Document
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, 2016
or
 
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-16715
____________________________________________________
First Citizens BancShares, Inc.
(Exact name of Registrant as specified in its charter)
____________________________________________________
Delaware
56-1528994
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
4300 Six Forks Road, Raleigh, North Carolina
27609
(Address of principle executive offices)
(Zip code)
(919) 716-7000
(Registrant’s telephone number, including area code)
____________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.    Yes  x   No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files)    Yes  x    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of ‘accelerated filer’ and ‘large accelerated filer’ in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
x
 
Accelerated filer
¨
Non-accelerated filer
¨
 
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Class A Common Stock—$1 Par Value—11,005,220 shares
Class B Common Stock—$1 Par Value—1,005,185 shares
(Number of shares outstanding, by class, as of October 28, 2016)

Table of Contents

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

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PART I
 
Item 1.
Financial Statements


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, unaudited)
September 30, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
495,705

 
$
534,086

Overnight investments
2,997,086

 
2,063,132

Investment securities available for sale
6,384,815

 
6,861,293

Investment securities held to maturity
125

 
255

Loans held for sale
95,910

 
59,766

Loans and leases
21,296,980

 
20,239,990

Allowance for loan and lease losses
(211,950
)
 
(206,216
)
Net loans and leases
21,085,030

 
20,033,774

Premises and equipment
1,134,562

 
1,135,829

Other real estate owned
68,964

 
65,559

Income earned not collected
74,933

 
70,036

FDIC loss share receivable
3,108

 
4,054

Goodwill
150,601

 
139,773

Other intangible assets
79,550

 
90,986

Other assets
401,521

 
417,391

Total assets
$
32,971,910

 
$
31,475,934

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
10,245,674

 
$
9,274,470

Interest-bearing
17,679,579

 
17,656,285

Total deposits
27,925,253

 
26,930,755

Short-term borrowings
730,214

 
594,733

Long-term obligations
840,266

 
704,155

FDIC loss share payable
95,779

 
126,453

Other liabilities
296,650

 
247,729

Total liabilities
29,888,162

 
28,603,825

Shareholders’ equity
 
 
 
Common stock:
 
 
 
Class A - $1 par value (16,000,000 shares authorized; 11,005,220 shares issued and outstanding at September 30, 2016 and December 31, 2015)
11,005

 
11,005

Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2016 and December 31, 2015)
1,005

 
1,005

Surplus
658,918

 
658,918

Retained earnings
2,427,604

 
2,265,621

Accumulated other comprehensive loss
(14,784
)
 
(64,440
)
Total shareholders’ equity
3,083,748

 
2,872,109

Total liabilities and shareholders’ equity
$
32,971,910

 
$
31,475,934


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)
2016
 
2015
 
2016
 
2015
Interest income
 
 
 
 
 
 
 
Loans and leases
$
219,314

 
$
224,631

 
$
651,160

 
$
658,175

Investment securities and dividend income
23,395

 
24,020

 
71,139

 
65,136

Overnight investments
3,785

 
1,174

 
10,676

 
4,037

Total interest income
246,494

 
249,825

 
732,975

 
727,348

Interest expense
 
 
 
 
 
 
 
Deposits
4,457

 
5,216

 
13,717

 
16,379

Short-term borrowings
540

 
590

 
1,428

 
4,182

Long-term obligations
5,648

 
4,648

 
17,072

 
12,601

Total interest expense
10,645

 
10,454

 
32,217

 
33,162

Net interest income
235,849

 
239,371

 
700,758

 
694,186

Provision for loan and lease losses
7,507

 
107

 
16,912

 
13,618

Net interest income after provision for loan and lease losses
228,342

 
239,264

 
683,846

 
680,568

Noninterest income
 
 
 
 
 
 
 
Gain on acquisitions
837

 
—

 
5,831

 
42,930

Cardholder services
21,537

 
19,588

 
61,949

 
57,203

Merchant services
25,179

 
22,005

 
71,392

 
62,955

Service charges on deposit accounts
23,154

 
23,153

 
66,888

 
67,572

Wealth management services
19,915

 
22,223

 
60,840

 
64,658

Securities gains
352

 
5,564

 
17,509

 
10,837

Other service charges and fees
7,567

 
6,208

 
21,693

 
17,443

Mortgage income
6,692

 
4,852

 
12,540

 
14,972

Insurance commissions
2,755

 
2,945

 
8,198

 
8,698

ATM income
1,908

 
1,800

 
5,518

 
5,289

Adjustments to FDIC loss share receivable
(2,773
)
 
(4,130
)
 
(7,673
)
 
(9,730
)
Net impact from FDIC loss share termination
—

 
—

 
16,559

 
—

Other
10,718

 
5,542

 
22,129

 
25,126

Total noninterest income
117,841

 
109,750

 
363,373

 
367,953

Noninterest expense
 
 
 
 
 
 
 
Salaries and wages
107,762

 
108,992

 
315,720

 
324,358

Employee benefits
26,750

 
27,121

 
79,761

 
86,341

Occupancy expense
24,857

 
22,260

 
74,824

 
73,412

Equipment expense
23,736

 
22,447

 
68,796

 
69,284

FDIC insurance expense
5,796

 
4,933

 
15,173

 
13,755

Foreclosure-related expenses
2,016

 
1,087

 
2,631

 
4,663

Merger-related expenses
3,764

 
3,679

 
5,187

 
11,249

Other
72,552

 
69,653

 
215,115

 
199,967

Total noninterest expense
267,233

 
260,172

 
777,207

 
783,029

Income before income taxes
78,950

 
88,842

 
270,012

 
265,492

Income taxes
27,546

 
32,884

 
97,220

 
97,854

Net income
$
51,404

 
$
55,958

 
$
172,792

 
$
167,638

Average shares outstanding
12,010,405

 
12,010,405

 
12,010,405

 
12,010,405

Net income per share
$
4.28

 
$
4.66

 
$
14.39

 
$
13.96


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)
2016
 
2015
 
2016
 
2015
Net income
$
51,404

 
$
55,958

 
$
172,792

 
$
167,638

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized (losses) gains on securities:
 
 
 
 
 
 
 
Change in unrealized securities (losses) gains arising during period
(1,577
)
 
28,231

 
90,631

 
29,420

Tax effect
855

 
(10,737
)
 
(34,250
)
 
(11,198
)
Reclassification adjustment for net gains realized and included in income before income taxes
(352
)
 
(5,564
)
 
(17,509
)
 
(10,837
)
Tax effect
191

 
2,094

 
6,583

 
4,145

Total change in unrealized (losses) gains on securities, net of tax
(883
)
 
14,024

 
45,455

 
11,530

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

 
721

 
1,429

 
2,006

Tax effect
—

 
(300
)
 
(537
)
 
(796
)
Total change in unrecognized loss on cash flow hedges, net of tax
—

 
421

 
892

 
1,210

Change in pension obligation:
 
 
 
 
 
 
 
Amortization of actuarial losses and prior service cost
1,768

 
2,916

 
5,302

 
8,689

Tax effect
(642
)
 
(1,078
)
 
(1,993
)
 
(3,324
)
Total change in pension obligation, net of tax
1,126

 
1,838

 
3,309

 
5,365

Other comprehensive income
243

 
16,283

 
49,656

 
18,105

Total comprehensive income
$
51,647

 
$
72,241

 
$
222,448

 
$
185,743



See accompanying Notes to Consolidated Financial Statements.


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

 
(Dollars in thousands, unaudited)
Class A
Common Stock
 
Class B
Common Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Shareholders’
Equity
Balance at December 31, 2014
$
11,005

 
$
1,005

 
$
658,918

 
$
2,069,647

 
$
(52,981
)
 
$
2,687,594

Net income
—

 
—

 
—

 
167,638

 
—

 
167,638

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
18,105

 
18,105

Cash dividends ($0.90 per share)
—

 
—

 
—

 
(10,809
)
 
—

 
(10,809
)
Balance at September 30, 2015
$
11,005

 
$
1,005

 
$
658,918

 
$
2,226,476

 
$
(34,876
)
 
$
2,862,528

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
11,005

 
$
1,005

 
$
658,918

 
$
2,265,621

 
$
(64,440
)
 
$
2,872,109

Net income
—

 
—

 
—

 
172,792

 
—

 
172,792

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
49,656

 
49,656

Cash dividends ($0.90 per share)
—

 
—

 
—

 
(10,809
)
 
—

 
(10,809
)
Balance at September 30, 2016
$
11,005

 
$
1,005

 
$
658,918

 
$
2,427,604

 
$
(14,784
)
 
$
3,083,748


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)
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
172,792

 
$
167,638

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Provision for loan and lease losses
16,912

 
13,618

Deferred tax benefit
(13,328
)
 
(3,941
)
Net change in current taxes
(16,906
)
 
(26,195
)
Depreciation
66,400

 
65,559

Net change in accrued interest payable
(1,662
)
 
(2,244
)
Net increase in income earned not collected
(2,899
)
 
(10,114
)
Gain on acquisitions
(5,831
)
 
(42,930
)
Securities gains
(17,509
)
 
(10,837
)
Loss on termination of FDIC loss share agreements
3,377

 
—

Origination of loans held for sale
(589,313
)
 
(542,836
)
Proceeds from sale of loans held for sale
564,026

 
540,737

Gain on sale of loans held for sale
(10,857
)
 
(6,079
)
Gain on sale of portfolio loans
(3,758
)
 
—

Net write-downs/losses on other real estate
5,251

 
4,355

Net accretion of premiums and discounts
(32,924
)
 
(70,150
)
Amortization of intangible assets
16,633

 
11,765

Reduction in FDIC receivable for loss share agreements
11,926

 
35,395

Net change in FDIC payable for loss share agreements
(12,474
)
 
7,503

Net change in other assets
17,120

 
29,225

Net change in other liabilities
56,275

 
37,077

Net cash provided by operating activities
223,251

 
197,546

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net increase in loans outstanding
(782,771
)
 
(928,132
)
Purchases of investment securities available for sale
(2,382,141
)
 
(1,887,604
)
Proceeds from maturities/calls of investment securities held to maturity
130

 
217

Proceeds from maturities/calls of investment securities available for sale
1,213,333

 
1,139,053

Proceeds from sales of investment securities available for sale
1,802,155

 
1,036,254

Net increase in overnight investments
(891,059
)
 
(643,213
)
Proceeds from sales of portfolio loans
77,665

 
45,862

Cash paid to the FDIC for loss share agreements
(16,701
)
 
(24,805
)
Net cash paid to the FDIC for termination of loss share agreements
(20,115
)
 
—

Proceeds from sales of other real estate
24,406

 
63,446

Additions to premises and equipment
(60,982
)
 
(55,575
)
Business acquisitions, net of cash acquired
(727
)
 
123,137

Net cash used by investing activities
(1,036,807
)
 
(1,131,360
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net decrease in time deposits
(235,164
)
 
(405,160
)
Net increase in demand and other interest-bearing deposits
781,382

 
1,179,606

Net change in short-term borrowings
93,655

 
(232,928
)
Repayment of long-term obligations
(3,889
)
 
(4,633
)
Origination of long-term obligations
150,000

 
350,000

Cash dividends paid
(10,809
)
 
(10,809
)
Net cash provided by financing activities
775,175

 
876,076

Change in cash and due from banks
(38,381
)
 
(57,738
)
Cash and due from banks at beginning of period
534,086

 
604,182

Cash and due from banks at end of period
$
495,705

 
$
546,444

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Transfers of loans to other real estate
$
31,517

 
$
44,065

Dividends declared but not paid
—

 
3,603

Unsettled sales of investment securities
—

 
236,617


See accompanying Notes to Consolidated Financial Statements.

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


NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

General
These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes included in BancShares' Annual Report on Form 10-K for the year ended December 31, 2015.

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

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and different assumptions in the application of these policies could result in material changes in BancShares' consolidated financial position, the consolidated results of operations or related disclosures. Material estimates that are particularly susceptible to significant change include:
•
Allowance for loan and lease losses
•
Fair value of financial instruments, including acquired assets and assumed liabilities
•
Pension plan assumptions
•
Cash flow estimates on purchased credit-impaired loans
•
Receivable from and payable to the Federal Deposit Insurance Corporation (FDIC) for loss share agreements
•
Income tax assets, liabilities and expense
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
This ASU eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination and requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts must be calculated as if the accounting had been completed at the acquisition date.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for financial statements that have not been issued. We adopted the guidance effective in the first quarter of 2016.
During the third quarter of 2016, adjustments were made to the acquisition fair value for the FDIC-assisted acquisition of First CornerStone Bank (FCSB) of King of Prussia, Pennsylvania. The adjustments were primarily based upon updated collateral

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valuations, resulting in an increase of $837 thousand to the gain on acquisition reflected in the three months ended September 30, 2016. These adjustments brought the total gain on the transaction to $3.0 million and are included in noninterest income in the Consolidated Statements of Income.
During the second quarter of 2016, adjustments were made to the acquisition fair values for the FDIC-assisted acquisition of North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin, primarily based upon updated collateral valuations, resulting in an increase of $1.2 million to the gain on acquisition reflected in the three months ended June 30, 2016. These adjustments brought the total gain on the transaction to $2.9 million which is included in noninterest income in the Consolidated Statements of Income.
FASB ASU 2015-03, Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
This ASU simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.
This ASU is effective for fiscal years beginning after December 15, 2015 for public business entities, including interim periods within those fiscal years, and is to be applied retrospectively. We adopted the guidance effective in the first quarter of 2016. The initial adoption did not have an impact on our consolidated financial position or consolidated results of operations.
FASB ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis
This ASU improves targeted areas of consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard places more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2015 for public business entities, including interim periods within those fiscal years. We adopted the guidance effective in the first quarter of 2016. The initial adoption did not have an impact on our consolidated financial position or consolidated results of operations.
Recently Issued Accounting Pronouncements
FASB ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
This ASU addresses the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU provide guidance on (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance requires application using a retrospective transition method. We are currently evaluating the impact of the new standard and we will adopt the guidance during the first quarter of 2018.
FASB ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU eliminates the delayed recognition of the full amount of credit losses until the loss was probable of occurring and instead will reflect an entity's current estimate of all expected credit losses. The amendments in this ASU broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity's size, complexity and risk profile. In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of the new standard and we will adopt the guidance by the first quarter of 2020.

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FASB ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
This ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. Further, the ASU requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings, the unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We will adopt the guidance during the first quarter of 2017. BancShares does not anticipate any effect on our consolidated financial position or consolidated results of operations as a result of adoption.
FASB ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments
This ASU clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. When a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.
The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We will adopt the guidance during the first quarter of 2017. BancShares does not anticipate any effect on our consolidated financial position or consolidated results of operations as a result of adoption.
FASB ASU 2016-02, Leases (Topic 842)
This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between existing standards and this ASU is the requirement for lessees to recognize on their balance sheet all lease contracts. An entity may make an accounting election by classification to not recognize leases with terms less than 12 months on their balance sheet. Both a right-of-use asset, representing the right to use the leased asset, and a lease liability, representing the contractual obligation, are required to be recognized on the balance sheet of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the current operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment, but relates to treatment in the statements of income and cash flows. Lessor guidance remains largely unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2019.
FASB ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of certain financial instruments. The amendments in this ASU (1) require equity investments to be measured at fair value with changes in fair value recognized in net income; (2) simplify the impairment assessment of equity investments without a readily determinable fair value; (3) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (4) require public business entities to use exit price notion, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (5) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (6) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (7) state that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets.

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Table of Contents

The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2018.
FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify guidance for identifying performance obligations and licensing implementation. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, to clarify and improve the guidance for certain aspects of Topic 606.
Per ASU 2015-14, Deferral of the Effective Date, this guidance was deferred and is effective for fiscal periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal periods beginning after December 15, 2016. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2018 using one of two retrospective application methods.
NOTE B - BUSINESS COMBINATIONS
Cordia Bancorp Inc.
On September 1, 2016, First Citizens Bank completed the merger of Midlothian, Virginia-based Cordia Bancorp, Inc. (Cordia) and its subsidiary, Bank of Virginia (BVA) into First Citizens Bank. Under the terms of the merger agreement, cash consideration of $5.15 was paid to Cordia’s shareholders for each of their shares of Cordia’s common stock, with total consideration paid of $37.1 million. The merger allowed FCB to strengthen its presence in the greater Richmond, Virginia area as Cordia operated six BVA branches in Richmond, Midlothian, Chesterfield, Colonial Heights and Chester, Virginia.

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

The fair value of assets acquired was $349.3 million, including $241.4 million in loans and $2.2 million of identifiable intangible assets. Liabilities assumed were $323.1 million of which $292.2 million were deposits. As a result of the transaction, FCB recorded $10.8 million of goodwill. The amount of goodwill recorded represents the excess purchase price over the estimated fair value of the net assets acquired. This premium paid reflects the increased market share and related synergies that are expected to result from the acquisition. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a tax-free exchange.
















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Table of Contents

The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values.
(Dollars in thousands)
As recorded by FCB
Purchase price
 
$
37,053

Assets
 
 
Cash and cash equivalents
$
8,383

 
Overnight investments
3,081

 
Investment securities
76,633

 
Loans
241,392

 
Premises and equipment
4,151

 
Other real estate owned
1,170

 
Income earned not collected
1,990

 
Intangible assets
2,210

 
Other assets
10,318

 
Total assets acquired
349,328

 
Liabilities
 
 
Deposits
292,192

 
Short-term borrowings
30,164

 
Other liabilities
747

 
Total liabilities assumed
$
323,103

 
Fair value of net assets acquired
 
26,225

Goodwill recorded for Cordia
 
$
10,828


Merger-related expenses of $3.6 million and $3.8 million from the Cordia transaction were recorded in the Consolidated Statements of Income for the three and nine months ended September 30, 2016, respectively. Loan-related interest income generated from Cordia was approximately $1.0 million since the acquisition date.

Due to the immaterial amount of loans resulting from the Cordia transaction that had evidence of credit quality deterioration, all loans are accounted for as non-purchased credit-impaired (non-PCI) loans under ASC 310-20.
First CornerStone Bank
On May 6, 2016, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of FCSB of King of Prussia, Pennsylvania. The acquisition provided FCB the opportunity to grow capital and enhance earnings.

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

The fair value of the assets acquired was $87.4 million, including $43.8 million in loans and $390 thousand of identifiable intangible assets. Liabilities assumed were $96.9 million of which the majority were deposits. During the third quarter of 2016, adjustments were made to the acquisition fair values primarily based upon updated collateral valuations resulting in an increase of $837 thousand to the gain on acquisition reflected in the three months ended September 30, 2016. These adjustments brought the total gain on the transaction to $3.0 million which is included in noninterest income in the Consolidated Statements of Income.









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The following table provides the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.
(Dollars in thousands)
As recorded by FCB
Assets
 
Cash and cash equivalents
$
748

Overnight investments
37,540

Investment securities
4,564

Loans
43,776

Other real estate owned
375

Income earned not collected
8

Intangible assets
390

Other assets
13

Total assets acquired
87,414

Liabilities
 
Deposits
96,882

Other liabilities
23

Total liabilities assumed
96,905

Fair value of net liabilities assumed
(9,491
)
Cash received from FDIC
12,450

Gain on acquisition of FCSB
$
2,959

Merger-related expenses of $130 thousand and $923 thousand from the FCSB transaction were recorded in the Consolidated Statements of Income for the three and nine months ended September 30, 2016, respectively. Loan-related interest income generated from FCSB was approximately $573 thousand for the three months ended September 30, 2016 and $897 thousand since the acquisition date.
All loans resulting from the FCSB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality, and are therefore accounted for as purchased credit-impaired (PCI) loans under ASC 310-30.
North Milwaukee State Bank
On March 11, 2016, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of NMSB with two branches in Milwaukee, Wisconsin. The acquisition provided FCB with the opportunity to grow capital and enhance earnings.

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

The fair value of the assets acquired was $53.6 million, including $36.9 million in loans and $240 thousand of identifiable intangible assets. Liabilities assumed were $60.9 million of which $59.2 million were deposits. During the second quarter of 2016, adjustments were made to the acquisition fair values primarily based upon updated collateral valuations resulting in an increase of $1.2 million to the gain on acquisition reflected in the three months ended June 30, 2016. These adjustments brought the total gain on the transaction to $2.9 million which is included in noninterest income in the Consolidated Statements of Income.


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The following table provides the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.
(Dollars in thousands)
As recorded by FCB
Assets
 
Cash and cash equivalents
$
4,545

Overnight investments
2,274

Investment securities
9,425

Loans
36,914

Intangible assets
240

Other assets
216

Total assets acquired
53,614

Liabilities
 
Deposits
59,206

Short-term borrowings
1,662

Other liabilities
74

Total liabilities assumed
60,942

Fair value of net liabilities assumed
(7,328
)
Cash received from FDIC
10,200

Gain on acquisition of NMSB
$
2,872

Merger-related expenses of $35 thousand and $511 thousand from the NMSB transaction were recorded in the Consolidated Statements of Income for the three and nine months ended September 30, 2016, respectively. Loan-related interest income generated from NMSB was approximately $699 thousand for the third quarter of 2016 and $1.5 million since the acquisition date.
All loans resulting from the NMSB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality, and are therefore accounted for as PCI loans under ASC 310-30.


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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 September 30, 2016 and December 31, 2015, are as follows:
 
September 30, 2016
(Dollars in thousands)
Cost
 
Gross
unrealized gains
 
Gross unrealized
losses
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
U.S. Treasury
$
1,547,501

 
$
2,030

 
$
1

 
$
1,549,530

Government agency
169,609

 
250

 
—

 
169,859

Mortgage-backed securities
4,487,083

 
44,570

 
3,283

 
4,528,370

Equity securities
88,526

 
4,653

 
168

 
93,011

Corporate bonds
41,363

 
582

 
—

 
41,945

Other
2,115

 
—

 
15

 
2,100

Total investment securities available for sale
$
6,336,197

 
$
52,085

 
$
3,467

 
$
6,384,815

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

 
$
4

 
$
1,118

 
$
1,674,882

Government agency
498,804

 
230

 
374

 
498,660

Mortgage-backed securities
4,692,447

 
5,120

 
29,369

 
4,668,198

Equity securities
7,935

 
968

 
10

 
8,893

Corporate bonds
8,500

 
—

 
—

 
8,500

Other
2,115

 
45

 
—

 
2,160

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

 
$
6,367

 
$
30,871

 
$
6,861,293

 
 
 
 
 
 
 
 
 
September 30, 2016
 
Cost
 
Gross
unrealized gains
 
Gross unrealized
losses
 
Fair
value
Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities
$
125

 
$
8

 
$
—

 
$
133

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

 
$
10

 
$
—

 
$
265


Investments in mortgage-backed securities primarily represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in equity securities and corporate bonds represent positions in securities of other financial institutions. 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.

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Table of Contents

 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
Cost
 
Fair
value
 
Cost
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
Non-amortizing securities maturing in:
 
 
 
 
 
 
 
One year or less
$
1,367,521

 
$
1,369,117

 
$
1,255,714

 
$
1,255,094

One through five years
349,589

 
350,272

 
919,086

 
918,448

Five through 10 years
41,363

 
41,945

 
8,500

 
8,500

Over 10 years
2,115

 
2,100

 
2,115

 
2,160

Mortgage-backed securities
4,487,083

 
4,528,370

 
4,692,447

 
4,668,198

Equity securities
88,526

 
93,011

 
7,935

 
8,893

Total investment securities available for sale
$
6,336,197

 
$
6,384,815

 
$
6,885,797

 
$
6,861,293

Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities held to maturity
$
125

 
$
133

 
$
255

 
$
265

For each period presented, securities gains (losses) included the following:
 
Three months ended September 30
 
Nine months ended September 30
(Dollars in thousands)
2016
 
2015
 
2016
 
2015
Gross gains on sales of investment securities available for sale
$
452

 
$
5,564

 
$
17,940

 
$
10,850

Gross losses on sales of investment securities available for sale
(100
)
 
—

 
(431
)
 
(13
)
Total securities gains
$
352

 
$
5,564

 
$
17,509

 
$
10,837


The following table provides information regarding securities with unrealized losses as of September 30, 2016 and December 31, 2015.
 
September 30, 2016
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in thousands)
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
9,995

 
$
1

 
$
—

 
$
—

 
$
9,995

 
$
1

Mortgage-backed securities
356,758

 
1,111

 
289,161

 
2,172

 
645,919

 
3,283

Equity securities
23,131

 
168

 
—

 
—

 
23,131

 
168

Other
2,100

 
15

 
—

 
—

 
2,100

 
15

Total
$
391,984

 
$
1,295

 
$
289,161

 
$
2,172

 
$
681,145

 
$
3,467

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Less than 12 months
 
12 months or more
 
Total
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
1,539,637

 
$
1,118

 
$
—

 
$
—

 
$
1,539,637

 
$
1,118

Government agency
229,436

 
374

 
—

 
—

 
229,436

 
374

Mortgage-backed securities
3,570,470

 
23,275

 
280,126

 
6,094

 
3,850,596

 
29,369

Equity securities
728

 
10

 
—

 
—

 
728

 
10

Total
$
5,340,271

 
$
24,777

 
$
280,126

 
$
6,094

 
$
5,620,397

 
$
30,871

Investment securities with an aggregate fair value of $289.2 million and $280.1 million had continuous unrealized losses for more than 12 months with a corresponding aggregate unrealized loss of $2.2 million and $6.1 million as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016, all 40 of these investments are government sponsored enterprise-issued mortgage-backed securities. None of the unrealized losses identified as of September 30, 2016 or December 31, 2015 relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased. For all periods presented, BancShares had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Therefore, none of the securities were deemed to be other than temporarily impaired.

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Table of Contents

Investment securities having an aggregate carrying value of $4.67 billion at September 30, 2016 and $4.73 billion at December 31, 2015 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.
NOTE D - LOANS AND LEASES
BancShares' accounting methods for loans and leases differ depending on whether they are purchased credit-impaired (PCI) or non-PCI. Non-PCI loans and leases include originated commercial, originated noncommercial, purchased non-impaired loans, purchased leases and certain purchased revolving credit. For purchased non-impaired loans to be included as non-PCI, it must be determined that the loans do not have a discount due, at least in part, to credit quality at the time of acquisition. Conversely, loans for which it is probable at acquisition that all required payments will not be collected in accordance with contractual terms are considered PCI loans. PCI loans are evaluated at acquisition and where a discount is required at least in part due to credit quality, the nonrevolving loans are accounted for under the guidance in ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. PCI loans and leases are recorded at fair value at the date of acquisition. No allowance for loan and lease losses is recorded on the acquisition date as the fair value of the acquired assets incorporates assumptions regarding credit risk. An allowance is recorded if there is additional credit deterioration after the acquisition date.
BancShares reports PCI and non-PCI loan portfolios separately, and each portfolio is further divided into commercial and non-commercial based on the type of borrower, purpose, collateral, and/or our underlying credit management processes. Additionally, loans are assigned to loan classes, which further disaggregate loans based upon common risk characteristics.
Commercial – Commercial loans include construction and land development, mortgage, other commercial real estate, commercial and industrial, lease financing and other.

Construction and land development – Construction and land development consists of loans to finance land for development, investment, and use in a commercial business enterprise; multifamily apartments; and other commercial buildings that may be owner-occupied or income generating investments for the owner.
Commercial mortgage – Commercial mortgage consists of loans to purchase or refinance owner-occupied nonresidential and investment properties. Investment properties include office buildings and other facilities that are rented or leased to unrelated parties.
Other commercial real estate – Other commercial real estate consists of loans secured by farmland (including residential farms and other improvements) and multifamily (5 or more) residential properties.
Commercial and industrial – Commercial and industrial consists of loans or lines of credit to finance corporate credit cards, accounts receivable, inventory and other general business purposes.
Lease financing – Lease financing consists solely of lease financing agreements for business equipment, vehicles and other assets.
Other – Other consists of all other commercial loans not classified in one of the preceding classes. These typically include loans to non-profit organizations such as churches, hospitals, educational and charitable organizations.

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, student loans and revolving lines of credit that can be secured or unsecured, including personal credit cards.



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Loans and leases outstanding included the following at September 30, 2016 and December 31, 2015:
(Dollars in thousands)
September 30, 2016
 
December 31, 2015
Non-PCI loans and leases:
 
 
 
Commercial:
 
 
 
Construction and land development
$
642,158

 
$
620,352

Commercial mortgage
8,779,132

 
8,274,548

Other commercial real estate
346,030

 
321,021

Commercial and industrial
2,507,167

 
2,368,958

Lease financing
803,601

 
730,778

Other
326,348

 
314,832

Total commercial loans
13,404,436

 
12,630,489

Noncommercial:
 
 
 
Residential mortgage
2,813,914

 
2,695,985

Revolving mortgage
2,573,086

 
2,523,106

Construction and land development
234,383

 
220,073

Consumer
1,402,961

 
1,219,821

Total noncommercial loans
7,024,344

 
6,658,985

Total non-PCI loans and leases
20,428,780

 
19,289,474

PCI loans:
 
 
 
Commercial:
 
 
 
Construction and land development
23,138

 
33,880

Commercial mortgage
491,180

 
525,468

Other commercial real estate
14,783

 
17,076

Commercial and industrial
11,437

 
15,182

Other
3,167

 
2,008

Total commercial loans
543,705

 
593,614

Noncommercial:
 
 
 
Residential mortgage
278,872

 
302,158

Revolving mortgage
43,509

 
52,471

Construction and land development
83

 
—

Consumer
2,031

 
2,273

Total noncommercial loans
324,495

 
356,902

Total PCI loans
868,200

 
950,516

Total loans and leases
$
21,296,980

 
$
20,239,990

At September 30, 2016, $91.5 million of total loans and leases were covered under loss share agreements, compared to $272.6 million at December 31, 2015. The decline was primarily due to the expiration and termination of certain loss share agreements during 2016.
At September 30, 2016, $8.37 billion in noncovered loans with a lendable collateral value of $5.96 billion were used to secure $660.2 million in Federal Home Loan Bank (FHLB) of Atlanta advances, resulting in additional borrowing capacity of $5.29 billion. At December 31, 2015, $8.58 billion in noncovered loans with a lendable collateral value of $6.08 billion were used to secure $510.3 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $5.57 billion.

Net deferred fees on originated non-PCI loans and leases, including unearned income and unamortized costs, fees, premiums and discounts, were $8.8 million and $16.6 million at September 30, 2016 and December 31, 2015, respectively. The unamortized discount related to purchased non-PCI loans and leases in the Cordia transaction was $4.7 million at September 30, 2016. The unamortized discount related to purchased non-PCI loans and leases from the First Citizens Bancorporation, Inc. merger was $31.4 million and $41.1 million at September 30, 2016 and December 31, 2015, respectively. During the three months ended September 30, 2016 and September 30, 2015, accretion income on non-PCI loans was $3.6 million and $4.5 million, respectively. During the nine months ended September 30, 2016 and September 30, 2015, accretion income on non-PCI loans was $9.7 million and $15.6 million, respectively.
During the third quarter of 2016, certain residential mortgage loans totaling $64.3 million were sold, resulting in a gain of $3.8 million.


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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. 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 affected 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 September 30, 2016 and December 31, 2015 relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage and other commercial real estate loans.


19
Table of Contents

Non-PCI loans and leases outstanding at September 30, 2016 and December 31, 2015 by credit quality indicator are provided below:
 
September 30, 2016
(Dollars in thousands)
Non-PCI commercial loans and leases
Grade:
Construction  and land
development
 
Commercial
mortgage
 
Other
commercial real estate
 
Commercial  and
industrial
 
Lease financing
 
Other
 
Total non-PCI commercial loans and leases
Pass
$
639,530

 
$
8,558,376

 
$
341,038

 
$
2,347,031

 
$
795,879

 
$
322,292

 
$
13,004,146

Special mention
842

 
84,948

 
1,502

 
15,675

 
2,985

 
1,034

 
106,986

Substandard
1,786

 
133,316

 
2,347

 
20,585

 
4,737

 
2,793

 
165,564

Doubtful
—

 
377

 
—

 
15

 
—

 
229

 
621

Ungraded
—

 
2,115

 
1,143

 
123,861

 
—

 
—

 
127,119

Total
$
642,158

 
$
8,779,132

 
$
346,030

 
$
2,507,167

 
$
803,601

 
$
326,348

 
$
13,404,436

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Non-PCI commercial loans and leases
 
Construction  and land
development
 
Commercial
mortgage
 
Other
commercial real estate
 
Commercial  and
industrial
 
Lease financing
 
Other
 
Total non-PCI commercial loans and leases
Pass
$
611,314

 
$
8,024,831

 
$
318,187

 
$
2,219,606

 
$
719,338

 
$
311,401

 
$
12,204,677

Special mention
5,191

 
100,220

 
475

 
19,361

 
4,869

 
1,905

 
132,021

Substandard
3,847

 
146,071

 
959

 
21,322

 
6,375

 
1,526

 
180,100

Doubtful
—

 
599

 
—

 
408

 
169

 
—

 
1,176

Ungraded
—

 
2,827

 
1,400

 
108,261

 
27

 
—

 
112,515

Total
$
620,352

 
$
8,274,548

 
$
321,021

 
$
2,368,958

 
$
730,778

 
$
314,832

 
$
12,630,489


 
September 30, 2016
 
Non-PCI noncommercial loans and leases
(Dollars in thousands)
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total non-PCI noncommercial
loans and leases
Current
$
2,773,431

 
$
2,555,674

 
$
231,164

 
$
1,393,611

 
$
6,953,880

30-59 days past due
18,992

 
8,039

 
2,405

 
4,675

 
34,111

60-89 days past due
5,822

 
2,359

 
53

 
2,476

 
10,710

90 days or greater past due
15,669

 
7,014

 
761

 
2,199

 
25,643

Total
$
2,813,914

 
$
2,573,086

 
$
234,383

 
$
1,402,961

 
$
7,024,344

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

 
$
2,502,065

 
$
214,555

 
$
1,210,832

 
$
6,578,661

30-59 days past due
23,960

 
11,706

 
3,211

 
5,545

 
44,422

60-89 days past due
7,536

 
3,704

 
669

 
1,822

 
13,731

90 days or greater past due
13,280

 
5,631

 
1,638

 
1,622

 
22,171

Total
$
2,695,985

 
$
2,523,106

 
$
220,073

 
$
1,219,821

 
$
6,658,985




20
Table of Contents

 PCI loans outstanding at September 30, 2016 and December 31, 2015 by credit quality indicator are provided below:
 
September 30, 2016
(Dollars in thousands)
PCI commercial loans
Grade:
Construction
and land
development
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and
industrial
 
Other
 
Total PCI commercial
loans
Pass
$
11,740

 
$
255,822

 
$
9,891

 
$
6,679

 
$
2,040

 
$
286,172

Special mention
655

 
81,955

 
55

 
558

 
—

 
83,223

Substandard
7,738

 
142,291

 
3,427

 
3,588

 
1,127

 
158,171

Doubtful
3,005

 
11,088

 
1,169

 
311

 
—

 
15,573

Ungraded
—

 
24

 
241

 
301

 
—

 
566

Total
$
23,138

 
$
491,180

 
$
14,783

 
$
11,437

 
$
3,167

 
$
543,705

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

 
$
262,579

 
$
7,366

 
$
9,302

 
$
706

 
$
294,663

Special mention
758

 
87,870

 
60

 
937

 
—

 
89,625

Substandard
14,131

 
163,801

 
9,229

 
4,588

 
1,302

 
193,051

Doubtful
4,281

 
10,875

 
—

 
282

 
—

 
15,438

Ungraded
—

 
343

 
421

 
73

 
—

 
837

Total
$
33,880

 
$
525,468

 
$
17,076

 
$
15,182

 
$
2,008

 
$
593,614


 
September 30, 2016
 
PCI noncommercial loans
(Dollars in thousands)
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
 
Consumer
 
Total PCI noncommercial
loans
Current
$
241,341

 
$
39,006

 
$
83

 
$
1,908

 
$
282,338

30-59 days past due
9,719

 
705

 
—

 
82

 
10,506

60-89 days past due
4,837

 
338

 
—

 
18

 
5,193

90 days or greater past due
22,975

 
3,460

 
—

 
23

 
26,458

Total
$
278,872

 
$
43,509

 
$
83

 
$
2,031

 
$
324,495

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

 
$
47,901

 
$
—

 
$
1,981

 
$
307,089

30-59 days past due
12,318

 
1,127

 
—

 
86

 
13,531

60-89 days past due
4,441

 
501

 
—

 
132

 
5,074

90 days or greater past due
28,192

 
2,942

 
—

 
74

 
31,208

Total
$
302,158

 
$
52,471

 
$
—

 
$
2,273

 
$
356,902





21
Table of Contents

The aging of the outstanding non-PCI loans and leases, by class, at September 30, 2016 and December 31, 2015 is provided in the table below.
The calculation of days past due begins on the day after payment is due and includes all days through which all required interest or principal has not been paid. Loans and leases 30 days or less past due are considered current as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.
 
September 30, 2016
(Dollars in thousands)
30-59 days
past due
 
60-89 days
past due
 
90 days or greater
 
Total past
due
 
Current
 
Total loans
and leases
Non-PCI loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Construction and land development - commercial
$
1,357

 
$
4

 
$
320

 
$
1,681

 
$
640,477

 
$
642,158

Commercial mortgage
10,877

 
3,014

 
12,854

 
26,745

 
8,752,387

 
8,779,132

Other commercial real estate
989

 
—

 
—

 
989

 
345,041

 
346,030

Commercial and industrial
4,061

 
1,402

 
907

 
6,370

 
2,500,797

 
2,507,167

Lease financing
1,152

 
588

 
341

 
2,081

 
801,520

 
803,601

Residential mortgage
18,992

 
5,822

 
15,669

 
40,483

 
2,773,431

 
2,813,914

Revolving mortgage
8,039

 
2,359

 
7,014

 
17,412

 
2,555,674

 
2,573,086

Construction and land development - noncommercial
2,405

 
53

 
761

 
3,219

 
231,164

 
234,383

Consumer
4,675

 
2,476

 
2,199

 
9,350

 
1,393,611

 
1,402,961

Other
319

 
158

 
165

 
642

 
325,706

 
326,348

Total non-PCI loans and leases
$
52,866

 
$
15,876

 
$
40,230

 
$