Edgar Filing: FIRST CITIZENS BANCSHARES INC /DE/

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

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

Commission File Number: 001-16715

First Citizens BancShares, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		56-1528994
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


4300 Six Forks Road, Raleigh, North Carolina		27609
(Address of principle executive offices)		(Zip code)

(919) 716-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files) Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of ‘accelerated filer’ and ‘large accelerated filer’ in Rule 12b-2 of the Exchange Act:[

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Class A Common Stock—$1 Par Value—8,756,778 shares

Class B Common Stock—$1 Par Value—1,677,675 shares

(Number of shares outstanding, by class, as of May 10, 2011)

INDEX


		Page(s)
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets at March 31, 2011, December 31, 2010 and March 31, 2010		3

	Consolidated Statements of Income for the three month periods ended March 31, 2011 and March 31, 2010		4

	Consolidated Statements of Changes in Shareholders’ Equity for the three month periods ended March 31, 2011 and March 31, 2010		5

	Consolidated Statements of Cash Flows for the three month periods ended March 31, 2011 and March 31, 2010		6

	Notes to Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		55

Item 4.	Controls and Procedures		55

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors		56

Item 6.	Exhibits		61

Part 1

Item 1. Financial Statements (Unaudited)

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets


	March 31* 2011			December 31# 2010			March 31* 2010
	(thousands, except share data)
Assets
Cash and due from banks	$	406,252		$	460,178		$	745,180
Overnight investments		585,286			398,390			866,562
Investment securities available for sale		4,202,016			4,510,076			3,375,158
Investment securities held to maturity		2,341			2,532			3,324
Loans held for sale		48,222			88,933			59,530
Loans and leases:
Covered by loss share agreements		2,658,134			2,007,452			2,602,261
Not covered by loss share agreements		11,392,351			11,480,577			11,640,041
Less allowance for loan and lease losses		232,597			227,765			176,273

Net loans and leases		13,817,888			13,260,264			14,066,029
Premises and equipment		839,463			842,745			839,960
Other real estate owned:
Covered by loss share agreements		137,479			112,748			109,783
Not covered by loss share agreements		49,584			52,842			48,368
Income earned not collected		98,501			83,644			73,368
Receivable from FDIC for loss share agreements		624,322			623,261			687,455
Goodwill		102,625			102,625			102,625
Other intangible assets		9,265			9,897			14,522
Other assets		244,251			258,524			223,827

Total assets	$	21,167,495		$	20,806,659		$	21,215,691


Liabilities
Deposits:
Noninterest-bearing	$	4,164,449		$	3,976,366		$	3,762,622
Interest-bearing		13,647,287			13,658,900			14,081,205

Total deposits		17,811,736			17,635,266			17,843,827
Short-term borrowings		666,417			546,597			594,121
Long-term obligations		801,081			809,949			922,207
Other liabilities		99,128			81,885			187,946

Total liabilities		19,378,362			19,073,697			19,548,101
Shareholders’ Equity
Common stock:
Class A - $1 par value (8,756,778 shares issued for all periods)		8,757			8,757			8,757
Class B - $1 par value (1,677,675 shares issued for all periods)		1,678			1,678			1,678
Surplus		143,766			143,766			143,766
Retained earnings		1,674,839			1,615,290			1,538,248
Accumulated other comprehensive loss		(39,907	)		(36,529	)		(24,859	)

Total shareholders’ equity		1,789,133			1,732,962			1,667,590

Total liabilities and shareholders’ equity	$	21,167,495		$	20,806,659		$	21,215,691

Unaudited

#	Derived from the 2010 Annual Report on Form 10-K.

See accompanying Notes to Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Income


	Three Months Ended March 31
	2011			2010
	(thousands, except share and per share data, unaudited)
Interest income
Loans and leases	$	231,453		$	187,074
Investment securities:
U. S. Treasury and government agency		8,257			9,350
Residential mortgage-backed securities		2,653			1,564
Corporate bonds		2,176			2,135
State, county and municipal		13			33
Other		259			70

Total investment securities interest and dividend income		13,358			13,152
Overnight investments		389			474

Total interest income		245,200			200,700
Interest expense
Deposits		29,820			38,116
Short-term borrowings		1,697			756
Long-term obligations		9,696			10,792

Total interest expense		41,213			49,664

Net interest income		203,987			151,036
Provision for loan and lease losses		44,419			16,930

Net interest income after provision for loan and lease losses		159,568			134,106
Noninterest income
Gain on acquisitions		65,508			136,000
Cardholder and merchant services		26,780			23,788
Service charges on deposit accounts		15,790			18,827
Wealth management services		13,288			11,734
Fees from processing services		7,246			7,223
Securities (losses) gains		(449	)		1,131
Other service charges and fees		5,957			4,648
Mortgage income		2,315			1,411
Insurance commissions		2,534			2,806
ATM income		1,590			1,655
Adjustments to FDIC receivable for loss share agreements		(10,379	)		2,587
Other		910			139

Total noninterest income		131,090			211,949
Noninterest expense
Salaries and wages		75,804			72,160
Employee benefits		19,649			18,311
Occupancy expense		18,313			17,836
Equipment expense		17,391			15,815
FDIC deposit insurance		8,225			4,887
Foreclosure-related expenses		5,488			4,061
Other		45,158			39,880

Total noninterest expense		190,028			172,950

Income before income taxes		100,630			173,105
Income taxes		37,951			66,494

Net income	$	62,679		$	106,611

Average shares outstanding		10,434,453			10,434,453
Net income per share	$	6.01		$	10.22

See accompanying Notes to Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity


	Class A Common Stock		Class B Common Stock		Surplus		Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total Shareholders’ Equity
	(thousands, except share data, unaudited)
Balance at December 31, 2009	$	8,757	$	1,678	$	143,766	$	1,429,863		$	(24,949	)	$	1,559,115
Adjustment resulting from adoption of a change in accounting for QSPEs and controlling financial interests effective January 1, 2010		0		0		0		4,904			0			4,904
Comprehensive income:
Net income		0		0		0		106,611			0			106,611
Change in unrealized securities gains arising during period, net of $1,173 deferred tax		0		0		0		0			1,650			1,650
Reclassification adjustment for gains included in net income, net of $447 deferred tax benefit		0		0		0		0			(684	)		(684	)
Change in unrecognized loss on cash flow hedges, net of $572 deferred tax benefit		0		0		0		0			(876	)		(876	)

Total comprehensive income														106,701

Cash dividends		0		0		0		(3,130	)		0			(3,130	)

Balance at March 31, 2010	$	8,757	$	1,678	$	143,766	$	1,538,248		$	(24,859	)	$	1,667,590


Balance at December 31, 2010	$	8,757	$	1,678	$	143,766	$	1,615,290		$	(36,529	)	$	1,732,962
Comprehensive income:
Net income		0		0		0		62,679			0			62,679
Change in unrealized securities gains arising during period, net of $3,447 deferred tax benefit		0		0		0		0			(5,692	)		(5,692	)
Reclassification adjustment for losses included in net income, net of $177 deferred tax		0		0		0		0			272			272
Change in unrecognized loss on cash flow hedges, net of $678 deferred tax		0		0		0		0			1,039			1,039
Change in pension obligation, net of $645 deferred tax		0		0		0		0			1,003			1,003

Total comprehensive income														59,301

Cash dividends		0		0		0		(3,130	)		0			(3,130	)

Balance at March 31, 2011	$	8,757	$	1,678	$	143,766	$	1,674,839		$	(39,907	)	$	1,789,133

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows

First Citizens BancShares, Inc. and Subsidiaries


	For the three months ended March 31,
	2011			2010
OPERATING ACTIVITIES
Net income	$	62,679		$	106,611
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of intangibles		1,169			1,578
Provision for loan and lease losses		44,419			16,930
Deferred tax (benefit) expense		1,155			(16,448	)
Change in current taxes payable		30,455			24,399
Depreciation		16,114			15,299
Change in accrued interest payable		(9,074	)		(4,761	)
Change in income earned not collected		(9,582	)		(5,024	)
Gain on acquisitions		(65,508	)		(136,000	)
Securities losses (gains)		449			(1,131	)
Origination of loans held for sale		(87,719	)		(114,974	)
Proceeds from sale of loans		130,641			124,196
Gain on sale of loans		(2,211	)		(1,371	)
Loss on sale of other real estate		2,074			2,809
Net amortization of premiums and discounts		(35,624	)		10,991
Net change in FDIC receivable for loss share agreements		128,845			19,917
Net change in other assets		143,341			41,963
Net change in other liabilities		(14,193	)		46,520

Net cash provided by operating activities		337,430			131,504

INVESTING ACTIVITIES
Net change in loans outstanding		119,185			200,380
Purchases of investment securities held to maturity		0			1
Purchases of investment securities available for sale		(141,592	)		(672,023	)
Proceeds from maturities of investment securities held to maturity		191			278
Proceeds from maturities of investment securities available for sale		522,893			261,201
Proceeds from sales of investment securities available for sale		191,697			24,137
Net change in overnight investments		(186,896	)		(143,302	)
Proceeds from sale of other real estate		18,067			33,912
Additions to premises and equipment		(12,832	)		(18,177	)
Net cash received from acquisitions		962,977			106,489

Net cash provided (used) by investing activities		1,473,690			(207,104	)

FINANCING ACTIVITIES
Net change in time deposits		(367,974	)		85,986
Net change in demand and other interest-bearing deposits		(1,060,414	)		712,543
Net change in short-term borrowings		(217,033	)		(454,861	)
Repayment of long-term obligations		(216,495	)		0
Cash dividends paid		(3,130	)		(3,130	)

Net cash provided (used) by financing activities		(1,865,046	)		340,538

Change in cash and due from banks		(53,926	)		264,938
Cash and due from banks at beginning of period		460,178			480,242

Cash and due from banks at end of period	$	406,252		$	745,180

CASH PAYMENTS FOR:
Interest	$	50,287		$	54,425
Income taxes		9,100			130

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized securities (losses) gains	$	(9,339	)	$	1,692
Unrealized gain (loss) on cash flow hedge		1,717			(1,448	)
Prepaid pension benefit		1,648			0
Transfers of loans to other real estate		46,929			23,770
Acquisitions:
Assets acquired		2,227,404			2,291,659
Liabilities assumed		(2,161,896	)		2,155,861
Net assets acquired		65,508			135,798

See accompanying Notes to Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note A

Accounting Policies and Other Matters

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements.

In the opinion of management, the consolidated financial statements contain all material adjustments necessary to present fairly the financial position of First Citizens BancShares, Inc. and Subsidiaries (BancShares) as of and for each of the periods presented, and all such adjustments are of a normal recurring nature. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the period. Actual results could differ from those estimates.

Management has evaluated subsequent events through the filing date of the Quarterly Report on Form 10-Q.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in BancShares’ 2010 Form 10-K. Certain amounts for prior periods have been reclassified to conform with statement presentations for 2011. However, with the exception of adjustments to acquisition fair values, the reclassifications have no effect on shareholders’ equity or net income as previously reported. Fair values are subject to refinement for up to one year after the closing date of the transaction as additional information regarding closing date fair values becomes available. We have reduced previously reported amounts of net income and retained earnings for the three months ended March 31, 2010 by $1,003 as a result of adjustments to the fair value of assets acquired in the first quarter of 2010.

FDIC-Assisted Transactions

US GAAP requires that the acquisition method of accounting be used for all business combinations, including those resulting from FDIC-assisted transactions and that an acquirer be identified for each business combination. Under US GAAP, the acquirer is the entity that obtains control of one or more businesses in the business combination, and the acquisition date is the date the acquirer achieves control. US GAAP requires that the acquirer recognize the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date. In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred.

During 2011, 2010 and 2009, BancShares’ wholly-owned subsidiary, First-Citizens Bank & Trust Company (FCB), acquired assets and assumed liabilities of five entities as noted below (collectively referred to as “the Acquisitions”) with the assistance of the Federal Deposit Insurance Corporation (FDIC), which had been appointed Receiver of each entity by its respective state banking authority.


Name of entity	Headquarters location	Date of transaction
United Western Bank (United Western)	Denver, Colorado	January 21, 2011
Sun American Bank (SAB)	Boca Raton, Florida	March 5, 2010
First Regional Bank (First Regional)	Los Angeles, California	January 29, 2010
Venture Bank (VB)	Lacey, Washington	September 11, 2009
Temecula Valley Bank (TVB)	Temecula, California	July 17, 2009

The acquired assets and assumed liabilities were recorded at estimated fair value. Management made significant estimates and exercised significant judgment in accounting for the Acquisitions. Management judgmentally assigned risk ratings to loans based on credit quality, appraisals and estimated collateral values, estimated expected cash flows, and applied appropriate liquidity and coupon discounts to measure fair values for loans. Other real estate acquired through foreclosure was valued based upon pending sales contracts and appraised values, adjusted for current market conditions. FCB also recorded identifiable intangible assets representing the estimated values of the assumed core deposits and other customer relationships. Management used quoted or current market prices to determine the fair value of investment securities. Fair values of short-term borrowings and long-term obligations were estimated inclusive of any prepayment penalties.

Loans and Leases

Loans and leases that are held for investment purposes are carried at the principal amount outstanding. Interest on substantially all loans is accrued and credited to interest income on a constant yield basis based upon the daily principal amount outstanding.

Loans that are classified as held for sale represent mortgage loans originated or purchased and are carried at the lower of aggregate cost or fair value. Gains and losses on sales of mortgage loans are included in mortgage income.

Acquired loans are recorded at fair value at the date of acquisition. The fair values are recorded net of a nonaccretable difference and, if appropriate, an accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is the nonaccretable difference, which is included as a reduction to the carrying amount of acquired loans. Subsequent decreases to expected cash flows will generally result in recognition of an allowance by a charge to provision for loan and lease losses. Any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan when there is a reasonable expectation regarding the amount and timing of such cash flows. Subsequent increases in expected cash flows result in either a reversal of the provision for loan and lease losses to the extent of prior charges, or a reclassification of the difference from nonaccretable to accretable with a positive impact on the accretable yield.

BancShares did not initially estimate the amount and timing of cash flows for loans acquired from TVB and VB at the dates of the acquisitions and, therefore, the cost recovery method is being applied to these loans. Cash flow analyses were performed on loans acquired from First Regional, SAB, and United Western in order to determine the cash flows expected to be collected. BancShares is accounting for substantially all acquired loans on a loan level basis since the majority of the portfolios acquired consist of large non-homogeneous commercial loans.

Receivable from FDIC for Loss Share Agreements

The receivable from the FDIC for loss share agreements is measured separately from the related covered assets as it is not contractually embedded in the assets and is not transferable should the assets be sold. Fair value at acquisition was estimated using projected cash flows related to the loss share agreements based on the expected reimbursements for losses using the applicable loss share percentages and the estimated true-up payment at the expiration of the loss share agreements, if applicable. These cash flows were discounted to reflect the estimated timing of the receipt of the loss share reimbursements from the FDIC and any applicable true-up payment owed to the FDIC for transactions that include claw-back provisions. The FDIC receivable has been reviewed and updated prospectively as loss estimates related to covered loans and other real estate owned change, and as reimbursements are received or expected to be received from the FDIC. Post-acquisition adjustments to the FDIC receivable are charged or credited to noninterest income.

Other Real Estate Owned Covered by Loss Share Agreements

Other real estate owned (OREO) covered by loss share agreements with the FDIC is reported exclusive of expected reimbursement cash flows from the FDIC. Subsequent downward adjustments to the estimated recoverable value of covered OREO result in a reduction of covered OREO, a charge to other noninterest expense and an increase in the FDIC receivable for the estimated amount to be reimbursed, with a corresponding amount recorded as an adjustment to other noninterest income. OREO is presented at the estimated present value that management expects to receive when the property is sold, net of related costs of disposal. Management used appraisals of properties to determine fair values and applied additional discounts where appropriate for passage of time or, in certain cases, for subsequent events occurring after the appraisal date.

Recently Adopted Accounting Policies and Other Regulatory Issues

In July, 2010, the FASB issued Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Loss (ASU 2010-20). In an effort to provide financial statement users with greater transparency about the allowance for loan and lease losses, ASU 2010-20 requires enhanced disclosures regarding the nature of credit risk inherent in the portfolio and how risk is analyzed and assessed in determining the amount of the allowance. Changes in the allowance will also require disclosure. The end-of-period disclosures were effective for BancShares on December 31, 2010 with the exception of disclosures related to troubled debt restructurings which become effective for interim and annual periods ending after June 15, 2011. The disclosures related to activity during a period are effective during 2011. The provisions of ASU 2010-20 have affected disclosures regarding the allowance for loan and lease losses, but will have no impact on financial condition, results of operations or liquidity.

Note B

Federally Assisted Acquisition of United Western Bank

On January 21, 2011, FCB entered into an agreement with the FDIC, as Receiver, to purchase substantially all the assets and assume the majority of the liabilities of United Western Bank (United Western) of Denver, Colorado at a discount of $213,000 with no deposit premium. United Western operated in Denver, Colorado, with eight branch locations in Boulder, Centennial, Cherry Creek, downtown Denver, Hampden at Interstate 25, Fort Collins, Longmont and Loveland. The Purchase and Assumption Agreement with the FDIC includes loss share agreements on the covered loans and other real estate purchased by FCB which provides protection against losses to FCB.

Loss share agreements between the FDIC and FCB (one for single family residential mortgage loans and the other for all other loans and OREO) provide significant loss protection to FCB for all non-consumer loans and OREO. Under the loss share agreement for single family residential mortgage loans (SFRs), the FDIC will cover 80 percent of covered loan losses up to $32,489; 0 percent from $32,489 up to $57,653 and 80 percent of losses in excess of $57,653. The loss share agreement for all other non-consumer loans and OREO will cover 80 percent of covered loan and OREO losses up to $111,517; 30 percent of losses from $111,517 to $227,032; and 80 percent of losses in excess of $227,032. Consumer loans are not covered under the FDIC loss share agreements.

The SFR loss share agreement covers losses recorded during the ten years following the date of the transaction, while the term for the loss share agreement covering all other loans and OREO is five years. The SFR loss share agreement also covers recoveries received for ten years following the date of the transaction, while recoveries of all other loans and OREO will be shared with the FDIC for a five-year period. The losses reimbursable by the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the loss share agreements.

The loss share agreements include a true-up payment in the event FCB’s losses do not reach the Total Intrinsic Loss Estimate of $294,000. On March 17, 2021, the true-up measurement date, FCB is required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of the following calculation: A-(B+C+D), where (A) equals 20 percent of the Total Intrinsic Loss Estimate, or $58,800; (B) equals 20 percent of the Net Loss Amount; (C) equals 25 percent of the asset (discount) bid, or ($53,250); and (D) equals 3.5 percent of total Shared Loss Assets at Bank Closing, or $37,936. Current loss estimates suggest that a true-up payment of $10,478 will be paid to the FDIC during 2021.

The FDIC-assisted acquisition of United Western was accounted for under the acquisition method of accounting. The statement of net assets acquired and the resulting acquisition gain are presented in the following table. As indicated in the explanatory notes that accompany the following table, the purchased assets, assumed liabilities and identifiable intangible assets were recorded at their respective acquisition date estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the transaction as additional information regarding closing date fair values becomes available. During this one year period, the causes of any changes in cash flow estimates are considered to determine whether the change results from circumstances that existed as of the acquisition date or if the change results from an event that occurred after the acquisition.

First quarter 2011 noninterest income includes an acquisition gain of $65,508 that resulted from the United Western FDIC-assisted acquisition. The gain resulted from the difference between the estimated fair value of acquired assets and assumed liabilities. FCB recorded a deferred tax liability for the gain of $25,653 resulting from differences between the financial statement and tax bases of assets acquired and liabilities assumed in this transaction.


	January 21, 2011
	As recorded by United Western			Fair value adjustments			As recorded by FCB
Assets
Cash and due from banks	$	420,902		$	—		$	420,902
Investment securities available for sale		281,862			—			281,862
Loans covered by loss share agreements		1,046,072			(278,913	)a		767,159
Other real estate owned covered by loss share agreements		37,812			(10,252	)b		27,560
Income earned not collected		5,275			—			5,275
Receivable from FDIC for loss share agreements		—			140,285	c		140,285
FHLB stock		22,783			—			22,783
Mortgage servicing rights		4,925			(1,489	)d		3,436
Core deposit intangible		—			537	e		537
Other assets		15,421			109	f		15,530

Total assets acquired	$	1,835,052		$	(149,723	)	$	1,685,329

Liabilities								—
Deposits:
Noninterest-bearing	$	101,875		$	—		$	101,875
Interest-bearing		1,502,983			—			1,502,983

Total deposits		1,604,858			—			1,604,858
Short-term borrowings		336,853			—			336,853
Long-term obligations		206,838			789	g		207,627
Other liabilities		13,123			(565	)h		12,558

Total liabilities assumed		2,161,672			224			2,161,896

Excess (shortfall) of assets acquired over liabilities assumed	$	(326,620	)

Aggregate fair value adjustments				$	(149,947	)

Cash received from the FDIC							$	542,075
Gain on acquisition of United Western							$	65,508

Explanation of fair value adjustments

a - Adjustment reflects the fair value adjustments based on FCB’s evaluation of the acquired loan portfolio.

b - Adjustments to reflect the estimated OREO losses based on FCB’s evaluation of the acquired OREO portfolio.

c - Adjustment reflects the estimated fair value of payments FCB will receive from the FDIC under the loss share agreements.

d - Adjustment to reflect the estimated fair value of mortgage servicing rights.

e - Adjustment reflects the estimated value of the core deposit intangible.

f - Adjustment reflects the amount needed to adjust the carrying value of other assets to their estimated fair value.

g - Adjustment reflects the amount needed to adjust the carrying value of long-term obligations to extimated fair value based on the prepayment penalties that would be owed to the counterparty.

h - Adjustment reflects the amount needed to adjust the carrying value of assumed deferred tax liabilities to their estimated fair value.

Results of operations for United Western prior to their respective acquisition dates are not included in the income statement.

Due to the significant amount of fair value adjustments, the resulting accretion of those fair value adjustments and the protection resulting from the FDIC loss share agreements, historical results of United Western are not relevant to BancShares’ results of operations. Therefore, no pro forma information is presented.

Note C

Investments

The aggregate values of investment securities at March 31 along with unrealized gains and losses determined on an individual security basis are as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale
March 31, 2011
U. S. Treasury and government agency securities	$	3,580,088	$	3,043	$	17,628	$	3,565,503
Corporate bonds		453,390		6,327		—		459,717
Residential mortgage-backed securities		152,483		3,971		532		155,922
Equity securities		965		18,656		—		19,621
State, county and municipal		1,238		19		4		1,253

Total investment securities available for sale	$	4,188,164	$	32,016	$	18,164	$	4,202,016

December 31, 2010
U. S. Treasury and government agency securities	$	3,866,135	$	4,402	$	11,151	$	3,859,386
Corporate bonds		479,160		7,498		—		486,658
Residential mortgage-backed securities		139,291		4,522		268		143,545
Equity securities		1,055		18,176		—		19,231
State, county and municipal		1,240		20		4		1,256

Total investment securities available for sale	$	4,486,881	$	34,618	$	11,423	$	4,510,076

March 31, 2010
U. S. Treasury and government agency securities	$	2,681,265	$	11,367	$	1,119	$	2,691,513
Corporate bonds		480,576		6,054		—		486,630
Residential mortgage-backed securities		174,519		3,281		436		177,364
Equity securities		1,544		16,836		—		18,380
State, county and municipal		1,244		30		3		1,271

Total investment securities available for sale	$	3,339,148	$	37,568	$	1,558	$	3,375,158


Investment securities held to maturity
March 31, 2011
Residential mortgage-backed securities	$	2,341	$	217	$	21	$	2,537

Total investment securities held to maturity	$	2,341	$	217	$	21	$	2,537

December 31, 2010
Residential mortgage-backed securities	$	2,532	$	235	$	26	$	2,741

Total investment securities held to maturity	$	2,532	$	235	$	26	$	2,741

March 31, 2010
Residential mortgage-backed securities	$	3,173	$	275	$	26	$	3,422
State, county and municipal		151		—		—		151

Total investment securities held to maturity	$	3,324	$	275	$	26	$	3,573

Investments in corporate bonds represent debt securities that were issued by various financial institutions under the Temporary Liquidity Guarantee Program. These debt obligations were issued with the full faith and credit of the United States of America. The guarantee for these securities is triggered when an issuer defaults on a scheduled payment.

The following table provides maturity information for investment securities as of the dates indicated. Callable securities are assumed to mature on their earliest call date.


	March 31, 2011				December 31, 2010				March 31, 2010
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Investment securities available for sale
Maturing in:
One year or less	$	2,966,749	$	2,958,654	$	3,441,185	$	3,436,818	$	2,004,230	$	2,013,062
One through five years		895,234		895,807		916,101		921,536		1,159,558		1,167,353
Five through 10 years		21,099		21,099		1,683		1,710		9,403		9,422
Over 10 years		304,117		306,835		126,857		130,781		164,413		166,941
Equity securities		965		19,621		1,055		19,231		1,544		18,380

Total investment securities available for sale	$	4,188,164	$	4,202,016	$	4,486,881	$	4,510,076	$	3,339,148	$	3,375,158


Investment securities held to maturity
Maturing in:
One through five years		5		3		—		—		151		151
Five through 10 years		2,214		2,368		2,404		2,570		3,032		3,240
Over 10 years		122		166		128		171		141		182

Total investment securities held to maturity	$	2,341	$	2,537	$	2,532	$	2,741	$	3,324	$	3,573

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


	Three months ended March 31,
	2011			2010
Gross gains on sales of investment securities available for sale	$	156		$	2,860
Gross losses on sales of investment securities available for sale		(605	)		(1,729	)

Total securities gains (losses)	$	(449	)	$	1,131

The following table provides information regarding securities with unrealized losses as of March 31:


	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2011
Investment securities available for sale:
U. S. Treasury and government agency securities	$	2,138,529	$	17,628	$	—	$	—	$	2,138,529	$	17,628
Residential mortgage-backed securities		33,644		503		462		29		34,106		532
State, county and municipal		528		4		10		—		538		4

Total	$	2,172,701	$	18,135	$	472	$	29	$	2,173,173	$	18,164

Investment securities held to maturity:
Mortgage-backed securities	$	—	$	—	$	19	$	21	$	19	$	21
March 31, 2010
Investment securities available for sale:
U. S. Treasury and government agency securities	$	644,407	$	1,119	$	—	$	—	$	644,407	$	1,119
Residential mortgage-backed securities		33,651		352		2,332		84		35,983		436
State, county and municipal		—		—		438		3		438		3

Total	$	678,058	$	1,471	$	2,770	$	87	$	680,828	$	1,558

Investment securities held to maturity:
Residential mortgage-backed securities	$	—	$	—	$	29	$	26	$	29	$	26

Investment securities with an aggregate fair value of $491 have had continuous unrealized losses for more than twelve months as of March 31, 2011 with an aggregate unrealized loss of $50. These 17 investments include residential mortgage-backed and state, county and municipal securities. None of the unrealized losses identified as of March 31, 2011 relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. For all periods presented, BancShares had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Therefore, none of the securities were deemed to be other than temporarily impaired.

Investment securities having an aggregate carrying value of $2,604,467 at March 31, 2011, $2,096,850 at December 31, 2010 and $1,720,227 at March 31, 2010 were pledged as collateral to secure public funds on deposit, to secure certain short-term borrowings and for other purposes as required by law.

Note D

Loans and Leases

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


	March 31, 2011		December 31, 2010		March 31, 2010
Covered loans	$	2,658,134	$	2,007,452	$	2,602,261
Noncovered loans and leases:
Commercial:
Construction and land development		373,769		338,929		480,191
Commercial mortgage		4,763,393		4,737,862		4,589,291
Other commercial real estate		147,150		149,710		161,770
Commercial and industrial		1,792,042		1,869,490		1,793,195
Lease financing		295,994		301,289		316,912
Other		174,370		182,015		198,068

Total commercial loans		7,546,718		7,579,295		7,539,427
Non-commercial:
Residential mortgage		808,650		878,792		912,955
Revolving mortgage		2,299,668		2,233,853		2,159,581
Construction and land development		145,864		192,954		163,840
Consumer		591,451		595,683		864,238

Total non-commercial loans		3,845,633		3,901,282		4,100,614

Total noncovered loans and leases		11,392,351		11,480,577		11,640,041

Total loans and leases	$	14,050,485	$	13,488,029	$	14,242,302


	March 31, 2011						December 31, 2010						March 31, 2010
	Impaired at acquisition date		All other acquired loans		Total		Impaired at acquisition date		All other acquired loans		Total		Impaired at acquisition date		All other acquired loans		Total
Covered loans:
Commercial:
Construction and land development	$	112,271	$	290,045	$	402,316	$	102,988	$	265,432	$	368,420	$	136,452	$	463,523	$	599,975
Commercial mortgage		141,869		1,290,763		1,432,632		120,240		968,824		1,089,064		192,190		987,334		1,179,524
Other commercial real estate		36,338		126,967		163,305		34,704		175,957		210,661		20,865		54,306		75,171
Commercial and industrial		31,124		139,917		171,041		9,087		123,390		132,477		35,895		166,579		202,474
Lease financing		22		249		271		—		—		—		—		—		—
Other		—		1,729		1,729		—		1,510		1,510		5,066		12,681		17,747

Total commercial loans		321,624		1,849,670		2,171,294		267,019		1,535,113		1,802,132		390,468		1,684,423		2,074,891
Non-commercial:
Residential mortgage		19,846		327,547		347,393		11,026		63,469		74,495		41,102		250,191		291,293
Revolving mortgage		7,341		16,068		23,409		8,400		9,466		17,866		4,945		16,720		21,665
Construction and land development		56,829		54,596		111,425		44,260		61,545		105,805		46,557		158,153		204,710
Consumer		140		4,473		4,613		—		7,154		7,154		1,478		8,224		9,702

Total non-commercial loans		84,156		402,684		486,840		63,686		141,634		205,320		94,082		433,288		527,370

Total covered loans	$	405,780	$	2,252,354	$	2,658,134	$	330,705	$	1,676,747	$	2,007,452	$	484,550	$	2,117,711	$	2,602,261

At March 31, 2011, $2,376,716 in noncovered loans were pledged to secure debt obligations, compared to $3,744,067 at December 31, 2010 and $3,590,324 at March 31, 2010.

Description of segment and class risks

Each portfolio segment and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of the loan and lease portfolio. Management has identified the most significant risks as described below which are generally similar among the segments and classes. While the list in not exhaustive, it provides a description of the risks that management has determined are the most significant.

Commercial loans and leases

We centrally underwrite each of our commercial loans and leases based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We endeavor to gain a complete understanding of our borrower’s businesses including the experience and background of the principals. To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans and leases, we gain an understanding of the likely value of the collateral and what level of strength the collateral brings to the loan transaction. To the extent that the principals or other parties provide personal guarantees, we analyze the relative financial strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, as well as risks that are specific to each transaction including demand for products and services, personal events such as disability or change in marital status, and reductions in the value of our collateral. Due to our concentration of loans in the medical, dental, and related fields, we are susceptible to risks that legislative and governmental actions will fundamentally alter the economic structure of the medical care industry in the United States.

In addition to these common risks for the majority of our commercial loans and leases, additional risks are inherent in certain of our classes of commercial loans and leases.

Commercial construction and land development

Commercial construction and land development loans are highly dependent on the supply and demand for commercial real estate in the markets we serve as well as the demand for newly constructed residential homes and lots that our customers are developing. Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our customers.

Commercial mortgage, commercial and industrial and lease financing

Commercial mortgage and commercial and industrial loans and lease financing are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with the contractual terms may be at risk. While these loans and leases are generally secured by real property, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.

Other commercial real estate

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

Non-commercial loans

We centrally underwrite each of our non-commercial loans using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use, and recent credit inquiries. To the extent that the loan is secured by collateral we also evaluate the likely value of that collateral. Common risks to each class of non-commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, particularly unemployment and potential declines in real estate values. Personal events such as disability or change in marital status also add risk to non-commercial loans.

In addition to these common risks for the majority of our non-commercial loans, additional risks are inherent in certain of our classes of non-commercial loans.

Revolving mortgage

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

Consumer

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

Residential mortgage and non-commercial construction and land development

Residential mortgage and non-commercial construction and land development loans are to individuals and are typically secured by 1-4 family residential property, undeveloped land, and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral. Such a decline in values has led to unprecedented levels of foreclosures and losses during 2008-2010 within the banking industry. Non-commercial construction and land development loans often experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can routinely result in foreclosure of partially completed and unmarketable collateral.

Covered loans

The risks associated with covered loans are generally consistent with the risks identified for commercial and non-commercial loans and the classes of loans within those segments. An additional substantive risk with respect to covered loans relates to the FDIC loss share agreements, specifically the ability to receive timely and full reimbursement from the FDIC for losses and related expenses that we believe are covered by the loss share agreements. Further, these loans were underwritten by other institutions with weaker lending standards. Therefore, there is a significant risk that the loans are not adequately supported by the paying capacity of the borrower or the values of underlying collateral at the time of origination.

Credit quality indicators

Loans and leases are monitored for credit quality on a recurring basis. The credit quality indicators used are dependent on the portfolio segment to which the loan relates. Commercial loans and leases, non-commercial loans and leases, and covered loans have different credit quality indicators as a result of the methods used to monitor each of these loan segments.

The loan and lease credit quality indicators for commercial loans and leases and covered loans are developed through review of individual borrowers on an ongoing basis. Each borrower is evaluated at least annually with more frequent evaluation of more severely criticized loans or leases. The indicators represent the rating for loans or leases as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:

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

Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – An asset classified doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions, and values.

Loss – Assets classified loss are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.

Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of noncovered, ungraded loans at March 31, 2011 relate to business credit cards and tobacco buyout loans. Tobacco buyout loans with an outstanding balance of $60,900 at March 31, 2011 are secured by assignments of receivables made pursuant to the Fair and Equitable Tobacco Reform Act of 2004. The credit risk associated with these loans is considered low as the payments that began in 2005 and continue through 2014 are to be made by the Commodity Credit Corporation which is part of the United States Department of Agriculture. The majority of

covered, ungraded loans relate to loans secured by the first lien on 1-4 family residences acquired from United Western. These loans are not graded because this group of loans is made up of a large number of small balance, homogeneous loans.

The loan credit quality indicators for noncovered, non-commercial loans and leases are based on the delinquency status of the borrower. As the borrower becomes more delinquent, the likelihood of loss increases.

The composition of the loans and leases outstanding at March 31, 2011 and December 31, 2010 by credit quality indicator is provided below


	Commercial noncovered loans and leases
Grade:	Construction and Land Development		Commercial Mortgage		Other Commercial Real Estate		Commercial and Industrial		Lease Financing		Other		Total Commercial Loans Not Covered by Loss Share
March 31, 2011
Pass	$	316,395	$	4,403,652	$	133,931	$	1,571,193	$	285,699	$	173,025	$	6,883,895
Special mention		22,416		232,019		7,415		40,023		6,228		1,299		309,400
Substandard		32,864		119,229		5,271		30,992		3,796		12		192,164
Doubtful		2,094		6,004		401		1,182		271		—		9,952
Ungraded		—		2,489		132		148,652		—		34		151,307

Total	$	373,769	$	4,763,393	$	147,150	$	1,792,042	$	295,994	$	174,370	$	7,546,718

December 31, 2010
Pass	$	285,988	$	4,390,634	$	137,570	$	1,633,775	$	291,476	$	181,044	$	6,920,487
Special mention		20,957		229,581		6,531		42,639		6,888		846		307,442
Substandard		29,714		108,239		5,103		24,686		2,496		90		170,328
Doubtful		2,270		7,928		401		748		414		—		11,761
Ungraded		—		1,480		105		167,642		15		35		169,277

Total	$	338,929	$	4,737,862	$	149,710	$	1,869,490	$	301,289	$	182,015	$	7,579,295


	Non-commercial noncovered loans and leases
	Residential Mortgage		Revolving Mortgage		Construction and Land Development		Consumer		Total Non- commercial Noncovered Loans
March 31, 2011
Current	$	777,982	$	2,287,726	$	142,423	$	580,544	$	3,788,675
31-60 days past due		16,439		5,462		1,116		6,911		29,928
61-90 days past due		2,207		3,285		364		2,216		8,072
Over 90 days past due		12,022		3,195		1,961		1,780		18,958

Total	$	808,650	$	2,299,668	$	145,864	$	591,451	$	3,845,633

December 31, 2010
Current	$	840,328	$	2,226,427	$	187,918		579,227	$	3,833,900
31-60 days past due		13,051		3,682		1,445		12,798		30,976
61-90 days past due		4,762		1,424		548		2,611		9,345
Over 90 days past due		20,651		2,320		3,043		1,047		27,061

Total	$	878,792	$	2,233,853	$	192,954	$	595,683	$	3,901,282


	Covered loans
Grade:	Construction and Land Development - Commercial		Commercial Mortgage		Other Commercial Real Estate		Commercial and Industrial		Lease Financing		Residential Mortgage		Revolving Mortgage		Construction and Land Development Non-commercial		Consumer and Other		Total Covered Loans
March 31, 2011
Pass		76,319		574,681		60,238		49,260		2		42,014		5,000		4,217		3,927		815,658
Special mention		112,999		339,385		31,218		49,511		—		36,430		2,225		23,127		247		595,142
Substandard		109,509		356,396		46,393		48,081		—		27,761		5,509		66,829		324		660,802
Doubtful		98,757		62,984		24,833		3,795		22		7,484		1,966		17,252		1,047		218,140
Ungraded		4,732		99,186		623		20,394		247		233,704		8,709		—		797		368,392

Total	$	402,316	$	1,432,632	$	163,305	$	171,041	$	271	$	347,393	$	23,409	$	111,425	$	6,342	$	2,658,134

December 31, 2010
Pass	$	98,449	$	430,526	$	77,162	$	46,450	$	—	$	39,492	$	5,051	$	—	$	6,296	$	703,426
Special mention		90,203		261,273		40,756		36,566		—		17,041		3,630		3,549		1,231		454,249
Substandard		79,631		326,036		65,896		41,936		—		11,609		3,462		67,594		691		596,855
Doubtful		100,137		71,175		26,847		7,525		—		6,353		1,837		34,662		438		248,974
Ungraded		—		54		—		—		—		—		3,886		—		8		3,948

Total	$	368,420	$	1,089,064	$	210,661	$	132,477	$	—	$	74,495	$	17,866	$	105,805	$	8,664	$	2,007,452

The aging of the outstanding loans and leases by class at March 31, 2011 and December 31, 2010 (excluding loans impaired at acquisition date) is provided in the table below. The calculation of days past due begins on the day after payment is due and includes all days through which all required interest or principal have not been paid. Loans and leases less than 30 days past due are considered current due to certain grace periods that allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.


	31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans and Leases
March 31, 2011
Noncovered loans and leases:
Construction and land development - commercial	$	2,006	$	116	$	3,572	$	5,694	$	368,075	$	373,769
Commercial mortgage		21,304		4,576		19,091		44,971		4,718,422		4,763,393
Other commercial real estate		860		147		585		1,592		145,558		147,150
Commercial and industrial		5,016		1,110		4,700		10,826		1,781,216		1,792,042
Lease financing		841		269		864		1,974		294,020		295,994
Other		2		—		—		2		174,368		174,370
Residential mortgage		16,439		2,207		12,022		30,668		777,982		808,650
Revolving mortgage		5,462		3,285		3,195		11,942		2,287,726		2,299,668
Construction and land development - non-commercial		1,116		364		1,961		3,441		142,423		145,864
Consumer		6,911		2,216		1,780		10,907		580,544		591,451

Total noncovered loans and leases		59,957		14,290		47,770		122,017		11,270,334		11,392,351

Covered loans:
Construction and land development - commercial		12,549		5,350		113,481		131,380		158,665		290,045
Commercial mortgage		71,194		36,091		65,272		172,557		1,118,206		1,290,763
Other commercial real estate		—		—		4,944		4,944		122,023		126,967
Commercial and industrial		8,660		1,604		8,620		18,884		121,033		139,917
Lease financing		—		—		—		—		249		249
Residential mortgage		8,586		4,829		30,172		43,587		283,960		327,547
Revolving mortgage		143		—		133		276		15,792		16,068
Construction and land development - non-commercial		3,328		—		27,641		30,969		23,627		54,596
Consumer and other		145		7		1,513		1,665		4,537		6,202

Total covered loans		104,605		47,881		251,776		404,262		1,848,092		2,252,354

Total loans and leases	$	164,562	$	62,171	$	299,546	$	526,279	$	13,118,426	$	13,644,705

December 31, 2010
Noncovered loans and leases:
Construction and land development - commercial	$	3,047	$	6,092	$	4,208	$	13,347	$	325,582	$	338,929
Commercial mortgage		22,913		7,521		20,425		50,859		4,687,003		4,737,862
Other commercial real estate		35		290		621		946		148,764		149,710
Commercial and industrial		4,434		1,473		3,744		9,651		1,859,839		1,869,490
Lease financing		2,266		141		630		3,037		298,252		301,289
Other		40		75		—		115		181,900		182,015
Residential mortgage		13,051		4,762		20,651		38,464		840,328		878,792
Revolving mortgage		3,682		1,424		2,320		7,426		2,226,427		2,233,853
Construction and land development - non-commercial		1,445		548		3,043		5,036		187,918		192,954
Consumer		12,798		2,611		1,047		16,456		579,227		595,683

Total noncovered loans and leases		63,711		24,937		56,689		145,337		11,335,240		11,480,577

Covered loans:
Construction and land development - commercial		64,372		8,985		73,997		147,354		118,078		265,432
Commercial mortgage		43,570		20,308		88,525		152,403		816,421		968,824
Other commercial real estate		15,008		2,477		20,453		37,938		138,019		175,957
Commercial and industrial		9,267		5,899		28,780		43,946		79,444		123,390
Residential mortgage		4,459		1,352		3,979		9,790		53,679		63,469
Revolving mortgage		382		—		337		719		8,747		9,466
Construction and land development - non-commercial		7,701		—		36,412		44,113		17,432		61,545
Consumer and other		430		1,649		978		3,057		5,607		8,664

Total covered loans		145,189		40,670		253,461		439,320		1,237,427		1,676,747

Total loans and leases	$	208,900	$	65,607	$	310,150	$	584,657	$	12,572,667	$	13,157,324

The recorded investment, by class, in loans and leases on nonaccrual status and loans and leases greater than 90 days past due and still accruing at March 31, 2011 and December 31, 2010 (excluding loans and leases impaired as acquisition date) is as follows:


	March 31, 2011				December 31, 2010
	Nonaccrual loans and leases		Loans and leases > 90 days and accruing		Nonaccrual loans and leases		Loans and leases > 90 days and accruing
Noncovered loans and leases:
Construction and land development - commercial	$	25,789	$	658	$	26,796	$	68
Commercial mortgage		33,428		1,929		32,723		4,347
Commercial and industrial		4,583		683		3,320		1,850
Lease financing		1,115		65		806		298
Other commercial real estate		871		—		777		80
Construction and land development - non-commercial		1,140		1,139		1,330		1,122
Residential mortgage		12,932		1,646		13,062		6,640
Revolving mortgage		—		3,189		—		2,301
Consumer		—		1,769		—		1,795

Total noncovered loans and leases	$	79,858	$	11,078	$	78,814	$	18,501

Covered loans and leases:
Construction and land development - commercial		52,962		75,434		20,609		55,503
Commercial mortgage		92,586		9,474		75,633		37,819
Other commercial real estate		9,150		7,290		7,299		15,068
Commercial and industrial		1,549		7,726		8,488		22,829
Residential mortgage		25,571		10,010		3,594		2,010
Revolving mortgage		—		—		403		190
Construction and land development - non-commercial		26,224		2,969		43,836		7,460
Consumer and other		669		1,027		162		824

Total covered loans and leases	$	208,711	$	113,930	$	160,024	$	141,703

Total loans and leases	$	288,569	$	125,008	$	238,838	$	160,204

The purchase discount on certain covered nonaccrual loans included above is being accreted into interest income over the contractual life of the loans.

Acquired Loans

When the fair values of covered loans were established, certain loans were identified as impaired. The following table provides changes in the carrying value of acquired loans during the three months ended March 31, 2011 and 2010:


	2011						2010
	Impaired at acquisition date			All other acquired loans			Impaired as acquisition date			All other acquired loans
Balance, January 1	$	330,705		$	1,676,747		$	75,368		$	1,097,652
Fair value of acquired impaired loans covered by loss share		120,670			646,489			412,628			1,152,134
Reductions for repayments, foreclosures and decreases in expected cash flows		(45,595	)		(70,882	)		(3,446	)		(132,075	)

Balance, March 31	$	405,780		$	2,252,354		$	484,550		$	2,117,711

Outstanding principal balance at March 31	$	1,011,908		$	2,908,609		$	1,165,689		$	2,681,862

Cash flow analyses were prepared for acquired loans deemed impaired at acquisition and those analyses are used to determine the amount of accretable yield recognized on those loans.

The following table documents changes to the amount of accretable yield for the first three months of 2011 and 2010. For acquired loans, improved cash flow estimates and receipt of unscheduled loan payments result in the reclassification of nonaccretable difference to accretable yield.


	2011			2010
Balance, January 1	$	164,586		$	—
Additions		57,998			45,523
Accretion		(51,694	)		(2,105	)
Reclassifications from nonaccretable difference		40,752			—
Disposals		—			—

Balance, March 31	$	211,642		$	43,418

For loans acquired from United Western, the contractually required payments, including principal and interest, cash flows expected to be collected and fair values as of the acquisition date were as follows:


	Impaired at Acquisition Date		All Other Acquired Loans
Contracually required payments	$	311,021	$	776,271
Cash flows expected to be collected		178,668		674,368
Fair value at acquisition date		120,670		646,489

The recorded values of loans acquired from United Western as of the acquisition date by loan class were as follows:


	January 21, 2011
Commercial:
Construction and land development	$	52,869
Commercial mortgage		306,946
Other commercial real estate		8,392
Commercial and industrial		86,847
Lease financing		311

Total commercial loans		455,365
Non-commercial:
Residential mortgage		255,113
Revolving mortgage		11,833
Construction and land development		39,822
Consumer		5,026

Total non-commercial loans		311,794

Total loans	$	767,159

Note E

Allowance for Loan and Lease Losses

Activity in the allowance for loan and lease losses, ending balances of loans and leases and related allowance by class of loans is summarized as follows:


Noncovered Loans	Construction and Land Development - Commercial			Commercial Mortgage			Other Commercial Real Estate			Commercial and Industrial			Lease Financing			Other			Residential Mortgage			Revolving Mortgage			Construction and Land Development - Non- commercial			Consumer			Non-specific		Total
2011
Allowance for loan and lease losses:
Balance at January 1	$	10,512		$	64,772		$	2,200		$	24,089		$	3,384		$	1,473		$	7,009		$	18,016		$	1,751		$	29,448		$	13,863	$	176,517
Charge-offs		(87	)		(3,136	)		(83	)		(1,021	)		—			—			(6	)		(42	)		(10	)		(6,068	)		—		(10,453	)
Recoveries		24			9			—			5			—			—			1			—			3			—			—		42
Provision		279			4,545			87			1,292			(15	)		(54	)		125			1,389			(416	)		4,398			232		11,862

Balance at March 31	$	10,728		$	66,190		$	2,204		$	24,365		$	3,369		$	1,419		$	7,129		$	19,363		$	1,328		$	27,778		$	14,095	$	177,968
ALLL for loans and leases individually evaluated for impairment	$	6,170		$	4,716		$	62		$	727		$	73		$	—		$	354		$	—		$	5		$	8		$	—	$	12,115
ALLL for loans and leases collectively evaluated for impairment		4,558			61,474			2,142			23,638			3,296			1,419			6,775			19,363			1,323			27,770			—		151,758
Non-specific ALLL		—			—			—			—			—			—			—			—			—			—			14,095		14,095

Total allowance for loan and lease losses	$	10,728		$	66,190		$	2,204		$	24,365		$	3,369		$	1,419		$	7,129		$	19,363		$	1,328		$	27,778		$	14,095	$	177,968

Loans and leases:
Loans and leases individually evaluated for impairment	$	30,369		$	69,017		$	946		$	14,631		$	963		$	—		$	7,186		$	—		$	514		$	102		$	—	$	123,728
Loans and leases collectively evaluated for impairment		343,400			4,694,376			146,204			1,777,411			295,031			174,370			801,464			2,299,668			145,350			591,349			—		11,268,623

Total loan and leases	$	373,769		$	4,763,393		$	147,150		$	1,792,042		$	295,994		$	174,370		$	808,650		$	2,299,668		$	145,864		$	591,451		$	—	$	11,392,351

December 31, 2010
Allowance for loan and lease losses:
ALLL for loans and leases individually evaluated for impairment	$	5,883		$	4,601		$	67		$	598		$	58		$	7		$	384		$	—		$	13		$	9		$	—	$	11,620
ALLL for loans and leases collectively evaluated for impairment		4,629			60,171			2,133			23,491			3,326			1,466			6,625			18,016			1,738			29,439			—		151,034
Non-specific ALLL		—			—			—			—			—			—			—			—			—			—			13,863		13,863

Total allowance for loan and lease losses	$	10,512		$	64,772		$	2,200		$	24,089		$	3,384		$	1,473		$	7,009		$	18,016		$	1,751		$	29,448		$	13,863	$	176,517

Loans and leases:
Loans and leases individually evaluated for impairment	$	28,327		$	57,952		$	964		$	12,989		$	693		$	76		$	6,162		$	—		$	514		$	102		$	—	$	107,779
Loans and leases collectively evaluated for impairment		310,602			4,679,910			148,746			1,856,501			300,596			181,939			872,630			2,233,853			192,440			595,581			—		11,372,798

Total loan and leases	$	338,929		$	4,737,862		$	149,710		$	1,869,490		$	301,289		$	182,015		$	878,792		$	2,233,853		$	192,954		$	595,683				$	11,480,577


Covered Loans	Construction and Land Development - Commercial			Commercial Mortgage			Other Commercial Real Estate			Commercial and Industrial			Lease Financing		Residential Mortgage			Revolving Mortgage			Construction and Land Development - Non-commercial			Consumer and Other			Total
2011
Allowance for loan and lease losses:
Balance at January 1	$	20,654		$	13,199		$	4,148		$	6,828		$	—	$	113		$	676		$	5,607		$	23		$	51,248
Charge-offs		(4,318	)		(6,775	)		(4,117	)		(13,141	)		—		(323	)		(2,072	)		(496	)		(12	)		(31,254	)
Recoveries		1,188			426			4			252			—		60			—			148			—			2,078
Provision		2,895			7,799			4,870			12,773			—		1,162			2,847			209			2			32,557

Balance at March 31	$	20,419		$	14,649		$	4,905		$	6,712		$	—	$	1,012		$	1,451		$	5,468		$	13		$	54,629
March 31, 2011
Allowance for loan and lease losses:
ALLL for loans and leases individually evaluated for impairment	$	2,969		$	6,948		$	394		$	116		$	—	$	134		$	—		$	763		$	—		$	11,324
ALLL for loans and leases collectively evaluated for impairment		780			2,573			521			247			—		155			20			82			13			4,391
ALLL for loans and leases acquired with deteriorated credit quality		16,670			5,128			3,990			6,349			—		723			1,431			4,623			—			38,914

Total allowance for loan and lease losses	$	20,419		$	14,649		$	4,905		$	6,712		$	—	$	1,012		$	1,451		$	5,468		$	13		$	54,629

Loans and leases:
Loans and leases individually evaluated for impairment	$	63,498		$	86,184		$	12,914		$	1,437		$	—	$	5,351		$	—		$	25,085		$	—		$	194,469
Loans and leases collectively evaluated for impairment		226,547			1,204,579			114,053			138,480			249		322,196			16,068			29,511			6,202			2,057,885
Loans and leases acquired with deteriorated credit quality		112,271			141,869			36,338			31,124			22		19,846			7,341			56,829			140			405,780

Total loan and leases	$	402,316		$	1,432,632		$	163,305		$	171,041		$	271	$	347,393		$	23,409		$	111,425		$	6,342		$	2,658,134

December 31, 2010
Allowance for loan and lease losses:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company