Company Quick10K Filing
Quick10K
First Citizens Bancshares
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$448.50 11 $5,100
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-01 Other Events, Exhibits
8-K 2019-05-01 Shareholder Vote
8-K 2019-04-30 Earnings, Regulation FD, Exhibits
8-K 2019-04-24 Enter Agreement, Regulation FD, Exhibits
8-K 2019-04-24 Other Events, Exhibits
8-K 2019-04-02 Other Events, Exhibits
8-K 2019-01-30 Earnings, Regulation FD, Exhibits
8-K 2019-01-18 Other Events, Exhibits
8-K 2019-01-11 Other Events, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-01 Other Events, Exhibits
8-K 2018-10-29 Other Events, Exhibits
8-K 2018-10-24 Earnings, Regulation FD, Exhibits
8-K 2018-10-23 Officers
8-K 2018-10-01 Other Events, Exhibits
8-K 2018-09-06 Other Events, Exhibits
8-K 2018-08-29 Other Events
8-K 2018-07-26 Earnings, Regulation FD, Exhibits
8-K 2018-07-25 Other Events, Exhibits
8-K 2018-06-27 Other Events, Exhibits
8-K 2018-04-25 Earnings, Regulation FD, Exhibits
8-K 2018-04-24 Shareholder Vote
8-K 2018-03-27 Other Events, Exhibits
8-K 2018-01-31 Earnings, Regulation FD, Exhibits
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IDN Intellicheck 59
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FCNCA 2019-03-31
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 fcnca_exhibit311x03312019.htm
EX-31.2 fcnca_exhibit312x03312019.htm
EX-32.1 fcnca_exhibit321x03312019.htm
EX-32.2 fcnca_exhibit322x03312019.htm

First Citizens Bancshares Earnings 2019-03-31

FCNCA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fcnca_10qx03312019.htm 10-Q Document

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, 2019
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, smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
x
 
Accelerated filer
¨
Non-accelerated filer
¨
 
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Trade symbol
 
Name of each exchange on which registered
 
Shares Outstanding
Class A Common Stock, $1 Par Value
 
FCNCA
 
The NASDAQ Stock Market LLC
 
10,373,120
Class B Common Stock, $1 Par Value
 
FCNCB
 
OTC US
 
1,005,185
(Number of shares outstanding as of 5/6/2019)
 
 
 
 
 
 



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

2


PART I
 
Item 1.
Financial Statements


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets

(Dollars in thousands, unaudited)
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Cash and due from banks
$
268,599

 
$
327,440

Overnight investments
1,386,525

 
797,406

Investment in marketable equity securities (cost of $79,809 at March 31, 2019 and $73,809 at December 31, 2018)
109,884

 
92,599

Investment securities available for sale (cost of $4,611,736 at March 31, 2019 and $4,607,117 at December 31, 2018)
4,589,800

 
4,557,110

Investment securities held to maturity (fair value of $2,254,924 at March 31, 2019 and $2,201,502 at December 31, 2018)
2,214,829

 
2,184,653

Loans held for sale
53,232

 
45,505

Loans and leases
25,463,785

 
25,523,276

Allowance for loan and lease losses
(228,775
)
 
(223,712
)
Net loans and leases
25,235,010

 
25,299,564

Premises and equipment
1,203,674

 
1,204,179

Other real estate owned
43,306

 
48,030

Income earned not collected
113,812

 
109,903

Goodwill
236,347

 
236,347

Other intangible assets
67,053

 
72,298

Other assets
439,599

 
433,595

Total assets
$
35,961,670

 
$
35,408,629

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
12,376,913

 
$
11,882,670

Interest-bearing
18,821,180

 
18,789,790

Total deposits
31,198,093

 
30,672,460

Securities sold under customer repurchase agreements
508,508

 
543,936

Federal home loan bank borrowings
189,594

 
193,556

Subordinated debentures
136,544

 
140,741

Other borrowings
14,970

 
13,921

FDIC shared-loss payable
107,256

 
105,618

Other liabilities
283,396

 
249,443

Total liabilities
32,438,361

 
31,919,675

Shareholders’ equity
 
 
 
Common stock:
 
 
 
Class A - $1 par value (16,000,000 shares authorized; 10,380,220 and 10,623,220 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively)
10,380

 
10,623

Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2019 and December 31, 2018)
1,005

 
1,005

Preferred stock - $0.01 par value (10,000,000 shares authorized; no shares issued and outstanding at March 31, 2019 and December 31, 2018)

 

Surplus
393,449

 
493,962

Retained earnings
3,325,335

 
3,218,551

Accumulated other comprehensive loss
(206,860
)
 
(235,187
)
Total shareholders’ equity
3,523,309

 
3,488,954

Total liabilities and shareholders’ equity
$
35,961,670

 
$
35,408,629

See accompanying Notes to Consolidated Financial Statements.

3


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
 
 
Three months ended March 31
(Dollars in thousands, except per share data, unaudited)
2019
 
2018
Interest income
 
 
 
Loans and leases
$
290,922

 
$
251,982

Investment securities interest and dividend income
39,605

 
35,020

Overnight investments
6,397

 
5,599

Total interest income
336,924

 
292,601

Interest expense
 
 
 
Deposits
12,926

 
3,756

Securities sold under customer repurchase agreements
459

 
404

Federal home loan bank borrowings
1,285

 
2,384

Subordinated debentures
1,672

 
1,441

Other borrowings
110

 
179

Total interest expense
16,452

 
8,164

Net interest income
320,472

 
284,437

Provision for loan and lease losses
11,750

 
7,605

Net interest income after provision for loan and lease losses
308,722

 
276,832

Noninterest income
 
 
 
Cardholder services, net
16,633

 
14,782

Merchant services, net
5,835

 
6,177

Service charges on deposit accounts
25,065

 
26,543

Wealth management services
25,001

 
23,569

Marketable equity securities gains, net
11,328

 
971

Other service charges and fees
7,422

 
7,480

Mortgage income
3,658

 
4,237

Insurance commissions
3,291

 
3,776

ATM income
1,511

 
2,171

Gain on extinguishment of debt

 
25,814

Other
3,919

 
7,164

Total noninterest income
103,663

 
122,684

Noninterest expense
 
 
 
Salaries and wages
132,421

 
129,203

Employee benefits
32,535

 
32,091

Occupancy expense
27,761

 
27,954

Equipment expense
26,740

 
24,974

FDIC insurance expense
2,660

 
5,733

Collection and foreclosure-related expenses
3,022

 
4,146

Merger-related expenses
1,719

 
598

Processing fees paid to third parties
7,089

 
8,196

Other
33,710

 
35,168

Total noninterest expense
267,657

 
268,063

Income before income taxes
144,728

 
131,453

Income taxes
33,369

 
31,222

Net income
$
111,359

 
$
100,231

Weighted average shares outstanding
11,519,008

 
12,010,405

Net income per share
$
9.67

 
$
8.35


See accompanying Notes to Consolidated Financial Statements.

4


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

 
Three months ended March 31
(Dollars in thousands, unaudited)
2019
 
2018
Net income
$
111,359

 
$
100,231

Other comprehensive income (loss)
 
 
 
Unrealized gains (losses) on securities available for sale:
 
 
 
Change in unrealized gains (losses) on securities available for sale arising during period
28,071

 
(78,635
)
Tax effect
(6,456
)
 
18,088

Total change in unrealized gains (losses) on securities available for sale, net of tax
21,615

 
(60,547
)
Unrealized losses on securities available for sale transferred to held to maturity:
 
 
 
Reclassification adjustment for accretion of unrealized losses on securities available for sale transferred to held to maturity
5,962

 

Tax effect
(1,371
)
 

Total change in unrealized losses on securities available for sale transferred to held to maturity, net of tax
4,591

 

Change in pension obligation:
 
 
 
Amortization of actuarial losses and prior service cost
2,755

 
3,337

Tax effect
(634
)
 
(768
)
Total change in pension obligation, net of tax
2,121

 
2,569

Other comprehensive income (loss)
28,327

 
(57,978
)
Total comprehensive income
$
139,686

 
$
42,253



See accompanying Notes to Consolidated Financial Statements.


5


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
 
Total
Shareholders’
Equity
Balance at December 31, 2017
$
11,005

 
$
1,005

 
$
658,918

 
$
2,785,430

 
$
(122,294
)
 
$
3,334,064

Cumulative effect of adoption of ASU 2016-01

 

 

 
18,715

 
(18,715
)
 

Cumulative effect of adoption of ASU 2018-02

 

 

 
31,336

 
(31,336
)
 

Net income

 

 

 
100,231

 

 
100,231

Other comprehensive loss, net of tax

 

 

 

 
(57,978
)
 
(57,978
)
Cash dividends declared ($0.35 per share)
 
 
 
 
 
 
 
 
 
 
 
Class A common stock

 

 

 
(3,851
)
 

 
(3,851
)
Class B common stock

 

 

 
(352
)
 

 
(352
)
Balance at March 31, 2018
$
11,005

 
$
1,005

 
$
658,918

 
$
2,931,509

 
$
(230,323
)
 
$
3,372,114

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
10,623

 
$
1,005

 
$
493,962

 
$
3,218,551

 
$
(235,187
)
 
$
3,488,954

Net income

 

 

 
111,359

 

 
111,359

Other comprehensive income, net of tax

 

 

 

 
28,327

 
28,327

Repurchase of 243,000 shares of Class A common stock
(243
)
 

 
(100,513
)
 

 

 
(100,756
)
Cash dividends declared ($0.40 per share)
 
 
 
 
 
 
 
 
 
 
 
Class A common stock

 

 

 
(4,173
)
 

 
(4,173
)
Class B common stock

 

 

 
(402
)
 

 
(402
)
Balance at March 31, 2019
$
10,380

 
$
1,005

 
$
393,449

 
$
3,325,335

 
$
(206,860
)
 
$
3,523,309


See accompanying Notes to Consolidated Financial Statements.

6


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 
Three months ended March 31
(Dollars in thousands, unaudited)
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
111,359

 
$
100,231

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Provision for loan and lease losses
11,750

 
7,605

Deferred tax benefit
(7,316
)
 
(5,573
)
Net change in current taxes
37,898

 
33,128

Depreciation
28,195

 
23,179

Net increase (decrease) in accrued interest payable
3,457

 
(2,454
)
Net increase in income earned not collected
(3,909
)
 
(1,358
)
Marketable equity securities gains, net
(11,328
)
 
(971
)
Gain on extinguishment of debt

 
(25,814
)
Origination of loans held for sale
(128,949
)
 
(131,353
)
Proceeds from sale of loans held for sale
123,047

 
138,538

Gain on sale of loans held for sale
(2,181
)
 
(2,666
)
Net write-downs/losses on other real estate
427

 
1,210

Losses on premises and equipment
358

 

Net accretion of premiums and discounts
(8,737
)
 
(10,323
)
Amortization of intangible assets
5,943

 
6,049

Net change in FDIC payable for shared-loss agreements
1,638

 
1,124

Net change in mortgage servicing rights
(698
)
 
(1,200
)
Net change in other assets
31,072

 
341,678

Net change in other liabilities
(51,985
)
 
(12,642
)
Net cash provided by operating activities
140,041

 
458,388

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net decrease (increase) in loans outstanding
68,052

 
(7,283
)
Purchases of investment securities available for sale
(593,952
)
 
(374,850
)
Purchases of investment securities held to maturity
(116,028
)
 

Purchases of marketable equity securities
(6,076
)
 
(2,272
)
Proceeds from maturities/calls of investment securities held to maturity
88,400

 
2

Proceeds from maturities/calls of investment securities available for sale
587,023

 
503,717

Proceeds from sales of marketable equity securities
119

 
664

Net increase in overnight investments
(589,119
)
 
(558,955
)
Cash paid to the FDIC for shared-loss agreements
(8
)
 

Proceeds from sales of other real estate
7,430

 
8,380

Proceeds from sales of premises and equipment
54

 
13

Purchases of premises and equipment
(23,875
)
 
(24,081
)
Net cash used in investing activities
(577,980
)
 
(454,665
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in time deposits
138,640

 
(92,064
)
Net increase in demand and other interest-bearing deposits
387,319

 
795,034

Net decrease in short-term borrowings
(35,428
)
 
(139,049
)
Repayment of long-term obligations
(8,688
)
 
(651,451
)
Repurchase of common stock
(98,077
)
 

Cash dividends paid
(4,668
)
 
(4,204
)
Net cash provided by (used in) financing activities
379,098

 
(91,734
)
Change in cash and due from banks
(58,841
)
 
(88,011
)
Cash and due from banks at beginning of period
327,440

 
336,150

Cash and due from banks at end of period
$
268,599

 
$
248,139

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Transfers of loans to other real estate
$
2,613

 
$
6,582

Dividends declared but not paid
4,575

 
4,204

Reclassification of portfolio loans from loans held for sale
(605
)
 

Transfers of premises and equipment to other real estate
520

 

Unsettled common stock repurchases
(2,679
)
 

Initial recognition of operating lease assets
70,652

 

Initial recognition of operating lease liabilities
71,793

 


See accompanying Notes to Consolidated Financial Statements.

7


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 notes to consolidated financial statements included in BancShares' Annual Report on Form 10-K for the year ended December 31, 2018.
Reclassifications
In certain instances, amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders' equity or net income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. The estimates that BancShares considers significant are the allowance for loan and lease losses, fair value measurements, Federal Deposit Insurance Corporation (FDIC) shared-loss payable, pension plan assumptions, goodwill and other intangible assets and income taxes.
Share Repurchases
In October 2018, BancShares' Board of Directors (Board) authorized the purchase of up to 800,000 of BancShares' Class A common stock for the period November 1, 2018 through October 31, 2019. The authorization does not obligate Bancshares to purchase any particular amount of shares, and purchases may be suspended or discontinued at any time. During the first quarter of 2019, BancShares repurchased 243,000 shares of Class A common stock for approximately $100.7 million at an average cost per share of $414.58. There were no share repurchases made during the first quarter of 2018. As of March 31, 2019, a total of 425,000 shares have been repurchased under the current Board authority.
Subsequent to quarter-end and through May 6, 2019, BancShares repurchased an additional 63,400 shares of Class A common stock for approximately $27.4 million at an average cost per share of $432.78.
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (FASB) Accounting Standards Update (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 prior standards and this ASU is the requirement for lessees to recognize all lease contracts on their balance sheet. This ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the previous 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.
We adopted this standard, as of January 1, 2019, using the effective date method that allows for entities to initially apply the new leases standard at the adoption date. In addition, we made several policy elections permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification. We determined that most renewal options would not be reasonably determinable in estimating the expected lease term.
We made the policy election available under Topic 842 to combine lease and non-lease components and applied this practical expedient to leases in effect prior to the date of adoption. We will continue to apply the practical expedient to all leases entered into going forward.

8


The adoption of the new standard had an impact on our Consolidated Balance Sheet, with the recording of operating Right-of-Use (ROU) assets and operating lease liabilities of $70.7 million and $71.8 million, respectively. The operating lease liability includes a $1.1 million fair value adjustment for leases assumed in the acquisition of HomeBancorp, Inc. (HomeBancorp). In addition, at the adoption date we had finance lease ROU assets and finance lease liabilities, previously classified as capital leases, of $9.1 million and $8.3 million, respectively.  The Company did not have a cumulative-effect adjustment to the opening balance of retained earnings at commencement. The Company has no related party lease agreements.  This ASU did not have a material impact on our Consolidated Statements of Income. See Note N in the Consolidated Financial Statements for additional disclosures.
FASB ASU 2019-01, Leases (Topic 842): Codification Improvements
This ASU reinstated the exception in Topic 842 for lessors that are not manufacturers or dealers for determining the fair value of leased property as the underlying asset's cost, reflecting any volume or trade discounts that may apply, allows lessors that are depository and lending institutions within the scope of ASU Topic 942 to present "principal payments received under leases" within investing activities on the Statement of Cash Flows, and provides an exemption to the ASC 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements. We early adopted this standard with ASU 2016-02 as of January 1, 2019 and the impact was not material to our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
FASB ASU 2018-15 - Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). This ASU requires entities to use the guidance in FASB ASC 350-40, Intangibles - Goodwill and Other - Internal Use Software, to determine whether to capitalize or expense implementation costs related to the service contract. This ASU also requires entities to (1) expense capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (2) present the expense related to the capitalized implementation costs in the same line item on the income statement as fees associated with the hosting element of the arrangement (3) classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element (4) present the capitalized implementation costs in the same balance sheet line item that a prepayment for the fees associated with the hosting arrangement would be presented.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. BancShares is currently evaluating the impact this new standard will have on its Consolidated Financial Statements and whether we will early adopt prior to the first quarter of 2020.
FASB ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by eliminating the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and adding a requirement to disclose an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
The amendments in this ASU are effective for public entities for fiscal years ending after December 15, 2020. Early adoption is permitted for all entities. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the first quarter of 2021.
FASB ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
This ASU modifies the disclosure requirements on fair value measurements by eliminating the requirements to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public business entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and all interim periods within those fiscal years. Early adoption is permitted upon issuance of the ASU. Entities are permitted to early adopt amendments that remove or modify disclosures and delay the adoption of the additional disclosures until their effective date. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the first quarter of 2020.

9


FASB ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This ASU eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative test.
This ASU will be effective for BancShares' annual or interim goodwill impairment tests for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to adopt the guidance for our annual impairment test in fiscal year 2020. BancShares does not anticipate any impact to our consolidated financial position or consolidated results of operations as a result of the adoption.
FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU introduces a new credit loss methodology which requires earlier recognition of credit losses, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses. 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. BancShares will adopt the guidance in the first quarter of 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. For BancShares, the standard will apply to loans, unfunded loan commitments and debt securities. A cross-functional team co-led by Corporate Finance and Risk Management is in place to implement the new standard. We have completed preliminary current expected credit losses (CECL) accounting interpretations, and continue to refine and test our models, estimation techniques, data, operational processes and controls to be used in preparing CECL loss estimates. During 2019, we expect to address any gaps in our interpretations, methodology, data and operational processes based upon our reviews and tests. BancShares continues to evaluate the impact of this standard on its consolidated financial statements but the magnitude of this impact has not been determined. The final impact will be dependent on, among other items, loan portfolio composition and credit quality at the adoption date, as well as economic conditions, financial models used and forecasts in place at that time.
NOTE B - BUSINESS COMBINATIONS
First South Bancorp, Inc.
On May 1, 2019, FCB completed the merger of Spartanburg, South Carolina-based First South Bancorp and its bank subsidiary, First South Bank. Under the terms of the agreement, cash consideration of $1.15 per share was paid to the shareholders of First South Bancorp for each share of common stock totaling approximately $37.5 million. The total consideration assumes the conversion of all First South Bancorp's Series A preferred shares into common stock. The merger will allow FCB to expand its presence and enhance banking efforts in South Carolina. As of March 31, 2019, First South Bancorp reported $236.0 million in consolidated assets, $206.1 million in deposits and $183.3 million in loans.
Entegra Financial Corp.
On April 23, 2019, FCB and Entegra Financial Corp. (Entegra) entered into a definitive merger agreement for the acquisition by FCB of Franklin, North Carolina-based Entegra and its bank subsidiary, Entegra Bank. Under the terms of the agreement, cash consideration of $30.18 per share will be paid to the shareholders of Entegra for each share of common stock and for each restricted stock unit after conversion to common stock, and each option to purchase Entegra common stock will be canceled and each option holder will receive a cash payment equal to $30.18 for each share underlying the option minus the applicable exercise price of the option. The total transaction value, including termination fee, is anticipated to be approximately $219.8 million. The transaction is anticipated to close during the second half of 2019, subject to the receipt of regulatory approvals and the approval of Entegra's shareholders. As of March 31, 2019, Entegra reported $1.67 billion in consolidated assets, $1.25 billion in deposits and $1.08 billion in loans.

10


Biscayne Bancshares, Inc.
On April 2, 2019, FCB completed the merger of Coconut Grove, Florida-based Biscayne Bancshares, Inc. (Biscayne Bancshares) and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 per share was paid to the shareholders of Biscayne Bancshares for each share of common stock, totaling approximately $118.9 million. The merger will allow FCB to expand its presence in Florida and enhance banking efforts in South Florida. As of March 31, 2019, Biscayne Bancshares reported $1.02 billion in consolidated assets, $879.9 million in loans and $788.2 million in deposits.
NOTE C - INVESTMENTS
The amortized cost and fair value of investment securities at March 31, 2019 and December 31, 2018, were as follows:
 
March 31, 2019
(Dollars in thousands)
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
U.S. Treasury
$
1,196,584

 
$
1,305

 
$
847

 
$
1,197,042

Government agency
351,284

 
330

 
1,087

 
350,527

Mortgage-backed securities
2,917,000

 
7,373

 
28,429

 
2,895,944

Corporate bonds
142,939

 
183

 
960

 
142,162

Other
3,929

 
196

 

 
4,125

Total investment securities available for sale
4,611,736

 
9,387

 
31,323

 
4,589,800

Investment in marketable equity securities
79,809

 
30,252

 
177

 
109,884

Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities
2,214,829

 
40,545

 
450

 
2,254,924

Total investment securities
$
6,906,374

 
$
80,184

 
$
31,950

 
$
6,954,608

 
 
 
 
 
 
 
 
 
December 31, 2018
(Dollars in thousands)
Cost
 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities available for sale
 
 
 
 
 
 
 
U.S. Treasury
$
1,249,243

 
$
633

 
$
2,166

 
$
1,247,710

Government agency
257,252

 
222

 
639

 
256,835

Mortgage-backed securities
2,956,793

 
5,309

 
52,763

 
2,909,339

Corporate bonds
139,906

 
59

 
864

 
139,101

Other
3,923

 
202

 

 
4,125

Total investment securities available for sale
4,607,117

 
6,425

 
56,432

 
4,557,110

Investment in marketable equity securities
73,809

 
19,010

 
220

 
92,599

Investment securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities
2,184,653

 
17,339

 
490

 
2,201,502

Total investment securities
$
6,865,579

 
$
42,774

 
$
57,142

 
$
6,851,211

Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the United States Small Business Administration. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other investments include trust preferred securities of financial institutions. BancShares holds approximately 298,000 shares of Visa Class B common stock. BancShares' Visa Class B shares are not considered to have a readily determinable fair value and are included in the Consolidated Balance Sheet with no fair value.

11


The following table provides the amortized cost and fair value by contractual maturity for investment securities available for sale and held to 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, while repayments of certain corporate bonds are subject to call provisions that can be exercised by the issuer at their discretion.
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
Cost
 
Fair value
 
Cost
 
Fair value
Investment securities available for sale
 
 
 
 
 
 
 
Non-amortizing securities maturing in:
 
 
 
 
 
 
 
One year or less
$
1,046,796

 
$
1,046,362

 
$
1,049,253

 
$
1,047,380

One through five years
155,297

 
155,680

 
205,526

 
205,805

Five through 10 years
137,430

 
137,162

 
134,370

 
133,626

Over 10 years
3,929

 
4,125

 
3,923

 
4,125

Government agency
351,284

 
350,527

 
257,252

 
256,835

Mortgage-backed securities
2,917,000

 
2,895,944

 
2,956,793

 
2,909,339

Total investment securities available for sale
$
4,611,736

 
$
4,589,800

 
$
4,607,117

 
$
4,557,110

Investment securities held to maturity
 
 
 
 
 
 
 
Total investment securities held to maturity
$
2,214,829

 
$
2,254,924

 
$
2,184,653

 
$
2,201,502

There were no gross gains or losses on sales of investment securities available for sale for the three months ended March 31, 2019 and March 31, 2018.
The following table provides the realized and unrealized gains on marketable equity securities for the three months ended March 31, 2019.
 
Three months ended March 31
(Dollars in thousands)
2019
 
2018
Marketable equity securities gains, net
$
11,328

 
$
971

Less net gains recognized on marketable equity securities sold
44

 
96

Unrealized gains recognized on marketable equity securities held
$
11,284

 
$
875


12


The following table provides information regarding securities with unrealized losses as of March 31, 2019 and December 31, 2018.
 
March 31, 2019
 
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
$

 
$

 
$
599,883

 
$
847

 
$
599,883

 
$
847

Government agency
219,395

 
901

 
12,590

 
186

 
231,985

 
1,087

Mortgage-backed securities
114,863

 
314

 
1,956,003

 
28,115

 
2,070,866

 
28,429

Corporate bonds
56,393

 
891

 
9,950

 
69

 
66,343

 
960

Total
$
390,651

 
$
2,106

 
$
2,578,426

 
$
29,217

 
$
2,969,077

 
$
31,323

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
40,142

 
$
291

 
$
9,988

 
$
159

 
$
50,130

 
$
450

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
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
$
248,983

 
$
113

 
$
848,622

 
$
2,053

 
$
1,097,605

 
$
2,166

Government agency
115,273

 
601

 
2,310

 
38

 
117,583

 
639

Mortgage-backed securities
262,204

 
2,387

 
1,940,695

 
50,376

 
2,202,899

 
52,763

Corporate bonds
79,066

 
842

 
5,000

 
22

 
84,066

 
864

Total
$
705,526

 
$
3,943

 
$
2,796,627

 
$
52,489

 
$
3,502,153

 
$
56,432

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
5,111

 
$
181

 
$
10,131

 
$
309

 
$
15,242

 
$
490

As of March 31, 2019, there were 230 investment securities available for sale that had continuous losses for more than 12 months of which 223 were government sponsored enterprise-issued mortgage-backed securities or government agency securities, five were U.S. Treasury securities and two were corporate bonds. There were two investment securities held to maturity, which were government sponsored enterprise-issued mortgage-backed securities, which had continuous losses for more than 12 months at March 31, 2019.
None of the unrealized losses identified as of March 31, 2019 or December 31, 2018 relate to the marketability of the securities or the issuers' ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the debt securities were purchased. BancShares has 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.
Debt securities having an aggregate carrying value of $3.68 billion at March 31, 2019 and $4.03 billion at December 31, 2018 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 non-purchased credit impaired (Non-PCI) or purchased credit impaired (PCI). Loans that are originated by FCB, as well as loans that are performing under their contractual obligations at acquisition, are classified as Non-PCI. Loans that reflect credit deterioration since origination, such that it is probable at acquisition that FCB will be unable to collect all contractually required payments, are classified as PCI. Additionally, at the date of acquisition, all acquired loans are recorded at fair value with no corresponding allowance for loan and lease losses.

13


Loans and leases outstanding included the following at March 31, 2019 and December 31, 2018:
(Dollars in thousands)
March 31, 2019
 
December 31, 2018
Non-PCI loans and leases:
 
 
 
Commercial:
 
 
 
Construction and land development
$
804,463

 
$
757,854

Commercial mortgage
10,747,715

 
10,717,234

Other commercial real estate
427,419

 
426,985

Commercial and industrial and leases
3,879,575

 
3,938,730

Other
280,848

 
296,424

Total commercial loans
16,140,020

 
16,137,227

Noncommercial:
 
 
 
Residential mortgage
4,303,137

 
4,265,687

Revolving mortgage
2,469,898

 
2,542,975

Construction and land development
258,959

 
257,030

Consumer
1,734,415

 
1,713,781

Total noncommercial loans
8,766,409

 
8,779,473

Total non-PCI loans and leases
24,906,429

 
24,916,700

PCI loans:
 
 
 
Total PCI loans
557,356

 
606,576

Total loans and leases
$
25,463,785

 
$
25,523,276

At March 31, 2019, $9.08 billion in non-PCI loans with a lendable collateral value of $6.36 billion were used to secure $175.2 million in Federal Home Loan Bank (FHLB) of Atlanta advances and $14.5 million in FHLB of Chicago advances, resulting in additional borrowing capacity of $6.17 billion. At December 31, 2018, $9.12 billion in non-PCI loans with a lendable collateral value of $6.36 billion were used to secure $175.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $6.18 billion.
At March 31, 2019, $2.93 billion in non-PCI loans with a lendable collateral value of $2.23 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (FRB). At December 31, 2018, $2.94 billion in non-PCI loans with a lendable collateral value of $2.19 billion were used to secure additional borrowing capacity at the FRB.
Certain residential real estate loans are originated to be sold to investors and are recorded in loans held for sale at fair value. In addition, we may change our strategy for certain portfolio loans and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value. Loans held for sale totaled $53.2 million and $45.5 million at March 31, 2019 and December 31, 2018, respectively.
During the three months ended March 31, 2019, total proceeds from sales of loans held for sale were $123.0 million and there were no transfers to loans held for sale from the residential mortgage portfolio. For the three months ended March 31, 2018, total proceeds from sales of loans held for sale were $138.5 million and there were no transfers to loans held for sale from the residential mortgage portfolio.
Net deferred fees on non-PCI loans and leases, including unearned income as well as unamortized costs and fees, were $130 thousand and $79 thousand at March 31, 2019 and December 31, 2018, respectively. The net unamortized discount related to purchased non-PCI loans and leases was $30.1 million at March 31, 2019 and $33.3 million at December 31, 2018. During the three months ended March 31, 2019 and March 31, 2018, accretion income on purchased non-PCI loans and leases was $3.2 million and $2.9 million, respectively.

14


Credit quality indicators
Loans and leases are monitored for credit quality on a recurring basis. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments 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. Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. Commercial credit cards are included in the Commercial and industrial and leases segment, but are not specifically graded as with other commercial loans. The indicators as of the date presented are based on the most recent assessment performed and are defined below:
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 any 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 March 31, 2019 and December 31, 2018 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, lease financing and other commercial real estate loans.
The credit quality indicators for non-PCI and PCI noncommercial loans are based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases.

15


The composition of the loans and leases outstanding at March 31, 2019 and December 31, 2018 by credit quality indicator are provided below:
 
March 31, 2019
(Dollars in thousands)
Non-PCI commercial loans and leases
Grade:
Construction and
land
development
 
Commercial mortgage
 
Other commercial real estate
 
Commercial and industrial and leases
 
Other
 
Total non-PCI commercial loans and leases
Pass
$
800,703

 
$
10,528,026

 
$
423,288

 
$
3,717,237

 
$
279,899

 
$
15,749,153

Special mention
1,345

 
110,413

 
3,244

 
46,928

 
350

 
162,280

Substandard
2,415

 
109,276

 
887

 
37,443

 
599

 
150,620

Doubtful

 

 

 
354

 

 
354

Ungraded

 

 

 
77,613

 

 
77,613

Total
$
804,463

 
$
10,747,715

 
$
427,419

 
$
3,879,575

 
$
280,848

 
$
16,140,020

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
(Dollars in thousands)
Non-PCI commercial loans and leases
Grade:
Construction and
land
development
 
Commercial mortgage
 
Other commercial real estate
 
Commercial and industrial and leases
 
Other
 
Total non-PCI commercial loans and leases
Pass
$
753,985

 
$
10,507,687

 
$
422,500

 
$
3,778,797

 
$
294,700

 
$
15,757,669

Special mention
1,369

 
114,219

 
3,193

 
54,814

 
1,105

 
174,700

Substandard
2,500

 
92,743

 
1,292

 
30,688

 
619

 
127,842

Doubtful

 

 

 
354

 

 
354

Ungraded

 
2,585

 

 
74,077

 

 
76,662

Total
$
757,854

 
$
10,717,234

 
$
426,985

 
$
3,938,730

 
$
296,424

 
$
16,137,227

 
March 31, 2019
 
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
$
4,248,823

 
$
2,444,150

 
$
256,801

 
$
1,720,142

 
$
8,669,916

30-59 days past due
33,623

 
10,734

 
581

 
7,966

 
52,904

60-89 days past due
7,760

 
4,227

 
28

 
3,001

 
15,016

90 days or greater past due
12,931

 
10,787

 
1,549

 
3,306

 
28,573

Total
$
4,303,137

 
$
2,469,898

 
$
258,959

 
$
1,734,415

 
$
8,766,409

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
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
$
4,214,783

 
$
2,514,269

 
$
254,837

 
$
1,696,321

 
$
8,680,210

30-59 days past due
28,239

 
12,585

 
581

 
10,035

 
51,440

60-89 days past due
7,357

 
4,490

 
21

 
3,904

 
15,772

90 days or greater past due
15,308

 
11,631

 
1,591

 
3,521

 
32,051

Total
$
4,265,687

 
$
2,542,975

 
$
257,030

 
$
1,713,781

 
$
8,779,473


16


PCI loans outstanding at March 31, 2019 and December 31, 2018 by credit quality indicator are provided below:
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
PCI commercial loans
Grade:

 
 
Pass
$
131,018

 
$
141,922

Special mention
43,068

 
48,475

Substandard
91,940

 
101,447

Doubtful
3,887

 
4,828

Total
$
269,913

 
$
296,672

 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
PCI noncommercial loans
Current
$
255,145

 
$
268,280

30-59 days past due
8,565

 
11,155

60-89 days past due
3,449

 
7,708

90 days or greater past due
20,284

 
22,761

Total
$
287,443

 
$
309,904


17


The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2019 and December 31, 2018 are provided in the tables below. 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, 2019
(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:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Construction and land development - commercial
$
617

 
$
262

 
$
206

 
$
1,085

 
$
803,378

 
$
804,463

Commercial mortgage
16,120

 
8,818

 
2,802

 
27,740

 
10,719,975

 
10,747,715

Other commercial real estate
1,198

 
517

 

 
1,715

 
425,704

 
427,419

Commercial and industrial and leases
9,706

 
2,403

 
3,389

 
15,498

 
3,864,077

 
3,879,575

Other
113

 
24

 

 
137

 
280,711

 
280,848

Total commercial loans
27,754

 
12,024

 
6,397

 
46,175

 
16,093,845

 
16,140,020

Noncommercial:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
33,623

 
7,760

 
12,931

 
54,314

 
4,248,823

 
4,303,137

Revolving mortgage
10,734

 
4,227

 
10,787

 
25,748

 
2,444,150

 
2,469,898

Construction and land development - non-commercial
581

 
28

 
1,549

 
2,158

 
256,801

 
258,959

Consumer
7,966

 
3,001

 
3,306

 
14,273

 
1,720,142

 
1,734,415

Total noncommercial loans
52,904

 
15,016

 
28,573

 
96,493

 
8,669,916

 
8,766,409

Total non-PCI loans and leases
$
80,658

 
$
27,040

 
$
34,970

 
$
142,668

 
$
24,763,761

 
$
24,906,429

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
(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:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Construction and land development - commercial
$
516

 
$
9

 
$
444

 
$
969

 
$
756,885

 
$
757,854

Commercial mortgage
14,200

 
2,066

 
3,237

 
19,503

 
10,697,731

 
10,717,234

Other commercial real estate
91

 
76

 
300

 
467

 
426,518

 
426,985

Commercial and industrial and leases
9,655

 
1,759

 
2,892

 
14,306

 
3,924,424

 
3,938,730

Other
285

 

 
89

 
374

 
296,050

 
296,424

Total commercial loans
24,747

 
3,910

 
6,962

 
35,619

 
16,101,608

 
16,137,227

Noncommercial:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
28,239

 
7,357

 
15,308

 
50,904

 
4,214,783

 
4,265,687

Revolving mortgage
12,585

 
4,490

 
11,631

 
28,706

 
2,514,269

 
2,542,975

Construction and land development - non-commercial
581

 
21

 
1,591

 
2,193

 
254,837

 
257,030

Consumer
10,035

 
3,904

 
3,521

 
17,460

 
1,696,321

 
1,713,781

Total noncommercial loans
51,440

 
15,772

 
32,051

 
99,263

 
8,680,210

 
8,779,473

Total non-PCI loans and leases
$
76,187

 
$
19,682

 
$
39,013

 
$
134,882

 
$
24,781,818

 
$
24,916,700


18


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, 2019 and December 31, 2018 for non-PCI loans and leases, were as follows:
 
March 31, 2019
 
December 31, 2018
(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
$
407

 
$

 
$
666

 
$

Commercial mortgage
15,744

 

 
12,594

 

Other commercial real estate
19

 

 
366

 

Commercial and industrial and leases
5,482

 
667

 
4,624

 
808

Residential mortgage
36,573

 
614

 
35,662

 

Revolving mortgage
25,723

 

 
25,563

 

Construction and land development - noncommercial
1,699

 

 
1,823

 

Consumer
3,054

 
2,212

 
2,969

 
2,080

Other
257

 

 
279

 

Total non-PCI loans and leases
$
88,958

 
$
3,493

 
$
84,546

 
$
2,888

The following table provides changes in the carrying value of all PCI loans during the three months ended March 31, 2019 and March 31, 2018:
(Dollars in thousands)
2019
 
2018
Balance at January 1
$
606,576

 
$
762,998

Fair value of acquired loans

 

Accretion
17,755

 
17,973

Payments received and other changes, net
(66,975
)
 
(77,134
)
Balance at March 31
$
557,356

 
$
703,837

Unpaid principal balance at March 31
$
810,683

 
$
1,108,379

The carrying value of PCI loans on the cost recovery method was $3.3 million at both March 31, 2019 and December 31, 2018. The cost recovery method is applied to loans when the timing of future cash flows cannot be reasonably estimated due to borrower nonperformance or uncertainty in the ultimate disposition of the asset. The recorded investment of PCI loans on nonaccrual status was $1.7 million and $1.3 million at March 31, 2019 and December 31, 2018, respectively. The remaining discount on PCI loans was $89.4 million and $95.5 million at March 31, 2019 and December 31, 2018, respectively.
During the three months ended March 31, 2019 and March 31, 2018, accretion income on PCI loans was $17.8 million and $18.0 million, respectively.
For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flow not related to credit improvements or deterioration do not affect the nonaccretable difference.
The following table documents changes to the amount of accretable yield for the first three months of 2019 and 2018.
(Dollars in thousands)
2019
 
2018
Balance at January 1
$
312,894

 
$
316,679

Additions from acquisitions

 

Accretion
(17,755
)
 
(17,973
)
Reclassifications from (to) nonaccretable difference
600

 
(929
)
Changes in expected cash flows that do not affect nonaccretable difference
(9,547
)
 
11,568

Balance at March 31
$
286,192

 
$
309,345


19


NOTE E - ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
Activity in the allowance for non-PCI loan and lease losses by class of loans is summarized as follows:
 
Three months ended March 31, 2019
(Dollars in thousands)
Construction
and land
development
- commercial
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and industrial and leases
 
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
$
35,270

 
$
43,451

 
$
2,481

 
$
55,620

 
$
2,221

 
$
15,472

 
$
21,862

 
$
2,350

 
$
35,841

 
$
214,568

Provision (credits)
2,119

 
2,371

 
(83
)
 
2,725

 
(498
)
 
1,508

 
209

 
123

 
3,440

 
11,914

Charge-offs
(44
)
 
(761
)
 

 
(1,858
)
 

 
(166
)
 
(963
)
 

 
(6,362
)
 
(10,154
)
Recoveries
131

 
220

 
1

 
538

 
444

 
173

 
387

 

 
1,573