First Citizens BancShares (FCNCO) 8-K/A Financial Statements and Exhibits

Exhibit 99.3

FIRST CITIZENS BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

	September 30,* 2014			December 31, 2013#			September 30,* 2013
	(dollars in thousands)
ASSETS
Cash and due from banks	$	194,570		$	235,526		$	205,763
Interest bearing balances with other banks		1,087,325			1,076,801			1,158,783
Investment securities available-for-sale, at fair value		2,011,263			2,000,022			1,869,264
Loans and leases not covered under FDIC loss sharing agreements		4,570,279			4,343,506			4,244,719
Less: Allowance for loan losses		(47,736	)		(54,565	)		(54,735	)
Net loans and leases not covered under FDIC loss sharing agreements		4,522,543			4,288,941			4,189,984
Loans covered under FDIC loss sharing agreements, net of allowance for loan losses		65,276			174,203			193,644
Net loans and leases		4,587,819			4,463,144			4,383,628
Other real estate owned:
Not covered under FDIC loss sharing agreements		37,718			28,059			30,096
Covered under FDIC loss sharing agreements		2,584			12,850			17,573
Premises and equipment, net		228,278			230,217			233,075
Interest receivable		15,886			15,805			15,350
Intangible assets		16,732			18,104			18,595
Goodwill		21,357			188,107			188,107
FDIC receivable for loss sharing agreements		4,192			11,472			18,304
Other assets		69,944			93,994			64,090
Total assets	$	8,277,668		$	8,374,101		$	8,202,628
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Demand	$	2,166,754		$	2,020,190		$	1,926,260
Time and savings		5,006,764			5,171,379			5,081,254
Total deposits		7,173,518			7,191,569			7,007,514
Securities sold under agreements to repurchase		218,394			179,386			215,104
Short-term borrowings		74,949			—			—
Long-term debt		128,404			203,278			203,252
Other liabilities		69,505			50,167			39,099
Total liabilities		7,664,770			7,624,400			7,464,969
Stockholders’ equity
Preferred stock		—			3,050			3,050
Non-voting common stock—$5.00 par value, authorized 1,000,000; 27,779 issued and outstanding at September 30, 2014, December 31, 2013, and September 30, 2013		139			139			139
Voting common stock—$5.00 par value, authorized 2,000,000; 655,514 issued and outstanding at September 30, 2014, December 31, 2013, and September 30, 2013		3,277			3,277			3,277
Surplus		65,081			65,081			65,081
Undivided profits		539,430			670,812			664,029
Accumulated other comprehensive income		4,971			7,342			2,083
Total stockholders’ equity		612,898			749,701			737,659
Total liabilities and stockholders’ equity	$	8,277,668		$	8,374,101		$	8,202,628

* Unaudited

# Derived from 2013 Annual Report.

The accompanying notes are an integral part of these consolidated financial statements.

FIRST CITIZENS BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(dollars in thousands, except per share data, unaudited)
INTEREST INCOME:
Interest and fees on loans	$	48,345		$	54,016		$	144,194		$	153,511
Interest on investment securities:
Taxable		7,045			4,780			20,927			13,668
Non-taxable		69			29			183			94
Interest on interest bearing balances with other banks		759			871			2,315			2,950
Total interest income		56,218			59,696			167,619			170,223
INTEREST EXPENSE:
Interest on deposits		1,313			2,079			4,508			7,113
Interest on securities sold under agreements to repurchase		72			142			204			426
Interest on borrowings		3,064			3,069			9,192			9,252
Total interest expense		4,449			5,290			13,904			16,791
Net interest income		51,769			54,406			153,715			153,432
Provision (credit) for loan losses		(1,105	)		3,062			(2,587	)		3,780
Net interest income after provision for loan losses		52,874			51,344			156,302			149,652
NONINTEREST INCOME:
Service charges on deposits		9,712			10,012			27,898			28,648
Cardholder and merchant income		13,869			10,645			36,879			30,344
ATM income		1,072			1,019			3,080			2,939
Commissions and fees from fiduciary activities		4,999			5,139			14,987			13,230
Mortgage income		1,898			2,195			5,178			10,395
Gain (loss) on sale of investment securities		568			(107	)		7,566			8,119
Other (loss) income related to FDIC loss sharing agreements		(304	)		(342	)		(112	)		2,261
Other		2,374			1,721			6,369			5,661
Total noninterest income		34,188			30,282			101,845			101,597
NONINTEREST EXPENSE:
Salaries and employee benefits		35,014			32,685			97,315			98,435
Data processing fees		10,210			7,403			22,873			19,354
Bankcard processing fees		6,787			4,848			17,491			13,657
Net occupancy expense		4,223			4,128			12,471			12,424
Professional services		2,490			1,857			7,655			5,268
FDIC deposit insurance expense		1,367			1,304			3,889			4,185
Furniture and equipment expense		2,279			2,212			7,318			6,974
Amortization expense		376			459			1,216			1,377
Other real estate expense		722			1,960			3,025			7,038
Loss on sale of other real estate owned		613			557			1,396			2,525
Goodwill impairment		166,750			—			166,750			—
Other		11,168			7,096			26,626			22,425
Total noninterest expense		241,999			64,509			368,025			193,662
(Loss) income before income tax expense		(154,937	)		17,117			(109,878	)		57,587
Income tax expense		4,032			5,852			20,259			19,651
Net (loss) income	$	(158,969	)	$	11,265		$	(130,137	)	$	37,936
Net (loss) income per common share	$	(233.31	)	$	16.43		$	(191.23	)	$	55.35
Weighted average common shares outstanding		683,293			683,293			683,293			683,293

The accompanying notes are an integral part of these consolidated financial statements.

FIRST CITIZENS BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(dollars in thousands, unaudited)
NET (LOSS) INCOME	$	(158,969	)	$	11,265		$	(130,137	)	$	37,936
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
Unrealized (losses) gains on securities:
Net unrealized (losses) gains on investment securities available-for-sale		(9,677	)		4,128			15,808			(2,556	)
Tax effect		3,443			(1,466	)		(5,754	)		1,171
Reclassification adjustment for (gains) losses on securities available-for-sale included in net income		(568	)		107			(7,566	)		(8,119	)
Tax effect		202			(37	)		2,754			2,808
Total change in unrealized (losses) gains on investment securities available-for-sale, net of taxes		(6,600	)		2,732			5,242			(6,696	)
Change in pension obligation:
Net actuarial (losses) gains on pension plan		(4,273	)		15,431			(12,812	)		9,283
Tax effect		1,548			(5,594	)		4,642			(3,364	)
Reclassification adjustment for change related to employee benefit plan		292			966			874			2,897
Tax effect		(105	)		(350	)		(317	)		(1,051	)
Change related to employee benefit plan, net of taxes		(2,538	)		10,453			(7,613	)		7,765
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX		(9,138	)		13,185			(2,371	)		1,069
TOTAL COMPREHENSIVE (LOSS) INCOME	$	(168,107	)	$	24,450		$	(132,508	)	$	39,005

The accompanying notes are an integral part of these consolidated financial statements.

FIRST CITIZENS BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

	Number of Common Stock Shares		Preferred Stock			Non- Voting Common Stock		Voting Common Stock		Surplus		Undivided Profits			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	(dollars in thousands, except per share data, unaudited)
Balance at December 31, 2012		683,293	$	3,056		$	139	$	3,277	$	65,081	$	626,927		$	1,014		$	699,494
Net income		—		—			—		—		—		37,936			—			37,936
Reacquired preferred stock		—		(6	)		—		—		—		—			—			(6	)
Common stock dividends ($1.05 per share)		—		—			—		—		—		(717	)		—			(717	)
Preferred stock dividends		—		—			—		—		—		(117	)		—			(117	)
Other comprehensive income, net of tax		—		—			—		—		—		—			1,069			1,069
Balance at September 30, 2013		683,293	$	3,050		$	139	$	3,277	$	65,081	$	664,029		$	2,083		$	737,659
Balance at December 31, 2013		683,293	$	3,050		$	139	$	3,277	$	65,081	$	670,812		$	7,342		$	749,701
Net loss		—		—			—		—		—		(130,137	)		—			(130,137	)
Reacquired preferred stock				(3,050	)								(450	)					(3,500	)
Common stock dividends ($1.05 per share)		—		—			—		—		—		(716	)		—			(716	)
Preferred stock dividends		—		—			—		—		—		(79	)		—			(79	)
Other comprehensive loss, net of tax		—		—			—		—		—		—			(2,371	)		(2,371	)
Balance at September 30, 2014		683,293	$	—		$	139	$	3,277	$	65,081	$	539,430		$	4,971		$	612,898

The accompanying notes are an integral part of these consolidated financial statements.

FIRST CITIZENS BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2014			2013
	(dollars in thousands, unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(130,137	)	$	37,936
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		(2,587	)		3,780
Depreciation and amortization		14,842			13,646
Net amortization of premiums and discounts on investment securities		7,876			8,804
Accretion of discount on long-term debt		76			76
Deferred income tax expense (benefit)		617			(13,068	)
Gain on sales of premises and equipment		(909	)		(445	)
Decrease in FDIC receivable for loss sharing agreements		7,280			35,289
(Increase) decrease in interest receivable		(81	)		321
Decrease in interest payable		(2,448	)		(2,888	)
Origination of mortgage loans held-for-sale, net of principal collected		(286,918	)		(475,301	)
Proceeds from sales of mortgage loans held-for-sale		285,232			500,638
Gain on sale of mortgage loans held-for-sale		(3,228	)		(7,045	)
Gain on sale of investment securities		(7,566	)		(8,119	)
Net accretion of fair market value adjustments related to acquisitions		(439	)		(2,213	)
Decrease (increase) in other assets		23,031			(15,008	)
Loss on sale of non-covered other real estate owned		1,396			2,525
Write-down of non-covered other real estate owned		3,204			6,366
(Gain) loss on sale of covered other real estate owned		(499	)		694
Write-down of covered other real estate owned		4,773			3,340
Goodwill impairment		166,750			—
Increase in other liabilities		9,226			3,799
Net cash provided by operating activities		89,491			93,127
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of covered other real estate owned		10,047			17,819
Proceeds from sale of non-covered other real estate owned		13,293			16,581
Net increase in non-covered loans and leases		(255,873	)		(209,971	)
Net decrease in covered loans and leases		105,715			82,203
Calls, maturities and prepayments of investment securities held-to-maturity		—			3,831
Proceeds from maturities and calls of investment securities available-for-sale		527,673			392,946
Proceeds from sales of investment securities available-for-sale		1,497,610			408,330
Purchases of investment securities available-for-sale		(2,028,591	)		(1,079,581	)
Proceeds from sales of premises and equipment		1,128			1,358
Purchases of premises and equipment		(9,933	)		(8,413	)
Decrease in investment in Federal Home Loan Bank stock		2,346			2,330
Net cash used by investing activities		(136,585	)		(372,567	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits		(18,051	)		(35,351	)
Increase (decrease) in securities sold under agreements to repurchase		39,008			(10,584	)
Net decrease in short-term borrowings and long-term debt		—			(1,825	)
Dividends paid		(795	)		(834	)
Acquisition of preferred stock		(3,500	)		(6	)
Net cash provided (used) by financing activities		16,662			(48,600	)
Net decrease in cash and due from banks		(30,432	)		(328,040	)
Cash and due from banks at beginning of period		1,312,327			1,692,586
Cash and due from banks at end of period	$	1,281,895		$	1,364,546

FIRST CITIZENS BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2014			2013
	(dollars in thousands, unaudited)
CASH PAYMENTS FOR:
Interest	$	16,354		$	19,679
Income taxes		3,027			40,655
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Transfer of covered and non-covered loans to other real estate		31,607			18,585
Unrealized securities gains (losses), net of tax		5,242			(6,696	)
Unrealized (losses) gains related to employee benefit plan, net of tax		(7,613	)		7,765

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The consolidated financial statements include the accounts of Bancorporation and those subsidiaries that are majority-owned by Bancorporation and over which Bancorporation exercises control. In consolidation, all significant intercompany accounts and transactions have been eliminated. Assets held by the Bank in trust or in other fiduciary capacities are not assets of the Bank and are not included in the accompanying consolidated financial statements.

Bancorporation evaluates variable interests in entities for which voting interests are not an effective means of identifying controlling financial interests. Variable interests are those in which the value of the interest changes with the fair value of the net assets of the entity exclusive of variable interests. If the results of the evaluation indicate the existence of a primary beneficiary and the entity does not effectively disperse risks among the parties involved, that primary beneficiary is required to consolidate the entity. Likewise, deconsolidation of an entity is required if the evaluation indicates the conditions for consolidation are not met. Bancorporation has variable interests in certain entities including low-income housing partnership interests and trust preferred securities, none of which were required to be consolidated.

Reclassifications:

Certain items in prior year financial statements have been reclassified to conform to the current financial statement presentation. These reclassifications had no effect on net income or shareholders’ equity as previously reported.

Estimates in the Preparation of Financial Statements:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, determination of fair values of acquired assets and assumed liabilities, loss estimates and estimated cash flows related to acquired loans and other real estate owned which are covered under loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”), valuation of goodwill and intangible assets, benefit plan obligations and related expenses, and income tax related items.

Recent Accounting Pronouncements:

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)No. 2014-14 –Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, to address the diversity in practice regarding the classification and measurement of foreclosed loans which were part of a government-sponsored loan guarantee program (e.g. HUD, FHA, VA). The ASU outlines certain criteria that, if met, the loan (residential or commercial) should be derecognized and a separate other receivable should be recorded upon foreclosure at the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU are effective for public entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Management is currently evaluating the transition method that will be elected and the potential effects of the adoption on our financial statements.

In May 2014, the FASB issued guidance which will determine when an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance will be effective in the first quarter of 2018 and early adoption is not permitted. The guidance allows for either full retrospective or modified retrospective adoption. Management is currently evaluating the transition method that will be elected and the potential effects of the adoption on our financial statements.

In January 2014, the FASB issued an update to provide guidance on when an in-substance repossession or foreclosure occurs, which requires the mortgage loan to be derecognized and the related real estate be recognized. This guidance clarifies that an in-substance repossession or foreclosure occurs upon either (a) a creditor obtaining legal title to the residential real estate or (b) the borrower conveying all interest in the residential real estate through a deed in lieu of foreclosure (or a similar legal agreement). Creditors must disclose the amount of foreclosed residential real estate held as well as the amount of collateralized loans for which foreclosure is in process. This update is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Management is currently evaluating the impact of adoption on the consolidated financial statements, but does not believe that adoption will have a material impact.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

NOTE 2—ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income (loss) (“AOCI”) is reported as a component of stockholders’ equity. AOCI can include, among other items, unrealized holding gains and losses on available-for-sale securities and gains and losses associated with pension benefits that are not recognized immediately as a component of net periodic benefit cost. The components of AOCI are reported net of related tax effects. The components of AOCI and changes in those components for the nine months ended September 30, 2014 and 2013, and for the year ended December 31, 2013 are presented in the following table.

	Unrealized gains (losses) on available- for-sale securities			Defined benefit pension plan gains (losses)			Total
Balance, January 1, 2014	$	22,143		$	(14,801	)	$	7,342
Accumulated other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)		15,808			(12,812	)		2,996
Amounts reclassified from accumulated other comprehensive income		(7,566	)		874			(6,692	)
Income tax (benefit) expense		(3,000	)		4,325			1,325
Net comprehensive gain (loss)		5,242			(7,613	)		(2,371	)
Ending balance at September 30, 2014	$	27,385		$	(22,414	)	$	4,971
	Unrealized gains (losses) on available- for-sale securities			Defined benefit pension plan gains (losses)			Total
Balance, January 1, 2013	$	31,709		$	(30,695	)	$	1,014
Accumulated other comprehensive income (loss) before income taxes:
Net change in unrealized (losses) gains		(6,959	)		21,070			14,111
Amounts reclassified from accumulated other comprehensive income		(8,290	)		3,863			(4,427	)
Income tax expense (benefit)		5,683			(9,039	)		(3,356	)
Net comprehensive (loss) gain		(9,566	)		15,894			6,328
Ending balance at December 31, 2013	$	22,143		$	(14,801	)	$	7,342
	Unrealized gains (losses) on available- for-sale securities			Defined benefit pension plan gains (losses)			Total
Balance, January 1, 2013	$	31,709		$	(30,695	)	$	1,014
Accumulated other comprehensive income (loss) before income taxes:
Net change in unrealized (losses) gains		(2,556	)		9,283			6,727
Amounts reclassified from accumulated other comprehensive income		(8,119	)		2,897			(5,222	)
Income tax expense (benefit)		3,979			(4,415	)		(436	)
Net comprehensive (loss) gain		(6,696	)		7,765			1,069
Ending balance at September 30, 2013	$	25,013		$	(22,930	)	$	2,083

The following table shows the line items in the consolidated income statements affected by amounts reclassified from AOCI:

	Increase (Decrease) in affected line item in the income statement
	Securities gains		Employee benefits			Income taxes			Net Income
For the three months ended September 30, 2014:
Amount reclassified from AOCI:
Unrealized gains on available-for-sale securities	$	568	$	—		$	202		$	366
Amortization of prior service credits		—		(43	)		16			27
Amortization of actuarial loss		—		335			(121	)		(214	)
Total reclassifications for the three months ended September 30, 2014	$	568	$	292		$	97		$	179

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

	Increase (Decrease) in affected line item in the income statement
	Securities gains			Employee benefits			Income taxes			Net Income
For the three months ended September 30, 2013:
Amount reclassified from AOCI:
Unrealized losses on available-for-sale securities	$	(107	)	$	—		$	(37	)	$	(70	)
Amortization of prior service credits		—			(43	)		16			27
Amortization of actuarial loss		—			1009			(366	)		(643	)
Total reclassifications for the three months ended September 30, 2013	$	(107	)	$	966		$	(387	)	$	(686	)
For the nine months ended September 30, 2014:
Amount reclassified from AOCI:
Unrealized gains on available-for-sale securities	$	7,566		$	—		$	2,754		$	4,812
Amortization of prior service credits		—			(130	)		47			83
Amortization of actuarial loss		—			1,004			(364	)		(640	)
Total reclassifications for the nine months ended September 30, 2014	$	7,566		$	874		$	2,437		$	4,255
For the nine months ended September 30, 2013:
Amount reclassified from AOCI:
Unrealized gains on available-for-sale securities	$	8,119		$	—		$	2,808		$	5,311
Amortization of prior service credits		—			(130	)		47			83
Amortization of actuarial loss		—			3,027			(1,098	)		(1,929	)
Total reclassifications for the nine months ended September 30, 2013	$	8,119		$	2,897		$	1,757		$	3,465

NOTE 3—INVESTMENT SECURITIES

The cost and the estimated fair value of investment securities available-for-sale at September 30, 2014, December 31, 2013, and September 30, 2013, along with gross unrealized gains and losses determined on an individual security basis were as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale at September 30, 2014:
U.S. government treasuries and agencies	$	1,066,036	$	201	$	2,564	$	1,063,673
GNMA, FNMA and FHLMC mortgage-backed securities		851,590		5,188		5,124		851,654
State, county and municipal bonds		9,180		336		—		9,516
Corporate bonds		26,833		459		204		27,088
Preferred stock		10,722		—		—		10,722
Equity securities		4,805		43,833		28		48,610
Total	$	1,969,166	$	50,017	$	7,920	$	2,011,263
Available-for-sale at December 31, 2013:
U.S. government treasuries and agencies	$	1,147,874	$	1,450	$	975	$	1,148,349
GNMA, FNMA and FHLMC mortgage-backed securities		772,357		2,926		14,118		761,165
State, county and municipal bonds		2,233		32		—		2,265
Corporate bonds		27,972		399		677		27,694
Preferred stock		10,514		—		6		10,508
Equity securities		5,217		44,859		35		50,041
Total	$	1,966,167	$	49,666	$	15,811	$	2,000,022
Available-for-sale at September 30, 2013:
U.S. government treasuries and agencies	$	1,157,952	$	1,911	$	956	$	1,158,907
GNMA, FNMA and FHLMC mortgage-backed securities		631,475		4,828		8,359		627,944
State, county and municipal bonds		2,860		35		—		2,895
Corporate bonds		22,941		386		582		22,745

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Preferred stock		10,389		11		—		10,400
Equity securities		5,217		41,191		35		46,373
Total	$	1,830,834	$	48,362	$	9,932	$	1,869,264

Investments in corporate bonds, preferred stock and equity securities are primarily concentrated in the financial institutions industry.

The following table provides maturity information for investment securities at September 30, 2014, December 31, 2013, and September 30, 2013. Mortgage-backed and equity securities are shown separately as they are either not due on a single maturity date or have no maturity date.

	September 30, 2014				December 31, 2013				September 30, 2013
	Cost		Estimated Fair Value		Cost		Estimated Fair Value		Cost		Estimated Fair Value
Investment securities available-for-sale maturing in:
One year or less	$	8,493	$	8,516	$	148,942	$	149,108	$	217,482	$	217,890
One through five years		1,060,481		1,058,407		989,766		990,807		929,440		930,574
Five to 10 years		9,921		10,063		32,859		32,119		30,304		29,733
Over 10 years		23,154		23,291		6,512		6,274		6,527		6,350
GNMA, FNMA and FHLMC mortgage-backed securities		851,590		851,654		772,357		761,165		631,475		627,944
Equity securities and preferred stock		15,527		59,332		15,731		60,549		15,606		56,773
Total investment securities available-for-sale	$	1,969,166	$	2,011,263	$	1,966,167	$	2,000,022	$	1,830,834	$	1,869,264

Securities with unrealized losses at September 30, 2014 were as follows:

	Less than Twelve Months				Twelve Months and Over
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
U.S. government treasuries and agencies	$	2,406	$	811,695	$	158	$	62,479
GNMA, FNMA and FHLMC mortgage-backed securities		288		88,604		4,836		283,858
Corporate bonds		33		1,394		171		7,101
Equity securities		—		—		28		4
Total securities with unrealized losses	$	2,727	$	901,988	$	5,193	$	364,279

Securities with unrealized losses at December 31, 2013 were as follows:

	Less than Twelve Months				Twelve Months and Over
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
U.S. government treasuries and agencies	$	829	$	230,315	$	146	$	50,204
GNMA, FNMA and FHLMC mortgage-backed securities		12,793		512,149		1,325		31,214
Corporate bonds		406		9,411		271		5,343
Preferred stock		6		10,508		—		—
Equity securities		31		72		4		147
Total securities with unrealized losses	$	14,065	$	762,455	$	1,746	$	86,908

Securities with unrealized losses at September 30, 2013 were as follows:

	Less than Twelve Months				Twelve Months and Over
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
U.S. government treasuries and agencies	$	778	$	246,223	$	178	$	53,923
GNMA, FNMA and FHLMC mortgage-backed securities		7,215		287,468		1,144		34,828
State, county and municipal bonds		—		—		—		400

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

	Less than Twelve Months				Twelve Months and Over
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
Corporate bonds		311		6,504		271		5,351
Equity securities		32		71		3		73
Total securities with unrealized losses	$	8,336	$	540,266	$	1,596	$	94,575

At September 30, 2014, December 31, 2013, and September 30, 2013, Bancorporation had 66, 30, and 32 investments, respectively, having a continuous unrealized loss position for more than 12 months. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuate. Bancorporation has the intent and ability to hold these securities until maturity and has reviewed them for other than temporary impairment.

Proceeds from the sale of available-for-sale investments were $88,936 and $207,576 for the three months ended September 30, 2014 and September 30, 2013, respectively. Proceeds from the sale of available-for-sale investments were $1,497,610 and $408,330 for the nine months ended September 30, 2014 and September 30, 2013, respectively. Gross realized gains (losses) on sales and calls of available-for-sale investments were as follows:

	Three Months Ended						Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Gross realized gains of sales of available-for-sale investments	$	651		$	32		$	7,774		$	8,258
Gross realized losses of sales of available-for-sale investments		(83	)		(139	)		(267	)		(139	)
Gross realized gains of calls of available-for-sale investments		—			—			59			—
Total	$	568		$	(107	)	$	7,566		$	8,119

Investment securities with an amortized cost of $1.57 billion, $1.46 billion, and $1.27 billion at September 30, 2014, December 31, 2013, and September 30, 2013, respectively, were pledged to secure public deposits as collateral for securities sold under agreements to repurchase and for other purposes as required by law.

NOTE 4—LOANS AND LEASES

Loans and leases, net of deferred fees and costs, were as follows:

	September 30, 2014		December 31, 2013		September 30, 2013
Commercial real estate	$	1,265,392	$	1,198,368	$	1,198,812
Commercial and industrial		480,418		453,543		445,312
1-4 Family real estate		1,472,242		1,411,101		1,362,974
Sales finance		629,533		556,113		519,374
Home equity lines of credit		458,368		473,726		483,479
Consumer and all other loans		264,326		250,655		234,768
Loans and leases not covered, net		4,570,279		4,343,506		4,244,719
Covered loans, net		65,276		174,203		193,644
Total loans and leases, net	$	4,635,555	$	4,517,709	$	4,438,363

Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. The loss sharing agreement on commercial real estate, commercial and industrial and other commercial acquired loans with respect to the Georgian Bank transaction expired on September 30, 2014.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Bancorporation evaluated acquired loans for impairment. Acquired loans with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered impaired. The carrying value of all acquired impaired and non-impaired loans and leases as of September 30, 2014, December 31, 2013, and September 30, 2013, are included in the tables below:

	September 30, 2014
	Acquired Impaired Loans		Acquired Non-impaired Loans		Total
Commercial real estate	$	135,747	$	45,814	$	181,561
Commercial and industrial		8,361		4,243		12,604
1-4 Family real estate		3,775		13,695		17,470
Home equity line of credit		—		8,448		8,448
Consumer and all other loans		—		268		268
Loans and leases, gross		147,883		72,468		220,351
Less:
Estimate of contractual principal not expected to be collected (non-accretable difference)		95,412		325		95,737
Allowance for loan losses on covered loans		—		—		—
Liquidity discount (accretable yield)		2,259		43		2,302
Total carrying value of acquired loans	$	50,212	$	72,100	$	122,312

	December 31, 2013
	Acquired Impaired Loans		Acquired Non-impaired Loans		Total
Commercial real estate	$	198,466	$	59,518	$	257,984
Commercial and industrial		16,932		9,232		26,164
1-4 Family real estate		4,974		17,598		22,572
Home equity line of credit		45		10,511		10,556
Consumer and all other loans		—		776		776
Loans and leases, gross		220,417		97,635		318,052
Less:
Estimate of contractual principal not expected to be collected (non-accretable difference)		138,988		1,514		140,502
Allowance for loan losses on covered loans		—		—		—
Liquidity discount (accretable yield)		3,110		237		3,347
Total carrying value of acquired loans	$	78,319	$	95,884	$	174,203

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

	September 30, 2013
	Acquired Impaired Loans		Acquired Non-impaired Loans		Total
Commercial real estate	$	203,735	$	68,681	$	272,416
Commercial and industrial		23,256		9,995		33,251
1-4 Family real estate		5,191		22,287		27,478
Home equity line of credit		44		9,379		9,423
Consumer and all other loans		3		1,180		1,183
Loans and leases, gross		232,229		111,522		343,751
Less:
Estimate of contractual principal not expected to be collected (non-accretable difference)		143,465		2,231		145,696
Allowance for loan losses on covered loans		567		—		567
Liquidity discount (accretable yield)		3,476		368		3,844
Total carrying value of acquired loans	$	84,721	$	108,923	$	193,644

The loss sharing agreement on commercial real estate, commercial and industrial and other commercial acquired loans with respect to the Georgian Bank transaction expired on September 30, 2014. As of September 30, 2014, December 31, 2013 and September 30, 2013, the contractual principal outstanding for loans and other real estate owned subject to this expiration date was $72,390, $111,685 and $124,333, respectively, and the carrying values were $70,717, $100,161 and $115,084, respectively. The loss sharing terms for the remaining loss share agreements have expiration dates ranging from July 31, 2015 to September 30, 2021. As of September 30, 2014, December 31, 2013, and September 30, 2013, the contractual principal outstanding for these loans and other real estate owned was $72,285, $95,496 and $106,815, respectively, and the carrying values were $67,859, $86,892 and $96,701, respectively.

The change in the contractual principal outstanding for all acquired impaired and non-impaired loans and leases for the nine months ended September 30, 2014 and 2013 was as follows:

	Acquired Impaired Loans			Acquired Non-impaired Loans
Balance, December 31, 2013	$	220,417		$	97,635
Reductions resulting from repayments, charge-offs and foreclosures		(72,534	)		(25,167	)
Balance, September 30, 2014	$	147,883		$	72,468

	Acquired Impaired Loans			Acquired Non-impaired Loans
Balance, December 31, 2012	$	331,699		$	178,030
Reductions resulting from repayments, charge-offs and foreclosures		(99,470	)		(66,508	)
Balance, September 30, 2013	$	232,229		$	111,522

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The change in the liquidity discount (accretable yield) for all acquired impaired and non-impaired loans and leases was as follows:

	Acquired Impaired			Acquired Non-impaired			Total
Nine months ended September 30, 2014:
Balance, December 31, 2013	$	3,110		$	237		$	3,347
Loan accretion		—			(439	)		(439	)
Reclass from non-accretable to accretable difference		—			259			259
Adjustments in estimated cash flows		(604	)		—			(604	)
Reductions resulting from repayments, charge-offs, and foreclosures		(247	)		(14	)		(261	)
Balance, September 30, 2014	$	2,259		$	43		$	2,302

	Acquired Impaired			Acquired Non-impaired			Total
Nine months ended September 30, 2013:
Balance, December 31, 2012	$	6,376		$	1,608		$	7,984
Loan accretion		—			(2,213	)		(2,213	)
Reclass from non-accretable to accretable difference		—			1,225			1,225
Adjustments in estimated cash flows		(1,212	)		—			(1,212	)
Reductions resulting from repayments, charge-offs, and foreclosures		(1,688	)		(252	)		(1,940	)
Balance, September 30, 2013	$	3,476		$	368		$	3,844

	Acquired Impaired			Acquired Non-impaired			Total
Three Months Ended September 30, 2014
Balance, June 30, 2014	$	2,618		$	99		$	2,717
Loan accretion		—			(111	)		(111	)
Reclass from non-accretable to accretable difference		—			59			59
Adjustments in estimated cash flows		(311	)		—			(311	)
Reductions resulting from repayments, charge-offs, and foreclosures		(48	)		(4	)		(52	)
Balance, September 30, 2014	$	2,259		$	43		$	2,302

	Acquired Impaired			Acquired Non-impaired			Total
Three Months Ended September 30, 2013:
Balance, June 30, 2013	$	5,150		$	542		$	5,692
Loan accretion		—			(618	)		(618	)
Reclass from non-accretable to accretable difference		—			466			466
Adjustments in estimated cash flows		(701	)		—			(701	)
Reductions resulting from repayments, charge-offs, and foreclosures		(973	)		(22	)		(995	)
Balance, September 30, 2013	$	3,476		$	368		$	3,844

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The change in the estimate of contractual principal not expected to be collected (non-accretable difference) for all acquired impaired and non-impaired loans and leases for the nine months ended September 30, 2014 and 2013 was as follows:

	Acquired Impaired			Acquired Non-impaired			Total
Balance, December 31, 2013	$	138,988		$	1,514		$	140,502
Reclass from non-accretable to accretable difference		—			(259	)		(259	)
Adjustments in estimated cash flows		604			—			604
Reductions resulting from repayments, charge-offs, and foreclosures		(44,180	)		(930	)		(45,110	)
Balance, September 30, 2014	$	95,412		$	325		$	95,737

	Acquired Impaired			Acquired Non-impaired			Total
Balance, December 31, 2012	$	210,579		$	8,831		$	219,410
Reclass from non-accretable to accretable difference		—			(1,225	)		(1,225	)
Adjustments in estimated cash flows		1,212			—			1,212
Reductions resulting from repayments, charge-offs, and foreclosures		(68,326	)		(5,375	)		(73,701	)
Balance, September 30, 2013	$	143,465		$	2,231		$	145,696

	Acquired Impaired			Acquired Non-impaired			Total
Balance, June 30, 2014	$	109,360		$	598		$	109,958
Reclass from non-accretable to accretable difference		—			(59	)		(59	)
Adjustments in estimated cash flows		311			—			311
Reductions resulting from repayments, charge-offs, and foreclosures		(14,259	)		(214	)		(14,473	)
Balance, September 30, 2014	$	95,412		$	325		$	95,737

	Acquired Impaired			Acquired Non-impaired			Total
Balance, June 30, 2013	$	164,662		$	3,405		$	168,067
Reclass from non-accretable to accretable difference		—			(466	)		(466	)
Adjustments in estimated cash flows		701			—			701
Reductions resulting from repayments, charge-offs, and foreclosures		(21,898	)		(708	)		(22,606	)
Balance, September 30, 2013	$	143,465		$	2,231		$	145,696

At September 30, 2014, December 31, 2013, and September 30, 2013, no acquired loans were classified as nonaccrual assets due to the application of the accretable yield method. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, may be available to be recognized on acquired loans. However, in accordance with the acquired loan policy relating to acquired impaired loans, no accretable yield has been accreted into income to date on acquired loans where the expected cash flows cannot be reasonably estimated.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Nonaccrual loans, excluding acquired impaired loans, were as follows:

	September 30, 2014		December 31, 2013		September 30, 2013
Commercial real estate	$	30,351	$	37,092	$	41,914
Commercial and industrial		2,138		1,868		2,503
1-4 Family real estate		37,048		47,146		49,192
Sales finance		276		393		519
Home equity line of credit		—		—		—
Consumer and all other loans		572		929		472
Total	$	70,385	$	87,428	$	94,600

Average impaired loans, excluding acquired impaired loans, were as follows:

	Nine Months Ended September 30,
	2014		2013
Commercial real estate	$	46,553	$	58,235
Commercial and industrial		2,949		2,727
1-4 Family real estate		52,989		58,094
Sales finance		395		570
Home equity line of credit		490		742
Consumer and all other loans		969		744
Total	$	104,345	$	121,112

	Three Months Ended September 30,
	2014		2013
Commercial real estate	$	44,013	$	56,446
Commercial and industrial		3,124		2,715
1-4 Family real estate		49,120		60,183
Sales finance		331		637
Home equity line of credit		492		828
Consumer and all other loans		713		844
Total	$	97,793	$	121,653

The amount of interest that has been recognized as income on impaired loans for the periods presented was not material.

NOTE 5—ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses related to loans not covered under FDIC loss sharing was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Balance at beginning of period	$	49,841		$	56,100		$	54,565		$	62,759
Loans charged off		(2,780	)		(5,447	)		(9,844	)		(15,579	)
Recoveries on loans previously charged off		1,651			1,468			5,198			4,474
Provision for loan losses		(976	)		2,614			(2,183	)		3,081
Balance at September 30	$	47,736		$	54,735		$	47,736		$	54,735

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The roll-forward of the allowance for loan losses on loans not covered under FDIC loss sharing agreements was as follows:

	Commercial						Retail
	Commercial Real Estate			C&I			1-4 Family Real Estate			Sales Finance			Home Equity Line of Credit			Consumer and all Other Loans			Total
Nine months ended September 30, 2014:
Roll-forward of allowance for loan losses:
Balance at December 31, 2013	$	12,902		$	1,725		$	23,544		$	1,960		$	9,016		$	5,418		$	54,565
Loans charged off		(1,155	)		(88	)		(3,548	)		(430	)		(2,875	)		(1,748	)		(9,844	)
Recoveries on loans previously charged off		2,348			342			935			219			381			973			5,198
Provision for loan losses		(4,594	)		(189	)		(361	)		391			2,081			489			(2,183	)
Balance at September 30, 2014	$	9,501		$	1,790		$	20,570		$	2,140		$	8,603		$	5,132		$	47,736
	Commercial						Retail
	Commercial Real Estate			C&I			1-4 Family Real Estate			Sales Finance			Home Equity Line of Credit			Consumer and all Other Loans			Total
Nine months ended September 30, 2013:
Roll-forward of allowance for loan losses:
Balance at December 31, 2012	$	17,485		$	2,692		$	24,539		$	1,395		$	11,592		$	5,056		$	62,759
Loans charged off		(3,203	)		(302	)		(6,075	)		(489	)		(3,624	)		(1,886	)		(15,579	)
Recoveries on loans previously charged off		1,565			455			949			214			397			894			4,474
Provision for loan losses		(1,625	)		(897	)		4,362			503			14			724			3,081
Balance at September 30, 2013	$	14,222		$	1,948		$	23,775		$	1,623		$	8,379		$	4,788		$	54,735
	Commercial						Retail
	Commercial Real Estate			C&I			1-4 Family Real Estate			Sales Finance			Home Equity Line of Credit			Consumer and all Other Loans			Total
Three Months Ended September 30, 2014:
Roll-forward of allowance for loan losses:
Balance at July 1, 2014	$	11,026		$	1,766		$	21,413		$	2,091		$	8,822		$	4,723		$	49,841
Loans charged off		(337	)		(7	)		(1,240	)		(77	)		(505	)		(614	)		(2,780	)
Recoveries on loans previously charged off		859			54			254			69			132			283			1,651
Provision for loan losses		(2047	)		(23	)		143			57			154			740			(976	)
Balance at September 30, 2014	$	9,501		$	1,790		$	20,570		$	2,140		$	8,603		$	5,132		$	47,736
	Commercial						Retail
	Commercial Real Estate			C&I			1-4 Family Real Estate			Sales Finance			Home Equity Line of Credit			Consumer and all Other Loans			Total
Three Months Ended September 30, 2013:
Roll-forward of allowance for loan losses:
Balance at July 1, 2013	$	14,504		$	1,982		$	24,587		$	1,353		$	8,909		$	4,765		$	56,100
Loans charged off		(1,855	)		(88	)		(1,654	)		(219	)		(1,045	)		(586	)		(5,447	)
Recoveries on loans previously charged off		492			120			364			64			145			283			1,468
Provision for loan losses		1,081			(66	)		478			425			370			326			2,614
Balance at September 30, 2013	$	14,222		$	1,948		$	23,775		$	1,623		$	8,379		$	4,788		$	54,735

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Allocation of the allowance for loan losses on loans not covered under FDIC loss sharing agreements as of September 30, 2014, December 31, 2013, and September 30, 2013, was as follows:

	Commercial				Retail
	Commercial Real Estate		C&I		1-4 Family Real Estate		Sales Finance		Home Equity Line of Credit		Consumer and all Other Loans		Total
Allocation of allowance for loan losses:
Allowance for loan losses related to loans collectively evaluated for impairment	$	8,557	$	1,790	$	20,482	$	2,140	$	8,506	$	4,694	$	46,169
Allowance for loan losses related to loans individually evaluated for impairment		944		—		88		—		97		438		1,567
Balance at September 30, 2014	$	9,501	$	1,790	$	20,570	$	2,140	$	8,603	$	5,132	$	47,736
Loans evaluated for impairment in allowance for loan losses:
Loans collectively evaluated for impairment	$	1,240,185	$	478,276	$	1,469,003	$	629,533	$	456,422	$	256,535	$	4,529,954
Loans individually evaluated for impairment		25,207		2,142		3,239		—		1,946		7,791		40,325
Balance at September 30, 2014	$	1,265,392	$	480,418	$	1,472,242	$	629,533	$	458,368	$	264,326	$	4,570,279
Allocation of allowance for loan losses:
Allowance for loan losses related to loans collectively evaluated for impairment	$	11,820	$	1,724	$	23,494	$	1,960	$	8,864	$	5,023	$	52,885
Allowance for loan losses related to loans individually evaluated for impairment		1,082		1		50		—		152		395		1,680
Balance at December 31, 2013	$	12,902	$	1,725	$	23,544	$	1,960	$	9,016	$	5,418	$	54,565
Loans evaluated for impairment in allowance for loan losses:
Loans collectively evaluated for impairment	$	1,167,010	$	452,365	$	1,407,252	$	556,113	$	472,291	$	244,131	$	4,299,162
Loans individually evaluated for impairment		31,358		1,178		3,849		—		1,435		6,524		44,344
Balance at December 31, 2013	$	1,198,368	$	453,543	$	1,411,101	$	556,113	$	473,726	$	250,655	$	4,343,506

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

	Commercial				Retail
	Commercial Real Estate		C&I		1-4 Family Real Estate		Sales Finance		Home Equity Line of Credit		Consumer and all Other Loans		Total
Allocation of allowance for loan losses:
Allowance for loan losses related to loans collectively evaluated for impairment	$	12,406	$	1,948	$	23,546	$	1,623	$	8,201	$	4,520	$	52,244
Allowance for loan losses related to loans individually evaluated for impairment		1,816		—		229		—		178		268		2,491
Balance at September 30, 2013	$	14,222	$	1,948	$	23,775	$	1,623	$	8,379	$	4,788	$	54,735
Loans evaluated for impairment in allowance for loan losses:
Loans collectively evaluated for impairment	$	1,164,730	$	444,114	$	1,358,982	$	519,374	$	482,017	$	227,686	$	4,196,903
Loans individually evaluated for impairment		34,082		1,198		3,992		—		1,462		7,082		47,816
Balance at September 30, 2013	$	1,198,812	$	445,312	$	1,362,974	$	519,374	$	483,479	$	234,768	$	4,244,719

Activity in the allowance for loan losses related to loans covered under FDIC loss sharing was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Balance at beginning of period	$	—		$	—		$	—		$	—
Loans charged off		(79	)		(78	)		(460	)		(778	)
Recoveries on loans previously charged off		208			197			864			646
Provision for loan losses		(129	)		448			(404	)		699
Balance at September 30	$	—		$	567		$	—		$	567

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

As part of the ongoing monitoring of the credit quality of Bancorporation’s loan portfolio, management tracks certain credit quality indicators including the level of classified loans, net charge-offs, and the general economic conditions in its market areas.

Bancorporation utilizes a risk grading matrix to assign a risk grade to each of its loans. An asset may be subject to a split classification whereby two or more portions of the same asset are given separate classifications. A description of the general characteristics of the risk grades are as follows:

Pass—A pass rated loan is not adversely classified because it does not display any of the characteristics for adverse classification.

Special Mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at a future date. Special mention loans should include loans where repayment is highly probable, but timeliness of repayment is uncertain due to unfavorable developments. Special mention loans are not adversely classified and do not expose Bancorporation to sufficient risk to warrant adverse classification. Loans that could be included in this category include loans that have potential credit weaknesses that could evolve into well-defined weaknesses. Special mention is not used to identify a loan that has as its sole weakness credit data exceptions or collateral documentation exceptions that are not material to the timely repayment of the loans.

Substandard—A substandard loan is inadequately protected by current sound worth and paying capacity of the borrower or of collateral pledged. Substandard loans have a well-defined weakness or well-defined weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected. Substandard loans have sufficient risk to warrant an adverse classification. The main characteristic of a substandard loan is the loss of the primary source of repayment, generally cash flow, and the reliance on collateral for repayment.

Doubtful—A loan classified doubtful possesses all the characteristics of substandard loans with the addition that full collection is improbable based on existing facts, values, and conditions. Possibility of loss is high; however, due to important or reasonably specific pending factors that may work to the loan’s advantage, a precise indication of estimated loss is deferred until a more exact status can be determined. The doubtful classification is not used to defer the full recognition of an expected loss.

Loss—That portion of an asset classified Loss is considered uncollectible and of such little value that its continuance as an asset, without establishment of a specific valuation allowance or charge-off is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off a basically worthless asset (or a portion thereof) even though partial recovery may be effected in the future.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The risk grades of the loan portfolio not covered under FDIC loss sharing agreements as of September 30, 2014 were as follows:

	Commercial				Retail
	Commercial Real Estate		C&I		1-4 Family Real Estate		Sales Finance		Home Equity Line of Credit		Consumer and all Other Loans		Total
Pass	$	1,133,660	$	459,632	$	1,358,099	$	628,445	$	419,479	$	257,676	$	4,256,991
Special Mention		48,257		9,593		64,921		455		22,060		5,556		150,842
Substandard		83,475		11,193		49,222		633		16,829		1,094		162,446
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	1,265,392	$	480,418	$	1,472,242	$	629,533	$	458,368	$	264,326	$	4,570,279

The risk grades of the loan portfolio not covered under FDIC loss sharing agreements as of December 31, 2013 were as follows:

	Commercial				Retail
	Commercial Real Estate		C&I		1-4 Family Real Estate		Sales Finance		Home Equity Line of Credit		Consumer and all Other Loans		Total
Pass	$	1,105,262	$	446,108	$	1,283,392	$	554,574	$	431,462	$	247,247	$	4,068,045
Special Mention		25,555		2,312		66,635		479		24,237		1,508		120,726
Substandard		67,551		5,123		61,074		1,060		18,027		1,900		154,735
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	1,198,368	$	453,543	$	1,411,101	$	556,113	$	473,726	$	250,655	$	4,343,506

The risk grades of the loan portfolio not covered under FDIC loss sharing agreements as of September 30, 2013 were as follows:

	Commercial				Retail
	Commercial Real Estate		C&I		1-4 Family Real Estate		Sales Finance		Home Equity Line of Credit		Consumer and all Other Loans		Total
Pass	$	1,089,354	$	435,907	$	1,227,128	$	517,584	$	439,406	$	231,283	$	3,940,662
Special Mention		37,961		3,943		70,090		502		24,784		1,803		139,083
Substandard		71,497		5,462		65,756		1,288		19,289		1,682		164,974
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	1,198,812	$	445,312	$	1,362,974	$	519,374	$	483,479	$	234,768	$	4,244,719

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

An aging analysis of past due loans not covered under FDIC sharing agreements as of September 30, 2014 was as follows:

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans and Leases, Excluding Covered Loans		90 Days Or More Past Due and Still Accruing
Commercial real estate	$	19,737	$	24,431	$	44,168	$	1,221,224	$	1,265,392	$	356
Commercial and industrial		1,167		4,520		5,687		474,731		480,418		71
1-4 Family real estate		19,024		23,029		42,053		1,430,189		1,472,242		1,699
Sales finance		1,753		73		1,826		627,707		629,533		73
Home equity line of credit		2,791		4,222		7,013		451,355		458,368		4,210
Consumer and all other loans		966		244		1,210		263,116		264,326		669
Total	$	45,438	$	56,519	$	101,957	$	4,468,322	$	4,570,279	$	7,078

An aging analysis of past due loans not covered under FDIC loss sharing agreements as of December 31, 2013 was as follows:

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans and Leases, Excluding Covered Loans		90 Days Or More Past Due and Still Accruing
Commercial real estate	$	9,202	$	20,637	$	29,839	$	1,168,529	$	1,198,368	$	1,040
Commercial and industrial		854		423		1,277		452,266		453,543		24
1-4 Family real estate		17,856		32,075		49,931		1,361,170		1,411,101		949
Sales finance		1,802		151		1,953		554,160		556,113		122
Home equity line of credit		3,397		6,867		10,264		463,462		473,726		6,867
Consumer and all other loans		1,812		614		2,426		248,229		250,655		614
Total	$	34,923	$	60,767	$	95,690	$	4,247,816	$	4,343,506	$	9,616

An aging analysis of past due loans not covered under FDIC sharing agreements as of September 30, 2013 was as follows:

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans and Leases, Excluding Covered Loans		90 Days Or More Past Due and Still Accruing
Commercial real estate	$	13,036	$	24,823	$	37,859	$	1,160,953	$	1,198,812	$	1,083
Commercial and industrial		1,052		1,166		2,218		443,094		445,312		183
1-4 Family real estate		19,085		32,713		51,798		1,311,176		1,362,974		1,919
Sales finance		1,142		243		1,385		517,989		519,374		55
Home equity line of credit		3,223		7,405		10,628		472,851		483,479		7,405
Consumer and all other loans		1,624		275		1,899		232,869		234,768		458
Total	$	39,162	$	66,625	$	105,787	$	4,138,932	$	4,244,719	$	11,103

Covered loans have been excluded from this aging analysis because they are covered by FDIC loss sharing agreements, and their related allowance is determined by loan pool performance due to the application of the accretion method.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The following tables provide information on impaired loans, excluding acquired impaired loans:

	As of September 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired loans, excluding acquired impaired loans, with no related allowance recorded:
Commercial real estate	$	18,462	$	21,885	$	—
Commercial and industrial		2,958		3,168		—
1-4 Family real estate		6,233		6,332		—
Home equity line of credit		556		615		—
Subtotal	$	28,209	$	32,000	$	—
Impaired loans, excluding acquired impaired loans, with related allowance recorded:
Commercial real estate	$	24,341	$	31,337	$	1,700
Commercial and industrial		2,281		2,548		60
1-4 Family real estate		43,907		50,747		1,107
Sales finance		260		261		1
Home equity line of credit		1,886		2,014		130
Consumer and all other loans		639		707		20
Subtotal	$	73,314	$	87,614	$	3,018
Total	$	101,523	$	119,614	$	3,018

	As of December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired loans, excluding acquired impaired loans, with no related allowance recorded:
Commercial real estate	$	24,091	$	27,505	$	—
Commercial and industrial		831		878		—
1-4 Family real estate		6,342		6,412		—
Subtotal	$	31,264	$	34,795	$	—
Impaired loans, excluding acquired impaired loans, with related allowance recorded:
Commercial real estate	$	26,924	$	37,334	$	2,165
Commercial and industrial		2,395		2,769		125
1-4 Family real estate		55,402		63,210		1,875
Sales finance		505		518		2
Home equity line of credit		1,923		1,923		175
Consumer and all other loans		952		1,064		78
Subtotal	$	88,101	$	106,818	$	4,420
Total	$	119,365	$	141,613	$	4,420

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

	As of September 30, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired loans, excluding acquired impaired loans, with no related allowance recorded:
Commercial real estate	$	26,012	$	31,439	$	—
Commercial and industrial		1,198		1,364		—
1-4 Family real estate		6,987		7,102		—
Subtotal	$	34,197	$	39,905	$	—
Impaired loans, excluding acquired impaired loans, with related allowance recorded:
Commercial real estate	$	30,088	$	40,612	$	3,147
Commercial and industrial		2,468		2,726		156
1-4 Family real estate		57,625		62,852		2,426
Sales finance		492		492		2
Home equity line of credit		1,946		2,074		197
Consumer and all other loans		1,110		1,166		43
Subtotal	$	93,729	$	109,922	$	5,971
Total	$	127,926	$	149,827	$	5,971

The tables above include $32,549, $75,022 and $80,111, of impaired loans that were not individually evaluated at September 30, 2014, December 31, 2013, and September 30, 2013, respectively, because these loans did not meet the Bank’s threshold for individual impairment evaluation. The recorded allowance above includes $1,451, $2,740, and $3,480 related to these loans that were not individually evaluated at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

Bancorporation had 270 loans totaling $46,515 at September 30, 2014, 274 loans totaling $52,035 at December 31, 2013 and 281 loans totaling $54,741 at September 30, 2013 that were identified as troubled debt restructurings (“TDR’s”) and considered impaired. These loans had unfunded commitments totaling $153 at September 30, 2014 and $156 at December 31, 2013 and September 30, 2013.

Bancorporation had $22,591, $25,583, and $25,906 in loans that were accruing interest under the terms of TDR’s at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

The following table presents a breakdown of the types of concessions made by loan class for TDR’s for the three months ended September 30, 2014 as well as the respective defaults of those loans.

	All Restructurings occurring within the 3 months ended September 30, 2014						Defaults of loans restructured within the 3 months ended September 30, 2014
	Number of loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of loans		Recorded Investment at Quarter End
Below market interest rate:
1-4 Family real estate		2	$	28	$	28		—	$	—
Subtotal		2	$	28	$	28		—	$	—
Extended payment terms:
Commercial real estate		1	$	68	$	68		—	$	—
1-4 Family real estate		4		708		708		—		—
Subtotal		5	$	776	$	776		—	$	—
Total		7	$	804	$	804		—	$	—

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The following table presents a breakdown of the types of concessions made by loan class for TDR’s for the three months ended September 30, 2013 as well as the respective defaults of those loans. The type labeled “Multiple concessions” primarily includes loans modified through a combination of below market interest rates and extended payment terms.

	All Restructurings occurring within the 3 months ended September 30, 2013						Defaults of loans restructured within the 3 months ended September 30, 2013
	Number of loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of loans		Recorded Investment at Quarter End
Below market interest rate:
1-4 Family real estate		4	$	648	$	648		1	$	133
Sales finance		1		18		18		—		—
Subtotal		5	$	666	$	666		—	$	—
Multiple concessions:
1-4 Family real estate		2	$	346	$	346		—	$	—
Subtotal		2	$	346	$	346		—	$	—
Total		7	$	1,012	$	1,012		1	$	133

The following table presents a breakdown of the types of concessions made by loan class for TDR’s for the nine months ended September 30, 2014 as well as the respective defaults of those loans. The type labeled “Multiple concessions” primarily includes loans modified through a combination of below market interest rates and extended payment terms.

	All Restructurings occurring within the 9 months ended September 30, 2014						Defaults of loans restructured within the 9 months ended September 30, 2014
	Number of loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of loans		Recorded Investment at Quarter End
Below market interest rate:
Commercial real estate		4	$	1,502	$	1,502		—	$	—
1-4 Family real estate		4		834		834		—		—
Subtotal		8	$	2,336	$	2,336		—	$	—
Extended payment terms:
Commercial real estate		2	$	92	$	92		1	$	5
1-4 Family real estate		5		750		750		—		—
Subtotal		7	$	842	$	842		1	$	5
Multiple concessions:
Commercial real estate		3	$	370	$	370		—	$	—
Commercial and industrial		1		836		836		—		—
1-4 Family real estate		1		97		97		—		—
Subtotal		5	$	1,303	$	1,303		—	$	—
Total		20	$	4,481	$	4,481		1	$	5

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The following table presents a breakdown of the types of concessions made by loan class for TDR’s for the nine months ended September 30, 2013 as well as the respective defaults of those loans. The type labeled “Multiple concessions” primarily includes loans modified through a combination of below market interest rates and extended payment terms.

	All Restructurings occurring within the 9 months ended September 30, 2013						Defaults of loans restructured within the 9 months ended September 30, 2013
	Number of loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of loans		Recorded Investment at Quarter End
Below market interest rate:
Commercial real estate		1	$	429	$	429		—	$	—
1-4 Family real estate		6		973		973		1		135
Sales finance		1		18		18		—		—
Consumer and all other loans		1		83		83		—		—
Subtotal		9	$	1,503	$	1,503		1	$	135
Extended payment terms:
Commercial real estate		4	$	1,867	$	1,871		—	$	—
1-4 Family real estate		6		786		786		4		602
Sales finance		2		36		36		—		—
Consumer and all other loans		1		5		5		—		—
Subtotal		13	$	2,694	$	2,698		4	$	602
Total		22	$	4,197	$	4,201		5	$	737

Qualitative factors are used in determining whether or not a loan should be classified as a TDR. Factors include whether or not the borrower is experiencing financial difficulty, whether or not the borrower can access funds at market rate for similar loan characteristics, and whether or not a concession was granted.

The majority of troubled debt restructurings are included in the substandard grading category which results in more elevated loss expectations when determining the expected cash flows that are used to determine the allowance for loan losses associated with these loans. When a restructured loan subsequently defaults, it is evaluated and downgraded if appropriate or is liquidated or charged off. The more severely graded the loan, the lower the estimated expected cash flows and the greater the allowance recorded.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

NOTE 6—GOODWILL AND MORTGAGE SERVICING RIGHTS

In accordance with US GAAP, no goodwill amortization was recorded for the nine months ended September 30, 2013 and 2014. Goodwill is tested for impairment on an annual basis and whenever events or circumstances indicate the carrying value may not be recoverable to determine if the fair value of the reporting unit is below its carrying amount. The merger transaction with First Citizens BancShares, Inc. (“Bancshares”) discussed in Note 11- Subsequent Events was approved by shareholders on September 16, 2014, constituting a triggering event for which Bancorporation undertook a Step 2 goodwill impairment assessment. Management determined that the shareholder vote date was a triggering event due to the following factors: 1) the pending merger transaction did not qualify as a transaction among entities under “common control”, 2) under South Carolina law, Bancorporation shareholders must vote in favor of the pending merger transaction in order to be approved, 3) Bancshares’ shareholders of Class A and B common stock will need a majority of the total votes to vote in favor of the merger proposed, 4) a condition to the pending merger transaction is to receive a majority of the “minority holders” votes, and 5) uncertainty of regulatory approvals of the pending merger transaction. Based on the Step 2 analysis consisting of the fair value based on Bancshares’ purchase price allocation, it was determined that Bancorporation’s fair value did not support the goodwill recorded; therefore, Bancorporation recorded a $166.75 million goodwill impairment charge to write-off a portion of goodwill as of September 30, 2014. Changes in the carrying amount for goodwill for the nine months ended September 30, 2014 are reflected below. There were no changes in the carrying amount for goodwill for the nine months ended September 30, 2013.

	Goodwill
Balance at January 1, 2014	$	188,107
Goodwill impairment (discussed above)		(166,750	)
Balance at September 30, 2014	$	21,357

The changes in the carrying amounts of mortgage servicing rights for the three months ended September 30, 2014 and September 30, 2013 were as follows:

	Mortgage Servicing Rights*
Balance at July 1, 2014	$	15,698
Amortization expense		(621	)
Servicing rights originated		681
Balance at September 30, 2014	$	15,758
Balance at July 1, 2013	$	15,259
Amortization expense		(748	)
Servicing rights originated		1,454
Balance at September 30, 2013	$	15,965

The changes in the carrying amounts of mortgage servicing rights for the nine months ended September 30, 2014 and September 30, 2013 were as follows:

	Mortgage Servicing Rights*
Balance at December 31, 2013	$	15,914
Amortization expense		(1,973	)
Servicing rights originated		1,817
Balance at September 30, 2014	$	15,758
Balance at December 31, 2012	$	12,714
Amortization expense		(860	)
Servicing rights originated		4,111
Balance at September 30, 2013	$	15,965

* Valuation allowance for MSRs was $430 as of September 30, 2014, $594 as of December 31, 2013, and $555 as of September 30, 2013.

Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the three months ended September 30, 2014 and September 30, 2013 were $1,287 and $1,377, respectively, and for the nine months ended September 30, 2014 and September 30, 2013 were $3,923 and $4,210, respectively. These amounts are included in mortgage income in the Consolidated Statements of Income.

The amortization expense related to mortgage servicing rights, included as a reduction of mortgage income in the Consolidated Statements of Income, was $621 and $748 for the three months ended September 30, 2014 and September 30, 2013, respectively, and $1,973 and $860 for the nine months ended September 30, 2014 and September 30, 2013, respectively. Amortization expense was reduced by a net recapture of mortgage servicing rights impairment of $121 and $23 for the three months ended September 30, 2014 and September 30, 2013, respectively, and $163 and $1,795 for the nine months ended September 30, 2014 and September 30, 2013, respectively.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

NOTE 7—FDIC RECEIVABLE FOR LOSS SHARING AGREEMENTS

First Citizens has entered into loss share agreements with the FDIC that provide significant protection regarding certain acquired assets. The expected reimbursements under the loss share agreements were recorded as an indemnification asset at the time of each acquisition.

The following table presents the changes in the FDIC receivable for loss sharing agreements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Balance at beginning of period	$	(153	)	$	20,335		$	11,472		$	53,593
Accretion of discounts		58			288			337			865
Change in clawback adjustment		88			—			88			—
Payments to (receipt of payments from) FDIC		6,167			557			9,728			(20,441	)
Post-acquisition adjustments		(1,968	)		(2,876	)		(17,433	)		(15,713	)
Balance at September 30	$	4,192		$	18,304		$	4,192		$	18,304

NOTE 8—EMPLOYEE BENEFITS

Pension expense is a component of salaries and employee benefits expense. The following table details the components of pension expense recognized in Bancorporation’s Consolidated Statements of Income:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Service costs	$	683		$	916		$	2,050		$	2,747
Interest costs		1,445			1,322			4,335			3,967
Expected return on plan assets		(2,857	)		(2,480	)		(8,571	)		(7,438	)
Recognized net actuarial loss		335			1,009			1,004			3,027
Amortization of prior service credits		(43	)		(43	)		(130	)		(130	)
Net pension expense	$	(437	)	$	724		$	(1,312	)	$	2,173

Bancorporation used the following weighted-average assumptions in determining the net pension expense:

	2014			2013
Discount rate		5.10	%		4.35	%
Rate of future compensation increases		3.00	%		3.00	%
Expected long-term return on plan assets		8.00	%		8.00	%

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

NOTE 9—COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Financial instruments with off-balance sheet risk include commitments to extend credit, standby letters of credit and commitments on mortgage loans held for resale. Generally, Bancorporation charges a fee to the customer to extend these commitments as part of its normal banking activities. These fees are initially deferred and included in loans in the Consolidated Statements of Condition. Ultimately, such fees are recorded as an adjustment to yield over the life of the loan or, if the commitment expires unexercised, recognized in income upon expiration of the commitment.

A summary of the significant financial instruments with off-balance sheet risk follows:

	Contract Amount at
	September 30, 2014		December 31, 2013		September 30, 2013
Commitments to extend credit	$	1,002,659	$	936,963	$	955,056
Letters of credit and financial guarantees		14,961		15,658		12,933
Total	$	1,017,620	$	952,621	$	967,989

Commitments to extend credit are agreements to lend to a borrower as long as there are no violations of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. Bancorporation evaluates each borrower’s credit worthiness on a case-by-case basis using the same credit policies for on-balance sheet financial instruments. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. The type of collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income producing property.

Letters of credit and financial guarantees are conditional commitments issued by Bancorporation to guarantee the performance of a borrower to a third party. As of September 30, 2014, December 31, 2013, and September 30, 2013, Bancorporation had issued $14,961, $15,658, and $12,933, respectively, in such guarantees predominantly for terms of one year or less and represent the maximum exposure under such instruments. These guarantees are primarily issued to support public and private borrowing arrangements. The evaluations of credit worthiness, consideration of need for collateral, and credit risk involved in issuing letters of credit are essentially the same as that involved in extending loans to borrowers.

Most of Bancorporation’s business activity is with customers located in South Carolina. A significant economic downturn in South Carolina could have a material adverse impact on the operations of Bancorporation. As of September 30, 2014, December 31, 2013, and September 30, 2013, Bancorporation had no other significant concentrations of credit risk in the loan portfolio.

Bancorporation is a defendant in litigation arising out of normal banking activities. In the opinion of management and Bancorporation’s counsel, the ultimate resolution of these matters will not have a material effect on Bancorporation’s financial condition or results of operations.

NOTE 10—FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2014, December 31, 2013, and September 30, 2013. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The carrying amounts and estimated fair values of Bancorporation’s financial instruments at September 30, 2014 are as follows:

	September 30, 2014				Fair Value Measurements at September 30, 2014
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	1,281,895	$	1,281,895	$	1,281,895	$	—	$	—
Investment securities		2,011,263		2,011,263		1,112,283		898,980		—
Loans not covered by loss sharing agreements, net		4,522,543		4,433,575		—		—		4,433,575
Loans covered by loss sharing agreements		65,276		57,492		—		—		57,492
Interest receivable		15,886		15,886		2,249		13,637		—
FDIC receivable for loss sharing agreements		4,192		3,892		—		—		3,892
Federal Home Loan Bank stock		7,481		7,481		—		7,481		—
Financial liabilities:
Deposits		7,173,518		7,174,817		6,261,756		913,061		—
Securities sold under agreements to repurchase		218,394		218,394		—		218,394		—
Interest payable		658		658		—		658		—
Short-term borrowings		74,949		77,287		—		77,287		—
Long-term debt		128,404		124,852		—		124,852		—

The carrying amounts and estimated fair values of Bancorporation’s financial instruments at December 31, 2013 are as follows:

	December 31, 2013				Fair Value Measurements at December 31, 2013
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	1,312,327	$	1,312,327	$	1,312,327	$	—	$	—
Investment securities		2,000,022		2,000,022		1,198,390		801,632		—
Loans not covered by loss sharing agreements, net		4,288,941		4,315,768		—		—		4,315,768
Loans covered by loss sharing agreements		174,203		174,203		—		—		174,203
Interest receivable		15,805		15,805		2,782		13,023		—
FDIC receivable for loss sharing agreements		11,472		11,472		—		—		11,472
Federal Home Loan Bank stock		9,826		9,826		—		9,826		—
Financial liabilities:
Deposits		7,191,569		7,195,138		6,155,241		1,039,897		—
Securities sold under agreements to repurchase		179,386		179,386		—		179,386		—
Interest payable		3,107		3,107		—		3,107		—
Long-term debt		203,278		195,892		—		195,892		—

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

The carrying amounts and estimated fair values of Bancorporation’s financial instruments at September 30, 2013 are as follows:

	September 30, 2013				Fair Value Measurements at September 30, 2013
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	1,364,546	$	1,364,546	$	1,364,546	$	—	$	—
Investment securities		1,869,264		1,869,264		1,205,280		663,984		—
Loans not covered by loss sharing agreements, net		4,189,984		4,226,876		—		—		4,226,876
Loans covered by loss sharing agreements		193,644		193,644		—		—		193,644
Interest receivable		15,350		15,350		3,153		12,197		—
FDIC receivable for loss sharing agreements		18,304		18,304		—		—		18,304
Federal Home Loan Bank stock		9,826		9,826		—		9,826		—
Financial liabilities:
Deposits		7,007,514		7,011,488		5,925,969		1,085,519		—
Securities sold under agreements to repurchase		215,104		215,104		—		215,104		—
Interest payable		814		814		—		814		—
Long-term debt		203,252		195,351		—		195,351		—

It is Bancorporation’s policy to disclose the fair value of financial instruments, both assets and liabilities, recognized and not recognized in the Consolidated Statements of Condition.

Following is a description of the methods and assumptions used to estimate the fair value of each class of Bancorporation’s financial instruments:

Short-term financial instruments:

Short-term financial instruments are valued at their carrying amounts reported in the Consolidated Statements of Condition, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments. This approach applies to cash and cash equivalents, short-term investments, interest receivable and interest payable.

Investment securities:

Fair value is based upon quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans not covered under FDIC loss sharing agreements:

For mortgage loans held for resale, fair value is estimated using the quoted market prices for securities backed by similar loans. The fair value of loans is estimated by discounting the expected future cash flows using Bancorporation’s current interest rates at which loans would be made to borrowers with similar credit risk.

Loans covered under FDIC loss sharing agreements:

The fair value of loans covered under the FDIC loss sharing agreements is based on recent external appraisals or valuations. If recent appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. The fair value for loans covered under FDIC loss sharing agreements approximates their carrying value. Fair value estimates also consider the impact of liquidity discounts appropriate as of the measurement date.

FDIC receivable for loss sharing agreements:

The fair value for the FDIC receivable for loss sharing agreements approximates its carrying value.

Federal Home Loan Bank stock:

FHLB stock is recorded at cost and is periodically reviewed for impairment. No ready market exists for FHLB stock. It has no quoted market value and is carried at cost. Cost approximates fair market value based upon the redemption requirements of the FHLB which continues to repurchase stock. This investment is not considered impaired at September 30, 2014, December 31, 2013 or September 30, 2013.

Deposits:

Deposits with no defined maturity such as demand deposits, NOW, Money Market, and savings accounts have a fair value equal to the amount payable on demand at the reporting date, i.e., their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow that applies current interest rates to a schedule of aggregated remaining maturities.

Securities sold under agreements to repurchase:

Securities sold under agreements to repurchase are valued at their carrying amounts reported in the Consolidated Statements of Condition, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments.

Short-term borrowings:

Rates currently available to Bancorporation for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Long-term debt:

Rates currently available to Bancorporation for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Commitments to extend credit and standby letters of credit:

The fair values of commitments to extend credit and standby letters of credit are generally based upon fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The estimated fair value of Bancorporation’s commitments to extend credit and standby letters of credit is nominal.

Bancorporation groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair values. These levels are:

Level 1:Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2:Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3:Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques.

Among Bancorporation’s assets and liabilities, investment securities available for sale are reported at their fair values on a recurring basis. Bancorporation reports no liabilities at their fair values on a recurring basis.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

For assets carried at fair value, the following table provides fair value information as of September 30, 2014:

			Fair value measurements at September 30, 2014
	Fair Value at September 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value
Investment securities available-for-sale:
U.S. government treasuries and agencies	$	1,063,673	$	1,063,673	$	—	$	—
GNMA, FNMA and FHLMC mortgage-backed securities		851,654		—		851,654		—
State, county and municipal		9,516		—		9,516		—
Corporate bonds		27,088		—		27,088		—
Preferred stock		10,722		—		10,722		—
Equity securities		48,610		48,610		—		—
Total investment securities available-for-sale	$	2,011,263	$	1,112,283	$	898,980	$	—

For assets carried at fair value, the following table provides fair value information as of December 31, 2013:

			Fair value measurements at December 31, 2013
	Fair Value at December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value
Investment securities available-for-sale:
U.S. government treasuries and agencies	$	1,148,349	$	1,148,349	$	—	$	—
GNMA, FNMA and FHLMC mortgage-backed securities		761,165		—		761,165		—
Obligations of states and political subdivisions		2,265		—		2,265		—
Corporate bonds		27,694		—		27,694		—
Preferred stock		10,508		—		10,508		—
Equity securities		50,041		50,041		—		—
Total investment securities available-for-sale	$	2,000,022	$	1,198,390	$	801,632	$	—

For assets carried at fair value, the following table provides fair value information as of September 30, 2013:

			Fair value measurements at September 30, 2013
	Fair Value at September 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value
Investment securities available-for-sale:
U.S. government treasuries and agencies	$	1,158,907	$	1,158,907	$	—	$	—
GNMA, FNMA and FHLMC mortgage-backed securities		627,944		—		627,944		—
State, county and municipal		2,895		—		2,895		—
Corporate bonds		22,745		—		22,745		—
Preferred stock		10,400		—		10,400		—
Equity securities		46,373		46,373				—
Total investment securities available-for-sale	$	1,869,264	$	1,205,280	$	663,984	$	—

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

Fair value measurement of investment securities available-for-sale is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in an active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Some assets are carried at fair value on a nonrecurring basis. Bancorporation reports no liabilities at their fair values on a nonrecurring basis. Loans held for sale are carried at fair value.

Certain impaired loans, other real estate owned and mortgage servicing rights are also carried at fair value when fair value is less than the amortized cost.

The values of mortgage loans held for resale are based on prices observed for similar pools of loans, appraisals provided by third parties and prices determined based on terms of investor purchase commitments.

Bancorporation does not record loans at fair value on a recurring basis. However, from time to time a loan is considered impaired and a specific reserve is established or the loan is partially charged off. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with applicable accounting guidance. The fair value of impaired loans is estimated using either the collateral value or by the discounted present value of the expected cash flows (“DCF”). Collateral values are determined using appraisals or other third-party value estimates of the subject property with 7 to 11 percent reductions for estimated holding and selling costs. Impaired loans are assigned to an asset manager and monitored periodically for significant changes since the last valuation. If significant changes are noted, the asset manager orders a new valuation or adjusts the valuation accordingly. Expected cash flows are determined using expected loss rates developed from historic experience for loans with similar risk characteristics. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investment in such loans. At September 30, 2014, December 31, 2013, and September 30, 2013, substantially all of the impaired loans were evaluated based on the fair value of the collateral. In accordance with Bancorporation’s standards, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, Bancorporation records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, Bancorporation records the impaired loan as nonrecurring Level 3. Loans, using the DCF method of evaluation, whose fair value is below the recorded balance, are recorded as nonrecurring Level 3.

Other real estate owned includes certain foreclosed assets that are measured and reported at fair value using Level 3 inputs for valuations based on non-observable criteria. The values of OREO are determined by collateral valuations. Collateral values are determined using appraisals or other third-party value estimates of the subject property with 7 to 11 percent reductions for estimated holding and selling costs. Changes to the 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 as they occur. Valuations are then adjusted or new appraisals are ordered to ensure the reported values reflect the most current information.

The fair values of MSRs are determined by using models which depend on estimates of prepayment rates, the weighted average lives, and the weighted average coupon rate of the MSRs. The significant unobservable inputs used in the fair value measurement of Bancorporation’s MSRs are the weighted average constant prepayment rate and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Bancorporation’s estimates the fair value of MSRs through use of a discounted cash flow model to calculate the present value of estimated future net servicing income based on observable and unobservable inputs into the model to arrive at an estimated fair value. To assess the reasonableness of the fair value measurement, the fair value and constant prepayment rates are compared to an independent valuation report on an annual basis. See Note 6 for more information on MSRs.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

For assets carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2014:

			Fair value measurements at September 30, 2014 using:
	Fair Value at September 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mortgage loans held for resale	$	30,917	$	—	$	30,917	$	—
Mortgage servicing rights		2,039		—		—		2,039
Impaired loans not covered by loss sharing agreements		47,912		—		—		47,912
Other real estate owned not covered by loss sharing agreements		32,799		—		—		32,799
Other real estate owned covered by loss sharing agreements		1,860		—		—		1,860

For assets carried at fair value on a nonrecurring basis, the following table provides fair value information as of December 31, 2013:

			Fair value measurements at December 31, 2013 using:
	Fair Value at December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mortgage loans held for resale	$	25,239	$	—	$	25,239	$	—
Mortgage servicing rights		2,421		—		—		2,421
Impaired loans not covered by loss sharing agreements		41,876		—		—		41,876
Other real estate owned not covered by loss sharing agreements		28,059		—		—		28,059
Other real estate owned covered by loss sharing agreements		12,850		—		—		12,850

For assets carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2013

			Fair value measurements at September 30, 2013 using:
	Fair Value at September 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mortgage loans held for resale	$	31,899	$	—	$	31,899	$	—
Mortgage servicing rights		2,536		—		—		2,536
Impaired loans not covered by loss sharing agreements		51,299		—		—		51,299
Other real estate owned not covered by loss sharing agreements		30,096		—		—		30,096
Other real estate owned covered by loss sharing agreements		17,573		—		—		17,573

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands)

NOTE 11—SUBSEQUENT EVENTS

On June 10, 2014, Bancshares and Bancorporation signed a definitive merger agreement which provides for the merger of Bancorporation and its banking subsidiary, First Citizens Bank and Trust Company, Inc., into Raleigh, N.C.-based First Citizens BancShares, Inc. and its banking subsidiary, First-Citizens Bank & Trust Company.

Effective October 1, 2014, Bancorporation merged into Bancshares and each share of Bancorporation converted automatically into the right to receive 4.0 shares of Bancshares Class A common stock and $50 in cash, unless the holder elected for each share of such holder’s Bancorporation common stock to be converted into 3.58 shares of Bancshares Class A common stock and 0.42 shares of Bancshares Class B common stock.

Bancorporation incurred merger-related expenses for the three and nine months ended September 30, 2014:

	Three Months Ended September 30, 2014		Nine Months Ended September 30, 2014
Salaries and employee benefits	$	2,704	$	2,704
Professional services		708		1,724
Investment banker fees (included in Other expenses)		3,362		4,112
Other		—		163
	$	6,774	$	8,703