~~Consumer Financial Protections Bureau Regulation~~Ability-to-Repay and ~~Supervision.~~ Qualified Mortgage Rule. Creditors are required to comply with mortgage reform provisions prohibiting the origination of any residential mortgages that do not meet rigorous Qualified Mortgage standards or Ability-to-Repay standards. All mortgage loans originated by FCB meet Ability-to-Repay standards and a substantial majority also meets Qualified Mortgage standards. The ~~Dodd-Frank Act established~~EGRRCPA impact on the ~~Consumer Financial Protection Bureau (CFPB), a new agency~~original Ability-to-Repay and Qualified Mortgage standards is only applicable to banks with centralized responsibility for consumer financial protection. The CFPB has the authority to examine FCB for compliance with a broad range of federal consumer financial laws and regulations, including the laws and regulations that relate to credit card, deposit, mortgage and other consumer financial products and services we offer.less than $10 billion in total consolidated assets.

In addition, Dodd-Frank Act gives the CFPB broad authority to take corrective action against FCB as it deems appropriate. The CFPB also has powers that it was assigned in Dodd-Frank Act to issue regulations and take enforcement actions to prevent and remedy acts and practices relating to consumer financial products and services that it deems to be unfair, deceptive or abusive. The agency also has authority to impose new disclosure requirements for any consumer financial product or service. These authorities are in addition to the authorities the CFPB assumed on July 21, 2011 under then-existing consumer financial laws governing the provision of consumer financial products and services. The CFPB has concentrated much of its initial rulemaking efforts on a variety of mortgage related topics required under Dodd-Frank Act, including ability-to-repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, appraisal and escrow standards and requirements for higher-priced mortgages. On October 3, 2015, the CFPB’s final rules on integrated mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act became effective which simplified and improved disclosure forms for mortgage transactions.

BancShares

General. As a financial holding company registered under the Bank Holding Company Act (BHCA), of 1956, as amended, BancShares is subject to supervision, regulation and examination by the Federal Reserve. BancShares is also registered under the bank holding company laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks ~~(NCCB)~~(NCCOB).

Permitted Activities. A bank holding company is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies, such as BancShares, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve), without prior approval of the Federal Reserve. Activities that are financial in nature include securities underwriting and dealing, serving as an insurance ~~underwriting~~agent and ~~making~~underwriter and engaging in merchant ~~banking investments.~~banking.

Acquisitions. A bank holding company (BHC) must obtain approval from the Federal Reserve Board (Federal Reserve) prior to directly or indirectly acquiring ownership or control of 5% of the voting shares or substantially all of the assets of another BHC or bank or prior to merging or consolidating with another BHC.

Status Requirements. To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be ~~“well capitalized”~~well-capitalized and ~~“well managed.”~~well-managed. A depository institution subsidiary is considered to be ~~“well capitalized”~~well-capitalized if it satisfies the requirements for this status under applicable Federal Reserve capital requirements. A depository institution subsidiary is considered ~~“well managed”~~well managed if it received a composite rating and management rating of at least “satisfactory” in its most recent examination. ~~A financial holding company’s status will also depend upon it maintaining its status as “well capitalized” and “well managed” under applicable Federal Reserve regulations.~~ If a financial holding company ceases to meet these capital and management requirements, the Federal Reserve may impose limitations or conditions on the conduct of its activities, and the company may not commence any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve. If the company does not return to compliance within 180 days, the Federal Reserve may require divestiture of the holding company’s depository institutions.activities.

Capital Requirements. The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described below under “The Subsidiary Bank - FCB - Current Capital Requirements (Basel III).”. As of December 31, ~~2015,~~2018, the risk-based Tier 1, common equity Tier 1, total capital and leverage capital ratios of BancShares were ~~12.65~~12.67 percent, ~~12.51~~12.67 percent, ~~14.03~~13.99 percent and ~~8.96~~9.77 percent, respectively, and each capital ratio listed above exceeded the applicable minimum requirements as well as the well-capitalized standards. Subject to its capital requirements and certain other restrictions, BancShares is able to borrow money to make capital contributions to FCB and such loans may be repaid from dividends paid by FCB to BancShares.

Source of Strength. ~~Federal Reserve policy has historically required~~Under the Dodd-Frank Act, bank holding companies are required to act as a source of financial and managerial strength to their subsidiary banks. ~~The Dodd-Frank Act codified this policy as a statutory requirement.~~ Under this requirement, BancShares is expected to commit resources to support FCB, including times when BancShares may not be in a financial position to provide such resources. Any capital loans made by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Safety and ~~Soundness.~~ Soundness. The federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and to the FDIC insurance fund in the event of a depository institution default.

Limits on Dividends and Other ~~Payments.~~Payments. BancShares is a legal entity, separate and distinct from its subsidiaries. Revenues of BancShares primarily result from dividends ~~paid to it by~~received from FCB. There are various legal limitations applicable to the payment of dividends by FCB to BancShares and to the payment of dividends by BancShares to its shareholders. The payment of dividends by FCB or BancShares may be limited by certain factors, such as requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit FCB or BancShares from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending on the financial condition of FCB or BancShares, could be deemed to constitute such an unsafe or unsound practice.

Under the ~~FDIA,~~Federal Deposit Insurance Act (FDIA), insured depository institutions, such as FCB, are prohibited from making capital distributions, including the payment of dividends, if, after making such distributions, the institution would become “undercapitalized” (as such term is used in the statute). Additionally, under Basel III capital requirements, banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. Based on ~~the~~ FCB’s current financial condition, BancShares currently does not expect ~~this provision will~~these provisions to have any material impact on its ability to receive dividends from FCB. BancShares' non-bank subsidiaries pay dividends to BancShares periodically on a non-regulated basis.

Subsidiary Bank - FCB

General. FCB is a state-chartered bank, subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC and the North Carolina Commissioner of ~~Banks.~~Banks (NCCOB). Deposit obligations are insured by the FDIC to the maximum legal limits.

The various laws and regulations administered by the bank regulatory agencies affect corporate practices, such as the payment of dividends, incurrence of debt, and acquisition of financial institutions and other companies; they also affect business practices, such as the payment of interest on deposits, the charging of interest on loans, types of business conducted, and location of offices.

~~Current~~ Capital Requirements (Basel III). On June 7, 2012, the Federal Reserve issued a series of proposed rules that would revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets. The rules were proposed to implement theBank regulatory agencies approved Basel III regulatory capital ~~reforms from the Basel Committee on Banking Supervision and certain provisions~~guidelines aimed at strengthening existing capital requirements through a combination of ~~the Dodd-Frank Act. On July 2, 2013, the Federal Reserve approved certain revisions to the proposals and finalized~~higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure. BancShares and FCB implemented the requirements ~~for banking organizations.~~

~~Effective~~of Basel III effective January 1, 2015, subject to a transition period for several aspects of the ~~final rules required BancShares~~rule. The table below describes the minimum and ~~FCB to comply with~~well-capitalized requirements in 2018 and the following new minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5 percent of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0 percent of risk-weighted assets; (iii) a total capital ratio of 8.0 percent of risk-weighted assets;fully-phased-in requirements that became effective in 2019.



	Basel III minimum requirement 2018	Basel III well-capitalized 2018	Basel III minimum requirement 2019	Basel III well-capitalized 2019
Leverage ratio	4.00%	5.00%	4.00%	5.00%
Common equity Tier 1	4.50%	6.50%	4.50%	6.50%
Tier 1 capital ratio	6.00%	8.00%	6.00%	8.00%
Total capital ratio	8.00%	10.00%	8.00%	10.00%

The transitional period began in 2016 and (iv) a leverage ratio of 4.0 percent of total average assets. These are the initial capital requirements, which will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require BancShares and FCB to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5 percent, plus a 2.5 percent “capital conservation buffer” (which is added to the 4.5 percent common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0 percent upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0 percent, plus the capital conservation buffer (which is added to the 6.0 percent Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5 percent upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0 percent, plus the capital conservation buffer (which is added to the 8.0 percent total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5 percent upon full implementation), and (iv) a minimum leverage ratio of 4.0 percent, calculated as the ratio of Tier 1 capital to total average assets.

~~The capital conservation buffer~~ requirement ~~is being~~was phased in beginning January 1, 2016, at 0.625 percent of risk-weighted assets, increasing each year until fully implemented at 2.5 percent on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum, but below the conservation buffer, will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

With respect to FCB, the rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5 percent for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0 percent (as compared to the previous 6.0 percent); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0 percent Tier 1 leverage ratio and still be well-capitalized. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on ~~the~~FCB's consolidated financial statements. As of December 31, ~~2015,~~2018, FCB exceeded the applicable minimum requirements as well as the well-capitalized standards.

~~Prompt Corrective Action. Federal banking regulators are authorized~~Although FCB is unable to control the external factors that influence its business, by maintaining high levels of balance sheet liquidity, prudently managing interest rate exposures, ensuring capital positions remain strong and ~~under certain circumstances, required~~actively monitoring asset quality, FCB seeks to minimize the potentially adverse risks of unforeseen and unfavorable economic trends and to take certain actions against banks that fail to meet their capital requirements. The federal bank regulatory agencies have additional enforcement authority with respect to undercapitalized depository institutions. “Well capitalized” institutions may generally operate without supervisory restriction. With respect to “adequately capitalized” institutions, such banks cannot normally pay dividends or make any capital contributions that would leave it undercapitalized, they cannot pay a management fee to a controlling person if, after paying the fee, it would be undercapitalized,advantage of favorable economic conditions and ~~they cannot accept, renew or roll over any brokered deposit unless the bank has applied for and been granted a waiver by the FDIC.~~opportunities when appropriate.

Transactions with Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act, Regulation W and Regulation W,O, the authority of FCB to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliate generally must be collateralized and certain transactions between FCB and its affiliates, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to FCB, as those prevailing for comparable nonaffiliated transactions. In addition, FCB generally may not purchase securities issued or underwritten by affiliates.

FCB receives management fees from its subsidiaries and BancShares for expenses incurred for performing various functions on their behalf. These fees are charged to each company based upon the estimated cost for usage of services by that company. The fees are eliminated from the consolidated financial statements.

Community Reinvestment Act. FCB is subject to the requirements of the Community Reinvestment Act of 1977 (CRA). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities, including ~~low and moderate income~~low-and-moderate-income neighborhoods. If FCB receives a rating from the Federal Reserve of less than “satisfactory” under the CRA, restrictions ~~on operating activities~~ would be ~~imposed.~~imposed on our operating activities. In addition, in order for a financial holding company, like BancShares, to commence any new activity permitted by the BHCA or to acquire any company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. FCB currently has a “satisfactory” CRA rating.

~~Privacy Legislation~~Anti-Money Laundering and the United States Department of the Treasury's Office of Foreign Asset Control (OFAC) Regulation. ~~Several~~Governmental policy in recent years has been aimed at combating money laundering and terrorist financing. The Bank Secrecy Act of 1970 (BSA) and subsequent laws ~~including~~and regulations require financial institutions to take steps to prevent the ~~Dodd-Frank Act, and related regulations issued by the federal bank regulatory agencies, provide new protections against the transfer and~~ use of ~~customer information by financial institutions. A financial institution must provide~~their systems to ~~its customers information regarding its policies and procedures with respect to~~facilitate the ~~handling~~flow of customers’ personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.

~~USA Patriot Act of 2001. In October 2001, the~~illegal or illicit money or terrorist funds. The USA Patriot Act of 2001 (Patriot Act) was enacted in response to the September 11, 2001 terrorist attacks in New York, Pennsylvania, and Northern Virginia. The Patriot Act is intended to strengthen U. S. law enforcement and the intelligence communities’ abilities to work cohesively to combat terrorism. The continuing impact on financial institutions of the Patriot Act and related regulations and policies is significant and wide ranging. The Patriot Act contains sweepingsignificantly expanded anti-money laundering (AML) and financial transparency laws and ~~imposes various~~ regulations by imposing new compliance and due diligence obligations, including standards for verifying customer identification at account opening and maintaining expanded records, as well as rules ~~to promote~~promoting cooperation among financial institutions, regulators and law enforcement entities ~~to identify~~in identifying persons who may be involved in terrorism or money laundering.

~~Volcker Rule~~. These rules were expanded to require new customer due diligence and beneficial ownership requirements in 2018. An institution subject to the BSA, such as FCB, must additionally provide AML training to employees, designate an AML compliance officer and annually audit the AML program to assess its effectiveness. The ~~Dodd-Frank Act prohibits insured depository institutions~~United States has imposed economic sanctions on transactions with certain designated foreign countries, nationals and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of 3 percent of Tier 1 capital in private equity and hedge funds (Volcker Rule). On December 10, 2013, the federal bank regulatory agencies adopted final rules implementing the Volcker Rule. These final rules prohibit banking entities from (i) engaging in short-term proprietary trading for their own accounts, and (ii) having certain ownership interests in and relationships with hedge funds or private equity funds. The finalothers. As these rules are ~~intended~~administrated by OFAC, these are generally known as the OFAC rules. Failure of a financial institution to ~~provide greater clarity~~maintain and implement adequate BSA, AML and OFAC programs, or to comply with ~~respect~~all the relevant laws and regulations, could have serious legal and reputational consequences, including material fines and sanctions. FCB has implemented a program designed to ~~both the extent of those primary prohibitions and of the related exemptions and exclusions. The final rules also require each regulated entity to establish an~~

internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule, which must include (for the largest entities) making regular reports about those activities to regulators. Although the final rules provide some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including BancShares and FCB. The final rules were effective April 1, 2014, but the conformance period was extended from its statutory end date of July 21, 2014 to July 21, 2015. The adoption of the Volcker Rule did not have any material effect on our consolidated financial position or consolidated results of operations.

~~Ability-to-Repay and Qualified Mortgage Rule~~. Pursuant to the Dodd-Frank Act, the CFPB issued a final rule on January 10, 2013 (effective January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Creditors are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the creditor to consider the following eight underwriting factors when making the credit decision: (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; (iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual income; and (viii) credit history. Alternatively, the creditor can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3 percent of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption offacilitate compliance with the ~~ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor~~full extent of ~~compliance. All mortgage loans originated by FCB meet Ability-to-Repay standards~~the applicable BSA and ~~a substantial majority also meet Qualified Mortgage standards. This mix provides the ability to serve the needs of a broad customer base.~~OFAC related laws, regulations and related sanctions.

Consumer Laws and Regulations. FCB is also subject to certain ~~consumer~~ laws and regulations ~~that are~~ designed to protect consumers in transactions with banks. These laws include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Fair Housing Act and the Servicemembers Civil Relief ~~Act, among others.~~Act. The laws and related regulations mandate certain ~~disclosure requirements~~disclosures and regulate the manner in which financial institutions transact business with certain customers. FCB must comply with ~~the applicable provisions of~~ these consumer protection laws and regulations ~~as part~~in its relevant lines of ~~its ongoing customer relations.~~business.

Available Information

BancShares does not have its own separate Internet website. However, FCB’s website (www.firstcitizens.com) includes a hyperlink to the ~~SEC’s~~Security and Exchange Commission's (SEC) website where the public may obtain copies of BancShares’ annual reports on Form 10-K, quarterly reports on 10-Q, current reports on Form 8-K and amendments to those reports, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Interested parties may also directly access the SEC’s website ~~that~~(www.sec.gov), which contains reports and other information ~~that BancShares files~~ electronically ~~with the SEC. The address of the SEC’s website is~~ ~~www.sec.gov~~.filed by BancShares.

Item 1A. Risk Factors

We are subject to a number of risks and uncertainties that could have a material impact on our business, financial condition and results of operations and cash flows. As a financial services organization, certain elements of risk are inherent in our transactions and operations and are present in the business decisions we make. We encounter risk as part of the normal course of our business, and we design risk management processes to help manage these risks. Our success is dependent on our ability to identify, understand and manage the risks presented by our business activities. We categorize risk into the following areas:

Operational Risk: The risk of loss resulting from inadequate or failed processes, people and systems or from external events.

Credit Risk: The risk that arises from a borrower's or counterparty's inability to perform on an obligation.

Market Risk: The risk to BancShares' financial condition resulting from adverse movements in market rates or prices, including, but not limited to, interest rates or equity prices.

Liquidity Risk: The risk that BancShares will be unable to meet its obligations as they come due because of an inability to (i) liquidate assets or obtain adequate funding (referred to as "Funding Liquidity Risk"), or (ii) unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions ("Market Liquidity Risk").

Capital Adequacy Risk: The risk that capital levels are inadequate to preserve the safety and soundness of BancShares, support ongoing business operations and strategies and provide support against unexpected or sudden changes in the business/economic environment.

Compliance Risk: The risk of loss or reputational harm resulting from regulatory sanctions, fines, penalties or losses due to the failure to comply with laws, rules, regulations or other supervisory requirements applicable to a financial institution.

Strategic Risk: The risk to earnings or capital arising from business decisions or improper implementation of those decisions.

The risks and uncertainties that management believes are material are described below. The risks listed are not the only risks that BancShares faces. Additional risks and uncertainties that are not currently known or that management does not currently deem material could also have a material adverse impact on our financial condition and/or the results of our operations or our business. If such risks and uncertainties were to ~~become reality~~materialize or the likelihoods of ~~those~~the risks were to increase, the market price of our common stock could significantly decline.

We operate in a highly regulated industry and the laws and regulations that govern our operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them, or our failure to comply with them, may adversely affect us.

We are subject to extensive regulation and supervision that govern almost all aspects of our operations. In addition to a multitude of regulations designed to protect customers, depositors and consumers, we must comply with other regulations that protect the deposit insurance fund and the stability of the U.S. financial system, including laws and regulations which, among other matters, prescribe minimum capital requirements, impose limitations on our business activities and investments, limit the dividend or distributions that we can pay, restrict the ability of our bank subsidiaries to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or

reductions in our capital than accounting principles generally accepted in the United States (GAAP). Compliance with laws and regulations can be difficult and costly, and changes in laws and regulations often impose additional compliance costs. We continue to face increased regulation and supervision of our industry as a result of the last financial crisis that impacted the banking and financial markets. Such additional regulation and supervision may increase our costs and limit our ability to pursue business opportunities. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, mergers and acquisitions, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our common stock. Any new laws, rules and regulations could make compliance more difficult or expensive, or otherwise adversely affect our business and financial condition.

The Dodd-Frank Act heightened the regulation of the financial services industry. One key component of the Dodd-Frank Act was the establishment of the CFPB. The CFPB, in consultation with the Federal banking agencies, has been given primary federal jurisdiction for consumer protections in the financial services markets. Within certain limitations, the CFPB is charged with creating, revising or restating the consumer protection regulations applicable to commercial banks. We are subject to examination and supervision by the CFPB with respect to compliance with consumer protection laws and regulations.

Certain provisions of the Dodd-Frank Act still require rulemaking and interpretation by regulatory authorities. In several cases, authorities have extended implementation periods and delayed effective dates. Accordingly, in some respects the ultimate impact of the Dodd-Frank Act and its effects on the U.S. financial system and us will not be known for some period of time. Nevertheless, the Dodd-Frank Act, and current and future rules implementing its provisions and the interpretation of those rules, could result in a loss of revenue, require us to change certain of our business practices, limit our ability to pursue certain business opportunities, increase our capital and liquidity requirements, impose additional assessments and costs on us, and otherwise adversely affect our business operations and have other negative consequences.

~~We are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affected.~~

Under regulatory capital adequacy guidelines and other regulatory requirements, BancShares, together with FCB, must meet certain capital and liquidity guidelines, subject to qualitative judgments by regulators about components, risk weightings, and other factors.

In July 2013, the Federal Reserve issued final capital rules that replaced existing capital adequacy rules and implemented Basel III and certain requirements imposed by the Dodd-Frank Act. When fully phased-in, these rules will result in higher and more stringent capital requirements for us and FCB. Basel III increased our capital requirements and changed the risk-weighting of many of our assets.

Under Basel III, Tier 1 capital consists of Common Equity Tier (CET) 1 Capital and additional Tier 1 capital, with Tier 1 capital plus Tier 2 capital constituting total risk-based capital. Basel III set minimum capital requirements of a CET 1 ratio of 4.5 percent; a Tier 1 capital ratio of 6.0 percent, and a total capital ratio of 8.0 percent. In addition, a Tier 1 leverage ratio to average consolidated assets of 4.0 percent applies. Further, we are required to maintain a capital conservation buffer of 2.5 percent of additional CET 1. If we do not maintain the capital conservation buffer once it is fully phased in, then our ability to pay dividends and discretionary bonuses, and to make share repurchases, will be restricted. We implemented Basel III effective January 1, 2015, and are required to comply with the minimum regulatory capital ratios; on that same date, the transition period for other requirements of the final rules and the capital conservation buffer also began. If the risk weightings of certain assets we hold should change and we are required to hold increased amounts of capital, the profitability of those assets and underlying businesses may change, which could result in changes in our business mix over the long-term.

Basel III will also gradually eliminate the contribution of certain trust preferred and other hybrid debt securities to Tier 1 capital. Under the phased-in approach, the affected securities will lose Tier 1 capital status on January 1, 2016; the securities will, however, qualify for Tier 2 capital treatment.

~~We encounter significant competition which may reduce our market share and profitability~~

We compete with other banks and specialized financial service providers in our market areas. Our primary competitors include local, regional and national banks; credit unions; commercial finance companies; various wealth management providers; independent and captive insurance agencies; mortgage companies; and non-bank providers of financial services. Some of our larger competitors, including banks that have a significant presence in our market areas, have the capacity to offer products and services we do not offer. Some of our competitors operate in less stringent regulatory environments, and certain competitors are not subject to federal and/or state income taxes. The fierce competitive pressures that we face adversely affect pricing for many of our products and services.

~~Our financial condition could be adversely affected by the soundness of other financial institutions~~

Financial services institutions are interrelated as a result of trading, clearing, counterparty and/or other relationships. We have exposure to numerous financial service providers, including banks, securities brokers and dealers, and other financial service providers. Although we monitor the financial conditions of financial institutions with which we have credit exposure, transactions with such institutions expose us to credit risk through the possibility of counterparty default.

~~Our ability to grow is contingent on capital adequacy~~

Based on existing capital levels, BancShares and FCB are well-capitalized under current leverage and risk-based capital standards. Our ability to grow is contingent on our ability to generate sufficient capital to remain well-capitalized under current and future capital adequacy guidelines.

Historically, our primary capital sources have been retained earnings and debt issued through both private and public markets, including trust preferred securities and subordinated debt. Effective January 1, 2015, provisions of the Dodd-Frank Act eliminated 75 percent of our trust preferred capital securities from tier 1 capital with the remaining 25 percent phased out on January 1, 2016.

Rating agencies regularly evaluate our creditworthiness and assign credit ratings to our debt and the debt of FCB. The ratings of the agencies are based on a number of factors, some of which are outside our control. In addition to factors specific to our financial strength and performance, the rating agencies also consider conditions generally affecting the financial services industry. There can be no assurance that we will maintain our current credit ratings. Rating reductions could adversely affect our access to funding sources and the cost of obtaining funding.

~~If we fail to effectively manage credit risk and interest rate risk, our business and financial condition will suffer~~

We must effectively manage credit risk. There are risks inherent in making any loan, including risks of repayment, risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral. There is no assurance that our credit risk monitoring and loan approval procedures are or will be adequate or will reduce the inherent risks associated with lending. Our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of our loan portfolio. Any failure to manage such credit risks may materially adversely affect our business and our consolidated results of operations and financial condition.

Our results of operations and cash flows are highly dependent upon net interest income. Interest rates are sensitive to economic and market conditions that are beyond our control, including the actions of the Federal Reserve Board’s Federal Open Market Committee. Changes in monetary policy could influence interest income and interest expense as well as the fair value of our financial assets and liabilities. If changes in interest rates on our interest-earning assets are not equal to the changes in interest rates on our interest-bearing liabilities, our net interest income and, therefore, our net income could be adversely impacted.

Although we maintain an interest rate risk monitoring system, the forecasts of future net interest income are estimates and may be inaccurate. Actual interest rate movements may differ from our forecasts, and unexpected actions by the Federal Open Market Committee may have a direct impact on market interest rates.

~~If our current level of balance sheet liquidity were to experience pressure, that could affect our ability to pay deposits and fund our operations~~

Our deposit base represents our primary source of core funding and balance sheet liquidity. We normally have the ability to stimulate core deposit growth through reasonable and effective pricing strategies. However, in circumstances where our ability to generate needed liquidity is impaired, we need access to noncore funding such as borrowings from the Federal Home Loan Bank and the Federal Reserve, Federal Funds purchased lines and brokered deposits. While we maintain access to these noncore funding sources, for some of them we are dependent on the availability of collateral and the counterparty’s willingness and ability to lend.

The Dodd-Frank Act rescinded the long-standing prohibition on the payment of interest on commercial demand deposit accounts. Recent historically low interest rates, as well as relatively low levels of competition among banks for demand deposit accounts, have made it difficult to determine the impact on our deposit base, if any, of this repeal. As interest rates begin to rise, our interest expense will increase and our net interest margins may decrease, negatively impacting our performance and, potentially, our financial condition. To the extent banks and other financial service providers were to compete for commercial demand deposit accounts through higher interest rates, our deposit base could be reduced if we are unwilling to

~~pay those higher rates; if we should determine to compete with those higher interest rates, our cost of funds could increase and our net interest margins could be reduced.~~

~~Accounting for acquired assets may result in earnings volatility~~

Fair value discounts that are recorded at the time an asset is acquired are accreted into interest income based on United States GAAP. The rate at which those discounts are accreted is unpredictable, the result of various factors including prepayments and credit quality improvements. Post-acquisition deterioration results in the recognition of provision expense and allowance for loan and lease losses. Additionally, the income statement impact of adjustments to the indemnification asset recorded in certain FDIC-assisted transactions may occur over a shorter period of time than the adjustments to the covered assets.

Fair value discount accretion, post-acquisition impairment and adjustments to the indemnification asset may result in significant volatility in our earnings. Volatility in earnings could unfavorably influence investor interest in our common stock thereby depressing the market value of our stock and the market capitalization of our company.

~~Reimbursements under loss share agreements are subject to FDIC oversight and interpretation and contractual term limitations~~

Some of our FDIC-assisted transactions include loss share agreements that provide significant protection to FCB from the exposures to prospective losses on certain assets. Generally, losses on single family residential loans are covered for ten years. All other loans are generally covered for five years. During 2016, loss share protection will expire for non-single family residential loans acquired from United Western Bank, Colorado Capital Bank, and Atlantic Bank and Trust. In 2014 and 2015, loss share protection expired for all other non-single family residential loans. Protection for all covered single family residential loans extends beyond December 31, 2017.

The loss share agreements impose certain obligations on us, including obligations to manage covered assets in a manner consistent with prudent business practices and in accordance with the procedures and practices that we customarily use for assets that are not covered by loss share agreements. We are required to report detailed loan level information and file requests for reimbursement of covered losses and expenses on a quarterly basis. In the event of noncompliance, delay or disallowance of some or all of our rights under those agreements could occur, including the denial of reimbursement for losses and related collection costs. Certain loss share agreements contain contingencies that require that we pay the FDIC in the event aggregate losses are less than a pre-determined amount.

~~Loans and leases covered under loss share agreements represent 1.3 percent of total loans and leases as of December 31, 2015.~~ As of December 31, 2015, we expect to receive cash payments from the FDIC totaling $4.1 million over the remaining lives of the respective loss share agreements, exclusive of $126.5 million we will owe the FDIC for settlement of the contingent payments.

The loss share agreements are subject to differing interpretations by the FDIC and FCB; therefore, disagreements may arise regarding coverage of losses, expenses and contingencies. Additionally, losses that are currently projected to occur during the loss share term may not occur until after the expiration of the applicable agreement and those losses could have a material impact on the results of operations in future periods. The carrying value of the FDIC receivable includes only those losses that we project to occur during the loss share period and for which we believe we will receive reimbursement from the FDIC at the applicable reimbursement rate.

~~The value of our goodwill may decline in the future~~

As of December 31, 2015, we had $139.8 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting unit with its net book value. We also test goodwill for impairment when certain events occur, such as a significant decline in our expected future cash flows, a significant adverse change in the business climate, or a sustained decline in the price of our common stock. These tests may result in a write-off of goodwill deemed to be impaired, which could have a significant impact on our financial results; any such write-off would not impact our regulatory capital ratios, however, given that regulatory capital ratios are calculated using tangible capital amounts.

~~Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio~~

require significant estimates that are subject to uncertainty and changes relating to new information and changing circumstances. The significant uncertainties surrounding our borrowers' abilities to conduct their businesses successfully through changing economic environments, competitive challenges, and other factors complicate our estimates of the risk and/or amount of loss on any loan. Due to the degree of uncertainty and the susceptibility to change, the actual losses may vary from current estimates. We expect fluctuations in the allowance due to the uncertain economic conditions.

As an integral part of their examination process, our banking regulators periodically review the allowance and may require us to increase it for loan losses by recognizing additional provisions for loan losses charged to expense or to decrease the allowance by recognizing loan charge-offs, net of recoveries. Any such required additional loan loss provisions or charge-offs could have a material adverse effect on our financial condition and results of operations.

BancShares has been monitoring the impact of the October 2015 flooding in South Carolina. We have assessed how this situation may impact our customers and the areas in which they operate. However, we have not identified any significant impact to the credit quality of the loans in these areas that would cause us to adjust the allowance for loan losses.

~~Economic conditions in real estate markets and our reliance on junior liens may adversely impact our business and our results of operations~~

Real property collateral values may be impacted by economic conditions in the real estate market and may result in losses on loans that, while adequately collateralized at the time of origination, become inadequate. Our reliance on junior liens is concentrated in our non-commercial revolving mortgage loan portfolio. Approximately two-thirds of the revolving mortgage portfolio is secured by junior lien positions and lower real estate values for collateral underlying these loans may cause the outstanding balance of the senior lien to exceed the value of the collateral, resulting in a junior lien loan that is in effect unsecured. Inadequate collateral values, rising interest rates and unfavorable economic conditions could result in greater delinquency, write-downs or charge-offs in future periods, which could have a material adverse impact on our results of operations and capital adequacy.

~~Our concentration of loans to borrowers within the medical industry could impair our revenue if that industry experiences economic difficulties~~

If regulatory changes (e.g., Affordable Care Act) in the market negatively impact the borrowers' businesses and their ability to repay their loans with us, this could have a material adverse effect on our financial condition and results of operations. We could be required to increase our allowance for loan losses through provisions for loan loss on our income statement that would reduce reported net income.

~~Our concentration of credit exposure in loans to dental practices could increase credit risk~~

Dentists and dental practices generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, and generally have a heightened vulnerability to negative economic conditions. If economic conditions in the market negatively impact the borrowers’ businesses and their ability to repay their loans with us, this could have a material adverse effect on BancShares’ financial condition and results of operations.

Our financial performance depends upon our ability to attract and retain clients for our products and services, which ability may be adversely impacted by weakened consumer and/or business confidence, and by any inability on our part to predict and satisfy customers’ needs and demands

Our financial performance is subject to risks associated with the loss of client confidence and demand. A fragile or weakening economy, or ambiguity surrounding the economic future, may lessen the demand for our products and services. Our performance may also be negatively impacted if we should fail to attract and retain customers because we are not able to successfully anticipate, develop and market products and services that satisfy market demands. Such events could impact our performance through fewer loans, reduced fee income, and fewer deposits, each of which could result in reduced net income.

Our business is highly quantitative and requires widespread use of financial models for day-to-day operations; these models may produce inaccurate predictions that significantly vary from actual results

We rely on quantitative models to measure risks and to estimate certain financial values. Such models may be used in many processes including, but not limited to, the pricing of various products and services, classifications of loans, setting interest rates on loans and deposits, quantifying interest rate and other market risks, forecasting losses, measuring capital adequacy, and calculating economic and regulatory capital levels. Models may also be used to estimate the value of financial instruments and balance sheet items. Inaccurate or erroneous models present the risk that business decisions relying on the models will prove inefficient or ineffective. Additionally, information we provide to our investors and regulators may be negatively impacted by

~~inaccurately designed or implemented models. For further information on models, see the Risk Management section included in Item 7 of this Form 10-K.~~Operational Risks

We face significant operational risks in our ~~businesses~~businesses.

Safely conducting and growing our business requires that we create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways, including employee fraud, customer fraud and control lapses in bank operations and information technology. Our dependence on our employees and internal and third party automated systems to record and process transactions may further increase the risk that technical failures or system-tampering will result in losses that are difficult to detect. We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control. Failure to maintain appropriate operational infrastructure and oversight can lead to loss of service to customers, legal actions and noncompliance with various laws and regulations. We have implemented internal controls that are designed to safeguard and maintain our operational and organizational infrastructure and information. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

~~Failure~~A cyber attack, information or security breach, or a technology failure of ours or of a third party could adversely affect our ability to conduct our business, manage our exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain ~~effective~~and update our operational and security systems ~~of internal controls over financial reporting could have a material adverse effect on our results of operation~~ and ~~financial condition~~infrastructure, and ~~disclosures~~

We must have effective internal controls over financial reporting in order to provide reliable financial reports, to effectively prevent fraud, and to operate successfully as a public company. If we were unable to provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of our internal controls over financial reporting, we may discover material weaknesses or significant deficiencies requiring remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We continually work to improve our internal controls; however, we cannot be certain that these measures will ensure appropriate and adequate controls over our future financial processes and reporting. Any failure to maintain effective controls or to timely implement any necessary improvement of our internal controls could, among other things, result in losses from fraud or error, harm our reputation, or cause investors to lose confidence in our reported financial information, each of which could have a material adverse effect onadversely impact our results of operations, liquidity and financial condition, as well as cause legal or reputational harm.

Our businesses are highly dependent on the security and ~~the market value~~efficacy of our ~~common stock.~~

~~Breaches~~infrastructure, computer and data management systems, as well as those of third parties with whom we interact or on whom we rely. Our businesses rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and ~~our vendor's information security~~data management systems ~~could expose us to hacking~~ and networks, and in the ~~loss~~computer and data management systems and networks of ~~customer information, which could damage our business reputation and expose us to significant liability~~

~~We maintain and transmit large amounts of sensitive information electronically, including personal and financial information of our customers.~~third parties. In addition, to access our ~~own systems, we also rely on external vendors to provide certain~~network, products and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are ~~therefore, exposed~~subject to their ~~information security~~own cybersecurity risks. While we seek to mitigate internal and external information security risks, the volume of business conducted through electronic devices continues to grow, and our computer systems and network infrastructure, as well as the systems of external vendors and customers, present security risks including susceptibility to hacking and/or identity theft.

We, ~~are also~~our customers, regulators and other third parties have been subject to, ~~risks arising from a broad range~~and are likely to continue to be the target of, cyber attacks. These cyber attacks ~~by doing business on the internet, which arise from both domestic and international sources and seek to obtain customer~~include computer viruses, malicious or destructive code, phishing attacks, denial of service or information ~~for fraudulent purposes~~ or ~~in some cases, to disrupt business activities. Information~~other security ~~risks~~breaches that could result in ~~reputational damage~~the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and ~~lead~~other information of ours, our employees, our customers or of third parties, damages to asystems, or otherwise material ~~adverse impact on~~disruption to our or our customers’ or other third parties’ network access or business ~~financial condition~~operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and ~~financial results~~remediate any information security vulnerabilities or incidents. Despite efforts to protect the integrity of ~~operations.~~

Weour systems and implement controls, processes, policies and other protective measures, we may not be able to ~~utilize~~anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches.

Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the Internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Additionally, the existence of cyber attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.

Although to date we have not experienced any material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches, whether directed at us or third parties, there can be no assurance that we will not suffer such losses or other consequences in the future. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.

We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; financial intermediaries such as clearing agents, exchanges and clearing houses; vendors; regulators; providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses.

Cyber attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. A successful penetration or circumvention of system security could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition.

We are exposed to losses related to credit and debit card fraud.

As technology continues to evolve, criminals are using increasingly more sophisticated techniques to commit and hide fraudulent activity. Fraudulent activity can come in many forms, including debit card/credit card fraud, check fraud, electronic scanning devices attached to ATM machines, social engineering and phishing attacks to obtain personal information and fraudulent impersonation of our clients through the use of falsified or stolen credentials. To counter the increased sophistication of these fraudulent activities, we have increased our investment in systems, technologies and controls to detect and prevent such fraud. Combating fraudulent activities as they evolve will result in continued ongoing investments in the future.

New technologies, and our ability to efficiently and effectively develop, market and deliver new products and services to our customers present competitive risks.

The ~~continuous, widespread adoption~~rapid growth of new digital technologies, including internet services, smart phones and other mobile devices, requires us to continuously evaluate our product and service offerings to ensure they remain competitive. Our success depends in part on our ability to adapt and deliver our products and services ~~as well as our distribution of them,~~in a manner responsive to evolving industry standards and consumer preferences. ~~The increasing pressure from our competitors, both bank~~New technologies by banks and non-bank ~~to keep pace and adopt new technologies and~~service providers may create risks if our products and services ~~may require us~~are no longer competitive with then-current standards, and could negatively affect our ability to ~~further incur substantial expense. We may be unsuccessful at developing~~attract or introducing new products or services, modifying our existing products and services, adapting to changing customer preferences, achieving market acceptance or regulatory approval, sufficiently developing or maintainingmaintain a loyal customer ~~base or offering products and services at prices and service levels competitive with those offered by our non-bank and bank competitors.~~base. These risks may affect our ability to grow and could reduce ~~both~~ our revenue streams from certain products and services, ~~and our revenues generated by our net interest margins.~~while increasing expenses associated with developing more competitive solutions. Our results of operations and financial condition could be adversely affected.

~~Unfavorable economic conditions could adversely affect~~We depend on key personnel for our ~~business~~

Our business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operations and financial condition. Our banking operations are locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Our markets include the Southeast, Mid-Atlantic, Midwest, and Western United States, with our deepest presence in North Carolina and South Carolina. Worsening economic conditions within our markets, particularly within North Carolina and South Carolina, could have a material adverse effect on our financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates and other factors could weaken the economies of the communities we serve. In recent years, economic growth and business activity across a wide range of industries has been slow and uneven and there can be no assurance that economic conditions will continue to improve, and these conditions could worsen. In addition, oil price volatility, the level of U.S. debt and global economic conditions have had a destabilizing effect on financial markets. Weakness in any of our market areas could have an adverse impact on our earnings, and consequently our financial condition and capital adequacy.

~~Our business and financial performance could be impacted by natural disasters, acts of war or terrorist activities~~

Natural disasters (including but not limited to earthquakes, hurricanes, tornadoes, floods, fires, explosions), acts of war and terrorist activities could hurt our performance (i) directly through damage to our facilities or other impact to our ability to conduct business in the ordinary course, and (ii) indirectly through such damage or impacts to our customers, suppliers or other counterparties. In particular, a significant amount of our business is concentrated in North Carolina and South Carolina, including in coastal areas where our retail and commercial customers could be impacted by hurricanes. We could also suffer adverse results to the extent that disasters, wars or terrorist activities affect the broader markets or economy. Our ability to minimize the consequences of such events is in significant measure reliant on the quality of our disaster recovery planning and our ability, if any, to forecast the events.

~~Our business could suffer if we fail to attract and retain skilled employees~~success.

Our success depends to a great extent on our ability to attract and retain key ~~employees. Competition~~personnel. We have an experienced management team that our Board of Directors believes is ~~intense for employees whom~~capable of managing and growing our business. Losses of, or changes in, our current executive officers or other key personnel and their responsibilities may disrupt our business and could adversely affect our financial condition, results of operations and liquidity. There can be no assurance that we ~~believe~~ will be successful in ~~developing and attracting new business and/or managing critical support functions. We may not be able to hire the best employees or, if successful, retain them after their employment.~~

~~We rely on external vendors~~

~~Third party vendors provide key components of~~retaining our business infrastructure, including certain data processing and information services. A number of our vendors are large national entities with dominant market presence in their respective fields, and their services could be difficult to quickly replace in the event of failurecurrent executive officers or other ~~interruption~~key personnel, or hiring additional key personnel to assist in ~~service. Failures of certain vendors to provide services could adversely affect~~executing our ~~ability to deliver products~~growth, expansion and services to our customers. External vendors also present information security risks. We monitor vendor risks, including the financial stability of critical vendors. The failure of a critical external vendor could disrupt our business and cause us to incur significant expense.

~~Accounting standards may change and increase our operating costs and/or otherwise adversely affect our results~~

The Financial Accounting Standards Board and the Securities and Exchange Commission periodically modify the standards that govern the preparation of our financial statements. The nature of these changes is not predictable and could impact how we record transactions in our financial statements, which could lead to material changes in assets, liabilities, shareholders’ equity, revenues, expenses and net income. In some cases, we could be required to apply new or revised standards retroactively, resulting in changes to previously-reported financial results or a cumulative adjustment to retained earnings. Application of new accounting rules or standards could require us to implement costly technology changes.

~~Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt that you might consider to be in your best interests~~

Certain provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could delay or prevent the removal of directors and other management. The provisions could also delay or make more difficult a tender offer, merger, or proxy contest that you might consider to be in your best interests. For example, the Certificate of Incorporation and/or Bylaws:

~~allow our Board of Directors to issue and set the terms of preferred shares without further shareholder approval;~~

~~limit who can call a special meeting of shareholders; and~~

~~establish advance notice requirements for nominations for election to the Board of Directors and proposals of other business to be considered at annual meetings of shareholders.~~

These provisions, as well as provisions of the Bank Holding Company Act and other relevant statutes and regulations which require advance notice and/or applications for regulatory approval of changes in control of banks and bank holding companies, and additionally the fact that the Holding family holds or controls shares representing a majority of the voting power of our common stock, may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price, and adversely affect the market price of our common stock.

~~The market price of our stock may be volatile~~

Although publicly traded, our common stock has less liquidity and public float than other large publicly traded financial services companies. Low liquidity increases the price volatility of our stock and could make it difficult for our shareholders to sell or buy our common stock at specific prices.

Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors including expectations of financial and operating results, actual operating results, actions of institutional shareholders, speculation in the press or the investment community, market perception of acquisitions, rating agency upgrades or downgrades, stock prices of other companies that are similar to us, general market expectations related to the financial services industry, and the potential impact of government actions affecting the financial services industry.

~~We rely on dividends from FCB~~

As a financial holding company, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends paid by FCB. These dividends are the primary source on which we pay dividends on our common stock and interest and principal on our debt obligations. State and federal laws impose restrictions on the dividends that FCB may pay to us. In the event FCB is unable to pay dividends to us for an extended period of time, we may not be able to service our debt obligations or pay dividends on our common stock.acquisition strategies.

We are subject to litigation risks, and our expenses related to litigation may adversely affect our ~~results~~results.

We are subject to litigation risks in the ordinary course of our business. Claims and legal actions, including supervisory actions by our regulators, that may be initiated against us from time to time could involve large monetary sums and significant defense costs. During the last credit crisis, we saw ~~both~~ the number of cases and our expenses related to those cases increase. The outcomes of such cases are always uncertain until finally adjudicated or resolved.

We establish reserves for legal claims when payments associated with the claims become probable and our liability can be reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the actual amount paid in resolution of a legal claim may be substantially higher than any amounts reserved for the matter. The ultimate resolution of a legal proceeding, depending on the remedy sought and any relief granted, could materially adversely affect our results of operations and financial condition.

Substantial legal claims or significant regulatory action against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. We may be exposed to substantial uninsured legal liabilities and/or regulatory actions which could adversely affect our results of operations and financial condition. For additional information, see Note U,T, “Commitments and Contingencies,” to the Consolidated Financial Statements in this Form 10-K.

Our business and financial performance could be impacted by natural disasters, acts of war or terrorist activities.

Natural disasters (including but not limited to earthquakes, hurricanes, tornadoes, floods, fires, explosions), acts of war and terrorist activities could hurt our performance (i) directly through damage to our facilities or other impacts to our ability to conduct business in the ordinary course, and (ii) indirectly through such damage or impacts to our customers, suppliers or other counterparties. In particular, a significant amount of our business is concentrated in North Carolina and South Carolina, including coastal areas where our retail and commercial customers have been and in the future could be impacted by hurricanes. We could also suffer adverse results to the extent that disasters, wars or terrorist activities affect the broader markets or economy. Our ability to minimize the consequences of such events is in significant measure reliant on the quality of our disaster recovery planning and our ability, if any, to forecast the events.

We rely on third parties.

Third party vendors provide key components of our business infrastructure, including certain data processing and information services. Their services could be difficult to quickly replace in the event of failure or other interruption in service. Failures of certain vendors to provide services could adversely affect our ability to deliver products and services to our customers. External vendors also present information security risks. We monitor significant vendor risks, including the financial stability of critical vendors. The failure of a critical external vendor could disrupt our business and cause us to incur significant expense.

We rely on quantitative models to measure risks and to estimate certain financial values. Such models may be used in many processes including, but not limited to, the pricing of various products and services, classifications of loans, setting interest rates on loans and deposits, quantifying interest rate and other market risks, forecasting losses, measuring capital adequacy and calculating economic and regulatory capital levels. Models may also be used to estimate the value of financial instruments and balance sheet items. Inaccurate or erroneous models present the risk that business decisions relying on the models will prove inefficient or ineffective. Additionally, information we provide to our investors and regulators may be negatively impacted by inaccurately designed or implemented models. For further information on models, see the Risk Management section included in Item 7 of this Form 10-K.

Failure to maintain an effective system of internal control over financial reporting could have a material adverse effect on our results of operations and financial condition and disclosures.

We must have effective internal controls over financial reporting in order to provide reliable financial reports, to effectively prevent fraud and to operate successfully as a public company. If we were unable to provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of our internal controls over financial reporting, we may discover material weaknesses or significant deficiencies requiring remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We continually work to improve our internal controls; however, we cannot be certain that these measures will ensure appropriate and adequate controls over our future financial processes and reporting. Any failure to maintain effective controls or to implement any necessary improvement of our internal controls in a timely manner could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, each of which could have a material adverse effect on our results of operations and financial condition and the market value of our common stock.

The quality of our data could deteriorate and cause financial or reputational harm to the Bank.

Incomplete, inconsistent, or inaccurate data could lead to non-compliance with regulatory statutes and result in fines. Additionally, customer impact could result in reputational harm and customer attrition.

Malicious action by an employee could result in harm to our customers or the Bank.

Several high-profile cases of misconduct have occurred at other financial institutions. Such an event may lead to large regulatory fines, as well as an erosion in customer confidence, which could impact our financial position.

Credit Risks

If we fail to effectively manage credit risk, our business and financial condition will suffer.

We must effectively manage credit risk. There are risks inherent in making any loan, including risks of repayment, risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral. There is no assurance that our loan approval procedures and our credit risk monitoring are or will be adequate to or will reduce the inherent risks associated with lending. Our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or other conditions affecting customers and the quality of our loan portfolio. Any failure to manage such credit risks may materially adversely affect our business, and our consolidated results of operations and financial condition.

Our concentration of loans to borrowers within the medical and dental industries could impair our earnings if those industries experience economic difficulties.

Statutory or regulatory changes, or economic conditions in the market generally, could negatively impact borrowers' businesses and their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations. Additionally, smaller practices such as those in the dental industry generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, and generally have a heightened vulnerability to negative economic conditions. Consequently, we could be required to increase our allowance for loan losses through additional provisions on our income statement, which would reduce reported net income. See Note D for additional discussion.

Economic conditions in real estate markets and our reliance on junior liens may adversely impact our business and our results of operations.

Real property collateral values may be impacted by economic conditions in the real estate market and may result in losses on loans that, while adequately collateralized at the time of origination, become inadequately collateralized. Our reliance on junior liens is concentrated in our non-commercial revolving mortgage loan portfolio. Approximately two-thirds of the non-commercial revolving mortgage portfolio is secured by junior lien positions, and lower real estate values for collateral underlying these loans may cause the outstanding balance of the senior lien to exceed the value of the collateral, resulting in a junior lien loan that is effectively unsecured. Inadequate collateral values, rising interest rates and unfavorable economic conditions could result in greater delinquencies, write-downs or charge-offs in future periods, which could have a material adverse impact on our results of operations and capital adequacy.

Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio.

We maintain an allowance for loan losses that is designed to cover losses on loans that borrowers may not repay in their entirety. We believe that we maintain an allowance for loan losses at a level adequate to absorb probable losses inherent in the loan portfolio as of the corresponding balance sheet date, and in compliance with applicable accounting and regulatory guidance. However, the allowance may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results.Accounting measurements related to impairment and the allowance require significant estimates that are subject to uncertainty and revisions driven by new information and changing circumstances. The significant uncertainties surrounding our borrowers' abilities to conduct their businesses successfully through changing economic environments, competitive challenges and other factors complicate our estimates of the risk and/or amount of loss on any loan. Due to the degree of uncertainty and the susceptibility to change, the actual losses may vary from current estimates. We also expect fluctuations in the allowance due to economic changes nationally as well as locally within the states we conduct business.

Our financial condition could be adversely affected by the soundness of other financial institutions.

Financial services institutions are interrelated as a result of trading, clearing, counterparty and/or other relationships. We have exposure to numerous financial services providers, including banks, securities brokers and dealers and other financial services providers. Although we monitor the financial conditions of financial institutions with which we have credit exposure, transactions with those institutions expose us to credit risk through the possibility of counterparty default.

Market Risks

Unfavorable economic conditions could adversely affect our business.

Our business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition. Our banking operations are located within several states but are locally oriented and community based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Our markets include the Southeast, Mid-Atlantic, Midwest and Western United States, with our greatest presence in North Carolina and South Carolina. Worsening economic conditions within our markets, particularly within North Carolina and South Carolina, could have a material adverse effect on our financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates and other factors could weaken the economies of the communities we serve. Economic growth and business activity have remained relatively stable across a wide range of industries and geographic locations, but there can be no assurance that current economic conditions will continue or that these conditions will not worsen.

In addition, the political environment, the level of United States (U.S.) debt and global economic conditions can have a destabilizing effect on financial markets. Weakness in any of our market areas could have an adverse impact on our earnings, and consequently, our financial condition and capital adequacy.

Accounting for acquired assets may result in earnings volatility.

Fair value discounts that are recorded at the time an asset is acquired are accreted into interest income based on accounting principles generally accepted in the United States (GAAP). The rate at which those discounts are accreted is unpredictable and the result of various factors including prepayments and changes in credit quality. Post-acquisition deterioration in excess of remaining discounts results in the recognition of provision expense. Additionally, the income statement impact of adjustments to the indemnification asset recorded in certain FDIC-assisted transactions may occur over a shorter period of time than the adjustments to the covered assets.

Fair value discount accretion, post-acquisition impairment and adjustments to the indemnification asset may result in significant volatility in our earnings. Volatility in earnings could unfavorably influence investor interest in our common stock, thereby depressing the market value of our stock and the market capitalization of our company.

The performance of equity securities and corporate bonds in the investment portfolio could be adversely impacted by the soundness and fluctuations in the market values of other financial institutions.

Our investment securities portfolio contains certain equity securities and corporate bonds of other financial institutions. As a result, a portion of our investment securities portfolio is subject to fluctuation due to changes in the financial stability and market value of other financial institutions, as well as interest rate sensitivity to economic and market conditions. Such fluctuations could have an adverse effect on our results of operations.

Failure to effectively manage our interest rate risk could adversely affect us.

Our results of operations and cash flows are highly dependent upon net interest income. Interest rates are sensitive to economic and market conditions that are beyond our control, including the actions of the Federal Reserve Board’s Federal Open Market Committee (FOMC). Changes in monetary policy could influence interest income, interest expense, and the fair value of our financial assets and liabilities. If changes in interest rates on our interest-earning assets are not equal to the changes in interest rates on our interest-bearing liabilities, our net interest income and, therefore, our net income, could be adversely impacted.

As interest rates rise, our interest expense will increase and our net interest margins may decrease, negatively impacting our performance and, potentially, our financial condition. To the extent banks and other financial services providers compete for interest-bearing deposit accounts through higher interest rates, our deposit base could be reduced if we are unwilling to pay those higher rates. If we decide to compete with those higher interest rates, our cost of funds could increase and our net interest margins could be reduced. Additionally, higher interest rates will impact our ability to originate new loans. Increases in interest rates could adversely affect the ability of our borrowers to meet higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and net charge-offs, which could adversely affect our business and financial condition.

Although we maintain an interest rate risk monitoring system, the forecasts of future net interest income are estimates and may be inaccurate. Actual interest rate movements may differ from our forecasts, and unexpected actions by the FOMC may have a direct impact on market interest rates.

We May Be Adversely Impacted By The Transition From LIBOR as a reference rate

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments.

We have loans, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create additional costs and risks. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, and product design. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

Liquidity Risks

If our current level of balance sheet liquidity were to experience pressure, it could affect our ability to pay deposits and fund our operations.

Our deposit base represents our primary source of core funding and balance sheet liquidity. We normally have the ability to stimulate core deposit growth through reasonable and effective pricing strategies. However, in circumstances where our ability to generate needed liquidity is impaired, we need access to noncore funding such as borrowings from the Federal Home Loan Bank (FHLB) and the Federal Reserve, Federal Funds purchased lines and brokered deposits. While we maintain access to these noncore funding sources, some sources are dependent on the availability of collateral as well as the counterparty’s willingness and ability to lend.

Capital Adequacy Risks

Our ability to grow is contingent on access to capital.

Our primary capital sources have been retained earnings and debt issued through both private and public markets. Rating agencies regularly evaluate our creditworthiness and assign credit ratings to BancShares and FCB. The ratings of the agencies are based on a number of factors, some of which are outside our control. In addition to factors specific to our financial strength and performance, the rating agencies also consider conditions generally affecting the financial services industry. There can be no assurance that we will maintain our current credit ratings. Rating reductions could adversely affect our access to funding sources and the cost of obtaining funding.

We are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affected.

The Federal Reserve Bank (FRB) issued capital rules that established a new comprehensive capital framework for U.S. banking institutions and established a more conservative definition of capital. These requirements, known as Basel III, became effective January 1, 2015, and, as a result, we became subject to enhanced minimum capital and leverage ratios. These requirements could adversely affect our ability to pay dividends, restrict certain business activities or compel us to raise capital, each of which may adversely affect our results of operations or financial condition. In addition, the costs associated with complying with more stringent capital requirements, such as the requirement to formulate and submit capital plans based on pre-defined stress scenarios on an annual basis, could have an adverse effect on us. See the Supervision and Regulation section included in Item 7 of this Form 10-K for additional information regarding the capital requirements under the Dodd-Frank Act and Basel III.

Compliance Risks

We operate in a highly regulated industry; the laws and regulations that govern our operations, taxes, corporate governance, executive compensation and financial accounting and reporting, including changes in them or our failure to comply with them, may adversely affect us.

We are subject to extensive regulation and supervision that govern almost all aspects of our operations. In addition to a multitude of regulations designed to protect customers, depositors and consumers, we must comply with other regulations that protect the deposit insurance fund and the stability of the U.S. financial system, including laws and regulations that, among other matters, prescribe minimum capital requirements; impose limitations on our business activities and investments; limit the dividends or distributions that we can pay; restrict the ability of our bank subsidiaries to guarantee our debt; and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP. Compliance with laws and regulations can be difficult and costly, and changes in laws and regulations often impose additional compliance costs.

The Sarbanes-Oxley Act of 2002 and the related rules and regulations issued by the SEC and Nasdaq, as well as numerous other recently enacted statutes and regulations, including the Dodd-Frank Act, EGRRCPA, and regulations promulgated thereunder, have increased the scope, complexity and cost of corporate governance and reporting and disclosure practices, including the costs of completing our external audit and maintaining our internal controls. Such additional regulation and supervision may limit our ability to pursue business opportunities.

The failure to comply with these various rules and regulations could subject us to restrictions on our business activities, including mergers and acquisitions, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our common stock.

We may be adversely affected by changes in U.S. tax laws and other laws and regulations.

Corporate tax rates affect our profitability and capital levels. The U.S. corporate tax code may be further reformed by the U.S. Congress and additional guidance may be issued by the U.S. Department of the Treasury relevant to the Tax Cuts and Jobs Act (Tax Act) enacted during 2017. Additional adverse amendments to the Tax Act or other related legislation could have an adverse impact on our financial condition and results of operations.

Strategic Risks

We encounter significant competition that may reduce our market share and profitability.

We compete with other banks and specialized financial services providers in our market areas. Our primary competitors include local, regional and national banks; credit unions; commercial finance companies; various wealth management providers; independent and captive insurance agencies; mortgage companies; and non-bank providers of financial services. Some of our larger competitors, including certain banks with a significant presence in our market areas, have the capacity to offer products and services we do not offer. Some of our non-bank competitors operate in less stringent regulatory environments, and certain competitors are not subject to federal and/or state income taxes. The fierce competitive pressures that we face adversely affect pricing for many of our products and services.

Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt that you might consider to be in your best interests.

Certain provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could delay or prevent the removal of directors and other management. The provisions could also delay or make more difficult a tender offer, merger or proxy contest that you might consider to be in your best interests. For example, our Certificate of Incorporation and/or Bylaws:

allow our Board of Directors to issue and set the terms of preferred shares without further shareholder approval;

limit who can call a special meeting of shareholders; and

establish advance notice requirements for nominations for election to the Board of Directors and proposals of other business to be considered at annual meetings of shareholders.

These provisions, as well as provisions of the BHCA and other relevant statutes and regulations that require advance notice and/or applications for regulatory approval of changes in control of banks and bank holding companies, may discourage bids for our common stock at a premium over market price, adversely affecting its market price. Additionally, the fact that the Holding family holds or controls shares representing a majority of the voting power of our common stock may discourage potential takeover attempts and/or bids for our common stock at a premium over market price.

The market price of our stock may be volatile.

Although publicly traded, our common stock has less liquidity and public float than many other large, publicly traded financial services companies. Low liquidity increases the price volatility of our stock and could make it difficult for our shareholders to sell or buy our common stock at specific prices.

Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors, including expectations of financial and operating results, actual operating results, actions of institutional shareholders, speculation in the press or the investment community, market perception of acquisitions, rating agency upgrades or downgrades, stock prices of other companies that are similar to us, general market expectations related to the financial services industry and the potential impact of government actions affecting the financial services industry.

We rely on dividends from FCB.

As a financial holding company, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends paid by FCB. These dividends are the primary source from which we pay dividends on our common stock and interest and principal on our debt obligations. State and federal laws impose restrictions on the dividends that FCB may pay to us. In the event FCB is unable to pay dividends to us for an extended period of time, we may not be able to service our debt obligations or pay dividends on our common stock.

Our financial performance is subject to risks associated with the loss of client confidence and demand. A fragile or weakening economy, or ambiguity surrounding the economic future, may lessen the demand for our products and services. Our performance may also be negatively impacted if we fail to attract and retain customers because we are not able to successfully anticipate, develop and market products and services that satisfy market demands. Such events could impact our performance through fewer loans, reduced fee income and fewer deposits, each of which could result in reduced net income.

The value of our goodwill may decline in the future.

At December 31, 2018, we had $236.3 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting unit with its net book value. We also test goodwill for impairment when certain events occur, such as a significant decline in our expected future cash flows, a significant adverse change in the business climate or a sustained decline in the price of our common stock. These tests may result in a write-off of goodwill deemed to be impaired, which could have a significant impact on our financial results; however, any such write-off would not impact our regulatory capital ratios, given that regulatory capital ratios are calculated using tangible capital amounts.

We may be adversely affected by risks associated with completed, pending or any potential future acquisitions.

We plan to continue to grow our business organically. However, we have pursued and expect to continue to pursue acquisition opportunities that we believe support our business strategies and may enhance our profitability. We must generally satisfy a number of material conditions prior to consummating any acquisition including, in many cases, federal and state regulatory approval. We may fail to complete strategic and competitively significant business opportunities as a result of our inability to obtain required regulatory approvals in a timely manner or at all.

Acquisitions of financial institutions or assets of financial institutions involve operational risks and uncertainties, and acquired companies or assets may have unknown or contingent liabilities, exposure to unexpected asset quality problems that require write downs or write-offs, difficulty retaining key employees and customers and other issues that could negatively affect our results of operations and financial condition.

We may not be able to realize projected cost savings, synergies or other benefits associated with any such acquisition. Failure to efficiently integrate any acquired entities or assets into our existing operations could significantly increase our operating costs and have material adverse effects on our financial condition and results of operations. There can be no assurance that we will be successful in identifying, consummating, or integrating any potential acquisitions.

Accounting standards may change and increase our operating costs and/or otherwise adversely affect our results.

The Financial Accounting Standards Board (FASB) and the SEC periodically modify the standards that govern the preparation of our financial statements. The nature of these changes is not predictable and could impact how we record transactions in our financial statements, which could lead to material changes in assets, liabilities, shareholders’ equity, revenues, expenses and net income. In some cases, we could be required to apply new or revised standards retroactively, resulting in changes to previously reported financial results or a cumulative adjustment to retained earnings. Application of new accounting rules or standards could require us to implement costly technology changes.

Item 2. Properties

BancShares' and FCB's headquarters facility, a nine-story building with approximately 163,000 square feet, is located in Raleigh, North Carolina. In addition, FCB occupies separate facilities in Raleigh and in Columbia, South Carolina, that serve as data and operations centers. As of December 31, ~~2015, BancShares~~2018, FCB operated 551 branch offices ~~at 559 locations in Arizona, California, Colorado, Florida, Georgia, Kansas, Maryland, Missouri, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington~~throughout the Southeast, Mid-Atlantic, Midwest and ~~West Virginia and the District of Columbia.~~Western United States. FCB owns many of the buildings and leases other facilities from third parties.

BancShares' headquarters facility, a nine-story building with approximately 163,000 square feet, is located in suburban Raleigh, North Carolina. In addition, we occupy separate facilities in Raleigh and Columbia, South Carolina that serve as our data and operations centers.

Additional information relating to premises, equipment and lease commitments is set forth in Note F of BancShares’ Notes to ~~Audited~~ Consolidated Financial Statements.

Item 3. Legal Proceedings

BancShares and various subsidiaries have been named as defendants in various legal actions arising from our normal business activities in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect to those ~~other~~ matters cannot be determined, in the opinion of management, no legal ~~action~~actions currently ~~exists~~exist that isare expected to have a material effect on BancShares’ consolidated financial statements. Additional information related to legal proceedings is set forth in Note ~~U "Commitments and Contingencies"~~T of BancShares’ Notes to Consolidated Financial Statements.

Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

BancShares has two classes of common stock—Class A common and Class B common. Shares of Class A common have one vote per share, while shares of Class B common have 16 votes per share. BancShares’ Class A common stock is listed on the NASDAQ Global Select Market under the symbol FCNCA. The Class B common stock is traded on the over-the-counter market and quoted on the ~~OTC~~Over-The-Counter (OTC) Bulletin Board under the symbol FCNCB. As of December 31, ~~2015,~~2018, there were ~~1,508~~1,264 holders of record of the Class A common stock and ~~238~~193 holders of record of the Class B common stock. The market volume for Class B common stock is extremely limited. On many days there is no trading and, to the extent there is trading, it is generally ~~low.~~

~~The average monthly trading volume for the Class A common stock was 489,200 shares for the fourth quarter of 2015 and 510,075 shares for the year ended~~ ~~December 31, 2015. The Class B common stock monthly trading volume averaged 1,267 shares in the fourth quarter of 2015 and 1,875 shares for the year ended~~ ~~December 31, 2015~~.

~~The per share cash dividends declared by BancShares on both the Class A and Class B common stock, the high and~~ low sales prices per share of BancShares Class A common stock, as reported on NASDAQ, and the high and low bid prices for BancShares Class B common stock, as reported in the OTC Bulletin Board, for each quarterly period during ~~2015~~ ~~and 2014, are set forth in the following table.~~volume. Over-the-counter bid prices for BancShares Class B common stock represent inter-dealer prices without retail markup, markdown or commissions, and may not represent actual ~~transactions.~~

2015 2014
Fourth
quarter Third
quarter Second
quarter First
quarter Fourth
quarter Third
quarter Second
quarter First
quarter
Cash dividends (Class A and Class B) $ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.30
Class A sales price
High 263.62
266.01
261.27
264.95
271.97
247.45
260.10
240.46
Low 215.98
213.74
226.09
221.61
206.14
214.53
214.93
215.22
Class B bid price
High 245.00
246.01
244.66
246.74
247.40
230.50
244.50
219.01
Low 202.05
197.05
228.01
212.00
208.00
206.00
199.93
198.01

A cash dividend of 30 cents per share was declared by the Board of Directors on January 26, 2016, payable on April 4, 2016, to holders of record as of March 21, 2016. Payment of dividends is made at the discretion of the Board of Directors and is contingent upon satisfactory earnings as well as projected future capital needs. BancShares’ principal source of liquidity for payment of shareholder dividends is the dividend it receives from FCB. FCB is subject to various requirements under federal and state banking laws that restrict the payment of dividends and its ability to lend to BancShares. Subject to the foregoing, it is currently management’s expectation that comparable cash dividends will continue to be paid in the future.transaction prices.

~~During~~The average monthly trading volume for the ~~third quarter of 2014, our board approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of~~ Class A common stock ~~from 11,000,000 to 16,000,000. In connection with~~was 679,451 shares for the ~~Bancorporation merger, BancShares repurchased~~fourth quarter of 2018 and ~~retired 167,600 and 45,900~~787,238 shares ~~of Class A and~~for the year ended December 31, 2018. The Class B common stock ~~on October 1, 2014, respectively, that were previously held by Bancorporation.~~monthly trading volume averaged 4,703 shares in the fourth quarter of 2018 and 2,218 shares for the year ended December 31, 2018.

~~On October 27, 2015,~~During 2018, our ~~board approved a stock repurchase plan that provides for~~Board authorized the purchase of up to ~~100,000~~800,000 shares of Class A common stock. The shares may be purchased from time to time at management's discretion from November 1, ~~2015~~2018 through October 31, ~~2016. The board's action approving share purchases~~2019. That authorization does not obligate BancShares to ~~acquire~~purchase any particular amount of shares, and purchases may be suspended or discontinued at any time. ~~Any~~The Board's action replaced existing authority to purchase up to 800,000 shares in effect during the twelve months preceding November 1, 2018. BancShares purchased 200,000 shares under the previous authority that expired on October 31, 2018, and 182,000 shares have been purchased under the newly approved authority, which began November 1, 2018. During the third quarter of 2018, BancShares purchased 100,000 shares of its outstanding Class A common stock ~~that are~~at a price of $465 per share from a related party. An additional 106,500 shares have been purchased ~~will be canceled. As of~~subsequent to December 31, ~~2015, no purchases had occurred pursuant to that authorization.~~2018.

~~There were no shares~~Shares of Class A ~~or Class B~~ common stock purchased by BancShares during the ~~three months~~year ended December 31, ~~2015.~~2018.



Class A common stock	Total Number of Class A Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
Purchases from July 1, 2018 to July 31, 2018	—	$	—	—	800,000
Purchases from August 1, 2018 to August 31, 2018	100,000	465.00		100,000	700,000
Purchases from September 1, 2018 to September 30, 2018	25,000	463.39		25,000	675,000
Purchases from October 1, 2018 to October 31, 2018	75,000	438.26		75,000	600,000
Purchases from November 1, 2018 to November 30, 2018	82,400	433.02		82,400	717,600
Purchases from December 1, 2018 to December 31, 2018	99,600	388.43		99,600	618,000
Total	382,000	$	432.78	382,000	618,000

The following graph compares the cumulative total shareholder return (CTSR) of our Class A common stock during the previous five years with the CTSR over the same measurement period of the NASDAQ – Banks Index and the NASDAQ – U.S. Index. Each trend line assumes that $100 was invested on December 31, ~~2010,~~2013, and that dividends were reinvested for additional shares.

Item 6. Selected Financial Data

Table 1
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS


(Dollars in thousands, except share data)	2015			2014			2013			2012			2011			2018			2017			2016			2015			2014
SUMMARY OF OPERATIONS
Interest income	$	969,209		$	760,448		$	796,804		$	1,004,836		$	1,015,159		$	1,245,757		$	1,103,690		$	987,757		$	969,209		$	760,448
Interest expense	44,304			50,351			56,618			90,148			144,192			36,857			43,794			43,082			44,304			50,351
Net interest income	924,905			710,097			740,186			914,688			870,967			1,208,900			1,059,896			944,675			924,905			710,097
Provision (credit) for loan and lease losses	20,664			640			(32,255		)	142,885			232,277			28,468			25,692			32,941			20,664			640
Net interest income after provision for loan and lease losses	904,241			709,457			772,441			771,803			638,690			1,180,432			1,034,204			911,734			904,241			709,457
Gain on acquisition	42,930			—			—			—			150,417
Noninterest income	424,158			343,213			267,382			192,254			316,472
Gain on acquisitions																—			134,745			5,831			42,930			—
Noninterest income excluding gain on acquisitions																400,149			387,218			371,268			424,158			343,213
Noninterest expense	1,038,915			849,076			771,380			766,933			792,925			1,076,971			1,012,469			937,766			1,038,915			849,076
Income before income taxes	332,414			203,594			268,443			197,124			312,654			503,610			543,698			351,067			332,414			203,594
Income taxes	122,028			65,032			101,574			64,729			118,361			103,297			219,946			125,585			122,028			65,032
Net income	$	210,386		$	138,562		$	166,869		$	132,395		$	194,293		$	400,313		$	323,752		$	225,482		$	210,386		$	138,562
Net interest income, taxable equivalent(1)	$	931,231		$	714,085		$	742,846		$	917,664		$	874,727		$	1,212,280		$	1,064,415		$	949,768		$	931,231		$	714,085
PER SHARE DATA
Net income	$	17.52		$	13.56		$	17.35		$	12.92		$	18.72		$	33.53		$	26.96		$	18.77		$	17.52		$	13.56
Cash dividends	1.20			1.20			1.20			1.20			1.20			1.45			1.25			1.20			1.20			1.20
Market price at period end (Class A)	258.17			252.79			222.63			163.50			174.99			377.05			403.00			355.00			258.17			252.79
Book value at period end	239.14			223.77			215.35			193.29			180.73			300.04			277.60			250.82			239.14			223.77
SELECTED PERIOD AVERAGE BALANCES
Total assets	$	31,072,235		$	24,104,404		$	21,295,587		$	21,073,061		$	21,133,142		$	34,879,912		$	34,302,867		$	32,439,492		$	31,072,235		$	24,104,404
Investment securities	7,011,767			5,994,080			5,206,000			4,698,559			4,215,761			7,074,929			7,036,564			6,616,355			7,011,767			5,994,080
Loans and leases (PCI and non-PCI)⁽¹⁾	19,528,153			14,820,126			13,163,743			13,560,773			14,050,453
Loans and leases ⁽²⁾																24,483,719			22,725,665			20,897,395			19,528,153			14,820,126
Interest-earning assets	28,893,157			22,232,051			19,433,947			18,974,915			18,824,668			32,847,661			32,213,646			30,267,788			28,893,157			22,232,051
Deposits	26,485,245			20,368,275			17,947,996			17,727,117			17,776,419			30,165,249			29,119,344			27,515,161			26,485,245			20,368,275
Interest-bearing liabilities	18,986,755			15,273,619			13,910,299			14,298,026			15,044,889			18,995,727			19,576,353			19,158,317			18,986,755			15,273,619
Long-term obligations	547,378			403,925			462,203			574,721			766,509			304,318			842,863			811,755			547,378			403,925
Shareholders' equity	$	2,797,300		$	2,256,292		$	1,936,895		$	1,910,886		$	1,809,090		$	3,422,941		$	3,206,250		$	3,001,269		$	2,797,300		$	2,256,292
Shares outstanding	12,010,405			10,221,721			9,618,952			10,244,472			10,376,445			11,938,439			12,010,405			12,010,405			12,010,405			10,221,721
SELECTED PERIOD-END BALANCES
Total assets	$	31,475,934		$	30,075,113		$	21,193,878		$	21,279,269		$	20,994,868		$	35,408,629		$	34,527,512		$	32,990,836		$	31,475,934		$	30,075,113
Investment securities	6,861,548			7,172,435			5,388,610			5,227,570			4,058,245			6,741,763			7,180,256			7,006,678			6,861,548			7,172,435
Loans and leases:
PCI	950,516			1,186,498			1,029,426			1,809,235			2,362,152
Non-PCI	19,289,474			17,582,967			12,104,298			11,576,115			11,581,637
Purchased Credit Impaired (PCI)																606,576			762,998			809,169			950,516			1,186,498
Non-Purchased Credit Impaired (Non-PCI)																24,916,700			22,833,827			20,928,709			19,289,474			17,582,967
Interest-earning assets	29,224,436			27,730,515			19,428,929			19,142,433			18,529,548			33,200,549			32,216,187			30,691,551			29,224,436			27,730,515
Deposits	26,930,755			25,678,577			17,874,066			18,086,025			17,577,274			30,672,460			29,266,275			28,161,343			26,930,755			25,678,577
Interest-bearing liabilities	18,955,173			18,930,297			13,654,436			14,213,751			14,548,389			19,681,944			19,592,947			19,467,223			18,955,173			1,893,297
Long-term obligations	704,155			351,320			510,769			444,921			687,599			319,867			870,240			832,942			704,155			351,320
Shareholders' equity	$	2,872,109		$	2,687,594		$	2,071,462		$	1,859,624		$	1,858,698		$	3,488,954		$	3,334,064		$	3,012,427		$	2,872,109		$	2,687,594
Shares outstanding	12,010,405			12,010,405			9,618,941			9,620.914			10,284.119			11,628,405			12,010,405			12,010,405			12,010,405			12,010,405
SELECTED RATIOS AND OTHER DATA
Rate of return on average assets	0.68		%	0.57		%	0.78		%	0.63		%	0.92		%	1.15		%	0.94		%	0.70		%	0.68		%	0.57		%
Rate of return on average shareholders' equity	7.52			6.14			8.62			6.93			10.74			11.69			10.10			7.51			7.52			6.14
Average equity to average assets ratio	9.00			9.36			9.10			9.07			8.56			9.81			9.35			9.25			9.00			9.36
Net yield on interest-earning assets (taxable equivalent)	3.22			3.21			3.82			4.84			4.65			3.69			3.30			3.14			3.22			3.21
Allowance for loan and lease losses to total loans and leases:
PCI	1.72			1.82			5.20			7.74			3.78			1.51			1.31			1.70			1.72			1.82
Non-PCI	0.98			1.04			1.49			1.55			1.56			0.86			0.93			0.98			0.98			1.04
Nonperforming assets to total loans and leases and other real estate at period end:
Covered	3.51			9.84			7.02			9.26			17.95
Noncovered	0.79			0.66			0.74			1.15			0.89
Total	0.83			0.91			1.25			2.30			3.92			0.88			0.94			1.01			1.02			1.09
Ratio of total nonperforming assets to total loans, leases and other real estate owned																0.52			0.61			0.67			0.83			0.91
Tier 1 risk-based capital ratio	12.65			13.61			14.89			14.24			15.40			12.67			12.88			12.42			12.65			13.61
Common equity Tier 1 ratio	12.51			N/A			N/A			N/A			N/A			12.67			12.88			12.42			12.51			N/A
Total risk-based capital ratio	14.03			14.69			16.39			15.92			17.26			13.99			14.21			13.85			14.03			14.69
Leverage capital ratio	8.96			8.91			9.80			9.21			9.89			9.77			9.47			9.05			8.96			8.91
Dividend payout ratio	6.85			8.85			6.92			9.29			6.41			4.32			4.64			6.39			6.85			8.85
Average loans and leases to average deposits	73.73			72.76			73.34			76.50			79.04			81.17			78.04			75.95			73.73			72.76

⁽¹⁾ The taxable-equivalent adjustment was $3,380, $4,519, $5,093, $6,326 and $3,988 for the years 2018, 2017, 2016, 2015, and 2014, respectively.

⁽²⁾Average loan and lease balances include PCI loans, non-PCI loans and leases, loans held for sale and nonaccrual loans and leases.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis (MD&A) of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. (BancShares) and ~~Subsidiaries (BancShares)~~its banking subsidiary, First-Citizens Bank & Trust Company (FCB). This discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes presented within this report. Intercompany accounts and transactions have been eliminated. See Note A in the Notes to the Consolidated Financial Statements included in Part II, Item 8, of this ~~Report~~report for more detail. Although certain amounts for prior years have been reclassified to conform to statement presentations for ~~2015~~,2018, the reclassifications had no ~~material~~ effect on shareholders’ equity or net income as previously reported. Unless otherwise noted, the terms ~~"we", "us"~~"we," "us," “our,” and "BancShares" refer to the consolidated financial position and consolidated results of operations for BancShares.

FORWARD-LOOKING STATEMENTS

Statements in this ~~Report~~report and exhibits relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors ~~which~~that include, but are not limited to, factors discussed in our Annual Report on Form 10-K and in other documents filed by us from time to time with the Securities and Exchange Commission.

Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “projects,” “potential” or “continue,” or similar terms or the negative of these terms, or other statements concerning opinions or judgments of BancShares’ management about future events.

Factors that could influence the accuracy of those forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, customer acceptance of our services, products and fee structure, the competitive nature of the financial services industry, our ability to compete effectively against other financial institutions in our banking markets, actions of government regulators, the level of market interest rates and our ability to manage our interest rate risk, changes in general economic conditions that affect our loan and lease portfolio, the abilities of our borrowers to repay their loans and leases, the values of real estate and other collateral, the impact of the FDIC-assisted transactions and/or the risks discussed in Item 1A. Risk Factors above and other developments or changes in our business that we do not expect.

Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, BancShares undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

CRITICAL ACCOUNTING ~~POLICIES~~ESTIMATES

The accounting and reporting policies of BancShares are in accordance with accounting principles generally accepted in the United States (GAAP) and ~~conform~~are described in Note A of the Notes to ~~general practices within~~ the ~~banking industry.~~Consolidated Financial Statements. The preparation of financial statements in conformity with GAAP requires ~~management~~us to ~~make~~exercise judgment in determining many of the estimates and assumptions utilized to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations ~~can~~could be materially affected by changes to these estimates and assumptions. Critical accounting policies are those policies that are most important to the determination of our financial condition and results of operations or that require management to make assumptions and estimates that are subjective or complex. The most critical accounting and reporting policies include those related to the allowance for loan and lease losses, fair value estimates, the receivable from and payable to the FDIC for loss share agreements, pension plan assumptions, and income taxes. Significant accounting policies are discussed in Note A in the Notes to Consolidated Financial Statements.

The following is a summary of ~~our~~some of the more significant areas in which we apply critical ~~accounting policies that are material to our consolidated financial statements~~assumptions and ~~are highly dependent on estimates and assumptions.~~estimates:

Allowance for loan and lease losses. The allowance for loan and lease losses (ALLL) ~~reflects~~represents the ~~estimated~~best estimate of inherent credit losses ~~resulting from the inability of our customers to make required loan and lease payments. The ALLL is based on management's evaluation of the risk characteristics of~~within the loan and lease portfolio ~~under current~~as of the balance sheet date. Estimating credit losses requires judgment in determining the amount and timing of expected cash flows, the value of the underlying collateral and loan specific attributes that impact the borrower's ability to repay contractual obligations. Other factors such as economic conditions, ~~and considers such factors as the financial condition of the borrower, fair market value of collateral and other items that, in our opinion, deserve current~~

~~recognition in estimating possible loan and lease losses. Our evaluation process is based on historical evidence and current trends among delinquencies, defaults and nonperforming assets.~~

BancShares' methodology for calculating the ALLL includes estimating a general allowance for pools of performing loans and specific allocations for significant individual impaired loans. It also includes establishing an ALLL for purchased credit-impaired loans (PCI) that have deteriorated since acquisition. The general allowance is based on net historical loan ~~loss experience for homogeneous groups~~losses, migration of loans ~~based mostly on loan type then aggregated on the basis of similar risk characteristics~~through delinquency stages and ~~performance trends. This allowance estimate contains qualitative components that allow management to adjust reserves based on historical loan loss experience for~~ changes in the ~~economic environment,~~size, composition and risks within the loan portfolio ~~trends and other factors. The methodology~~are also ~~considers~~considered. Loan balances considered uncollectible are charged off against the ~~remaining discounts recognized upon acquisition associated with purchased non-impaired loans in estimating~~ALLL. If it is probable that a ~~general allowance. The specific allowance component is determined when management believes that~~borrower will be unable to pay all amounts due according to the ~~collectability~~contractual terms of ~~an individually reviewed~~the loan ~~has been impaired~~agreement and a loss is ~~probable.~~probable, a specific valuation allowance is determined. Recoveries of amounts previously charged-off are generally credited to the ALLL.

Purchased credit impaired (PCI) loans are initially recorded at fair value and are generally pooled based upon common risk characteristics. At each balance sheet date, we evaluate whether the estimated cash flows have decreased and if so, recognizes an additional allowance. Subsequent improvements in expected cash flows results first in the recovery of any allowance established and then in the recognition of additional interest income over the remaining lives of the loans.

The ALLL for ~~PCI~~Non-purchased credit impaired (Non-PCI) loans is estimated based on the expected cash flows approach. Over the life of PCI loans, BancShares continues to estimate cash flows expected to be collected on individual loans and leases or on pools of loans sharing common risk characteristics. BancShares evaluatesassessed at each balance sheet date ~~whether the estimated cash flows~~ and ~~corresponding present value of its loans and leases determined using the effective interest rates has decreased and if so, recognizes~~adjustments are recorded in provision for loan and lease losses. ~~For any increases in cash flows expected~~General reserves for collective impairment are based on historical loss rates for each loan class by credit quality indicator and may be adjusted through a qualitative assessment to ~~be collected, BancShares adjusts any prior recorded allowance~~reflect current economic conditions and portfolio trends. Non-PCI loans classified as impaired as of the balance sheet date are assessed for ~~loan and lease losses first and then the amount of accretable yield recognized~~individual impairment based on ~~a prospective basis over~~ the loan's characteristics and either a specific valuation allowance is established or ~~pool's remaining life.~~partial charge-off is recorded.

Management continuously monitors and actively manages the credit quality of the entire loan portfolio and recognizes provision expense to maintain the ALLL at an appropriate level. Specific allowances for impaired loans are determined by analyzing estimated cash flows discounted at a loan's original rate or collateral values in situations where we believe repayment is dependent on collateral liquidation. Substantially all impaired loans are collateralized by real property or tangible personal property.

Management considers the established ALLL adequate to absorb incurred losses ~~that relate to~~for loans and leases outstanding at December 31, ~~2015, although future additions may be necessary based on~~2018. Changes in circumstances could result in changes in ~~economic conditions, collateral values, erosion of the borrower's access to liquidity~~estimates and ~~other factors. If the financial condition of our borrowers were to deteriorate, resulting~~assumptions, which may result in ~~an impairment of their ability to make payments, our estimates would be updated and additions~~adjustments to the allowance ~~may be required. In addition, various regulatory agencies, as an integral part~~for loan and lease losses or, in the case of their examination process, periodically review the ALLL. These agencies may require the recognition of additions to the ALLL based on their judgments of information available to them at the time of their examination.acquired loans, changes in interest income recognized in future periods. See Note E in the Notes to Consolidated Financial Statements for additional disclosures.

~~Fair value estimates.~~Financial Measurements. Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement ~~date under current market conditions.~~date. Certain assets and liabilities are measured at fair value on a recurring basis. Examples of recurring uses of fair value include ~~the interest rate swap that is accounted for as a cash flow hedge,~~marketable equity securities, available for sale securities and loans held for sale. ~~At December 31, 2015, the percentage of total assets and total~~There were no liabilities measured at fair value on a recurring basis ~~was 22.0 percent and less than 1.0 percent, respectively.~~at December 31, 2018. We also measure certain assets at fair value on a non-recurring ~~basis either to evaluate assets for impairment or for disclosure purposes.~~basis. Examples ~~of non-recurring uses of fair value~~ include impaired loans, other real estate owned (OREO), goodwill and intangible assets, including mortgage serving rights (MSRs). Depending on the nature of the asset or liability, we use various valuation techniques and assumptions when estimating fair value. As required under GAAP, the assetsassets. Assets acquired and liabilities assumed in a business ~~combinations~~combination are recognized at ~~their~~ fair ~~values~~value as of the acquisition ~~dates. Fair values estimated as part of a business combination are determined using valuation methods and assumptions established by management.~~date.

~~The objective of fair~~Fair value is ~~to use market-based~~determined using different inputs orand assumptions ~~when available, to estimate~~based upon the ~~fair value.~~instrument that is being valued. Where observable market prices from transactions for identical assets or liabilities are not available, we identify ~~what we believe to be~~market prices for similar assets or liabilities. If observable market prices are unavailable or impracticable to obtain for any such similar assets or liabilities, we look to other ~~techniques by obtaining third party quotes or using~~ modeling techniques, ~~such as discounted cash flows, while attempting to utilize market observable assumptions to the extent available~~ which ~~may~~often incorporate unobservable inputs that are inherently subjective and require ~~making a number of~~ significant ~~judgments in the estimation of fair value.~~judgment. Fair value estimates requiring significant judgments are determined using various inputs developed by management with the appropriate skills, understanding and knowledge of the underlying asset or liability ~~for which the fair value is being estimated~~ to ensure the development of fair value estimates is ~~sound.~~reasonable. Typical pricing sources used in estimating fair values include, but are not limited to, active markets with high trading volume, ~~third party~~third-party pricing services, external appraisals, valuation models and commercial and residential evaluation reports. In certain cases, our assessments with respect to assumptions that market participants would make may be inherently difficult to determine, and the

use of different assumptions could result in material changes to these fair value measurements. See Note M in the Notes to Consolidated Financial Statements for additional disclosures regarding fair value.

~~Receivable from and payable to the~~ FDIC ~~for loss share agreements.~~shared-loss payable. The receivable from the FDIC for loss share agreements is measured separately from the related covered assets and is recorded at fair value at the acquisition date using projected cash flows related to the loss share agreements based on the expected reimbursements for losses and expenses at the applicable loss share coverage percentages. The receivable from the FDIC is reviewed and updated quarterly as loss estimates and timing of estimated cash flows related to covered loans and OREO change. Post-acquisition adjustments for covered loans represent the net change in loss estimates related to loans and OREO as a result of changes in expected cash flows and the ALLL related to covered loans. For loans covered by loss share agreements, subsequent decreases in the amount expected to be collected from the borrower or collateral liquidation may result in a provision for loan and lease losses, an increase in the ALLL and a proportional adjustment to the FDIC receivable for the estimated amount to be reimbursed. Subsequent increases in the amount expected to be collected from the borrower or collateral liquidation result in the reversal of any previously recorded provision for loan and lease losses and related ALLL, or prospective adjustment to the accretable yield if no provision for loan and lease losses had been recorded previously. Reversal of previously-established ALLL result in immediate adjustments to the FDIC receivable to remove amounts that were expected to be reimbursed prior to the improvement. For improvements that increase accretable yield, the FDIC receivable is reduced over the shorter of the remaining term of the loss share agreement or the life of the covered loan. Other adjustments to the FDIC receivable result from unexpected recoveries of amounts previously charged off, servicing costs that exceed initial estimates and changes to the estimated fair value of OREO.

Certain ~~loss share~~shared-loss agreements include clawback provisions that require payments to the FDIC if actual losses and expenses do not exceed a calculated amount. Our estimate of the clawback payments based on current loss and expense projections are recorded as a payable to the FDIC. Projected cash flows are discounted to reflect the estimated timing of the payments to the FDIC. See Note UH in the Notes to Consolidated Financial Statements for additional disclosures.

~~Pension~~Defined benefit pension plan assumptions. BancShares has a noncontributory qualified defined benefit pension plan that covers qualifying employees (BancShares plan), and certain legacy Bancorporation employees are covered by a noncontributory qualified defined benefit pension plan (Bancorporation plan). The calculation of the benefit obligations, the future value of plan assets, funded status and related pension expense under the pension plans require the use of actuarial valuation methods and assumptions. The valuations and assumptions used to determine the future value of plan assets and liabilities are subject to management judgment and may differ significantly depending upon the assumptions used. The discount rate used to estimate the present value of the benefits to be paid under the pension plans ~~reflect~~reflects the interest rate that could be obtained for a suitable investment used to fund the benefit ~~obligations.~~obligations, which was 4.38 percent for both the BancShares and Bancorporation plans during 2018, compared to 3.76 percent during 2017. For the calculation of pension expense, the assumed discount rate was ~~4.27~~3.76 percent for ~~BancShares' plan~~both the BancShares and ~~4.27 percent for Bancorporation's plan~~Bancorporation plans during ~~2015,~~2018, compared to ~~4.90 percent and 4.35~~4.30 percent during ~~2014, respectively.~~2017.

We also estimate a long-term rate of return on pension plan assets that is used to estimate the future value of plan assets. We consider such factors as the actual return earned on plan assets, historical returns on the various asset classes in the plans and projections of future returns on various asset classes. The calculation of pension expense was based on an assumed expected long-term return on plan assets of 7.50 percent for both of the BancShares and Bancorporation plans during ~~2015~~2018 and ~~2014.~~2017.

The assumed rate of future compensation increases is reviewed annually based on actual experience and future salary expectations. We used an assumed rate of compensation increase of 4.00 percent for both the BancShares and Bancorporation plans to calculate pension expense during ~~2015~~2018 and ~~2014.~~2017. Assuming other variables remain unchanged, an increase in ~~the rate of~~ future compensation ~~increases~~typically results in higher pension expense for periods ~~following~~subsequent to the ~~increase in the assumed rate of future compensation increases.~~increase. See Note N in the Notes to Consolidated Financial Statements for additional disclosures.

Income taxes. Management estimates income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the amount of assets and liabilities reported in the consolidated financial statements and their respective tax bases. In estimating the liabilities and corresponding expense related to income taxes, management assesses the relative merits and risks of various tax positions considering statutory, judicial and regulatory guidance. Because of the complexity of tax laws and regulations, interpretation is difficult and subject to differing judgments. Accrued income taxes payable represents an estimate of the net amounts due to or from taxing jurisdictions based upon various estimates, interpretations and judgments.

We evaluate our effective tax rate on a quarterly basis based upon the current estimate of net income, the favorable impact of various credits, statutory tax rates expected for the year and the amount of tax liability in each jurisdiction in which we operate. Annually, we file tax returns with each jurisdiction where we have tax nexus and settle our return liabilities.

Changes in estimated income tax liabilities occur periodically due to changes in actual or estimated future tax rates and projections of taxable income, interpretations of tax laws, the complexities of multi-state income tax reporting, the status of

examinations ~~being~~ conducted by various taxing authorities and the impact of newly enacted legislation or guidance as well as income tax accounting pronouncements. See Note P in the Notes to Consolidated Financial Statements for additional disclosures.

CURRENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) ~~2015-10,~~2018-02, ~~Technical Corrections~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

This ASU requires a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate in the Tax Act, which was enacted on December 22, 2017. The Tax Act included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification is the difference between the historical corporate income tax rate and ~~Improvements~~the newly enacted 21 percent corporate income tax rate.

The amendments in this ASU represent changes to clarify the Codification, correct unintended application of guidance and make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, some of the amendments will make the Codification easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the Codification.

~~The transition guidance varies based on the amendments in this ASU. The amendments in this ASU that require transition guidance~~ are effective for ~~all entities for fiscal years, and interim periods within those~~ fiscal years beginning after December 15, ~~2015.~~2018, including interim periods within those fiscal years. Early adoption is ~~permitted, including adoption in an interim period. All other amendments were effective upon issuance.~~permitted. We adopted the ~~amendments~~guidance effective ~~second~~in the first quarter of ~~2015.~~2018. The change in accounting principle was accounted for as a cumulative-effect adjustment to the balance sheet resulting in a $31.3 million increase to retained earnings and a corresponding decrease to AOCI on January 1, 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 employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Employers will present the other components separately from the line item that includes the service cost. In addition, only the service cost component of net benefit cost is eligible for capitalization.

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. We adopted the guidance effective in the first quarter of 2018. The adoption did not have ana material impact on our consolidated financial position or consolidated results of operations.

~~FASB ASU 2015-08,~~ ~~Business Combinations (Topic 805): Pushdown Accounting - Amendments to Securities and Exchange Commission (SEC) Paragraphs Pursuant to Staff Accounting Bulletin No. 115~~

The amendments in this ASU remove references to SEC Staff Accounting Bulletin (SAB) Topic 5.J as the SEC staff previously rescinded its guidance with the issuance of SAB No. 115 when the FASB issued its own pushdown accounting guidance in ASU 2014-17, an amendment we adopted effective fourth quarter of 2014. We adopted the amendments in ASU 2015-08 effective second quarter of 2015. The adoption did not have an impact on our consolidated financial position or consolidated results of operations.

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

This ASU requires a reporting entity to derecognize a mortgage loan and recognize a separate other receivable upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure; (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and (3) the creditor has the ability to recover under that claim and at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.

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

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

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

The accounting changes in this ASU were effective for fiscal years beginning after December 15, 2014. In addition, the disclosures for certain transactions accounted for as a sale were effective for the fiscal period beginning after December 15, 2014, while the disclosures for transactions accounted for as secured borrowings were required to be presented for fiscal periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. We adopted the guidance effective first quarter of 2015.

The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations. The new disclosures required by this ASU are included in Note J in the Notes to Consolidated Financial Statements.

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

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

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

~~Recently Issued Accounting Pronouncements~~

FASB ASU 2016-01, Financial ~~Instruments—Overall~~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.~~disclosure of certain financial instruments. The amendments in this ASU ~~(1)~~(i) require most equity investments to be measured at fair value with changes in fair value recognized in net income; ~~(2)~~(ii) simplify the impairment assessment of equity investments without a readily determinable fair value; ~~(3)~~(iii) 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; (iv) require public business entities to use exit ~~prices,~~price notion, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; ~~(4)~~(v) 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; ~~(5) 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; (6)~~(vi) 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)~~(vii) 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 ~~are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2018.~~

~~FASB ASU 2015-16,~~ ~~Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments~~

This ASU eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination and requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts must be calculated as if the accounting had been completed at the acquisition date.

The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for financial statements that have not been issued. We will adoptadopted the guidance effective in the first quarter of ~~2016 and do not anticipate any impact on our consolidated financial position or consolidated results of operations~~2018. The change in accounting principle was accounted for as a ~~result of adoption.~~

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

~~This ASU simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in~~cumulative-effect adjustment to the balance sheet resulting in an $18.7 million increase to retained earnings and a decrease to AOCI on January 1, 2018. With the adoption of this ASU, equity securities can no longer be classified as available for sale; as such, marketable equity securities are disclosed as a ~~direct deduction from~~separate line item on the ~~carrying amount of debt liability, consistent~~balance sheet with ~~debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.~~

This ASU is effective for interim and annual periods beginning after December 15, 2015 for public business entities, and is to be applied retrospectively. Early adoption is permitted. We will adopt the guidance effectivechanges in the ~~first quarter~~fair value of ~~2016~~equity securities reflected in net income.

For equity investments without a readily determinable fair value, BancShares has elected to measure the equity investments using the measurement alternative that requires BancShares to make a qualitative assessment of whether the investment is impaired at each reporting period. Under the measurement alternative, these investments will be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. If a qualitative assessment indicates that the investment is impaired, BancShares will estimate the investment's fair value in accordance with the Accounting Standards Codification (ASC) 820 and, ~~do not anticipate any impact on our consolidated financial position or consolidated results of operations as a result of adoption.~~

~~FASB ASU 2015-02,~~ ~~Consolidation (Topic 810): Amendments~~if the fair value is less than the investment's carrying value, recognize an impairment loss in net income equal to the ~~Consolidation Analysis~~

~~This ASU improves targeted areas of consolidation guidance for reporting organizations that~~difference between carrying value and fair value. Equity investments without a readily determinable fair value are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard places more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

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

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~~a company 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, which provides a five step model to determine when and how revenue is recognized, also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements.

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. We adopted the guidance effective in the first quarter of 2018. Our revenue is comprised primarily 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 the scope of the guidance are primarily related to cardholder and merchant services income, service charges on deposit accounts, wealth management services income, other service charges and fees, insurance commissions, ATM income, sales of other real estate and other. Based on our overall assessment of revenue streams and review of related contracts affected by the ASU, the adoption of this guidance did not change the method in which we currently recognize revenue.

We also completed an evaluation of the costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Based on this evaluation, we determined that the classification of cardholder and merchant processing costs as well as expenses for cardholder reward programs should be netted against cardholder and merchant services income. We used the full retrospective method of adoption and restated the prior financial statements to net the cardholder and merchant processing costs against the related cardholder and merchant services income. These classification changes resulted in changes to both noninterest income and noninterest expense; however, there was no change to previously reported net income. Merchant processing expenses of $81.3 million and $69.2 million had been reclassified and reported as a component of merchant services income for the years ended December 31, 2017 and December 31, 2016, respectively. For the twelve months ended December 31, 2017, cardholder processing expenses of $27.8 million and cardholder reward programs expense of $10.0 million were reclassified and reported as a component of cardholder services income. For the twelve months ended December 31, 2016, cardholder processing expenses of $20.8 million and cardholder reward programs expense of $10.6 million were reclassified and reported as a component of cardholder services income.

Revenue Recognition

The standard requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. Descriptions of our noninterest revenue-generating activities that are within the scope of the new revenue ASU are broadly segregated as follows:

Cardholder and Merchant Services - These represent interchange fees from customer debit and credit card transactions that are earned at the time a cardholder engages in a transaction with a merchant as well as fees charged to merchants for providing them the ability to accept and process the debit and credit card transaction. Revenue is recognized when the performance obligation has been satisfied, which is upon completion of the card transaction. Additionally, ASU 2014-09 requires costs associated with cardholder and merchant services transactions to be netted against the fee income from such transactions when an entity is acting as an agent in providing services to a customer.

Service Charges on Deposit Accounts - These deposit account-related fees represent monthly account maintenance and transaction-based service fees such as overdraft fees, stop payment fees and charges for issuing cashier's checks and money orders. For account maintenance services, revenue is recognized at the end of the statement period when our performance obligation has been satisfied. All other revenues from transaction-based services are recognized at a point in time when the performance obligation has been completed.

Wealth Management Services - These primarily represent annuity fees, sales commissions, management fees, insurance sales, and trust and asset management fees. The performance obligation for wealth management services is the provision of services to place annuity products issued by the counterparty to investors, and the provision of services to manage the client’s assets, including brokerage custodial and other management services. Revenue from wealth management services is recognized over the period in which services are performed, and is based on a percentage of the value of the assets under management/administration. This revenue is either fixed or variable based on account type, or transaction-based.

Other Service Charges and Fees - These include, but are not limited to, check cashing fees, international banking fees, internet banking fees, wire transfer fees and safe deposit fees. The performance obligation is fulfilled, and revenue is recognized, at the point in time the requested service is provided to the customer.

Insurance Commissions - These represent commissions earned on the issuance of insurance products and services. The performance obligation is generally satisfied upon the issuance of the insurance policy and revenue is recognized when the commission payment is remitted by the insurance carrier or policy holder depending on whether the billing is performed by Bancshares or the carrier.

ATM Income - These represent fees imposed on customers and non-customers for engaging in an ATM transaction. Revenue is recognized at the time of the transaction as the performance obligation of rendering the ATM service has been met.

Sales of Other Real Estate (ORE) - ORE property consists of foreclosed real estate used as collateral for loans, closed branches, land acquired and no longer intended for future use by First Citizens Bank (FCB), and other real estate purchased for resale as ORE. Revenue is generally recognized on the date of sale where the performance obligation of providing access and transferring control of the specified ORE property to the buyer in good faith and good title is satisfied. This is recorded as a component of other noninterest income.

Other - This consists of several forms of recurring revenue such as external rental income, parking income, Federal Home Loan Bank (FHLB) dividends and income earned on changes in the cash surrender value of bank-owned life insurance, all of which are outside the scope of ASU 2014-09. The remaining miscellaneous income is the result of immaterial transactions where revenue is recognized when, or as, the performance obligation is satisfied.

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 (i) expense capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement; (ii) 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; (iii) 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; and (iv) 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 will adopt the amendments in this ASU during the first quarter of 2020. BancShares is currently evaluating the impact this new standard will have on its consolidated financial statements and the magnitude of the impact has not yet been determined.

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 (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public 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.

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 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 ~~periods~~years beginning after December 15, ~~2016. We are currently evaluating~~2018. BancShares 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. 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. The team continues to work on critical activities such as building models, documenting accounting policies, reviewing data quality and implementing a reporting and disclosure solution. BancShares continues to evaluate the impact of the new standard will have on its consolidated financial statements but the magnitude of this impact has not been determined. The final impact will be dependent, among other items, on loan portfolio composition and wecredit quality at the adoption date, as well as economic conditions, financial models used 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 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 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. We will adopt during the first quarter of ~~2018 using one~~2019. 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 ~~two retrospective application methods.~~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. Additionally, adding these assets to our balance sheet will impact our total risk-weighted assets used to determine our regulatory capital levels. Our impact analysis estimates an increase to the Consolidated Balance Sheets ranging between $70.0 million and $80.0 million, as the initial gross up of both assets and liabilities. Capital is expected to be adversely impacted by an estimated three to four basis points. These are preliminary estimates subject to change and will continue to be refined closer to adoption.

EXECUTIVE OVERVIEW

BancShares conducts its banking operations through its wholly owned subsidiary FCB, a state-chartered bank organized under the laws of the state of North Carolina.

BancShares’ earnings and cash flows are primarily derived from our commercial and retail banking activities. We gather deposits from retail and commercial customers and also secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans, ~~and leases,~~ investment securities and overnight investments. We also invest in bank premises, hardware, software, furniture and equipment used to conduct our commercial and retail banking business. We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks. The fees generated from these products and services are a primary source of noninterest income and an essential component of our total revenue.

~~BancShares conducts its banking operations~~

Our strong financial position enables us to pursue growth through ~~its wholly-owned subsidiary First-Citizens Bank & Trust Company (FCB), a state-chartered bank organized under~~strategic acquisitions that enhance organizational value by providing us the ~~laws of the state of North Carolina.~~

~~For the period October 1, 2014 through December 31, 2014, Bancshares also conducted banking activities through First Citizens Bank~~opportunity to grow capital and ~~Trust Company, Inc. (FCB-SC), a subsidiary acquired through the merger of First Citizens Bancorporation, Inc. (Bancorporation). On October 1, 2014, Bancorporation was merged with and~~increase earnings. These transactions allow us to strengthen our presence in existing markets as well as expand our footprint into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. On January 1, 2015, FCB-SC merged with and into FCB. FCB remains the single banking subsidiary of BancShares. Other non-bank subsidiary operations did not have a significant effect on BancShares consolidated financial statements.

On February 13, 2015, FCB entered into an agreement with the Federal Deposit Insurance Corporation (FDIC), as Receiver, to purchase certain assets and assume certain liabilities of Capitol City Bank & Trust (CCBT). As a result of the CCBT transaction, FCB recorded loans with a fair value of $154.5 million and investment securities with a fair value of $35.4 million. The fair value of deposits assumed was $266.4 million. In accordance with the acquisition method of accounting, all assets and liabilities were recorded at their fair value as of the acquisition dates. As a result, an acquisition gain of $42.9 million was recorded in 2015. Per the acquisition method of accounting, these fair values are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to closing date fair values become available.

new markets.

Interest rates have presented significant challenges to commercial banks’ efforts to generate earnings and shareholder value. Our strategy continues to focus on maintaining an interest rate risk profile that will benefit net interest income in a rising rate environment. Management ~~has embarked~~drives to this goal by focusing on ~~several strategic initiatives to better position~~core customer deposits and loans in the ~~company to counter these challenges. The~~targeted interest rate risk profile. Additionally, our initiatives focus on ~~core revenue~~ growth ~~through broader products and services,~~of noninterest income sources, control of noninterest expenses, optimization of our branch network and further enhancements to our ~~technology. Additionally,~~technology and delivery channels.

In lending, we continue to ~~pursue strategic acquisitions~~focus our activities within our core competencies of retail, small business, medical, commercial and ~~mergers to expand our customer base and increase efficiency and productivity.~~

In lending, our revenue generating initiatives concentrate on broadening and diversifying the loan portfolio through loan products with high growth potential. These efforts include expanded product offerings in the commercial real estate ~~construction and non-owner occupied commercial real estate markets. We have also expanded our efforts in non-real estate secured commercial and industrial~~ lending ~~and have enhanced our product menu for high net worth individuals.~~to build a diversified portfolio. Our low to moderate risk appetite continues to govern all lending activities.

Our initiatives also pursue additional ~~non-interest~~noninterest fee income through enhanced credit card offerings and expanded wealth management ~~services~~ and ~~enhanced credit card offerings. In wealth management, we have broadened our products and services to better align with the specialized needs and wants of those customers.~~merchant services. We have redesigned our credit card programs to offer more competitive products, intended to both increase the number of accounts and frequency of card usage. Enhancements include more comprehensive reward programs ~~(our cash back card was released in September of 2015)~~ and improved card benefits. In wealth management, we have broadened our products and services to better align with the specialized needs and desires of those customers.

Management is pursuing opportunities to improve our operational efficiency and increase profitability through expense reductions. Such cost management initiatives include the automation of certain manual processes, elimination of duplicated and outdated systems, and reduction of discretionary spending. We review vendor agreements and larger third party contracts for cost savings. In the third quarter of 2015, we completed the conversion of legacy Bancorporation systems and customer accounts, which included 172 branches in South Carolina and Georgia.

~~We also seek to increase profitability through optimizing our branch network.~~ Our goals are to increase efficiencies and control costs while effectively executing an operating model that best serves our customers’ needs. We seek the appropriate footprint and staffing levels to take efficient advantage of the revenue opportunities in each of our markets.

~~Following a comprehensive evaluation of~~ Management is pursuing opportunities to improve our ~~core technology systems~~operational efficiency and ~~related business processes, we concluded that significant investments were required to ensure we are able to meet changing business requirements and to support a growing organization. The~~increase profitability through expense reductions, while continuing enterprise sustainability projects to ~~modernize our~~stabilize the operating environment. Such initiatives include the automation of certain manual processes, elimination of duplicated and outdated systems, enhancements to existing technology and ~~associated facilities began in 2013~~implementation of new digital technologies, reduction of discretionary spending and ~~have been substantially completed at the end of 2015. The projects strengthened our business continuity~~actively managing personnel expenses. We review vendor agreements and disaster recovery efforts and ultimately reduced operational risk. The magnitude and scope of this effort was significant with total costs of approximately $115.0 million, and we expect operating expenseslarger third party contracts for cost savings. We also seek to increase ~~as the completed projects are amortized over their expected useful lives.~~profitability through optimizing our branch network.

Recent Economic and Industry Developments

Various external factors influence the focus of our business efforts and the results of our operations can change significantly based on those external factors. Based on the latest real gross domestic product (GDP) information available, the Bureau of Economic Analysis’ ~~advance~~revised estimate of ~~fourth~~third quarter ~~2015~~2018 GDP growth ~~is 0.7~~was 3.4 percent, ~~showing less growth compared to the 2.0~~down from 4.2 percent ~~growth during the third quarter of 2015. The estimated decline in real~~ GDP growth in the ~~fourth~~second quarter ~~was due to~~2018. The estimated real GDP decline in the third quarter primarily reflected a ~~drop~~downturn in exports and ~~slowed consumer spending. Fourth quarter results indicated positive contributions from residential~~decelerations in nonresidential fixed investments and ~~federal government spending. Consumer spending also positively contributed to fourth~~in personal consumption expenditures. Imports increased in the third quarter ~~GDP growth although at a lower rate~~after decreasing in ~~comparison to~~ the ~~prior quarter. For all of 2015, the economy grew~~second. These movements were partly offset by ~~2.4 percent, matching 2014 growth.~~an upturn in private inventory investments.

The U.S. unemployment rate dropped from ~~5.6~~4.1 percentin December 2017 to 3.9 percent in December ~~2014 to 5.0 percent in December 2015, the lowest rate since April 2008. However, according~~2018. According to the U.S. Department of Labor, nonfarm payroll employment growth in ~~2015~~2018 was 2.7 million, compared to ~~3.1~~2.2 million in ~~2014.~~2017.

The Federal Reserve’s Federal Open Market Committee (FOMC) indicated in the fourth quarter that ~~“economic~~the U.S. labor market continued to strengthen and economic activity has been ~~expanding~~rising at a ~~moderate pace.”~~strong rate. In ~~light~~view of ~~the cumulative progress made,~~realized and expected labor market conditions and inflation, the FOMC decided to raise the ~~target range for the~~ federal funds rate target range by another 25 basis ~~points.~~points to 2.25 to 2.50 percent. In determining the timing and size of future adjustments to the target range for the federal funds rate, the FOMC will assess realized and expected economic conditions relative to its objectives of maximum employment and 22.0 percent inflation. ~~The FOMC expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate in the future.~~

The ~~housing market remained solid during~~U.S. Census Bureau and the ~~year, fueled by low mortgage interest rates, economic growth~~Department of Housing and ~~job creation. An estimated 501,000~~Urban Development's latest estimate for sales of new single-family homes ~~were purchased~~ in ~~2015, up 14.5~~November 2018 was at a seasonally adjusted annual rate of 657,000, down 7.7 percent from the ~~2014 figure~~November 2017 estimate of ~~437,000.~~712,000. Purchases of existing homes ~~were at~~in 2018 are also down 10.3 percent from a ~~seasonally adjusted rate of 5.5 million, up 7.7 percent, compared to~~year ago.

Despite the ~~2014 rate of 5.1 million.~~

~~The~~mixed economic data, the trends in the banking industry are ~~similar to those of the broader economy~~very strong as shown in the latest national banking results from the third quarter of ~~2015.~~2018. FDIC-insured institutions reported a ~~5.1~~29.3 percent increase in ~~aggregate~~ net income compared to the third quarter of ~~2014, mainly attributable to an increase~~2017 as a result of growth in net ~~operating revenue~~interest income, higher noninterest income and a ~~2.9~~lower effective tax rate due to the Tax Cuts and Jobs Act of 2017 (Tax Act). Using the higher effective tax rate before the enactment of the Tax Act, estimated net income for the third quarter of 2018 would have increased 13.9 percent ~~decline~~compared to the same period in 2017. Loan-loss provisions declined by 12.6 percent while noninterest ~~expense. Across the~~expense rose by 4.0 percent from a year earlier. Banking industry ~~bank~~ average net interest margin ~~declined to 3.08~~was 3.45 percent in the third quarter of ~~2015~~2018, up from ~~3.15~~3.30 percent in the same quarter a year ago ~~and~~as average asset yields outpaced average funding costs. Total loans increased ~~slightly from 3.06~~by 4.0 percent inover the second quarter of 2015. This was the second quarter in a row that the industry net interest margin was higher than the 30-year low of 3.02 percent, reached in the first quarter of 2015. Despite the net interest margin decline, 58.9 percent of banks reported year-over-yearpast twelve months primarily due to growth in commercial and industrial loans as well as consumer loans, which includes credit card balances.

~~quarterly earnings. Net charge-offs and delinquent loans and lease balances continue to decline across most major loan categories.~~

~~EARNINGS~~FINANCIAL PERFORMANCE SUMMARY

For the year ended December 31, ~~2015,~~2018, net income was ~~$210.4~~$400.3 million, or ~~$17.52~~$33.53 per share, compared to ~~$138.6~~$323.8 million, or ~~$13.56~~$26.96 per share, during ~~2014.~~2017. The ~~$71.8~~return on average assets was 1.15 percent during 2018, compared to 0.94 percent during 2017. The return on average shareholders' equity was 11.69 percent and 10.10 percent for the respective periods. The $76.6 million, or ~~51.8~~23.6 percent increase in net income was primarily ~~due to higher net interest income resulting from strong core loan growth,~~ the ~~full year impact~~result of the Bancorporation merger and the gain from the acquisition of CCBT. The impacts of the October 1, 2014 Bancorporation merger and the CCBT acquisition, which occurred February 13, 2015, are reflected in Bancshares’ financial results from the respective acquisition dates.following:

Additionally, the Bancorporation merger positively impacted the balance sheet, adding investment securities of $2.01 billion, loans and leases of $4.49 billion, and deposits of $7.17 billion as of the October 1, 2014 acquisition date.

~~Key financial drivers for 2015 include:~~

~~Loan growth was strong during 2015, as net balances increased by $1.47 billion to $20.24 billion, primarily driven by originated portfolio growth.~~

~~Deposit growth continued in 2015, up $1.25 billion to $26.93 billion, primarily due to organic growth in low-cost demand accounts.~~

~~The yield on the investment portfolio continued to improve, while deposit funding costs remained low.~~

~~BancShares recorded a gain of $42.9 million recognized in connection with the CCBT acquisition.~~

~~Net charge-offs were $18.9 million, or 0.10 percent of average loans and leases in 2015, compared to $29.6 million, or 0.20 percent during 2014.~~

BancShares implemented Basel III guidelines effective January 1, 2015. BancShares remains well capitalized with a leverage capital ratio of 8.96 percent, Tier 1 risk-based capital of 12.65 percent, common equity Tier 1 ratio of 12.51 percent and total risk-based capital ratio of 14.03 percent at December 31, 2015.

The return on average assets was 0.68 percent during 2015, compared to 0.57 percent during 2014. The return on average shareholders' equity was 7.52 percent and 6.14 percent for the respective periods.Income Statement Highlights

Net interest income for the year ended ~~December 31, 2015~~2018 increased ~~by $214.8~~$149.0 million, or ~~30.3 percent. Interest income was up $208.8 million benefiting from a full~~by 14.1 percent, compared to the year ~~impact of the Bancorporation merger, core originated loan growth and increased investment portfolio yield.~~ended 2017. The ~~year-to-date~~ taxable-equivalent net interest margin was 3.69 percent for ~~2015 was 3.22 percent, compared to 3.21 percent during 2014. The margin improvement was primarily due to originated~~the year ended 2018, an increase of 39 basis points from the year ended 2017. These increases were driven by loan growth, ~~higher~~increases in both loan and investment ~~securities~~ yields, and lower ~~funding costs, partially offset by loan yield compression and continued PCI loan portfolio runoff.~~debt balances.

BancShares recorded net provision expense ~~of $20.7 million~~ for loan and lease losses ~~for the full year~~ of ~~2015,~~$28.5 million in 2018, compared to ~~$0.6~~$25.7 million ~~net provision expense for 2014.~~in 2017. The net provision expense on non-PCI loans ~~and leases~~ was ~~$22.9~~$29.2 million for ~~2015,~~2018, compared to ~~$15.3~~$29.1 million ~~in 2014. The PCI loan portfolio~~ net provision expense in 2017. Provision expense remained relatively stable due to strong credit quality, offset by loan growth. The net charge-off to average Non-PCI loans was ~~$2.3 million~~0.11% for the year, up 1 basis point from 2017.

Noninterest income for the year ended ~~2015, compared to~~2018 totaled $400.1 million, a ~~net provision credit~~decrease of ~~$14.6~~$121.8 million, ~~during the same period of 2014.~~

Year-to-date, noninterest income was $467.1 million for 2015, compared to $343.2 million for 2014. The increase in noninterest income was a result of the full year impact of the Bancorporation merger, $42.9 million gain recognizedor 23.34%, from the ~~CCBT~~prior year. The decrease was primarily due to acquisition ~~and~~ gains ~~on sales~~ of ~~securities of $10.8 million.~~$134.7 million recognized in 2017 that did not occur in 2018. Noninterest income ~~was also positively impacted~~generated from our fee-income producing lines of business increased by ~~a $13.1~~$19.8 million, ~~reduction in FDIC receivable adjustments, higher recoveries of PCI loans previously charged off, an increase in mortgage income,~~led by wealth services and ~~higher merchant~~bankcard lines which increased $11.2 million and cardholder services income. These increases were offset by a decline in fees from processing services as substantially all fees recorded in 2014 related to payments received from Bancorporation prior to the merger and a $29.1$7.9 million, ~~gain recognized in 2014 on Bancorporation shares of stock owned by BancShares that were canceled on the merger date.~~respectively.

Noninterest expense was ~~$1.04~~$1.08 billion for the year ended December 31, ~~2015,~~2018, compared to ~~$849.1 million~~$1.01 billion for ~~2014.~~the same period in 2017. The increase was ~~a result of the full year impact of the Bancorporation merger, higher incentives, pension costs~~primarily attributable to personnel, net occupancy and ~~core deposit intangible amortization, offset by lower foreclosure-related~~furniture and ~~collection expenses.~~equipment expense.

Income tax expense was ~~$122.0~~$103.3 million and ~~$65.0~~$219.9 million for the years ended ~~2015~~2018 and ~~2014,~~2017, respectively. The decrease in 2018 was primarily due to the decrease in the federal corporate tax rate from 35 percent to 21 percent and a $15.7 million tax benefit recorded in 2018, both as a result of the Tax Act. Income tax expense for 2017 also included additional provisional tax expense of $25.8 million primarily to re-measure the deferred tax assets at the lower federal corporate tax rate.

Balance Sheet Highlights

Loan ~~balances~~growth was strong during 2018, as loans increased by ~~a net $1.47~~$1.93 billion, or ~~7.8~~by 8.2 percent ~~since December 31, 2014. Growth was~~to $25.52 billion, primarily driven by ~~$1.71~~originated portfolio growth and net loans acquired from HomeBancorp, Capital Commerce and Palmetto Heritage. Excluding current year acquired loans of $798.7 million, total loans increased by $1.13 billion, ~~of net organic growth in the non-PCI portfolio. The PCI portfolio declined during the year by $236.0 million.~~or 4.8 percent.

The allowance for loan and lease losses as a percentage of total loans was ~~1.02~~0.88 percent at December 31, ~~2015~~2018, compared to ~~1.09~~0.94 percent at December 31, ~~2014. The decline in the allowance ratio was due primarily to continued credit quality improvement. Net charge-offs declined $10.7 million from $29.6 million in 2014 to $18.9 million in 2015. As of~~2017. At December 31, ~~2015,~~2018, BancShares’ nonperforming assets, including nonaccrual loans and OREO, ~~declined $1.9~~decreased $10.4 million to ~~$169.0~~$133.9 million from ~~$170.9~~$144.3 million at December 31, ~~2014.~~2017.

~~At December 31, 2015, total deposits were $26.93~~Deposit growth continued in 2018, up $1.41 billion, ~~an increase of $1.25~~or by 4.8 percent to $30.67 billion, ~~since December 31, 2014~~ primarily due to organic growth ~~in demand, checking~~of $675.7 million and the addition of deposit balances from the HomeBancorp, Capital Commerce and Palmetto Heritage acquisitions of $730.5 million.

Capital Highlights

For the full year 2018, we returned $182.6 million of capital to shareholders through repurchases of 382,000 shares of class A common stock for $165.3 million and cash dividends of $17.2 million.

Common shareholders' equity increased to $3.49 billion on December 31, 2018, compared to$3.33 billion on December 31, 2017.

BancShares remained well-capitalized at December 31, 2018, under Basel III capital requirements with ~~interest~~a total risk-based capital ratio of 13.99 percent, Tier 1 risk based capital ratio and ~~savings accounts, offset by runoff in time deposits.~~common Tier 1 ratio of 12.67 percent and leverage capital ratio of 9.77 percent.

~~SUPERVISION AND REGULATION~~

~~The Dodd-Frank Act mandated~~BUSINESS COMBINATIONS

FCB has evaluated the financial statement significance for all business combinations that ~~stress tests~~were completed during 2018 and 2017. FCB has concluded that the completed business combinations noted below are not material to Bancshares' financial statements, individually or in aggregate, and therefore, pro forma financial data has not been not included.

First South Bancorp, Inc.

On January 10, 2019, FCB and First South Bancorp, Inc. (First South Bancorp) entered into a definitive merger agreement for the acquisition by FCB 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 will be developed and performed to ensure that financial institutions have sufficient capital to absorb losses and support operations during multiple economic and shock scenarios. Bank holding companies with total consolidated assets between $10 billion and $50 billion, including BancShares, will undergo annual company-run stress tests. As directed by the Federal Reserve, summaries of BancShares’ results in the severely adverse stress tests are availablepaid to the ~~public.~~shareholders of First South Bancorp for each share of common stock, totaling approximately $37.5 million. The ~~results~~total consideration assumes the conversion of ~~stress testing activities~~all Series A preferred shares into common stock. The transaction is anticipated to close during the second quarter of 2019, subject to the receipt of regulatory approvals and the approval of First South Bancorp's shareholders, and will be ~~considered~~accounted for under the acquisition method of accounting. The merger will allow FCB to expand its presence and enhance banking efforts in ~~combination with other risk management and monitoring practices as part of our risk management program.~~

~~The Dodd-Frank Act also imposed new regulatory capital requirements for banks which has resulted in the disallowance of qualified trust preferred capital securities as Tier 1 capital. As of~~ ~~December 31, 2015~~, BancShares had $128.5 million in trust preferred capital securities that were outstanding and, based on the Inter-Agency Capital Rule Notice, 75 percent, or $96.4 million of these trust preferred capital securities were excluded from Tier 1 capital beginning January 1, 2015, with the remaining 25 percent, or $32.1 million, to be excluded beginning January 1, 2016.

In July 2013, Bank regulatory agencies approved new global regulatory capital guidelines (Basel III) aimed at strengthening existing capital requirements for bank holding companies through a combination of higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure. BancShares implemented the requirements of Basel III effective January 1, 2015, subject to a transition period for several aspects of the rule. ~~Table 2~~ ~~describes the minimum and well-capitalized requirements for the transitional period beginning during 2016 and the fully-phased-in requirements that become effective during 2019.~~South Carolina. As of December 31, ~~2015, BancShares' common equity Tier 1 ratio, was 12.51 percent, compared~~2018, First South Bancorp reported $238.5 million in consolidated assets, $180.9 million in loans and $204.1 million in deposits.

Biscayne Bancshares, Inc.

On November 15, 2018, FCB and Biscayne Bancshares, Inc. (Biscayne Bancshares) entered into a definitive merger agreement for the acquisition by FCB of Coconut Grove, Florida-based Biscayne Bancshares and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 per share will be paid to the ~~fully-phased~~shareholders of Biscayne Bancshares for each share of common stock, totaling approximately $118.7 million. The transaction is expected to close during the second quarter of 2019, subject to the receipt of regulatory approvals, and will be accounted for under the acquisition method of accounting. The merger will allow FCB to expand its presence and enhance banking efforts in ~~well-capitalized minimum~~South Florida. As of ~~9.00 percent, which includes the 2.50 percent minimum conservation buffer.~~December 31, 2018, Biscayne Bancshares reported $1.01 billion in consolidated assets, $850.3 million in loans and $746.4 million in deposits.

Management is not aware of any further recommendations or proposals by regulatory authorities that, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital ratios or results of operations.Palmetto Heritage Bancshares, Inc.

~~Table 2~~

~~BASEL III CAPITAL REQUIREMENTS~~

Basel III minimum requirement
2016 Basel III well-capitalized
2016 Basel III minimum requirement
2019 Basel III well-capitalized
2019
Leverage ratio 4.00% 5.00% 4.00% 5.00%
Common equity Tier 1 4.50 6.50 4.50 6.50
Common equity Tier 1 plus conservation buffer 5.13 7.13 7.00 9.00
Tier 1 capital ratio 6.00 8.00 6.00 8.00
Tier 1 capital ratio plus conservation buffer 6.63 8.63 8.50 10.50
Total capital ratio 8.00 10.00 8.00 10.00
Total capital ratio plus conservation buffer 8.63 10.63 10.50 12.50

~~Although we are unable to control~~On November 1, 2018, FCB completed the ~~external factors that influence our business, by maintaining high levels~~merger of ~~balance sheet liquidity, prudently managing our interest rate exposures, ensuring our capital positions remain strong~~Pawleys Island, South Carolina-based Palmetto Heritage Bancshares, Inc. (Palmetto Heritage) and actively monitoring asset quality, we seek to minimize the potentially adverse risks of unforeseen and unfavorable economic trends and take advantage of favorable economic conditions and opportunities when appropriate.

~~BUSINESS COMBINATIONS~~

~~Capitol City~~its subsidiary, Palmetto Heritage Bank & Trust, ~~Company~~

~~In February 2015, FCB entered~~ into anFCB. Under the terms of the agreement, cash consideration of $135.00 per share was paid to the shareholders of Palmetto Heritage for each share of Palmetto Heritage's common stock, with ~~the FDIC to purchase certain assets and assume certain liabilities~~total consideration paid of ~~CCBT.~~$30.4 million. The ~~transaction~~merger allowed FCB to expand its presence and enhance banking efforts in ~~Georgia as CCBT operated eight branches in Atlanta, Stone Mountain, Albany, Augusta and Savannah. In June of 2015, FCB closed one of~~ the ~~branches in Atlanta. This is an FDIC-assisted transaction; however, it has no loss share agreement.~~South Carolina coastal markets.

The ~~CCBT~~Palmetto Heritage 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.

~~During the second quarter~~ As of ~~2015, adjustments were made~~December 31, 2018, there have been no refinements to the ~~acquisition~~ fair ~~values primarily based upon updated collateral valuations resulting~~value of these assets acquired and liabilities assumed.

The fair value of the assets acquired was $162.2 million, including $131.3 million in ~~an increase~~Non-Purchased Credit Impaired (Non-PCI) loans, $3.9 million in Purchased Credit Impaired (PCI) Loans and $1.7 million in a core deposit intangible. Liabilities assumed were $149.3 million, of ~~$5.4~~which $124.9 million ~~to the gain on acquisition. These adjustments~~ were ~~applied retroactively to the first quarter~~deposits. As a result of ~~2015 and brought the total gain on~~ the transaction, ~~to $42.9~~FCB recorded $17.5 million ~~which is included in noninterest income on~~of goodwill. The amount of goodwill represents the ~~Consolidated Statements of Income. The total after-tax impact~~excess purchase price over the estimated fair value of the ~~gain was $26.4 million.~~net assets acquired. The premium paid reflects the increased market share and related synergies that are expected to result from the acquisition. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a qualified stock purchase.

Based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations, the acquired loans were separated into loans with evidence of credit deterioration, which are accounted for under ASC 310-30 (PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (non-PCI loans).

Table 32 provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair ~~values as of the acquisition date.~~values.

Table 32

~~CAPITOL CITY~~PALMETTO HERITAGE PURCHASE PRICE, NET ASSETS ACQUIRED AND NET LIABILITIES ASSUMED


(Dollars in thousands)	As recorded by FCB			As recorded by FCB
Purchase Price						$	30,426
Assets
Cash and cash equivalents	$	19,622
Cash and due from banks				$	6,418
Investment securities	35,413			4,549
Loans	154,496			135,146
Premises and equipment				5,369
Other real estate owned				2,319
Income earned not collected				531
Intangible assets	690			1,706
Other assets	1,714			6,210
Total assets acquired	211,935
Fair value of assets acquired				162,248
Liabilities
Deposits	266,352			124,892
Short-term borrowings	5,501
Accrued interest payable				177
Borrowings				24,000
Other liabilities	667			203
Total liabilities assumed	272,520
Fair value of net liabilities assumed	(60,585		)
Cash received from FDIC	103,515
Gain on acquisition of CCBT	$	42,930
Fair value of liabilities assumed				$	149,272
Fair value of net assets assumed						12,976
Goodwill recorded for Palmetto Heritage						$	17,450

Merger-related expenses of ~~$1.9 million~~$546 thousand from the Palmetto Heritage transaction were recorded ~~for the CCBT transaction~~ in the Consolidated ~~Statement~~Statements of Income for the year ended December 31, ~~2015.~~2018. Loan-related interest income generated from ~~CCBT~~Palmetto Heritage was approximately ~~$8.3~~$1.2 million ~~for~~since the ~~year ended December 31, 2015.~~acquisition date.

~~First Citizens Bancorporation,~~

Capital Commerce Bancorp, Inc. ~~and First Citizens Bank and Trust Company, Inc.~~

On October ~~1, 2014, BancShares~~2, 2018, FCB completed the merger of ~~Bancorporation with~~Milwaukee, Wisconsin-based Capital Commerce Bancorp, Inc. (Capital Commerce) and its subsidiary, Securant Bank & Trust, into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. FCB-SC merged with and into FCB on January 1, 2015. The conversion of systems and customer accounts acquired from Bancorporation was completed in the third quarter of 2015 which included the systems integration of 172 branches in South Carolina and Georgia.

FCB. Under the terms of the merger agreement, cash consideration of $4.75 per share was paid to the shareholders of Capital Commerce for each share of ~~Bancorporation~~Capital Commerce's common stock, ~~converted into the right to receive 4.00 shares~~with total consideration paid of BancShares' Class A common stock and $50.00 cash, unless the holder elected for each share to be converted into the right to receive 3.58 shares of BancShares' Class A common stock and 0.42 shares of BancShares' Class B common stock. BancShares issued 2,586,762 Class A common shares at a fair value of $560.4 million and 18,202 Class B common shares at a fair value of $3.9 million to Bancorporation shareholders. Also, cash paid to Bancorporation shareholders was $30.4 million. At the time of the merger, BancShares owned 32,042 shares of common stock in Bancorporation with an approximate fair value of $29.6$28.1 million. The ~~fair value of common stock owned by BancShares~~merger allowed FCB to expand its presence and enhance banking efforts in ~~Bancorporation was considered part of~~ the ~~purchase price, and the shares ceased to exist after completion of the merger.~~Milwaukee market.

~~In accordance with~~The Capital Commerce transaction was accounted for under the acquisition method of accounting ~~all~~and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values ~~as of~~on the acquisition date. ~~Per the acquisition method of accounting, these fair~~Fair values ~~were~~are preliminary and subject to refinement for up to one year after the closing date of the acquisition ~~date.~~as additional information regarding closing date fair values becomes available. As of December 31, 2018, there have been no refinements to the fair value of these assets acquired and liabilities assumed.

The fair value of the assets acquired was $221.9 million, including $173.4 million in non-PCI loans, $10.8 million in PCI loans and $2.7 million in a core deposit intangible. Liabilities assumed were $204.5 million, of which $172.4 million were deposits. As a result of the ~~Bancorporation~~ transaction, ~~during~~FCB recorded $10.7 million of goodwill. The amount of goodwill represents the ~~4th quarter of 2014, BancShares recorded loans with a~~excess purchase price over the estimated fair value of ~~$4.49 billion, investment securities~~the net assets acquired. The premium paid reflects the increased market share and related synergies that are expected to result from the acquisition. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a qualified stock purchase.

Based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations, the acquired loans were separated into loans with ~~a fair value~~evidence of ~~$2.01 billion~~credit deterioration, which are accounted for under ASC 310-30 (PCI loans), and ~~assumed deposits with a fair value of $7.17 billion. BancShares recorded $4.2 million of goodwill and $109.4 million of identifiable intangible assets of~~loans that do not meet this criteria, which ~~$88.0 million was core deposit intangibles.~~are accounted for under ASC 310-20 (non-PCI loans).

Table 43 ~~summarizes~~provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values.

Table 3

CAPITAL COMMERCE PURCHASE PRICE, NET ASSETS ACQUIRED AND NET LIABILITIES ASSUMED



(Dollars in thousands)	As recorded by FCB
Purchase Price			$	28,063
Assets
Cash and due from banks	$	3,244
Overnight investments	1,065
Investment securities	17,865
Loans	184,126
Premises and equipment	3,773
Income earned not collected	621
Intangible assets	2,680
Other assets	8,513
Fair value of assets acquired	221,887
Liabilities
Deposits	172,387
Accrued interest payable	263
Borrowings	30,624
Other liabilities	1,230
Fair value of liabilities assumed	$	204,504
Fair value of net assets assumed			17,383
Goodwill recorded for Capital Commerce			$	10,680

Merger-related expenses of $1.2 million from the Capital Commerce transaction were recorded in the Consolidated Statements of Income for the year ended December 31, 2018. Loan-related interest income generated from Capital Commerce was approximately $3.2 million since the acquisition date.

HomeBancorp, Inc.

On May 1, 2018, FCB completed the merger of Tampa, Florida-based HomeBancorp, Inc. (HomeBancorp) and its subsidiary, HomeBanc, into FCB. Under the terms of the merger agreement, cash consideration of $15.03 per share was paid to the shareholders of HomeBancorp for each share of HomeBancorp's common stock, with total consideration paid of $112.7 million. The merger allowed FCB to expand its footprint in Florida by entering into the Tampa and Orlando markets.

The HomeBancorp 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. As of December 31, 2018, there have been no refinements to the fair value of these assets acquired and liabilities assumed.

The fair value of the assets acquired was $842.7 million, including $550.6 million in non-PCI loans, $15.6 million in PCI loans and $9.9 million in a core deposit intangible. Liabilities assumed were $787.7 million, of which $619.6 million were deposits. As a result of the transaction, FCB recorded $57.6 million of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies that are expected to result from the acquisition. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a qualified stock purchase.

Based on such credit factors as past due status, nonaccrual status, loan-to-value, credit scores and other quantitative and qualitative considerations, the acquired loans were separated into loans with evidence of credit deterioration, which are accounted for under ASC 310-30 (PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (non-PCI loans).

Table 4 provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values.

Table 4

~~BANCORPORATION~~HOMEBANCORP PURCHASE PRICE, NET ASSETS ACQUIRED AND NET LIABILITIES ASSUMED

(dollars in thousands)
Purchase Price
Value of shares of BancShares Class A common stock issued to Bancorporation shareholders $ 560,370
Value of shares of BancShares Class B common stock issued to Bancorporation shareholders 3,877
Cash paid to Bancorporation shareholders 30,394
Fair value of Bancorporation shares owned by BancShares 29,551
Total purchase price 624,192

Assets
Cash and due from banks $ 194,570

Overnight investments 1,087,325

Investment securities available for sale 2,011,263

Loans held for sale 30,997

Loans and leases 4,491,067

Premises and equipment 238,646

Other real estate owned 35,344

Income earned not collected 15,266

FDIC loss share receivable 5,106

Other intangible assets 109,416

Other assets 56,367

Total assets acquired 8,275,367

Liabilities
Deposits 7,174,817

Short-term borrowings 295,681

Long-term obligations 124,852

FDIC loss share payable 224

Other liabilities 59,834

Total liabilities assumed $ 7,655,408

Retirement of BancShares common stock acquired from Bancorporation

Fair value of net assets acquired 619,959
Goodwill recorded for Bancorporation $ 4,233



(Dollars in thousands)	As recorded by FCB
Purchase Price			$	112,657
Assets
Cash and due from banks	$	6,359
Overnight investments	10,393
Investment securities	200,918
Loans held for sale	791
Loans	566,173
Premises and equipment	6,542
Other real estate owned	2,135
Income earned not collected	2,717
Intangible assets	13,206
Other assets	33,459
Fair value of assets acquired	842,693
Liabilities
Deposits	619,589
Accrued interest payable	1,020
Borrowings	161,917
Other liabilities	5,126
Fair value of liabilities assumed	$	787,652
Fair value of net assets assumed			55,041
Goodwill recorded for HomeBancorp			$	57,616

~~BancShares incurred merger-related~~

Merger-related expenses of ~~$12.3~~ $2.3 million ~~and~~ ~~$8.0 million~~from the HomeBancorp transaction were recorded in the Consolidated Statements of Income for the ~~years~~year ended December 31, ~~2015 and 2014, respectively, for~~2018. Loan-related interest income generated from HomeBancorp was approximately $17.4 million since the Bancorporation transaction. Total cumulative merger-related costs incurred through December 31, 2015 were $20.3 million for this transaction. As of December 31, 2015, all merger related activities are complete and no further merger-related expenses are anticipated.acquisition date.

Guaranty Bank

On May 5, 2017, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of Guaranty Bank (Guaranty) of Milwaukee, Wisconsin. The amount of goodwill recorded from the Bancorporation merger reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets acquired. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a tax-free exchange.

~~1st Financial Services Corporation and Mountain 1st Bank & Trust Company~~

~~On January 1, 2014, FCB completed its merger with 1~~^st ~~Financial Services Corporation (1~~^st ~~Financial) and its wholly-owned banking subsidiary Mountain 1~~^st ~~Bank & Trust Company. FCB paid $10.0 million to acquire 1~~^st ~~Financial, including $8.0~~

~~million to acquire and subsequently retire the 1~~^st ~~Financial securities that had been issued under the Troubled Asset Relief Program.~~

~~The 1~~^st ~~Financial~~Guaranty transaction was accounted for ~~using~~under the acquisition method of accounting and, ~~as such,~~accordingly, assets acquired and liabilities assumed were recorded at their estimated fair ~~value~~values on the acquisition date. ~~Assets acquired, excluding goodwill,~~These fair values were ~~$612.9 million, including $307.9 million in loans and leases, $237.4 million~~subject to refinement for up to one year after the closing date of investment securities available for sale, $28.2 million in cash and $3.8 million in core deposit intangibles. Liabilities assumed were $635.8 million, including $631.9 million of deposits. Goodwill of $32.9 million was recorded equaling the ~~excess purchase price over~~acquisition. The measurement period ended on May 4, 2018, with no material changes to the ~~estimated~~original calculated fair values.

The fair value of the ~~net~~ assets acquired was $875.1 million, including $574.6 million in non-PCI loans, $114.5 million in PCI loans and $9.9 million in a core deposit intangible. Liabilities assumed were $982.7 million, of which $982.3 million were deposits. The total gain on the transaction was $122.7 million which is included in noninterest income in the Consolidated Statements of Income.

Merger-related expenses of $2.3 million and $7.4 million were recorded in the Consolidated Statements of Income for the years ended December 31, 2018, and December 31, 2017, respectively. Loan-related interest income generated from Guaranty was approximately $17.3 million and $20.5 million for the years ended December 31, 2018, and December 31, 2017, respectively. While the acquisition gain of $122.7 million was significant for 2017, the ongoing contribution of this transaction to BancShares' financial statements is not considered material, and therefore pro forma financial data is not included.

Based on such credit factors as past due status, nonaccrual status, loan-to-value, credit scores, and other quantitative and qualitative considerations, the acquired loans were separated into loans with evidence of credit deterioration, which are accounted for under ASC 310-30 (PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (non-PCI loans).

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 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. These fair values were subject to refinement for up to one year after the closing date ~~and is deductible for income tax purposes as~~of the ~~1st Financial transaction is a taxable asset~~ acquisition.

~~Merger costs related~~ The measurement period ended on January 12, 2018, with no material changes to the ~~1st Financial~~original calculated fair values.

The fair value of the assets acquired was $111.6 million, including $85.1 million in PCI loans and $850 thousand in a core deposit intangible. Liabilities assumed were $121.8 million, of which the majority were deposits. The total gain on the transaction was $12.0 million, which is included in noninterest income in the Consolidated Statements of Income.

There were ~~$5.0 million~~no merger-related expenses recorded for the year ended December 31, ~~2014.~~2018, and $1.2 million were recorded in the Consolidated Statements of Income for the year ended December 31, 2017. Loan-related interest income generated from HCB was approximately $3.7 million and $3.8 million for the years ended December 31, 2018, and December 31, 2017, respectively.

~~Certain~~All loans resulting from the ~~CCBT, 1st Financial and Bancorporation transactions~~HCB transaction were ~~recognized upon~~recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI under ASC 310-30.

~~Additional information related to the mergers listed above is included in Note B to the Consolidated Financial Statements.~~

FDIC-ASSISTED TRANSACTIONS

As at December 31, 2018 and 2017, BancShares completed ~~six~~fourteen FDIC-assisted transactions ~~during the period beginning in 2009 through 2011, and it~~since 2009. The carrying value of FDIC-assisted acquired CCBT in its seventh such transaction during the first quarter of 2015. These transactions provided us significant growth opportunities, have continued to provide significant contributions to our results of operations and have allowed us to increase our presence in existing markets and expand our banking presence to adjacent markets. Prior to its merger into BancShares, Bancorporation completed three FDIC-assisted transactions: Georgian Bank of Atlanta, Georgia (acquired in 2009); Williamsburg First National Bank of Williamsburg, South Carolina (acquired in 2010); and Atlantic Bank & Trust of Charleston, South Carolina (acquired in 2011).loans at December 31, 2018 was approximately $781.4 million. Nine of the ~~ten~~fourteen FDIC-assisted transactions ~~(including the three completed by Bancorporation)~~ included ~~loss share~~shared-loss agreements that, for their terms, protect us from a substantial portion of the credit and asset quality risk we would otherwise incur.

At December 31, 2018, shared-loss protection remains for single family residential loans acquired in the amount of $55.6 million. Cumulative losses incurred through December 31, 2018, totaled $1.20 billion. Cumulative amounts reimbursed by the FDIC through December 31, 2018, totaled $674.8 million. The ~~CCBT transaction did not~~shared-loss agreements for two FDIC-assisted transactions include provisions related to payments that may be owed to the FDIC at the termination of the agreements (clawback liability). The clawback liability represents a ~~loss share agreement.~~payment by BancShares to the FDIC if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition. As of December 31, 2018, and December 31, 2017, the estimated clawback liability was $105.6 million and $101.3 million, respectively. The clawback liability dates are March 2020 and March 2021.

Table 5 provides ~~information regarding loans acquired~~changes in the ~~ten FDIC-assisted transactions consummated during 2015, 2011, 2010~~FDIC shared-loss payable (clawback liability) for the years ended December 31, 2018 and ~~2009.~~December 31, 2017.

Table 5

~~FDIC-ASSISTED TRANSACTIONS~~FDIC CLAWBACK LIABILITY

Entity
Date of
transaction
Fair value at acquisition date
(Dollars in thousands)
Capitol City Bank & Trust (CCBT) February 13, 2015 $ 154,496
Colorado Capital Bank (CCB) July 8, 2011 320,789
Atlantic Bank & Trust (ABT) ⁽¹⁾
June 3, 2011 112,238
United Western Bank (United Western) January 21, 2011 759,351
Williamsburg First National Bank (WFNB) ⁽¹⁾
July 23, 2010 55,054
Sun American Bank (SAB) March 5, 2010 290,891
First Regional Bank (First Regional) January 29, 2010 1,260,249
Georgian Bank (GB) ⁽¹⁾
September 25, 2009 979,485
Venture Bank (VB) September 11, 2009 456,995
Temecula Valley Bank (TVB) July 17, 2009 855,583
Total $ 5,245,131
Carrying value of FDIC-assisted acquired loans as of December 31, 2015 $ 659,982

⁽¹⁾~~Date of transaction and fair value of loans acquired represent when Bancorporation acquired the entities and the fair value of the loans on that date.~~



(Dollars in thousands)	2018		2017
Beginning balance	$	101,342	$	97,008
Accretion	4,023		3,851
Adjustments related to changes in assumptions	253		483
Ending balance	$	105,618	$	101,342

~~Acquisition accounting and issues affecting comparability of financial statements.~~ As estimated exposures related to the acquired assets in FDIC-assisted transactions change based on post-acquisition events, our adherence to GAAP and accounting policy elections we have made affect the comparability of our current results of operations to earlier periods. Several of the key issues affecting comparability are as follows:

~~When post-acquisition events suggest that the amount of cash flows we will ultimately receive for an FDIC-assisted loan is less than originally expected:~~


▪	~~An ALLL is established for the post-acquisition exposure that has emerged with a corresponding charge to provision for loan and lease losses;~~


▪	For FDIC-assisted transactions with loss share agreements, if the expected loss is projected to occur during the relevant loss share period, the FDIC receivable is increased to reflect the indemnified portion of the post-acquisition exposure with a corresponding increase to noninterest income;

~~When post-acquisition events suggest that the amount of cash flows we will ultimately receive for an FDIC-assisted loan is greater than originally expected:~~

▪

Any ALLL that was previously established for post-acquisition exposure is reversed with a corresponding reduction to provision for loan and lease losses; if no ALLL was established in earlier periods, the amount of the improvement in the cash flow projection results in a reclassification from the nonaccretable difference created at the acquisition date to an accretable yield; the newly-identified accretable yield is accreted into income over the remaining life of the loan as interest income;


▪	For FDIC-assisted transactions with loss share agreements, the FDIC receivable is adjusted immediately to reverse previously recognized impairment and prospectively by amortizing the improvement in cash flows through the shorter of the termination date of loss share coverage or the life of the loan;


▪	Recoveries on these loans that have been previously charged-off are additional sources of noninterest income; BancShares records these recoveries as noninterest income rather than as an adjustment to the allowance for loan and lease losses since charge-offs on these loans are primarily recorded through the nonaccretable difference.

When actual payments received on FDIC-assisted loans are greater than initial estimates, large nonrecurring discount accretion or reductions in the ALLL may be recognized during a specific period; discount accretion is recognized as an increase to interest income; reductions in the ALLL are recorded as a reduction in the provision for loan and lease losses;

For FDIC-assisted transactions with loss share agreements, adjustments to the FDIC receivable resulting from changes in estimated cash flows are based on the reimbursement provision of the applicable loss share agreement with the FDIC. Adjustments to the FDIC receivable partially offset the adjustment to the FDIC-assisted loan carrying value, but the rate of the change to the FDIC receivable relative to the change in the acquired loan carrying value is not constant. The loss share agreements establish reimbursement rates for losses incurred within certain ranges. In some loss share agreements, higher loss estimates result in higher reimbursement rates, while in other loss share agreements, higher loss estimates trigger a reduction in the reimbursement rates. In addition, some of the loss share agreements include clawback provisions that require the purchaser to remit a payment to the FDIC in the event that the aggregate amount of losses is less than a loss estimate established by the FDIC. The adjustments to the FDIC receivable based on changes in loss estimates are measured based on the actual reimbursement rates.

~~Receivable from FDIC for loss share agreements.~~ The various terms of each loss share agreement and the components of the receivable from the FDIC are provided in Table 6. As of December 31, 2015, the FDIC receivable included $5.0 million of expected payments to the FDIC and $9.1 million we expect to recover through prospective amortization of the asset due to post-acquisition improvements in the related loans. Generally, losses on single family residential loans are covered for ten years. All other loans are generally covered for five years. During the year, loss share protection expired for loans acquired from First Regional Bank and non-single family residential loans acquired from Sun American Bank and Williamsburg First National Bank. During 2016, loss share protection will expire for non-single family residential loans acquired from United Western Bank, Atlantic Bank & Trust and Colorado Capital Bank. Protection for all other covered assets extends beyond December 31, 2016.

The timing of expected losses on the FDIC-assisted assets with loss share agreements is monitored by management to ensure the losses will occur during the respective loss share terms. When projected losses are expected to occur after expiration of the relevant loss share agreement, the FDIC receivable is adjusted to reflect the forfeiture of loss share protection.

Table 6

~~LOSS SHARE PROVISIONS FOR FDIC-ASSISTED TRANSACTIONS~~

Fair value at acquisition date⁽¹⁾
Losses/expenses incurred through 12/31/2015 ⁽²⁾
Cumulative amount reimbursed by FDIC through 12/31/2015 ⁽³⁾
Carrying value at
December 31, 2015 Current portion of receivable due from (to) FDIC for 12/31/2015 filings
Prospective amortization (accretion) ⁽⁴⁾
(Dollars in thousands) Receivable from FDIC Payable to FDIC
Entity
TVB - combined losses $ 103,558
$ 195,968
$ 3,396
$ (906 ) $ —
$ (1,253 ) $ 197
VB - combined losses 138,963
156,159
125,178
725
—
(253 ) 23
GB - combined losses 279,310
900,683
466,550
(515 ) —
(748 ) 27
First Regional - combined losses 378,695
219,639
144,076
(1,821 ) 86,840
(1,821 ) —
SAB - combined losses 89,734
91,409
75,105
(1,915 ) 3,044
(2,354 ) (51 )
WFNB - combined losses 6,225
8,805
6,981
263
—
22
95
United Western
Non-single family residential losses 112,672
99,631
82,736
(1,332 ) 21,949
(2,629 ) 1,189
Single family residential losses 24,781
5,685
4,393
8,443
—
—
5,975
ABT - combined losses 14,531
21,214
16,878
1,564
—
88
1,175
CCB - combined losses 155,070
186,608
151,574
(452 ) 14,620
(2,004 ) 470
Total $ 1,303,539
$ 1,885,801
$ 1,076,867
$ 4,054
$ 126,453
$ (10,952 ) $ 9,100

⁽¹⁾
Fair value at acquisition date represents the initial fair value of the receivable from FDIC, excluding the payable to FDIC. For GB, WFNB and ABT the acquisition date is when Bancorporation initially acquired the banks.
⁽²⁾
For GB, WFNB and ABT the losses/expenses incurred through 12/31/2015 include amounts prior to BancShares' acquisition through merger with Bancorporation.
⁽³⁾
For GB, WFNB and ABT the cumulative amount reimbursed by FDIC through 12/31/2015 include amounts prior to BancShares' acquisition through merger with Bancorporation.
⁽⁴⁾
Prospective amortization (accretion) reflects balances that, due to post-acquisition credit quality improvement, will be amortized over the shorter of the covered asset's life or the term of the loss share period.

Except where noted, each FDIC-assisted transaction has a separate loss share agreement for Single-Family Residential loans (SFR) and Non-Single-Family Residential loans (NSFR).

For TVB, combined losses are covered at 0 percent up to $193.3 million, 80 percent for losses between $193.3 million and $464.0 million and 95 percent for losses above $464.0 million. The loss share agreement expired on July 17, 2014 for all TVB NSFR loans and will expire on July 17, 2019 for the SFR loans.

For VB, combined losses are covered at 80 percent up to $235.0 million and 95 percent for losses above $235.0 million. The loss share agreement expired on September 11, 2014 for all VB NSFR loans and will expire on September 11, 2019 for the SFR loans.

For GB, combined losses are covered at 0 percent up to $327.0 million, 80 percent for losses between $327.0 million and $853.0 million and 95 percent above $853.0 million. The loss share agreement expired on September 25, 2014 for all GB NSFR loans and will expire on September 25, 2019 for the SFR loans.

For First Regional, NSFR losses were covered at 0 percent up to $41.8 million, 80 percent for losses between $41.8 million and $1.02 billion and 95 percent for losses above $1.02 billion. The loss share agreement expired on January 29, 2015 for all First Regional NSFR loans. First Regional has no SFR loans.

For SAB, combined losses are covered at 80 percent up to $99.0 million and 95 percent for losses above $99.0 million. The loss share agreement expired on March 5, 2015 for all SAB NSFR loans and will expire on March 5, 2020 for the SFR loans.

For WFNB, combined losses are covered at 80 percent. The loss share agreement expired on July 23, 2015 for all WFNB NSFR loans and will expire on July 23, 2020 for the SFR loans.

For United Western NSFR loans, losses are covered at 80 percent up to $111.5 million, 30 percent between $111.5 million and $227.0 million and 80 percent for losses above $227.0 million. The loss share agreement expires on January 21, 2016.

For United Western SFR loans, losses are covered at 80 percent up to $32.5 million, 0 percent between $32.5 million and $57.7 million and 80 percent for losses above $57.7 million. The loss share agreement expires on January 21, 2021.

For ABT, combined losses are covered at 80 percent. The loss share agreement expires on June 3, 2016 for all ABT NSFR loans and June 3, 2021 for the SFR loans.

For CCB, combined losses are covered at 80 percent up to $231.0 million, 0 percent between $231.0 million and $285.9 million and 80 percent for losses above $285.9 million. The loss share agreement expires on July 8, 2016 for all CCB NSFR loans and July 8, 2021 for the SFR loans.

~~Table 7~~

AVERAGE BALANCE SHEETS


	2015							2014							2018							2017
(Dollars in thousands, taxable equivalent)	Average Balance			Interest Income/ Expense		Yield/ Rate		Average Balance			Interest Income/ Expense		Yield/ Rate		Average Balance			Interest Income/ Expense		Yield/ Rate		Average Balance			Interest Income/ Expense		Yield/ Rate
Assets
Loans and leases(1)	$	19,528,153		$	880,381	4.51	%	$	14,820,126		$	703,716	4.75	%	$	24,483,719		$	1,075,682	4.39	%	$	22,725,665		$	959,785	4.22	%
Investment securities:
U.S. Treasury	2,065,750			15,918		0.77		1,690,186			12,139		0.72		1,514,598			28,277		1.87		1,628,088			18,015		1.11
Government agency	801,408			7,095		0.89		1,509,868			7,717		0.51		106,067			2,697		2.54		38,948			647		1.66
Mortgage-backed securities	4,141,703			65,815		1.59		2,769,255			36,492		1.32		5,241,865			113,698		2.17		5,206,897			98,341		1.89
Corporate bonds and other															104,796			5,727		5.46		60,950			3,877		6.36
State, county and municipal	903			53		5.85		295			21		7.12		210			11		5.29		—			—		—
Other	2,003			206		10.29		24,476			639		2.61
Marketable equity securities⁽²⁾															107,393			1,048		0.98		101,681			698		0.69
Total investment securities	7,011,767			89,087		1.27		5,994,080			57,008		0.95		7,074,929			151,458		2.14		7,036,564			121,578		1.73
Overnight investments	2,353,237			6,067		0.26		1,417,845			3,712		0.26		1,289,013			21,997		1.71		2,451,417			26,846		1.10
Total interest-earning assets	28,893,157			$	975,535	3.38		22,232,051			$	764,436	3.44		32,847,661			$	1,249,137	3.80	%	32,213,646			$	1,108,209	3.44	%
Cash and due from banks	469,270							493,947							281,510							417,229
Premises and equipment	1,125,159							943,270							1,164,542							1,133,255
Receivable from FDIC for loss share agreements	18,637							61,605
Allowance for loan and lease losses	(206,342		)					(210,937		)					(223,300		)					(226,465		)
Other real estate owned	76,845							87,944							47,053							56,478
Other assets	695,509							496,524							762,446							708,724
Total assets	$	31,072,235						$	24,104,404						$	34,879,912						$	34,302,867

Liabilities
Interest-bearing deposits:
Checking with interest	$	4,170,598		$	856	0.02	%	$	2,988,287		$	779	0.03	%	$	5,188,542		$	1,257	0.02	%	$	4,956,498		$	1,021	0.02	%
Savings	1,838,531			479		0.03		1,196,096			624		0.05		2,466,734			789		0.03		2,278,895			717		0.03
Money market accounts	8,236,160			7,051		0.09		6,733,959			6,527		0.10		7,993,943			10,664		0.13		8,136,731			6,969		0.09
Time deposits	3,359,794			12,844		0.38		3,159,510			16,856		0.53		2,427,949			9,773		0.40		2,634,434			7,489		0.28
Total interest-bearing deposits	17,605,083			21,230		0.12		14,077,852			24,786		0.18		18,077,168			22,483		0.12		18,006,558			16,196		0.09
Repurchase obligations	606,357			1,481		0.24		159,696			350		0.22		555,555			1,738		0.31		649,252			2,179		0.34
Other short-term borrowings	227,937			3,179		1.39		632,146			8,827		1.40		58,686			1,919		3.27		77,680			2,659		3.39
Long-term obligations	547,378			18,414		3.36		403,925			16,388		4.06		304,318			10,717		3.48		842,863			22,760		2.67
Total interest-bearing liabilities	18,986,755			$	44,304	0.23	%	15,273,619			$	50,351	0.33	%	18,995,727			36,857		0.19		19,576,353			43,794		0.22
Demand deposits	8,880,162							6,290,423							12,088,081							11,112,786
Other liabilities	408,018							284,070							373,163							407,478
Shareholders' equity	2,797,300							2,256,292							3,422,941							3,206,250
Total liabilities and shareholders' equity	$	31,072,235						$	24,104,404						$	34,879,912						$	34,302,867
Interest rate spread						3.15	%						3.11	%						3.61	%						3.22	%
Net interest income and net yield
on interest-earning assets				$	931,231	3.22	%				$	714,085	3.21	%				$	1,212,280	3.69	%				$	1,064,415	3.30	%

(1) Loans and leases include PCI and non-PCI loans, nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. Loan fees were ~~$30.9~~$8.8 million, ~~$16.4~~$9.7 million, ~~$14.1~~$9.9 million, ~~$14.2~~$14.8 million and ~~$16.0~~$16.5 million for the years ended 2018, 2017, 2016, 2015, ~~2014, 2013, 2012,~~ and ~~2011,~~2014, respectively. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming statutory federal income tax rates of 21.0 percent for 2018, and 35.0 percent for ~~each period and~~all other years presented, as well as state income tax rates of 3.4 percent, 3.1 percent, 3.1 percent, 5.5 percent, ~~6.2 percent, 6.9 percent, 6.9 percent,~~ and ~~6.9~~6.2 percent for the years ended 2018, 2017, 2016, 2015, ~~2014, 2013, 2012,~~ and ~~2011,~~2014, respectively. The taxable-equivalent adjustment was $3,380, $4,519, $5,093, $6,326 ~~$3,988, $2,660, $2,976~~ and ~~$3,760~~$3,988 for the years ended 2018, 2017, 2016, 2015, and 2014, ~~2013, 2012, and 2011,~~ respectively.

33(2) Marketable equity securities income represents dividends.

Table 76

AVERAGE BALANCE SHEETS (continued)

2013 2012 2011
Average
Balance Interest
Income/
Expense Yield/
Rate Average
Balance Interest
Income/
Expense Yield/
Rate Average
Balance Interest
Income/
Expense Yield/
Rate
(Dollars in thousands, taxable equivalent)

$ 13,163,743
$ 759,261
5.77 % $ 13,560,773
$ 969,802
7.15 % $ 14,050,453
$ 970,225
6.91 %

610,327
1,714
0.28 935,135
2,574
0.28 1,347,874
8,591
0.64
2,829,328
12,783
0.45 2,857,714
16,339
0.57 2,084,627
20,672
0.99
1,745,540
22,642
1.30 757,296
14,388
1.90 320,611
9,235
2.88
276
20
7.25 829
57
6.88 3,841
279
7.26
20,529
321
1.56 147,585
2,914
1.97 458,808
8,523
1.86
5,206,000
37,480
0.72 4,698,559
36,272
0.77 4,215,761
47,300
1.12
1,064,204
2,723
0.26 715,583
1,738
0.24 558,454
1,394
0.25
19,433,947
$ 799,464
4.12 % 18,974,915
$ 1,007,812
5.31 % 18,824,668
$ 1,018,919
5.41 %
483,186
529,224
486,812

874,862
876,802
846,989

168,281
350,933
628,132

(257,791 ) (272,105 ) (241,367 )
119,694
172,269
193,467

473,408
441,023
394,441

$ 21,295,587
$ 21,073,061
$ 21,133,142

$ 2,346,192
$ 600
0.03 % $ 2,105,587
$ 1,334
0.06 % $ 1,933,723
$ 1,679
0.09 %
968,251
482
0.05 874,311
445
0.05 826,881
1,118
0.14
6,338,622
9,755
0.15 5,985,562
16,185
0.27 5,514,920
21,642
0.39
3,198,606
23,658
0.74 4,093,347
39,604
0.97 5,350,249
77,449
1.45
12,851,671
34,495
0.27 13,058,807
57,568
0.44 13,625,773
101,888
0.75
108,612
316
0.29 143,140
504
0.35 177,983
863
0.48
487,813
2,408
0.49 521,358
4,603
0.88 474,624
5,130
1.08
462,203
19,399
4.20 574,721
27,473
4.78 766,509
36,311
4.74
13,910,299
$ 56,618
0.41 % 14,298,026
$ 90,148
0.63 % 15,044,889
$ 144,192
0.96 %
5,096,325
4,668,310
4,150,646

352,068
195,839
128,517

1,936,895
1,910,886
1,809,090

$ 21,295,587
$ 21,073,061
$ 21,133,142

3.71 % 4.68 % 4.45 %

$ 742,846
3.82 % $ 917,664
4.84 % $ 874,727
4.65 %



2016							2015							2014
Average Balance			Interest Income/ Expense		Yield/ Rate		Average Balance			Interest Income/ Expense		Yield/ Rate		Average Balance			Interest Income/ Expense		Yield/ Rate

$	20,897,395		$	881,266	4.22	%	$	19,528,153		$	880,381	4.51	%	$	14,820,126		$	703,716	4.75	%

1,548,895			12,078		0.78		2,065,750			15,918		0.77		1,690,186			12,139		0.72
332,107			2,941		0.89		801,408			7,095		0.89		1,509,868			7,717		0.51
4,631,927			79,336		1.71		4,141,703			65,815		1.59		2,769,255			36,492		1.32
30,347			1,783		5.88		1,042			178		17.08		4,779			254		5.31
49			1		2.69		903			53		5.85		295			21		7.12
73,030			911		1.25		961			28		2.93		19,697			385		1.95
6,616,355			97,050		1.47		7,011,767			89,087		1.27		5,994,080			57,008		0.95
2,754,038			14,534		0.53		2,353,237			6,067		0.26		1,417,845			3,712		0.26
30,267,788			$	992,850	3.28	%	28,893,157			$	975,535	3.38	%	22,232,051			$	764,436	3.44	%
467,315							469,270							493,947
1,128,870							1,125,159							943,270
(209,232		)					(206,342		)					(210,937		)
66,294							76,845							87,944
718,457							714,146							558,129
$	32,439,492						$	31,072,235						$	24,104,404



$	4,484,557		$	910	0.02	%	$	4,170,598		$	856	0.02	%	$	2,988,287		$	779	0.03	%
2,024,656			615		0.03		1,838,531			479		0.03		1,196,096			624		0.05
8,148,123			6,472		0.08		8,236,160			7,051		0.09		6,733,959			6,527		0.10
2,959,757			10,172		0.34		3,359,794			12,844		0.38		3,159,510			16,856		0.53
17,617,093			18,169		0.10		17,605,083			21,230		0.12		14,077,852			24,786		0.18
721,933			1,861		0.26		606,357			1,481		0.24		159,696			350		0.22
7,536			104		1.38		227,937			3,179		1.39		632,146			8,827		1.40
811,755			22,948		2.83		547,378			18,414		3.36		403,925			16,388		4.06
19,158,317			43,082		0.22		18,986,755			44,304		0.23		15,273,619			50,351		0.33
9,898,068							8,880,162							6,290,423
381,838							408,018							284,070
3,001,269							2,797,300							2,256,292
$	32,439,492						$	31,072,235						$	24,104,404
					3.06	%						3.15	%						3.11	%

			$	949,768	3.14	%				$	931,231	3.22	%				$	714,085	3.21	%

~~NET INTEREST INCOME~~

Net interest income for the year ended December 31, 2015 increased by $214.8 million, or 30.3 percent, compared to the same period in 2014. Interest income was up $208.8 million benefiting from a full year impact of the Bancorporation merger and core originated loan growth and a higher yield on the investment portfolio. Interest expense declined by $6.0 million primarily due to runoff of high cost time deposits and payoffs of short-term borrowings. Net interest income for 2014 was $710.1 million, a $30.1 million decline from 2013, primarily due to decreased PCI portfolio interest income due to continued loan runoff, partially offset by originated loan growth, the contribution from the Bancorporation merger, higher investment portfolio yields and lower funding costs.

The year-to-date taxable-equivalent net interest margin for 2015 was 3.22 percent, compared to 3.21 percent during 2014. The margin improvement was primarily due to originated loan growth, higher investment securities yields and lower funding costs, offset by loan yield compression and continued PCI loan portfolio runoff. Loan yields continue to be impacted by low interest

rates and competitive loan pricing. Investment yields improved 32 basis points compared to 2014 primarily due to reinvesting matured investments and proceeds from investment sales into higher yielding investments. The year-to-date taxable equivalent net interest margin declined 61 basis points to 3.21 percent in 2014, compared to 2013, primarily due to loan yield compression as a result of continued PCI loan runoff, offset by improvements in investment yields, originated loan growth and lower funding costs.

Average interest-earning assets increased by $6.66 billion, or by 30.0 percent, for the year ended December 31, 2015. Growth in average interest-earning assets during 2015 was funded primarily by deposit growth and was also impacted by the Bancorporation merger. Within interest-earning assets, loans experienced the most significant increase, primarily due to originated loan growth. The year-to-date taxable-equivalent yield on interest-earning assets declined 6 basis points to 3.38 percent compared to 2014. The decline was primarily the result of PCI loan yield being replaced with higher quality, lower yielding originated loans, partially offset by improvement in the investment yield. Average interest-earning assets increased $2.80 billion between 2014 and 2013 primarily due to the impact of the Bancorporation merger.

Average interest-bearing liabilities increased $3.71 billion for the full year of 2015 when compared to 2014 and increased $1.36 billion between 2014 and 2013. The rate on interest-bearing liabilities decreased 10 basis points to 0.23 percent for the full year 2015, compared to the same period of 2014 and decreased 8 basis points between 2014 and 2013. The decline for both periods was the result of lower borrowing levels and funding costs.

Interest income was $969.2 million during 2015, an increase of $208.8 million, or by 27.5 percent, when compared to 2014. Interest income from loans and leases increased by $174.4 million, or 24.9 percent, to $874.9 million. The 2015 increase in loan interest income was primarily the result of strong originated loan growth and the full year impact from the Bancorporation merger. Interest income decreased by $36.4 million between 2014 and 2013 primarily as a result of lower accretion income, offset by the positive impact of the Bancorporation merger and originated loan growth.

~~Accretion income on acquired loans increased in 2015 by $15.0 million to $133.3 million, due primarily to non-PCI accretion income. Non-PCI accretion income was $18.7 millioncompared to $5.9 million in 2014 due to the full year impact of non-PCI loans acquired in the Bancorporation merger.~~

PCI accretion income was $114.6 million, compared to $112.4 million in 2014. The increase in 2015 was due to the full year impact of the PCI loans acquired in the Bancorporation merger and the contribution from the CCBT acquisition, offset by the continued reduction in PCI loan balances. Additionally, PCI accretion income increased by $3.9 million in 2015 due to a reclassification between accretable yield and the allowance for loan losses. Both accretion income and provision expense increased by $3.9 million due to this reclassification, which resulted in no net impact on earnings. The PCI portfolio declined from December 31, 2014 by $236.0 million, reflecting continued loan runoff of $373.6 million offset by net loans acquired from CCBT which totaled $137.6 million at December 31, 2015. Other factors affecting the amount of PCI accretion income include unscheduled loan payments and changes in estimated cash flows and impairment.

Accretion income on acquired loans decreased by $106.4 million between 2014 and 2013. PCI accretion income was $112.4 million in 2014, compared to $224.7 million in 2013. The decrease was primarily due to the continued reduction in PCI loan balances. Non-PCI accretion income was $5.9 million in 2014 resulting from loans and leases acquired in the Bancorporation merger. There was no non-PCI accretion income in 2013.

Interest income earned on investment securities was $88.3 million, $56.2 million, and $36.9 million during 2015, 2014, and 2013, respectively. The $32.0 million increase in 2015 was the result of higher average balances and improved yields. Higher average balances contributed $16.4 million to interest income earned on investment securities, primarily due to the full year impact of the Bancorporation merger. Additionally, reinvesting proceeds from matured securities and investment securities sales into higher yielding investments contributed to the 32 basis points improvement in investment yields. Interest income earned on investment securities in 2014 increased $19.3 million from $36.9 million recorded during 2013, primarily due to investment securities added from the Bancorporation merger, coupled with a 23 basis point increase in the taxable-equivalent yield. The increase in taxable-equivalent yield in 2014 on the investment portfolio was due to reinvesting the proceeds from maturing government agency securities into U.S. Treasury securities and government-sponsored mortgage-backed securities at higher yields.

Interest expense was $44.3 million in 2015, a $6.0 million, or 12.0 percent, decrease from 2014, the result of a 10 basis point decrease in the rate on interest-bearing liabilities, offset by an increase of $3.53 billion in average deposits. The increase in average deposits was primarily due to the Bancorporation merger and organic growth in low-cost demand, checking with interest and savings accounts, offset by runoff in time deposits. Much of the reduction in funding costs results from a change in the deposit mix. Interest expense on interest-bearing deposits was $21.2 million in 2015, a decrease of $3.6 million, compared to $24.8 million in 2014. Interest expense on borrowings decreased $2.5 million from 2014 to $23.1 million in 2015. Interest

~~expense was $50.4 million in 2014, a $6.3 million decrease compared to 2013, primarily the result of an 8 basis-point decrease in the rate on interest-bearing liabilities.~~

Table 87 ~~isolates the changes in taxable-equivalent net interest income due to changes in volume and interest rates for 2015 and 2014.~~

~~Table 8~~

CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME


	2015									2014									2018									2017
	Change from previous year due to:									Change from previous year due to:									Change from previous year due to:									Change from previous year due to:
				Yield/			Total						Yield/			Total						Yield/			Total						Yield/			Total
(Dollars in thousands)	Volume			Rate			Change			Volume			Rate			Change			Volume			Rate			Change			Volume			Rate			Change
Assets
Loans and leases(1)	$	217,932		$	(41,267	)	$	176,665		$	87,149		$	(142,694	)	$	(55,545	)	$	65,709		$	50,188		$	115,897		$	77,836		$	683		$	78,519
Investment securities:
U.S. Treasury	2,819			960			3,779			5,382			5,043			10,425			(1,255		)	11,517			10,262			722			5,215			5,937
Government agency	(4,986		)	4,364			(622		)	(6,351		)	1,285			(5,066		)	1,115			935			2,050			(3,730		)	1,436			(2,294		)
Mortgage-backed securities	19,981			9,342			29,323			13,405			445			13,850			586			14,771			15,357			10,250			8,755			19,005
Corporate bonds and other																			2,789			(939		)	1,850			1,874			220			2,094
State, county and municipal	40			(8		)	32			1			—			1			11			—			11			(1		)	—			(1		)
Other	(1,450		)	1,017			(433		)	82			236			318
Marketable equity securities⁽²⁾																			39			311			350			277			(490		)	(213		)
Total investment securities	16,404			15,675			32,079			12,519			7,009			19,528			3,285			26,595			29,880			9,392			15,136			24,528
Overnight investments	2,394			(39		)	2,355			954			35			989			(12,729		)	7,880			(4,849		)	(2,495		)	14,807			12,312
Total interest-earning assets	$	236,730		$	(25,631	)	$	211,099		$	100,622		$	(135,650	)	$	(35,028	)	$	56,265		$	84,663		$	140,928		$	84,733		$	30,626		$	115,359
Liabilities
Interest-bearing deposits:
Checking with interest	$	365		$	(288	)	$	77		$	186		$	(7	)	$	179		$	48		$	188		$	236		$	103		$	8		$	111
Savings	208			(353		)	(145		)	128			14			142			59			13			72			89			13			102
Money market accounts	1,350			(826		)	524			267			(3,495		)	(3,228		)	(123		)	3,818			3,695			(163		)	660			497
Time deposits	894			(4,906		)	(4,012		)	(187		)	(6,615		)	(6,802		)	(587		)	2,871			2,284			(1,007		)	(1,676		)	(2,683		)
Total interest-bearing deposits	2,817			(6,373		)	(3,556		)	394			(10,103		)	(9,709		)	(603		)	6,890			6,287			(978		)	(995		)	(1,973		)
Repurchase obligations	1,041			90			1,131			130			(96		)	34			(314		)	(127		)	(441		)	(224		)	542			318
Other short-term borrowings	(5,622		)	(26		)	(5,648		)	1,352			5,067			6,419			(607		)	(133		)	(740		)	1,686			869			2,555
Long-term obligations	5,339			(3,313		)	2,026			(2,406		)	(605		)	(3,011		)	(13,316		)	1,273			(12,043		)	996			(1,184		)	(188		)
Total interest-bearing liabilities	3,575			(9,622		)	(6,047		)	(530		)	(5,737		)	(6,267		)	(14,840		)	7,903			(6,937		)	1,480			(768		)	712
Change in net interest income	$	233,155		$	(16,009	)	$	217,146		$	101,152		$	(129,913	)	$	(28,761	)	$	71,105		$	76,760		$	147,865		$	83,253		$	31,394		$	114,647

(1) Loans and leases include PCI loans, non-PCI loans, nonaccrual loans, and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. The rate/volume variance is allocated equally between the changes in volume and rate.

(2) Marketable equity securities income represents dividends.

NET INTEREST INCOME

Net interest income was $1.21 billion for the year ended December 31, 2018, an increase of $149.0 million, or 14.1 percent, compared to the same period in 2017. Interest income increased $142.1 million due to increased average loan balances primarily in the commercial, residential and business loan portfolios, coupled with increased yields primarily on equity lines, commercial loans and business loans. Interest expense decreased by $6.9 million due to the early extinguishment of FHLB borrowings in the first quarter of 2018, partially offset by an increase in rates paid on deposit accounts, primarily money market and time deposits. Net interest income for the year ended December 31, 2017, was $1.06 billion, a $115.2 million increase from 2016, primarily due to increased average loan balances and improvements in interest earned on investments and excess cash held in overnight investments.

36Interest income from loans and leases was $1.07 billion during 2018, an increase of $117.4 million compared to 2017. The increase was primarily due to loan growth and higher yields, as well as contributions from the HomeBancorp, Capital Commerce and Palmetto Heritage acquisitions. Interest income from loans and leases increased $79.2 million between 2016 and 2017, reflecting increased average loan balances due to originated loan growth and the contribution from the Guaranty acquisition.

Interest income earned on investment securities was $150.7 million, $121.2 million and $96.8 million during 2018, 2017 and 2016, respectively. The $29.5 million increase in 2018 compared to 2017 was due to a 41 basis point improvement in the investment yield resulting from the reinvestment of cash from maturities and sales into higher yielding, short duration securities. Interest income earned on investment securities in 2017 increased $24.4 million compared to 2016, primarily due to a 26 basis point increase in yield resulting from the reinvestment of cash from maturities and sales into higher yielding, short duration, mortgage-backed securities.

Interest expense on interest-bearing deposits was $22.5 million in 2018, an increase of $6.3 million compared to 2017, primarily due to higher rates paid on money market and time deposits. Interest expense on interest-bearing deposits decreased $2.0 million between 2016 and 2017, primarily due to a decline in time deposit balances. Interest expense on borrowings was $14.4 million in 2018, a decrease of $13.2 million compared to 2017, primarily related to lower borrowing costs due to debt extinguishments in the first quarter of 2018. Interest expense on borrowings increased $2.7 million between 2016 and 2017, primarily related to an increase in FHLB borrowings.

The year-to-date taxable-equivalent net interest margin for 2018 was 3.69 percent, compared to 3.30 percent during 2017. The margin increase was primarily due to higher loan balances, improved yields on loans and investments, and lower borrowing costs. This increase was partially offset by higher deposit costs and lower overnight investment balances. Yields on loans, investment securities and overnight investments increased 17 basis points, 41 basis points and 61 basis points, respectively, primarily due to the positive impact of four 25 basis point increases in the federal funds target rate since the fourth quarter of 2017. Investment securities yields also benefited from reinvesting cash flows from maturities, sales and paydowns into higher yielding, short duration securities. The year-to-date taxable equivalent net interest margin for 2017 was 3.30 percent, compared to 3.14 percent during 2016. The margin increase was primarily due to higher loan and mortgage-backed security balances, improved yields on investments, and excess cash held in overnight investments.

Average interest-earning assets increased $634.0 million, or by 2.0 percent, for the year ended December 31, 2018. Growth in average interest-earning assets during 2018 was primarily due to organic loan growth and loans acquired from HomeBancorp, Capital Commerce and Palmetto Heritage, offset by the reduction in overnight investments used to fund the early extinguishment of FHLB borrowings. The year-to-date taxable-equivalent yield on interest-earning assets in 2018 improved 36 basis points to 3.80 percent. The increase was primarily the result of loan growth, improved yields on loans and investments and excess cash held in overnight investments. Average interest-earning assets increased $1.94 billion between 2016 and 2017 primarily due to organic loan growth funded largely by deposit growth, as well as the addition of loans from the Guaranty and HCB acquisitions.

Average interest-bearing liabilities decreased $580.6 million for the full year of 2018 compared to 2017, primarily due to the early extinguishments of FHLB borrowings in the first quarter of 2018. Average interest-bearing liabilities increased $418.0 million between 2016 and 2017, primarily due to growth in interest-bearing savings and checking accounts and incremental FHLB borrowings of $175.0 million in 2017. The rate paid on interest-bearing liabilities decreased 3 basis points to 0.19 percent in 2018 compared to 0.22 percent in both 2017 and 2016, primarily due to lower borrowings.

NONINTEREST INCOME

Table 98

NONINTEREST INCOME


	Year ended December 31									Year ended December 31
(Dollars in thousands)	2015			2014			2013			2018			2017			2016
Gain on acquisitions	$	42,930		$	—		$	—
Cardholder services	77,342			59,607			48,360
Merchant services	84,207			64,075			56,024
Service charges on deposit accounts	90,546			69,100			60,661			$	105,486		$	101,201		$	89,359
Wealth management services	82,865			66,115			59,628			97,966			86,719			80,221
Fees from processing services	180			17,989			22,821
Securities gains	10,817			29,096			—
Cardholder services, net										65,478			57,583			47,319
Other service charges and fees	23,807			17,760			15,696			30,606			28,321			27,011
Gain on extinguishment of debt										26,553			12,483			—
Merchant services, net										24,504			22,678			20,900
Mortgage income	18,168			5,828			11,065			16,433			23,251			20,348
Insurance commissions	11,757			11,129			10,694			12,702			12,465			11,150
ATM income	7,119			5,388			5,026			7,980			9,143			7,283
Adjustments to FDIC receivable and payable for loss share agreements	(19,009		)	(32,151		)	(72,342		)
Recoveries of PCI loans previously charged off	21,169			16,159			29,699
Securities gains, net										351			4,293			26,673
Gain on acquisitions										—			134,745			5,831
Net impact from FDIC loss share termination										—			(45		)	16,559
Adjustments to FDIC shared-loss receivable										(6,341		)	(6,232		)	(9,725		)
Marketable equity securities losses, net										(7,610		)	—			—
Other	15,190			13,118			20,050			26,041			35,358			34,170
Total noninterest income	$	467,088		$	343,213		$	267,382		$	400,149		$	521,963		$	377,099

~~Noninterest income is an essential component of our~~For the year ended December 31, 2018, total ~~revenue and is critical to our ability to sustain adequate profitability levels. The primary sources of~~ noninterest income ~~have traditionally consisted~~was $400.1 million, compared to $522.0 million for the same period in 2017, a decrease of $121.8 million, or by 23.3 percent. Excluding $134.7 million in gains on the Guaranty and HCB acquisitions in 2017, total noninterest income increased $12.9 million, or by 3.3 percent. The year-to-date change was primarily attributable to the following:

The gain on extinguishment of debt increased by $14.1 million in 2018 due to the early termination of FHLB advances with a realized gain of $26.6 million, compared to the early termination of forward starting FHLB advances in 2017 with a realized gain of $12.5 million.

Wealth management services income increased by $11.2 million primarily due to an increase in sales volume on annuity products, increased brokerage income and increased commissions earned on trust services due to increased assets under management.

Merchant and cardholder services income ~~merchant~~increased by $9.7 million due to an increase in sales volume, cost savings achieved by converting credit card processing services ~~income,~~and incentives received from our new service provider.

Service charges on deposit accounts ~~revenues derived from wealth management services and fees from processing services. Recoveries on PCI loans that have been previously charged-off are additional sources~~increased by $4.3 million primarily due to an increase in the volume of noninterest income. BancShares records the portion of recoveries not covered under loss share agreements as noninterest income rather than as an adjustment to the allowance for loan losses since charge-offs on PCI loans are recorded against the discount recognized on the date of acquisition versus the allowance for loan losses.

~~During 2015, noninterest income was $467.1 million, compared to $343.2 million in 2014. The $123.9 million increase from 2014 was primarily~~overdraft transactions driven by the full year impact of ~~the Bancorporation merger and the $42.9 million CCBT acquisition gain. Additionally, the year-to-date change was attributable to the following drivers:~~

Sales volumes for both merchant and cardholder services increased approximately 9.0 percent, excluding the full year impact of Bancorporation, as recent revenue generating initiatives focused on growing these ~~products.~~

~~Mortgage income benefited in 2015~~fees generated from ~~a low rate environment resulting in higher production and sales volumes as well as improved execution on sales of mortgage loans into the secondary market.~~2017 acquisitions.

Gains on sales of securities ~~were $10.8~~decreased by $3.9 million.

Acquired recoveries decreased $4.5 million.

Mortgage income decreased $6.8 million primarily due to lower sales volumes at lower margins.

Marketable equity securities losses decreased income by $7.6 million due to unfavorable movements in the stock market during the fourth quarter of 2018.

For the year ended December 31, 2017, total noninterest income was $522.0 million, compared to $377.1 million for the same period in 2016, an increase of $144.9 million, or by 38.4 percent. Excluding the $134.7 million in 2015 triggered in response to changing market conditions and to better position the investment portfolio for a rising rate environment. In 2014, a $29.1 million gain was recognized on Bancorporation shares of stock owned by BancShares that were canceledgains on the ~~merger date.~~Guaranty and HCB acquisitions in 2017 and the $5.8 million in gains on the FCSB and NMSB acquisitions in 2016, total noninterest income increased $16.0 million, or by 4.3 percent. The year-to-date change was primarily attributable to the following:

Gain on extinguishment of debt of $12.5 million due to the early termination of two forward-starting FHLB advances in 2017.

Merchant and cardholder services income increased by $12.0 million due to increases in sales volume and income from the Guaranty acquisition.

Service charges on deposits increased by $11.8 million primarily due to the Guaranty acquisition, as well as increased fees charged on certain transactions.

Wealth management services income increased by $6.5 million driven primarily by an increase in sales volume on annuity products, increased brokerage income and higher commissions earned on trust services.

Lower FDIC receivable adjustments of ~~$13.1~~$3.5 million ~~resulting from lower amortization expense as three loss share agreements expired since 2014.~~

~~A $5.0 million increase~~primarily due to a decrease in ~~recoveries of PCI loans previously charged off.~~

~~Fees from processing services declined $17.8 million, as substantially all fees recorded in 2014~~OREO and loan expenses related to ~~payments received from Bancorporation prior~~shared-loss agreements.

Mortgage income increased $2.9 million primarily attributable to ~~the merger.~~

~~Noninterest income was $343.2 million in 2014, compared~~mortgage servicing rights retained related to $267.4 million in 2013. The $75.8 million increase includes the impact of the Bancorporation merger in the fourth quarter of 2014 and the recognition of the $29.1 million gain on Bancorporation shares of stock owned by BancShares. Additionally, loss share protection expired for three loss share agreements in 2014 resulting in a $40.2 million reduction in FDIC receivable adjustments. During 2014 and 2013, substantially all fees from processing services relate to payments received from Bancorporation. Other noninterest income in 2013 included $7.5 million generated from the sale of ~~our rights and most~~certain residential mortgage loans.

A decrease in noninterest income attributed to the 2016 net impact from the FDIC shared-loss termination of ~~our obligations under various service agreements with client banks.~~$16.6 million recognized in 2016.

A decrease in gains on sales of securities of $22.4 million due to lower investment portfolio sales in 2017 compared to 2016.

NONINTEREST EXPENSE

Table 109

NONINTEREST EXPENSE


	Year ended December 31						Year ended December 31
(Dollars in thousands)	2015		2014		2013		2018		2017		2016
Salaries and wages	$	429,742	$	349,279	$	308,936	$	527,691	$	490,610	$	443,746
Employee benefits	113,309		79,898		90,479		118,203		105,975		94,340
Occupancy expense	98,191		86,775		75,713		109,169		104,690		102,609
Equipment expense	92,639		79,084		75,538		102,909		97,478		92,501
Merchant processing	58,231		42,661		35,279
Processing fees paid to third parties							30,017		25,673		18,976
FDIC insurance expense	18,340		12,979		10,175		18,890		22,191		20,967
Foreclosure-related expenses	2,662		17,368		17,134
Cardholder processing	21,735		15,133		13,780
Collection	9,649		11,595		21,209
Processing fees paid to third parties	18,779		17,089		15,095
Cardholder reward programs	11,069		8,252		6,266
Core deposit intangible amortization							17,165		17,194		16,851
Collection and foreclosure-related expenses							16,567		14,407		13,379
Consultant expense							14,345		14,963		10,931
Advertising expense							11,650		11,227		10,239
Telecommunications	14,406		10,834		10,033		10,471		12,172		14,496
Consultant	8,925		10,168		9,740
Advertising	12,431		11,461		8,286
Core deposit amortization	18,892		6,955		2,308
Merger-related expenses	14,174		13,064		391		6,462		9,015		5,341
Other	95,741		76,481		71,018		93,432		86,874		93,390
Total noninterest expense	$	1,038,915	$	849,076	$	771,380	$	1,076,971	$	1,012,469	$	937,766

~~The primary components of~~For the year ended December 31, 2018, total noninterest expense ~~are~~was $1.08 billion, compared to $1.01 billion for the same period in 2017, an increase of $64.5 million, or 6.4 percent. The year-to-date change was primarily attributable to the following:

Personnel expense, which includes salaries, wages and ~~related~~ employee benefits, ~~occupancy costs, facilities~~increased by $49.3 million, primarily driven by payroll incentive and ~~equipment~~commission increases and merchant processing expenses. Noninterest expense was $1.04 billion for 2015, a $189.8 million or 22.4 percent increase from the $849.1 million in 2014. The overall increase was due primarily to the full year impact of the Bancorporation merger. In addition to the impact from the Bancorporation merger, the following other items impacted various noninterest expense categories:

~~Employee benefits included a $6.1 million increase for~~net staff additions (that includes acquired bank personnel), merit increases and higher ~~pension~~health insurance costs. ~~The increase in pension cost was due to a decline in the discount rate used to estimate the pension liability and pension expense in 2015.~~

~~Processing expenses for merchant and cardholder services, adjusted for the impact of the Bancorporation merger, were up an approximate 8.0 percent corresponding with higher sales volumes.~~

Equipment expense increased by $5.4 million ~~for depreciation primarily related~~due to investments in new ~~technology systems placed in service during 2015.~~technologies as well as upgrades and maintenance to existing equipment.

~~Core deposit amortization~~Occupancy expense increased ~~$11.9~~by $4.5 million ~~from 2014~~ primarily due to ~~intangibles recognized in~~costs associated with the ~~Bancorporation merger.~~HomeBancorp, Capital Commerce and Palmetto Heritage Bank acquisitions, as well as higher depreciation and maintenance expenses.

~~Foreclosure-related~~Processing fees paid to third parties increased by $4.3 million primarily due to higher online bill pay service activity and additional core processing expense driven by acquisitions and organic growth.

Merger-related expenses ~~and collection costs~~ decreased by ~~$16.7~~$2.6 million primarily caused by the 2017 acquisitions of Guaranty and HCB.

For the year ended December 31, 2017, total noninterest expense was $1.01 billion, compared to $937.8 million for the same period in 2016, an increase of $74.7 million, or ~~57.5 percent, in 2015~~8.0 percent. The year-to-date change was primarily attributable to the following:

Personnel expense, which includes salaries, wages and employee benefits, increased by $58.5 million primarily driven by acquired bank personnel, merit increases, staff additions and payroll incentive plans.

Processing fees paid to third parties increased by $6.7 million primarily due to ~~lower losses on real estate sold and lower legal remediation expenses associated with managing fewer OREO properties.~~

Noninterest expense in 2014 increased $77.7 million from the $771.4 million recorded during 2013, the net result of the Bancorporation merger during the fourth quarter of 2014, higher salaries and wages, occupancy expense, merger-related costs, and cardholder and merchantcore processing expenses ~~offset by lower pension expense and collection costs. During 2014, merger-related expenses included in noninterest expense for the 1st Financial and Bancorporation transactions were $5.0 million and~~ ~~$8.0 million, respectively. Merger-related expenses of $391 thousand in 2013~~ related to the ~~1st Financial transaction. Salaries~~acquisitions of Guaranty and ~~wages~~HCB.

Equipment expense increased ~~$40.3~~by $5.0 million attributable to investments in ~~comparison~~new technology as well as upgrades to ~~2013 primarily as a result of the workforce acquired in the Bancorporation merger and annual merit increases. Employee benefits, however, decreased $10.6~~existing equipment.

Consultant expense increased by $4.0 million ~~in comparison to 2013~~ primarily due to ~~lower pension~~regulatory, accounting and compliance-related services.

Merger-related expense ~~as a result of applying a higher discount rate to calculate our pension obligation in 2014. Additionally, collection expense declined $9.6~~increased by $3.7 million ~~during 2014 due to lower legal remediation expenses~~primarily driven by costs associated with ~~managing fewer nonperforming assets.~~the Guaranty and HCB acquisitions in 2017.

INCOME TAXES

For ~~2015~~,2018, income tax expense was ~~$122.0~~$103.3 million compared to ~~$65.0 million~~ ~~during~~ ~~2014~~ ~~and $101.6~~$219.9 million during ~~2013,~~2017 and $125.6 million during 2016, reflecting effective tax rates of ~~36.7~~20.5 percent,, ~~31.9~~ 40.5 percent and ~~37.8~~35.8 percent during the respective periods. The ~~lower~~Tax Act reduced the federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018.

During 2018, income tax expense was reduced by $15.7 million to update the provisional amount recorded in 2017 related to Tax Act changes. Excluding the effects of the provisional adjustment, the 2018 effective tax rate would have been 23.6 percent. The accounting for the provisional effects of the Tax Act was completed in 2018.

The increase in the effective tax rate during ~~2014~~2017 was primarily due to the ~~impact~~re-measurement of ~~the $29.1 million gain from the Bancorporation shares of stock owned by BancShares that were canceled on the merger date.~~

~~We monitor and evaluate the potential impact of current events on the estimates used to establish~~our deferred tax assets which increased income tax expense ~~and income~~by a provisional $25.8 million to reflect the Tax Act changes. Excluding the effects of the provisional adjustment, the 2017 effective tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or pending audits or assessments by tax auditors.rate would have been 35.7 percent.

INTEREST-EARNING ASSETS

Interest-earning assets include investment securities, loans and leases ~~investment securities,~~ and overnight investments, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Riskier investments typically carry a higher interest rate, but expose us to higher levels of market risk.

We ~~have historically focused on maintaining high-asset quality, which results in a loan and lease portfolio subjected~~strive to ~~strenuous underwriting and monitoring procedures. We avoid high-risk industry concentrations, but we do~~ maintain a ~~concentration~~high level of ~~owner-occupied real estate loans~~interest-earning assets relative to ~~borrowers in medical and medical-related fields. Our focus on asset quality also influences the composition of our investment securities portfolio.~~total assets, while keeping non-earning assets at a minimum.

Interest-earning assets averaged ~~$28.89~~$32.85 billion in ~~2015,~~2018, compared to ~~$22.23~~$32.21 billion in ~~2014.~~2017. The increase of ~~$6.66 billion,~~$634.0 million, or ~~30.0~~2.0 percent, was ~~funded~~ primarily ~~by deposit~~the result of strong originated loan growth and ~~was also impacted~~the loans acquired in the HomeBanc, Capital Commerce and Palmetto Heritage acquisitions, partially offset by ~~the Bancorporation merger. Within interest-earning assets, loans experienced the most significant increase, primarily due to originated loan growth.~~

~~Investment securities~~

Investment securities were $6.86 billion at December 31, 2015, a decrease of $310.9 million, or 4.3 percent, when compared to $7.17 billion at December 31, 2014. The decrease in 2015 was attributable to reinvesting a portion of the proceeds from sales, maturities and calls intolower overnight investments ~~rather than investment securities. This follows an increase of $1.78 billion, or 33.1 percent, in total investment securities from December 31, 2013 to December 31, 2014 primarily~~ related to the ~~Bancorporation merger.~~use of funds for the extinguishment of FHLB debt obligations during the first quarter of 2018.

~~Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of other comprehensive income, net of deferred taxes. As of~~ ~~December 31, 2015, investment securities available for sale had a net pre-tax unrealized loss of $24.5 million, compared to a net pre-tax unrealized gain of~~ ~~$8.3 million~~ ~~as of~~ ~~December 31, 2014. After evaluating the securities with unrealized losses, management concluded that no other than temporary impairment existed as of~~ ~~December 31, 2015~~.

Sales of investment securities in 2015 were $1.29 billion resulting in a net realized gain of $10.8 million compared to the realized gain of $29.1 million in 2014. The securities gain in 2014 primarily relates to the Bancorporation shares of stock owned by BancShares that were canceled on the merger date.

At ~~December 31, 2015~~, mortgage-backed securities represented 68.0 percent of investment securities available for sale, compared to U.S. Treasury, government agency securities, equity securities and other, which represented 24.4 percent, 7.3 percent, 0.1 percent and 0.2 percent of the portfolio, respectively. Overnight investments are with the Federal Reserve Bank and other financial institutions.

During 2015, cash flows from the sales, maturities and calls of U.S. Treasury and government agency securities were reinvested into mortgage-backed securities, equity securities and other investments in order to optimize earnings and overall risk of the investment portfolio. As a result, the carrying value of mortgage-backed securities issued by government sponsored enterprises, equity securities and other investments increased by $1.03 billion, $8.9 million and $10.7 million, respectively, while U.S. Treasury securities decreased $954.8 million, and government agency securities declined $410.2 million. Other investments consist primarily of corporate bonds. The effective duration of the investment portfolio was 2.7 years at December 31, 2015, compared to 2.4 years at December 31, 2014.Investment Securities

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity ~~and credit~~ risk and low to moderate interest rate risk and credit risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares' objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made largely under a long-term earnings optimization strategy. Changes in the total balance of our investment securities portfolio result from trends ~~among loans~~

in balance sheet funding and ~~leases, deposits and short-term borrowings.~~market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into overnight investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow any overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand. ~~Details of investment securities at~~ ~~December 31, 2015~~, ~~December 31, 2014~~See Note A and~~December 31, 2013, are provided in~~ ~~Table 11. Also see~~ Note C in the Notes to Consolidated Financial Statements for additional ~~disclosures.~~disclosures regarding investment securities.

The adoption of ASU 2016-01 in the first quarter of 2018 resulted in marketable equity investments being reported separately in the Consolidated Balance Sheets and the change in fair value of those investments is reflected in the Consolidated Statements of Income. At adoption, we recorded a cumulative-effect adjustment to the consolidated balance sheet resulting in an $18.7 million increase to retained earnings and a corresponding decrease to AOCI. The fair value of marketable equity securities was $92.6 million and $105.2 million, respectively, at December 31, 2018 and 2017.

The fair value of all investment securities was $6.85 billion at December 31, 2018, a decrease of $329.1 million when compared to $7.18 billion at December 31, 2017. This follows an increase of $173.6 million in total investment securities from December 31, 2016 to December 31, 2017. The decrease in the portfolio from December 31, 2017 was primarily attributable to not reinvesting a portion of U.S. Treasury maturities and mortgage-backed securities principal paydowns over the period. The increase in the portfolio from December 31, 2016, was primarily attributable to investing overnight funds into the investment portfolio and a decline in the net pre-tax unrealized losses on the available for sale portfolio.

On May 1, 2018, mortgage-backed securities with an amortized cost of $2.49 billion were transferred from investments available for sale (AFS) to the held to maturity (HTM) portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $2.38 billion. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. The unrealized loss on these securities at the date of transfer was $109.5 million, or $84.3 million net of tax, and continues to be reported as a component of AOCI. This unrealized loss will be accreted out of AOCI into the Consolidated Statements of Income over the remaining expected life of the securities, partially offset by the amortization of the corresponding discount on the transferred securities. As of December 31, 2018, $17.1 million, or $13.2 million net of tax, of the unrealized loss has been accreted from AOCI into interest income. FCB has the intent and ability to retain these securities until maturity.

As of December 31, 2018, investment securities available for sale had a net pre-tax unrealized loss of $50.0 million, compared to a net pre-tax unrealized loss of $48.8 million as of December 31, 2017. After evaluating the AFS securities with unrealized losses, management concluded that no other than temporary impairment existed as of December 31, 2018. Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of other comprehensive income, net of deferred taxes.

At December 31, 2018, mortgage-backed securities represented 74.5 percent of total investment securities, compared to U.S. Treasury (18.3 percent), government agency securities (3.8 percent), corporate bonds (2.0 percent) and other investments and marketable equity securities (1.4 percent). Overnight investments are with the Federal Reserve Bank and other financial institutions.

See Note C in the Notes to Consolidated Financial Statements for additional disclosures regarding investment securities.

Table 10

INVESTMENT SECURITIES



	December 31
	2018				2017				2016
(Dollars in thousands)	Cost		Fair value		Cost		Fair value		Cost		Fair value
Investment securities available for sale
U.S. Treasury	$	1,249,243	$	1,247,710	$	1,658,410	$	1,657,864	$	1,650,675	$	1,650,319
Government agency	257,252		256,835		—		—		40,291		40,398
Mortgage-backed securities	2,956,793		2,909,339		5,428,074		5,349,426		5,259,466		5,175,425
Marketable equity securities	—		—		75,471		105,208		71,873		83,507
Corporate bonds	139,906		139,101		59,414		59,963		49,367		49,562
Other	3,923		4,125		7,645		7,719		7,615		7,369
Total investment securities available for sale	4,607,117		4,557,110		7,229,014		7,180,180		7,079,287		7,006,580
Investment in marketable equity securities	73,809		92,599		—		—		—		—
Investment securities held to maturity
Mortgage-backed securities	2,184,653		2,201,502		76		81		98		104
Total investment securities	$	6,865,579	$	6,851,211	$	7,229,090	$	7,180,261	$	7,079,385	$	7,006,684

Table 11 presents the investment securities portfolio at December 31, 2018 segregated by major category with ranges of contractual maturities, average contractual maturities and taxable equivalent yields.

Table 11

INVESTMENT SECURITIES


	December 31
	2015								2014				2013					December 31, 2018
					Average maturity (Yrs./mos.)		Taxable equivalent yield																Average maturity (Yrs./mos.)	Weighted taxable equivalent yield
(Dollars in thousands)	Cost		Fair value			Cost			Fair value		Cost		Fair value		Cost			Fair value
Investment securities available for sale:	Investment securities available for sale:																			Investment securities available for sale:
U.S. Treasury
Within one year	$	847,622	$	847,023	0/9		1.06	%	$	88,174	$	88,197	$	245,510		$	245,667	$	1,149,105		$	1,146,974	0/4	2.00	%
One to five years	828,374		827,859		1/2		0.89		2,538,726		2,541,473		127,713			127,770		100,138			100,736		1/9	2.94
Total	1,675,996		1,674,882		0/11		0.97		2,626,900		2,629,670		373,223			373,437		1,249,243			1,247,710		0/6	2.08
Government agency
Within one year	408,092		408,071		0/8		1.11		359,567		359,669		594,446			595,216
One to five years	90,712		90,589		3/0		2.04		548,795		549,148		1,948,777			1,949,013
Total	498,804		498,660		1/1		1.28		908,362		908,817		2,543,223			2,544,229
Mortgage-backed securities(1)
Within one year	7,839		7,859		0/8		1.36		47,169		47,317		10,703			10,743
One to five years	4,453,084		4,428,968		3/11		2.35		3,458,197		3,461,950		2,221,351			2,192,285
Five to ten years	231,524		231,371		5/10		2.33		122,821		124,037		254,243			243,845
Total	4,692,447		4,668,198		4/0		2.35		3,628,187		3,633,304		2,486,297			2,446,873
Municipal securities
Within one year	—		—		—		—		125		126		—			—
One to five years	—		—		—		—		—		—		186			187
Total	—		—		—		—		125		126		186			187
Other
One to five years	—		—		—		—		—		—		863			830		1,482			1,479		4/0	3.33
Five to ten years	8,500		8,500		10/0		6.5		—		—		—			—		15,439			15,387		8/5	3.24
Over ten years	2,115		2,160		34/0		3.75		—		—		—			—		240,331			239,969		23/4	2.88
Total	10,615		10,660		14/10		5.94		—		—		863			830		257,252			256,835		22/4	2.90
Equity securities	7,935		8,893		—		—		—		—		543			22,147
Total investment securities available for sale	6,885,797		6,861,293						7,163,574		7,171,917		5,404,335			5,387,703
Investment securities held to maturity:
Mortgage-backed securities
Within one year	164		166		0/6		5.58		416		433		2			2
Mortgage-backed securities(1)																		Mortgage-backed securities(1)
Five to ten years																		1,301,114			1,268,176		8/10	2.03
Over ten years																		1,655,679			1,641,163		17/6	2.69
Total																		2,956,793			2,909,339		13/9	2.40
Corporate bonds
One to five years	91		99		3/11		6.77		102		111		831			891		5,535			5,475		4/5	5.00
Five to ten years	—		—		—		—		—		—		74			81		134,371			133,626		7/8	2.03
Total																		139,906			139,101		13/9	2.40
Other
Over ten years																		3,923			4,125		20/1	7.90
Total																		3,923			4,125		20/1	7.90
Total investment securities available for sale																		4,607,117			4,557,110
Investment in marketable equity securities																		73,809			92,599		—	—
Investment securities held to maturity:
Mortgage-backed securities ⁽¹⁾																		Mortgage-backed securities ⁽¹⁾
One to five years																		3			3		4/2	4.00
Five to ten years																		688,679			693,393		9/3	3.10
Over ten years																		1,495,971			1,508,106		17/10	3.25
Total investment securities held to maturity	255		265		1/9		6.02		518		544		907			974		2,184,653			2,201,502		15/1	3.20
Total investment securities	$	6,886,052	$	6,861,558					$	7,164,092	$	7,172,461	$	5,405,242		$	5,388,677	$	6,865,579		$	6,851,211

difference between the loan amount and the estimated fair value with consideration for the remaining discounts recognized upon acquisition. Impairment measurement for most real estate loans, particularly when a loan is considered to be a probable foreclosure, is based on the fair value of the underlying collateral. Collateral is appraised and market value, appropriately adjusted for an assessment of the sales and marketing costs as well as the expected holding period, are used to calculate an anticipated fair value.

General reserves for collective impairment are based on estimated incurred losses related to unimpaired commercial loans and leases as of the balance sheet date. Incurred loss estimates for the originated commercial segment are based on average loss rates by credit risk ratings, which are estimated using historical loss experience and credit risk rating migrations. Incurred loss estimates may be adjusted through a qualitative assessment to reflect current economic conditions and portfolio trends including credit quality, concentrations, aging of the portfolio and significant policy and underwriting changes.

Common risks to each class of commercial loans include general economic conditions within the markets BancShares serves, as well as risks that are specific to each transaction including demand for products and services, personal events, such as disability or change in marital status and reductions in the value of collateral. Due to the concentrationCommercial mortgage - Commercial mortgage consists of loans ~~in the medical, dental and related fields, BancShares is susceptible~~ to ~~risks that governmental actions will fundamentally alter the medical care industry in the United States.~~

~~In addition to these common risks for the majority of the non-PCI commercial segment, additional risks are inherent in certain classes of non-PCI commercial loans and leases.~~

purchase or refinance owner-occupied or investment nonresidential properties. Commercial ~~construction and land development~~

~~Commercial construction and land development loans are highly dependent on the supply and demand for commercial real estate in the markets served~~mortgages secured by BancShares as well as the demand for newly constructed residential homes and lots that customers are developing. Deterioration in demand could result in decreases in collateral values and could make repayment of the outstanding loans more difficult for customers.

~~Commercial mortgage, commercial and industrial and lease financing~~

~~Commercial mortgage loans, commercial and industrial loans and lease financing~~owner-occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan ~~origination resulting in cash flow sufficient~~origination. Failure to achieve these projections presents risk that the borrower will be unable to service the ~~debt. To the extent that a customer's business results are significantly unfavorable versus the original projections, the ability for the loan to be serviced on a basis~~debt consistent with the contractual terms ~~may be at risk. While these loans and leases are generally~~of the loan. Commercial mortgages secured by ~~real property, personal property~~investment properties include office buildings and other facilities that are rented or ~~business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.~~

~~Other commercial real estate~~

~~Other commercial real estate loans consist primarily of loans secured by multifamily housing and agricultural loans.~~leased to unrelated parties. The primary risk associated with ~~multifamily~~income producing commercial mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. ~~High unemployment~~While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible that the liquidation of collateral will not fully satisfy the obligation.

Other commercial real estate - Other commercial real estate consists of loans secured by farmland (including residential farms and other improvements) and multifamily (five or ~~generally weak economic conditions may result in customers having to provide rental rate concessions to achieve adequate occupancy rates.~~more) residential properties. The performance of agricultural loans is highly dependent on favorable weather, reasonable costs for seed and fertilizer and the ability to successfully market the product at a profitable margin. The demand for these products is also dependent on macroeconomic conditions that are beyond the control of the borrower. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in borrowers having to provide rental rate concessions to achieve adequate occupancy rates.

Commercial and industrial and lease financing - Commercial and industrial and lease financing consists of loans or lines of credit to finance accounts receivable, inventory or other general business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk that the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease.

Other - Other consists of all other commercial loans not classified in one of the preceding classes. These typically include loans to nonprofit organizations such as churches, hospitals, educational and charitable organizations, and certain loans repurchased with government guarantees.

Non-PCI Noncommercial Loans ~~and~~& Leases

Non-PCI noncommercial loans ~~excluding~~(excluding purchased non-impaired loans and certain purchased revolving ~~credit,~~credit) are centrally underwritten using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use and recent credit inquiries. To the extent that the loan is secured by collateral, the likely value of that collateral is evaluated.

~~The ALLL for the~~ Acquired non-PCI noncommercial ~~segment is primarily calculated on a pooled basis~~loans are evaluated using ~~a delinquency-based approach. Estimates~~comparable methods and procedures as those originated by BancShares.

Residential mortgage - Residential real estate consists of ~~incurred losses~~loans to purchase, or refinance the borrower's primary dwelling, second residence or vacation home and are ~~based on historical loss experience~~often secured by 1-4 family residential property. Significant and ~~the migration~~rapid declines in real estate values can result in borrowers having debt levels in excess of ~~receivables through the various delinquency pools applied to~~ the current ~~risk mix. These estimates may be adjusted through a qualitative assessment to reflect current economic conditions, portfolio trends and other factors. The remaining portion~~market value of the ~~ALLL related to the non-PCI noncommercial segment results from loans~~collateral.

Revolving mortgage - Revolving mortgage consists of home equity lines of credit that are ~~deemed impaired.~~secured by first or second liens on the borrower's primary residence. These loans are often secured by second liens on the residential real estate and are particularly susceptible to declining collateral values as a substantial decline in value could render a second lien position effectively unsecured.

Construction and land development - Construction and land development consists of loans to construct a borrower's primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date. These loans are typically secured by undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property. There is risk that these construction and development projects can experience delays and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.

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. The ~~impairment assessment and determination~~value of the ~~related specific reserve for each impaired loan~~underlying collateral within this class is ~~based on~~at risk of potential rapid depreciation which could result in unpaid balances in excess of the ~~loan's characteristics. Impairment measurement for loans that are~~collateral.

7673

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

not collateral dependent is based on the present value of expected cash flows discounted at the loan's effective interest rate. Specific valuation allowances are established or partial charge-offs are recorded for the difference between the recorded investment in the loan and the estimated fair value for originated non-PCI loans. Specific valuation allowances for purchased non-impaired loans are established or partial charge offs are recorded for the difference between the recorded investment in the loan and the estimated fair value with consideration for the remaining discounts recognized upon acquisition. Impairment measurement for most real estate loans, particularly when a loan is considered to be a probable foreclosure, is based on the fair value of the underlying collateral. Collateral is appraised and market value, appropriately adjusted for an assessment of the sales and marketing costs as well as the expected holding period, are used to calculate an anticipated fair value.

Common risks to each class of noncommercial loans include risks that are not specific to individual transactions such as general economic conditions within the markets BancShares serves, particularly unemployment and potential declines in real estate values. Personal events such as disability or change in marital status also add risk to noncommercial loans.

~~In addition to these common risks for the majority of noncommercial loans, additional risks are inherent in certain classes of noncommercial loans.~~

~~Revolving mortgage~~

Revolving mortgage loans are often secured by second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render a second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies, disputes with first lienholders and uncertainty regarding the customer's performance with respect to the first lien that may further weaken the collateral position. Further, the open-end structure of these loans creates the risk that customers may draw on the lines in excess of the collateral value if there have been significant declines since origination.

~~Consumer~~

The consumer loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination, potentially in excess of principal balances.

~~Residential mortgage and noncommercial construction and land development~~

Residential mortgage and noncommercial construction and land development loans are made to individuals and are typically secured by 1-4 family residential property, undeveloped land and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral. Noncommercial construction and land development projects can experience delays in completion and cost overruns that exceed the borrower's financial ability to complete the project. Such cost overruns can routinely result in foreclosure of partially completed and unmarketable collateral.

PCI Loans

The ~~risks associated~~segments and classes utilized to evaluate and report PCI loans is consistent with that of non-PCI loans. PCI loans were underwritten by other institutions, often with different lending standards and methods; however, the underwriting risks are generally consistent with the risks identified for ~~commercial and noncommercial~~ non-PCI ~~loans and the classes of loans within those segments. However, these loans were underwritten by other institutions, often with weaker lending standards.~~loans. Additionally, in some cases, collateral for PCI loans ismay be located in regions that ~~have~~previously experienced ~~erosion~~deterioration in real estate values and the underlying collateral may therefore not support full repayment of these loans.

Nonperforming Assets and Troubled Debt Restructurings

Non-performing Assets (NPAs)

NPAs include nonaccrual loans and foreclosed property. Foreclosed property consists of real estate ~~values. Therefore,~~and other assets acquired as a result of loan defaults and is discussed below.

All loans are classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent. Non-PCI loans are generally placed on nonaccrual when principal or interest becomes 90 days past due or when it is probable that principal or interest is not fully collectible. When non-PCI loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued. All payments received thereafter are applied as a reduction of the remaining principal balance as long as doubt exists as to the ultimate collection of the principal. Non-PCI loans and leases are generally removed from nonaccrual status when they become current for a sustained period of time and there ~~exists~~is no longer concern as to the collectability of principal and interest. Accretion of income for PCI loans is discontinued when we are unable to estimate the amount or timing of cash flows. PCI loans may begin or resume accretion of income when information becomes available that allows us to estimate the amount and timing of future cash flows. The majority of PCI loans are pooled for accounting purposes and therefore, the NPA status is determined based upon the aggregate performance of the pool.

Troubled Debt Restructurings (TDRs)

A loan is considered a ~~significant risk~~TDR when both of the following occur: (1) a modification to a borrower's debt agreement is made and (2) a concession is granted for economic or legal reasons related to a borrower's financial difficulties that otherwise would not be granted. TDR concessions could include short term deferrals of interest, modifications of payment terms, or (in certain limited instances) forgiveness of principal or interest. Loans that have been restructured as a TDR are treated and reported as such for the remaining life of the loan. Modifications of pooled PCI loans are not ~~adequately supported by borrower cash flow~~designated as TDRs, whereas modifications of non-pooled PCI loans are designated as TDRs in the same manner as non-PCI loans. TDR loans can be nonaccrual or accrual, depending on the ~~values~~individual facts and circumstances of ~~underlying collateral.~~the borrower. In circumstances where a portion of the loan balance is charged-off, the remaining balance is typically classified as nonaccrual.

Allowance for Loan and Lease Losses (ALLL)

The ALLL ~~for PCI loans is estimated~~represents management's best estimate of inherent credit losses within the loan and lease portfolio at the balance sheet date. Management determines the ALLL based on an ongoing evaluation of the loan portfolio. Estimates for loan losses are determined by analyzing quantitative and qualitative components, such as: economic conditions, historical loan losses, historical loan migration to charge-off experience, current trends in delinquencies and charge-offs, expected cash flows ~~approach. Over the life of~~on PCI loans, ~~BancShares continues to estimate cash flows expected to be collected on individual loans or pools~~current assessment of ~~loans sharing common risk characteristics. BancShares evaluates at each balance sheet date whether the estimated cash flows and corresponding present value of its~~impaired loans, and ~~leases determined using their effective interest rates has decreased and if so, recognizes~~changes in the size, composition and/or risk within the loan portfolio. Adjustments to the ALLL are recorded with a corresponding entry to provision for loan and lease losses. Loan balances considered uncollectible are charged-off against the ALLL. Recoveries of amounts previously charged-off are generally credited to the ALLL.

A primary component of determining the allowance on non-PCI loans collectively evaluated is the actual loss history of the various loan classes. Loan loss factors are based on historical experience and may be adjusted for significant factors, that in management's judgment, affect the collectability of principal and interest at the balance sheet date. In accordance with our allowance methodology, loan loss factors are monitored quarterly and may be adjusted based on changes in the level of historical net charge-offs and updates by management, such as the number of periods included in the calculation of loss factors, loss severity, loss emergence period and portfolio attrition.

For ~~any increases in cash flows expected~~the non-PCI commercial segment, management incorporates historical net loss data to develop the applicable loan loss factors. General reserves for collective impairment are based on incurred loss estimates for the loan class based on average loss rates by credit quality indicators, which are estimated using historical loss experience and credit risk rating migrations. Credit quality indicators include borrower classification codes and facility risk ratings. Incurred loss estimates may be ~~collected, BancShares adjusts any prior recorded allowance for loan~~adjusted through a qualitative assessment to reflect current economic conditions and ~~lease losses first~~portfolio trends including credit quality, concentrations, aging of the portfolio and ~~then the amount of accretable yield recognized on a prospective basis over the loan's or pool's remaining life.~~significant policy and underwriting changes.

7774

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the non-PCI noncommercial segment, management incorporates specific loan class and delinquency status trends into the loan loss factors. General reserve estimates of incurred losses are based on historical loss experience and the migration of loans through the various delinquency pools applied to the current risk mix.

Non-PCI loans are considered to be impaired when, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. Generally, management considers the following loans to be impaired: all TDR loans and all loan relationships which are on nonaccrual or 90+ days past due and greater than $500,000. Non-PCI impaired loans greater than $500,000 are evaluated individually for impairment while others are evaluated collectively.

The impairment assessment and determination of the related specific reserve for each impaired loan is based on the loan's characteristics. Impairment measurement for loans that are dependent on borrower cash flow for repayment is based on the present value of expected cash flows discounted at the interest rate implicit in the original loan agreement. Impairment measurement for most real estate loans, particularly when a loan is considered to be a probable foreclosure, is based on the fair value of the underlying collateral. Collateral is appraised and market value (appropriately adjusted for an assessment of the sales and marketing costs) is used to calculate a fair value estimate. A specific valuation allowance is established or partial charge-off is recorded for the difference between the excess recorded investment in the loan and the loan’s estimated fair value less costs to sell.

The ALLL for PCI loans is estimated based on the expected cash flows over the life of the loan. BancShares continues to estimate and update cash flows expected to be collected on individual loans or pools of loans sharing common risk characteristics. BancShares compares the carrying value of all PCI loans to the present value at each balance sheet date. If the present value is less than the carrying value, that shortfall is compared to the remaining credit discount and if it is in excess of the remaining credit discount, an ALLL is recorded through the recognition of provision expense. The ALLL for PCI loans with subsequent increases in expected cash flows to be collected is reduced and any remaining excess is recorded as an adjustment to the accretable yield over the loan's or pool's remaining life.

Reserve for Unfunded Commitments

The reserve for unfunded commitments represents the estimated probable losses related to ~~unfunded lending commitments, such as~~standby letters of credit ~~financial guarantees~~ and ~~similar binding commitments.~~other commitments to extend credit. The reserve is calculated in a manner similar to the loans evaluated collectively for impairment, while also considering the ~~timing and likelihood that the available~~applicable regulatory capital credit ~~will be utilized~~conversion factors for these off-balance sheet instruments as well as the exposure upon default. The reserve for unfunded commitments is presented within other liabilities, ~~on the Consolidated Balance Sheets,~~ distinct from the ALLL, and adjustments to the reserve for unfunded commitments are included in other noninterest expense and represent an immaterial balance.

Other Real Estate Owned (OREO)

OREO acquired as a result of foreclosure is initially recorded at the asset’s estimated fair value less cost to sell. Any excess in the ~~Consolidated Statements of Income. The reserve for unfunded commitments was not significant at December 31, 2015 or 2014.~~

~~Premises and Equipment~~

~~Premises, equipment and capital leases are stated at cost less accumulated depreciation and amortization. For financial reporting purposes, depreciation and amortization are computed using~~recorded investment in the ~~straight-line method and are expensed~~loan over the estimated useful lives of the assets, which range from 7 to 40 years for premises and 3 to 10 years for furniture, software and equipment. Leasehold improvements are amortized over the terms of the respective leases, including renewal period if renewal period is reasonably assured (often through the presence of a bargain renewal option), or the useful lives of the improvements, whichever is shorter. Gains and losses on dispositions are recorded in other noninterest expense. Maintenance and repairs are charged to occupancy expense or equipment expense as incurred. Obligations under capital leases are amortized over the life of the lease using the effective interest method to allocate payments between principal and interest. Rent expense and rental income on operating leases are recorded in noninterest expense and noninterest income, respectively, using the straight-line method over the appropriate lease terms.

~~Goodwill and Other Intangible Assets~~

~~BancShares accounts for acquisitions using the acquisition method of accounting. Under acquisition accounting, if the purchase price of an acquired company exceeds the~~ fair value less costs to sell is charged-off against the ALLL at the time of ~~its net assets,~~foreclosure.

OREO is subsequently carried at the ~~excess is carried on the acquirer's balance sheet as goodwill. An intangible asset is recognized as an asset apart from goodwill if it arises from contractual~~lower of cost or ~~other legal rights or if it is capable of being separated or divided from the acquired entity~~market value less estimated selling costs and sold, transferred, licensed, rented or exchanged. Intangible assets that are separately identifiable assets, such as core deposit intangibles, resulting from acquisitions are amortized on an accelerated basis over an estimated useful life and evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable.

~~Goodwill is not amortized, but~~ is evaluated at least ~~annually for impairment or more frequently if events occur or circumstances change that may trigger a decline in~~annually. The periodic evaluations are generally based on the appraised value of the ~~reporting unit~~property and may include additional adjustments based upon management's review of the valuation estimate and specific knowledge of the property. Routine maintenance costs, income and expenses related to the operation of the foreclosed asset, subsequent declines in market value and net gains or ~~otherwise indicate~~losses on disposal are included in foreclosure-related expense.

Payable to the Federal Deposit Insurance Corporation (FDIC) for Shared-Loss Agreements

The purchase and assumption agreements for certain FDIC-assisted transactions include payments that ~~a potential impairment exists. Examples~~may be owed to the FDIC at the termination of ~~such events or circumstances include deterioration~~the shared-loss agreements. The payment is due to the FDIC if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of ~~general economic conditions, limitations on accessing capital, other equity~~acquisition. The liability is calculated by discounting estimated future payments and ~~credit market developments, adverse change(s)~~is reported in the ~~environment in which BancShares operates, regulatory or political developments and changes in management, key personnel, strategy or customers.~~Consolidated Balance Sheets as an FDIC shared-loss payable. The ~~evaluation of goodwill is based on a variety of factors, including common stock trading multiples and data from comparable acquisitions. Potential impairment of goodwill exists when the carrying~~ultimate settlement amount of ~~a reporting unit exceeds its fair value. In accordance with ASC 350,~~ ~~Intangibles - Goodwill and Other~~, the ~~fair value for~~payment is dependent upon the ~~reporting unit is computed using various methods including market capitalization, price-earnings multiples, price-to-tangible book and market premium.~~

To the extent the reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired, which would require the second step of impairment testing to be performed. In the second step, the implied fair valueperformance of the ~~reporting unit's goodwill is determined by allocating~~underlying covered loans, recoveries, the ~~reporting unit's fair value to all~~passage of ~~its assets (recognized~~time and unrecognized) and liabilities as if the reporting unit had been acquired in a business combination at the date of the impairment test. If the implied fair value of the reporting unit's goodwill is lower than its carrying amount, goodwill is impaired and is written downactual claims submitted to the implied fair value. The loss recognized is limited to the carrying amount of goodwill. Once an impairment loss is recognized, future increases in fair value will not result in the reversal of previously recognized losses.FDIC.

Annual impairment tests are conducted as of July 31 each year. Based on the July 31, 2015, impairment test, management concluded there was no indication of goodwill impairment. In addition to the annual testing requirement, impairment tests are performed if various other events occur that may trigger a decline in value including significant adverse changes in the business climate, considering various qualitative and quantitative factors to determine whether impairment exists. As the stock market experienced volatility after the annual impairment test, management monitored the volatility and determined it did not indicate an impairment test triggering event. Additionally, there have been no other such events subsequent to the annual impairment test performed during 2015.

7875

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Mortgage servicing rights (MSRs)~~Premises and Equipment

Premises and equipment are ~~recognized separately~~carried at cost less accumulated depreciation. Land is carried at cost. Depreciation expense is generally computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements and capitalized leases are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the assets.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the identifiable assets acquired. Goodwill is not amortized, but is evaluated at least annually for impairment during the third quarter, or when ~~they are retained~~events or changes in circumstances indicate that a potential impairment exists.

Other acquired intangible assets with finite lives, such as ~~loans are sold or acquired through acquisition. When mortgage loans are sold, servicing rights~~core deposit intangibles, are initially recorded at fair value and ~~gains~~are amortized on ~~sale of loans are recorded within mortgage income in the Consolidated Statements of Income. All classes of servicing~~an accelerated basis typically between five to ten years over their estimated useful lives. Intangible assets are ~~subsequently measured using the amortization method which requires~~evaluated for impairment when events or changes in circumstances indicate that a potential impairment exists.

Mortgage Servicing Rights (MSRs)

The right to provide servicing ~~rights to be~~under various loan servicing contracts is either retained in connection with a loan sale or acquired in a business combination. MSRs are initially recorded at fair value and amortized ~~against mortgage income in non-interest income~~ in proportion to, and over the period of, the ~~estimated~~ future net servicing income of the underlying ~~loans with the offset being a reduction in the cost basis of the servicing asset.~~loan. At each reporting period, MSRs are evaluated for impairment ~~quarterly~~ based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics and is recorded as a reduction of mortgage income in the Consolidated Statements of Income. If BancShares later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the valuation reserve may be recorded as an increase to mortgage income in the Consolidated Statements of Income, but only to the extent of previous impairment recognized.value.

Other intangible assets with estimable lives are amortized over their estimated useful lives, which are periodically reviewed for reasonableness. Identifiable intangible assets represent the estimated value of the core deposits acquired and certain customer relationships.

~~Securities Sold Under Repurchase Agreements~~

Securities sold under repurchase agreements generally have maturities of one day and are reflected as short-term borrowings on the Consolidated Balance Sheets and are recorded based on the amount of cash received in connection with the borrowing.

At December 31, 2015 and 2014, BancShares had $592.2 million and $294.4 million of securities sold under repurchase agreements included as short-term borrowings on the Consolidated Balance Sheets, respectively.

Fair Values

~~Fair~~The fair value ~~disclosures are required for all~~of financial instruments ~~whether or not recognized~~and the methods and assumptions used in ~~the balance sheet, for which it is practicable to estimate that value. Under GAAP, individual~~estimating fair value ~~estimates are ranked on a three-tier scale based on the relative reliability of the inputs used in the valuation. Fair values determined using level 1 inputs rely on active~~amounts and ~~observable markets to price identical assets or liabilities. In situations where identical~~financial assets and liabilities ~~are not traded in active markets, fair values may be determined based on level 2 inputs,~~for which represent observable data for similar assets and liabilities. Fair values for assets and liabilities that are not actively traded in observable markets are based on level 3 inputs, which are considered to be nonobservable. Fair value estimates derived from level 3 inputs cannot be substantiated by comparison to independent markets and, in many cases, cannot be realized through immediate settlement of the instrument. Accordingly, the aggregate fair value ~~amounts presented do not necessarily represent the underlying value to BancShares. For additional information, see~~was elected are detailed in Note M.M.

Income Taxes

~~Deferred income~~Income taxes are ~~reported when different accounting methods have been used in determining income~~accounted for ~~income tax purposes and for financial reporting purposes. Deferred taxes are computed~~ using the asset and liability approach as prescribed in ASC 740, Income Taxes. Under this method, a deferred tax asset or liability is determined based on the currently enacted tax rates applicable to the period in which the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in BancShares' income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

~~BancShares continually monitors and evaluates the~~The potential impact of current events on the estimates used to establish income tax expenses and income tax ~~liabilities. On a periodic basis, BancShares evaluates its income~~liabilities is continually monitored and evaluated. Income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions ~~that BancShares is required to file~~where income tax returns are filed, as well as potential or pending audits or assessments by such tax ~~auditors.~~auditors are evaluated on a periodic basis.

BancShares has unrecognized tax benefits related to the uncertain portion of tax positions that BancShares has taken or expects to take. A liability may be created or an amount refundable may be reduced for the amount of unrecognized tax benefits. These uncertainties result from the application of complex tax laws, rules, regulations and interpretations, primarily in state taxing jurisdictions. Unrecognized tax benefits are assessed quarterly and may be adjusted through current income tax expense in future periods based on changing facts and circumstances, completion of examinations by taxing authorities or expiration of a statute of limitations. Estimated penalties and interest on uncertain tax positions are recognized in income tax expense.

BancShares files a consolidated federal income tax return and various combined and separate company state tax returns.

~~Derivative Financial Instruments~~

A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest rate swaps, caps, floors, collars, options or other financial instruments designed to hedge exposures to interest rate risk or for speculative purposes.

~~Table of Contents~~

~~FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

BancShares selectively uses interest rate swaps for interest rate risk management purposes. During 2011, BancShares entered into an interest rate swap that qualifies as a cash flow hedge under GAAP. This interest rate swap converts variable-rate exposure on outstanding debt to a fixed rate. The derivative is valued each quarter and changes See Note P in the ~~fair value are recorded on the~~Notes to Consolidated ~~Balance Sheets with an offset to accumulated other comprehensive income~~Financial Statements for the effective portion and an offset to the Consolidated Statements of Income for any ineffective portion. The assessment of effectiveness is performed using the long-haul method. BancShares’ interest rate swap has been fully effective since inception; therefore, changes in the fair value of the interest rate swap have had no impact on net income. There are no speculative derivative financial instruments in any period presented.

In the event of a change in the forecasted cash flows of the underlying hedged item, the related hedge will be terminated, and management will consider the appropriateness of entering into another hedge for the remaining exposure. The fair value of the terminated hedge will be amortized from accumulated other comprehensive income into earnings over the original life of the terminated swap, provided the remaining cash flows are still probable.additional disclosures.

Per Share Data

Net income per share ~~has been~~is computed by dividing net income by the weighted average number of both classes of common shares outstanding during each period. BancShares had no potential common ~~stock~~shares outstanding in any ~~period.~~period and did not report diluted net income per share.

Cash dividends per share apply to both Class A and Class B common stock. Shares of Class A common stock carry one vote per share, while shares of Class B common stock carry 16 votes per share.

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Defined Benefit Pension Plan

BancShares maintains noncontributory defined benefit pension plans covering certain qualifying employees. The calculation of the obligations and related expenses under the plans require the use of actuarial valuation methods and assumptions. Actuarial assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used. The discount rate assumption used to measure the plan obligations is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plans are discounted based on this yield curve, and a single discount rate is calculated to achieve the same present value. The assumed rate of future compensation increases is reviewed annually based on actual experience and future salary expectations. We also estimate a long-term rate of return on pension plan assets that is used to estimate the future value of plan assets. In developing the long-term rate of return, we consider such factors as the actual return earned on plan assets, historical returns on the various asset classes in the plans and projections of future returns on various asset classes. Refer to Note N for disclosures related to BancShares' defined benefit pension plans.

Recently Adopted Accounting Pronouncements

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

FASB ASU ~~2015-08,~~ ~~Business Combinations (Topic 805): Pushdown Accounting - Amendments to Securities and Exchange Commission (SEC) Paragraphs Pursuant to Staff Accounting Bulletin No. 115~~

~~Table of Contents~~

~~FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

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

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

~~Recently Issued Accounting Pronouncements~~

~~FASB ASU~~ 2016-01, Financial ~~Instruments—Overall~~Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

~~Table of Contents~~

~~FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (6)~~(vi) 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)~~(vii) 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.

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~FASB ASU 2015-16,~~ ~~Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments~~

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

For equity investments without a readily determinable fair value, BancShares has elected to measure the equity investments using the measurement alternative that requires BancShares to make a qualitative assessment of whether the investment is impaired at each reporting period. Under the measurement alternative these investments will be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. If a qualitative assessment indicates that the investment is impaired, BancShares will estimate the investment's fair value in accordance with the Accounting Standards Codification (ASC) 820 and, ~~do not anticipate any impact on our consolidated financial position or consolidated results of operations as a result of adoption.~~

~~This ASU improves targeted areas of consolidation guidance for reporting organizations that~~difference between carrying value and fair value. Equity investments without a readily determinable fair value are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard places more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity, and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

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

Per ASU 2015-14, Deferral of the Effective Date, this guidance was deferred and is effective for fiscal periods beginning after December 15, 2017, including interim reporting periods within that reporting period. ~~Early adoption is permitted for fiscal periods beginning after December 15, 2016.~~ We ~~are currently evaluating~~adopted the ~~impact of the new standard and we will adopt during~~guidance effective in the first quarter of ~~2018 using one~~2018. Our revenue is comprised primarily of ~~two~~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 cardholder and merchant services income, service charges on deposit accounts, wealth management services income, other service charges and fees, insurance commissions, ATM income, sales of other real estate and other. Based on our overall assessment of revenue streams and review of related contracts affected by the ASU, the adoption of this guidance did not change the method in which we currently recognize revenue.

We also completed an evaluation of the costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Based on this evaluation, we determined that the classification of cardholder and merchant processing costs as well as expenses for cardholder reward programs should be netted against cardholder and merchant services income. We used the full retrospective ~~application methods.~~method of adoption and restated the prior financial statements to net the cardholder and merchant processing costs against the related cardholder and merchant services income. These classification changes resulted in changes to both noninterest income and noninterest expense; however, there was no change to previously reported net income. Merchant processing expenses of $81.3 million and $69.2 million had been reclassified and reported as a component of merchant services income for the years ended December 31, 2017 and December 31, 2016, respectively. For the twelve months ended December 31, 2017, cardholder processing expenses of $27.8 million and cardholder reward programs expense of $10.0 million were reclassified and reported as a component of cardholder services income. For the twelve months ended December 31, 2016, cardholder processing expenses of $20.8 million and cardholder reward programs expense of $10.6 million were reclassified and reported as a component of cardholder services income.

Revenue Recognition

8278

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Sales of Other Real Estate - ORE property consists of foreclosed real estate used as collateral for loans, closed branches, land acquired and no longer intended for future use by FCB, and other real estate purchased for resale as ORE. Revenue is generally recognized on the date of sale where the performance obligation of providing access and transferring control of the specified ORE property to the buyer in good faith and good title is satisfied. This is recorded as a component of other noninterest income.

Other - This consists of several forms of recurring revenue such as external rental income, parking income, FHLB dividends and income earned on changes in the cash surrender value of bank-owned life insurance, all of which are outside the scope of ASU 2014-09. The remaining miscellaneous income is the result of immaterial transactions where revenue is recognized when, or as, the performance obligation is satisfied.

Recently Issued Accounting Pronouncements

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

FASB ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

FASB ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 by 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. The team continues to work on critical activities such as building models, documenting accounting policies, reviewing data quality, and implementing a reporting and disclosure solution. BancShares continues to evaluate the impact the new standard will have on its consolidated financial statements but the magnitude of this impact has not been determined. The final impact will be dependent, among other items, on loan portfolio composition and credit quality at the adoption date, as well as economic conditions, financial models used and forecasts at that time.

FASB ASU 2016-02, Leases (Topic 842)

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. We will adopt during the first quarter of 2019. 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. Additionally, adding these assets to our balance sheet will impact our total risk-weighted assets used to determine our regulatory capital levels. Our impact analysis estimates an increase to the Consolidated Balance Sheets ranging between $70.0 million and $80.0 million, as the initial gross up of both assets and liabilities. Capital is expected to be adversely impacted by an estimated three to four basis points. These are preliminary estimates subject to change and will continue to be refined closer to adoption.

NOTE B

BUSINESS COMBINATIONS

~~Capitol City~~FCB has evaluated the financial statement significance for all business combinations that were completed during 2018 and 2017. FCB has concluded that the completed business combinations noted below are not material to Bancshares' financial statements, individually or in aggregate, and therefore, pro forma financial data has not been not included.

First South Bancorp, Inc.

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Biscayne Bancshares, Inc.

On November 15, 2018, FCB and Biscayne Bancshares, Inc. (Biscayne Bancshares) entered into a definitive merger agreement for the acquisition by FCB of Coconut Grove, Florida-based Biscayne Bancshares and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 per share will be paid to the shareholders of Biscayne Bancshares for each share of common stock, totaling approximately $118.7 million. The transaction is expected to close during the second quarter of 2019, subject to the receipt of regulatory approvals, and will be accounted for under the acquisition method of accounting. The merger will allow FCB to expand its presence in Florida and enhance banking efforts in South Florida. As of December 31, 2018, Biscayne Bancshares reported $1.01 billion in consolidated assets, $850.3 million in loans and $746.4 million in deposits.

Palmetto Heritage Bancshares, Inc.

On November 1, 2018, FCB completed the merger of Pawleys Island, South Carolina-based Palmetto Heritage Bancshares, Inc. (Palmetto Heritage) and its subsidiary, Palmetto Heritage Bank & Trust, ~~Company~~

~~On February 13, 2015, FCB entered~~ into ~~an agreement with~~FCB. Under the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of CCBT. The acquisition expanded FCB's presence in Georgia as CCBT operated eight branch locations in Atlanta, Stone Mountain, Albany, Augusta and Savannah, Georgia. In June of 2015, FCB closed oneterms of the ~~branches~~agreement, cash consideration of $135.00 per share was paid to the shareholders of Palmetto Heritage for each share of Palmetto Heritage's common stock, with total consideration paid of $30.4 million. The merger allowed FCB to expand its presence and enhance banking efforts in ~~Atlanta.~~the South Carolina coastal markets.

The fair value of the assets acquired was ~~$211.9~~$162.2 million, including ~~$154.5~~$131.3 million in non-PCI loans, $3.9 million in PCI loans and ~~$690 thousand of identifiable intangible assets.~~$1.7 million in a core deposit intangible. Liabilities assumed were ~~$272.5~~$149.3 million, of which ~~$266.4~~$124.9 million were deposits. ~~During the second quarter~~As a result of 2015, adjustments were made to the acquisition fair values primarily based upon updated collateral valuations resulting in an increase of $5.4 million to the gain on acquisition. These adjustments were applied retroactively to the first quarter of 2015 and brought the total gain on the transaction, ~~to $42.9~~FCB recorded $17.5 million ~~which is included in noninterest income in~~of goodwill. The amount of goodwill represents the ~~Consolidated Statement of Income. The total after-tax impact~~excess purchase price over the estimated fair value of the ~~gain was $26.4 million.~~

net assets acquired. The ~~following table provides~~premium paid reflects the ~~identifiable assets acquired~~increased market share and ~~liabilities assumed at their estimated fair values as~~related synergies that are expected to result from the acquisition. None of the ~~acquisition date.~~

(Dollars in thousands) As recorded by FCB
Assets
Cash and cash equivalents $ 19,622
Investment securities 35,413
Loans 154,496
Intangible assets 690
Other assets 1,714
Total assets acquired 211,935
Liabilities
Deposits 266,352
Short-term borrowings 5,501
Other liabilities 667
Total liabilities assumed 272,520
Fair value of net liabilities assumed (60,585 )
Cash received from FDIC 103,515
Gain on acquisition of CCBT $ 42,930

~~Merger-related expenses of $1.9 million were recorded in~~goodwill is deductible for income tax purposes as the ~~Consolidated Statement of Income for the year ended December 31, 2015. Loan-related interest income generated from CCBT was approximately $8.3 million for the year ended December 31, 2015.~~

~~All loans resulting from the CCBT transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality, and are therefore~~merger is accounted for as ~~PCI~~a qualified stock purchase.

Based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations, the acquired loans were separated into loans with evidence of credit deterioration, which are accounted for under ASC ~~310-30.~~310-30 (PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (non-PCI loans).

~~Bancorporation Merger~~

On October 1, 2014, BancShares completed the merger of Bancorporation with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. FCB-SC merged with and into FCB on January 1, 2015.

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

8382

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

price, and the shares ceased to exist after completion of the merger. A gain of $29.1 million was recognized on these shares as a result and is included in securities gains on the Consolidated Statement of Income for 2014.

~~In connection with the Bancorporation merger, BancShares completed an analysis of the control ownership of BancShares and Bancorporation and determined that common control did not exist.~~

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

The Bancorporation merger was accounted for under the acquisition method of accounting. The purchased assets, assumed liabilities and identifiable intangible assets were recorded at their acquisition date estimated fair values. Fair values were subject to refinement for up to one year after the closing date of the transaction. The measurement period ended on October 1, 2015.

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

(Dollars in thousands)
Purchase Price
Value of shares of BancShares Class A common stock issued to Bancorporation shareholders $ 560,370
Value of shares of BancShares Class B common stock issued to Bancorporation shareholders 3,877
Cash paid to Bancorporation shareholders 30,394
Fair value of Bancorporation shares owned by BancShares 29,551
Total purchase price 624,192

Assets
Cash and due from banks $ 194,570

Overnight investments 1,087,325

Investment securities available for sale 2,011,263

Loans held for sale 30,997

Loans and leases 4,491,067

Premises and equipment 238,646

Other real estate owned 35,344

Income earned not collected 15,266

FDIC loss share receivable 5,106

Other intangible assets 109,416

Other assets 56,367

Total assets acquired 8,275,367

Liabilities
Deposits 7,174,817

Short-term borrowings 295,681

Long-term obligations 124,852

FDIC loss share payable 224

Other liabilities 59,834

Total liabilities assumed $ 7,655,408

Fair value of net assets acquired 619,959
Goodwill recorded for Bancorporation $ 4,233



(Dollars in thousands)	As recorded by FCB
Purchase Price			$	30,426
Assets
Cash and due from banks	$	6,418
Investment securities	4,549
Loans	135,146
Premises and equipment	5,369
Other real estate owned	2,319
Income earned not collected	531
Intangible assets	1,706
Other assets	6,210
Fair value of assets acquired	162,248
Liabilities
Deposits	124,892
Accrued interest payable	177
Borrowings	24,000
Other liabilities	203
Fair value of liabilities assumed	$	149,272
Fair value of net assets assumed			12,976
Goodwill recorded for Palmetto Heritage			$	17,450

Merger-related expenses of $546 thousand from the Palmetto Heritage transaction were recorded in the Consolidated Statements of Income for the year ended December 31, 2018. Loan-related interest income generated from Palmetto Heritage was approximately $1.2 million since the acquisition date.

Capital Commerce Bancorp, Inc.

On October 2, 2018, FCB completed the merger of Milwaukee, Wisconsin-based Capital Commerce Bancorp, Inc. (Capital Commerce) and its subsidiary, Securant Bank & Trust, into FCB. Under the terms of the merger agreement, cash consideration of $4.75 per share was paid to the shareholders of Capital Commerce for each share of Capital Commerce's common stock with total consideration paid of $28.1 million. The merger allowed FCB to expand its presence and enhance banking efforts in the Milwaukee market.

The Capital Commerce 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. As of December 31, 2018, there have been no refinements to the fair value of these assets acquired and liabilities assumed.

The fair value of the assets acquired was $221.9 million, including $173.4 million in non-PCI loans, $10.8 million in PCI loans and $2.7 million in a core deposit intangible. Liabilities assumed were $204.5 million, of which $172.4 million were deposits. As a result of the transaction, FCB recorded $10.7 million of goodwill. The amount of goodwill ~~recorded~~represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies that are expected to result from the ~~acquisition, and represents the excess purchase price over the estimated fair value of the net assets acquired. There were no adjustments to goodwill based on the allowed one year measurement period.~~acquisition. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a ~~tax-free exchange.~~qualified stock purchase.

~~The operating results~~

Based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations, the acquired loans were separated into loans with evidence of ~~BancShares~~credit deterioration, which are accounted for the year ended December 31, 2014 include the results from the operations acquired in the Bancorporation transaction since October 1, 2014. Bancorporation's operations contributed approximately $92.8 million in total revenue (interest income plus noninterest income)under ASC 310-30 (PCI loans), and ~~an estimated $12.7 million in net income~~loans that do not meet this criteria, which are accounted for ~~the period from the acquisition date.~~under ASC 310-20 (non-PCI loans).

8483

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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



(Dollars in thousands)	As recorded by FCB
Purchase Price			$	28,063
Assets
Cash and due from banks	$	3,244
Overnight investments	1,065
Investment securities	17,865
Loans	184,126
Premises and equipment	3,773
Income earned not collected	621
Intangible assets	2,680
Other assets	8,513
Fair value of assets acquired	221,887
Liabilities
Deposits	172,387
Accrued interest payable	263
Borrowings	30,624
Other liabilities	1,230
Fair value of liabilities assumed	$	204,504
Fair value of net assets assumed			17,383
Goodwill recorded for Capital Commerce			$	10,680

Merger-related expenses of ~~$12.3~~$1.2 million ~~and $8.0 million~~from the Capital Commerce transaction were recorded in the Consolidated Statements of Income for the ~~years~~year ended December 31, ~~2015~~2018. Loan-related interest income generated from Capital Commerce was approximately $3.2 million since the acquisition date.

HomeBancorp, Inc.

On May 1, 2018, FCB completed the merger of Tampa, Florida-based HomeBancorp, Inc. (HomeBancorp) and ~~2014, respectively.~~its subsidiary, HomeBanc, into FCB. Under the terms of the merger agreement, cash consideration of $15.03 per share was paid to the shareholders of HomeBancorp for each share of HomeBancorp's common stock, with total consideration paid of $112.7 million. The merger allowed FCB to expand its footprint in Florida by entering into two new markets in Tampa and Orlando.

The HomeBancorp 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. As of December 31, ~~2015, all~~2018, there have been no refinements to the fair value of these assets acquired and liabilities assumed.

Based on such credit factors as past due status, nonaccrual status, loan-to-value, credit scores and ~~credit risk ratings,~~other quantitative and qualitative considerations, the acquired loans were ~~divided~~separated into loans with evidence of credit ~~quality~~ deterioration, ~~at the acquisition date,~~ which are accounted for under ASC 310-30 ~~(included in PCI~~(PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 ~~(included in non-PCI~~(non-PCI loans).

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following ~~unaudited pro forma financial information reflects~~table provides the ~~consolidated results~~purchase price as of ~~operations~~the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values.



(Dollars in thousands)	As recorded by FCB
Purchase Price			$	112,657
Assets
Cash and due from banks	$	6,359
Overnight investments	10,393
Investment securities	200,918
Loans held for sale	791
Loans	566,173
Premises and equipment	6,542
Other real estate owned	2,135
Income earned not collected	2,717
Intangible assets	13,206
Other assets	33,459
Fair value of assets acquired	842,693
Liabilities
Deposits	619,589
Accrued interest payable	1,020
Borrowings	161,917
Other liabilities	5,126
Fair value of liabilities assumed	$	787,652
Fair value of net assets assumed			55,041
Goodwill recorded for HomeBancorp			$	57,616

Merger-related expenses of ~~BancShares. These results combine~~$2.3 million from the ~~historical results of Bancorporation~~HomeBancorp transaction were recorded in the ~~BancShares'~~ Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2013. The unaudited pro forma information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future results of operations of BancShares.

Year ended December 31
(Dollars in thousands, unaudited) 2014
Total revenue (interest income plus noninterest income) $ 1,336,340
Net loss $ (13,171 )

The merger transaction between BancShares and Bancorporation constituted a triggering event for which Bancorporation undertook a goodwill impairment assessment. Based on the analysis performed, Bancorporation determined that its fair value did not support the goodwill recorded; therefore, Bancorporation recorded a $166.8 million goodwill impairment charge to write-off a portion of goodwill prior to the October 1, 2014 effective date of the merger. This goodwill impairment is included in the pro forma financial results for the year ended December 31, ~~2014.~~2018. Loan-related interest income generated from HomeBancorp was approximately $17.4 million since the acquisition date.

~~1st Financial Merger~~

Guaranty Bank

On ~~January 1, 2014,~~May 5, 2017, FCB ~~completed its merger~~entered into an agreement with ~~1st Financial~~the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of ~~Hendersonville, NC and its wholly-owned subsidiary, Mountain 1st~~Guaranty Bank ~~& Trust Company (Mountain 1st). FCB paid $10.0 million to acquire 1st Financial, including payments~~(Guaranty) of ~~$8.0 million to the U.S. Treasury to acquire and subsequently retire 1st Financial's Troubled Asset Relief Program obligation and $2.0 million paid to the shareholders of 1st Financial.~~

Milwaukee, Wisconsin. The ~~1st Financial merger~~Guaranty 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. These fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on December 31, 2014. Assets acquired, excluding goodwill, were $612.9 million, including $307.9 million in loans and leases, $237.4 million of investment securities available for sale, $28.2 million in cash and $3.8 million in core deposit intangibles. Liabilities assumed were $635.8 million, including $631.9 million of deposits. Goodwill of $32.9 million was recorded equalingMay 4, 2018, with no material changes to the ~~excess purchase price over the estimated~~original calculated fair values.

~~Merger costs related to~~transaction was $122.7 million, which is included in noninterest income in the 1st Financial transaction were $5.0 million for the year ended December 31, 2014. Loan related interest income generated from 1st Financial was approximately $15.2 million for the year ended December 31, 2014.

All loans resulting from the 1st Financial transaction were recognized upon acquisition date with a discount attributable, at least in part, to credit quality, and are therefore accounted for as PCI loans under ASC 310-30.Consolidated Statements of Income.

Merger-related expenses of $2.3 million and $7.4 million were recorded in the Consolidated Statements of Income for the years ended December 31, 2018, and December 31, 2017, respectively. Loan-related interest income generated from Guaranty was approximately $17.3 million and $20.5 million for the years ended December 31, 2018, and December 31, 2017, respectively. While the acquisition gain of $122.7 million was significant for 2017, the ongoing contributions of this transaction to BancShares' financial statements is not considered material and therefore pro forma financial data is not included.

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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. These fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on January 12, 2018, with no material changes to the original calculated fair values.

There were no merger-related expenses recorded for the year ended December 31, 2018, and $1.2 million were recorded in the Consolidated Statements of Income for the year ended December 31, 2017. Loan-related interest income generated from HCB was approximately $3.7 million and $3.8 million for the years ended December 31, 2018 and December 31, 2017, respectively.

All loans resulting from the HCB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI under ASC 310-30.

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE C

INVESTMENTS

The amortized cost and fair value of investment securities classified as available for sale and held to maturity at December 31, ~~2015~~2018 and ~~2014~~,2017, were as follows:


	December 31, 2015								December 31, 2018
(Dollars in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Fair value		Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale
U.S. Treasury	$	1,675,996	$	4	$	1,118	$	1,674,882	$	1,249,243	$	633	$	2,166	$	1,247,710
Government agency	498,804		230		374		498,660		257,252		222		639		256,835
Mortgage-backed securities	4,692,447		5,120		29,369		4,668,198		2,956,793		5,309		52,763		2,909,339
Equity securities	7,935		968		10		8,893
Corporate bonds									139,906		59		864		139,101
Other	10,615		45		—		10,660		3,923		202		—		4,125
Total investment securities available for sale	$	6,885,797	$	6,367	$	30,871	$	6,861,293	$	4,607,117	$	6,425	$	56,432	$	4,557,110

	December 31, 2014								December 31, 2017
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value		Cost		Gross unrealized gains		Gross unrealized losses		Fair value
U.S. Treasury	$	2,626,900	$	2,922	$	152	$	2,629,670	$	1,658,410	$	—	$	546	$	1,657,864
Government agency	908,362		702		247		908,817		8,695		15		40		8,670
Mortgage-backed securities	3,628,187		16,964		11,847		3,633,304		5,419,379		1,529		80,152		5,340,756
Municipal securities	125		1		—		126
Marketable equity securities									75,471		29,737		—		105,208
Corporate bonds									59,414		557		8		59,963
Other									7,645		256		182		7,719
Total investment securities available for sale	$	7,163,574	$	20,589	$	12,246	$	7,171,917	$	7,229,014	$	32,094	$	80,928	$	7,180,180

	December 31, 2015								December 31, 2018
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value		Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities held to maturity
Mortgage-backed securities	$	255	$	10	$	—	$	265	$	2,184,653	$	17,339	$	490	$	2,201,502

	December 31, 2014								December 31, 2017
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value		Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Mortgage-backed securities	$	518	$	26	$	—	$	544	$	76	$	5	$	—	$	81

The adoption of ASU 2016-01in the first quarter of 2018 resulted in marketable equity investments being reported separately in the Consolidated Balance Sheets and the change in fair value of those investments is reflected in the Consolidated Statements of Income. At adoption, we recorded a cumulative-effect adjustment to the consolidated balance sheet resulting in an $18.7 million increase to retained earnings and a corresponding decrease to AOCI. The fair value of marketable equity securities was $92.6 million and $105.2 million, respectively, at December 31, 2018 and 2017.

On May 1, 2018, mortgage-backed securities with an amortized cost of $2.49 billion were transferred from investments available for sale to the held to maturity portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $2.38 billion and a weighted average contractual maturity of 13 years. The unrealized loss on these securities at the date of transfer was $109.5 million or $84.3 million net of tax, and continues to be reported as a component of AOCI. This unrealized loss will be accreted over the remaining expected life of the securities as an adjustment of yield and is partially offset by the amortization of the corresponding discount on the transferred securities. As of December 31, 2018, $17.1 million or $13.2 million net of tax, of the unrealized loss has been accreted from AOCI into interest income. FCB has the intent and ability to retain these securities until maturity.

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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 with a cost basis of zero. BancShares' Visa Class B shares are not considered to have a readily determinable fair value and are included in the Consolidated Balance Sheets at a $0 fair value.

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~~Mortgage-backed, government agency and equity securities are ~~dependent~~stated separately as they are not due at a single maturity date.



	December 31, 2018				December 31, 2017
(Dollars in thousands)	Cost		Fair value		Cost		Fair value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	1,049,253	$	1,047,380	$	808,768	$	808,301
One through five years	205,526		205,805		849,642		849,563
Five through 10 years	134,370		133,626		59,414		59,963
Over 10 years	3,923		4,125		7,645		7,719
Government agency	257,252		256,835		8,695		8,670
Mortgage-backed securities	2,956,793		2,909,339		5,419,379		5,340,756
Marketable equity securities	—		—		75,471		105,208
Total investment securities available for sale	$	4,607,117	$	4,557,110	$	7,229,014	$	7,180,180
Investment securities held to maturity
Mortgage-backed securities held to maturity	$	2,184,653	$	2,201,502	$	76	$	81

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



	Year ended December 31
(Dollars in thousands)	2018			2017			2016
Gross gains on retirement/sales of investment securities available for sale	$	353		$	11,635		$	27,104
Gross losses on sales of investment securities available for sale	(2		)	(7,342		)	(431		)
Net securities gains	$	351		$	4,293		$	26,673

The following table provides the realized and unrealized gains or losses on marketable equity securities for the ~~repayments of the underlying loan balances. Equity securities do not have a stated maturity date.~~three and twelve months ended December 31, 2018.



(Dollars in thousands)	Three months ended December 31, 2018			Twelve months ended December 31, 2018
Marketable equity securities (losses) gains, net	$	(16,875	)	$	(7,610	)
Less net gains recognized on marketable equity securities sold	9			1,190
Unrealized (losses) gains recognized on marketable equity securities held	$	(16,884	)	$	(8,800	)

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2015 December 31, 2014
(Dollars in thousands) Cost Fair value Cost Fair value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less $ 1,255,714
$ 1,255,094
$ 447,866
$ 447,992
One through five years 919,086
918,448
3,087,521
3,090,621
Five through 10 years 8,500
8,500
—
—
Over 10 years 2,115
2,160
—
—
Mortgage-backed securities 4,692,447
4,668,198
3,628,187
3,633,304
Equity securities 7,935
8,893
—
—
Total investment securities available for sale $ 6,885,797
$ 6,861,293
$ 7,163,574
$ 7,171,917
Investment securities held to maturity
Mortgage-backed securities held to maturity $ 255
$ 265
$ 518
$ 544

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

Year ended December 31
(Dollars in thousands) 2015 2014 2013
Gross gains on retirement/sales of investment securities available for sale $ 10,834
$ 29,129
$ —
Gross losses on sales of investment securities available for sale (17 ) (33 ) —
Total securities gains $ 10,817
$ 29,096
$ —

The following table provides information regarding securities with unrealized losses as of December 31, ~~2015~~2018 and ~~2014~~2017:


	December 31, 2015												December 31, 2018
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment securities available for sale:
U.S. Treasury	$	1,539,637	$	1,118	$	—	$	—	$	1,539,637	$	1,118	$	248,983	$	113	$	848,622	$	2,053	$	1,097,605	$	2,166
Government agency	229,436		374		—		—		229,436		374		115,273		601		2,310		38		117,583		639
Mortgage-backed securities	3,570,470		23,275		280,126		6,094		3,850,596		29,369		262,204		2,387		1,940,695		50,376		2,202,899		52,763
Equity securities	728		10		—		—		728		10
Other	—		—		—		—		—		—
Corporate bonds													79,066		842		5,000		22		84,066		864
Total	$	5,340,271	$	24,777	$	280,126	$	6,094	$	5,620,397	$	30,871	$	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

	December 31, 2014												December 31, 2017
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment securities available for sale:
U.S. Treasury	$	338,612	$	151	$	1,015	$	1	$	339,627	$	152	$	1,408,166	$	345	$	249,698	$	201	$	1,657,864	$	546
Government agency	261,288		247		—		—		261,288		247		848		12		2,527		28		3,375		40
Mortgage-backed securities	573,374		1,805		831,405		10,042		1,404,779		11,847		2,333,254		20,911		2,723,406		59,241		5,056,660		80,152
Corporate bonds													5,025		8		—		—		5,025		8
Other													5,349		182		—		—		5,349		182
Total	$	1,173,274	$	2,203	$	832,420	$	10,043	$	2,005,694	$	12,246	$	3,752,642	$	21,458	$	2,975,631	$	59,470	$	6,728,273	$	80,928

~~Investment~~As of December 31, 2018, there were 221 investment securities ~~with an aggregate fair value of $280.1 million have~~available for sale that had continuous ~~unrealized~~ losses for more than 12 months as of ~~December 31, 2015~~ ~~with an aggregate unrealized loss of $6.1 million. As of~~ ~~December 31, 2015, all~~ 39 ~~of these investments~~which 213 are government sponsored, enterprise-issued mortgage-backed ~~securities.~~ securities or government agency securities, 7 are U.S. Treasury securities and 1 is a corporate bond. There were 2 investment securities held to maturity, which were government sponsored, enterprise-issued mortgage securities, that had continuous losses for more than 12 months at December 31, 2018.

None of the unrealized losses identified as of December 31, ~~2015~~2018 or December 31, ~~2014~~2017 relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. ~~For all periods presented,~~Rather, the unrealized losses related to changes in interest rates and spreads relative to when the investment securities were purchased. BancShares ~~had~~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.~~OTTI.

~~Investment~~Debt securities having an aggregate carrying value of ~~$4.73~~$4.03 billion at December 31, ~~2015~~2018 and ~~$4.37~~$4.59 billion at December 31, ~~2014~~2017, 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-PCI or PCI. Loans that are originated by BancShares and 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 BancShares will be unable to collect all contractually required payments are classified as PCI. Additionally, acquired loans are recorded at fair value at the date of acquisition, with no corresponding allowance for loan and lease losses. See Note A for additional information on non-PCI and PCI loans and leases.

8789

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~NOTE D~~

~~LOANS AND LEASES~~Loans and leases outstanding include the following at December 31, 2018 and 2017:

~~BancShares' accounting methods~~



(Dollars in thousands)	December 31, 2018		December 31, 2017
Non-PCI loans and leases:
Commercial:
Construction and land development	$	757,854	$	669,215
Commercial mortgage	10,717,234		9,729,022
Other commercial real estate	426,985		473,433
Commercial and industrial and leases	3,938,730		3,625,208
Other	296,424		302,176
Total commercial loans	16,137,227		14,799,054
Noncommercial:
Residential mortgage	4,265,687		3,523,786
Revolving mortgage	2,542,975		2,701,525
Construction and land development	257,030		248,289
Consumer	1,713,781		1,561,173
Total noncommercial loans	8,779,473		8,034,773
Total non-PCI loans and leases	24,916,700		22,833,827
PCI loans:
Total PCI loans	606,576		762,998
Total loans and leases	$	25,523,276	$	23,596,825

At December 31, 2018, $9.12 billion in noncovered 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 December 31, 2017, $8.75 billion in noncovered loans with a lendable collateral value of $6.08 billion were used to secure $835.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $5.24 billion.

At December 31, 2018, $2.94 billion in noncovered loans with a lendable collateral value of $2.19 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (FRB). At December 31, 2017, $2.77 billion in noncovered loans with a lendable collateral value of $2.08 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. Loans held for sale totaled $45.5 million and $51.2 million at December 31, 2018 and 2017, respectively. We may change our strategy for certain portfolio loans and sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value.

During 2018, total proceeds from sales of residential mortgage loans were $618.1 million of which $608.5 million related to sales of loans held for sale. The remaining $9.6 million related to sales of portfolio loans, which were sold at par. During 2017, total proceeds from sales of residential mortgage loans were $823.5 million, of which $660.8 million related to sales of loans held for sale. The remaining $162.6 million related to sales of portfolio loans, which resulted in a gain of $1.0 million.

Net deferred fees on originated non-PCI loans and leases, ~~differ depending~~including unearned income as well as unamortized costs, were $79 thousand and $1.7 million at December 31, 2018 and December 31, 2017, respectively. The unamortized discounts related to purchased non-PCI loans in the Capital Commerce, HomeBancorp, Guaranty, Cordia Bancorp, Inc. (Cordia) and First Citizens Bancorporation, Inc. (Bancorporation) acquisitions were $3.1 million, $6.3 million, $10.8 million, $1.4 million and $12.0 million at December 31, 2018, respectively. At December 31, 2017, the unamortized discounts related to purchased non-PCI loans and leases from the Guaranty, Cordia and Bancorporation acquisitions were $14.2 million, $2.7 million and $18.1 million, respectively. During the years ended December 31, 2018 and December 31, 2017, accretion income on ~~whether they are~~ purchased ~~credit-impaired (PCI) or non-PCI. Non-PCI~~non-PCI loans ~~include originated commercial, originated noncommercial, purchased revolving,~~ and purchased non-impaired loans. For purchased non-impaired loans to be included as non-PCI, it must be determined that the loans do not have a discount due, at least in part, to credit quality at the time of acquisition. Conversely, loans for which it is probable at acquisition that all required payments will not be collected in accordance with contractual terms are considered PCI loans. PCI loans are evaluated at acquisitionleases was $12.8 million and ~~where a discount is required at least in part due to credit quality, the non-revolving loans are accounted for under the guidance in ASC Topic 310-30,~~ $13.6 million, respectively.

Loans and ~~Debt Securities Acquired with Deteriorated Credit Quality. PCI~~leases to borrowers in medical, dental or related fields were $4.98 billion as of December 31, 2018, which represents 19.5 percent of total loans ~~are recorded~~and leases, compared to $4.86 billion or 20.6 percent of total loans and leases at ~~fair~~December 31, 2017. The credit risk of this industry concentration is mitigated through our underwriting policies, which emphasize reliance on adequate borrower cash flow, rather than underlying collateral value, ~~at the date of acquisition. No allowance~~and our preference 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. Note A of BancShares' Notes to Consolidated Financial Statements provides additional information.

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~~owner-occupied real property. Except for this single concentration, no other industry represented more than 10 percent of total loans and ~~other improvements) and multifamily (5 or more) residential properties.~~leases outstanding at December 31, 2018.

~~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 single-family dwelling at a future date.

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

8890

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Loans and leases outstanding include the following as of the dates indicated:~~

(Dollars in thousands) December 31, 2015 December 31, 2014
Non-PCI loans and leases:
Commercial:
Construction and land development $ 620,352
$ 493,133
Commercial mortgage 8,274,548
7,552,948
Other commercial real estate 321,021
244,875
Commercial and industrial 2,368,958
1,988,934
Lease financing 730,778
571,916
Other 314,832
353,833
Total commercial loans 12,630,489
11,205,639
Noncommercial:
Residential mortgage 2,695,985
2,493,058
Revolving mortgage 2,523,106
2,561,800
Construction and land development 220,073
205,016
Consumer 1,219,821
1,117,454
Total noncommercial loans 6,658,985
6,377,328
Total non-PCI loans and leases 19,289,474
17,582,967
PCI loans:
Commercial:
Construction and land development $ 33,880
$ 78,079
Commercial mortgage 525,468
577,518
Other commercial real estate 17,076
40,193
Commercial and industrial 15,182
27,254
Other 2,008
3,079
Total commercial loans 593,614
726,123
Noncommercial:
Residential mortgage 302,158
382,340
Revolving mortgage 52,471
74,109
Construction and land development —
912
Consumer 2,273
3,014
Total noncommercial loans 356,902
460,375
Total PCI loans 950,516
1,186,498
Total loans and leases $ 20,239,990
$ 18,769,465

At December 31, 2015, $272.6 million in total loans were covered under loss share agreements, compared to $485.3 million at December 31, 2014. During 2015, loss share protection expired for non-single family residential loans acquired from Sun American Bank (SAB) and Williamsburg First National Bank (WFNB) and all loans acquired from First Regional Bank (FRB). The loan balances at December 31, 2015 for the expired agreements from SAB and WFNB were $26.7 million and $6.8 million, respectively. FRB loan balances at December 31, 2015 were insignificant. Loss share protection for United Western Bank (UWB), Atlantic Bank & Trust (ABT) and Colorado Capital Bank (CCB) non-single family residential loans with balances of $119.6 million, $9.7 million and $4.8 million, respectively, at December 31, 2015 will expire at the beginning of the second quarter of 2016, third quarter of 2016 and fourth quarter of 2016, respectively. The remaining decrease in covered loans is due to pay downs and payoffs.

At December 31, 2015, $8.58 billion in noncovered loans with a lendable collateral value of $6.08 billion were used to secure $510.3 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $5.57 billion. At December 31, 2014, $3.16 billion in noncovered loans with a lendable collateral value of $2.20 billion were used to secure $240.3 million in FHLB of Atlanta advances, resulting additional borrowing capacity of $1.96 billion.

~~To mitigate interest rate risk and credit risk, we sold $45.9 million of certain residential mortgage loans at par during 2015.~~

The unamortized discount related to non-PCI loans and leases acquired in the Bancorporation merger was $41.1 million and $61.2 million at December 31, 2015 and December 31, 2014, respectively. During the years ended December 31, 2015 and December 31, 2014, accretion income on non-PCI loans was $18.7 million and $5.9 million, respectively.

~~Table of Contents~~

~~FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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~~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. ~~Each commercial loan is~~Commercial loans are evaluated ~~annually~~periodically with more frequent ~~evaluation of more severely~~evaluations done on criticized ~~loans or leases.~~loans. The ~~credit quality~~ indicators for PCI and non-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 are based on the most recent assessment ~~performed. These credit quality indicators~~performed and are defined ~~as follows:~~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 December 31, ~~2015~~2018 and ~~December 31, 2014~~2017, 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 ~~composition~~credit quality indicators for non-PCI and PCI noncommercial loans are based on delinquency status of the ~~loans and leases outstanding at~~ ~~December 31, 2015, and~~ ~~December 31, 2014, by credit quality indicator is provided below:~~

Non-PCI commercial loans and leases
(Dollars in thousands)
Construction and land
development

Commercial
mortgage

Other
commercial real estate

Commercial and
industrial
Lease financing Other Total non-PCI commercial loans and leases
Grade:
December 31, 2015
Pass $ 611,314
$ 8,024,831
$ 318,187
$ 2,219,606
$ 719,338
$ 311,401
$ 12,204,677
Special mention 5,191
100,220
475
19,361
4,869
1,905
132,021
Substandard 3,847
146,071
959
21,322
6,375
1,526
180,100
Doubtful —
599
—
408
169
—
1,176
Ungraded —
2,827
1,400
108,261
27
—
112,515
Total $ 620,352
$ 8,274,548
$ 321,021
$ 2,368,958
$ 730,778
$ 314,832
$ 12,630,489
December 31, 2014
Pass $ 474,374
$ 7,284,714
$ 242,053
$ 1,859,415
$ 564,319
$ 349,111
$ 10,773,986
Special mention 13,927
129,247
909
27,683
3,205
1,384
176,355
Substandard 4,720
134,677
1,765
8,878
3,955
3,338
157,333
Doubtful —
2,366
—
164
365
—
2,895
Ungraded 112
1,944
148
92,794
72
—
95,070
Total $ 493,133
$ 7,552,948
$ 244,875
$ 1,988,934
$ 571,916
$ 353,833
$ 11,205,639
borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases.

9091

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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
December 31, 2015
Current $ 2,651,209
$ 2,502,065
$ 214,555
$ 1,210,832
$ 6,578,661
30-59 days past due 23,960
11,706
3,211
5,545
44,422
60-89 days past due 7,536
3,704
669
1,822
13,731
90 days or greater past due 13,280
5,631
1,638
1,622
22,171
Total $ 2,695,985
$ 2,523,106
$ 220,073
$ 1,219,821
$ 6,658,985
December 31, 2014
Current $ 2,454,797
$ 2,542,807
$ 202,344
$ 1,110,153
$ 6,310,101
30-59 days past due 23,288
11,097
1,646
4,577
40,608
60-89 days past due 6,018
2,433
824
1,619
10,894
90 days or greater past due 8,955
5,463
202
1,105
15,725
Total $ 2,493,058
$ 2,561,800
$ 205,016
$ 1,117,454
$ 6,377,328

The composition of the loans and leases outstanding at December 31, 2018 and December 31, 2017, by credit quality indicator are provided below:


													December 31, 2018
	PCI commercial loans												Non-PCI commercial loans and leases
(Dollars in thousands)	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial		Other		Total PCI commercial loans		Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial and leases		Other		Total non-PCI commercial loans and leases
Grade:
December 31, 2015
Pass	$	14,710	$	262,579	$	7,366	$	9,302	$	706	$	294,663	$	753,985	$	10,507,687	$	422,500	$	3,778,797	$	294,700	$	15,757,669
Special mention	758		87,870		60		937		—		89,625		1,369		114,219		3,193		54,814		1,105		174,700
Substandard	14,131		163,801		9,229		4,588		1,302		193,051		2,500		92,743		1,292		30,688		619		127,842
Doubtful	4,281		10,875		—		282		—		15,438		—		—		—		354		—		354
Ungraded	—		343		421		73		—		837		—		2,585		—		74,077		—		76,662
Total	$	33,880	$	525,468	$	17,076	$	15,182	$	2,008	$	593,614	$	757,854	$	10,717,234	$	426,985	$	3,938,730	$	296,424	$	16,137,227
December 31, 2014

													December 31, 2017
													Non-PCI commercial loans and leases
													Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial and leases		Other		Total non-PCI commercial loans and leases
Pass	$	13,514	$	300,187	$	11,033	$	16,637	$	801	$	342,172	$	665,197	$	9,521,019	$	468,942	$	3,395,086	$	298,064	$	14,348,308
Special mention	6,063		98,724		16,271		4,137		—		125,195		691		78,643		1,260		48,470		2,919		131,983
Substandard	53,739		171,920		12,889		6,312		2,278		247,138		3,327		128,848		3,224		25,202		1,193		161,794
Doubtful	2,809		6,302		—		130		—		9,241		—		262		—		385		—		647
Ungraded	1,954		385		—		38		—		2,377		—		250		7		156,065		—		156,322
Total	$	78,079	$	577,518	$	40,193	$	27,254	$	3,079	$	726,123	$	669,215	$	9,729,022	$	473,433	$	3,625,208	$	302,176	$	14,799,054



	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

	December 31, 2017
	Non-PCI noncommercial loans and leases
	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		Total non-PCI noncommercial loans and leases
Current	$	3,465,935	$	2,674,390	$	239,648	$	1,546,473	$	7,926,446
30-59 days past due	27,886		13,428		7,154		8,812		57,280
60-89 days past due	8,064		3,485		108		2,893		14,550
90 days or greater past due	21,901		10,222		1,379		2,995		36,497
Total	$	3,523,786	$	2,701,525	$	248,289	$	1,561,173	$	8,034,773

PCI noncommercial loans
(Dollars in thousands)
Residential
mortgage

Revolving
mortgage

Construction
and land
development
Consumer Total PCI noncommercial
loans
December 31, 2015
Current $ 257,207
$ 47,901
$ —
$ 1,981
$ 307,089
30-59 days past due 12,318
1,127
—
86
13,531
60-89 days past due 4,441
501
—
132
5,074
90 days or greater past due 28,192
2,942
—
74
31,208
Total $ 302,158
$ 52,471
$ —
$ 2,273
$ 356,902
December 31, 2014
Current $ 326,589
$ 68,548
$ 506
2,582
$ 398,225
30-59 days past due 11,432
1,405
—
147
12,984
60-89 days past due 10,073
345
—
25
10,443
90 days or greater past due 34,246
3,811
406
260
38,723
Total $ 382,340
$ 74,109
$ 912
$ 3,014
$ 460,375

9192

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	December 31, 2018		December 31, 2017
(Dollars in thousands)	PCI commercial loans
Pass	$	141,922	$	201,332
Special mention	48,475		63,257
Substandard	101,447		117,068
Doubtful	4,828		11,735
Ungraded	—		27
Total	$	296,672	$	393,419



	December 31, 2018		December 31, 2017
(Dollars in thousands)	PCI noncommercial loans
Current	$	268,280	$	318,632
30-89 days past due	11,155		13,343
60-89 days past due	7,708		6,212
90 days or greater past due	22,761		31,392
Total	$	309,904	$	369,579

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The aging of the outstanding non-PCI loans and leases, by class, at December 31, ~~2015~~,2018, and December 31, ~~2014~~ is2017 are provided in the ~~table~~tables 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 ~~that~~ allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.


	December 31, 2015												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		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	$	987	$	283	$	463	$	1,733	$	618,619	$	620,352	$	516	$	9	$	444	$	969	$	756,885	$	757,854
Commercial mortgage	13,023		3,446		14,495		30,964		8,243,584		8,274,548		14,200		2,066		3,237		19,503		10,697,731		10,717,234
Other commercial real estate	884		—		142		1,026		319,995		321,021		91		76		300		467		426,518		426,985
Commercial and industrial	2,133		1,079		1,780		4,992		2,363,966		2,368,958
Lease financing	2,070		2		164		2,236		728,542		730,778
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	23,960		7,536		13,280		44,776		2,651,209		2,695,985		28,239		7,357		15,308		50,904		4,214,783		4,265,687
Revolving mortgage	11,706		3,704		5,631		21,041		2,502,065		2,523,106		12,585		4,490		11,631		28,706		2,514,269		2,542,975
Construction and land development - noncommercial	3,211		669		1,638		5,518		214,555		220,073		581		21		1,591		2,193		254,837		257,030
Consumer	5,545		1,822		1,622		8,989		1,210,832		1,219,821		10,035		3,904		3,521		17,460		1,696,321		1,713,781
Other	3		164		134		301		314,531		314,832
Total noncommercial loans													51,440		15,772		32,051		99,263		8,680,210		8,779,473
Total non-PCI loans and leases	$	63,522	$	18,705	$	39,349	$	121,576	$	19,167,898	$	19,289,474	$	76,187	$	19,682	$	39,013	$	134,882	$	24,781,818	$	24,916,700

	December 31, 2014												December 31, 2017
	30-59 days past due		60-89 days past due		90 days or greater		Total past due		Current		Total loans and leases		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	$	520	$	283	$	330	$	1,133	$	492,000	$	493,133	$	491	$	442	$	357	$	1,290	$	667,925	$	669,215
Commercial mortgage	11,367		4,782		8,061		24,210		7,528,738		7,552,948		12,288		2,375		6,490		21,153		9,707,869		9,729,022
Other commercial real estate	206		70		102		378		244,497		244,875		107		—		75		182		473,251		473,433
Commercial and industrial	2,843		1,545		378		4,766		1,984,168		1,988,934
Lease financing	1,631		8		2		1,641		570,275		571,916
Commercial and industrial and leases													9,677		1,677		2,239		13,593		3,611,615		3,625,208
Other													188		6		133		327		301,849		302,176
Total commercial loans													22,751		4,500		9,294		36,545		14,762,509		14,799,054
Noncommercial:
Residential mortgage	23,288		6,018		8,955		38,261		2,454,797		2,493,058		27,886		8,064		21,901		57,851		3,465,935		3,523,786
Revolving mortgage	11,097		2,433		5,463		18,993		2,542,807		2,561,800		13,428		3,485		10,222		27,135		2,674,390		2,701,525
Construction and land development - noncommercial	1,646		824		202		2,672		202,344		205,016		7,154		108		1,379		8,641		239,648		248,289
Consumer	4,577		1,619		1,105		7,301		1,110,153		1,117,454		8,812		2,893		2,995		14,700		1,546,473		1,561,173
Other	146		1,966		—		2,112		351,721		353,833
Total noncommercial loans													57,280		14,550		36,497		108,327		7,926,446		8,034,773
Total non-PCI loans and leases	$	57,321	$	19,548	$	24,598	$	101,467	$	17,481,500	$	17,582,967	$	80,031	$	19,050	$	45,791	$	144,872	$	22,688,955	22,833,827

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, ~~2015~~2018 and December 31, ~~2014~~2017 for non-PCI loans and leases, were as follows:


	December 31, 2015				December 31, 2014				December 31, 2018				December 31, 2017
(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		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	$	425	$	273	$	343	$	56	$	666	$	—	$	1,040	$	—
Commercial mortgage	42,116		242		24,720		1,003		12,594		—		22,625		397
Commercial and industrial	6,235		953		1,741		239
Lease financing	389		—		374		2
Other commercial real estate	239		—		619		35		366		—		916		—
Construction and land development - noncommercial	2,164		—		—		202
Commercial and industrial and leases									4,624		808		4,876		428
Residential mortgage	29,977		838		14,242		3,191		35,662		—		38,942		—
Revolving mortgage	12,704		—		—		5,463		25,563		—		19,990		—
Construction and land development - noncommercial									1,823		—		1,989		—
Consumer	1,472		1,007		—		1,059		2,969		2,080		1,992		2,153
Other	133		2		1,966		—		279		—		164		—
Total non-PCI loans and leases	$	95,854	$	3,315	$	44,005	$	11,250	$	84,546	$	2,888	$	92,534	$	2,978

Purchased non-PCI loans and leases

The following table relates to purchased non-PCI loans acquired in the Palmetto Heritage, Capital Commerce and HomeBancorp transactions in 2018 and the Guaranty transaction in 2017. The table summarizes the contractually required payments, which include principal and interest, estimate of contractual cash flows not expected to be collected and fair value of the acquired loans at the acquisition date.



(Dollars in thousands)	Palmetto Heritage		Capital Commerce		HomeBancorp		Guaranty
Contractually required payments	$	142,413	$	198,568	$	710,876	$	703,916
Contractual cash flows not expected to be collected	—		5,427		9,845		16,073
Fair value at acquisition date	131,283		173,354		550,618		574,553

The recorded fair values of purchased non-PCI loans acquired in the Palmetto Heritage, Capital Commerce and HomeBancorp transactions in 2018 and the Guaranty transaction in 2017 as of their respective acquisition date were as follows:



(Dollars in thousands)	Palmetto Heritage		Capital Commerce		HomeBancorp		Guaranty
Commercial:
Construction and land development	$	13,186	$	10,299	$	525	$	—
Commercial mortgage	29,225		57,049		188,688		850
Other commercial real estate	753		6,370		55,183		—
Commercial and industrial and leases	8,153		34,301		7,931		583
Other	1,039		—		—		183,816
Total commercial loans and leases	52,356		108,019		252,327		185,249
Noncommercial:
Residential mortgage	59,076		50,630		296,273		309,612
Revolving mortgage	6,175		2,552		51		54,780
Construction and land development	11,103		11,173		—		—
Consumer	2,573		980		1,967		24,912
Total noncommercial loans and leases	78,927		65,335		298,291		389,304
Total non-PCI loans	$	131,283	$	173,354	$	550,618	$	574,553

Table of Contents

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Purchased credit-impaired (PCI)~~PCI loans

The following table relates to PCI loans acquired in the ~~CCBT merger for 2015~~Palmetto Heritage, Capital Commerce and HomeBancorp transactions in 2018 and the ~~Bancorporation~~Guaranty and ~~1st Financial mergers for 2014.~~HCB transactions in 2017. The table 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 respective ~~merger~~acquisition dates.


(Dollars in thousands)	2015		2014		Palmetto Heritage		Capital Commerce		HomeBancorp		Guaranty		HCB
Contractually required payments	$	247,812	$	828,156	$	4,783	$	13,871	$	26,651	$	158,456	$	111,250
Cash flows expected to be collected	$	207,688	$	735,381	4,112		11,814		19,697		142,000		101,802
Fair value of loans at acquisition	$	154,496	$	623,408	3,863		10,772		15,555		114,533		85,149

The recorded fair values of PCI loans acquired in the ~~CCBT, Bancorporation~~Palmetto Heritage, Capital Commerce and ~~1st Financial transaction~~HomeBancorp transactions in 2018 and the Guaranty and HCB transactions in 2017 as of their respective ~~merger dates~~acquisition date were as follows:


(Dollars in thousands)	2015		2014		Palmetto Heritage		Capital Commerce		HomeBancorp		Guaranty		HCB
Commercial:
Construction and land development	$	4,116	$	69,789	$	212	$	1,482	$	—	$	55	$	7,061
Commercial mortgage	129,732		176,841		1,053		1,846		7,815		644		21,836
Other commercial real estate	3,202		15,425		—		—		—		—		6,404
Commercial and industrial	2,844		37,583		372		922		423		2		19,675
Other	—		2,219
Total commercial loans	139,894		301,857		1,637		4,250		8,238		701		54,976
Noncommercial:
Residential mortgage	13,251		287,675		2,226		6,503		7,317		80,475		25,857
Revolving mortgage	—		29,777		—		—		—		33,319		3,434
Construction and land development	—		199		—		—		—		26		—
Consumer	1,351		3,900		—		19		—		12		882
Total noncommercial loans	14,602		321,551		2,226		6,522		7,317		113,832		30,173
Total PCI loans	$	154,496	$	623,408	$	3,863	$	10,772	$	15,555	$	114,533	$	85,149



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 principal executive offices, ZIP code)

	(919) 716-7000
	(Registrant's telephone number, including area code)



Title of each class		Name of each exchange on which registered
Class A Common Stock, Par Value $1		NASDAQ Global Select Market



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



(Dollars in thousands)	2015			2014			2013			2012			2011
Allowance for loan and lease losses at beginning of period	$	204,466		$	233,394		$	319,018		$	270,144		$	227,765
Reclassification ⁽¹⁾	—			—			7,368			—			—
Non-PCI provision for loan and lease losses:
Commercial:
Construction and land development	4,773			1,735			2,809			9,665			5,926
Commercial mortgage	(15,822		)	(16,746		)	(4,485		)	18,198			8,744
Other commercial real estate	1,569			(401		)	(32		)	130			(30		)
Commercial and industrial	17,432			10,441			4,333			(4,982		)	4,488
Lease financing	1,602			(473		)	1,646			498			350
Other	(1,420		)	3,007			308			(116		)	(71		)
Total commercial loans	8,134			(2,437		)	4,579			23,393			19,407
Noncommercial:
Residential mortgage	4,202			1,219			2,786			(782		)	6,447
Revolving mortgage	(927		)	6,301			6,296			8,783			22,316
Construction and land development	541			245			(379		)	1,161			2,104
Consumer	10,987			9,932			6,085			7,763			7,266
Nonspecific	—			—			(78		)	1,728			259
Total noncommercial loans	14,803			17,697			14,710			18,653			38,392
Total non-PCI provision	22,937			15,260			19,289			42,046			57,799
PCI provision for loan losses	(2,273		)	(14,620		)	(51,544		)	100,839			174,478
Non-PCI Charge-offs:
Commercial:
Construction and land development	(1,012		)	(316		)	(4,685		)	(9,546		)	(11,189		)
Commercial mortgage	(1,498		)	(1,147		)	(3,904		)	(7,081		)	(6,975		)
Other commercial real estate	(178		)	—			(312		)	(254		)	(24		)
Commercial and industrial	(5,952		)	(3,014		)	(4,785		)	(5,472		)	(5,879		)
Lease financing	(402		)	(100		)	(272		)	(361		)	(579		)
Other	—			(13		)	(6		)	(28		)	(89		)
Total commercial loans	(9,042		)	(4,590		)	(13,964		)	(22,742		)	(24,735		)
Noncommercial:
Residential mortgage	(1,619		)	(1,260		)	(2,387		)	(4,790		)	(5,566		)
Revolving mortgage	(2,925		)	(4,744		)	(6,064		)	(11,341		)	(13,940		)
Construction and land development	(22		)	(118		)	(392		)	(1,047		)	(2,617		)
Consumer	(11,696		)	(9,787		)	(10,311		)	(10,288		)	(12,429		)
Total noncommercial loans	(16,262		)	(15,909		)	(19,154		)	(27,466		)	(34,552		)
Total non-PCI charge-offs	(25,304		)	(20,499		)	(33,118		)	(50,208		)	(59,287		)
Non-PCI Recoveries:
Commercial:
Construction and land development	566			207			1,039			445			218
Commercial mortgage	2,027			2,825			996			1,626			945
Other commercial real estate	45			124			109			14			23
Commercial and industrial	909			938			1,213			781			1,025
Lease financing	38			110			107			96			133
Other	91			—			1			4			2
Total commercial loans	3,676			4,204			3,465			2,966			2,346
Noncommercial:
Residential mortgage	861			191			559			529			989
Revolving mortgage	1,173			854			660			698			653
Construction and land development	74			84			209			180			189
Consumer	3,650			2,869			2,396			1,952			1,677
Total noncommercial loans	5,758			3,998			3,824			3,359			3,508
Total non-PCI recoveries	9,434			8,202			7,289			6,325			5,854
Non-PCI loans and leases charged off, net	(15,870		)	(12,297		)	(25,829		)	(43,883		)	(53,433		)
PCI loans charged off, net	(3,044		)	(17,271		)	(34,908		)	(50,128		)	(136,465		)
Allowance for loan and lease losses at end of period	$	206,216		$	204,466		$	233,394		$	319,018		$	270,144
Reserve for unfunded commitments ⁽¹⁾	$	379		$	333		$	357		$	7,692		$	7,789



(Dollars in thousands)	2018			2017			2016			2015			2014
Allowance for loan and lease losses at beginning of period	$	221,893		$	218,795		$	206,216		$	204,466		$	233,394
Non-PCI provision for loan and lease losses	29,232			29,139			34,870			22,937			15,260
PCI provision (credit) for loan losses	(765		)	(3,447		)	(1,929		)	(2,273		)	(14,620		)
Non-PCI Charge-offs:
Commercial:
Construction and land development	(44		)	(599		)	(680		)	(1,012		)	(316		)
Commercial mortgage	(1,140		)	(421		)	(987		)	(1,498		)	(1,147		)
Other commercial real estate	(69		)	(5		)	—			(178		)	—
Commercial and industrial and leases	(10,211		)	(11,921		)	(9,455		)	(6,354		)	(3,114		)
Other	(130		)	(912		)	(144		)	—			(13		)
Total commercial loans	(11,594		)	(13,858		)	(11,266		)	(9,042		)	(4,590		)
Noncommercial:
Residential mortgage	(1,689		)	(1,376		)	(926		)	(1,619		)	(1,260		)
Revolving mortgage	(3,235		)	(2,368		)	(3,287		)	(2,925		)	(4,744		)
Construction and land development	(219		)	—			—			(22		)	(118		)
Consumer	(22,817		)	(18,784		)	(14,108		)	(11,696		)	(9,787		)
Total noncommercial loans	(27,960		)	(22,528		)	(18,321		)	(16,262		)	(15,909		)
Total non-PCI charge-offs	(39,554		)	(36,386		)	(29,587		)	(25,304		)	(20,499		)
Non-PCI Recoveries:
Commercial:
Construction and land development	311			521			398			566			207
Commercial mortgage	1,076			2,842			1,281			2,027			2,825
Other commercial real estate	150			27			176			45			124
Commercial and industrial and leases	3,496			3,989			1,729			947			1,048
Other	489			285			539			91			—
Total commercial loans	5,522			7,664			4,123			3,676			4,204
Noncommercial:
Residential mortgage	558			539			467			861			191
Revolving mortgage	1,549			1,282			916			1,173			854
Construction and land development	127			—			66			74			84
Consumer	5,267			4,603			4,267			3,650			2,869
Total noncommercial loans	7,501			6,424			5,716			5,758			3,998
Total non-PCI recoveries	13,023			14,088			9,839			9,434			8,202
Non-PCI loans and leases charged-off, net	(26,531		)	(22,298		)	(19,748		)	(15,870		)	(12,297		)
PCI loans charged-off, net	(117		)	(296		)	(614		)	(3,044		)	(17,271		)
Allowance for loan and lease losses at end of period	$	223,712		$	221,893		$	218,795		$	206,216		$	204,466
Reserve for unfunded commitments	$	1,107		$	1,032		$	1,133		$	379		$	333



	2015								2014
	Fourth quarter		Third quarter		Second quarter		First quarter		Fourth quarter		Third quarter		Second quarter		First quarter
Cash dividends (Class A and Class B)	$	0.30	$	0.30	$	0.30	$	0.30	$	0.30	$	0.30	$	0.30	$	0.30
Class A sales price
High	263.62		266.01		261.27		264.95		271.97		247.45		260.10		240.46
Low	215.98		213.74		226.09		221.61		206.14		214.53		214.93		215.22
Class B bid price
High	245.00		246.01		244.66		246.74		247.40		230.50		244.50		219.01
Low	202.05		197.05		228.01		212.00		208.00		206.00		199.93		198.01



	Basel III minimum requirement 2016	Basel III well-capitalized 2016	Basel III minimum requirement 2019	Basel III well-capitalized 2019
Leverage ratio	4.00%	5.00%	4.00%	5.00%
Common equity Tier 1	4.50	6.50	4.50	6.50
Common equity Tier 1 plus conservation buffer	5.13	7.13	7.00	9.00
Tier 1 capital ratio	6.00	8.00	6.00	8.00
Tier 1 capital ratio plus conservation buffer	6.63	8.63	8.50	10.50
Total capital ratio	8.00	10.00	8.00	10.00
Total capital ratio plus conservation buffer	8.63	10.63	10.50	12.50



(dollars in thousands)
Purchase Price
Value of shares of BancShares Class A common stock issued to Bancorporation shareholders			$	560,370
Value of shares of BancShares Class B common stock issued to Bancorporation shareholders			3,877
Cash paid to Bancorporation shareholders			30,394
Fair value of Bancorporation shares owned by BancShares			29,551
Total purchase price			624,192

Assets
Cash and due from banks	$	194,570
Overnight investments	1,087,325
Investment securities available for sale	2,011,263
Loans held for sale	30,997
Loans and leases	4,491,067
Premises and equipment	238,646
Other real estate owned	35,344
Income earned not collected	15,266
FDIC loss share receivable	5,106
Other intangible assets	109,416
Other assets	56,367
Total assets acquired	8,275,367
Liabilities
Deposits	7,174,817
Short-term borrowings	295,681
Long-term obligations	124,852
FDIC loss share payable	224
Other liabilities	59,834
Total liabilities assumed	$	7,655,408
Retirement of BancShares common stock acquired from Bancorporation
Fair value of net assets acquired			619,959
Goodwill recorded for Bancorporation			$	4,233



Entity	Date of transaction	Fair value at acquisition date
		(Dollars in thousands)
Capitol City Bank & Trust (CCBT)	February 13, 2015	$	154,496
Colorado Capital Bank (CCB)	July 8, 2011	320,789
Atlantic Bank & Trust (ABT) ⁽¹⁾	June 3, 2011	112,238
United Western Bank (United Western)	January 21, 2011	759,351
Williamsburg First National Bank (WFNB) ⁽¹⁾	July 23, 2010	55,054
Sun American Bank (SAB)	March 5, 2010	290,891
First Regional Bank (First Regional)	January 29, 2010	1,260,249
Georgian Bank (GB) ⁽¹⁾	September 25, 2009	979,485
Venture Bank (VB)	September 11, 2009	456,995
Temecula Valley Bank (TVB)	July 17, 2009	855,583
Total		$	5,245,131
Carrying value of FDIC-assisted acquired loans as of December 31, 2015		$	659,982



		Fair value at acquisition date⁽¹⁾		Losses/expenses incurred through 12/31/2015 ⁽²⁾		Cumulative amount reimbursed by FDIC through 12/31/2015 ⁽³⁾		Carrying value at December 31, 2015					Current portion of receivable due from (to) FDIC for 12/31/2015 filings			Prospective amortization (accretion) ⁽⁴⁾
(Dollars in thousands)								Receivable from FDIC			Payable to FDIC
Entity
TVB - combined losses		$	103,558	$	195,968	$	3,396	$	(906	)	$	—	$	(1,253	)	$	197
VB - combined losses		138,963		156,159		125,178		725			—		(253		)	23
GB - combined losses		279,310		900,683		466,550		(515		)	—		(748		)	27
First Regional - combined losses		378,695		219,639		144,076		(1,821		)	86,840		(1,821		)	—
SAB - combined losses		89,734		91,409		75,105		(1,915		)	3,044		(2,354		)	(51		)
WFNB - combined losses		6,225		8,805		6,981		263			—		22			95
United Western
Non-single family residential losses		112,672		99,631		82,736		(1,332		)	21,949		(2,629		)	1,189
Single family residential losses		24,781		5,685		4,393		8,443			—		—			5,975
ABT - combined losses		14,531		21,214		16,878		1,564			—		88			1,175
CCB - combined losses		155,070		186,608		151,574		(452		)	14,620		(2,004		)	470
Total		$	1,303,539	$	1,885,801	$	1,076,867	$	4,054		$	126,453	$	(10,952	)	$	9,100

⁽¹⁾	Fair value at acquisition date represents the initial fair value of the receivable from FDIC, excluding the payable to FDIC. For GB, WFNB and ABT the acquisition date is when Bancorporation initially acquired the banks.
⁽²⁾	For GB, WFNB and ABT the losses/expenses incurred through 12/31/2015 include amounts prior to BancShares' acquisition through merger with Bancorporation.
⁽³⁾	For GB, WFNB and ABT the cumulative amount reimbursed by FDIC through 12/31/2015 include amounts prior to BancShares' acquisition through merger with Bancorporation.
⁽⁴⁾	Prospective amortization (accretion) reflects balances that, due to post-acquisition credit quality improvement, will be amortized over the shorter of the covered asset's life or the term of the loss share period.

Except where noted, each FDIC-assisted transaction has a separate loss share agreement for Single-Family Residential loans (SFR) and Non-Single-Family Residential loans (NSFR).

For TVB, combined losses are covered at 0 percent up to $193.3 million, 80 percent for losses between $193.3 million and $464.0 million and 95 percent for losses above $464.0 million. The loss share agreement expired on July 17, 2014 for all TVB NSFR loans and will expire on July 17, 2019 for the SFR loans.

For VB, combined losses are covered at 80 percent up to $235.0 million and 95 percent for losses above $235.0 million. The loss share agreement expired on September 11, 2014 for all VB NSFR loans and will expire on September 11, 2019 for the SFR loans.

For GB, combined losses are covered at 0 percent up to $327.0 million, 80 percent for losses between $327.0 million and $853.0 million and 95 percent above $853.0 million. The loss share agreement expired on September 25, 2014 for all GB NSFR loans and will expire on September 25, 2019 for the SFR loans.

For First Regional, NSFR losses were covered at 0 percent up to $41.8 million, 80 percent for losses between $41.8 million and $1.02 billion and 95 percent for losses above $1.02 billion. The loss share agreement expired on January 29, 2015 for all First Regional NSFR loans. First Regional has no SFR loans.

For SAB, combined losses are covered at 80 percent up to $99.0 million and 95 percent for losses above $99.0 million. The loss share agreement expired on March 5, 2015 for all SAB NSFR loans and will expire on March 5, 2020 for the SFR loans.

For WFNB, combined losses are covered at 80 percent. The loss share agreement expired on July 23, 2015 for all WFNB NSFR loans and will expire on July 23, 2020 for the SFR loans.

For United Western NSFR loans, losses are covered at 80 percent up to $111.5 million, 30 percent between $111.5 million and $227.0 million and 80 percent for losses above $227.0 million. The loss share agreement expires on January 21, 2016.

For United Western SFR loans, losses are covered at 80 percent up to $32.5 million, 0 percent between $32.5 million and $57.7 million and 80 percent for losses above $57.7 million. The loss share agreement expires on January 21, 2021.

For ABT, combined losses are covered at 80 percent. The loss share agreement expires on June 3, 2016 for all ABT NSFR loans and June 3, 2021 for the SFR loans.

For CCB, combined losses are covered at 80 percent up to $231.0 million, 0 percent between $231.0 million and $285.9 million and 80 percent for losses above $285.9 million. The loss share agreement expires on July 8, 2016 for all CCB NSFR loans and July 8, 2021 for the SFR loans.



	December 31
(Dollars in thousands, except ratios)	2015			2014			2013			2012			2011
Nonaccrual loans and leases:
Non-PCI	$	95,854		$	44,005		$	53,170		$	89,845		$	52,741
PCI	7,579			33,422			28,493			74,479			302,102
Other real estate	65,559			93,436			83,979			146,090			198,998
Total nonperforming assets	$	168,992		$	170,863		$	165,642		$	310,414		$	553,841

Nonaccrual loans and leases:
Covered under loss share agreements	$	2,992		$	27,020		$	28,493		$	74,479		$	302,102
Not covered under loss share agreements	100,441			50,407			53,170			89,845			52,741
Other real estate owned:
Covered	6,817			22,982			47,081			102,577			148,599
Noncovered	58,742			70,454			36,898			43,513			50,399
Total nonperforming assets	$	168,992		$	170,863		$	165,642		$	310,414		$	553,841

Loans and leases at December 31:
Covered	$	272,554		$	485,308		$	1,029,426		$	1,809,235		$	2,362,152
Noncovered	19,967,436			18,284,157			12,104,298			11,576,115			11,581,637

Accruing loans and leases 90 days or more past due
Non-PCI	3,315			11,250			8,784			11,272			14,840
PCI	73,751			104,430			193,892			281,000			292,194
Interest income recognized on nonperforming loans and leases	3,204			1,364			2,062			10,374			8,589
Interest income that would have been earned on nonperforming loans and leases had they been performing	9,628			6,600			18,430			27,397			23,326
Ratio of nonperforming assets to total loans, leases, and other real estate owned:
Covered	3.51		%	9.84		%	7.02		%	9.26		%	17.95		%
Noncovered	0.79			0.66			0.74			1.15			0.89
Total	0.83			0.91			1.25			2.29			3.92



(Dollars in thousands)	December 31, 2015 ⁽¹⁾			December 31, 2014			December 31, 2013			Regulatory minimum ⁽²⁾		Well-capitalized requirement ⁽²⁾
Tier 1 risk-based capital	$	2,831,242		$	2,690,324		$	2,103,926
Tier 2 risk-based capital	308,970			213,799			211,653
Total risk-based capital	$	3,140,212		$	2,904,123		$	2,315,579
Common equity Tier 1 capital ⁽³⁾	$	2,799,163		N/A			N/A
Risk-adjusted assets	22,376,034			19,770,656			14,129,065
Risk-based capital ratios
Tier 1 risk-based capital	12.65		%	13.61		%	14.89		%	6.00	%	8.00	%
Common equity Tier 1⁽³⁾	12.51			N/A			N/A			4.50		6.50
Total risk-based capital	14.03			14.69			16.39			8.00		10.00
Tier 1 leverage ratio	8.96			8.91			9.80			4.00		5.00



	December 31, ~~2015~~2018
Collateral location	Percent of real estate secured loans with collateral located in the state
North Carolina	~~44.0%~~37.7
South Carolina	~~19.6~~16.1
California	~~8.5~~10.7
Virginia	~~7.5~~7.2
Georgia	~~4.6~~5.9
Florida	~~3.7~~
~~Colorado~~	~~2.5~~4.6
Washington	~~2.3~~3.5
Texas	3.0
Tennessee	~~1.8~~1.5
All other locations	~~5.5~~9.8


	Estimated increase (decrease) in net interest income				Estimated (decrease) increase in net interest income
Change in interest rate (basis point)	December 31, 2015		December 31, 2014		December 31, 2018		December 31, 2017
-100					(10.67	)%	(12.25	)%
+100	2.78	%	2.90	%	2.38		3.66
+200	2.80		4.10		1.66		4.61
+300	(0.75	)	2.40


	Estimated increase (decrease) in EVE				Estimated (decrease) increase in EVE
Change in interest rate (basis point)	December 31, 2015		December 31, 2014		December 31, 2018		December 31, 2017
-100					(15.14	)%	(15.44	)%
+100	3.18	%	2.80	%	3.34		3.38
+200	1.53		2.20		1.40		1.06
+300	(3.92	)	(0.90	)


	December 31																				December 31
	2015				2014				2013				2012				2011				2018				2017				2016				2015				2014
(dollars in thousands)	Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans		Allowance for loan and lease losses		Percent of loans to total loans
Allowance for loan and lease losses allocated to:
Non-PCI loans and leases
Commercial:
Construction and land development - commercial	$	16,288	3.1	%	$	11,961	2.9	%	$	10,335	2.4	%	$	6,031	2.3	%	$	5,467	2.7	%	$	35,270	3.0	%	$	24,470	2.8	%	$	28,877	3.0	%	$	16,288	3.1	%	$	11,961	2.9	%
Commercial mortgage	69,896		40.8		85,189		40.3		100,257		48.5		80,229		45.0		67,486		36.6		43,451		42.0		45,005		41.2		48,278		41.4		69,896		40.8		85,189		40.3
Other commercial real estate	2,168		1.6		732		1.3		1,009		1.4		2,059		1.2		2,169		1.0		2,481		1.7		4,571		2.0		3,269		1.6		2,168		1.6		732		1.3
Commercial and industrial	43,116		11.7		30,727		10.6		22,362		8.2		14,050		7.8		23,723		12.7
Lease financing	5,524		3.6		4,286		3.0		4,749		2.9		3,521		2.5		3,288		2.2
Commercial and industrial and leases																					55,620		15.3		59,824		15.4		56,132		15.6		48,640		15.3		35,013		13.6
Other	1,855		1.6		3,184		1.9		190		1.3		1,175		0.9		1,315		1.2		2,221		1.2		4,689		1.3		3,127		1.6		1,855		1.6		3,184		1.9
Total commercial	138,847		62.4		136,079		60.0		138,902		64.7		107,065		59.7		103,448		56.4		139,043		63.2		138,559		62.7		139,683		63.2		138,847		62.4		136,079		60.0
Noncommercial:
Residential mortgage	14,105		13.3		10,661		13.4		10,511		7.5		3,836		6.1		8,879		5.6		15,472		16.7		15,706		15.0		12,366		13.3		14,105		13.3		10,661		13.4
Revolving mortgage	15,971		12.5		18,650		13.7		16,239		16.1		25,185		16.6		27,045		16.5		21,862		10.0		22,436		11.4		23,094		12.0		15,971		12.5		18,650		13.7
Construction and land development - noncommercial	1,485		1.1		892		0.6		681		1.0		1,721		1.0		1,427		1.0		2,350		1.0		3,962		1.1		1,596		1.1		1,485		1.1		892		0.6
Consumer	19,496		6.0		16,555		6.0		13,541		2.9		25,389		3.1		25,962		3.6		35,841		6.7		31,204		6.6		28,287		6.7		19,496		6.0		16,555		6.0
Total noncommercial	51,057		32.9		46,758		33.7		40,972		27.5		56,131		26.8		63,313		26.7		75,525		34.4		73,308		34.1		65,343		33.1		51,057		32.9		46,758		33.7
Nonspecific⁽¹⁾	—				—				—				15,850				14,122
Total allowance for non-PCI loan and lease losses	189,904		95.3		182,837		93.7		179,874		92.2		179,046		86.5		180,883		83.1		214,568		97.6		211,867		96.8		205,026		96.3		189,904		95.3		182,837		93.7
PCI loans	16,312		4.7		21,629		6.3		53,520		7.8		139,972		13.5		51,248		16.9		9,144		2.4		10,026		3.2		13,769		3.7		16,312		4.7		21,629		6.3
Total allowance for loan and lease losses	$	206,216	100.0	%	$	204,466	100.0	%	$	233,394	100.0	%	$	319,018	100.0	%	$	232,131	100.0	%	$	223,712	100.0	%	$	221,893	100.0	%	$	218,795	100.0	%	$	206,216	100.0	%	$	204,466	100.0	%


	At December 31, 2015, maturing								At December 31, 2018, maturing
(Dollars in thousands)	Within One Year		One to Five Years		After Five Years		Total		Within One Year		One to Five Years		After Five Years		Total
Loans and leases:
Secured by real estate	$	976,149	$	4,978,886	$	9,631,105	$	15,586,140	$	1,255,202	$	6,242,467	$	12,069,407	$	19,567,076
Commercial and industrial	659,930		869,539		854,670		2,384,139		1,027,259		1,784,158		1,131,522		3,942,939
Other	458,596		1,194,364		616,751		2,269,711		465,198		805,116		742,947		2,013,261
Total loans and leases	2,094,675		7,042,789		11,102,526		20,239,990		$	2,747,659	$	8,831,741	$	13,943,876	$	25,523,276
Loans maturing after one year with:
Fixed interest rates			$	6,055,436	$	7,587,700	$	13,643,136			$	7,391,009	$	8,878,254	$	16,269,263
Floating or adjustable rates			987,353		3,514,826		4,502,179				1,440,731		5,065,622		6,506,353
Total			$	7,042,789	$	11,102,526	$	18,145,315			$	8,831,740	$	13,943,876	$	22,775,616


Type of obligation	Payments due by period										Payments due by period
(Dollars in thousands)	Less than 1 year		1-3 years		4-5 years		Thereafter		Total		Less than 1 year		1-3 years		3-5 years		Thereafter		Total
Contractual obligations:
Time deposits	$	2,359,710	$	568,008	$	168,488	$	—	$	3,096,206	$	1,895,313	$	634,147	$	227,251	$	—	$	2,756,711
Short-term borrowings	594,733		—		—		—		594,733		572,287		—		—		—		572,287
Long-term obligations	3,401		148,672		507		551,575		704,155		10,000		27,425		139,254		143,188		319,867
Operating leases	18,543		25,432		13,629		43,407		101,011		18,058		30,941		22,815		38,494		110,308
Estimated payment to FDIC due to claw-back provisions under loss share agreements	—		—		106,622		45,495		152,117
Estimated payment to FDIC due to claw-back provisions under shared-loss agreements											—		105,618		—		—		105,618
Total contractual obligations	$	2,976,387	$	742,112	$	289,246	$	640,477	$	4,648,222	$	2,495,658	$	798,131	$	389,320	$	181,682	$	3,864,791
Commitments:
Loan commitments	$	4,085,288	$	834,970	$	420,731	$	2,609,517	$	7,950,506	$	5,278,829	$	1,153,400	$	774,300	$	2,848,183	$	10,054,712
Standby letters of credit	63,819		13,954		166		—		77,939		84,065		12,222		180		—		96,467
Affordable housing partnerships	21,155		20,006		273		378		41,812		36,902		27,297		2,773		980		67,952
Total commitments	$	4,170,262	$	868,930	$	421,170	$	2,609,895	$	8,070,257	$	5,399,796	$	1,192,919	$	777,253	$	2,849,163	$	10,219,131


	2015							2014							Increase (decrease) due to:									2018							2017							Increase (decrease) due to:
				Interest							Interest																Interest							Interest
	Average			Income/		Yield/		Average			Income/		Yield/					Yield/			Total			Average			Income/		Yield/		Average			Income/		Yield/					Yield/			Total
(Dollars in thousands)	Balance			Expense		Rate		Balance			Expense		Rate		Volume			Rate			Change			Balance			Expense		Rate		Balance			Expense		Rate		Volume			Rate			Change
Assets
Loans and leases	$	20,059,556		$	218,048	4.32	%	$	18,538,553		$	212,058	4.54	%	$	16,838		$	(10,848	)	$	5,990		$	25,343,813		$	288,484	4.52	%	$	23,360,235		$	248,151	4.22	%	$	18,879		$	21,454		$	40,333
Investment securities:
U. S. Treasury	1,686,269			3,092		0.73		2,683,820			5,405		0.80		(1,925		)	(388		)	(2,313		)	1,454,889			7,261		1.98		1,627,968			4,784		1.17		(509		)	2,986			2,477
Government agency	599,048			1,282		0.86		1,012,044			901		0.36		(628		)	1,009			381			192,830			1,288		2.67		9,659			69		2.85		1,248			(29		)	1,219
Mortgage-backed securities	4,437,936			18,632		1.68		3,411,011			13,122		1.54		4,135			1,375			5,510			5,136,489			29,261		2.28		5,233,293			25,351		1.94		2,441			1,469			3,910
Corporate bonds and other																								135,962			1,810		5.32		63,911			991		6.20		919			(100		)	819
State, county and municipal	—			—		—		621			12		7.73		(12		)	—			(12		)	78			3		17.14		—			—		—		3			—			3
Other	7,930			205		10.30		3,303			126		15.13		148			(69		)	79
Marketable equity securities																								105,641			323		1.22		109,703			246		0.89		(10		)	87			77
Total investment securities	6,731,183			23,211		1.38		7,110,799			19,566		1.10		1,718			1,927			3,645			7,025,889			39,946		2.27		7,044,534			31,441		1.78		4,092			4,413			8,505
Overnight investments	2,774,976			2,030		0.29		2,414,927			1,689		0.28		267			74			341			1,131,030			6,065		2.13		2,469,464			7,599		1.22		(4,118		)	2,584			(1,534		)
Total interest-earning assets	29,565,715			$	243,289	3.27	%	28,064,279			$	233,313	3.30	%	$	18,823		$	(8,847	)	$	9,976		33,500,732			$	334,495	3.97	%	32,874,233			$	287,191	3.47	%	$	18,853		$	28,451		$	47,304
Cash and due from banks	492,663							562,240																282,589							316,851
Premises and equipment	1,129,809							1,129,128																1,182,640							1,137,075
Receivable from FDIC for loss share agreements	11,773							45,980
Allowance for loan and lease losses	(205,876		)					(198,915		)														(221,710		)					(232,653		)
Other real estate owned	65,043							104,095																46,000							52,103
Other assets	694,096							669,400																835,249							717,111
Total assets	$	31,753,223						$	30,376,207															$	35,625,500						$	34,864,720

Liabilities
Interest-bearing deposits:
Checking with interest	$	4,234,147		$	204	0.02	%	$	4,332,424		$	379	0.03	%	$	(37	)	$	(138	)	$	(175	)	$	5,254,677		$	332	0.03	%	$	5,028,978		$	262	0.02	%	$	12		$	58		$	70
Savings	1,887,520			142		0.03		1,206,860			91		0.03		51			—			51			2,511,444			213		0.03		2,337,993			172		0.03		12			29			41
Money market accounts	8,175,228			1,605		0.08		8,332,418			1,721		0.08		(74		)	(42		)	(116		)	7,971,726			4,335		0.22		8,047,691			1,732		0.09		(17		)	2,620			2,603
Time deposits	3,200,354			2,900		0.36		3,649,803			4,062		0.44		(462		)	(700		)	(1,162		)	2,599,498			4,179		0.64		2,421,749			1,623		0.27		120			2,436			2,556
Total interest-bearing deposits	17,497,249			4,851		0.11		17,521,505			6,253		0.14		(522		)	(880		)	(1,402		)	18,337,345			9,059		0.20		17,836,411			3,789		0.08		127			5,143			5,270
Repurchase agreements	728,526			471		0.26		328,470			139		0.17		214			118			332			572,442			419		0.29		615,244			622		0.40		(43		)	(160		)	(203		)
Other short-term borrowings	3,203			7		1.39		757,216			4,208		2.21		(3,418		)	(783		)	(4,201		)	53,552			298		2.21		107,551			1,031		3.77		(603		)	(130		)	(733		)
Long-term obligations	704,465			5,813		3.30		404,363			4,276		4.23		2,825			(1,288		)	1,537			319,410			2,915		3.58		866,198			5,747		2.61		(3,213		)	381			(2,832		)
Total interest-bearing liabilities	18,933,443			$	11,142	0.23	%	19,011,554			$	14,876	0.31	%	$	2,517		$	(2,833	)	$	467		19,282,749			$	12,691	0.26	%	19,425,404			$	11,189	0.23	%	$	(3,732	)	$	5,234		$	1,502
Demand deposits	9,532,401							8,330,167																12,497,812							11,689,432
Other liabilities	420,202							321,581																353,025							420,322
Shareholders' equity	2,867,177							2,712,905																3,491,914							3,329,562
Total liabilities and shareholders' equity	$	31,753,223						$	30,376,207															$	35,625,500						$	34,864,720
Interest rate spread						3.04	%						2.99	%															3.71	%						3.24	%
Net interest income and net yield
on interest-earning assets				$	232,147	3.12	%				$	218,436	3.09	%	$	16,306		$	(6,014	)	$	10,292					$	321,804	3.82	%				$	276,002	3.34	%	$	22,585		$	23,217		$	45,802


	Year ended December 31									Year ended December 31
(Dollars in thousands, except share and per share data)	2015			2014			2013			2018			2017			2016
Interest income
Loans and leases	$	874,892		$	700,525		$	757,197		$	1,073,051		$	955,637		$	876,472
Investment securities:
U. S. Treasury	15,353			11,656			1,645
Government agency	6,843			7,410			12,265
Mortgage-backed securities	65,815			36,492			22,642
State, county and municipal	33			13			12
Other	206			640			320
Total investment securities interest and dividend income	88,250			56,211			36,884
Investment securities interest and dividend income										150,709			121,207			96,751
Overnight investments	6,067			3,712			2,723			21,997			26,846			14,534
Total interest income	969,209			760,448			796,804			1,245,757			1,103,690			987,757
Interest expense
Deposits	21,230			24,786			34,495			22,483			16,196			18,169
Short-term borrowings	4,660			9,177			2,724			3,657			4,838			1,965
Long-term obligations	18,414			16,388			19,399			10,717			22,760			22,948
Total interest expense	44,304			50,351			56,618			36,857			43,794			43,082
Net interest income	924,905			710,097			740,186			1,208,900			1,059,896			944,675
Provision (credit) for loan and lease losses	20,664			640			(32,255		)
Net interest income after provision (credit) for loan and lease losses	904,241			709,457			772,441
Provision for loan and lease losses										28,468			25,692			32,941
Net interest income after provision for loan and lease losses										1,180,432			1,034,204			911,734
Noninterest income
Gain on acquisition	42,930			—			—
Cardholder services	77,342			59,607			48,360
Merchant services	84,207			64,075			56,024
Service charges on deposit accounts	90,546			69,100			60,661			105,486			101,201			89,359
Wealth management services	82,865			66,115			59,628			97,966			86,719			80,221
Fees from processing services	180			17,989			22,821
Securities gains	10,817			29,096			—
Cardholder services, net										65,478			57,583			47,319
Other service charges and fees	23,807			17,760			15,696			30,606			28,321			27,011
Gain on extinguishment of debt										26,553			12,483			—
Merchant services, net										24,504			22,678			20,900
Mortgage income	18,168			5,828			11,065			16,433			23,251			20,348
Insurance commissions	11,757			11,129			10,694			12,702			12,465			11,150
Gain on acquisitions										—			134,745			5,831
ATM income	7,119			5,388			5,026			7,980			9,143			7,283
Adjustments to FDIC loss share receivable	(19,009		)	(32,151		)	(72,342		)
Securities gains, net										351			4,293			26,673
Net impact from FDIC shared-loss agreement terminations										—			(45		)	16,559
Adjustments to FDIC shared-loss receivable										(6,341		)	(6,232		)	(9,725		)
Marketable equity securities losses, net										(7,610		)	—			—
Other	36,359			29,277			49,749			26,041			35,358			34,170
Total noninterest income	467,088			343,213			267,382			400,149			521,963			377,099
Noninterest expense
Salaries and wages	429,742			349,279			308,936			527,691			490,610			443,746
Employee benefits	113,309			79,898			90,479			118,203			105,975			94,340
Occupancy expense	98,191			86,775			75,713			109,169			104,690			102,609
Equipment expense	92,639			79,084			75,538			102,909			97,478			92,501
Processing fees paid to third parties										30,017			25,673			18,976
FDIC insurance expense	18,340			12,979			10,175			18,890			22,191			20,967
Foreclosure-related expenses	2,662			17,368			17,134
Collection and foreclosure-related expenses										16,567			14,407			13,379
Merger-related expenses	14,174			13,064			391			6,462			9,015			5,341
Other	269,858			210,629			193,014			147,063			142,430			145,907
Total noninterest expense	1,038,915			849,076			771,380			1,076,971			1,012,469			937,766
Income before income taxes	332,414			203,594			268,443			503,610			543,698			351,067
Income taxes	122,028			65,032			101,574			103,297			219,946			125,585
Net income	$	210,386		$	138,562		$	166,869		$	400,313		$	323,752		$	225,482
Per share information
Net income per share	$	17.52		$	13.56		$	17.35		$	33.53		$	26.96		$	18.77
Dividends declared per share	1.20			1.20			1.20			$	1.45		$	1.25		$	1.20
Average shares outstanding	12,010,405			10,221,721			9,618,952
Weighted average shares outstanding										11,938,439			12,010,405			12,010,405


	Class A Common Stock			Class B Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity			Class A Common Stock			Class B Common Stock		Surplus			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
(Dollars in thousands, except share data)
Balance at December 31, 2012	$	8,588		$	1,033		$	143,766		$	1,788,343		$	(82,106	)	$	1,859,624
Net income	—			—			—			166,869			—			166,869
Other comprehensive income, net of tax	—			—			—			—			56,838			56,838
Repurchase of 1,973 shares of Class A common stock	(2		)	—			—			(319		)	—			(321		)
Cash dividends ($1.20 per share)	—			—			—			(11,548		)	—			(11,548		)
Balance at December 31, 2013	8,586			1,033			143,766			1,943,345			(25,268		)	2,071,462
Net income	—			—			—			138,562			—			138,562
Other comprehensive loss, net of tax	—			—			—			—			(27,713		)	(27,713		)
Issuance of common stock in connection with the Bancorporation merger, net of issuance costs of $619	2,587			18			561,023			—			—			563,628
Repurchase and retirement of 167,600 shares of Class A common stock	(168		)	—			(36,140		)	—			—			(36,308		)
Repurchase and retirement of 45,900 shares of Class B common stock	—			(46		)	(9,731		)	—			—			(9,777		)
Cash dividends ($1.20 per share)	—			—			—			(12,260		)	—			(12,260		)
Balance at December 31, 2014	11,005			1,005			658,918			2,069,647			(52,981		)	2,687,594
Balance at December 31, 2015																			$	11,005		$	1,005	$	658,918		$	2,265,621		$	(64,440	)	$	2,872,109
Net income	—			—			—			210,386			—			210,386			—			—		—			225,482			—			225,482
Other comprehensive loss, net of tax	—			—			—			—			(11,459		)	(11,459		)	—			—		—			—			(70,752		)	(70,752		)
Cash dividends ($1.20 per share)	—			—			—			(14,412		)	—			(14,412		)	—			—		—			(14,412		)	—			(14,412		)
Balance at December 31, 2015	$	11,005		$	1,005		$	658,918		$	2,265,621		$	(64,440	)	$	2,872,109
Balance at December 31, 2016																			11,005			1,005		658,918			2,476,691			(135,192		)	3,012,427
Net income																			—			—		—			323,752			—			323,752
Other comprehensive income, net of tax																			—			—		—			—			12,898			12,898
Cash dividends ($1.25 per share)																			—			—		—			(15,013		)	—			(15,013		)
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																			—			—		—			400,313			—			400,313
Other comprehensive loss, net of tax																			—			—		—			—			(62,842		)	(62,842		)
Repurchase and retirement of 382,000 shares of Class A common stock																			(382		)	—		(164,956		)	—			—			(165,338		)
Cash dividends ($1.45 per share)																			—			—		—			(17,243		)	—			(17,243		)
Balance at December 31, 2018																			$	10,623		$	1,005	$	493,962		$	3,218,551		$	(235,187	)	$	3,488,954



	Year ended December 31
(Dollars in thousands, unaudited)	2014
Total revenue (interest income plus noninterest income)	$	1,336,340
Net loss	$	(13,171	)


	For the years ended December 31, 2015, 2014 and 2013																																				Years ended December 31, 2018, 2017, 2016
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial			Lease financing			Other			Residential mortgage			Revolving mortgage			Construction and land development - non- commercial			Consumer			Non- specific			Total			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, 2013	$	6,031		$	80,229		$	2,059		$	14,050		$	3,521		$	1,175		$	3,836		$	25,185		$	1,721		$	25,389		$	15,850		$	179,046
Reclassification ⁽¹⁾	5,141			27,421			(815		)	7,551			(253		)	(1,288		)	5,717			(9,838		)	(478		)	(10,018		)	(15,772		)	7,368
Balance at January 1, 2016																																					$	16,288		$	69,896		$	2,168		$	48,640		$	1,855		$	14,105		$	15,971		$	1,485		$	19,496		$	189,904
Provision (credits)	2,809			(4,485		)	(32		)	4,333			1,646			308			2,786			6,296			(379		)	6,085			(78		)	19,289			12,871			(21,912		)	925			15,218			877			801			7,413			45			18,632			34,870
Charge-offs	(4,685		)	(3,904		)	(312		)	(4,785		)	(272		)	(6		)	(2,387		)	(6,064		)	(392		)	(10,311		)	—			(33,118		)	(680		)	(987		)	—			(9,455		)	(144		)	(926		)	(3,287		)	—			(14,108		)	(29,587		)
Recoveries	1,039			996			109			1,213			107			1			559			660			209			2,396			—			7,289			398			1,281			176			1,729			539			467			916			66			4,267			9,839
Balance at December 31, 2013	10,335			100,257			1,009			22,362			4,749			190			10,511			16,239			681			13,541			—			179,874
Balance at December 31, 2016																																					28,877			48,278			3,269			56,132			3,127			14,447			21,013			1,596			28,287			205,026
Provision (credits)	1,735			(16,746		)	(401		)	10,441			(473		)	3,007			1,219			6,301			245			9,932			—			15,260			(4,329		)	(5,694		)	1,280			11,624			2,189			2,096			2,509			2,366			17,098			29,139
Charge-offs	(316		)	(1,147		)	—			(3,014		)	(100		)	(13		)	(1,260		)	(4,744		)	(118		)	(9,787		)	—			(20,499		)	(599		)	(421		)	(5		)	(11,921		)	(912		)	(1,376		)	(2,368		)	—			(18,784		)	(36,386		)
Recoveries	207			2,825			124			938			110			—			191			854			84			2,869			—			8,202			521			2,842			27			3,989			285			539			1,282			—			4,603			14,088
Balance at December 31, 2014	11,961			85,189			732			30,727			4,286			3,184			10,661			18,650			892			16,555			—			182,837
Balance at December 31, 2017																																					24,470			45,005			4,571			59,824			4,689			15,706			22,436			3,962			31,204			211,867
Provision (credits)	4,773			(15,822		)	1,569			17,432			1,602			(1,420		)	4,202			(927		)	541			10,987			—			22,937			10,533			(1,490		)	(2,171		)	2,511			(2,827		)	897			1,112			(1,520		)	22,187			29,232
Charge-offs	(1,012		)	(1,498		)	(178		)	(5,952		)	(402		)	—			(1,619		)	(2,925		)	(22		)	(11,696		)	—			(25,304		)	(44		)	(1,140		)	(69		)	(10,211		)	(130		)	(1,689		)	(3,235		)	(219		)	(22,817		)	(39,554		)
Recoveries	566			2,027			45			909			38			91			861			1,173			74			3,650			—			9,434			311			1,076			150			3,496			489			558			1,549			127			5,267			13,023
Balance at December 31, 2015	$	16,288		$	69,896		$	2,168		$	43,116		$	5,524		$	1,855		$	14,105		$	15,971		$	1,485		$	19,496		$	—		$	189,904
Balance at December 31, 2018																																					$	35,270		$	43,451		$	2,481		$	55,620		$	2,221		$	15,472		$	21,862		$	2,350		$	35,841		$	214,568



	For the years ended December 31, 2015, 2014 and 2013
(Dollars in thousands)	Construction and land development - commercial			Commercial mortgage			Other commercial real estate			Commercial and industrial			Residential mortgage			Revolving mortgage			Construction and land development - noncommercial			Consumer and other			Total
PCI Loans
Allowance for loan and lease losses:
Balance at January 1, 2013	$	31,186		$	50,275		$	11,234		$	8,897		$	19,837		$	9,754		$	8,287		$	502		$	139,972
Provision (credits)	(22,942		)	(3,872		)	(8,949		)	470			(5,487		)	(6,399		)	(4,170		)	(195		)	(51,544		)
Charge-offs	(6,924		)	(16,497		)	(931		)	(4,092		)	(2,548		)	(396		)	(3,435		)	(85		)	(34,908		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at December 31, 2013	1,320			29,906			1,354			5,275			11,802			2,959			682			222			53,520
Provision (credits)	1,284			(7,903		)	(1,385		)	(2,023		)	(5,576		)	1,523			(395		)	(145		)	(14,620		)
Charge-offs	(2,454		)	(11,868		)	106			(2,012		)	(406		)	(483		)	(104		)	(50		)	(17,271		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at December 31, 2014	150			10,135			75			1,240			5,820			3,999			183			27			21,629
Provision (credits)	1,029			(1,426		)	698			(470		)	72			(2,720		)	(183		)	727			(2,273		)
Charge-offs	(97		)	(871		)	—			(325		)	(494		)	(756		)	—			(501		)	(3,044		)
Recoveries	—			—			—			—			—			—			—			—			—
Balance at December 31, 2015	$	1,082		$	7,838		$	773		$	445		$	5,398		$	523		$	—		$	253		$	16,312

December 31, 2015
ALLL for loans and leases acquired with deteriorated credit quality	$	1,082		$	7,838		$	773		$	445		$	5,398		$	523		$	—		$	253		$	16,312
Loans and leases acquired with deteriorated credit quality	33,880			525,468			17,076			15,182			302,158			52,471			—			4,281			950,516

December 31, 2014
ALLL for loans and leases acquired with deteriorated credit quality	150			10,135			75			1,240			5,820			3,999			183			27			21,629
Loans and leases acquired with deteriorated credit quality	78,079			577,518			40,193			27,254			382,340			74,109			912			6,093			1,186,498


	Year ended December 31, 2015				Year ended December 31, 2018
(Dollars in thousands)	YTD Average Balance		YTD Interest Income Recognized		YTD Average Balance		YTD Interest Income Recognized
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	3,164	$	146	$	1,734	$	84
Commercial mortgage	89,934		3,129		65,943		2,569
Other commercial real estate	481		12		1,225		43
Commercial and industrial	14,587		510
Lease financing	1,718		74
Commercial and industrial and leases					9,560		364
Other	1,673		37		135		3
Residential mortgage	18,524		557		41,368		1,237
Revolving mortgage	4,368		97		26,759		900
Construction and land development - noncommercial	829		38		3,677		172
Consumer	1,126		75		2,722		116
Total non-PCI impaired loans and leases	$	136,404	$	4,675	$	153,123	$	5,488

	Year ended December 31, 2014				Year ended December 31, 2017
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	1,689	$	83	$	858	$	37
Commercial mortgage	86,250		3,698		73,815		2,596
Other commercial real estate	2,125		80		1,642		34
Commercial and industrial	13,433		580
Lease financing	774		44
Commercial and industrial and leases					11,600		427
Other	528		29		426		22
Residential mortgage	15,487		593		33,818		990
Revolving mortgage	3,922		134		14,022		436
Construction and land development - noncommercial	1,678		98		3,383		145
Consumer	1,535		88		2,169		103
Total non-PCI impaired loans and leases	$	127,421	$	5,427	$	141,733	$	4,790

	Year ended December 31, 2013				Year ended December 31, 2016
Non-PCI impaired loans and leases:
Construction and land development - commercial	$	6,414	$	270	$	2,700	$	138
Commercial mortgage	105,628		5,702		82,146		2,671
Other commercial real estate	2,658		144		1,112		38
Commercial and industrial	12,772		642
Lease financing	350		22
Commercial and industrial and leases					13,185		480
Other	—		—		687		33
Residential mortgage	15,470		444		26,774		805
Revolving mortgage	5,653		485		6,915		171
Construction and land development - noncommercial	958		55		983		50
Consumer	1,427		53		1,480		80
Total non-PCI impaired loans and leases	$	151,330	$	7,817	$	135,982	$	4,466



	Year ended December 31, 2015						Year ended December 31, 2014
	All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default
	Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end
(Dollars in thousands)
Non-PCI loans and leases
Interest only period provided
Commercial mortgage	3	$	185	—	$	—	6	$	1,973	2	$	364
Commercial and industrial	2	776		—	—		3	250		—	—
Lease financing	—	—		—	—		2	118		—	—
Construction and land development - noncommercial	1	91		—	—		—	—		—	—
Other	—	—		—	—		1	34		—	—
Total interest only	6	1,052		—	—		12	2,375		2	364

Loan term extension
Construction and land development - commercial	1	18		1	18		2	187		—	—
Commercial mortgage	12	3,144		2	316		18	4,848		—	—
Commercial and industrial	5	1,380		—	—		5	2,274		—	—
Lease financing	4	146		—	—		6	198		—	—
Residential mortgage	1	110		—	—		19	572		—	—
Revolving mortgage	1	8		—	—		—	—		—	—
Construction and land development - noncommercial	—	—		—	—		7	226		—	—
Consumer	3	52			—		6	99		1	—
Total loan term extension	27	4,858		3	334		63	8,404		1	—

Below market interest rate
Construction and land development - commercial	21	992		3	122		11	372		—	—
Commercial mortgage	37	13,900		3	3,969		44	12,642		3	441
Commercial and industrial	15	2,301		2	1,619		13	751		—	—
Other commercial real estate	2	122		—	—		1	337		—	—
Residential mortgage	116	5,695		14	607		41	2,444		1	45
Revolving mortgage	6	136		—	—		5	217		—	—
Construction & land development - noncommercial	2	253		—	—		12	389		—	—
Consumer	18	146		2	10		10	193		—	—
Other	1	1,183		—	—		—	—		—	—
Total below market interest rate	218	24,728		24	6,327		137	17,345		4	486

Discharged from bankruptcy
Construction and land development - commercial	4	38		1	3		—	—		—	—
Commercial mortgage	4	1,897		2	644		2	949		1	—
Commercial and industrial	3	146		—	—		—	—		—	—
Residential mortgage	29	1,454		4	242		12	1,067		2	268
Revolving mortgage	56	2,714		9	701		17	663		1	—
Construction & land development - noncommercial	—	—		—	—		1	62		1	62
Consumer	25	296		7	75		4	4		—	—
Total discharged from bankruptcy	121	6,545		23	1,665		36	2,745		5	330
Total non-PCI restructurings	372	$	37,183	50	$	8,326	248	$	30,869	12	$	1,180



(Dollars in thousands)	Total
Balance at January 1, 2017	$	61,231
Additions	34,980
Additions acquired in the Guaranty acquisition	55
Sales	(40,709		)
Write-downs	(4,460		)
Balance at December 31, 2017	51,097
Additions	24,997
Additions acquired in the HomeBancorp acquisition	2,135
Additions acquired in the Palmetto Heritage acquisition	2,319
Sales	(28,128		)
Write-downs	(4,390		)
Balance at December 31, 2018	$	48,030



	December 31, 2015
	Remaining Contractual Maturity of the Agreements
(Dollars in thousands)	Overnight and continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Repurchase agreements:
U.S. Treasury	$	592,182	$	—	$	—	$	25,724	$	617,906
Government agency	—		—		—		4,276		4,276
Total borrowings	$	592,182	$	—	$	—	$	30,000	$	622,182
Gross amount of recognized liabilities for repurchase agreements									$	622,182

	December 31, 2014
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Repurchase agreements:
U.S. Treasury	$	162,925	$	—	$	—	$	23,086	$	186,011
Government agency	—		—		—		6,914		6,914
Mortgage-backed securities	131,501		—		—		—		131,501
Total borrowings	$	294,426	$	—	$	—	$	30,000	$	324,426
Gross amount of recognized liabilities for repurchase agreements									$	324,426


	December 31, 2015								December 31, 2018
			Fair value measurements using:								Fair value measurements using:
(Dollars in thousands)	Fair value		Level 1		Level 2		Level 3		Fair value		Level 1		Level 2		Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	1,674,882	$	—	$	1,674,882	$	—	$	1,247,710	$	—	$	1,247,710	$	—
Government agency	498,660		—		498,660		—		256,835		—		256,835		—
Mortgage-backed securities	4,668,198		—		4,668,198		—		2,909,339		—		2,909,339		—
Equity securities	8,893		1,668		7,225		—
Corporate bonds									139,101		—		—		139,101
Other	10,660		—		10,660		—		4,125		—		—		4,125
Total investment securities available for sale	$	6,861,293	$	1,668	$	6,859,625	$	—	$	4,557,110	$	—	$	4,413,884	$	143,226
Marketable equity securities									$	92,599	$	17,887	$	74,712	—
Loans held for sale	$	59,766	$	—	$	59,766	$	—	$	45,505	$	—	$	45,505	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	1,429	$	—	$	1,429	$	—

	December 31, 2014								December 31, 2017
			Fair value measurements using:								Fair value measurements using:
	Fair value		Level 1		Level 2		Level 3		Fair value		Level 1		Level 2		Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	2,629,670	$	—	$	2,629,670	$	—	$	1,657,864	$	—	$	1,657,864	$	—
Government agency	908,817		—		908,817		—		8,670		—		8,670		—
Mortgage-backed securities	3,633,304		—		3,633,304		—		5,340,756		—		5,340,756		—
Municipal securities	126		—		126		—
Marketable equity securities									105,208		19,341		85,867		—
Corporate bonds									59,963		—		59,963		—
Other									7,719		—		7,719		—
Total investment securities available for sale	$	7,171,917	$	—	$	7,171,917	$	—	$	7,180,180	$	19,341	$	7,160,839	$	—
Loans held for sale	$	63,696	$	—	$	63,696	$	—	$	51,179	$	—	$	51,179	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	4,337	$	—	$	4,337	$	—



(Dollars in thousands)			December 31, 2018
Level 3 assets	Valuation technique	Significant unobservable input	Fair Value
Corporate bonds	Indicative bid provided by broker	Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company	$	139,101
Other	Indicative bid provided by broker	Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company	4,125


(Dollars in thousands)
Actuarial loss	$	6,398	$	8,455
Prior service cost	210		57
Total	$	6,608	$	8,512



(Dollars in thousands)
Actuarial loss	$	2,505
Prior service cost	—
Total	$	2,505



(Dollars in thousands)	BancShares Plan		Bancorporation Plan
2016	$	21,607	$	5,463
2017	23,268		5,969
2018	24,895		6,420
2019	26,450		6,791
2020	28,207		7,209
2021-2025	166,567		43,671



(dollars in thousands)
2016	$	16,440
2017	14,075
2018	11,710
2019	9,457
2020	7,492



(Dollars in thousands)
2019	$	14,964
2020	11,729
2021	8,706
2022	5,805
2023 and subsequent	7,028



(Dollars in thousands)	Unrealized (losses) gains on securities available-for-sale⁽¹⁾			Unrealized losses on securities available for sale transferred to held to maturity⁽¹⁾			Defined benefit pension items⁽¹⁾			Total
Balance at January 1, 2017	$	(45,875	)	$	—		$	(89,317	)	$	(135,192	)
Other comprehensive income (loss) before reclassifications	17,635			—			(8,156		)	9,479
Amounts reclassified from accumulated other comprehensive loss	(2,705		)	—			6,124			3,419
Net current period other comprehensive income (loss)	14,930			—			(2,032		)	12,898
Balance at December 31, 2017	(30,945		)	—			(91,349		)	(122,294		)
Cumulative effect adjustments	(29,751		)	—			(20,300		)	(50,051		)
Other comprehensive income (loss) before reclassifications	22,461			(84,321		)	(24,649		)	(86,509		)
Amounts reclassified from accumulated other comprehensive loss	(270		)	13,172			10,765			23,667
Net current period other comprehensive income (loss)	22,191			(71,149		)	(13,884		)	(62,842		)
Balance at December 31, 2018	$	(38,505	)	$	(71,149	)	$	(125,533	)	$	(235,187	)