UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________

FORM 10-Q

____________________________________________________

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

For the quarterly period ended March 31, 2017

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

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

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

(Number of shares outstanding, by class, as of May 3, 2017)

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Income (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Unaudited)	5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	60
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 6.	Exhibits	61

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PART I

Item 1. Financial Statements

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, unaudited)	March 31, 2017			December 31, 2016
Assets
Cash and due from banks	$	502,273		$	539,741
Overnight investments	2,736,514			1,872,594
Investment securities available for sale	7,119,861			7,006,580
Investment securities held to maturity	83			98
Loans held for sale	49,952			74,401
Loans and leases	21,906,449			21,737,878
Allowance for loan and lease losses	(220,943		)	(218,795		)
Net loans and leases	21,685,506			21,519,083
Premises and equipment	1,123,838			1,133,044
Other real estate owned	56,491			61,231
Income earned not collected	80,456			79,839
FDIC shared-loss receivable	3,981			4,172
Goodwill	150,601			150,601
Other intangible assets	75,325			78,040
Other assets	433,524			471,412
Total assets	$	34,018,405		$	32,990,836
Liabilities
Deposits:
Noninterest-bearing	$	10,797,613		$	10,130,549
Interest-bearing	18,205,155			18,030,794
Total deposits	29,002,768			28,161,343
Short-term borrowings	795,587			603,487
Long-term obligations	727,500			832,942
FDIC shared-loss payable	98,013			97,008
Other liabilities	293,841			283,629
Total liabilities	30,917,709			29,978,409
Shareholders’ equity
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 11,005,220 shares issued and outstanding at March 31, 2017 and December 31, 2016)	11,005			11,005
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2017 and December 31, 2016)	1,005			1,005
Preferred stock - $0.01 par value (10,000,000 shares authorized; no shares issued and outstanding at March 31, 2017 and December 31, 2016)	—			—
Surplus	658,918			658,918
Retained earnings	2,540,709			2,476,691
Accumulated other comprehensive loss	(110,941		)	(135,192		)
Total shareholders’ equity	3,100,696			3,012,427
Total liabilities and shareholders’ equity	$	34,018,405		$	32,990,836

See accompanying Notes to Consolidated Financial Statements.

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First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Income

	Three months ended March 31
(Dollars in thousands, except per share data, unaudited)	2017			2016
Interest income
Loans and leases	$	226,630		$	216,404
Investment securities and dividend income	29,751			23,042
Overnight investments	4,476			3,666
Total interest income	260,857			243,112
Interest expense
Deposits	4,436			4,659
Short-term borrowings	580			434
Long-term obligations	5,498			5,299
Total interest expense	10,514			10,392
Net interest income	250,343			232,720
Provision for loan and lease losses	8,231			4,843
Net interest income after provision for loan and lease losses	242,112			227,877
Noninterest income
Gain on acquisitions	12,017			1,704
Cardholder services	21,258			19,358
Merchant services	24,987			21,977
Service charges on deposit accounts	22,142			21,850
Wealth management services	20,962			19,634
Securities (losses) gains	(24		)	4,628
Other service charges and fees	7,601			6,989
Mortgage income	7,576			1,311
Insurance commissions	3,558			3,178
ATM income	1,773			1,765
Adjustments to FDIC shared-loss receivable	(1,628		)	(2,533		)
Net impact from FDIC shared-loss agreement termination	(45		)	—
Other	7,115			5,421
Total noninterest income	127,292			105,282
Noninterest expense
Salaries and wages	112,263			103,899
Employee benefits	29,293			27,350
Occupancy expense	24,762			25,012
Equipment expense	24,588			22,345
Merchant processing	16,783			15,087
Cardholder processing	5,553			6,084
FDIC insurance expense	5,593			4,789
Foreclosure-related expenses	2,471			1,731
Merger-related expenses	833			38
Other	42,206			45,336
Total noninterest expense	264,345			251,671
Income before income taxes	105,059			81,488
Income taxes	37,438			29,416
Net income	$	67,621		$	52,072
Average shares outstanding	12,010,405			12,010,405
Net income per share	$	5.63		$	4.34

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 March 31
(Dollars in thousands, unaudited)	2017			2016
Net income	$	67,621		$	52,072
Other comprehensive income:
Unrealized gains on securities:
Change in unrealized securities gains arising during period	36,096			68,033
Tax effect	(13,419		)	(26,016		)
Reclassification adjustment for net losses (gains) realized and included in income before income taxes	24			(4,628		)
Tax effect	(9		)	1,770
Total change in unrealized gains on securities, net of tax	22,692			39,159
Change in fair value of cash flow hedges:
Change in unrecognized loss on cash flow hedges	—			700
Tax effect	—			(263		)
Total change in unrecognized loss on cash flow hedges, net of tax	—			437
Change in pension obligation:
Amortization of actuarial losses and prior service cost	2,500			1,652
Tax effect	(941		)	(632		)
Total change in pension obligation, net of tax	1,559			1,020
Other comprehensive income	24,251			40,616
Total comprehensive income	$	91,872		$	92,688

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, 2015	$	11,005	$	1,005	$	658,918	$	2,265,621		$	(64,440	)	$	2,872,109
Net income	—		—		—		52,072			—			52,072
Other comprehensive income, net of tax	—		—		—		—			40,616			40,616
Cash dividends ($0.30 per share)	—		—		—		(3,603		)	—			(3,603		)
Balance at March 31, 2016	$	11,005	$	1,005	$	658,918	$	2,314,090		$	(23,824	)	$	2,961,194
Balance at December 31, 2016	$	11,005	$	1,005	$	658,918	$	2,476,691		$	(135,192	)	$	3,012,427
Net income	—		—		—		67,621			—			67,621
Other comprehensive income, net of tax	—		—		—		—			24,251			24,251
Cash dividends ($0.30 per share)	—		—		—		(3,603		)	—			(3,603		)
Balance at March 31, 2017	$	11,005	$	1,005	$	658,918	$	2,540,709		$	(110,941	)	$	3,100,696

See accompanying Notes to Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Three months ended March 31
(Dollars in thousands, unaudited)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	67,621		$	52,072
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan and lease losses	8,231			4,843
Deferred tax expense (benefit)	6,693			(8,806		)
Net change in current taxes	27,462			35,678
Depreciation	22,616			22,053
Net increase in accrued interest payable	150			324
Net increase in income earned not collected	(617		)	(3,482		)
Gain on acquisitions	(12,017		)	(1,704		)
Securities losses (gains)	24			(4,628		)
Loss on termination of FDIC shared-loss agreement	45			—
Origination of loans held for sale	(134,932		)	(144,895		)
Proceeds from sale of loans held for sale	162,837			140,160
Gain on sale of loans held for sale	(3,456		)	(2,487		)
Gain on sale of portfolio loans	(164		)	—
Net write-downs/losses on other real estate	1,717			2,599
Gain/loss on sales of premises and equipment	(156		)	—
Net accretion of premiums and discounts	(10,985		)	(12,201		)
Amortization of intangible assets	5,271			5,586
Reduction in FDIC receivable for shared-loss agreements	2,591			4,076
Net increase in FDIC payable for shared-loss agreements	1,005			1,790
Net change in other assets	(15,078		)	(19,678		)
Net change in other liabilities	8,741			3,857
Net cash provided by operating activities	137,599			75,157
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans outstanding	(105,100		)	(131,923		)
Purchases of investment securities available for sale	(871,698		)	(1,139,933		)
Proceeds from maturities/calls of investment securities held to maturity	15			61
Proceeds from maturities/calls of investment securities available for sale	787,182			396,211
Proceeds from sales of investment securities available for sale	14,162			987,260
Net increase in overnight investments	(856,442		)	(805,699		)
Proceeds from sales of portfolio loans	32,294			—
Cash paid to the FDIC for shared-loss agreements	(2,760		)	(9,871		)
Net cash paid to the FDIC for termination of shared-loss agreement	(285		)	—
Proceeds from sales of other real estate	8,845			8,202
Proceeds from sales of premises and equipment	2,205			—
Purchases of premises and equipment	(15,459		)	(13,595		)
Net cash acquired in business acquisitions	25,646			14,745
Net cash used by investing activities	(981,395		)	(694,542		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in time deposits	(107,339		)	(84,802		)
Net increase in demand and other interest-bearing deposits	827,009			460,086
Net increase in short-term borrowings	87,100			92,841
Repayment of long-term obligations	(442		)	(68		)
Origination of long-term obligations	—			75,000
Net cash provided by financing activities	806,328			543,057
Change in cash and due from banks	(37,468		)	(76,328		)
Cash and due from banks at beginning of period	539,741			534,086
Cash and due from banks at end of period	$	502,273		$	457,758
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfers of loans to other real estate	$	5,822		$	9,980
Dividends declared but not paid	3,603			3,603

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, 2016.

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;

• Goodwill and other intangible assets;

• Federal Deposit Insurance Corporation (FDIC) shared-loss payable; and

• Income tax assets, liabilities and expense

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update)

This ASU adds an SEC paragraph and amends other Topics pursuant to an SEC Staff Announcement that states a registrant should evaluate ASUs that have not yet been adopted, including ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ASU 2016-02, Leases (Topic 842), and ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact that adoption of the ASUs referenced are expected to have on the financial statements, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact the adoption will have on the financial statements, and a comparison to the registrant's current accounting policies. A registrant should describe the status of its process to implement the new standards and the significant matters yet to be addressed.

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This ASU also addresses the accounting for tax benefits resulting from investments in qualified affordable housing projects where the decision to apply the proportional amortization method of accounting is an accounting policy decision to be applied consistently to all investments that meet the conditions, rather than a decision to be applied to individual investments that qualify for the use of the proportional amortization method.

The amendments in this ASU are effective upon issuance. We adopted the guidance effective in the first quarter of 2017. The disclosures required by this ASU are included within the “Recently Issued Accounting Pronouncements” section below. The adoption did not have an impact on our consolidated financial position or consolidated results of operations.

FASB ASU 2016-17, Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control

This ASU does not change the characteristics of a primary beneficiary in current GAAP; however, it requires that a reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. If, after performing that assessment, a reporting entity that is the single decision maker of a VIE concludes that it does not have the characteristics of a primary beneficiary, the amendments continue to require that reporting entity to evaluate whether it and one or more of its related parties under common control, as a group, have the characteristics of a primary beneficiary, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary.

The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted the guidance effective in the first quarter of 2017. The adoption did not have an impact on our consolidated financial position or consolidated results of operations.

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. We adopted the guidance effective in the first quarter of 2017. The adoption did not have any impact on our consolidated financial position or consolidated results of operations.

Recently Issued Accounting Pronouncements

FASU ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business

This ASU provides a more robust framework to use in determining when a set of assets and activities is a business, including narrowing the definition of outputs and align it with how outputs are described in Topic 606. This ASU provides a screen to determine when an integrated set of assets and activities (collectively referred to as a "set") is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this ASU (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The framework includes two sets of criteria to consider that depend on whether a set has outputs.

The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this standard is not expected to have an impact on our consolidated financial position or results of operation and we will adopt the guidance during the first quarter of 2018.

FASB ASU 2017-07, Compensation - Retirement Benefits (Topic 715),Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

This ASU requires that an employer report the service cost component in the same line item or line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are

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required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Of the components of net periodic benefit cost, only the service cost component will be eligible for asset capitalization.

The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual reporting period. The amendments shall be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The adoption of this standard is not expected to have a significant impact on our consolidated financial position or results of operation and we will adopt the guidance during the first quarter of 2018.

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 in fiscal year 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have an impact on our consolidated financial position or results of operation and we expect to adopt the guidance for our annual impairment test in fiscal year 2020.

FASB ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash

The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU does not provide a definition of restricted cash or restricted cash equivalents.

This ASU is effective for fiscal years beginning after December 15, 2017 for public business entities, including interim periods within those fiscal years. The adoption of this standard is not expected to have an impact on our Consolidated Statements of Cash Flows.

FASB ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

This ASU states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory, such as intellectual property or property, plant and equipment, when the transfer occurs. This ASU does not change GAAP for an intra-entity transfer of inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party.

The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, and should be applied on a modified retrospective basis. The adoption of this standard is not expected to have an impact on our consolidated financial position or results of operation and we will adopt the guidance during the first quarter of 2018.

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.

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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 will adopt the guidance during the first quarter of 2018. The adoption of this standard is not expected to have a significant impact on our Consolidated Statements of Cash Flows.

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. For BancShares, the standard will apply to loans, unfunded loan commitments and debt securities available for sale. We will adopt the guidance by the first quarter of 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. We are currently evaluating the impact the new standard will have on our consolidated financial statement as the final impact will be dependent, among other items, upon the loan portfolio composition and quality at the adoption date, as well as economic conditions and forecasts at that time.

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. For BancShares, the impact of this ASU will primarily relate to its accounting and reporting of leases as a lessee. We will adopt during the first quarter of 2019. While we are currently evaluating the impact of the new standard, we expect an increase to the Consolidated Balance Sheets for right-of-use assets and associated lease liabilities, as well as resulting depreciation expense of the right-of-use assets and interest expense of the lease liabilities in the Consolidated Statements of Income, for arrangements previously accounted for as operating leases.

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.

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 will adopt during the first quarter of 2018 with a cumulative-effect adjustment from accumulated other comprehensive income (AOCI) to retained earnings as of the beginning of the year of adoption. We are currently evaluating the impact the new standard

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will have on our consolidated financial statements. The cumulative-effect adjustment will be impacted by the equity securities portfolio composition and valuation at the date of adoption.

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

In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. 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. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, to clarify 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. Our revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new guidance, and noninterest income. The contracts that are in scope of the guidance are primarily related to service charges on deposit accounts, cardholder and merchant income, wealth advisory services income, other service charges and fees, sales of other real estate, insurance commissions and miscellaneous fees. We continue to evaluate the impact of the new standard on our noninterest income and on our presentation and disclosures. We expect to adopt the ASU during the first quarter of 2018 with a cumulative-effect adjustment to opening retained earnings and the modified retrospective approach will likely be used.

NOTE B - BUSINESS COMBINATIONS

Harvest Community Bank

On January 13, 2017, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of Harvest Community Bank (HCB) of Pennsville, New Jersey. The acquisition provides FCB with the opportunity to grow capital and enhance earnings.

The HCB 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 $111.6 million, including $85.1 million in purchased credit-impaired (PCI) loans and $850 thousand of identifiable intangible assets. Liabilities assumed were $121.8 million of which the majority were deposits. As a result of the transaction, FCB recorded a gain on the acquisition of $12.0 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	$	3,350
Overnight investments	7,478
Investment securities	14,455
Loans	85,149
Income earned not collected	31
Intangible assets	850
Other assets	237
Total assets acquired	111,550
Liabilities
Deposits	121,755
Other liabilities	74
Total liabilities assumed	121,829
Fair value of net liabilities assumed	(10,279		)
Cash received from FDIC	22,296
Gain on acquisition of HCB	$	12,017

Merger-related expenses of $735 thousand were recorded in the Consolidated Statements of Income for the three months ended March 31, 2017. Loan-related interest income generated from HCB was approximately $1.0 million for the first quarter of 2017.

All loans resulting from the HCB 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 under ASC 310-30.

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NOTE C - INVESTMENTS

The amortized cost and fair value of investment securities classified as available for sale and held to maturity at March 31, 2017 and December 31, 2016, are as follows:

	March 31, 2017
(Dollars in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale
U.S. Treasury	$	1,619,380	$	342	$	1,554	$	1,618,168
Government agency	40,185		36		—		40,221
Mortgage-backed securities	5,363,747		2,946		60,586		5,306,107
Equity securities	72,064		22,201		—		94,265
Corporate bonds	49,370		220		25		49,565
Other	11,702		45		212		11,535
Total investment securities available for sale	$	7,156,448	$	25,790	$	62,377	$	7,119,861
	December 31, 2016
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
U.S. Treasury	$	1,650,675	$	579	$	935	$	1,650,319
Government agency	40,291		107		—		40,398
Mortgage-backed securities	5,259,466		2,809		86,850		5,175,425
Equity securities	71,873		11,634		—		83,507
Corporate bonds	49,367		195		—		49,562
Other	7,615		—		246		7,369
Total investment securities available for sale	$	7,079,287	$	15,324	$	88,031	$	7,006,580
	March 31, 2017
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities held to maturity
Mortgage-backed securities	$	83	$	6	$	—	$	89
	December 31, 2016
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Mortgage-backed securities	$	98	$	6	$	—	$	104

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. Other includes investments in trust preferred securities of 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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	March 31, 2017				December 31, 2016
(Dollars in thousands)	Cost		Fair value		Cost		Fair value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	550,275	$	549,566	$	842,798	$	842,947
One through five years	1,109,290		1,108,823		848,168		847,770
Five through 10 years	49,370		49,565		49,367		49,562
Over 10 years	11,702		11,535		7,615		7,369
Mortgage-backed securities	5,363,747		5,306,107		5,259,466		5,175,425
Equity securities	72,064		94,265		71,873		83,507
Total investment securities available for sale	$	7,156,448	$	7,119,861	$	7,079,287	$	7,006,580
Investment securities held to maturity
Mortgage-backed securities held to maturity	$	83	$	89	$	98	$	104

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

	Three months ended March 31
(Dollars in thousands)	2017			2016
Gross gains on sales of investment securities available for sale	$	3		$	4,933
Gross losses on sales of investment securities available for sale	(27		)	(305		)
Total realized securities (losses) gains	$	(24	)	$	4,628

The following table provides information regarding securities with unrealized losses as of March 31, 2017 and December 31, 2016.

	March 31, 2017
	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	$	1,068,144	$	1,554	$	—	$	—	$	1,068,144	$	1,554
Mortgage-backed securities	4,318,258		56,017		361,488		4,569		4,679,746		60,586
Corporate bonds	9,975		25		—		—		9,975		25
Other	5,294		212		—		—		5,294		212
Total	$	5,401,671	$	57,808	$	361,488	$	4,569	$	5,763,159	$	62,377
	December 31, 2016
	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	$	807,822	$	935	$	—	$	—	$	807,822	$	935
Mortgage-backed securities	4,442,700		82,161		362,351		4,689		4,805,051		86,850
Other	7,369		246		—		—		7,369		246
Total	$	5,257,891	$	83,342	$	362,351	$	4,689	$	5,620,242	$	88,031

Investment securities with an aggregate fair value of $361.5 million and $362.4 million had continuous unrealized losses for more than 12 months with a corresponding aggregate unrealized loss of $4.6 million and $4.7 million as of March 31, 2017 and December 31, 2016, respectively. As of March 31, 2017, all 52 of these investments are government sponsored enterprise-issued mortgage-backed securities. None of the unrealized losses identified as of March 31, 2017 or December 31, 2016 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.

Investment securities having an aggregate carrying value of $5.01 billion at March 31, 2017 and $4.55 billion at December 31, 2016 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

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NOTE D - LOANS AND LEASES

BancShares' 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 any credit deterioration 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 impaired and, therefore, classified as PCI loans. PCI 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, commercial 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 March 31, 2017 and December 31, 2016:

(Dollars in thousands)	March 31, 2017		December 31, 2016
Non-PCI loans and leases:
Commercial:
Construction and land development	$	683,415	$	649,157
Commercial mortgage	9,173,612		9,026,220
Other commercial real estate	364,862		351,291
Commercial and industrial	2,477,911		2,567,501
Lease financing	840,201		826,270
Other	321,352		340,264
Total commercial loans	13,861,353		13,760,703
Noncommercial:
Residential mortgage	2,945,361		2,889,124
Revolving mortgage	2,604,156		2,601,344
Construction and land development	218,103		231,400
Consumer	1,428,660		1,446,138
Total noncommercial loans	7,196,280		7,168,006
Total non-PCI loans and leases	21,057,633		20,928,709
PCI loans:
Commercial:
Construction and land development	26,542		20,766
Commercial mortgage	455,551		453,013
Other commercial real estate	18,723		12,645
Commercial and industrial	27,794		11,844
Other	1,244		1,702
Total commercial loans	529,854		499,970
Noncommercial:
Residential mortgage	275,904		268,777
Revolving mortgage	40,345		38,650
Consumer	2,713		1,772
Total noncommercial loans	318,962		309,199
Total PCI loans	848,816		809,169
Total loans and leases	$	21,906,449	$	21,737,878

At March 31, 2017, $75.9 million of total loans and leases were covered under shared-loss agreements with the FDIC, compared to $84.8 million at December 31, 2016. The shared-loss agreements, for their terms, protect us from a substantial portion of the credit and asset quality risk we would otherwise incur.

At March 31, 2017, $8.32 billion in noncovered loans with a lendable collateral value of $5.57 billion were used to secure $660.2 million in Federal Home Loan Bank (FHLB) of Atlanta advances, resulting in additional borrowing capacity of $4.91 billion. At December 31, 2016, $8.26 billion in noncovered loans with a lendable collateral value of $5.50 billion were used to secure $660.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $4.84 billion. At March 31, 2017, $2.66 billion in noncovered loans with a lendable collateral value of $1.98 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (FRB). There were no loans used to secure additional borrowing capacity at the FRB at December 31, 2016.

Net deferred fees on originated non-PCI loans and leases, including unearned income and unamortized costs, fees, premiums and discounts, were $5.0 million and $6.7 million at March 31, 2017 and December 31, 2016, respectively. The unamortized discount related to purchased non-PCI loans and leases in the Cordia transaction was $3.7 million and $4.2 million at March 31, 2017 and December 31, 2016, respectively. The unamortized discount related to purchased non-PCI loans and leases from the First Citizens Bancorporation, Inc. merger was $24.7 million and $27.4 million at March 31, 2017 and December 31, 2016, respectively. During both the three months ended March 31, 2017 and March 31, 2016, accretion income on non-PCI loans was $3.2 million.

During the first quarter of 2017, certain residential mortgage loans totaling $32.5 million were sold, resulting in a gain of $164 thousand.

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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 March 31, 2017 and December 31, 2016 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.

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Non-PCI loans and leases outstanding at March 31, 2017 and December 31, 2016 by credit quality indicator are provided below:

	March 31, 2017
(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	$	675,254	$	8,977,705	$	360,981	$	2,303,778	$	829,872	$	314,857	$	13,462,447
Special mention	2,144		72,007		592		23,335		3,560		1,006		102,644
Substandard	5,979		123,588		3,289		19,585		6,761		5,488		164,690
Doubtful	38		312		—		7		—		—		357
Ungraded	—		—		—		131,206		8		1		131,215
Total	$	683,415	$	9,173,612	$	364,862	$	2,477,911	$	840,201	$	321,352	$	13,861,353
	December 31, 2016
	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	$	645,232	$	8,821,439	$	347,509	$	2,402,659	$	818,008	$	335,831	$	13,370,678
Special mention	2,236		76,084		1,433		22,804		2,675		1,020		106,252
Substandard	1,683		126,863		2,349		17,870		5,415		3,413		157,593
Doubtful	6		334		—		8		—		—		348
Ungraded	—		1,500		—		124,160		172		—		125,832
Total	$	649,157	$	9,026,220	$	351,291	$	2,567,501	$	826,270	$	340,264	$	13,760,703

	March 31, 2017
	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	$	2,899,295	$	2,582,739	$	215,112	$	1,418,899	$	7,116,045
30-59 days past due	27,662		11,702		610		5,661		45,635
60-89 days past due	3,885		3,162		1,378		2,214		10,639
90 days or greater past due	14,519		6,553		1,003		1,886		23,961
Total	$	2,945,361	$	2,604,156	$	218,103	$	1,428,660	$	7,196,280
	December 31, 2016
	Non-PCI noncommercial loans and leases
	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total non-PCI noncommercial loans and leases
Current	$	2,839,045	$	2,576,942	$	229,106	$	1,434,658	$	7,079,751
30-59 days past due	27,760		14,290		1,139		6,775		49,964
60-89 days past due	7,039		2,698		598		2,779		13,114
90 days or greater past due	15,280		7,414		557		1,926		25,177
Total	$	2,889,124	$	2,601,344	$	231,400	$	1,446,138	$	7,168,006

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PCI loans outstanding at March 31, 2017 and December 31, 2016 by credit quality indicator are provided below:

	March 31, 2017
(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	$	11,129	$	243,473	$	14,896	$	18,204	$	642	$	288,344
Special mention	1,509		66,969		641		2,449		—		71,568
Substandard	10,776		131,350		2,516		2,901		602		148,145
Doubtful	3,128		13,759		670		4,215		—		21,772
Ungraded	—		—		—		25		—		25
Total	$	26,542	$	455,551	$	18,723	$	27,794	$	1,244	$	529,854
	December 31, 2016
	PCI commercial loans
	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Other		Total PCI commercial loans
Pass	$	8,103	$	234,023	$	8,744	$	7,253	$	696	$	258,819
Special mention	950		67,848		102		620		—		69,520
Substandard	7,850		138,312		3,462		3,648		1,006		154,278
Doubtful	3,863		12,830		337		303		—		17,333
Ungraded	—		—		—		20		—		20
Total	$	20,766	$	453,013	$	12,645	$	11,844	$	1,702	$	499,970

	March 31, 2017
	PCI noncommercial loans
(Dollars in thousands)	Residential mortgage		Revolving mortgage		Consumer		Total PCI noncommercial loans
Current	$	236,294	$	34,868	$	2,541	$	273,703
30-59 days past due	10,017		1,231		48		11,296
60-89 days past due	4,935		349		3		5,287
90 days or greater past due	24,658		3,897		121		28,676
Total	$	275,904	$	40,345	$	2,713	$	318,962
	December 31, 2016
	PCI noncommercial loans
	Residential mortgage		Revolving mortgage		Consumer		Total PCI noncommercial loans
Current	$	230,065	$	33,827	$	1,637	$	265,529
30-59 days past due	9,595		618		68		10,281
60-89 days past due	6,528		268		4		6,800
90 days or greater past due	22,589		3,937		63		26,589
Total	$	268,777	$	38,650	$	1,772	$	309,199

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The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2017 and December 31, 2016 is provided in the table below.

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

	March 31, 2017
(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	$	3,897	$	2	$	102	$	4,001	$	679,414	$	683,415
Commercial mortgage	16,294		3,633		8,750		28,677		9,144,935		9,173,612
Other commercial real estate	181		172		530		883		363,979		364,862
Commercial and industrial	9,543		1,576		3,229		14,348		2,463,563		2,477,911
Lease financing	992		733		290		2,015		838,186		840,201
Residential mortgage	27,662		3,885		14,519		46,066		2,899,295		2,945,361
Revolving mortgage	11,702		3,162		6,553		21,417		2,582,739		2,604,156
Construction and land development - noncommercial	610		1,378		1,003		2,991		215,112		218,103
Consumer	5,661		2,214		1,886		9,761		1,418,899		1,428,660
Other	194		—		161		355		320,997		321,352
Total non-PCI loans and leases	$	76,736	$	16,755	$	37,023	$	130,514	$	20,927,119	$	21,057,633
	December 31, 2016
	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	$	1,845	$	39	$	286	$	2,170	$	646,987	$	649,157
Commercial mortgage	11,592		2,773		10,329		24,694		9,001,526		9,026,220
Other commercial real estate	310		—		—		310		350,981		351,291
Commercial and industrial	7,918		2,102		1,051		11,071		2,556,430		2,567,501
Lease financing	1,175		444		863		2,482		823,788		826,270
Residential mortgage	27,760		7,039		15,280		50,079		2,839,045		2,889,124
Revolving mortgage	14,290		2,698		7,414		24,402		2,576,942		2,601,344
Construction and land development - noncommercial	1,139		598		557		2,294		229,106		231,400
Consumer	6,775		2,779		1,926		11,480		1,434,658		1,446,138
Other	72		—		198		270		339,994		340,264
Total non-PCI loans and leases	$	72,876	$	18,472	$	37,904	$	129,252	$	20,799,457	$	20,928,709

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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, 2017 and December 31, 2016 for non-PCI loans and leases, were as follows:

	March 31, 2017				December 31, 2016
(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	$	778	$	—	$	606	$	—
Commercial mortgage	25,709		962		26,527		482
Other commercial real estate	687		—		86		—
Commercial and industrial	4,023		584		4,275		440
Lease financing	1,281		—		359		683
Residential mortgage	36,257		191		32,470		37
Revolving mortgage	13,931		—		14,308		—
Construction and land development - noncommercial	1,315		—		1,121		—
Consumer	1,830		1,245		2,236		1,076
Other	275		—		319		—
Total non-PCI loans and leases	$	86,086	$	2,982	$	82,307	$	2,718

Purchased credit-impaired loans (PCI) loans

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

(Dollars in thousands)
Contractually required payments	$	111,250
Cash flows expected to be collected	101,802
Fair value of loans at acquisition	85,149

The recorded fair values of PCI loans acquired in the HCB acquisition as of the acquisition date were as follows:

(Dollars in thousands)
Commercial:
Construction and land development	$	7,061
Commercial mortgage	21,836
Other commercial real estate	6,404
Commercial and industrial	19,675
Total commercial loans	54,976
Noncommercial:
Residential mortgage	25,857
Revolving mortgage	3,434
Consumer	882
Total noncommercial loans	30,173
Total PCI loans	$	85,149

The following table provides changes in the carrying value of all purchased credit-impaired loans during the three months ended March 31, 2017 and March 31, 2016:

(Dollars in thousands)	2017			2016
Balance at January 1	$	809,169		$	950,516
Fair value of acquired loans	85,149			35,416
Accretion	19,351			21,398
Payments received and other changes, net	(64,853		)	(61,443		)
Balance at March 31	$	848,816		$	945,887
Unpaid principal balance at March 31	$	1,155,034		$	1,665,896

The carrying value of loans on the cost recovery method was $480 thousand at March 31, 2017 and $498 thousand at December 31, 2016. The cost recovery method is applied to loans when the timing of future cash flows is not reasonably estimable due to borrower nonperformance or uncertainty in the ultimate disposition of the asset. Cash payments from cost recovery loans are 100 percent

21

applied to principal. The recorded investment of PCI loans on nonaccrual status was $1.5 million and $3.5 million at March 31, 2017 and December 31, 2016, respectively.

During the three months ended March 31, 2017 and March 31, 2016, accretion income on PCI loans was $19.4 million and $21.4 million, respectively.

The following table documents changes to the amount of accretable yield for the first three months of 2017 and 2016.

(Dollars in thousands)	2017			2016
Balance at January 1	$	335,074		$	343,856
Additions from acquisitions	16,653			6,176
Accretion	(19,351		)	(21,398		)
Reclassifications from nonaccretable difference	11,277			9,905
Changes in expected cash flows that do not affect nonaccretable difference	(2,179		)	4,418
Balance at March 31	$	341,474		$	342,957

For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flows not related to credit improvements or deterioration do not affect the nonaccretable difference.