B common stock. BancShares issued 2,586,762 Class A common shares at a fair value of $560.4 million and 18,202 Class B common shares at a fair value of $3.9 million to Bancorporation shareholders. Also, cash paid to Bancorporation shareholders was $30.4 million. At the time of the merger, Bancorporation owned 32,042 shares of common stock in Bancorporation with an approximate fair value of $29.6 million. The fair value of common stock owned by BancShares in Bancorporation was considered part of the purchase price, and the shares ceased to exist after completion of the merger.

The Bancorporation transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition. Assets acquired, excluding goodwill, totaled $8.28 billion, including $4.49 billion in loans and leases, $2.01 billion of investment securities available for sale, $1.28 billion in cash and overnight investments, and $109.4 million of identifiable intangible assets. Liabilities assumed were $7.66 billion, including $7.17 billion of deposits. Goodwill of $4.2 million was recorded as result of the excess purchase price over the estimated fair value of the net assets acquired.

The following unaudited pro forma financial information reflects the consolidated results of operations of BancShares. These results combine the historical results of Bancorporation in the BancShares' Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place at the beginning of the period presented. The unaudited pro forma information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future results of operations of BancShares.



	Three months ended March 31
(Dollars in thousands)	2014
Total revenue (interest income plus noninterest income)	$	323,524
Net income	$	37,230

Table of Contents

NOTE C - INVESTMENTS

The amortized cost and fair value of investment securities classified as available for sale and held to maturity at March 31, 2015 and December 31, 2014, are as follows:



	March 31, 2015
(Dollars in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale
U.S. Treasury	$	2,237,002	$	9,966	$	2	$	2,246,966
Government agency	988,563		2,382		51		990,894
Mortgage-backed securities	3,785,912		27,006		5,669		3,807,249
Total investment securities available for sale	$	7,011,477	$	39,354	$	5,722	$	7,045,109

	December 31, 2014
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
U.S. Treasury	$	2,626,900	$	2,922	$	152	$	2,629,670
Government agency	908,362		702		247		908,817
Mortgage-backed securities	3,628,187		16,964		11,847		3,633,304
Municipal securities	125		1		—		126
Total investment securities available for sale	$	7,163,574	$	20,589	$	12,246	$	7,171,917

	March 31, 2015
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities held to maturity
Mortgage-backed securities	$	441	$	18	$	—	$	459

	December 31, 2014
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Mortgage-backed securities	$	518	$	26	$	—	$	544

Investments in mortgage-backed securities primarily represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.The following table provides the amortized cost and fair value by contractual maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Repayments of mortgage-backed securities are dependent on the repayments of the underlying loan balances.



	March 31, 2015				December 31, 2014
(Dollars in thousands)	Cost		Fair value		Cost		Fair value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	504,826	$	505,182	$	447,866	$	447,992
One through five years	2,720,739		2,732,678		3,087,521		3,090,621
Mortgage-backed securities	3,785,912		3,807,249		3,628,187		3,633,304
Total investment securities available for sale	$	7,011,477	$	7,045,109	$	7,163,574	$	7,171,917
Investment securities held to maturity
Mortgage-backed securities held to maturity	$	441	$	459	$	518	$	544

Table of Contents

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



	Three months ended March 31
(Dollars in thousands)	2015			2014
Gross gains on sales of investment securities available for sale	$	5,135		$	—
Gross losses on sales of investment securities available for sale	(9		)	—
Total securities gains	$	5,126		$	—

The following table provides information regarding securities with unrealized losses as of March 31, 2015 and December 31, 2014.



	March 31, 2015
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale:
U.S. Treasury	$	13,024	$	2	$	—	$	—	$	13,024	$	2
Government agency	69,660		51		—		—		69,660		51
Mortgage-backed securities	562,616		1,645		317,685		4,024		880,301		5,669
Total	$	645,300	$	1,698	$	317,685	$	4,024	$	962,985	$	5,722

	December 31, 2014
	Less than 12 months				12 months or more				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale:
U.S. Treasury	$	338,612	$	151	$	1,015	$	1	$	339,627	$	152
Government agency	261,288		247		—		—		261,288		247
Mortgage-backed securities	573,374		1,805		831,405		10,042		1,404,779		11,847
Total	$	1,173,274	$	2,203	$	832,420	$	10,043	$	2,005,694	$	12,246

Investment securities with an aggregate fair value of $317.7 million and $832.4 million had continuous unrealized losses for more than 12 months as of March 31, 2015 and December 31, 2014, with an aggregate unrealized loss of $4.0 million and $10.0 million, respectively. As of March 31, 2015, all 38 of these investments are government sponsored enterprise-issued mortgage-backed securities. None of the unrealized losses identified as of March 31, 2015 or December 31, 2014 relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. For all periods presented, BancShares had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Therefore, none of the securities were deemed to be other than temporarily impaired.

Investment securities having an aggregate carrying value of $4.45 billion at March 31, 2015 and $4.37 billion at December 31, 2014 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

Table of Contents

NOTE D - LOANS AND LEASES

Loans and leases are evaluated at acquisition and where a discount is required at least in part due to credit quality, the nonrevolving loans are accounted for under the guidance in ASC Topic 310-30, Loans and Debt Securities Acquired with

Deteriorated Credit Quality. Loans for which it is probable at acquisition that all required payments will not be collected in accordance with contractual terms are considered PCI loans. PCI loans and leases are recorded at fair value at the date of acquisition. No allowance for loan and lease losses is recorded on the acquisition date as the fair value of the acquired assets

incorporates assumptions regarding credit risk. An allowance is recorded if there is additional credit deterioration after the acquisition date. Conversely, Non-PCI loans include originated commercial, originated noncommercial, purchased revolving,

and purchased non-impaired loans, or loans that do not have a discount, due at least in part, to credit quality at the time of

acquisition. All loans acquired in the CCBT acquisition are accounted for as PCI loans.

BancShares reports PCI and non-PCI loan portfolios separately, and each portfolio is further divided into commercial and non-commercial based on the type of borrower, purpose, collateral, and/or our underlying credit management processes. Additionally, loans are assigned to loan classes, which further disaggregate loans based upon common risk characteristics.

Commercial – Commercial loans include construction and land development, mortgage, other commercial real estate, commercial and industrial, lease financing and other.

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

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

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

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

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

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

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.

Table of Contents

Loans and leases outstanding include the following at March 31, 2015 and December 31, 2014:



(Dollars in thousands)	March 31, 2015		December 31, 2014
Non-PCI loans and leases:
Commercial:
Construction and land development	$	608,556	$	550,568
Commercial mortgage	7,591,745		7,552,948
Other commercial real estate	262,293		244,875
Commercial and industrial	2,072,414		1,988,934
Lease financing	603,737		571,916
Other	354,713		353,833
Total commercial loans	11,493,458		11,263,074
Noncommercial:
Residential mortgage	2,524,549		2,520,542
Revolving mortgage	2,528,257		2,561,800
Construction and land development	170,208		120,097
Consumer	1,127,942		1,117,454
Total noncommercial loans	6,350,956		6,319,893
Total non-PCI loans and leases	17,844,414		17,582,967
PCI loans:
Commercial:
Construction and land development	70,049		78,079
Commercial mortgage	653,846		577,518
Other commercial real estate	40,841		40,193
Commercial and industrial	24,134		27,254
Other	2,886		3,079
Total commercial loans	791,756		726,123
Noncommercial:
Residential mortgage	380,490		382,340
Revolving mortgage	70,363		74,109
Construction and land development	874		912
Consumer	3,860		3,014
Total noncommercial loans	455,587		460,375
Total PCI loans	1,247,343		1,186,498
Total loans and leases	$	19,091,757	$	18,769,465

At March 31, 2015, $3.25 billion in noncovered loans with a lendable collateral value of $2.30 billion are used to secure $290.3 million in Federal Home Loan Bank ("FHLB") of Atlanta advances, resulting in additional borrowing capacity of $2.01 billion. At December 31, 2014, $3.16 billion in noncovered loans with a lendable collateral value of $2.20 billion used to secure $240.3 million in FHLB of Atlanta advances, resulting additional borrowing capacity of $1.96 billion.

At March 31, 2015, $443.1 million of total loans and leases were covered under loss share agreements, compared to $485.3 million at December 31, 2014. At the beginning of the second quarter of 2015, the loss share protection will expire for non-single family residential loans acquired from Sun American Bank ("SAB") and all loans acquired from First Regional Bank ("FRB"). Loan balances at March 31, 2015 for the expiring agreements from SAB and FRB were $43.2 million and $53.9 million, respectively. The loss share protection for Williamsburg First National Bank non-single family residential loans with a balance of $8.4 million at March 31, 2015 will expire at the beginning of the fourth quarter of 2015.

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

Table of Contents

Credit quality indicators

Loans and leases are monitored for credit quality on a recurring basis. The credit quality indicators used are dependent on the portfolio segment to which the loan relates. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segment being evaluated. The credit quality indicators for non-PCI and PCI commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Each commercial loan is evaluated annually with more frequent evaluation of more severely criticized loans or leases. The credit quality indicators for non-PCI and PCI noncommercial loans are based on the delinquency status of the borrower. As the borrower becomes more delinquent, the likelihood of loss increases. The indicators represent the rating for loans or leases as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:

Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.

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

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

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

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

Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at March 31, 2015 and December 31, 2014 relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage and other commercial real estate loans.

Table of Contents

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



	March 31, 2015
(Dollars in thousands)	Non-PCI commercial loans and leases
Grade:	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Total non-PCI commercial loans and leases
Pass	$	590,298	$	7,341,243	$	260,592	$	1,931,078	$	597,464	$	350,060	$	11,070,735
Special mention	15,679		115,411		501		21,771		2,609		1,913		157,884
Substandard	2,291		131,672		1,049		8,806		3,284		2,690		149,792
Doubtful	—		2,039		—		4,402		329		—		6,770
Ungraded	288		1,380		151		106,357		51		50		108,277
Total	$	608,556	$	7,591,745	$	262,293	$	2,072,414	$	603,737	$	354,713	$	11,493,458

	December 31, 2014
	Non-PCI commercial loans and leases
	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Total non-PCI commercial loans and leases
Pass	$	525,711	$	7,284,714	$	242,053	$	1,859,415	$	564,319	$	349,111	$	10,825,323
Special mention	20,025		129,247		909		27,683		3,205		1,384		182,453
Substandard	4,720		134,677		1,765		8,878		3,955		3,338		157,333
Doubtful	—		2,366		—		164		365		—		2,895
Ungraded	112		1,944		148		92,794		72		—		95,070
Total	$	550,568	$	7,552,948	$	244,875	$	1,988,934	$	571,916	$	353,833	$	11,263,074



	March 31, 2015
	Non-PCI noncommercial loans and leases
(Dollars in thousands)	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total non-PCI noncommercial loans and leases
Current	$	2,490,453	$	2,510,879	$	168,199	$	1,121,123	$	6,290,654
30-59 days past due	21,844		10,288		2,009		4,236		38,377
60-89 days past due	2,896		2,794		—		1,555		7,245
90 days or greater past due	9,356		4,296		—		1,028		14,680
Total	$	2,524,549	$	2,528,257	$	170,208	$	1,127,942	$	6,350,956

	December 31, 2014
	Non-PCI noncommercial loans and leases
	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total non-PCI noncommercial loans and leases
Current	$	2,482,281	$	2,542,807	$	119,094	$	1,110,153	$	6,254,335
30-59 days past due	23,288		11,097		370		4,577		39,332
60-89 days past due	6,018		2,433		486		1,619		10,556
90 days or greater past due	8,955		5,463		147		1,105		15,670
Total	$	2,520,542	$	2,561,800	$	120,097	$	1,117,454	$	6,319,893

Table of Contents

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



	March 31, 2015
(Dollars in thousands)	PCI commercial loans
Grade:	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Other		Total PCI commercial loans
Pass	$	13,832	$	333,368	$	9,727	$	13,525	$	683	$	371,135
Special mention	4,287		118,209		16,425		2,963		—		141,884
Substandard	44,663		193,435		12,948		6,739		2,132		259,917
Doubtful	4,656		8,456		1,741		513		71		15,437
Ungraded	2,611		378		—		394		—		3,383
Total	$	70,049	$	653,846	$	40,841	$	24,134	$	2,886	$	791,756

	December 31, 2014
	PCI commercial loans
	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Other		Total PCI commercial loans
Pass	$	13,514	$	300,187	$	11,033	$	16,637	$	801	$	342,172
Special mention	6,063		98,724		16,271		4,137		—		125,195
Substandard	53,739		171,920		12,889		6,312		2,278		247,138
Doubtful	2,809		6,302		—		130		—		9,241
Ungraded	1,954		385		—		38		—		2,377
Total	$	78,079	$	577,518	$	40,193	$	27,254	$	3,079	$	726,123



	March 31, 2015
	PCI noncommercial loans
(Dollars in thousands)	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total PCI noncommercial loans
Current	$	320,607	$	63,579	$	592	$	3,571	$	388,349
30-59 days past due	18,742		2,800		—		130		21,672
60-89 days past due	6,804		1,019		—		13		7,836
90 days or greater past due	34,337		2,965		282		146		37,730
Total	$	380,490	$	70,363	$	874	$	3,860	$	455,587

	December 31, 2014
	PCI noncommercial loans
	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total PCI noncommercial loans
Current	$	326,589	$	68,548	$	506	$	2,582	$	398,225
30-59 days past due	11,432		1,405		—		147		12,984
60-89 days past due	10,073		345		—		25		10,443
90 days or greater past due	34,246		3,811		406		260		38,723
Total	$	382,340	$	74,109	$	912	$	3,014	$	460,375

Table of Contents

The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2015 and December 31, 2014 is provided in the table below.

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



	March 31, 2015
(Dollars in thousands)	30-59 days past due		60-89 days past due		90 days or greater		Total past due		Current		Total loans and leases
Non-PCI loans and leases:
Construction and land development - commercial	$	2,709	$	712	$	1,044	$	4,465	$	604,091	$	608,556
Commercial mortgage	22,635		5,920		8,445		37,000		7,554,745		7,591,745
Other commercial real estate	583		58		196		837		261,456		262,293
Commercial and industrial	6,290		1,724		570		8,584		2,063,830		2,072,414
Lease financing	476		11		—		487		603,250		603,737
Residential mortgage	21,844		2,896		9,356		34,096		2,490,453		2,524,549
Revolving mortgage	10,288		2,794		4,296		17,378		2,510,879		2,528,257
Construction and land development - noncommercial	2,009		—		—		2,009		168,199		170,208
Consumer	4,236		1,555		1,028		6,819		1,121,123		1,127,942
Other	380		65		133		578		354,135		354,713
Total non-PCI loans and leases	$	71,450	$	15,735	$	25,068	$	112,253	$	17,732,161	$	17,844,414

	December 31, 2014
	30-59 days past due		60-89 days past due		90 days or greater		Total past due		Current		Total loans and leases
Non-PCI loans and leases:
Construction and land development - commercial	$	1,796	$	621	$	385	$	2,802	$	547,766	$	550,568
Commercial mortgage	11,367		4,782		8,061		24,210		7,528,738		7,552,948
Other commercial real estate	206		70		102		378		244,497		244,875
Commercial and industrial	2,843		1,545		378		4,766		1,984,168		1,988,934
Lease financing	1,631		8		2		1,641		570,275		571,916
Residential mortgage	23,288		6,018		8,955		38,261		2,482,281		2,520,542
Revolving mortgage	11,097		2,433		5,463		18,993		2,542,807		2,561,800
Construction and land development - noncommercial	370		486		147		1,003		119,094		120,097
Consumer	4,577		1,619		1,105		7,301		1,110,153		1,117,454
Other	146		1,966		—		2,112		351,721		353,833
Total non-PCI loans and leases	$	57,321	$	19,548	$	24,598	$	101,467	$	17,481,500	$	17,582,967

Table of Contents

The recorded investment, by class, in loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at March 31, 2015 and December 31, 2014 for non-PCI loans, were as follows:



	March 31, 2015				December 31, 2014
(Dollars in thousands)	Nonaccrual loans and leases		Loans and leases > 90 days and accruing		Nonaccrual loans and leases		Loans and leases > 90 days and accruing
Non-PCI loans and leases:
Construction and land development - commercial	$	1,497	$	202	$	343	$	111
Commercial mortgage	26,058		764		24,720		1,003
Other commercial real estate	650		—		619		35
Commercial and industrial	5,691		294		1,741		239
Lease financing	346		—		374		2
Residential mortgage	19,238		1,153		14,242		3,191
Revolving mortgage	9,837		19		—		5,463
Construction and land development - noncommercial	—		—		—		147
Consumer	677		626		—		1,059
Other	2,052		31		1,966		—
Total non-PCI loans and leases	$	66,046	$	3,089	$	44,005	$	11,250

Purchased credit-impaired loans (PCI) loans

The following table relates to PCI loans acquired in the CCBT acquisition and summarizes the contractually required payments, which include principal and interest, expected cash flows to be collected, and the fair value of PCI loans and leases at the acquisition date.



(Dollars in thousands)
Contractually required payments	$	251,800
Cash flows expected to be collected	$	204,480
Fair value of loans at acquisition	$	149,294

The recorded fair values of PCI loans acquired in the CCBT acquisition as of the acquisition date are as follows:



(Dollars in thousands)
Commercial:
Construction and land development	$	4,221
Commercial mortgage	125,202
Other commercial real estate	3,132
Commercial and industrial	3,049
Total commercial loans	135,604
Noncommercial:
Residential mortgage	12,050
Consumer	1,640
Total noncommercial loans	13,690
Total PCI loans and leases	$	149,294

The following table provides changes in the carrying value of all purchased credit-impaired loans during the three months ended March 31, 2015 and March 31, 2014:



(Dollars in thousands)	2015			2014
Balance at January 1	$	1,186,498		$	1,029,426
Fair value of acquired loans	149,294			316,327
Accretion	25,067			30,200
Payments received and other changes, net	(113,516		)	(105,135		)
Balance at March 31	$	1,247,343		$	1,270,818
Unpaid principal balance at March 31	$	2,092,936		$	1,727,492

The carrying value of loans on the cost recovery method was $13.0 million at March 31, 2015 and $33.4 million at December 31, 2014. The cost recovery method is applied to loans when the timing of future cash flows is not reasonably estimable due to borrower nonperformance or uncertainty in the ultimate disposition of the asset.

Table of Contents

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

The following table documents changes to the amount of accretable yield for the first three months of 2015 and 2014.



(Dollars in thousands)	2015			2014
Balance at January 1	$	418,160		$	439,990
Additions from acquisitions	55,186			84,295
Accretion	(25,067		)	(30,200		)
Reclassifications from nonaccretable difference	1,294			6,048
Changes in expected cash flows that do not affect nonaccretable difference	(27,287		)	(9,888		)
Balance at March 31	$	422,286		$	490,245

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

The following tables present the activity in the ALLL for non-PCI loan and lease losses by loan class for the three months ended March 31, 2015 and March 31, 2014:



	Three months ended March 31, 2015
(Dollars in thousands)	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial		Lease financing		Other		Residential mortgage		Revolving mortgage		Construction and land development - non- commercial		Consumer		Total
Non-PCI Loans
Allowance for loan and lease losses:
Balance at January 1	$	11,961	$	85,189	$	732	$	30,727	$	4,286	$	3,184	$	10,661	$	18,650	$	892	$	16,555