UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
Commission File Number: 001-16715
____________________________________________________
FIRST CITIZENS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware | 56-1528994 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
4300 Six Forks Road | ||
Raleigh, North Carolina 27609 | ||
(Address of principal executive offices, ZIP code) | ||
(919) 716-7000 | ||
(Registrant's telephone number, including area code) | ||
____________________________________________________
Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Name of each exchange on which registered | |
Class A Common Stock, Par Value $1 | NASDAQ Global Select Market | |
Securities Registered Pursuant to Section 12(g) of the Securities Exchange Act of 1934.
Class B Common Stock, Par Value $1
(Title of class)
_________________________________________________________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the Registrant’s common equity held by nonaffiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was $1,206,529,239.
On February 25, 2015, there were 11,005,220 outstanding shares of the Registrant's Class A Common Stock and 1,005,185 outstanding shares of the Registrant's Class B Common Stock.
Portions of the Registrant's definitive Proxy Statement for the 2015 Annual Meeting of Shareholders are incorporated in Part III of this report.
Page | |||
CROSS REFERENCE INDEX | |||
PART I | Item 1 | ||
Item 1A | |||
Item 1B | Unresolved Staff Comments | None | |
Item 2 | |||
Item 3 | |||
PART II | Item 5 | ||
Item 6 | |||
Item 7 | |||
Item 7A | |||
Item 8 | Financial Statements and Supplementary Data | ||
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | None | |
Item 9A | |||
Item 9B | Other Information | None | |
PART III | Item 10 | Directors, Executive Officers and Corporate Governance | * |
Item 11 | Executive Compensation | * | |
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | * | |
Item 13 | Certain Relationships and Related Transactions and Director Independence | * | |
Item 14 | Principal Accounting Fees and Services | * | |
PART IV | Item 15 | Exhibits, Financial Statement Schedules | |
(1) | Financial Statements (see Item 8 for reference) | ||
(2) | All Financial Statement Schedules normally required for Form 10-K are omitted since they are not applicable, except as referred to in Item 8. | ||
(3) | |||
* Information required by Item 10 is incorporated herein by reference to the information that appears under the headings or captions ‘Proposal 1: Election of Directors,’ ‘Code of Ethics,’ ‘Committees of our Board—General’ and ‘—Audit Committee’, ‘Executive Officers’ and ‘Section 16(a) Beneficial Ownership Reporting Compliance’ from the Registrant’s Proxy Statement for the 2015 Annual Meeting of Shareholders (2015 Proxy Statement).
Information required by Item 11 is incorporated herein by reference to the information that appears under the headings or captions ‘Compensation, Nominations and Governance Committee Report,’ ‘Compensation Discussion and Analysis,’ ‘Executive Compensation,’ and ‘Director Compensation,’ of the 2015 Proxy Statement.
Information required by Item 12 is incorporated herein by reference to the information that appears under the captions ‘Beneficial Ownership of Our Common Stock—Directors and Executive Officers’ and '—Principal Shareholders' of the 2015 Proxy Statement.
Information required by Item 13 is incorporated herein by reference to the information that appears under the headings or captions ‘Corporate Governance—Director Independence’ and ‘Transactions with Related Persons’ of the 2015 Proxy Statement.
Information required by Item 14 is incorporated by reference to the information that appears under the caption ‘Services and Fees During 2014 and 2013’ of the 2015 Proxy Statement.
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Part I
Business
General
First Citizens BancShares, Inc. ("BancShares") was incorporated under the laws of Delaware on August 7, 1986, to become the holding company of First-Citizens Bank & Trust Company ("FCB"), its banking subsidiary. FCB opened in 1898 as the Bank of Smithfield, Smithfield, North Carolina, and later became First-Citizens Bank & Trust Company. On April 28, 1997, BancShares launched IronStone Bank ("ISB"), a federally-chartered thrift institution that originally operated under the name Atlantic States Bank. Initially, ISB operated in the counties surrounding Atlanta, Georgia, but gradually expanded into other high-growth markets throughout the southeastern and western United States. On January 7, 2011, ISB was merged into FCB, resulting in a single banking subsidiary of BancShares.
On January 1, 2014, FCB completed its merger with 1st Financial Services Corporation ("1st Financial") of Hendersonville, NC and its wholly-owned subsidiary, Mountain 1st Bank & Trust Company ("Mountain 1st"). On October 1, 2014, BancShares completed the merger of First Citizens Bancorporation, Inc. ("Bancorporation") with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014.
For the period October 1, 2014 through December 31, 2014, Bancshares maintained two banking subsidiaries. On January 1, 2015, First Citizens Bank and Trust Company, Inc. ("FCB-SC") merged with and into FCB. As of January 1, 2015, FCB remains as the single banking subsidiary of BancShares. Other non-bank subsidiary operations do not have a significant effect on BancShares consolidated financial statements.
Throughout its history, the operations of BancShares have been significantly influenced by descendants of Robert P. Holding, who came to control FCB during the 1920s. Robert P. Holding’s children and grandchildren have served as members of the board of directors, as chief executive officers and in other executive management positions and, since our formation in 1986, have remained shareholders controlling a large percentage of our common stock.
Our Chairman of the Board and Chief Executive Officer, Frank B. Holding, Jr., is the grandson of Robert P. Holding. Hope Holding Bryant, Vice Chairman of BancShares, is Robert P. Holding’s granddaughter. Frank B. Holding, son of Robert P. Holding and father of Frank B. Holding, Jr. and Hope Holding Bryant, was Executive Vice Chairman until his retirement in 2014. On February 14, 2014, Frank Holding announced that he would retire from his position as a director effective April 29, 2014, and has retired from his positions as an officer of BancShares and FCB effective September 2, 2014.
FCB seeks to meet the needs of both individuals and commercial entities in its market areas. Services offered at most offices include taking of deposits, cashing of checks and providing for individual and commercial cash needs; numerous checking and savings plans; commercial, business and consumer lending; a full-service trust department; and other activities incidental to commercial banking. FCB’s wholly-owned subsidiaries, First Citizens Investor Services, Inc. ("FCIS"), First Citizens Securities Corporation Inc. ("FCSC") and First Citizens Asset Management, Inc. ("FCAM"), provide various investment products including annuities, discount brokerage services and third-party mutual funds to customers primarily through the bank's branch network, as well as investment advisory services.
A substantial portion of our revenue is derived from our operations throughout North Carolina, South Carolina, and Virginia and in certain urban areas of Georgia, Florida, California and Texas. We deliver products and services to our customers through our extensive branch network as well as online banking, telephone banking, mobile banking and various ATM networks. Business customers may conduct banking transactions through the use of remote image technology.
FCB’s primary deposit markets are North Carolina, South Carolina and Virginia. FCB’s deposit market share in North Carolina was 4.0 percent as of June 30, 2014, based on the FDIC Deposit Market Share Report, which makes FCB the fourth largest bank in North Carolina. The three banks larger than FCB based on deposits in North Carolina as of June 30, 2014, controlled 78.3 percent of North Carolina deposits. In South Carolina, FCB-SC was the 4th largest bank in terms of deposit market share with 9.4 percent at June 30, 2014. The three larger banks represent 43.9 percent of total deposits in South Carolina as of June 30, 2014. In Virginia, FCB was the 16th largest bank with a June 30, 2014, deposit market share of 0.6 percent. The 15 larger banks represent 84.3 percent of total deposits in Virginia as of June 30, 2014.
FCB's market areas enjoy a diverse employment base, including, in various locations, manufacturing, service industries, agricultural, wholesale and retail trade, technology and financial services. We believe the current market areas will support future growth in loans, deposits and our other banking services. We maintain a community bank approach to providing customer service, a competitive advantage that strengthens our ability to effectively provide financial products and services to
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individuals and businesses in our markets. However, like larger banks, we have the capacity to offer most financial products and services that our customers require.
Statistical information regarding our business activities is found in Management’s Discussion and Analysis.
Geographic Locations and Employees
As of December 31, 2014, FCB and FCB-SC operated 572 branches in Arizona, California, Colorado, Florida, Georgia, Kansas, Maryland, Missouri, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington and West Virginia and the District of Columbia. BancShares and its subsidiaries employ approximately 5,866 full-time staff and approximately 574 part-time staff for a total of 6,440 employees.
Business Combinations
On January 1, 2014, FCB completed its merger with 1st Financial of Hendersonville, NC and its wholly-owned subsidiary, Mountain 1st. The merger allowed FCB to expand its presence in Western North Carolina. FCB paid $10.0 million to acquire 1st Financial, including $8.0 million to acquire and subsequently retire the 1st Financial securities that had been issued under the Troubled Asset Relief Program ("TARP").
On October 1, 2014, BancShares completed the merger of Bancorporation with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. FCB-SC merged with and into FCB on January 1, 2015. Under the terms of the Merger Agreement, each share of Bancorporation common stock was converted into the right to receive 4.00 shares of BancShares' Class A common stock and $50.00 cash, unless the holder elected for each share to be converted into the right to receive 3.58 shares of BancShares' Class A common stock and 0.42 shares of BancShares' Class B common stock. The merger between BancShares and Bancorporation creates a more diversified financial institution that is better equipped to respond to economic and industry developments. Additionally, cost savings, efficiencies and other benefits are expected from the combined operations. In connection with the Bancorporation merger, BancShares completed an analysis of the control ownership of BancShares and Bancorporation and determined that common control did not exist.
A Current Report on Form 8-K/A was filed on December 11, 2014, with respect to completion of the Bancorporation merger and should be read in conjunction with the information presented herein. Additional information related to the merger is incorporated herein by reference from “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Business Combinations”, as well as Note B to the Consolidated Financial Statements.
Regulatory Considerations
The business and operations of BancShares and FCB are subject to significant federal and state regulation and supervision. BancShares is a financial holding company registered with the Federal Reserve Board ("Federal Reserve") under the Bank Holding Company Act of 1956, as amended. It is subject to supervision and examination by, and the regulations and reporting requirements of, the Federal Reserve.
FCB is a state-chartered bank, subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC and the North Carolina Commissioner of Banks. Deposit obligations are insured by the FDIC to the maximum legal limits.
FCB-SC was a state-chartered bank, subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC and the South Carolina Commissioner of Banking. Deposit obligations were insured by the FDIC to the maximum legal limits. FCB-SC merged with and into FCB on January 1, 2015.
Various regulatory authorities supervise all areas of BancShares' and FCB's business including loans, allowances for loan and lease losses, mergers and acquisitions, the payment of dividends, various compliance matters and other aspects of its operations. The regulators conduct regular examinations, and BancShares and FCB must furnish periodic reports to its regulators containing detailed financial and other information.
Numerous statutes and regulations apply to and restrict the activities of FCB, including limitations on the ability to pay dividends, capital requirements, reserve requirements, deposit insurance requirements and restrictions on transactions with related persons and entities controlled by related persons. The impact of these statutes and regulations is discussed below and in the accompanying consolidated financial statements.
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Dodd-Frank Act. On July 21, 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act significantly restructured the financial regulatory regime in the United States and has a broad impact on the financial services industry. Significant components of the Dodd-Frank Act included the following:
* Created the Consumer Financial Protection Bureau ("CFPB") as a new agency to centralize responsibility for consumer financial protection, including implementing, examining and enforcing compliance with federal consumer financial laws;
* Authorized the elimination of federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;
* Amended the Electronic Fund Transfer Act to, among other things, give the Board of Governors of the Federal Reserve System (the “Federal Reserve”) authority to establish rules regulating interchange fees charged for electronic debit transactions by payment card issuers having assets over $10.0 billion, such as FCB, and enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer;
* Restricted federal law preemption of state laws for subsidiaries and affiliates of national banks and federal thrifts;
* Permitted the establishment of branch offices of banks throughout the U.S.;
* Extended to most bank holding companies the same leverage and risk-based capital requirements that apply to insured depository institutions, which, among other things, will disallow treatment of trust preferred securities as Tier 1 capital, subject to certain phase-in and grandfathered exceptions;
* Required bank holding companies and banks both to be well-capitalized and well-managed in order to acquire banks located outside their home state;
* Changed the federal deposit insurance assessment base from the amount of insured deposits to consolidated assets less tangible capital, eliminated the maximum size of the Deposit Insurance Fund (the "DIF"), and increases the minimum size of the DIF;
* Imposed comprehensive regulation of the over-the-counter derivatives market, including certain provisions that would effectively prohibit FDIC insured depository institutions from conducting certain derivatives businesses within those institutions;
* Required large, publicly-traded bank holding companies to create a risk committee responsible for the oversight of enterprise risk management (BancShares has a Board of Directors Risk Committee as well as a management enterprise risk oversight committee);
* Implemented corporate governance revisions applicable to all public companies (not just financial institutions), including revisions regarding executive compensation disclosure;
* Permanently adopted the $250,000 limit for FDIC insurance coverage;
* Restricted the ability of banks to sponsor or invest in private equity or hedge funds and to engage in proprietary trading under the “Volcker rule”;
* Increased authority of the Federal Reserve and the FDIC’s authority to examine our subsidiaries;
* Required annual capital stress testing for institutions with $10 billion or more in assets; and
* Expanded the requirement for holding companies to serve as sources of financial strength to their subsidiary depository institutions.
The Dodd-Frank Act mandated that stress tests be developed and performed to ensure that financial institutions have sufficient capital to absorb losses and support operations during multiple economic and bank scenarios. Bank holding companies with total consolidated assets between $10 billion and $50 billion, including BancShares, will undergo annual company-run stress tests. As directed by the Federal Reserve, summaries of BancShares’ results in the severely adverse stress tests will be available to the public starting in June 2015. Through a stress testing program which has been implemented, BancShares and FCB will
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comply with current regulations. The results of stress testing activities will be considered by our Risk Committee in combination with other risk management and monitoring practices as part of our risk management program.
CFPB Regulation and Supervision. As noted above, Dodd- Frank gives the CFPB authority to examine FCB for compliance with a broad range of federal consumer financial laws and regulations, including the laws and regulations that relate to credit card, deposit, mortgage and other consumer financial products and services we offer. In addition, Dodd-Frank gives the CFPB broad authority to take corrective action against FCB as it deems appropriate. The CFPB also has powers that it was assigned in Dodd-Frank to issue regulations and take enforcement actions to prevent and remedy acts and practices relating to consumer financial products and services that it deems to be unfair, deceptive or abusive. The agency also has authority to impose new disclosure requirements for any consumer financial product or service. These authorities are in addition to the authority the CFPB assumed on July 21, 2011 under existing consumer financial law governing the provision of consumer financial products and services. The CFPB has concentrated much of its initial rulemaking efforts on a variety of mortgage related topics required under Dodd-Frank, including ability-to-repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, appraisal and escrow standards and requirements for higher-priced mortgages.
In January 2014, new rules issued by the CFPB for mortgage origination and mortgage servicing became effective. The
rules require lenders to conduct a reasonable and good faith determination at or before consummation of a residential
mortgage loan that the borrower will have a reasonable ability to repay the loan. The regulations also define criteria for
making Qualified Mortgages which entitle the lender and any assignee to either a conclusive or rebuttable presumption of
compliance with the ability to repay rule. The new mortgage servicing rules include new standards for notices to
consumers, loss mitigation procedures, and consumer requests for information. Both the origination and servicing rules create
new private rights of action for consumers in the event of certain violations. In addition to the exercise of its rule making authority, the CFPB is continuing its ongoing examination and supervisory activities with respect to a number of consumer
businesses and products.
Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been promulgated, certain of the Act’s requirements have yet to be implemented. Given these uncertainties to how the federal bank regulatory agencies will implement the Dodd-Frank Act's requirements, the full extent of the impact of the Act on the operations of BancShares and FCB is unclear. The changes resulting from the Dodd-Frank Act may affect the profitability of business activities, require changes to certain business practices, impose more stringent regulatory requirements or otherwise adversely affect the business and financial condition of BancShares and its subsidiaries. These changes may also require BancShares to invest significant management attention and resources to evaluate and comply with new statutory and regulatory requirements.
BancShares
General. As a financial holding company registered under the Bank Holding Company Act ("BHCA"), BancShares is subject to supervision, regulation, and examination by the Federal Reserve. BancShares is also registered under the bank holding company laws of North Carolina and is subject to supervision, regulation, and examination by the North Carolina Commissioner of Banks ("NCCB").
Permitted Activities. A bank holding company is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies, such as BancShares, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve), without prior approval of the Federal Reserve. Activities that are financial in nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments.
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be “well capitalized” and “well managed.” A depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements for this status under applicable Federal Reserve capital requirements. A depository institution subsidiary is considered “well managed” if it received a composite rating and management rating of at least “satisfactory” in its most recent examination. A financial holding company’s status will also depend upon it maintaining its status as “well capitalized” and “well managed” under applicable Federal Reserve regulations. If a financial holding company ceases to meet these capital and management requirements, the Federal Reserve’s regulations provide that the financial holding company must
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enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. Until the financial holding company returns to compliance, the Federal Reserve may impose limitations or conditions on the conduct of its activities, and the company may not commence any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve. If the company does not return to compliance within 180 days, the Federal Reserve may require divestiture of the holding company’s depository institutions.
Source of Strength. Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, BancShares is expected to commit resources to support FCB, including times when BancShares may not be in a financial position to provide such resources. Any capital loans made by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Safety and Soundness. There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance fund in the event of a depository institution default. For example, under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.
Under the Federal Deposit Insurance Act ("FDIA"), the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.
Capital Requirements. The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described below under “The Subsidiary Bank - Capital Requirements”. The tier 1, total capital, and leverage capital ratios of BancShares were 13.61 percent, 14.69 percent and 8.91 percent, respectively, and each capital ratio listed above exceeded the applicable minimum requirements as well as the well-capitalized standards as of December 31, 2014. Subject to its capital requirements and certain other restrictions, BancShares is able to borrow money to make capital contributions to FCB and such loans may be repaid from dividends paid by FCB to BancShares.
Limits on Dividends and Other Payments. BancShares is a legal entity, separate and distinct from its subsidiaries. A significant portion of the revenues of BancShares result from dividends paid to it by FCB. There are various legal limitations applicable to the payment of dividends by FCB to BancShares and to the payment of dividends by BancShares to its shareholders. FCB is subject to various statutory restrictions on its ability to pay dividends to BancShares. Under current regulations, prior approval from the Federal Reserve is required if cash dividends declared in any given year exceed net income for that year, plus retained net profits of the two preceding years. The payment of dividends by FCB or BancShares may be limited by other factors, such as requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit FCB or BancShares from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending on the financial condition of FCB or BancShares, could be deemed to constitute such an unsafe or unsound practice.
Under the FDIA, insured depository institutions such as FCB, are prohibited from making capital distributions, including the payment of dividends, if, after making such distributions, the institution would become “undercapitalized” (as such term is used in the statute). Based on the FCB’s current financial condition, BancShares does not expect this provision will have any impact on its ability to receive dividends from FCB. BancShare’s non-bank subsidiaries pay dividends to BancShares periodically on a non-regulated basis.
In addition to dividends it receives from FCB, BancShares receives management fees from its affiliated companies for expenses incurred for performing various corporate functions on behalf of the subsidiaries. These fees are charged to each subsidiary based upon the estimated cost for usage of services by that subsidiary. The fees are eliminated from the consolidated financial statements.
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Subsidiary Bank - FCB
General. FCB is a state-chartered bank, subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC and the North Carolina Commissioner of Banks.
The various laws and regulations administered by the bank regulatory agencies affect corporate practices, such as the payment of dividends, incurrence of debt, and acquisition of financial institutions and other companies; they also affect business practices, such as the payment of interest on deposits, the charging of interest on loans, types of business conducted, and location of offices.
Current Capital Requirements. Bank regulatory agencies have issued risk-based and leverage capital guidelines applicable to U.S. banking organizations. In addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth. Under the current risk-based capital requirements of the regulatory agencies, BancShares and FCB are required to maintain minimum capital levels that require a tier 1 capital ratio of no less than 4% of risk-weighted assets, a total capital ratio of no less than 8% of risk-weighted assets and a leverage capital ratio of no less than 3% of average assets. To meet the regulatory guidelines for well-capitalized standards, the tier 1 and total capital ratios must equal 6.00% and 10.00%, respectively, while the leverage ratio must equal 5%. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on the consolidated financial statements. As of December 31, 2014, the tier 1, total capital, and leverage capital ratios for FCB and were 13.12 percent, 14.37 percent, and 9.30 percent, while FCB-SC's ratios were 15.11 percent, 15.20 percent, and 7.89 percent. Each capital ratio listed above exceeded the applicable minimum requirements as well as the well-capitalized standards as of December 31, 2014.
New Capital Requirements (Basel III). On June 7, 2012, the Federal Reserve issued a series of proposed rules that would revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets. The rules were proposed to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. On July 2, 2013, the Federal Reserve approved certain revisions to the proposals and finalized new capital requirements for banking organizations.
Effective January 1, 2015, the final rules require BancShares and FCB to comply with the following new minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the current requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from current requirement); and (iv) a leverage ratio of 4.0% of total average assets (increased from the current requirement of 3.0%). These are the initial capital requirements, which will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require BancShares and FCB to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
The capital conservation buffer requirement will be phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
With respect to FCB, the rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the current 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized.
The new capital requirements also include changes in the risk weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition,
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development and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise on nonaccrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures.
If the new minimum capital ratios described above had been effective as of December 31, 2014, based on management’s interpretation and understanding of the new rules, BancShares and FCB would have remained “well capitalized” as of such date.
Transactions with Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of FCB to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliate generally must be collateralized and certain transactions between FCB and its affiliates, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to FCB, as those prevailing for comparable nonaffiliated transactions. In addition, FCB generally may not purchase securities issued or underwritten by affiliates.
Prompt Corrective Action. Federal banking regulators are authorized and, under certain circumstances, required to take certain actions against banks that fail to meet their capital requirements. The federal bank regulatory agencies have additional enforcement authority with respect to undercapitalized depository institutions. “Well capitalized” institutions may generally operate without supervisory restriction. With respect to “adequately capitalized” institutions, such banks cannot normally pay dividends or make any capital contributions that would leave it undercapitalized, they cannot pay a management fee to a controlling person if, after paying the fee, it would be undercapitalized, and they cannot accept, renew or roll over any brokered deposit unless the bank has applied for and been granted a waiver by the FDIC.
Immediately upon becoming “undercapitalized,” a depository institution becomes subject to the provisions of Section 38 of the FDIA, which: (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth of the institution’s assets; and (v) require prior approval of certain expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the Deposit Insurance Fund ("DIF"), subject in certain cases to specified procedures. These discretionary supervisory actions include: (i) requiring the institution to raise additional capital; (ii) restricting transactions with affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (iv) any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. FCB and FCB-SC each met the definition of being “well capitalized” as of December 31, 2014.
As described above in “New Capital Requirements,” the new capital requirement rules issued by the Federal Reserve incorporate new requirements into the prompt corrective action framework.
Community Reinvestment Act. FCB is subject to the requirements of the Community Reinvestment Act of 1977 ("CRA"). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities, including low and moderate income neighborhoods. If FCB receives a rating from the Federal Reserve of less than “satisfactory” under the CRA, restrictions on operating activities would be imposed. In addition, in order for a financial holding company, like BancShares, to commence any new activity permitted by the BHCA, or to acquire any company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. FCB currently has a “satisfactory” CRA rating.
Privacy Legislation. Several recent laws, including the Dodd-Frank Act, and related regulations issued by the federal bank regulatory agencies, provide new protections against the transfer and use of customer information by financial institutions. A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers’ personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.
USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 (“Patriot Act”) was enacted in response to the September 11, 2001 terrorist attacks in New York, Pennsylvania, and Northern Virginia. The Patriot Act is intended to
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strengthen U. S. law enforcement and the intelligence communities’ abilities to work cohesively to combat terrorism. The continuing impact on financial institutions of the Patriot Act and related regulations and policies is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws, and imposes various regulations, including standards for verifying customer identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities to identify persons who may be involved in terrorism or money laundering.
Volcker Rule. The Dodd-Frank Act prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of 3% of Tier 1 capital in private equity and hedge funds (known as the “Volcker Rule”). On December 10, 2013, the federal bank regulatory agencies adopted final rules implementing the Volcker Rule. These final rules prohibit banking entities from (i) engaging in short-term proprietary trading for their own accounts, and (ii) having certain ownership interests in and relationships with hedge funds or private equity funds. The final rules are intended to provide greater clarity with respect to both the extent of those primary prohibitions and of the related exemptions and exclusions. The final rules also require each regulated entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule, which must include (for the largest entities) making regular reports about those activities to regulators. Although the final rules provide some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including BancShares and FCB. The final rules were effective April 1, 2014, but the conformance period was extended from its statutory end date of July 21, 2014 to July 21, 2015. BancShares has evaluated the implications of the final rules on its investments and does not expect any material financial implications.
Under the final rules implementing the Volcker Rule, banking entities would have been prohibited from owning certain collateralized debt obligations (“CDOs”) backed by trust preferred securities (“TruPS”) as of July 21, 2015, which could have forced banking entities to recognize unrealized market losses based on the inability to hold any such investments to maturity. However, on January 14, 2014, the federal bank regulatory agencies issued an interim rule, effective April 1, 2014, exempting TruPS CDOs from the Volcker Rule if (i) the CDO was established prior to May 19, 2010, (ii) the banking entity reasonably believes that the offering proceeds of the CDO were used to invest primarily in TruPS issued by banks with less than $15 billion in assets, and (iii) the banking entity acquired the CDO on or before December 10, 2013. However, regulators are soliciting comments to the Interim Rule, and this exemption could change. BancShares currently does not have any impermissible holdings of TruPS CDOs under the Interim Rule, and therefore, will not be required to divest of any such investments or change the accounting treatment.
Ability-to-Repay and Qualified Mortgage Rule. Pursuant to the Dodd-Frank Act, the CFPB issued a final rule on January 10, 2013 (effective on January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Creditors are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the creditor to consider the following eight underwriting factors when making the credit decision: (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; (iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual income; and (viii) credit history. Alternatively, the creditor can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. All mortgage loans originated by FCB meet Ability-to-Repay standards and a substantial majority also meet Qualified Mortgage standards. This mix provides the ability to serve the needs of a broad customer base.
Consumer Laws and Regulations. FCB is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. These laws include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Fair Housing Act and the Servicemembers Civil Relief Act, among others. The laws and related regulations mandate certain disclosure requirements and regulate the manner in which financial institutions transact business with customers. FCB must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.
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Available Information
BancShares does not have its own separate Internet website. However, FCB’s website (www.firstcitizens.com) includes a hyperlink to the SEC’s website where the public may obtain copies of BancShares’ annual reports on Form 10-K, quarterly reports on 10-Q, current reports on Form 8-K, and amendments to those reports, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Interested parties may also directly access the SEC’s website that contains reports and other information that BancShares files electronically with the SEC. The address of the SEC’s website is www.sec.gov.
Item 1A. Risk Factors
The risks and uncertainties that management believes are material are described below. The risks listed are not the only risks that BancShares faces. Additional risks and uncertainties that are not currently known or that management does not currently deem material could also have a material adverse impact on our financial condition and/or the results of our operations or our business. If such risks and uncertainties were to become reality or the likelihoods of those risks were to increase, the market price of our common stock could significantly decline.
We operate in a highly regulated industry and the laws and regulations that govern our operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them, or our failure to comply with them, may adversely affect us.
We are subject to extensive regulation and supervision that govern almost all aspects of our operations. In addition to a multitude of regulations designed to protect customers, depositors and consumers, we must comply with other regulations that protect the deposit insurance fund and the stability of the U.S. financial system, including laws and regulations which, among other matters, prescribe minimum capital requirements, impose limitations on our business activities and investments, limit the dividend or distributions that we can pay, restrict the ability of our bank subsidiaries to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than accounting principles generally accepted in the United States (“GAAP”). Compliance with laws and regulations can be difficult and costly and changes in laws and regulations often impose additional compliance costs. We are currently facing increased regulation and supervision of our industry as a result of the financial crisis that impacted the banking and financial markets. Such additional regulation and supervision may increase our costs and limit our ability to pursue business opportunities. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our common stock. Any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.
The Dodd-Frank Act has resulted in increased regulation of the financial services industry. One key component of the Dodd-Frank Act was the establishment of the CFPB. The CFPB, in consultation with the Federal banking agencies, has been given primary federal jurisdiction for consumer protections in the financial services markets. Within certain limitations, the CFPB is charged with creating, revising or restating the consumer protection regulations applicable to commercial banks. We are subject to examination and supervision by the CFPB with respect to compliance with consumer protection laws and regulations.
A significant number of the provisions of the Dodd-Frank Act still require extensive rulemaking and interpretation by regulatory authorities. In several cases, authorities have extended implementation periods and delayed effective dates. Accordingly, in many respects the ultimate impact of the Dodd-Frank Act and its effects on the U.S. financial system and us will not be known for an extended period of time. Nevertheless, the Dodd-Frank Act, and current and future rules implementing its provisions and the interpretation of those rules, could result in a loss of revenue, require us to change certain of our business practices, limit our ability to pursue certain business opportunities, increase our capital and liquidity requirements and impose additional assessments and costs on us, and otherwise adversely affect our business operations and have other negative consequences.
We are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affected.
Under regulatory capital adequacy guidelines and other regulatory requirements, BancShares, together with FCB, must meet certain capital and liquidity guidelines, subject to qualitative judgments by regulators about components, risk weightings, and other factors.
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In July 2013, the Federal Reserve issued final capital rules that replace existing capital adequacy rules and implement Basel III and certain requirements imposed by the Dodd-Frank Act. When fully phased-in, these rules will result in higher and more stringent capital requirements for us and FCB. Under the final rules, our capital requirements will increase and the risk-weighting of many of our assets will change.
Under the final capital rules, Tier 1 capital will consist of Common Equity Tier ("CET") 1 Capital and additional Tier 1 capital, with Tier 1 capital plus Tier 2 capital constituting total risk-based capital. The required minimum capital requirements will be a CET 1 ratio of 4.5%; a Tier 1 capital ratio of 6%, and a total capital ratio of 8%. In addition, a Tier 1 leverage ratio to average consolidated assets of 4% will apply. Further, we will be required to maintain a capital conservation buffer of 2.5% of additional CET 1. If we do not maintain the capital conservation buffer once it is fully phased in, then our ability to pay dividends and discretionary bonuses, and to make share repurchases, will be restricted. We are required to comply with the minimum regulatory capital ratios as of January 1, 2015; on that same date, the transition period for other requirements of the final rules and the capital conservation buffer also began. If the risk weightings of certain assets we hold should change and we are required to hold increased amounts of capital, the profitability of those assets and underlying businesses may change, which could result in changes in our business mix over the long-term.
The final rules will also gradually eliminate the contribution of certain trust preferred and other hybrid debt securities to Tier 1 capital. Under the phased-in approach, the affected securities will lose Tier 1 capital status between 2013 and 2016; the securities will, however, qualify for Tier 2 capital treatment.
We encounter significant competition which may reduce our market share and profitability
We compete with other banks and specialized financial service providers in our market areas. Our primary competitors include local, regional and national banks; credit unions; commercial finance companies; various wealth management providers; independent and captive insurance agencies; mortgage companies; and non-bank providers of financial services. Some of our larger competitors, including banks that have a significant presence in our market areas, have the capacity to offer products and services we do not offer. Some of our competitors operate in less stringent regulatory environments, and certain competitors are not subject to federal and/or state income taxes. The fierce competitive pressures that we face adversely affect pricing for many of our products and services.
Our financial condition could be adversely affected by the soundness of other financial institutions
Financial services institutions are interrelated as a result of trading, clearing, counterparty and/or other relationships. We have exposure to numerous financial service providers, including banks, securities brokers and dealers, and other financial service providers. Although we monitor the financial conditions of financial institutions with which we have credit exposure, transactions with other financial institutions expose us to credit risk through the possibility of counterparty default.
Our ability to grow is contingent on capital adequacy
Based on existing capital levels, BancShares and FCB are well-capitalized under current leverage and risk-based capital standards. Our ability to grow is contingent on our ability to generate sufficient capital to remain well-capitalized under current and future capital adequacy guidelines.
Historically, our primary capital sources have been retained earnings and debt issued through both private and public markets, including trust preferred securities and subordinated debt. Beginning January 1, 2015, provisions of the Dodd-Frank Act eliminated 75 percent of our trust preferred capital securities from tier 1 capital with the remaining 25 percent phased out in January 1, 2016.
Rating agencies regularly evaluate our creditworthiness and assign credit ratings to our debt and the debt of FCB. The ratings of the agencies are based on a number of factors, some of which are outside our control. In addition to factors specific to our financial strength and performance, the rating agencies also consider conditions generally affecting the financial services industry. There can be no assurance that we will maintain our current credit ratings. Rating reductions could adversely affect our access to funding sources and the cost of obtaining funding.
If we fail to effectively manage credit risk and interest rate risk, our business and financial condition will suffer
We must effectively manage credit risk. There are risks inherent in making any loan, including risks of repayment, risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral. There is no assurance that our credit risk monitoring and loan
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approval procedures are or will be adequate or will reduce the inherent risks associated with lending. Our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of our loan portfolio. Any failure to manage such credit risks may materially adversely affect our business and our consolidated results of operations and financial condition.
Our results of operations and cash flows are highly dependent upon net interest income. Interest rates are sensitive to economic and market conditions that are beyond our control, including the actions of the Federal Reserve Board’s Federal Open Market Committee. Changes in monetary policy could influence interest income and interest expense as well as the fair value of our financial assets and liabilities. If changes in interest rates on our interest-earning assets are not equal to the changes in interest rates on our interest-bearing liabilities, our net interest income and, therefore, our net income could be adversely impacted.
Although we maintain an interest rate risk monitoring system, the forecasts of future net interest income are estimates and may be inaccurate. Actual interest rate movements may differ from our forecasts, and unexpected actions by the Federal Open Market Committee may have a direct impact on market interest rates.
If our current level of balance sheet liquidity were to experience pressure, that could affect our ability to pay deposits and fund our operations
Our deposit base represents our primary source of core funding and balance sheet liquidity. We normally have the ability to stimulate core deposit growth through reasonable and effective pricing strategies. However, in circumstances where our ability to generate needed liquidity is impaired, we need access to noncore funding such as borrowings from the Federal Home Loan Bank and the Federal Reserve, Federal Funds purchased lines and brokered deposits. While we maintain access to these noncore funding sources, for some of them we are dependent on the availability of collateral and the counterparty’s willingness and ability to lend.
The Dodd-Frank Act rescinded the long-standing prohibition on the payment of interest on commercial demand deposit accounts. Recent historically low interest rates, as well as relatively low levels of competition among banks for demand deposit accounts, have made it difficult to determine the impact on our deposit base, if any, of this repeal. As interest rates begin to rise, our interest expense will increase and our net interest margins may decrease, negatively impacting our performance and, potentially, our financial condition. To the extent banks and other financial service providers were to compete for commercial demand deposit accounts through higher interest rates, our deposit base could be reduced if we are unwilling to pay those higher rates; if we should determine to compete with those higher interest rates, our cost of funds could increase and our net interest margins could be reduced.
Combining BancShares with Bancorporation may be more difficult, costly, or time-consuming than expected, and the anticipated benefits and cost savings of the merger may not be realized.
BancShares merged with Bancorporation on October 1, 2014. The success of the merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining and integrating the businesses, and to do so in a manner that permits growth opportunities and cost savings to be realized without materially disrupting existing customer relationships or decreasing revenues due to loss of customers. The integration process in the merger could result in the loss of key employees, the disruption of ongoing business, and inconsistencies in standards, controls, procedures and policies that affect adversely the our ability to maintain relationships with customers and employees or achieve the anticipated benefits and cost savings of the merger. The loss of key employees or delays or other problems in implementing planned system conversions could adversely affect our ability to successfully conduct its business, which could have an adverse effect on our financial results and the value of its common stock. If we experience difficulties with the integration processes, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause us to lose customers or cause customers to remove their accounts from FCB and move their business to competing financial institutions. These integration matters could have an adverse effect on us. If we are not able to achieve our business objectives in the merger, the anticipated benefits and cost savings of the merger may not be realized fully or at all or may take longer to realize than expected.
Accounting for acquired assets may result in earnings volatility
Fair value discounts that are recorded at the time an asset is acquired are accreted into interest income based on United States GAAP. The rate at which those discounts are accreted is unpredictable, the result of various factors including prepayments and credit quality improvements. Post-acquisition deterioration results in the recognition of provision expense and allowance for loan and lease losses. Additionally, the income statement impact of adjustments to the indemnification asset recorded in certain FDIC-assisted transactions may occur over a shorter period of time than the adjustments to the covered assets.
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Fair value discount accretion, post-acquisition impairment and adjustments to the indemnification asset may result in significant volatility in our earnings. Volatility in earnings could unfavorably influence investor interest in our common stock thereby depressing the market value of our stock and the market capitalization of our company.
Reimbursements under loss share agreements are subject to FDIC oversight and interpretation and contractual term limitations
The FDIC-assisted transactions include loss share agreements that provide significant protection to FCB from the exposures to prospective losses on certain assets. Generally, losses on single family residential loans are covered for ten years. All other loans are generally covered for five years. During 2014, loss share protection expired for non-single family residential loans acquired from Temecula Valley Bank, Venture Bank and Georgian Bank (loss share agreement assumed through the Bancorporation merger). During 2015, loss share protection will expire for non-single family residential loans acquired from First Regional Bank, Sun American Bank and Williamsburg First National Bank (loss share agreement assumed through the Bancorporation merger). During 2016, loss share protection will expire for non-single family residential loans acquired from United Western Bank, Colorado Capital Bank and Atlantic Bank and Trust (loss share agreement assumed through the Bancorporation merger). Protection for all other covered assets extends beyond December 31, 2016.
The loss share agreements impose certain obligations on us, including obligations to manage covered assets in a manner consistent with prudent business practices and in accordance with the procedures and practices that we customarily use for assets that are not covered by loss share agreements. We are required to report detailed loan level information and file requests for reimbursement of covered losses and expenses on a quarterly basis. In the event of noncompliance, delay or disallowance of some or all of our rights under those agreements could occur, including the denial of reimbursement for losses and related collection costs. Certain loss share agreements contain contingencies that require that we pay the FDIC in the event aggregate losses are less than a pre-determined amount.
Loans and leases covered under loss share agreements represent 2.6 percent of total loans and leases as of December 31, 2014. As of December 31, 2014, we expect to receive cash payments from the FDIC totaling $28.7 million over the remaining lives of the respective loss share agreements, exclusive of $116.5 million we will owe the FDIC for settlement of the contingent payments.
The loss share agreements are subject to differing interpretations by the FDIC and FCB; therefore, disagreements may arise regarding coverage of losses, expenses and contingencies. Additionally, losses that are currently projected to occur during the loss share term may not occur until after the expiration of the applicable agreement and those losses could have a material impact on the results of operations in future periods. The carrying value of the FDIC receivable includes only those losses that we project to occur during the loss share period and for which we believe we will receive reimbursement from the FDIC at the applicable reimbursement rate.
If our recorded goodwill became impaired, it could have a material adverse effect on our results of operations
As of December 31, 2014, we had $139.8 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting unit with its net book value. We also test goodwill for impairment when certain events occur, such as a significant decline in our expected future cash flows, a significant adverse change in the business climate, or a sustained decline in the price of our common stock. These tests may result in a write-off of goodwill deemed to be impaired, which could have a significant impact on our financial results; any such write-off would not impact our capital ratios, however, given that capital ratios are calculated using tangible capital amounts.
Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio
We maintain an allowance for loan losses that is designed to cover losses on loans that borrowers may not repay in their entirety. We believe that we maintain an allowance for loan losses at a level adequate to absorb probable losses inherent in the loan portfolio as of the corresponding balance sheet date, and in compliance with applicable accounting and regulatory guidance. However, the allowance may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. Accounting measurements related to impairment and the allowance require significant estimates that are subject to uncertainty and changes relating to new information and changing circumstances. The significant uncertainties surrounding our borrowers to conduct their businesses successfully through changing economic environments, competitive challenges, and other factors complicate Our estimates of the risk and/or amount of loss on any loan. Due to the degree of uncertainty and the susceptibility to change, the actual losses may vary from current estimates. We expect fluctuations in the allowance due to the uncertain economic conditions.
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As an integral part of their examination process, our banking regulators periodically review the allowance and may require us to increase it for loan losses by recognizing additional provisions for loan losses charged to expense or to decrease the allowance by recognizing loan charge-offs, net of recoveries. Any such required additional loan loss provisions or charge-offs could have a material adverse effect on our financial condition and results of operations.
Weaknesses in real estate markets and our reliance on junior liens have adversely impacted our business and our results of operations and may continue to do so
Real property collateral values have declined due to weaknesses in real estate sales activity. That risk, coupled with delinquencies and losses on various loan products caused by high rates of unemployment and underemployment, has resulted in losses on loans that, while adequately collateralized at the time of origination, are no longer fully secured. Our continuing exposure to under-collateralization is concentrated in our non-commercial revolving mortgage loan portfolio. Approximately two-thirds of the revolving mortgage portfolio is secured by junior lien positions and lower real estate values for collateral underlying these loans has, in many cases, caused the outstanding balance of the senior lien to exceed the value of the collateral, resulting in a junior lien loan that is in effect unsecured. A large portion of our losses within the revolving mortgage portfolio have arisen from junior lien positions and inadequate collateral values.
Further declines in collateral values, unfavorable economic conditions and sustained high rates of unemployment could result in greater delinquency, write-downs or charge-offs in future periods, which could have a material adverse impact on our results of operations and capital adequacy.
Our concentration of loans to borrowers within the medical industry could impair our revenue if that industry experiences economic difficulties.
If regulatory changes (e.g. Affordable Care Act) in the market negatively impact the borrowers' businesses and their ability to repay their loans with us, this could have a material adverse effect on our financial condition and results of operations. We could be required to increase our allowance for loan losses through provisions for loan loss on our income statement that would reduce reported net income.
Our concentration of credit exposure in loans to dental practices could increase credit risk
Dentists and dental practices generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, and generally have a heightened vulnerability to negative economic conditions. If economic conditions in the market negatively impact the borrowers’ businesses and their ability to repay their loans with us, this could have a material adverse effect on BancShares’ financial condition and results of operations.
Our financial performance depends upon our ability to attract and retain clients for our products and services, which ability may be adversely impacted by weakened consumer and/or business confidence, and by any inability on our part to predict and satisfy customers’ needs and demands.
Our financial performance is subject to risks associated with the loss of client confidence and demand. A fragile or weakening economy, or ambiguity surrounding the economic future, may lessen the demand for our products and services. Our performance may also be negatively impacted if we should fail to attract and retain customers because we are not able to successfully anticipate, develop and market products and services that satisfy market demands. Such events could impact our performance through fewer loans, reduced fee income, and fewer deposits, each of which could result in reduced net income.
Our business is highly quantitative and requires widespread use of financial models for day-to-day operations; these models may produce inaccurate predictions that significantly vary from actual results.
We rely on quantitative models to measure risks and to estimate certain financial values. Such models may be used in many processes, including but not limited to the pricing of various products and services, classifications of loans, setting interest rates on loans and deposits, quantifying interest rate and other market risks, forecasting losses, measuring capital adequacy, and calculating economic and regulatory capital levels. Models may also be used to estimate the value of financial instruments and balance sheet items. Inaccurate or erroneous models present the risk that business decisions relying on the models will prove inefficient or ineffective. Additionally, information we provide to our investors and regulators may be negatively impacted by inaccurately designed or implemented models. For further information on models, see the Risk Management section included in Item 7 of this Form 10-K.
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We face significant operational risks in our businesses
Safely conducting and growing our business requires that we create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways, including employee fraud, customer fraud, and control lapses in bank operations and information technology. Our dependence on our employees, and internal and third party automated systems, to record and process transactions may further increase the risk that technical failures or system-tampering will result in losses that are difficult to detect. We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control. Failure to maintain appropriate operational infrastructure and oversight can lead to loss of service to customers, legal actions and noncompliance with various laws and regulations. We have implemented internal controls to safeguard and maintain our operational and organizational infrastructure and information.
Failure to maintain effective systems of internal controls over financial reporting could have a material adverse effect on our results of operation and financial condition and disclosures
We must have effective internal controls over financial reporting in order to provide reliable financial reports, to effectively prevent fraud, and to operate successfully as a public company. If we were unable to provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of our internal controls over financial reporting, we may discover material weaknesses or significant deficiencies requiring remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We continually work to improve our internal controls; however, we cannot be certain that these measures will ensure appropriate and adequate controls over its future financial processes and reporting. Any failure to maintain effective controls or to timely implement any necessary improvement of our internal controls could, among other things, result in losses from fraud or error, harm our reputation, or cause investors to lose confidence in our reported financial information, each of which could have a material adverse effect on our results of operations and financial condition and the market value of our common stock.
Breaches of our and our vendor's information security systems could expose us to hacking and the loss of customer information, which could damage our business reputation and expose us to significant liability
We maintain and transmit large amounts of sensitive information electronically, including personal and financial information of our customers. In addition to our own systems, we also rely on external vendors to provide certain services and are, therefore,
exposed to their information security risk. While we seek to mitigate internal and external information security risks, the volume of business conducted through electronic devices continues to grow, and our computer systems and network infrastructure, as well as the systems of external vendors and customers, present security risks including susceptibility to hacking and/or identity theft.
We are also subject to risks arising from a broad range of attacks by doing business on the Internet, which arise from both domestic and international sources and seek to obtain customer information for fraudulent purposes or, in some cases, to disrupt business activities. Information security risks could result in reputational damage and lead to a material adverse impact on our business, financial condition and financial results of operations.
We continue to encounter technological change for which we expect to incur significant expense
The technological complexity necessary for a competitive array of financial products and services to customers continues to increase. Our future success requires that we maintain technology and associated facilities that will support our ability to meet the banking and other financial needs of our customers. In 2013, we undertook projects to modernize our systems and associated facilities, strengthen our business continuity and disaster recovery efforts, and reduce operational risk. As these projects have evolved over time, we have identified other areas that require improvements to infrastructure, and have accordingly expanded the projects’ scope. As of December 31, 2014, we had increased the total projected spend to approximately $130 million. The projects will be implemented in phases over the next several years. If the projects’ objectives are not achieved or if the cost of the projects materially exceeds the estimate, our business, financial condition and financial results could be adversely impacted.
Unfavorable economic conditions could adversely affect our business
Our business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on Our operations and financial condition.
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Our banking operations are locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Our markets include the Southeast, Mid-Atlantic, Midwest, and Western United States, with our deepest presence in North Carolina and South Carolina. Worsening economic conditions within our markets, particularly within North Carolina and South Carolina, could have a material adverse effect on our financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates and other factors, could weaken the economies of the communities we serve. Weakness in any of our market areas could have an adverse impact on our earnings, and consequently our financial condition and capital adequacy.
Our business and financial performance could be impacted by natural disasters, acts of war or terrorist activities.
Natural disasters (including but not limited to earthquakes, hurricanes, tornadoes, floods, fires, explosions), acts of war and terrorist activities could hurt our performance (i) directly through damage to our facilities or other impact to our ability to conduct business in the ordinary course, and (ii) indirectly through such damage or impacts to our customers, suppliers or other counterparties. In particular, a significant amount of our business is concentrated in North Carolina and South Carolina, including in coastal areas where our retail and commercial customers could be impacted by hurricanes. We could also suffer adverse results to the extent that disasters, wars or terrorist activities affect the broader markets or economy. Our ability to minimize the consequences of such events is in significant measure reliant on the quality of our disaster recovery planning and our ability, if any, to forecast the events.
Our business could suffer if we fail to attract and retain skilled employees
Our success depends primarily on our ability to attract and retain key employees. Competition is intense for employees whom we believe will be successful in developing and attracting new business and/or managing critical support functions. We may not be able to hire the best employees or, if successful, retain them after their employment.
We rely on external vendors
Third party vendors provide key components of our business infrastructure, including certain data processing and information services. A number of our vendors are large national entities with dominant market presence in their respective fields, and their services could be difficult to quickly replace in the event of failure or other interruption in service. Failures of certain vendors to provide services could adversely affect our ability to deliver products and services to our customers. External vendors also present information security risks. We monitor vendor risks, including the financial stability of critical vendors. The failure of a critical external vendor could disrupt our business and cause us to incur significant expense.
Accounting standards may change and increase our operating costs and/or otherwise adversely affect our results
The Financial Accounting Standards Board and the Securities and Exchange Commission periodically modify the standards that govern the preparation of our financial statements. The nature of these changes is not predictable and could impact how we record transactions in our financial statements, which could lead to material changes in assets, liabilities, shareholders’ equity, revenues, expenses and net income. In some cases, we could be required to apply new or revised standards retroactively, resulting in changes to previously-reported financial results or a cumulative adjustment to retained earnings. Application of new accounting rules or standards could require us to implement costly technology changes.
Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt that you might consider to be in your best interests.
Certain provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could delay or prevent the removal of directors and other management. The provisions could also delay or make more difficult a tender offer, merger, or proxy contest that you might consider to be in your best interests. For example, the Certificate of Incorporation and/or Bylaws:
* allow our Board of Directors to issue and set the terms of preferred shares without further shareholder approval;
* limit who can call a special meeting of shareholders; and
* establish advance notice requirements for nominations for election to the Board of Directors and proposals of other business to be considered at annual meetings of shareholders.
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These provisions, as well as provisions of the Bank Holding Company Act and other relevant statutes and regulations which require advance notice and/or applications for regulatory approval of changes in control of banks and bank holding companies, and additionally the fact that the Holding family holds or controls shares representing a majority of the voting power of our common stock, may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price, and adversely affect the market price of our common stock.
The market price of our stock may be volatile
Although publicly traded, our common stock has less liquidity and public float than other large publicly traded financial services companies. Low liquidity increases the price volatility of our stock and could make it difficult for our shareholders to sell or buy our common stock at specific prices.
Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors including expectations of financial and operating results, actual operating results, actions of institutional shareholders, speculation in the press or the investment community, market perception of acquisitions, rating agency upgrades or downgrades, stock prices of other companies that are similar to us, general market expectations related to the financial services industry and the potential impact of government actions affecting the financial services industry.
We rely on dividends from FCB
As a financial holding company, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends paid by FCB. These dividends are the primary source on which we pay dividends on our common stock and interest and principal on our debt obligations. State and federal laws impose restrictions on the dividends that FCB may pay to us. In the event FCB is unable to pay dividends to us for an extended period of time, we may not be able to service our debt obligations or pay dividends on our common stock.
We are subject to litigation risks, and our expenses related to litigation may adversely affect our results
We are subject to litigation risks in the ordinary course of our business. Claims and legal actions, including supervisory actions by our regulators, that may be initiated against us from time to time could involve large monetary sums and significant defense costs. During the credit crisis, we saw both the number of cases and our expenses related to those cases increase. The outcomes of such cases are always uncertain until finally adjudicated or resolved.
We establish reserves for legal claims when payments associated with the claims become probable and our liability can be reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the actual amount paid in resolution of a legal claim may be substantially higher than any amounts reserved for the matter. The ultimate resolution of a legal proceeding, depending on the remedy sought and any relief granted, could materially adversely affect our results of operations and financial condition.
Substantial legal claims or significant regulatory action against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. We may be exposed to substantial uninsured legal liabilities and/or regulatory actions, which could adversely affect our results of operations and financial condition. For additional information, see Note T, “Commitments and Contingencies,” to the Consolidated Financial Statements in this Form 10-K.
Item 2. Properties
As of December 31, 2014, BancShares operated branch offices at 572 locations in Arizona, California, Colorado, Florida, Georgia, Kansas, Maryland, Missouri, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington and West Virginia and the District of Columbia. FCB and FCB-SC own many of the buildings and leases other facilities from third parties.
BancShares' headquarters facility, a nine-story building with approximately 163,000 square feet, is located in suburban Raleigh, North Carolina. In addition, we occupy a separate facility in Raleigh that serves as our data and operations center, and we acquired and continue to occupy the Bancorporation headquarters facility, a nine-story building with approximately 170,000 square feet, located in Columbia, South Carolina.
Additional information relating to premises, equipment and lease commitments is set forth in Note F of BancShares’ Notes to Audited Consolidated Financial Statements.
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Item 3. Legal Proceedings
BancShares and various subsidiaries have been named as defendants in various legal actions arising from our normal business activities in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect to those other matters cannot be determined, in the opinion of management, no legal action currently exists that is expected to have a material effect on BancShares’ consolidated financial statements. Additional information related to legal proceedings is set forth in Note T of BancShares’ Notes to Audited Consolidated Financial Statements.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
BancShares has two classes of common stock—Class A common and Class B common. Shares of Class A common have one vote per share, while shares of Class B common have 16 votes per share. BancShares’ Class A common stock is listed on the NASDAQ Global Select Market under the symbol FCNCA. The Class B common stock is traded on the over-the-counter market and quoted on the OTC Bulletin Board under the symbol FCNCB. As of December 31, 2014, there were 1,585 holders of record of the Class A common stock and 263 holders of record of the Class B common stock. The market for Class B common stock is extremely limited. On many days, there is no trading and, to the extent there is trading, it is generally low in volume.
The average monthly trading volume for the Class A common stock was 577,400 shares for the fourth quarter of 2014 and 536,975 shares for the year ended December 31, 2014. The Class B common stock monthly trading volume averaged 1,467 shares in the fourth quarter of 2014 and 2,708 shares for the year ended December 31, 2014.
The per share cash dividends declared by BancShares on both the Class A and Class B common stock, the high and low sales prices per share of BancShares Class A common stock, as reported on NASDAQ, and the high and low bid prices for BancShares Class B common stock, as reported in the OTC Bulletin Board, for each quarterly period during 2014 and 2013, are set forth in the following table. Over-the-counter bid prices for BancShares Class B common stock represent inter-dealer prices without retail markup, markdown or commissions, and may not represent actual transactions.
2014 | 2013 | ||||||||||||||||||||||||||||||
Fourth quarter | Third quarter | Second quarter | First quarter | Fourth quarter | Third quarter | Second quarter | First quarter | ||||||||||||||||||||||||
Cash dividends (Class A and Class B) | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | |||||||||||||||
Class A sales price | |||||||||||||||||||||||||||||||
High | 271.97 | 247.45 | 260.10 | 240.46 | 226.07 | 212.30 | 204.76 | 182.21 | |||||||||||||||||||||||
Low | 206.14 | 214.53 | 214.93 | 215.22 | 201.64 | 194.39 | 179.22 | 166.49 | |||||||||||||||||||||||
Class B bid price | |||||||||||||||||||||||||||||||
High | 247.40 | 230.50 | 244.50 | 219.01 | 210.95 | 197.50 | 193.00 | 173.57 | |||||||||||||||||||||||
Low | 208.00 | 206.00 | 199.93 | 198.01 | 185.50 | 184.00 | 171.00 | 162.75 | |||||||||||||||||||||||
A cash dividend of 30 cents per share was declared by the Board of Directors on January 27, 2015, payable on April 6, 2015, to holders of record as of March 16, 2015. Payment of dividends is made at the discretion of the Board of Directors and is contingent upon satisfactory earnings as well as projected future capital needs. BancShares’ principal source of liquidity for payment of shareholder dividends is the dividend it receives from FCB. FCB is subject to various requirements under federal and state banking laws that restrict the payment of dividends and its ability to lend to BancShares. Subject to the foregoing, it is currently management’s expectation that comparable cash dividends will continue to be paid in the future.
During the third quarter of 2014, our board approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of Class A common stock from 11,000,000 to 16,000,000. In connection with the Bancorporation merger, BancShares repurchased and retired 167,600 and 45,900 shares of Class A and Class B common stock, respectively, that were previously held by Bancorporation.
During the second quarter of 2013, our board granted authority to purchase up to 100,000 and 25,000 shares of Class A and Class B common stock, respectively, beginning on July 1, 2013, and continuing through June 30, 2014. As of December 31,
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2014, no purchases had occurred pursuant to that authorization. This authorization terminated on June 30, 2014 and was not extended.
The following table provides information relating to our purchase of shares of Class A and Class B common stock in the fourth quarter of 2014.
Class A common stock | Total number of shares purchased | Average price paid per share | ||||
Purchases from October 1, 2014 to October 31, 2014 | 167,600 | $ | 216.63 | |||
Purchases from November 1, 2014 to November 30, 2014 | — | — | ||||
Purchases from December 1, 2014 to December 31, 2014 | — | — | ||||
Total | 167,600 | $ | 216.63 | |||
Class B common stock | Total number of shares purchased | Average price paid per share | ||||
Purchases from October 1, 2014 to October 31, 2014 | 45,900 | $ | 213.00 | |||
Purchases from November 1, 2014 to November 30, 2014 | — | — | ||||
Purchases from December 1, 2014 to December 31, 2014 | — | — | ||||
Total | 45,900 | $ | 213.00 | |||
The following graph compares the cumulative total shareholder return ("CTSR") of our Class A common stock during the previous five years with the CTSR over the same measurement period of the NASDAQ – Banks Index and the NASDAQ – U.S. Index. Each trend line assumes that $100 was invested on December 31, 2009, and that dividends were reinvested for additional shares.
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Table 1
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
(Dollars in thousands, except share data) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||
SUMMARY OF OPERATIONS | |||||||||||||||||||
Interest income | $ | 760,448 | $ | 796,804 | $ | 1,004,836 | $ | 1,015,159 | $ | 969,368 | |||||||||
Interest expense | 50,351 | 56,618 | 90,148 | 144,192 | 195,125 | ||||||||||||||
Net interest income | 710,097 | 740,186 | 914,688 | 870,967 | 774,243 | ||||||||||||||
Provision (credit) for loan and lease losses | 640 | (32,255 | ) | 142,885 | 232,277 | 143,519 | |||||||||||||
Net interest income after provision for loan and lease losses | 709,457 | 772,441 | 771,803 | 638,690 | 630,724 | ||||||||||||||
Gains on acquisitions | — | — | — | 150,417 | 136,000 | ||||||||||||||
Noninterest income (1) | 340,426 | 267,382 | 192,254 | 316,472 | 272,846 | ||||||||||||||
Noninterest expense | 846,289 | 771,380 | 766,933 | 792,925 | 733,376 | ||||||||||||||
Income before income taxes (1) | 203,594 | 268,443 | 197,124 | 312,654 | 306,194 | ||||||||||||||
Income taxes (1) | 65,032 | 101,574 | 64,729 | 118,361 | 114,183 | ||||||||||||||
Net income (1) | $ | 138,562 | $ | 166,869 | $ | 132,395 | $ | 194,293 | $ | 192,011 | |||||||||
Net interest income, taxable equivalent | $ | 714,085 | $ | 742,846 | $ | 917,664 | $ | 874,727 | $ | 778,382 | |||||||||
PER SHARE DATA | |||||||||||||||||||
Net income (1) | $ | 13.56 | $ | 17.35 | $ | 12.92 | $ | 18.72 | $ | 18.40 | |||||||||
Cash dividends | 1.20 | 1.20 | 1.20 | 1.20 | 1.20 | ||||||||||||||
Market price at period end (Class A) | 252.79 | 222.63 | 163.50 | 174.99 | 189.05 | ||||||||||||||
Book value at period end (1) | 223.77 | 215.35 | 193.29 | 180.73 | 165.92 | ||||||||||||||
SELECTED PERIOD AVERAGE BALANCES | |||||||||||||||||||
Total assets (1) | $ | 24,104,404 | $ | 21,295,587 | $ | 21,073,061 | $ | 21,133,142 | $ | 20,839,485 | |||||||||
Investment securities | 5,994,080 | 5,206,000 | 4,698,559 | 4,215,761 | 3,641,093 | ||||||||||||||
Loans and leases (PCI and non-PCI) | 14,820,126 | 13,163,743 | 13,560,773 | 14,050,453 | 13,865,815 | ||||||||||||||
Interest-earning assets | 22,232,051 | 19,433,947 | 18,974,915 | 18,824,668 | 18,458,160 | ||||||||||||||
Deposits | 20,368,275 | 17,947,996 | 17,727,117 | 17,776,419 | 16,740,674 | ||||||||||||||
Interest-bearing liabilities | 15,273,619 | 13,910,299 | 14,298,026 | 15,044,889 | 15,235,253 | ||||||||||||||
Long-term obligations | 403,925 | 462,203 | 574,721 | 766,509 | 885,145 | ||||||||||||||
Shareholders' equity (1) | $ | 2,256,292 | $ | 1,936,895 | $ | 1,910,886 | $ | 1,809,090 | $ | 1,670,543 | |||||||||
Shares outstanding | 10,221,721 | 9,618,952 | 10,244,472 | 10,376,445 | 10,434,453 | ||||||||||||||
SELECTED PERIOD-END BALANCES | |||||||||||||||||||
Total assets (1) | $ | 30,075,113 | $ | 21,193,878 | $ | 21,279,269 | $ | 20,994,868 | $ | 20,804,964 | |||||||||
Investment securities | 7,172,435 | 5,388,610 | 5,227,570 | 4,058,245 | 4,512,608 | ||||||||||||||
Loans and leases: | |||||||||||||||||||
PCI (2) | 1,186,498 | 1,029,426 | 1,809,235 | 2,362,152 | 2,007,452 | ||||||||||||||
Non-PCI (2) | 17,582,967 | 12,104,298 | 11,576,115 | 11,581,637 | 11,480,577 | ||||||||||||||
Interest-earning assets | 27,730,515 | 19,428,929 | 19,142,433 | 18,529,548 | 18,487,960 | ||||||||||||||
Deposits | 25,678,577 | 17,874,066 | 18,086,025 | 17,577,274 | 17,635,266 | ||||||||||||||
Interest-bearing liabilities | 18,930,297 | 13,654,436 | 14,213,751 | 14,548,389 | 15,015,446 | ||||||||||||||
Long-term obligations | 351,320 | 510,769 | 444,921 | 687,599 | 809,949 | ||||||||||||||
Shareholders' equity (1) | $ | 2,687,594 | $ | 2,071,462 | $ | 1,859,624 | $ | 1,858,698 | $ | 1,731,267 | |||||||||
Shares outstanding | 12,010,405 | 9,618,941 | 9,620,914 | 10,284.119 | 10,434.453 | ||||||||||||||
SELECTED RATIOS AND OTHER DATA | |||||||||||||||||||
Rate of return on average assets (annualized) (1) | 0.57 | % | 0.78 | % | 0.63 | % | 0.92 | % | 0.92 | % | |||||||||
Rate of return on average shareholders' equity (annualized) (1) | 6.14 | 8.62 | 6.93 | 10.74 | 11.49 | ||||||||||||||
Average equity to average assets ratio (1) | 8.94 | 9.77 | 8.74 | 8.85 | 8.32 | ||||||||||||||
Net yield on interest-earning assets (taxable equivalent) | 3.21 | 3.82 | 4.84 | 4.65 | 4.22 | ||||||||||||||
Allowance for loan and lease losses to total loans and leases: | |||||||||||||||||||
PCI | 1.82 | 5.20 | 7.74 | 3.78 | 2.55 | ||||||||||||||
Non-PCI | 1.04 | 1.49 | 1.55 | 1.56 | 1.54 | ||||||||||||||
Nonperforming assets to total loans and leases and other real estate at period end: | |||||||||||||||||||
Covered | 9.84 | 7.02 | 9.26 | 17.95 | 12.87 | ||||||||||||||
Noncovered | 0.66 | 0.74 | 1.15 | 0.89 | 1.14 | ||||||||||||||
Tier 1 risk-based capital ratio (1) | 13.61 | 14.89 | 14.24 | 15.40 | 14.85 | ||||||||||||||
Total risk-based capital ratio (1) | 14.69 | 16.39 | 15.92 | 17.26 | 16.94 | ||||||||||||||
Leverage capital ratio (1) | 8.91 | 9.80 | 9.21 | 9.89 | 9.19 | ||||||||||||||
Dividend payout ratio (1) | 8.85 | 6.92 | 9.29 | 6.41 | 6.52 | ||||||||||||||
Average loans and leases to average deposits | 72.76 | 73.34 | 76.50 | 79.04 | 82.83 | ||||||||||||||
(1) Amounts for 2013, 2012, 2011, and 2010 periods have been updated to reflect the fourth quarter 2014 adoption of Accounting Standard Update (ASU) 2014-01 related to qualified affordable housing projects.
(2) Average loan and lease balances include nonaccrual loans and leases. See discussion of issues affecting comparability of financial statements under the caption FDIC-Assisted Transactions.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and Subsidiaries ("BancShares"). This discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes presented within this report. Intercompany accounts and transactions have been eliminated. Prior period amounts have also been updated to reflect the fourth quarter 2014 adoption of the Accounting Standards Update ("ASU") 2014-01 related to qualified affordable housing projects. See "Note A Accounting Policies and Basis of Presentation" in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Report for more detail. Although certain amounts for prior years have been reclassified to conform to statement presentations for 2014, the reclassifications had no material effect on shareholders’ equity or net income as previously reported. Unless otherwise noted, the terms "we", "us" and "BancShares" refer to the consolidated financial position and consolidated results of operations for BancShares.
FORWARD-LOOKING STATEMENTS
Statements in this Report and exhibits relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to, factors discussed in our Annual Report on Form 10-K and in other documents filed by us from time to time with the Securities and Exchange Commission.
Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “projects,” “potential” or “continue,” or similar terms or the negative of these terms, or other statements concerning opinions or judgments of BancShares’ management about future events.
Factors that could influence the accuracy of those forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, customer acceptance of our services, products and fee structure, the competitive nature of the financial services industry, our ability to compete effectively against other financial institutions in our banking markets, actions of government regulators, the level of market interest rates and our ability to manage our interest rate risk, changes in general economic conditions that affect our loan and lease portfolio, the abilities of our borrowers to repay their loans and leases, the values of real estate and other collateral, the impact of the FDIC-assisted transactions and other developments or changes in our business that we do not expect.
Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, BancShares undertakes no obligation to revise or update publicly any forward-looking statements for any reason.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of BancShares are in accordance with accounting principles generally accepted in the United States (GAAP) and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations can be materially affected by these estimates and assumptions. Critical accounting policies are those policies that are most important to the determination of our financial condition and results of operations or that require management to make assumptions and estimates that are subjective or complex. The most critical accounting and reporting policies include those related to the allowance for loan and lease losses, fair value estimates, the receivable from and payable to the FDIC for loss share agreements, pension plan assumptions, and income taxes. Significant accounting policies are discussed in Note A of the Notes to Consolidated Financial Statements.
The following is a summary of our critical accounting policies that are material to our consolidated financial statements and are highly dependent on estimates and assumptions.
Allowance for loan and lease losses. The allowance for loan and lease losses (ALLL) reflects the estimated losses resulting from the inability of our customers to make required loan and lease payments. The ALLL is based on management's evaluation of the risk characteristics of the loan and lease portfolio under current economic conditions and considers such factors as the
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financial condition of the borrower, fair market value of collateral and other items that, in our opinion, deserve current recognition in estimating possible loan and lease losses. Our evaluation process is based on historical evidence and current trends among delinquencies, defaults and nonperforming assets.
BancShares' methodology for calculating the ALLL includes estimating a general allowance for pools of unimpaired loans and specific allocations for significant individual impaired loans. It also includes establishing an ALLL for purchased credit-impaired loans ("PCI") that have deteriorated since acquisition. The general allowance is based on net historical loan loss experience for homogeneous groups of loans based mostly on loan type then aggregated on the basis of similar risk characteristics and performance trends. This allowance estimate contains qualitative components that allow management to adjust reserves based on historical loan loss experience for changes in the economic environment, portfolio trends and other factors. The methodology also considers the remaining discounts recognized upon acquisition associated with purchased non-impaired loans in estimating a general allowance. The specific allowance component is determined when management believes that the collectability of an individually reviewed loan has been impaired and a loss is probable.
The ALLL for PCI loans is estimated based on the estimated cash flows approach. Over the life of PCI loans and leases, BancShares continues to estimate cash flows expected to be collected on individual loans and leases or on pools of loans and leases sharing common risk characteristics. BancShares evaluates at each balance sheet date whether the estimated cash flows and corresponding present value of its loans and leases determined using the effective interest rates has decreased and if so, recognizes provision for loan and lease losses. For any increases in cash flows expected to be collected, BancShares adjusts any prior recorded allowance for loan and lease losses first and then the amount of accretable yield recognized on a prospective basis over the loan's or pool's remaining life.
Management continuously monitors and actively manages the credit quality of the entire loan portfolio and recognizes provision expense to maintain the ALLL at an appropriate level. Specific allowances for impaired loans are determined by analyzing estimated cash flows discounted at a loan's original rate or collateral values in situations where we believe repayment is dependent on collateral liquidation. Substantially all impaired loans are collateralized by real property.
Management considers the established ALLL adequate to absorb losses that relate to loans and leases outstanding at December 31, 2014, although future additions may be necessary based on changes in economic conditions, collateral values, erosion of the borrower's access to liquidity and other factors. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated and additions to the allowance may be required. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the ALLL. These agencies may require the recognition of additions to the ALLL based on their judgments of information available to them at the time of their examination. See "Note E Allowance for Loan and Lease Losses” in the Notes to Consolidated Financial Statements for additional disclosures.
Fair value estimates. Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date under current market conditions. Certain assets and liabilities are measured at fair value on a recurring basis. Examples of recurring uses of fair value include the interest rate swap that is accounted for as a cash flow hedge, available for sale securities, and loans held for sale. At December 31, 2014, the percentage of total assets and total liabilities measured at fair value on a recurring basis was 24.1 percent and less than 1.0 percent, respectively. We also measure certain assets at fair value on a non-recurring basis either to evaluate assets for impairment or for disclosure purposes. Examples of non-recurring uses of fair value include impaired loans, other real estate owned ("OREO"), goodwill, and intangible assets, including mortgage serving rights ("MSRs"). Depending on the nature of the asset or liability, we use various valuation techniques and assumptions when estimating fair value. As required under GAAP, the assets acquired and liabilities assumed in business combinations were recognized at their fair values as of the acquisition dates. Fair values estimated as part of a business combination were determined using valuation methods and assumptions established by management.
The objective of fair value is to use market-based inputs or assumptions, when available, to estimate the fair value. Where observable market prices from transactions for identical assets or liabilities are not available, we identify what we believe to be similar assets or liabilities. If observable market prices are unavailable or impracticable to obtain for any such similar assets or liabilities, we look to other techniques by obtaining third party quotes or using modeling techniques, such as discounted cash flows, while attempting to utilize market observable assumptions to the extent available which may require making a number of significant judgments in the estimation of fair value. Fair value estimates requiring significant judgments are determined using various inputs developed by management with the appropriate skills, understanding and knowledge of the underlying asset or liability for which the fair value is being estimated to ensure the development of fair value estimates is sound. Typical pricing sources used in estimating fair values include, but are not limited to, active markets with high trading volume, third party pricing services, external appraisals, valuation models, and commercial and residential evaluation reports. In certain cases, our assessments with respect to assumptions that market participants would make may be inherently difficult to determine, and the
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use of different assumptions could result in material changes to these fair value measurements. See "Note L Estimated Fair Values” in the Notes to Consolidated Financial Statements for additional disclosures regarding fair value.
Receivable from and payable to the FDIC for loss share agreements. The receivable from the FDIC for loss share agreements is measured separately from the related covered assets and is recorded at fair value at the acquisition date using projected cash flows related to the loss share agreements based on the expected reimbursements for losses and expenses at the applicable loss share percentages. The receivable from the FDIC is reviewed and updated quarterly as loss estimates and timing of estimated cash flows related to covered loans and OREO change. Post-acquisition adjustments for covered loans represent the net change in loss estimates related to loans and OREO as a result of changes in expected cash flows and the ALLL related to loans. For loans covered by loss share agreements, subsequent decreases in the amount expected to be collected from the borrower or collateral liquidation may result in a provision for loan and lease losses, an increase in the ALLL and a proportional adjustment to the FDIC receivable for the estimated amount to be reimbursed. Subsequent increases in the amount expected to be collected from the borrower or collateral liquidation result in the reversal of any previously recorded provision for loan and lease losses and related ALLL, or prospective adjustment to the accretable yield if no provision for loan and lease losses had been recorded previously. Reversal of previously-established ALLL result in immediate adjustments to the FDIC receivable to remove amounts that were expected to be reimbursed prior to the improvement. For improvements that increase accretable yield, the FDIC receivable is adjusted over the shorter of the remaining term of the loss share agreement or the life of the covered loan. Other adjustments to the FDIC receivable result from unexpected recoveries of amounts previously charged off, servicing costs that exceed initial estimates and changes to the estimated fair value of OREO.
Certain loss share agreements include clawback provisions that require payments to the FDIC if actual losses and expenses do not exceed a calculated amount. Our estimate of the clawback payments based on current loss and expense projections are recorded as a payable to the FDIC. Projected cash flows are discounted to reflect the estimated timing of the payments to the FDIC. See Note H “FDIC Loss Share Receivable” in the Notes to Consolidated Financial Statements for additional disclosures.
Pension plan assumptions. BancShares offers a noncontributory qualified defined benefit pension plan to qualifying employees ("BancShares plan") and certain legacy Bancorporation employees are covered by a noncontributory qualified defined benefit pension plan ("Bancorporation plan"). The calculation of the benefit obligations, the future value of plan assets, funded status and related pension expense under the pension plans require the use of actuarial valuation methods and assumptions. The valuations and assumptions used to determine the future value of plan assets and liabilities are subject to management judgment and may differ significantly depending upon the assumptions used. The discount rate used to estimate the present value of the benefits to be paid under the pension plans reflect the interest rate that could be obtained for a suitable investment used to fund the benefit obligations. For the calculation of pension expense, the assumed discount rate equaled 4.90 percent for BancShares' plan and 4.35 percent for Bancorporation's plan during 2014, compared to 4.00 percent for BancShares' plan during 2013.
We also estimate a long-term rate of return on pension plan assets that is used to estimate the future value of plan assets. We consider such factors as the actual return earned on plan assets, historical returns on the various asset classes in the plans and projections of future returns on various asset classes. The calculation of pension expense was based on an assumed expected long-term return on plan assets of 7.50 percent for both the BancShares and Bancorporation plans during 2014 compared to 7.25 percent for the BancShares plan in 2013. An increase in the long-term rate of return on plan assets decreases pension expense for periods following the increase in the assumed rate of return.
The assumed rate of future compensation increases is reviewed annually based on actual experience and future salary expectations. We used an assumed rate of compensation increase of 4.00 percent for both the BancShares and Bancorporation plans to calculate pension expense during 2014 and 2013. Assuming other variables remain unchanged, an increase in the rate of future compensation increases results in higher pension expense for periods following the increase in the assumed rate of future compensation increases. See Note M “Employee Benefit Plans” in the Notes to Consolidated Financial Statements for additional disclosures.
Income taxes. Management estimates income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the amount of assets and liabilities reported in the consolidated financial statements and their respective tax bases. In estimating the liabilities and corresponding expense related to income taxes, management assesses the relative merits and risks of various tax positions considering statutory, judicial and regulatory guidance. Because of the complexity of tax laws and regulations, interpretation is difficult and subject to differing judgments. Accrued income taxes payable represents an estimate of the net amounts due to or from taxing jurisdictions based upon various estimates, interpretations and judgments.
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We evaluate our effective tax rate on a quarterly basis based upon the current estimate of net income, the favorable impact of various credits, statutory tax rates expected for the year and the amount of tax liability in each jurisdiction in which we operate. Annually, we file tax returns with each jurisdiction where we have tax nexus and settle our return liabilities.
Changes in estimated income tax liabilities occur periodically due to changes in actual or estimated future tax rates and projections of taxable income, interpretations of tax laws, the complexities of multi-state income tax reporting, the status of examinations being conducted by various taxing authorities and the impact of newly enacted legislation or guidance as well as income tax accounting pronouncements. See Note O “Income Taxes” in the Notes to Consolidated Financial Statements for additional disclosures.
Prior period amounts have been updated to reflect the fourth quarter 2014 adoption of Accounting Standard Update ("ASU") 2014-01 related to qualified affordable housing projects. Under this standard, amortization of investments in qualified affordable housing projects is reported within income tax expense.
CURRENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-17, Business Combinations (Topic 805): Pushdown Accounting
The amendments in this ASU provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. An acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control event in which an acquirer obtains control of the acquired entity.
BancShares adopted the amendments in ASU 2014-17, effective November 18, 2014, as the amendments in the update are effective upon issuance. After the effective date, an acquired entity can make an election to apply to guidance to future change in control events or to its most recent change in control event. However, if the financial statements for the period in which the most recent change in control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. The adoption did not have an impact on our Consolidated Financial Statements.
FASB ASU 2014-01 Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Qualified Affordable Housing Projects
This ASU permits an accounting policy election to account for investments in qualified affordable housing projects (LIHTC) using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense (benefit).
For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with Subtopic 970-323.
The decision to apply the proportional amortization method of accounting will be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments.
BancShares early adopted the guidance effective in the fourth quarter of 2014. Previously, LIHTC investments were accounted for under the cost or equity method, and the amortization was recorded as a reduction to other noninterest income, with the tax credits and other benefits received recorded as a component of the provision for income taxes. BancShares believes the proportional amortization method better represents the economics of LIHTC investments and provides users with a better understanding of the returns from such investments than the cost or equity method.
The cumulative effect of the retrospective application of the change in amortization method was a $2.4 million decrease to retained earnings as of January 1, 2012. Under the new amortization method of accounting, amortization expense is recognized in income tax expense in the Consolidated Statements of Income and is offset by the tax effect of tax losses and tax credits received from the investments. This change resulted in a reclassification of expense previously recorded as a reduction in other noninterest income to income tax expense along with additional amortization recognized under the new method of accounting in the Consolidated Statements of Income. An additional change resulting from the new amortization method of accounting was that a deferred tax asset or liability no longer exists as a result of these investments, thus in the retrospective application of the new method, the removal of the deferred tax asset previously reported as well as the additional amortization of the investments,
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both recorded in other assets, reflected in the Consolidated Balance Sheets were removed. We do not believe the impact of this change in accounting principle is material.
FASB ASU 2013-11, Income Taxes (Topic 740)
This ASU states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require BancShares to use, and BancShares does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date.
The provisions of this ASU were effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. BancShares adopted the guidance effective in the first quarter of 2014. The initial adoption had no effect on our consolidated financial position or consolidated results of operations.
FASB ASU 2013-04, Liabilities
This ASU provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP.
The amendments in this update were effective for fiscal years beginning after December 31, 2013. BancShares adopted the guidance effective first quarter of 2014. The initial adoption did not have any effect on our consolidated financial position or consolidated results of operations.
Recently Issued Accounting Pronouncements
FASB ASU 2014-14, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure
This ASU requires a reporting entity to derecognize a mortgage loan and recognize a separate other receivable upon foreclosure if the following conditions are met: the loan has a government guarantee that is not separable from the loan before foreclosure; at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.
The amendments in this ASU are effective for public entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2015.
FASB ASU 2014-11, Transfers and Servicing (Topic 860)
This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The ASU requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The ASU also requires expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.
The accounting changes in this ASU are effective for fiscal years beginning after December 15, 2014. In addition, the disclosure for certain transactions accounted for as a sale is effective for the fiscal period beginning after December 15, 2014, the disclosures for transactions accounted for as secured borrowings are required to be presented for fiscal periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is not permitted. BancShares will adopt the guidance effective in the first quarter of 2015, and is currently evaluating the impact of the new standard on the financial statement disclosures. BancShares does not anticipate any effect on our consolidated financial position or consolidated results of operations as a result of adoption.
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FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements.
The guidance in this ASU is effective for fiscal periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2017 using one of two retrospective application methods.
FASB ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40)
This ASU clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.
The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. BancShares will adopt the guidance effective in the first quarter of 2015, and is currently evaluating the impact of the new standard on the financial statement disclosures. BancShares does not anticipate any significant impact on our consolidated financial position or consolidated results of operations as a result of adoption.
EXECUTIVE OVERVIEW
BancShares’ earnings and cash flows are primarily derived from our commercial banking activities. We gather deposits from retail and commercial customers and secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and overnight investments. We also invest in bank premises, hardware, software, furniture, and equipment used to conduct our commercial banking business. We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks.
BancShares conducts its banking operations through its wholly-owned subsidiary First-Citizens Bank & Trust Company ("FCB"), a state-chartered bank organized under the laws of the state of North Carolina. Prior to 2011, BancShares also conducted banking activities through IronStone Bank ("ISB"), a federally-chartered thrift institution. On January 7, 2011, ISB was merged into FCB, resulting in a single banking subsidiary of BancShares.
For the period October 1, 2014 through December 31, 2014, Bancshares also conducted banking activities through First Citizens Bank and Trust Company, Inc. ("FCB-SC"), a subsidiary acquired through the merger of First Citizens Bancorporation, Inc. ("Bancorporation") with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. On January 1, 2015, FCB-SC merged with and into FCB. As of January 1, 2015, FCB remains as the single banking subsidiary of BancShares. Other non-bank subsidiary operations did not have a significant effect on BancShares consolidated financial statements.
Between 2009 and 2011, leveraging our strong capital and liquidity positions, we participated in six FDIC-assisted transactions involving distressed financial institutions. Each of the FDIC-assisted transactions include loss share agreements that result in indemnification assets that protect us from a substantial portion of the credit and asset quality risk we would otherwise incur. Under GAAP, acquired assets, assumed liabilities and the indemnification assets are recorded at their fair values as of the acquisition dates. Subsequent to the acquisition dates, the amortization and accretion of premiums and discounts, the recognition of post-acquisition improvement and deterioration and the related accounting for the loss share agreements with the FDIC have contributed to significant income statement volatility.
Following a comprehensive evaluation of our core technology systems and related business processes during 2012, we concluded that significant investments were required to ensure we are able to meet changing business requirements and to
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support a growing organization. The project to modernize our systems and associated facilities began in 2013 with phased implementation scheduled through 2016. The project will improve our business continuity and disaster recovery efforts and will ultimately reduce operational risk. The magnitude and scope of this effort is significant with total costs estimated to exceed $130.0 million.
In 2014, FCB completed two merger transactions. In accordance with the acquisition method of accounting, all assets and liabilities were recorded at their fair value as of the acquisition dates. Per the acquisition method of accounting, these fair values are preliminary and subject to refinement for up to one year after the acquisition dates as additional information relative to closing date fair values become available.
On January 1, 2014, FCB completed its merger with 1st Financial Services Corporation ("1st Financial") of Hendersonville, NC and its wholly-owned subsidiary, Mountain 1st Bank & Trust Company ("Mountain 1st"). As a result of the 1st Financial transaction, FCB recorded loans with a fair value of $307.9 million, investment securities with a fair value of $237.4 million, and other real estate owned ("OREO") with a fair value of $11.6 million. The fair value of deposits assumed totaled $631.9 million. As a result of the merger, FCB recorded $32.9 million of goodwill.
On October 1, 2014, BancShares completed the merger of Bancorporation with and into BancShares. FCB-SC merged with and into FCB on January 1, 2015. BancShares recorded loans, investment securities, and OREO with fair values of $4.49 billion, $2.01 billion, and $35.3 million, respectively, as a result of the Bancorporation merger. The fair value of deposits assumed totaled $7.17 billion and BancShares recorded $4.2 million of goodwill. Bancorporation's results of operations are included in the reported current year-to-date period results since October 1, 2014.
Recent Economic and Industry Developments
Various external factors influence the focus of our business efforts, and the results of our operations can change significantly based on those external factors. Based on the latest real gross domestic product ("GDP") information available, the Bureau of Economic Analysis’ advance estimate of fourth quarter 2014 GDP indicated growth of 2.6 percent, showing less growth compared to the 5.0 percent growth during the third quarter of 2014. The decrease in real GDP in the fourth quarter is primarily due to a decline in federal government spending; however, consumer spending grew 4.3 percent as a result of declining gasoline prices and continued job growth. Also, fourth quarter results indicated positive contributions from nonresidential and residential fixed investment and private spending. For all of 2014, the economy grew 2.4 percent, up from 2.2 percent in 2013, even after a sharp contraction in the first quarter of 2014 due to harsh winter conditions. The increase reflects positive contributions from personal consumption expenditures, inventory investments, exports, and fixed investments.
Fourth quarter and year-to-date 2014 results indicate improvements in labor market conditions with the unemployment rate dropping to 5.6 percent in December 2014, the lowest rate since June 2008. According to the U.S. Department of Labor, the monthly average for job growth in 2014 was 246,000 new jobs per month, well above the average of 194,000 new jobs per month in 2013.
Housing activity, while continuing to improve, is behind last year's trends as a result of decreased demand. Purchases of homes totaled 4.9 million in 2014, down 3.1 percent from the 5.1 million houses purchased in 2013.
The Federal Reserve’s Federal Open Market Committee ("FOMC") indicated in the fourth quarter that “economic activity is expanding at a moderate pace.” In light of the cumulative progress made in 2014, the FOMC decided to make reductions in its stimulus program and ended its monthly asset purchase program. The FOMC stated it will maintain its target range for the federal funds rate and reiterated it would assess the appropriate timing of the first increase in the target rate based on progress toward its objectives of maximum employment and 2 percent inflation. The FOMC expects to remain patient with respect to the timing of interest rate changes.
The trends in the banking industry are similar to those of the broader economy as shown in the latest national banking results from the third quarter of 2014. FDIC-insured institutions reported an increase in aggregate net income of 7.3 percent compared to the third quarter of 2013. The increase in earnings is mainly attributable to an increase in net operating revenue, the largest since the fourth quarter of 2009. Noninterest income was 9.2 percent higher than the same quarter in 2013.
Average net interest margin decreased to 3.14 percent from 3.26 percent in the third quarter of 2013 as declining asset yields at larger institutions surpass the decline in the cost of funds. Nonetheless, almost 63 percent of banks reported year-over-year growth in quarterly earnings. Credit improvement and revenue growth remains key to earnings improvement. Net charge-offs and delinquent loans and lease balances continue to decline, with the largest declines in 1-4 family residential mortgage loans.
Other industry trends noted based on review of third quarter 2014 data, in comparison to the same quarter in 2013, unless otherwise specified, include the following:
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• | Loan loss provisions increased 23.9 percent compared to the third quarter of 2013, while the quarterly net charge-off rate was the lowest since the first quarter of 2007. All major loan categories, except automobile loans, experienced lower levels of charge-offs. |
• | The amount of noncurrent loan and lease balances (90 days or more past due or in nonaccrual status) fell for the 18th quarter in a row. The percentage of loans and leases that were noncurrent at the end of the third quarter was 2.11 percent, the lowest since the middle of 2008. |
• | Loan-loss reserves fell for the 18th consecutive quarter. Despite the decline in reserves, the average coverage ratio of reserves to noncurrent loans improved for a ninth consecutive quarter. |
• | This is the 14th consecutive quarter that the number and assets of problem institutions have declined with the fewest problem institutions since the first quarter of 2009. |
EARNINGS PERFORMANCE SUMMARY
Improved economic stability and operational execution have contributed to organic loan growth as well as improved credit quality, in comparison to 2013. However, low interest rates, competitive loan pricing, and the decrease in the FDIC-assisted loan portfolio continue to impact net interest margin and earnings. On October 1, 2014, BancShares completed the merger of First Citizens Bancorporation, Inc. into BancShares. As of December 31, 2014, the combined company had total assets of $30.08 billion, deposits of $25.68 billion and loans of $18.56 billion, net of allowance for loan losses.
Key drivers for 2014 include:
• | Loan growth continued during 2014, as total loans increased $5.64 billion, reflecting the contribution of $4.49 billion from the Bancorporation merger and strong originated portfolio growth of $1.30 billion. |
• | Decreases in the acquired FDIC-assisted loan portfolio continue to negatively impact the earnings by resulting in lower net provision credits and total acquired loan interest income. Loan balances acquired under FDIC-assisted transactions and through the January 1, 2014 1st Financial merger continue to decline, down $120.5 million to $908.9 million at December 31, 2014, due to pay-offs and resolution of problem assets. |
• | The investment portfolio continues to provide yield improvement and deposit funding costs remain at historical lows. |
• | Significant credit quality improvements continued during 2014 as a result of improved economic conditions. Net charge-offs declined from 2013 for both the originated portfolio and loans acquired through FDIC-assisted transactions. |
• | BancShares recorded a $29.1 million gain on Bancorporation shares of stock owned by BancShares. The shares were canceled and ceased to exist when the merger became effective October 1, 2014. |
• | Modest increases in noninterest expense primarily as a result of the impact of the Bancorporation merger, higher salaries and wages, occupancy and equipment expenses, advertising expenses, and merger-related expenses. |
• | BancShares remained well capitalized with a tier 1 leverage ratio of 8.91 percent, tier 1 risk-based capital of 13.61 percent and total risk-based capital ratio of 14.69 percent at December 31, 2014. |
For the year ended December 31, 2014, net income totaled $138.6 million, or $13.56 per share, compared to $166.9 million, or $17.35 per share, during 2013. The $28.3 million, or 17.0 percent, decrease in net income during 2014 resulted from the continued decline in FDIC-assisted portfolio earnings offset by the net income contribution from the Bancorporation merger, including a $29.1 million gain on Bancorporation shares of stock owned by BancShares, impact of lower credit costs, improved investment yields and loan growth within the originated portfolio.
The return on average assets was 0.57 percent during 2014, compared to 0.78 percent during 2013. The return on average shareholders' equity was 6.14 percent and 8.62 percent for the respective periods. The year-to-date taxable-equivalent net interest margin for 2014 amounted to 3.21 percent, compared to 3.82 percent for 2013.
Year-to-date, noninterest income equaled $340.4 million for 2014, compared to $267.4 million for 2013.
Noninterest expense totaled $846.3 million for the year ended December 31, 2014, compared to $771.4 million for 2013. The increase was a result of the impact of the Bancorporation merger, higher salaries and wages, occupancy and equipment expenses, advertising expenses and merger-related expenses.
Income tax expense totaled $65.0 million and $101.6 million for the years ended 2014 and 2013, respectively.
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Loans totaled $18.77 billion as of December 31, 2014, an increase of $5.64 billion, or 42.9 percent, compared to December 31, 2013. Loan growth reflects Bancorporation loans of $4.49 billion and originated portfolio growth of $1.30 billion during 2014. Originated loan growth was offset by reductions in the FDIC-assisted loan portfolio, which decreased $358.4 million, or by 34.8 percent during 2014. The continuing reduction in the FDIC-assisted portfolio is aligned with original forecasts and was partially offset by the 1st Financial merger during the first quarter of 2014, which resulted in additional acquired loans of $237.9 million as of December 31, 2014.
Investment securities totaled $7.17 billion at December 31, 2014, an increase of $1.78 billion, or 33.1 percent, when compared to December 31, 2013. The increase is primarily due to the $2.01 billion and $237.4 million contributions from the Bancorporation and 1st Financial mergers, respectively, as of the acquisition date. BancShares' liquidity position remained strong with $4.29 billion in free liquidity.
The allowance for loan and lease losses as a percentage of total loans was 1.09 percent at December 31, 2014 compared to 1.78 percent at December 31, 2013. The decline in the allowance ratio was due primarily to the Bancorporation merger where the loan portfolio was recorded at fair market value at acquisition date thus replacing the historical allowance with a fair value discount.
BancShares recorded $0.6 million in net provision expense for loan and lease losses for the full year of 2014, compared to a $32.3 million net provision credit for the full year of 2013. The net provision expense on originated loans totaled $15.3 million for 2014, compared to $19.3 million in 2013. Net charge-offs on originated loans totaled $12.3 million and $25.8 million for the full year of 2014 and 2013, respectively.
The FDIC-assisted loan portfolio net provision credit totaled $14.6 million for the year ended 2014, compared to a net provision credit of $51.5 million during the same period of 2013. Net charge-offs on FDIC-assisted loans totaled $17.3 million in 2014, compared to $34.9 million for the same period of 2013.
As of December 31, 2014, BancShares’ nonperforming assets, including nonaccrual loans and OREO, amounted to $170.9 million, or 0.9 percent of total loans and leases plus OREO, compared to $165.6 million, or 1.3 percent, at December 31, 2013. Of the $170.9 million in nonperforming assets at December 31, 2014, $30.7 million and $11.6 million represents OREO from the Bancorporation merger and 1st Financial acquisition, respectively, which were recorded at fair market value at the acquisition date.
At December 31, 2014, total deposits equaled $25.68 billion, an increase of $7.80 billion since December 31, 2013. The 1st Financial and Bancorporation mergers effective in January 2014 and October 2014, respectively, added $7.81 billion of deposits.
SUPERVISION AND REGULATION
The Dodd-Frank Act mandated that stress tests be developed and performed to ensure that financial institutions have sufficient capital to absorb losses and support operations during multiple economic and shock scenarios. Bank holding companies with total consolidated assets between $10 billion and $50 billion, including BancShares, will undergo annual company-run stress tests. As directed by the Federal Reserve, summaries of BancShares’ results in the severely adverse stress tests will be available to the public starting in June 2015. Through a stress testing program which has been implemented, BancShares and FCB will comply with current regulations. The results of stress testing activities will be considered in combination with other risk management and monitoring practices as part of our risk management program.
In response to the Dodd-Frank Act, the formula used to calculate the FDIC insurance assessment paid by each FDIC-insured institution was significantly altered. The new formula was effective April 1, 2011, and changes the assessment base from deposits to total assets less equity, thereby placing a larger assessment burden on banks with large levels of non-deposit funding. The new assessment formula also considers the level of higher-risk consumer loans and higher-risk commercial and industrial loans and securities, risk factors that will potentially result in incremental insurance costs. Reporting of these assets under the final definitions was effective April 1, 2013. This new reporting requirement required BancShares to implement process and system changes to identify and report these higher-risk assets but did not have a material impact on the FDIC insurance assessment paid by or operating results of BancShares.
The Dodd-Frank Act also imposes new regulatory capital requirements for banks that will result in the disallowance of qualified trust preferred capital securities as tier 1 capital. As of December 31, 2014, BancShares had $128.5 million in trust preferred capital securities that were outstanding and included as tier 1 capital. Based on the Inter-Agency Capital Rule Notice, 75 percent, or $96.4 million of BancShares' trust preferred capital securities will be excluded from tier 1 capital beginning January 1, 2015, with the remaining 25 percent, or $32.1 million, excluded beginning January 1, 2016.
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In July 2013, Bank regulatory agencies approved new global regulatory capital guidelines ("Basel III") aimed at strengthening existing capital requirements for bank holding companies through a combination of higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure. BancShares will be subject to the requirements of Basel III effective January 1, 2015, subject to a transition period for several aspects of the rule. Table 2 describes the minimum and well-capitalized requirements for the transitional period beginning during 2016 and the fully-phased-in requirements that become effective during 2019. As of December 31, 2014, BancShares' tier 1 common equity ratio, was 13.61 percent, compared to the fully-phased in well-capitalized minimum of 9.0 percent, which includes the 2.5 percent minimum conservation buffer.
Management is not aware of any further recommendations or proposals by regulatory authorities that, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital ratios or results of operations.
Table 2
BASEL III CAPITAL REQUIREMENTS
Basel III final rules | Basel III minimum requirement 2016 | Basel III well capitalized 2016 | Basel III minimum requirement 2019 | Basel III well capitalized 2019 | ||
Leverage ratio | 4.00% | 5.00% | 4.00% | 5.00% | ||
Common equity tier 1 | 4.50 | 6.50 | 4.50 | 6.50 | ||
Common equity plus conservation buffer | 5.13 | 7.13 | 7.00 | 9.00 | ||
Tier 1 capital ratio | 6.00 | 8.00 | 6.00 | 8.00 | ||
Total capital ratio | 8.00 | 10.00 | 8.00 | 10.00 | ||
Total capital ratio plus conservation buffer | 8.63 | 10.63 | 10.50 | 12.50 | ||
Although we are unable to control the external factors that influence our business, by maintaining high levels of balance sheet liquidity, prudently managing our interest rate exposures, ensuring our capital positions remain strong and actively monitoring asset quality, we seek to minimize the potentially adverse risks of unforeseen and unfavorable economic trends and take advantage of favorable economic conditions and opportunities when appropriate.
BUSINESS COMBINATIONS
First Citizens Bancorporation, Inc. and First Citizens Bank and Trust Company, Inc.
On October 1, 2014, BancShares completed the merger of Bancorporation with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. First Citizens Bank and Trust Company, Inc. ("FCB-SC") merged with and into FCB on January 1, 2015.
Under the terms of the merger agreement, each share of Bancorporation common stock converted into the right to receive 4.00 shares of BancShares' Class A common stock and $50.00 cash, unless the holder elected for each share to be converted into the right to receive 3.58 shares of BancShares' Class A common stock and 0.42 shares of BancShares' Class B common stock. BancShares issued 2,586,762 Class A common shares at a fair value of $560.4 million and 18,202 Class B common shares at a fair value of $3.9 million to Bancorporation shareholders. Also, cash paid to Bancorporation shareholders totaled $30.4 million. At the time of the merger, BancShares owned 32,042 shares of common stock in Bancorporation with an approximate fair value of $29.6 million. The fair value of common stock owned by BancShares in Bancorporation was considered part of the purchase price, and the shares ceased to exist after completion of the merger.
In accordance with the acquisition method of accounting, all assets and liabilities were recorded at their fair values as of the acquisition date. Per the acquisition method of accounting, these fair values are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to closing date fair values becomes available.
As a result of the Bancorporation transaction, during the 4th quarter of 2014, BancShares recorded loans with a fair value of $4.49 billion, investment securities with a fair value of $2.01 billion and assumed deposits with a fair value of $7.17 billion. BancShares recorded $4.2 million of goodwill and $88.0 million in core deposit intangibles. BancShares and FCB remain well-capitalized following the Bancorporation merger.
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The following table summarizes the purchase price as of acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values:
Table 3
BANCORPORATION PURCHASE PRICE AND NET ASSETS ACQUIRED
(dollars in thousands) | |||||||
Purchase Price | |||||||
Value of shares of BancShares Class A common stock issued to Bancorporation shareholders | $ | 560,370 | |||||
Value of shares of BancShares Class B common stock issued to Bancorporation shareholders | 3,877 | ||||||
Cash paid to Bancorporation shareholders | 30,394 | ||||||
Fair value of Bancorporation shares owned by BancShares | 29,551 | ||||||
Total purchase price | 624,192 | ||||||
Assets | |||||||
Cash and due from banks | $ | 194,570 | |||||
Overnight investments | 1,087,325 | ||||||
Investment securities available for sale | 2,011,263 | ||||||
Loans held for sale | 30,997 | ||||||
Loans and leases | 4,491,067 | ||||||
Premises and equipment | 238,646 | ||||||
Other real estate owned | 35,344 | ||||||
Income earned not collected | 15,266 | ||||||
FDIC loss share receivable | 5,106 | ||||||
Other intangible assets | 109,416 | ||||||
Other assets | 56,367 | ||||||
Total assets acquired | 8,275,367 | ||||||
Liabilities | |||||||
Deposits | 7,174,817 | ||||||
Short-term borrowings | 295,681 | ||||||
Long-term obligations | 124,852 | ||||||
FDIC loss share payable | 224 | ||||||
Other liabilities | 59,834 | ||||||
Total liabilities assumed | $ | 7,655,408 | |||||
Fair value of net assets acquired | 619,959 | ||||||
Goodwill recorded for Bancorporation | $ | 4,233 | |||||
BancShares incurred merger-related expenses of $8.0 million for the year ended December 31, 2014. Total merger-related costs for the Bancorporation transaction are estimated to be between $28.0 million and $32.0 million.
The amount of goodwill recorded from the Bancorporation merger reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets acquired. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a tax-free exchange.
1st Financial Services Corporation and Mountain 1st Bank & Trust Company
On January 1, 2014, FCB completed its merger with 1st Financial Services Corporation (1st Financial) and its wholly-owned banking subsidiary Mountain 1st Bank & Trust Company. FCB paid $10.0 million to acquire 1st Financial, including $8.0 million to acquire and subsequently retire the 1st Financial securities that had been issued under the Troubled Asset Relief Program (TARP).
The 1st Financial transaction was accounted for using the acquisition method of accounting and, as such, assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. Per the acquisition method of accounting, these fair values are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to closing date fair values becomes available.
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The following table summarizes the purchase price as of acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values:
Table 4
1st FINANCIAL SERVICES CORPORATION PURCHASE PRICE NET LIABILITIES ASSUMED
(Dollars in thousands) | |||||||
Purchase Price | |||||||
Cash paid to shareholders | $ | 2,000 | |||||
Cash paid to acquire and retire TARP securities | 8,000 | ||||||
Total purchase price | 10,000 | ||||||
Assets | |||||||
Cash and due from banks | $ | 28,194 | |||||
Investment securities available for sale | 237,438 | ||||||
Loans held for sale | 1,183 | ||||||
Restricted equity securities | 3,776 | ||||||
Loans | 307,927 | ||||||
Premises and equipment | 2,686 | ||||||
Other real estate owned | 11,591 | ||||||
Other intangible assets | 3,780 | ||||||
Other assets | 16,346 | ||||||
Total assets acquired | 612,921 | ||||||
Liabilities | |||||||
Deposits | 631,871 | ||||||
Short-term borrowings | 406 | ||||||
Other liabilities | 3,559 | ||||||
Total liabilities assumed | $ | 635,836 | |||||
Fair value of net liabilities assumed | 22,915 | ||||||
Goodwill recorded for 1st Financial | $ | 32,915 | |||||
The estimated fair values presented in the table above reflect additional information that was obtained during the year ended December 31, 2014, which resulted in changes to the initial fair value estimate of loans as of the acquisition date. After considering this additional information, the estimated fair value of loans decreased $8.4 million to $307.9 million. Also as a result of the 1st Financial transaction, FCB recorded investment securities with a fair value of $237.4 million and other real estate with a fair value of $11.6 million. The fair value of deposits assumed totaled $631.9 million and recorded $3.8 million in core deposit intangibles. FCB recognized $32.9 million of goodwill in connection with the 1st Financial merger.
Merger costs related to the 1st Financial transaction incurred were $5.0 million for the year ended December 31, 2014.
Goodwill recorded for 1st Financial represents future revenues to be derived, including efficiencies that will result from combining operations, and other non-identifiable intangible assets. The 1st Financial transaction is a taxable asset acquisition, and goodwill resulting from the transaction is deductible for income tax purposes.
Certain loans resulting from the 1st Financial and Bancorporation transactions were recognized upon acquisition date with a discount attributable, at least in part, to credit quality, and are therefore accounted for under ASC 310-30.
Additional information related to the mergers listed above is incorporated herein by reference from Note B to the Consolidated Financial Statements.
FDIC-ASSISTED TRANSACTIONS
FDIC-assisted transactions provided us significant growth opportunities from 2009 through 2011 and have continued to provide significant contributions to our results of operations. These transactions allowed us to increase our presence in existing markets and to expand our banking presence to adjacent markets. Each of the FDIC-assisted transactions included loss share agreements that, for the term of the loss share agreement, protect us from a substantial portion of the credit and asset quality risk we would otherwise incur.
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As a result of the merger with Bancorporation, BancShares assumed three additional FDIC loss share agreements: Georgian Bank of Atlanta, Georgia (acquired 2009); Williamsburg First National Bank of Williamsburg, South Carolina (acquired 2010); and Atlantic Bank & Trust of Charleston, South Carolina (acquired 2011).
Balance sheet impact. Table 5 provides information regarding the nine FDIC-assisted transactions consummated during 2011, 2010 and 2009.
Table 5
FDIC-ASSISTED TRANSACTIONS
Entity | Date of transaction | Fair value of loans acquired | ||||
(Dollars in thousands) | ||||||
Colorado Capital Bank (CCB) | July 8, 2011 | $ | 320,789 | |||
Atlantic Bank & Trust (ABT) (1) | June 3, 2011 | 112,238 | ||||
United Western Bank (United Western) | January 21, 2011 | 759,351 | ||||
Williamsburg First National Bank (WFNB) (1) | July 23, 2010 | 55,054 | ||||
Sun American Bank (SAB) | March 5, 2010 | 290,891 | ||||
First Regional Bank (First Regional) | January 29, 2010 | 1,260,249 | ||||
Georgian Bank (GB) (1) | September 25, 2009 | 979,485 | ||||
Venture Bank (VB) | September 11, 2009 | 456,995 | ||||
Temecula Valley Bank (TVB) | July 17, 2009 | 855,583 | ||||
Total | $ | 5,090,635 | ||||
Carrying value of FDIC-assisted acquired loans as of December 31, 2014 | $ | 765,540 | ||||
(1) Date of transaction and fair value of loans acquired represent when Bancorporation acquired the entities and the fair value of the loans on that date.
Income statement impact. During 2014 and 2013, acquired loans resulting from the FDIC-assisted transactions had a significant impact on interest income, provision for loan and lease losses and noninterest income. Due to the many factors that can affect the amount of income or expense related to FDIC-assisted loans and other real estate owned (OREO) recognized in a given period, these components of net income are not easily predictable for future periods. Variations among these items may affect the comparability of various components of net income.
FDIC-assisted loan accretion income, which is included in interest income, may be accelerated in the event of unscheduled repayments and various other post-acquisition events. For 2014, accretion income on FDIC-assisted loans totaled $95.6 million, including three months of accretion for the three FDIC-assisted transactions acquired in the merger with Bancorporation, compared to $224.7 million during 2013 and $304.0 million during 2012. The decreases during the periods were attributed primarily the result of sustained FDIC-assisted loan portfolio runoff.
For the year ended December 31, 2014, we recorded a credit to provision for loan and lease losses for FDIC-assisted loans totaling $14.6 million compared to a credit of $51.5 million for the year ended December 31, 2013. For the year, accelerated loan payments resulted in the reversal of previously-recognized impairment, although as expected, the volume of repayments during 2014 was significantly less than repayments during 2013.
During 2014, the net adjustment to the FDIC receivable resulted in a net reduction to noninterest income of $32.2 million, compared to a corresponding reduction in noninterest income of $72.3 million and $101.6 million during 2013 and 2012, respectively. The changes are driven primarily from lower amortization expense of the FDIC receivable as three of the non-single family residence loss share agreements expired during 2014 and six more expire in 2015 and 2016.
Expenses related to personnel supporting our FDIC-assisted loan portfolio, facility and equipment costs, and expenses associated with collection and resolution of FDIC-assisted loans as well as all income and expenses associated with OREO property covered under loss share agreements are not segregated from corresponding expenses related to all other assets.
Acquisition accounting and issues affecting comparability of financial statements. As estimated exposures related to the acquired assets covered by the loss share agreements change based on post-acquisition events, our adherence to GAAP and accounting policy elections we have made affect the comparability of our current results of operations to earlier periods. Several of the key issues affecting comparability are as follows:
• | When post-acquisition events suggest that the amount of cash flows we will ultimately receive for an FDIC-assisted loan is less than originally expected: |
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▪ | An ALLL is established for the post-acquisition exposure that has emerged with a corresponding charge to provision for loan and lease losses; |
▪ | If the expected loss is projected to occur during the relevant loss share period, the FDIC receivable is adjusted to reflect the indemnified portion of the post-acquisition exposure with a corresponding increase to noninterest income; |
• | When post-acquisition events suggest that the amount of cash flows we will ultimately receive for an FDIC-assisted loan is greater than originally expected: |
▪ | Any ALLL that was previously established for post-acquisition exposure is reversed with a corresponding reduction to provision for loan and lease losses; if no ALLL was established in earlier periods, the amount of the improvement in the cash flow projection results in a reclassification from the nonaccretable difference created at the acquisition date to an accretable yield; the newly-identified accretable yield is accreted into income over the remaining life of the loan as interest income; |
▪ | The FDIC receivable is adjusted immediately to reverse previously recognized impairment and prospectively for reclassifications from nonaccretable difference to reflect the indemnified portion of the post-acquisition change in exposure; |
▪ | Recoveries on these loans that have been previously charged-off are additional sources of noninterest income; BancShares records these recoveries as noninterest income rather than as an adjustment to the allowance for loan and lease losses since charge-offs on these loans are primarily recorded through the nonaccretable difference. |
• | When actual payments received on FDIC-assisted loans are greater than initial estimates, large nonrecurring discount accretion or reductions in the ALLL may be recognized during a specific period; discount accretion is recognized as an increase to interest income; reductions in the ALLL are recorded as a reduction in the provision for loan and lease losses; |
• | Adjustments to the FDIC receivable resulting from changes in estimated cash flows for FDIC-assisted loans are based on the reimbursement provision of the applicable loss share agreement with the FDIC. Adjustments to the FDIC receivable partially offset the adjustment to the FDIC-assisted loan carrying value, but the rate of the change to the FDIC receivable relative to the change in the acquired loan carrying value is not constant. The loss share agreements establish reimbursement rates for losses incurred within certain ranges. In some loss share agreements, higher loss estimates result in higher reimbursement rates, while in other loss share agreements, higher loss estimates trigger a reduction in the reimbursement rates. In addition, some of the loss share agreements include clawback provisions that require the purchaser to remit a payment to the FDIC in the event that the aggregate amount of losses is less than a loss estimate established by the FDIC. The adjustments to the FDIC receivable based on changes in loss estimates are measured based on the actual reimbursement rates. |
Receivable from FDIC for loss share agreements. The various terms of each loss share agreement and the components of the receivable from the FDIC are provided in Table 6. As of December 31, 2014, the FDIC receivable included $14.5 million of expected FDIC cash receipts and $14.2 million we expect to recover through prospective amortization of the asset due to post-acquisition improvements in the related loans. Generally, losses on single family residential loans are covered for ten years. All other loans are generally covered for five years. During the year, loss share protection expired for non-single family residential loans acquired from Temecula Valley Bank, Venture Bank and Georgian Bank. During 2015, loss share protection will expire for loans acquired from First Regional Bank and for non-single family residential loans acquired from Sun American Bank and Williamsburg First National Bank, a bank acquired through the merger with Bancorporation. Protection for all other covered assets extends beyond December 31, 2015.
The timing of expected losses on the FDIC-assisted assets is monitored by management to ensure the losses will occur during the respective loss share terms. When projected losses are expected to occur after expiration of the relevant loss share agreement, the FDIC receivable is adjusted to reflect the forfeiture of loss share protection.
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Table 6
LOSS SHARE PROVISIONS FOR FDIC-ASSISTED TRANSACTIONS
Fair value at acquisition date (1) | Losses/expenses incurred through 12/31/2014 (2) | Cumulative amount reimbursed by FDIC through 12/31/2014 (3) | Carrying value at December 31, 2014 | Current portion of receivable due from (to) FDIC for 12/31/2014 filings | Prospective amortization (accretion) (4) | |||||||||||||||||
(Dollars in thousands) | Receivable from FDIC | Payable to FDIC | ||||||||||||||||||||
Entity | ||||||||||||||||||||||
TVB - combined losses | $ | 103,558 | $ | 199,473 | $ | 5,611 | $ | (287 | ) | $ | — | $ | (777 | ) | $ | 331 | ||||||
VB - combined losses | 138,963 | 157,977 | 126,560 | 1,667 | — | (195 | ) | (50 | ) | |||||||||||||
GB - combined losses | 279,310 | 906,103 | 473,853 | (2,455 | ) | — | (2,573 | ) | (69 | ) | ||||||||||||
First Regional - combined losses | 378,695 | 243,920 | 162,157 | (712 | ) | 80,871 | (2,418 | ) | 1,340 | |||||||||||||
SAB - combined losses | 89,734 | 98,147 | 78,486 | 4,007 | 2,136 | (59 | ) | 2,023 | ||||||||||||||
WFNB - combined losses | 6,225 | 7,496 | 5,633 | 728 | — | (70 | ) | (125 | ) | |||||||||||||
United Western | ||||||||||||||||||||||
Non-single family residential losses | 112,672 | 107,881 | 88,591 | 5,037 | 19,673 | (3,063 | ) | 3,983 | ||||||||||||||
Single family residential losses | 24,781 | 5,084 | 4,015 | 10,153 | — | 32 | 4,667 | |||||||||||||||
ABT - combined losses | 14,531 | 20,868 | 16,340 | 2,546 | 225 | (62 | ) | (443 | ) | |||||||||||||
CCB - combined losses | 155,070 | 185,357 | 148,917 | 8,017 | 13,630 | (883 | ) | 2,511 | ||||||||||||||
Total | $ | 1,303,539 | $ | 1,932,306 | $ | 1,110,163 | $ | 28,701 | $ | 116,535 | $ | (10,068 | ) | $ | 14,168 | |||||||
(1) | Fair value at acquisition date represents the initial fair value of the receivable from FDIC, excluding the payable to FDIC. For GB, WFNB and ABT the acquisition date is when Bancorporation initially acquired the banks. | |||||||||||||||||||||
(2) | For GB, WFNB and ABT the losses/expenses incurred through 12/31/2014 include amounts prior to BancShares' acquisition through merger with Bancorporation. | |||||||||||||||||||||
(3) | For GB, WFNB and ABT the cumulative amount reimbursed by FDIC through 12/31/2014 include amounts prior to BancShares' acquisition through merger with Bancorporation. | |||||||||||||||||||||
(4) | Prospective amortization (accretion) reflects balances that, due to post-acquisition credit quality improvement, will be amortized over the shorter of the covered asset's life or the term of the loss share period. | |||||||||||||||||||||
Except where noted, each FDIC-assisted transaction has a separate loss share agreement for Single-Family Residential loans (SFR) and Non-Single-Family Residential loans (NSFR). | ||||||||||||||||||||||
For TVB, combined losses are covered at 0 percent up to $193.3 million, 80 percent for losses between $193.3 million and $464.0 million and 95 percent for losses above $464.0 million. The loss share agreement expired on July 17, 2014 for all TVB NSFR loans and will expire on July 17, 2019 for the SFR loans. | ||||||||||||||||||||||
For VB, combined losses are covered at 80 percent up to $235.0 million and 95 percent for losses above $235.0 million. The loss share agreement expired on September 11, 2014 for all VB NSFR loans and will expire on September 11, 2019 for the SFR loans. | ||||||||||||||||||||||
For GB. combined losses are covered at 0 percent up to $327.0 million, 80 percent for losses between $327.0 million and $853.0 million and 95 percent above $853.0 million. The loss share agreement expired on September 25, 2014 for all GB NSFR loans and will expire on September 25, 2019 for the SFR loans. | ||||||||||||||||||||||
For First Regional, NSFR losses are covered at 0 percent up to $41.8 million, 80 percent for losses between $41.8 million and $1.02 billion and 95 percent for losses above $1.02 billion. The loss share agreement expires on January 29, 2015 for all First Regional NSFR loans. First Regional has no SFR loans. | ||||||||||||||||||||||
For SAB, combined losses are covered at 80 percent up to $99.0 million and 95 percent for losses above $99.0 million. The loss share agreement expires on March 5, 2015 for all SAB NSFR loans and March 4, 2020 for the SFR loans. | ||||||||||||||||||||||
For WFNB, combined losses are covered at 80 percent. The loss share agreement expires on July 23, 2015 for all WFNB NSFR loans and July 23, 2020 for the SFR loans. | ||||||||||||||||||||||
For United Western NSFR loans, losses are covered at 80 percent up to $111.5 million, 30 percent between $111.5 million and $227.0 million and 80 percent for losses above $227.0 million. The loss share agreement expires on January 21, 2016. | ||||||||||||||||||||||
For United Western SFR loans, losses are covered at 80 percent up to $32.5 million, 0 percent between $32.5 million and $57.7 million and 80 percent for losses above $57.7 million. The loss share agreement expires on January 20, 2021. | ||||||||||||||||||||||
For ABT, combined losses are covered at 80 percent. The loss share agreement expires on June 3, 2016 for all ABT NSFR loans and June 3, 2021 for the SFR loans. | ||||||||||||||||||||||
For CCB, combined losses are covered at 80 percent up to $231.0 million, 0 percent between $231.0 million and $285.9 million and 80 percent for losses above $285.9 million. The loss share agreement expires on July 7, 2016 for all CCB NSFR loans and July 7, 2021 for the SFR loans. | ||||||||||||||||||||||
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Table 7
AVERAGE BALANCE SHEETS
2014 | 2013 | |||||||||||||||||||||
(Dollars in thousands, taxable equivalent) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||||
Assets | ||||||||||||||||||||||
Loans and leases | $ | 14,820,126 | $ | 703,716 | 4.75 | % | $ | 13,163,743 | $ | 759,261 | 5.77 | % | ||||||||||
Investment securities: | ||||||||||||||||||||||
U.S. Treasury | 1,690,186 | 12,139 | 0.72 | 610,327 | 1,714 | 0.28 | ||||||||||||||||
Government agency | 1,509,868 | 7,717 | 0.51 | 2,829,328 | 12,783 | 0.45 | ||||||||||||||||
Mortgage-backed securities | 2,769,255 | 36,492 | 1.32 | 1,745,540 | 22,642 | 1.30 | ||||||||||||||||
State, county and municipal | 295 | 21 | 7.12 | 276 | 20 | 7.25 | ||||||||||||||||
Other | 24,476 | 639 | 2.61 | 20,529 | 321 | 1.56 | ||||||||||||||||
Total investment securities | 5,994,080 | 57,008 | 0.95 | 5,206,000 | 37,480 | 0.72 | ||||||||||||||||
Overnight investments | 1,417,845 | 3,712 | 0.26 | 1,064,204 | 2,723 | 0.26 | ||||||||||||||||
Total interest-earning assets | 22,232,051 | $ | 764,436 | 3.44 | 19,433,947 | $ | 799,464 | 4.12 | ||||||||||||||
Cash and due from banks | 493,947 | 483,186 | ||||||||||||||||||||
Premises and equipment | 943,270 | 874,862 | ||||||||||||||||||||
Receivable from FDIC for loss share agreements | 61,605 | 168,281 | ||||||||||||||||||||
Allowance for loan and lease losses | (210,937 | ) | (257,791 | ) | ||||||||||||||||||
Other real estate owned | 87,944 | 119,694 | ||||||||||||||||||||
Other assets (1) | 496,524 | 473,408 | ||||||||||||||||||||
Total assets | $ | 24,104,404 | $ | 21,295,587 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||
Checking with interest | $ | 2,988,287 | $ | 779 | 0.03 | % | $ | 2,346,192 | $ | 600 | 0.03 | % | ||||||||||
Savings | 1,196,096 | 624 | 0.05 | 968,251 | 482 | 0.05 | ||||||||||||||||
Money market accounts | 6,733,959 | 6,527 | 0.10 | 6,338,622 | 9,755 | 0.15 | ||||||||||||||||
Time deposits | 3,159,510 | 16,856 | 0.53 | 3,198,606 | 23,658 | 0.74 | ||||||||||||||||
Total interest-bearing deposits | 14,077,852 | 24,786 | 0.18 | 12,851,671 | 34,495 | 0.27 | ||||||||||||||||
Short-term borrowings | 791,842 | 9,177 | 1.16 | 596,425 | 2,724 | 0.46 | ||||||||||||||||
Long-term obligations | 403,925 | 16,388 | 4.06 | 462,203 | 19,399 | 4.20 | ||||||||||||||||
Total interest-bearing liabilities | 15,273,619 | $ | 50,351 | 0.33 | 13,910,299 | $ | 56,618 | 0.41 | ||||||||||||||
Demand deposits | 6,290,423 | 5,096,325 | ||||||||||||||||||||
Other liabilities | 284,070 | 352,068 | ||||||||||||||||||||
Shareholders' equity (1) | 2,256,292 | 1,936,895 | ||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 24,104,404 | $ | 21,295,587 | ||||||||||||||||||
Interest rate spread | 3.11 | % | 3.71 | % | ||||||||||||||||||
Net interest income and net yield | ||||||||||||||||||||||
on interest-earning assets | 714,085 | 3.21 | % | 742,846 | 3.82 | % | ||||||||||||||||
(1) Amounts for the 2013, 2012, 2011, and 2010 periods have been updated to reflect the fourth quarter 2014 adoption of Accounting Standard Update (ASU) 2014-01 related to qualified affordable housing projects.
Loans and leases include PCI and non-PCI loans, nonaccrual loans and loans held for sale. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming statutory federal income tax rates of 35.0 percent and state income tax rates of 6.2 percent for each period. The taxable-equivalent adjustment was $3,988, $2,660, $2,976, $3,760 and $4,139 for the years 2014, 2013, 2012, 2011, and 2010, respectively.
37
Table 7
AVERAGE BALANCE SHEETS (continued)
2012 | 2011 | 2010 | |||||||||||||||||||||||||||||
Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | |||||||||||||||||||||||
(dollars in thousands, taxable equivalent) | |||||||||||||||||||||||||||||||
$ | 13,560,773 | $ | 969,802 | 7.15 | % | $ | 14,050,453 | $ | 970,225 | 6.91 | % | $ | 13,865,815 | $ | 917,111 | 6.61 | % | ||||||||||||||
935,135 | 2,574 | 0.28 | 1,347,874 | 8,591 | 0.64 | 2,073,511 | 25,586 | 1.23 | |||||||||||||||||||||||
2,857,714 | 16,339 | 0.57 | 2,084,627 | 20,672 | 0.99 | 894,695 | 12,852 | 1.44 | |||||||||||||||||||||||
757,296 | 14,388 | 1.90 | 320,611 | 9,235 | 2.88 | 163,009 | 6,544 | 4.01 | |||||||||||||||||||||||
129,827 | 2,574 | 1.98 | 426,114 | 7,975 | 1.87 | 487,678 | 8,721 | 1.79 | |||||||||||||||||||||||
829 | 57 | 6.88 | 3,841 | 279 | 7.26 | 1,926 | 120 | 6.23 | |||||||||||||||||||||||
17,758 | 340 | 1.91 | 32,694 | 548 | 1.68 | 20,274 | 227 | 1.12 | |||||||||||||||||||||||
4,698,559 | 36,272 | 0.77 | 4,215,761 | 47,300 | 1.12 | 3,641,093 | 54,050 | 1.48 | |||||||||||||||||||||||
715,583 | 1,738 | 0.24 | 558,454 | 1,394 | 0.25 | 951,252 | 2,346 | 0.25 | |||||||||||||||||||||||
18,974,915 | $ | 1,007,812 | 5.31 | % | 18,824,668 | $ | 1,018,919 | 5.41 | % | 18,458,160 | $ | 973,507 | 5.27 | % | |||||||||||||||||
529,224 | 486,812 | 535,687 | |||||||||||||||||||||||||||||
876,802 | 846,989 | 844,843 | |||||||||||||||||||||||||||||
350,933 | 628,132 | 630,317 | |||||||||||||||||||||||||||||
(272,105 | ) | (241,367 | ) | (189,561 | ) | ||||||||||||||||||||||||||
172,269 | 193,467 | 160,376 | |||||||||||||||||||||||||||||
441,023 | 394,441 | 399,663 | |||||||||||||||||||||||||||||
$ | 21,073,061 | $ | 21,133,142 | $ | 20,839,485 | ||||||||||||||||||||||||||
$ | 2,105,587 | $ | 1,334 | 0.06 | % | $ | 1,933,723 | $ | 1,679 | 0.09 | % | $ | 1,772,298 | $ | 1,976 | 0.11 | % | ||||||||||||||
874,311 | 445 | 0.05 | 826,881 | 1,118 | 0.14 | 724,219 | 1,280 | 0.18 | |||||||||||||||||||||||
5,985,562 | 16,185 | 0.27 | 5,514,920 | 21,642 | 0.39 | 4,827,021 | 27,076 | 0.56 | |||||||||||||||||||||||
4,093,347 | 39,604 | 0.97 | 5,350,249 | 77,449 | 1.45 | 6,443,916 | 118,863 | 1.84 | |||||||||||||||||||||||
13,058,807 | 57,568 | 0.44 | 13,625,773 | 101,888 | 0.75 | 13,767,454 | 149,195 | 1.08 | |||||||||||||||||||||||
664,498 | |||||||||||||||||||||||||||||||