| Delaware | 56-1528994 | |
| (State or other jurisdiction | (I.R.S. Employer | |
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| Title of each class | Name of each exchange on which registered | |||
| Class A Common Stock, Par Value $1 | ||||
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Large accelerated filerx | Accelerated filer¨ | Non-accelerated filer¨ | Smaller reporting company ¨ | |||
2013 Annual Meeting of Shareholders (2013 Proxy Statement) . On April 28, 1997, BancShares launched IronStone Bank (ISB), a federally-chartered thrift institution that originally operated under the name Atlantic States Bank. Initially, ISB operated in the counties surrounding Atlanta, Georgia, but gradually expanded into other high-growth markets On January 7, 2011, ISB was merged into FCB resulting in a single banking subsidiary of BancShares. require. our customers is primarily accomplished through associates deployed throughout our extensive branch network. However, we also provide customers with access to our products and services through online banking, telephone banking, mobile banking and In Virginia, FCB was the We anticipate that industry consolidation will continue in the foreseeable future. information. 2012. moderate income neighborhoods. operations and capital adequacy. market capitalization of our company. paid by the FDIC to FCB relating to certain specific SBA-guaranteed loans pursuant to the Loss Share Agreement between FCB and the FDIC applicable to Temecula Valley Bank. FCB disputes the validity of the SBA claims and is pursuing administrative relief through the SBA. While we have estimated the impact that the proposed rules would have on our capital ratios, we are unable at this time to predict how the final rules will differ from the proposed rules and what the effective date of the final rules will be. in our businesses for which we expect to incur significant expense operations, as well as result in reputational damage. that may be uninsured could impact how we record transactions in our financial statements, which could lead to material changes in assets, liabilities, ability to pay dividends. conditions generally affecting the financial services industry. become impaired capital. Although the book value per share of our Class A common stock as of 2012 Cash dividends Class A sales price High Low Class B sales price High Low December 2012 from a director and certain of her related interests which were approved by the independent Directors, after review and recommendation by a special committee of independent Directors. As of December 31, 2012, under the existing plan which expires June 30, 2013, BancShares had the ability to purchase SUMMARY OF OPERATIONS Interest income Interest expense Net interest income Provision for loan and lease losses Net interest income after provision for loan and lease losses Gain on acquisitions Other noninterest income Noninterest expense Income before income taxes Income taxes Net income Net interest income, taxable equivalent PER SHARE DATA Net income Cash dividends Market price at December 31 (Class A) Book value at December 31 Tangible book value at December 31 SELECTED AVERAGE BALANCES Total assets Investment securities Loans and leases Interest-earning assets Deposits Interest-bearing liabilities Long-term obligations Shareholders’ equity Shares outstanding SELECTED PERIOD-END BALANCES Total assets Investment securities Loans and leases: Covered under loss share agreements Not covered under loss share agreements Interest-earning assets Deposits Interest-bearing liabilities Long-term obligations Shareholders’ equity Shares outstanding SELECTED RATIOS AND OTHER DATA Rate of return on average assets Rate of return on average shareholders’ equity Net yield on interest-earning assets (taxable equivalent) Allowance for loan and lease losses on noncovered loans to noncovered loans and leases at year-end Nonperforming assets to total loans and leases plus other real estate at year-end: Covered under loss share agreements Not covered under loss share agreements Tier 1 risk-based capital ratio Total risk-based capital ratio Leverage capital ratio Dividend payout ratio Average loans and leases to average deposits The capital ratios presented are of First Citizens BancShares, Inc., and Subsidiaries. assumptions. their judgments of information available to them at the time of their examination. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated and additions to the allowance may be required. The cash flows were discounted to fair value using rates that included consideration of factors such as current interest rates, costs to service the loans and liquidation of the asset. period from 2009 through 2011. Participation in FDIC-assisted transactions repay existing debt. Our strategic focus on narrow business customer segments that utilize mainstream banking services Our commitment to Our dedicated associates and experienced executive leadership Our Our presence in diverse and amounts less than estimated market prices. Real estate demand in many of our markets The 2012. levels without the benefit of acquisition gains. incurred. Entity Sun American Bank First Regional Bank Venture Bank Temecula Valley Bank Total income and provision for loan and lease losses. All CCB loans and United Western's residential mortgage loans were assigned to pools based on various factors including loan type, collateral type and performance status. All other acquired loans are being accounted for on an individual loan level. The non-pool election for the majority of our acquired loans accentuates volatility in net interest income and the provision for loan and lease losses. Assets Cash and due from banks Investment securities available for sale Loans covered by loss share agreements Other real estate owned covered by loss share agreements Income earned not collected Receivable from FDIC for loss share agreements Intangible assets Other assets Total assets acquired Liabilities Deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings Other liabilities Total liabilities assumed Excess of assets acquired over liabilities assumed Aggregate fair value adjustments Gain on acquisition of First Regional Assets Cash and due from banks Investment securities available for sale Loans covered by loss share agreements Other real estate owned covered by loss share agreements Income earned not collected Receivable from FDIC for loss share agreements Intangible assets Other assets Total assets acquired Liabilities Deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings Long-term obligations Other liabilities Total liabilities assumed Excess of assets acquired over liabilities assumed Aggregate fair value adjustments Cash received from the FDIC Gain on acquisition of Sun American forfeiture of loss share protection. Covered loans Noncovered loans and leases : Commercial: Construction and land development Commercial mortgage Other commercial real estate Commercial and industrial Leases Other Total commercial loans Non-commercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total non-commercial loans Total noncovered loans and leases Total loans and leases Less allowance for loan and lease losses Net loans and leases Covered loans: Commercial: Construction and land development Commercial mortgage Other commercial real estate Commercial and industrial Other Total commercial loans Non-commercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total non-commercial loans Total covered loans Table Investment securities available for sale: U. S. Government: Within one year One to five years Total Residential mortgage-backed securities: Within one year One to five years Five to ten years Over ten years Total Corporate bonds: Within one year One to five years Total State, county and municipal: Within one year One to five years Five to ten years Over ten years Total Other: Five to ten years Over ten years Total Equity securities Total investment securities available for sale Investment securities held to maturity: Residential mortgage-backed securities: Five to ten years Over ten years Total State, county and municipal: Within one year One to five years Five to ten years Total Total investment securities held to maturity Total investment securities Mortgage-backed securities are presented based upon weight-average maturities anticipating future prepayments. Assets Loans and leases Investment securities: U. S. Government Corporate bonds Residential mortgage-backed securities State, county and municipal Other Total investment securities Overnight investments Total interest-earning assets Cash and due from banks Premises and equipment Allowance for loan and lease losses Receivable from FDIC for loss share agreements Other assets Total assets Liabilities and shareholders’ equity Interest-bearing deposits: Checking With Interest Savings Money market accounts Time deposits Total interest-bearing deposits Short-term borrowings Long-term obligations Total interest-bearing liabilities Demand deposits Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Interest rate spread Net interest income and net yield on interest-earning assets the 2011 transactions. At December 31, rates. 8 Less than three months Three to six months Six to 12 months More than 12 months Total purchase the junior subordinated debentures issued by BancShares. Master notes At December 31 Average during year Maximum month-end balance during year Repurchase agreements At December 31 Average during year Maximum month-end balance during year Federal funds purchased At December 31 Average during year Maximum month-end balance during year Notes payable to Federal Home Loan Banks At December 31 Average during year Maximum month-end balance during year Other At December 31 Average during year Maximum month-end balance during year At December 31, date. an increase in average interest-earning assets. Assets Loans and leases Investment securities: U. S. Government Corporate bonds Residential mortgage-backed securities State, county and municipal Other Total investment securities Overnight investments Total interest-earning assets Liabilities Interest-bearing deposits: Checking With Interest Savings Money market accounts Time deposits Total interest-bearing deposits Short-term borrowings Long-term obligations Total interest-bearing liabilities Change in net interest income Gain on acquisitions Cardholder and merchant services Service charges on deposit accounts Wealth management services Fees from processing services Mortgage income Insurance commissions ATM income Other service charges and fees Securities gains(losses) Adjustments to FDIC receivable for loss share agreements Other lower fee income. preferred securities recorded during 2011. transactions had been converted to our processing systems, and the two 2011 FDIC-assisted transactions had been converted to a single processing system. The conversion of the remaining processing systems to our legacy systems occurred during 2012, at which time remaining support positions were eliminated. will remain elevated until interest rates rise which will cause an increase in the discount rate for plan liabilities. for acquired branches. costs and technology initiatives. During the past two years, we have closely examined the state of our core technology systems and related business processes and determined that significant investments are required. The project to modernize our systems will begin in 2013 with phased implementation through 2016. Total costs are estimated at $100.0 million. As each phase of the project is completed, we anticipate that equipment expense, including depreciation expense for software and hardware investments and maintenance expense will increase. estimated redemption rates for the credit card rewards program. Collection expenses will likely remain high in 2013 as we continue to resolve exposures resulting from high levels of nonperforming covered assets. result of no acquisition activity during 2012 due to reduced printing costs, courier agency expense, consultant services and appraisal expenses. Salaries and wages Employee benefits Occupancy expense Equipment expense Cardholder and merchant services expense: Cardholder and merchant processing Cardholder reward programs FDIC deposit insurance Collection Foreclosure-related expense Processing fees paid to third parties Telecommunications Postage Advertising Legal Consultant Amortization of intangibles Other Total the period 2008-2010, net of additional federal taxes, and higher tax credits in 2012. First Citizens BancShares, Inc. Tier 1 capital Tier 2 capital Total capital Risk-adjusted assets Risk-based capital ratios Tier 1 capital Total capital Tier 1 leverage ratio First-Citizens Bank & Trust Company Tier 1 capital Tier 2 capital Total capital Risk-adjusted assets Risk-based capital ratios Tier 1 capital Total capital Tier 1 leverage ratio IronStone Bank Tier 1 capital Tier 2 capital Total capital Risk-adjusted assets Risk-based capital ratios Tier 1 capital Total capital Tangible equity ratio 2010 Directors. 13 management and, as a result, a large percentage of our real estate 2011 2012 Nonaccrual loans and leases: Covered under FDIC loss share agreements Not covered under FDIC loss share agreements Other real estate owned: Covered under FDIC loss share agreements Not covered under FDIC loss share agreements Restructured loans: Covered under FDIC loss share agreements Not covered under FDIC loss share agreements Total nonperforming assets Nonperforming assets covered under FDIC loss share agreements Nonperforming assets not covered under FDIC loss share agreements Total nonperforming assets Accruing loans and leases 90 days or more past due: Covered under loss share agreements Not covered under loss share agreements Loans and leases at December 31: Covered under FDIC loss share agreements Not covered under FDIC loss share agreements Ratio of nonperforming assets to total loans, leases and other real estate: Covered under FDIC loss share agreements Not covered under FDIC loss share agreements Ratio of nonperforming assets to total loans, leases and other real estate: Interest income that would have been earned on nonperforming loans and leases had they been performing Interest income earned on nonperforming loans and leases guarantee. Relying on historical data of credit grade losses and migration patterns among credit grades, we calculate a loss estimate for each credit grade. As loans to borrowers experiencing financial stress are moved to higher-risk credit grades, increased allowances are assigned to that exposure. Subsequent to the acquisition date, recurring analyses are performed on the credit quality of acquired loans to determine if expected cash flows have changed. Various criteria are used to select loans to be evaluated including change in accrual status, recent credit grade change, updated collateral appraisal and newly-developed workout plan. Based upon the results of the individual loan reviews, revised impairment amounts are calculated which generally result in additional allowance for loan losses or reversal of previously established allowances. impairment amount. 2011 2011 allowance for noncommercial loans. Allowance for loan and lease losses at beginning of period Adjustment resulting from adoption of change in accounting for QSPEs and controlling financial interests, effective January 1, 2010 Provision for loan and lease losses Charge-offs: Commercial: Construction and land development Commercial mortgage Other commercial real estate Commercial and industrial Lease financing Total commercial loans Non-commercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total non-commercial loans Total charge-offs Recoveries: Commercial: Construction and land development Commercial mortgage Other commercial real estate Commercial and industrial Lease financing Total commercial loans Non-commercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total non-commercial loans Total recoveries Net charge-offs Allowance for loan and lease losses at end of period Average loans and leases: Covered under loss share agreements Not covered under loss share agreements Total Loans and leases at period end: Covered under loss share agreements Not covered under loss share agreements Total Allowance for loan and lease losses allocated to loans and leases: Covered under loss share agreements Not covered under loss share agreements Total Provision for loan and lease losses related to balances: Covered under loss share agreements Not covered under loss share agreements Total Net charge-offs of loans and leases: Covered under loss share agreements Not covered under loss share agreements Total Reserve for unfunded commitments Ratios: Net charge-offs to average loans and leases: Covered under loss share agreements Not covered under loss share agreements Total Allowance for loan and lease losses to total loans and leases: Covered under loss share agreements Not covered under loss share agreements Total is the result of lower losses from loans acquired in the FDIC-assisted transactions. When actual losses are less than initial estimates, the difference is recognized as accretable yield and included in interest income prospectively over the remaining life of the loan. Any subsequent differences in initial estimates and actual results are also reflected with an adjustment to the FDIC receivable at the applicable indemnification rate. The proportion of the allowance relating to each class of loans will fluctuate based on the degree of the changes in default rates, charge-off activity, specifically identified impairments, and other credit quality indicators when compared to other classes. In Allowance for loan and lease losses allocated to: Noncovered loans and leases Commercial: Construction and land development Commercial mortgage Other commercial real estate Commercial and industrial Lease financing Other Total commercial Non-commercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total noncommercial Nonspecific Total allowance for noncovered loan and lease losses Covered loans Total allowance for loan and lease losses rate risk management liabilities can decline materially from current levels. In our simulations, we do not calculate rate shocks, rate ramps or market value of equity for declining rate scenarios and assume 2011 Assumed rate change Most likely Immediate 200 basis point increase Gradual 200 basis point increase Loans and leases: Secured by real estate Commercial and industrial Other Total loans and leases Loans covered under loss share agreements Loans not covered under loss share agreements Total loans and leases Loans maturing after one year with: Fixed interest rates Floating or adjustable rates Total SUMMARY OF OPERATIONS Interest income Interest expense Net interest income Provision for loan and lease losses Net interest income after provision for loan and lease losses Gains on acquisitions Other noninterest income Noninterest expense Income before income taxes Income taxes Net income Net interest income, taxable equivalent PER SHARE DATA Net income Cash dividends Market price at period end (Class A) Book value at period end Tangible book value at period end SELECTED QUARTERLY AVERAGE BALANCES Total assets Investment securities Loans and leases (covered and noncovered) Interest-earning assets Deposits Interest-bearing liabilities Long-term obligations Shareholders’ equity Shares outstanding SELECTED QUARTER-END BALANCES Total assets Investment securities Loans and leases: Covered under loss share agreements Not covered under loss share agreements Interest-earning assets Deposits Interest-bearing liabilities Long-term obligations Shareholders’ equity Shares outstanding SELECTED RATIOS AND OTHER DATA Rate of return on average assets (annualized) Rate of return on average shareholders’ equity (annualized) Net yield on interest-earning assets (taxable equivalent) Allowance for loan and lease losses to total loans and leases: Covered by loss share agreements Not covered by loss share agreements Nonperforming assets to total loans and leases and other real estate at period end: Covered by loss share agreements Not covered by loss share agreements Tier 1 risk-based capital ratio Total risk-based capital ratio Leverage capital ratio Dividend payout ratio Average loans and leases to average deposits The capital ratios presented are of First Citizens BancShares, Inc., and Subsidiaries. current low rates. card loyalty programs. Assets Loans and leases Investment securities: U. S. Government Residential mortgage-backed securities Corporate bonds State, county and municipal Other Total investment securities Overnight investments Total interest-earning assets Liabilities Deposits: Checking With Interest Savings Money market accounts Time deposits Total interest-bearing deposits Short-term borrowings Long-term obligations Total interest-bearing liabilities Interest rate spread Net interest income and net yield on interest-earning assets 2012 Type of obligation Contractual obligations: Deposits Short-term borrowings Long-term obligations Operating leases Estimated payment to FDIC due to claw-back provisions under loss share agreements Total contractual obligations Commitments: Loan commitments Standby letters of credit Affordable housing partnerships Total commitments 7.00 percent. Act . 62. ASSETS Cash and due from banks Overnight investments Investment securities available for sale Investment securities held to maturity Loans held for sale Loans and leases: Covered under loss share agreements Not covered under loss share agreements Less allowance for loan and lease losses Net loans and leases Premises and equipment Other real estate owned: Covered under loss share agreements Not covered under loss share agreements Income earned not collected Receivable from FDIC for loss share agreements Goodwill Other intangible assets Other assets Total assets LIABILITIES Deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings Long-term obligations Other liabilities Total liabilities SHAREHOLDERS’ EQUITY Common stock: Class A—$1 par value (11,000,000 shares authorized; 8,756,778 shares issued for each period) Class B—$1 par value (2,000,000 shares authorized; 1,677,675 shares issued for each period) Surplus Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity INTEREST INCOME Loans and leases Investment securities: U.S. Government Residential mortgage-backed securities Corporate bonds State, county and municipal Other Total investment securities interest and dividend income Overnight investments Total interest income INTEREST EXPENSE Deposits Short-term borrowings Long-term obligations Total interest expense Net interest income Provision for loan and lease losses Net interest income after provision for loan and lease losses NONINTEREST INCOME Gain on acquisitions Cardholder and merchant services Service charges on deposit accounts Wealth management services Fees from processing services Mortgage Insurance commissions ATM income Other service charges and fees Securities gains (losses) Adjustments to FDIC receivable for loss share agreements Other Total noninterest income NONINTEREST EXPENSE Salaries and wages Employee benefits Occupancy Equipment FDIC deposit insurance Foreclosure-related expenses Other Total noninterest expense Income before income taxes Income taxes Net income PER SHARE INFORMATION Net income per share Dividends per share Average shares outstanding Balance at December 31, 2007 Comprehensive income: Net income Change in unrealized securities gains arising during period, net of $7,753 deferred tax Change in unrecognized loss on cash flow hedges, net of $2,098 deferred tax benefit Change in pension obligation, net of $55,581 deferred tax benefit Total comprehensive income Cash dividends Balance at December 31, 2008 Comprehensive income: Net income Change in unrealized securities gains arising during period, net of $15,365 deferred tax benefit Change in unrecognized loss on cash flow hedges, net of $2,093 deferred tax Change in pension obligation, net of $21,019 deferred tax Total comprehensive income Cash dividends Balance at December 31, 2009 Adjustment resulting from adoption of a change in accounting for QSPEs and controlling financial interests effective January 1, 2010 Comprehensive income: Net income Change in unrealized securities gains arising during period, net of $4,425 deferred tax benefit Less reclassification adjustment for gains included in net income, net of $771 deferred tax Change in unrecognized loss on cash flow hedges, net of $1,629 deferred tax benefit Change in pension obligation, net of $1,099 deferred tax benefit Total comprehensive income Cash dividends Balance at December 31, 2010 OPERATING ACTIVITIES Net income Adjustments to reconcile net income to cash provided by operating activities: Amortization of intangibles Provision for loan and lease losses Deferred tax (benefit) expense Change in current taxes payable Depreciation Change in accrued interest payable Change in income earned not collected Gain on acquisitions Securities losses (gains) Origination of loans held for sale Proceeds from sales of loans held for sale Gain on sales of loans held for sale (Gain) loss on sales of other real estate Net amortization of premiums and accretion of discounts Change in FDIC receivable for loss share agreements Net change in other assets Net change in other liabilities Net cash provided by operating activities INVESTING ACTIVITIES Net change in loans and leases outstanding Purchases of investment securities held to maturity Purchases of investment securities available for sale Proceeds from maturities of investment securities held to maturity Proceeds from maturities of investment securities available for sale Proceeds from sales of investment securities available for sale Net change in overnight investments Proceeds from sales of other real estate Additions to premises and equipment Dispositions of premises and equipment Net cash received from acquisitions Net cash used by investing activities FINANCING ACTIVITIES Net change in time deposits Net change in demand and other interest-bearing deposits Net change in short-term borrowings Origination (repayment) of long-term obligations Cash dividends paid Net cash provided (used) by financing activities Change in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period CASH PAYMENTS FOR: Interest Income taxes SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Unrealized securities gains (losses) Unrealized (loss) gain on cash flow hedge Prepaid pension benefit (pension liability) Transfers of loans to other real estate Acquisitions: Assets acquired Liabilities assumed Net assets acquired Statements. Carolina. interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to interest income using the interest method. At the borrower's current capacity to pay, which among other things may include a review of the borrower's current financial statements, an analysis of cash flow documenting the borrower's capacity to pay all debt obligations, and an evaluation of secondary sources of payment from the borrower and any guarantors. This evaluation also includes an evaluation of the borrower's current willingness to pay, which may include a review of past payment history, an evaluation of the borrower's willingness to provide information on a timely basis, and consideration of offers from the borrower to provide additional collateral or guarantor support. The credit evaluation also reflects consideration of the adequacy of collateral to cover all principal and interest and trends indicating improving profitability and collectability of receivables. "clawback liability" that may be owed to the FDIC at the termination of the loss share agreements well as the total hold period, is used to calculate an anticipated realizable value. Future adjustments to the ALLL may be necessary based on changes in economic and other conditions. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review Management considers the established ALLL adequate to absorb probable losses that relate to loans and leases outstanding as of respectively. Obligations under capital leases are amortized using the interest method to allocate payments between principal reduction and interest expense. Rent expense and rental income on operating leases is recorded using the straight-line method over the appropriate lease terms. BancShares performs its annual impairment test as of , the results the analysis provided no indication of potential impairment of BancShares' goodwill. Goodwill will continue to be monitored for triggering events that may indicate impairment prior to the next scheduled annual impairment test. value. Under Consolidated Financial Statements. on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. returns. therefore, changes in the fair value of the interest rate swaps have had no impact on net income. There are no speculative derivative financial instruments in any period. cash flows. Contents Assets Cash and due from banks Investment securities available for sale Loans covered by loss share agreements Other real estate owned covered by loss share agreements Income earned not collected Receivable from FDIC for loss share agreements Intangible assets Other assets Total assets acquired Liabilities Deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings Other liabilities Total liabilities assumed Excess of assets acquired over liabilities assumed Aggregate fair value adjustments Gain on acquisition of First Regional Assets Cash and due from banks Investment securities available for sale Loans covered by loss share agreements Other real estate owned covered by loss share agreements Income earned not collected Receivable from FDIC for loss share agreements Intangible assets Other assets Total assets acquired Liabilities Deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings Long-term obligations Other liabilities Total liabilities assumed Excess of assets acquired over liabilities assumed Aggregate fair value adjustments Cash received from the FDIC Gain on acquisition of Sun American Assets Cash and due from banks Investment securities Loans and leases Other real estate owned Income earned not collected Other assets Total assets Liabilities Deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings Long-term obligations Other liabilities Total liabilities Excess of liabilities assumed over assets acquired Cash received from the FDIC Investment securities available for sale 2010 Total investment securities available for sale 2009 Total investment securities available for sale Investment securities held to maturity 2010 Total investment securities held to maturity 2009 Total investment securities held to maturity Federal Home Loan Mortgage Corporation. The following table provides maturity information for investment securities as of December 31, Investment securities available for sale Maturing in: One year or less One through five years Five through 10 years Over 10 years Equity securities Total investment securities available for sale Investment securities held to maturity Maturing in: One through five years Five through 10 years Over 10 years Total investment securities held to maturity Maturity information for residential mortgage-backed securities is adjusted to reflect estimated prepayments. Gross gains on sales of investment securities available for sale Gross losses on sales of investment securities available for sale Other than temporary impairment losses on equity investments Total securities gains (losses) December 31, 2010 Investment securities available for sale: U.S. Government Residential mortgage-backed securities State, county and municipal Total Investment securities held to maturity: Residential mortgage-backed securities Total December 31, 2009 Investment securities available for sale: U.S. Government Residential mortgage-backed securities State, county and municipal Total Investment securities held to maturity: Residential mortgage-backed securities Total 2011 Covered loans(1) Noncovered loans and leases: Commercial: Construction and land development Commercial mortgage Other commercial real estate Commercial and industrial Lease financing Other Total commercial loans Non-commercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total non-commercial loans Total noncovered loans and leases Total loans and leases Covered loans: Commercial: Construction and land development Commercial mortgage Other commercial real estate Commercial and industrial Other Total commercial loans Non-commercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total non-commercial loans Total covered loans 2011 2005 and continue through 2014 are to be made by the Commodity Credit Corporation which is part of the United States Department of Agriculture. Grade: Pass Special mention Substandard Doubtful Ungraded Total Current 31-60 days past due 61-90 days past due Over 90 days past due Total Pass Special mention Substandard Doubtful Ungraded Total December 31, 2012, and 2011 by credit quality indicator is provided below: Noncovered loans and leases: Construction and land development— commercial Commercial mortgage Other commercial real estate Commercial and industrial Lease financing Other Residental mortgage Revolving mortgage Construction and land development—non-commercial Consumer Total noncovered loans and leases Covered loans: Construction and land development— commercial Commercial mortgage Other commercial real estate Commercial and industrial Residental mortgage Revolving mortgage Construction and land development—noncommercial Consumer and other Total covered loans Total loans and leases December 31, 2010: Noncovered loans and leases: Construction and land development—commercial Commercial mortgage Commercial and industrial Lease financing Other commercial real estate Construction and land development—non-commercial Residential mortgage Revolving mortgage Consumer Total noncovered loans and leases Covered loans Construction and land development—commercial Commercial mortgage Other commercial real estate Commercial and industrial Residential mortgage Revolving mortgage Construction and land development—non-commercial Consumer and other Total covered loans Total loans and leases December 31, 2009: Total noncovered loans and leases Total covered loans Total loans and leases subsequent nonperformance by the borrower or uncertainty in the ultimate disposition of the asset. Accretable yield at December 31, 2009 Additions Disposals Reclassification from nonaccretable difference Accretion income recognized Accretable yield at December 31, 2010 Balance, January 1 Fair value of acquired loans covered by loss share agreements Reductions for repayments, foreclosures and decreases in fair value Balance, December 31 Outstanding principal balance, December 31 Loans held for sale at December 31 For the year ended December 31: Loans sold Net gain (loss) on sale of loans Carrying value of servicing asset, January 1 Amortization expense recognized during the year Adoption of change in accounting for QSPE Acquisition of SBA servicing asset Carrying value of servicing asset, December 31 Balance at December 31, 2007 Provision for loan and lease losses Loans and leases charged-off Loans and leases recovered Net charge-offs Balance at December 31, 2008 Provision for loan and lease losses Loans and leases charged-off Loans and leases recovered Net charge-offs Balance at December 31, 2009 Provision for loan and lease losses Adoption of change in accounting for QSPE Loans and leases charged-off Loans and leases recovered Net charge-offs Balance at December 31, 2010 Allowance for loan and lease losses: Loans and leases individually evaluated for impairment Loans and leases collectively evaluated for impairment Total allowance for loan and lease losses Loans and leases: Loans and leases individually evaluated for impairment Loans and leases collectively evaluated for impairment Total loans and leases Allowance for loan losses: Loans individually evaluated for impairment Loans collectively evaluated for impairment Loans acquired with deteriorated credit quality Total allowance for loan losses Loans: Loans individually evaluated for impairment Loans collectively evaluated for impairment Loans acquired with deteriorated credit quality Total loans thousands) December 31, 2010 Noncovered impaired loans and leases Construction and land development—commercial Commercial mortgage Other commercial real estate Commercial and industrial Lease financing Other Residential mortgage Construction and land development—non-commercial Consumer Total noncovered impaired loans and leases Covered impaired loans Construction and land development—commercial Commercial mortgage Other commercial real estate Commercial and industrial Residential mortgage Revolving mortgage Construction and land development—non-commercial Total covered impaired loans Total impaired loans and leases December 31, 2009 Total noncovered impaired loans and leases Total covered impaired loans Total impaired loans and leases Noncovered impaired loans and leases Construction and land development - commercial Commercial mortgage Other commercial real estate Commercial and industrial Lease financing Other Residential mortgage Construction and land development - non-commercial Consumer Total noncovered impaired loans and leases Covered impaired loans Construction and land development - commercial Commercial mortgage Other commercial real estate Commercial and industrial Residential mortgage Revolving mortgage Construction and land development - non-commercial Total covered impaired loans Total impaired loans and leases Land Premises and leasehold improvements Furniture and equipment Total Less accumulated depreciation and amortization Total premises and equipment 2011 Year Ending December 31: 2011 2012 2013 2014 2015 Thereafter Total minimum payments 2012: Balance, January 1 Additional receivable from acquisitions Accretion of discounts and premiums, net Receipt of payments from FDIC Post-acquisition adjustments Balance, December 31 agreements: $304. BancShares does not hedge its mortgage servicing asset. Demand Checking With Interest Money market accounts Savings Time Total deposits 2011 2012 2013 2014 2015 Thereafter Total time deposits Master notes Repurchase agreements Notes payable to Federal Home Loan Banks Federal funds purchased Other Total short-term borrowings Junior subordinated debenture at 8.05 percent maturing March 5, 2028 Junior subordinated debenture at 3-month LIBOR plus 1.75 percent maturing June 30, 2036 Subordinated notes payable at 5.125 percent maturing June 1, 2015 Obligations under capitalized leases extending to July 2026 Notes payable to Federal Home Loan Bank of Atlanta with rates ranging from 2.85 percent to 4.12 percent and maturities ranging from October 2010 to September 2018 Notes payable to the Federal Home Loan Bank of Seattle with rates ranging from 4.74 percent to 5.38 percent and maturities ranging from July 2012 to July 2017 Debt from 2005 asset securitization Unamortized purchase accounting adjustments Other long-term debt Total long-term obligations 2011 2016 $21,565 reduction in long-term borrowings. 2011 2012 2013 2014 2015 Thereafter Total long-term obligations measurement date. Because no market exists for many financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the loans with similar terms would be made to borrowers of similar credit quality. Additional valuation adjustments are made for liquidity and credit risk. The inputs used in the fair value measurements for loans and leases are considered level 3 inputs. Cash and due from banks Overnight investments Investment securities available for sale Investment securities held to maturity Loans held for sale Loans covered by loss share agreements, net of allowance for loan and lease losses Loans and leases not covered by loss share agreements, net of allowance for loan and lease losses Receivable from FDIC for loss share agreements Income earned not collected Stock issued by: Federal Home Loan Bank of Atlanta Federal Home Loan Bank of San Francisco Federal Home Loan Bank of Seattle Deposits Short-term borrowings Long-term obligations Accrued interest payable value on a nonrecurring basis, including loans held for sale, which are carried at the lower of cost or market. Impaired loans, OREO, goodwill and other intangible assets are periodically tested for impairment. Loans held for investment, deposits, short-term borrowings and long-term obligations are not reported at fair value. BancShares has not elected to voluntarily report any assets or liabilities at fair value. Description December 31, 2010 Assets measured at fair value Investment securities available for sale U.S. Government Corporate bonds Residential mortgage-backed securities Equity securities State, county, municipal Total Liabilities measured at fair value Interest rate swaps accounted for as cash flow hedges December 31, 2009 Assets measured at fair value Investment securities available for sale U.S. Government Corporate bonds Residential mortgage-backed securities Equity securities State, county, municipal Other Total Liabilities measured at fair value Interest rate swaps accounted for as cash flow hedges 2011 the years ended Under the terms of the existing cash flow hedges, BancShares pays a fixed payment to the counterparty in exchange for receipt of a variable payment that is determined based on the Description Balance, January 1 Total gains (losses), realized or unrealized: Included in earnings Included in other comprehensive income Purchases, sales, issuances and settlements, net Reduction resulting from accounting change Balance, December 31 during Description December 31, 2010 Loans held for sale Impaired loans: Covered by loss share agreements Not covered by loss share agreements December 31, 2009 Loans held for sale Impaired loans: Covered by loss share agreements Not covered by loss share agreements 2011 2011 Current year foreclosures: Covered under loss share agreements Not covered under loss share agreements Loan charge-offs recorded due to the measurement and initial recognition of OREO: Covered under loss share agreements Not covered under loss share agreements Write-downs recorded subsequent to foreclosure for OREO: Covered under loss share agreements Not covered under loss share agreements Fair value of OREO carried at fair value: Covered under loss share agreements Not covered under loss share agreements does not anticipate any contribution during Change in Benefit Obligation Benefit obligation at January 1 Service cost Interest cost Actuarial (gain) loss Benefits paid Benefit obligation at December 31 Change in Plan Assets Fair value of plan assets at January 1 Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at December 31 Funded status at December 31 31, 2012, and 2011 Other assets Other liabilities Net asset (liability) recognized Net loss (gain) Less prior service cost Accumulated other comprehensive loss, excluding income taxes 31 The following table shows the components of periodic benefit cost related to the pension plan and changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, Service cost Interest cost Expected return on assets Amortization of prior service cost Amortization of net actuarial loss Total net periodic benefit cost Current year actuarial gain (loss) Amortization of actuarial gain (loss) Amortization of prior service cost Total recognized in other comprehensive income Total recognized in net periodic benefit cost and other comprehensive income 2010. Discount rate Rate of compensation increase Discount rate Rate of compensation increase Expected long-term return on plan assets fund retirement liabilities and provide for the desired plan benefits in a manner that satisfies the fiduciary requirements of the Employee Retirement Income Security Act. The plan assets have a long-term time horizon that runs concurrent with the average life expectancy of the participants. As such, the Plan can assume a time horizon that extends well beyond a full market cycle and can assume a reasonable level of risk. It is expected, however, that both professional investment management and sufficient portfolio diversification will smooth volatility and help to generate a reasonable consistency of return. The investments are broadly diversified among economic sector, industry, quality and size in order to reduce risk and to produce incremental return. Within approved guidelines and restrictions, the investment manager has discretion over the timing and selection of individual investments. The fair values of pension plan assets at December 31, Asset Category At December 31, 2010 Cash and equivalents Equity securities(a) Consumer discretionary Consumer staples Energy Information technology Telecommunication Financials Utilities Materials Health care Industrials Rights to purchase securities Mutual funds Debt securities(b) Bond funds Total pension assets At December 31, 2009 Cash and equivalents Equity securities(a) Consumer discretionary Consumer staples Energy Information technology Telecommunication Financials Utilities Materials Health care Industrials Rights to purchase securities Mutual funds Debt securities(b) Bond funds Total pension assets 2011 2012 2013 2014 2015 2016-2020 2008 Present value of accrued liability as of January 1 Benefit expense Benefits paid Benefits forfeited Interest cost Present value of accrued liability as of December 31 Discount rate at December 31 Cardholder and merchant processing Collection Processing fees paid to third parties Cardholder reward programs Telecommunications Advertising Postage Amortization of intangible assets Legal Other Total other noninterest expense Current tax expense Federal State Total current tax expense Deferred tax expense (benefit) Federal State Total deferred tax expense (benefit) Total income tax expense Income taxes at statutory rates Increase (reduction) in income taxes resulting from: Nontaxable income on loans, leases and investments, net of nondeductible expenses State and local income taxes, including change in valuation allowance, net of federal income tax benefit Tax credits Other, net Total income tax expense 2012 result from recognition of a $6,449 income tax expense reduction resulting from the favorable outcome of state tax audits for the period 2008 through 2010, net of additional federal taxes. Allowance for loan and lease losses Executive separation from service agreements State operating loss carryforward Unrealized loss on cash flow hedge Other Gross deferred tax asset Less valuation allowance Deferred tax asset Accelerated depreciation Lease financing activities Pension Net unrealized gains on securities included in accumulated other comprehensive loss Net deferred loan fees and costs Intangible asset Gain on FDIC-assisted transactions, deferred for tax purposes Other Deferred tax liability Net deferred tax asset after returns are filed. interest rate swap was 2006 interest rate swap hedging fixed rate exposure on trust preferred securities 2006-2011 2009 interest rate swap hedging fixed rate exposure on trust preferred securities 2011-2016 is used for interest rate risk management purposes and converts variable-rate exposure on outstanding debt to a fixed rate. The following table discloses activity in accumulated other comprehensive loss related to the interest rate swaps during the Accumulated other comprehensive loss resulting from interest rate swaps as of January 1 Other comprehensive income (loss) recognized during year ended December 31 Accumulated other comprehensive loss resulting from interest rate swaps as of December 31 2010. impairment. Balance, January 1 Intangible assets generated by FDIC-assisted transactions Other Amortization Balance, December 31 2011 2012 2013 2014 2015 Beyond 2015 MATTERS BancShares Tier 1 capital Total capital Leverage capital FCB Tier 1 capital Total capital Leverage capital ISB Tier 1 capital Total capital Leverage capital BancShares and $290,968. Total assets Loans and leases: Covered under loss share agreements Not covered under loss share agreements Allowance for loan and lease losses Goodwill Deposits Nonperforming assets: Covered under loss share agreements Not covered under loss share agreements Total nonperforming assets Total assets Loans and leases: Covered under loss share agreements Not covered under loss share agreements Allowance for loan and lease losses Goodwill Deposits Nonperforming assets: Covered under loss share agreements Not covered under loss share agreements Total nonperforming assets Interest income Interest expense Net interest income Provision for loan and lease losses Net interest income after provision for loan and lease losses Noninterest income Noninterest expense Income (loss) before income taxes Income taxes Net income (loss) Interest income Interest expense Net interest income Provision for loan and lease losses Net interest income after provision for loan and lease losses Noninterest income Noninterest expense Income (loss) before income taxes Income taxes Net income (loss) Interest income Interest expense Net interest income Provision for loan and lease losses Net interest income after provision for loan and lease losses Noninterest income Noninterest expense Income (loss) before income taxes Income taxes Net income (loss) (LOSS) Unrealized gains on investment securities available for sale Funded status of defined benefit plan Unrealized loss on cash flow hedge Total 2011 Interest income Interest expense Net interest income (loss) Dividends from subsidiaries Other income (loss) Other operating expense Income before income tax benefit and equity in undistributed net income of subsidiaries Income tax benefit Income before equity in undistributed net income of subsidiaries Equity in undistributed net income of subsidiaries Net income OPERATING ACTIVITIES Net income Adjustments Undistributed net income of subsidiaries Net amortization of premiums and discounts Securities gains Change in other assets Change in other liabilities Net cash provided by operating activities INVESTING ACTIVITIES Net change in due from subsidiaries Purchases of investment securities Maturities and sales of investment securities Investment in subsidiaries Net cash provided by investing activities FINANCING ACTIVITIES Net change in short-term borrowings Cash dividends paid Net cash used by financing activities Net change in cash Cash balance at beginning of year Cash balance at end of year Cash payments for Interest Income taxes Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the Registrant and in the capacities indicated on Signature Title Date Chairman Executive Vice Chairman Vice President, Treasurer, and Chief Financial Officer (principal financial and accounting officer) Director Director UBERT Director Signature Title Date Director Director Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated January 29, 2010 (incorporated by reference from Registrant’s Form 8-K/A filed June 9, 2010 to Form 8-K dated January 29, 2010) Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated March 5, 2010 (incorporated by reference from Registrant’s Form 8-K dated March 5, 2010) Page PART 1 Item 1 Item 1A Item 1B Unresolved Staff Comments None Item 2 Item 3 PART II Item 5 Item 6 Item 7 Item 7A Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A Item 9B Other Information None PART III Item 10 Directors, Executive Officers and Corporate Governance * Item 11 Executive Compensation * Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters * Item 13 Certain Relationships and Related Transactions and Director Independence * Item 14 Principal Accounting Fees and Services * PART IV Item 15 Exhibits, Financial Statement Schedules (1) Financial Statements (see Item 8 for reference) (2) All Financial Statement Schedules normally required on Form 10-K are omitted since they are not applicable, except as referred to in Item 8. None (3) PagePART 1Item 1Business3Item 1ARisk Factors9Item 1BUnresolved Staff CommentsNoneItem 2Properties13Item 3Legal Proceedings13PART IIItem 5Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities14Item 6Selected Financial Data16Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations17Item 7AQuantitative and Qualitative Disclosure About Market RiskItem 8Financial Statements and Supplementary DataManagement’s Annual Report on Internal Control over Financial Reporting57Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting58Report of Independent Registered Public Accounting Firm59Consolidated Balance Sheets at December 31, 2010 and 200960Consolidated Statements of Income for each of the years in thethree-year period ended December 31, 201061Consolidated Statements of Changes in Shareholders’ Equity foreach of the years in the three-year period ended December 31, 201062Consolidated Statements of Cash Flows for each of the years in thethree-year period ended December 31, 201063Notes to Consolidated Financial Statements64Quarterly Financial Summary for 2010 and 200951Item 9Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNoneItem 9AControls and Procedures56Item 9BOther InformationNonePART IIIItem 10Directors, Executive Officers and Corporate Governance*Item 11Executive Compensation*Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*Item 13Certain Relationships and Related Transactions and Director Independence*Item 14Principal Accounting Fees and Services*PART IVItem 15Exhibits, Financial Statement Schedules (1)Financial Statements (see Item 8 for reference) (2)All Financial Statement Schedules normally required on Form 10-K are omitted since they are not applicable, except as referred to in Item 8. (3)The Exhibits listed on the Exhibit Index contained in this Form 10-K are filed with or furnished to the Commission or incorporated by reference into this report and are available upon written request.*Information required by Item 10 is incorporated herein by reference to the information that appears under the headings or captions ‘Proposal 1: Election of Directors,’ ‘Code of Ethics,’ ‘Committees of our Board—General,’ and ‘—Audit and Compliance Committee’, ‘Executive Officers’ and ‘Section 16(a) Beneficial Ownership Reporting Compliance’ from the Registrant’s Proxy Statement for the 2011 Annual Meeting of Shareholders (2011 Proxy Statement) .Information required by Item 11 is incorporated herein by reference to the information that appears under the headings or captions ‘Compensation Discussion and Analysis,’ ‘Compensation Committee Report,’ ‘Executive Compensation,’ and ‘Director Compensation,’ of the 2011 Proxy Statement.Information required by Item 12 is incorporated herein by reference to the information that appears under the heading ‘Beneficial Ownership of Our Common Stock’ of the 2011 Proxy Statement.Information required by Item 13 is incorporated herein by reference to the information that appears under the headings or captions ‘Corporate Governance—Director Independence’ and ‘Transactions with Related Persons’ of the 2011 Proxy Statement.Information required by Item 14 is incorporated by reference to the information that appears under the caption ‘Services and Fees During 2010 and 2009’ of the 2011 Proxy Statement.As of December 31, 2010, FCB operated 377 offices in North Carolina, Virginia, West Virginia, Maryland, Tennessee, Washington, California, Florida and Washington, DC.in urban areas throughout the United States. At December 31, 2010, ISB had 58 offices in Georgia, Florida, Texas, Arizona, New Mexico, California, Oregon, Washington, Colorado, Oklahoma, Kansas and Missouri. The financial results and trends of ISB reflect the impact of the de novo nature of its growth. Refer to Note T—Segment Disclosures in the Notes to BancShares’ audited Consolidated Financial Statements for additional financial disclosures on FCB and ISB, including summary income statements and balance sheet information.the combined entity now operates under theWashington, DC.charter. Branchesparticipated in six FDIC-assisted transactions, acquiring assets and assuming liabilities of the former ISB continuefailed financial institutions. These transactions have allowed FCB to operate underenter new markets and expand its presence in other markets. A summary of the name IronStone Bank, which is now a division of FCB.During 2010 FCB purchased substantially all the assets and assumed substantially all the liabilities of First Regional Bank (First Regional) and Sun American Bank (SAB) from the Federal Deposit Insurance Corporation (FDIC), as Receiver of those two banks, under agreements which included loss share arrangements which protect FCB from losses on covered loans and other real estate owned up to stated limits. First Regional operated eight banking branches in southern California. SAB operated 12 banking branches in Florida. Those branches now operate as banking branches of FCB. In connection with its acquisitions of First Regional and SAB, FCB measured all assets and liabilities at fair value, and recorded loans of $1.26 billion and $290.9 million, total assets of $1.76 billion and $499.3 million, deposits of $1.29 billion and $420.0 million, and total liabilities of $1.65 billion and $503.5 million, respectively. The two transactions resulted in bargain purchase gains in 2010 of $107.7 million and $27.8 million, respectively. Additional information regarding the two 2010 FDIC-assisted transactions is containedprovided in Management’sAnalysis of Financial Condition and Results of Operations and Note B to BancShares’ audited consolidated financial statements.During 2009 FCB purchased substantially all the assets and assumed substantially all the liabilities of Temecula Valley Bank (TVB) and Venture Bank (VB) from the FDIC, as Receiver of those two banks, under agreements which included loss share arrangements which protect FCB from losses on covered loans and other real estate owned up to stated limits. TVB operated 11 banking branches in California, primarily within the San Diego, California area and the Temecula Valley area east of San Diego. Venture operated 18 banking branches in the Seattle/Olympia, Washington area. In connection with its acquisitions of TVB and VB, FCB measured all assets and liabilities at fair value, and recorded loans of $855.6 million and $457.0 million, total assets of $1.11 billion and $795.2 million, deposits of $965.4 million and $709.1 million, and total liabilities of $1.05 billion and $766.5 million, respectively. The TVB and VB transactions resulted in bargain purchase gains in 2009 of $56.4 million and $48.0 million, respectively.Prior to the 2011 merger of FCB and ISB, BancShares conducted its banking operations through its two separately chartered wholly-owned subsidiaries, FCB and ISB. Following the merger, all banking operations are conducted by FCB, including the branches that continue to operate under the IronStone Bank name. WithAnalysis.general services,service industries, agricultural, wholesale/wholesale and retail trade, technology and financial services,services. BancShares believes its current market areas will support future growth in loans and deposits. BancShares maintains a community bank approach to providing customer service, a competitive advantage that strengthens our ability to effectively provide financial products and services to individuals and businesses in our markets. Although FCB providesHowever, like larger banks, BancShares has the capacity to offer most financial products and services targeted to both business and retailthat our customers ISB has focused primary attention on business customers, providing retail banking services on a limited basis. No significant change in ISB’s business banking focus is anticipated in the near future.thecertain urban areas of Georgia, Florida, California and Texas in which we operate.Texas. The delivery of products and services to through various ATM networks. Business customers may also conduct banking transactions through use of remote image technology.Prior to the 2011 merger of FCB and ISB, FCB was BancShares’ largest banking subsidiary with 88.0 percent of BancShares’ consolidated deposits as of December 31, 2010. 5.73.7 percent as of June 30, 20102012, based on the FDIC Deposit Market Share Report. Based on this ranking of deposits,Report, which makes FCB was the fourth largest bank in North Carolina. The three banks larger than FCB based on deposits in North Carolina as of June 30, 2010,2012, controlled 63.378.2 percent of North Carolina deposits.17th19th largest bank with a 20102012, deposit market share of 0.60.5 percent. The sixteen18 larger banks represent 81.885.4 percent of total deposits in Virginia as of June 30, 2010. At 2012. The distribution of FCB branches as of December 31, 2010, 2012, is provided in the following table.had 276 branches in North Carolina, 51 branches in Virginia, 16 branches in California, 14 branches in Washington, 7 branches in Florida, 6 branches in Tennessee, 5 branches in West Virginia, 1 branch in Maryland, and 1 branch in Washington, D.C.ISB’s deposits represent 12.2 percent of BancShares’ consolidated deposits as of December 31, 2010. Due to ISB’s focus on urban areas with many financial service providers, ISB’s market share in each of the states in which it operates is less than one percent. At December 31, 2010, ISB had 15 branches in Georgia, 13 branches in Florida, 9 branches in California, 7 branches in Texas, 3 branches in Colorado, 2 branches in each of Arizona, New Mexico, Oregon and Oklahoma, and 1 branch each in Kansas, Missouri and Washington.FCB and ISB seekseeks to meet the needs of both consumersindividuals and commercial entities in their respectiveits market areas. Their services,Services offered at most offices include taking of deposits, cashing of checks and providing for individual and commercial cash needs; numerous checking and savings plans; commercial, business and consumer lending; a full-service trust department; and other activities incidental to commercial banking. BancShares’FCB’s wholly-owned subsidiary, First Citizens Investor Services, Inc. (FCIS), provides various investment products including annuities, discount brokerage services and third-party mutual funds to customers.customers primarily through the bank's branch network. Other subsidiaries are not material to BancShares’ consolidated financial position or to consolidated net income.December 31, 2012 State Number of branches Percent of total deposits North Carolina 266 72.4 % Virginia 48 7.3 California 21 6.0 Florida 17 3.6 Georgia 14 2.3 Washington 11 2.0 Colorado 7 1.3 Texas 7 1.3 Tennessee 6 0.7 West Virginia 5 0.7 Arizona 2 0.5 New Mexico 2 0.7 Oklahoma 2 0.2 Oregon 2 0.3 District of Columbia 1 0.1 Kansas 1 0.3 Maryland 1 0.2 Missouri 1 0.1 Total 414 100.0 % previously reserved for commercial banks has intensified competition. Traditional commercial banks are subject to significant competitive pressure from multiple types of financial institutions. This non-bank competitive pressure is perhaps most acute in the wealth management and payments arenas.processing. Non-banks and other diversified financial conglomerates have developed powerful and focused franchises, which have eroded traditional commercial banks’ market share of both balance sheet and fee-based products.some regional and localnumerous smaller community-based institutions. Mergers, continuedSince 2008, asset quality challenges, capital shortages, fallout oferosion and difficulty attracting new capital and a severe global economic recession have compelled many banks to merge and resultinghave led to bank failures will alsothat have had a profoundsignificant impact on the competitive environment.2010,2012, BancShares and its subsidiaries employed a full-time staff of 4,4214,369 and a part-time staff of 714452 for a total of 5,1354,821 employees. the President of ISB, Executive Vice President of FCB, and, since January 2011, Vice Chairman of BancShares and FCB, is Robert P. Holding’s granddaughter. Frank B. Holding, son of Robert P. Holding and father of Frank B. Holding, Jr. and Hope H. Connell, is our Executive Vice Chairman. Carmen Holding Ames, another granddaughterHolding, and father ofHolding. Lewis R. Holding's daughter, Carmen Holding Ames.MembersAmes, was a director of BancShares and FCB from 1996 until until she resigned from the board on December 20, 2012. members of our board of directors and in various management positions, and certain family members' related entities including certain of their related parties,family-owned entities, may be considered to beneficially own, in the aggregate, approximately 37.424.7 percent of the outstanding shares of our Class A common stock and approximately 66.3 percent of the outstanding shares of our Class B common stock, together representing approximately 52.0 percent of the total votes entitled to be cast by all outstanding shares of both classes of BancShares' common stock. In addition, four other banking organizations in which various members of the Holding family are principal shareholders and serve as directors, collectively hold an aggregate of approximately 5.2 percent of the outstanding shares of our Class A common stock and approximately 49.56.6 percent of the outstanding shares of our Class B common stock, together representing approximately 46.26.1 percent of the voting control of BancShares. Additionally, a trust for the benefit of a family member holds additional shares over which the family member does not have voting or investment control. Those shares amount to approximately three percent and 29.7 percent, respectively, of the outstanding shares of our Class A and Class B common stock and together represent approximately 23.2 percent of the voting control of BancShares.FCB and prior to the January 7, 2011 merger, ISBFCB are subject to significant federal and state governmental regulation and supervision. BancShares is a financial holding company registered with the Federal Reserve Board (FRB) under the Bank Holding Company Act of 1956, as amended. It is subject to supervision and examination by, and the regulations and reporting requirements of, the FRB.Prior to the merger, ISB operated as a federally-chartered thrift institution supervised by the Office of Thrift Supervision (OTS). Deposit obligations are insured by the FDIC to the maximum legal limits.FCBBancShares' and prior to the merger, ISB,FCB's business including reserves, loans, allowances for loan and lease losses, mergers and acquisitions, the payment of dividends, various compliance matters and other aspects of theirits operations. The regulators conduct regular examinations, and the banking subsidiariesBancShares and FCB must furnish periodic reports to theirits regulators containing detailed financial and other information regarding their affairs.Gramm-Leach-BlileyDodd-Frank Act (GLB Act) adoptedimplements far-reaching regulatory reform. Some of the more significant implications of the Dodd-Frank Act are summarized below:Congress during 1999 expanded opportunitiescreating a new agency, the Consumer Financial Protection Bureau (CFPB), responsible for implementing, examining and enforcing compliance with federal consumer financial laws;provide servicescreate a board-level risk committee responsible for the oversight of enterprise risk management;engage in other revenue-generating activities that previously were prohibited to them. The GLB Act permitted bank holding companies to become “financial holding companies” and expanded activities in which banks and bank holding companies may participate, including opportunities to affiliate with securities firms andprovided unlimited federal deposit insurance companies. During 2000, BancShares became a financial holding company.Under Delaware law, BancShares is authorizedprotection until December 31, 2012, for noninterest-bearing demand transaction accounts at all insured depository institutions;dividends declared by its Board of Directors, provided that no distribution results in its insolvency. The ability of FCBinterest on business transaction and other accounts;pay dividends to BancShares is governed by North Carolina statutes and rules and regulations issued by regulatory authorities. Under federal law, and as an insured bank, FCB is prohibited from making any capital distributions, including paying a cash dividend, if it is, or after making the distribution it would become, “undercapitalized” as that term is defined inamong other things, give the Federal Deposit Insurance Act (FDIA).BancShares is requiredReserve the authority to comply withestablish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the capital adequacy standards established byactual cost of a transaction to the FRB, and FCB is subject to capital adequacy standards established byissuer;FDIC. The FRB and FDIC have promulgated risk-based capital and leverage capital guidelines for determining the adequacyauthority of the capitalFederal Reserve to examine financial institutions, including non-bank subsidiaries.a bank holding company or a bank,the Dodd-Frank Act require adoption of rules that will take effect over several years, making it difficult to anticipate the overall financial impact to financial institutions and all applicable capital standards mustconsumers. The provision of the legislation related to allowable fees that may be satisfiedcharged for a bank holding company or a bankdebit transactions resulted in significant revenue reductions for debit cards. Elimination of the prohibition on the payment of interest on demand deposits will increase the costs associated with certain deposit instruments.be considered in compliance with these capital requirements.Current federal law establishes a systemthe disallowance of prompt corrective actionour ability to resolve the problems of undercapitalized banks. Under this system, the FDIC has established five capital categories (“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized”). The FDIC is required to take certain mandatory supervisory actions, and is authorized to take other discretionary actions, with respect to banks in the three undercapitalized categories.Under the FDIC’s rules implementing the prompt corrective action provisions, an insured, state-chartered bank that has a total capital ratio of 10.0 percent or greater, ainclude trust preferred securities as tier 1 capital ratiowill affect our capital ratios beginning in 2013. At 6.0 percenttrust preferred securities outstanding. Beginning in 2013 and continuing in each of the following two years, one-third or greater,$31.2 million of the trust preferred securities will be disallowed from tier 1 capital. Elimination of the full $93.5 million of trust preferred securities from our December 31, 2012, capital structure would result in a proforma tier 1 leverage ratio of 5.08.78 percent or greater,, a proforma tier 1 risk-based ratio of 13.59 percent and isa proforma total risk-based ratio of 15.27 percent. BancShares would continue to remain well-capitalized under current regulatory guidelines.subjectapply for additional capital under the TARP Capital Purchase Program. We also did not participate in the TLGP debt guarantee program, but did elect to any written agreement, order, capital directive, or prompt corrective action directive issued byparticipate in the FDIC, is consideredTLGP expansion of deposit insurance. We continued to be “well-capitalized.” As ofparticipate in the expanded deposit insurance program until the program expired on December 31, 2010, FCB is well-capitalized, and FCB will remain well capitalized following its merger with ISB.Under regulations of the FRB, all FDIC-insured banks must maintain average daily reserves against their transaction accounts. Because required reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank or with a qualified correspondent bank, the effect of the reserve requirement is to reduce the amount of the Banks’ assets that are available for lending or other investment activities.deposit insurance fund (DIF)DIF will incur a loss with respect to that bank. The evaluation considers risks attributable to different categories and concentrations of the bank’s assets and liabilities and other factors the FDIC considers to be relevant, including information obtained from the bank’s federal and state banking regulators.With respect to purchased loans and other real estate that are subject to various loss share agreements, the FDIC also has responsibility for reviewing various reimbursement claims we submit for losses or expenses we have incurred in conjunction with the resolutiontotal amount of transactions with a single affiliate is limited to 10 percent of capital and surplus and, for all affiliates, to 20 percent of capital and surplus. Each of the transactions among affiliates must also meet specified collateral requirements and must comply with other provisions of Section 23A designed to avoid transfers of low-quality assets between affiliates. FCB is also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibits the above and certain other transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable, as those prevailing at the time for comparable transactions with nonaffiliated companies.The USA Patriot Act of 2001 (Patriot Act) is intended to strengthen the ability of United States law enforcement and the intelligence community to work cohesively to combat terrorism on a variety of fronts. The Patriot Act contains sweeping anti-money laundering and financial transparency laws which required various new regulations, including standards for verifying customer identification at account opening, and rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. The Patriot Act has required financial institutions to adopt new policies and procedures to combat money laundering, and it grants the Secretary of the Treasury broad authority to establish regulations and impose requirements and restrictions on financial institutions’ operations.Under the Community Reinvestment Act, as implemented by regulations of the federal bank regulatory agencies, an insured bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods.TheSarbanes-Oxley Act of 2002 (SOX Act) mandated important new corporate governance, financial reporting and disclosure requirements intended to enhance the accuracy and transparency of public companies’ reported financial results. It established new responsibilities for corporate chief executive officers, chief financial officers and audit committees in the financial reporting process, and it created a new regulatory body to oversee auditors of public companies. The SOX Act also mandated new enforcement tools, increased criminal penalties for federal mail, wire and securities fraud, and created new criminal penalties for document and record destruction in connection with federal investigations. Additionally, the SOX Act increased the opportunity for private litigation by lengthening the statute of limitations for securities fraud claims and providing new federal corporate whistleblower protection.During 2008, in responsewidespread concern about weakness within the banking industry, the Emergency Economic Stabilization Act was enacted, providing expanded insurance protection to depositors. In addition, the U.S. Treasury created the TARP Capital Purchase Program to provide qualifying banks with additional capital. The FDIC created the Temporary Liquidity Guarantee Program (TLGP), which allowed banks to purchase a guarantee for newly-issued senior unsecured debt and provided expanded deposit insurance benefits to certain noninterest-bearing accounts. Due to our strong capital ratios, we did not apply for additional capital under the TARP Capital Purchase Program. We also did not participate in the TLGP debt guarantee program, but did elect to participate in the TLGP expansion of deposit insurance. We continued to participate in the expanded deposit insurance program during the extensions to the program that were offered.On July 21, 2010, theDodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law. The Dodd-Frank Act implements far-reaching regulatory reform. Some of the more significant implications of the Dodd-Frank Act are summarized below:Established centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining and enforcing compliance with federal consumer financial laws;Established the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies;Required financial holding companies to be well-capitalized and well managed as of July 21, 2011; bank holding companies and banks must also be both well-capitalized and well managed in order to acquire banks located outside their home state;Disallowedstrengthen the ability of banksUnited States law enforcement and holding companiesthe intelligence community to include trust preferred securities as tier 1 capital; this provision willwork cohesively to combat terrorism on a variety of fronts. The Patriot Act contains sweeping anti-money laundering and financial transparency laws which required various new regulations, including standards for verifying customer identification at account opening and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be applied over a three-year period beginning January 1, 2013;Changedinvolved in terrorism or money laundering. The Patriot Act has required financial institutions to adopt new policies and procedures to combat money laundering and it grants the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital;Eliminated the ceiling on the sizeSecretary of the DIFTreasury broad authority to establish regulations and increased the floorimpose requirements and restrictions on the size of the DIF;Required large, publicly tradedcreateprovide services and engage in other revenue-generating activities that previously were prohibited to them. The GLB Act permitted bank holding companies to become “financial holding companies” and expanded activities in which banks and bank holding companies may participate, including opportunities to affiliate with securities firms and insurance companies. During 2000, BancShares became a board-level risk committee responsiblefinancial holding company.oversightadequacy of enterprise risk management;Required implementationthe capital of corporate governance revisions, affecting areas such as executive compensationa bank holding company or a bank and proxy accessall applicable capital standards must be satisfied for a bank holding company or a bank to be considered in compliance with these capital requirements. During 2012, the FRB issued proposed regulations to implement the minimum capital standards of the Basel Committee on Banking Supervision including Basel III.shareholders;Established a permanent $250,000 limit for federal deposit insurance protection, increased the cash limitFDIC, is considered to be “well-capitalized.” As of Securities Investor Protection Corporation protection from $100,000 to $250,000 and provided unlimited federal deposit insurance protection until December 31, 2012, FCB is well-capitalized.noninterest-bearing demand transaction accounts at all insured depository institutions;lending or other investment activities.Repealed the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutionspay interest on business transactionacquired loans and other accounts;Amendedreal estate that are subject to various loss share agreements, the Electronic Fund Transfer Act to, among other things, giveFDIC also has responsibility for reviewing various reimbursement claims we submit for losses or expenses we have incurred in conjunction with the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportionalresolution of acquired assets.actual costprovisions of a transaction to the issuer;Increased the authoritySection 23A of the Federal Reserve Act, which places limits on the amount of certain transactions with affiliate entities. The total amount of transactions with a single affiliate is limited to examine financial institutions including non-bank subsidiaries.Many aspects10 percent of capital and surplus and, for all affiliates, to 20 percent of capital and surplus. Each of the Dodd-Frank Act aretransactions among affiliates must also meet specified collateral requirements and must comply with other provisions of Section 23A designed to avoid transfers of low-quality assets between affiliates. FCB is also subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact to financial institutions and consumers. Provisions in the legislation that affect the paymentprovisions of interest on demand deposits and interchange fees are likely to increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate.Provisions within the Dodd-Frank Act related to the disallowance of our ability to include trust preferred securities as tier 1 capital will affect our capital ratios beginning in 2013. At December 31, 2010, BancShares had $265.0 million of trust preferred securities outstanding. Beginning in 2013 and continuing in eachSection 23B of the following two years, one-thirdFederal Reserve Act which, among other things, prohibits the above and certain other transactions with affiliates unless the transactions are on terms substantially the same, or $88.3 millionat least as favorable, as those prevailing at the time for comparable transactions with nonaffiliated companies.trust preferred securities will be disallowed from tier 1 capital. Eliminationfederal bank regulatory agencies, an insured bank has a continuing and affirmative obligation, consistent with safe and sound banking practices, to help meet the credit needs of the full $265.0 million of trust preferred securities from the December 31, 2010 capital structure would result in a proforma tier 1 leverage ratio of 7.93 percent, a proforma tier 1 risk-based ratio of 12.83 percentits entire community, including low and a proforma total risk-based ratio of 14.91 percent. Although these are significant decreases from the amounts reported as of December 31, 2010, BancShares would continue to remain well-capitalized under current regulatory guidelines.Before making an investment decision, theseThese risks and uncertainties should be carefully considered together with all of the other information included or incorporated herein by reference. 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 to be material could also have a material, adverse impact on our financial condition, the results of our operations or our business. If this were to occur, the market price of our common stock could decline significantly.increases in unemployment rates, decreases in real estate values, rapid changes in interest rates, higher loan defaultBancShares and bankruptcy rates, and various other factorsFCB. Continued unfavorable economic conditions could weaken the national economy further as well as the economies of specific communities that we serve. WeaknessFurther economic deterioration in our market areas continuation or deepening of current weak economic conditions, or a prolonged recovery could depress our earnings and have an adverse impact on our financial condition because borrowers may not be able to repay their loans, collateral values may fall, and loans that are currently performing may become impaired.Instabilitycapital adequacy.may create significant credit costsDisruption in residential housing markets including reduced sales activity and falling market pricesexposure to junior liens have adversely affectedimpacted our business and our results of operations and may continue to do socustomer demand, particularly with respectlosses on various loan products caused by high rates of unemployment and underemployment, has resulted in losses on loans that, while adequately collateralized at the time of origination, are no longer fully secured. Our continuing exposure to under-collateralization is concentrated in our operations in southern California, Atlanta, Georgia and southwest Florida. With a significant percentagenon-commercial revolving mortgage loan portfolio. Approximately two-thirds of total loansthe revolving mortgage portfolio is secured by junior lien positions, and lower real estate instabilityvalues for collateral underlying these loans has, in residentialmany cases, caused 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. A large portion of our losses within the revolving mortgage portfolio have arisen from junior lien loans due to the inadequate collateral position.commercial real estate marketsgenerally stable or increasing collateral values, in past years, we have not experienced significant losses resulting from our junior lien positions. As a result, we have not closely monitored performance of senior lien positions held by other financial institutions in prior years. However, due to higher defaults resulting from financial strain facing our borrowers and lower collateral values, we now collect data to monitor performance of senior lien positions held by other lenders. That information allowed us to better estimate the probability of default on junior lien positions we hold as of December 31, 2012.higher credit losses if customers defaultgreater delinquency, write-downs or charge-offs in future periods, which could have a material adverse impact on loans that, as a resultour results of lower property values, are no longer adequately collateralized. The weak real estate markets could also affect our ability to sell real estate acquired through foreclosure.volatile interest income and net interest incomeearnings volatilitywith prospective accretion intoyield that is prospectively included in interest income. The fair value discount accretion may result in significant volatility in interest income, and net interest income.To the extent that the changes in interest income and netour earnings. Volatility in earnings could unfavorably influence investor interest income are attributable to improvements in credit qualityour common stock thereby depressing the market value of acquired loans, there will generally be a proportionate adjustment toour stock and the FDIC receivable that will be offset by an entry to noninterest income.With respect to the and interpretation and contractual term limitationsacquisitions,include significant protection to FCB from the exposures to prospective losses on certain assets that are covered under loss share agreements with the FDIC. TheseLoans and leases covered under loss share agreements represent 13.5 percent of total loans and leases as of December 31, 2012. 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 inwe customarily use for assets that are not could result in the delay or disallowance of some or all of our rights under those agreements. Requestsagreements could occur, including the denial of reimbursement for reimbursementlosses and related collection costs.review and FCB, and 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 results of operations in future periods. Our current estimates of losses include 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.delayed or disallowed for noncompliance.ManyDuring the fourth quarter of 2011, limitations on debit card interchange fees became effective. As of January 1, 2013, one-third of our trust preferred securities that qualified as tier 1 capital ceased to be included in tier 1 capital with similar phase-outs occurring during 2014 and 2015.specificBasel III regulatory capital rules for United States banking organizations. The proposed rules address a significant number of outstanding issues and questions regarding how certain provisions of Basel III are proposed to be adopted in the United States. Key provisions of the bill have yet to be fully implemented, andproposed rules include the impact on us cannot be accurately predicted until regulations are enacted. The bill will likely cause a decline in certain revenues that are significant to our overall financial performance, create additional compliance costs that we will incur, and eliminate a portion of ourtotal phase-out from tier 1 capital beginning Januaryof trust preferred securities for all banks, a capital conservation buffer of 2.50 percent above minimum capital ratios, inclusion of accumulated other comprehensive income in tier 1 common equity, inclusion in tier 1 capital of perpetual preferred stock, and an effective floor for tier 1 common equity of 7.00 percent. Final rules are expected to be adopted in 2013.services over the Internet.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 a regulatory environment that is significantly less stringent than the one in which we operate, or are not subject to federal and state income taxation.taxes. The fierce competitive pressure that we face tendsmay force us to reduce pricing for manycertain of our products and services to levels that are marginally profitable. In addition, our credit risk may be exacerbated when collateral held by us cannot be realized or is liquidated at a price insufficient to recover the full amount of the credit. These types of losses could materially and adversely affect our results of operations.catastrophicnatural and man-made events, catastrophic events could nevertheless adversely affect our results of operations.Reserve’sReserve Board’s Federal Open Market Committee. Changes in monetary policy could influence our interest income and interest expense as well as the fair value of our financial assets and liabilities. If the changes in interest rates on our interest-earning assets are not roughly equal to the changes in interest rates paid on our interest-bearing liabilities, our net interest income and, therefore, our net incomeearnings could be adversely impacted.in the systemare estimates and may be inaccurate. The shape of the yield curve may change differently than we forecasted,forecast, and we cannot accurately predict changes in interest rates or actions by the Federal Open Market Committee actions that may have a directdirectly impact on market interest rates. high level of balance sheet liquidity may come under pressureliquidity,core funding and wethus balance sheet liquidity. We normally have the ability to stimulate core deposit growth through our reasonable and effective pricing strategies. However, in circumstances wherethat impair our ability to generateneeded liquidity, is impaired, we would need access to alternative liquidity sourcesnoncore funding such as overnightborrowings from the Federal Home Loan Bank and other short-term borrowings.the Federal Reserve, fed funds purchased, and brokered deposits. While we maintain access to alternativenoncore funding sources, we are dependent on the availability of collateral and the counterparty’s liquidity capacity and willingness to lend to us, and their liquidity capacity.Operationalus.continue to increaseand organizational control infrastructure. Operational risk can arise in numerous ways, including security and data breaches, employee fraud, customer fraud, and control lapses in bank operations and information technology. Our dependence on our employees and automated systems, including the automated systems used byto account for acquired entitiesloans and those systems maintained by third parties, to record and process transactions may further increase the risk that technical failures or tampering of those systems will result in losses that are difficult to detect. We are also subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control. Failure to maintain an appropriate operational infrastructure can lead to loss of service to customers, legal actions, and noncompliance with various laws and regulations.depends in part onrequires that we maintain technology that will support our ability to satisfactorily invest in and address our technology infrastructure to ensure that we can continue to provide products and services that satisfactorily meet the banking and other financial needs of our customers. SeveralDuring the past two years, we have closely examined the state of our principal competitorscore technology systems and related business processes and determined that significant investments are much larger thanrequired. The project to modernize our systems will begin in 2013 with phased implementation through 2016. The magnitude and scope of this project is significant with total costs estimated at $100.0 million. If the project objectives are not achieved or if the cost of the project is materially in excess of the estimate, our business, financial condition and financial results could be adversely impacted.thus have substantially greater resourcesexternal information security risks, the volume of business conducted through electronic devices continues to investgrow, and our computer systems and network infrastructure, as well as the systems of external vendors and customers, present security risks and could be susceptible to hacking or identity theft.their technological capabilities and infrastructure. We may not be ablesome cases, to satisfactorily address our technology needs in a timely and cost-effective manner, whichdisrupt business activities. These information security risks could lead to a material adverse impact on our business, financial condition and financial results of operations.these third partiescertain vendors to provide services for any reason could adversely affect our ability to deliver products and services to our customers. External vendors also present information security risk. We maintain a robust control environment designed to monitor vendor risks, including the financial stability of critical vendors. While we believe that our control environment is adequate, theThe failure of a critical external vendor could disrupt our business and cause us to incur significant expense.singleindividual or class action liabilitiesclaims against us. The frequency of claims andpreviously reportedpreviously-reported financial results or a cumulative adjustment to retained earnings. The applicationadoption of new accounting rules or standards could require us to implement costly technology changes.Deposit insurance premiums could increase further causing added pressure on our earningsDuring 2009, due to a higher level of bank failures, the FDIC increased recurring deposit insurance premiums and imposed a special assessment on insured financial institutions. In addition, the FDIC received approval to require prepayment of the ensuing three years’ premiums by December 31, 2009. We remitted $69.6 million to prepay our premiums for 2010, 2011 and 2012. Due to the continuing volume of bank failures, it is possible that higher deposit insurance rates or additional special assessments will be required to restore the FDIC’s Deposit Insurance Fund to the legislatively established target.Integration of our 2010 and 2009 acquisitions may be disruptive, and we have no assurance that future acquisitions will be approvedWe must receive federal and state regulatory approvals before we can acquire a bank or bank holding company or acquire assets and assume liabilities of failed banks from the FDIC. Prior to granting approval, bank regulators consider, among other factors, the effect of the acquisition on competition, financial condition and future prospects including current and projected capital ratios, the competence, experience and integrity of management, compliance with laws, regulations, contracts and agreements and the convenience and needs of the communities to be served, including the record of compliance under the Community Reinvestment Act. We cannot be certain when or if any required regulatory approvals will be granted or what conditions may be imposed by the approving authority.In addition to the risks related to regulatory approvals, complications in the conversion of operating systems, data processing systems and products may result in the loss of customers, damage to our reputation, operational problems, one-time costs currently not anticipated, or reduced cost savings resulting from a merger or acquisition. The integration could result in higher than expected deposit attrition, loss of key employees, disruption of our businesses or the businesses of the acquired company or otherwise adversely affect our ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition.The acquisition gains that we have recorded in our financial statements are subject to adjustmentThe acquisition gains recorded during 2010 are preliminary and subject to revision for a period of one year following the respective acquisition dates. Adjustments to the gains may be recorded based on additional information received after the acquisition date that affected the acquisition date fair values of assets acquired and liabilities assumed. Further downward adjustments in values of assets acquired or increases in values of liabilities assumed on the date of acquisition would lower the acquisition gains.its subsidiary banks maintainFCB are well-capitalized ratios under current leverage and risk-based capital standards including the impact of the acquisitions in 2010 and 2009.standards. 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. TheBeginning January 1, 2013, provisions of the Dodd-Frank Act contains provisions that will partially eliminate our ability to include $265 million of trust preferred securitiesinclusion in tier 1 risk-based capital beginning January 1, 2013of $93.5 million of trust preferred securities with total elimination on January 1, 2015. The inability to include the trust preferred securities in tier 1 risk-based capital may lead us to redeem a portion or all of the securities prior to their scheduled maturity dates. Since wedate. We have not historically raised capital through new issues of our common stock, replacement of thestock. Absent a change in that philosophy or additional acquisition gains, our ability to raise additional tier 1 capital will be difficult.is limited to our retained earnings and issuance of perpetual preferred stock. A lack of ready access to adequate amounts of tier 1 capital could limit our ability to consummate additional acquisitions, make new loans, meet our existing lending commitments, and could potentially affect our liquidity, capital adequacy and capital adequacy.of our control. In addition to factors specific to our financial strength and performance, the rating agencies also considerIn lightOne of the difficulties currently confrontingrating agencies downgraded our ratings in 2012 due to weak core profitability metrics when compared to a peer group. Due to continuing soft economic conditions and the financial services industry, there can be no assurance thatchallenges we will maintainface to significantly increase our core earnings, rating agencies may further reduce our current credit ratings. Rating reductions could adversely affect our access to funding sources and the cost of obtaining funding. Long-term debt ratings also factor into the calculation of deposit insurance premiums, and a reduction in our subsidiary bank’s ratings would increase premiums and expense.hashave substantially less liquidity and public float than other large publicly traded financial services companies as well as average companies listed on the NASDAQ National Market System.companies. A relatively small percentage of our common stock is actively traded with average dailymonthly volume during 20102012 of approximately 12,000 shares. This low193,957 shares for our Class A stock and 1,645 shares for our Class B stock. The relative lack of market liquidity increases the price volatility of our stock whichand may make it difficult for our shareholders to sell or buy our common stock when they deem a transaction is warranted at a price that they believe is attractive.fromthrough dividends paid by FCB. The cash flow from theseFCB dividends isare the primary source which allows BancShares to payfor BancShares' payment of dividends on its common stock and interest and principal on its debt obligations. North Carolina state law establishes certain limits on the amount of dividends that FCB may pay to BancShares. In the event that FCB is unable to pay dividends to BancShares, for an extended period of time, BancShares may not be able to service its debt obligations or pay dividends on its common stock.The value of ourstock or service its debt obligations.decline2010,2012, we had $102.6$102.6 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, and the impairment test compares the estimated fair value of a reporting unit with its net book value. AWe 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 stockstock. These tests may result in a write-off of goodwill deemed to be impaired, goodwill. Such write-offwhich could have a significant impact on our results of operations,earnings, but wouldas suchsince capital ratios are calculated usingdetermined based upon tangible capital amounts.2010, BancShares’ subsidiary financial institutions2012, FCB operated branch offices at 435414 locations in North Carolina, Virginia, West Virginia, Maryland, Tennessee, Florida, Georgia, Texas, Arizona, California, New Mexico, Colorado, Oregon, Washington, Oklahoma, Kansas, Missouri and Washington, DC. BancSharesFCB owns many of the buildings and leases other facilities from third parties.FE of BancShares’ Notes to Consolidated Financial Statements.inon the over-the-counter market and quoted on the OTC Bulletin Board under the symbol FCNCB. As of December 31, 2010,2012, there were 1,8531,729 holders of record of the Class A common stock and 345307 holders of record of the Class B common stock. The market 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 in volume.166,000242,829 shares for the fourth quarter of 20102012 and 278,650193,957 shares for the year ended December 31, 2010.2012. The Class B common stock monthly trading volume averaged 2,4671,772 shares in the fourth quarter of 20092012 and 2,3831,645 shares for the year ended December 31, 2010.20102012 and 20092011 are set forth in the following table. 2010 2009 Fourth
Quarter Third
Quarter Second
Quarter First
Quarter Fourth
Quarter Third
Quarter Second
Quarter First
Quarter $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30 198.06 199.79 213.99 213.48 167.70 164.00 145.16 154.16 173.89 165.36 186.40 164.26 148.20 125.67 115.58 73.48 199.99 205.00 211.09 212.99 200.00 156.00 139.00 152.00 178.10 177.10 195.00 165.00 155.00 138.00 110.00 91.00 2012 2011 Fourth
quarter Third
quarter Second
quarter First
quarter Fourth
quarter Third
quarter Second
quarter First
quarterCash 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 174.03 169.70 181.62 185.42 180.25 191.66 204.89 208.55 Low 156.48 160.89 161.22 164.70 138.71 137.10 176.48 188.81 Class B sales price High 167.69 179.34 182.99 183.98 189.00 193.00 207.69 208.50 Low 158.00 159.41 161.11 172.75 146.00 153.00 184.00 191.25 30.030 cents per share was declared by the Board of Directors on January 24, 2011,29, 2013, payable on April 4, 2011,1, 2013, to holders of record as of March 14, 2011.18, 2013. 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 for2010,2012, our Board of Directors authorized thegranted authority and approved a plan to purchase of up to 100,000 and 25,000 shares of ourClass A and Class B common stock, respectively, during the period from July 1, 2012 through June 30, 2013. That authority replaced similar plans approved by the Board during 2011 that were in effect during the twelve months preceding July 1, 2012. Pursuant to those plans, during 2012 as a whole, we purchased and retired an aggregate of 56,276 shares of Class A common stock and 25,000100 shares of our Class B common stock. TheAdditionally, pursuant to separate authorizations, during 2012 we purchased an aggregate of 606,829 shares may be purchased from time to time through April 30, 2011. The Board’s action approving share repurchases does not obligate us to acquire any particular amount of shares, and purchases may be suspended or discontinued at any time. Any shares of stock that are repurchased will be cancelled. BancShares did not issue, sell or repurchase any Class A or Class B common stock in privately negotiated transactions, including, as previously reported and as further described below, purchases of 593,954 shares during 2010.Period Total number of shares purchased (1) Purchases from October 1, 2012, through October 31, 2012 6,788 $ 162.83 6,788 77,715 Purchases from November 1, 2012, through November 30, 2012 2,649 164.00 2,649 75,066 Purchases from December 1, 2012, through December 31, 2012 31,342 161.25 31,342 43,724 Total 40,779 $ 161.69 40,779 43,724 Period Total number of shares purchased (1) Purchases from October 1, 2012, through October 31, 2012 — $ — — 25,000 Purchases from November 1, 2012, through November 30, 2012 — — — 25,000 Purchases from December 1, 2012, through December 31, 2012 594,054 155.00 100 24,900 Total 594,054 $ 155.00 100 24,900 (1) As previously reported, during December 2012, we purchased an aggregate of 593,954 shares of Class B common stock from a director and certain of her related interests in private transactions, at a price of $155.00 per share, pursuant to agreements approved in advance by our independent Directors following approval and recommendation of the transactions by a specially appointed committee of independent Directors. (2) The currently effective plan was approved by the Board on June 18, 2012 and authorized the purchase of up to an aggregate of 100,000 and 25,000 shares of Class A and Class B common stock, respectively. It was publicly announced on June 22, 2012, and it expires on June 30, 2013, 2005,2007, and that dividends were reinvested for additional shares.
12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 FCNCA $ 100 106 114 132 123 116 Nasdaq - Banks $ 100 73 61 72 65 77 Nasdaq - US $ 100 61 88 104 105 124 2010 2009 2008 2007 2006 (thousands, except share data and ratios) $ 969,368 $ 738,159 $ 813,351 $ 902,181 $ 828,508 195,125 227,644 314,945 423,714 353,737 774,243 510,515 498,406 478,467 474,771 143,519 79,364 65,926 32,939 21,203 630,724 431,151 432,480 445,528 453,568 136,000 104,434 — — — 270,214 299,017 307,506 291,832 267,910 733,376 651,503 600,382 569,806 525,532 303,562 183,099 139,604 167,554 195,946 110,518 66,768 48,546 58,937 69,455 $ 193,044 $ 116,331 $ 91,058 $ 108,617 $ 126,491 $ 778,382 $ 515,446 $ 505,151 $ 486,144 $ 481,120 �� $ 18.50 $ 11.15 $ 8.73 $ 10.41 $ 12.12 1.20 1.20 1.10 1.10 1.10 189.05 164.01 152.80 145.85 202.64 166.08 149.42 138.33 138.12 125.62 155.30 138.98 128.13 127.72 115.02 $ 20,841,180 $ 17,557,484 $ 16,403,717 $ 15,919,222 $ 15,240,327 3,641,093 3,412,620 3,112,717 3,112,172 2,996,427 13,865,815 12,062,954 11,306,900 10,513,599 9,989,757 18,458,160 15,846,514 14,870,501 14,260,442 13,605,431 17,542,318 14,578,868 13,108,246 12,659,236 12,452,955 15,235,253 13,013,237 12,312,499 11,883,421 11,262,423 885,145 753,242 607,463 405,758 450,272 $ 1,672,238 $ 1,465,953 $ 1,484,605 $ 1,370,617 $ 1,241,254 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 $ 20,806,659 $ 18,466,063 $ 16,745,662 $ 16,212,107 $ 15,729,697 4,512,608 2,932,765 3,225,194 3,236,835 3,221,048 2,007,452 1,173,020 — — — 11,480,577 11,644,999 11,649,886 10,888,083 10,060,234 18,487,960 16,541,425 15,119,095 14,466,948 13,842,688 17,635,266 15,337,567 13,713,763 12,928,544 12,743,324 15,015,446 13,561,924 12,441,025 12,118,967 11,612,372 809,949 797,366 733,132 404,392 401,198 $ 1,732,962 $ 1,559,115 $ 1,443,375 $ 1,441,208 $ 1,310,819 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 0.93 % 0.66 % 0.56 % 0.68 % 0.83 % 11.54 7.94 6.13 7.92 10.19 4.22 3.25 3.40 3.41 3.54 1.54 1.45 1.35 1.25 1.28 17.14 17.39 — — — 1.71 1.32 0.61 0.18 0.21 14.86 13.34 13.20 13.02 12.93 16.95 15.59 15.49 15.36 15.37 9.18 9.54 9.88 9.63 9.39 6.49 10.76 12.60 10.57 9.08 79.04 82.74 86.26 83.05 80.22 2012 2011 2010 2009 2008 (thousands, except share data and ratios) SUMMARY OF OPERATIONS Interest income $ 1,004,836 $ 1,015,159 $ 969,368 $ 738,159 $ 813,351 Interest expense 90,148 144,192 195,125 227,644 314,945 Net interest income 914,688 870,967 774,243 510,515 498,406 Provision for loan and lease losses 142,885 232,277 143,519 79,364 65,926 Net interest income after provision for loan and lease losses 771,803 638,690 630,724 431,151 432,480 Gain on acquisitions — 150,417 136,000 104,434 — Other noninterest income 189,300 313,949 270,214 299,017 307,506 Noninterest expense 766,933 792,925 733,376 651,503 600,382 Income before income taxes 194,170 310,131 303,562 183,099 139,604 Income taxes 59,822 115,103 110,518 66,768 48,546 Net income $ 134,348 $ 195,028 $ 193,044 $ 116,331 $ 91,058 Net interest income, taxable equivalent $ 917,664 $ 874,727 $ 778,382 $ 515,446 $ 505,151 PER SHARE DATA Net income $ 13.11 $ 18.80 $ 18.50 $ 11.15 $ 8.73 Cash dividends declared 1.20 1.20 1.20 1.20 1.10 Market price at December 31 (Class A) 163.50 174.99 189.05 164.01 152.80 Book value at December 31 193.75 180.97 166.08 149.42 138.33 SELECTED AVERAGE BALANCES Total assets $ 21,077,444 $ 21,135,572 $ 20,841,180 $ 17,557,484 $ 16,403,717 Investment securities 4,698,559 4,215,761 3,641,093 3,412,620 3,112,717 Loans and leases 13,560,773 14,050,453 13,865,815 12,062,954 11,306,900 Interest-earning assets 18,974,915 18,824,668 18,458,160 15,846,514 14,870,501 Deposits 17,727,117 17,776,419 17,542,318 14,578,868 13,108,246 Interest-bearing liabilities 14,298,026 15,044,889 15,235,253 13,013,237 12,312,499 Long-term obligations 574,721 766,509 885,145 753,242 607,463 Shareholders’ equity $ 1,915,269 $ 1,811,520 $ 1,672,238 $ 1,465,953 $ 1,484,605 Shares outstanding 10,244,472 10,376,445 10,434,453 10,434,453 10,434,453 SELECTED PERIOD-END BALANCES Total assets $ 21,283,652 $ 20,997,298 $ 20,806,659 $ 18,466,063 $ 16,745,662 Investment securities 5,227,570 4,058,245 4,512,608 2,932,765 3,225,194 Loans and leases: Covered under loss share agreements 1,809,235 2,362,152 2,007,452 1,173,020 — Not covered under loss share agreements 11,576,115 11,581,637 11,480,577 11,644,999 11,649,886 Interest-earning assets 19,142,433 18,529,548 18,487,960 16,541,425 15,119,095 Deposits 18,086,025 17,577,274 17,635,266 15,337,567 13,713,763 Interest-bearing liabilities 14,213,751 14,548,389 15,015,446 13,561,924 12,441,025 Long-term obligations 444,921 687,599 809,949 797,366 733,132 Shareholders’ equity $ 1,864,007 $ 1,861,128 $ 1,732,962 $ 1,559,115 $ 1,443,375 Shares outstanding 9,620.914 10,284.119 10,434,453 10,434,453 10,434,453 SELECTED RATIOS AND OTHER DATA Rate of return on average assets 0.64 % 0.92 % 0.93 % 0.66 % 0.56 % Rate of return on average shareholders’ equity 7.01 10.77 11.54 7.94 6.13 Net yield on interest-earning assets (taxable equivalent) 4.84 4.65 4.22 3.25 3.40 Allowance for loan and lease losses on noncovered loans to noncovered loans and leases at year-end 1.55 1.56 1.54 1.45 1.35 Nonperforming assets to total loans and leases plus other real estate at year-end: Covered under loss share agreements 9.26 17.95 12.87 16.59 — Not covered under loss share agreements 1.15 0.89 1.14 0.85 0.59 Tier 1 risk-based capital ratio 14.27 15.41 14.86 13.34 13.20 Total risk-based capital ratio 15.95 17.27 16.95 15.59 15.49 Leverage capital ratio 9.22 9.90 9.18 9.54 9.88 Dividend payout ratio 9.15 6.38 6.49 10.76 12.60 Average loans and leases to average deposits 76.50 79.04 79.04 82.74 86.26 consolidated financial condition and results of operations of First Citizens BancShares, Inc. and Subsidiaries (BancShares). 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.RECLASSIFICATIONSAlthough certain amounts for prior years have been reclassified to conform to statement presentations for 2010, the reclassifications have no effect on shareholders’ equity or net income as previously reported. Unless otherwise noted, the terms we, us"we," "us" and BancShares"BancShares" refer to the consolidated financial position and consolidated results of operations for BancShares.Information included in our audited financial statementsmanagement’s discussion and analysis is derived from our accounting records, whichreporting policies of BancShares are maintained in accordance with accounting principles generally accepted in the United States of America (US GAAP)(GAAP) and conform to general practices within the banking industry. While muchThe preparation of the information is definitive, certain accounting issues are highly dependent uponfinancial statements in conformity with GAAP requires management to make estimates and assumptions madeto arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations can be materially affected by management. An understanding of these estimates and assumptions is vital to understanding BancShares’ financial statements.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.We periodically evaluate our The most critical accounting and reporting policies includinginclude those related to the allowance for loan and lease losses, fair value estimates, the receivable from and payable to the Federal Deposit Insurance Corporation (FDIC)FDIC for loss share agreements, pension plan assumptions and income taxes. While we baseSignificant accounting policies are discussed in on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or outcomes.primarily determined throughby analyzing estimated cash flows discounted at an appropriate rate.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.Therefore, amountsAmounts deemed uncollectible at acquisition date become a part of the fair value calculation and are excluded from the allowance for loan and lease losses. Ongoing analysis is performed onFollowing acquisition, we routinely review covered loans to determine if a changechanges in estimated cash flows hashave occurred. Subsequent decreases in the amount expected to be collected may result in a provision for loan and lease losses with a corresponding increase in the allowance for loan and lease losses. Subsequent increases in the amount expected to be collected result in a reversal of any previously recorded provision for loan and lease losses and related allowance for loan and lease losses, if any, or prospective adjustment to the accretable yield if no provision for loan and lease losses had been recorded. Proportional adjustments are also recorded to the FDIC receivable under thefor loans covered by loss share agreements.2010,2012, although future additions may be necessary based on changes in economic conditions, collateral values, erosion of the borrower's access to liquidity and other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan and lease losses. These agencies may require the recognition of additions to the allowance based on2010,2012, the percentage of total assets and total liabilities measured at fair value on a recurring basis was 21.724.6 percent and less than 1.0 percent, respectively. The majorityfair values of assets and liabilities reportedcarried at fair value on a recurring basis are primarily based on quoted market prices or market prices for similar instruments.prices. At December 31, 2010, less than 1 percent of2012, no assets orOther financialCertain other assets arethe fair value of financial instruments.value.USrequiresthe assets acquired and liabilities assumed in a business combination be recognized at fair value at acquisition date. The assets acquired and liabilities assumed from Temecula Valley Bank (TVB), Venture Bank (VB), First Regional Bank (First Regional) and Sun American Bank (SAB)our FDIC-assisted transactions were recognized at their fair values as of the acquisition date. Fair values were determined using valuation methods and assumptions established by management. Use of different assumptions and methods could yield significantly different fair values. Fair valueCash flow estimates for loans, and leases and other real estate owned (OREO)OREO were based on judgments regarding future expected loss experience, which included the use of commercial loan credit grades, collateral valuations and current economic conditions. receivable for loss share agreements. The receivable from the FDIC receivable for loss share agreements is measured separately from the related covered assets as it is not contractually embedded in the assets and is not transferable shouldrecorded at fair value at the assets be sold. Fair value was initially calculatedacquisition 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 percentages. The receivable from the FDIC receivable is reviewed and updated quarterly as loss estimates and timing of estimated cash flows related to covered loans and OREO change. SubsequentPost-acquisition adjustments represent the net change in loss estimates related to covered loans and OREO as a result of changes in expected cash flows and the allowance for loan and lease losses related to covered loans. For loans covered by loss share agreements, subsequent decreases in the amount of loan-related cash flows expected to be collected from the borrower or collateral liquidation may result in a provision for loan and lease losses, an increase in the allowance for loan and lease losses 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-recordedpreviously recorded provision for loan and lease losses and related allowance for loan and lease losses and adjustments to the FDIC receivable, or prospective adjustment to the accretable yield and the related FDIC receivable if no provision for loan and lease losses had been recorded. Subsequentrecorded previously. While accretable yield is recognized over the estimated remaining life of the covered loan, the FDIC receivable is adjusted 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 estimates of OREO also result in a proportional adjustmentOREO.receivable.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 an accrued liability. Projected cash flows are discounted to reflect the estimated timing of receipt of fundsthe payments to the FDIC. For 2012, the payable to the Federal Deposit Insurance Corporation (FDIC) for loss share agreements, which was previously netted against the receivable from the FDIC.FDIC for loss share agreements and reported as an asset, was reclassified and is now included as a liability.5.504.00 percent at December 31, 2010, compared to 6.002012, and 4.75 percent at December 31, 2009.2011. A reduction in the assumed discount rate would increaseincreases the calculated benefit obligations which would resultresults in higher pension expense subsequent to adoption of the lower discount rate. Conversely, an increase in the assumed discount rate would causecauses a reduction in obligations thereby resulting in lower pension expense following the increase in the discount rate.during 2010 and 2009 was based on an assumed expected long-term return on plan assets of 8.00 percent. The assumed expected long-term return on plan assets for 2011 will be adjusted downward7.50 percent during 2012 compared to 7.75 percent. percent in 2011. A reduction in the long-term rate of return on plan assets increases pension expense for periods following the decrease in the assumed rate of return.4.504.00 percent to calculate pension expense during 20102012and 2009.4.00 percent during 2011. Assuming other variables remain unchanged, an increase in the rate of future compensation increases results in higher pension expense for periods following the increase in the assumed rate of future compensation increases. our effective tax rate 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.the estimate ofestimated 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.2010, the banking industry continued to work through historicthis period, asset quality challenges, capital shortagesadequacy problems and a sustained globalweak economic recession.conditions have resulted in unfavorable conditions for growth. During this timeperiod of industry-wide turmoil, that began in 2008, BancShares haswe have continued its long-standingour longstanding attention to prudent banking practices.While Historically, we have focused on liquidity, asset quality and capital strength as key areas of focus. We believe these qualities are critical to our company's long-term health and also enable us to participate in various growth has historically been primarily through opportunities. activities, since mid-2009 BancShares has branching into high growth markets in other states. However, in recognition of the significant opportunity for balance sheet and capital growth with little credit risk, we elected to participate in six FDIC-assisted transactions involving distressed financial institutions. During 2010, FCB acquired selected assets and assumed selected liabilities of two failed banks. Two additional FDIC-assisted transactions were consummatedinstitutions during the third quarter of 2009.createsprovided opportunities to significantly increase our business volumes in existing markets in which we presently operate, and to expand our banking presence to geographically adjacent markets whichthat we deemdeemed demographically attractive. For each of the foursix FDIC-assisted transactions we have completed, as of December 31, 2010, loss share agreements protect us from a substantial portion of the asset quality risk that we would otherwise incur. Additionally, purchase discounts and fair value adjustments on acquired assets and assumed liabilities have resulted in significant acquisition gains that have resulted in the creation ofprovided a substantial portion of the equity required to fund the transactions.During JanuaryFCB announced it had acquired substantially all of the assets2010 and assumed a majority of the liabilities of United Western Bank (United Western), headquartered in Denver, Colorado, in an FDIC-assisted transaction. Based2009, narrow interest margins and legislatively-imposed restrictions on the proforma statement provided by the FDIC, United Western had loans totaling $993.1 million that were acquired by FCB and deposits totaling $1.6 billion that were assumed by FCB. Assets acquired and liabilities assumed will be recorded at fair value, although those valuations were incomplete as of the date of filing this Form 10-K. During February 2011, United Western’s parent company, United Western and directors of the parent company filed a complaint in the United States District Court for the District of Columbia against the FDIC, the OTS and others, claiming that the seizure of United Western by the OTS and the subsequent appointment of the FDIC as receiver was illegal. The complaint requests the court to direct the OTS to remove the FDIC as receiver, return control of United Western to the plaintiffs, reimburse the plaintiffs for their costs and attorney fees and to award plaintiffs other relief as may be just and equitable. Neither BancShares nor FCB were named in the complaint. It is unclear what impact, if any, the litigation will have on FCB or the assets acquired in the United Western transaction.Management believes that further opportunities will be available during 2011 to participate in FDIC-assisted transactions. These transactions provide an unprecedented opportunity to materially grow our balance sheet and customer base without the need for incremental external capital, and create material amounts of nonrecurring earnings with limited risk. The ability to maintain an adequate leverage capital ratio is the primary financial limitationcollect various fees have adversely affected our core earnings. Additionally, while distressed customers continue to our continuingexperience difficulty meeting their debt service obligations, other customers who are fearful of economic uncertainty defer new borrowings and continue to execute FDIC-assisted transactions.climate,environment, we continue to be guided bybenefit from our organization’s strengths. We are also challenged to take advantage of predicted market opportunities that are perceived to exist in the financial institutions marketplace. In our effort to optimally allocate our resources, we have identified the following corporate strengths and market opportunities:Corporate StrengthsThe breadth of ourservingthat serves both major metropolitan markets and rural communitiesBalanceConservativeOur conservative credit philosophies focus on the long-term impact of strategic, financial and operational decisionsThe closely held nature of a majority of common equityreputation assize, which allows us to provide services typically only available through large banks, but with a personal banking company both as relatesfocus on customer service that is typical of community bankslending and deposit productsMarket OpportunitiesExpansion ofexpand our branch network and asset base primarily as a result of FDIC-assisted bankthrough acquisitionsgrowing geographic localesPotentialOur ability to attract customers of super-regional banks who have ceased providing an acceptabledemand a higher level of customer service or have experienced financial and reputational challengesPotentialThe opportunity to attract former customers of banks that either have merged or will likely merge with super-regional banks or with one anotherPotential to attract customers of community banks that lack our level of financial expertise and breadth of products and services, or have experienced financial and reputational challengesPotential forgenerate increased volumes of fee income in certain business lines including wealth management,areas such as merchant processing, credit card interchange, insurance, business and treasury services and insurance.PotentialOur potential for customer attraction, enhanced customer experience and incremental sales as a result of the growing desire of customers to acquire financial services over the InternetBankfaced multiplerecovered during 2012, financial challenges during 2010,were evident with particular pressure on net interest income and noninterest income accompanied by little change in noninterest expenses. The earnings recovery was driven by lower credit costs and noninterest income.reduced allowance for loan and lease loss level. The slow recovery from the global recessionFederal Reserve's continuing efforts to stimulate economic growth has caused the Federal Reserve to maintainresulted in interest rates remaining at unprecedented low levels, and to use various forms of monetary policy inwith an attemptexpressed intent to hold down long-termbenchmark interest rates.rates stable until 2015. The low interest rate environment has created pressure on net interest income. In addition, credit costs remain high dueelevated nonperforming asset levels and the continuing efforts by2011, soft real estate markets continue to cause banks to resolve asset quality issues. During the third quartercarry relatively large inventories of 2010, revisionsOREO and to Regulation E became effective which had a significant adverse impact on fees collectedmarket and sell properties for insufficient fund and overdraft items. Income derived from debit cards is likely to decline materially in 2011 upon the issuance of final regulations from the Dodd-Frank Act.Various external factors influence customer demand for our loan, lease and deposit products and ultimately affect asset quality and profitability. Recessionary economic conditions, high rates of unemployment and a growing inability for some businesses and consumers to meet their debt service obligations continue to exert pressure on our core earnings and profitability. Other customers continue to repay existing debt or defer new borrowings due to lingering economic uncertainty.continues to beremains weak, resulting in depressed real estate prices that have adversely affectedcontinue to affect collateral values for many borrowers. In particular,As a result, when customer cash flow is inadequate to avoid default, losses resulting from liquidation of collateral are higher than would have occurred prior to the stressed residentialdecline in real estate markets in Georgia and Florida adversely impacted the asset quality and profitability of ISB during 2009 and,values. Exposure to declining real estate values have caused some loans secured by a lesser extent in 2010. second mortgage to become effectively unsecured.TheseAs a result, troubled debt restructurings have increased during 2012 and 2011. The majority of the modifications we provide are typically executed only if a customer’s payment is current and we believe the modification will resultto customers that are currently performing under existing terms, but may be unable to do so in the avoidance of default.We experienced significant deposit growth in our legacy markets during 2010, butnear future without a modification.weak as a result ofadversely influenced by extraordinarily low interest rates. Our balance sheet liquidity position remains very strong but our continuing participationdespite significant attrition of deposits assumed in the FDIC-assisted transactions creates pressuretransactions.liquidity management duevirtually all financial institutions in the United States. Beyond the profitability pressures resulting from a weak economy, financial institutions continue to face challenges resulting from implementation of legislative and governmental reforms to stabilize the generally unattractive structurefinancial services industry and mix of assumed deposits.We operate in diverse geographic markets and can increase our business volumes and profitability by offering competitive products and superior customer service.provide added consumer protection. In addition to our focus on retaining customers of the four banks involved invarious actions previously enacted by governmental agencies and the FDIC-assisted transactions, we continue to concentrate our marketing efforts on business owners, medicalDodd-Frank Wall Street Reform and other professionals and financially active individuals. We seek to increase fee income in areas such as wealth management, cardholder and merchant services, and insurance and treasury services. Leveraging on our investments in technology, we also focus on opportunities to generate income by providing various processing services to other banks.We have identified challenges and threatsConsumer Protection Act (Dodd-Frank Act), further changes will likely occur, including the BASEL III requirements that are most relevant and likelyanticipated to have an impact on the achievement of organizational strategies as:Continuation of a weak domestic economy driving high unemployment, elevated credit costs and low interest ratesdomestic economy gains significant momentum causing the Federal Reserve to initiate interest rate increases, leading to inflationary expectations and increases in long-term interest ratesIncreased competition from non-bank financial service providersContinued decline in the role of traditional commercial banks in the large loan credit marketEffective management of human resources in order to attract and retain qualified associatesIncreased competition from global financial service providersDodd-Frank Act contained provisions that operate with tighter margins on loan and deposit productsThe need to make significant investments in our information technology infrastructureOvercapacity in noninterest expense structure that reduceswill gradually eliminate our ability to effectively compete with global financial service providersAdditional regulation causing further deterioration in revenues, earningsinclude trust preferred securities as equity for capital adequacy purposes. Due to the pending elimination of those securities from our capital and capital formationthe cost of those borrowings, we elected to support lending and customer servicesIncremental capital required by BASEL IIIProper managementredeem $150.0 million of assets acquired from FDIC failed institutionsThe strength of our earnings for 2010 and 2009 is directly attributable to the favorable impact resulting from the FDIC-assisted transactions and the relatively modest increase in credit costs for noncovered loans. We have consistently placed primary strategic emphasis upon balance sheet liquidity, asset quality and capital conservation, even when those priorities may have been detrimental to short-term profitability. While we have not been immune from adverse influences arising from economic weaknesses, our long-standing focus on balance sheet strength served us particularly well during 2010 and 2009.Weak economic conditions in our principal market areas throughout 2010 have had an adverse impact on our financial condition and results of operationsthe period from 2009 through soft demand for our loan products, reductions in certain categories ofnoninterest income and elevated provisions for credit losses. In many of our markets, unfavorable trends such as increased unemployment, falling real estate prices and increased loan default and bankruptcy rates demonstrate the difficult business conditions which are affecting the general economy and therefore our operating results.When As economic conditions improve, we will bebelieve we are well positioned to resume favorable organic growth in loans and deposits and achieve acceptable profitability trends. has provided significant growth opportunities for us during 2011, 2010 and 2009. These transactions have allowed us to significantly increase our presence in existing markets in which we presently operate, and to expand our banking presence to geographically adjacentcontiguous markets. Additionally, purchase discounts and fair value adjustments on acquired assets and assumed liabilities have resulted in significant acquisition gains.gains recorded at the time of each acquisition. All of the FDIC-assisted transactions completed as of December 31, 2010 includeincluded loss share agreements whichthat protect us from a substantial portion of the credit and asset quality risk that we would have otherwise incur.IssuesAcquisition accounting and issues affecting comparability of financial statements. As estimated exposures forrelated to the acquired assets covered by the loss share agreements change based on post-acquisition events, our adherence to US GAAP and accounting policy elections that we have made create various complexities which affect the comparability of our current results of operations betweento earlier periods. Adjustments affecting assets covered by loss share agreements are recorded on a gross basis. Consequential adjustments to the carrying value of the FDIC receivable that reflect the change in the estimated loss of the covered assets are recorded with an offset to noninterest income. Several of the key issues affecting comparability are as follows:ismay be established for the post-acquisition exposure that has emerged with a corresponding debitcharge to provision for loan and lease losseslosses;Thecreditincrease to noninterest incomeincome;byunder a loss share agreement is greater than originally expected:creditreduction to provision for loan and lease losses; if no allowance 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 in future periods over the remaining life of the loan as a credit toan increase in interest incomeincome;exposure withchange in exposure; a corresponding debit toreduction in noninterest income is also recorded immediately for reversals of previously established allowances or, for reclassifications from nonaccretable difference, over the shorter of the remaining life of the related loan or loss share agreements;initialcurrent estimates, large nonrecurring discount accretion may be recognized during a specific period; discount accretion is recognized as an increase in interest income;creditreduction in the reimbursement rates. In addition, some of the loss share agreements include clawback provisions that require the purchaser to interest income.Balance sheet impact.remit a payment to the FDIC in the event the aggregate amount of losses and expenses is less than a loss estimate established by the FDIC. The 2010adjustments to the receivable from and payable to the FDIC based on changes in loss estimates are measured based on the actual reimbursement rates and consider the impact of changes in the projected clawback payment. Table 3 provides details on the various reimbursement rates for each loss share agreement;involvingare being accounted for using an acquired loan accounting system. Loans acquired in the CCB and SAB transactions have been on the acquired loan accounting system throughout 2012, loans acquired in the TVB and VB transactions were added to the acquired loan accounting system during the third quarter of 2012 and loans acquired in the First Regional and SAB represented our thirdUnited Western transactions were added to the acquired loan accounting system during the fourth quarter of 2012. The acquired loan accounting system has a greater capacity to project future cash flows than the manual system used prior to the dates loans were converted to the acquired loan accounting system. As loans have migrated to the acquired loan accounting system, the balance of loans accounted for under the cost recovery method decreased significantly, which resulted in a large increase in accretable yield. Some of the newly-identified accretable yield has been reclassified from non-accretable difference, but much of the increase results from cash flows that were not previously projected and fourth FDIC-assisted transactions since July 17, 2009. from revisions of prior projections. Fair value of Entity Date of transaction Loans acquired Gains on acquisition (thousands) Colorado Capital Bank (CCB) July 8, 2011 $ 320,789 $ 606,501 $ 15,212 $ — $ 86,943 United Western Bank (United Western) January 21, 2011 759,351 1,604,858 336,853 207,627 63,474 Sun American Bank (SAB) March 5, 2010 290,891 420,012 42,533 40,082 27,777 First Regional Bank (First Regional) January 29, 2010 1,260,249 1,287,719 361,876 — 107,738 Venture Bank (VB) September 11, 2009 456,995 709,091 — 55,618 48,000 Temecula Valley Bank (TVB) July 17, 2009 855,583 965,431 79,096 — 56,400 Total $ 3,943,858 $ 5,593,612 $ 835,570 $ 303,327 $ 390,332 four entities from which we have acquired assets and assumed liabilities insix FDIC-assisted transactions consummated during 2011, 2010 and 2009. Adjustments to acquisition date fair values are subject to change for one year following the closing date of each respective acquisition.Table 2FDIC-ASSISTED TRANSACTIONS Fair value of Date of transaction #
branches Loans acquired Deposits
assumed Short-term
borrowings
assumed Long-term
obligations
assumed (thousands) March 5, 2010 12 $ 290,891 $ 420,012 $ 42,533 $ 40,082 January 29, 2010 8 1,260,249 1,287,719 361,876 — September 11, 2009 18 456,995 709,091 — 55,618 July 17, 2009 11 855,583 965,431 79,096 — 49 $ 2,863,718 $ 3,382,253 $ 483,505 $ 95,700 Although US allows forpermits acquired loans to be accounted for in designated pools we elected to account for our acquired loans on a non-pooled basis. We made that election based on common risk characteristics. When loans are pooled, improvements in some loans within a pool may offset deterioration in other loans within the average loan size and the lack of large numbers of homogenous loans. The non-pool election could potentially accentuatesame pool resulting in less volatility in net interest income.foursix FDIC-assisted transactions created acquisition gains recognized at the time of the respective transaction. For the yearyears ended December 31, 2011, and 2010, acquisition gains totaled $136.0$150.4 million compared to $104.4, and $136.0 million, respectively. No acquisition gains were recorded during the same period of 2009.2012. Additionally, the acquired loans, assumed deposits and assumed borrowings originated by the foursix banks have affected net interest income, provision for loan and lease losses and noninterest income. Significant increasesIncreases in noninterest expense have resulted from incremental staffing, and facility costs for the branch locations, collection expenses and otherforeclosure-related expenses resulting from the FDIC-assisted transactions. Various fair value discounts and premiums that were previously recorded are being accreted and amortized into income over the life of the underlying asset or liability.As previously discussed, post-acquisitionyearyears ended December 31, 2010,2012, and 2011, total provision for loan and lease losses related to acquired loans exclusiveequaled $100.8 million and $174.5 million, respectively. The decreases in the provision for covered loan losses in 2012 are the result of lower charge-offs, improved cash flow projections and lower post-acquisition deterioration on acquired loans. Provision for loan and lease losses related to acquired loans equaled $86.9 million in 2010.impactlife of adjustmentsacquired loans. At acquisition date, accretable yield is the difference in the expected cash flows and the present value of those expected cash flows. The amount of accretable yield related to the FDIC receivable, equaled $86.9 million. Provision expenseloans can change if the estimated cash flows expected to be collected changes subsequent to the initial estimates. While changes in accretable yield generally result from changes identified in credit reviews, more precise cash flow estimates and discount accretion resulting from the deployment of loans acquired from TVB, VB, First Regional and United Western to the acquired loan accounting system during 2012 resulted in a large reduction in loans previously accounted for under the cost recovery method since those loans are now accreting yield. The recognition of accretion income can be accelerated in the event of unscheduled repayments for amounts in excess of current estimates and various other post-acquisition events. Due to the many factors that can influence the amount of accretion income recognized in a given period, this component of net interest income is not easily predictable for future periods and impacts the comparability of interest income, net interest income and overall results of operations. During the years ended December 31, 2012, and 2011, total discount accretion on acquired loans amounted to $3.5equaled $304.0 million in 2009.When loan payments are received prior to the assumed repayment dates, theof discounts recorded on loan balances is accelerated. During the year ended December 31, 2010, discount accretion primarily related to payoffs and unscheduled payment of loans for which a fair value discount had been recorded equaled $145.4 million. No discount for unscheduled loan payments was accreted during 2009. Unscheduled payment of loan balances andincome as well as post-acquisition deterioration of covered loans and OREO also result in adjustments to the receivable from the FDIC receivable for changes in the estimated amount that would be covered byunder the respective loss share agreement. These adjustments resulted in a $42.1 million net reduction inWhile accretion income is recognized prospectively over the FDIC receivable during 2010, with a corresponding debit to noninterest income.First Regional Bank. On January 29, 2010, FCB entered into an agreement with the FDIC to purchase substantially all the assets and assume the majorityremaining life of the liabilities of First Regional of Los Angeles, California. Immediately prior toloan, the effectiveness of the transaction, the FDIC had been appointed Receiver of First Regional by the California Department of Financial Institutions.Table 3 identifies the assets acquired, liabilities assumed, fair value adjustments, the resulting amounts recorded by FCB and the calculation of the gain recognized for the First Regional FDIC-assisted transaction.Table 3FIRST REGIONAL BANKAcquisition date: January 29, 2010 As recorded by
First Regional Fair value
adjustments
at acquisition date Subsequent
acquisition-date
adjustments As recorded
by FCB (thousands) $ 37,508 $ — $ — $ 37,508 3,250 — — 3,250 1,853,325 (576,171 ) (16,905 ) 1,260,249 61,488 (20,353 ) 791 41,926 6,048 — — 6,048 — 365,170 13,525 378,695 — 9,110 — 9,110 23,782 (500 ) — 23,282 $ 1,985,401 $ (222,744 ) $ (2,589 ) $ 1,760,068 $ 528,235 $ — $ — $ 528,235 759,484 — — 759,484 1,287,719 — — 1,287,719 361,876 — — 361,876 1,188 1,547 — 2,735 1,650,783 1,547 — 1,652,330 $ 334,618 $ (224,291 ) $ (2,589 ) $ 107,738 The loans and other real estate acquired through foreclosure are covered by loss share agreements that provide for the FDIC to absorb 80 percent of losses incurred on covered loans and other real estate in excess of $41.8 million. The 80 percent coverage ratio applies to losses up to $1.0 billion with losses in excess of $1.0 billion covered by the FDIC at a rate of 95 percent. FCB initially recorded a receivable from the FDIC equal to $365.2 million as an estimate of the fair value of the amount that will be reimbursed by the FDIC from the loss share agreements. The Purchase and Assumption Agreement between FCB and the FDIC includes a true-up payment at the end of year 10. On March 17, 2020, the true-up measurement date, FCB is required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of (i) 20 percent of the stated threshold, or $203.4 million, less (ii) the sum of (a) 25 percent of the asset discount, or $74.9 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the cumulative servicing amount. The cumulative servicing amount is 1 percent of the average covered assets for each year during the terms of the loss share agreements. Current projections suggest a true-up payment of $67.2 million will be payable under the First Regional loss share agreements. The present value of this estimate is netted against the FDIC receivable and is subject to change over the term of the agreements.First quarter 2010 noninterest income included a bargain purchase gain of $110.3 million that resulted from the FDIC-assisted acquisition of First Regional. During the second and third quarters of 2010, adjustments were made to the initial gain based on additional information regarding the respective acquisition date fair values, which reduced the gain by $2.6 million. These adjustments were made retroactive to the first quarter of 2010 resulting in an adjusted gain of $107.7 million. Our operating results for the period ended December 31, 2010 include the results of the acquired assets and liabilities for the period from January 29, 2010 through December 31, 2010. Accretion and amortization of various purchase accounting discounts and premiums were recorded during 2010.Sun American Bank. On March 5, 2010, FCB entered into an agreement with the FDIC to purchase substantially all the assets and assume the majority of the liabilities of SAB of Boca Raton, Florida. Immediately prior to the effectiveness of the acquisition, the FDIC had been appointed Receiver of SAB by the Florida Office of Financial Regulation.Table 4 identifies the assets acquired, liabilities assumed, fair value adjustments, the resulting amounts recorded by FCB and the calculation of the gain recognized for the SAB FDIC-assisted transaction.Table 4SUN AMERICAN BANKAcquisition date: March 5, 2010 As recorded
by SAB Fair value
adjustments
at acquisition date Subsequent
acquisition-date
adjustments As recorded
by FCB (thousands) $ 37,016 $ — $ — $ 37,016 66,968 — — 66,968 411,315 (123,707 ) 3,283 290,891 15,220 (7,200 ) — 8,020 1,612 — — 1,612 — 92,360 (2,626 ) 89,734 — 629 — 629 4,473 — — 4,473 $ 536,604 $ (37,918 ) $ 657 $ 499,343 $ 39,435 $ — $ — $ 39,435 380,577 — — 380,577 420,012 — — 420,012 42,485 48 — 42,533 37,000 3,082 — 40,082 853 51 — 904 500,350 3,181 — 503,531 $ 36,254 $ (41,099 ) $ 657 31,965 $ 27,777 The loans and other real estate acquired through foreclosure are covered by loss share agreements that provide for the FDIC to absorb 80 percent of all losses incurred on covered loans and other real estate up to $99.0 million. Losses in excess of $99.0 million are covered by the FDIC at a rate of 95 percent. FCB initially recorded a receivable from the FDIC equal to $92.4 million as an estimate of the fair value of the amount that will be reimbursed by the FDIC from the loss share agreements. The Purchase and Assumption Agreement between FCB and the FDIC includes a true-up payment at the end of year 10. On May 15, 2020, the true-up measurement date, FCB is required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of (i) 20 percent of the stated threshold, or $19.8 million, less (ii) the sum of (a) 25 percent of the asset discount, or $17.5 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the cumulative servicing amount. The cumulative servicing amount is 1 percent of the average covered assets for each year during the terms of the loss share agreements. Although no true-up payment is currently projected under the SAB loss share agreements, those projections are subject to change.First quarter 2010 noninterest income included a bargain purchase gain of $27.1 million that resulted from the FDIC-assisted acquisition of SAB. During the second quarter of 2010, adjustments were made to the initial gain based on additional information regarding the respective acquisition date fair values, which increased the gain by $657,000. These adjustments were made retroactive to the first quarter of 2010 resulting in an adjusted gain of $27.8 million. Our operating results for the period ended December 31, 2010 include the results of the acquired assets and liabilities for the period from March 5, 2010 through December 31, 2010. Accretion and amortization of various purchase accounting discounts and premiums were recorded during 2010.During 2009 FCB purchased substantially all the assets and assumed the majority of the liabilities of TVB and VB from the FDIC. FCB measured all assets and liabilities at fair value and recorded loans of $855.6 million and $457.0 million, total assets of $1.11 billion and $795.2 million, deposits of $965.4 million and $709.1 million and total liabilities of $1.05 billion and $766.5 million, respectively. The two transactions resulted in bargain purchase gains in 2009 of $56.4 million and $48.0 million, respectively.PERFORMANCE SUMMARYFirst Citizens BancShares reported earnings for 2010 of $193.0 million, or $18.50 per share, compared to $116.3 million, or $11.15 per share during 2009. Net income as a percentage of average assets equaled 0.93 percent during 2010, compared to 0.66 percent during 2009. The return on average equity was 11.54 percent for 2010, compared to 7.94 percent for 2009. The $76.7 million, or 65.9 percent, increase in net income reflects improved net interest income, partially offset by higher provision for loan and lease losses and noninterest expense. Noninterest income increased modestly excluding the impact of acquisition gains and entries arising from post-acquisition adjustments to the receivable from the FDIC.Net interest income during 2010 increased $263.7 million, or 51.7 percent, versus 2009. Average interest-earning assets grew $2.61 billion, or 16.5 percent, during 2010 due primarily to the 2010 FDIC-assisted transactions. The taxable-equivalent net yield on interest-earning assets increased 97 basis points to 4.22 percent in 2010 due to balance sheet growth and $145.4 million of accretion of fair value discounts principally caused by large unscheduled loan payments, many of which were payoffs. This unscheduled accretion triggered a reduction in the FDIC receivable and reduction of noninterest income of $116.3 million. The impact of accreted loan discounts resulting from large unscheduled loan payments on acquired loans significantly increased the taxable-equivalent net yield on interest-earning assets during 2010. No similar adjustments were recorded in prior periods. Since such large unscheduled payments are unpredictable, the yield on interest-earning assets will likely experience volatility in future periods. Additionally, improvements in expected cash flows on acquired loans identified in the third and fourth quarters of 2010 that were recognized as impaired at the acquisition dates resulted in the reclassification of $97.0 million classified as nonaccretable difference to accretable yield. This reclassification will increase the amount of accretable yield recognized in future periods.The provision for loan and lease losses increased $64.2 million, to $143.5 million for 2010, compared to $79.4 million for 2009. Provision expense for 2010 reflects an $83.4 million increase resulting from post-acquisition deterioration of acquired loans covered by loss share agreements, partially offset by a $22.2 million reduction for noncovered loans. The provision expense on acquired loans triggered a corresponding increase in the indemnification asset, resulting in $66.7 million of noninterest income.Net loan and lease charge-offs for 2010 totaled $88.7 million, compared to $64.7 million recorded during the same period of 2009. Net charge-offs of noncovered loans totaled $49.6 million in 2010, down $15.1 million from 2009. This improvement is the result of declining loan losses in residential construction, EquityLine, and indirect automobile loans during 2010. The ratio of net charge-offs to average loans and leases not covered by FDIC loss share agreements in 2010 equaled 0.43 percent, compared to 0.56 percent for the prior year. Net charge-offs on covered loans during 2010 equaled $39.1 million, or 1.76 percent, of average covered loans. No covered loan losses were incurred during 2009.BancShares had $2.12 billion and $1.27 billion of covered assets at December 31, 2010 and December 31, 2009, respectively. The amount of covered assets identified as nonperforming at December 31, 2010 equaled $363.5 million, up $143.3 million from the prior year due to nonperforming assets resulting from the 2010 FDIC-assisted transactions and additional nonperforming assets arising from the 2009 FDIC-assisted transactions. Nonperforming assets not coveredby FDIC loss share agreements totaled $196.7 million at December 31, 2010, compared to $154.0 million at December 31, 2009. Nonperforming assets not covered by FDIC loss share agreements represent 1.71 percent of noncovered loans, leases and OREO as of December 31, 2010, compared to 1.32 percent of December 31, 2009.Noninterest income increased $2.8 million, or 0.7 percent, during 2010. The net impact of the acquisition gains and entries arising from post-acquisition adjustmentsadjustment to the receivable from the FDIC equaled $89.2is recognized over the shorter of the remaining life of the loan or the remaining term of the applicable loss share agreement. As a result, the recognition of accretion income may occur over a longer period than the related income statement impact of the adjustment to the receivable from the FDIC. During the year ended in 2010 to noninterest income compared to $107.2a net reduction to the receivable and a corresponding reduction of $19.3 million in 2009. Excluding these amounts, noninterest income increased $20.8 million, or 7.0 percent during 2010. Cardholder and merchant services income increased $12.2 million, or 12.8 percent2011. The change during 2010 as2012 primarily reflects favorable changes in loss estimates when compared to 2011. transactions continue to migrate toward debit cards, while income from wealth management services grew $5.3 million. Deposit service charges declined $4.3 million, or 5.5 percent, the net impact of lower fees from overdrafts and commercial service charges offset partly by incremental service charges for deposit accounts resulting from FDIC-assisted transactions. Due primarily to the implementationFDIC in the event the aggregate amount of revised Regulation Elosses and expenses incurred fall below a certain amount. As of December 31, 2012, based on our current estimate of losses and expenses, we estimate that we will be required to pay the FDIC a total of $101.6 million.third quarterrespective loss share terms. When projected losses are expected to occur after expiration of 2010, insufficient fund and overdraft fees declined $2.6 million. The Dodd-Frank Act is projected to cause a significant reduction in income derived from debit card transactions in 2011.Noninterest expense increased $81.9 million, or 12.6 percent, during 2010, primarily due to acquisition related activities, including operating costs for acquired branches and expenses for the operation and disposition of other real estate. Ofapplicable loss share agreement, the increase in total noninterest expenses, $61.9 million relates to costs incurred in the new locations resultingreceivable from the FDIC-assisted transactions. Salaries and wages increased $33.6 million, or 12.7 percent, occupancy costs grew $6.5 million, or 9.8 percent, and equipment expenses increased $6.6 million or 10.9 percent during 2010. Collection expenses increased $18.4 million dueFDIC is adjusted to costs incurred for loans acquired inreflect the FDIC-assisted transactions. Losses/expenses incurred through 12/31/2012 Cumulative amount reimbursed by FDIC through 12/31/2012 Carrying value at December 31, 2012 Current portion of receivable due from FDIC for 12/31/2012 filings Receivable related to accretable yield as of 12/31/2012 Fair value at acquisition date Receivable from FDIC Payable to FDIC Entity (thousands) TVB - combined losses $ 103,558 $ 184,037 $ — $ 41,406 $ — $ — $ 30,776 VB - combined losses 138,963 149,074 116,287 12,754 — 2,972 7,293 First Regional - combined losses 378,695 324,117 208,011 74,535 67,718 17,829 56,137 SAB - combined losses 89,734 87,420 64,604 37,435 3,570 5,332 25,381 United Western Non-single family residential losses 112,672 108,990 83,236 33,941 15,568 4,199 14,290 Single family residential losses 24,781 1,917 1,105 12,425 — 428 7,310 CCB - combined losses 155,070 172,534 124,636 57,696 14,785 13,537 28,844 Total $ 1,003,473 $ 1,028,089 $ 597,879 $ 270,192 $ 101,641 $ 44,297 $ 170,031 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. For VB, combined losses are covered at 80 percent up to $235.0 million and 95 percent for losses above $235.0 million. For FRB, combined losses are 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. For SAB, combined losses are covered at 80 percent up to $99.0 million and 95 percent for losses above $99.0 million. 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. 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. 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. Fair value at acquisition date represents the initial value of the receivable, net of the payable. Receivable related to accretable yield represents 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. interest bearing cash in banks and overnight investments, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Riskier interest-earning assetsinvestments typically carry a higher interest rate but expose us to potentially higher levels of default.procedures. Thatprocedures with a concentration of owner-occupied real estate loans in the medical and2010, United States Treasury and2012, government agency securities represented 85.558.4 percent of our investment securities portfolio. Mortgage-backedportfolio, compared tocomprise only 3.2and U. S. Treasury securities, which represented 25.4 percent and 15.8 percent,totalinvestment securities portfolio. The balance of the portfolio whileincluded corporate bonds, insured under the TLGP represent 10.8 percent.state, county and municipal securities and common stock of other financial institutions. Overnight investments are selectively made with the Federal Reserve Bank and other financial institutions that are within our risk tolerance. December 31 2012 2011 2010 2009 2008 (thousands) Covered loans $ 1,809,235 $ 2,362,152 $ 2,007,452 $ 1,173,020 $ — Noncovered loans and leases : Commercial: Construction and land development 309,190 381,163 338,929 541,110 548,095 Commercial mortgage 5,341,839 5,104,993 4,737,862 4,552,078 4,343,809 Other commercial real estate 160,980 144,771 149,710 158,187 149,478 Commercial and industrial 1,726,126 1,764,407 1,869,490 1,832,670 1,885,358 Lease financing 330,679 312,869 301,289 330,713 353,933 Other 125,681 158,369 182,015 195,084 99,264 Total commercial loans 7,994,495 7,866,572 7,579,295 7,609,842 7,379,937 Noncommercial: Residential mortgage 822,889 784,118 878,792 864,704 894,802 Revolving mortgage 2,210,133 2,296,306 2,233,853 2,147,223 1,911,852 Construction and land development 131,992 137,271 192,954 81,244 230,220 Consumer 416,606 497,370 595,683 941,986 1,233,075 Total noncommercial loans 3,581,620 3,715,065 3,901,282 4,035,157 4,269,949 Total noncovered loans and leases 11,576,115 11,581,637 11,480,577 11,644,999 11,649,886 Total loans and leases 13,385,350 13,943,789 13,488,029 12,818,019 11,649,886 Less allowance for loan and lease losses 319,018 270,144 227,765 172,282 157,569 Net loans and leases $ 13,066,332 $ 13,673,645 $ 13,260,264 $ 12,645,737 $ 11,492,317 December 31, 2012 December 31, 2011 Total Total (thousands) Covered loans: Commercial: Construction and land development $ 71,225 $ 166,681 $ 237,906 $ 117,603 $ 221,270 $ 338,873 Commercial mortgage 107,281 947,192 1,054,473 138,465 1,122,124 1,260,589 Other commercial real estate 35,369 71,750 107,119 33,370 125,024 158,394 Commercial and industrial 3,932 45,531 49,463 27,802 85,640 113,442 Lease financing — — — — 57 57 Other — 1,074 1,074 — 1,330 1,330 Total commercial loans 217,807 1,232,228 1,450,035 317,240 1,555,445 1,872,685 Noncommercial: Residential mortgage 48,077 249,849 297,926 46,130 281,438 327,568 Revolving mortgage 9,606 29,104 38,710 15,350 36,202 51,552 Construction and land development 15,136 5,657 20,793 78,108 27,428 105,536 Consumer — 1,771 1,771 1,477 3,334 4,811 Total noncommercial loans 72,819 286,381 359,200 141,065 348,402 489,467 Total covered loans $ 290,626 $ 1,518,609 $ 1,809,235 $ 458,305 $ 1,903,847 $ 2,362,152 interest-earning assets primarilycovered loan balances since December 31, 2011, reflect the impactcontinued reductions of assets acquired inoutstanding loans from the FDIC-assisted transactions. transactions from foreclosure, payoffs and normal run-off.theour investment securities portfolio result from trends among loans and leases, deposits and short-term borrowings. When inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds in the securities portfolio. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow overnight investments to decline and use proceeds from maturing and called securities to fund loan demand.Loans and LeasesLoans and leases totaled $13.5 billion at December 31, 2010, an The increase during $670.0 million or 5.2 percent over December 31, 2009. Loans covered under loss share agreements totaled $2.01 billion at December 31, 2010 or 14.9 percent of total loans, compared to $1.17 billion at December 31,deposit growth occurring while loan balances declined.representing 9.2 percent of loans outstanding. Table 5 details the composition of loans and leases for the past five years.Loans not covered by loss share agreements secured by commercial mortgages totaled $4.74 billion at December 31, 2010,we have invested a $185.8 million or 4.1 percent increase from December 31, 2009. In 2009 commercial mortgage loans increased 4.8 percent over 2008. The sustained growth reflects our continued focus on small business customers, particularly among medical-related and other professional customers. As a percentage of total loans and leases not covered by loss share agreements, noncovered commercial mortgage loans represent 41.3 percent at December 31, 2010 and 39.1 percent atDecember 31, 2009. The majoritysignificant portion of our commercial mortgage portfolio not covered by loss share agreements is secured by owner-occupied facilities rather than investment property. These loans are underwritten based primarily uponavailable liquidity in government agency securities, while the cash flow from the operationbalance of the business rather than the value of the real estate collateral.At December 31, 2010, there were $1.09 billion of commercial mortgage loans covered by loss share agreements, 54.3 percent of the $2.01 billion of covered loans. Including the commercial mortgage loans covered by loss share agreements, total commercial mortgage loans as of December 31, 2010 total $5.83 billion or 43.2 percent of total loans and leases.Table 5LOANS AND LEASES December 31 2010 2009 2008 2007 2006 (thousands) $ 2,007,452 $ 1,173,020 $ — $ — $ — 338,929 541,110 548,095 608,114 611,271 4,737,862 4,552,078 4,343,809 3,982,496 3,725,752 149,710 158,187 149,478 145,552 165,223 1,805,935 1,832,670 1,885,358 1,707,394 1,526,818 301,289 330,713 353,933 340,601 294,366 182,015 195,084 99,264 85,354 65,042 7,515,740 7,609,842 7,379,937 6,869,511 6,388,472 878,792 864,704 894,802 953,209 812,426 2,233,853 2,147,223 1,911,852 1,494,431 1,326,403 192,954 81,244 230,220 202,704 172,409 659,238 941,986 1,233,075 1,368,228 1,360,524 3,964,837 4,035,157 4,269,949 4,018,572 3,671,762 11,480,577 11,644,999 11,649,886 10,888,083 10,060,234 13,488,029 12,818,019 11,649,886 10,888,083 10,060,234 227,765 172,282 157,569 136,974 132,004 $ 13,260,264 $ 12,645,737 $ 11,492,317 $ 10,751,109 $ 9,928,230 December 31, 2010 December 31, 2009 Impaired
at
acquisition
date All other
acquired
loans Total Impaired
at
acquisition
date All other
acquired
loans Total (thousands) $ 102,988 $ 265,432 $ 368,420 $ 10,317 $ 213,170 $ 223,487 120,240 968,824 1,089,064 36,820 553,579 590,399 34,704 175,957 210,661 331 21,307 21,638 9,087 123,390 132,477 5,958 89,273 95,231 — 1,510 1,510 476 2,411 2,887 267,019 1,535,113 1,802,132 53,902 879,740 933,642 11,026 63,469 74,495 8,828 143,481 152,309 8,400 9,466 17,866 — — — 44,260 61,545 105,805 12,383 70,172 82,555 — 7,154 7,154 255 4,259 4,514 �� 63,686 141,634 205,320 21,466 217,912 239,378 $ 330,705 $ 1,676,747 $ 2,007,452 $ 75,368 $ 1,097,652 $ 1,173,020 There were no foreign loans or leases, covered or noncovered, in any period.At December 31, 2010, revolving mortgage loans secured by real estate totaled $2.23 billion, comparedU.S. Treasury securities has declined due to $2.15 billion at December 31, 2009. Of the $2.23 billion at December 31, 2010, $17.9 million are covered by loss share agreements. There were no revolving mortgage loans covered by loss share agreements at December 31, 2009. The 2010 increase in total revolving mortgage loans results principally from changes to accounting for QSPE’s and controlling financial interests that became effective on January 1, 2010.scheduled maturities. As a result of policy changes initiated during the accounting change, $97.3 million of revolving mortgage loans that were previously securitized, sold and removed from the consolidated balance sheet were returned to the balance sheet in the firstsecond quarter of 2010 upon adoption2012, we modified the targeted portfolio composition, increasing the allowable portion of mortgage-backed securities, while the new accounting guidance. At December 31, 2010, revolving mortgage loans represented 16.7 percent of total loansU.S. Treasury securities allocation declined. The residential mortgage-backed securities are primarily pass-through securities issued by the Government National Mortgage Association, Federal National Mortgage Association, and leases, compared to 16.8 percent at December 31, 2009.Commercial and industrial loans not covered by loss share agreements equaled $1.81 billion at December 31, 2010, compared to $1.83 billion at December 31, 2009, a decline of $26.7 million or 1.5 percent. This decrease follows a decline of $52.7 million or 2.8 percent from 2008 to 2009. Weak economic conditions have limited our ability to find loans that meet our underwriting standards, especially within the commercial and industrial portfolio. Commercial and industrial loans not covered by loss share agreements represent 15.7 percent and 15.7 percent of total loans and leases not covered by loss share agreements, respectively, as of December 31, 2010 and 2009.Commercial and industrial loans covered by loss share agreements totaled $132.5 million which is 6.6 percent of total covered loans. Including covered loans, total commercial and industrial loans as of December 31, 2010 equal $1.94 billion, or 13.8 percent of total loans and leases.Consumer loans not covered by loss share agreements amounted to $659.2 million at December 31, 2010, a decrease of $282.7 million, or 30.0 percent, from the prior year. This decline results from our decision during 2008 to discontinue originations of automobile sales finance loans through our dealer network. At December 31, 2010 and 2009, consumer loans not covered by loss share agreements represent 5.7 percent and 8.1 percent of total noncovered loans, respectively.There were $878.8 million of residential mortgage loans not covered by loss share agreements and an additional $74.5 million covered for a total of $953.3 million of residential mortgage loans as of December 31, 2010, representing 7.1 percent of total loans and leases. Customer interest in closed-end residential mortgage loans remains modest with most customers choosing a loan with a revolving structure.Construction and land development loans not covered by loss share agreements equaled $531.9 million at December 31, 2010, a decrease of $90.5 million, or 14.5 percent from December 31, 2009. Of the total amount outstanding, only $35.7 million was in the Atlanta, Georgia and southwest Florida markets, a decrease of $32.1 million from December 31, 2009. Both of these market areas experienced significant reductions in real estate values during the past three years. Most of the remaining noncovered construction and land development loans are in North Carolina and Virginia, and generally are notFederal Home Loan Mortgage Corporation comprised of loans to builders to acquire, develop or construct homes in large tracts10-year and 15-year loans.Investment SecuritiesInvestment securities available for sale at December 31, 2010 and 2009 totaled $4.51 billion and $2.93 billion, respectively, a $1.58 billion or 54.0 percent increase. Growth in investment securities during 2010 resulted from an increase in liquidity due to weak loan demand, organic deposit growth and the FDIC-assisted transactions. Additionally, we decided to reduce the overall level of overnight investments in late-2010 and placed a portion of this liquidity in theavailable for sale investment securities portfolio. Substantially all investment securities consist of U.S Treasury and government agency securities with final maturities of three years or less. The agency securities generally are callable by the agency at periodic intervals prior to the final maturity date. Available for sale securities are reported at their aggregate fair value, and unrealized gains and losses on available for sale securities are included as a component of other comprehensive income, net of deferred taxes.65 presents detailed information relating to the investment securities portfolio.$969.4$1.00 billion during 2012, a $10.3 million during 2010, a $231.2 million or 31.31.0 percent increase decrease from 2009,2011, compared to a $75.2$45.8 million or 9.24.7 percent increase from 2010 to 2011. The slight decrease from 2008 to 2009. The increase in interest income during 20102012 is primarily the result of reduced yields on investment securities offset by higher average balances and the accretion of discounts and recognition of accretable yield on acquired loans.interest-earning assets. During 2010,2012, interest-earning assets averaged $18.46$18.97 billion, an increase of $2.6 billion$150.2 million from 2009.2011. This increase results from loans acquired in FDIC-assisted transactions andhigher investment security purchases resulting frombalances caused by deposit growth within our legacy branch network in excess of loan and lease demand.76 analyzes taxable-equivalent yields and rates on interest-earning assets and interest-bearing liabilities for the five years ending December 31, 2010.2012. The taxable-equivalent yield on interest-earning assets was 5.275.31 percent during 2010,2012, a 5810 basis point increasedecrease from the 4.695.41 percent reported in 2009,2011, the result of the accretion during 2010 of fair value discountslower average loan balances and reduced yields on acquired loans.investment securities. The taxable-equivalent yield on interest-earning assets equaled 5.515.27 percent in 2008.2010 with a significantly higher yield on investment securities, compared to 2011, which was more than offset by a lower loan yield due to more modest levels of accretion income on acquired loans.5.496.91 percent in 20092011 to 6.617.15 percent in 2010.2012. The 11224 basis point yield increase coupled with the $1.80 billion,was offset by a $489.7 million or 14.93.5 percent growth reduction in average loans and leases contributed to an increaseresulting in a slight overall decline in loan interest income of $255.0 million or 38.7 percent over 2009. The increased yield resulted from $145.4 million of accretion of fair value discounts during 2010 primarily related to payoffs and large unscheduled loan payments on acquired loans. Management had initially concluded that these payments would not be received during 2010.2011. Loan interest income decreasedincluded $304.0 million of discount accretion during 2012 compared to $319.4 million during 2011. The recognition of accretion income on acquired loans is significantly influenced by differences between initial cash flow estimates and changes to those estimates that evolve in 2009 from 2008 by $22.3subsequent periods. Accretion income in future periods is likely to decrease as the balance of acquired loans continues to decline. Loan interest income in 2011 increased $53.2 million, or 3.35.8 percent, driven by a 5630 basis point yield decrease, partially offsetincrease resulting from loan discount accretion income in 2011, and by incremental interest from a $756.1$184.6 million, or 6.71.3 percent increase in average loans and leases.$52.5$35.5 million and $77.9$46.0 million during 20102012 and 2009,2011, respectively, with a taxable-equivalent yield of 1.480.77 percent and 2.36 percent.1.12 percent. The $25.4$10.5 million decrease in investment interest income during 2010 reflected the 882012 resulted from a 35 basis points decrease in the taxable-equivalent yield. The $44.9 million decreaseWhile increases in interestaverage balances have partially offset the impact of lower yields, the yield reduction was primarily caused by significantly lower reinvestment rates on new securities as compared to maturing and called securities. Interest income earned on investment securities during 2009 resulted indeclined from 2010 to 2011 by $6.4 million due to a 17336 basis point decrease in the taxable-equivalent yield. Higher average balances of investment securities during 2010 and 2009 offset a portion of the yield reduction. The yield reductions in 20102012 and 20092011 reflect the extraordinarily low interest rates on investment securities. We anticipate the yield on investment securities will remain depressedat current low levels until the Federal Open Market CommitteeReserve begins to raise the benchmark fed funds rates, an action that would likely lead to higher asset yields.65 2010 2009 2008 Cost Fair
Value Average
Maturity
(Yrs./Mos.) Taxable
Equivalent
Yield Cost Fair
Value Cost Fair
Value $ 3,212,786 $ 3,206,015 0/5 0.98 % $ 1,543,760 $ 1,554,353 $ 1,349,114 $ 1,374,022 653,349 653,371 1/4 0.46 730,324 733,070 1,704,326 1,738,406 3,866,135 3,859,386 0/7 0.90 2,274,084 2,287,423 3,053,440 3,112,428 6 3 0/8 5.31 0 0 0 0 10,755 11,061 3/8 1.23 13,430 13,729 32 30 1,673 1,700 7/9 3.59 917 914 789 791 126,857 130,781 26/10 4.81 112,254 115,695 80,288 82,131 139,291 143,545 24/10 4.52 126,601 130,338 81,109 82,952 227,636 230,043 0/9 1.69 0 0 251,524 256,615 1/6 1.95 481,341 485,667 0 0 479,160 486,658 1/2 1.83 481,341 485,667 0 0 757 757 0/8 4.67 303 304 1,682 1,687 473 489 2/2 4.90 1,107 1,138 1,416 1,356 10 10 9/11 4.97 0 0 0 0 0 0 5,643 5,371 10 10 1,240 1,256 1/4 4.76 7,053 6,813 3,108 3,053 0 0 1,026 1,287 0 0 0 0 911 1,012 3,691 5,427 0 0 1,937 2,299 3,691 5,427 1,055 19,231 2,377 16,622 3,291 15,461 4,486,881 4,510,076 2,893,393 2,929,162 3,144,639 3,219,321 2,404 2,570 6/3 5.55 3,306 3,497 4,117 4,289 128 171 17/3 6.53 146 185 165 198 2,532 2,741 6/10 5.60 3,452 3,682 4,282 4,487 0 0 0 0 151 151 0 0 151 152 0 0 0 0 0 0 1,440 1,472 0 0 151 152 1,591 1,623 2,532 2,741 6/10 5.60 3,603 3,834 5,873 6,110 $ 4,489,413 $ 4,512,817 $ 2,896,996 $ 2,932,996 $ 3,150,512 $ 3,225,431 The average 2012 2011 2010 Cost Fair
value Average
maturity
(yrs./mos.) Taxable
equivalent
yield Cost Fair
value Cost Fair
valueInvestment securities available for sale: (dollars in thousands) U. S. Treasury: Within one year $ 576,101 $ 576,393 0/11 0.39 % $ 811,038 $ 811,835 $ 1,332,798 $ 1,336,446 One to five years 247,140 247,239 1/9 0.27 76,003 75,984 602,868 602,954 Total 823,241 823,632 1/2 0.35 887,041 887,819 1,935,666 1,939,400 Government agency: Within one year 1,708,572 1,709,520 0/4 0.38 2,176,527 2,176,143 1,879,988 1,869,569 One to five years 1,343,468 1,345,684 1/10 0.43 415,447 416,066 50,481 50,417 Total 3,052,040 3,055,204 1/0 0.40 2,591,974 2,592,209 1,930,469 1,919,986 Residential mortgage-backed securities: Within one year 3,397 3,456 0/9 3.69 374 373 6 3 One to five years 732,614 736,284 3/8 1.50 56,650 56,929 10,755 11,061 Five to ten years 193,500 195,491 7/6 1.78 90,595 91,077 1,673 1,700 Over ten years 385,700 394,426 18/4 2.90 150,783 158,842 126,857 130,781 Total 1,315,211 1,329,657 8/7 1.96 298,402 307,221 139,291 143,545 State, county and municipal: Within one year 486 490 0/3 5.19 242 244 757 757 One to five years — — — — 359 372 473 489 Five to ten years 60 60 5/11 4.75 10 10 10 10 Over ten years — — — — 415 415 — — Total 546 550 0/10 5.14 1,026 1,041 1,240 1,256 Corporate bonds: Within one year — — — — 250,476 252,820 227,636 230,043 One to five years — — — — — — 251,524 256,615 Total — — — — 250,476 252,820 479,160 486,658 Other Five to ten years 838 820 5/6 7.58 — — — — Equity securities 543 16,365 939 15,313 1,055 19,231 Total investment securities available for sale 5,192,419 5,226,228 4,029,858 4,056,423 4,486,881 4,510,076 Investment securities held to maturity: Residential mortgage-backed securities: One to five years 1,242 1,309 4/3 5.58 12 11 — — Five to ten years 18 11 8/10 4.55 1,699 1,820 2,404 2,570 Over ten years 82 128 16/2 7.07 111 149 128 171 Total 1,342 1,448 5/1 5.66 1,822 1,980 2,532 2,741 Total investment securities held to maturity 1,342 1,448 5/1 5.66 1,822 1,980 2,532 2,741 Total investment securities $ 5,193,761 $ 5,227,676 $ 4,031,680 $ 4,058,403 $ 4,489,413 $ 4,512,817 76 2010 2009 Average
Balance Interest
Income/
Expense Yield/
Rate Average
Balance Interest
Income/
Expense Yield/
Rate (dollars in thousands, taxable equivalent) $ 13,865,815 $ 917,111 6.61 % $ 12,062,954 $ 661,750 5.49 % 2,968,206 38,438 1.29 2,908,651 67,998 2.34 487,678 8,721 1.79 342,643 6,283 1.83 163,009 6,544 4.01 108,228 4,812 4.45 1,926 120 6.23 4,693 431 9.18 20,274 227 1.12 48,405 1,085 2.24 3,641,093 54,050 1.48 3,412,620 80,609 2.36 951,252 2,346 0.25 370,940 731 0.20 18,458,160 $ 973,507 5.27 % 15,846,514 $ 743,090 4.69 % 535,687 597,443 844,843 821,961 (189,561 ) (162,542 ) 630,317 90,427 561,734 363,681 $ 20,841,180 $ 17,557,484 $ 1,772,298 $ 1,976 0.11 % $ 1,547,135 $ 1,692 0.11 % 724,219 1,280 0.18 592,610 684 0.12 4,827,021 27,076 0.56 3,880,703 27,078 0.70 6,443,916 118,863 1.84 5,585,200 154,305 2.76 13,767,454 149,195 1.08 11,605,648 183,759 1.58 582,654 5,189 0.89 654,347 4,882 0.75 885,145 40,741 4.60 753,242 39,003 5.18 15,235,253 $ 195,125 1.28 % 13,013,237 $ 227,644 1.75 % 3,774,864 2,973,220 158,825 105,074 1,672,238 1,465,953 $ 20,841,180 $ 17,557,484 3.99 % 2.94 % $ 778,382 4.22 % $ 515,446 3.25 % 2012 2011 (dollars in thousands, taxable equivalent) Assets Loans and leases $ 13,560,773 $ 969,802 7.15 % $ 14,050,453 $ 970,225 6.91 % Investment securities: U. S. Treasury 935,135 2,574 0.28 1,347,874 8,591 0.64 Government agency 2,857,714 16,339 0.57 2,084,627 20,672 0.99 Residential mortgage-backed securities 757,296 14,388 1.90 320,611 9,235 2.88 Corporate bonds 129,827 2,574 1.98 426,114 7,975 1.87 State, county and municipal 829 57 6.88 3,841 279 7.26 Other 17,758 340 1.91 32,694 548 1.68 Total investment securities 4,698,559 36,272 0.77 4,215,761 47,300 1.12 Overnight investments 715,583 1,738 0.24 558,454 1,394 0.25 Total interest-earning assets 18,974,915 $ 1,007,812 5.31 % 18,824,668 $ 1,018,919 5.41 % Cash and due from banks 529,224 486,812 Premises and equipment 876,802 846,989 Allowance for loan and lease losses (272,105 ) (241,367 ) Other real estate owned 172,269 193,467 Receivable from FDIC for loss share agreements 350,933 628,132 Other assets 445,406 396,871 Total assets $ 21,077,444 $ 21,135,572 Liabilities and shareholders’ equity Interest-bearing deposits: Checking With Interest $ 2,105,587 $ 1,334 0.06 % $ 1,933,723 $ 1,679 0.09 % Savings 874,311 445 0.05 826,881 1,118 0.14 Money market accounts 5,985,562 16,185 0.27 5,514,920 21,642 0.39 Time deposits 4,093,347 39,604 0.97 5,350,249 77,449 1.45 Total interest-bearing deposits 13,058,807 57,568 0.44 13,625,773 101,888 0.75 Short-term borrowings 664,498 5,107 0.77 652,607 5,993 0.92 Long-term obligations 574,721 27,473 4.78 766,509 36,311 4.74 Total interest-bearing liabilities 14,298,026 $ 90,148 0.63 % 15,044,889 $ 144,192 0.96 % Demand deposits 4,668,310 4,150,646 Other liabilities 195,839 128,517 Shareholders’ equity 1,915,269 1,811,520 Total liabilities and shareholders’ equity $ 21,077,444 $ 21,135,572 Interest rate spread 4.68 % 4.45 % Net interest income and net yield on interest-earning assets $ 917,664 4.84 % $ 874,727 4.65 % LoanAccretion of net deferred loan fees, which are not material for any period shown, are included in the yield calculation. 2008 2007 2006 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) $ 11,306,900 $ 683,943 6.05 % $ 10,513,599 $ 729,635 6.94 % $ 9,989,757 $ 685,114 6.86 % 2,994,352 121,803 4.07 2,989,248 142,235 4.76 2,890,611 113,904 3.94 — — — — — — 80,697 4,311 5.34 79,229 4,248 5.36 58,590 3,065 5.23 4,828 322 6.67 5,321 346 6.50 6,174 374 6.06 32,840 962 2.93 38,374 1,225 3.19 41,052 1,497 3.65 3,112,717 127,398 4.09 3,112,172 148,054 4.76 2,996,427 118,840 3.97 450,884 8,755 1.94 634,671 32,169 5.07 619,247 30,903 4.99 14,870,501 $ 820,096 5.51 % 14,260,442 $ 909,858 6.38 % 13,605,431 $ 834,857 6.14 % 591,032 705,864 757,428 781,149 735,465 669,748 (145,523 ) (132,530 ) (131,077 ) 306,558 349,981 338,797 $ 16,403,717 $ 15,919,222 $ 15,240,327 $ 1,440,908 $ 1,414 0.10 % $ 1,431,085 $ 1,971 0.14 % $ 1,522,439 $ 1,875 0.12 % 545,048 1,103 0.20 573,286 1,235 0.22 649,619 1,382 0.21 3,187,012 59,298 1.86 2,835,255 94,541 3.33 2,691,292 79,522 2.95 5,402,505 201,723 3.73 5,283,782 243,489 4.61 4,967,591 197,399 3.97 10,575,473 263,538 2.49 10,123,408 341,236 3.37 9,830,941 280,178 2.85 1,129,563 17,502 1.55 1,354,255 55,126 4.07 981,210 41,431 4.22 607,463 33,905 5.58 405,758 27,352 6.74 450,272 32,128 7.14 12,312,499 $ 314,945 2.56 % 11,883,421 $ 423,714 3.57 % 11,262,423 $ 353,737 3.14 % 2,532,773 2,535,828 2,622,014 73,840 129,356 114,636 1,484,605 1,370,617 1,241,254 $ 16,403,717 $ 15,919,222 $ 15,240,327 2.95 % 2.81 % 3.00 % $ 505,151 3.40 % $ 486,144 3.41 % $ 481,120 3.54 % 2010 2009 2008 (dollars in thousands, taxable equivalent) $ 13,865,815 $ 917,111 6.61 % $ 12,062,954 $ 661,750 5.49 % $ 11,306,900 $ 683,943 6.05 % 2,073,511 25,586 1.23 2,332,228 45,231 1.94 1,676,157 56,748 3.39 894,695 12,852 1.44 576,423 22,767 3.95 1,318,195 65,055 4.94 163,009 6,544 4.01 108,228 4,812 4.45 80,697 4,311 5.34 487,678 8,721 1.79 342,643 6,283 1.83 — — — 1,926 120 6.23 4,693 431 9.18 4,828 322 6.67 20,274 227 1.12 48,405 1,085 2.24 32,840 962 2.93 3,641,093 54,050 1.48 3,412,620 80,609 2.36 3,112,717 127,398 4.09 951,252 2,346 0.25 370,940 731 0.20 450,884 8,755 1.94 18,458,160 $ 973,507 5.27 % 15,846,514 $ 743,090 4.69 % 14,870,501 $ 820,096 5.51 % 535,687 597,443 591,032 844,843 821,961 781,149 (189,561 ) (162,542 ) (145,523 ) 160,376 78,924 14,123 630,317 90,427 — 401,358 284,757 292,435 $ 20,841,180 $ 17,557,484 $ 16,403,717 $ 1,772,298 $ 1,976 0.11 % $ 1,547,135 $ 1,692 0.11 % $ 1,440,908 $ 1,414 0.10 % 724,219 1,280 0.18 592,610 684 0.12 545,048 1,103 0.20 4,827,021 27,076 0.56 3,880,703 27,078 0.70 3,187,012 59,298 1.86 6,443,916 118,863 1.84 5,585,200 154,305 2.76 5,402,505 201,723 3.73 13,767,454 149,195 1.08 11,605,648 183,759 1.58 10,575,473 263,538 2.49 582,654 5,189 0.89 654,347 4,882 0.75 1,129,563 17,502 1.55 885,145 40,741 4.60 753,242 39,003 5.18 607,463 33,905 5.58 15,235,253 $ 195,125 1.28 % 13,013,237 $ 227,644 1.75 % 12,312,499 $ 314,945 2.56 % 3,774,864 2,973,220 2,532,773 158,825 105,074 73,840 1,672,238 1,465,953 1,484,605 $ 20,841,180 $ 17,557,484 $ 16,403,717 3.99 % 2.94 % 2.95 % $ 778,382 4.22 % $ 515,446 3.25 % $ 505,151 3.40 % alsohave the ability to utilize non-deposit borrowings to stabilize our liquidity base and to fulfill commercial customer demand for treasury services. Interest-bearing liabilities totaled $15.02$14.21 billion as of December 31, 2010, up $1.45 billion2012, down $334.6 million from December 31, 20092011, due to growthcontinued customer migration of balances in interest-bearing accounts to demand deposit accounts, the 2012 redemption of trust preferred securities, the continued reductions in deposits assumed in both legacy marketsFDIC-assisted transactions and maturities of borrowings from the First Regional and SAB acquisitions. FHLB.increased $2.22 billiondeclined $746.9 million or 17.15.0 percent over 2009from 2011 levels due to repayments of debt obligations and continued declines in deposits assumed in FDIC-assisted transactions. During 2011, interest-bearing liabilities decreased $190.4 million or 1.2 percent percent from 2010 as a result of reductions in deposits assumed in the four2009 and 2010 FDIC-assisted transactions since July 2009 and strong organic growthexceeding the impact of deposits assumed in legacy markets. During 2009, interest-bearing liabilities increased $700.7 million or 5.7 percent over 2008.Deposits2010,2012, deposits totaled $17.64$18.09 billion, an increase of $2.30 billion$508.8 million or 15.02.9 percent from the $15.34$17.58 billion in deposits recorded as of December 31, 2009. Deposits2011. The increase resulted from growth in legacy markets, partially offset by a reduction in assumed deposits.First Regional and SAB during the first quarter of 2010 totaled $1.71December 31, 2011 to December 31, 2012, while demand deposits increased $554.0 million or 12.8 percent. Time deposits declined $1.05 billion but, or 22.7 percent due to anticipated runoff, depositrun-off of balances assumed in these markets equaled $952.3 million at December 31, 2010, a decline of $755.4 million or 44.2 percent. Strong organic growth contributed $1.28 billion to the increase in deposits during 2010.Balances increased materially in most categories of deposits, most notably money market accounts which increased $879.5 million or 21.0 percent from December 31, 2009 to December 31, 2010,FDIC-assisted transactions and demand deposits which increased $761.0 million or 23.7 percent. Time deposits increased only $396.9 million or 7.1 percent, with nearly all of the growth attributable to First Regional and SAB. Lowlow interest rates have caused a shift in customer preference away from time deposits to short-term, liquid accounts. Continuing economic uncertainty continues to make traditional bank deposits an attractive investment option for our customer base.$13.77$13.06 billion during 2010, an increase2012, a decrease of $2.16 billion$567.0 million or 18.6 percent.4.2 percent as balances migrated to demand deposit accounts. Average money market balances increased $946.3$470.6 million or 24.48.5 percent while average time deposits increased $858.7 milliondecreased $1.26 billion or 15.4 percent.23.5 percent. During 2009,2011, average time deposits increased $182.7 milliondecreased $1.09 billion or 3.4 percent.17.0 percent compared to the previous year primarily due to run-off of deposits assumed in the 2010 FDIC-assisted transactions. December 31 2012 2011 2010 Demand $ 4,885,700 $ 4,331,706 $ 3,976,366 Checking With Interest 2,363,317 2,103,298 1,870,636 Money market accounts 6,357,309 5,700,981 5,064,644 Savings 905,456 817,285 770,849 Time 3,574,243 4,624,004 5,952,771 Total deposits $ 18,086,025 $ 17,577,274 $ 17,635,266 2010,2012, deposits include $3.07$1.61 billion of time deposits with balances of $100,000$100,000 or more. TheInformation regarding the scheduled maturity of those time deposits is detailed in Table 8.ongoing industry-wide liquidity challengespresence of significant economic uncertainty and our historicthe associated potential risks to funding sources, we continue to focus on maintaining a liquid balance sheet, we continued our focus oncore deposit attraction and retention as a key business objective. While we believe traditional bank deposit products remain an attractive option for many customers, once economic conditions improve, our liquidity position could be adversely impacted as bank deposits are invested elsewhere. Our ability to benefit from various market opportunitiesfund future loan growth could potentially be constrained unless we are able to continue to generate new deposits at a reasonable cost. December 31,
2010 (thousands) $ 817,968 369,067 1,182,399 703,785 $ 3,073,219 December 31, 2012 (thousands) Less than three months $ 432,034 Three to six months 262,074 Six to 12 months 398,691 More than 12 months 517,983 Total $ 1,610,782 2010,2012, short-term borrowings, which include term borrowings with remaining maturities of less than one year, totaled $546.6$568.5 million, compared to $642.4$615.2 million one year earlier, a 14.97.6 percent decrease. The $95.8$46.7 million reduction decrease is a result of reductions in repurchase obligations and FHLB borrowings. 2012 2011 2010 Amount Rate Amount Rate Amount Rate (dollars in thousands) Master notes At December 31 $ 399,047 0.47 % $ 375,396 0.55 % $ 371,350 0.55 % Average during year 450,269 0.46 383,038 0.54 401,115 0.54 Maximum month-end balance during year 477,997 392,648 409,924 Repurchase agreements At December 31 111,907 0.29 172,275 0.40 78,274 0.33 Average during year 143,140 0.35 177,983 0.48 87,167 0.28 Maximum month-end balance during year 171,967 205,992 93,504 Federal funds purchased At December 31 2,551 0.25 2,551 0.25 2,551 0.19 Average during year 2,551 0.13 2,551 0.11 4,982 0.22 Maximum month-end balance during year 2,551 2,551 18,351 Notes payable to Federal Home Loan Banks At December 31 55,000 3.33 65,000 4.79 82,000 4.61 Average during year 68,538 3.69 74,356 4.10 74,148 3.70 Maximum month-end balance during year 95,000 82,000 137,000 Other At December 31 — — — — 12,422 — Average during year — — 14,530 — 15,242 — Maximum month-end balance during year — 20,005 20,241 net impactearly redemption of reduced balances of our treasury services sweep accounts offset by higher currenttrust preferred securities and maturities of FHLB obligations.arisingincluded $96.4 million in junior subordinated debentures representing obligations to FCB/NC Capital Trust III, a special purpose entity and the grantor trust for $93.5 million of trust preferred securities. FCB/NC Capital Trust III's trust preferred securities mature in 2036 and may be redeemed at par in whole or in part on or after June 30, 2011. BancShares has guaranteed all obligations of FCB/NC Capital III. The proceeds from the 2010 FDIC-assisted transactions. Extraordinarily low interest rates have caused customerstrust preferred securities were used to reduce balances in our sweep products.Table 9SHORT-TERM BORROWINGS 2010 2009 2008 Amount Rate Amount Rate Amount Rate (dollars in thousands) $ 371,350 0.55 % $ 395,577 0.53 % $ 472,573 0.53 % 401,115 0.54 443,286 0.52 819,209 1.52 409,924 487,372 929,613 78,274 0.33 91,583 0.28 103,878 0.25 87,167 0.28 103,023 0.26 211,853 0.82 93,504 105,253 293,703 2,551 0.19 12,551 0.01 10,551 0.10 4,982 0.22 9,059 0.08 40,079 1.69 18,351 15,551 96,551 82,000 4.61 128,761 2.70 50,000 4.95 74,148 3.70 84,965 2.68 50,000 4.95 137,000 128,761 50,000 12,422 — 13,933 — 10,026 0.04 15,242 — 14,014 — 8,422 2.04 20,241 20,023 21,286 Long-term obligations2010 and 2009, long-term obligations totaled $809.9 million and $797.4 million, respectively, an increase of $12.6 million or 1.6 percent. The increase since December 31, 2009 resulted from the assumption of FHLB obligations in the FDIC-assisted transactions consummated in 2010.For 2010 and 2009,2011, long-term obligations included $273.2$251.0 million in junior subordinated debentures representing obligations to two special purpose entities, FCB/NC Capital Trust I and FCB/NC Capital Trust III (the Capital Trusts). The Capital Trusts arewere the grantor trusts for $265.0$243.5 million of trust preferred securities outstanding as of December 31, 2010.2011. The proceeds from the trust preferred securities were used to purchase the junior subordinated debentures issued by BancShares. The $150.0 million in trust preferred securities issued by FCB/NC Capital Trust I maturehad a scheduled maturity in 2028 and may bebut were redeemed in whole or in part at a premium that declines until 2018, when the redemption price equals the par valueJuly 2012. During December 2011, BancShares purchased $21.5 million of the securities. The $115.0 million in trust preferred securities previously issued by FCB/NC Capital Trust III mature in 2036 and may be redeemed at par in whole or in part on or after June 30, 2011.III. BancShares has guaranteed all obligations of the Capital Trusts.risk-basedcapital. As of January 1, 2013, one-third of the outstanding trust preferred securities no longer qualify as tier 1 capital. All trust preferred securities will be excluded from tier 1 capital effective January 1, 2015. The inability to include the securities in tier 1 risk-based capital maywas the primary factor that resulted in our decision to redeem the trust preferred securities issued by FCB/NC Capital Trust I and could lead us to redeem a portion or all of the securities issued by FCB/NC Capital Trust III prior to theirthe scheduled maturity dates.$195.1$90.1 million in 2010,2012, a $32.5$54.0 million or 14.337.5 percent decrease from 2009.2011. This followed an $87.3a $50.9 million or 27.726.1 percent decrease in interest expense during 20092011 compared to 2008.2010. For 2010,2012, the decrease in interest expense was the net result of lower interest rates, offsetthe reduction in partaverage time deposits, and a decline in long-term obligations caused by increased levelsthe early redemption of trust preferred securities and maturities of FHLB obligations. For 2011, the decrease in interest expense was caused by lower interest rates and a modest decrease in average interest-bearing liabilities. The blended rate on total interest-bearing liabilities equaled 1.280.63 percent during 2010,2012, compared to 1.750.96 percent in 20092011 and 2.561.28 percent in 2008.2010.$149.2$57.6 million during 2010,2012, down $34.6$44.3 million or 18.843.5 percent from 2009.2011. The impact2012 reduction is the result of lower interest rates more than offset added expense from higher deposit balances.and a reduction in time deposits, reflecting a customer preference for non-time deposits. Lower market interest rates caused the aggregate rate on interest-bearing deposits to decline to 1.080.44 percent during 2010,2012, down 5031 basis points from 2009.2011.increased $1.7decreased $8.8 million or 4.524.3 percent during 20102012 due to new Federal Home Loan Bank borrowings assumed as a partthe early redemption of the 2010 FDIC-assisted transactions.trust preferred securities and maturities of FHLB obligations. The rate paid on average long-term obligations decreased 58increased 4 basis points from 5.184.74 percent in 20092011 to 4.604.78 percent in 2010.2012.$774.2$914.7 million during 2010,2012, a $263.7$43.7 million or 51.75.0 percent increase over 2009.2011. The taxable-equivalent net yield on interest-earning assets equaled 4.224.84 percent for 2010,2012, up 9719 basis points from the 3.254.65 percent for 2009.2011. The increase from 2009 resulted principally from accretionin net interest income is the result of fair value discounts on acquired loansreduced deposit costs and the positive impact of yields and rates on acquired loans and assumed deposits.20102012 and 2011 included $145.4$304.0 million and $319.4 million, respectively, of accretion primarily related to large unscheduled payments receivedincome on acquired loans. No such accretion was recognized during 2009. The continuing accretion of fair value discounts resulting from acquired loans will likely contribute to volatility in net interest income in future periods. Factors affecting the amount of accretion include unscheduled loan payments, changes in estimated cash flows and impairment. During 2012, as a result of the deployment of TVB, VB, First Regional and United Western loans to the acquired loan accounting system, many of the loans previously accounted for under the cost recovery method are now accreting yield. Fair value discounts related to non-pooled loans that have been repaid unexpectedly will be accreted into interest income at the time the loan obligation is satisfied. Unless additional uncertainty about future payments exists, discounts associated with loans that display large unscheduled payments will be recognized in interest income on an accelerated basis.During 2009, net interest income equaled $510.5 million, a $12.1 million or 2.4 percent increase over 2008. The increase from 2008 resulted from balance sheet growth as the taxable-equivalent net yield on interest-earning assets declined by 15 basis points from the prior year to 3.25 percent during 2009.20102012 and 2009.2011. 2010 2009 Change from previous year
due to: Change from previous year
due to: Volume Yield/
Rate Total
Change Volume Yield/
Rate Total
Change (thousands) $ 109,616 $ 145,745 $ 255,361 $ 43,433 $ (65,626 ) $ (22,193 ) 1,187 (30,747 ) (29,560 ) (2,746 ) (51,059 ) (53,805 ) 2,614 (176 ) 2,438 3,141 3,142 6,283 2,322 (590 ) 1,732 3,140 (2,639 ) 501 (214 ) (97 ) (311 ) 211 (102 ) 109 (473 ) (385 ) (858 ) 402 (279 ) 123 5,436 (31,995 ) (26,559 ) 4,148 (50,937 ) (46,789 ) 1,216 399 1,615 (865 ) (7,159 ) (8,024 ) $ 116,268 $ 114,149 $ 230,417 $ 46,716 $ (123,722 ) $ (77,006 ) $ 248 $ 36 $ 284 $ 110 $ 168 $ 278 192 404 596 75 (494 ) (419 ) 5,955 (5,957 ) (2 ) 8,873 (41,093 ) (32,220 ) 19,781 (55,222 ) (35,441 ) 5,934 (53,352 ) (47,418 ) 26,176 (60,739 ) (34,563 ) 14,992 (94,771 ) (79,779 ) (587 ) 894 307 (5,455 ) (7,165 ) (12,620 ) 6,469 (4,731 ) 1,738 7,831 (2,733 ) 5,098 $ 32,058 $ (64,576 ) $ (32,518 ) $ 17,368 $ (104,669 ) $ (87,301 ) $ 84,210 $ 178,725 $ 262,935 $ 29,348 $ (19,053 ) $ 10,295 2012 2011 Change from previous year
due to: Change from previous year
due to: Volume Yield/
Rate Total
Change Volume Yield/
Rate Total
Change (thousands) Assets Loans and leases $ (33,990 ) $ 33,567 $ (423 ) $ 11,860 $ 41,254 $ 53,114 Investment securities: U. S. Treasury (1,903 ) (4,114 ) (6,017 ) (6,844 ) (10,151 ) (16,995 ) Government agency 6,038 (10,371 ) (4,333 ) 14,490 (6,670 ) 7,820 Residential mortgage-backed securities 6,239 174 6,413 5,426 (2,735 ) 2,691 Corporate bonds (4,635 ) (2,026 ) (6,661 ) (1,120 ) 374 (746 ) State, county and municipal (213 ) (9 ) (222 ) 129 30 159 Other (267 ) 59 (208 ) 172 149 321 Total investment securities 5,259 (16,287 ) (11,028 ) 12,253 (19,003 ) (6,750 ) Overnight investments 396 (52 ) 344 (967 ) 15 (952 ) Total interest-earning assets $ (28,335 ) $ 17,228 $ (11,107 ) $ 23,146 $ 22,266 $ 45,412 Liabilities Interest-bearing deposits: Checking With Interest $ 195 $ (540 ) $ (345 ) $ 160 $ (457 ) $ (297 ) Savings 69 (742 ) (673 ) 160 (322 ) (162 ) Money market accounts 1,498 (6,955 ) (5,457 ) 3,279 (8,713 ) (5,434 ) Time deposits (15,194 ) (22,651 ) (37,845 ) (18,002 ) (23,412 ) (41,414 ) Total interest-bearing deposits (13,432 ) (30,888 ) (44,320 ) (14,403 ) (32,904 ) (47,307 ) Short-term borrowings 101 (987 ) (886 ) 632 172 804 Long-term obligations (9,118 ) 280 (8,838 ) (5,564 ) 1,134 (4,430 ) Total interest-bearing liabilities $ (22,449 ) $ (31,595 ) $ (54,044 ) $ (19,335 ) $ (31,598 ) $ (50,933 ) Change in net interest income $ (5,886 ) $ 48,823 $ 42,937 $ 42,481 $ 53,864 $ 96,345 $4,138, $4,931$2,976 , $3,760 and $6,745$4,139 for the years 2010, 20092012, 2011 and 2008,2010, respectively. Table 76 provides detailed information on average balances, income/expense, yield/rate by category and the relevant income tax rates. The rate/volume variance is allocated equally between the changes in volume and rate.an adequate level of profitability. Traditionally, theprofitability levels. The primary sources of noninterest income arehave traditionally consisted of cardholder and merchant services income, service charges on deposit accounts and revenues derived from wealth management services and fees from processing services. During 20102012 and 2009, these traditional sources of2011, noninterest income havehas been augmented withsignificantly influenced by gains and post-acquisition adjustments to the receivable from the FDIC resulting from the FDIC-assisted transactions. Noninterest income for 2011 included acquisition gains of $150.4 million for the United Western and CCB transactions. No acquisition gains were recorded during 2012.entries arising from post-acquisitionan $82.3 million increase in the net charge to noninterest income for adjustments to the FDIC receivable. Noninterest incomeA significant portion of the higher charges for adjustments to the FDIC receivable in 2012 is attributable to increased modestly excludingamortization of the FDIC receivable as the expiration of the loss share agreements approaches. Adjustments to the FDIC receivable that result from post-acquisition deterioration or accretion of yield that was not initially identified are offset by a corresponding entry to noninterest income. The FDIC receivable adjustment related to credit quality deterioration is recordedentries resulting from post-acquisition adjustments toimpact of the FDIC receivable.Noninterest income totaled $406.2 million during 2010, an increase of $2.8 million or 0.7 percent from 2009, due primarily to the gain on the 2010 acquisitions, partially offset by adjustments to the FDIC receivable, for assets covered by loss share agreements. Excluding the acquisition-related entries, noninterest income increased $20.8decreased 7.0 percent. 12.7 percent during 2012.20092011 equaled $403.5$464.4 million, a $95.9$58.2 million, or 31.214.3 percent increase over 20082010 due primarily to acquisition gains. gains, reduced adjustments to the FDIC receivable and a gain recorded on the redemption of the trust preferred securities. Table 11 presents the major components of noninterest income for the past five years. Year ended December 31 2010 2009 2008 2007 2006 (thousands) $ 136,000 $ 104,434 $ — $ — $ — 107,575 95,376 97,577 97,070 86,103 73,762 78,028 82,349 77,827 72,561 51,378 46,071 48,198 49,305 42,213 29,097 30,904 29,607 27,018 24,367 9,699 10,435 6,564 6,305 5,494 8,650 8,129 8,277 7,735 6,942 6,656 6,856 7,003 6,515 6,803 20,820 16,411 17,598 15,318 15,996 1,952 (511 ) 8,128 1,376 (659 ) (46,806 ) 2,800 — — — 7,431 4,518 2,205 3,363 8,090 $ 406,214 $ 403,451 $ 307,506 $ 291,832 $ 267,910 Acquisition gains recorded during 2010 totaled $136.0 million, compared to $104.4 million during 2009, all of which resulted from FDIC-assisted transactions. During 2010, BancShares recorded net charges of $46.8 million resulting from adjustments to the FDIC receivable for covered assets. The adjustments to the FDIC receivable represent reductions resulting from large unscheduled acquired loan payments and other acquired loan adjustments, partially offset by increases resulting from post-acquisition deterioration of acquired loans. Adjustments to the FDIC receivable recorded during 2009 for $2.8 million represent the impact of the $3.5 million recorded as provision for loan and lease losses on the acquired loan portfolio of TVB and VB. Year ended December 31 2012 2011 2010 2009 2008 (thousands) Gains on acquisitions $ — $ 150,417 $ 136,000 $ 104,434 $ — Cardholder and merchant services 95,472 110,822 107,575 95,376 97,577 Service charges on deposit accounts 61,564 63,775 73,762 78,028 82,349 Wealth management services 57,236 54,974 51,378 46,071 48,198 Fees from processing services 34,816 30,487 29,097 30,904 29,607 Mortgage income 11,268 12,214 9,699 10,435 6,564 Insurance commissions 9,974 9,165 8,650 8,129 8,277 ATM income 5,279 6,020 6,656 6,856 7,003 Other service charges and fees 14,239 22,647 20,820 16,411 17,598 Securities gains (losses) 2,277 (288 ) 1,952 (511 ) 8,128 Adjustments to FDIC receivable for loss share agreements (101,594 ) (19,305 ) (46,806 ) 2,800 — Other (1,231 ) 23,438 7,431 4,518 2,205 Total noninterest income $ 189,300 $ 464,366 $ 406,214 $ 403,451 $ 307,506 increased $12.2decreased $15.4 million during 2010, due to higher transaction volume among both cardholders and merchants. Merchant services and credit2012 resulting from the fourth quarter 2011 enactment of debit card interchange income increased $5.6 million and $2.1 million, respectively, in 2010 due to higher levels of merchant and credit card accounts and a moderate increase in consumer spending compared tofee limits mandated by the very weak levels of 2009. Debit card interchange income increased $5.2 million as consumer purchases continue to migrate from paper to debit cards.Dodd-Frank Act. Income from wealth management services increased $5.3$2.3 million or 11.54.1 percent during 2010 due to a healthy level of new business and improved investment returns.increased broker-dealer revenue. Other service charges and fees increased $2.9decreased $8.4 million or 64.537.1 percent during 2010,2012, largely resulting from various loan fees on covered loans.$4.3$2.2 million, or 5.53.5 percent during 2012, the net impact of lower fees from overdrafts and commercialoverdrafts. This reduction is a result of changes to the assessment methodology for overdraft service charges offsetbeginning in part by incremental servicethe third quarter of 2011, including establishing a daily maximum overdraft charge and implementing transaction amounts beneath which overdraft charges for deposit accounts resulting from FDIC- assisted transactions.would not be assessed.for overdraftfrom processing services resultedincreased during 2012, we expect the revenues derived from changesthis line of business to Regulation Edecline in 2013 due to client bank attrition and the execution in early-2013 of an agreement with a vendor to sell to them our processing business that were effective in August 2010 that require financial institutionshad been running on their application. Although we will continue to only provide overdraftprocessing services to customers who explicitly electthe largest bank we have previously supported, the revenues generated by all other banks, which totaled $19.2 million during 2012, will substantially decline during 2013.use those services. The unfavorable impacta $9.7 million gain on the redemption of the new regulations will continue in subsequent periods.20102012 amounted to $733.4$766.9 million an $81.9, a $26.0 million or 12.63.3 percent increase decrease over 2009. Noninterest expenses related to the FDIC-assisted transactions accounted for $61.9 million of the 2010 increase, primarily due to higher salary expense, operating costs related to the branch facilities and foreclosure-related expense.2011. Noninterest expense in 20092011 was $651.5$792.9 million, a $51.1$59.5 million or 8.58.1 percent increase over 2008 driven by $24.2 million in higher FDIC insurance expense and $20.3 million in incremental costs for acquisitions. 2010. Table 12 presents the major components of noninterest expense for the past five years.$33.6$10.2 million or 12.73.4 percent during over 2010 resulting from, due to headcount growth resulting primarily from the FDIC-assisted transactions and merit increases. Salary expense directly resulting from new branches and the retained support positions related to the branchesFDIC-assisted transactions declined $3.0 million or 10.3 percent during 2011. For the period of time between the consummation of the FDIC-assisted transactions increased $21.5 million during 2010. During 2009,transaction and the subsequent conversion to our legacy systems, we retained associates to perform those tasks that, following the conversion, were absorbed by our legacy infrastructure. We also reduced the salary expense increased $5.1 million or 2.0 percent over 2008, primarily duerelated to the headcount growth that resulted fromFDIC-assisted transactions by closing 14 branches during 2011. As of December 31, 2011, all of the 2010 and 2009 FDIC-assisted transactions.0.5$6.3 million or 8.7 percent during 2012, the result of unfavorable pension plan assumption changes and higher 401(k) expense resulting from an increase in participants. During 2011, employee benefit expense increased $7.8 million or 12.0 percent over 2010, the net result of higher pension expense, executive retirement benefits, employer taxes and 401(k) expense, largelypartially offset by reduced employee health costs. Pension costs and pension expense. During 2009, employee benefit expense increased $5.5 million or 9.3 percent over 2008are expected to increase in 2013 due to higher pension expensefurther unfavorable assumption changes, and employee health costs.$72.8$74.8 million during 2010,2012, unchanged from the prior year due primarily to a $6.5$2.6 million or 9.8 percent increase over 2009. Occupancy expensereduction in costs related to the branches resulting from the FDIC-assisted transactions increased $6.3 million during 2010.transactions. During 2009,2011, occupancy expense totaled $66.3increased $2.1 million a $5.4 million or 8.92.8 percent increase over 2008 from 2010 due primarily due to higher lease costs and depreciationadded expense related to expansion during late-2008 and early-2009 in legacy markets.$6.6$4.9 million, or 10.97.0 percent, during 2010,2012, following a $2.6$3.1 million or 4.54.6 percent increase in 2009.2011. The increases in 20102012 and 20092011 were principally the result of higher hardware and software costs.increased $4.2decreased $3.5 million or 7.2 percent during 2012 due to vendor reductions connected with the Dodd-Frank imposed fee changes. Cardholder rewards programs decreased $7.5 million or 9.863.3 percent during 2010 due to higher transaction volume when compared to 2009. Expenses related2011, the result of the termination of the debit card rewards program and adjustments to cardholder reward programs increased $3.2 million or 37.4 percent during 2010 due to a new program targeting debit cardholders.$6.2$5.8 million or 21.135.3 percent during 2010,2012, following an increasea reduction of $24.2$6.7 million during 2009.2011. The 2012 decrease is the result of a new assessment formula adopted by the FDIC in 2011. The new formula alters the assessment base from deposits to total assets less equity thereby placing a larger assessment burden on banks with proportionally high levels of non-deposit funding. Our assessment amount declined primarily due to our low reliance on non-deposit funding. The decrease during 20102011 represents the net impact of a $7.8 million assessment recognized during 2009 and a higher level of insured deposits during 2010. The increase during 2009 resulted from the special assessment and higher deposit rates charged to insured depository institutions.2011.$18.4$2.4 million during 20102012 and $2.8 million during 2011 principally due to costs incurred for loans acquired in the FDIC-assisted transactions following a $2.0 million increase during 2009.transactions. Collection expenses include legal costs and fees paid to third parties engaged to assist in collection efforts related to covered loans and leases, and are subject to reimbursementmay be reimbursable under the FDIC loss share agreements.$5.3$25.7 million or 35.3 percent during from 2010 following an increase of $11.4 million during 2009.. Foreclosure-related expenses include costs to maintain foreclosed property, write-downs following foreclosure, and gains or losses recognized at the time of sale. It is anticipated that foreclosure-related expenses, some of which are reimbursable under the FDIC loss share agreements, will remain highelevated for the next several years2013 as we continue to liquidate the loans acquired in the FDIC-assisted transactions, the majoritytransactions.reimbursable underpartially the FDIC loss share agreements.increased $3.7decreased $1.9 million or 37.811.5 percent during 2010, primarily related to2012, the FDIC-assisted transactions. Asresult of December 31, 2010, substantially all of the acquired assetsconverting United Western and assumed liabilities for three of the four transactions completed during 2010 and 2009 had been convertedCCB to our legacyprocessing systems.Amortization of intangibles increased $4.32010, all of which resulted from the FDIC-assisted transactions. Year ended December 31 2010 2009 2008 2007 2006 (thousands) $ 297,897 $ 264,342 $ 259,250 $ 243,871 $ 228,472 64,733 64,390 58,899 52,733 50,445 72,766 66,266 60,839 56,922 52,153 66,894 60,310 57,715 56,404 52,490 46,765 42,605 42,071 41,882 37,286 11,624 8,457 9,323 12,529 9,228 23,167 29,344 5,126 2,619 1,550 20,485 2,102 63 52 41 20,439 15,107 3,658 2,086 456 13,327 9,672 8,985 7,004 5,845 11,328 11,314 12,061 10,501 9,844 6,848 6,130 6,517 5,967 5,687 8,301 8,111 8,098 7,499 7,212 4,968 5,425 6,308 6,410 5,244 2,532 2,508 2,514 3,324 2,254 6,202 1,940 2,048 2,142 2,318 55,100 53,480 56,907 57,861 55,007 $ 733,376 $ 651,503 $ 600,382 $ 569,806 $ 525,532 Year ended December 31 2012 2011 2010 2009 2008 (thousands) Salaries and wages $ 307,331 $ 308,088 $ 297,897 $ 264,342 $ 259,250 Employee benefits 78,861 72,526 64,733 64,390 58,899 Occupancy expense 74,798 74,832 72,766 66,266 60,839 Equipment expense 74,822 69,951 66,894 60,310 57,715 Cardholder and merchant services expense: Cardholder and merchant processing 45,129 48,614 46,765 42,605 42,071 Cardholder reward programs 4,325 11,780 11,624 8,457 9,323 FDIC deposit insurance 10,656 16,459 23,167 29,344 5,126 Collection 25,591 23,237 20,485 2,102 63 Foreclosure-related expense 40,654 46,133 20,439 15,107 3,658 Processing fees paid to third parties 14,454 16,336 13,327 9,672 8,985 Telecommunications 11,131 12,131 11,328 11,314 12,061 Postage 6,799 7,365 6,848 6,130 6,517 Advertising 3,897 7,957 8,301 8,111 8,098 Legal 2,490 6,306 4,968 5,425 6,308 Consultant 3,915 3,021 2,532 2,508 2,514 Amortization of intangibles 3,476 4,386 6,202 1,940 2,048 Other 58,604 63,803 55,100 53,480 56,907 Total noninterest expense $ 766,933 $ 792,925 $ 733,376 $ 651,503 $ 600,382 2010,2012, BancShares recorded income tax expense of $110.5$59.8 million, compared to $66.8$115.1 million during 20092011 and $48.5$110.5 million in 2008.2010. BancShares’ effective tax rate equaled 30.8 percent in 2012, 37.1 percent in 2011, and 36.4 percent in 2010 36.5 percent in 2009 and 34.8 percent in 2008.. The higherlower effective tax rates during 2010 and 2009 resultrate for 2012 primarily resulted from significantly higher pre-tax earnings, resulting in dilutionthe recognition of a $6.4 million credit to income tax expense arising from the favorable impactoutcome of various permanent differences on pre-tax incomestate tax audits for those years.$2.9$2.9 million due to the release of an ISBISB's state tax valuation allowance. This valuation allowance was released during 2010 following receipt of all necessary regulatory approvals, and in anticipation of the January 7, 2011, merger of FCB and ISB. The release of the valuation allowance reflected the prospective ability of FCB to utilize the benefit of ISB’s state net economic losses following the merger. December 31 Regulatory
Minimum 2010 2009 2008 (dollars in thousands) $ 1,935,559 $ 1,752,384 $ 1,649,675 271,331 295,300 286,318 $ 2,206,890 $ 2,047,684 $ 1,935,993 $ 13,021,521 $ 13,136,815 $ 12,499,545 14.86 % 13.34 % 13.20 % 4.00 % 16.95 % 15.59 % 15.49 % 8.00 % 9.18 % 9.54 % 9.88 % 3.00 % $ 1,522,931 $ 1,349,972 $ 1,262,950 231,916 259,416 250,095 $ 1,754,847 $ 1,609,388 $ 1,513,045 $ 10,502,859 $ 11,501,548 $ 10,006,171 14.50 % 11.74 % 12.62 % 4.00 % 16.71 % 13.99 % 15.12 % 8.00 % 8.40 % 8.63 % 9.17 % 3.00 % $ 321,043 $ 291,897 $ 273,637 43,817 42,496 38,250 $ 364,860 $ 334,393 $ 311,887 $ 2,456,849 $ 2,370,704 $ 2,369,415 13.07 % 12.31 % 11.55 % 4.00 % 14.85 % 14.11 % 13.16 % 8.00 % 11.69 % 11.35 % 10.71 % 3.00 % December 31 Regulatory
Minimum 2012 2011 2010 (dollars in thousands) First Citizens BancShares, Inc. Tier 1 capital $ 1,949,985 $ 2,072,610 $ 1,935,559 Tier 2 capital 229,385 250,412 271,331 Total capital $ 2,179,370 $ 2,323,022 $ 2,206,890 Risk-weighted assets $ 13,663,353 $ 13,447,702 $ 13,021,521 Risk-based capital ratios Tier 1 capital 14.27 % 15.41 % 14.86 % 4.00 % Total capital 15.95 % 17.27 % 16.95 % 8.00 % Tier 1 leverage ratio 9.22 % 9.90 % 9.18 % 3.00 % First-Citizens Bank & Trust Company Tier 1 capital $ 1,942,101 $ 1,968,032 $ 1,522,931 Tier 2 capital 220,933 243,203 231,916 Total capital $ 2,163,034 $ 2,211,235 $ 1,754,847 Risk-weighted assets $ 13,518,839 $ 13,346,474 $ 10,502,859 Risk-based capital ratios Tier 1 capital 14.37 % 14.75 % 14.50 % 4.00 % Total capital 16.00 % 16.57 % 16.71 % 8.00 % Tier 1 leverage ratio 9.34 % 9.53 % 8.40 % 3.00 % their respective regulatory authorities and to ensure that the subsidiary banks’ capital isthey are appropriate, given each bank’s growth projectionprojections, risk profile and risk profile.potential changes in the regulatory environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material effectimpact on theour consolidated financial statements. Table 13 provides information on capital adequacy for BancShares FCB and ISBFCB as of December 31, 2010, 20092012, 2011, and 2008.the banking subsidiaries remainFCB remains well-capitalized.2010, FCB requested2012, BancShares purchased and received regulatory approvalretired 606,829 shares of Class B common stock in private transactions. In addition, as of July 1, 2012, our board granted authority to merge with ISB. Under the termspurchase up to 100,000 and 25,000 shares of the merger, which was completed on January 7, 2011, FCB was the surviving entity, although branchesClass A and Class B common stock, respectively, through June 30, 2013. During 2012, we purchased and retired 56,276 shares of ISB will continue to operate under the nameIronStone Bank, which has become a divisionClass A common stock and 100 shares of FCB. On a proforma basis, FCB will remain well-capitalized following the merger with ISB.PriorClass B common stock pursuant to the mergerJuly 1, 2012, board authorization. As of FCBDecember 31, 2012, under existing authorizations, BancShares had the ability to purchase 43,724 and ISB,24,900 shares of Class A and Class B common stock, respectively.sustained growth and operating lossesBoard of ISB had required BancShares to infuse significant amounts of capital into ISB to support its balance sheet growth. Infusions totaled $14.0 million in 2010, $40.5 million in 2009 and $45.8 million in 2008. Since ISB was formed in 1997, BancShares has provided $404.3 million in capital. The 2011 merger allows the combined FCB to utilize its well-capitalized position to support lending programs, business development and growth in legacy markets, and future acquisitions.2010,2012, FCB declared dividends to BancShares in the amount of $50.4$179.6 million, compared to $60.5$82.8 million in 20092011 and $54.8$50.4 million in 2008.2010. The increase in 2012 dividends from FCB related to the redemption of the 1998 trust preferred securities. At December 31, 2010,2012, based on limitations imposed by North Carolina General Statutes, FCB had the ability to declare dividends totaling $1.27 billion.$1.38 billion. However, any dividends declared in excess of $616.1$809.0 million would have caused FCB to lose its well-capitalized designation.SeptemberJune 1, 2015. Beginning in the third quarterUnder current regulatory guidelines, when subordinated debt is within five years of 2010,its scheduled maturity date, issuers must discount the amount included in tier 2 capital by 20 percent for each year until the debt matures. The amount of this qualifying subordinated debt that is eligiblequalifies as tier 2 capital decreased $25.0totaled $50.0 million as of December 31, 2012, compared to $100.0$75.0 million since the scheduled maturity date is within 5 years.at December 31, 2011. The amount of subordinated debt eligible forto be included in tier 2 capital will decrease bydecline $25.0 million each year untilin the scheduled maturity date.second quarter of 2013 to $25.0 million and the subordinated debt will be completely removed from tier 2 capital in the second quarter of 2014. Tier 2 capital is part of total risk-based capital, reflected in Table 13.Dodd-Frank Act containstransition period for banks to meet the revised common equity requirement will begin in 2013 with full implementation in 2019. The committee has also stated that it may require a counter-cyclical capital buffer in addition to Basel III standards. The new rule also proposes the deduction of certain assets in measuring tier 1 capital.that will eliminate our abilityof Basel III are proposed to be adopted in the Unites States. Key provisions of the proposed rules include $265.0 millionthe total phase-out from tier 1 capital of trust preferred securities for all banks, a capital conservation buffer of 2.50 percent above minimum capital ratios, inclusion of accumulated other comprehensive income in tier 1 risk-based capital effective January 1, 2015. BancShares’ trust preferred securities that currently qualify ascommon equity, inclusion in tier 1 capital of perpetual preferred stock and an effective floor for tier 1 common equity of 7.00 percent. Final rules are expected to be adopted in 2013. While we have estimated the impact the proposed rules would have on our capital ratios, we are unable at this time to predict how the final rules will differ from the proposed rules and the effective date of the final rules. We will continue to monitor Basel III developments and remain committed to managing our capital levels in a prudent manner. BancShares' tier 1 common equity ratio based on the current tier 1 capital and risk-weighted assets calculations (excluding trust preferred securities) is 13.59 percent at December 31, 2012, as calculated in Table 14 compared to the fully phased-in Federal Reserve standards of 7.00 percent.First Citizens BancShares, Inc. December 31, 2012 (dollars in thousands) Tier 1 capital $ 1,949,985 Less: restricted core capital 93,500 Tier 1 common equity $ 1,856,485 Risk-weighted assets $ 13,663,353 Tier 1 common equity ratio 13.59 % phased out in equal increments of $88.3 million over a three-year term, beginning in 2013. Based on BancShares’ capital structure as of December 31, 2010, the impact of the reduction of $88.3 million results in a tier 1 leverage capital ratio of 8.76 percent, a tier 1 risk-based capital ratio of 14.19 percent, and a total risk-based capital ratio of 16.27 percent. Elimination of the full $265.0 million of trust preferred securities from the December 31, 2010 capital structure would result in a proforma tier 1 leverage capital ratio of 7.93 percent, a tier 1 risk-based capital ratio of 12.83 percent, and a total risk-based capital ratio of 14.91 percent. Although these are significant decreases, BancShares would continueunable to remain well-capitalized under current regulatory guidelines. FCB would also remain well-capitalized on a proforma basis.RISK MANAGEMENTIn the normal course of business, BancShares is exposedfund obligations to various risks.loan customers, depositors or other creditors. To manage the majorthese risks as well as other risks that are inherent in theour operation of a financial holding company and to provide reasonable assurance that our long-term business objectives will be attained, various policies and risk management processes identify, monitor and manage risk within appropriate ranges. Management continually refines and enhances its risk management policies and procedures to maintain effective risk management programs and processes.Our primaryexposures are credit, interest ratemanagement and liquidity risk. monitoring practices to maintain an effective risk management program.is the risk of not collecting the amount of a loan, lease or investment when it is contractually due. Interest rate risk is the potential reduction of net interest income as a result of changes in market interest rates. Liquidity risk is the possible inability to fund obligations to depositors, creditors, investors or borrowers.Credit Risksubjectedsubject to periodic ongoing reviews. Loans covered by loss share agreements with the FDIC were recorded at fair value at the timedate of the acquisition and are subjectedsubject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses for the purpose of ensuringto ensure compliance with credit policies and to closely monitor asset quality trends. The risk reviews include portfolio analysis by geographic location and horizontal reviews across industry, collateral type and collateral sectors.product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate, and to maintain adequate allowances for loan and lease losses that are inherent in the loan and lease portfolio.avoidminimize the risk associated with large concentrations within specific geographic areas, collateral types or industries. The ongoing expansion of our branch network has allowed us to mitigate our historic exposure to geographic risk concentration, particularly within North Carolina and Virginia. Despite our focus on diversification, several characteristics of our loan portfolio subject us to notable risk. These includesignificant risk, such as our concentrationconcentrations of real estate secured loans, medical-relatedrevolving mortgage loans and the existence of high loan-to-valuemedical-related loans.WeWithin our noncovered loan portfolio, we mitigate that exposure through our underwriting policies that principallyprimarily rely on adequate borrower cash flow rather than underlying collateral values. When we do rely on underlying real property values, we favor financing secured by owner-occupied real propertysecured loans are owner-occupied.owner occupied. At 2010,2012, loans secured by real estate not covered by loss share agreements totaled $8.52$8.98 billion or 74.377.5 percent of total noncovered loans and leases compared to $8.85 billion or 76.4 percent at December 31, 2011. The geographic distribution of the collateral securing these real estate loans is provided in Table 15. The table provides the percentage of total noncovered loan balances secured by real estate located in the referenced states. All other states individually represent less than two percent of total noncovered loans. While 53 percent of our real estate exposure is concentrated within North Carolina and Virginia, the FDIC-assisted transactions has allowed us to mitigate geographic risk exposures within those states.December 31, 2012 Collateral state Percent of total noncovered loans with collateral located in the state North Carolina 45% Virginia 8 California 6 Florida 3 Georgia 3 Tennessee 2 Texas 2 not coveredour revolving mortgage loans present a heightened risk due to a long commitment period during which the financial position of the borrower or the value of the collateral may deteriorate significantly. In addition, a large percentage of our revolving mortgage loans are secured by loss share agreementsjunior liens. A substantial decline in collateral value could cause a junior lien position to become effectively unsecured. At December 31, 2012, revolving mortgage loans secured by real estate amounted to $2.25 billion, or 16.8 percent of noncovered loans compared to $8.34$2.35 billion or 71.716.8 percent at December 31, 2009.$3.02$3.02 billion as of December 31, 20102012, and $2.93$3.07 billion as of December 31, 2009,2011, representing 26.326.1 percent and 25.126.5 percent of noncovered loans and leases, as of the respective dates.respectively. The credit risk onfrom these loans is mitigated through our underwriting policies that emphasize reliance on adequate borrower cash flow rather than underlying collateral value. When we do principally rely on collateral value we favorand our preference for financing secured by owner-occupied real property. Except for this single concentration, no other industry represented more than 10 percent of total noncovered loans and leases outstanding at December 31, 2010. a lender’s exposure as compared to the value of the underlying collateral. Regulatory agencies have established guidelines that define high loan-to-value loans as those real estate loans that exceed 65 percent to 85 percent of the collateral value depending upon the type of collateral. At December 31, 2010,2012, we had $716.9$642.6 million or 6.25.6 percent of noncovered loans and leases that exceeded the loan-to-value ratios recommended by the guidelines compared to $758.3$631.1 million or 6.55.4 percent at December 31, 2009.2011. While we continuously strive to limit our high loan-to-value loans, we believe that the inherent risk within these loans is mitigated by our strict underwriting criteria and the high rate of owner-occupied properties.1416 December 31, 2010 2009 2008 2007 2006 (thousands, except ratios) $ 194,315 $ 116,446 $ — $ — $ — 78,814 58,417 39,361 13,021 14,882 112,748 93,774 — — — 52,842 40,607 29,956 6,893 6,028 56,398 10,013 — — — 64,995 55,025 2,349 — — $ 560,112 $ 374,282 $ 71,666 $ 19,914 $ 20,910 $ 363,461 $ 220,233 $ — $ — $ — 196,651 154,049 71,666 19,914 20,910 $ 560,112 $ 374,282 $ 71,666 $ 19,914 $ 20,910 $ 302,120 $ — $ — $ — $ — 18,501 27,766 22,459 7,124 5,185 2,007,452 1,173,020 — — — 11,480,577 11,664,999 11,649,886 10,888,083 10,060,234 17.14 % 17.39 % — — — 1.71 1.32 0.61 0.18 0.21 4.10 2.89 0.61 0.18 0.21 $ 18,519 $ 4,172 $ 1,275 $ 1,200 $ 1,271 9,922 3,746 797 465 226 December 31 2012 2011 2010 2009 2008 (thousands, except ratios) Nonaccrual loans and leases: Covered under loss share agreements $ 74,479 $ 302,102 $ 160,024 $ 116,446 $ — Not covered under loss share agreements 89,845 52,741 78,814 58,417 39,361 Other real estate owned: Covered under loss share agreements 102,577 148,599 112,748 93,774 — Not covered under loss share agreements 43,513 50,399 52,842 40,607 29,956 Total nonperforming assets $ 310,414 $ 553,841 $ 404,428 $ 309,244 $ 69,317 Nonperforming assets covered under loss share agreements $ 177,056 $ 450,701 $ 272,772 $ 210,220 $ — Nonperforming assets not covered under loss share agreements 133,358 103,140 131,656 99,024 69,317 Total nonperforming assets $ 310,414 $ 553,841 $ 404,428 $ 309,244 $ 69,317 Accruing loans and leases 90 days or more past due: Covered under loss share agreements $ 281,000 $ 292,194 $ 302,120 $ — $ — Not covered under loss share agreements 11,272 14,840 18,501 27,766 22,459 Loans and leases at December 31: Covered under loss share agreements 1,809,235 2,362,152 2,007,452 1,173,020 — Not covered under loss share agreements 11,576,115 11,581,637 11,480,577 11,664,999 11,649,886 Ratio of nonperforming assets to total loans, leases and other real estate: Covered under loss share agreements 9.26 % 17.95 % 12.87 % 16.59 % — % Not covered under loss share agreements 1.15 0.89 1.14 0.85 0.59 Ratio of nonperforming assets to total loans, leases and other real estate 2.29 3.92 2.96 2.38 0.59 Interest income that would have been earned on nonperforming loans and leases had they been performing $ 27,397 $ 23,326 $ 18,519 $ 4,172 $ 1,275 Interest income earned on nonperforming loans and leases 10,374 8,589 9,922 3,746 797 underby loss share agreements includes impaired loans acquired from First Regional and SAB that are being accounted for using the accretable yield method.OREO and restructured loansOREO that are both covered and not covered by FDIC loss share agreements. With the exception of certain residential mortgage loans, the accrual of interest on noncovered loans and leases is discontinued when we deem that collection of additional principal or interest is doubtful. Noncovered loans and leases are returned to accrual status when both principal and interest are current and the asset is determined to be performing inthe accrual of interest resumes when the loan is less than three monthly payments past due. See Table 16 for details on nonperforming assets and other risk elements.Restructured loans include accruing loans thatNoncovered OREO totaled $43.5 million at December 31, 2012, compared to $50.4 million at December 31, 2011. At December 31, 2012, construction and land development properties including vacant land for development represented 37.0 percent of OREO. Vacant land values have experienced an especially steep decline during the economic slowdown due to a significant drop in demand and values may continue to decline if demand remains weak.modifiedexperienced in orderrecent years, we utilize resources in addition to enable a financially distressed borrower an opportunityappraisals to continue making payments under terms more favorable than we would normally extend. Nonperforming asset balances forobtain the past five years are presented in Table 14.Nonperforming assets at December 31, 2010 totaled $560.1 million, comparedmost current market value. Changes to $374.3 million at December 31, 2009 and $71.7 million at December 31, 2008. As a percentage of total loans, leases and OREO, nonperforming assets represented 4.10 percent, 2.89 percent and 0.61 percent as of December 31, 2010, 2009 and 2008, respectively.Of the $560.1 million in nonperforming assets at December 31, 2010, $363.5 million are covered by FDIC loss share agreements that provide significant loss protection. The $185.8 million growth in nonperforming assets during 2010 included a $143.2 million increase in nonperforming assets covered by FDIC loss share agreements. Nonperforming assets covered by loss share agreements represent 17.1 percent of total covered assets at December 31, 2010, compared to 17.4 percent at December 31, 2009.The $42.6 million increase in nonperforming assets not covered by loss share agreements was due to weak economic conditions causing higher levels of loan and lease defaults. Nonaccrual loans not covered by loss share agreements totaled $78.8 million as of December 31, 2010, an increase of $20.4 million over December 31, 2009. OREO not covered by loss share agreements totaled $52.8 million at December 31, 2010, compared to $40.6 million at December 31, 2009. A significant portion of the OREO not covered by loss share agreements related to real estate exposures in the Atlanta, Georgia and southwest Florida markets arising from residential construction activities. Both markets have experienced significant over-development that has resulted in extremely weak sales of new residential units and significant declines in property values. Once acquired, OREO is periodically reviewed to ensure that the fair value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. The asset manager uses the information gathered from brokers and other market sources to identify any significant changes in the market or the subject property supports the carrying value, with write-downs recorded when necessary. OREO is reviewed every 6 monthsas they occur. Valuations are then adjusted or new appraisals are ordered to ensure athe reported values reflect the most current market value. Valuationsinformation. Decisions regarding write-downs are based on factors that include appraisals, broker opinions, previous offers received on the property, market conditions and the number of days the property has been on the market. In a market of declining property values, which we have experienced during 2010 and 2009, appraisals normally do not provide the most current market value. Therefore, additional resources are used in an attempt to obtain the most current market value.$65.0$89.1 million and $55.0$123.8 million at December 31, 20102012, and 2009,2011, respectively. Total restructured loans (TDRs)covered and noncovered TDRs as of December 31, 20102012, were $175.5$333.2 million $121.4, $253.4 million of which are accruing and $54.1 million of whichperforming under their modified terms. TDRs are nonaccrual. TDRs result from modifications selectively providedmade to provide relief to customers experiencing cash flow difficulties in an effortliquidity challenges or other circumstances that could affect their ability to assist them in remainingmeet their debt obligations. These modifications are typically executed only when customers are current on their debt obligations.payment obligation and we believe the modification will result in avoidance of default. Typical modifications we have made include short-termshort-terms, but doterms. Nonperforming TDRs are not accruing interest and are included as risk elements within nonaccrual loans and leases in Table 16. Table 16 does not include reductionperforming TDRs, which are accruing interest based on the restructured terms. Table 17 provides details on performing and nonperforming TDRs as of interest rates or forgiveness of principal.We continue to closely monitor past dueother potential problem loans to identify loans that should be classified as impaired or nonaccrual. For loans associated with the FDIC-assisted transactions, we anticipate that credit costs could increase inDecember 31, 2011 due to the high level of nonperforming assets and the generally weaker condition of the acquired loans since acquisition. To the extent that those costs are recoverable under the loss share agreements, there will be a corresponding credit to noninterest income for the estimated amount to be reimbursed from the FDIC under the loss share agreements. For loans not covered under loss share agreements, we anticipate some moderation of credit costs during 2011 as economic conditions stabilize..calculatingestimating the allowance, we employ a variety of modeling and estimationanalytical tools for measuring credit risk. Generally, noncovered loans and leases to commercial customers are evaluated individually and assigned a credit grade, while consumernoncommercial loans are evaluated collectively. The individual credit grades for commercial loans are assigned based upon factors such as the borrower’s cash flow, the value of any underlying collateral and the strength of any Since acquired December 31 2012 2011 2010 2009 2008 (dollars in thousands) Performing TDRs: Covered under loss share agreements $ 164,256 $ 126,240 $ 56,398 $ 10,013 $ — Not covered under loss share agreements 89,133 123,796 64,995 55,025 2,349 Total performing TDRs 253,389 250,036 121,393 65,038 2,349 Nonperforming TDRs: Covered under loss share agreements 28,951 43,491 12,364 — — Not covered under loss share agreements 50,830 29,534 41,774 9,168 10,786 Total nonperforming TDRs 79,781 73,025 54,138 9,168 10,786 All TDRs: Covered under loss share agreements 193,207 169,731 68,762 10,013 — Not covered under loss share agreements 139,963 153,330 106,769 64,193 13,135 Total TDRs $ 333,170 $ 323,061 $ 175,531 $ 74,206 $ 13,135 only recorded for post-acquisition credit quality deterioration.consumernoncovered noncommercial loans are aggregated over their remaining estimated behavioral livesby type and probable loss projections for each periodestimates become the basis for the allowance amount. The loss projectionsestimates are based on trends of historical losses, delinquency patterns and various other credit risk indicators. During 2010, based on deepening2012, charge-offs for all types of noncommercial loans declined from 2011. Based upon the generally favorable trends in economic weaknesses indicated by higher unemploymentconditions and personal bankruptcy rates,reduced loss experience, we increasedreduced the loss estimates used to establish the allowance for our closed-end consumernoncommercial loans.When needed, weImpairedThe loans individually evaluated for impairment include restructured loans graded substandard or worse that are greater than or equal to $500,000 and nonaccrual commercial purpose loans.loans classified as TDR's that are greater than or equal to $100,000. The allowance for impaired loansanalysis is performed at the difference between carrying valueindividual loan level, and the estimateda decision tree is used to determine whether collateral value or discounted cash flows will be used to calculate the present value of anticipated cash flows. On impaired loans for which we expect repayment from the customer, the allowance is determined using the present value of expected cash flows. On impaired loans for which repayment from the customer is not anticipated, we rely on the estimated collateral liquidation value to determine the allowance.a loan concentration,large exposures, changes in the size and mix of the overall loan portfolio, the growth in the overall loan portfolio and other judgmental factors. As of December 31, 2010,2012, the nonspecific portion of the allowance equaled $13.9$15.9 million or 6.1 percent.5.0 percent of the total allowance. This compares to $12.1$14.1 million or 7.05.2 percent of the total allowance for loan and lease losses as of December 31, 2009.2010,2012, the allowance for loan and lease losses allocated to noncovered loans totaled $176.5$179.0 million or 1.541.55 percent of noncovered loans and leases, not covered by loss share agreements, compared to $168.8$180.9 million or 1.451.56 percent at December 31, 2009.2011. The $7.7$1.8 million increase decrease was primarily due to deteriorationa decrease in credit quality withinaverage noncovered commercial loans revolving mortgageduring 2012. The allowance for loans individually evaluated for impairment increased $10.4 million since December 31, 2011, due to a lower threshold used to identify impaired loans and closed-end consumerreductions in collateral values on certain loans. The allowance for loans collectively evaluated for impairment has decreased $14.0 million due to a significantly larger portion of the loan portfolio evaluated for individual impairment.$51.2$140.0 million relates to covered loans at December 31, 2010,2012, established as a result of post-acquisition deterioration in credit quality for certain covered loans. The allowance for covered loans equaled $3.5$89.3 million at December 31, 2009.2010,2012, although future additions may be necessary based on changes in economic conditions and other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan and lease losses. Such agencies may require adjustments to the allowance based on information available to them at the time of their examination.20102012 equaled $143.5$142.9 million compared to $79.4$232.3 million during 20092011 and $65.9$143.5 million during 2008.2010. The reduction in provision for noncovered loans and leases during 2012 was primarily the result of reduced provisions for loans individually evaluated for impairment and lower charge-offs. Provision expense related to covered loans totaled $86.9$100.8 million during 2012, compared to $3.5$174.5 million during 20092011, due to lower post-acquisition deterioration of covered loans, covered under loss share agreements.the reversal of previously recorded allowances due to improvements in expected cash flows and reduced charge-offs. The provision for covered loan and lease losses related to covered loans resultedresulting from changes in loss estimates triggers corresponding adjustments to the receivable from the FDIC receivable, which are offset by noninterest income. income at the applicable reimbursement rate.$56.6$42.0 million during 2010, down $19.22012, a decrease of $15.8 million, or 25.327.3 percent from 2009. The higher provision expense recorded during 20092011, caused primarily resulted from lossesby lower charge-offs and, provisions inas a result of improving loss experience, reduced loss estimates used to establish the commercial, residential construction and certain consumer loan portfolios.1518 2010 2009 2008 2007 2006 (thousands, except ratios) $ 172,282 $ 157,569 $ 136,974 $ 132,004 $ 128,847 681 — — — — 143,519 79,364 65,926 32,939 21,203 (15,656 ) (14,085 ) (11,832 ) (104 ) — (12,496 ) (2,081 ) (696 ) (49 ) (124 ) (4,562 ) (173 ) — — — (22,343 ) (17,114 ) (13,593 ) (13,106 ) (10,378 ) (1,825 ) (1,736 ) (1,124 ) (3,092 ) (1,488 ) (56,882 ) (35,189 ) (27,245 ) (16,351 ) (11,990 ) (1,851 ) (1,966 ) (1,165 ) (194 ) (1,717 ) (7,640 ) (8,390 ) (3,249 ) (1,363 ) (1,475 ) (9,423 ) (3,521 ) (5,727 ) (1,579 ) — (19,520 ) (20,288 ) (12,695 ) (13,203 ) (9,171 ) (38,434 ) (34,165 ) (22,836 ) (16,339 ) (12,363 ) (95,316 ) (69,354 ) (50,081 ) (32,690 ) (24,353 ) — 517 52 11 — 433 96 55 8 182 — — — — — 2,605 1,384 1,645 1,282 1,358 254 122 314 170 155 3,292 2,119 2,066 1,471 1,695 89 97 121 261 290 425 182 215 96 182 81 — 175 10 — 2,712 2,305 2,173 2,883 4,140 3,307 2,584 2,684 3,250 4,612 6,599 4,703 4,750 4,721 6,307 (88,717 ) (64,651 ) (45,331 ) (27,969 ) (18,046 ) $ 227,765 $ 172,282 $ 157,569 $ 136,974 $ 132,004 $ 2,227,234 $ 427,599 $ — $ — $ — 11,638,581 11,635,355 11,306,900 10,513,599 9,989,757 $ 13,865,815 $ 12,062,954 $ 11,306,900 $ 10,513,599 $ 9,989,757 $ 2,007,452 $ 1,173,020 $ — $ — $ — 11,480,577 11,644,999 11,649,886 10,888,083 10,060,234 $ 13,488,029 $ 12,818,019 $ 11,649,886 $ 10,888,083 $ 10,060,234 $ 51,248 $ 3,500 $ — $ — $ — 176,517 168,782 157,569 136,974 132,004 $ 227,765 $ 172,282 $ 157,569 $ 136,974 $ 132,004 $ 86,872 $ 3,500 $ — $ — $ — 56,647 75,864 65,926 32,939 21,203 $ 143,519 $ 79,364 $ 65,926 $ 32,939 $ 21,203 $ 39,124 $ — $ — $ — $ — 49,593 64,651 45,331 27,969 18,046 $ 88,717 $ 64,651 $ 45,331 $ 27,969 $ 18,046 $ 7,246 $ 7,130 $ 7,176 $ 7,297 $ 6,642 1.76 % — — — — 0.43 0.56 0.40 0.27 0.18 0.64 0.54 0.40 0.27 0.18 2.55 0.30 — — — 1.54 1.45 1.35 1.25 1.28 1.69 1.34 1.35 1.25 1.28 2012 2011 2010 2009 2008 (thousands, except ratios) Allowance for loan and lease losses at beginning of period $ 270,144 $ 227,765 $ 172,282 $ 157,569 $ 136,974 Adjustment resulting from adoption of change in accounting for QSPEs and controlling financial interests, effective January 1, 2010 — — 681 — — Provision for loan and lease losses 142,885 232,277 143,519 79,364 65,926 Charge-offs: Commercial: Construction and land development (18,213 ) (47,621 ) (15,656 ) (14,085 ) (11,832 ) Commercial mortgage (30,590 ) (56,880 ) (12,496 ) (2,081 ) (696 ) Other commercial real estate (1,510 ) (29,087 ) (4,562 ) (173 ) — Commercial and industrial (13,914 ) (11,994 ) (22,343 ) (17,114 ) (13,593 ) Lease financing (361 ) (579 ) (1,825 ) (1,736 ) (1,124 ) Other (28 ) (89 ) — — — Total commercial loans (64,616 ) (146,250 ) (56,882 ) (35,189 ) (27,245 ) Noncommercial: Residential mortgage (8,929 ) (11,289 ) (1,851 ) (1,966 ) (1,165 ) Revolving mortgage (12,460 ) (13,940 ) (7,640 ) (8,390 ) (3,249 ) Construction and land development (3,932 ) (12,529 ) (9,423 ) (3,521 ) (5,727 ) Consumer (10,541 ) (12,832 ) (19,520 ) (20,288 ) (12,695 ) Total noncommercial loans (35,862 ) (50,590 ) (38,434 ) (34,165 ) (22,836 ) Total charge-offs (100,478 ) (196,840 ) (95,316 ) (69,354 ) (50,081 ) Recoveries: Commercial: Construction and land development 445 607 — 517 52 Commercial mortgage 1,626 1,028 433 96 55 Other commercial real estate 14 502 — — — Commercial and industrial 781 1,037 2,605 1,384 1,645 Lease financing 96 133 254 122 314 Other 4 2 — — — Total commercial loans 2,966 3,309 3,292 2,119 2,066 Noncommercial: Residential mortgage 671 1,083 89 97 121 Revolving mortgage 698 653 425 182 215 Construction and land development 180 219 81 — 175 Consumer 1,952 1,678 2,712 2,305 2,173 Total noncommercial loans 3,501 3,633 3,307 2,584 2,684 Total recoveries 6,467 6,942 6,599 4,703 4,750 Net charge-offs (94,011 ) (189,898 ) (88,717 ) (64,651 ) (45,331 ) Allowance for loan and lease losses at end of period $ 319,018 $ 270,144 $ 227,765 $ 172,282 $ 157,569 Average loans and leases: Covered under loss share agreements $ 1,991,091 $ 2,484,482 $ 2,227,234 $ 427,599 $ — Not covered under loss share agreements 11,569,682 11,565,971 11,638,581 11,635,355 11,306,900 Total $ 13,560,773 $ 14,050,453 $ 13,865,815 $ 12,062,954 $ 11,306,900 Loans and leases at period end: Covered under loss share agreements $ 1,809,235 $ 2,362,152 $ 2,007,452 $ 1,173,020 $ — Not covered under loss share agreements 11,576,115 11,581,637 11,480,577 11,644,999 11,649,886 Total $ 13,385,350 $ 13,943,789 $ 13,488,029 $ 12,818,019 $ 11,649,886 Allowance for loan and lease losses allocated to loans and leases: Covered under loss share agreements $ 139,972 $ 89,261 $ 51,248 $ 3,500 $ — Not covered under loss share agreements 179,046 180,883 176,517 168,782 157,569 Total $ 319,018 $ 270,144 $ 227,765 $ 172,282 $ 157,569 Provision for loan and lease losses related to balances: Covered under loss share agreements $ 100,839 $ 174,478 $ 86,872 $ 3,500 $ — Not covered under loss share agreements 42,046 57,799 56,647 75,864 65,926 Total $ 142,885 $ 232,277 $ 143,519 $ 79,364 $ 65,926 Net charge-offs of loans and leases: Covered under loss share agreements $ 50,128 $ 136,465 $ 39,124 $ — $ — Not covered under loss share agreements 43,883 53,433 49,593 64,651 45,331 Total $ 94,011 $ 189,898 $ 88,717 $ 64,651 $ 45,331 Reserve for unfunded commitments $ 7,692 $ 7,789 $ 7,246 $ 7,130 $ 7,176 Ratios: Net charge-offs to average loans and leases: Covered under loss share agreements 2.52 % 5.49 % 1.76 % — % — % Not covered under loss share agreements 0.38 0.46 0.43 0.56 0.40 Total 0.69 1.35 0.64 0.54 0.40 Allowance for loan and lease losses to total loans and leases: Covered under loss share agreements 7.74 3.78 2.55 0.30 — Not covered under loss share agreements 1.55 1.56 1.54 1.45 1.35 Total 2.38 1.94 1.69 1.34 1.35 2010, 20092012, 2011 and 20082010 totaled $49.6$43.9 million $64.7, $53.4 million, and $45.3$49.6 million, respectively. The surgedecrease in net charge-offs during 20092012 resulted from highlower losses on residentialrevolving mortgage, consumer and construction loans. Net charge-offs of noncovered loans represented 0.430.38 percent of average noncovered loans and leases during 20102012 compared to 0.560.46 percent during 20092011 and 0.400.43 percent during 2008.2010. Net charge-offs of covered loans equaled $39.1$50.1 million and $136.5 million during 2010,2012 and 2011, equal to 1.762.52 percent and 5.49 percent of average covered loans. Noloans, respectively. The decrease in 2012 covered loan charge-offs were recorded during 2009.1518 provides details concerning the allowance for loan and lease losses for the past five years. Table 1619 details the allocation of the allowance for noncovered loan and lease losses among the various loan types.types, and Note D to the consolidated financial statements provides the allocation of the allowance for covered loans and leases. The process used to allocate the allowance considers, among other factors, whether the borrower is a retail or commercial customer, whether the loan is secured or unsecured and whether the loan is an open or closed-end agreement.1619 December 31 2010 2009 2008 2007 2006 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 (dollars in thousands) $ 10,512 2.51 % $ 4,572 2.85 % $ 9,822 4.68 % $ 7,439 5.55 % $ 7,294 5.95 % 64,772 35.13 52,590 35.52 43,222 37.06 35,760 36.31 38,463 36.27 2,200 1.11 5,366 1.23 5,231 1.28 2,323 1.33 2,145 1.61 17,689 13.39 21,059 14.31 19,396 16.09 18,743 15.57 19,846 14.86 3,384 2.23 4,535 2.58 5,091 3.02 4,649 3.11 3,562 2.87 1,473 1.35 1,333 1.52 632 0.85 412 0.78 723 0.63 100,030 55.72 89,455 58.01 83,394 62.98 69,326 62.65 72,033 62.19 7,009 6.52 8,213 6.74 8,006 8.23 7,011 9.39 6,954 9.98 18,016 16.56 17,389 16.75 16,321 16.31 14,235 13.63 15,925 12.91 1,751 1.43 3,709 2.01 2,626 1.96 2,479 1.85 2,057 1.68 35,848 4.89 37,944 7.34 35,545 10.52 32,425 12.48 29,896 13.24 62,624 29.40 67,255 32.85 62,498 37.02 56,150 37.35 54,832 37.81 13,863 12,072 11,677 11,498 5,139 176,517 85.12 168,782 90.85 157,569 100.00 136,974 100.00 132,004 100.00 51,248 14.88 3,500 9.15 — — — — — — $ 227,765 100.00 % $ 172,282 100.00 % $ 157,569 100.00 % $ 136,974 100.00 % $ 132,004 100.00 % December 31 2012 2011 2010 2009 2008 (dollars in thousands) Allowance for loan and lease losses allocated to: Noncovered loans and leases Commercial: Construction and land development $ 6,031 2.3 % $ 5,467 2.7 % $ 10,512 2.5 % $ 4,572 2.9 % $ 9,822 4.7 % Commercial mortgage 70,927 39.9 67,486 36.6 64,772 35.1 52,590 35.5 43,222 37.1 Other commercial real estate 2,059 1.2 2,169 1.0 2,200 1.1 5,366 1.2 5,231 1.3 Commercial and industrial 23,352 12.9 23,723 12.7 24,089 13.9 21,059 14.3 19,396 16.1 Lease financing 3,521 2.5 3,288 2.2 3,384 2.2 4,535 2.6 5,091 3.0 Other 1,175 0.9 1,315 1.1 1,473 1.4 1,333 1.5 632 0.9 Total commercial 107,065 59.7 103,448 56.4 106,430 56.2 89,455 58.0 83,394 63.0 Noncommercial: Residential mortgage 3,836 6.1 8,879 5.6 7,009 6.5 8,213 6.7 8,006 8.2 Revolving mortgage 25,185 16.5 27,045 16.5 18,016 16.6 17,389 16.8 16,321 16.3 Construction and land development 1,721 1.0 1,427 1.0 1,751 1.4 3,709 2.0 2,626 2.0 Consumer 25,389 3.1 25,962 3.6 29,448 4.4 37,944 7.3 35,545 10.5 Total noncommercial 56,131 26.8 63,313 26.6 56,224 28.9 67,255 32.8 62,498 37.0 Nonspecific 15,850 14,122 13,863 12,072 11,677 Total allowance for noncovered loan and lease losses 179,046 86.5 180,883 83.1 176,517 85.1 168,782 90.9 157,569 100.0 Covered loans 139,972 13.5 89,261 16.9 51,248 14.9 3,500 9.2 — — Total allowance for loan and lease losses $ 319,018 100.0 % $ 270,144 100.0 % $ 227,765 100.0 % $ 172,282 100.0 % $ 157,569 100.0 % Rate Risksimulatingfuture period the repricing opportunities for interest-earning assets and interest-bearing liabilities, considering forecasted new business volume and changes in existing assets and liabilities. The resulting repricing data allows for the calculation of repricing gaps by period, which in turn enables us to simulate future amounts of net interest income over multiple time horizons using various interest rate scenarios and comparing those resultsscenarios. We then compare the simulated net interest income to forecasted net interest income assuming stable rates.rates to calculate the projected earnings at risk for each of the interest rate scenarios.that the prime interest rate will not move below the 20102012, rate of 3.25 percent.1720 provides the impact on net interest income resulting from various interest rate scenarios as of December 31, 20102012, and 2009.1720 Favorable (unfavorable) impact
on net interest income compared
to stable rate scenario over the
12-month period following: December 31,
2010 December 31,
2009 0.00 % (0.05 )% 6.53 % 4.00 % 2.69 % 0.83 % Assumed rate change December 31, 2012 December 31, 2011 Most likely — % — % Immediate 200 basis point increase 4.00 7.03 Gradual 200 basis point increase 3.00 1.76 2010,2012, the market value of equity calculated with a 200-basis point immediate increase in interest rates equals 7.349.66 percent, down from 10.09 percent of assets down from 8.59 percent when calculated with stable rates. The estimated amounts for the market value of equity are highly influenced by the relatively longer maturity of the commercial loan component of interest-earning assets when compared to the shorter term maturity characteristics of interest-bearing liabilities.The maturity distribution and repricing opportunities of interest-earning assets and interest-bearing liabilities have a significant impact on our interest rate risk. Our strategy is to reduce overall interest rate risk by maintaining relatively short maturities. Table 18 provides loan maturity distribution and information regarding the sensitivity of loans and leases to changes in interest rates. Table 6 includes maturity information for our investment securities. Table 8 displays maturity information for time deposits with balances in excess of $100,000.the second quarter of 2006 in conjunction with the issuance of $115.0 million in trust preferred securities by FCB/NC Capital Trust III, we entered into an interest rate swap to synthetically convert the variable rate couponof $115.0 million of junior subordinated debentures to a fixed rate of 7.125 percent for a period of five years. The interest rateThis swap is effective frommatured on June 2006 to June30, 2011. During 2009, we entered into a second interest rate swap covering the period from June 2011 to June 2016December 2011 at a fixed interest rate of 5.50 percent. BothFollowing the redemption of $21.5 million of the junior subordinated debentures, the 2009 swap was terminated in December 2011 and we entered into a new swap to synthetically convert the variable rate on the remaining $93.5 million of junior subordinated debentures to a fixed rate of 5.50 percent through June 2016. All of the interest rate swaps qualifyqualified as cash flow hedges under US GAAP. The derivatives are valued each quarter, and changesGAAP during the periods in fair value are recorded on the consolidated balance sheet with an offset to other comprehensive income for the effective portion and an offset to the consolidated statementswhich they were in effect.liquidity.liquidity at a reasonable cost. We manage this risk by structuring our balance sheet prudently and by maintaining various borrowing resourcesnoncore funding sources to fund potential cash needs. Our primary source of funds has historically been our large retail and commercial customer base, which continues to provide a stable base of core deposits. Core deposits are our largest and most cost-effective source of funding. We have historically maintainedalso maintain access to various types of noncore funding including advances from the FHLB of Atlanta, federal funds arrangements with correspondent banks, brokered and CDARS deposits and a strong focus on liquidity, and have traditionally relied on our deposit base as the primary liquidity source.line of credit from a correspondent bank. Short-term borrowings resulting from commercial treasury customers are also a recurring source of liquidity, although mostthe majority of those borrowings must be collateralized thereby potentially restricting the use of the resulting liquidity. Throughdepositliquidity levels in the normal course of business as well as in conditions that might give rise to significant stress on our current liquidity and treasury product pricing strategies, wecontingent sources of liquidity through noncore funding. We endeavor to estimate the impact of on and off-balance sheet arrangements and commitments that may impact liquidity. We monitor various financial and liquidity metrics, perform liquidity stress testing and have documented contingency funding plans that would be invoked if conditions warranted. Sources of noncore funding include available cash reserves, the ability to stimulatesell, pledge or curtail liability growth.Exclusiveborrow against unpledged investment securities and available borrowing capacity at the FHLB of deposits assumed inAtlanta and the FDIC-assisted transactions, deposits increased during 2010 and 2009 due to an improved domestic savings rate, a desire by customers to seek safety from uncertain investment instruments, andFederal Reserve discount window.efforts to build additional liquidity for our acquisition transactions. While deposits have continued to grow despite low interest rates, lower rates have caused a decline in treasury services balances.We occasionally initiate borrowingsprincipal sources of noncore funding is advances from the Federal Home Loan BankFHLB of AtlantaAtlanta. Outstanding FHLB advances equaled an alternative source of liquidity, and to assist in matching the maturities of longer dated interest-earning assets. At December 31, 2010,2012, and we had sufficient collateral pledged to provide access to $1.32secure $1.09 billion of additional borrowings. Additionally, we maintain federal funds lines of credit and other borrowing facilities. At December 31, 2010, we2012, BancShares had contingent access to $550.0$475.0 million in unfundedunsecured borrowings through various sources.investmentinvestments and investment securities available for sale. Net of amounts pledged for various purposes, the amount of such immediately availableimmediately-available balance sheet liquidity approximated $2.73$2.82 billion at December 31, 20102012, compared to $1.32$1.40 billion at December 31, 2009. We expect that the January 2011 FDIC-assisted transaction of UWB will reduce our immediately available balance sheet liquidity by approximately $500 million over the course of 2011..1821 At December 31, 2010, maturing Within
One Year One to Five
Years After
Five Years Total (thousands) $ 2,646,267 $ 4,901,495 $ 2,850,651 $ 10,398,413 519,558 817,492 527,069 1,864,119 341,828 802,113 81,556 1,225,497 $ 3,507,653 $ 6,521,100 $ 3,459,276 $ 13,488,029 $ 514,293 $ 943,489 $ 549,670 $ 2,007,452 2,993,360 �� 5,577,611 2,909,606 11,480,577 $ 3,507,653 $ 6,521,100 $ 3,459,276 $ 13,488,029 $ 5,063,516 $ 2,947,087 $ 8,010,603 1,457,584 512,189 1,969,773 $ 6,521,100 $ 3,459,276 $ 9,980,376 SEGMENT REPORTINGPrior to the merger At December 31, 2012, maturing Total (thousands) Loans and leases: Secured by real estate $ 2,449,044 $ 5,597,247 $ 2,687,658 $ 10,733,949 Commercial and industrial 555,204 777,336 443,049 1,775,589 Other 371,895 415,114 88,803 875,812 Total loans and leases $ 3,376,143 $ 6,789,697 $ 3,219,510 $ 13,385,350 Loans covered under loss share agreements $ 417,533 $ 939,157 $ 452,545 $ 1,809,235 Loans not covered under loss share agreements 2,958,611 5,850,539 2,766,965 11,576,115 Total loans and leases $ 3,376,144 $ 6,789,696 $ 3,219,510 $ 13,385,350 Loans maturing after one year with: Fixed interest rates $ 5,925,092 $ 2,640,048 $ 8,565,140 Floating or adjustable rates 864,604 579,462 1,444,066 Total $ 6,789,696 $ 3,219,510 $ 10,009,206 1922 2010 2009 Fourth
Quarter Third
Quarter Second
Quarter First
Quarter Fourth
Quarter Third
Quarter Second
Quarter First
Quarter (thousands, except share data and ratios) $ 272,605 $ 278,628 $ 217,435 $ 200,700 $ 191,976 $ 189,690 $ 176,841 $ 179,652 44,200 48,688 52,573 49,664 49,575 54,413 59,809 63,847 228,405 229,940 164,862 151,036 142,401 135,277 117,032 115,805 34,890 59,873 31,826 16,930 21,617 18,265 20,759 18,723 193,515 170,067 133,036 134,106 120,784 117,012 96,273 97,082 — — — 136,000 — 104,434 — — 51,674 49,969 92,622 75,949 81,490 76,419 71,416 69,692 201,799 176,851 181,776 172,950 173,391 164,499 159,120 154,493 43,390 43,185 43,882 173,105 28,883 133,366 8,569 12,281 13,305 15,439 15,280 66,494 9,883 50,898 2,369 3,618 $ 30,085 $ 27,746 $ 28,602 $ 106,611 $ 19,000 $ 82,468 $ 6,200 $ 8,663 $ 229,362 $ 231,006 $ 165,937 $ 152,076 $ 143,446 $ 136,426 $ 118,350 $ 117,225 $ 2.88 $ 2.66 $ 2.74 $ 10.02 $ 1.82 $ 7.90 $ 0.59 $ 0.83 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 189.05 185.27 192.33 198.76 164.01 159.10 133.65 131.80 166.08 164.67 162.28 159.91 149.42 145.16 137.45 137.65 155.30 153.74 151.21 148.68 138.98 134.66 127.32 127.48 $ 21,139,117 $ 21,164,235 $ 21,222,673 $ 19,957,379 $ 18,386,775 $ 17,892,599 $ 17,309,656 $ 16,945,383 3,950,121 3,810,057 3,732,320 3,060,237 3,134,971 3,596,422 3,578,604 3,246,898 13,641,062 13,917,278 14,202,809 13,789,081 12,877,150 12,078,390 11,621,450 11,659,873 18,739,336 18,605,131 18,778,108 17,507,787 16,319,611 15,862,964 15,725,319 15,373,383 17,870,665 17,823,807 17,881,444 16,576,039 15,291,720 14,792,449 14,316,103 13,897,701 15,304,108 15,433,653 15,598,726 14,681,127 13,467,532 13,137,412 12,840,612 12,596,452 825,671 914,938 921,859 964,944 795,646 810,049 734,042 733,087 $ 1,742,740 $ 1,705,005 $ 1,679,837 $ 1,593,072 1,535,828 1,457,599 1,433,427 1,438,109 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 $ 20,806,659 $ 21,049,291 $ 21,105,769 $ 21,215,692 $ 18,466,063 $ 18,512,878 $ 17,317,880 $ 17,214,265 4,512,608 3,789,486 3,771,861 3,378,482 2,932,765 3,287,309 3,749,525 3,324,770 2,007,452 2,222,660 2,367,090 2,602,261 1,173,020 1,257,478 — — 11,480,577 11,545,309 11,622,494 11,640,041 11,644,999 11,520,683 11,638,965 11,497,079 18,487,960 16,383,953 16,131,251 15,888,085 16,541,425 16,389,427 15,618,157 15,582,477 17,635,266 17,743,028 17,787,241 17,843,827 15,337,567 15,348,955 14,358,149 14,229,548 15,015,446 15,355,501 15,517,559 15,597,533 13,561,924 13,532,833 12,719,311 12,827,449 809,949 905,146 918,930 922,207 797,366 813,950 735,803 733,056 1,732,962 1,718,203 1,693,309 1,668,592 1,559,115 1,514,684 1,434,213 1,436,277 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 10,434,453 0.56 % 0.52 % 0.54 % 2.12 0.41 % 1.83 % 0.14 % 0.21 % 6.91 6.46 6.83 26.62 4.92 22.45 1.73 2.44 4.86 4.93 3.54 3.52 3.49 3.41 3.02 3.09 2.55 1.97 0.68 0.26 0.30 — — — 1.54 1.51 1.48 1.46 1.45 1.43 1.41 1.39 17.14 18.51 13.94 9.50 17.39 15.08 — — 1.71 1.60 1.36 1.37 1.32 0.92 0.89 0.85 14.86 14.38 14.26 13.81 13.34 13.33 13.30 13.29 16.95 16.45 16.33 16.04 15.59 15.58 15.59 15.57 9.18 9.04 8.90 9.34 9.54 9.73 9.68 9.83 10.42 11.28 10.95 2.99 16.48 3.80 50.85 36.14 76.33 78.08 79.43 83.19 84.21 81.65 81.18 83.90 Loans held for sale are not covered under loss share agreements. 2012 2011 (thousands, except share data and ratios) SUMMARY OF OPERATIONS Interest income $ 280,891 $ 236,674 $ 240,519 $ 246,752 $ 272,176 $ 252,179 $ 245,604 $ 245,200 Interest expense 17,943 21,318 25,087 25,800 29,758 34,992 38,229 41,213 Net interest income 262,948 215,356 215,432 220,952 242,418 217,187 207,375 203,987 Provision for loan and lease losses 64,880 17,623 29,667 30,715 89,253 44,628 53,977 44,419 Net interest income after provision for loan and lease losses 198,068 197,733 185,765 190,237 153,165 172,559 153,398 159,568 Gains on acquisitions — — — — — 86,943 — 63,474 Other noninterest income 33,219 51,842 57,296 46,943 105,238 75,956 66,649 66,106 Noninterest expense 198,728 190,077 194,797 183,331 211,583 203,832 187,482 190,028 Income before income taxes 32,559 59,498 48,264 53,849 46,820 131,626 32,565 99,120 Income taxes 10,813 19,974 10,681 18,354 16,273 50,205 11,265 37,360 Net income $ 21,746 $ 39,524 $ 37,583 $ 35,495 $ 30,547 $ 81,421 $ 21,300 $ 61,760 Net interest income, taxable equivalent $ 263,635 $ 216,069 $ 216,194 $ 221,765 $ 243,309 $ 218,178 $ 208,301 $ 204,939 PER SHARE DATA Net income $ 2.15 $ 3.85 $ 3.66 $ 3.45 2.97 7.86 2.04 5.92 Cash dividends declared 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 Market price at period end (Class A) 163.50 162.90 166.65 182.69 174.99 143.54 187.22 200.58 Book value at period end 193.75 192.49 187.88 184.14 180.97 181.58 174.11 171.46 SELECTED QUARTERLY AVERAGE BALANCES Total assets $ 21,245,425 $ 21,075,174 $ 21,085,228 $ 20,843,491 $ 21,042,227 $ 21,157,741 $ 21,042,081 $ 21,385,014 Investment securities 5,169,159 4,888,047 4,598,141 4,141,160 4,056,949 4,082,574 4,162,397 4,568,205 Loans and leases (covered and noncovered) 13,357,928 13,451,164 13,612,114 13,822,226 14,093,034 14,173,224 14,028,109 13,904.054 Interest-earning assets 19,273,850 19,059,474 18,983,321 18,584,625 18,670,998 18,821,838 18,742,282 19,067,378 Deposits 17,983,033 17,755,974 17,667,221 17,498,813 17,679,125 17,772,429 17,678,210 18,065,652 Long-term obligations 447,600 524,313 646,854 682,067 713,378 753,685 797,375 802,720 Interest-bearing liabilities 14,109,359 14,188,609 14,418,509 14,478,901 14,635,353 14,991,875 15,018,805 15,543,484 Shareholders’ equity $ 1,951,874 $ 1,945,263 $ 1,906,884 $ 1,870,066 $ 1,869,479 $ 1,830,503 $ 1,803,385 $ 1,752,129 Shares outstanding 10,159,262 10,264,159 10,271,343 10,283,842 10,286,271 10,363,964 10,422,857 10,434,453 SELECTED QUARTER-END BALANCES Total assets $ 21,283,652 $ 21,173,620 $ 21,240,990 $ 21,143,628 $ 20,997,298 $ 21,015,344 $ 21,021,650 $ 21,167,495 Investment securities 5,227,570 5,013,500 4,635,826 4,459,427 4,058,245 3,996,768 4,016,339 4,204,357 Loans and leases: Covered under loss share agreements 1,809,235 1,897,097 1,999,351 2,183,869 2,362,152 2,557,450 2,399,738 2,658,134 Not covered under loss share agreements 11,576,115 11,455,233 11,462,458 11,489,529 11,581,637 11,603,526 11,528,854 11,392,351 Deposits 18,086,025 17,893,215 17,801,646 17,759,492 17,577,274 17,663,275 17,662,966 17,811.736 Long-term obligations 444,921 472,170 644,682 649,818 687,599 744,839 792,661 801,081 Shareholders’ equity $ 1,864,007 $ 1,974,124 $ 1,929,790 $ 1,892,123 $ 1,861,128 $ 1,871,930 $ 1,810,189 $ 1,789,133 Shares outstanding 9,620,914 10,255,747 10,271,244 10,275,731 10,284,119 10,309,251 10,396,765 10,434,453 SELECTED RATIOS AND OTHER DATA Rate of return on average assets (annualized) 0.41 % 0.75 % 0.72 % 0.68 % 0.58 % 1.53 % 0.42 % 1.18 % Rate of return on average shareholders’ equity (annualized) 4.43 8.08 7.93 7.63 6.48 17.65 4.94 14.30 Net yield on interest-earning assets (taxable equivalent) 5.44 4.51 4.58 4.80 5.17 4.60 4.46 4.36 Allowance for loan and lease losses to loans and leases: Covered under loss share agreements 7.74 4.77 4.39 3.94 3.78 2.93 2.89 2.08 Not covered under loss share agreements 1.55 1.62 1.62 1.62 1.56 1.54 1.57 1.56 Nonperforming assets to total loans and leases and other real estate at period end: Covered under loss share agreements 9.26 12.87 18.37 18.68 17.95 16.64 16.39 12.92 Not covered under loss share agreements 1.15 1.05 1.03 0.99 0.89 0.93 1.06 1.13 Tier 1 risk-based capital ratio 14.27 15.08 15.97 15.74 15.41 15.46 15.38 15.24 Total risk-based capital ratio 15.95 16.76 17.66 17.62 17.27 17.33 17.27 17.32 Leverage capital ratio 9.22 9.67 10.21 10.16 9.90 9.83 9.50 9.35 Dividend payout ratio 13.95 7.79 8.20 8.70 10.10 3.79 14.68 5.07 Average loans and leases to average deposits 74.28 75.76 77.05 78.99 79.72 79.75 79.35 76.96 2010,2012, BancShares reported net income of $30.1$21.7 million, compared to $19.0$30.5 million for the corresponding period of 2009. Improved2011. Lower earnings during the fourth quarter 2010 resulted2012 were caused by lower noninterest income from significantlyreductions to the FDIC receivable, partially offset by higher net interest income a result of the favorable impact of the FDIC-assisted transactions completed during 2010 and 2009, and reduced noncoveredlower provision for loan and lease losses. Noninterest expense increased due to operating costs related to the FDIC-assisted transactions and foreclosure-related expenses.20102012 totaled $2.88,$2.15, compared to $1.82$2.97 for the same period a year ago. The annualized return on average assets equaled 0.560.41 percent for the fourth quarter of 2010,2012, compared to 0.410.58 percent for the fourth quarter of 2009.2011. The annualized return on average equity was 6.914.43 percent during the currentfourth quarter of 2012 compared to 4.926.48 percent for the same period of 2009.2011.$86.0$20.5 million, or 60.48.5 percent, during the fourth quarter of 20102012 due primarily to an increase in interest-earning assets and the accretion of fair value discounts. Large unscheduled loan payments and other adjustments recorded during the fourth quarter 2010 resulted in $66.2 million of fair value discount accretion, which increased interest income. The favorable interest income adjustments were partially offset by a corresponding $56.6 million reduction27 basis points improvement in the FDIC receivable, recorded as a reduction in noninterest income. The taxable-equivalent net yield on interest-earning assets improved 137 basis points when compared to the fourth quarter of 2009.2011. The increase in net yield was primarily due to a stable yield on interest-earning assets when compared to the favorable impact of acquired loans and assumed deposits, includingdecline in the impact of fair value discounts accreted into incomerate on interest-bearing liabilities.2010.Interest-earning assets averaged $18.742010. Average loans and leases increased $763.9 million, or 5.9 percent, since the fourth quarter of 20092012, principally due to acquisition activity. Average investment securities grew $815.2 million, or 26.0 percent, principally resulting from strong deposit growth within the legacy branch network wella significant reduction in excessaverage time deposits and repayments of loan demand.Average interest-bearing liabilities increased $1.84 billion, or 13.6 percent, during the fourth quarter of 2010, due to higher levels of deposits.long-term obligations. The rate on interest-bearing liabilities decreased 311.460.81 percent during the fourth quarter of 20092011 to 1.150.51 percent during the fourth quarter of 2010,2012, as market interest rates continuedremained low and maturing time deposits repriced to contract.$34.9$64.9 million during the fourth quarter of 2010,2012, a $13.3$24.4 million increase decrease from the same period of 2009,2011, due to a $20.9 million increase in the amount recognized forlower post-acquisition deterioration of acquiredcovered loans covered by FDIC loss share agreements. The unfavorableand reduced provision for loan and lease losses for acquired loans was partially offset by a $16.6 million increase in the FDIC receivable, recorded as an increase in noninterest income.on noncovered loans. Net charge-offs on noncovered loans during the fourth quarter of 20102012 equaled $9.0$9.5 million compared to $14.6, down $7.5 million during from the fourth quarter of 2009.2011 primarily due to higher losses on residential construction loans in 2011. The annualized ratio of noncovered net charge-offs to average noncovered loans and leases equaled 0.310.33 percent during the fourth quarter of 2010,2012, versus 0.500.58 percent during the same period of 2009.2011. Net charge-offs resulting from post-acquisition deterioration of covered loans equaled $16.2$12.9 million and $56.2 million, respectively, during the fourth quarter of 2010, which, on an annualized basis, represented 3.062012 and 2011.average covered loans. No covered loan charge-offs were recorded2011, due to unfavorable variance in the income statement impact of adjustments to the FDIC receivable.2009.Total noninterest income declined $29.836.66.1 percent from. Foreclosure-related expenses decreased $10.7 million in the fourth quarter of 2009, due primarily2012 compared to $29.1 million of net charges resulting from adjustments to the FDIC receivable for assets covered by loss share agreements. The adjustments to the FDIC receivable includes reductions resulting from large unscheduled acquired loan payments and other acquired loan adjustments, partially offset by increases resulting from post-acquisition deterioration of acquired loans. Cardholder and merchant services income increased $2.8 million, or 11.6 percent, during the fourth quarter of 2010 as a result of higher transaction volume. Due to changes in regulations governing deposit account overdrafts that became effective in mid-August, deposit service charges declined $3.3 million, or 16.1 percent, during the fourth quarter versus2011. Other expenses for the fourth quarter of 2009.Noninterest expense equaled $201.82012 declined $7.2 million duringwhen compared to the fourth quarter of 2010, up $28.4 million, or 16.4 percent, $13.0 million of which resulted2011, due to lower FDIC-assisted transactions. Salary expense increased $7.6 million, or 11.1 percent, duenew assessment calculation and a decline in expenses related to higher head count and merit increases. Occupancy expense and collection expenses increased due to the FDIC-assisted transactions, while equipment costs increased as a result of higher hardware and software expenses. Growth in transaction volume caused cardholder and merchant processing expense to increase. These increases were partially offset by reduced foreclosure-related costs and employee benefits expense.1922 provides quarterly information for each of the quarters in 20102012 and 2009. 2011. Table 2023 analyzes the components of changes in net interest income between the fourth quarter of 20102012 and 2009.2011.2023 2010 2009 Increase (decrease) due to: Average
Balance Interest
Income/
Expense Yield/
Rate Average
Balance Interest
Income/
Expense Yield/
Rate Volume Yield/
Rate Total
Change (dollars in thousands) $ 13,641,062 $ 260,734 7.58 % $ 12,877,150 $ 177,375 5.46 % $ 12,531 $ 70,828 $ 83,359 3,287,083 8,230 1.00 2,475,460 11,514 1.85 2,912 (6,196 ) (3,284 ) 155,019 3,740 9.57 131,930 1,101 3.31 375 2,264 2,639 487,733 15 0.01 488,967 2,220 1.80 (2 ) (2,203 ) (2,205 ) 1,280 21 6.51 8,637 140 6.43 (120 ) 1 (119 ) 19,006 68 1.42 29,977 472 6.25 (106 ) (298 ) (404 ) 3,950,121 12,074 1.22 3,134,971 15,447 1.96 3,059 (6,432 ) (3,373 ) 1,148,153 755 0.26 307,490 198 0.26 554 3 557 $ 18,739,336 $ 273,563 5.79 % $ 16,319,611 $ 193,020 4.69 % $ 16,144 $ 64,399 $ 80,543 $ 1,922,961 $ 517 0.11 % $ 1,657,758 $ 518 0.12 % $ 60 $ (61 ) $ (1 ) 763,110 325 0.17 641,726 199 0.12 41 85 126 5,048,513 5,992 0.47 4,117,466 6,218 0.60 1,266 (1,492 ) (226 ) 6,152,921 26,068 1.68 5,603,112 31,414 2.22 2,678 (8,024 ) (5,346 ) 13,887,505 32,902 0.94 12,020,062 38,349 1.27 4,045 (9,492 ) (5,447 ) 590,932 3,051 2.05 651,824 1,300 0.79 (220 ) 1,971 1,751 825,671 8,248 3.96 795,646 9,925 4.95 342 (2,019 ) (1,677 ) $ 15,304,108 $ 44,201 1.15 % $ 13,467,532 $ 49,574 1.46 % $ 4,167 $ (9,540 ) $ (5,373 ) 4.64 % 3.23 % $ 229,362 4.86 % $ 143,446 3.49 % $ 11,977 $ 73,939 $ 85,916 2012 2011 Increase (decrease) due to: Volume (dollars in thousands) Assets Loans and leases $ 13,357,928 $ 271,316 8.08 % $ 14,093,034 $ 262,683 7.39 % $ (14,733 ) $ 23,366 $ 8,633 Investment securities: U. S. Treasury 869,775 523 0.24 962,401 1,117 0.46 (84 ) (510 ) (594 ) Government agency 2,892,502 3,422 0.47 2,401,808 4,974 0.83 814 (2,366 ) (1,552 ) Residential mortgage-backed securities 1,341,318 5,505 1.63 318,820 852 1.06 3,460 1,193 4,653 Corporate bonds 46,354 255 2.20 355,905 2,969 3.31 (2,144 ) (570 ) (2,714 ) State, county and municipal 580 9 6.17 1,042 66 25.13 (18 ) (39 ) (57 ) Other 18,630 40 0.85 16,973 69 1.61 5 (34 ) (29 ) Total investment securities 5,169,159 9,754 0.75 4,056,949 10,047 0.99 2,033 (2,326 ) (293 ) Overnight investments 746,763 508 0.27 521,015 337 0.26 153 18 171 Total interest-earning assets $ 19,273,850 $ 281,578 5.81 % $ 18,670,998 $ 273,067 5.80 % $ (12,547 ) $ 21,058 $ 8,511 Liabilities Deposits: Checking With Interest $ 2,183,140 $ 329 0.06 % $ 1,976,271 $ 351 0.07 % $ 32 $ (54 ) $ (22 ) Savings 899,428 113 0.05 844,227 270 0.13 15 (172 ) (157 ) Money market accounts 6,222,991 3,601 0.23 5,656,855 4,644 0.33 424 (1,467 ) (1,043 ) Time deposits 3,715,193 8,156 0.87 4,812,622 14,897 1.23 (2,890 ) (3,851 ) (6,741 ) Total interest-bearing deposits 13,020,752 12,199 0.37 13,289,975 20,162 0.60 (2,419 ) (5,544 ) (7,963 ) Short-term borrowings 641,007 1,018 0.63 632,000 1,344 0.84 13 (339 ) (326 ) Long-term obligations 447,600 4,726 4.22 713,378 8,252 4.59 (2,958 ) (568 ) (3,526 ) Total interest-bearing liabilities $ 14,109,359 $ 17,943 0.51 % $ 14,635,353 $ 29,758 0.81 % $ (5,364 ) $ (6,451 ) $ (11,815 ) Interest rate spread 5.30 % 4.99 % Net interest income and net yield on interest-earning assets $ 263,635 5.44 % $ 243,309 5.17 % $ (7,183 ) $ 27,509 $ 20,326 2124 identifies significant obligations and commitments as of December 31, 2010.2124 Payments due by period Less than 1 year 1-3 years 4-5 years Thereafter Total (thousands) $ 16,178,335 $ 1,156,677 $ 293,542 $ 6,712 $ 17,635,266 546,597 — — — 546,597 71,691 122,192 209,039 407,027 809,949 19,354 27,596 16,478 51,744 115,172 — — — 67,219 67,219 $ 16,815,977 $ 1,306,465 $ 519,059 $ 532,702 $ 19,174,203 $ 1,151,964 $ 1,299,350 $ 187,505 $ 2,725,632 $ 5,364,451 40,132 17,231 13,392 — 70,755 3,795 1,550 — — 5,345 $ 1,195,891 $ 1,318,131 $ 200,897 $ 2,725,632 $ 5,440,551 Payments due by period Type of obligation Less than 1 year 1-3 years 4-5 years Thereafter Total (thousands) Contractual obligations: Deposits $ 17,069,596 $ 743,980 $ 272,433 $ 16 $ 18,086,025 Short-term borrowings 568,505 — — — 568,505 Long-term obligations 3,690 209,833 11,124 220,274 444,921 Operating leases 20,910 30,716 14,881 44,722 111,229 Estimated payments for claw-back provisions of FDIC loss share agreements — — — 101,641 101,641 Total contractual obligations $ 17,662,701 $ 984,529 $ 298,438 $ 366,653 $ 19,312,321 Commitments: Loan commitments $ 1,108,858 $ 1,350,358 $ 270,196 $ 2,738,586 $ 5,467,998 Standby letters of credit 54,665 8,420 — — 63,085 Affordable housing partnerships 2,457 5,546 136 20 8,159 Total commitments $ 1,165,980 $ 1,364,324 $ 270,332 $ 2,738,606 $ 5,539,242 Beginning withfirst annual reporting period after November 15, 2009, the concept ofFASB issued Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04). ASU 2011-04 creates a qualifying special purpose entity (QSPE) is no longer relevantuniform framework for accounting purposes. Therefore, formerly qualifying special-purpose entities (as defined under previous accounting standards) must be evaluated for consolidation by reporting entities in accordance with applicable consolidation guidance. If the evaluation results in consolidation, the reporting entity should apply the transition guidance provided in the pronouncement that requires consolidation. In addition, an enterprise is required to perform an analysis to determine whether the enterprise’s variable interests give it a controlling financial interest in a variable interest entity (VIE). This change is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets and VIE’s. In 2005, FCB securitized and sold approximately $250.0 million of revolving mortgage loans through the use of a QSPE. This QSPE was determined to be a VIE for which BancShares is now obligated to recognize the underlying assets and liabilities in the consolidated financial statements. The assets and liabilities were recorded in the first quarter of 2010 with an increase in loans of $97.3 million, an increase in debt of $86.9 million, removal of the carrying value of the residual interest strip in the amount of $1.3 million, recognition of $3.2 million in deferred tax liability, increase in the allowance for loan and lease losses of $681,000, decrease to the servicing asset for $304,000 and an adjustment to beginning retained earnings for $4.9 million.Beginning January 1, 2010, new accounting guidance requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. The guidance further clarifies that (i)applying fair value measurement principles for companies around the world. It eliminates differences between GAAP and International Financial Reporting Standards issued by the International Accounting Standards Board. New disclosures should be providedrequired by the guidance include: quantitative information about the significant unobservable inputs used for each classLevel 3 measurements; a qualitative discussion about the sensitivity of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a lineitemrecurring Level 3 measurements to changes in the balance sheetunobservable inputs disclosed, including the interrelationship between inputs; and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in levels 2 and 3a description of the fair value hierarchy.company's valuation processes. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities includedupdates in level 3 of the fair value hierarchy will be required beginning January 1, 2011. The remaining disclosure requirements and clarifications became effective on January 1, 2010 andASU 2011-04 are included in Note K—Estimated Fair Values.In July, 2010, the FASB issuedDisclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Loss (ASU 2010-20). In an effort to provide financial statement users with greater transparency about the allowance for loan and lease losses, ASU 2010-20 requires enhanced disclosures regarding the nature of credit risk inherent in the portfolio and how risk is analyzed and assessed in determining the amount of the allowance. Changes in the allowance will also require disclosure. The end-of-period disclosures are effective for BancShares on December 31, 2010 with the exception of disclosures related to troubled debt restructurings, which become effective for interim and annual periods endingbeginning after JuneDecember 15, 2011. The disclosures related2011, and all amendments are to activity during abe applied prospectively with any changes in measurements recognized in income in the period are effective during 2011.of adoption. The provisions of ASU 2010-20this update have affected BancShares' financial statement disclosures regarding the allowance for loan and lease losses, but will havehad no material impact on BancShares' financial condition, results of operations or liquidity.December 2010,September 2011, the FASB issuedIntangibles—Intangibles - Goodwill and Other (Topic 350)—When to Perform Step 2 of theIntangible Assets: Testing Goodwill for Impairment Test for Reporting Units with Zero or Negative Carrying Amounts(ASU 2010-28). This update modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units,2011-08), which allows an entity the option to first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that is required to perform step 2it more likely than not that the fair value of the goodwill impairment testa reporting unit is less than its carrying amount. Under ASU 2011-08, if, after that assessment is made, an entity determines that it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the faircarrying value of a reporting unit below its carrying amount.goodwill is not impaired, then the two-step impairment test is not required. However, if the entity concludes otherwise, the two-step impairment test would be required. The provisions of ASU 2010-28 will be2011-08 are effective for interim and annual periods beginning January 1,after December 15, 2011, and arealthough early adoption is allowed. Adoption of ASU 2011-08 did not expected to have a material impact on BancShares' financial condition, results of operations or liquidity.Actwill resultWall Street Reform and Consumer Protection Act (Dodd-Frank Act) has resulted in expansive changes in many areas affecting the financial services industry in general and BancShares in particular. The legislation provides broad economic oversight, consumer financial services protection, investor protection, rating agency reform and derivative regulatory reform. Various corporate governance requirements will resulthave resulted in expanded proxy disclosures and shareholder rights. Additional provisions address the mortgage industry in an effort to strengthen lending practices. Deposit insurance reform will resulthas resulted in permanent FDIC protection for up to $250,000 of deposits and will requirerequires the FDIC’s Deposit Insurance Fund to maintain 1.35 percent of insured deposits with the burden for closing the shortfall falling to banks with more than $10.0 billion in assets.legislationnew formula was effective April 1, 2011, and changes the assessment base from deposits to total assets less equity, thereby placing a larger assessment burden on banks with large levels of non-deposit funding. The new assessment formula also considers the level of higher-risk consumer loans and higher-risk commercial and industrial loans and securities, risk factors that will potentially result in incremental insurance costs. The FDIC recently finalized their definitions of these higher-risk assets and reporting of these assets under the new definitions is effective beginning April 1, 2013. This will require BancShares to implement process and system changes to accurately identify and report these higher-risk assets.three yearthree-year period beginning in 2013. As of December 31, 2012, BancShares has $265.0$93.5 million in trust preferred securities that is currentlywere outstanding and included as tier 1 capital. Another provisioncapital following the July 31, 2012, redemption of $150.0 million of trust preferred capital securities. The remaining $93.5 million in trust preferred capital securities will be eliminated from tier 1 capital in installments of $31.2 million in each year over the legislation givesthree-year period beginning in 2013.authorityDodd-Frank Act. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. The Federal Reserve also approved an interim final rule that allows for an upward adjustment of no more than 1 cent to establishan issuer's debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the interim final rule. Both rules were effective October 1, 2011, and contributed to reductions in noninterest income of $4.6 million during 2011 and $11.6 million during 2012.interchange fees chargedimplementation of the Basel III regulatory capital rules for electronic debit transactions by payment card issuers havingUnited States banking organizations. The proposed rules address a significant number of outstanding issues and questions regarding how certain provisions of Basel III are proposed to be adopted in the United States. Key provisions of the proposed rules include the total phase-out from tier 1 capital of trust preferred securities for all banks, a capital conservation buffer of 2.50 percent above minimum capital ratios, inclusion of accumulated other comprehensive income in tier 1 common equity, inclusion in tier 1 capital of perpetual preferred stock and an effective floor for tier 1 common equity of 7.00 percent. Final rules are expected to be adopted in 2013. While we have estimated the impact the proposed rules would have on our capital ratios, we are unable at this time to predict how the final rules will differ from the proposed rules and the effective dateover $10.0 billion and to enforce a new statutory requirement that such fees be reasonable and proportionalcalculations (excluding trust preferred securities) is 13.59 percent at December 31, 2012, compared to the actual costproposed fully phased-in Federal Reserve standard of a transaction to the issuer. This provision may have a negative impact on our ability to maintain noninterest income at the same rate as prior periods resulting in a negative impact on our results of operations.BancShares’BancShares’BancShares' disclosure controls and procedures as of December 31, 2012, in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (Exchange Act). Based on theirupon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, BancShares’the Chief Executive Officer and the Chief Financial Officer concluded that BancShares' disclosure controls and procedures were effective to provide reasonable assurance that it is able to record, process, summarize and report in a timely manner the information required to be disclosed in the reports it files under the Exchange Act.5761 of this Report. The report of BancShares’ independent registered public accounting firm regarding BancShares’ internal control over financial reporting is included on page 5862 of this Report.NoourBancShares' internal control over financial reporting were identified as having occurred during the quarter ended December 31, 20102012, that have materially affected, or are reasonably likely to materially affect, ourBancShares' internal control over financial reporting.As permitted by guidance provided by A control deficiency exists when the staffdesign or operation of a control does not allow management or employees, in the U.S. Securities and Exchange Commission, the scopenormal course of management’s assessmentperforming their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, in internal control over financial reporting as of December 31, 2010 has excluded First Regional Bank (FRB) and Sun American Bank (SAB), which were acquired in January 2010 and March 2010, respectively. FRB and SAB constituted 8.5 percent and 1.7 percent of consolidated revenue (total interest income and total noninterest income, excluding the related gains on acquisitions)that is less severe than a material weakness, yet important enough to merit attention by those responsible for the year ended December 31, 2010, respectively, and 5.9 percent and 1.8 percent of consolidated total assets as of December 31, 2010, respectively.BancShares’ management assessed the effectivenessoversight of the company’s internal control overcompany's financial reporting as of December 31, 2010. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)reporting. A material weakness inInternal Control—Integrated Framework. Based on that assessment, we believe that, as of December 31, 2010, the company’s internal control over financial reporting is effective baseda control deficiency, or combination of control deficiencies, in internal control 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 those criteria.BancShares’a timely basis.company’scompany's internal control over financial reporting. This report appears on page 58.
subsidiaries’subsidiaries' (BancShares) internal control over financial reporting as of December 31, 2010,2012, based on criteria established inInternal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. BancShares’Commission (COSO). BancShares' management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sManagement's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on BancShares’BancShares' internal control over financial reporting based on our audit.company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.As described in Management’s Annual Report on Internal Controls Over Financial Reporting, management has excluded First Regional Bank (FRB) and Sun American Bank (SAB) from its assessment of internal controls over financial reporting as of December 31, 2010 because they were acquired by the Company in January 2010 and March 2010, respectively. We have also excluded FRB and SAB from the scope of our audit of internal control over financial reporting. FRB and SAB were acquired by First-Citizens Bank & Trust Company, a wholly-owned subsidiary of BancShares. FRB and SAB constituted 8.5% and 1.7% of consolidated revenue (total interest income and total noninterest income, excluding the related gains on acquisitions) for the year ended December 31, 2010, respectively, and 5.9% and 1.8% of consolidated total assets as of December 31, 2010, respectively.2010,2012, based on criteria established inInternal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO).20102012 and 20092011 and for each of the years in the three-year period ended December 31, 2010,2012, and our report dated February 28, 2011,March 1, 2013, expressed an unqualified opinion on those consolidated financial statements. Our report refers to the fact that effective January 1, 2010, the Company adopted the amended consolidation accounting guidance, which resulted in the consolidation of certain asset securitizations, and, effective January 1, 2009, the Company adopted the amended accounting and reporting guidance for business combinations.
February 28, 201120102012 and 2009,2011, and the related consolidated statements of income, comprehensive income, changes in shareholders’shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2010.2012. These consolidated financial statements are the responsibility of BancShares’BancShares' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.20102012 and 2009,2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010,2012, in conformity with accounting principles generally accepted in the United States of America.As discussed in Note A to the consolidated financial statements, effective January 1, 2010, the Company adopted the amended consolidation accounting guidance, which resulted in the consolidation of certain asset securitizations, and, effective January 1, 2009, the Company adopted the amended accounting and reporting guidance for business combinations.the effectiveness of BancShares’BancShares' internal control over financial reporting as of December 31, 2010,2012, based on criteria established inInternal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2011,March 1, 2013, expressed an unqualified opinion on the effectiveness of BancShares’ internal control over financial reporting. Our report on internal control over financial reporting refers to the fact that we excluded from the scope of our audit of internal control over financial reporting First Regional Bank and Sun American Bank, which were acquired by the Company in January 2010 and March 2010, respectively.opinion.February 28, 2011 December 31 2010 2009 (thousands, except share data) $ 460,178 $ 480,242 398,390 723,260
(cost of $4,486,881 in 2010 and $2,893,393 in 2009) 4,510,076 2,929,162
(fair value of $2,741 in 2010 and $3,834 in 2009) 2,532 3,603 88,933 67,381 2,007,452 1,173,020 11,480,577 11,644,999 227,765 172,282 13,260,264 12,645,737 842,745 837,082 112,748 93,774 52,842 40,607 83,644 60,684 623,261 249,842 102,625 102,625 9,897 6,361 258,524 225,703 $ 20,806,659 $ 18,466,063 $ 3,976,366 $ 3,215,414 13,658,900 12,122,153 17,635,266 15,337,567 546,597 642,405 809,949 797,366 81,885 129,610 19,073,697 16,906,948 8,757 8,757 1,678 1,678 143,766 143,766 1,615,290 1,429,863 (36,529 ) (24,949 ) 1,732,962 1,559,115 $ 20,806,659 $ 18,466,063 December 31 2012 2011 (thousands, except share data) Assets Cash and due from banks $ 639,730 $ 590,801 Overnight investments 443,180 434,975 Investment securities available for sale
(cost of $5,192,419 in 2012 and $4,029,858 in 2011)5,226,228 4,056,423 Investment securities held to maturity
(fair value of $1,448 in 2012 and $1,980 in 2011)1,342 1,822 Loans held for sale 86,333 92,539 Loans and leases: Covered under loss share agreements 1,809,235 2,362,152 Not covered under loss share agreements 11,576,115 11,581,637 Less: Allowance for loan and lease losses 319,018 270,144 Net loans and leases 13,066,332 13,673,645 Premises and equipment 882,768 854,476 Other real estate owned: Covered under loss share agreements 102,577 148,599 Not covered under loss share agreements 43,513 50,399 Income earned not collected 47,666 42,216 Receivable from FDIC for loss share agreements 270,192 617,377 Goodwill 102,625 102,625 Other intangible assets 3,556 7,032 Other assets 367,610 324,369 Total assets $ 21,283,652 $ 20,997,298 Liabilities Deposits: Noninterest-bearing $ 4,885,700 $ 4,331,706 Interest-bearing 13,200,325 13,245,568 Total deposits 18,086,025 17,577,274 Short-term borrowings 568,505 615,222 Long-term obligations 444,921 687,599 Payable to FDIC for loss share agreements 101,641 77,866 Other liabilities 218,553 178,209 Total liabilities 19,419,645 19,136,170 Shareholders’ equity Common stock: Class A - $1 par value (11,000,000 shares authorized; 8,588,031 shares issued and outstanding at December 31, 2012; 8,644,307 shares issued and outstanding at December 31, 2011) 8,588 8,644 Class B - $1 par value (2,000,000 shares authorized; 1,032,883 shares issued and outstanding at December 31, 2012; 1,639,812 shares issued and outstanding at December 31, 2011) 1,033 1,640 Surplus 143,766 143,766 Retained earnings 1,792,726 1,773,652 Accumulated other comprehensive loss (82,106 ) (66,574 ) Total shareholders’ equity 1,864,007 1,861,128 Total liabilities and shareholders’ equity $ 21,283,652 $ 20,997,298 Year Ended December 31 2010 2009 2008 (thousands, except share and per share data) $ 914,545 $ 659,537 $ 681,849 36,910 65,433 117,265 6,544 4,812 4,311 8,721 6,283 0 75 278 209 227 1,085 962 52,477 77,891 122,747 2,346 731 8,755 969,368 738,159 813,351 149,195 183,759 263,538 5,189 4,882 17,502 40,741 39,003 33,905 195,125 227,644 314,945 774,243 510,515 498,406 143,519 79,364 65,926 630,724 431,151 432,480 136,000 104,434 0 107,575 95,376 97,577 73,762 78,028 82,349 51,378 46,071 48,198 29,097 30,904 29,607 9,699 10,435 6,564 8,650 8,129 8,277 6,656 6,856 7,003 20,820 16,411 17,598 1,952 (511 ) 8,128 (46,806 ) 2,800 0 7,431 4,518 2,205 406,214 403,451 307,506 297,897 264,342 259,250 64,733 64,390 58,899 72,766 66,266 60,839 66,894 60,310 57,715 23,167 29,344 5,126 20,439 15,107 3,658 187,480 151,744 154,895 733,376 651,503 600,382 303,562 183,099 139,604 110,518 66,768 48,546 $ 193,044 $ 116,331 $ 91,058 $ 18.50 $ 11.15 $ 8.73 1.20 1.20 1.10 10,434,453 10,434,453 10,434,453 Year ended December 31 2012 2011 2010 Interest income (thousands, except share and per share data) Loans and leases $ 967,601 $ 967,737 $ 914,545 Investment securities: U.S. Treasury 2,471 8,248 24,569 Government agency 15,688 19,848 12,341 Residential mortgage-backed securities 14,388 9,235 6,544 Corporate bonds 2,574 7,975 8,721 State, county and municipal 36 174 75 Other 340 548 227 Total interest and dividends on investments 35,497 46,028 52,477 Overnight investments 1,738 1,394 2,346 Total interest income 1,004,836 1,015,159 969,368 Interest expense Deposits 57,568 101,888 149,195 Short-term borrowings 5,107 5,993 5,189 Long-term obligations 27,473 36,311 40,741 Total interest expense 90,148 144,192 195,125 Net interest income 914,688 870,967 774,243 Provision for loan and lease losses 142,885 232,277 143,519 Net interest income after provision for loan and lease losses 771,803 638,690 630,724 Noninterest income Gains on acquisitions — 150,417 136,000 Cardholder and merchant services 95,472 110,822 107,575 Service charges on deposit accounts 61,564 63,775 73,762 Wealth management services 57,236 54,974 51,378 Fees from processing services 34,816 30,487 29,097 Mortgage income 11,268 12,214 9,699 Insurance commissions 9,974 9,165 8,650 ATM income 5,279 6,020 6,656 Other service charges and fees 14,239 22,647 20,820 Securities gains (losses) 2,277 (288 ) 1,952 Adjustments to FDIC receivable for loss share agreements (101,594 ) (19,305 ) (46,806 ) Other (1,231 ) 23,438 7,431 Total noninterest income 189,300 464,366 406,214 Noninterest expense Salaries and wages 307,331 308,088 297,897 Employee benefits 78,861 72,526 64,733 Occupancy, net 74,798 74,832 72,766 Equipment 74,822 69,951 66,894 FDIC deposit insurance 10,656 16,459 23,167 Foreclosure-related expenses 40,654 46,133 20,439 Other 179,811 204,936 187,480 Total noninterest expense 766,933 792,925 733,376 Income before income taxes 194,170 310,131 303,562 Income taxes 59,822 115,103 110,518 Net income $ 134,348 $ 195,028 $ 193,044 Per share information Net income per share $ 13.11 $ 18.80 $ 18.50 Dividends declared per share 1.20 1.20 1.20 Average shares outstanding 10,244,472 10,376,445 10,434,453 Year ended December 31 2012 2011 2010 (thousands) Net income $ 134,348 $ 195,028 $ 193,044 Other comprehensive income Unrealized gains on securities: Change in unrealized securities gains arising during period 9,566 3,108 (10,201 ) Deferred tax (expense) benefit (3,759 ) (1,148 ) 3,760 Reclassification adjustment for losses (gains) included in net income (2,322 ) 262 (2,373 ) Deferred tax expense (benefit) 917 (159 ) 1,436 Total change in unrealized gains on securities, net of tax 4,402 2,063 (7,378 ) Change in fair value of cash flow hedges: Change in unrecognized loss on cash flow hedges (2,779 ) (8,329 ) (9,994 ) Deferred tax benefit 1,097 3,289 3,946 Reclassification adjustment for losses included in net income 3,095 7,107 5,869 Deferred tax benefit (1,222 ) (2,806 ) (2,317 ) Total change in unrecognized loss on cash flow hedges, net of tax 191 (739 ) (2,496 ) Change in pension obligation: Change in pension obligation (44,315 ) (58,630 ) (6,815 ) Deferred tax benefit 17,354 22,959 2,669 Reclassification adjustment for losses included in net income 11,236 7,071 4,010 Deferred tax benefit (4,400 ) (2,769 ) (1,570 ) Total change in pension obligation, net of tax (20,125 ) (31,369 ) (1,706 ) Other comprehensive loss, net of tax (15,532 ) (30,045 ) (11,580 ) Total comprehensive income $ 118,816 $ 164,983 $ 181,464 Class A
Common
Stock Class B
Common
Stock Surplus Retained
Earnings Accumulated
Other
Comprehensive
Income (loss) Total
Shareholders’
Equity (thousands, except share data) $ 8,757 $ 1,678 $ 143,766 $ 1,246,473 $ 40,534 $ 1,441,208 0 0 0 91,058 0 91,058 0 0 0 0 12,182 12,182 0 0 0 0 (3,216 ) (3,216 ) 0 0 0 0 (86,380 ) (86,380 ) 13,644 0 0 0 (11,477 ) 0 (11,477 ) 8,757 1,678 143,766 1,326,054 (36,880 ) 1,443,375 0 0 0 116,331 0 116,331 0 0 0 0 (23,961 ) (23,961 ) 0 0 0 0 3,208 3,208 0 0 0 0 32,684 32,684 128,262 0 0 0 (12,522 ) 0 (12,522 ) 8,757 1,678 143,766 1,429,863 (24,949 ) 1,559,115 4,904 4,904 0 0 0 193,044 0 193,044 0 0 0 0 (6,197 ) (6,197 ) 0 0 0 0 (1,181 ) (1,181 ) 0 0 0 0 (2,496 ) (2,496 ) 0 0 0 0 (1,706 ) (1,706 ) 181,464 0 0 0 (12,521 ) 0 (12,521 ) $ 8,757 $ 1,678 $ 143,766 $ 1,615,290 $ (36,529 ) $ 1,732,962 Class A
Common
Stock Class B
Common
Stock Surplus Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shareholders’
Equity (thousands, except share data) Balance at December 31, 2009 $ 8,757 $ 1,678 $ 143,766 $ 1,429,863 $ (24,949 ) $ 1,559,115 Adjustment resulting from adoption of a change in accounting for QSPEs and controlling financial interests effective January 1, 2010 — — — 4,904 — 4,904 Net income — — — 193,044 — 193,044 Other comprehensive loss, net of tax — — — — (11,580 ) (11,580 ) Cash dividends ($1.20 per share) — — — (12,521 ) — (12,521 ) Balance at December 31, 2010 8,757 1,678 143,766 1,615,290 (36,529 ) 1,732,962 Net income — — — 195,028 — 195,028 Other comprehensive loss, net of tax — — — — (30,045 ) (30,045 ) Repurchase of 112,471 shares of Class A common stock (113 ) — — (16,672 ) — (16,785 ) Repurchase of 37,863 shares of Class B common stock — (38 ) — (7,564 ) — (7,602 ) Cash dividends ($1.20 per share) — — — (12,430 ) — (12,430 ) Balance at December 31, 2011 8,644 1,640 143,766 1,773,652 (66,574 ) 1,861,128 Net income — — — 134,348 — 134,348 Other comprehensive loss, net of tax — — — — (15,532 ) (15,532 ) Repurchase of 56,276 shares of Class A common stock (56 ) — — (9,075 ) — (9,131 ) Repurchase of 606,929 shares of Class B common stock — (607 ) — (93,886 ) — (94,493 ) Cash dividends ($1.20 per share) — — — (12,313 ) — (12,313 ) Balance at December 31, 2012 $ 8,588 $ 1,033 $ 143,766 $ 1,792,726 $ (82,106 ) $ 1,864,007 Year ended December 31 2010 2009 2008 $ 193,044 $ 116,331 $ 91,058 6,203 1,940 2,048 143,519 79,364 65,926 (41,375 ) 35,772 (8,381 ) (25,432 ) (4,426 ) (2,673 ) 62,761 57,724 53,945 (877 ) (13,042 ) (11,365 ) (15,300 ) 17,083 7,314 (136,000 ) (104,434 ) 0 (1,952 ) 511 (8,128 ) (605,302 ) (751,154 ) (475,874 ) 592,608 761,973 488,158 (8,858 ) (8,801 ) (5,862 ) (651 ) 15,107 912 (145,810 ) 43,246 9,702 99,228 (2,800 ) 0 9,474 (47,733 ) (6,065 ) 21,455 (28,585 ) 11,391 146,735 168,076 212,106 926,122 49,677 (851,848 ) 0 (73 ) 0 (4,192,967 ) (1,462,593 ) (1,748,963 ) 1,069 2,343 1,727 2,592,097 1,567,326 1,714,337 38,496 151,559 16,456 324,870 (417,372 ) 91,593 143,740 10,763 15,116 (70,836 ) (95,877 ) (95,160 ) 1,316 0 0 106,489 51,381 0 (129,604 ) (142,866 ) (856,742 ) (743,191 ) (1,102,587 ) 37,895 1,333,159 1,051,869 747,324 (500,217 ) (83,719 ) (659,519 ) (114,425 ) 8,616 330,000 (12,521 ) (12,522 ) (11,477 ) (37,195 ) (138,343 ) 444,223 (20,064 ) (113,133 ) (200,413 ) 480,242 593,375 793,788 $ 460,178 $ 480,242 $ 593,375 $ 196,002 $ 240,686 $ 326,310 187,183 20,640 69,506 $ (12,574 ) $ (39,326 ) $ 19,935 (4,125 ) 5,301 (5,314 ) (2,804 ) 53,703 (141,961 ) 156,918 67,380 44,714 2,291,659 1,924,179 0 2,155,861 1,819,745 0 135,798 104,434 0 Year ended December 31 2012 2011 2010 (thousands) Operating activities Net income $ 134,348 $ 195,028 $ 193,044 Adjustments to reconcile net income to cash provided by operating activities: Provision for loan and lease losses 142,885 232,277 143,519 Deferred tax benefit (35,265 ) (16,637 ) (41,375 ) Change in current taxes payable 29,095 (2,820 ) (25,432 ) Depreciation 68,941 65,170 62,761 Change in accrued interest payable (14,366 ) (14,340 ) (877 ) Change in income earned not collected (5,450 ) 48,423 (15,300 ) Gains on acquisitions — (150,417 ) (136,000 ) Securities losses (gains) (2,277 ) 288 (1,952 ) Origination of loans held for sale (575,705 ) (513,253 ) (605,302 ) Proceeds from sales of loans held for sale 589,376 518,398 592,608 Gain on sales of loans held for sale (7,465 ) (8,751 ) (8,858 ) Loss on other real estate 36,229 53,450 15,633 Gain on retirement of long-term obligations — (9,685 ) — Net amortization of premiums and accretion of discounts (158,227 ) (194,434 ) (119,085 ) Change in FDIC receivable for loss share agreements (7,181 ) 44,551 26,284 Net change in other assets (17,617 ) 89,979 (6,810 ) Net change in other liabilities 23,967 (1,541 ) 21,455 Net cash provided by operating activities 201,288 335,686 94,313 Investing activities Net change in loans and leases outstanding 627,806 473,974 926,122 Purchases of investment securities available for sale (5,169,641 ) (3,480,699 ) (4,192,967 ) Proceeds from maturities of investment securities held to maturity 480 709 1,069 Proceeds from maturities of investment securities available for sale 3,986,370 4,002,724 2,592,097 Proceeds from sales of investment securities available for sale 7,900 242,023 38,496 Net change in overnight investments (8,205 ) (36,585 ) 324,870 Cash received from the FDIC for loss share agreements 251,972 293,067 52,422 Proceeds from sales of other real estate 147,858 135,803 143,740 Additions to premises and equipment (88,883 ) (76,901 ) (70,836 ) Dispositions of premises and equipment — — 1,316 Net cash received from acquisitions — 1,150,879 106,489 Net cash provided (used) by investing activities (244,343 ) 2,704,994 (77,182 ) Financing activities Net change in time deposits (1,049,761 ) (2,273,418 ) (743,191 ) Net change in demand and other interest-bearing deposits 1,558,512 4,417 1,333,159 Net change in short-term borrowings (101,717 ) (283,440 ) (500,217 ) Repayment of long-term obligations (196,338 ) (320,730 ) (114,425 ) Origination of long-term obligations 310 — — Repurchase of common stock (103,624 ) (24,387 ) — Cash dividends paid (15,398 ) (12,499 ) (12,521 ) Net cash provided (used) by financing activities 91,984 (2,910,057 ) (37,195 ) Change in cash and due from banks 48,929 130,623 (20,064 ) Cash and due from banks at beginning of period 590,801 460,178 480,242 Cash and due from banks at end of period $ 639,730 $ 590,801 $ 460,178 Cash payments for: Interest $ 104,514 $ 157,477 $ 196,002 Income taxes 66,453 91,465 187,183 Supplemental disclosure of noncash investing and financing activities: Change in unrealized securities gains (losses) $ 7,244 $ 3,370 $ (12,574 ) Change in fair value of cash flow hedges 316 (1,222 ) (4,125 ) Change in pension obligation (33,079 ) (51,559 ) (2,804 ) Transfers of loans to other real estate 140,645 213,195 156,918 Acquisitions: Assets acquired — 2,934,464 2,291,659 Liabilities assumed — 2,784,047 2,155,861 Net assets acquired — 150,417 135,798 StatementsA—A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation and Consolidationwith twoorganized under the laws of Delaware and conducts operations through its banking subsidiaries:subsidiary, First-Citizens Bank & Trust Company (FCB), which is headquartered in Raleigh, North Carolina (FCB), which operates branches in North Carolina, Virginia, West Virginia, Maryland, Tennessee, California, Washington, Florida, Washington, DC and, following an FDIC assisted transaction on January 21, 2011, Colorado; and IronStone Bank (ISB), with branch offices in Florida, Georgia, Texas, Arizona, California, New Mexico, Colorado, Oregon, Washington, Missouri, Oklahoma and Kansas.FCB and ISB offer full-service banking services designed to meet the needs of retail and commercial customers in the markets in which they operate. The services offered include transaction and savings deposit accounts, commercial and consumer lending, trust, asset management and broker-dealer services, insurance services and other activities incidental to commercial banking.BancShares is also the parent company of Neuse, Incorporated, which owns some of the real property from which ISB operates its branches and ISB generated other real estate.FCB has other subsidiaries that support its full-service banking operation. First Citizens Investor Services (FCIS) is a registered broker-dealer in securities that provides investment services, including sales of annuities and third party mutual funds. Neuse Financial Services, Inc. is a title insurance agency.During 2009, IronStone Securities, a registered broker-dealer in securities that was a subsidiary of FCB, discontinued its operations and was merged into FCIS.(US GAAP) and, with regard(GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The following is a summary of BancShares' more significant accounting policies.general industry practices. current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders' US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. ActualDifferent assumptions in the application of these policies could result in material changes in BancShares' consolidated financial position and/or consolidated results could differ from those estimates.of operations and related disclosures. The most significant estimates made by BancShares in the preparation of its consolidated financial statements are:Determinationare the determination of the allowancefollowing:DeterminationFair value estimatesfair valuesaccounting as required by Accounting Standards Codification (ASC) Topic 805, Business Combinations. Under this method of accounting, acquired assets and assumed liabilitiesLoss estimates related to loans and other real estate acquired which are covered under loss share agreementsincluded with the Federal Deposit Insurance Corporation (FDIC)Pension plan assumptionsIncome taxesIntercompanyacquirer's accounts and transactions have been eliminated. Certain amounts for prior years have been reclassified to conform to statement presentations for 2010. However, the reclassifications have no effect on shareholders’ equity or net income as previously reported. Management has evaluated subsequent events throughof the date of filing this Form 10-K.FDIC–Assisted TransactionsEffective January 1, 2009, BancShares adopted new US GAAP which requires the acquisition methodwith any excess of accounting, formerly referred to as the purchase method, be used for all business combinations. An acquirer must be identified for each business combination, and the acquisition date is the date the acquirer achieves control. US GAAP requires theFIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)acquirer to recognizeprice over the fair value of the net assets acquired liabilities assumed and any controlling interest in the acquiree at the acquisition date(including identifiable intangibles) capitalized as well as recognize goodwill or a gain from a bargain purchase if appropriate.goodwill. In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred.Through FDIC-assisted transactions, BancShares’ wholly-owned subsidiary FCB acquired certain assets and assumed certain liabilities of First Regional Bank (First Regional) on January 29, 2010 and Sun American Bank (SAB) on March 5, 2010. FCB had previously purchased certain assets and assumed certain liabilities of Temecula Valley Bank (TVB) on July 17, 2009 and Venture Bank (VB) on September 11, 2009. Each of the transactions was completed in accordance with US GAAP, using the acquisition method of accounting.were measuredare recorded at estimated fair value.values. Management mademakes significant estimates and exercisedexercises significant judgment in accounting for the FDIC-assisted transactions.business combinations. Management judgmentally assignedassigns risk ratings to loans based on credit quality, appraisals and estimated collateral values, and estimated expected cash flows estimated future servicing costs and applied appropriate liquidity and coupon discounts to measure fair values for loans. Other real estate (OREO) acquired through foreclosure wasis valued based upon pending sales contracts and appraised values, adjusted for current market conditions. FCB also recorded identifiable intangible assets representing the estimated values of the assumed core deposits and other customer relationships. Management useduses quoted or current market prices to determine the fair value of investment securities,securities. Fair values of deposits, short-term borrowings and long-term obligationsAdditional are based on current market interest rates and are inclusive of any applicable prepayment penalties.Name of entity Headquarters location Date of transaction Colorado Capital Bank (CCB) Castle Rock, Colorado July 8, 2011 United Western Bank (United Western) Denver, Colorado January 21, 2011 Sun American Bank (SAB) Boca Raton, Florida March 5, 2010 First Regional Bank (First Regional) Los Angeles, California January 29, 2010 Venture Bank (VB) Lacey, Washington September 11, 2009 Temecula Valley Bank (TVB) Temecula, California July 17, 2009 these transactions is disclosedsecurities are recognized in Note B.Investment securities available for sale are carriedreported at theirestimated fair value, with unrealized gains and losses reported in accumulated other comprehensive income or loss, net of deferred income taxes, recorded as a componentin the shareholders' equity section of other comprehensive income within shareholders’ equity.the Consolidated Balance Sheets. Gains andor losses realized from the salessale of securities available for sale are determined by specific identification and are included in noninterest income. As of December 31, 2010,2012, there was no intent to sell any of the securities classified as available for sale.has the ability and the positive intent to hold investment securitiesevaluates each held to maturity untiland available for sale security in a loss position for other-than-temporary impairment (OTTI) in accordance with ASC Topic 320-10 at least quarterly. BancShares considers such factors as the scheduled maturity date. Theselength of time and the extent to which the market value has been below amortized cost, long term expectations and recent experience regarding principal and interest payments, BancShares' intent to sell, and whether it is more likely than not that it would be required to sell those securities before the anticipated recovery of the amortized cost basis. The credit component of an OTTI loss is recognized in earnings and the non-credit component is recognized in accumulated other comprehensive income in situations where BancShares does not intend to sell the security, and it is more likely than not that BancShares will not be required to sell the security prior to recovery.stated at cost adjustednot traded and an active market does not exist. Nonmarketable securities are periodically evaluated for amortizationimpairment. BancShares considers positive and negative evidence, including the profitability and asset quality of premiumthe issuer, dividend payment history and accretionrecent redemption experience, when determining the ultimate recoverability of discount. Accreted discountsthe recorded investment. Investments in FHLB stock and amortized premiumsTARP stock are included in interest income on an effective yield basis.At December 31, 2010 and 2009, other assets.had no investment securities heldaccounts for trading purposes.Overnight InvestmentsOvernight investments include federal funds sold and interest-bearing demand deposit balances in other banks.Loans and LeasesLoans and leases that are held for investment purposes are carried at the principal amount outstanding. Interest on substantially all loans is accrued and credited to interest income on a constant yield basis based upon the daily principal amount outstanding.Loans that are classified as held for sale representnew originations of prime residential mortgage loans originated or purchased and are carried at the lower of aggregate cost or fair value. Gains and losses on sales of mortgage loans are includedcharged to the Consolidated Statements of Income in mortgage income.TheNo allowance for loan and lease losses is recorded on the acquisition date as the fair valuesvalue of the acquired assets incorporates assumptions regarding credit risk.evidence ofDeteriorated Credit Quality. Purchased impaired loans and leases reflect credit deterioration since origination (acquired impaired loans) are recorded netsuch that it is probable at acquisition that BancShares will be unable to collect all contractually required payments. As of a nonaccretable difference and, ifFIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)appropriate, an accretable yield. Thethe acquisition date, the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is the nonaccretable difference, which is included as a reduction to the carrying amount of acquired loans. Subsequent decreases to expected cash flows will generally result in recognition of an allowance for loans and lease losses by a charge to provision for loan and lease losses. Subsequent increases in expected cash flows result in either a reversal of the provision for loan and lease losses to the extent of prior charges, or a reclassification of the difference from nonaccretable to accretable with a positive impact on the accretable yield.leases. Any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the asset's remaining life using a level yield method if the timing and amount of the future cash flows is reasonably estimable.when there is a reasonable expectation regardingloss in its Consolidated Statements of Income. For any increases in cash flows expected to be collected, BancShares adjusts any prior recorded allowance for loan and lease losses first, and then the amount of accretable yield recognized on a prospective basis over the loan's or pool's remaining life.timing of such cash flows. leases acquired from Temecula Valley Bank (TVB), Venture Bank (VB), First Regional Bank (First Regional) and Sun American Bank (SAB), and all non-mortgage loans acquired from United Western Bank (United Western) on a loan level basis.fromin the TVB andor VB transactions at the dates of the acquisitions butand applied the cost recovery method until the timing and amount of cash flows were estimated in later periods. Cash flow analyses were performed on loans acquired from First Regional and SAB in order to determine the timing and amount of cash flows expected to be collected. BancShares is accounting forDuring 2012, all acquired loans and leases, including those of TVB, VB, First Regional and United Western, were loaded into an acquired loan accounting system that facilitates estimating cash flows and computing the related accretion and impairment, based upon management assumptions. As a result, accretion income is now being recognized on all non-pooled loans and leases except for situations when the timing and amount of future cash flows can still not be determined. Loans and leases with uncertain future cash flows are accounted for under the cost recovery method, and those loans and leases are generally reported as nonaccrual.loan level basis since the majoritycurrent credit evaluation of the portfolios acquired consistborrower's financial condition and prospects for repayment under the modified terms. This evaluation includes consideration of large non-homogenous commercial loans.receivableagreements cover realized losses on certain loans and other assets purchased from the FDIC during the time period specified in the agreements. Realized losses covered include loan contractual balances, accrued interest on loans for up to 90 days, the book value of foreclosed real estate acquired, and certain direct costs, less cash or other consideration received by BancShares.measured separately fromrecorded at fair value at the related covered assetsacquisition date. The indemnification asset is recognized at the same time as it is not contractually embedded in the indemnified loans and other assets, and is not transferable should the assets be sold. Fair value at acquisition was estimated using projected cash flows related to the loss share agreements basedmeasured on the expected reimbursements for losses using the applicable loss share percentages and the estimated true-up payment at the expirationsame basis, subject to collectability or contractual limitations. The fair value of the loss share agreements if applicable. These cash flows were discounted toon the acquisition date reflect the estimated timing of the receipt of the loss sharediscounted reimbursements from the FDIC and any applicable true-up payments owed to the FDIC for transactions that include claw-back provisions. The FDIC receivable is reviewed and updated prospectively as loss estimates related to covered loans and other real estate owned change, and as reimbursements are received or expected to be received from the FDIC. Post-acquisition adjustmentsFDIC, using an appropriate discount rate, which was based on the market rate for a similar term security at the time of the acquisition adjusted for additional risk premium.FDIC receivable are offsetaccounting prescribed by entriesASC Topic 310, subsequent changes to noninterest income.Loan FeesFees collected and certain costs incurred related to loan originations are deferred and amortizedthe basis of the loss share agreements also follow that model. Deterioration in the credit quality of the loans (immediately recorded as an adjustment to interestthe allowance for loan losses) would immediately increase the basis of the loss share agreements, with the offset recorded through the consolidated statement of income. Improvements in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the loss share agreements, with such decrease being amortized into income over (1) the same period or (2) the life of the loss share agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset. Discounts and premiums on the indemnification asset reflecting an element of the time value of money is accreted into income over the life of the related loans. Deferred feesloss share agreements.are recorded as an adjustmentrelated to loans outstanding usingcovered under FDIC loss share agreements are charged to noninterest expense as incurred. A receivable from the FDIC is then recorded for the estimated amount of such expenses that are expected to be reimbursed and results in an increase to noninterest income. The estimated amount of such reimbursements is determined by several factors including the existence of loan participation agreements with other financial institutions, the presence of partial guarantees from the Small Business Administration and whether a methodreimbursable loss has been recorded on the loan for which collection and servicing costs have been incurred. Future adjustments to the receivable from the FDIC may be necessary as additional information becomes available related to the amount of previously recorded collection and servicing costs that approximateswill actually be reimbursed by the FDIC and the probable timing of such reimbursements.constant yield. and ReserveUnfunded CommitmentsThecredit losses comprises the allowance for loan and lease losses (ALLL) and the reserve for unfunded lending commitments. The allowance for credit losses represents management’smanagement's best estimate of probable credit losses within the loan and lease portfolio. Adjustments toportfolio and off-balance sheet lending commitments at the balance sheet date. Management determines the ALLL based on an ongoing evaluation. This evaluation is inherently subjective because it requires material estimates, including the amounts and timing of cash flows expected to be received on impaired loans. Those estimates are susceptible to significant change. Adjustments are established by charges to the provision for loan and lease losses, which is reflected in the Consolidated Statements of Income. Loans and lease balances deemed to be uncollectible are charged off against the allowance for loan and lease losses. To determineRecoveries of amounts previously charged off are credited to the appropriate amountallowance for loan and lease losses.the ALLL,its quarterly allowance assessment, management evaluates the risk characteristicstakes into consideration various qualitative factors, including economic conditions, composition of the loan portfolio, trends in delinquent and lease portfoliononperforming loans, historical loss experience by categories of loans, concentrations of credit, changes in lending policies and considers suchunderwriting standards, regulatory exam results, and other factors asindicative of potential losses remaining in the financial conditionportfolio.borrower,collectability of an individually reviewed loan has been impaired and a loss is probable. The fair value of collateralthese loans may be determined based upon the present value of expected cash flows, market prices of the loans, if available, or the value of the underlying collateral. Expected cash flows are required to be discounted at the loans' effective interest rates. The general allowance component takes into consideration probable, incurred losses that are inherent within the loan portfolio but have not been specifically identified. Loans are divided into segments for analysis based in part on the risk profile inherent in each category. Loans are further segmented into pools within each segment to appropriately recognize changes in inherent risk. A primary component of determining the general allowance for performing and other items that, in management’s opinion, deserve current recognition in estimating credit losses. The method for calculatingclassified loans not analyzed specifically is the actual loss history of the various pools. A portion of the allowance for loan and lease losses is dependent on the borrower type and covered status.The noncovered noncommercial loan portfolio is segregated into loans with similar characteristics and the historical loss rates for each identified loan pool, adjusted for current trends and economic conditions, are appliednot allocated to each identified homogeneous loan pool to calculate the amountany specific category of loans. This nonspecific portion of the allowance reflects management's best estimate of the elements of imprecision and estimation risk inherent in the calculation of the overall allowance. This portfolio segment includes a large numberDue to the subjectivity involved in determining the overall allowance, including the nonspecific portion, the portion considered nonspecific may fluctuate fromimpairment. Duefact thatfactors affecting the expected losses within each credit quality rating and borrowing class are predictable, these non-impaired loans are aggregated for evaluation. Theassumptions used in calculating the allowance, including historical loss rates for each group, adjusted forexperience, current trends and economic conditions, are applied to each loan pool to arrive at the required reserve.The allowance for covered loans that are deemed to be impaired at the acquisition date is calculated based on a discounted cash flow analysis that considers the collateral value and estimated holding period. These loans are recorded at fair value at acquisition date, and an allowance is recorded for any reduction in the expected cash flows or deterioration in credit that occurs post-acquisition. Nonimpaired covered loans are grouped into homogeneous loan pools based on the credit grade and estimated loss rates are applied to each pool based on the expected losses that have occurred since acquisition. Any covered loans greater than $1,000 that were not determined to be impaired at the acquisition date but are determined to be impaired at a later date are subject to an individual impairment analysis. The reserves on covered loans are recorded through charges to the provision for loan and lease losses which serves to increase the ALLL. An adjustment is recorded to the receivable from the FDIC with an offset to interest income for the portion of losses that are covered by the FDIC loss share agreements.The methods described above are largely dependent on historical loss measures and may not reflect all losses evident in the portfolio at the measurement date. As a result of this timing lag and other potential imprecisions, we maintain a nonspecific allowance as part of the allowance for loan and lease losses. The inclusion of the nonspecific allowance provides an additional reserve that is determined by management after considering current and projected economic conditions, the extent of concentrations of loans, the changes in lending policies or procedures, and changes in the mix of the loan portfolio.Management considersALLL adequateor partial charge-offs are recorded on impaired loans for the difference between the loan amount and the estimated net realizable value. With respect to absorb probable losses that relate tomost real estate loans, and leases outstandingspecifically if the loan is considered to be a probable foreclosure, a fair value of collateral approach is generally used. The underlying collateral is appraised and market value, appropriately adjusted for an assessment of the sales and marketing costs as of December 31, 2010.BancShares’BancShares' ALLL. Such agencies may require the recognition of adjustments to the ALLL based on their judgments of information available to them at the time of their examination.sheetsheets separately from the allowance for loan and lease losses and adjustments to the reserve for unfunded commitments isare included in other noninterest expense in the consolidated statements of income.Nonaccrual Loans, Impaired LoansSecurities sold under repurchase agreements generally have maturities of one day and Restructured LoansAccrualare reflected as short-term borrowings on the Consolidated Balance Sheets and are recorded based on the amount of interest on certain residential mortgage loans is discontinued when the loan is more than three payments past due. Accrual of interest on other loans and leases is discontinued when management deems that collection of additional principal or interest is doubtful. Residential mortgage loans return to an accrual status when the loan balance is less than three payments past due. Other loans and leases are returned to an accrual status when both principal and interest are current and the loan is determined to be performingcash received in accordanceconnection with the applicable terms.Management considers a loan to be impaired when based on current informationborrowing. At December 31, 2012, and events, it is probable that a borrower will be unable to pay all amounts due according to contractual terms2011, BancShares had $111,907 and $172,275 of the loan agreement. Impaired loans are valued by either the discounted expected cash flow method using the loan’s original effective interest rate or the collateral value. When the ultimate collectibility of an impaired loan’s principal is doubtful, all cash receipts are applied to principal.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone.When a secured loan is determined to be uncollectable, it is charged off by reducing the loan balance and the related allowance for the portion of the loan that exceeds the estimated collateral value. A loan is deemed to be uncollectable when the financial position of the borrower indicates that collection of all or part of future payments due will not occur. Unsecured loans are charged off in full when they become four months past due unless a definitive plan has been established for repayment.Restructured loans are loans that have been modified due to deterioration in the borrower’s financial condition, resulting in more favorable terms for the borrower. Accrual of interest is continued for restructured loans when the borrower was performing prior to the restructuring and there is reasonable assurance of repayment and continued performancesecurities sold under the modified terms. Accrual of interest on restructured loans in non-accrual status is resumed when the borrower has established a sustained period of performance under the restructured terms of at least six months.Other Real Estate OwnedOther real estate owned (OREO) is valued at the lower of the loan balance at the time of foreclosure or estimated fair value net of selling costs. Once acquired, OREO is periodically reviewed to ensure that the fair value of the property supports the carrying value, with writedowns recorded when necessary. Gains and losses resulting from the sale or writedown of OREO and income and expenses related to its operation are recorded in other noninterest expense.OREO covered by loss sharerepurchase agreements, with the FDIC is reported exclusive of expected reimbursement cash flows from the FDIC. Subsequent downward adjustments to the estimated recoverable value of covered OREO result in a reduction of covered OREO, a charge to other noninterest expense and an increase in the FDIC receivable for the estimated amount to be reimbursed, with a corresponding amount recorded as an adjustment to other noninterest income.Management used appraisals of properties to determine fair values and applied additional discounts where appropriate for passage of time or, in certain cases, for subsequent events occurring after the appraisal date.TVB.TVB and United Western. The asset wasassets were initially recorded at fair value based on valuations performed by an independent third party. The valuation model incorporatesconsidered assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds, and other factors typical in such a valuation. SBA loan originations have been discontinued. Thediscontinued, and the servicing asset isassets are being amortized over the estimated life of the underlying loans.equipmentcapital leases are stated at cost less accumulated depreciation and amortization. For financial reporting purposes, depreciation and amortization are computed by the straight-line method and are expensed over the estimated useful lives of the assets, which range from 25 to 40 years for premises and three3 to 10 years for furniture, software and equipment. Leasehold improvements are amortized over the terms of the respective leases or the useful lives of the improvements, whichever is shorter. Gains and losses on dispositions are recorded in other expense. Maintenance and repairs are charged to occupancy expense or equipment expense as incurred.Goodwill representsexcessacquisition method of accounting. Under acquisition accounting, if the purchase price overof an acquired company exceeds the fair value of its net assets, 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 or other legal rights or if it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. Intangible assets are identifiable assets, such as core deposit intangibles, resulting from acquisitions which are amortized on a straight-line 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. combination. 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 down 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.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESJuly 31NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) each year. For (dollars in thousands)2012representsdisclosures are required for all financial instruments, whether or not recognized in the pricebalance sheet, for which it is practicable to estimate that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, BancShares considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. US GAAP, individual 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 and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on level 2 inputs, which representsrepresent 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.Certain financial assets Fair value estimates derived from level 3 inputs cannot be substantiated by comparison to independent markets and, liabilities mayin many cases, could not be carried atrealized through immediate settlement of the instrument. Accordingly, the aggregate fair value with changes in fairamounts presented do not represent the underlying value recognized into BancShares. For additional information, see Note income statement each period. BancShares did not elect to report any assets and liabilities at fair value.Income tax expense is based on income beforeand generally differs fromare reported when different accounting methods have been used in determining income taxes paid due to deferredfor income taxestax purposes and benefits arising from income and expenses being recognized in different periods for financial and income tax reporting purposes. BancShares usesDeferred taxes are computed using the asset and liability approach as prescribed in ASC Topic 740, Income Taxes. Under this method, to account for deferred income taxes. The objective of the asset and liability method is to establisha deferred tax assets and liabilities forasset or liability is determined based on the temporarycurrently enacted tax rates applicable to the period in which the differences between the financial reporting basisstatement carrying amounts and the income tax basis of BancShares’existing assets and liabilities at enacted ratesare expected to be reported in BancShares' income tax returns. The effect when such amounts are realized or settled.and its subsidiaries filefiles a consolidated federal income tax return. BancSharesreturn and its subsidiaries each filevarious combined and separate company state income tax returns except where unitary filing is required.20062011, 2009 and 2009,2006, BancShares entered into interest rate swaps that qualify as cash flow hedges under US GAAP. These interest rate swaps convert variable-rate exposure on outstanding debt to a fixed rate. The derivatives are valued each quarter, and changes in the fair values are recorded on the consolidated balance sheet with an offset to other comprehensive income 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 swaps have been fully effective since inception;FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)The average number of shares outstanding for 2010, 2009 and 2008 was 10,434,453. BancShares had no potential common stock outstanding in any period.Current Accounting MattersBeginning with the first annual reporting period after November 15, 2009, the concept ofspecial purpose entity (QSPE) is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities (as defined under previous accounting standards) must be evaluated for consolidation by reporting entities in accordance with applicable consolidation guidance. If the evaluation results in consolidation, the reporting entity should apply the transition guidance provided in the pronouncement that requires consolidation. In addition, an enterprise is required to perform an analysis to determine whether the enterprise’s variable interests give it a controlling financial interest in a variable interest entity (VIE). This change is intended to improve the relevance, representational faithfulness, and comparabilityemployees. The calculation of the information that a reporting entity provides in its financial statements about a transfer of financial assets;obligations and related expenses under the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets and VIE’s. In 2005, FCB securitized and sold $250,000 of revolving mortgage loans throughplan requires the use of a QSPE. This QSPE was determined to be a VIE for which BancShares is now obligated to recognizeactuarial valuation methods and assumptions. Actuarial assumptions used in the underlyingdetermination 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 obligation is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plan are discounted based on this yield curve, and a single discount rate is calculated to achieve the same present value. Refer to Note L - Employee Benefit Plans in the consolidated financial statements. The assets and liabilities were recorded in the first quarter of 2010 with an increase in loans of $97,291, an increase in debt of $86,926, removal of the carrying value of the residual interest strip in the amount of $1,287, recognition of $3,456 in deferred tax liability, increase in the allowanceNotes to Consolidated Financial Statements for loan and lease losses of $681, decrease to the servicing asset for $304 and an adjustment to beginning retained earnings for $4,904.Beginning January 1, 2010, new accounting guidance requires expanded disclosures related to BancShares' defined benefit pension plan.measurements including (i)and for disclosing information about fair value measurements. The ASU clarifies the amountsapplication of significantexisting fair value measurement requirements and changes principles or requirement for measuring fair value and for disclosing information about fair valueof assets or liabilities between levelsLevels 1 and 2 of the fair value hierarchy, not justreasonssignificant unobservable inputs used for all Level 3 measurements, a qualitative discussion about the transfers, (ii)sensitivity of recurring Level 3 measurements to changes in the reasons for transfers of assets or liabilities in or out of level 3unobservable inputs disclosed, and a description of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policyvaluation processes. The adoption of ASU 2011-04 was effective for determining when transfers between levels of the fair value hierarchy are recognizedreporting periods beginning on or after December 15, 2011, and (iv) for recurring fair value measurements of assets and liabilities in level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. The guidance further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the balance sheet and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in level 3 of the fair value hierarchy will be required beginning January 1, 2011. The remaining disclosure requirements and clarifications became effective on January 1, 2010 and areis included in Note K—Estimated Fair Values.In July, 2010,K to the Consolidated Financial Statements.issuedDisclosuresASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income” as amended by FASB ASU 2011-12, “Comprehensive Income (Topic 220)-Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update (“ASU”) 2011-05.”QualityUnion Administration) acquisition of Financing Receivablesa financial institution that includes a loss sharing agreement (indemnification agreement). When BancShares recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), BancShares should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the Allowance for Credit Loss (ASU 2010-20). In an effort to provide financial statement users with greater transparency about the allowance for loan and lease losses, ASU 2010-20 requires enhanced disclosures regarding the nature of credit risk inherent in the portfolio and how risk is analyzed and assessed in determining the amountremaining life of the allowance. Changes inFIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)the allowance will also require disclosure. The end-of-period disclosures areindemnified assets). This guidance is effective for BancShares on December 31, 2010 with the exception of disclosures related to troubled debt restructurings, which become effective for interim and annual periods endingbeginning on or after JuneDecember 15, 2011. The disclosures related to activity during a period are effective during 2011. The provisions of ASU 2010-20 have affected disclosures regarding the allowance2012, and interim periods within those annual periods. BancShares has previously accounted for loan and lease losses, butits indemnification asset in accordance with this guidance; accordingly, this guidance will have no material impact on BancShares' consolidated financial condition,position, results of operations, or liquidity.In December 2010,FASB ASU 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.”FASB issuedIntangibles—Goodwilldifferences in reporting between GAAP and Other (Topic 350)—WhenInternational Financial Reporting Standards (“IFRS”) regarding offsetting (netting) assets and liabilities and enhances current disclosures. ASU 2011-11 requires BancShares to Perform Step 2disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope includes derivatives, sale and repurchase agreements and reverse sales and repurchase agreements, as well as securities borrowing and securities lending arrangements. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. BancShares does not expect the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts(ASU 2010-28). This update modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The provisionsadoption of ASU 2010-28 will be effective beginning January 1, 2011 and are not expected2011-11 to have a material impact on its financial condition or results of operations or liquidity.operations.The enactmenttheDodd-Frank Wall Street Reform and Consumer Protection Actwill result in expansive changes in many areas affecting the financial services industry in general and BancShares in particular. The legislation provides broad economic oversight, consumer financial services protection, investor protection, rating agency reform and derivative regulatory reform. Various corporate governance requirements will result in expanded proxy disclosures and shareholder rights. Additional provisions address the mortgage industry in an effort to strengthen lending practices. Deposit insurance reform will result in permanent FDIC protection for up to $250 of deposits and will require the FDIC’s Deposit Insurance Fund to maintain 1.35 percent of insured deposits with the burden for closing the shortfall falling to banks with more than $10,000,000 in assets. The legislation also imposes new regulatory capital requirements for banks that will result in the disallowance of qualified trust preferred securities as tier 1 capital beginning in 2013. This legislation requires the reduction in tier 1 capital by the amount of qualified trust preferred securities in equal increments over a three year period beginning in 2013. BancShares has $265,000 in trust preferred securities that is currently outstanding and included as tier 1 capital. Another provision of the legislation gives the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10,000,000 and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. This provision may have a negative impact non-interest income.NOTE B: FDIC-ASSISTED TRANSACTIONSDuring 2010 and 2009, FCB acquired assets and assumed liabilities of four entities as noted below with the assistance of the FDIC, which had been appointed Receiver of each entity by its respective state banking authority.Name of entityHeadquarters locationDate of transactionSun American Bank (SAB)Boca Raton, FloridaMarch 5, 2010First Regional Bank (First Regional)Los Angeles, CaliforniaJanuary 29, 2010Venture Bank (VB)Lacey, WashingtonSeptember 11, 2009Temecula Valley Bank (TVB)Temecula, CaliforniaJuly 17, 2009On January 29, 2010, FCB purchased substantially all the assets and assumed substantially all the liabilities of First Regional from the FDIC, as Receiver. First Regional operated through 8 offices in the state of California, primarily serving Southern California. The FDIC took First Regional under receivership upon its closure by the California Department of Financial Institutions. FCB’s bid to the FDIC included the purchase of substantially all of First Regional’s assets at a discount of $299,400 in exchange for assuming certain First Regional deposits and certain other liabilities. No cash, deposit premium or other consideration was paid by FCB. FCB and the FDIC entered into loss share agreements regarding future losses incurred on loans and other real estate acquired through foreclosure existing at the acquisition date. Under the termsof the loss share agreements, there is no reimbursement by the FDIC until net losses reach $41,815. The FDIC will reimburse FCB for 80 percent of net losses incurred up to $1,017,000, and 95 percent of net losses exceeding $1,017,000.The Purchase and Assumption Agreement between FCB and the FDIC also includes a true-up payment at the end of year 10. On March 17, 2020, the true-up measurement date, FCB is required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of (i) 20 percent of the stated threshold, or $203.4 million, less (ii) the sum of (a) 25 percent of the asset discount, or $74.9 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the cumulative servicing amount. The cumulative servicing amount is 1 percent of the average covered assets for each year during the terms of the loss share agreements. Current projections suggest a true-up payment of $67,219 will be payable under the First Regional loss share agreements. This estimate is subject to change over the term of the agreements.The term for loss share on residential real estate loans is ten years, while the term for loss share on non-residential real estate loans is five years in respect to losses and eight years in respect to loss recoveries. As a result of the loss share agreements with the FDIC and considering an estimate of a contingent true-up payment to the FDIC, FCB recorded a receivable of $365,170 at the time of acquisition. During the second and third quarters of 2010, adjustments were made to the FDIC receivable based on changes in loss estimates related to covered loans and other real estate owned that affect the respective acquisition date fair values. These adjustments were made retroactive to the first quarter of 2010 and increased the receivable by $13,525.On March 5, 2010, FCB purchased substantially all the assets and assumed substantially all the liabilities of SAB from the FDIC, as Receiver. SAB operated 12 offices in the state of Florida, primarily serving South Florida. The FDIC took SAB under receivership upon its closure by the Florida Office of Financial Regulation. FCB’s bid to the FDIC included the purchase of substantially all of SAB’s assets at a discount of $69,400 in exchange for assuming certain SAB deposits and certain other liabilities. The FDIC paid FCB $31,965 in additional cash consideration at closing. FCB and the FDIC entered into loss share agreements regarding future losses incurred on loans and other real estate acquired through foreclosure existing at the acquisition date. Under the terms of the loss share agreements, the FDIC will reimburse FCB for 80 percent of net losses incurred up to $99,000 and 95 percent of net losses exceeding $99,000.The Purchase and Assumption Agreement between FCB and the FDIC also includes a true-up payment at the end of year 10. On May 15, 2020, the true-up measurement date, FCB is required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of (i) 20 percent of the stated threshold, or $19.8 million, less (ii) the sum of (a) 25 percent of the asset discount, or $17.5 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the cumulative servicing amount. The cumulative servicing amount is 1 percent of the average covered assets for each year during the terms of the loss share agreements. Although no true-up payment is currently projected under the SAB loss share agreements, those projections are subject to change.The term for loss share on residential real estate loans is ten years, while the term for loss share on non-residential real estate loans is five years in respect to losses and eight years in respect to loss recoveries. As a result of the loss share agreements with the FDIC, FCB recorded a receivable of $92,360 at the time of acquisition. During the second quarter of 2010, adjustments were made to the FDIC receivable based on changes in loss estimates related to covered loans and other real estate owned that affect the respective acquisition date fair values. These adjustments were made retroactive to the first quarter of 2010 and decreased the receivable by $2,626.The FDIC-assisted acquisitions of First Regional and SAB were accounted for using the acquisition method of accounting. The statement of net assets acquired, adjustments to the acquisition date fair values made in the second and third quarters and the resulting bargain purchase gains are presented in the following tables. As indicated in the explanatory notes that accompany the following tables, the purchased assets, assumed liabilities and identifiable intangible assets were recorded at their respective acquisition date estimated fair values. Fair values are subject to refinement for up to one year after the closing date of each merger as additional information regarding closing date fair values becomes available. During this one year period, the causes of any changes in cash flow estimates are considered to determineFIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)whether the change results from circumstances that existed as of the acquisition date or if the change results from an event that occurred after the acquisition. Adjustments to the estimated fair values made in the second and third quarters were based on additional information regarding the acquisition date fair values, which included updated appraisals on several commercial properties on acquired impaired loans and updated financial statements for some borrowers which allowed for adjustments to expected cash flows that more closely reflect the borrowers’ ability to repay the debt.First quarter 2010 noninterest income as originally reported included bargain purchase gains of $137,447 that resulted from the First Regional and SAB transactions. The gains resulted from the difference between the estimated fair values of acquired assets and assumed liabilities. During the second and third quarters of 2010, adjustments were made to the gains based on additional information regarding the respective acquisition date fair values. These adjustments were made retroactive to the first quarter of 2010, resulting in an adjusted gain of $136,000. FCB recorded a deferred tax liability for the gains totaling $53,258. To the extent there are additional adjustments to the respective acquisition date fair values up to one year following the respective acquisitions, there will be additional adjustments to the gains.The following tables identify the assets acquired and liabilities assumed by FCB from First Regional and SAB. The tables provide the balances recorded by First Regional and SAB at the time of the respective FDIC-assisted transactions, the fair value adjustments recorded and the resulting adjusted fair values recorded by FCB for the acquisition date.First Regional BankAcquisition date: January 29, 2010 As recorded
by First
Regional Fair value
adjustments
at date of
acquisition Subsequent
acquisition-date
adjustments As recorded
by FCB (thousands) $ 37,508 $ — $ — $ 37,508 3,250 — — 3,250 1,853,325 (576,171 ) a (16,905 ) a 1,260,249 61,488 (20,353 ) b 791 b 41,926 6,048 — — 6,048 — 365,170 c 13,525 i 378,695 — 9,110 d — 9,110 23,782 (500 ) e — 23,282 $ 1,985,401 $ (222,744 ) $ (2,589 ) $ 1,760,068 $ 528,235 $ — $ — $ 528,235 759,484 — — 759,484 1,287,719 — — 1,287,719 361,876 — — 361,876 1,188 1,547 h — 2,735 1,650,783 1,547 — 1,652,330 $ 334,618 $ (224,291 ) $ (2,589 ) $ 107,738 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)Sun American BankAcquisition date: March 5, 2010 As recorded
by SAB Fair value
adjustments
at acquisition
date Subsequent
acquisition-date
adjustments As recorded
by FCB (thousands) $ 37,016 $ — $ — $ 37,016 66,968 — — 66,968 411,315 (123,707 ) a 3,283 a 290,891 15,220 (7,200 ) b — 8,020 1,612 — — 1,612 — 92,360 c (2,626 ) i 89,734 — 629 d — 629 4,473 — — 4,473 $ 536,604 $ (37,918 ) $ 657 $ 499,343 $ 39,435 $ — $ — $ 39,435 380,577 — — 380,577 420,012 — — 420,012 42,485 48 f — 42,533 37,000 3,082 g — 40,082 853 51 h — 904 500,350 3,181 — 503,531 $ 36,254 $ (41,099 ) $ 657 31,965 $ 27,777 Explanation of fair value adjustmentsa—Adjustment reflects the fair value adjustments based on FCB’s evaluation of the acquired loan portfolio.b—Adjustment reflects the estimated OREO losses based on FCB’s evaluation of the acquired OREO portfolio.c—Adjustment reflects the estimated fair value of payments FCB will receive from the FDIC under the loss share agreements.d—Adjustment reflects the estimated value of intangible assets, which includes core deposit intangibles and when applicable, trust customer relationships.e—Adjustment reflects the amount needed to adjust the carrying value of other assets to estimated fair value.f—Adjustment arises since the rates on short-term borrowings are higher than rates available on similar borrowings at date of acquisition.g—Adjustment arises since the rates on long-term obligations are higher than rates available on similar borrowings at date of acquisition.h—Adjustment reflects amount needed to adjust the carrying value of other liabilities to estimated fair value.i—Adjustment to acquisition date fair value based on additional information received post-acquisition regarding acquisition date fair value.Results of operations for First Regional and SAB prior to their respective acquisition dates are not included in the income statement.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)Total revenues for 2010 increased by $212.9 million due to the First Regional transaction and $48.6 million due to the SAB transaction. BancShares does not track post-acquisition earnings for First Regional and SAB on a stand-alone basis. Due to the significant amount of fair value adjustments, the resulting accretion of those fair value adjustments and the protection resulting from the FDIC loss share agreements, historical results of First Regional and SAB are not relevant to BancShares’ historical results of operations. Therefore, no pro forma information is presented.On January 21, 2011, FCB entered into an agreement with the FDIC to purchase substantially all the assets and assume the majority of the liabilities of United Western Bank (United Western) of Denver, Colorado at a discount of $213,000, with no deposit premium. The FDIC serves as Receiver of United Western. The Purchase and Assumption Agreement with the FDIC includes loss share agreements on the loans and other real estate purchased by FCB which provides protection against losses to FCB.The loans and OREO purchased from United Western are covered by two loss share agreements between the FDIC and FCB (one for single family residential mortgage loans and the other for all other loans and ORE), which afford FCB significant loss protection. Under the loss share agreement for single family residential mortgage loans (SFRs), the FDIC will cover 80 percent of covered loan losses up to $32,489; 0 percent from $32,489 up to $57,653 and 80 percent of losses in excess of $57,653. The loss share agreement for all other loans and ORE will cover 80 percent of covered loan and ORE losses up to $111,517, 30 percent from $111,517 up to $227,032 and 80 percent of losses in excess of $227,032.United Western operated in Denver, Colorado, in eight branch locations in Boulder, Centennial, Cherry Creek, downtown Denver, Hampden at Interstate 25, Fort Collins, Longmont and Loveland.The acquisition of United Western is being accounted for under the acquisition method of accounting. The unaudited statement of assets and liabilities is presented in the following table. These amounts are based on the FDIC settlement statement and do not include adjustments to reflect the assets and liabilities at their fair value at date of acquisition. The calculations to determine fair values were incomplete at the time of filing of this Form 10-K.United Western BankAcquisition date: January 21, 2011 As recorded by
United Western Bank
January 21, 2011
(unaudited) $ 420,902 281,862 993,080 39,321 5,116 112,624 $ 1,852,905 $ 98,318 1,516,729 1,615,047 363,109 180,582 10,100 2,168,838 $ 315,933 $ 542,075 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)During February 2011, United Western’s parent company, United Western and directors of the parent company filed a complaint in the United States District Court for the District of Columbia against the FDIC, the OTS and others, claiming that the seizure of United Western by the OTS and the subsequent appointment of the FDIC as receiver was illegal. The complaint requests the court to direct the OTS to remove the FDIC as receiver, return control of United Western to the plaintiffs, reimburse the plaintiffs for their costs and attorney fees and to award plaintiffs other relief as may be just and equitable. Neither BancShares nor FCB were named in the complaint. It is unclear what impact, if any, the litigation will have on FCB or the assets acquired in the United Western transaction.C—B - INVESTMENT SECURITIES20102012, and 20092011, along with gains and losses determined on an individual security basis are as follows: Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value U.S. Government $ 3,866,135 $ 4,402 $ 11,151 $ 3,859,386 Corporate bonds 479,160 7,498 — 486,658 Residential mortgage-backed securities 139,291 4,522 268 143,545 State, county and municipal 1,240 20 4 1,256 Equity securities 1,055 18,176 — 19,231 $ 4,486,881 $ 34,618 $ 11,423 $ 4,510,076 U.S. Government $ 2,274,084 $ 14,005 $ 666 $ 2,287,423 Corporate bonds 481,341 4,326 — 485,667 Residential mortgage-backed securities 126,601 4,489 752 130,338 State, county and municipal 7,053 35 275 6,813 Equity securities 2,377 14,245 — 16,622 Other 1,937 362 — 2,299 $ 2,893,393 $ 37,462 $ 1,693 $ 2,929,162 Residential mortgage-backed securities $ 2,532 $ 235 26 $ 2,741 $ 2,532 $ 235 $ 26 $ 2,741 Residential mortgage-backed securities $ 3,452 $ 230 — $ 3,682 State, county and municipal 151 1 — 152 $ 3,603 $ 231 $ — $ 3,834 Corporate bonds are debt Cost Fair value Investment securities available for sale 2012 U.S. Treasury $ 823,241 $ 403 $ 12 $ 823,632 Government agency 3,052,040 3,501 337 3,055,204 Other 838 — 18 820 Residential mortgage-backed securities 1,315,211 14,787 341 1,329,657 Equity securities 543 15,822 — 16,365 State, county and municipal 546 4 — 550 Total investment securities available for sale $ 5,192,419 $ 34,517 $ 708 $ 5,226,228 2011 U.S. Treasury $ 887,041 $ 808 $ 30 $ 887,819 Government agency 2,591,974 1,747 1,512 2,592,209 Corporate bonds 250,476 2,344 — 252,820 Residential mortgage-backed securities 298,402 9,165 346 307,221 Equity securities 939 14,374 — 15,313 State, county and municipal 1,026 16 1 1,041 Total investment securities available for sale $ 4,029,858 $ 28,454 $ 1,889 $ 4,056,423 Investment securities held to maturity 2012 Residential mortgage-backed securities $ 1,342 $ 133 27 $ 1,448 2011 Residential mortgage-backed securities $ 1,822 $ 184 26 $ 1,980 pursuant toby the Temporary Liquidity Guarantee Program issued with the full faithGovernment National Mortgage Association, Federal National Mortgage Association, and credit of the United States of America.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)20102012, and 2009.2011. Callable agency securities are assumed to mature on their earliest call date. 2010 2009 Cost Fair Value Cost Fair Value $ 3,441,185 $ 3,436,818 $ 1,544,063 $ 1,554,657 916,101 921,536 1,226,202 1,233,604 1,683 1,710 1,943 2,201 126,857 130,781 118,808 122,078 1,055 19,231 2,377 16,622 $ 4,486,881 $ 4,510,076 $ 2,893,393 $ 2,929,162 $ — $ — $ 151 $ 152 2,404 2,570 3,306 3,497 128 171 146 185 $ 2,532 $ 2,741 $ 3,603 $ 3,834 2012 2011 Cost Fair value Cost Fair value Investment securities available for sale Maturing in: One year or less $ 2,288,556 $ 2,289,859 $ 3,238,657 $ 3,241,415 One through five years 2,323,222 2,329,207 548,459 549,351 Five through 10 years 194,398 196,371 90,605 91,087 Over 10 years 385,700 394,426 151,198 159,257 Equity securities 543 16,365 939 15,313 Total investment securities available for sale $ 5,192,419 $ 5,226,228 $ 4,029,858 $ 4,056,423 Investment securities held to maturity Maturing in: One through five years $ 1,242 $ 1,309 $ 12 $ 11 Five through 10 years 18 11 1,699 1,820 Over 10 years 82 128 111 149 Total investment securities held to maturity $ 1,342 $ 1,448 $ 1,822 $ 1,980 2010 2009 2008 $ 4,103 $ 104 $ 8,390 (1,730 ) — — (421 ) (615 ) (262 ) $ 1,952 $ (511 ) $ 8,128 During 2010, 2009 and 2008, BancShares recorded $421, $615 and $262 in other than temporary impairment losses on equity securities once it was determined that recovery 2012 2011 2010 Gross gains on sales of investment securities available for sale $ 2,324 $ 531 $ 4,103 Gross losses on sales of investment securities available for sale (2 ) (793 ) (1,730 ) Other than temporary impairment losses on equity investments (45 ) (26 ) (421 ) Total securities gains (losses) $ 2,277 $ (288 ) $ 1,952 original purchase priceOTTI recognized during 2012, 2011 and 2010 was unlikely.In conjunction with the securitization and salecredit related.20102012, and 2009: Less than 12 months 12 months or more Total Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses $ 1,985,339 $ 11,151 $ — $ — $ 1,985,339 $ 11,151 11,496 249 523 20 12,019 269 530 4 20 — 550 4 $ 1,997,365 $ 11,404 $ 543 $ 20 $ 1,997,908 $ 11,424 $ — $ — $ 26 $ 26 $ 26 $ 26 $ — $ — $ 26 $ 26 $ 26 $ 26 $ 250,600 $ 666 $ — $ — $ 250,600 $ 666 25,608 621 2,434 131 28,042 752 5,476 271 439 4 5,915 275 $ 281,684 $ 1,558 $ 2,873 $ 135 $ 284,557 $ 1,693 $ — $ — $ 29 $ 26 $ 29 $ 26 $ — $ — $ 29 $ 26 $ 29 $ 26 Less than 12 months 12 months or more Total December 31, 2012 Investment securities available for sale: U.S. Treasury $ 120,045 $ 12 $ — $ — $ 120,045 $ 12 Government agency 407,498 337 — — 407,498 337 Residential mortgage-backed securities 135,880 214 9,433 127 145,313 341 Other 820 18 — — 820 18 Total $ 664,243 $ 581 $ 9,433 $ 127 $ 673,676 $ 708 Investment securities held to maturity: Residential mortgage-backed securities $ — $ — $ 17 $ 27 $ 17 $ 27 Total $ — $ — $ 17 $ 27 $ 17 $ 27 December 31, 2011 Investment securities available for sale: U.S. Treasury $ 151,269 $ 30 $ — $ — $ 151,269 $ 30 Government agency 1,336,763 1,512 — — 1,336,763 1,512 Residential mortgage-backed securities 59,458 304 1,380 42 60,838 346 State, county and municipal — — 10 1 10 1 Total $ 1,547,490 $ 1,846 $ 1,390 $ 43 $ 1,548,880 $ 1,889 Investment securities held to maturity: Residential mortgage-backed securities $ — $ — $ 21 $ 26 $ 21 $ 26 Total $ — $ — $ 21 $ 26 $ 21 $ 26 $569$9,450 have had continuous unrealized losses for more than twelve months as of December 31, 2010.2012. The aggregate amount of the unrealized losses among those 1923 residential mortgage-backed securities was $46$154 at December 31, 2010. These securities include residential mortgage-backed and state, county and municipal securities.2012. Investment securities with an aggregate fair value of $2,902$1,411 had continuous unrealized losses for more than twelve months as of December 31, 2009.2011. The aggregate amount of the unrealized losses among those 2618 securities was $161$69 at December 31, 2009.2011. These securities include residential mortgage-backed and state, county and municipal securities. None of the unrealized losses identified as of December 31, 20102012, and 20092011, relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. At December 31, 20102012, and 2009,2011, BancShares had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Therefore, none of the securities are deemed to be other than temporarily impaired.$2,096,850$2,351,072 at December 31, 20102012, and $2,121,783$2,588,704 at December 31, 2009,2011, were pledged as collateral to secure public funds on deposit, to secure certain short-term borrowings and for other purposes as required by law.D—C - LOANS AND LEASES 2010 2009 $ 2,007,452 $ 1,173,020 338,929 541,110 4,737,862 4,552,078 149,710 158,187 1,805,935 1,832,670 301,289 330,713 182,015 195,084 7,515,740 7,609,842 878,792 864,704 2,233,853 2,147,223 192,954 81,244 659,238 941,986 3,964,837 4,035,157 11,480,577 11,644,999 $ 13,488,029 $ 12,818,019 (1)Covered loans are acquired loans subject to loss share agreements with the FDIC. 2010 2009 Impaired at
acquisition
date All other
acquired
loans Total Impaired at
acquisition
date All other
acquired
loans Total $ 102,988 $ 265,432 $ 368,420 $ 10,317 $ 213,170 $ 223,487 120,240 968,824 1,089,064 36,820 553,579 590,399 34,704 175,957 210,661 331 21,307 21,638 9,087 123,390 132,477 5,958 89,273 95,231 — 1,510 1,510 476 2,411 2,887 267,019 1,535,113 1,802,132 53,902 879,740 933,642 11,026 63,469 74,495 8,828 143,481 152,309 8,400 9,466 17,866 — — — 44,260 61,545 105,805 12,383 70,172 82,555 — 7,154 7,154 255 4,259 4,514 63,686 141,634 205,320 21,466 217,912 239,378 $ 330,705 $ 1,676,747 $ 2,007,452 $ 75,368 $ 1,097,652 $ 1,173,020 2012 2011 Covered loans $ 1,809,235 $ 2,362,152 Noncovered loans and leases: Commercial: Construction and land development 309,190 381,163 Commercial mortgage 5,341,839 5,104,993 Other commercial real estate 160,980 144,771 Commercial and industrial 1,726,126 1,764,407 Lease financing 330,679 312,869 Other 125,681 158,369 Total commercial loans 7,994,495 7,866,572 Noncommercial: Residential mortgage 822,889 784,118 Revolving mortgage 2,210,133 2,296,306 Construction and land development 131,992 137,271 Consumer 416,606 497,370 Total noncommercial loans 3,581,620 3,715,065 Total noncovered loans and leases 11,576,115 11,581,637 Total loans and leases $ 13,385,350 $ 13,943,789 2012 2011 Total Total Covered loans: Commercial: Construction and land development $ 71,225 $ 166,681 $ 237,906 $ 117,603 $ 221,270 $ 338,873 Commercial mortgage 107,281 947,192 1,054,473 138,465 1,122,124 1,260,589 Other commercial real estate 35,369 71,750 107,119 33,370 125,024 158,394 Commercial and industrial 3,932 45,531 49,463 27,802 85,640 113,442 Lease financing — — — — 57 57 Other — 1,074 1,074 — 1,330 1,330 Total commercial loans 217,807 1,232,228 1,450,035 317,240 1,555,445 1,872,685 Noncommercial: Residential mortgage 48,077 249,849 297,926 46,130 281,438 327,568 Revolving mortgage 9,606 29,104 38,710 15,350 36,202 51,552 Construction and land development 15,136 5,657 20,793 78,108 27,428 105,536 Consumer — 1,771 1,771 1,477 3,334 4,811 Total noncommercial loans 72,819 286,381 359,200 141,065 348,402 489,467 Total covered loans $ 290,626 $ 1,518,609 $ 1,809,235 $ 458,305 $ 1,903,847 $ 2,362,152 2010, 26.32012, 26.1 percent of noncovered loans and leases were to customers in medical-related fields, compared to 25.126.5 percent at December 31, 2009.2011. These loans are primarily commercial mortgage loans as they are generally secured by owner-occupied commercial real estate. There were no foreign loans or loans to finance highly leveraged transactions during 20102012 or 2009.2011.TheCertain loans acquired during 2009in FDIC-assisted transactions that are covered under loss share agreements includewere made to borrowers that are not within the principal market areas of the originating banks.20102012, noncovered loans totaling $3,744,067$2,570,773 were pledged to secure debt obligations, compared to $3,579,503$2,492,644 at December 31, 2009.Description of segment and class risks.Each of our portfolio segments and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of our loan and lease portfolio. Management has identified the most significant risks as described below which are generally similar among our segments and classes. While the list in not exhaustive, it provides a description of the risks that management has determined are the most significant.Commercial loans and leasesWe centrally underwrite each of our commercial loans and leases based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We endeavor to gain a complete understanding of our borrower’s businesses including the experience and background of the principals. To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans and leases, we gain an understanding of the likely value of the collateral and what level of strength the collateral brings to the loan transaction. To the extent that the principals or other parties provide personal guarantees, we analyze the relative financial strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, 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 our collateral. Due to our concentration of loans in the medical, dental, and related fields, we are susceptible to risks that legislative and governmental actions will fundamentally alter the economic structure of the medical care industry in the United States.In addition to these common risks for the majority of our commercial loans and leases, additional risks are inherent in certain of our classes of commercial loans and leases.Commercial construction and land developmentCommercial construction and land development loans are highly dependent on the supply and demand for commercial real estate in the markets we serve as well as the demand for newly constructed residential homes and lots that our customers are developing. Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our customers.Commercial mortgage, commercial and industrial and lease financingCommercial mortgage and commercial and industrial loans and lease financing are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with the contractual termsFIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)may be at risk. While these loans and leases are generally secured by real property, personal property, 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 estateOther commercial real estate loans consist primarily of loans secured by multifamily housing and agricultural loans. 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 our customer having to provide rental rate concessions to achieve adequate occupancy rates. The performance of agricultural loans are 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.Non-commercial loansWe centrally underwrite each of our non-commercial loans 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 we also evaluate the likely value of that collateral. Common risks to each class of non-commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, particularly unemployment and potential declines in real estate values. Personal events such as disability or change in marital status also add risk to non-commercial loans.In addition to these common risks for the majority of our non-commercial loans, additional risks are inherent in certain of our classes of non-commercial loans.Revolving mortgageRevolving 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 our second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lienholders that may further weaken our 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.ConsumerThe 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 in excess of principal repayment.Residential mortgage and non-commercial construction and land developmentResidential mortgage and non-commercial construction and land development loans are 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. Such a decline in values has led to unprecedented levels of foreclosures and losses during 2008-2010 within the bankingFIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)industry. Non-commercial construction and land development loans often 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.Covered loansThe risks associated with covered loans are generally consistent with the risks identified for commercial and non-commercial loans and the classes of loans within those segments. An additional substantive risk with respect to covered loans relates to the FDIC loss share agreements, specifically the ability to receive timely and full reimbursement from the FDIC for losses and related expenses that we believe are covered by the loss share agreements. Further, these loans were underwritten by other institutions with weaker lending standards. Therefore, there is a significant risk that the loans are not adequately supported by the paying capacity of the borrower or the values of underlying collateral at the time of origination.basis and the composition of the loans and leases outstanding at December 31, 2010 by credit quality indicator is provided below.basis. The credit quality indicators used are dependent on the portfolio segment to which the loan relates. Commercial loans and leases, non-commercialnoncommercial loans and leases and covered loans have different credit quality indicators as a result of the methods used to monitor each of these loan segments. loan and lease credit quality indicators for commercial loans and leases and all covered loans and leases are developed through review of individual borrowers on an ongoing basis. Each borrower is evaluated at least annually with more frequent evaluation of more severely criticized loans or leases. The indicators represent the rating for loans or leases as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESDecember 31, 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued), and (dollarsDecember 31, 2011, relate to business credit cards and tobacco buyout loans. Tobacco buyout loans with an outstanding balance of $43,110 at December 31, 2012, and $63,129 at December 31, 2011, are secured by assignments of receivables made pursuant to the Fair and Equitable Tobacco Reform Act of 2004. The credit risk associated with these loans is considered low as the payments that began in thousands) loan credit quality indicators for noncovered, non-commercialnoncommercial loans and leases are based on the delinquency status of the borrower. As the borrower becomes more delinquent, the likelihood of loss increases. Noncovered commercial loans and leases Construction
and Land
Development Commercial
Mortgage Other
Commercial
Real Estate Commercial
and
Industrial Lease
Financing Other Total $ 285,988 $ 4,390,634 $ 137,570 $ 1,633,775 $ 291,476 $ 181,044 $ 6,920,487 20,957 229,581 6,531 42,639 6,888 846 307,442 29,714 108,239 5,103 24,686 2,496 90 170,328 2,270 7,928 401 748 414 — 11,761 — 1,480 105 104,087 15 35 105,722 $ 338,929 $ 4,737,862 $ 149,710 $ 1,805,935 $ 301,289 $ 182,015 $ 7,515,740 Noncovered non-commercial loans Residential
Mortgage Revolving
Mortgage Construction
and Land
Development Consumer Total $ 840,328 $ 2,226,427 $ 187,918 $ 642,782 $ 3,897,455 13,051 3,682 1,445 12,798 30,976 4,762 1,424 548 2,611 9,345 20,651 2,320 3,043 1,047 27,061 $ 878,792 $ 2,233,853 $ 192,954 $ 659,238 $ 3,964,837 Covered loans Construction
and Land
Development
Commercial Commercial
Mortgage Other
Commercial
Real Estate Commercial
and
Industrial Residential
Mortgage Revolving
Mortgage Construction
and Land
Development
Non-commercial Consumer
and Other Total $ 98,449 $ 430,526 $ 77,162 $ 46,450 $ 39,492 $ 5,051 $ — $ 6,296 $ 703,426 90,203 261,273 40,756 36,566 17,041 3,630 3,549 1,231 454,249 79,631 326,036 65,896 41,936 11,609 3,462 67,594 691 596,855 100,137 71,175 26,847 7,525 6,353 1,837 34,662 438 248,974 — 54 — — — 3,886 — 8 3,948 $ 368,420 $ 1,089,064 $ 210,661 $ 132,477 $ 74,495 $ 17,866 $ 105,805 $ 8,664 $ 2,007,452 Commercial noncovered loans and leases Grade: Lease financing Other December 31, 2012 Pass $ 274,480 $ 5,018,677 $ 151,549 $ 1,564,862 $ 325,626 $ 124,083 $ 7,459,277 Special mention 14,666 161,789 2,812 18,368 1,601 837 200,073 Substandard 18,761 145,980 5,038 24,059 1,663 756 196,257 Doubtful 952 12,822 98 1,693 771 — 16,336 Ungraded 331 2,571 1,483 117,144 1,018 5 122,552 Total $ 309,190 $ 5,341,839 $ 160,980 $ 1,726,126 $ 330,679 $ 125,681 $ 7,994,495 December 31, 2011 Pass $ 332,742 $ 4,749,254 $ 130,586 $ 1,556,651 $ 306,225 $ 157,089 $ 7,232,547 Special mention 18,973 220,235 5,821 36,951 4,537 1,271 287,788 Substandard 28,793 129,391 7,794 28,240 2,107 — 196,325 Doubtful 17 1,164 377 643 — — 2,201 Ungraded 638 4,949 193 141,922 — 9 147,711 Total $ 381,163 $ 5,104,993 $ 144,771 $ 1,764,407 $ 312,869 $ 158,369 $ 7,866,572 Noncommercial noncovered loans and leases Consumer December 31, 2012 Current $ 786,626 $ 2,190,186 $ 128,764 $ 409,218 $ 3,514,794 31-60 days past due 15,711 12,868 1,941 4,405 34,925 61-90 days past due 7,559 3,200 490 1,705 12,954 Over 90 days past due 12,993 3,879 797 1,278 18,947 Total $ 822,889 $ 2,210,133 $ 131,992 $ 416,606 $ 3,581,620 December 31, 2011 Current $ 757,113 $ 2,286,511 $ 135,774 $ 491,142 $ 3,670,540 31-60 days past due 11,790 3,437 798 3,514 19,539 61-90 days past due 2,686 2,042 127 1,271 6,126 Over 90 days past due 12,529 4,316 572 1,443 18,860 Total $ 784,118 $ 2,296,306 $ 137,271 $ 497,370 $ 3,715,065 Covered loans Grade: Lease financing Construction
and land
development
non- commercial December 31, 2012 Pass $ 17,010 $ 376,974 $ 33,570 $ 19,451 $ — $ 172,165 $ 29,540 $ 334 $ 1,617 $ 650,661 Special mention 25,734 259,264 17,518 12,465 — 14,863 1,736 — 34 331,614 Substandard 105,061 344,542 44,335 14,698 — 83,193 7,434 17,190 239 616,692 Doubtful 87,445 73,016 11,696 2,757 — 4,268 — 3,269 117 182,568 Ungraded 2,656 677 — 92 — 23,437 — — 838 27,700 Total $ 237,906 $ 1,054,473 $ 107,119 $ 49,463 $ — $ 297,926 $ 38,710 $ 20,793 $ 2,845 $ 1,809,235 December 31, 2011 Pass $ 29,321 $ 397,526 $ 49,259 $ 36,409 $ 57 $ 189,794 $ 34,164 $ 4,958 $ 2,393 $ 743,881 Special mention 92,758 348,482 33,754 32,257 — 25,464 3,566 13,394 942 550,617 Substandard 125,158 427,996 58,351 21,914 — 70,582 9,863 72,349 1,096 787,309 Doubtful 87,936 84,871 17,030 22,862 — 13,833 3,959 14,835 982 246,308 Ungraded 3,700 1,714 — — — 27,895 — — 728 34,037 Total $ 338,873 $ 1,260,589 $ 158,394 $ 113,442 $ 57 $ 327,568 $ 51,552 $ 105,536 $ 6,141 $ 2,362,152 impaired at acquisition date)acquired with deteriorated credit quality) is provided in the table below. The calculation of days past due begins on the day after payment is due and includes all days through which all required interest or principal have not been paid. Loans and leases less than 30 days or less past due are considered current due to certain 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, 2010 31-60
Days Past
Due 61-90
Days Past
Due Greater
Than 90
Days Total Past
Due Current Total Loans
and Leases $ 3,047 $ 6,092 $ 4,208 $ 13,347 $ 325,582 $ 338,929 22,913 7,521 20,425 50,859 4,687,003 4,737,862 35 290 621 946 148,764 149,710 4,434 1,473 3,744 9,651 1,796,284 1,805,935 2,266 141 630 3,037 298,252 301,289 40 75 — 115 181,900 182,015 13,051 4,762 20,651 38,464 840,328 878,792 3,682 1,424 2,320 7,426 2,226,427 2,233,853 1,445 548 3,043 5,036 187,918 192,954 12,798 2,611 1,047 16,456 642,782 659,238 $ 63,711 $ 24,937 $ 56,689 $ 145,337 $ 11,335,240 $ 11,480,577 $ 64,372 $ 8,985 $ 73,997 $ 147,354 $ 118,078 $ 265,432 43,570 20,308 88,525 152,403 816,421 968,824 15,008 2,477 20,453 37,938 138,019 175,957 9,267 5,899 28,780 43,946 79,444 123,390 4,459 1,352 3,979 9,790 53,679 63,469 382 — 337 719 8,747 9,466 7,701 — 36,412 44,113 17,432 61,545 430 1,649 978 3,057 5,607 8,664 145,189 40,670 253,461 439,320 1,237,427 1,676,747 $ 208,900 $ 65,607 $ 310,150 $ 584,657 $ 12,572,667 $ 13,157,324 Current December 31, 2012 Noncovered loans and leases: Construction and land development - commercial $ 927 $ — $ 7,878 $ 8,805 $ 300,385 $ 309,190 Commercial mortgage 21,075 3,987 20,318 45,380 5,296,459 5,341,839 Other commercial real estate 387 1,240 1,034 2,661 158,319 160,980 Commercial and industrial 6,205 1,288 1,614 9,107 1,717,019 1,726,126 Lease financing 991 138 621 1,750 328,929 330,679 Other 18 13 — 31 125,650 125,681 Residential mortgage 15,711 7,559 12,993 36,263 786,626 822,889 Revolving mortgage 12,868 3,200 3,879 19,947 2,190,186 2,210,133 Construction and land development - noncommercial 1,941 490 797 3,228 128,764 131,992 Consumer 4,405 1,705 1,278 7,388 409,218 416,606 Total noncovered loans and leases $ 64,528 $ 19,620 $ 50,412 $ 134,560 $ 11,441,555 $ 11,576,115 Current December 31, 2011 Noncovered loans and leases: Construction and land development - commercial $ 2,623 $ 1,494 $ 2,177 $ 6,294 $ 374,869 $ 381,163 Commercial mortgage 18,308 4,438 15,626 38,372 5,066,621 5,104,993 Other commercial real estate 657 147 561 1,365 143,406 144,771 Commercial and industrial 5,235 1,230 1,438 7,903 1,756,504 1,764,407 Lease financing 637 212 620 1,469 311,400 312,869 Other — — — — 158,369 158,369 Residential mortgage 11,790 2,686 12,529 27,005 757,113 784,118 Revolving mortgage 3,437 2,042 4,316 9,795 2,286,511 2,296,306 Construction and land development - noncommercial 798 127 572 1,497 135,774 137,271 Consumer 3,514 1,271 1,443 6,228 491,142 497,370 Total noncovered loans and leases $ 46,999 $ 13,647 $ 39,282 $ 99,928 $ 11,481,709 $ 11,581,637 impaired as acquisition date)acquired with deteriorated credit quality) is as follows: Nonaccrual
Loans and
Leases Recorded
Investments
> 90 Days and
Accruing $ 26,796 $ 68 32,723 4,347 3,320 1,505 806 298 777 80 1,330 1,122 13,062 6,640 — 2,301 — 2,140 $ 78,814 $ 18,501 $ 20,609 $ 55,503 75,633 37,819 7,299 15,068 8,488 22,829 3,594 2,010 403 190 43,836 7,460 162 824 $ 160,024 $ 141,703 $ 238,838 $ 160,204 $ 58,417 $ 27,766 116,446 — $ 174,863 $ 27,766 December 31, 2012 December 31, 2011 Noncovered loans and leases: Construction and land development - commercial $ 14,930 $ 541 $ 15,102 $ 313 Commercial mortgage 48,869 1,671 23,748 3,107 Commercial and industrial 8,635 466 1,864 320 Lease financing 1,075 — 200 554 Other commercial real estate 2,319 — 1,170 — Construction and land development - noncommercial 668 111 — 572 Residential mortgage 12,603 3,337 10,657 4,227 Revolving mortgage — 3,877 — 4,306 Consumer and other 746 1,269 — 1,441 Total noncovered loans and leases $ 89,845 $ 11,272 $ 52,741 $ 14,840 $175,530$139,963 and $91,177$153,330 in noncovered restructured loans and $165,590$43,513 and $134,381$50,399 in noncovered OREO at December 31, 20102012, and 2009,2011, respectively. At December 31, 20102012, and 2009,2011, respectively, $54,137$50,830 and $26,139$29,534 of noncovered restructured loans were also nonaccrual.on nonaccrual status. BancShares does not have any significant outstanding commitments to borrowers that have restructured existing loans to more favorable terms due to their financial difficulties.$18,519, $3,920$27,397, $23,326 and $1,275$18,519 respectively, during 2010, 20092012, 2011 and 2008.2010. When loans and leases are on nonaccrual status, any payments received are applied on a cash basis with all cash receipts applied first to principal and any payments received in excess of the unpaid principal balance being applied to interest. The amount of cash basis interest income recognized during 2012, 2011 and 2010 2009 or 2008 was not material.CashDecember 31, 2012, and 2011: 2012 2011 Balance, January 1 $ 458,305 $ 1,903,847 $ 330,705 $ 1,676,747 Fair value at acquisition date of acquired loans covered under loss share agreements — — 302,340 777,800 Reductions for repayments, foreclosures and changes in carrying value, net of accretion (167,679 ) (385,238 ) (174,740 ) (550,700 ) Balance, December 31 $ 290,626 $ 1,518,609 $ 458,305 $ 1,903,847 Outstanding principal balance, December 31 $ 1,136,377 $ 2,145,581 $ 1,334,299 $ 2,537,652 First Regional and SABall acquired loans deemed impaired at acquisition, except loans acquired in the VB and TVB transactions where the timing of cash flows was not estimated, and those analyses are used to determine the amount of accretable yield recognized on those loans. Subsequent changes in cash flow estimates result in changes to the amount of accretable yield to be recognized. Due to initial uncertainty regardingNo estimate of the timing offutureof cash flows no accretable yield was initially measuredmade for loans deemed impairedacquired in the TVB or VB transactions at acquisition from TVBthe dates of the acquisitions and, VB, andtherefore, the cost recovery method was being applied to these loans unless cash flow estimates in the later periods indicated subsequent improvement that would lead to the recognition of accretable yield.usedno longer reasonably estimable due to account for these loans.yield.yield for the years ended December 31, 2012, and 2011. For First Regional and SABacquired loans, improved cash flow estimates and receipt of unscheduled loan payments result in the reclassification of nonaccretable differenceyield to accretable yield. For TVB and VB loans, receipt of unscheduled loan payments and improvements in expected losses result inDuring 2012, the reclassification of nonaccretable differenceimproved ability to accretable yield. $ 14,481 109,766 (1,070 ) 222,772 (181,363 ) $ 164,586 The following table provides changes in the carrying value of acquired loans during the years ended December 31, 2010 and 2009: 2010 2009 Impaired at
acquisition
date All other
acquired
loans Impaired at
acquisition
date All other
acquired
loans $ 75,368 $ 1,097,652 $ — $ — 412,628 1,152,134 99,625 1,212,953 (157,291 ) (573,039 ) (24,257 ) (115,301 ) $ 330,705 $ 1,676,747 $ 75,368 $ 1,097,652 $ 629,414 $ 2,211,047 $ 200,310 $ 1,418,375 For loans acquired from First Regional and SAB, the contractually required payments including principal and interest, expectedestimate cash flows due to be collected and fair valuesexpanded use of an acquired loan accounting system also contributed to significant increases in accretable yield. Accretable yield resulting from the improved ability to estimate future cash flows generally does not represent amounts previously identified as nonaccretable difference. 2012 2011 Balance, January 1 $ 276,690 $ 164,586 Additions for acquired loans — 106,520 Accretion (304,023 ) (319,429 ) Reclassifications from nonaccretable difference 353,708 325,013 Changes in expected cash flows that do not affect nonaccretable difference 213,189 — Balance, December 31 $ 539,564 $ 276,690 2010, 20092012, 2011 and 20082010 is summarized below: 2010 2009 2008 $ 88,933 $ 67,381 $ 69,399 583,750 753,172 482,296 8,858 8,801 5,862 Mortgage servicing rightsIn conjunction with the adoption of the change in accounting for QSPEs during 2010, the servicing asset related to a previous asset securitization was eliminated resulting in a decrease to the servicing asset of $304. During 2009, BancShares acquired the right to service SBA loans that had previously been sold by TVB. The asset was recorded at its fair value and is being amortized over the remaining estimated servicing life of 24 months. The activity of the servicing asset is as follows: 2010 2009 2008 $ 4,552 $ 417 $ 559 1,354 1,648 142 (304 ) — — — 5,783 $ 2,894 $ 4,552 $ 417 2012 2011 2010 Loans held for sale at December 31 $ 86,333 $ 92,539 $ 88,933 For the year ended December 31: Loans sold 581,911 509,647 583,750 Net gain on sale of loans held for sale 7,465 8,751 8,858 E –D - ALLOWANCE FOR LOAN AND LEASE LOSSES $ 136,974 65,926 (50,081 ) 4,750 (45,331 ) 157,569 79,364 (69,354 ) 4,703 (64,651 ) 172,282 143,519 681 (95,316 ) 6,599 (88,717 ) $ 227,765 Noncovered loans Covered loans Total Balance at December 31, 2009 $ 168,782 $ 3,500 $ 172,282 Provision for loan and lease losses 56,647 86,872 143,519 Adoption of change in accounting for QSPE 681 — 681 Loans and leases charged off (55,783 ) (39,533 ) (95,316 ) Loans and leases recovered 6,190 409 6,599 Net charge-offs (49,593 ) (39,124 ) (88,717 ) Balance at December 31, 2010 176,517 51,248 227,765 Provision for loan and lease losses 57,799 174,478 232,277 Loans and leases charged off (59,287 ) (137,553 ) (196,840 ) Loans and leases recovered 5,854 1,088 6,942 Net charge-offs (53,433 ) (136,465 ) (189,898 ) Balance at December 31, 2011 180,883 89,261 270,144 Provision for loan and lease losses 42,046 100,839 142,885 Loans and leases charged off (50,208 ) (50,270 ) (100,478 ) Loans and leases recovered 6,325 142 6,467 Net charge-offs (43,883 ) (50,128 ) (94,011 ) Balance at December 31, 2012 $ 179,046 $ 139,972 $ 319,018 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollarsActivity in thousands)Thethe allowance for loans and lease losses, ending balances of loans and leases and the related allowance presented by portfolio segment and allowance methodologyclass of loans as of December 31, 20102012, and 2011 are summarized as follows:Noncovered loans and leases 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 $ 5,883 $ 4,601 $ 67 $ 598 $ 58 $ 7 $ 384 $ — $ 13 $ 9 $ — $ 11,620 4,629 60,171 2,133 17,091 3,326 1,466 6,625 18,016 1,738 35,839 — 151,034 $ 10,512 $ 64,772 $ 2,200 $ 17,689 $ 3,384 $ 1,473 $ 7,009 $ 18,016 $ 1,751 $ 35,848 $ 13,863 $ 176,517 $ 28,327 $ 57,952 $ 964 $ 12,989 $ 693 $ 76 $ 6,162 $ — $ 514 $ 102 $ — $ 107,779 310,602 4,679,910 148,746 1,792,946 300,596 181,939 872,630 2,233,853 192,440 659,136 — 11,372,798 $ 338,929 $ 4,737,862 $ 149,710 $ 1,805,935 $ 301,289 $ 182,015 $ 878,792 $ 2,233,853 $ 192,954 $ 659,238 $ — $ 11,480,577 Covered loans Construction
and Land
Development
Commercial Commercial
Mortgage Other
Commercial
Real Estate Commercial
and
Industrial Residential
Mortgage Revolving
Mortgage Construction
and Land
Development
Non-commercial Consumer
and Other Total $ 5,085 $ 7,331 $ 151 $ 170 $ 6 $ — $ 221 $ — $ 12,964 701 2,613 549 363 107 31 154 23 4,541 14,868 3,255 3,448 6,295 — 645 5,232 — 33,743 $ 20,654 $ 13,199 $ 4,148 $ 6,828 $ 113 $ 676 $ 5,607 $ 23 $ 51,248 $ 59,763 $ 84,841 $ 9,330 $ 8,330 $ 4,743 $ — $ 42,957 $ — $ 209,964 205,669 883,983 166,627 115,060 58,726 9,466 18,588 8,664 1,466,783 102,988 120,240 34,704 9,087 11,026 8,400 44,260 — 330,705 $ 368,420 $ 1,089,064 $ 210,661 $ 132,477 $ 74,495 $ 17,866 $ 105,805 $ 8,664 $ 2,007,452 The allowance for loans acquired with deteriorated credit quality since acquisition was $3,500 at December 31, 2009. Provision expense recorded for decreases Construction
and land
development -
commercialCommercial
mortgageOther
commercial
real estate Commercial
and
industrialLease
financing Other Residential
mortgageRevolving
mortgage Construction
and land
development -
non-commercialConsumer Non-
specific Total Noncovered loans and leases Allowance for loan and lease losses: Balance at January 1, 2012 $ 5,467 $ 67,486 $ 2,169 $ 23,723 $ 3,288 $ 1,315 $ 8,879 $ 27,045 $ 1,427 $ 25,962 $ 14,122 $ 180,883 Charge-offs (9,546 ) (7,081 ) (254 ) (5,472 ) (361 ) (28 ) (4,790 ) (11,341 ) (1,047 ) (10,288 ) — (50,208 ) Recoveries 445 1,626 14 781 96 4 529 698 180 1,952 — 6,325 Provision 9,665 8,896 130 4,320 498 (116 ) (782 ) 8,783 1,161 7,763 1,728 42,046 Balance at December 31, 2012 $ 6,031 $ 70,927 $ 2,059 $ 23,352 $ 3,521 $ 1,175 $ 3,836 $ 25,185 $ 1,721 $ 25,389 $ 15,850 $ 179,046 Balance at December 31, 2012 ALLL for loans and leases individually evaluated for impairment $ 2,469 $ 11,697 $ 298 $ 2,133 $ 202 $ 53 $ 959 $ 1 $ 287 $ 256 $ — $ 18,355 ALLL for loans and leases collectively evaluated for impairment 3,562 59,230 1,761 21,219 3,319 1,122 2,877 25,184 1,434 25,133 — 144,841 Nonspecific ALLL — — — — — — — — — — 15,850 15,850 Total allowance for loan and lease losses $ 6,031 $ 70,927 $ 2,059 $ 23,352 $ 3,521 $ 1,175 $ 3,836 $ 25,185 $ 1,721 $ 25,389 $ 15,850 $ 179,046 Loans and leases: Balance at December 31, 2012 Loans and leases individually evaluated for impairment $ 17,075 $ 133,804 $ 3,375 $ 22,619 $ 804 $ 707 $ 15,836 $ 4,203 $ 1,321 $ 2,509 $ — $ 202,253 Loans and leases collectively evaluated for impairment 292,115 5,208,035 157,605 1,703,507 329,875 124,974 807,053 2,205,930 130,671 414,097 — 11,373,862 Total loans and leases $ 309,190 $ 5,341,839 $ 160,980 $ 1,726,126 $ 330,679 $ 125,681 $ 822,889 $ 2,210,133 $ 131,992 $ 416,606 $ — $ 11,576,115 Allowance for loan and lease losses: Balance at January 1, 2011 $ 10,512 $ 64,772 $ 2,200 $ 24,089 $ 3,384 $ 1,473 $ 7,009 $ 18,016 $ 1,751 $ 29,448 $ 13,863 $ 176,517 Charge-offs (11,189 ) (6,975 ) (24 ) (5,879 ) (579 ) (89 ) (5,566 ) (13,940 ) (2,617 ) (12,429 ) — (59,287 ) Recoveries 218 945 23 1,025 133 2 989 653 189 1,677 — 5,854 Provision 5,926 8,744 (30 ) 4,488 350 (71 ) 6,447 22,316 2,104 7,266 259 57,799 Balance at December 31, 2011 $ 5,467 $ 67,486 $ 2,169 $ 23,723 $ 3,288 $ 1,315 $ 8,879 $ 27,045 $ 1,427 $ 25,962 $ 14,122 $ 180,883 Balance at December 31, 2011 ALLL for loans and leases individually evaluated for impairment $ 1,139 $ 5,266 $ 283 $ 640 $ 17 $ 14 $ 411 $ — $ 145 $ 47 $ — $ 7,962 ALLL for loans and leases collectively evaluated for impairment 4,328 62,220 1,886 23,083 3,271 1,301 8,468 27,045 1,282 25,915 — 158,799 Nonspecific ALLL — — — — — — — — — — 14,122 14,122 Total allowance for loan and lease losses $ 5,467 $ 67,486 $ 2,169 $ 23,723 $ 3,288 $ 1,315 $ 8,879 $ 27,045 $ 1,427 $ 25,962 $ 14,122 $ 180,883 Loans and leases: Balance at December 31, 2011 Loans and leases individually evaluated for impairment $ 26,782 $ 92,872 $ 5,686 $ 15,996 $ 328 $ 193 $ 9,776 $ — $ 3,676 $ 992 $ — $ 156,301 Loans and leases collectively evaluated for impairment 354,381 5,012,121 139,085 1,748,411 312,541 158,176 774,342 2,296,306 133,595 496,378 — 11,425,336 Total loans and leases $ 381,163 $ 5,104,993 $ 144,771 $ 1,764,407 $ 312,869 $ 158,369 $ 784,118 $ 2,296,306 $ 137,271 $ 497,370 $ — $ 11,581,637 expected cash flows from acquired impaired loans was $90,162 for 2010 and reversalthousands) Construction
and land
development -
commercial Commercial
mortgage Other
commercial
real estate Commercial
and
industrial Lease
financing Residential
mortgage Revolving
mortgage Construction
and land
development -
non-commercial Total Covered loans and leases Allowance for loan and lease losses: Balance at January 1, 2012 $ 16,693 $ 39,557 $ 16,862 $ 5,500 $ 13 $ 5,433 $ 77 $ 4,652 $ 474 $ 89,261 Charge-offs (8,667 ) (23,509 ) (1,256 ) (8,442 ) — (4,139 ) (1,119 ) (2,885 ) (253 ) (50,270 ) Recoveries — — — — — 142 — — — 142 Provision 23,160 34,227 (4,372 ) 11,839 (13 ) 18,401 10,796 6,520 281 100,839 Balance at December 31, 2012 $ 31,186 $ 50,275 $ 11,234 $ 8,897 $ — $ 19,837 $ 9,754 $ 8,287 $ 502 $ 139,972 Balance at December 31, 2012 ALLL for loans acquired with deteriorated credit quality $ 31,186 $ 50,275 $ 11,234 $ 8,897 $ — $ 19,837 $ 9,754 $ 8,287 $ 502 $ 139,972 Loans: Balance at December 31, 2012 Loans acquired with deteriorated credit quality 237,906 1,054,473 107,119 49,463 — 297,926 38,710 20,793 2,845 1,809,235 Allowance for loan and lease losses: Balance at January 1, 2011 $ 20,654 $ 13,199 $ 4,148 $ 6,828 $ — $ 113 $ 676 $ 5,607 $ 23 $ 51,248 Charge-offs (36,432 ) (49,905 ) (29,063 ) (6,115 ) — (5,723 ) — (9,912 ) (403 ) (137,553 ) Recoveries 389 83 479 12 — 94 — 30 1 1,088 Provision 32,082 76,180 41,298 4,775 13 10,949 (599 ) 8,927 853 174,478 Balance at December 31, 2011 $ 16,693 $ 39,557 $ 16,862 $ 5,500 $ 13 $ 5,433 $ 77 $ 4,652 $ 474 $ 89,261 Balance at December 31, 2011 ALLL for loans acquired with deteriorated credit quality $ 16,693 $ 39,557 $ 16,862 $ 5,500 $ 13 $ 5,433 $ 77 $ 4,652 $ 474 $ 89,261 Loans: Balance at December 31, 2011 Loans acquired with deteriorated credit quality 338,873 1,260,589 158,394 113,442 57 327,568 51,552 105,536 6,141 2,362,152 expected cash flows on acquired impaired loans was $8,021. With a
recorded
allowance With no
recorded
allowance Total Related
allowance
recorded $ 28,327 $ — $ 28,327 $ 5,883 52,658 5,294 57,952 4,601 964 — 964 67 11,624 1,365 12,989 598 693 — 693 58 76 — 76 7 6,162 — 6,162 384 514 — 514 13 102 — 102 9 $ 101,120 $ 6,659 $ 107,779 $ 11,620 $ 87,682 $ 75,069 $ 162,751 $ 19,953 66,214 138,867 205,081 10,586 29,502 14,532 44,034 3,599 14,455 2,962 17,417 6,465 3,352 12,417 15,769 6 3,839 4,561 8,400 645 34,069 53,148 87,217 5,453 $ 239,113 $ 301,556 $ 540,669 $ 46,707 $ 340,233 $ 308,215 $ 648,448 $ 58,327 $ 40,895 $ 9,902 $ 50,797 $ 6,111 9,948 106,498 116,446 3,500 $ 50,843 $ 116,400 $ 167,243 $ 9,611 Total Unpaid
principal
balance December 31, 2012 Noncovered impaired loans and leases Construction and land development—commercial $ 5,941 $ 10,116 $ 16,057 $ 31,879 $ 2,340 Commercial mortgage 39,648 72,160 111,808 114,351 10,628 Other commercial real estate 1,425 1,823 3,248 3,348 279 Commercial and industrial 7,429 11,371 18,800 19,196 1,949 Lease financing 665 81 746 746 194 Other — 707 707 707 53 Residential mortgage 9,346 4,240 13,586 13,978 832 Revolving mortgage 1,238 2,965 4,203 4,203 1 Construction and land development—noncommercial 1,162 158 1,320 1,321 287 Consumer 1,609 900 2,509 2,509 256 Total impaired noncovered loans and leases $ 68,463 $ 104,521 $ 172,984 $ 192,238 $ 16,819 December 31, 2011 Noncovered impaired loans and leases Construction and land development—commercial $ 24,994 $ — $ 24,994 $ 30,756 $ 1,027 Commercial mortgage 53,687 11,840 65,527 66,463 3,813 Other commercial real estate 1,558 1,022 2,580 322 114 Commercial and industrial 7,157 7,111 14,268 12,674 549 Lease financing 322 — 322 992 16 Other — — — — — Residential mortgage 9,776 — 9,776 2,580 411 Revolving mortgage — — — — — Construction and land development—noncommercial 3,676 — 3,676 14,268 145 Consumer 992 — 992 3,676 47 Total impaired noncovered loans and leases $ 102,162 $ 19,973 $ 122,135 $ 131,731 $ 6,122 Year ended December 31, 2012 Noncovered impaired loans and leases Construction and land development - commercial $ 22,493 $ 399 Commercial mortgage 96,082 4,630 Other commercial real estate 2,690 142 Commercial and industrial 13,658 788 Lease financing 497 37 Other 424 23 Residential mortgage 14,951 586 Revolving mortgage 2,931 68 Construction and land development - noncommercial 2,850 41 Consumer 1,850 21 Total noncovered impaired loans and leases $ 158,426 $ 6,735 Year ended December 31, 2011 Noncovered impaired loans and leases Construction and land development - commercial $ 26,612 $ 56 Commercial mortgage 65,729 1,330 Other commercial real estate 1,368 55 Commercial and industrial 12,984 456 Lease financing 587 21 Other 38 — Residential mortgage 9,252 300 Construction and land development - noncommercial 2,022 105 Consumer 636 18 Total noncovered impaired loans and leases $ 119,228 $ 2,341 Year ended December 31, 2010 Construction and land development - commercial $ 19,235 $ 93 Commercial mortgage 25,451 1,193 Other commercial real estate 353 18 Commercial and industrial 3,420 337 Lease financing 281 9 Other 31 3 Residential mortgage 2,314 129 Construction and land development - noncommercial 182 41 Consumer 39 1 Total noncovered impaired loans and leases $ 51,306 $ 1,824 Average recorded
investment Unpaid principal
balance Interest income
recognized $ 19,235 $ 28,610 $ 736 25,451 59,760 2,548 353 964 42 3,420 11,624 663 281 693 37 31 76 5 2,314 6,162 212 182 514 56 39 102 9 51,306 108,505 4,308 157,367 265,053 7,097 198,297 275,639 8,943 42,577 81,585 1,920 16,841 55,960 759 15,247 21,298 688 8,122 11,279 366 84,332 78,348 3,803 522,783 789,162 23,576 $ 574,089 $ 897,667 $ 27,884 The average recorded investment in impaired loans and leases was $88,183 and $30,920 during the years ended December 31, 20092012, covered loans which have had an adverse change in expected cash flows since the date of acquisition equaled $975,920, for which $139,972 in related allowance for loan losses has been recorded. At December 31, 2011, covered loans which have had an adverse change in expected cash flows since the date of acquisition equaled $1,886,929, for which $89,261 in related allowance for loan losses has been recorded. Covered loans of $833,315 at December 31, 2012, and 2008 respectively. Interest income recorded on impaired loans and leases was $835 and $797$475,223 at December 31, 2011, that have had no adverse change in expected cash flows since the date of acquisition have no allowance for loan losses recorded.20092012 and 2008 respectively.December 31, 2011, as well as loans restructured during 2012 and 2011 that have experienced payment default subsequent to restructuring. Year ended December 31, 2012 Year ended December 31, 2011 All restructurings Restructurings with subsequent payment default All restructurings Restructurings with subsequent payment default Number of loans Recorded investment Number of loans Recorded investment Number of loans Recorded investment Number of loans Recorded investment Noncovered loans Interest only period provided Construction and land development - commercial 2 $ 316 — $ — 3 $ 1,232 3 $ 1,232 Commercial mortgage 12 3,891 3 1,440 32 16,473 7 3,684 Commercial and industrial 2 574 — — 7 2,601 — — Lease financing — — — — 1 71 — — Residential mortgage 2 893 2 893 3 592 — — Construction and land development - noncommercial — — — — 2 807 — — Consumer — — — — 1 900 �� — Total interest only 18 5,674 5 2,333 49 22,676 10 4,916 Loan term extension Construction and land development - commercial 2 7,667 — — 5 $ 9,262 — $ — Commercial mortgage 50 16,818 13 3,456 50 22,471 7 2,771 Other commercial real estate 3 1,318 — — 5 2,208 1 147 Commercial and industrial 11 1,363 4 169 24 9,818 4 770 Lease financing 3 166 — — 6 252 — — Residential mortgage 9 521 2 155 8 1,923 2 625 Construction and land development - noncommercial 1 158 — — 1 395 — — Consumer 7 1,132 — — 1 92 1 92 Total loan term extension 86 29,143 19 3,780 100 46,421 15 4,405 Below market interest rate Construction and land development - commercial 1 227 — — 7 $ 13,800 — $ — Commercial mortgage 12 7,333 1 490 21 13,082 4 678 Other commercial real estate — — — — 1 372 1 372 Commercial and industrial 11 1,584 1 — 4 503 1 28 Residential mortgage 13 1,887 5 828 12 2,572 1 52 Construction and land development - noncommercial — — — — 2 2,357 1 356 Revolving mortgage 1 48 1 48 — — — — Consumer 4 17 1 — — — — — Total below market interest rate 42 11,096 9 1,366 47 32,686 8 1,486 Other concession Commercial mortgage 3 1,036 0 — 1 593 — 0 Commercial and industrial — — 0 — 2 37 2 37 Residential mortgage 1 384 0 — 0 — — — Total other concession 4 1,420 0 — 3 630 2 37 Total noncovered restructurings 150 $ 47,333 33 $ 7,479 199 $ 102,413 35 $ 10,844 Year ended December 31, 2012 Year ended December 31, 2011 All restructurings Restructurings with subsequent payment default All restructurings Restructurings with subsequent 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 Covered loans Interest only period provided Construction and land development - commercial 2 $ 496 1 $ 356 6 $ 10,481 1 $ 3,602 Commercial mortgage 4 10,404 1 234 4 8,331 1 2 Other commercial real estate 1 2,994 — — — — — — Commercial and industrial 1 170 — — — — — — Residential mortgage 1 98 — — 2 5,361 1 4,287 Total interest only 9 14,162 2 590 12 24,173 3 7,891 Loan term extension Construction and land development - commercial 9 7,294 1 3,703 7 3,145 3 1,386 Commercial mortgage 4 2,584 — — 7 7,368 — — Other commercial real estate — — — — 5 9,733 — — Commercial and industrial 2 158 — — 3 291 — — Residential mortgage 4 5,111 2 4,629 6 2,188 3 744 Construction and land development - noncommercial — — — — 1 2,097 1 2,097 Total loan term extension 19 15,147 3 8,332 29 24,822 7 4,227 Below market interest rate Construction and land development - commercial 13 19,953 5 8,781 21 22,554 5 15,615 Commercial mortgage 18 19,100 6 3,906 21 50,962 2 1,357 Other commercial real estate 2 1,954 — — 1 684 — — Commercial and industrial 5 1,299 2 — 7 2,217 1 809 Residential mortgage 21 4,622 10 490 19 4,392 6 1,409 Construction and land development - noncommercial 1 — 1 — 1 1,678 — — Total below market interest rate 60 46,928 24 13,177 70 82,487 14 19,190 Other concession Residential mortgage 1 54 1 54 1 702 — — Total other concession 1 54 1 54 1 702 — — Total covered restructurings 89 $ 76,291 30 $ 22,153 112 $ 132,184 24 $ 31,308 F—E - PREMISES AND EQUIPMENT 2010 2009 $ 189,811 $ 183,319 766,870 740,397 371,138 353,828 1,327,819 1,277,544 485,074 440,462 $ 842,745 $ 837,082 2012 2011 Land $ 202,168 $ 193,663 Premises and leasehold improvements 840,149 803,602 Furniture and equipment 390,345 353,664 Total 1,432,662 1,350,929 Less accumulated depreciation and amortization 549,894 496,453 Total premises and equipment $ 882,768 $ 854,476 20102012, and 2009.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)2010: $ 19,354 16,136 11,460 8,937 7,541 51,744 $ 115,172 Year ended December 31 2013 $ 20,910 2014 16,911 2015 13,805 2016 9,035 2017 5,846 Thereafter 44,722 Total minimum payments $ 111,229 $24,627$23,630 in 2010, $19,9222012, $24,749 in 20092011 and $19,096$24,627 in 2008,2010, net of rent income, which totaled $1,685, $2,014$1,728, $1,667 and $1,524$1,685 during 2010, 20092012, 2011 and 2008.2010, respectively.G—F - RECEIVABLE FROM FDIC FOR LOSS SHARE AGREEMENTSprovidespresents the changes in the receivable from the FDIC during 2010 and 2009: 2010 2009 $ 249,842 $ — 468,429 245,655 4,218 1,387 (52,422 ) — (46,806 ) 2,800 $ 623,261 $ 249,842 The FDIC receivable for loss share agreements is measured separately from the related covered assets and is recorded at fair value. The fair value was estimated using projected cash flows related to the loss share agreements based on the expected reimbursements for losses and the applicable loss share percentages. 2012 2011 2010 Balance, January 1 $ 617,377 $ 671,023 $ 249,842 Additional receivable from acquisitions — 316,932 512,778 Amortization of discounts and premiums, net (102,394 ) (32,960 ) (12,891 ) Receipt of payments from FDIC (251,972 ) (293,067 ) (52,422 ) Post-acquisition adjustments 7,181 (44,551 ) (26,284 ) Balance, December 31 $ 270,192 $ 617,377 $ 671,023 estimated fair valuesexpected cash flows and the allowance for loan and lease losses 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 result in a provision for loan and lease losses, an increase in the allowance for loan and lease losses and a proportional adjustment to the receivable from 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 allowance for loan and lease losses and related adjustments to the receivable from the FDIC, receivable, or prospective adjustment to the accretable yield and the related receivable from the FDIC if no provision for loan and lease losses had been recorded.recorded previously. Other adjustments include those resulting from amounts owed to the FDIC for unexpected recoveries of amounts previously charged off. Adjustments related to acquisition date fair values, made within one year after the closing date of the respective acquisition, are reflected in the bargain purchaseacquisition gain.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTE GNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) - MORTGAGE SERVICING RIGHTS(dollarsThe activity of the servicing asset for 2012, 2011 and 2010 is as follows: 2012 2011 2010 Balance, January 1 $ 4,346 $ 2,894 $ 4,552 Amortization expense recognized during the year (2,260 ) (1,984 ) (1,354 ) Adoption of change in accounting for QSPE — — (304 ) Acquisition of servicing asset — 3,436 — Servicing asset impairment (302 ) — — Balance, December 31 $ 1,784 $ 4,346 $ 2,894 thousands)accounting for QSPEs during Due2010, the servicing asset related to certain inaccuraciesa previous asset securitization was eliminated resulting in the initial loss share reimbursement filings, FCB has resubmitted loss share filingsa decrease to the FDIC for periods beginning September 30, 2009 through September 30, 2010. Pending receipt and reviewservicing asset of the corrected filings, the FDIC had suspended further payments to FCB including the initial filings for the June 30, 2010 and September 30, 2010 periods. Payments totaling $53.4 million were received in February 2011 for the June 30, 2010 period and an additional $77.2 million is expected during March 2011 for the September 30, 2010 period.H—H - DEPOSITS 2010 2009 $ 3,976,366 $ 3,215,414 1,870,636 1,740,758 5,064,644 4,185,168 770,849 640,325 5,952,771 5,555,902 $ 17,635,266 $ 15,337,567 2012 2011 Demand $ 4,885,700 $ 4,331,706 Checking With Interest 2,363,317 2,103,298 Money market accounts 6,357,309 5,700,981 Savings 905,456 817,285 Time 3,574,243 4,624,004 Total deposits $ 18,086,025 $ 17,577,274 $100$100 totaled $3,073,219$1,610,782 and $2,639,326$2,332,368 at December 31, 20102012, and 2009,2011, respectively.20102012 the scheduled maturities of time deposits were: $ 4,495,840 991,072 165,605 95,314 198,228 6,712 $ 5,952,771 2013 $ 2,557,814 2014 473,881 2015 270,099 2016 191,530 2017 80,903 Thereafter 16 Total time deposits $ 3,574,243 I—I - SHORT-TERM BORROWINGS 2010 2009 $ 371,350 $ 395,577 78,274 91,583 82,000 128,761 2,551 12,551 12,422 13,933 $ 546,597 $ 642,405 2012 2011 Master notes $ 399,047 $ 375,396 Repurchase agreements 111,907 172,275 Notes payable to Federal Home Loan Banks 55,000 65,000 Federal funds purchased 2,551 2,551 Total short-term borrowings $ 568,505 $ 615,222 2010,2012, BancShares and its subsidiariesFCB had unused credit lines allowing contingent access to overnight borrowings of up to $500,000$475,000 on an unsecured basis. Additionally, under borrowing arrangements with the Federal Home Loan Bank of Atlanta, the banking subsidiaries haveFCB has access to an aggregate of $1,316,861additional $1,089,122 on a secured basis. 2012 2011 Junior subordinated debenture at 8.05 percent maturing March 5, 2028 (redeemed July 31, 2012) $ — $ 154,640 Junior subordinated debenture at 3-month LIBOR plus 1.75 percent maturing June 30, 2036 96,392 96,392 Subordinated notes payable at 5.125 percent maturing June 1, 2015 125,000 125,000 Obligations under capitalized leases extending to June 2026 10,020 5,688 Notes payable to Federal Home Loan Bank of Atlanta with rates ranging from 2.00 percent to 3.88 percent and maturing through September 2018 170,299 225,000 Note payable to the Federal Home Loan Bank of Seattle with a rate of 4.74 percent and a maturity date of July 2017 10,000 10,000 Debt from 2005 asset securitization (redeemed July 15, 2012) — 35,645 Unamortized acquisition accounting adjustments 3,069 4,420 Other long-term debt 30,141 30,814 Total long-term obligations $ 444,921 $ 687,599 NOTE J—LONG-TERM OBLIGATIONSLong-term obligations at December 31 include: 2010 2009 $ 154,640 $ 154,640 118,557 118,557 125,000 125,000 9,903 14,282 250,000 330,000 50,000 50,000 65,403 — 6,288 4,721 30,158 166 $ 809,949 $ 797,366 The 8.05 percent junior subordinated debenture issued in 1998 (the 1998 Debenture) isFCB/NC Capitalthe Trust. The Trust I. FCB/NC Capital Trust I purchased the 1998 Debenture with the proceeds from the $150,000 in 8.05 percent trust preferred capital securities issued in 1998 (the 1998 Preferred Securities).Securities. The 1998 Debenture iswas the sole asset of the trust.1998 Preferred Securities are redeemable in whole or in part after March 1, 2008 at a premium that declines until 2018, when the redemption price equals the par value.The $115,000$115,000 in adjustable rate trust preferred securities issued in 2006 (the 2006 Preferred Securities). The 2006 Debenture is the sole asset of the trust. The 2006 Preferred Securities are redeemable in whole or in part after June 30, 2011.3-monththree-month LIBOR. Through the use of two interest rate swaps, BancShares has synthetically converted the variable rate coupon on the securities to a fixed rate of 7.125 percent through June 30, 2011, and to a fixed rate of 5.55.50 percent for the period from July 1, 2011, through June 30, 2016.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESOn NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)July 15, 2012(dollars, BancShares repaid the outstanding debt obligation that related to a 2005 securitization and sale of revolving mortgage loans. The repayment resulted in thousands)a 20102012 include: $ 45,075 97,257 55,655 457 205,341 406,164 $ 809,949 2013 $ 3,690 2014 3,527 2015 206,306 2016 620 2017 10,504 Thereafter 220,274 Total long-term obligations $ 444,921 K—K - ESTIMATED FAIR VALUESestimates are maderepresents the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at a specific point in time based on relevant market information and information about each financial instrument. Where information regarding the fair value of a financial instrument is publicly available, those values are used, as is the case with investment securities, residential mortgage loans and certain long-term obligations. In these cases, an open market exists in which those financial instruments are actively traded.estimates. For those financial instruments with a fixed interest rate, an analysis of the related cash flows was the basis for estimating fair values. The expected cash flows were then discounted to the valuation date using an appropriate discount rate. The discount rates used represent the rates under which similar transactions would be currently negotiated. For financial instruments with fixed and variable rates, fair value estimates also consider the impact of liquidity discounts appropriate as of the measurement date.Fair value represents the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Whenestimates.When determining the fair value measurements, for assets and liabilities, BancShares considers the principal or most advantageous market in which thosethe specific assets or liabilities could beare sold and considers the assumptions that market participants would use when pricing those assets or liabilities. US GAAP, individual fair value estimates are ranked based on the relative reliability of the inputs used in the valuation. Fair values determined using level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determinednonobservable. It is BancShares’ policy to recognizeunobservable. BancShares recognizes transfers between levels of the fair value hierarchy at the end of the respective reporting period.Estimated fair values of financial assets and financial liabilities are provided in the following table. Fair values for conforming residential mortgage loans are based on valuations provided by a mortgage broker. For other variable rate loans, carrying value is a reasonable estimate of fair value. For other fixed rate loans, fair values are estimated based on discounted future cash flows using the current interest rates at whichFIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)DepositsFHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par.fixed-ratefixed rate time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities. The inputs used in the fair value measurements for deposits are considered level 2 inputs. long-term obligations traded in active markets,fixed rate trust preferred securities, the fair values are determined based on recent trades of the actual market prices.security. For other long-term obligations, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments.For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of The inputs used in the fair value asmeasurements for long-term obligations are considered level 2 inputs.December 31, 2010the payable to FDIC for loss share agreements is determined by the projected cash flows based on expected payments to the FDIC in accordance with the loss share agreements. Cash flows are discounted to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurements for the payable to the FDIC are considered level 3 inputs. See Note S for more information on payable to FDIC. 2009. December 31, 2010 December 31, 2009 Carrying
Value Fair
Value Carrying
Value Fair
Value $ 460,178 $ 460,178 $ 480,242 $ 480,242 398,390 398,390 723,260 723,260 4,510,076 4,510,076 2,929,162 2,929,162 2,532 2,741 3,603 3,834 88,933 88,933 67,381 67,381 1,956,205 1,946,423 1,169,520 1,169,520 11,304,059 10,995,653 11,476,217 11,060,532 623,261 624,785 249,842 249,842 83,644 83,644 60,684 60,684 47,123 47,123 47,361 47,361 15,490 15,490 5,592 5,592 4,490 4,490 4,490 4,490 17,635,266 17,695,357 15,337,567 15,396,423 546,597 546,597 642,405 642,405 809,949 826,501 797,366 788,004 37,004 37,004 37,881 37,881 At December 31, 2010 and 2009, other assets include $67,103 and $57,443 of stock in various Federal Home Loan Banks (FHLB). The FHLB stock, which is generally redeemable at par value only through the issuer, is carried at its par value. The investment in FHLB stock is considered a long-term investment and itslevel 3 input. The inputs used in the fair value is based onmeasurements of the ultimate recoverability of par value. Management has concluded that the investments in FHLB stock were not other-than-temporarily impaired as of December 31, 2010.For off-balance-sheetinterest rate swap are considered level 2 inputs.contingencies, carryingcontingencies. Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position. December 31, 2012 December 31, 2011 Cash and due from banks $ 639,730 $ 639,730 $ 590,801 $ 590,801 Overnight investments 443,180 443,180 434,975 434,975 Investment securities available for sale 5,226,228 5,226,228 4,056,423 4,056,423 Investment securities held to maturity 1,342 1,448 1,822 1,980 Loans held for sale 86,333 87,654 92,539 93,235 Loans covered under loss share agreements, net of allowance for loan and lease losses 1,669,263 1,635,878 2,272,891 2,236,343 Loans and leases not covered under loss share agreements, net of allowance for loan and lease losses 11,397,069 11,238,597 11,400,754 11,312,900 Receivable from FDIC for loss share agreements 270,192 100,161 617,377 526,252 Income earned not collected 47,666 47,666 42,216 42,216 Stock issued by: Federal Home Loan Bank of Atlanta 36,139 36,139 41,042 41,042 Federal Home Loan Bank of San Francisco 10,107 10,107 12,976 12,976 Federal Home Loan Bank of Seattle 4,410 4,410 4,490 4,490 Securities issued under the TARP program 40,768 40,793 — — Deposits 18,086,025 18,126,893 17,577,274 17,638,359 Short-term borrowings 568,505 568,505 615,222 615,222 Long-term obligations 444,921 472,642 687,599 719,999 Payable to FDIC for loss share agreements 101,641 125,065 77,866 90,070 Accrued interest payable 9,353 9,353 23,719 23,719 Interest rate swap 10,398 10,398 10,714 10,714 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)20102012, and 2009: Fair value measurements using: Fair value Quoted prices in
active markets for
identical assets
and liabilities
(Level 1 inputs) Quoted prices for
similar assets and
liabilities
(Level 2 inputs) Significant
nonobservable inputs
(Level 3 inputs) $ 3,859,386 $ 3,859,386 $ — $ — 486,658 486,658 — — 143,545 — 143,545 — 19,231 19,231 — — 1,256 — 1,256 — $ 4,510,076 $ 4,365,275 $ 144,801 $ — $ 9,492 $ — $ 9,492 $ — $ 2,287,423 $ 2,287,423 $ — $ — 485,667 485,667 — — 130,338 — 130,338 — 16,622 16,622 — — 6,813 — 6,813 — 2,299 1,012 — 1,287 $ 2,929,162 $ 2,790,724 $ 137,151 $ 1,287 $ 5,367 $ — $ 5,367 $ — Fair value measurements using: Description Fair value December 31, 2012 Assets measured at fair value Investment securities available for sale: U.S. Treasury $ 823,632 $ 823,632 $ — $ — Government agency 3,055,204 3,055,204 — — Corporate bonds 820 820 — — Residential mortgage-backed securities 1,329,657 — 1,329,657 — Equity securities 16,365 16,365 — — State, county, municipal 550 — 550 — Total $ 5,226,228 $ 3,896,021 $ 1,330,207 $ — Liabilities measured at fair value Interest rate swaps accounted for as cash flow hedges $ 10,398 $ — $ 10,398 $ — December 31, 2011 Assets measured at fair value Investment securities available for sale: U.S. Treasury $ 887,819 $ 887,819 $ — $ — Government agency 2,592,209 2,592,209 — — Corporate bonds 252,820 252,820 — — Residential mortgage-backed securities 307,221 — 307,221 — Equity securities 15,313 15,313 — — State, county, municipal 1,041 — 1,041 — Total $ 4,056,423 $ 3,748,161 $ 308,262 $ — Liabilities measured at fair value Interest rate swaps accounted for as cash flow hedges $ 10,714 $ — $ 10,714 $ — GovernmentTreasury securities, government agency securities, corporate bonds and equity securities are readily available in the active markets in which those securities are traded and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for mortgage-backed securities and state, county and municipal securities are obtained using the fair values of similar assets and the resulting fair values are shown in the ‘Level 2 input’ column. At December 31, 2009, the fair value for the retained residual interest from a securitization transaction was determined based on level 3 nonobservable inputs. Based on changes to US GAAP related to accounting for QSPE’s and controlling financial interests that became effective January 1, 2010, the previously securitized loans were consolidated and the residual interest strip was removed from the consolidated balance sheet. There were no transfers between levelLevel 1 and levelLevel 2 inputs during 2010.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESDecember 31, 2012, and 2011NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued).(dollars in thousands)3-monththree-month LIBOR rate. The fair value of the cash flow hedges are therefore based on projected LIBOR rates for the duration of the hedges, values that, while observable in the market, are subject to adjustment due to pricing considerations for the specific instrument.For those investment securities available for sale that are determined by reliance on significant nonobservable inputs the following table identifies the factors causing the change in fair values for the years ended December 31, 2010 and 2009: Investment securities available
for sale with fair values based
on significant nonobservable
inputs 2010 2009 $ 1,287 $ 5,427 — — — — — (4,140 ) (1,287 ) — $ — $ 1,287 20102012, and 20092011 that relate to fair values estimated based on significant nonobservable inputs. The investment securities valued using Level 3 inputs that were removed from the financial statements during the first quarter of 2010 due to changes in US GAAP effective January 1, 2010 related to investments in the retained interest of a residual interest strip that resulted from an asset securitization.20102012, and 2009: Fair value measurements using: Fair value Quoted prices in
active markets for
identical assets and
liabilities
(Level 1 inputs) Quoted prices for
similar assets
and liabilities
(Level 2 inputs) Significant
nonobservable inputs
(Level 3 inputs) $ 88,933 $ — $ 88,933 $ — 192,406 — — 192,406 89,500 — — 89,500 67,381 — 67,381 — 6,448 — — 6,448 34,784 — — 34,784 Fair value measurements using: Description Fair value December 31, 2012 Loans held for sale $ 65,244 $ — $ 65,244 $ — Impaired loans not covered by loss share agreements 51,644 — — 51,644 Other real estate owned not covered by loss share agreements 21,113 — — 21,113 December 31, 2011 Loans held for sale 63,470 — 63,470 — Impaired loans not covered by loss share agreements 128,365 — — 128,365 Other real estate owned not covered by loss share agreements 14,905 — — 14,905 20102012, and 2009. Covered Not covered Total Balance at January 1, 2011 $ 112,748 $ 52,842 $ 165,590 Acquired in FDIC-assisted transactions 36,303 — 36,303 Additions 138,280 38,612 176,892 Sales (118,738 ) (33,569 ) (152,307 ) Writedowns (19,994 ) (7,486 ) (27,480 ) Balance at December 31, 2011 148,599 50,399 198,998 Additions 105,059 35,586 140,645 Sales (124,435 ) (33,564 ) (157,999 ) Writedowns (26,646 ) (8,908 ) (35,554 ) Balance at December 31, 2012 $ 102,577 $ 43,513 $ 146,090 Certain non-financial assets and non-financial liabilities are measured at fair value on a nonrecurring basis. OREO is measured and reported at fair value using level 3 inputs for valuations based on nonobservable criteria. The following table provides information regarding OREO for 2010 and 2009. Year Ended December 31, 2010 2009 $ 116,590 $ 11,072 40,328 44,617 62,327 255 14,220 18,493 9,185 — 7,099 2,903 34,849 — 15,069 11,135 L—L - EMPLOYEE BENEFIT PLANSplan.plan (Plan). Under the plan,Plan, benefits are based on years of service and average earnings. The policy is to fund amounts approximating the maximum amount that is deductible for federal income tax purposes. BancShares contributed $10,000made no contributions to the plan in 20102012 or 2011, and $35,000 to the plan in 2009. The plan’s assets consist of investments in FCB’s common trust funds, which include listed common stocks and fixed income securities, as well as investments in mid-cap, REIT and international stocks as well as TIPS and other fixed income securities through unaffiliated money managers.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES2013NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued).(dollars in thousands)31. 2010 2009 $ 382,372 $ 360,021 12,191 12,661 22,930 21,900 25,818 (1,221 ) (12,221 ) (10,989 ) 431,090 382,372 387,411 287,018 48,277 76,382 10,000 35,000 (12,221 ) (10,989 ) 433,467 387,411 $ 2,377 $ 5,039 2012 2011 Change in Benefit Obligation Benefit obligation at January 1 $ 493,648 $ 431,090 Service cost 14,241 13,265 Interest cost 23,711 23,810 Actuarial loss 64,540 38,946 Benefits paid (15,202 ) (13,463 ) Benefit obligation at December 31 580,938 493,648 Change in Plan Assets Fair value of plan assets at January 1 429,505 433,467 Actual return on plan assets 48,702 9,501 Employer contributions — — Benefits paid (15,202 ) (13,463 ) Fair value of plan assets at December 31 463,005 429,505 Funded status at December 31 $ (117,933 ) $ (64,143 ) 2010 2009 $ 2,377 $ 5,039 — — $ 2,377 $ 5,039 2012 2011 Other assets $ — $ — Other liabilities (117,933 ) (64,144 ) Net liability recognized $ (117,933 ) $ (64,144 ) 2010 2009 $ 72,090 $ 69,075 1,607 1,817 $ 73,697 $ 70,892 2012 2011 Net loss $ 157,147 $ 123,858 Less prior service cost 1,187 1,397 Accumulated other comprehensive loss, excluding income taxes $ 158,334 $ 125,255 Expected amortization amounts in 2013 Actuarial loss $ 17,006 Prior service cost 210 Total $ 17,216 20102012, and 20092011 equaled $350,974$485,641 and $307,766,$412,668, respectively. The planPlan uses a measurement date of December 31.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)2010, 20092012, 2011, and 2008. 2010 2009 2008 $ 12,191 $ 12,661 $ 11,750 22,930 21,900 20,384 (29,274 ) (27,713 ) (27,606 ) 210 210 210 3,800 3,604 970 9,857 10,662 5,708 6,815 (49,889 ) 143,141 (3,800 ) (3,604 ) (970 ) (210 ) (210 ) (210 ) 2,805 (53,703 ) 141,961 $ 12,662 $ (43,041 ) $ 147,669 2012 2011 2010 Service cost $ 14,241 $ 13,265 $ 12,191 Interest cost 23,711 23,810 22,930 Expected return on assets (28,478 ) (29,184 ) (29,274 ) Amortization of prior service cost 210 210 210 Amortization of net actuarial loss 11,026 6,861 3,800 Total net periodic benefit cost 20,710 14,962 9,857 Current year actuarial gain (loss) 44,315 58,630 6,815 Amortization of actuarial gain (loss) (11,026 ) (6,861 ) (3,800 ) Amortization of prior service cost (210 ) (210 ) (210 ) Total recognized in other comprehensive income 33,079 51,559 2,805 Total recognized in net periodic benefit cost and other comprehensive income $ 53,789 $ 66,521 $ 12,662 2010 2009 5.50 % 6.00 % 4.50 % 4.50 % 2012 2011 Discount rate 4.00 % 4.75 % Rate of compensation increase 4.00 4.00 2010, 20092012, 2011, and 20082010 are as follows: 2010 2009 2008 6.00 % 6.00 % 6.25 % 4.50 % 4.50 % 4.25 % 8.00 % 8.00 % 8.50 % 2012 2011 2010 Discount rate 4.75 % 5.50 % 6.00 % Rate of compensation increase 4.00 4.50 4.50 Expected long-term return on plan assets 7.50 7.75 8.00 Due to a 22.0 percent loss on plan assets during 2008 and expectations for generally lower investment returns, the rate was adjusted downward to 8.0 percent for 2009. The return on plan assets rebounded materially2009 to 24.0 percent and 13.0 percent during 2010. The return on plan thousands)20102012, equaled 7.776.98 percent 6.56, 8.77 percent and 6.925.81 percent, respectively. Based on these lower actual returns and expectations for generallyof modest returns over the next several years, the assumed rate of return for 2012 was 7.50 percent, compared to 7.75 percent in 2011.be 7.75 percent.Plan AssetsInvestment decisions regarding the plan’s assets seek to achieve a favorable annual return through a diversified portfolio that will provide needed capital appreciation and cash flow to allow both current and future benefit obligations to be paid. The target asset mix may change if the objectives for the plan’s assets or risk tolerance change or if a major shift occurs in the expected long-term risk and reward characteristics of one or more asset classes.20102012, and 20092011 by asset category are as follows: Market Value Quoted prices in
Active Markets
for Identical
Assets (Level 1) Significant
Observable
Inputs
(Level 2) Significant
Nonobservable
Inputs
(Level 3) 2010
Target
Allocation Actual %
of Plan
Assets $ 2,300 $ 2,300 — — 1 % 1 % 55 - 65 % 61 % 26,880 26,880 — — 9,046 9,046 — — 20,616 20,616 — — 46,194 46,194 — — 4,633 4,633 — — 29,344 29,344 — — 5,260 5,260 — — 13,707 13,707 — — 29,640 29,640 — — 20,366 20,366 — — 30,724 30,724 — — 44,707 44,707 — — 34 - 44 % 38 % 150,050 — 150,050 — $ 433,467 $ 283,417 $ 150,050 $ — 100 % 100 % $ 4,212 $ 4,212 — — 1 % 1 % 55 - 65 % 61 % 29,501 29,501 — — 8,025 8,025 — — 14,306 14,306 — — 39,414 39,414 — — 4,800 4,800 — — 25,269 25,269 — — 5,007 5,007 — — 3,923 3,923 — — 25,539 25,539 — — 22,897 22,897 — — 36,320 36,320 — — 19,922 19,922 — — 34 - 44 % 38 % 148,276 — 148,276 — $ 387,411 $ 239,135 $ 148,276 $ — 100 % 100 % Asset Category Market Value December 31, 2012 Cash and equivalents $ 3,088 $ 3,088 $ — $ — 0 - 1% 1 % 55 - 65 % 63 % Consumer discretionary 27,314 27,314 — — Consumer staples 16,294 16,294 — — Energy 28,046 28,046 — — Information technology 38,570 38,570 — — Telecommunication 4,678 4,678 — — Financials 35,921 35,921 — — Utilities 6,043 6,043 — — Materials 9,950 9,950 — — Health care 30,661 30,661 — — Industrials 23,466 23,466 — — Rights to purchase securities 4,168 4,168 — — Mutual funds 68,415 68,415 — — 34 - 44 % 36 % Bond funds 166,391 — 166,391 — Total pension assets $ 463,005 $ 296,614 $ 166,391 $ — 100 % 100 % December 31, 2011 Cash and equivalents $ 5,002 $ 5,002 $ — $ — 0 - 1% 1 % 55 - 65 % 63 % Consumer discretionary 24,003 24,003 — — Consumer staples 15,257 15,257 — — Energy 27,857 27,857 — — Information technology 35,206 35,206 — — Telecommunication 4,888 4,888 — — Financials 31,185 31,185 — — Utilities 6,263 6,263 — — Materials 10,548 10,548 — — Health care 30,195 30,195 — — Industrials 21,451 21,451 — — Rights to purchase securities 3,724 3,724 — — Mutual funds 60,493 60,493 — — 34 - 44 % 36 % Bond funds 153,433 — 153,432 — Total pension assets $ 429,505 $ 276,072 $ 153,432 $ — 100 % 100 % (a)(a) This category includes investments in equity securities of large, small and medium sized companies from various industries. (b)(b) This category represents investment grade bonds from diverse industries. During 2011, totaling $10,000.during 2013. Following are estimated payments to pension plan participants in the indicated periods: Projected
Benefit
Payments $ 14,363 15,456 16,635 17,927 19,560 123,958 Projected Benefit Payments 2013 $ 16,781 2014 18,062 2015 19,679 2016 21,445 2017 23,238 2018-2022 141,253 BasedFor employees who participate in the 401(k) savings plan who also continue to accrue additional years of service under the defined benefit plan, based on the employee’s contribution, BancShares matches up to 75 percent of the employee contribution. BancShares made participating contributions of $12,307, $11,582 and $8,229 during 2010, 2009 and 2008, respectively.participate incontinue to accrue additional years of service under the the defined benefit plan or to elect to join an enhanced 401(k) savings plan. BasedUnder the enhanced 401(k) savings plan, based on the employee’s contribution, BancShares matches up to 100 percent of the employee contribution. In addition to the employer match of the employee contributions, the enhanced 401(k) savings plan provides a guaranteed contribution to plan participants if they remain employed at the end of each calendar year. Employees electing to participate in the enhanced 401(k) savings plan and newly-hired employees were enrolled in the enhanced 401(k) savings plan beginning January 1, 2008. Employees who elected to enroll in the enhanced 401(k) savings plan discontinued the accrual of additional years of service under the defined benefit plan after and became enrolled in the enhanced 401(k) savings plan effective January 1, 2008.and ISB havehas entered into contractual agreements with certain executives that provide payments for a period of ten years following separation from service at an agreed-upon age. These agreements also provide a death benefit in the event a participant dies before the term of the agreement ends. FCB has also assumed liability for contractual obligations to directors and officers of previously-acquired entities.20102012, and 20092011 and the changes in the accrued liability during the years then ended: Year Ended
December 31 2010 2009 $ 22,949 $ 22,114 105 892 (2,064 ) (1,651 ) — (369 ) 2,037 1,963 $ 23,027 $ 22,949 5.50 % 6.00 % 2012 2011 Present value of accrued liability as of January 1 $ 25,586 $ 23,027 Benefit expense 462 1,799 Benefits paid (3,241 ) (1,877 ) Benefits forfeited 554 — Interest cost 2,490 2,637 Present value of accrued liability as of December 31 $ 25,851 $ 25,586 Discount rate at December 31 4.00 % 4.75 % M—M - NONINTEREST EXPENSE 2010 2009 2008 $ 46,765 $ 42,605 $ 42,071 20,485 2,102 63 13,327 9,672 8,985 11,624 8,457 9,323 11,328 11,314 12,061 8,301 8,111 8,098 6,848 6,130 6,517 6,202 1,940 2,048 4,968 5,425 6,308 57,632 55,988 59,421 $ 187,480 $ 151,744 $ 154,895 2012 2011 2010 Cardholder and merchant processing $ 45,129 $ 48,614 $ 46,765 Collection 25,591 23,237 20,485 Processing fees paid to third parties 14,454 16,336 13,327 Cardholder reward programs 4,325 11,780 11,624 Telecommunications 11,131 12,131 11,328 Advertising 3,897 7,957 8,301 Postage 6,799 7,365 6,848 Amortization of intangible assets 3,476 4,386 6,202 Legal 2,490 6,306 4,968 Other 62,519 66,824 57,632 Total other noninterest expense $ 179,811 $ 204,936 $ 187,480 N—N - INCOME TAXES 2010 2009 2008 $ 127,025 $ 25,668 $ 51,121 24,868 5,328 5,806 151,893 30,996 56,927 (33,333 ) 30,356 (8,111 ) (8,042 ) 5,416 (270 ) (41,375 ) 35,772 (8,381 ) $ 110,518 $ 66,768 $ 48,546 2012 2011 2010 Current tax expense Federal $ 85,875 $ 108,639 $ 127,025 State 9,212 23,101 24,868 Total current tax expense 95,087 131,740 151,893 Deferred tax benefit Federal (27,344 ) (12,127 ) (33,333 ) State (7,921 ) (4,510 ) (8,042 ) Total deferred tax benefit (35,265 ) (16,637 ) (41,375 ) Total income tax expense $ 59,822 $ 115,103 $ 110,518 2010 2009 2008 $ 106,247 $ 64,085 $ 48,861 (1,571 ) (1,556 ) (1,468 ) 10,937 6,984 3,598 (4,141 ) (2,735 ) (2,342 ) (954 ) (10 ) (103 ) $ 110,518 $ 66,768 $ 48,546 2012 2011 2010 Income taxes at statutory rates $ 67,959 $ 108,546 $ 106,247 Increase (reduction) in income taxes resulting from: Nontaxable income on loans, leases and investments, net of nondeductible expenses (1,309 ) (1,481 ) (1,571 ) State and local income taxes, including change in valuation allowance, net of federal income tax benefit 839 12,084 10,937 Tax credits (7,279 ) (5,166 ) (4,141 ) Other, net (388 ) 1,120 (954 ) Total income tax expense $ 59,822 $ 115,103 $ 110,518 31: 2010 2009 $ 89,193 $ 69,170 9,017 9,055 2,377 2,740 3,748 2,119 10,508 13,105 114,843 96,189 91 2,995 114,752 93,194 14,711 9,404 10,111 9,940 939 6,262 9,218 13,768 3,716 4,790 13,469 12,201 18,384 30,828 1,820 — 72,368 87,193 $ 42,384 $ 6,001 The31 2012 2011 Allowance for loan and lease losses $ 124,928 $ 105,788 Pension liability 46,178 25,112 Executive separation from service agreements 10,123 10,019 State operating loss carryforward 652 1,350 Unrealized loss on cash flow hedge 4,106 4,231 Other 19,465 17,638 Gross deferred tax asset 205,452 164,138 Less valuation allowance — 73 Deferred tax asset 205,452 164,065 Accelerated depreciation 12,465 14,494 Lease financing activities 10,366 11,334 Net unrealized gains on securities included in accumulated other comprehensive loss 13,292 10,450 Net deferred loan fees and costs 3,714 3,420 Intangible asset 11,897 11,681 Gain on FDIC-assisted transactions, deferred for tax purposes 29,694 34,208 Other 5,373 5,079 Deferred tax liability 86,801 90,666 Net deferred tax asset $ 118,651 $ 73,399 realizedrealized. A valuation allowance of $73 was $91 and $2,995recorded at December 31, 2010 and 2009, respectively. The decrease in valuation allowance as of December 31, 2010 is primarily related to the release of the ISB state tax valuation allowance in anticipation of the merger into FCB that was approved during 2010 and completed January 7, 2011.With few exceptions, 2011subsidiariessubsidiaries' federal income tax returns for 2009 through 2011 remain open for examination. Generally, the state jurisdictions in which BancShares files income tax returns are no longer subject to U.S. federal, or state and local income tax examinations by tax authoritiesexamination for a period up to four years before 2007. US GAAP, the benefit of a position taken or expected to be taken in a tax return should be recognized when it is more likely than not that the position will be sustained based on its technical merit. The liability for unrecognized tax benefits was not material at December 31, 20102012, and 2009,2011, and changes in the liability were insignificantnot material during 2010, 20092012, 2011 and 2008.2010. BancShares does not expect the liability for unrecognized tax benefits to change significantly during 2011.2013. BancShares recognizes interest and penalties, if any, related to income tax matters in income tax expense, and the amounts recognized during 2010, 20092012, 2011 and 20082010 were not material.O—O - TRANSACTIONS WITH RELATED PERSONSFCB and ISBFCB have had, and expect to have in the future, banking transactions in the ordinary course of business with directors, officers and their associates (Related Persons).Anaggregate amountsloans outstanding during 2012:Balance at January 1, 2012 $ 1,496 New loans 274 Repayments 459 Balance at December 31, 2012 $ 1,311 $16,583$4,446 and $16,829$4,343 as of December 31, 20102012, and 2009,2011, respectively.2010, 20092012, 2011 and 2008,2010, BancShares received $33,654, $31,242$33,653, $34,536 and $31,763,$33,654, respectively, for services rendered to these Related Persons. The amountamounts recorded from the largest individual institution totaled $22,024, $19,652$22,793, $23,463 and $19,564$22,024 for 2010, 20092012, 2011 and 2008,2010, respectively.Other expense includes $2,867, $2,854 and $3,499 in legal expense incurred during 2010, 2009 and 2008, respectively, for the firm that serves as BancShares’ general counsel. As a member of BancShares’ board of directors, the senior attorney of that firm was a Related Person until his retirement from the board on December 31, 2010.$18,381$16,069 and $14,633$14,777 at December 31, 20102012, and 2009,2011, respectively. For each period, theThe investment had a cost of $508.NOTE P—DERIVATIVES$452At at December 31, 2010,2012 and $508 at December 31, 2011.twoan interest rate swapsswap (the 2011 Swap) that qualifywas designated as a cash flow hedgeshedge under US GAAP. The fair valuesnotional amount of these derivatives are included in other liabilities in the consolidated balance sheets.swaps are usedswap hedges interest payments through June 2016 and requires fixed-rate payments by BancShares at 5.50 percent in exchange for variable-rate payments of 175 basis points above three-month LIBOR. As of December 31, 2012, and 2011, collateral with a fair value of $9,656 and $14,679, respectively, was pledged to secure the existing obligation under the interest rate risk management purposesswap. Settlement occurs quarterly.rate.rate during the period July 2011 through June 2016, was designated as a cash flow hedge when it was initiated in 2009 and was fully effective until it was terminated in December 2011. As a result of this transaction a gain of $9,685 was recorded in noninterest income on the retirement of the underlying trust preferred securities and $2,824 in noninterest expense was recorded for termination of the 2009 swap. The remaining amount of accumulated other comprehensive loss relating to the terminated swap at the date of termination was $11,002 and is being recognized over the remaining term of the hedged interest payments.swaps each have a notional amountswap (the 2006 Swap) hedged interest payments on $115,000 of $115,000, representing the amount of variable-rate trust preferred capital securities issued during 2006.from July 2006 through June 2011. The 2006 interest rate swap hedges interest payments through June 2011 and requiresSwap required fixed-rate payments by BancShares at 7.125 percent in exchange for variable-rate payments of 175 basis points above 3-monththree-month LIBOR, which is equal to the interest paid to the holders of the trust preferred capital securities.interest rate swap hedges interest payments from July 2011 through June 2016Swap and requires fixed-rate payments by BancShares at 5.50 percentthe 2006 Swap are included in exchange for variable-rate payments of 175 basis points above 3-month LIBOR. As of December 31, 2010, collateral with aother liabilities in the consolidated balance sheets and the net change in fair value is included in the change in other liabilities in the consolidated statements of $14,650 was pledged to secure the existing obligation undercash flows. Each of the interest rate swaps. For both swaps settlement occurs quarterly. December 31, 2010 December 31, 2009 Notional
amount Estimated fair value
of liability Notional
amount Estimated fair
value of liability $ 115,000 $ 2,873 $ 115,000 $ 7,424 115,000 6,619 115,000 (2,057 ) $ 9,492 $ 5,367 December 31, 2012 December 31, 2011 2011 interest rate swap hedging variable rate exposure on trust preferred securities 2011-2016 $ 93,500 $ 10,398 $ 93,500 $ 10,714 $ 10,398 $ 10,714 yearyears ended December 31, 20102012, 2011, and 2009,2010, BancShares recognized interest expense of $5,869$3,095, $4,577, and $5,234$5,869 respectively, resulting from the interest rate swaps, none of which relates to ineffectiveness. The estimated net amount in accumulated other comprehensive income at December 31, 20102012, that is expected to be reclassified into earnings within the next 12 months is a net after-tax loss of $2,885. The amount reclassified into earnings from other comprehensive income during 2010 was $3,302 net of deferred tax benefit.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES$1,937NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued).(dollars in thousands)yearyears ended December 31, 20102012, 2011, and 2009. 2010 2009 $ (5,367 ) $ (10,668 ) (4,575 ) 5,301 $ (9,942 ) $ (5,367 ) 2012 2011 2010 Accumulated other comprehensive loss resulting from interest rate swaps as of January 1 $ (10,714 ) $ (9,492 ) $ (5,367 ) Other comprehensive income (loss) recognized during year ended December 31 316 (1,222 ) (4,125 ) Accumulated other comprehensive loss resulting from interest rate swaps as of December 31 $ (10,398 ) $ (10,714 ) $ (9,492 ) Q—Q - GOODWILL AND INTANGIBLE ASSETS20102012 and 2009.2011. Goodwill totaled $102,625$102,625 at December 31, 20102012, and 20092011 with no impairment recorded during 2012, 2011 and 2010 2009 or 2008.US eachthe reporting unit’s fair value. If the fair value exceeds the carrying value, no further testing is required. If the carrying value exceeds the fair value, a second step is performed to determine whether an impairment charge must be recorded and, if so, the amount of such charge.Neither reporting unit required further analysis afterAfter the first step for 2010. For 2009, based on the results of the first step,2012 and 2011, no further analysis was required as there was no indication of potential impairment for FCB’s goodwill. However, the first test indicated that an impairment of ISB’s $793 of goodwill was possible. The evaluation of impairment performed in the second step included the preparation of a fair value balance sheet for ISB to confirm whether impairment existed. Based on the fair value estimates considered in the analysis, including fair value adjustments on assets not carried at fair value, goodwill was not impaired for ISB in 2009. 2010 2009 $ 6,361 $ 3,810 9,739 4,397 — 94 (6,203 ) (1,940 ) $ 9,897 $ 6,361 2012 2011 Balance, January 1 $ 7,032 $ 9,897 Intangible assets generated by FDIC-assisted transactions — 1,521 Amortization (3,476 ) (4,386 ) Balance, December 31 $ 3,556 $ 7,032 2012 2011 Gross balance $ 18,966 $ 18,966 Accumulated amortization (15,410 ) (11,934 ) Carrying value $ 3,556 $ 7,032 current carrying values, BancShares anticipates amortization expense for intangible assets in subsequent periods will be: $ 3,894 2,759 1,635 493 333 783 $ 9,897 FIRST CITIZENS BANCSHARES, INC.2013 $ 2,308 2014 1,122 2015 126 $ 3,556 SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)NOTE R—OTHER REGULATORY REQUIREMENTSrisk-adjustedrisk-weighted adjusted assets. An additional capital computation evaluates tangible capital based on tangible assets. Minimum capital requirements currently set forth by the regulatory agencies require a tier 1 capital ratio of no less than 4 percent of risk-weighted assets, a total capital ratio of no less than 8 percent of risk-weighted assets, and a leverage capital ratio of no less than 3 percent of tangible assets. To meet the FDIC’s well-capitalized standards, the tier 1 and total capital ratios must be at least 6 percent and 10 percent respectively., respectively, while the leverage ratio must equal 5 percent. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on the consolidated financial statements.and ISB areis well-capitalized under the regulatory framework for prompt corrective action. Management believes that as of December 31, 20102012, BancShares FCB and ISBFCB met all capital adequacy requirements to which they are subject and was not aware of any conditions or events that would affect FCB’s and ISB’s well-capitalized status.FCB and ISBFCB as of December 31, 20102012, and 2009: December 31, 2010 December 31, 2009 Amount Ratio Requirement for
Well-Capitalized Amount Ratio Requirement for
Well-Capitalized $ 1,935,559 14.86 % 6.00 % $ 1,752,384 13.34 % 6.00 % 2,206,890 16.95 10.00 2,047,684 15.59 10.00 1,935,559 9.18 5.00 1,752,384 9.54 5.00 1,522,931 14.50 6.00 1,349,972 11.74 6.00 1,754,847 16.71 10.00 1,609,388 13.99 10.00 1,522,931 8.40 5.00 1,349,972 8.63 5.00 321,043 13.07 6.00 291,897 12.31 6.00 364,860 14.85 10.00 334,393 14.11 10.00 321,043 11.69 5.00 291,897 11.35 5.00 Provisions2011 December 31, 2012 December 31, 2011 Amount Ratio Amount Ratio BancShares Tier 1 capital $ 1,949,985 14.27 % 6.00 % $ 2,072,610 15.41 % 6.00 % Total capital 2,179,370 15.95 10.00 2,323,022 17.27 10.00 Leverage capital 1,949,985 9.22 5.00 2,072,610 9.90 5.00 FCB Tier 1 capital 1,942,101 14.37 6.00 1,968,032 14.75 6.00 Total capital 2,163,034 16.00 10.00 2,211,235 16.57 10.00 Leverage capital 1,942,101 9.34 5.00 1,968,032 9.53 5.00 which currently qualify as tier 1 capital, in the capital ratio calculations. Beginning in 2013, one-third of the $265,000$93,500 currently included in tier 1 capital will be excluded from capital. Eliminationcapital, with two-thirds eliminated in 2014, and the entire amount of thetrust preferred securities excluded beginning in 2015. Proforma elimination of all BancShares' trust preferred securities from the December 31, 20102012, capital structure would result in a proforma tier 1 leverage ratio of 7.938.78 percent, a proforma tier 1 risk-based ratio of 12.8313.59 percent and a proforma total risk-based ratio of 14.91 percent.15.27 percent. BancShares would continue to remain well-capitalized under current regulatory guidelines.2010,2012, the Board of Directors authorized thegranted authority to purchase of up to 100,000 and 25,000 shares of ourClass A and Class B common stock, respectively, during the period from July 1, 2012 through June 30, 2013. That authority replaced similar plans approved by the Board during 2011 that were in effect during the twelve months preceding July 1, 2012. Pursuant to those plans, during 2012, BancShares purchased and retired an aggregate of 56,276 shares of Class A common stock and 25,000100 shares of our Class B common stock. The repurchase authorization expires on April 30, 2011. The Board’s action approving share repurchases does not require the purchase of shares,Additionally, pursuant to separate authorizations, during 2012, BancShares purchased and purchase activity may be suspended or discontinued at any time. Anyretired 606,829 shares of Class B common stock in privately negotiated transactions, including purchases of 593,954 shares during December 2012 from a director and certain of her related interests which were approved by the independent Directors, after review and recommendation by a special committee of independent Directors. As of December 31, 2012, under existing plan that are repurchased will be retired.expires June 30, 2013, BancShares had the ability to purchase 43,724 and 24,900 shares of Class A and Class B common stock, respectively.sell or repurchasesell any Class A or Class B common stock during 20102012 or 2009.2011.2010,2012, the amount was $1,615,291.$1,382,080. However, to preserve its well-capitalized status, the maximum amount of the dividend was limited to $616,111.$809,000. Dividends declared by FCB amounted to $50,424$179,588 in 2010, $60,5092012, $82,812 in 20092011 and $54,788$50,424 in 2008.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES2010NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued).(dollars in thousands)its banking subsidiariesFCB are subject to various requirements imposed by state and federal banking statutes and regulations, including regulations requiring the maintenance of noninterest-bearing reserve balances at the Federal Reserve Bank. Banks are allowed to reduce the required balances by the amount of vault cash. For 20102012, the requirements averaged $152,011 for FCB and $9,768 for ISB.S—S - COMMITMENTS AND CONTINGENCIESand its subsidiaries havehas financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit, standby letters of credit and recourse obligations on mortgage loans sold. These instruments involve elements of credit, interest rate or liquidity risk.20102012, and 2009,2011, BancShares had unused commitments totaling $5,364,451$5,467,998 and $5,180,070$5,636,942, respectively.20102012, and 2009,2011, BancShares had standby letters of credit amounting to $70,755$63,085 and $73,749,$57,446, respectively. The credit risk related to the issuance of these letters of credit is essentially the same as that involved in extending loans to clients, and therefore, these letters of credit are collateralized when necessary.20102012, and 2009, Bancshares2011, BancShares has maximum recourse exposuresold loans of approximately $253,347$205,888 and $204,927$207,963, respectively, onfor which the recourse period had not yet elapsed. Of these mortgage loans.loans, $97,706 and $82,167 at December 31, 2012, and 2011, respectively, represent loans that would require repurchase in the event of nonperformance by the borrower. Any loans that are repurchased under the recourse obligation would carry the same credit risk as mortgage loans originated by the company and would be collateralized in the same manner.NOTE T—SEGMENT DISCLOSURESForperiods reported, BancShares conductedclaims against them and, during June 2011, the Court dismissed all claims by the holding company and the individual directors, and it dismissed United Western Bank’s claim against the FDIC. However, the Court denied the motion to dismiss United Western Bank’s claim against the OTS and its banking operations throughActing Director, which permits that claim to proceed. In July 2011, following passage of the Dodd-Frank Act, the OCC and the Acting Comptroller were substituted for the OTS and its two banking subsidiaries,Acting Director as the only defendants. On November 20, 2012, the court heard Motions for Summary Judgment filed by each side and took them under advisement. It is unclear what impact, if any, the litigation will have on FCB or the assets acquired in the United Western transaction.ISB. Althoughthe FDIC applicable to Temecula Valley Bank. FCB and ISB offered similar products and services to customers, each entity operated in distinct geographic markets and has separate management groups, except California, Washington and Florida, where both operate as a resultdisputes the validity of the FDIC-assisted transactions. Additionally, the financial resultsSBA claims and trends of ISB reflected the de novo nature of its growth. On January 7, 2011, upon receipt of all required regulatory approvals, ISB was merged into FCB. Branches of the former ISB continue to operate under the name IronStone Bank, which is now a division of FCB. For the immediate future, BancShares will maintain the existing segment reporting structure.Prior to the merger and for all periods shown, FCB operated from a single charter from its branch network in North Carolina, Virginia, West Virginia, Maryland, Tennessee and Washington, D.C. In 2009, FCB extended its franchise into California and Washingtonpursuing administrative relief through the FDIC-assisted acquisitionSBA. FCB is unable to determine the outcome or range of certain assets and assumptionloss, if any, related to these claims.TVB and VB. During 2010, First Citizens Bank extended its franchise into Florida with the FDIC-assisted acquisition of certain assets and assumption of certain liabilities of SAB and grew its network in southern California through the FDIC-assisted acquisition of certain assets and assumption of certain liabilities of First Regional.ISB began operations in 1997 and operated from a thrift charter in Florida, Georgia, Texas, New Mexico, Arizona, California, Oregon, Washington, Colorado, Oklahoma, Missouri and Kansas. Prior to the merger with FCB, ISB’s significance to BancShares’ consolidated financial results continued to grow.Management has determined that prior to the January 7, 2011 merger, FCB and ISB are reportable business segments for all periods reported. In the aggregate, FCB and its consolidated subsidiaries, which are integral to its branch operation, and ISB account for more than 90 percent of consolidated assets, revenues and net income.The ‘Other’ category in the accompanying table includes activities of the parent company and Neuse, Incorporated (Neuse), a subsidiary that owns real property used in the banking operation and owns OREO. The Neuse OREO relates to loans originated by ISB. During 2010 and 2009, Neuse purchased a portion of ISB’s OREO to reduce ISB’s nonperforming assets. To facilitate the potential purchase of additional OREO in the future, ISB agreed to lend Neuse up to $15,000 under a revolving line of credit. No amount was owed by Neuse to ISB as of December 31, 2010 or 2009 under the revolving line of credit.The adjustments in the accompanying tables represent the elimination of the impact of certain intercompany transactions. The adjustments for interest income and interest expense neutralize the earnings and cost of intercompany borrowings. The adjustments to noninterest income and noninterest expense reflect the elimination of management fees and other service fees paid from one company to another within BancShares’ consolidated group.FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)The following table provides selected balance sheet information for BancShares’ reportable business segments as of December 31, 2010 and 2009: As of December 31, 2010 ISB FCB Other Total Adjustments Consolidated $ 2,746,325 $ 17,871,917 $ 2,253,841 $ 22,872,083 $ (2,065,424 ) $ 20,806,659 — 2,007,452 — 2,007,452 — 2,007,452 2,269,892 9,210,685 — 11,480,577 — 11,480,577 43,125 184,640 — 227,765 — 227,765 793 101,832 — 102,625 — 102,625 2,143,125 15,519,274 — 17,662,399 (27,133 ) 17,635,266 — 363,461 — 363,461 — 363,461 76,947 105,493 14,211 196,651 — 196,651 $ 76,947 $ 468,954 $ 14,211 $ 560,112 $ — $ 560,112 As of December 31, 2009 ISB FCB Other Total Adjustments Consolidated $ 2,573,605 $ 15,791,475 $ 2,181,898 $ 20,546,978 $ (2,080,915 ) $ 18,466,063 — 1,173,020 — 1,173,020 — 1,173,020 2,194,659 9,450,340 — 11,644,999 — 11,644,999 41,675 130,607 — 172,282 — 172,282 793 101,832 102,625 — 102,625 1,967,824 13,406,484 — 15,374,308 (36,741 ) 15,337,567 — 220,233 — 220,233 — 220,233 62,881 76,622 14,546 154,049 — 154,049 $ 62,881 $ 296,855 $ 14,546 $ 374,282 $ — $ 374,282 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)The following table provides selected statement of income information for BancShares’ reportable business segments for the years ended December 31, 2010, 2009 and 2008: 2010 ISB FCB Other Total Adjustments Consolidated $ 134,986 $ 833,572 $ 1,524 $ 970,082 $ (714 ) $ 969,368 40,588 132,630 22,621 195,839 (714 ) 195,125 94,398 700,942 (21,097 ) 774,243 — 774,243 18,536 124,983 — 143,519 — 143,519 75,862 575,959 (21,097 ) 630,724 — 630,724 15,830 398,478 (314 ) 413,994 (7,780 ) 406,214 89,209 646,683 5,264 741,156 (7,780 ) 733,376 2,483 327,754 (26,675 ) 303,562 — 303,562 (24 ) 120,017 (9,475 ) 110,518 — 110,518 $ 2,507 $ 207,737 $ (17,200 ) $ 193,044 $ — $ 193,044 2009 ISB FCB Other Total Adjustments Consolidated $ 131,253 $ 602,283 $ 5,285 $ 738,821 $ (662 ) $ 738,159 52,117 153,477 22,712 228,306 (662 ) 227,644 79,136 448,806 (17,427 ) 510,515 — 510,515 33,989 45,375 — 79,364 — 79,364 45,147 403,431 (17,427 ) 431,151 — 431,151 13,252 401,081 (1,023 ) 413,310 (9,859 ) 403,451 91,331 568,131 1,900 661,362 (9,859 ) 651,503 (32,932 ) 236,381 (20,350 ) 183,099 — 183,099 (11,664 ) 85,548 (7,116 ) 66,768 — 66,768 $ (21,268 ) $ 150,833 $ (13,234 ) $ 116,331 $ — $ 116,331 2008 ISB FCB Other Total Adjustments Consolidated $ 141,061 $ 662,247 $ 23,214 $ 826,522 $ (13,171 ) $ 813,351 73,560 221,753 32,803 328,116 (13,171 ) 314,945 67,501 440,494 (9,589 ) 498,406 — 498,406 36,208 29,718 — 65,926 — 65,926 31,293 410,776 (9,589 ) 432,480 — 432,480 12,197 305,399 610 318,206 (10,700 ) 307,506 87,632 521,497 1,953 611,082 (10,700 ) 600,382 (44,142 ) 194,678 (10,932 ) 139,604 — 139,604 (15,234 ) 67,588 (3,808 ) 48,546 — 48,546 $ (28,908 ) $ 127,090 $ (7,124 ) $ 91,058 $ — $ 91,058 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(dollars in thousands)U—T - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)20102012, and 2009: December 31, 2010 December 31, 2009 Accumulated
other
comprehensive
income (loss) Deferred
tax
expense
(benefit) Accumulated
other
comprehensive
income (loss),
net of tax Accumulated
other
comprehensive
income (loss) Deferred
tax
expense
(benefit) Accumulated
other
comprehensive
income (loss),
net of tax $ 23,195 $ 9,143 $ 14,052 $ 35,769 $ 14,339 $ 21,430 (73,696 ) (28,859 ) (44,837 ) (70,892 ) (27,761 ) (43,131 ) (9,492 ) (3,748 ) (5,744 ) (5,367 ) (2,119 ) (3,248 ) $ (59,993 ) $ (23,464 ) $ (36,529 ) $ (40,490 ) $ (15,541 ) $ (24,949 ) December 31, 2012 December 31, 2011 Unrealized gains on investment securities available for sale $ 33,809 $ 13,292 $ 20,517 $ 26,565 $ 10,450 $ 16,115 Funded status of defined benefit plan (158,334 ) (62,003 ) (96,331 ) (125,255 ) (49,049 ) (76,206 ) Unrealized loss on cash flow hedge (10,398 ) (4,106 ) (6,292 ) (10,714 ) (4,231 ) (6,483 ) Total $ (134,923 ) $ (52,817 ) $ (82,106 ) $ (109,404 ) $ (42,830 ) $ (66,574 ) V—FIRST CITIZENS BANCSHARES, INC. (PARENT COMPANY)UFirst Citizens - SUBSEQUENT EVENTInc.’s principal assetsexecuted an agreement to sell and assign its rights and most of its obligations under various service agreements with certain client banks, some of which are itsRelated Persons, to a third party. The transaction will result in the elimination of several positions that supported the affected functions as well as certain investments in software and receivables from its subsidiaries. Its sourcesequipment. A pre-tax gain of income are dividends and interest income. The approximately $5.0 million (unaudited) is expected to be recognized during the first quarter of 2013.Company’s condensed balance sheets as of Company20102012, and 2009, and the related condensed statements2011 2012 2011 Assets Cash $ 2,131 $ 10,765 Investment securities 237,765 235,617 Investment in subsidiaries 1,969,600 2,031,229 Due from subsidiaries 78,512 120,836 Other assets 83,283 114,852 Total assets $ 2,371,291 $ 2,513,299 Liabilities and Shareholders’ Equity Short-term borrowings $ 399,047 $ 375,396 Long-term obligations 96,392 251,697 Other liabilities 11,845 25,078 Shareholders’ equity 1,864,007 1,861,128 Total liabilities and shareholders’ equity $ 2,371,291 $ 2,513,299 CONDENSED STATEMENTS OF INCOMEDecember 31, 2012, 2011, and 2010 Year Ended December 31 2010 2009 2008 $ 1,524 $ 5,285 $ 23,214 22,633 22,786 32,908 (21,109 ) (17,501 ) (9,694 ) 50,424 60,509 54,788 (314 ) (1,024 ) 610 2,343 3,430 3,422 26,658 38,554 42,282 (8,343 ) (7,741 ) (4,420 ) 35,001 46,295 46,702 158,043 70,036 44,356 $ 193,044 $ 116,331 $ 91,058 CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31 2010 2009 2008 $ 193,044 $ 116,331 $ 91,058 (158,043 ) (70,036 ) (44,356 ) (113 ) (246 ) (246 ) 377 615 (103 ) (30,443 ) (1,924 ) (12,830 ) 1,409 (1,198 ) 3,215 6,231 43,542 36,738 59,249 (99,348 ) 414,443 (75,180 ) — (90,918 ) 65,991 184,010 129,731 (14,000 ) (40,500 ) (45,750 ) 36,060 44,162 407,506 (24,227 ) (76,995 ) (450,851 ) (12,521 ) (12,522 ) (11,477 ) (36,748 ) (89,517 ) (462,328 ) 5,543 (1,813 ) (18,084 ) 8,467 10,280 28,364 $ 14,010 $ 8,467 $ 10,280 $ 22,003 $ 22,155 $ 32,457 187,183 20,640 69,506 2012 2011 2010 Interest income $ 1,353 $ 1,345 $ 1,524 Interest expense 15,435 21,512 22,633 Net interest loss (14,082 ) (20,167 ) (21,109 ) Dividends from subsidiaries 179,588 82,812 50,424 Other income (loss) 2,843 9,699 (314 ) Other operating expense 6,384 5,298 2,343 Income before income tax benefit and equity in undistributed net income of subsidiaries 161,965 67,046 26,658 Income tax benefit (8,417 ) (5,531 ) (8,343 ) Income before equity in undistributed net income of subsidiaries 170,382 72,577 35,001 (Excess distributions) equity in undistributed net income of subsidiaries (36,034 ) 122,451 158,043 Net income $ 134,348 $ 195,028 $ 193,044 2012 2011 2010 OPERATING ACTIVITIES Net income $ 134,348 $ 195,028 $ 193,044 Adjustments Excess distributions (undistributed) net income of subsidiaries 36,034 (122,451 ) (158,043 ) Net amortization of premiums and discounts 439 203 (113 ) Gain on retirement of long term obligations — (9,685 ) — Securities (gains) losses (2,274 ) (62 ) (44 ) Other than temporary impairment on securities 45 26 421 Change in other assets 30,761 (20,951 ) (30,443 ) Change in other liabilities (10,148 ) (1,925 ) 1,409 Net cash provided by operating activities 189,205 40,183 6,231 INVESTING ACTIVITIES Net change in due from subsidiaries 42,323 146,463 59,249 Purchases of investment securities (111,409 ) (220,387 ) (75,180 ) Proceeds from sales, calls, and maturities of securities 112,625 75,151 65,991 Investment in subsidiaries 9,298 — (14,000 ) Net cash provided by investing activities 52,837 1,227 36,060 FINANCING ACTIVITIES Net change in short-term borrowings 23,651 4,046 (24,227 ) Retirement of long-term obligations (155,305 ) (11,815 ) — Repurchase of common stock (103,624 ) (24,387 ) — Cash dividends paid (15,398 ) (12,499 ) (12,521 ) Net cash used by financing activities (250,676 ) (44,655 ) (36,748 ) Net change in cash (8,634 ) (3,245 ) 5,543 Cash balance at beginning of year 10,765 14,010 8,467 Cash balance at end of year $ 2,131 $ 10,765 $ 14,010 Cash payments for Interest $ 25,574 $ 20,677 $ 22,003 Income taxes 66,453 91,465 187,183 February 28, 2011FIRST CITIZENS BANCSHARES, INC. (Registrant)March 1, 2013FIRST CITIZENS BANCSHARES, INC. (Registrant) /S/ FRANK B. HOLDING, JR. /S/ FRANK B. HOLDING, JR. Frank B. Holding, Jr.Chairman and Chief Executive OfficerFebruary 28, 2011. February 28, 2011March 1, 2013 February 28, 2011March 1, 2013 February 28, 2011March 1, 2013 February 28, 2011March 1, 2013/s/ CARMEN HOLDING AMES * Carmen Holding Ames DirectorFebruary 28, 2011 February 28, 2011March 1, 2013/s/ GEORGE H. BROADRICK * George H. Broadrick Director February 28, 2011DirectorMarch 1, 2013 OPE HOLDING CONNELL * Hope Holding ConnellDirectorFebruary 28, 2011/s/ HUBERT M. CRAIG, III * February 28, 2011March 1, 2013 February 28, 2011March 1, 2013 February 28, 2011Director March 1, 2013 Director March 1, 2013 Director March 1, 2013 Director March 1, 2013 Director March 1, 2013 /s/ LUCIUS S. JONES * Lucius S. JonesDirectorFebruary 28, 2011/s/ ROBERT E. MASON, IV * Robert E. Mason, IVDirectorFebruary 28, 2011/s/ ROBERT T. NEWCOMB * Robert T. NewcombDirectorFebruary 28, 2011/s/ JAMES M. PARKER * James M. ParkerDirectorFebruary 28, 2011/s/ RALPH K. SHELTON * Ralph K. SheltonDirectorFebruary 28, 2011* February 28, 2011,March 1, 2013, on behalf of each of the indicated persons for whom he is attorney-in-fact pursuant to a Power of Attorney filed herewith.By: By:/S/ KENNETH A. BLACK Kenneth A. BlackAs Attorney-In-Fact2.1 Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated July 17, 2009 (incorporated by reference from Registrant’s Form 8-K/A filed February 1, 2010 to Form 8-K dated July 17, 2009) 2.2 Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated September 11, 2009 (incorporated by reference from Registrant’s Form 8-K/A filed December 21, 2009 to Form 8-K dated September 11, 2009) 2.3 2.4 2.5 Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated January 21, 2011 (incorporated by reference from Registrant’s Form 8-K dated January 21, 2011) 2.6 Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated July 8, 2011 (incorporated by reference from Registrant’s Form 8-K dated July 8, 2011) 3.1 Certificate of Incorporation of the Registrant, as amended (incorporated by reference from Registrant’s Form 10-K for the year ended December 31, 1992) 3.2 Bylaws of the Registrant, as amended (incorporated by reference from Registrant’s Form 8-K dated April 27, 2009) 4.1 Specimen of Registrant’s Class A Common Stock certificate (incorporated by reference from Registrant’s Form 10-K for the year ended December 31, 2008) 4.2 Specimen of Registrant’s Class B Common Stock certificate (incorporated by reference from Registrant’s Form 10-K for the year ended December 31, 2008) 4.3 Amended and Restated Trust Agreement of FCB/NC Capital Trust I (incorporated by reference from Registration No. 333-59039) 4.4 Form of Guarantee Agreement (incorporated by reference from Registration No. 333-59039) 4.5 Junior Subordinated Indenture dated March 5, 1998 between Registrant and Bankers Trust Company, as Debenture Trustee (incorporated by reference from Registration No. 333-59039) 4.6 Indenture dated June 1, 2005 between Registrant’s subsidiary First-Citizens Bank & Trust Company and Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference from Registrant’s Form 8-K dated June 1, 2005) 4.7 First Supplemental Indenture dated June 1, 2005 between Registrant’s subsidiary First-Citizens Bank & Trust Company and Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference from Registrant’s Form 8-K dated June 1, 2005) 4.8 Amended and Restated Trust Agreement of FCB/NC Capital Trust III (incorporated by reference from Registrant’s Form 10-Q for the quarter ended June 30, 2006) 4.9 Guarantee Agreement relating to Registrant’s guarantee of the capital securities of FCB/NC Capital Trust III (incorporated by reference from Registrant’s Form 10-Q for the quarter ended June 30, 2006) 4.104.1 Junior Subordinated Indenture dated May 18, 2006 between Registrant and Wilmington Trust Company, as Debenture Trustee (incorporated by reference from Registrant’s Form 10-Q for the quarter ended June 30, 2006) 10.1 Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Frank B. Holding, Jr. (incorporated by reference from Registrant’s Form 8-K dated February 18, 2011) 10.2 Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Frank B. Holding (incorporated by reference from Registrant’s Form 8-K dated February 3, 2009)
| 10.3 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Hope Holding Connell (incorporated by reference to Registrant’s Form 8-K dated February 18, 2011) | |
| 10.4 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Edward L. Willingham, IV (incorporated by reference to Registrant’s Form 8-K dated February 18, 2011) | |
| 10.5 | Offer of employment by Registrant’s subsidiary First-Citizens Bank & Trust Company to Carol B. Yochem (incorporated by reference to Registrant’s Form 10-K for the year ended December 31, 2006) | |
| 10.6 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Carol B. Yochem (incorporated by reference to Registrant’s Form 8-K dated February 18, 2011) | |
| 10.7 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Kenneth A. Black (incorporated by reference to Registrant’s Form 8-K dated February 18, 2011) | |
| 10.8 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to IronStone Bank, and James M. Parker (incorporated by reference from Registrant’s Form 10-Q for the quarter ended September 30, 2007) | |
| 10.9 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to IronStone Bank, and James M. Parker (incorporated by reference from Registrant’s Form 10-K for the year ended December 31, 2008) | |
| 10.10 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to IronStone Bank, and James M. Parker (incorporated by reference from Registrant’s Form 8-K dated February 4, 2009) | |
| 10.11 | Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to IronStone Bank, and James M. Parker | |
| 21 | Subsidiaries of the Registrant (filed herewith) | |
| 24 | Power of Attorney (filed herewith) | |
| 31.1 | Certification of Chief Executive Officer (filed herewith) | |
| 31.2 | Certification of Chief Financial Officer (filed herewith) | |
| 32.1 | Certification of Chief Executive Officer (filed herewith) | |
| 32.2 | Certification of Chief Financial Officer (filed herewith) | |
| 99.1 | Proxy Statement for Registrant’s | |
| *101.INS | XBRL Instance Document (filed herewith) | |
| *101.SCH | XBRL Taxonomy Extension Schema (filed herewith) | |
| *101.CAL | XBRL Taxonomy Extension Calculation Linkbase (filed herewith) | |
| *101.LAB | XBRL Taxonomy Extension Label Linkbase (filed herewith) | |
| *101.PRE | XBRL Taxonomy Extension Presentation Linkbase (filed herewith) | |
| *101.DEF | XBRL Taxonomy Definition Linkbase (filed herewith) | |
| * | Interactive data files are furnished but not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended. | |
KENNETH
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