10-Q 1 fcnca_10qx03312019.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-16715
____________________________________________________
First Citizens BancShares, Inc.
(Exact name of Registrant as specified in its charter)
____________________________________________________

Delaware | 56-1528994
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)
4300 Six Forks Road, Raleigh, North Carolina | 27609
(Address of principle executive offices) | (Zip code)

(919) 716-7000
(Registrant’s telephone number, including area code)
____________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files) Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class |  | Trade symbol |  | Name of each exchange on which registered |  | Shares Outstanding
Class A Common Stock, $1 Par Value |  | FCNCA |  | The NASDAQ Stock Market LLC |  | 10,373,120
Class B Common Stock, $1 Par Value |  | FCNCB |  | OTC US |  | 1,005,185
(Number of shares outstanding as of 5/6/2019) |  |  |  |  |  |

Table of Contents
INDEX

|  | Page No.
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
| Consolidated Balance Sheets (Unaudited) | 3
| Consolidated Statements of Income (Unaudited) | 4
| Consolidated Statements of Comprehensive Income (Unaudited) | 5
| Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) | 6
| Consolidated Statements of Cash Flows (Unaudited) | 7
| Notes to Consolidated Financial Statements (Unaudited) | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 52
Item 4. | Controls and Procedures | 52
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings | 52
Item 1A. | Risk Factors | 52
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 52
Item 6. | Exhibits | 53

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PART I

Item 1. | Financial Statements

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets

(Dollars in thousands, unaudited) | March 31, 2019 |  | December 31, 2018
Assets |  |  |
Cash and due from banks | $ | 268,599 |  |  | $ | 327,440 |
Overnight investments | 1,386,525 |  |  | 797,406 |
Investment in marketable equity securities (cost of $79,809 at March 31, 2019 and $73,809 at December 31, 2018) | 109,884 |  |  | 92,599 |
Investment securities available for sale (cost of $4,611,736 at March 31, 2019 and $4,607,117 at December 31, 2018) | 4,589,800 |  |  | 4,557,110 |
Investment securities held to maturity (fair value of $2,254,924 at March 31, 2019 and $2,201,502 at December 31, 2018) | 2,214,829 |  |  | 2,184,653 |
Loans held for sale | 53,232 |  |  | 45,505 |
Loans and leases | 25,463,785 |  |  | 25,523,276 |
Allowance for loan and lease losses | (228,775 | ) |  | (223,712 | )
Net loans and leases | 25,235,010 |  |  | 25,299,564 |
Premises and equipment | 1,203,674 |  |  | 1,204,179 |
Other real estate owned | 43,306 |  |  | 48,030 |
Income earned not collected | 113,812 |  |  | 109,903 |
Goodwill | 236,347 |  |  | 236,347 |
Other intangible assets | 67,053 |  |  | 72,298 |
Other assets | 439,599 |  |  | 433,595 |
Total assets | $ | 35,961,670 |  |  | $ | 35,408,629 |
Liabilities |  |  |
Deposits: |  |  |
Noninterest-bearing | $ | 12,376,913 |  |  | $ | 11,882,670 |
Interest-bearing | 18,821,180 |  |  | 18,789,790 |
Total deposits | 31,198,093 |  |  | 30,672,460 |
Securities sold under customer repurchase agreements | 508,508 |  |  | 543,936 |
Federal home loan bank borrowings | 189,594 |  |  | 193,556 |
Subordinated debentures | 136,544 |  |  | 140,741 |
Other borrowings | 14,970 |  |  | 13,921 |
FDIC shared-loss payable | 107,256 |  |  | 105,618 |
Other liabilities | 283,396 |  |  | 249,443 |
Total liabilities | 32,438,361 |  |  | 31,919,675 |
Shareholders’ equity |  |  |
Common stock: |  |  |
Class A - $1 par value (16,000,000 shares authorized; 10,380,220 and 10,623,220 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively) | 10,380 |  |  | 10,623 |
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2019 and December 31, 2018) | 1,005 |  |  | 1,005 |
Preferred stock - $0.01 par value (10,000,000 shares authorized; no shares issued and outstanding at March 31, 2019 and December 31, 2018) | — |  |  | — |
Surplus | 393,449 |  |  | 493,962 |
Retained earnings | 3,325,335 |  |  | 3,218,551 |
Accumulated other comprehensive loss | (206,860 | ) |  | (235,187 | )
Total shareholders’ equity | 3,523,309 |  |  | 3,488,954 |
Total liabilities and shareholders’ equity | $ | 35,961,670 |  |  | $ | 35,408,629 |

See accompanying Notes to Consolidated Financial Statements.
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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income

| Three months ended March 31
(Dollars in thousands, except per share data, unaudited) | 2019 |  | 2018
Interest income |  |  |
Loans and leases | $ | 290,922 |  |  | $ | 251,982 |
Investment securities interest and dividend income | 39,605 |  |  | 35,020 |
Overnight investments | 6,397 |  |  | 5,599 |
Total interest income | 336,924 |  |  | 292,601 |
Interest expense |  |  |
Deposits | 12,926 |  |  | 3,756 |
Securities sold under customer repurchase agreements | 459 |  |  | 404 |
Federal home loan bank borrowings | 1,285 |  |  | 2,384 |
Subordinated debentures | 1,672 |  |  | 1,441 |
Other borrowings | 110 |  |  | 179 |
Total interest expense | 16,452 |  |  | 8,164 |
Net interest income | 320,472 |  |  | 284,437 |
Provision for loan and lease losses | 11,750 |  |  | 7,605 |
Net interest income after provision for loan and lease losses | 308,722 |  |  | 276,832 |
Noninterest income |  |  |
Cardholder services, net | 16,633 |  |  | 14,782 |
Merchant services, net | 5,835 |  |  | 6,177 |
Service charges on deposit accounts | 25,065 |  |  | 26,543 |
Wealth management services | 25,001 |  |  | 23,569 |
Marketable equity securities gains, net | 11,328 |  |  | 971 |
Other service charges and fees | 7,422 |  |  | 7,480 |
Mortgage income | 3,658 |  |  | 4,237 |
Insurance commissions | 3,291 |  |  | 3,776 |
ATM income | 1,511 |  |  | 2,171 |
Gain on extinguishment of debt | — |  |  | 25,814 |
Other | 3,919 |  |  | 7,164 |
Total noninterest income | 103,663 |  |  | 122,684 |
Noninterest expense |  |  |
Salaries and wages | 132,421 |  |  | 129,203 |
Employee benefits | 32,535 |  |  | 32,091 |
Occupancy expense | 27,761 |  |  | 27,954 |
Equipment expense | 26,740 |  |  | 24,974 |
FDIC insurance expense | 2,660 |  |  | 5,733 |
Collection and foreclosure-related expenses | 3,022 |  |  | 4,146 |
Merger-related expenses | 1,719 |  |  | 598 |
Processing fees paid to third parties | 7,089 |  |  | 8,196 |
Other | 33,710 |  |  | 35,168 |
Total noninterest expense | 267,657 |  |  | 268,063 |
Income before income taxes | 144,728 |  |  | 131,453 |
Income taxes | 33,369 |  |  | 31,222 |
Net income | $ | 111,359 |  |  | $ | 100,231 |
Weighted average shares outstanding | 11,519,008 |  |  | 12,010,405 |
Net income per share | $ | 9.67 |  |  | $ | 8.35 |

See accompanying Notes to Consolidated Financial Statements.
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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income

| Three months ended March 31
(Dollars in thousands, unaudited) | 2019 |  | 2018
Net income | $ | 111,359 |  |  | $ | 100,231 |
Other comprehensive income (loss) |  |  |
Unrealized gains (losses) on securities available for sale: |  |  |
Change in unrealized gains (losses) on securities available for sale arising during period | 28,071 |  |  | (78,635 | )
Tax effect | (6,456 | ) |  | 18,088 |
Total change in unrealized gains (losses) on securities available for sale, net of tax | 21,615 |  |  | (60,547 | )
Unrealized losses on securities available for sale transferred to held to maturity: |  |  |
Reclassification adjustment for accretion of unrealized losses on securities available for sale transferred to held to maturity | 5,962 |  |  | — |
Tax effect | (1,371 | ) |  | — |
Total change in unrealized losses on securities available for sale transferred to held to maturity, net of tax | 4,591 |  |  | — |
Change in pension obligation: |  |  |
Amortization of actuarial losses and prior service cost | 2,755 |  |  | 3,337 |
Tax effect | (634 | ) |  | (768 | )
Total change in pension obligation, net of tax | 2,121 |  |  | 2,569 |
Other comprehensive income (loss) | 28,327 |  |  | (57,978 | )
Total comprehensive income | $ | 139,686 |  |  | $ | 42,253 |

See accompanying Notes to Consolidated Financial Statements.
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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, unaudited) | Class A Common Stock |  | Class B Common Stock |  | Surplus |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
Balance at December 31, 2017 | $ | 11,005 |  |  | $ | 1,005 |  |  | $ | 658,918 |  |  | $ | 2,785,430 |  |  | $ | (122,294 | ) |  | $ | 3,334,064 |
Cumulative effect of adoption of ASU 2016-01 | — |  |  | — |  |  | — |  |  | 18,715 |  |  | (18,715 | ) |  | — |
Cumulative effect of adoption of ASU 2018-02 | — |  |  | — |  |  | — |  |  | 31,336 |  |  | (31,336 | ) |  | — |
Net income | — |  |  | — |  |  | — |  |  | 100,231 |  |  | — |  |  | 100,231 |
Other comprehensive loss, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (57,978 | ) |  | (57,978 | )
Cash dividends declared ($0.35 per share) |  |  |  |  |  |  |  |  |  |  |
Class A common stock | — |  |  | — |  |  | — |  |  | (3,851 | ) |  | — |  |  | (3,851 | )
Class B common stock | — |  |  | — |  |  | — |  |  | (352 | ) |  | — |  |  | (352 | )
Balance at March 31, 2018 | $ | 11,005 |  |  | $ | 1,005 |  |  | $ | 658,918 |  |  | $ | 2,931,509 |  |  | $ | (230,323 | ) |  | $ | 3,372,114 |
Balance at December 31, 2018 | $ | 10,623 |  |  | $ | 1,005 |  |  | $ | 493,962 |  |  | $ | 3,218,551 |  |  | $ | (235,187 | ) |  | $ | 3,488,954 |
Net income | — |  |  | — |  |  | — |  |  | 111,359 |  |  | — |  |  | 111,359 |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 28,327 |  |  | 28,327 |
Repurchase of 243,000 shares of Class A common stock | (243 | ) |  | — |  |  | (100,513 | ) |  | — |  |  | — |  |  | (100,756 | )
Cash dividends declared ($0.40 per share) |  |  |  |  |  |  |  |  |  |  |
Class A common stock | — |  |  | — |  |  | — |  |  | (4,173 | ) |  | — |  |  | (4,173 | )
Class B common stock | — |  |  | — |  |  | — |  |  | (402 | ) |  | — |  |  | (402 | )
Balance at March 31, 2019 | $ | 10,380 |  |  | $ | 1,005 |  |  | $ | 393,449 |  |  | $ | 3,325,335 |  |  | $ | (206,860 | ) |  | $ | 3,523,309 |

See accompanying Notes to Consolidated Financial Statements.
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First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

| Three months ended March 31
(Dollars in thousands, unaudited) | 2019 |  | 2018
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |
Net income | $ | 111,359 |  |  | $ | 100,231 |
Adjustments to reconcile net income to cash provided by operating activities: |  |  |
Provision for loan and lease losses | 11,750 |  |  | 7,605 |
Deferred tax benefit | (7,316 | ) |  | (5,573 | )
Net change in current taxes | 37,898 |  |  | 33,128 |
Depreciation | 28,195 |  |  | 23,179 |
Net increase (decrease) in accrued interest payable | 3,457 |  |  | (2,454 | )
Net increase in income earned not collected | (3,909 | ) |  | (1,358 | )
Marketable equity securities gains, net | (11,328 | ) |  | (971 | )
Gain on extinguishment of debt | — |  |  | (25,814 | )
Origination of loans held for sale | (128,949 | ) |  | (131,353 | )
Proceeds from sale of loans held for sale | 123,047 |  |  | 138,538 |
Gain on sale of loans held for sale | (2,181 | ) |  | (2,666 | )
Net write-downs/losses on other real estate | 427 |  |  | 1,210 |
Losses on premises and equipment | 358 |  |  | — |
Net accretion of premiums and discounts | (8,737 | ) |  | (10,323 | )
Amortization of intangible assets | 5,943 |  |  | 6,049 |
Net change in FDIC payable for shared-loss agreements | 1,638 |  |  | 1,124 |
Net change in mortgage servicing rights | (698 | ) |  | (1,200 | )
Net change in other assets | 31,072 |  |  | 341,678 |
Net change in other liabilities | (51,985 | ) |  | (12,642 | )
Net cash provided by operating activities | 140,041 |  |  | 458,388 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |
Net decrease (increase) in loans outstanding | 68,052 |  |  | (7,283 | )
Purchases of investment securities available for sale | (593,952 | ) |  | (374,850 | )
Purchases of investment securities held to maturity | (116,028 | ) |  | — |
Purchases of marketable equity securities | (6,076 | ) |  | (2,272 | )
Proceeds from maturities/calls of investment securities held to maturity | 88,400 |  |  | 2 |
Proceeds from maturities/calls of investment securities available for sale | 587,023 |  |  | 503,717 |
Proceeds from sales of marketable equity securities | 119 |  |  | 664 |
Net increase in overnight investments | (589,119 | ) |  | (558,955 | )
Cash paid to the FDIC for shared-loss agreements | (8 | ) |  | — |
Proceeds from sales of other real estate | 7,430 |  |  | 8,380 |
Proceeds from sales of premises and equipment | 54 |  |  | 13 |
Purchases of premises and equipment | (23,875 | ) |  | (24,081 | )
Net cash used in investing activities | (577,980 | ) |  | (454,665 | )
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |
Net increase (decrease) in time deposits | 138,640 |  |  | (92,064 | )
Net increase in demand and other interest-bearing deposits | 387,319 |  |  | 795,034 |
Net decrease in short-term borrowings | (35,428 | ) |  | (139,049 | )
Repayment of long-term obligations | (8,688 | ) |  | (651,451 | )
Repurchase of common stock | (98,077 | ) |  | — |
Cash dividends paid | (4,668 | ) |  | (4,204 | )
Net cash provided by (used in) financing activities | 379,098 |  |  | (91,734 | )
Change in cash and due from banks | (58,841 | ) |  | (88,011 | )
Cash and due from banks at beginning of period | 327,440 |  |  | 336,150 |
Cash and due from banks at end of period | $ | 268,599 |  |  | $ | 248,139 |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |  |  |
Transfers of loans to other real estate | $ | 2,613 |  |  | $ | 6,582 |
Dividends declared but not paid | 4,575 |  |  | 4,204 |
Reclassification of portfolio loans from loans held for sale | (605 | ) |  | — |
Transfers of premises and equipment to other real estate | 520 |  |  | — |
Unsettled common stock repurchases | (2,679 | ) |  | — |
Initial recognition of operating lease assets | 70,652 |  |  | — |
Initial recognition of operating lease liabilities | 71,793 |  |  | — |

See accompanying Notes to Consolidated Financial Statements.
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First Citizens BancShares, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION
First Citizens BancShares, Inc. (BancShares) is a financial holding company organized under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (FCB), which is headquartered in Raleigh, North Carolina.
General
These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements included in BancShares' Annual Report on Form 10-K for the year ended December 31, 2018.
Reclassifications
In certain instances, amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders' equity or net income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. The estimates that BancShares considers significant are the allowance for loan and lease losses, fair value measurements, Federal Deposit Insurance Corporation (FDIC) shared-loss payable, pension plan assumptions, goodwill and other intangible assets and income taxes.
Share Repurchases
In October 2018, BancShares' Board of Directors (Board) authorized the purchase of up to 800,000 of BancShares' Class A common stock for the period November 1, 2018 through October 31, 2019. The authorization does not obligate Bancshares to purchase any particular amount of shares, and purchases may be suspended or discontinued at any time. During the first quarter of 2019, BancShares repurchased 243,000 shares of Class A common stock for approximately $100.7 million at an average cost per share of $414.58. There were no share repurchases made during the first quarter of 2018. As of March 31, 2019, a total of 425,000 shares have been repurchased under the current Board authority.
Subsequent to quarter-end and through May 6, 2019, BancShares repurchased an additional 63,400 shares of Class A common stock for approximately $27.4 million at an average cost per share of $432.78.
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842)
This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between prior standards and this ASU is the requirement for lessees to recognize all lease contracts on their balance sheet. This ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the previous operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment, but relates to treatment in the statements of income and cash flows. Lessor guidance remains largely unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance.
We adopted this standard, as of January 1, 2019, using the effective date method that allows for entities to initially apply the new leases standard at the adoption date. In addition, we made several policy elections permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification. We determined that most renewal options would not be reasonably determinable in estimating the expected lease term.
We made the policy election available under Topic 842 to combine lease and non-lease components and applied this practical expedient to leases in effect prior to the date of adoption. We will continue to apply the practical expedient to all leases entered into going forward.
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The adoption of the new standard had an impact on our Consolidated Balance Sheet, with the recording of operating Right-of-Use (ROU) assets and operating lease liabilities of $70.7 million and $71.8 million, respectively. The operating lease liability includes a $1.1 million fair value adjustment for leases assumed in the acquisition of HomeBancorp, Inc. (HomeBancorp). In addition, at the adoption date we had finance lease ROU assets and finance lease liabilities, previously classified as capital leases, of $9.1 million and $8.3 million, respectively. The Company did not have a cumulative-effect adjustment to the opening balance of retained earnings at commencement. The Company has no related party lease agreements. This ASU did not have a material impact on our Consolidated Statements of Income. See Note N in the Consolidated Financial Statements for additional disclosures.
FASB ASU 2019-01, Leases (Topic 842): Codification Improvements
This ASU reinstated the exception in Topic 842 for lessors that are not manufacturers or dealers for determining the fair value of leased property as the underlying asset's cost, reflecting any volume or trade discounts that may apply, allows lessors that are depository and lending institutions within the scope of ASU Topic 942 to present "principal payments received under leases" within investing activities on the Statement of Cash Flows, and provides an exemption to the ASC 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements. We early adopted this standard with ASU 2016-02 as of January 1, 2019 and the impact was not material to our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
FASB ASU 2018-15 - Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). This ASU requires entities to use the guidance in FASB ASC 350-40, Intangibles - Goodwill and Other - Internal Use Software, to determine whether to capitalize or expense implementation costs related to the service contract. This ASU also requires entities to (1) expense capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (2) present the expense related to the capitalized implementation costs in the same line item on the income statement as fees associated with the hosting element of the arrangement (3) classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element (4) present the capitalized implementation costs in the same balance sheet line item that a prepayment for the fees associated with the hosting arrangement would be presented.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. BancShares is currently evaluating the impact this new standard will have on its Consolidated Financial Statements and whether we will early adopt prior to the first quarter of 2020.
FASB ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by eliminating the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and adding a requirement to disclose an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
The amendments in this ASU are effective for public entities for fiscal years ending after December 15, 2020. Early adoption is permitted for all entities. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the first quarter of 2021.
FASB ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
This ASU modifies the disclosure requirements on fair value measurements by eliminating the requirements to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public business entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and all interim periods within those fiscal years. Early adoption is permitted upon issuance of the ASU. Entities are permitted to early adopt amendments that remove or modify disclosures and delay the adoption of the additional disclosures until their effective date. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the first quarter of 2020.
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FASB ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This ASU eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative test.
This ASU will be effective for BancShares' annual or interim goodwill impairment tests for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to adopt the guidance for our annual impairment test in fiscal year 2020. BancShares does not anticipate any impact to our consolidated financial position or consolidated results of operations as a result of the adoption.
FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU introduces a new credit loss methodology which requires earlier recognition of credit losses, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses. The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity's size, complexity and risk profile. In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. BancShares will adopt the guidance in the first quarter of 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. For BancShares, the standard will apply to loans, unfunded loan commitments and debt securities. A cross-functional team co-led by Corporate Finance and Risk Management is in place to implement the new standard. We have completed preliminary current expected credit losses (CECL) accounting interpretations, and continue to refine and test our models, estimation techniques, data, operational processes and controls to be used in preparing CECL loss estimates. During 2019, we expect to address any gaps in our interpretations, methodology, data and operational processes based upon our reviews and tests. BancShares continues to evaluate the impact of this standard on its consolidated financial statements but the magnitude of this impact has not been determined. The final impact will be dependent on, among other items, loan portfolio composition and credit quality at the adoption date, as well as economic conditions, financial models used and forecasts in place at that time.
NOTE B - BUSINESS COMBINATIONS
First South Bancorp, Inc.
On May 1, 2019, FCB completed the merger of Spartanburg, South Carolina-based First South Bancorp and its bank subsidiary, First South Bank. Under the terms of the agreement, cash consideration of $1.15 per share was paid to the shareholders of First South Bancorp for each share of common stock totaling approximately $37.5 million. The total consideration assumes the conversion of all First South Bancorp's Series A preferred shares into common stock. The merger will allow FCB to expand its presence and enhance banking efforts in South Carolina. As of March 31, 2019, First South Bancorp reported $236.0 million in consolidated assets, $206.1 million in deposits and $183.3 million in loans.
Entegra Financial Corp.
On April 23, 2019, FCB and Entegra Financial Corp. (Entegra) entered into a definitive merger agreement for the acquisition by FCB of Franklin, North Carolina-based Entegra and its bank subsidiary, Entegra Bank. Under the terms of the agreement, cash consideration of $30.18 per share will be paid to the shareholders of Entegra for each share of common stock and for each restricted stock unit after conversion to common stock, and each option to purchase Entegra common stock will be canceled and each option holder will receive a cash payment equal to $30.18 for each share underlying the option minus the applicable exercise price of the option. The total transaction value, including termination fee, is anticipated to be approximately $219.8 million. The transaction is anticipated to close during the second half of 2019, subject to the receipt of regulatory approvals and the approval of Entegra's shareholders. As of March 31, 2019, Entegra reported $1.67 billion in consolidated assets, $1.25 billion in deposits and $1.08 billion in loans.
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Biscayne Bancshares, Inc.
On April 2, 2019, FCB completed the merger of Coconut Grove, Florida-based Biscayne Bancshares, Inc. (Biscayne Bancshares) and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 per share was paid to the shareholders of Biscayne Bancshares for each share of common stock, totaling approximately $118.9 million. The merger will allow FCB to expand its presence in Florida and enhance banking efforts in South Florida. As of March 31, 2019, Biscayne Bancshares reported $1.02 billion in consolidated assets, $879.9 million in loans and $788.2 million in deposits.
NOTE C - INVESTMENTS
The amortized cost and fair value of investment securities at March 31, 2019 and December 31, 2018, were as follows:

| March 31, 2019
(Dollars in thousands) | Cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 1,196,584 |  |  | $ | 1,305 |  |  | $ | 847 |  |  | $ | 1,197,042 |
Government agency | 351,284 |  |  | 330 |  |  | 1,087 |  |  | 350,527 |
Mortgage-backed securities | 2,917,000 |  |  | 7,373 |  |  | 28,429 |  |  | 2,895,944 |
Corporate bonds | 142,939 |  |  | 183 |  |  | 960 |  |  | 142,162 |
Other | 3,929 |  |  | 196 |  |  | — |  |  | 4,125 |
Total investment securities available for sale | 4,611,736 |  |  | 9,387 |  |  | 31,323 |  |  | 4,589,800 |
Investment in marketable equity securities | 79,809 |  |  | 30,252 |  |  | 177 |  |  | 109,884 |
Investment securities held to maturity |  |  |  |  |  |  |
Mortgage-backed securities | 2,214,829 |  |  | 40,545 |  |  | 450 |  |  | 2,254,924 |
Total investment securities | $ | 6,906,374 |  |  | $ | 80,184 |  |  | $ | 31,950 |  |  | $ | 6,954,608 |
| December 31, 2018
(Dollars in thousands) | Cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 1,249,243 |  |  | $ | 633 |  |  | $ | 2,166 |  |  | $ | 1,247,710 |
Government agency | 257,252 |  |  | 222 |  |  | 639 |  |  | 256,835 |
Mortgage-backed securities | 2,956,793 |  |  | 5,309 |  |  | 52,763 |  |  | 2,909,339 |
Corporate bonds | 139,906 |  |  | 59 |  |  | 864 |  |  | 139,101 |
Other | 3,923 |  |  | 202 |  |  | — |  |  | 4,125 |
Total investment securities available for sale | 4,607,117 |  |  | 6,425 |  |  | 56,432 |  |  | 4,557,110 |
Investment in marketable equity securities | 73,809 |  |  | 19,010 |  |  | 220 |  |  | 92,599 |
Investment securities held to maturity |  |  |  |  |  |  |
Mortgage-backed securities | 2,184,653 |  |  | 17,339 |  |  | 490 |  |  | 2,201,502 |
Total investment securities | $ | 6,865,579 |  |  | $ | 42,774 |  |  | $ | 57,142 |  |  | $ | 6,851,211 |

Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the United States Small Business Administration. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other investments include trust preferred securities of financial institutions. BancShares holds approximately 298,000 shares of Visa Class B common stock. BancShares' Visa Class B shares are not considered to have a readily determinable fair value and are included in the Consolidated Balance Sheet with no fair value.
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The following table provides the amortized cost and fair value by contractual maturity for investment securities available for sale and held to maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Repayments of mortgage-backed securities are dependent on the repayments of the underlying loan balances, while repayments of certain corporate bonds are subject to call provisions that can be exercised by the issuer at their discretion.

| March 31, 2019 |  | December 31, 2018
(Dollars in thousands) | Cost |  | Fair value |  | Cost |  | Fair value
Investment securities available for sale |  |  |  |  |  |  |
Non-amortizing securities maturing in: |  |  |  |  |  |  |
One year or less | $ | 1,046,796 |  |  | $ | 1,046,362 |  |  | $ | 1,049,253 |  |  | $ | 1,047,380 |
One through five years | 155,297 |  |  | 155,680 |  |  | 205,526 |  |  | 205,805 |
Five through 10 years | 137,430 |  |  | 137,162 |  |  | 134,370 |  |  | 133,626 |
Over 10 years | 3,929 |  |  | 4,125 |  |  | 3,923 |  |  | 4,125 |
Government agency | 351,284 |  |  | 350,527 |  |  | 257,252 |  |  | 256,835 |
Mortgage-backed securities | 2,917,000 |  |  | 2,895,944 |  |  | 2,956,793 |  |  | 2,909,339 |
Total investment securities available for sale | $ | 4,611,736 |  |  | $ | 4,589,800 |  |  | $ | 4,607,117 |  |  | $ | 4,557,110 |
Investment securities held to maturity |  |  |  |  |  |  |
Total investment securities held to maturity | $ | 2,214,829 |  |  | $ | 2,254,924 |  |  | $ | 2,184,653 |  |  | $ | 2,201,502 |

There were no gross gains or losses on sales of investment securities available for sale for the three months ended March 31, 2019 and March 31, 2018.
The following table provides the realized and unrealized gains on marketable equity securities for the three months ended March 31, 2019.

| Three months ended March 31
(Dollars in thousands) | 2019 |  | 2018
Marketable equity securities gains, net | $ | 11,328 |  |  | $ | 971 |
Less net gains recognized on marketable equity securities sold | 44 |  |  | 96 |
Unrealized gains recognized on marketable equity securities held | $ | 11,284 |  |  | $ | 875 |

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The following table provides information regarding securities with unrealized losses as of March 31, 2019 and December 31, 2018.

| March 31, 2019
| Less than 12 months |  | 12 months or more |  | Total
(Dollars in thousands) | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses
Investment securities available for sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | — |  |  | $ | — |  |  | $ | 599,883 |  |  | $ | 847 |  |  | $ | 599,883 |  |  | $ | 847 |
Government agency | 219,395 |  |  | 901 |  |  | 12,590 |  |  | 186 |  |  | 231,985 |  |  | 1,087 |
Mortgage-backed securities | 114,863 |  |  | 314 |  |  | 1,956,003 |  |  | 28,115 |  |  | 2,070,866 |  |  | 28,429 |
Corporate bonds | 56,393 |  |  | 891 |  |  | 9,950 |  |  | 69 |  |  | 66,343 |  |  | 960 |
Total | $ | 390,651 |  |  | $ | 2,106 |  |  | $ | 2,578,426 |  |  | $ | 29,217 |  |  | $ | 2,969,077 |  |  | $ | 31,323 |
Investment securities held to maturity |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | $ | 40,142 |  |  | $ | 291 |  |  | $ | 9,988 |  |  | $ | 159 |  |  | $ | 50,130 |  |  | $ | 450 |
| December 31, 2018
| Less than 12 months |  | 12 months or more |  | Total
(Dollars in thousands) | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses
Investment securities available for sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 248,983 |  |  | $ | 113 |  |  | $ | 848,622 |  |  | $ | 2,053 |  |  | $ | 1,097,605 |  |  | $ | 2,166 |
Government agency | 115,273 |  |  | 601 |  |  | 2,310 |  |  | 38 |  |  | 117,583 |  |  | 639 |
Mortgage-backed securities | 262,204 |  |  | 2,387 |  |  | 1,940,695 |  |  | 50,376 |  |  | 2,202,899 |  |  | 52,763 |
Corporate bonds | 79,066 |  |  | 842 |  |  | 5,000 |  |  | 22 |  |  | 84,066 |  |  | 864 |
Total | $ | 705,526 |  |  | $ | 3,943 |  |  | $ | 2,796,627 |  |  | $ | 52,489 |  |  | $ | 3,502,153 |  |  | $ | 56,432 |
Investment securities held to maturity |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | $ | 5,111 |  |  | $ | 181 |  |  | $ | 10,131 |  |  | $ | 309 |  |  | $ | 15,242 |  |  | $ | 490 |

As of March 31, 2019, there were 230 investment securities available for sale that had continuous losses for more than 12 months of which 223 were government sponsored enterprise-issued mortgage-backed securities or government agency securities, five were U.S. Treasury securities and two were corporate bonds. There were two investment securities held to maturity, which were government sponsored enterprise-issued mortgage-backed securities, which had continuous losses for more than 12 months at March 31, 2019.
None of the unrealized losses identified as of March 31, 2019 or December 31, 2018 relate to the marketability of the securities or the issuers' ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the debt securities were purchased. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Therefore, none of the securities were deemed to be other than temporarily impaired.
Debt securities having an aggregate carrying value of $3.68 billion at March 31, 2019 and $4.03 billion at December 31, 2018 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.
NOTE D - LOANS AND LEASES
BancShares' accounting methods for loans and leases differ depending on whether they are non-purchased credit impaired (Non-PCI) or purchased credit impaired (PCI). Loans that are originated by FCB, as well as loans that are performing under their contractual obligations at acquisition, are classified as Non-PCI. Loans that reflect credit deterioration since origination, such that it is probable at acquisition that FCB will be unable to collect all contractually required payments, are classified as PCI. Additionally, at the date of acquisition, all acquired loans are recorded at fair value with no corresponding allowance for loan and lease losses.
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Loans and leases outstanding included the following at March 31, 2019 and December 31, 2018:

(Dollars in thousands) | March 31, 2019 |  | December 31, 2018
Non-PCI loans and leases: |  |  |
Commercial: |  |  |
Construction and land development | $ | 804,463 |  |  | $ | 757,854 |
Commercial mortgage | 10,747,715 |  |  | 10,717,234 |
Other commercial real estate | 427,419 |  |  | 426,985 |
Commercial and industrial and leases | 3,879,575 |  |  | 3,938,730 |
Other | 280,848 |  |  | 296,424 |
Total commercial loans | 16,140,020 |  |  | 16,137,227 |
Noncommercial: |  |  |
Residential mortgage | 4,303,137 |  |  | 4,265,687 |
Revolving mortgage | 2,469,898 |  |  | 2,542,975 |
Construction and land development | 258,959 |  |  | 257,030 |
Consumer | 1,734,415 |  |  | 1,713,781 |
Total noncommercial loans | 8,766,409 |  |  | 8,779,473 |
Total non-PCI loans and leases | 24,906,429 |  |  | 24,916,700 |
PCI loans: |  |  |
Total PCI loans | 557,356 |  |  | 606,576 |
Total loans and leases | $ | 25,463,785 |  |  | $ | 25,523,276 |

At March 31, 2019, $9.08 billion in non-PCI loans with a lendable collateral value of $6.36 billion were used to secure $175.2 million in Federal Home Loan Bank (FHLB) of Atlanta advances and $14.5 million in FHLB of Chicago advances, resulting in additional borrowing capacity of $6.17 billion. At December 31, 2018, $9.12 billion in non-PCI loans with a lendable collateral value of $6.36 billion were used to secure $175.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $6.18 billion.
At March 31, 2019, $2.93 billion in non-PCI loans with a lendable collateral value of $2.23 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (FRB). At December 31, 2018, $2.94 billion in non-PCI loans with a lendable collateral value of $2.19 billion were used to secure additional borrowing capacity at the FRB.
Certain residential real estate loans are originated to be sold to investors and are recorded in loans held for sale at fair value. In addition, we may change our strategy for certain portfolio loans and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value. Loans held for sale totaled $53.2 million and $45.5 million at March 31, 2019 and December 31, 2018, respectively.
During the three months ended March 31, 2019, total proceeds from sales of loans held for sale were $123.0 million and there were no transfers to loans held for sale from the residential mortgage portfolio. For the three months ended March 31, 2018, total proceeds from sales of loans held for sale were $138.5 million and there were no transfers to loans held for sale from the residential mortgage portfolio.
Net deferred fees on non-PCI loans and leases, including unearned income as well as unamortized costs and fees, were $130 thousand and $79 thousand at March 31, 2019 and December 31, 2018, respectively. The net unamortized discount related to purchased non-PCI loans and leases was $30.1 million at March 31, 2019 and $33.3 million at December 31, 2018. During the three months ended March 31, 2019 and March 31, 2018, accretion income on purchased non-PCI loans and leases was $3.2 million and $2.9 million, respectively.
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Credit quality indicators
Loans and leases are monitored for credit quality on a recurring basis. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments being evaluated. The credit quality indicators for non-PCI and PCI commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. Commercial credit cards are included in the Commercial and industrial and leases segment, but are not specifically graded as with other commercial loans. The indicators as of the date presented are based on the most recent assessment performed and are defined below:
Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.
Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.
Loss – Assets classified as loss are considered uncollectible and of such little value that it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather that it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future.
Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at March 31, 2019 and December 31, 2018 relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage, lease financing and other commercial real estate loans.
The credit quality indicators for non-PCI and PCI noncommercial loans are based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases.
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The composition of the loans and leases outstanding at March 31, 2019 and December 31, 2018 by credit quality indicator are provided below:

| March 31, 2019
(Dollars in thousands) | Non-PCI commercial loans and leases
Grade: | Construction and land development |  | Commercial mortgage |  | Other commercial real estate |  | Commercial and industrial and leases |  | Other |  | Total non-PCI commercial loans and leases
Pass | $ | 800,703 |  |  | $ | 10,528,026 |  |  | $ | 423,288 |  |  | $ | 3,717,237 |  |  | $ | 279,899 |  |  | $ | 15,749,153 |
Special mention | 1,345 |  |  | 110,413 |  |  | 3,244 |  |  | 46,928 |  |  | 350 |  |  | 162,280 |
Substandard | 2,415 |  |  | 109,276 |  |  | 887 |  |  | 37,443 |  |  | 599 |  |  | 150,620 |
Doubtful | — |  |  | — |  |  | — |  |  | 354 |  |  | — |  |  | 354 |
Ungraded | — |  |  | — |  |  | — |  |  | 77,613 |  |  | — |  |  | 77,613 |
Total | $ | 804,463 |  |  | $ | 10,747,715 |  |  | $ | 427,419 |  |  | $ | 3,879,575 |  |  | $ | 280,848 |  |  | $ | 16,140,020 |
| December 31, 2018
(Dollars in thousands) | Non-PCI commercial loans and leases
Grade: | Construction and land development |  | Commercial mortgage |  | Other commercial real estate |  | Commercial and industrial and leases |  | Other |  | Total non-PCI commercial loans and leases
Pass | $ | 753,985 |  |  | $ | 10,507,687 |  |  | $ | 422,500 |  |  | $ | 3,778,797 |  |  | $ | 294,700 |  |  | $ | 15,757,669 |
Special mention | 1,369 |  |  | 114,219 |  |  | 3,193 |  |  | 54,814 |  |  | 1,105 |  |  | 174,700 |
Substandard | 2,500 |  |  | 92,743 |  |  | 1,292 |  |  | 30,688 |  |  | 619 |  |  | 127,842 |
Doubtful | — |  |  | — |  |  | — |  |  | 354 |  |  | — |  |  | 354 |
Ungraded | — |  |  | 2,585 |  |  | — |  |  | 74,077 |  |  | — |  |  | 76,662 |
Total | $ | 757,854 |  |  | $ | 10,717,234 |  |  | $ | 426,985 |  |  | $ | 3,938,730 |  |  | $ | 296,424 |  |  | $ | 16,137,227 |

| March 31, 2019
| Non-PCI noncommercial loans and leases
(Dollars in thousands) | Residential mortgage |  | Revolving mortgage |  | Construction and land development |  | Consumer |  | Total non-PCI noncommercial loans and leases
Current | $ | 4,248,823 |  |  | $ | 2,444,150 |  |  | $ | 256,801 |  |  | $ | 1,720,142 |  |  | $ | 8,669,916 |
30-59 days past due | 33,623 |  |  | 10,734 |  |  | 581 |  |  | 7,966 |  |  | 52,904 |
60-89 days past due | 7,760 |  |  | 4,227 |  |  | 28 |  |  | 3,001 |  |  | 15,016 |
90 days or greater past due | 12,931 |  |  | 10,787 |  |  | 1,549 |  |  | 3,306 |  |  | 28,573 |
Total | $ | 4,303,137 |  |  | $ | 2,469,898 |  |  | $ | 258,959 |  |  | $ | 1,734,415 |  |  | $ | 8,766,409 |
| December 31, 2018
| Non-PCI noncommercial loans and leases
(Dollars in thousands) | Residential mortgage |  | Revolving mortgage |  | Construction and land development |  | Consumer |  | Total non-PCI noncommercial loans and leases
Current | $ | 4,214,783 |  |  | $ | 2,514,269 |  |  | $ | 254,837 |  |  | $ | 1,696,321 |  |  | $ | 8,680,210 |
30-59 days past due | 28,239 |  |  | 12,585 |  |  | 581 |  |  | 10,035 |  |  | 51,440 |
60-89 days past due | 7,357 |  |  | 4,490 |  |  | 21 |  |  | 3,904 |  |  | 15,772 |
90 days or greater past due | 15,308 |  |  | 11,631 |  |  | 1,591 |  |  | 3,521 |  |  | 32,051 |
Total | $ | 4,265,687 |  |  | $ | 2,542,975 |  |  | $ | 257,030 |  |  | $ | 1,713,781 |  |  | $ | 8,779,473 |

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PCI loans outstanding at March 31, 2019 and December 31, 2018 by credit quality indicator are provided below:

| March 31, 2019 |  | December 31, 2018
(Dollars in thousands) | PCI commercial loans
Grade: |  |  |
Pass | $ | 131,018 |  |  | $ | 141,922 |
Special mention | 43,068 |  |  | 48,475 |
Substandard | 91,940 |  |  | 101,447 |
Doubtful | 3,887 |  |  | 4,828 |
Total | $ | 269,913 |  |  | $ | 296,672 |

| March 31, 2019 |  | December 31, 2018
(Dollars in thousands) | PCI noncommercial loans
Current | $ | 255,145 |  |  | $ | 268,280 |
30-59 days past due | 8,565 |  |  | 11,155 |
60-89 days past due | 3,449 |  |  | 7,708 |
90 days or greater past due | 20,284 |  |  | 22,761 |
Total | $ | 287,443 |  |  | $ | 309,904 |

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The aging of the outstanding non-PCI loans and leases, by class, at March 31, 2019 and December 31, 2018 are provided in the tables below. Loans and leases 30 days or less past due are considered current as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.

| March 31, 2019
(Dollars in thousands) | 30-59 days past due |  | 60-89 days past due |  | 90 days or greater |  | Total past due |  | Current |  | Total loans and leases
Non-PCI loans and leases: |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |
Construction and land development - commercial | $ | 617 |  |  | $ | 262 |  |  | $ | 206 |  |  | $ | 1,085 |  |  | $ | 803,378 |  |  | $ | 804,463 |
Commercial mortgage | 16,120 |  |  | 8,818 |  |  | 2,802 |  |  | 27,740 |  |  | 10,719,975 |  |  | 10,747,715 |
Other commercial real estate | 1,198 |  |  | 517 |  |  | — |  |  | 1,715 |  |  | 425,704 |  |  | 427,419 |
Commercial and industrial and leases | 9,706 |  |  | 2,403 |  |  | 3,389 |  |  | 15,498 |  |  | 3,864,077 |  |  | 3,879,575 |
Other | 113 |  |  | 24 |  |  | — |  |  | 137 |  |  | 280,711 |  |  | 280,848 |
Total commercial loans | 27,754 |  |  | 12,024 |  |  | 6,397 |  |  | 46,175 |  |  | 16,093,845 |  |  | 16,140,020 |
Noncommercial: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 33,623 |  |  | 7,760 |  |  | 12,931 |  |  | 54,314 |  |  | 4,248,823 |  |  | 4,303,137 |
Revolving mortgage | 10,734 |  |  | 4,227 |  |  | 10,787 |  |  | 25,748 |  |  | 2,444,150 |  |  | 2,469,898 |
Construction and land development - non-commercial | 581 |  |  | 28 |  |  | 1,549 |  |  | 2,158 |  |  | 256,801 |  |  | 258,959 |
Consumer | 7,966 |  |  | 3,001 |  |  | 3,306 |  |  | 14,273 |  |  | 1,720,142 |  |  | 1,734,415 |
Total noncommercial loans | 52,904 |  |  | 15,016 |  |  | 28,573 |  |  | 96,493 |  |  | 8,669,916 |  |  | 8,766,409 |
Total non-PCI loans and leases | $ | 80,658 |  |  | $ | 27,040 |  |  | $ | 34,970 |  |  | $ | 142,668 |  |  | $ | 24,763,761 |  |  | $ | 24,906,429 |
| December 31, 2018
(Dollars in thousands) | 30-59 days past due |  | 60-89 days past due |  | 90 days or greater |  | Total past due |  | Current |  | Total loans and leases
Non-PCI loans and leases: |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |
Construction and land development - commercial | $ | 516 |  |  | $ | 9 |  |  | $ | 444 |  |  | $ | 969 |  |  | $ | 756,885 |  |  | $ | 757,854 |
Commercial mortgage | 14,200 |  |  | 2,066 |  |  | 3,237 |  |  | 19,503 |  |  | 10,697,731 |  |  | 10,717,234 |
Other commercial real estate | 91 |  |  | 76 |  |  | 300 |  |  | 467 |  |  | 426,518 |  |  | 426,985 |
Commercial and industrial and leases | 9,655 |  |  | 1,759 |  |  | 2,892 |  |  | 14,306 |  |  | 3,924,424 |  |  | 3,938,730 |
Other | 285 |  |  | — |  |  | 89 |  |  | 374 |  |  | 296,050 |  |  | 296,424 |
Total commercial loans | 24,747 |  |  | 3,910 |  |  | 6,962 |  |  | 35,619 |  |  | 16,101,608 |  |  | 16,137,227 |
Noncommercial: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 28,239 |  |  | 7,357 |  |  | 15,308 |  |  | 50,904 |  |  | 4,214,783 |  |  | 4,265,687 |
Revolving mortgage | 12,585 |  |  | 4,490 |  |  | 11,631 |  |  | 28,706 |  |  | 2,514,269 |  |  | 2,542,975 |
Construction and land development - non-commercial | 581 |  |  | 21 |  |  | 1,591 |  |  | 2,193 |  |  | 254,837 |  |  | 257,030 |
Consumer | 10,035 |  |  | 3,904 |  |  | 3,521 |  |  | 17,460 |  |  | 1,696,321 |  |  | 1,713,781 |
Total noncommercial loans | 51,440 |  |  | 15,772 |  |  | 32,051 |  |  | 99,263 |  |  | 8,680,210 |  |  | 8,779,473 |
Total non-PCI loans and leases | $ | 76,187 |  |  | $ | 19,682 |  |  | $ | 39,013 |  |  | $ | 134,882 |  |  | $ | 24,781,818 |  |  | $ | 24,916,700 |

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The recorded investment, by class, in loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at March 31, 2019 and December 31, 2018 for non-PCI loans and leases, were as follows:

| March 31, 2019 |  | December 31, 2018
(Dollars in thousands) | Nonaccrual loans and leases |  | Loans and leases > 90 days and accruing |  | Nonaccrual loans and leases |  | Loans and leases > 90 days and accruing
Non-PCI loans and leases: |  |  |  |  |  |  |
Construction and land development - commercial | $ | 407 |  |  | $ | — |  |  | $ | 666 |  |  | $ | — |
Commercial mortgage | 15,744 |  |  | — |  |  | 12,594 |  |  | — |
Other commercial real estate | 19 |  |  | — |  |  | 366 |  |  | — |
Commercial and industrial and leases | 5,482 |  |  | 667 |  |  | 4,624 |  |  | 808 |
Residential mortgage | 36,573 |  |  | 614 |  |  | 35,662 |  |  | — |
Revolving mortgage | 25,723 |  |  | — |  |  | 25,563 |  |  | — |
Construction and land development - noncommercial | 1,699 |  |  | — |  |  | 1,823 |  |  | — |
Consumer | 3,054 |  |  | 2,212 |  |  | 2,969 |  |  | 2,080 |
Other | 257 |  |  | — |  |  | 279 |  |  | — |
Total non-PCI loans and leases | $ | 88,958 |  |  | $ | 3,493 |  |  | $ | 84,546 |  |  | $ | 2,888 |

The following table provides changes in the carrying value of all PCI loans during the three months ended March 31, 2019 and March 31, 2018:

(Dollars in thousands) | 2019 |  | 2018
Balance at January 1 | $ | 606,576 |  |  | $ | 762,998 |
Fair value of acquired loans | — |  |  | — |
Accretion | 17,755 |  |  | 17,973 |
Payments received and other changes, net | (66,975 | ) |  | (77,134 | )
Balance at March 31 | $ | 557,356 |  |  | $ | 703,837 |
Unpaid principal balance at March 31 | $ | 810,683 |  |  | $ | 1,108,379 |

The carrying value of PCI loans on the cost recovery method was $3.3 million at both March 31, 2019 and December 31, 2018. The cost recovery method is applied to loans when the timing of future cash flows cannot be reasonably estimated due to borrower nonperformance or uncertainty in the ultimate disposition of the asset. The recorded investment of PCI loans on nonaccrual status was $1.7 million and $1.3 million at March 31, 2019 and December 31, 2018, respectively. The remaining discount on PCI loans was $89.4 million and $95.5 million at March 31, 2019 and December 31, 2018, respectively.
During the three months ended March 31, 2019 and March 31, 2018, accretion income on PCI loans was $17.8 million and $18.0 million, respectively.
For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flow not related to credit improvements or deterioration do not affect the nonaccretable difference.
The following table documents changes to the amount of accretable yield for the first three months of 2019 and 2018.

(Dollars in thousands) | 2019 |  | 2018
Balance at January 1 | $ | 312,894 |  |  | $ | 316,679 |
Additions from acquisitions | — |  |  | — |
Accretion | (17,755 | ) |  | (17,973 | )
Reclassifications from (to) nonaccretable difference | 600 |  |  | (929 | )
Changes in expected cash flows that do not affect nonaccretable difference | (9,547 | ) |  | 11,568 |
Balance at March 31 | $ | 286,192 |  |  | $ | 309,345 |

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NOTE E - ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
Activity in the allowance for non-PCI loan and lease losses by class of loans is summarized as follows:

| Three months ended March 31, 2019
(Dollars in thousands) | Construction and land development - commercial |  | Commercial mortgage |  | Other commercial real estate |  | Commercial and industrial and leases |  | Other |  | Residential mortgage |  | Revolving mortgage |  | Construction and land development - non - commercial |  | Consumer |  | Total
Non-PCI Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1 | $ | 35,270 |  |  | $ | 43,451 |  |  | $ | 2,481 |  |  | $ | 55,620 |  |  | $ | 2,221 |  |  | $ | 15,472 |  |  | $ | 21,862 |  |  | $ | 2,350 |  |  | $ | 35,841 |  |  | $ | 214,568 |
Provision (credits) | 2,119 |  |  | 2,371 |  |  | (83 | ) |  | 2,725 |  |  | (498 | ) |  | 1,508 |  |  | 209 |  |  | 123 |  |  | 3,440 |  |  | 11,914 |
Charge-offs | (44 | ) |  | (761 | ) |  | — |  |  | (1,858 | ) |  | — |  |  | (166 | ) |  | (963 | ) |  | — |  |  | (6,362 | ) |  | (10,154 | )
Recoveries | 131 |  |  | 220 |  |  | 1 |  |  | 538 |  |  | 444 |  |  | 173 |  |  | 387 |  |  | — |  |  | 1,573 |  |  | 3,467 |
Balance at March 31 | $ | 37,476 |  |  | $ | 45,281 |  |  | $ | 2,399 |  |  | $ | 57,025 |  |  | $ | 2,167 |  |  | $ | 16,987 |  |  | $ | 21,495 |  |  | $ | 2,473 |  |  | $ | 34,492 |  |  | $ | 219,795 |
| Three months ended March 31, 2018
(Dollars in thousands) | Construction and land development - commercial |  | Commercial mortgage |  | Other commercial real estate |  | Commercial and industrial and leases |  | Other |  | Residential mortgage |  | Revolving mortgage |  | Construction and land development - non - commercial |  | Consumer |  | Total
Balance at January 1 | $ | 24,470 |  |  | $ | 45,005 |  |  | $ | 4,571 |  |  | $ | 59,824 |  |  | $ | 4,689 |  |  | $ | 15,706 |  |  | $ | 22,436 |  |  | $ | 3,962 |  |  | $ | 31,204 |  |  | $ | 211,867 |
Provision (credits) | 2,225 |  |  | (1,365 | ) |  | (1,293 | ) |  | 562 |  |  | 114 |  |  | 1,512 |  |  | 466 |  |  | 107 |  |  | 2,923 |  |  | 5,251 |
Charge-offs | — |  |  | (46 | ) |  | — |  |  | (2,329 | ) |  | (3 | ) |  | (806 | ) |  | (992 | ) |  | (182 | ) |  | (5,255 | ) |  | (9,613 | )
Recoveries | 23 |  |  | 239 |  |  | 145 |  |  | 1,260 |  |  | 42 |  |  | 77 |  |  | 194 |  |  | 26 |  |  | 1,309 |  |  | 3,315 |
Balance at March 31 | $ | 26,718 |  |  | $ | 43,833 |  |  | $ | 3,423 |  |  | $ | 59,317 |  |  | $ | 4,842 |  |  | $ | 16,489 |  |  | $ | 22,104 |  |  | $ | 3,913 |  |  | $ | 30,181 |  |  | $ | 210,820 |

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The following tables present the allowance and recorded investment in loans and leases by class of loans, as well as the associated impairment method at March 31, 2019 and December 31, 2018:

| March 31, 2019
(Dollars in thousands) | Construction and land development - commercial |  | Commercial mortgage |  | Other commercial real estate |  | Commercial and industrial and leases |  | Other |  | Residential mortgage |  | Revolving mortgage |  | Construction and land development - non- commercial |  | Consumer |  | Total
Non-PCI Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ALLL for loans and leases individually evaluated for impairment | $ | 533 |  |  | $ | 2,949 |  |  | $ | 16 |  |  | $ | 1,420 |  |  | $ | 151 |  |  | $ | 3,149 |  |  | $ | 2,742 |  |  | $ | 99 |  |  | $ | 906 |  |  | $ | 11,965 |
ALLL for loans and leases collectively evaluated for impairment | 36,943 |  |  | 42,332 |  |  | 2,383 |  |  | 55,605 |  |  | 2,016 |  |  | 13,838 |  |  | 18,753 |  |  | 2,374 |  |  | 33,586 |  |  | 207,830 |
Total allowance for loan and lease losses | $ | 37,476 |  |  | $ | 45,281 |  |  | $ | 2,399 |  |  | $ | 57,025 |  |  | $ | 2,167 |  |  | $ | 16,987 |  |  | $ | 21,495 |  |  | $ | 2,473 |  |  | $ | 34,492 |  |  | $ | 219,795 |
Loans and leases: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans and leases individually evaluated for impairment | $ | 2,123 |  |  | $ | 56,157 |  |  | $ | 541 |  |  | $ | 9,987 |  |  | $ | 337 |  |  | $ | 44,944 |  |  | $ | 29,216 |  |  | $ | 3,742 |  |  | $ | 2,954 |  |  | $ | 150,001 |
Loans and leases collectively evaluated for impairment | 802,340 |  |  | 10,691,558 |  |  | 426,878 |  |  | 3,869,588 |  |  | 280,511 |  |  | 4,258,193 |  |  | 2,440,682 |  |  | 255,217 |  |  | 1,731,461 |  |  | 24,756,428 |
Total loan and leases | $ | 804,463 |  |  | $ | 10,747,715 |  |  | $ | 427,419 |  |  | $ | 3,879,575 |  |  | $ | 280,848 |  |  | $ | 4,303,137 |  |  | $ | 2,469,898 |  |  | $ | 258,959 |  |  | $ | 1,734,415 |  |  | $ | 24,906,429 |
| December 31, 2018
(Dollars in thousands) | Construction and land development - commercial |  | Commercial mortgage |  | Other commercial real estate |  | Commercial and industrial and leases |  | Other |  | Residential mortgage |  | Revolving mortgage |  | Construction and land development - non- commercial |  | Consumer |  | Total
Non-PCI Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ALLL for loans and leases individually evaluated for impairment | $ | 490 |  |  | $ | 2,671 |  |  | $ | 42 |  |  | $ | 1,137 |  |  | $ | 105 |  |  | $ | 1,901 |  |  | $ | 2,515 |  |  | $ | 81 |  |  | $ | 885 |  |  | $ | 9,827 |
ALLL for loans and leases collectively evaluated for impairment | 34,780 |  |  | 40,780 |  |  | 2,439 |  |  | 54,483 |  |  | 2,116 |  |  | 13,571 |  |  | 19,347 |  |  | 2,269 |  |  | 34,956 |  |  | 204,741 |
Total allowance for loan and lease losses | $ | 35,270 |  |  | $ | 43,451 |  |  | $ | 2,481 |  |  | $ | 55,620 |  |  | $ | 2,221 |  |  | $ | 15,472 |  |  | $ | 21,862 |  |  | $ | 2,350 |  |  | $ | 35,841 |  |  | $ | 214,568 |
Loans and leases: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans and leases individually evaluated for impairment | $ | 2,175 |  |  | $ | 55,447 |  |  | $ | 860 |  |  | $ | 9,868 |  |  | $ | 291 |  |  | $ | 42,168 |  |  | $ | 28,852 |  |  | $ | 3,749 |  |  | $ | 3,020 |  |  | $ | 146,430 |
Loans and leases collectively evaluated for impairment | 755,679 |  |  | 10,661,787 |  |  | 426,125 |  |  | 3,928,862 |  |  | 296,133 |  |  | 4,223,519 |  |  | 2,514,123 |  |  | 253,281 |  |  | 1,710,761 |  |  | 24,770,270 |
Total loan and leases | $ | 757,854 |  |  | $ | 10,717,234 |  |  | $ | 426,985 |  |  | $ | 3,938,730 |  |  | $ | 296,424 |  |  | $ | 4,265,687 |  |  | $ | 2,542,975 |  |  | $ | 257,030 |  |  | $ | 1,713,781 |  |  | $ | 24,916,700 |

Activity in the PCI allowance activity and balances for the three months ended March 31, 2019 and March 31, 2018 is summarized as follows:

(Dollars in thousands) | Three months ended March 31, 2019 |  | Three months ended March 31, 2018
Allowance for loan losses: |  |  |
Balance at January 1 | $ | 9,144 |  |  | $ | 10,026 |
Provision | (164 | ) |  | 2,354 |
Charge-offs | — |  |  | (84 | )
Recoveries | — |  |  | — |
Balance at March 31 | $ | 8,980 |  |  | $ | 12,296 |

The following table presents the PCI allowance and recorded investment in loans at March 31, 2019 and December 31, 2018:

(Dollars in thousands) | March 31, 2019 |  | December 31, 2018
ALLL for loans acquired with deteriorated credit quality | $ | 8,980 |  |  | $ | 9,144 |
Loans acquired with deteriorated credit quality | 557,356 |  |  | 606,576 |

At March 31, 2019 and December 31, 2018, $160.4 million and $186.6 million, respectively, in PCI loans experienced an adverse change in expected cash flows since the date of acquisition.
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The following tables provide information on non-PCI impaired loans and leases, exclusive of loans and leases evaluated collectively as a homogeneous group, including interest income recognized in the period during which the loans and leases were considered impaired.

| March 31, 2019
(Dollars in thousands) | With a recorded allowance |  | With no recorded allowance |  | Total |  | Unpaid principal balance |  | Related allowance recorded
Non-PCI impaired loans and leases: |  |  |  |  |  |  |  |  |
Construction and land development - commercial | $ | 1,932 |  |  | $ | 191 |  |  | $ | 2,123 |  |  | $ | 2,538 |  |  | $ | 533 |
Commercial mortgage | 37,575 |  |  | 18,582 |  |  | 56,157 |  |  | 61,845 |  |  | 2,949 |
Other commercial real estate | 222 |  |  | 319 |  |  | 541 |  |  | 629 |  |  | 16 |
Commercial and industrial and leases | 7,613 |  |  | 2,374 |  |  | 9,987 |  |  | 14,002 |  |  | 1,420 |
Other | 262 |  |  | 75 |  |  | 337 |  |  | 353 |  |  | 151 |
Residential mortgage | 43,553 |  |  | 1,391 |  |  | 44,944 |  |  | 48,216 |  |  | 3,149 |
Revolving mortgage | 26,017 |  |  | 3,199 |  |  | 29,216 |  |  | 32,074 |  |  | 2,742 |
Construction and land development - noncommercial | 2,330 |  |  | 1,412 |  |  | 3,742 |  |  | 4,045 |  |  | 99 |
Consumer | 2,872 |  |  | 82 |  |  | 2,954 |  |  | 3,378 |  |  | 906 |
Total non-PCI impaired loans and leases | $ | 122,376 |  |  | $ | 27,625 |  |  | $ | 150,001 |  |  | $ | 167,080 |  |  | $ | 11,965 |
| December 31, 2018
(Dollars in thousands) | With a recorded allowance |  | With no recorded allowance |  | Total |  | Unpaid principal balance |  | Related allowance recorded
Non-PCI impaired loans and leases: |  |  |  |  |  |  |  |  |
Construction and land development - commercial | $ | 1,897 |  |  | $ | 278 |  |  | $ | 2,175 |  |  | $ | 2,606 |  |  | $ | 490 |
Commercial mortgage | 34,177 |  |  | 21,270 |  |  | 55,447 |  |  | 61,317 |  |  | 2,671 |
Other commercial real estate | 243 |  |  | 617 |  |  | 860 |  |  | 946 |  |  | 42 |
Commercial and industrial and leases | 7,153 |  |  | 2,715 |  |  | 9,868 |  |  | 14,695 |  |  | 1,137 |
Other | 216 |  |  | 75 |  |  | 291 |  |  | 301 |  |  | 105 |
Residential mortgage | 40,359 |  |  | 1,809 |  |  | 42,168 |  |  | 45,226 |  |  | 1,901 |
Revolving mortgage | 25,751 |  |  | 3,101 |  |  | 28,852 |  |  | 31,371 |  |  | 2,515 |
Construction and land development - noncommercial | 2,337 |  |  | 1,412 |  |  | 3,749 |  |  | 4,035 |  |  | 81 |
Consumer | 2,940 |  |  | 80 |  |  | 3,020 |  |  | 3,405 |  |  | 885 |
Total non-PCI impaired loans and leases | $ | 115,073 |  |  | $ | 31,357 |  |  | $ | 146,430 |  |  | $ | 163,902 |  |  | $ | 9,827 |

Non-PCI impaired loans less than $500,000 that were collectively evaluated for impairment totaled $44.8 million and $47.1 million at March 31, 2019 and December 31, 2018, respectively.
The following tables show the average non-PCI impaired loan balance and the interest income recognized by loan class for the three months ended March 31, 2019 and March 31, 2018:

| Three months ended March 31, 2019 |  | Three months ended March 31, 2018
(Dollars in thousands) | Average balance |  | Interest income recognized |  | Average balance |  | Interest income recognized
Non-PCI impaired loans and leases: |  |  |  |  |  |  |
Construction and land development - commercial | $ | 2,147 |  |  | $ | 28 |  |  | $ | 1,155 |  |  | $ | 11 |
Commercial mortgage | 56,629 |  |  | 564 |  |  | 72,267 |  |  | 711 |
Other commercial real estate | 685 |  |  | 8 |  |  | 1,713 |  |  | 11 |
Commercial and industrial and leases | 10,000 |  |  | 100 |  |  | 9,762 |  |  | 87 |
Other | 315 |  |  | 2 |  |  | — |  |  | — |
Residential mortgage | 42,626 |  |  | 325 |  |  | 38,724 |  |  | 275 |
Revolving mortgage | 28,742 |  |  | 247 |  |  | 24,792 |  |  | 201 |
Construction and land development - noncommercial | 3,747 |  |  | 36 |  |  | 4,104 |  |  | 48 |
Consumer | 3,000 |  |  | 29 |  |  | 2,508 |  |  | 28 |
Total non-PCI impaired loans and leases | $ | 147,891 |  |  | $ | 1,339 |  |  | $ | 155,025 |  |  | $ | 1,372 |

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Troubled Debt Restructurings
BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (TDRs). In general, the modification or restructuring of a loan is considered a TDR if, for economic reasons or legal reasons related to a borrower's financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. The majority of TDRs are included in the special mention, substandard or doubtful credit quality indicators, which results in more elevated loss expectations when projecting the expected cash flows that are used to determine the allowance for loan losses associated with these loans. The lower the credit quality indicator, the lower the estimated expected cash flows and the greater the allowance recorded. All TDRs are individually evaluated for impairment through review of collateral values or analysis of cash flows at least annually.
The following table provides a summary of total TDRs by accrual status. Total TDRs included $17.9 million and $18.2 million of PCI TDRs at March 31, 2019 and December 31, 2018, respectively.

| March 31, 2019 |  | December 31, 2018
(Dollars in thousands) | Accruing |  | Nonaccruing |  | Total |  | Accruing |  | Nonaccruing |  | Total
Commercial loans |  |  |  |  |  |  |  |  |  |  |
Construction and land development - commercial | $ | 1,914 |  |  | $ | 329 |  |  | $ | 2,243 |  |  | $ | 1,946 |  |  | $ | 352 |  |  | $ | 2,298 |
Commercial mortgage | 51,202 |  |  | 6,653 |  |  | 57,855 |  |  | 53,270 |  |  | 7,795 |  |  | 61,065 |
Other commercial real estate | 536 |  |  | 5 |  |  | 541 |  |  | 851 |  |  | 9 |  |  | 860 |
Commercial and industrial and leases | 8,253 |  |  | 1,792 |  |  | 10,045 |  |  | 7,986 |  |  | 2,060 |  |  | 10,046 |
Other | 119 |  |  | 218 |  |  | 337 |  |  | 118 |  |  | 173 |  |  | 291 |
Total commercial loans | 62,024 |  |  | 8,997 |  |  | 71,021 |  |  | 64,171 |  |  | 10,389 |  |  | 74,560 |
Noncommercial |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 37,111 |  |  | 10,582 |  |  | 47,693 |  |  | 37,903 |  |  | 9,621 |  |  | 47,524 |
Revolving mortgage | 20,320 |  |  | 9,200 |  |  | 29,520 |  |  | 20,492 |  |  | 8,196 |  |  | 28,688 |
Construction and land development - noncommercial | 2,150 |  |  | 180 |  |  | 2,330 |  |  | 2,227 |  |  | 110 |  |  | 2,337 |
Consumer and other | 2,106 |  |  | 847 |  |  | 2,953 |  |  | 2,300 |  |  | 721 |  |  | 3,021 |
Total noncommercial loans | 61,687 |  |  | 20,809 |  |  | 82,496 |  |  | 62,922 |  |  | 18,648 |  |  | 81,570 |
Total loans | $ | 123,711 |  |  | $ | 29,806 |  |  | $ | 153,517 |  |  | $ | 127,093 |  |  | $ | 29,037 |  |  | $ | 156,130 |

The following table provides the types of TDRs made during the three months ended March 31, 2019 and March 31, 2018, as well as a summary of loans that were modified as a TDR during the twelve month periods ended March 31, 2019 and March 31, 2018 that subsequently defaulted during the three months ended March 31, 2019 and March 31, 2018. BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due for TDRs, foreclosure or charge-off, whichever occurs first.

| Three months ended March 31, 2019 |  | Three months ended March 31, 2018
| All restructurings |  | Restructurings with payment default |  | All restructurings |  | Restructurings with payment default
(Dollars in thousands) | Number of Loans | Recorded investment at period end |  | Number of Loans | Recorded investment at period end |  | Number of Loans | Recorded investment at period end |  | Number of Loans | Recorded investment at period end
Loans and leases |  |  |  |  |  |  |  |  |  |  |
Interest only | — |  | $ | — |  |  | — |  | $ | — |  |  | 1 |  | $ | 644 |  |  | — |  | $ | — |
Loan term extension | 3 |  | 420 |  |  | 3 |  | 541 |  |  | 6 |  | 932 |  |  | 1 |  | 305 |
Below market interest rate | 46 |  | 2,953 |  |  | 33 |  | 2,123 |  |  | 66 |  | 5,660 |  |  | 30 |  | 1,814 |
Discharged from bankruptcy | 42 |  | 1,868 |  |  | 25 |  | 1,144 |  |  | 48 |  | 3,813 |  |  | 43 |  | 3,172 |
Total restructurings | 91 |  | $ | 5,241 |  |  | 61 |  | $ | 3,808 |  |  | 121 |  | $ | 11,049 |  |  | 74 |  | $ | 5,291 |

For the three months ended March 31, 2019 and March 31, 2018, the pre-modification and post-modification outstanding recorded investments of loans modified as TDRs were not materially different.

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NOTE F - OTHER REAL ESTATE OWNED (OREO)
The following table explains changes in other real estate owned during the three months ended March 31, 2019 and March 31, 2018.

(Dollars in thousands) | Total
Balance at December 31, 2018 | $ | 48,030 |
Additions | 3,133 |
Sales | (6,934 | )
Write-downs | (923 | )
Balance at March 31, 2019 | $ | 43,306 |
Balance at December 31, 2017 | $ | 51,097 |
Additions | 6,582 |
Sales | (7,997 | )
Write-downs | (1,593 | )
Balance at March 31, 2018 | $ | 48,089 |

At March 31, 2019 and December 31, 2018, BancShares had $15.4 million and $17.2 million, respectively, of foreclosed residential real estate property in OREO. The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure was $23.9 million and $22.0 million at March 31, 2019 and December 31, 2018, respectively.
NOTE G - FDIC SHARED-LOSS PAYABLE
As of March 31, 2019, shared-loss protection remains for single family residential loans acquired in the amount of $53.9 million. The shared-loss agreements for two FDIC-assisted transactions include provisions related to payments that may be owed to the FDIC at the termination of the agreements (clawback liability). The clawback liability represents a payment by BancShares to the FDIC if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition and is recorded in the Consolidated Balance Sheets as a payable to the FDIC under the relevant shared-loss agreements. The clawback liability payment dates are March 2020 and March 2021.
The following table provides changes in the FDIC shared-loss payable since December 31, 2018:

(Dollars in thousands) | Total
Balance at December 31, 2018 | $ | 105,618 |
Accretion | 1,638 |
Balance at March 31, 2019 | $ | 107,256 |

NOTE H - SERVICING RIGHTS
Mortgage Servicing Rights
Our portfolio of residential mortgage loans serviced for third parties was $2.97 billion and $2.95 billion as of March 31, 2019 and December 31, 2018, respectively. These loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights are recorded as a servicing asset and reported in other intangible assets on the Consolidated Balance Sheets, while the associated amortization expense and any valuation allowance recognized is included as a reduction of mortgage income in the Consolidated Statements of Income. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.
Contractually specified mortgage servicing fees, late fees, and ancillary fees earned for the three months ended March 31, 2019 and 2018 were $1.9 million and reported in mortgage income in the Consolidated Statements of Income.
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The following table explains changes in the servicing asset during the three months ended March 31, 2019 and 2018.

(Dollars in thousands) | Total
Balance at December 31, 2018 | $ | 21,396 |
Servicing rights originated | 859 |
Amortization | (1,447 | )
Valuation allowance provision | (161 | )
Balance at March 31, 2019 | $ | 20,647 |
Balance at December 31, 2017 | $ | 21,945 |
Servicing rights originated | 1,200 |
Amortization | (1,486 | )
Balance at March 31, 2018 | $ | 21,659 |

BancShares recorded a valuation allowance of $161.0 thousand compared to no valuation allowance for the three months ended March 31, 2019 and March 31, 2018, respectively. Valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. Key economic assumptions used to value mortgage servicing rights were as follows:

| March 31, 2019 |  | December 31, 2018
Discount rate - conventional fixed loans | 9.41 | % |  | 9.69 | %
Discount rate - all loans excluding conventional fixed loans | 10.41 | % |  | 10.69 | %
Weighted average constant prepayment rate | 11.28 | % |  | 9.26 | %
Weighted average cost to service a loan | $ | 88.07 |  |  | $ | 87.52 |

The fair value of mortgage servicing rights is sensitive to changes in assumptions and is determined by estimating the present value of the asset's future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rate is based on the 10-year U.S. Treasury rate plus 700 basis points for conventional fixed loans and 800 basis points for all other loans. The 700 and 800 basis points are used as a risk premium when calculating the discount rate. The prepayment rate is derived from the Public Securities Association Standard Prepayment model. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity. This results in a decrease in fair value. The average cost to service a loan is based on the number of loans serviced and the total costs to service the loans.
Other Servicing Rights
Other servicing rights were acquired as part of a business combination and relate to the sale of the guaranteed portion of government guaranteed loans with servicing retained. The amount of the other servicing rights were $2.4 million and $2.7 million at March 31, 2019 and December 31, 2018, respectively.
NOTE I - REPURCHASE AGREEMENTS
BancShares, through FCB, utilizes securities sold under customer repurchase agreements to facilitate the needs of customers and secure wholesale funding needs. Repurchase agreements are transactions whereby FCB offers to sell to a counterparty an undivided interest in an eligible security, and which obligates FCB to repurchase the security, with interest, at an agreed upon date, repurchase price, and interest rate. These agreements are recorded at the amount of cash received in connection with the transaction and are reflected as securities sold under customer repurchase agreements on the Consolidated Balance Sheets.
Repurchase agreements require FCB to maintain collateral to support the outstanding obligations. BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities pledged as collateral under repurchase agreements was $571.6 million and $598.6 million at March 31, 2019 and December 31, 2018, respectively.
The remaining contractual maturity of the $508.5 million and $543.9 million securities sold under repurchase agreements at March 31, 2019 and December 31, 2018, respectively, is overnight and continuous and are pledged by U.S. Treasury securities.
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NOTE J - ESTIMATED FAIR VALUES
Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.
ASC 820, Fair Value Measurements and Disclosures, indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the highest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows:

• | Level 1 values are based on quoted prices for identical instruments in active markets.

• | Level 2 values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

• | Level 3 values are derived from valuation techniques in which one or more significant inputs or assumptions are not observable in the market. These unobservable inputs and assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques.

BancShares' management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.
The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below:
Investment securities available for sale. Investment securities available for sale are carried at fair value. U.S. Treasury, government agency and mortgage-backed securities are generally measured at fair value using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. Corporate bonds and trust preferred securities are generally measured at fair value based on indicative bids from broker-dealers and are not directly observable. These securities are considered Level 3.
Investment in marketable equity securities. Equity securities are measured at fair value using observable closing prices and the valuation also considers the amount of market activity by examining the trade volume of each security. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market.
Loans held for sale. Certain residential real estate loans that are originated to be sold to investors are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are classified as Level 2 inputs. Portfolio loans that are subsequently transferred to held for sale to be sold in the secondary market are carried at the lower of amortized cost or fair value. The fair value of the transferred portfolio loans is based on the quoted prices and is considered a Level 1 input.
Net loans and leases (PCI and Non-PCI). Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs.
FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.
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Mortgage and other servicing rights. Mortgage and other servicing rights are carried at the lower of amortized cost or market and are, therefore, carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model that relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs.
Deposits. For non-time deposits, carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities. The inputs used in the fair value measurement for deposits are considered Level 2 inputs.
Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security if available, otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for long-term borrowings are considered Level 2 inputs.
Payable to the FDIC for shared-loss agreements. The fair value of the payable to the FDIC for shared-loss agreements is determined by the projected cash flows based on expected payments to the FDIC in accordance with the shared-loss agreements. Cash flows are discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurement for the payable to the FDIC are considered Level 3 inputs.
Off-balance-sheet commitments and contingencies. Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares' financial position.
For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of March 31, 2019 and December 31, 2018. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected, securities sold under customer repurchase agreements, and accrued interest payable are considered Level 2.
The table presents the carrying values and estimated fair values for financial instruments as of March 31, 2019 and December 31, 2018.

(Dollars in thousands) | March 31, 2019 |  | December 31, 2018
Carrying value |  | Fair value |  | Carrying value |  | Fair value
Cash and due from banks | $ | 268,599 |  |  | $ | 268,599 |  |  | $ | 327,440 |  |  | $ | 327,440 |
Overnight investments | 1,386,525 |  |  | 1,386,525 |  |  | 797,406 |  |  | 797,406 |
Investment securities available for sale | 4,589,800 |  |  | 4,589,800 |  |  | 4,557,110 |  |  | 4,557,110 |
Investment securities held to maturity | 2,214,829 |  |  | 2,254,924 |  |  | 2,184,653 |  |  | 2,201,502 |
Investment in marketable equity securities | 109,884 |  |  | 109,884 |  |  | 92,599 |  |  | 92,599 |
Loans held for sale | 53,232 |  |  | 53,232 |  |  | 45,505 |  |  | 45,505 |
Net loans and leases | 25,235,010 |  |  | 25,187,938 |  |  | 25,299,564 |  |  | 24,845,060 |
Income earned not collected | 113,812 |  |  | 113,812 |  |  | 109,903 |  |  | 109,903 |
Federal Home Loan Bank stock | 25,174 |  |  | 25,174 |  |  | 25,304 |  |  | 25,304 |
Mortgage and other servicing rights | 24,080 |  |  | 25,769 |  |  | 24,615 |  |  | 27,435 |
Deposits | 31,198,093 |  |  | 31,174,142 |  |  | 30,672,460 |  |  | 30,623,214 |
Securities sold under customer repurchase agreements | 508,508 |  |  | 508,508 |  |  | 543,936 |  |  | 543,936 |
Federal Home Loan Bank borrowings | 189,594 |  |  | 192,779 |  |  | 193,556 |  |  | 195,374 |
Subordinated debentures | 136,544 |  |  | 140,676 |  |  | 140,741 |  |  | 151,670 |
Other borrowings | 14,970 |  |  | 14,833 |  |  | 13,921 |  |  | 13,985 |
FDIC shared-loss payable | 107,256 |  |  | 109,947 |  |  | 105,618 |  |  | 105,846 |
Accrued interest payable | 7,169 |  |  | 7,169 |  |  | 3,712 |  |  | 3,712 |

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Among BancShares' assets and liabilities, investment securities available for sale, marketable equity securities and loans held for sale are reported at their fair values on a recurring basis. For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of March 31, 2019 and December 31, 2018.

| March 31, 2019
|  |  | Fair value measurements using:
(Dollars in thousands) | Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 1,197,042 |  |  | $ | — |  |  | $ | 1,197,042 |  |  | $ | — |
Government agency | 350,527 |  |  | — |  |  | 350,527 |  |  | — |
Mortgage-backed securities | 2,895,944 |  |  | — |  |  | 2,895,944 |  |  | — |
Corporate bonds | 142,162 |  |  | — |  |  | — |  |  | 142,162 |
Other | 4,125 |  |  | — |  |  | — |  |  | 4,125 |
Total investment securities available for sale | $ | 4,589,800 |  |  | $ | — |  |  | $ | 4,443,513 |  |  | $ | 146,287 |
Marketable equity securities | $ | 109,884 |  |  | $ | 18,250 |  |  | $ | 91,634 |  |  | $ | — |
Loans held for sale | $ | 53,232 |  |  | $ | — |  |  | $ | 53,232 |  |  | $ | — |
| December 31, 2018
|  |  | Fair value measurements using:
| Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 1,247,710 |  |  | $ | — |  |  | $ | 1,247,710 |  |  | $ | — |
Government agency | 256,835 |  |  | — |  |  | 256,835 |  |  | — |
Mortgage-backed securities | 2,909,339 |  |  | — |  |  | 2,909,339 |  |  | — |
Corporate bonds | 139,101 |  |  | — |  |  | — |  |  | 139,101 |
Other | 4,125 |  |  | — |  |  | — |  |  | 4,125 |
Total investment securities available for sale | $ | 4,557,110 |  |  | $ | — |  |  | $ | 4,413,884 |  |  | $ | 143,226 |
Marketable equity securities | $ | 92,599 |  |  | $ | 17,887 |  |  | $ | 74,712 |  |  | $ | — |
Loans held for sale | $ | 45,505 |  |  | $ | — |  |  | $ | 45,505 |  |  | $ | — |

During the three months ended March 31, 2019, there were no transfers between levels. For the three months ended March 31, 2018 there were transfers from Level 2 to Level 3 of $59.7 million and $5.6 million for corporate bonds and other investment securities available for sale, respectively. The transfers were due to a lack of observable inputs and trade activity for those securities.
The following tables summarize activity for Level 3 assets:

| Three months ended March 31, 2019
(Dollars in thousands) | Corporate bonds |  | Other
Balance at January 1, 2019 | $ | 139,101 |  |  | $ | 4,125 |
Transfers in | — |  |  | — |
Amounts included in net income | 39 |  |  | 6 |
Unrealized net gains (losses) included in other comprehensive income | 22 |  |  | (6 | )
Purchases | 3,000 |  |  | — |
Sales / Calls | — |  |  | — |
Balance at March 31, 2019 | $ | 142,162 |  |  | $ | 4,125 |

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The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at March 31, 2019.

(Dollars in thousands) |  |  |  | March 31, 2019
Level 3 assets |  | Valuation technique |  | Significant unobservable input |  | Fair Value
Corporate bonds |  | Indicative bid provided by broker |  | Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company |  | $ | 142,162 |
Other |  | Indicative bid provided by broker |  | Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company |  | 4,125 |

Fair Value Option
BancShares has elected the fair value option for residential real estate loans originated to be sold. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value are recorded as a component of mortgage income and included a gain of $249 thousand and a loss of $455 thousand for the three months ended March 31, 2019 and March 31, 2018, respectively.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate originated for sale measured at fair value as of March 31, 2019 and December 31, 2018.

| March 31, 2019
(Dollars in thousands) | Fair Value |  | Aggregate Unpaid Principal Balance |  | Difference
Originated loans held for sale | $ | 53,232 |  |  | $ | 51,550 |  |  | $ | 1,682 |
| December 31, 2018
| Fair Value |  | Aggregate Unpaid Principal Balance |  | Difference
Originated loans held for sale | $ | 45,505 |  |  | $ | 44,073 |  |  | $ | 1,432 |

No originated loans held for sale were 90 or more days past due or on nonaccrual status as of March 31, 2019 or December 31, 2018.
We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.
Impaired loans are deemed to be at fair value if an associated allowance or current period charge-off has been recorded. The value of impaired loans is determined by either collateral valuations or discounted present value of the expected cash flow calculations. Collateral values are determined using appraisals or other third-party value estimates of the subject property with discounts generally between 6% and 11% applied for estimated selling costs and other external factors that may impact the marketability of the property. Expected cash flows are determined using expected payment information at the individual loan level, discounted using the effective interest rate. The effective interest rate generally ranges between 2% and 18%.
OREO acquired or written down within the previous 12 months is deemed to be at fair value. Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts generally between 6% and 11% applied for estimated selling costs and other external factors that may impact the marketability of the property. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals ordered to ensure the reported values reflect the most current information.
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For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of March 31, 2019 and December 31, 2018.

| March 31, 2019
|  |  | Fair value measurements using:
(Dollars in thousands) | Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Impaired loans | $ | 110,411 |  |  | $ | — |  |  | $ | — |  |  | $ | 110,411 |
Other real estate remeasured during the previous 12 months | 32,620 |  |  | — |  |  | — |  |  | 32,620 |
| December 31, 2018
|  |  | Fair value measurements using:
| Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Impaired loans | $ | 105,994 |  |  | $ | — |  |  | $ | — |  |  | $ | 105,994 |
Other real estate remeasured during the previous 12 months | 35,344 |  |  | — |  |  | — |  |  | 35,344 |

No financial liabilities were carried at fair value on a nonrecurring basis as of March 31, 2019 and December 31, 2018.
NOTE K - EMPLOYEE BENEFIT PLANS
BancShares sponsors noncontributory defined benefit pension plans for its qualifying employees (BancShares Plan) and former First Citizens Bancorporation, Inc. employees (Bancorporation Plan). The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense.
BancShares Plan
For the three months ended March 31, 2019 and 2018, the components of net periodic benefit cost are as follows:

| Three months ended March 31
(Dollars in thousands) | 2019 |  | 2018
Service cost | $ | 2,568 |  |  | $ | 3,429 |
Interest cost | 7,531 |  |  | 7,057 |
Expected return on assets | (12,867 | ) |  | (11,957 | )
Amortization of prior service cost | 14 |  |  | 20 |
Amortization of net actuarial loss | 2,114 |  |  | 3,246 |
Net periodic (benefit) cost | $ | (640 | ) |  | $ | 1,795 |

Bancorporation Plan
For the three months ended March 31, 2019 and 2018, the components of net periodic benefit cost are as follows:

| Three months ended March 31
(Dollars in thousands) | 2019 |  | 2018
Service cost | $ | 545 |  |  | $ | 662 |
Interest cost | 1,760 |  |  | 1,587 |
Expected return on assets | (2,768 | ) |  | (3,106 | )
Amortization of net actuarial loss | 627 |  |  | 71 |
Net periodic cost (benefit) | $ | 164 |  |  | $ | (786 | )

No discretionary contributions were made during the three months ended March 31, 2019 to the BancShares or Bancorporation pension plans. Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors including, but not limited to, the funded status of and returns on the pension plans, discount rates and the current economic environment.
NOTE L - COMMITMENTS AND CONTINGENCIES
To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit, standby letters of credit and recourse obligations on mortgage loans sold. These instruments involve elements of credit, interest rate or liquidity risk.
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Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires that collateral be pledged to secure the commitment, including cash deposits, securities and other assets.
Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those commitments are primarily issued to support public and private borrowing arrangements, and the fair value of those commitments is not material. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as that involved in extending loans to clients and, therefore, these letters of credit are collateralized when necessary.
The following table presents the commitments to extend credit and unfunded commitments as of March 31, 2019 and December 31, 2018:

(Dollars in thousands) | March 31, 2019 |  | December 31, 2018
Unused commitments to extend credit | $ | 10,187,550 |  |  | $ | 10,054,712 |
Standby letters of credit | 91,719 |  |  | 96,467 |
Unfunded commitments for investments in affordable housing projects | 72,002 |  |  | 67,952 |

Affordable housing project investments were $152.9 million and $147.3 million as of March 31, 2019 and December 31, 2018, respectively, and are included in other assets on the Consolidated Balance Sheets.
BancShares and various subsidiaries have been named as defendants in legal actions arising from their normal business activities in which damages in various amounts are claimed. BancShares is also exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed in the various merger transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares’ consolidated financial statements.
NOTE M - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss included the following as of March 31, 2019 and December 31, 2018:

| March 31, 2019 |  | December 31, 2018
(Dollars in thousands) | Accumulated other comprehensive loss |  | Deferred tax benefit |  | Accumulated other comprehensive loss, net of tax |  | Accumulated other comprehensive loss |  | Deferred tax benefit |  | Accumulated other comprehensive loss, net of tax
Unrealized losses on securities available for sale | $ | (21,936 | ) |  | $ | (5,046 | ) |  | $ | (16,890 | ) |  | $ | (50,007 | ) |  | $ | (11,502 | ) |  | $ | (38,505 | )
Unrealized losses on securities available for sale transferred to held to maturity | (86,439 | ) |  | (19,881 | ) |  | (66,558 | ) |  | (92,401 | ) |  | (21,252 | ) |  | (71,149 | )
Defined benefit pension items | (160,275 | ) |  | (36,863 | ) |  | (123,412 | ) |  | (163,030 | ) |  | (37,497 | ) |  | (125,533 | )
Total | $ | (268,650 | ) |  | $ | (61,790 | ) |  | $ | (206,860 | ) |  | $ | (305,438 | ) |  | $ | (70,251 | ) |  | $ | (235,187 | )

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The following table highlights changes in accumulated other comprehensive (loss) income by component for the three months ended March 31, 2019 and March 31, 2018:

| Three months ended March 31, 2019
(Dollars in thousands) | Unrealized (losses) gains on securities available for sale(1) |  | Unrealized losses on securities available for sale transferred to held to maturity(1) |  | Defined benefit pension items(1) |  | Total
Beginning balance | $ | (38,505 | ) |  | $ | (71,149 | ) |  | $ | (125,533 | ) |  | $ | (235,187 | )
Cumulative effect adjustments | — |  |  | — |  |  | — |  |  | — |
Net unrealized gains arising during period | 21,615 |  |  | — |  |  | — |  |  | 21,615 |
Amounts reclassified from accumulated other comprehensive loss | — |  |  | 4,591 |  |  | 2,121 |  |  | 6,712 |
Net current period other comprehensive income | 21,615 |  |  | 4,591 |  |  | 2,121 |  |  | 28,327 |
Ending balance | $ | (16,890 | ) |  | $ | (66,558 | ) |  | $ | (123,412 | ) |  | $ | (206,860 | )
| Three months ended March 31, 2018
| Unrealized (losses) gains on securities available for sale(1) |  | Unrealized losses on securities available for sale transferred to held to maturity(1) |  | Defined benefit pension items(1) |  | Total
Beginning balance | $ | (30,945 | ) |  | $ | — |  |  | $ | (91,349 | ) |  | $ | (122,294 | )
Cumulative effect adjustments | (29,751 | ) |  | — |  |  | (20,300 | ) |  | (50,051 | )
Net unrealized (losses) arising during period | (60,547 | ) |  | — |  |  | — |  |  | (60,547 | )
Amounts reclassified from accumulated other comprehensive loss | — |  |  | — |  |  | 2,569 |  |  | 2,569 |
Net current period other comprehensive (loss) income | (60,547 | ) |  | — |  |  | 2,569 |  |  | (57,978 | )
Ending balance | $ | (121,243 | ) |  | $ | — |  |  | $ | (109,080 | ) |  | $ | (230,323 | )

(1) All amounts are net of tax. Amounts in parentheses indicate debits.
The following table presents the amounts reclassified from accumulated other comprehensive (loss) income and the line item affected in the statement where net income is presented for the three months ended March 31, 2019 and March 31, 2018.

|  | Three months ended March 31, 2019
(Dollars in thousands) Details about accumulated other comprehensive (loss) income |  | Amounts reclassified from accumulated other comprehensive (loss) income(1) |  | Affected line item in the statement where net income is presented
Amortization of unrealized losses on securities available for sale transferred to held to maturity |  | $ | (5,962 | ) |  | Net interest income
|  | 1,371 |  |  | Income taxes
|  | $ | (4,591 | ) |  | Net Income
Amortization of defined benefit pension items |  |  |  |
Prior service costs |  | $ | (14 | ) |  | Salaries and wages
Actuarial losses |  | (2,741 | ) |  | Other
|  | (2,755 | ) |  | Income before income taxes
|  | 634 |  |  | Income taxes
|  | $ | (2,121 | ) |  | Net income
Total reclassifications for the period |  | $ | (6,712 | ) |  |
|  | Three months ended March 31, 2018
Details about accumulated other comprehensive (loss) income |  | Amounts reclassified from accumulated other comprehensive (loss) income(1) |  | Affected line item in the statement where net income is presented
Amortization of defined benefit pension items |  |  |  |
Prior service costs |  | $ | (20 | ) |  | Salaries and wages
Actuarial losses |  | (3,317 | ) |  | Other
|  | (3,337 | ) |  | Income before income taxes
|  | 768 |  |  | Income taxes
|  | $ | (2,569 | ) |  | Net income
Total reclassifications for the period |  | $ | (2,569 | ) |  |

(1) Amounts in parentheses indicate debits to profit/loss.
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NOTE N - LEASES
BancShares leases certain branch locations, administrative offices and equipment. Operating leases are included in other assets and other liabilities on the Consolidated Balance Sheets. Finance leases are included in premises and equipment and other borrowings on the Consolidated Balance Sheets. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets; we instead recognize lease expense for these leases on a straight-line basis over the lease term.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our corresponding obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating and finance lease ROU asset also includes initial direct costs and pre-paid lease payments made, excluding lease incentives. As most of our leases do not provide an implicit rate, BancShares uses its incremental borrowing rate, based on the information available at commencement date in determining the present value of lease payments. BancShares determines the incremental borrowing rate using secured rates for FHLB new advances under similar terms as the lease at inception. BancShares used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that we will exercise our option to renew or extend the lease term, that option is included in determining the value of the ROU and lease liability. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
We determine if an arrangement is a lease at inception and our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have no related party lease agreements. As of March 31, 2019, there are no leases that have not yet commenced that would have a material impact on our Consolidated Financial Statements.
We rent or sublease certain real estate to third parties to manage occupancy costs and provide flexibility to expand and contract occupancy space to meet our business needs.
The following table presents lease assets and liabilities as of March 31, 2019.

(Dollars in thousands) | Classification | March 31, 2019
Assets: |  |
Operating | Other assets | $ | 70,815 |
Finance | Premises and equipment | 8,763 |
Total leased assets |  | $ | 79,578 |
Liabilities: |  |
Operating | Other liabilities | 72,315 |
Finance | Other borrowings | 7,828 |
Total lease liabilities |  | $ | 80,143 |

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The following table presents lease costs for the three months ended March 31, 2019. Variable lease cost primarily represents variable payments such as common area maintenance and utilities that are recognized in the period in which the expense is incurred. Certain of our lease agreements also include rental payments that are adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as a variable lease cost and recognized in the period in which the expense is incurred.

(Dollars in thousands) | Classification | Three months ended March 31, 2019
Lease cost: |  |
Operating lease cost (1) | Occupancy expense | $ | 3,204 |
Finance lease cost: |  |
Amortization of leased assets | Equipment expense | 447 |
Interest on lease liabilities | Interest Expense - Other borrowings | 65 |
Variable lease cost | Occupancy expense | 528 |
Sublease income | Occupancy expense | (130 | )
Net lease cost |  | $ | 4,114 |
(1) Operating lease cost includes short-term lease cost, which is immaterial.

The following table presents lease liability maturities in the next five years and thereafter.

(Dollars in thousands) | Operating Leases |  | Finance Leases |  | Total
2019 (1) | $ | 10,310 |  |  | $ | 1,301 |  |  | $ | 11,611 |
2020 | 12,475 |  |  | 1,748 |  |  | 14,223 |
2021 | 10,947 |  |  | 1,764 |  |  | 12,711 |
2022 | 9,575 |  |  | 1,481 |  |  | 11,056 |
2023 | 7,772 |  |  | 599 |  |  | 8,371 |
Thereafter | 35,343 |  |  | 1,683 |  |  | 37,026 |
Total lease payments | $ | 86,422 |  |  | $ | 8,576 |  |  | $ | 94,998 |
Less: Interest | 14,107 |  |  | 748 |  |  | 14,855 |
Present value of lease liabilities | $ | 72,315 |  |  | $ | 7,828 |  |  | $ | 80,143 |
(1) Represents the lease liability payments that will be made for the period April 1, 2019 through December 31, 2019.

The following table presents the remaining weighted average lease terms and discount rates as of March 31, 2019.

Weighted average remaining lease term (years): | March 31, 2019
Operating | 9.7 |
Finance | 5.4 |
Weighted average discount rate: |
Operating | 3.36 | %
Finance | 3.22 |

The following table presents supplemental cash flow information related to leases for the three months ended March 31, 2019.

(Dollars in thousands) | March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash flows from operating leases | $ | 3,550 |
Operating cash flows from finance leases | 65 |
Financing cash flows from finance leases | 366 |
Right-of-use assets obtained in exchange for new operating lease liabilities | 3,591 |
Right-of-use assets obtained in exchange for new finance lease liabilities | — |

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

Management’s discussion and analysis (MD&A) of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and Subsidiaries (BancShares). This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this report along with our financial statements and related MD&A of financial condition and results of operations included in our 2018 Annual Report on Form 10-K. Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform to statement presentations for 2019, the reclassifications had no 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.
EXECUTIVE OVERVIEW
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.
BancShares’ earnings and cash flows are primarily derived from our commercial and retail banking activities. We gather deposits from retail and commercial customers and also secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and overnight investments. We also invest in bank premises, hardware, software, furniture and equipment used to conduct our commercial and retail banking business. We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks. The fees and service charges generated from these products and services are primary sources of noninterest income which is an essential component of our total revenue.
Interest rates have presented significant challenges to commercial banks' efforts to generate earnings and shareholder value. Our strategy continues to focus on maintaining an interest rate risk profile that will benefit net interest income in a rising rate environment. Management drives to this goal by focusing on core customer deposits and loans in the targeted interest rate risk profile. Additionally, our initiatives focus on growth of noninterest income sources, control of noninterest expenses, optimization of our branch network, and further enhancements to our technology and delivery channels. Refer to our Form 10-K for the year ended December 31, 2018 for further discussion of our strategy.
Significant Events in 2019
On May 1, 2019, FCB completed the merger of Spartanburg, South Carolina-based First South Bancorp and its bank subsidiary, First South Bank, into FCB.
On April 23, 2019, FCB entered into a definitive merger agreement for the acquisition of Franklin, North Carolina-based Entegra Financial Corp. and its bank subsidiary, Entegra Bank, into FCB.
On April 2, 2019, FCB completed the merger of Coconut Grove, Florida-based Biscayne Bancshares and its bank subsidiary, Biscayne Bank, into FCB.
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' revised estimate of fourth quarter 2018 GDP growth was 2.2%, down from 3.4% GDP growth in the third quarter of 2018. The estimated real GDP deceleration in the fourth quarter primarily reflected slow declines in private inventory investment, state and government spending, personal consumption expenditures and federal government spending. Imports increased less in the fourth quarter of 2018 than in the third quarter of 2018. These movements were partly offset by an upturn in exports and an acceleration in nonresidential fixed investment.
The United States (U.S.) unemployment rate declined from 3.9% in December 2018 to 3.8% in March 2019. According to the U.S. Department of Labor, the U.S. economy added approximately 541,000 new nonfarm payroll jobs during the first quarter of 2019. The U.S. housing market remains stable as a result of solid housing demand fueled by low mortgage interest rates, economic growth and job creation.
The Federal Reserve’s Federal Open Market Committee (FOMC) indicated in the first quarter of 2019 that the U.S. labor market remains strong and that economic activity rose at a solid rate. In view of realized and expected labor market conditions and inflation, the FOMC decided to maintain the target range for the federal funds rate, leaving it at 2.25% to 2.50%. In determining the timing and size of future adjustments to the target range for the federal funds rates, the FOMC indicated it will assess realized and expected economic conditions relative to its objectives of maximum employment and 2.0% inflation.
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FINANCIAL PERFORMANCE SUMMARY
For the first quarter of 2019 consolidated net income was $111.4 million, or $9.67 per share, compared to $100.2 million, or $8.35 per share, for the corresponding period of 2018. BancShares’ first quarter results generated an annualized return on average assets of 1.27% and an annualized return on average equity of 12.86%, compared to 1.19% and 12.20%, respectively, for the first quarter of 2018.
First Quarter Highlights

• | Net income for the first quarter of 2019 totaled $111.4 million, an increase of $11.2 million, or 11.1% compared to the first quarter of 2018. Net income per share increased 15.8% to $9.67 in the first quarter of 2019, largely impacted by common stock repurchases.

• | Net interest income for the first quarter of 2019 increased $36.1 million, or by 12.7%, compared to the first quarter of 2018. The taxable-equivalent net interest margin (NIM) totaled 3.89% for the first quarter of 2019, an increase of 32 basis points compared to 3.57% for the same quarter in 2018. This increase was primarily the result of higher loan interest and fees due to higher average outstanding balances and higher loan yields, partially offset by higher deposit costs.

• | Noninterest income for the first quarter of 2019 totaled $103.7 million, a decrease of $19.0 million from the first quarter of 2018. The reduction was primarily driven by a $25.8 million gain on debt extinguishment recognized during the first quarter of 2018, partially offset by a $10.4 million increase in the fair value adjustment on marketable equity securities, a $1.9 million increase in cardholder services income and a $1.4 million increase in wealth services income.

• | Noninterest expense for the first quarter of 2019 totaled $267.7 million, a decrease of $0.4 million from the first quarter of 2018. Declines in FDIC insurance, collection and foreclosure-related expense and processing fees were partially offset by increases in salaries and wages and equipment expense.

• | Income tax expense totaled $33.4 million with an effective tax rate of 23.1% for the first quarter of 2019, compared to $31.2 million tax expense and an effective tax rate of 23.8% for the first quarter of 2018.

• | Loans and leases were $25.46 billion at March 31, 2019, a net decrease of $59.5 million compared to December 31, 2018, or 0.9% on an annualized basis. This decrease was driven by a $49.2 million decline in the PCI loan portfolio and a $10.3 million net decline in the non-PCI portfolio. The net decline in the non-PCI portfolio was driven in part by reductions in revolving mortgages, as well as seasonality in the government lending portfolio. These declines were partially offset by sustained growth in commercial construction and land development, commercial mortgage and consumer auto loans.

• | Deposits grew by $525.6 million, or 6.9% on an annualized basis, from December 31, 2018, primarily driven by an increase in demand deposits due to both seasonal fluctuations in commercial demand deposits and continued focus by branch associates on deposit growth.

• | During the first quarter of 2019, BancShares repurchased 243,000 shares of class A common stock for $100.7 million.

• | BancShares remained well capitalized with a Tier 1 risk-based capital ratio and common equity Tier 1 ratio of 12.69%, total risk-based capital ratio of 14.02% and leverage capital ratio of 9.80% at March 31, 2019.

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Table 1
SELECTED QUARTERLY DATA

| 2019 |  | 2018 |
| First |  | Fourth |  | Third |  | Second |  | First |
(Dollars in thousands, except share data) | Quarter |  | Quarter |  | Quarter |  | Quarter |  | Quarter |
SUMMARY OF OPERATIONS |  |  |  |  |  |  |  |  |  |
Interest income | $ | 336,924 |  |  | $ | 333,573 |  |  | $ | 315,706 |  |  | $ | 303,877 |  |  | $ | 292,601 |  |
Interest expense | 16,452 |  |  | 12,691 |  |  | 8,344 |  |  | 7,658 |  |  | 8,164 |  |
Net interest income | 320,472 |  |  | 320,882 |  |  | 307,362 |  |  | 296,219 |  |  | 284,437 |  |
Provision for loan and lease losses | 11,750 |  |  | 11,585 |  |  | 840 |  |  | 8,438 |  |  | 7,605 |  |
Net interest income after provision for loan and lease losses | 308,722 |  |  | 309,297 |  |  | 306,522 |  |  | 287,781 |  |  | 276,832 |  |
Noninterest income | 103,663 |  |  | 82,007 |  |  | 94,531 |  |  | 100,927 |  |  | 122,684 |  |
Noninterest expense | 267,657 |  |  | 275,378 |  |  | 267,537 |  |  | 265,993 |  |  | 268,063 |  |
Income before income taxes | 144,728 |  |  | 115,926 |  |  | 133,516 |  |  | 122,715 |  |  | 131,453 |  |
Income taxes | 33,369 |  |  | 26,453 |  |  | 16,198 |  |  | 29,424 |  |  | 31,222 |  |
Net income | $ | 111,359 |  |  | $ | 89,473 |  |  | $ | 117,318 |  |  | $ | 93,291 |  |  | $ | 100,231 |  |
Net interest income, taxable equivalent | $ | 321,372 |  |  | $ | 321,804 |  |  | $ | 308,207 |  |  | $ | 297,021 |  |  | $ | 285,248 |  |
PER SHARE DATA |  |  |  |  |  |  |  |  |  |
Net income | $ | 9.67 |  |  | $ | 7.62 |  |  | $ | 9.80 |  |  | $ | 7.77 |  |  | $ | 8.35 |  |
Cash dividends | 0.40 |  |  | 0.40 |  |  | 0.35 |  |  | 0.35 |  |  | 0.35 |  |
Market price at period end (Class A) | 407.20 |  |  | 377.05 |  |  | 452.28 |  |  | 403.30 |  |  | 413.24 |  |
Book value at period-end | 309.46 |  |  | 300.04 |  |  | 294.40 |  |  | 286.99 |  |  | 280.77 |  |
SELECTED QUARTERLY AVERAGE BALANCES |  |  |  |  |  |  |  |  |
Total assets (1) | $ | 35,625,885 |  |  | $ | 35,625,500 |  |  | $ | 34,937,175 |  |  | $ | 34,673,927 |  |  | $ | 34,267,495 |  |
Investment securities | 6,790,671 |  |  | 7,025,889 |  |  | 7,129,089 |  |  | 7,091,442 |  |  | 7,053,001 |  |
Loans and leases (2) | 25,515,988 |  |  | 25,343,813 |  |  | 24,698,799 |  |  | 24,205,363 |  |  | 23,666,098 |  |
Interest-earning assets | 33,432,162 |  |  | 33,500,732 |  |  | 32,886,276 |  |  | 32,669,810 |  |  | 32,320,431 |  |
Deposits | 30,802,567 |  |  | 30,835,157 |  |  | 30,237,329 |  |  | 30,100,615 |  |  | 29,472,125 |  |
Interest-bearing liabilities | 19,655,434 |  |  | 19,282,749 |  |  | 18,783,160 |  |  | 18,885,168 |  |  | 19,031,404 |  |
Securities sold under customer repurchase agreements | 538,162 |  |  | 572,442 |  |  | 547,385 |  |  | 516,999 |  |  | 585,627 |  |
Other short-term borrowings | — |  |  | 53,552 |  |  | 43,720 |  |  | 46,614 |  |  | 91,440 |  |
Long-term borrowings | 344,225 |  |  | 319,410 |  |  | 261,821 |  |  | 233,373 |  |  | 404,065 |  |
Shareholders' equity | $ | 3,509,746 |  |  | $ | 3,491,914 |  |  | $ | 3,470,368 |  |  | $ | 3,400,867 |  |  | $ | 3,333,114 |  |
Shares outstanding | 11,519,008 |  |  | 11,763,832 |  |  | 11,971,460 |  |  | 12,010,405 |  |  | 12,010,405 |  |
SELECTED QUARTER-END BALANCES |  |  |  |  |  |  |  |  |
Total assets (1) | $ | 35,961,670 |  |  | $ | 35,408,629 |  |  | $ | 34,954,659 |  |  | $ | 35,088,566 |  |  | 34,436,437 |  |
Investment securities | 6,914,513 |  |  | 6,834,362 |  |  | 7,040,674 |  |  | 7,190,545 |  |  | 6,967,921 |  |
Loans and leases | 25,463,785 |  |  | 25,523,276 |  |  | 24,886,347 |  |  | 24,538,437 |  |  | 23,611,977 |  |
Deposits | 31,198,093 |  |  | 30,672,460 |  |  | 30,163,537 |  |  | 30,408,884 |  |  | 29,969,245 |  |
Securities sold under customer repurchase agreements | 508,508 |  |  | 543,936 |  |  | 567,438 |  |  | 499,723 |  |  | 522,207 |  |
Other short-term borrowings | — |  |  | — |  |  | — |  |  | 75,000 |  |  | 2,551 |  |
Long-term borrowings | 341,108 |  |  | 348,218 |  |  | 417,798 |  |  | 280,630 |  |  | 224,413 |  |
Shareholders' equity | $ | 3,523,309 |  |  | $ | 3,488,954 |  |  | $ | 3,499,013 |  |  | $ | 3,446,886 |  |  | $ | 3,372,114 |  |
Shares outstanding | 11,385,405 |  |  | 11,628,405 |  |  | 11,885,405 |  |  | 12,010,405 |  |  | 12,010,405 |  |
SELECTED RATIOS AND OTHER DATA |  |  |  |  |  |  |  |  |
Rate of return on average assets (annualized) | 1.27 |  | % | 1.00 |  | % | 1.33 |  | % | 1.08 |  | % | 1.19 |  | %
Rate of return on average shareholders' equity (annualized) | 12.86 |  |  | 10.17 |  |  | 13.41 |  |  | 11.00 |  |  | 12.20 |  |
Net yield on interest-earning assets (taxable equivalent) | 3.89 |  |  | 3.82 |  |  | 3.73 |  |  | 3.64 |  |  | 3.57 |  |
Allowance for loan and lease losses to total loans and leases: |  |  |  |  |  |  |  |  |  |
PCI | 1.61 |  |  | 1.51 |  |  | 1.71 |  |  | 1.84 |  |  | 1.75 |  |
Non-PCI | 0.88 |  |  | 0.86 |  |  | 0.86 |  |  | 0.89 |  |  | 0.92 |  |
Total | 0.90 |  |  | 0.88 |  |  | 0.88 |  |  | 0.92 |  |  | 0.94 |  |
Ratio of total nonperforming assets to total loans, leases and other real estate owned | 0.53 |  |  | 0.52 |  |  | 0.52 |  |  | 0.54 |  |  | 0.59 |  |
Tier 1 risk-based capital ratio | 12.69 |  |  | 12.67 |  |  | 13.23 |  |  | 13.06 |  |  | 13.38 |  |
Common equity Tier 1 ratio | 12.69 |  |  | 12.67 |  |  | 13.23 |  |  | 13.06 |  |  | 13.38 |  |
Total risk-based capital ratio | 14.02 |  |  | 13.99 |  |  | 14.57 |  |  | 14.43 |  |  | 14.70 |  |
Leverage capital ratio | 9.80 |  |  | 9.77 |  |  | 10.11 |  |  | 9.99 |  |  | 10.02 |  |
Dividend payout ratio | 4.14 |  |  | 5.25 |  |  | 3.57 |  |  | 4.50 |  |  | 4.19 |  |
Average loans and leases to average deposits | 82.84 |  |  | 82.19 |  |  | 81.68 |  |  | 80.41 |  |  | 80.30 |  |

(1) We adopted ASC Topic 842 and utilized the effective date method. We did not restate selected financial data for the quarters prior to 2019 presented above.
(2) Average loan and lease balances include PCI loans, non-PCI loans and leases, loans held for sale and nonaccrual loans and leases.
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BUSINESS COMBINATIONS
First South Bancorp, Inc.
On May 1, 2019, FCB completed the merger of Spartanburg, South Carolina-based First South Bancorp and its bank subsidiary, First South Bank. Under the terms of the agreement, cash consideration of $1.15 per share was paid to the shareholders of First South Bancorp for each share of common stock totaling approximately $37.5 million. The total consideration assumes the conversion of all First South Bancorp's Series A preferred shares into common stock. The merger will allow FCB to expand its presence and enhance banking efforts in South Carolina. As of March 31, 2019, First South Bancorp reported $236.0 million in consolidated assets, $183.3 million in loans and $206.1 million in deposits.
Entegra Financial Corp.
On April 23, 2019, FCB and Entegra Financial Corp. (Entegra) entered into a definitive merger agreement for the acquisition by FCB of Franklin, North Carolina-based Entegra and its bank subsidiary, Entegra Bank. Under the terms of the agreement, cash consideration of $30.18 per share will be paid to the shareholders of Entegra for each share of common stock and for each restricted stock unit after conversion to common stock, and each option to purchase Entegra common stock will be canceled and each option holder will receive a cash payment equal to $30.18 for each share underlying the option minus the applicable exercise price of the option. The total transaction value, including termination fee, is anticipated to be approximately $219.8 million. The transaction is anticipated to close during the second half of 2019, subject to the receipt of regulatory approvals and the approval of Entegra's shareholders. As of March 31, 2019, Entegra reported $1.67 billion in consolidated assets, $1.25 billion in deposits and $1.08 billion in loans.
Biscayne Bancshares, Inc.
On April 2, 2019, FCB completed the merger of Coconut Grove, Florida-based Biscayne Bancshares, Inc. (Biscayne Bancshares) and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 per share was paid to the shareholders of Biscayne Bancshares for each share of common stock, totaling approximately $118.9 million. The merger will allow FCB to expand its presence in Florida and enhance banking efforts in South Florida. As of March 31, 2019, Biscayne Bancshares reported $1.02 billion in consolidated assets, $879.9 million in loans and $788.2 million in deposits.
FDIC-Assisted Transactions
As of March 31, 2019, BancShares completed fourteen FDIC-assisted transactions. Nine of the fourteen FDIC-assisted transactions included shared-loss agreements which, for their terms, protect us from a substantial portion of the credit and asset quality risk we would otherwise incur. As of March 31, 2019, shared-loss protection remains for single family residential loans acquired in the amount of $53.9 million.
The shared-loss agreements for two FDIC-assisted transactions include provisions related to payments that may be owed to the FDIC at the termination of the agreements (clawback liability). As of March 31, 2019 and December 31, 2018, the estimated clawback liability was $107.3 million and $105.6 million, respectively. The clawback liability payment dates are March 2020 and March 2021.
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Table 2
AVERAGE BALANCE SHEETS

| Three months ended |
| March 31, 2019 |  | March 31, 2018 |
|  |  | Interest |  |  |  |  |  | Interest |  |  |
| Average |  | Income/ |  | Yield/ |  | Average |  | Income/ |  | Yield/ |
(Dollars in thousands) | Balance |  | Expense |  | Rate |  | Balance |  | Expense |  | Rate |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Loans and leases | $ | 25,515,988 |  |  | $ | 291,569 |  |  | 4.62 |  | % | $ | 23,666,098 |  |  | $ | 252,627 |  |  | 4.32 |  | %
Investment securities: |  |  |  |  |  |  |  |  |  |  |  |
U. S. Treasury | 1,208,231 |  |  | 6,496 |  |  | 2.18 |  |  | 1,567,388 |  |  | 6,774 |  |  | 1.75 |  |
Government agency | 286,514 |  |  | 2,309 |  |  | 3.22 |  |  | 14,952 |  |  | 100 |  |  | 2.67 |  |
Mortgage-backed securities | 5,051,416 |  |  | 28,834 |  |  | 2.28 |  |  | 5,295,273 |  |  | 27,093 |  |  | 2.05 |  |
Corporate bonds and other | 145,127 |  |  | 1,937 |  |  | 5.34 |  |  | 66,009 |  |  | 1,010 |  |  | 6.12 |  |
Marketable equity securities | 99,383 |  |  | 282 |  |  | 1.15 |  |  | 109,379 |  |  | 209 |  |  | 0.77 |  |
Total investment securities | 6,790,671 |  |  | 39,858 |  |  | 2.35 |  |  | 7,053,001 |  |  | 35,186 |  |  | 2.00 |  |
Overnight investments | 1,125,503 |  |  | 6,397 |  |  | 2.31 |  |  | 1,601,332 |  |  | 5,599 |  |  | 1.42 |  |
Total interest-earning assets | 33,432,162 |  |  | $ | 337,824 |  |  | 4.09 |  | % | 32,320,431 |  |  | $ | 293,412 |  |  | 3.67 |  | %
Cash and due from banks | 282,060 |  |  |  |  |  |  | 299,052 |  |  |  |  |  |
Premises and equipment | 1,214,324 |  |  |  |  |  |  | 1,142,704 |  |  |  |  |  |
Allowance for loan and lease losses | (224,434 | ) |  |  |  |  |  | (221,690 | ) |  |  |  |  |
Other real estate owned | 47,098 |  |  |  |  |  |  | 49,568 |  |  |  |  |  |
Other assets | 874,675 |  |  |  |  |  |  | 677,430 |  |  |  |  |  |
Total assets | $ | 35,625,885 |  |  |  |  |  |  | $ | 34,267,495 |  |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits: |  |  |  |  |  |  |  |  |  |  |  |
Checking with interest | $ | 5,237,019 |  |  | $ | 345 |  |  | 0.03 |  | % | $ | 5,091,670 |  |  | $ | 293 |  |  | 0.02 |  | %
Savings | 2,523,543 |  |  | 206 |  |  | 0.03 |  |  | 2,378,499 |  |  | 171 |  |  | 0.03 |  |
Money market accounts | 8,168,712 |  |  | 5,172 |  |  | 0.26 |  |  | 8,139,405 |  |  | 1,749 |  |  | 0.09 |  |
Time deposits | 2,843,773 |  |  | 7,203 |  |  | 1.03 |  |  | 2,340,698 |  |  | 1,543 |  |  | 0.27 |  |
Total interest-bearing deposits | 18,773,047 |  |  | 12,926 |  |  | 0.28 |  |  | 17,950,272 |  |  | 3,756 |  |  | 0.08 |  |
Securities sold under customer repurchase agreements | 538,162 |  |  | 459 |  |  | 0.35 |  |  | 585,627 |  |  | 548 |  |  | 0.37 |  |
Other short-term borrowings | — |  |  | — |  |  | — |  |  | 91,440 |  |  | 886 |  |  | 3.88 |  |
Long-term borrowings | 344,225 |  |  | 3,067 |  |  | 3.56 |  |  | 404,065 |  |  | 2,974 |  |  | 2.94 |  |
Total interest-bearing liabilities | 19,655,434 |  |  | 16,452 |  |  | 0.34 |  |  | 19,031,404 |  |  | 8,164 |  |  | 0.17 |  |
Noninterest-bearing deposits | 12,029,520 |  |  |  |  |  |  | 11,521,853 |  |  |  |  |  |
Other liabilities | 431,185 |  |  |  |  |  |  | 381,124 |  |  |  |  |  |
Shareholders' equity | 3,509,746 |  |  |  |  |  |  | 3,333,114 |  |  |  |  |  |
Total liabilities and shareholders' equity | $ | 35,625,885 |  |  |  |  |  |  | $ | 34,267,495 |  |  |  |  |  |
Interest rate spread |  |  |  |  | 3.75 |  | % |  |  |  |  | 3.50 |  | %
Net interest income and net yield on interest-earning assets |  |  | $ | 321,372 |  |  | 3.89 |  | % |  |  | $ | 285,248 |  |  | 3.57 |  | %

Loans and leases include PCI loans, 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 rate of 21.0%, as well as state income tax rate of 3.4%, for the three months ended March 31, 2019 and March 31, 2018, respectively. The taxable-equivalent adjustment was $900 and $811 for the three months ended March 31, 2019 and March 31, 2018, respectively.
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Table 3
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME

| Three months ended March 31, 2019
| Change from prior year period due to:
(Dollars in thousands) | Volume(1) |  | Yield/Rate(1) |  | Total Change
Assets |  |  |  |  |
Loans and leases | $ | 16,887 |  |  | $ | 22,055 |  |  | $ | 38,942 |
Investment securities: |  |  |  |  |
U. S. Treasury | (1,552 | ) |  | 1,274 |  |  | (278 | )
Government agency | 1,813 |  |  | 396 |  |  | 2,209 |
Mortgage-backed securities | (1,190 | ) |  | 2,931 |  |  | 1,741 |
Corporate bonds and other | 1,211 |  |  | (284 | ) |  | 927 |
Marketable equity securities | (19 | ) |  | 92 |  |  | 73 |
Total investment securities | 263 |  |  | 4,409 |  |  | 4,672 |
Overnight investments | (1,664 | ) |  | 2,462 |  |  | 798 |
Total interest-earning assets | $ | 15,486 |  |  | $ | 28,926 |  |  | $ | 44,412 |
Liabilities |  |  |  |  |
Interest-bearing deposits: |  |  |  |  |
Checking with interest | $ | 8 |  |  | $ | 44 |  |  | $ | 52 |
Savings | 11 |  |  | 24 |  |  | 35 |
Money market accounts | 6 |  |  | 3,417 |  |  | 3,423 |
Time deposits | 332 |  |  | 5,328 |  |  | 5,660 |
Total interest-bearing deposits | 357 |  |  | 8,813 |  |  | 9,170 |
Securities sold under customer repurchase agreements | (160 | ) |  | 71 |  |  | (89 | )
Other short-term borrowings | (886 | ) |  | — |  |  | (886 | )
Long-term borrowings | (1,139 | ) |  | 1,232 |  |  | 93 |
Total interest-bearing liabilities | (1,828 | ) |  | 10,116 |  |  | 8,288 |
Change in net interest income | $ | 17,314 |  |  | $ | 18,810 |  |  | $ | 36,124 |
(1) The rate/volume variance is allocated proportionally between the changes in volume and rate. |  |  |  |  |

RESULTS OF OPERATIONS
Net Interest Income and Margin (Taxable Equivalent Basis)
First Quarter 2019 compared to First Quarter 2018
Net interest income for the first quarter of 2019 totaled $320.5 million, an increase of $36.1 million, or 12.7%, compared to the first quarter of 2018. The taxable-equivalent net interest margin was 3.89% in the first quarter of 2019, an increase of 32 basis points from the same quarter in the prior year. The primary driver for this increase was a $38.9 million, or 30 basis points, increase to interest and fees on loans due to higher average loans outstanding and higher loan yields. This increase was partially offset by a $9.2 million, or 20 basis points increase in interest expense on deposits due to higher balances and rates paid on time deposits and money market accounts.
Average interest earning assets increased by $1.11 billion, compared to the first quarter in 2018. Average loans increased $1.85 billion primarily due to originated loan growth, particularly within the commercial and business and residential loan portfolios, and contributions from the HomeBancorp, Inc. (HomeBancorp), Capital Commerce Bancorp, Inc. (Capital Commerce), and Palmetto Heritage Bancshares, Inc. (Palmetto Heritage) acquisitions. Offsetting this increase was a decline in average overnight investments of $475.8 million and a decline in average investment securities of $262.3 million. The yield on interest-earning assets increased by 42 basis points to 4.09% since the first quarter of 2018. Yields on loans and leases increased by 30 basis points, primarily due to higher yields on commercial loans and equity lines. Yields on our investment securities portfolio and overnight investments increased by 35 basis points and 89 basis points, respectively. Higher yields on mortgage-backed securities and U.S. Treasury securities were the primary drivers to the yield increase on investment securities while the increase in the federal funds rate contributed to the yield increase on overnight investments.
Average interest-bearing liabilities increased $624.0 million compared to the first quarter of 2018. This increase is primarily due to an increase in average interest-bearing deposit balances of $822.8 million driven by organic deposit growth and deposits acquired in the HomeBancorp, Capital Commerce, and Palmetto Heritage acquisitions. Offsetting these increases were declines in average other short-term borrowings of $91.4 million, average long-term borrowings of $59.8 million, and average customer repurchase agreements of $47.5 million. Rates on our interest bearing deposits and long-term borrowings increased by 20 basis points and 62 basis points, respectively.
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Provision for Loan and Lease Losses
BancShares recorded a net provision expense for loan and lease losses of $11.8 million for the three months ended March 31, 2019, compared to $7.6 million for the three months ended March 31, 2018. The $4.2 million increase from the prior year quarter was largely driven by higher general reserves related to changes in credit quality, growth within portfolios which are reserved at higher rates and an increase in specific reserves, partially offset by a decline in the provision for PCI loans. Lower PCI provision was driven by positive changes in expected cash flows. Period over period provision amounts for PCI loans can be volatile.
NONINTEREST INCOME
Table 4
NONINTEREST INCOME

| Three months ended
(Dollars in thousands) | March 31, 2019 |  | March 31, 2018
Cardholder services, net | $ | 16,633 |  |  | $ | 14,782 |
Merchant services, net | 5,835 |  |  | 6,177 |
Service charges on deposit accounts | 25,065 |  |  | 26,543 |
Wealth management services | 25,001 |  |  | 23,569 |
Marketable equity securities gains, net | 11,328 |  |  | 971 |
Other service charges and fees | 7,422 |  |  | 7,480 |
Mortgage income | 3,658 |  |  | 4,237 |
Insurance commissions | 3,291 |  |  | 3,776 |
ATM income | 1,511 |  |  | 2,171 |
Gain on extinguishment of debt | — |  |  | 25,814 |
Adjustments to FDIC shared-loss receivable | (2,033 | ) |  | (1,478 | )
Recoveries of PCI loans previously charged off | 3,991 |  |  | 5,693 |
Other | 1,961 |  |  | 2,949 |
Total noninterest income | $ | 103,663 |  |  | $ | 122,684 |

Noninterest income is an essential component of our total revenue and is critical to our ability to sustain adequate profitability levels. The primary sources of noninterest income traditionally consist of fees and service charges generated from cardholder services and deposit accounts, merchant services, wealth management services, and mortgage lending and servicing. Noninterest income for the period ended March 31, 2019, includes a full three months impact from the HomeBancorp, Capital Commerce, and Palmetto Heritage acquisitions compared to no impact for the period ending March 31, 2018, as the acquisitions were completed after the first quarter of 2018.
Noninterest income for the first quarter of 2019 was $103.7 million, compared to $122.7 million for the same period of 2018, a decrease of $19.0 million, or 15.5%. The most significant components of the change were as follows:

• | Gain on extinguishment of debt was $25.8 million for the first quarter of 2018 and no gains were recognized in the first quarter of 2019. The gain in the first quarter 2018 was primarily due to the extinguishment of eight Federal Home Loan Bank debt obligations totaling $675.0 million.

• | Marketable equity securities gains increased by $10.4 million.

• | Income from cardholder services increased by $1.9 million due to higher transaction volume, as well as cost savings achieved by converting to a new processor.

• | Wealth management services income increased by $1.4 million due to an increase in sales volume.

• | Service charges on deposit accounts and ATM income declined by $2.1 million due to reductions in acquired deposit balances and the temporary suspension of ATM fees at certain acquired locations.

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NONINTEREST EXPENSE
Table 5
NONINTEREST EXPENSE

| Three months ended
(Dollars in thousands) | March 31, 2019 |  | March 31, 2018
Salaries and wages | $ | 132,421 |  |  | $ | 129,203 |
Employee benefits | 32,535 |  |  | 32,091 |
Occupancy expense | 27,761 |  |  | 27,954 |
Equipment expense | 26,740 |  |  | 24,974 |
FDIC insurance expense | 2,660 |  |  | 5,733 |
Collection and foreclosure-related expenses | 3,022 |  |  | 4,146 |
Merger-related expenses | 1,719 |  |  | 598 |
Processing fees paid to third parties | 7,089 |  |  | 8,196 |
Telecommunications expense | 2,041 |  |  | 2,690 |
Consultant expense | 2,881 |  |  | 3,006 |
Advertising expense | 2,552 |  |  | 2,551 |
Core deposit intangible amortization | 4,247 |  |  | 4,142 |
Other | 21,989 |  |  | 22,779 |
Total noninterest expense | $ | 267,657 |  |  | $ | 268,063 |

The primary components of noninterest expense are salaries and related employee benefits, occupancy and equipment expense. Noninterest expense for the period ended March 31, 2019, includes a full three months impact from the HomeBancorp, Capital Commerce, and Palmetto Heritage acquisitions compared to no impact for the period ending March 31, 2018, as the acquisitions were completed after the first quarter of 2018.
Noninterest expense was $267.7 million in the first quarter of 2019, compared to $268.1 million for the same period in 2018, a decrease of $0.4 million, or by 0.2%. The most significant components of the change were as follows:

• | FDIC insurance expense decreased $3.1 million due to the discontinuation of the Deposit Insurance Fund surcharge on large banks.

• | Collection and foreclosure-related expense decreased $1.1 million primarily due to reductions in the write downs of bank-owned properties.

• | Processing fees paid to third parties decreased by $1.1 million primarily due to cost savings associated with the operational conversion of Guaranty Bank, partially offset by an increase in digital banking costs.

• | Personnel expense increased $3.7 million primarily due to an increase in salaries and wages as a result of merit increases in 2018, as well as increased headcount from recent acquisitions.

• | Equipment expense increased by $1.8 million primarily due to hardware and software asset additions as we continue to invest in technology.

INCOME TAXES
Income tax expense was $33.4 million and $31.2 million for the first quarter of 2019 and first quarter of 2018, representing effective tax rates of 23.1% and 23.8% during the respective periods.
We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or pending audits or assessments by tax auditors.
INTEREST-EARNING ASSETS
Interest-earning assets include investment securities, loans and leases, and overnight investments, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Riskier investments typically carry a higher interest rate but expose us to higher levels of market risk. We strive to maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum.
Interest-earning assets totaled $33.82 billion and $33.20 billion at March 31, 2019 and December 31, 2018, respectively. The $617.5 million increase was primarily composed of a $589.1 million increase in overnight investments, and an $80.2 million increase in investment securities, partially offset by a $59.5 million decrease in loans and leases.
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Investment Securities
The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity and credit risk and low to moderate interest rate risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares' objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made largely under a long-term earnings optimization strategy. Changes in the total balance of our investment securities portfolio result from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into overnight investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow any overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand. See Note C in the Consolidated Financial Statements for additional disclosures regarding investment securities.
The fair value of all investment securities was $6.95 billion at March 31, 2019, an increase of $103.4 million, when compared to December 31, 2018. The increase in the portfolio from December 31, 2018 was attributable to net purchases totaling $40.6 million, primarily consisting of mortgage-backed and government agency securities, and a $62.6 million improvement in the fair market valuation of the investment securities at March 31, 2019.
As of March 31, 2019, investment securities available for sale had a net pre-tax unrealized loss of $21.9 million, compared to a net pre-tax unrealized loss of $50.0 million as of December 31, 2018. After evaluating the available for sale securities with unrealized losses, management concluded that the unrealized losses relate to changes in interest rates relative to when the securities were purchased, and therefore, no other than temporary impairment existed as of March 31, 2019. Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of AOCI, net of deferred taxes.
At March 31, 2019, mortgage-backed securities represented 74.1% of total investment securities, compared to U.S. Treasury, government agency securities, corporate bonds, other investments and marketable equity securities, which represented 17.2%, 5.0%, 2.0%, 0.1% and 1.6% of the total investment securities, respectively. Overnight investments are with the Federal Reserve Bank and other financial institutions.
Table 6
INVESTMENT SECURITIES

| March 31, 2019 |  | December 31, 2018
(Dollars in thousands) | Cost |  | Fair value |  | Cost |  | Fair value
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 1,196,584 |  |  | $ | 1,197,042 |  |  | $ | 1,249,243 |  |  | $ | 1,247,710 |
Government agency | 351,284 |  |  | 350,527 |  |  | 257,252 |  |  | 256,835 |
Mortgage-backed securities | 2,917,000 |  |  | 2,895,944 |  |  | 2,956,793 |  |  | 2,909,339 |
Corporate bonds | 142,939 |  |  | 142,162 |  |  | 139,906 |  |  | 139,101 |
Other | 3,929 |  |  | 4,125 |  |  | 3,923 |  |  | 4,125 |
Total investment securities available for sale | 4,611,736 |  |  | 4,589,800 |  |  | 4,607,117 |  |  | 4,557,110 |
Investment in marketable equity securities | 79,809 |  |  | 109,884 |  |  | 73,809 |  |  | 92,599 |
Investment securities held to maturity |  |  |  |  |  |  |
Mortgage-backed securities | 2,214,829 |  |  | 2,254,924 |  |  | 2,184,653 |  |  | 2,201,502 |
Total investment securities | $ | 6,906,374 |  |  | $ | 6,954,608 |  |  | $ | 6,865,579 |  |  | $ | 6,851,211 |

Loans and Leases
Loans and leases were $25.46 billion at March 31, 2019, a net decrease of $59.5 million compared to December 31, 2018, or 0.9% on an annualized basis. This decrease was driven by a $49.2 million decline in the PCI loan portfolio and a $10.3 million net decline in the non-PCI portfolio. The net decline in the non-PCI portfolio was driven in part by reductions in revolving mortgages due to increasing interest rates and changes in tax laws enacted by the Tax Cuts and Jobs Act of 2017, as well as seasonality in the government lending portfolio. These declines were partially offset by sustained growth in commercial construction and land development, commercial mortgage and consumer auto loans.
BancShares reports non-PCI and PCI loan portfolios separately, and each portfolio is further divided into commercial and non-commercial. Non-PCI loans and leases at March 31, 2019 were $24.91 billion, representing 97.8% of total loans and leases, compared to $24.92 billion or 97.6% at December 31, 2018. PCI loans at March 31, 2019 were $557.4 million, representing 2.2% of total loans and leases, compared to $606.6 million or 2.4% at December 31, 2018.
The discount related to acquired non-PCI loans and leases at March 31, 2019 and December 31, 2018 was $30.1 million and $33.3 million, respectively. The discount related to PCI loans at March 31, 2019 and December 31, 2018 was $89.4 million and $95.5 million, respectively.
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Table 7
LOANS AND LEASES

(Dollars in thousands) | March 31, 2019 |  | December 31, 2018
Non-PCI loans and leases: |  |  |
Commercial: |  |  |
Construction and land development | $ | 804,463 |  |  | $ | 757,854 |
Commercial mortgage | 10,747,715 |  |  | 10,717,234 |
Other commercial real estate | 427,419 |  |  | 426,985 |
Commercial and industrial and leases | 3,879,575 |  |  | 3,938,730 |
Other | 280,848 |  |  | 296,424 |
Total commercial loans | 16,140,020 |  |  | 16,137,227 |
Noncommercial: |  |  |
Residential mortgage | 4,303,137 |  |  | 4,265,687 |
Revolving mortgage | 2,469,898 |  |  | 2,542,975 |
Construction and land development | 258,959 |  |  | 257,030 |
Consumer | 1,734,415 |  |  | 1,713,781 |
Total noncommercial loans | 8,766,409 |  |  | 8,779,473 |
Total non-PCI loans and leases | $ | 24,906,429 |  |  | $ | 24,916,700 |
PCI loans: |  |  |
Total PCI loans | 557,356 |  |  | 606,576 |
Total loans and leases | 25,463,785 |  |  | 25,523,276 |
Less allowance for loan and lease losses | (228,775 | ) |  | (223,712 | )
Net loans and leases | $ | 25,235,010 |  |  | $ | 25,299,564 |

ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
The allowance for loan and lease losses was $228.8 million at March 31, 2019, representing an increase of $5.1 million since December 31, 2018. The ALLL as a percentage of total loans and leases was 0.90% at March 31, 2019, compared to 0.88% December 31, 2018.
At March 31, 2019, the ALLL allocated to total non-PCI loans and leases was $219.8 million, or 0.88% of non-PCI loans and leases, compared to $214.6 million, or 0.86%, at December 31, 2018. The increase from December 31, 2018 is largely due to loan growth within portfolios which are reserved at higher rates, changes in credit quality, and increases in specific reserves.
At March 31, 2019, the ALLL for PCI loans totaled $9.0 million compared to $9.1 million at December 31, 2018. The decrease was primarily due to continued PCI loan portfolio run-off, offset by updated cash flow estimates.
On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.11% for the first quarter of 2019 and the first quarter of 2018. Net charge-offs for non-PCI loans and leases were $6.7 million during the first quarter of 2019, compared to $6.3 million during the first quarter of 2018.
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Table 8
ALLOWANCE FOR LOAN AND LEASE LOSSES

| Three months ended March 31
(Dollars in thousands) | 2019 |  | 2018
Allowance for loan and lease losses at beginning of period | $ | 223,712 |  |  | $ | 221,893 |
Non-PCI provision for loan and lease losses | 11,914 |  |  | 5,251 |
PCI (credit) provision for loan losses | (164 | ) |  | 2,354 |
Non-PCI Charge-offs: |  |  |
Commercial: |  |  |
Construction and land development | (44 | ) |  | — |
Commercial mortgage | (761 | ) |  | (46 | )
Other commercial real estate | — |  |  | — |
Commercial and industrial and leases | (1,858 | ) |  | (2,329 | )
Other | — |  |  | (3 | )
Total commercial | (2,663 | ) |  | (2,378 | )
Noncommercial: |  |  |
Residential mortgage | (166 | ) |  | (806 | )
Revolving mortgage | (963 | ) |  | (992 | )
Construction and land development | — |  |  | (182 | )
Consumer | (6,362 | ) |  | (5,255 | )
Total noncommercial | (7,491 | ) |  | (7,235 | )
Total non-PCI charge-offs | (10,154 | ) |  | (9,613 | )
Non-PCI Recoveries: |  |  |
Commercial: |  |  |
Construction and land development | 131 |  |  | 23 |
Commercial mortgage | 220 |  |  | 239 |
Other commercial real estate | 1 |  |  | 145 |
Commercial and industrial and leases | 538 |  |  | 1,260 |
Other | 444 |  |  | 42 |
Total commercial | 1,334 |  |  | 1,709 |
Noncommercial: |  |  |
Residential mortgage | 173 |  |  | 77 |
Revolving mortgage | 387 |  |  | 194 |
Construction and land development | — |  |  | 26 |
Consumer | 1,573 |  |  | 1,309 |
Total noncommercial | 2,133 |  |  | 1,606 |
Total non-PCI recoveries | 3,467 |  |  | 3,315 |
Non-PCI loans and leases charged off, net | (6,687 | ) |  | (6,298 | )
PCI loans charged off, net | — |  |  | (84 | )
Allowance for loan and lease losses at end of period | $ | 228,775 |  |  | $ | 223,116 |
Reserve for unfunded commitments | $ | 1,052 |  |  | $ | 1,116 |

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Table 9
ALLOWANCE FOR LOAN AND LEASE LOSSES RATIOS

| Three months ended March 31 |
(Dollars in thousands) | 2019 |  | 2018 |
Average loans and leases: |  |  |  |
PCI | $ | 579,080 |  |  | $ | 733,830 |  |
Non-PCI | 24,936,898 |  |  | 22,932,268 |  |
Loans and leases at period-end: |  |  |  |
PCI | 557,356 |  |  | 703,837 |  |
Non-PCI | 24,906,429 |  |  | 22,908,140 |  |
Allowance for loan and lease losses allocated to loans and leases: |  |  |  |
PCI | 8,980 |  |  | 12,296 |  |
Non-PCI | 219,795 |  |  | 210,820 |  |
Total | $ | 228,775 |  |  | $ | 223,116 |  |
Net charge-offs (annualized) to average loans and leases: |  |  |  |
PCI | — |  | % | 0.05 |  | %
Non-PCI | 0.11 |  |  | 0.11 |  |
Total | 0.11 |  |  | 0.11 |  |
ALLL to total loans and leases: |  |  |  |
PCI | 1.61 |  |  | 1.75 |  |
Non-PCI | 0.88 |  |  | 0.92 |  |
Total | 0.90 |  |  | 0.94 |  |

NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans and leases and other real estate owned (OREO). At March 31, 2019, BancShares’ nonperforming assets were $133.9 million, unchanged from December 31, 2018.
Nonaccrual loans and leases at March 31, 2019 were $90.6 million reflecting an increase of $4.8 million since December 31, 2018. The increase is primarily due to new nonaccrual loans within the commercial mortgage portfolio. At March 31, 2019, OREO totaled $43.3 million, representing a decline of $4.7 million since December 31, 2018 as sales and write-downs of assets outpaced additions.
Table 10
NONPERFORMING ASSETS

| 2019 |  | 2018
| First |  | Fourth |  | Third |  | Second |  | First
(Dollars in thousands) | Quarter |  | Quarter |  | Quarter |  | Quarter |  | Quarter
Nonaccrual loans and leases: |  |  |  |  |  |  |  |  |
Non-PCI | $ | 88,958 |  |  | $ | 84,546 |  |  | $ | 85,419 |  |  | $ | 85,055 |  |  | $ | 89,260 |
PCI | 1,667 |  |  | 1,276 |  |  | 1,530 |  |  | 1,570 |  |  | 1,580 |
Other real estate owned | 43,306 |  |  | 48,030 |  |  | 43,601 |  |  | 46,633 |  |  | 48,089 |
Total nonperforming assets | $ | 133,931 |  |  | $ | 133,852 |  |  | $ | 130,550 |  |  | $ | 133,258 |  |  | $ | 138,929 |
Accruing loans and leases 90 days or more past due |  |  |  |  |  |  |  |  |
Non-PCI | $ | 3,493 |  |  | $ | 2,888 |  |  | $ | 2,640 |  |  | $ | 3,179 |  |  | $ | 3,030 |
PCI | 33,981 |  |  | 37,020 |  |  | 38,073 |  |  | 41,266 |  |  | 48,229 |
Ratio of total nonperforming assets to total loans, leases and other real estate owned | 0.53 | % |  | 0.52 | % |  | 0.52 | % |  | 0.54 | % |  | 0.59 | %

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TROUBLED DEBT RESTRUCTURINGS (TDRs)
We have selectively agreed to modify existing loan terms to provide relief to customers who are experiencing financial difficulties or other circumstances that could affect their ability to meet debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Nonperforming TDRs that are not accruing interest are included as nonperforming assets within nonaccrual loans and leases. TDRs that are accruing at the time of restructure and continue to perform based on the restructured terms are considered performing. Loans acquired under ASC 310-30, excluding pooled loans, are not initially considered to be TDRs, but can be classified as such if a modification is made subsequent to acquisition. Subsequent modification of a PCI loan accounted for in a pool that would otherwise meet the definition of a TDR is not reported, or accounted for, as a TDR since pooled PCI loans are excluded from the scope of TDR accounting.
Table 11
TROUBLED DEBT RESTRUCTURINGS

(Dollars in thousands) | March 31, 2019 |  | December 31, 2018
Accruing TDRs: |  |  |
Non-PCI | $ | 105,872 |  |  | $ | 108,992 |
PCI | 17,839 |  |  | 18,101 |
Total accruing TDRs | 123,711 |  |  | 127,093 |
Nonaccruing TDRs: |  |  |
Non-PCI | 29,724 |  |  | 28,918 |
PCI | 82 |  |  | 119 |
Total nonaccruing TDRs | 29,806 |  |  | 29,037 |
All TDRs: |  |  |
Non-PCI | 135,596 |  |  | 137,910 |
PCI | 17,921 |  |  | 18,220 |
Total TDRs | $ | 153,517 |  |  | $ | 156,130 |

INTEREST-BEARING LIABILITIES
Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, federal funds purchased, FHLB borrowings, subordinated debentures, and other borrowings. Interest-bearing liabilities were $19.67 billion at March 31, 2019, compared to $19.68 billion at December 31, 2018. The $11.1 million decrease was due to decreases in customer repurchase agreements and subordinated debentures of $35.4 million and $4.2 million, respectively, partially offset by an increase in interest-bearing deposits of $31.4 million.
Deposits
Due to our focus on maintaining a strong liquidity position, core deposit retention remains a key business objective. We believe that traditional bank deposit products remain an attractive option for many customers but, as economic conditions improve, we recognize that our liquidity position could be adversely affected as bank deposits are withdrawn and invested elsewhere. Our ability to fund future loan growth is significantly dependent on our success at retaining existing deposits and generating new deposits at a reasonable cost.
At March 31, 2019, total deposits were $31.20 billion, an increase of $525.6 million, representing annualized growth of 6.9% when compared to December 31, 2018. This increase was the result of organic growth in demand, interest checking and time deposit accounts, partially offset by declines in money market accounts. Demand and interest checking deposits increased $590.8 million due to both seasonal fluctuations in commercial demand deposits and a continued focus by branch associates on core deposit growth.
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Table 12
DEPOSITS

| March 31, 2019 |  | December 31, 2018
Demand | $ | 12,376,913 |  |  | $ | 11,882,670 |
Checking with interest | 5,435,101 |  |  | 5,338,511 |
Money market | 7,940,984 |  |  | 8,194,818 |
Savings | 2,550,070 |  |  | 2,499,750 |
Time | 2,895,025 |  |  | 2,756,711 |
Total deposits | $ | 31,198,093 |  |  | $ | 30,672,460 |

Borrowings
At March 31, 2019, total borrowings were $849.6 million compared to $892.2 million at December 31, 2018. The $42.6 million decrease from December 31, 2018 was primarily a result of a decrease in customer repurchase agreements of $35.4 million and a decrease in subordinated debentures of $4.2 million.
BancShares owns three special purpose entities – FCB/NC Capital Trust III, FCB/SC Capital Trust II and SCB Capital Trust I (the Trusts). Long-term borrowings included junior subordinated debentures representing obligations to the Trusts, which may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of the Trusts. BancShares had the following issues of trust preferred securities and subordinated debentures owed to the Trusts:
Table 13
TRUST PREFERRED SECURITIES AND SUBORDINATED DEBENTURES

|  | March 31, 2019 |  | December 31, 2018 |  | Maturity Date
(Dollars in thousands) |  | Subordinated Debentures Owed to Trust |  | Trust Preferred Securities of the Trusts |  | Subordinated Debentures Owed to Trust |  | Trust Preferred Securities of the Trusts |
FCB/NC Capital Trust III |  | $ | 88,145 |  |  | $ | 85,500 |  |  | $ | 88,145 |  |  | $ | 85,500 |  |  | June 30, 2036
FCB/SC Capital Trust II |  | 19,588 |  |  | 19,000 |  |  | 19,588 |  |  | 19,000 |  |  | June 15, 2034
SCB Capital Trust I |  | 10,310 |  |  | 10,000 |  |  | 10,310 |  |  | 10,000 |  |  | April 7, 2034
|  | $ | 118,043 |  |  | $ | 114,500 |  |  | $ | 118,043 |  |  | $ | 114,500 |  |  |

SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Table 14 shows activities that caused the change in outstanding Class A common stock over the past five quarters.
Table 14
CHANGES IN CLASS A COMMON STOCK OUTSTANDING

| 2019 |  | 2018 |
| First |  | Fourth |  | Third |  | Second |  | First |
(in thousands) | Quarter |  | Quarter(1) |  | Quarter |  | Quarter |  | Quarter |
Shares outstanding at beginning of period | 10,623 |  |  | 10,880 |  |  | 11,005 |  |  | 11,005 |  |  | 11,005 |  |
Repurchases | (243 | ) |  | (257 | ) |  | (125 | ) |  | — |  |  | — |  |
Shares outstanding at end of period | 10,380 |  |  | 10,623 |  |  | 10,880 |  |  | 11,005 |  |  | 11,005 |  |
1 182,000 shares repurchased under the current Board authority and 75,000 shares repurchased under the previous Board authority.

We are committed to effectively managing our capital to protect our depositors, creditors and shareholders. We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements.
In accordance with accounting principles generally accepted in the United States of America (GAAP), the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within shareholders' equity. These amounts are excluded from shareholders' equity in the calculation of our capital ratios under current regulatory guidelines.
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Table 15
ANALYSIS OF CAPITAL ADEQUACY

| Requirements to be well-capitalized |  | March 31, 2019 |  | December 31, 2018
(Dollars in thousands) |  | Amount |  | Ratio |  | Amount |  | Ratio
BancShares |  |  |  |  |  |  |  |  |
Risk-based capital ratios |  |  |  |  |  |  |  |  |
Tier 1 risk-based capital | 8.00 | % |  | $ | 3,472,242 |  |  | 12.69 | % |  | $ | 3,463,307 |  |  | 12.67 | %
Common equity Tier 1 | 6.50 |  |  | 3,472,242 |  |  | 12.69 |  |  | 3,463,307 |  |  | 12.67 |
Total risk-based capital | 10.00 |  |  | 3,836,569 |  |  | 14.02 |  |  | 3,826,626 |  |  | 13.99 |
Tier 1 leverage ratio | 5.00 |  |  | 3,472,242 |  |  | 9.80 |  |  | 3,463,307 |  |  | 9.77 |
FCB |  |  |  |  |  |  |  |  |
Risk-based capital ratios |  |  |  |  |  |  |  |  |
Tier 1 risk-based capital | 8.00 | % |  | $ | 3,371,323 |  |  | 12.36 | % |  | $ | 3,315,742 |  |  | 12.17 | %
Common equity Tier 1 | 6.50 |  |  | 3,371,323 |  |  | 12.36 |  |  | 3,315,742 |  |  | 12.17 |
Total risk-based capital | 10.00 |  |  | 3,631,150 |  |  | 13.32 |  |  | 3,574,561 |  |  | 13.12 |
Tier 1 leverage ratio | 5.00 |  |  | 3,371,323 |  |  | 9.56 |  |  | 3,315,742 |  |  | 9.39 |

As of March 31, 2019, BancShares and FCB continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines. BancShares had no trust preferred capital securities included in Tier 1 capital at March 31, 2019 and December 31, 2018 under Basel III guidelines. Trust preferred capital securities continue to be a component of total risk-based capital.
The capital conservation buffer introduced under Basel III became fully phased in at January 1, 2019 at 2.50%. BancShares and FCB had capital conservation buffers of 6.02% and 5.32%, respectively, at March 31, 2019. These buffers exceeded the 2.50% requirement and, therefore, result in no limit on distributions.
RISK MANAGEMENT
Risk is inherent in any business. BancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy that does not preclude higher risk business activities balanced with acceptable returns while meeting regulatory objectives. Through the comprehensive Enterprise Risk Management Framework and Risk Appetite Framework, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares activities may be exposed, with effective challenge and oversight by management committees. In addition, the Board of Directors strives to ensure that the business culture is integrated with the enterprise risk management program and that policies, procedures and metrics for identifying, assessing, measuring, monitoring and managing risk are part of the decision-making process. The Board of Directors’ role in risk oversight is an integral part of our overall Enterprise Risk Management Framework and Risk Appetite Framework. The Board of Directors administers its risk oversight function primarily through the Board Risk Committee.
The Board Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The Board Risk Committee is directed to monitor and advise the Board of Directors regarding risk exposures, including credit, market, capital, liquidity, operational, compliance, strategic and reputational risks; review, approve, and monitor adherence to the risk appetite and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework. The Board Risk Committee also reviews: reports of examination by and communications from regulatory agencies; the results of internal and third party testing and qualitative and quantitative assessments related to risk management; and any other matters within the scope of the Committee’s oversight responsibilities. The Board Risk Committee monitors management's response to certain risk-related regulatory and audit issues. In addition, the Board Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, information security and other areas of joint responsibility.
In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are part of the Risk Management Framework and conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods.
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Enactment of the Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018 significantly altered several provisions of the Dodd-Frank Act, including how stress tests are run. Bank holding companies with assets of less than $100 billion, such as BancShares, are no longer subject to company-run stress testing requirements in section 165(i)(2) of the Dodd-Frank Act, including publishing a summary of results; however, BancShares will continue to monitor and stress test its capital and liquidity consistent with the safety and soundness expectations of the federal regulators.
Credit risk management
Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCI or non-PCI, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an adequate ALLL that accounts for losses that are inherent in the loan and lease portfolio.
Interest rate risk management
Interest rate risk (IRR) results principally from: assets and liabilities maturing or repricing at different points in time, assets and liabilities repricing at the same point in time but in different amounts, and short-term and long-term interest rates changing in different magnitudes.
We assess our short-term IRR by forecasting net interest income over 24 months under various interest rate scenarios and comparing those results to forecasted net interest income, assuming stable rates. IRR scenarios modeled, include, but are not limited to, immediate, parallel rate shocks, interest rate ramps, changes in the shape of the yield curve and changes in the relationships of our rates to market rates. Despite recent increases in market interest rates, the overall rate on interest-bearing deposits remains relatively low and, as such, it is unlikely that these rates can decline materially from current levels. Additionally, our projections incorporate an internal rate outlook and assumptions of customer migration from low rate deposit instruments to intermediate term fixed rate instruments as rates rise.
Table 16 provides the impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios as of March 31, 2019 and December 31, 2018.
Table 16
NET INTEREST INCOME SENSITIVITY ANALYSIS

|  | Estimated percentage increase (decrease) in net interest income
Change in interest rate (basis points) |  | March 31, 2019 |  | December 31, 2018
-100 |  | (10.67 | )% |  | (10.67 | )%
+100 |  | 3.05 |  |  | 2.38 |
+200 |  | 3.85 |  |  | 1.66 |

Net interest income sensitivity metrics at March 31, 2019 compared to December 31, 2018 were primarily affected by a reduction in the forecast for both the number of offerings and promotional rates paid on time deposits.
Long-term interest rate risk exposure is measured using the economic value of equity (EVE) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE represents the difference between the sum of the present value of all asset cash flows and the sum of the present value of the liability cash flows. EVE sensitivity analysis involves discounting cash flows of balance sheet items under different interest rate scenarios. Cash flows will vary by interest rate scenario, resulting in variations in EVE. The base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet.
Table 17 table presents the EVE profile as of March 31, 2019 and December 31, 2018.
Table 17
ECONOMIC VALUE OF EQUITY MODELING ANALYSIS

|  | Estimated percentage increase (decrease) in EVE
Change in interest rate (basis points) |  | March 31, 2019 |  | December 31, 2018
-100 |  | (18.08 | )% |  | (15.14 | )%
+100 |  | 5.45 |  |  | 3.34 |
+200 |  | 5.14 |  |  | 1.40 |

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The economic value of equity metrics at March 31, 2019 compared to December 31, 2018 were primarily affected by strong growth in non-maturity deposits coupled with a sharp decline in market discount rates resulting in higher valuations.
We do not typically utilize interest rate swaps, floors, collars or other derivative financial instruments to attempt to hedge our overall balance sheet rate sensitivity and interest rate risk.
Liquidity risk management
Liquidity risk is the risk that an institution is unable to generate or obtain sufficient cash or its equivalents on a cost-effective basis to meet commitments as they fall due. The most common sources of liquidity risk arise from mismatches in the timing and value of on-balance sheet and off-balance sheet cash inflows and outflows. In general, on-balance sheet mismatches generate liquidity risk when the effective maturity of assets exceeds the effective maturity of liabilities. A commonly cited example of a balance sheet liquidity mismatch is when long-term loans (assets) are funded with short-term borrowings (liabilities). Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal and reputation risks that can affect an institution’s liquidity risk profile.
We utilize various limit-based measures to monitor, measure and control liquidity risk across three different types of liquidity:

• | Tactical liquidity measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon out to nine weeks;

• | Structural liquidity measures the amount by which illiquid assets are supported by long-term funding; and

• | Contingent liquidity utilizes cash flow stress testing across three crisis scenarios to determine the adequacy of our liquidity.

We aim to maintain a diverse mix of liquidity sources to support the liquidity management function, while aiming to avoid funding concentrations by diversifying our external funding with respect to maturities, counterparties and nature. Our primary source of liquidity is our retail deposit book due to the generally stable balances and low cost it offers. Additional sources include cash in excess of our reserve requirement at the Federal Reserve Bank, and various other corresponding bank accounts and unencumbered securities, which totaled $4.21 billion at March 31, 2019 compared to $3.11 billion at December 31, 2018. Another source of available funds is advances from the FHLB of Atlanta. Outstanding FHLB advances were $189.7 million as of March 31, 2019, and we had sufficient collateral pledged to secure $6.18 billion of additional borrowings. Also, at March 31, 2019, $2.93 billion in non-PCI loans with a lendable collateral value of $2.23 billion were used to create additional borrowing capacity at the Federal Reserve Bank. We also maintain Federal Funds lines which had $690.0 million of available capacity at March 31, 2019.
CRITICAL ACCOUNTING ESTIMATES
There have been no significant changes in our Critical Accounting Estimates as described in our 2018 Annual Report on Form 10‑K.
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 acquisitions, the risks discussed in Part II, Item 1A. Risk Factors 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.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values of financial instruments or reduced net interest income in future periods. As of March 31, 2019, BancShares’ market risk profile has not changed significantly from December 31, 2018 and discussed in the Form 10-K. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.
Item 4. Controls and Procedures
BancShares' management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of BancShares' disclosure controls and procedures as of the end of the period covered by this Quarterly Report, in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (Exchange Act). Based upon that evaluation, as of the end of the period covered by this report, the Chief Executive Officer and the Chief Financial Officer concluded that BancShares' disclosure controls and procedures were effective to provide reasonable assurance that it is able to record, process, summarize and report in a timely manner the information required to be disclosed in the reports it files under the Exchange Act.
No changes in BancShares' internal control over financial reporting occurred during the first quarter of 2019 that have materially affected, or are reasonably likely to materially affect, BancShares' internal control over financial reporting.
PART II
Item 1. 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 matters cannot be determined, in the opinion of management, no legal actions currently exist that are expected to have a material effect on BancShares’ consolidated financial statements. Additional information relating to legal proceedings is set forth in Note L of BancShares' Notes to Unaudited Consolidated Financial Statements.
Item 1A. Risk Factors
There have been no material changes from risk factors described in our annual Form 10-K for the year ended December 31, 2018. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Information concerning BancShares' repurchases of outstanding common stock during the three month period ended March 31, 2019, is included in the following table:

Shares of Class A common stock purchased by BancShares during the period ended March 31, 2019
Class A common stock | Total Number of Class A Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
Purchases from January 1, 2019 to January 31, 2019 | 71,100 |  | $ | 400.28 |  | 71,100 |  | 546,900 |
Purchases from February 1, 2019 to February 28, 2019 | 58,300 |  | 426.36 |  | 58,300 |  | 488,600 |
Purchases from March 1, 2019 to March 31, 2019 | 113,600 |  | 417.49 |  | 113,600 |  | 375,000 |
Total | 243,000 |  | $ | 414.58 |  | 243,000 |  | 375,000 |

Subsequent to quarter-end and through May 6, 2019, BancShares repurchased an additional 63,400 shares of Class A common stock for approximately $27.4 million at an average cost per share of $432.78.
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Item 6. Exhibits

31.1 | Certification of Chief Executive Officer (filed herewith)
31.2 | Certification of Chief Financial Officer (filed herewith)
32.1 | Certification of Chief Executive Officer (filed herewith)
32.2 | Certification of Chief Financial Officer (filed herewith)
101.INS | XBRL Instance Document
101.SCH | XBRL Taxonomy Extension Schema
101.CAL | XBRL Taxonomy Extension Calculation Linkbase
101.DEF | XBRL Taxonomy Extension Definition Linkbase
101.LAB | XBRL Taxonomy Extension Label Linkbase
101.PRE | XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: | May 8, 2019 |  |  | FIRST CITIZENS BANCSHARES, INC.
|  |  |  | (Registrant)
|  | By: |  | /s/ CRAIG L. NIX
|  |  |  | Craig L. Nix
|  |  |  | Chief Financial Officer

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