UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20172020
Commission File Number: 001-16715

FIRST CITIZENS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)

Delaware56-1528994
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
4300 Six Forks Road,
Raleigh, North Carolina 2760927609
(Address of principalprinciple executive offices, ZIPoffices)(Zip code)
(919) 716-7000
(Registrant'sRegistrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, Par Value $1FCNCANASDAQNasdaq Global Select Market
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series AFCNCPNasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Securities Exchange Act of 1934.1934:
Class B Common Stock, Par Value $1
(Title of class)
  _________________________________________________________________ _________________________________________________________________________________________________________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒   No ¨☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐    No x☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x☒    No ¨☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x☒    No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx
☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐    No x

☒
The aggregate market value of the Registrant’s common equity held by nonaffiliatesnon-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was $2,736,470,741.

$2,346,993,887.
On February 20, 2018,22, 2021, there were 11,005,2208,811,220 outstanding shares of the Registrant'sRegistrant’s Class A Common Stock and 1,005,185 outstanding shares of the Registrant'sRegistrant’s Class B Common Stock.
Portions of the Registrant'sRegistrant’s definitive Proxy Statement for the 20182021 Annual Meeting of Shareholders are incorporated in Part III of this report.



   Page
  CROSS REFERENCE INDEX 
    
PART IItem 1
Business
3
 Item 1A
Risk Factors
7
 Item 1BUnresolved Staff CommentsNone
 Item 2
Properties
14
 Item 3
Legal Proceedings
14
 Item 4Mine Safety DisclosuresN/A
PART IIItem 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
15
 Item 6
Selected Financial Data
17
 Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations
18
 Item 7A
Quantitative and Qualitative Disclosure about Market Risk
53
 Item 8
Financial Statements and Supplementary Data
 
  
Quarterly Financial Summary for 2017 and 2016
58
  
Management's Annual Report on Internal Control over Financial Reporting
60
  
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
61
  
Report of Independent Registered Public Accounting Firm
63
  
Consolidated Balance Sheets at December 31, 2017 and 2016
64
  
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2017
65
  
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2017
66
  
Consolidated Statements of Changes in Shareholders' Equity for each of the years in the three-year period ended December 31, 2017
67
  
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2017
68
  
Notes to Consolidated Financial Statements
69
 Item 9Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone
 Item 9A
Controls and Procedures
60
 Item 9BOther InformationNone
PART IIIItem 10Directors, Executive Officers and Corporate Governance*
 Item 11Executive Compensation*
 Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*
 Item 13Certain Relationships and Related Transactions and Director Independence*
 Item 14Principal Accounting Fees and Services*
PART IVItem 15Exhibits, Financial Statement Schedules 
 (1)Financial Statements (see Item 8 for reference) 
 (2)All Financial Statement Schedules normally required for Form 10-K are omitted since they are not applicable, except as referred to in Item 8. 
 (3)
The Exhibits listed on the Exhibit Index contained in this Form 10-K are filed with or furnished to the Commission or incorporated by reference into this report and are available upon written request.
128


  Page
CROSS REFERENCE INDEX
PART IItem 1
3
Item 1A
8
Item 1BUnresolved Staff CommentsNone
Item 2
21
Item 3
21
Item 4Mine Safety DisclosuresN/A
PART IIItem 5
22
Item 6
24
Item 7
25
Item 7A
50
Item 8Financial Statements and Supplementary Data
56
58
60
62
63
64
65
66
67
Item 9Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone
Item 9A
123
123
Item 9BOther InformationNone
PART IIIItem 10Directors, Executive Officers and Corporate Governance*
Item 11Executive Compensation*
Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*
Item 13Certain Relationships and Related Transactions and Director Independence*
Item 14Principal Accounting Fees and Services*
PART IVItem 15Exhibits, Financial Statement Schedules
(1)Financial Statements (see Item 8 for reference)
(2)All Financial Statement Schedules normally required for Form 10-K are omitted since they are not applicable, except as referred to in Item 8.
(3)
124
Item 16Form 10-K SummaryNone
* Information required by Item 10 is incorporated herein by reference to the information that appears under the headings or captions ‘Proposal 1: Election of Directors,’ ‘Code‘Corporate Governance —Service on other Public Company Boards’ and ‘-Code of Ethics,Ethics;’ ‘Committees of our Board—General’Boards—Audit Committee;’ ‘Executive Officers,’ and ‘—Audit Committee’, ‘Executive Officers’ and ‘Section‘Beneficial Ownership of Our Common Stock-Delinquent Section 16(a) Beneficial Ownership Reporting Compliance’Reports’ from the Registrant’s Proxy Statement for the 20182021 Annual Meeting of Shareholders (2018(“2021 Proxy Statement)Statement”).
Information required by Item 11 is incorporated herein by reference to the information that appears under the headings or captions ‘Compensation, Nominations‘Committees of our Board—Compensation Committee Report;’ and Governance Committee Report,‘—Effect of Risk Management on Compensation;’ ‘Compensation Discussion and Analysis,Analysis;’ ‘Executive Compensation,Compensation;’ and ‘Director Compensation,’Compensation’ of the 20182021 Proxy Statement.
Information required by Item 12 is incorporated herein by reference to the information that appears under the captions ‘Beneficial Ownership of Our Common Stock—Directors and Executive Officers,’ ‘Existing‘—Existing Pledge Arrangements,’ and '—‘—Principal Shareholders'Shareholders’ of the 20182021 Proxy Statement. The Registrant currently does not have any compensation plans under which equity securities of the Registrant are authorized for issuance to employees or directors.
Information required by Item 13 is incorporated herein by reference to the information that appears under the headings or captions ‘Corporate Governance—Director Independence’ and ‘Transactions with Related Persons’ of the 20182021 Proxy Statement.
Information required by Item 14 is incorporated by reference to the information that appears under the caption ‘Proposal 4:3: Ratification of Appointment of Independent Accounts – Accountants—Services and Fees During 20172020 and 2016’2019’ of the 20182021 Proxy Statement.

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Part I
Item 1. Business
 
General
First Citizens BancShares, Inc. (BancShares)(“we,” “us,” “our,” “BancShares”) was incorporated under the laws of Delaware on August 7, 1986, to become the holding company of First-Citizens Bank & Trust Company (FCB)(“FCB,” or “the Bank”), its banking subsidiary. FCB opened in 1898 as the Bank of Smithfield in Smithfield, North Carolina, and later changed its name to First-Citizens Bank & Trust Company. BancShares has expanded through de novo branching and acquisitions and now operates in 2119 states, providing a broad range of financial services to individuals, businesses and professionals. As ofAt December 31, 2017,2020, BancShares had total consolidated assets of $34.53$49.96 billion.

Throughout its history, the operations of BancShares have been significantly influenced by descendants of Robert P. Holding, who came to control FCB during the 1920s. Robert P. Holding’s children and grandchildren have served as members of the Board of Directors (the “Board”), as chief executive officers and in other executive management positions and, since ourBancShares’ formation in 1986, have remained shareholders controllingowning a large percentage of ourits common stock.

OurThe Chairman of the Board and Chief Executive Officer, Frank B. Holding, Jr., is the grandson of Robert P. Holding. Hope Holding Bryant, Vice Chairman of BancShares, is Robert P. Holding’s granddaughter. Peter M. Bristow, President and Corporate Sales Executive of BancShares, is the brother-in-law of Frank B. Holding, Jr. and Hope Holding Bryant.

FCBBancShares seeks to meet the financial needs of both individuals and commercial entities in its market areas through a wide range of retail and commercial banking services. Loan services include various types of commercial, business and consumer lending. Deposit services include checking, savings, money market and time deposit accounts. WeBancShares’ subsidiaries also provide mortgage lending, a full-service trust department, wealth management services for businesses and individuals, and other activities incidental to commercial banking. FCB’s wholly-ownedwholly owned subsidiaries, First Citizens Investor Services, Inc. (FCIS)(“FCIS”) and First Citizens Asset Management, Inc. (FCAM)(“FCAM”), provide various investment products and services: asservices. As a registered broker/dealer, FCIS provides a full range of investment products, including annuities, discount brokerage services and third-party mutual funds; asfunds. As registered investment advisors, FCIS and FCAM provide investment management services and advice.

WeBancShares’ subsidiaries deliver products and services to ourtheir customers through ouran extensive branch network as well as digital banking, telephone banking and various ATM networks. Services offered at most offices include the taking of deposits, the cashing of checks and providing for individual and commercial cash needs. Business customers may conduct banking transactions through the use of remote image technology.

Statistical information regarding our business activities is found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Combinations
BancShares pursues growth through strategic acquisitions to enhance organizational value, strengthen its presence in existing markets, as well as expand its footprint in new markets. In 2020, BancShares completed the acquisition of Community Financial Holding Company, Inc. In 2019, BancShares completed the acquisitions of Entegra Financial Corp., First South Bancorp, Inc., and Biscayne Bancshares, Inc.
On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”). The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”). On February 9, 2021, BancShares and CIT each held a special meeting of shareholders where they received the necessary shareholder approvals for the consummation of the Transaction from their respective shareholders.
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The Transaction will create a bank with over $100 billion in assets and combines management teams with extensive experience integrating acquired institutions. Additionally, the Transaction brings together complementary strengths with CIT’s national commercial lending franchise and our low-cost retail deposits and full suite of banking products. This also allows us to diversify our deposit strategy, combining our large branch network and CIT’s rapidly growing homeowner association business, direct bank and Southern California branches. The combined bank expects to be well-positioned to leverage its product portfolio and technology across the franchises and make additional investments in technology to enhance the customer experience and increase shareholder value.
Additional information relating to business combinations is set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the caption “Business Combinations,” and Item 8. Notes to Consolidated Financial Statements, Note B, Business Combinations, in this Annual Report on Form 10-K.
Competition
The financial services industry is highly competitive. FCB competesBancShares’ subsidiaries compete with national, regional and local financial services providers. In recent years, the ability of non-bank financial entities to provide services has intensified competition. Non-bank financial service providers are not subject to the same significant regulatory restrictions as traditional commercial banks. More than ever, customers have the ability to select from a variety of traditional and nontraditional alternatives.

Competition is based on a number of factors including, among others, customer service, quality and range of products and services offered, price, reputation, interest rates on loans and deposits and customer convenience.
FCB’s primary deposit markets are North Carolina and South Carolina.Carolina, which represent approximately 50.8% and 22.6%, respectively, of total FCB deposits. FCB’s deposit market share in North Carolina and South Carolina was 4.1 percent4.2% and 9.1%, respectively, as of June 30, 2017,2020, based on the FDICFederal Deposit Insurance Corporation (“FDIC”) Deposit Market Share Report, which makes FCB the fourth largest bank in both North Carolina and South Carolina. The three banks larger than FCB based on deposits in North Carolina as of June 30, 2017, controlled 76.5 percent of North Carolina deposits. In South Carolina, FCB was the fourth largest bank in terms of deposit market share with 8.8 percent at June 30, 2017. The three larger banks represent 44.9 percent of total deposits inand South Carolina as of June 30, 2017.

Statistical information regarding our business activities is found in Management’s Discussion2020 include Bank of America, Truist Bank and Analysis.

Wells Fargo. These banks collectively controlled 78.8% and 46.3% of North Carolina and South Carolina deposits, respectively as of June 30, 2020.
Geographic Locations and EmployeesHuman Capital
As of December 31, 2017, FCB2020, BancShares operated 545542 branches in Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Minnesota, Missouri, North Carolina, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington, Wisconsin and West Virginia and Wisconsin. Virginia. Following the planned merger with CIT, we will add approximately 90 branches, primarily located in Southern California, to our branch network.
BancShares and its subsidiaries employ approximately 6,3796,451 full-time staff and approximately 420271 part-time staff for a total of 6,7996,722 employees. Women and ethnically diverse associates make up approximately 68% and 27% of total employees, respectively, and our Executive Leadership Team includes two women.

Business Combinations
FCB recently purchased certain assetsOur ability to attract, retain and assumed certain liabilitiesdevelop associates who align with our purpose is key to our success. BancShares’ human capital strategy is predicated on ensuring the organization has the right people with the right skills in the right places at the right time for the right cost to fulfill its mandate and strategic objectives. Our human resources team works to formalize the process of defining and deploying the mission-critical talent needed to align the Bank with the financial and strategic goals and objectives. Key human capital initiatives include scaling and developing talent, enhancing performance management and coaching, and accelerating inclusion, equity and diversity initiatives. The retention and integration of key CIT employees will be a significant initiative upon the expected completion of the following banks from the Federal Deposit Insurance Corporation (FDIC):merger. The Board monitors these initiatives and associated risks primarily through its Risk Committee.
Guaranty Bank (Guaranty)To assist with these goals, we monitor and evaluate various metrics, specifically around attraction, retention and development of Milwaukee, Wisconsin on May 5, 2017


Harvest Community Bank (HCB) of Pennsville, New Jersey on January 13, 2017
First CornerStone Bank (FCSB) of King of Prussia, Pennsylvania on May 6, 2016
North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin on March 11, 2016
On December 18, 2017, FCB and HomeBancorp, Inc. (HomeBancorp) entered into a definitive merger agreement. Under the terms of the agreement, cash consideration of $15.03 will be paidtalent. Our annual voluntary turnover is relatively low compared to the shareholdersindustry. We believe this reflects our strong corporate culture, competitive compensation and benefit structures and commitment to career development.
Compensation and Benefits
We strive to provide robust compensation and benefits to our employees.In addition to salaries, compensation and benefit programs include a 401(k) plan with employer matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off and other employee assistance programs.
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COVID-19 Pandemic
The health and wellness of HomeBancorp for each share of HomeBancorp's common stock totaling approximately $113.6 million. The transactionour employees is expectedalso critical to close no later than the second quarter of 2018, subjectour success.In an effort to the receipt of regulatory approvals and the approval of HomeBancorp’s shareholders. The merger will increase FCB's footprint in Central and Western Florida.
On September 1, 2016, FCB completed the merger of Midlothian, Virginia-based Cordia Bancorp, Inc. (Cordia) and its subsidiary, Bank of Virginia (BVA) into FCB. Under the terms of the merger agreement, cash consideration of $5.15 was paid to Cordia’s shareholders for each of their shares of Cordia’s common stock, with total consideration paid of $37.1 million. The merger strengthened FCB's presence in the greater Richmond, Virginia area as Cordia operated six BVA branches in Richmond, Midlothian, Chesterfield, Colonial Heights and Chester, Virginia.
FDIC Shared-Loss Termination
On March 28, 2017, FCB entered into an agreement with the FDIC to terminate the shared-loss agreement for Venture Bank. Under the terms of the agreement, FCB made a net payment of $285 thousand to the FDIC as consideration for early termination of the shared-loss agreement. The early termination resulted in a one-time expense of $45 thousandkeep our employees safe during the first quarterCOVID-19 pandemic, we have implemented a number of 2017.
On June 14, 2016, FCB terminated fivenew health-related measures, including protocols governing the use of its nine shared-loss agreements with the FDIC, including Temecula Valley Bank (TVB), Sun American Bank (SAB), Williamsburg First National Bank (WFNB), Atlantic Bank & Trust (ABT)face masks and Colorado Capital Bank (CCB). The resulting positive net impact to pre-tax earnings from the early termination of the FDIC shared-loss agreements was $16.6 million during 2016. See the FDIC-Assisted Transactions section in Management's Discussionhand sanitizer, a flexible work-from-home policy, enhanced cleaning procedures at our corporate and Analysis for more details.branch offices, social-distancing protocols and limitations on in-person meeting and other gatherings.
Regulatory Considerations
The variousVarious laws and regulations administered by the bank regulatory agencies affect BancShares’ and its subsidiaries’ corporate practices, such asincluding the payment of dividends, the incurrence of debt, and the acquisition of financial institutions and other companies; theycompanies. They also affect business practices, such as the payment of interest on deposits, the charging of interest on loans, the types of business conducted and the location of offices.

Numerous statutes and regulations also apply to and restrict the activities of FCB,BancShares and its subsidiaries, including limitations on the ability to pay dividends, capital requirements, reserve requirements, deposit insurance requirements and restrictions on transactions with related persons and entities controlled by related persons. The impact of these statutes and regulations is discussed below and in the accompanying consolidated financial statements.

Dodd-Frank Act. Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in 2010, significantly restructured the financial services regulatory environment andenvironment; imposed significant regulatory and compliance changes,changes; increased capital, leverage and liquidity requirements, including through the expansion ofrequirements; and expanded the scope of oversight responsibility of certain federal agencies through the creation of new oversight bodies. For example, the Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB)(“CFPB”) with broad powers to supervise and enforce consumer protection laws.

Other significant changes resulting fromEffective during 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”), while largely preserving the fundamental elements of the post-Dodd-Frank Act regulatory framework, modified certain requirements of the Dodd-Frank Act include:as they applied to regional and community banking organizations. Certain of the significant requirements of the Dodd-Frank Act are listed below with information regarding how they apply to BancShares following the enactment of the EGRRCPA.
•Capital Planning and Stress Testing. The Dodd-Frank Act mandated that stress tests be developed and performed to ensure that financial institutions have sufficient capital to absorb losses and support operations during multiple economic and bank scenarios. BankThe EGRRCPA gave immediate relief from stress testing for applicable bank holding companies and therefore, BancShares is no longer required to submit company-run annual stress tests. Notwithstanding these amendments to the stress testing requirements, the federal banking agencies indicated, through inter-agency guidance, the capital planning and risk management practices of institutions with total consolidated assets between $10less than $100 billion would continue to be reviewed through the regular supervisory process. BancShares will continue to monitor its capital consistent with the safety and $50 billion, including BancShares, perform annual stress tests using defined scenarios as provided bysoundness expectations of the Federal Reserve. The resultsfederal regulators through the use of internal, customized stress testing activitiesin order to support the business and its capital planning process, as well as prudent risk mitigation. In preparation for crossing the $100 billion threshold following the expected closing of the merger with CIT, BancShares is reviewing the applicable regulatory guidance in order to ensure all requirements are considered by our Risk Committeemet in combination with other risk management and monitoring practices as part of our risk management program.
a timely manner.
•The Volcker Rule. The Volcker Rule was promulgated to implement provisions of the Dodd-Frank ActAct. It prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds. The EGRRCPA exempted many financial institutions with total consolidated assets of less than $10 billion from the Volcker Rule, which became effective in July 2015,but it continues to apply to BancShares and its subsidiaries. However, the Volcker Rule does not significantly impact theour operations of BancShares and its subsidiaries, as we do not have any significant engagement in the businesses prohibited by the Volcker Rule.
it prohibits.
•Ability-to-Repay and Qualified Mortgage Rule. Creditors are required to comply with mortgage reform provisions prohibiting the origination of any residential mortgages that do not meet rigorous Qualified Mortgage standards or Ability-


to-RepayAbility-to-Repay standards. All mortgage loans originated by FCB meet Ability-to-Repay standards and a substantial majority also meetsmeet Qualified Mortgage standards. 

The EGRRCPA impact on the original Ability-to-Repay and Qualified Mortgage standards is only applicable to banks with less than $10 billion in total consolidated assets.
BancShares
General.As a financial holding company registered under the Bank Holding Company Act (BHCA)(“BHCA”) of 1956, as amended, BancShares is subject to supervision, regulation and examination by the Federal Reserve Board (Federal Reserve)(“Federal Reserve,” or “FRB”). BancShares is also registered under the bank holding company laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks (NCCOB)(“NCCOB”).

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Permitted Activities. A bank holding company is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies, such as BancShares, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve), without prior approval of the Federal Reserve. Activities that are financial in nature include securities underwriting and dealing, serving as an insurance agent and underwriter and engaging in merchant banking.

Acquisitions. A bank holding company (“BHC”) must obtain approval from the Federal Reserve prior to directly or indirectly acquiring ownership or control of 5% of the voting shares or substantially all of the assets of another BHC or bank or prior to merging or consolidating with another BHC.
Status Requirements. To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be well-capitalized and well-managed. A depository institution subsidiary is considered to be well-capitalized if it satisfies the requirements for this status under applicable Federal Reserve capital requirements. A depository institution subsidiary is considered “well managed”well managed if it received a composite rating and management rating of at least “satisfactory” in its most recent examination. If a financial holding company ceases to meet these capital and management requirements, the Federal Reserve may impose limitations or conditions on the conduct of its activities.

Capital Requirements. The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described below under “The Subsidiary“Subsidiary Bank - FCB - Current Capital Requirements (Basel III)FCB.”. As of December 31, 2017,2020, the total risk-based capital, Tier 1 risk-based capital, common equity Tier 1 total capital, and Tier 1 leverage capital ratios of BancShares were 12.88 percent, 12.88 percent, 14.21 percent10.61%, 13.81%, 11.63% and 9.47 percent,7.86%, respectively, and each capital ratio listed above exceeded the applicable minimum requirements as well as the well-capitalized standards. Subject to its capital requirements and certain other restrictions, BancShares is able to borrow money to make capital contributions to FCB and such loans may be repaid from dividends paid by FCB to BancShares.

Source of Strength. Under the Dodd-Frank Act, bank holding companies are required to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, BancShares is expected to commit resources to support FCB, including times when BancShares may not be in a financial position to provide such resources. Any capital loans made by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Safety and Soundness. Soundness. The federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and to the FDIC insurance fund in the event of a depository institution default.

Limits on Dividends and Other Payments.Payments. BancShares is a legal entity, separate and distinct from its subsidiaries. Revenues of BancShares primarily result from dividends received from FCB. There are various legal limitations applicable to the payment of dividends by FCB to BancShares and to the payment of dividends by BancShares to its shareholders. The payment of dividends by FCB or BancShares may be limited by certain factors, such as requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit FCB or BancShares from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending on the financial condition of FCB or BancShares, could be deemed to constitute such an unsafe or unsound practice.



Under the Federal Deposit Insurance Act, (FDIA), insured depository institutions, such as FCB, are prohibited from making capital distributions, including the payment of dividends, if, after making such distributions, the institution would become “undercapitalized” (asas such term is used in the statute).statute. Additionally, under Basel III capital requirements, banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. Based on FCB’s current
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financial condition, BancShares currently does not expect these provisions to have any material impact on its ability to receive dividends from FCB. BancShares'BancShares’ non-bank subsidiaries pay dividends to BancShares periodically on a non-regulated basis.

Subsidiary Bank - FCB
General. FCB is a state-chartered bank, subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC and the NCCOB. Deposit obligations are insured by the FDIC to the maximum legal limits.

Capital Requirements (Basel III).Requirements. Bank regulatory agencies approved Basel III regulatory capital guidelines aimed at strengthening existing capital requirements through a combination of higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure. BancShares and FCB implemented the requirements of Basel III effective January 1, 2015, subject to a transition period for several aspects of the rule. The table below describes the minimum and well-capitalized requirements in 2017 and the fully-phased-in requirements that become effective in 2019.conservation buffer.
Basel III minimum requirementBasel III conservation bufferBasel III well-capitalized
Total risk-based capital ratio8.00%2.50%10.00%
Tier 1 risk-based capital ratio6.002.508.00
Common equity Tier 14.502.506.50
Tier 1 leverage ratio4.00N/A5.00
 Basel III minimum requirement
2017		 Basel III well-capitalized
2017		 Basel III minimum requirement
2019		 Basel III well-capitalized
2019
Leverage ratio4.00% 5.00% 4.00% 5.00%
Common equity Tier 14.50 6.50 4.50 6.50
Common equity Tier 1 plus conservation buffer5.75 7.75 7.00 9.00
Tier 1 capital ratio6.00 8.00 6.00 8.00
Tier 1 capital ratio plus conservation buffer7.25 9.25 8.50 10.50
Total capital ratio8.00 10.00 8.00 10.00
Total capital ratio plus conservation buffer9.25 11.25 10.50 12.50

The transitional period began in 2016 and the capital conservation buffer requirement was phased in beginning January 1, 2016, at 0.625 percent of risk-weighted assets, increasing each year until fully implemented at 2.5 percent on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assetsratios above the minimum, but below the conservation buffer, will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on ourFCB’s consolidated financial statements. As of December 31, 2017,2020, FCB exceeded the applicable minimum requirements as well as the well-capitalized standards.

Although we areFCB is unable to control the external factors that influence ourinfluencing its business, by maintaining high levels of balance sheet liquidity, prudently managing our interest rate exposures, ensuring our capital positions remain strong and actively monitoring asset quality, we seekFCB seeks to minimize the potentially adverse risks of unforeseen and unfavorable economic trends and to take advantage of favorable economic conditions and opportunities when appropriate.

Transactions with Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act, Regulation W and Regulation O, the authority of FCB to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliate generally must be collateralized and certain transactions between FCB and its affiliates, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to FCB, as those prevailing for comparable nonaffiliated transactions. In addition, FCB generally may not purchase securities issued or underwritten by affiliates.

FCB receives management fees from its subsidiaries and BancShares for expenses incurred for performing various functions on their behalf. These fees are charged to each company based upon the estimated cost for usage of services by that company. The fees are eliminated from the consolidated financial statements.



Community Reinvestment Act. FCB is subject to the requirements of the Community Reinvestment Act of 1977 (CRA)(“CRA”). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities, including low and moderate incomelow-and-moderate-income neighborhoods. If FCB receives a rating from the Federal Reserve of less than “satisfactory” under the CRA, restrictions would be imposed on our operating activities. In addition, in order for a financial holding company, like BancShares, to commence any new activity permitted by the BHCA or to acquire any company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. FCB currently has a “satisfactory” CRA rating.

Anti-Money Laundering and OFACthe United States Department of the Treasury’s Office of Foreign Asset Control (“OFAC”) Regulation. Governmental policy in recent years has been aimed at combating money laundering and terrorist financing. The Bank Secrecy Act of 1970 (BSA)(“BSA”) and subsequent laws and regulations require financial institutions to take steps to prevent the use of their systems to facilitate the flow of illegal or illicit money or terrorist funds. The USA Patriot Act of 2001 (Patriot Act)(“Patriot Act”) significantly expanded anti-money laundering (AML)(“AML”) and financial transparency laws and regulations by imposing new compliance and due diligence obligations, including standards for verifying customer identification at account opening and
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maintaining expanded records, as well as rules promoting cooperation among financial institutions, regulators and law enforcement entities in identifying persons who may be involved in terrorism or money laundering. AdditionalThese rules which were finalized in 2016 must be implemented by May 2018, and create expanded obligations regardingto require new customer due diligence including the identification ofand beneficial owners of business entities. FCB has begun the process necessary to implement these additional rulesownership requirements in late April 2018. An institution subject to the BSA, such as FCB, must additionally provide AML training to employees, designate an AML compliance officer and annually audit the AML program to assess its effectiveness. The United States has imposed economic sanctions on transactions with certain designated foreign countries, nationals and others. As these rules are administrated by the United States Department of the Treasury's Office of Foreign Assets Control (OFAC),OFAC, these are generally known as the OFAC rules. Failure of a financial institution to maintain and implement adequate BSA, AML and OFAC programs, or to comply with all the relevant laws and regulations, could have serious legal and reputational consequences, including material fines and sanctions. FCB has implemented a program designed to facilitate compliance with the full extent of the applicable BSA and OFAC related laws, regulations and related sanctions.

Consumer Laws and Regulations. FCB is also subject to certain laws and regulations designed to protect consumers in transactions with banks. These laws include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Fair Housing Act and the Servicemembers Civil Relief Act. The laws and related regulations mandate certain disclosures and regulate the manner in which financial institutions transact business with certain customers. FCB must comply with these consumer protection laws and regulations in its relevant lines of business.
Available Information
BancShares does not have its own separate Internet website. However, FCB’s website (www.firstcitizens.com) includes a hyperlink to the SEC’sSecurities and Exchange Commission’s (“SEC”) website where the public may obtain copies of BancShares’ annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Interested parties may also directly access the SEC’s website (www.sec.gov), which contains reports, proxy and information statements and other information electronically filed by BancShares.

Item 1A. Risk Factors
We are subject to a number of risks and uncertainties that could have a material impact on our business, financial condition and results of operations and cash flows. As a financial services organization, certain elements of risk are inherent in our transactions and operations and are present in the business decisions we make. We encounter risk as part of the normal course of our business, and we design risk management processes to help manage these risks. Our success is dependent on our ability to identify, understand and manage the risks presented by our business activities. We categorize risk into the following areas:
•Strategic Risk: The risk to earnings or capital arising from business decisions or improper implementation of those decisions.
•Operational Risk: The risk of loss resulting from inadequate or failed processes, people and systems or from external events.
•Credit Risk: The risk a borrower will fail to perform on an obligation.
•Market Risk: The risk to BancShares’ financial condition resulting from adverse movements in market rates or prices, including, but not limited to, interest rates, foreign exchange rates or equity prices.
•Liquidity Risk: The risk that BancShares will be unable to meet its obligations as they come due because of an inability to (i) liquidate assets or obtain adequate funding (referred to as “Funding Liquidity Risk”), or (ii) unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions (“Market Liquidity Risk”).
•Capital Adequacy Risk: The risk that capital levels are inadequate to preserve the safety and soundness of BancShares, support ongoing business operations and strategies and provide support against unexpected or sudden changes in the business/economic environment.
•Compliance Risk: The risk of loss or reputational harm resulting from regulatory sanctions, fines, penalties or losses due to the failure to comply with laws, rules, regulations or other supervisory requirements applicable to a financial institution.
•Financial Reporting Risk: The risk that financial information is reported incorrectly, including incorrect or incomplete financial information, errors and omissions, or improper application of accounting standards.
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The risks and uncertainties that management believes are material are described below. The risks listed are not the only risks that BancShares faces. Additional risks and uncertainties that are not currently known or that management does not currently deem material could also have a material adverse impact on our financial condition and/or the results of our operations or our business. If such risks and uncertainties were to materialize or the likelihoods of the risks were to increase, the market price of our common stock could significantly decline.
OperationalStrategic Risks
We face cybersecuritymay be adversely affected by risks where breachesassociated with completed, pending or any potential future acquisitions.
We plan to continue to grow our business organically. However, we have pursued and expect to continue to pursue acquisition opportunities that we believe support our business strategies and may enhance our profitability. We must generally satisfy a number of material conditions prior to consummating any acquisition including, in many cases, federal and state regulatory approval. We may fail to complete strategic and competitively significant business opportunities as a result of our inability to obtain required regulatory approvals in a timely manner or at all.
Acquisitions of financial institutions, assets of financial institutions, or other operating entities involve operational risks and uncertainties, and acquired companies or assets may have unknown or contingent liabilities, exposure to unexpected asset quality problems that require write downs or write-offs, or difficulty retaining key employees and customers. Additionally, acquired companies may have product lines, regulatory requirements, or operational challenges with which we are not familiar, or for which we lack management experience to expertise. These, among other issues, could negatively affect our vendors' information systemsresults of operations and financial condition.
We may not be able to realize projected cost savings, synergies or other benefits associated with any such acquisition. Failure to efficiently integrate any acquired entities or assets into our existing operations could expose ussignificantly increase our operating costs and have material adverse effects on our financial condition and results of operations. There can be no assurance that we will be successful in identifying, consummating, or integrating any potential acquisitions.
Specifically, on October 15, 2020, BancShares and CIT, entered into the Merger Agreement by and among BancShares, FCB, Merger Sub, and CIT, the parent company of CIT Bank. Pursuant to attacks resultingthe terms and subject to the conditions set forth in the unauthorized disclosureMerger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity, and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity. The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank. On February 9, 2021, BancShares and CIT each held a special meeting of shareholders where they received the necessary shareholder approvals for the consummation of the Transaction from their respective shareholders. Subject to certain customary closing conditions, the Transaction is expected to close during the first half of 2021, and certain new risk factors have been identified as a result. These risks and the other risks associated with the Transaction have been more fully discussed in the joint proxy statement/prospectus included in the registration statement on Form S-4 filed with the SEC on December 23, 2020 in connection with the Transaction.
The consummation of the Transaction is contingent upon the satisfaction of a number of conditions, including regulatory approvals, that may be outside of our or CIT's control and that we and CIT may be unable to satisfy or obtain or which may delay the consummation of the Transaction or result in the imposition of conditions that could reduce the anticipated benefits from the Transaction or cause the parties to abandon the Transaction.
Consummation of the Transaction is contingent upon the satisfaction of a number of conditions, some of which are beyond our and CIT's control, including, among others:
•authorization for listing on Nasdaq of the shares of our capital stock to be issued in the First-Step Merger, subject to official notice of issuance;
•the receipt of required domestic and foreign regulatory approvals, including, among others, the approval of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the North Carolina Commissioner of Banks; and
•the absence of any order, injunction, decree or other legal restraint preventing the completion of the Mergers or making the completion of the Transaction illegal.
Each party's obligation to complete the Transaction is also subject to certain additional customary conditions, including, among others:
•subject to certain exceptions, the accuracy of the representations and warranties of the other party;
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•performance in all material respects by the other party of its obligations under the Merger Agreement; and
•receipt by each party of an opinion from its counsel to the effect that the Mergers will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.
These conditions to the closing of the Transaction may not be fulfilled in a timely manner or at all, and, accordingly, the Transaction may be delayed substantially or may not be completed. In addition, the parties can mutually decide to terminate the Merger Agreement at any time, or we or CIT may elect to terminate the Merger Agreement in certain other circumstances.
As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations or costs, require divestitures or place restrictions on our conduct after the closing of the Transaction. Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of the Transaction or of imposing additional costs or limitations on us following the Transaction, any of which may have an adverse effect on us following the Transaction.
We and CIT are subject to lawsuits challenging the Transaction, and adverse rulings in these lawsuits may delay or prevent the Transaction from being completed or require us or CIT to incur significant costs to defend or settle these lawsuits. Any delay in completing the Transaction could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Transaction is successfully completed within its expected time frame. We have not yet incurred significant expense related to litigation, but may as litigation proceeds.
We may fail to realize all of the anticipated benefits of the Transaction, or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating with CIT.
We and CIT have operated and, until the completion of the Transaction, will continue to operate, independently. The success of the Transaction, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully integrate CIT’s operations in a manner that results in various benefits and that does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers. The process of integrating operations could result in a loss of key personnel or cause an interruption of, or loss of customer information, whichmomentum in, the activities of one or more of the combined company's businesses. Inconsistencies in standards, controls, procedures and policies could damageadversely affect the combined company. The diversion of management's attention and any delays or difficulties encountered in connection with the Transaction and the integration of CIT's operations could have an adverse effect on the business, financial condition, operating results and prospects of the combined company.
If we experience difficulties in the integration process, including those listed above, we may fail to realize the anticipated benefits of the Transaction in a timely manner or at all.
While the Transaction is pending, we will be subject to business uncertainties and contractual restrictions that could adversely affect our business reputation and exposeoperations.
Uncertainty about the effect of the Transaction on employees, customers and other persons with whom we or CIT have a business relationship may have an adverse effect on our business, operations and stock price. Our existing customers or existing customers of CIT could decide to no longer do business with us, to significant financial liability
CIT or the combined company, reducing the anticipated benefits of the Transaction. We maintain and transmit large amounts of sensitive information electronically, including personal and financial information of our customers. In addition to our own systems, we also rely on external vendors to provide certain services and are therefore exposed to their information security risks. While we attempt to mitigate internal and external information security risks, the volume of business conducted through electronic devices continues to grow, and our computer systems and network infrastructure,


as well as those of our external vendors and customers, present security risks including susceptibility to various attacks and/or identity theft.
As the result of our internet activities, weCIT are also subject to risks arisingcertain restrictions on the conduct of our respective businesses while the Transaction is pending. As a result, certain other projects may be delayed or abandoned, and business decisions could be deferred. Employee retention at BancShares and CIT may be challenging before or after completion of the Transaction, as certain employees may experience uncertainty about their future roles with the combined company, and these retention challenges may require us to incur additional expenses in order to retain or replace key employees. If key officers or employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us, CIT or the combined company, the benefits of the Transaction could be materially diminished and we could encounter difficulties in replacing them and successfully managing new lines of business with which we do not have management experience or expertise.
We expect to incur substantial expenses related to the Transaction and the integration with CIT.
We and CIT will incur substantial expenses in connection with the Transaction and integration. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the
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elimination of duplicative expenses and the realization of economies of scale. The amount and timing of any charges to earnings as a broad rangeresult of cybersecurity attacksTransaction or integration expenses are uncertain at present.
Our future results will suffer if we do not effectively manage our expanded operations following the Transaction.
Following the Transaction, the size and geographic and operational scope of our business will increase significantly beyond its current size and scope. The Transaction will more than double our asset size and will increase the breadth and complexity of our business with the addition of new business lines in which we have not previously engaged, and new geographic areas in which we currently have no operations and with which we lack familiarity. Our future success depends, in part, upon the ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that we will be successful in this regard or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from both domesticthe Transaction.
We encounter significant competition that may reduce our market share and international sourcesprofitability.
We compete with other banks and specialized financial services providers in our market areas. Our primary competitors include local, regional and national banks; credit unions; commercial finance companies; various wealth management providers; independent and captive insurance agencies; mortgage companies; and non-bank providers of financial services. Some of our larger competitors, including certain banks with a significant presence in our market areas, have the capacity to offer products and services we do not offer. Some of our non-bank competitors operate in less stringent regulatory environments, and certain competitors are not subject to federal and/or state income taxes. The fierce competitive pressures that we face adversely affect pricing for many of our products and services.
Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt a shareholder might consider to be in their best interests.
Certain provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could delay or prevent the removal of directors and other management. The provisions could also delay or make more difficult a tender offer, merger or proxy contest a shareholder might consider to be in their best interests. For example, our Certificate of Incorporation and/or Bylaws:
•allow the Board to issue and set the terms of preferred shares without further shareholder approval;
•limit who can call a special meeting of shareholders; and
•establish advance notice requirements for nominations for election to the Board and proposals of other business to be considered at annual meetings of shareholders.
These provisions, as well as provisions of the BHCA and other relevant statutes and regulations that require advance notice and/or applications for regulatory approval of changes in control of banks and bank holding companies, may discourage bids for our common stock at a premium over market price, adversely affecting its market price. Additionally, the fact that the Holding family holds or controls shares representing a majority of the voting power of our common stock may discourage potential takeover attempts and/or bids for our common stock at a premium over market price.
Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which seekcould limit our shareholders' ability to obtain customer informationa favorable judicial forum for fraudulent purposesdisputes with us or our directors, officers, or employees or agents.
Our bylaws provide that, unless we consent in some cases,writing to disruptthe selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, other employees or shareholder to us or our shareholders; (iii) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of Delaware or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim against us governed by the internal affairs doctrine. These choice of forum provisions do not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, our choice of forum provisions will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations.
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These choice of forum provisions may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees or agents, which may discourage lawsuits against us and our directors, officers and other employees or agents.
If a court were to find the choice of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, activities. Information security issuesresults of operations, and financial condition. Even if we are successful in defending against these claims, litigation could result in reputational damagesubstantial costs and leadbe a distraction to management and other employees.
We rely on dividends from FCB.
As a financial holding company, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends paid by FCB. These dividends are the primary source from which we pay dividends on our common stock and interest and principal on our debt obligations. State and federal laws impose restrictions on the dividends that FCB may pay to us. In the event FCB is unable to pay dividends to us for an extended period of time, we may not be able to service our debt obligations or pay dividends on our common stock, and the inability to receive dividends from FCB could have a material adverse impacteffect on our business, financial condition and financial results of operations.
WeOur financial performance depends upon our ability to attract and retain clients for our products and services, which may be adversely impacted by weakened consumer and/or business confidence, and by any inability on our part to predict and satisfy customers’ needs and demands.
Our financial performance is subject to risks associated with the loss of client confidence and demand. A fragile or weakening economy, or ambiguity surrounding the economic future, may lessen the demand for our products and services. Our performance may also be negatively impacted if we fail to attract and retain customers because we are exposednot able to losses related to creditsuccessfully anticipate, develop and debit card fraud
As technology continues to evolve, criminals are using increasingly more sophisticated techniques to commitmarket products and hide fraudulent activity. Fraudulent activity can come in many forms, including debit card/credit card fraud, check fraud, electronic scanning devices attached to ATM machines, social engineeringservices that satisfy market demands. Such events could impact our performance through fewer loans, reduced fee income and phishing attacks to obtain personal information, and fraudulent impersonationfewer deposits, each of our clients through the use of falsified or stolen credentials. To counter the increased sophistication of these fraudulent activities, we have increased our spending on systems, technologies and controls to detect and prevent such fraud. Combating fraudulent activities as they evolve willwhich could result in continued ongoing investmentsreduced net income. The pandemic caused by a novel strain of coronavirus (“COVID-19”), while disruptive to our customers and the economy, has not led to a significant decline in our products and services to date, but it could if its impact on us and our customers continues or increases in the future.
New technologies, and our ability to efficiently and effectively develop, market and deliver new products and services to our customers present competitive risksrisks.
The rapid growth of new digital technologies, including internet services, smart phones and other mobile devices, requires us to continuously evaluate our product and service offerings to ensure they remain competitive. Our success depends in part on our ability to adapt and deliver our products and services in a manner responsive to evolving industry standards and consumer preferences. New technologies by banks and non-bank service providers may create risks thatif our products and services are no longer competitive with then-current standards, and could negatively affect our ability to attract or maintain a loyal customer base. These risks may affect our ability to grow and could reduce both our revenue streams from certain products and services, and our revenues generated by our net interest margins.while increasing expenses associated with developing more competitive solutions. Our results of operations and financial condition could be adversely affected.
Operational Risks
We face significant operational risks in our businesses.
Safely conducting and growing our business requires that we create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways, including employee fraud, customer fraud and control lapses in bank operations and information technology. Our dependence on our employees and internal and third party automated systems to record and process transactions may further increase the risk that technical failures or system-tampering will result in losses that are difficult to detect. We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control. Failure to maintain appropriate operational infrastructure and oversight can lead to loss of service to customers, legal actions and noncompliance with various laws and regulations. We have implemented internal controls that are designed to safeguard and maintain our operational and organizational infrastructure and information. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
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The continued economic impacts of a COVID-19 outbreak could affect BancShares' business, financial condition and results of operations.
Beginning in early 2020, COVID-19 spread across most of the world, including the United States ( the “U.S.”). It has caused severe disruptions to the U.S. economy, regional quarantines, business shutdowns, high unemployment, disruptions to supply chains, and overall economic instability that has adversely impacted the operations, activities and business of BancShares and its customers. Effects have generally been felt across all industries, including financial services.
In response to the national public health crisis, Federal, State and Local governments continue to impose an array of restrictions on the way all businesses conduct their operations and on our customers, business partners, vendors and employees. These restrictions, along with other economic factors including inflation risks, oil price volatility, and changes in interest rates have and may continue to destabilize financial markets and negatively impact our customers’ business activities and operations, making it difficult for them to satisfy existing debt obligations. They also have led to elevated unemployment and slower consumer spending which in turn will increase our collection risk as deteriorating economic conditions correlate with lower credit quality metrics and higher customer defaults on loans. Economic pressures and uncertainty have and may continue to change consumer and business behaviors, which, in the short and long term, could affect borrowers’ creditworthiness and the demand for loans and other products and services we offer. BancShares is actively monitoring the loan portfolio to identify changes in credit risk within a specific geography, loan class, or within a particular industry concentration. Therefore, provision expense could increase as we incorporate these changes into our estimate on the allowance for credit losses.
Additionally, our operations have experienced disruptions as we operate in a remote working environment for most corporate employees and we have adjusted branch operations and corporate processes. With continued uncertainty around outbreak severity within impacted areas, there may be increased absenteeism, and lost productivity as a result of the remote workforce. We may see an increased incidence of cybersecurity threats or fraud as cyber-criminals look to profit from the disruption and potential strain on information technology and the fear of the general public. There may be disruption in critical third party services as they operate in the current environment. BancShares has a comprehensive business continuity and data security plan in place along with third party risk management, but may not be able to mitigate all of the issues identified above.
Market volatility and general uncertainty in the capital markets may also impact our business. Our access to capital and liquidity could be limited by market disruptions which could be exacerbated by delays in customer payments or significant withdrawals from customer deposit accounts. In addition, the fair value of our assets and liabilities will be impacted by the changing market environment. This could also increase liquidity and capital adequacy risks, as well as long-lived asset impairment risk.
As the government and its regulatory bodies respond to the crisis, it increases the burden on our associates to quickly respond to changing regulatory guidance. This could increase the risk of noncompliance.
The effects of the COVID-19 pandemic will heighten specific risk factors and could impact substantially all risk factors described herein. Those effects will adversely affect our business operations and results at least until the outbreak has subsided, and the negative effects on the economy, our customers and our business and results likely will continue to be felt for some time afterwards. The full extent of the impact will depend on future developments that are highly uncertain including the duration and spread of the outbreak, its severity, governmental actions to contain the virus, and the long term economic impact, both globally, as well as in our banking markets, which includes a potential recession.
A cyber attack, information or security breach, or a technology failure of ours or of a third party could adversely affect our ability to conduct our business, manage our exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause legal or reputational harm.
Our businesses are highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with whom we interact or on whom we rely. Our businesses rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks.
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We, our customers, regulators and other third parties have been subject to, and are likely to continue to be the target of, cyber attacks. These cyber attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of third parties, damages to systems, or other material disruption to our or our customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to protect the integrity of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the Internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Additionally, the existence of cyber attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.
Although to date we have not experienced any material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches, whether directed at us or third parties, there can be no assurance that we will not suffer such losses or other consequences in the future. Risks are also heightened as a result of the increased remote workforce in response to the COVID-19 pandemic. Cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; financial intermediaries such as clearing agents, exchanges and clearing houses; vendors; regulators; providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses.
Cyber attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. A successful penetration or circumvention of system security could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition.
We are exposed to losses related to fraud.
As technology continues to evolve, criminals are using increasingly more sophisticated techniques to commit and hide fraudulent activity. Fraudulent activity can come in many forms, including debit card/credit card fraud, check fraud, wire fraud, electronic scanning devices attached to ATM machines, social engineering, digital fraud and phishing attacks to obtain personal information and fraudulent impersonation of our clients through the use of falsified or stolen credentials. To counter the increased sophistication of these fraudulent activities, we have increased our investment in systems, technologies and controls to detect and prevent such fraud. Combating fraudulent activities as they evolve will result in continued ongoing investments in the future as significant fraud could adversely impact our reputation or results of operation.
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We depend on key personnel for our successsuccess.
Our success depends to a great extent on our ability to attract and retain key personnel. We have an experienced management team that our board of directorsthe Board believes is capable of managing and growing our business. Losses of, or changes in, our current executive officers or other key personnel and their responsibilitiesexpertise and services may disrupt our business and could adversely affect our financial condition, results of operations and liquidity. We have developed an Executive Officer succession plan, but we cannot be certain of its transition or implementation success. There also can be no assurance that we will be successful in retaining our current executive officers or other key personnel, or hiring additional key personnel to assist in executing our growth, expansion and acquisition strategies.
We are subject to litigation risks, and our expenses related to litigation may adversely affect our resultsresults.
We are subject to litigation risks in the ordinary course of our business. Claims and legal actions, including supervisory actions by our regulators, that may be initiated against us from time to time could involve large monetary sums and significant defense costs. During the last credit crisis, we saw both the number of cases and our expenses related to those cases increase. The outcomes of such cases are always uncertain until finally adjudicated or resolved.
We establish reserves for legal claims when payments associated with the claims become probable and our liability can be reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the actual amount paid in resolution of a legal claim may be substantially higher than any amounts reserved for the matter. The ultimate resolution of a legal proceeding, depending on the remedy sought and any relief granted, could materially adversely affect our results of operations and financial condition.
Substantial legal claims or significant regulatory action against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. We may be exposed to substantial uninsured legal liabilities and/or regulatory actions which could adversely affect our results of operations and financial condition. For additional information, see Note T, “Commitments and Contingencies,”the Notes to the Consolidated Financial Statements, Note T, Commitments and Contingencies, in this Annual Report on Form 10-K.
We face significant operational risks in our businesses
Safely conducting and growing our business requires that we create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways, including employee fraud, customer fraud, and control lapses in bank operations and information technology. Our dependence on our employees, and internal and third party automated systems, to record and process transactions may further increase the risk that technical failures or system-tampering will result in losses that are difficult to detect. We may be subject to disruptions of our operating systems arising from events that are wholly or partially


beyond our control. Failure to maintain appropriate operational infrastructure and oversight can lead to loss of service to customers, legal actions, and noncompliance with various laws and regulations. We have implemented internal controls that are designed to safeguard and maintain our operational and organizational infrastructure and information. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our business and financial performance could be impacted by natural disasters, acts of war or terrorist activitiesactivities.
Natural disasters (including but not limited to earthquakes, hurricanes, tornadoes, floods, fires, and explosions), acts of war and terrorist activities could hurt our performance (i) directly through damage to our facilities or other impactimpacts to our ability to conduct business in the ordinary course, and (ii) indirectly through such damage or impacts to our customers, suppliers or other counterparties. In particular, a significant amount of our business is concentrated in North Carolina and South Carolina, including in coastal areas where our retail and commercial customers have been and in the future could be impacted by hurricanes.hurricanes and flooding. We could also suffer adverse results to the extent that disasters, wars, or terrorist activities, riots or civil unrest affect the broader markets or economy. Our ability to minimize the consequences of such events is in significant measure reliant on the quality of our disaster recovery planning and our ability, if any, to forecast the events.
Our financial performance depends upon our ability to attract and retain clients for our products and services, which ability may be adversely impacted by weakened consumer and/or business confidence, and by any inability on our part to predict and satisfy customers’ needs and demands
Our financial performance is subject to risks associated with the loss of client confidence and demand. A fragile or weakening economy, or ambiguity surrounding the economic future, may lessen the demand for our products and services. Our performance may also be negatively impacted if we should fail to attract and retain customers because we are not able to successfully anticipate, develop and market products and services that satisfy market demands. Such events could impact our performance through fewer loans, reduced fee income and fewer deposits, each of which could result in reduced net income.
We rely on external vendorsthird parties.
Third party vendors provide key components of our business infrastructure, including certain data processing and information services. A number of our vendors are large national entities with dominant market presence in their respective fields, and theirTheir services could be difficult to quickly replace in the event of failure or other interruption in service. Failures of certain vendors to provide services could adversely affect our ability to deliver products and services to our customers. External vendors also present information security risks. We monitor significant vendor risks, including the financial stability of critical vendors. The failure of a critical external vendor could disrupt our business and cause us to incur significant expense.
Our business is highly quantitativeThe quality of our data could deteriorate and requires widespread use ofcause financial models for day-to-day operations; these models may produce inaccurate predictions that significantly vary from actual results
We rely on quantitative models to measure risks and to estimate certain financial values. Such models may be used in many processes including, but not limitedor reputational harm to the pricingBank.
While we have a Data Governance program, it is reliant on the execution of various productsprocedures, process controls and services, classifications of loans, setting interest rates on loanssystem functionality and deposits, quantifying interest ratethere is no guarantee errors will not occur. Incomplete, inconsistent, or inaccurate data could lead to non-compliance with regulatory statutes and other market risks, forecasting losses, measuring capital adequacy,result in fines. Additionally, customer impact could result in reputational harm and calculating economic and regulatory capital levels. Models may also be used to estimate the value of financial instruments and balance sheet items.customer attrition. Inaccurate or erroneous models presentincomplete data presents the risk that business decisions relying on the modelssuch data will prove inefficient or ineffective. Additionally, information we provide to our investors and regulators may be negatively impacted by inaccurately designedinaccurate or implemented models. For further information on models, see the Risk Management section included in Item 7 of this Form 10-K.incomplete data.
Failure to maintain effective system of internal control over financial reporting
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Malicious action by an employee could have a material adverse effect on our results of operations and financial condition and disclosures
We must have effective internal controls over financial reporting in order to provide reliable financial reports, to effectively prevent fraud, and to operate successfully as a public company. If we were unable to provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of our internal controls over financial reporting, we may discover material weaknesses or significant deficiencies requiring remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We continually work to improve our internal controls; however, we cannot be certain that these measures will ensure appropriate and adequate controls over our future financial processes and reporting. Any failure to maintain effective controls or to timely implement any necessary improvement of our internal controls could, among other things, result in losses from fraudharm to our customers or error,the Bank.


harm our reputation, or cause investorsSeveral high-profile cases of misconduct have occurred at other financial institutions. Such an event may lead to loselarge regulatory fines, as well as an erosion in customer confidence, in our reported financial information, each of which could haveimpact our financial position. BancShares’ employees are subject to a material adverse effect on our resultscode of operations and financial condition and the market value of our common stock.
The value of our goodwill may decline in the future
At December 31, 2017, we had $150.6 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting unit with its net book value.ethics which requires annual review. We also test goodwill for impairment when certain events occur, such as a significant decline inhave policies governing our expected future cash flows, a significant adverse change in the business climate, or a sustained decline in the price of our common stock. These tests may result in a write-off of goodwill deemedcompensation, conduct and sales practices designed to be impaired, which could have a significant impact on our financial results; however, any such write-off would not impact our regulatory capital ratios, given that regulatory capital ratios are calculated using tangible capital amounts.
We may be adversely affected by risks associated with completed, pending or anydeter and respond to potential future acquisitionsemployee misconduct.
We plan to continue to grow our business organically. However, we have pursued and expect to continue to pursue acquisition opportunities that we believe support our business strategies and may enhance our profitability. We must generally satisfy a number of material conditions prior to consummating any acquisition including, in many cases, federal and state regulatory approval. We may fail to complete strategic and competitively significant business opportunities as a result of our inability to obtain any required regulatory approvals in a timely manner or at all.
Acquisitions of financial institutions or assets of financial institutions involve operational risks and uncertainties, and acquired companies or assets may have unknown or contingent liabilities, exposure to unexpected asset quality problems that require write downs or write-offs, difficulty retaining key employees and customers, and other issues that could negatively affect our results of operations and financial condition.
We may not be able to realize projected cost savings, synergies or other benefits associated with any such acquisition. Failure to efficiently integrate any acquired entities or assets into our existing operations could significantly increase our operating costs and have material adverse effects on our financial condition and results of operations. There can be no assurance that we will be successful in identifying or consummating any potential acquisitions.
Accounting standards may change and increase our operating costs and/or otherwise adversely affect our results
The Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) periodically modify the standards that govern the preparation of our financial statements. The nature of these changes is not predictable and could impact how we record transactions in our financial statements, which could lead to material changes in assets, liabilities, shareholders’ equity, revenues, expenses and net income. In some cases, we could be required to apply new or revised standards retroactively, resulting in changes to previously-reported financial results or a cumulative adjustment to retained earnings. Application of new accounting rules or standards could require us to implement costly technology changes.
Credit Risks
Our concentration of loans to borrowers within the medical and dental industry could impair our earnings if those industries experience economic difficulties
Statutory or regulatory changes (e.g., Affordable Care Act), or economic conditions in the market generally, could negatively impact the borrowers' businesses and their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations. Additionally, smaller practices such as those in the dental industry generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, and generally have a heightened vulnerability to negative economic conditions. Consequently, we could be required to increase our allowance for loan losses through additional provisions on our income statement, which would reduce reported net income. See Note D for additional discussion.
Economic conditions in real estate markets and our reliance on junior liens may adversely impact our business and our results of operations
Real property collateral values may be impacted by economic conditions in the real estate market and may result in losses on loans that, while adequately collateralized at the time of origination, become inadequately collateralized. Our reliance on junior liens is concentrated in our non-commercial revolving mortgage loan portfolio. Approximately two-thirds of the revolving mortgage portfolio is secured by junior lien positions and lower real estate values for collateral underlying these loans may cause the outstanding balance of the senior lien to exceed the value of the collateral, resulting in a junior lien loan that is effectively unsecured. Inadequate collateral values, rising interest rates and unfavorable economic conditions could result in greater delinquencies, write-downs or charge-offs in future periods, which could have a material adverse impact on our results of operations and capital adequacy.


Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio
We maintain an allowance for loan losses that is designed to cover losses on loans that borrowers may not repay in their entirety. We believe that we maintain an allowance for loan losses at a level adequate to absorb probable losses inherent in the loan portfolio as of the corresponding balance sheet date, and in compliance with applicable accounting and regulatory guidance. However, the allowance may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results.Accounting measurements related to impairment and the allowance require significant estimates that are subject to uncertainty, and revisions driven by new information and changing circumstances. The significant uncertainties surrounding our borrowers' abilities to conduct their businesses successfully through changing economic environments, competitive challenges, and other factors complicate our estimates of the risk and/or amount of loss on any loan. Due to the degree of uncertainty and the susceptibility to change, the actual losses may vary from current estimates. We also expect fluctuations in the allowance due to economic changes nationally as well as locally within the states we conduct business.
As an integral part of their examination process, our banking regulators periodically review the allowance and may require us to increase it for loan losses by recognizing additional provisions for loan losses charged to expense or to decrease the allowance by recognizing loan charge-offs, net of recoveries. Any such required additional loan loss provisions or charge-offs could have a material adverse effect on our financial condition and results of operations.
If we fail to effectively manage credit risk, our business and financial condition will suffersuffer.
We must effectively manage credit risk. There are risks inherent in making any loan, including risks of repayment, risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral. There is no assurance that our loan approval procedures and our credit risk monitoring are or will be adequate to or will reduce the inherent risks associated with lending. Our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or other conditions affecting customers and the quality of our loan portfolio. Any failure to manage such credit risks may materially adversely affect our business, and our consolidated results of operations and financial condition.
Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
We maintain an allowance for credit losses (“ACL”) that is designed to cover credit losses on loans that borrowers may not repay in their entirety. An ACL is also recorded over expected losses in investment securities and unfunded commitments, though these are not significant compared to losses within the loan portfolio. We believe that we maintain an ACL at a level adequate to absorb the expected credit losses over the life of the loan portfolio, adjusted for expected contractual payments and the impact of prepayments, in compliance with applicable accounting and regulatory guidance. However, the ACL may not be sufficient to cover actual credit losses, and future provisions for credit losses could materially and adversely affect our operating results.Accounting measurements related to asset impairment and the ACL require significant estimates that are subject to uncertainty and revisions driven by new information and changing circumstances. The significant uncertainties surrounding our borrowers’ abilities to conduct their businesses successfully through changing economic environments, competitive challenges and other factors complicate our estimates of the risk and/or amount of loss on any loan. Due to the degree of uncertainty and the susceptibility to change, the actual losses may vary from current estimates. We also expect fluctuations in the ACL due to economic changes nationally as well as locally within the states in which we conduct business. This is especially true as the economy reacts to the continuation of and potential recovery from the COVID-19 pandemic.
As an integral part of their examination process, our banking regulators periodically review the ACL and may require us to increase it by recognizing additional provisions for credit losses charged to expense or to decrease the allowance by recognizing loan charge-offs, net of recoveries. Any such required additional credit loss provisions or loan charge-offs could have a material adverse effect on our financial condition and results of operations.
Our concentration of loans to borrowers within the medical and dental industries could impair our earnings if those industries experience economic difficulties.
Statutory or regulatory changes, or economic conditions in the market generally, could negatively impact borrowers’ businesses and their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations. Additionally, smaller practices such as those in the dental industry generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, and generally have a heightened vulnerability to negative economic conditions. Consequently, we could be required to increase our ACL through additional provisions on our income statement, which would reduce reported net income. While medical and dental practices were initially impacted by the coronavirus pandemic, there have not been significant credit deterioration or increased provisions for these borrowers to date. See Note D, Loans and Leases, in the Notes to the Consolidated Financial Statements for additional discussion.
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Economic conditions in real estate markets and our reliance on junior liens may adversely impact our business and our results of operations.
Real property collateral values may be impacted by economic conditions in the real estate market and may result in losses on loans that, while adequately collateralized at the time of origination, become inadequately collateralized. Our reliance on junior liens is concentrated in our consumer revolving mortgage loan portfolio. Approximately two-thirds of the consumer revolving mortgage portfolio is secured by junior lien positions, and lower real estate values for collateral underlying these loans may cause the outstanding balance of the senior lien to exceed the value of the collateral, resulting in a junior lien loan becoming effectively unsecured. Inadequate collateral values, rising interest rates and unfavorable economic conditions could result in greater delinquencies, write-downs or charge-offs in future periods, which could have a material adverse impact on our results of operations and capital adequacy.
Our financial condition could be adversely affected by the soundness of other financial institutionsinstitutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty and/or other relationships. We have exposure to numerous financial serviceservices providers, including banks, securities brokers and dealers and other financial serviceservices providers. Although we monitor the financial conditions of financial institutions with which we have credit exposure, transactions with those institutions expose us to credit risk through the possibility of counterparty default.
Market Risks
Unfavorable economic conditions could adversely affect our businessbusiness.
Our business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition. Our banking operations are located within several states but are locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Our markets include the Southeast, Mid-Atlantic, Midwest and Western United States, with our greatest presence in North Carolina and South Carolina. Worsening economic conditions within our markets, particularly within North Carolina and South Carolina, could have a material adverse effect on our financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates and other factors could weaken the economies of the communities we serve. In recent years, economic growthThe COVID-19 pandemic has created volatility and business activity across a wide range of industriesuncertainty in the economy, which has been slow and uneven, and there can be no assurance that economic conditions will continue to improve or that these conditions will not worsen. impact our business. Thus far, this includes declines in fee income and impacts on the fair value of our equity securities, but could create additional negative impacts to provision for credit losses and declines in demand for our products and services.
In addition, the political environment, the level of U.S. debt and global economic conditions can have a destabilizing effect on financial markets. Weakness in any of our market areas could have an adverse impact on our earnings, and consequently, our financial condition and capital adequacy.


Accounting for acquired assets may result in earnings volatilityvolatility.
Fair value discounts that are recorded at the time an asset is acquired are accreted into interest income based on accounting principles generally accepted in the U.S. GAAP.(“GAAP”). The rate at which those discounts are accreted is unpredictable and the result of various factors including prepayments and changes inestimated credit quality.losses. Post-acquisition credit deterioration results in the recognition of provision expense and allowance for loan and lease losses.expense. Additionally, the income statement impact of adjustments to the indemnification asset recorded in certain FDIC-assisted transactions may occur over a shorter period of time than the adjustments to the covered assets.
Fair value discount accretion, post-acquisition impairment and adjustments to the indemnification asset may result in significant volatility in our earnings. Volatility in earnings could unfavorably influence investor interest in our common stock, thereby depressing the market value of our stock and the market capitalization of our company.
The performance of equity securities and corporate bonds in the investment portfolio could be adversely impacted by the soundness and fluctuations in the market values of other financial institutionsinstitutions.
Our investment securities portfolio contains certain equity securities and corporate bonds of other financial institutions. As a result, a portion of our investment securities portfolio is subject to fluctuation due to changes in the financial stability and market value of other financial institutions, as well as interest rate sensitivity to economic and market conditions. Such fluctuations could have an adverse effect on our results of operations. We have seen volatile earnings impacts related to the fair value of equity securities throughout 2020.
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Failure to effectively manage our interest rate risk could adversely affect usus.
Our results of operations and cash flows are highly dependent upon net interest income. Interest rates are sensitive to economic and market conditions that are beyond our control, including the actions of the Federal Reserve Board’s Federal Open Market Committee (FOMC)(“FOMC”). Changes in monetary policy could influence interest income, and interest expense, as well asand the fair value of our financial assets and liabilities. If changes in interest rates on our interest-earning assets are not equal to the changes in interest rates on our interest-bearing liabilities, our net interest income and, therefore, our net income, could be adversely impacted.
As interest rates rise, our interest expense will increase and our net interest margins may decrease, negatively impacting our performance and, potentially, our financial condition. To the extent banks and other financial serviceservices providers were to compete for interest-bearing deposit accounts through higher interest rates, our deposit base could be reduced if we are unwilling to pay those higher rates; ifrates. If we should determinedecide to compete with those higher interest rates, our cost of funds could increase and our net interest margins could be reduced. Additionally, higher interest rates will impact our ability to originate new loans. Increases in interest rates could adversely affect the ability of our borrowers to meet higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and net charge-offs, which could adversely affect our business and financial condition.
Although we maintain an interest rate risk monitoring system, the forecasts of future net interest income are estimates and may be inaccurate. Actual interest rate movements may differ from our forecasts, and unexpected actions by the FOMC may have a direct impact on market interest rates.
We may be adversely impacted by the transition from LIBOR as a reference rate
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). Subsequent announcements have delayed the potential date for certain LIBOR tenors until June 30, 2023. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, there is still uncertainty around how quickly different alternative rates will develop sufficient liquidity and industry-wide usage, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments.

We have loans, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create additional costs and risks. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, systems, contracts, valuation tools, and product design. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation and potentially introduce additional legal risks. Although our current LIBOR exposure on loans is limited to less than $5 billion, and we are currently taking steps to transition to alternative reference rates, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
The value of our goodwill may decline in the future.
At December 31, 2020, we had $350.3 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting unit with its net book value. We also test goodwill for impairment when certain events occur, such as a significant decline in our expected future cash flows, a significant adverse change in the business climate or a sustained decline in the price of our common stock. These tests may result in a write-off of goodwill deemed to be impaired, which could have a significant impact on our financial results; however, any such write-off would not impact our regulatory capital ratios, given that regulatory capital ratios are calculated using tangible capital amounts.
The market price of our stock may be volatile.
Although publicly traded, our common stock, particularly our Class B common stock, has less liquidity and public float than many other large, publicly traded financial services companies. Lower liquidity increases the price volatility of our stock and could make it difficult for our shareholders to sell or buy our common stock at specific prices.
Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors, including expectations of financial and operating results, actual operating results, actions of institutional shareholders, speculation in the press or the investment community, market perception of acquisitions, rating agency upgrades or downgrades, stock prices of other companies that are similar to us, general market expectations related to the financial services industry and the potential impact of government actions affecting the financial services industry. For example, the closing price per share of our Class A Common stock on the Nasdaq Global Select Market ranged from a low of $282.90 to a high of $613.22 during the year ended December 31, 2020.
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Liquidity Risks
If our current level of balance sheet liquidity were to experience pressure, thatit could affect our ability to pay deposits and fund our operationsoperations.
Our deposit base represents our primary source of core funding and balance sheet liquidity. We normally have the ability to stimulate core deposit growth through reasonable and effective pricing strategies. However, in circumstances where our ability to generate needed liquidity is impaired, we need access to noncorenon-core funding such as borrowings from the Federal Home Loan Bank (FHLB)(“FHLB”) and the Federal Reserve, Federal Funds purchased lines and brokered deposits. While we maintain access to these noncorenon-core funding sources, some sources are dependent on the availability of collateral as well as the counterparty’s willingness and ability to lend.
Capital Adequacy Risks
Our ability to grow is contingent onupon access to capitalcapital.
Our primary capital sources have been retained earnings and debt issued through both private and public markets. Rating agencies regularly evaluate our creditworthiness and assign credit ratings to our debtBancShares and the debt of FCB. The ratings of the agencies are based on a number of factors, some of which are outside our control. In addition to factors specific to our financial strength and performance, the rating agencies also consider conditions generally affecting the financial services industry. There can be no assurance that we will maintain our current credit ratings. Rating reductions could adversely affect our access to funding sources and the cost of obtaining funding.


Based on existing capital levels, BancShares and FCB are well-capitalized under current leverage and risk-based capital standards. Our ability to grow is contingent on our ability to generate sufficient capital to remain well-capitalized under current and future capital adequacy guidelines.
We are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affectedaffected.
Under regulatory capital adequacy guidelines and other regulatory requirements, BancShares, together with FCB, must meet certain capital and liquidity guidelines, subject to qualitative judgments by regulators about components, risk weightings and other factors.
TheWe are subject to capital rules issued by the Federal Reserve Bank (FRB) issued capital rules that established a new comprehensive capital framework for U.S. banking institutions and established a more conservative definition of capital. These requirements, known as Basel III, became effective January 1, 2015, and, as a result, we became subject to enhancedincluding required minimum capital and leverage ratios. These requirements could adversely affect our ability to pay dividends, restrict certain business activities or compel us to raise capital, each of which may adversely affect our results of operations or financial condition. In addition, the costs associated with complying with more stringent capital requirements, such as the requirement to formulate and submit capital plans based on pre-defined stress scenarios on an annual basis, could have an adverse effect on us. See the Supervision and Regulation section included in Item 71. Business of this Annual Report on Form 10-K for additional information regarding the capital requirements under the Dodd-Frank Act and Basel III.
Compliance Risks
We operate in a highly regulated industry; the laws and regulations that govern our operations, taxes, corporate governance, executive compensation and financial accounting orand reporting, including changes in them or our failure to comply with them, may adversely affect usus.
We are subject to extensive regulation and supervision that govern almost all aspects of our operations. In addition to a multitude of regulations designed to protect customers, depositors and consumers, we must comply with other regulations that protect the deposit insurance fund and the stability of the United States' (U.S.)U.S. financial system, including laws and regulations which,that, among other matters, prescribe minimum capital requirements; impose limitations on our business activities and investments; limit the dividends or distributions that we can pay; restrict the ability of our bank subsidiaries to guarantee our debt; and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than accounting principles generally accepted in the United States (GAAP).GAAP. Compliance with laws and regulations can be difficult and costly, and changes in laws and regulations often impose additional compliance costs.
The Sarbanes-Oxley Act of 2002 and the related rules and regulations issued by the SEC and NASDAQ,The Nasdaq Stock Market LLC (“Nasdaq”), as well as numerous other recently enacted statutes and regulations, including the Dodd-Frank Act, EGRRCPA, and regulations promulgated thereunder, have increased the scope, complexity and cost of corporate governance and reporting and disclosure practices, including the costs of completing our external audit and maintaining our internal controls. Such additional regulation and supervision may limit our ability to pursue business opportunities.
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The failure to comply with these various rules and regulations could subject us to restrictions on our business activities, including mergers and acquisitions, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our common stock.
We may be adversely affected by changes in U.S. tax laws and other laws and regulationsregulations.
Corporate tax rates affect our profitability and capital levels. The U.S. corporate tax code may be further reformed by the U.S. Congress and additional guidance may be issued by the U.S. Department of the Treasury relevantTreasury. Changes in tax laws and regulations, and income tax rates in particular, could have an adverse impact on our financial condition and results of operations.
Financial Reporting Risks
Accounting standards may change and increase our operating costs and/or otherwise adversely affect our results.
FASB and the SEC periodically modify the standards governing the preparation of our financial statements. The nature of these changes is not predictable and could impact how we record transactions in our financial statements, which could lead to material changes in assets, liabilities, shareholders’ equity, revenues, expenses and net income. In some cases, we could be required to apply new or revised standards retroactively, resulting in changes to previously reported financial results or a cumulative adjustment to retained earnings. Implementation of new accounting rules or standards could additionally require us to implement technology changes which could impact ongoing earnings.
Our accounting policies and processes are critical to the Tax Cutsreporting of financial condition and Jobs Actresults of operations. They require management to make estimates about matters that was signed into law on December 22, 2017. It is not possible at this timeare uncertain.
Accounting policies and processes are fundamental to quantifyhow BancShares records and reports its financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and processes so they comply with GAAP. In some cases, management must select the ongoing impacts additional reformaccounting policy or guidance might have on our businessmethod to apply from two or financial condition.
Strategic Risks
We encounter significant competitionmore alternatives, any of which may reduce our market sharebe reasonable under the circumstances, yet may result in BancShares reporting materially different results than would have been reported under a different alternative.
Management has identified certain accounting policies as being critical because they require management to make difficult, subjective or complex conclusions about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. BancShares has established policies and profitabilitycontrol procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the uncertainty surrounding management's judgments and the estimates pertaining to these matters, BancShares cannot guarantee that it will not be required to adjust accounting policies or restate prior period financial statements. See “Critical Accounting Policies” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We compete with other banksOur business is highly quantitative and specialized financial service providers in our market areas. Our primary competitors include local, regional and national banks; credit unions; commercial finance companies; various wealth management providers; independent and captive insurance agencies; mortgage companies; and non-bank providersrequires widespread use of financial services. Some of our larger competitors, including certain banks with a significant presence in our market areas, have the capacity to offer products and services we do not offer. Some of our non-bank competitors operate in less stringent regulatory environments, and certain competitors are not subject to federal and/or state income taxes. The fierce competitive pressuresmodels for day-to-day operations; these models may produce inaccurate predictions that we face adversely affect pricing for many of our products and services.



Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt that you might consider to be in your best interests
Certain provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could delay or prevent the removal of directors and other management. The provisions could also delay or make more difficult a tender offer, merger, or proxy contest that you might consider to be in your best interests. For example, our Certificate of Incorporation and/or Bylaws:
allow our Board of Directors to issue and set the terms of preferred shares without further shareholder approval;
limit who can call a special meeting of shareholders; and
establish advance notice requirements for nominations for election to the Board of Directors and proposals of other business to be considered at annual meetings of shareholders.
These provisions, as well as provisions of the BHCA and other relevant statutes and regulations which require advance notice and/or applications for regulatory approval of changes in control of banks and bank holding companies, may discourage bids for our common stock at a premium over market price, adversely affecting its market price. Additionally, the fact that the Holding family holds or controls shares representing a majority of the voting power of our common stock may discourage potential takeover attempts and/or bids for our common stock at a premium over market price.
The market price of our stock may be volatile
Although publicly traded, our common stock has less liquidity and public float than many other large publicly traded financial services companies. Low liquidity increases the price volatility of our stock and could make it difficult for our shareholders to sell or buy our common stock at specific prices.
Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors, including expectations of financial and operating results,significantly vary from actual operating results, actions of institutional shareholders, speculation in the press or the investment community, market perception of acquisitions, rating agency upgrades or downgrades, stock prices of other companies that are similar to us, general market expectations related to the financial services industry, and the potential impact of government actions affecting the financial services industry.results.
We rely on dividends from FCBquantitative models to measure risks and to estimate certain financial values. Such models may be used in many processes including, but not limited to, the pricing of various products and services, classifications of loans, setting interest rates on loans and deposits, quantifying interest rate and other market risks, forecasting losses, measuring capital adequacy and calculating economic and regulatory capital levels. Models may also be used to estimate the value of financial instruments and balance sheet items. Inaccurate or erroneous models present the risk that business decisions relying on the models will prove inefficient or ineffective. Additionally, information we provide to our investors and regulators may be negatively impacted by inaccurately designed or implemented models. For further information on models, see the “Risk Management” section included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.
20

Failure to maintain an effective system of internal control over financial reporting could have a material adverse effect on our results of operations and financial condition and disclosures.
We must have effective internal controls over financial reporting in order to provide reliable financial reports, to effectively prevent fraud and to operate successfully as a public company. If we were unable to provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As a financial holding company, we are a separate legal entity from FCB. We derive mostpart of our revenueongoing monitoring of our internal controls over financial reporting, we may discover material weaknesses or significant deficiencies requiring remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We continually work to improve our internal controls; however, we cannot be certain that these measures will ensure appropriate and cash flowadequate controls over our future financial processes and reporting. Any failure to maintain effective controls or to implement any necessary improvement of our internal controls in a timely manner could, among other things, result in losses from dividends paid by FCB. These dividends are the primary source fromfraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, each of which we pay dividendscould have a material adverse effect on our common stockresults of operations and interestfinancial condition and principal on our debt obligations. State and federal laws impose restrictions on the dividends that FCB may pay to us. In the event FCB is unable to pay dividends to us for an extended periodmarket value of time, we may not be able to service our debt obligations or pay dividends on our common stock.
Item 2. Properties
As of December 31, 2017, BancShares operated branch offices at 545 locations in Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Minnesota, Missouri, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington, West VirginiaBancShares’ and Wisconsin. FCB owns many of the buildings and leases other facilities from third parties.
BancShares'FCB’s headquarters facility, a nine-story building with approximately 163,000 square feet, is located in Raleigh, North Carolina. In addition, we occupyFCB occupies two separate facilities in Raleigh andas well as a facility in Columbia, South Carolina, thatwhich serve as our data and operations centers. As of December 31, 2020, FCB operated 542 branch offices throughout the Southeast, Mid-Atlantic, Midwest and Western United States. FCB owns many of the buildings and leases other facilities from third parties.
Additional information relating to premises, equipment and lease commitments is set forth in Note F, Premises and Equipment, of BancShares’ Notes to Audited Consolidated Financial Statements.
Item 3. Legal Proceedings
BancShares and various subsidiaries have beenare 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 expectedwould be material to have a material effect on BancShares’ consolidated financial statements. Additional information related to legal proceedings is set forth in Note T, inCommitments and Contingencies, of BancShares’ Notes to Consolidated Financial Statements.

21


Part II


Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
BancShares has two classes of common stock—Class A common and Class B common. Shares of Class A common have one vote per share, while shares of Class B common have 16 votes per share. BancShares’ Class A common stock is listed on the NASDAQNasdaq Global Select Market under the symbol FCNCA. The Class B common stock is traded on the over-the-counter market and quoted on the OTC Bulletin BoardPink Market under the symbol FCNCB. As of December 31, 2017,February 22, 2021, there were 1,332aggregates of 1,127 and 175 holders of record ofand individual participants in securities position listings with respect to the Class A common stock and 214 holders of record of the Class B common stock.stock, respectively. The market volume for Class B common stock is extremely limited. On many days there is no trading and, to the extent there is trading, it is generally low volume.
The average monthly trading volume for the Class A common stock was 417,888 shares for the fourth quarter of 2017 and 570,633 shares for the year ended December 31, 2017. The Class B common stock monthly trading volume averaged 4,431 shares in the fourth quarter of 2017 and 1,912 shares for the year ended December 31, 2017.
The per share cash dividends declared by BancShares on both the Class A and Class B common stock, the high and low sales prices per share of BancShares Class A common stock as reported on NASDAQ, and the high and low bid prices for BancShares Class B common stock as reported in the OTC Bulletin Board, for each quarterly period during 2017 and 2016, are set forth in the following table. Over-the-counter bid pricesmarket quotations for BancShares Class B common stock represent inter-dealer prices without retail markup, markdown or commissions, and may not represent actual transaction prices.
The average monthly trading volume for the Class A common stock was 1,444,327 shares for the fourth quarter of December 31, 2020 and 1,089,723 shares for the year ended December 31, 2020. The Class B common stock monthly trading volume averaged 2,786 shares in the quarter ended December 31, 2020 and 5,268 shares for the year ended December 31, 2020.
 2017 2016
 Fourth
quarter		 Third
quarter		 Second
quarter		 First
quarter		 Fourth
quarter		 Third
quarter		 Second
quarter		 First
quarter
Cash dividends (Class A and Class B)$0.35
 $0.30
 $0.30
 $0.30
 $0.30
 $0.30
 $0.30
 $0.30
Class A sales price               
High427.09
 381.30
 372.52
 384.12
 367.00
 294.50
 262.49
 257.97
Low371.52
 323.74
 320.10
 319.40
 280.98
 245.60
 229.51
 217.41
Class B bid price               
High376.00
 338.00
 328.00
 321.00
 318.00
 258.51
 237.00
 233.25
Low320.00
 294.00
 291.51
 290.00
 252.00
 219.00
 214.00
 197.36
A cash dividend of 35 cents per share was declared byDuring 2020, the Board approved a series of Directors on January 30, 2018, payable on April 2, 2018, to holdersauthorizations of record asshare repurchases of March 19, 2018. Payment of dividends is made at the discretion of the Board of Directors and is contingent upon satisfactory earnings as well as projected future capital needs. BancShares’ principal source of liquidity for payment of shareholder dividends is the dividend it receives from FCB. FCB is subject to various requirements under federal and state banking laws that restrict the payment of dividends and its ability to lend to BancShares. Subject to the foregoing, it is currently management’s expectation that comparable cash dividends will continue to be paid in the future.

During 2017, our Board authorized the purchase of up to 800,000 shares of Class A common stock. The shares maycould be purchasedrepurchased from time to time at management'smanagement’s discretion from November 1, 2017 through October 31, 2018. It doesduring the authorized periods. The authorizations did not obligate BancShares to purchaserepurchase any particular amount of shares, and purchases mayrepurchases were able to be suspended or discontinued at any time. The Board's action replaced existing authority to purchase up to 200,000 shares in effectFollowing the expiration of our latest share repurchase authorization on July 31, 2020, share repurchase activity was suspended, and there were no share repurchases during the twelve months preceding November 1, 2017.fourth quarter of 2020.A summary of share repurchases during 2020 is disclosed below.

There were no sharesShares of Class A or Class B common stock purchasedrepurchased by BancShares during the year ended December 31, 2017.2020.
Class A common stockTotal Number of Class A Shares RepurchasedAverage Price Paid per ShareTotal Number of Shares Repurchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet be Repurchased Under the Plans or Programs
Total repurchases in the first quarter of 2020349,390 $457.10 243,000 243,200 
Total repurchases in the second quarter of 2020346,000 367.03 346,000 265,700 
Total repurchases in the third quarter of 2020117,700 399.83 117,700 — 
Total repurchases in the fourth quarter of 2020— — — — 
Total repurchases in 2020813,090 $410.48 706,700 — 
22



The following graph comparesand table compare the cumulative total shareholder return (CTSR)(“CTSR”) of our Class A common stock during the previous five years with the CTSR over the same measurement period of the NASDAQNasdaq – Banks Index and the NASDAQNasdaq – U.S. Index. Each trend line assumes that $100 was invested on December 31, 2012,2015, and that dividends were reinvested for additional shares. The performance graph represents past performance and should not be considered to be an indication of future performance.

fcnca-20201231_g1.jpg

201520162017201820192020
FCNCA$100 $138 $157 $148 $208 $225 
Nasdaq - Banks100135144120151141 
Nasdaq - U.S.100110142140190274 
23

Item 6. Selected Financial Data
Table 1
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
(Dollars in thousands, except share data)20202019201820172016
SUMMARY OF OPERATIONS
Interest income$1,484,026 $1,404,011 $1,245,757 $1,103,690 $987,757 
Interest expense95,857 92,642 36,857 43,794 43,082 
Net interest income1,388,169 1,311,369 1,208,900 1,059,896 944,675 
Provision for credit losses58,352 31,441 28,468 25,692 32,941 
Net interest income after provision for credit losses1,329,817 1,279,928 1,180,432 1,034,204 911,734 
Gain on acquisitions— — — 134,745 5,831 
Noninterest income excluding gain on acquisitions476,750 415,861 400,149 387,218 371,268 
Noninterest expense1,188,685 1,103,741 1,076,971 1,012,469 937,766 
Income before income taxes617,882 592,048 503,610 543,698 351,067 
Income taxes126,159 134,677 103,297 219,946 125,585 
Net income491,723 457,371 400,313 323,752 225,482 
Net income available to common shareholders$477,661 $457,371 $400,313 $323,752 $225,482 
Net interest income, taxable equivalent (1)
$1,390,765 $1,314,940 $1,212,280 $1,064,415 $949,768 
PER SHARE DATA
Net income$47.50 $41.05 $33.53 $26.96 $18.77 
Cash dividends1.67 1.60 1.45 1.25 1.20 
Market price at period end (Class A)574.27 532.21 377.05 403.00 355.00 
Book value at period end396.21 337.38 300.04 277.60 250.82 
SELECTED PERIOD AVERAGE BALANCES
Total assets$46,021,438 $37,161,719 $34,879,912 $34,302,867 $32,439,492 
Investment securities9,054,933 6,919,069 7,074,929 7,036,564 6,616,355 
Loans and leases (2)
31,605,090 26,656,048 24,483,719 22,725,665 20,897,395 
Interest-earning assets43,351,119 34,866,734 32,847,661 32,213,646 30,267,788 
Deposits39,746,616 32,218,536 30,165,249 29,119,344 27,515,161 
Interest-bearing liabilities24,894,309 20,394,815 18,995,727 19,576,353 19,158,317 
Securities sold under customer repurchase agreements632,362 530,818 555,555 649,252 721,933 
Other short-term borrowings50,549 23,087 58,686 77,680 7,536 
Long-term borrowings1,186,145 392,150 304,318 842,863 811,755 
Common shareholders’ equity3,684,889 3,551,781 3,422,941 3,206,250 3,001,269 
Shareholders’ equity$3,954,007 $3,551,781 $3,422,941 $3,206,250 $3,001,269 
Shares outstanding10,056,654 11,141,069 11,938,439 12,010,405 12,010,405 
SELECTED PERIOD-END BALANCES
Total assets$49,957,680 $39,824,496 $35,408,629 $34,527,512 $32,990,836 
Investment securities9,922,905 7,173,003 6,834,362 7,180,256 7,006,678 
Loans and leases32,791,975 28,881,496 25,523,276 23,596,825 21,737,878 
Deposits43,431,609 34,431,236 30,672,460 29,266,275 28,161,343 
Securities sold under customer repurchase agreements641,487 442,956 543,936 586,256 590,936 
Other short-term borrowings— 295,277 28,351 107,551 12,551 
Long-term borrowings1,248,163 588,638 319,867 870,240 832,942 
Shareholders’ equity$4,229,268 $3,586,184 $3,488,954 $3,334,064 $3,012,427 
Shares outstanding9,816,405 10,629,495 11,628,405 12,010,405 12,010,405 
SELECTED RATIOS AND OTHER DATA
Rate of return on average assets1.07 %1.23 %1.15 %0.94 %0.70 %
Rate of return on average common shareholders’ equity12.96 12.88 11.69 10.10 7.51 
Average equity to average assets ratio8.59 9.56 9.81 9.35 9.25 
Net yield on interest-earning assets (taxable equivalent)3.17 3.74 3.66 3.28 3.11 
Allowance for credit losses to total loans and leases:
PCD5.18 1.35 1.51 1.31 1.70 
Non-PCD0.62 0.77 0.86 0.93 0.98 
Total0.68 0.78 0.88 0.94 1.01 
Ratio of total nonperforming assets to total loans, leases and other real estate owned0.74 0.58 0.52 0.61 0.67 
Total risk-based capital ratio13.81 12.12 13.99 14.21 13.85 
Tier 1 risk-based capital ratio11.63 10.86 12.67 12.88 12.42 
Common equity Tier 1 ratio10.61 10.86 12.67 12.88 12.42 
Leverage capital ratio7.86 8.81 9.77 9.47 9.05 
Dividend payout ratio3.52 3.90 4.32 4.64 6.39 
Average loans and leases to average deposits79.52 82.74 81.17 78.04 75.95 
(Dollars in thousands, except share data)2017 2016 2015 2014 2013
SUMMARY OF OPERATIONS         
Interest income$1,103,690
 $987,757
 $969,209
 $760,448
 $796,804
Interest expense43,794
 43,082
 44,304
 50,351
 56,618
Net interest income1,059,896
 944,675
 924,905
 710,097
 740,186
Provision (credit) for loan and lease losses25,692
 32,941
 20,664
 640
 (32,255)
Net interest income after provision for loan and lease losses1,034,204
 911,734
 904,241
 709,457
 772,441
Gain on acquisitions134,745
 5,831
 42,930
 —
 —
Noninterest income506,284
 482,240
 424,158
 343,213
 267,382
Noninterest expense1,131,535
 1,048,738
 1,038,915
 849,076
 771,380
Income before income taxes543,698
 351,067
 332,414
 203,594
 268,443
Income taxes219,946
 125,585
 122,028
 65,032
 101,574
Net income$323,752
 $225,482
 $210,386
 $138,562
 $166,869
Net interest income, taxable equivalent (1)
$1,064,415
 $949,768
 $931,231
 $714,085
 $742,846
PER SHARE DATA         
Net income$26.96
 $18.77
 $17.52
 $13.56
 $17.35
Cash dividends1.25
 1.20
 1.20
 1.20
 1.20
Market price at period end (Class A)403.00
 355.00
 258.17
 252.79
 222.63
Book value at period end277.60
 250.82
 239.14
 223.77
 215.35
SELECTED PERIOD AVERAGE BALANCES         
Total assets$34,302,867
 $32,439,492
 $31,072,235
 $24,104,404
 $21,295,587
Investment securities7,036,564
 6,616,355
 7,011,767
 5,994,080
 5,206,000
Loans and leases (2)
22,725,665
 20,897,395
 19,528,153
 14,820,126
 13,163,743
Interest-earning assets32,213,646
 30,267,788
 28,893,157
 22,232,051
 19,433,947
Deposits29,119,344
 27,515,161
 26,485,245
 20,368,275
 17,947,996
Interest-bearing liabilities19,576,353
 19,158,317
 18,986,755
 15,273,619
 13,910,299
Long-term obligations842,863
 811,755
 547,378
 403,925
 462,203
Shareholders' equity$3,206,250
 $3,001,269
 $2,797,300
 $2,256,292
 $1,936,895
Shares outstanding12,010,405
 12,010,405
 12,010,405
 10,221,721
 9,618,952
SELECTED PERIOD-END BALANCES         
Total assets$34,527,512
 $32,990,836
 $31,475,934
 $30,075,113
 $21,193,878
Investment securities7,180,256
 7,006,678
 6,861,548
 7,172,435
 5,388,610
Loans and leases:         
PCI762,998
 809,169
 950,516
 1,186,498
 1,029,426
Non-PCI22,833,827
 20,928,709
 19,289,474
 17,582,967
 12,104,298
Interest-earning assets32,216,187
 30,691,551
 29,224,436
 27,730,515
 19,428,929
Deposits29,266,275
 28,161,343
 26,930,755
 25,678,577
 17,874,066
Interest-bearing liabilities19,592,947
 19,467,223
 18,955,173
 18,930,297
 13,654,436
Long-term obligations870,240
 832,942
 704,155
 351,320
 510,769
Shareholders' equity$3,334,064
 $3,012,427
 $2,872,109
 $2,687,594
 $2,071,462
Shares outstanding12,010,405
 12,010,405
 12,010,405
 12,010,405
 9,618,941
SELECTED RATIOS AND OTHER DATA         
Rate of return on average assets0.94% 0.70% 0.68% 0.57% 0.78%
Rate of return on average shareholders' equity10.10
 7.51
 7.52
 6.14
 8.62
Average equity to average assets ratio9.35
 9.25
 9.00
 9.36
 9.10
Net yield on interest-earning assets (taxable equivalent)3.30
 3.14
 3.22
 3.21
 3.82
Allowance for loan and lease losses to total loans and leases:         
Purchased Credit Impaired (PCI)1.31
 1.70
 1.72
 1.82
 5.20
Non-Purchased Credit Impaired (Non-PCI)0.93
 0.98
 0.98
 1.04
 1.49
Total0.94
 1.01
 1.02
 1.09
 1.78
Nonperforming assets to total loans and leases and other real estate at period end:         
Covered0.54
 0.66
 3.51
 9.84
 7.02
Noncovered0.61
 0.67
 0.79
 0.66
 0.74
Total0.61
 0.67
 0.83
 0.91
 1.25
Tier 1 risk-based capital ratio12.88
 12.42
 12.65
 13.61
 14.89
Common equity Tier 1 ratio12.88
 12.42
 12.51
 N/A
 N/A
Total risk-based capital ratio14.21
 13.85
 14.03
 14.69
 16.39
Leverage capital ratio9.47
 9.05
 8.96
 8.91
 9.80
Dividend payout ratio4.64
 6.39
 6.85
 8.85
 6.92
Average loans and leases to average deposits78.04
 75.95
 73.73
 72.76
 73.34
(1)The taxable-equivalent adjustment was $4,519, $5,093, $6,326, $3,988$2.6 million, $3.6 million, $3.4 million, $4.5 million and $2,660$5.1 million for the years 2020, 2019, 2018, 2017, and 2016, 2015, 2014, and 2013, respectively.
(2) Average loan and lease balances include PCIPCD loans, non-PCInon-PCD loans and leases, loans held for sale and nonaccrual loans and leases.


24

Item 7. 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. (“BancShares”) and Subsidiaries (BancShares)its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”). This discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes presented within this report.Annual Report on Form 10-K. Intercompany accounts and transactions have been eliminated. See Note A, Accounting Policies and Basis of Presentation, in the Notes to the Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for more detail. Although certain amounts for prior years have been reclassified to conform to statement presentations for 2017,2020, the reclassifications had no effect on shareholders’ equity or net income as previously reported. Unless otherwise noted, the terms "we", "us"“we,” “us,” “our,” and "BancShares"“BancShares” in this section refer to the consolidated financial position and consolidated results of operations for BancShares.
Year-over-year comparisons of the financial results for 2019 and 2018 are contained in Item 7 of BancShares’ Annual Report on Form 10-K for 2019 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020 and available through FCB’s website www.firstcitizens.com or the SEC’s EDGAR database.
FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K includes statements 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 thatForward-looking information is inherently subject to risks and uncertainties, and actual results could influence the accuracydiffer materially from those currently anticipated due to a number of those forward-looking statementsfactors which include, but are not limited to, risks, uncertainties and other factors relating to our proposed merger with CIT Group Inc. (“CIT”), including the ability to obtain regulatory approvals and satisfy other conditions to the proposed transaction, and delay in closing the proposed transaction, as well as risks, uncertainties and other factors relating to the impact of COVID-19 on our business and the economy, 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 affectaffecting our loan and lease portfolio, the abilities of our borrowers to repay their loans and leases, the values of real estate and other collateral, the impact of the FDIC-assisted transactions,our prior acquisitions, the risks discussed in Item 1A. Risk Factors above and other developments or changes in our business that we do not expect.

Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, BancShares undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

CRITICAL ACCOUNTING POLICIES
ESTIMATES
The accounting and reporting policies of BancShares are in accordance with accounting principles generally accepted in the United States (GAAP)of America (“GAAP”) and conformare described in Note A, Accounting Policies and Basis of Presentation, of the Notes to general practices within the banking industry.Consolidated Financial Statements. The preparation of financial statements in conformity with GAAP requires managementus to makeexercise judgment in determining many of the estimates and assumptions utilized to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations cancould be materially affected by changes to these estimates and assumptions. Critical accounting policies are those policies that are most important to the determination of our financial condition and results of operations or that require management to make assumptions and estimates that are subjective or complex. The most critical accounting and reporting policies include those related to the allowance for loan and lease losses, fair value estimates, the payable to the FDIC for shared-loss agreements, defined benefit pension plan assumptions, and income taxes. Accounting policies are discussed in Note A in the Notes to Consolidated Financial Statements.

The following is a summary of ourthe more critical accounting policies that are material to our consolidated financial statementsareas where these critical assumptions and are highly dependent on estimates and assumptions.

Allowance for loan and lease losses. The allowance for loan and lease losses (ALLL) reflects the estimated losses resulting from the inability of our customers to make required loan and lease payments. The ALLL is based on management's evaluation of the risk characteristics of the loan and lease portfolio under current economic conditions and considers such factors ascould impact the financial condition, results of operations and cash flows of BancShares:
Allowance for credit losses.As of January 1, 2020, BancShares adopted Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), which changed the borrower, fair market value of collateralmethodology, accounting policies and other items that,inputs used in our opinion, deserve current recognition in estimating incurred losses. Our evaluation process is based on economic data, historical experience and current trends among delinquencies, defaults and nonperforming assets.


A primary component of determining the general allowance for performingcredit losses (“ACL”). See Note A, Accounting Policies and classified loans not analyzed specifically is the actual loss historyBasis of the various loan classes. Loan loss factors based on historical experience may be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio at the balance sheet date. For non-purchased credit impaired (non-PCI) commercial loans and leases, management incorporates historical net loss data to develop the applicable loan loss factors. For the non-PCI noncommercial segment, management incorporates specific loan class and delinquency status trends into the loan loss factors. Loan loss factors may be adjusted quarterly based on changesPresentation, in the level of historical net charge-offs and updates by management, such as the number of periods included in the calculation of loss factors, loss severity and portfolio attrition.
Purchased credit impaired (PCI) loans are aggregated into loan pools based upon common risk characteristics or evaluated at the loan level. At each balance sheet date, BancShares evaluates whether the estimated cash flows and corresponding present value of its loans determined using their effective interest rates has decreased and if so, recognizes provisionNotes to Consolidated Financial Statements for loan losses. Management continuously monitors and actively manages the credit quality of the entire loan portfolio and adjusts the ALLL to an appropriate level. By assessing the probable estimated incurred losses in the loan portfolio on a quarterly basis, management is able to adjust specific and general loss estimates based upon the most recent information available.
Management considers the established ALLL adequate to absorb incurred losses for loans and leases outstanding at December 31, 2017, although future adjustments may be necessary based on changes in economic conditions, collateral values, erosion of the borrower's access to liquidity and other factors. If the financial conditiondiscussion of our borrowers were to deteriorate, resulting in an impairmentaccounting policies for the ACL and the implementation impact of their ability to make payments, our estimates would be updated and additions to the allowance may be required. In addition, various regulatory agencies periodically review the ALLL as an integral part of their examination process. These agencies may require the recognition of additions to the ALLL based on their judgments of information available to them at the time of their examination.
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ASC 326. See Note E, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements for additional disclosures.
Fair value estimates. The ACL represents the best estimate of expected credit losses on loans and leases as of the balance sheet date. The ACL is assessed at each balance sheet date and adjustments are recorded in provision for credit losses. Losses are estimated using historical loss rates and a projection of a reasonable and supportable macroeconomic forecast period which reverts to historical assumptions. This estimation process requires judgment in determining the amount and timing of charge-offs, economic forecast assumptions and loan specific attributes impacting the borrower’s ability to repay contractual obligations. Other factors such as the composition of and risks within the loan portfolio, collateral values and prepayments are also considered. Loan balances considered uncollectible are charged off against the ACL. If it is probable a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement and a loss is probable, a specific valuation allowance is determined. Recoveries of amounts previously charged-off are generally credited to the ACL.
Financial Measurements. Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Certain assets and liabilities are measured at fair value on a recurring basis. Examples of recurring uses of fair value include marketable equity securities, investment securities available for sale securities and loans held for sale. At December 31, 2017, the percentage of total assets measured at fair value on a recurring basis was 20.9 percent. There were no liabilities measured at fair value on a recurring basis at December 31, 2017.2020. We also measure certain assets at fair value on a non-recurring basis either to evaluate assets for impairment or for disclosure purposes.basis. Examples of non-recurring uses of fair value include impairedcollateral-dependent loans, other real estate owned (OREO)(“OREO”), goodwill and intangible assets. As required under GAAP, the assetsAssets acquired and liabilities assumed in a business combinationscombination are recognized at their fair valuesvalue as of the acquisition dates. Fair values estimated as part of a business combination are determined using valuation methods and assumptions established by management.

date.
Fair value is determined using different inputs and assumptions based upon the instrument that is being valued. Where observable market prices from transactions for identical assets or liabilities are not available, we identify market prices for similar assets or liabilities. If observable market prices are unavailable or impracticable to obtain for any such similar assets or liabilities, we look to other modeling techniques, which often incorporate unobservable inputs thatwhich are inherently subjective and require significant judgment. Fair value estimates requiring significant judgments are determined using various inputs developed by management with the appropriate skills, understanding and knowledge of the underlying asset or liability to ensure the development of fair value estimates is sound.reasonable. Typical pricing sources used in estimating fair values include, but are not limited to, active markets with high trading volume, third partythird-party pricing services, external appraisals, valuation models and commercial and residential evaluation reports. In certain cases, our assessments, with respect to assumptions that market participants would make, may be inherently difficult to determine, and the use of different assumptions could result in material changes to these fair value measurements. See Note MP, Estimated Fair Values, and Note B, Business Combinations, in the Notes to Consolidated Financial Statements for additional disclosures regarding fair value.

FDIC shared-loss payable. Certain shared-loss agreements include clawback provisions that require payments to the FDIC if actual losses and expenses do not exceed a calculated amount. Our estimate of the clawback payments based on current loss and expense projections are recorded as a payable to the FDIC. Projected cash flows are discounted to reflect the estimated timing of the payments to the FDIC. See Note T in the Notes to Consolidated Financial Statements for additional disclosures.
Defined benefit pension plan assumptions. BancShares has a noncontributory qualified defined benefit pension plan that covers qualifying employees (BancShares plan) and certain legacy Bancorporation employees are covered by a noncontributory qualified defined benefit pension plan (Bancorporation plan). The calculation of the benefit obligations, the future value of plan assets, funded status and related pension expense under the pension plans require the use of actuarial valuation methods and assumptions. The valuations and assumptions used to determine the future value of plan assets and liabilities are subject to management judgment and may differ significantly depending upon the assumptions used. The discount rate used to estimate the present value of the benefits to be paid under the pension plans reflect the interest rate that could be obtained for a suitable investment used to fund the benefit obligations, which was 3.76 percent for both the BancShares and Bancorporation plans during 2017, compared to 4.30


percent during 2016. For the calculation of pension expense, the assumed discount rate was 4.30 percent for both the BancShares and Bancorporation plans during 2017, compared to 4.68 percent during 2016.
We also estimate a long-term rate of return on pension plan assets that is used to estimate the future value of plan assets. We consider such factors as the actual return earned on plan assets, historical returns on the various asset classes in the plans and projections of future returns on various asset classes. The calculation of pension expense was based on an assumed expected long-term return on plan assets of 7.50 percent for both of the BancShares and Bancorporation plans during 2017 and 2016.
The assumed rate of future compensation increases is reviewed annually based on actual experience and future salary expectations. We used an assumed rate of compensation increase of 4.00 percent for both the BancShares and Bancorporation plans to calculate pension expense during 2017 and 2016. Assuming other variables remain unchanged, an increase in the rate of future compensation increases results in higher pension expense for periods following the increase in the assumed rate of future compensation increases. See Note N in the Notes to Consolidated Financial Statements for additional disclosures.

Income taxes. Management estimates income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the amount of assets and liabilities reported in the consolidated financial statements and their respective tax bases. In estimating the liabilities and corresponding expense related to income taxes, management assesses the relative merits and risks of various tax positions considering statutory, judicial and regulatory guidance. Because of the complexity of tax laws and regulations, interpretation is difficult and subject to differing judgments. Accrued income taxes payable represents an estimate of the net amounts due to or from taxing jurisdictions based upon various estimates, interpretations and judgments.
We evaluate our effective tax rate on a quarterly basis based upon the current estimate of net income, the favorable impact of various credits, statutory tax rates expected for the year and the amount of tax liability in each jurisdiction in which we operate. Annually, weliability. We file tax returns with each jurisdiction where we have tax nexusin relevant jurisdictions and settle our return liabilities.
Changes in estimated income tax liabilities occur periodically due to changes in actual or estimated future tax rates and projections of taxable income, interpretations of tax laws, the complexities of multi-state income tax reporting, the status of examinations being conducted by various taxing authorities and the impact of newly enacted legislation or guidance as well as income tax accounting pronouncements. See Note PO, Income Taxes, in the Notes to Consolidated Financial Statements for additional disclosures.

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CURRENT ACCOUNTING PRONOUNCEMENTS
Recently AdoptedTable 2 details ASUs issued by the FASB adopted in 2020. See Note A, Accounting Pronouncements
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-03, Accounting ChangesPolicies and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update)
This ASU adds an SEC paragraph and amends other Topics pursuant to an SEC Staff Announcement that states a registrant should evaluate ASUs that have not yet been adopted, including ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ASU 2016-02, Leases (Topic 842), and ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): MeasurementBasis of Credit Losses on Financial Instruments, to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact that adoption of the ASUs referenced are expected to have on the financial statements, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact the adoption will have on the financial statements, and a comparison to the registrant's current accounting policies. A registrant should describe the status of its process to implement the new standards and the significant matters yet to be addressed.
This ASU also addresses the accounting for tax benefits resulting from investments in qualified affordable housing projects where the decision to apply the proportional amortization method of accounting is an accounting policy decision to be applied consistently to all investments that meet the conditions, rather than a decision to be applied to individual investments that qualify for the use of the proportional amortization method.
The amendments in this ASU are effective upon issuance. We adopted the guidance effectivePresentation, in the first quarter of 2017. The disclosures required by this ASU are included within the “Recently Issued Accounting Pronouncements” section below. The adoption did not have an impact to our consolidated financial position or consolidated results of operations.



FASB ASU 2016-17, Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control
This ASU does not change the characteristics of a primary beneficiary in current GAAP; however, it requires that a reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. If, after performing that assessment, a reporting entity that is the single decision maker of a VIE concludes that it does not have the characteristics of a primary beneficiary, the amendments continue to require that reporting entity to evaluate whether it and one or more of its related parties under common control, as a group, have the characteristics of a primary beneficiary, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted the guidance effective in the first quarter of 2017. The adoption did not have an impact to our consolidated financial position or consolidated results of operations.
FASB ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
This ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. Further, the ASU requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings, the unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted the guidance effective in the first quarter of 2017. The adoption did not have an impact on our consolidated financial position or consolidated results of operations.
Recently Issued Accounting Pronouncements
FASB ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This ASU requires a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (Tax Act), which was enacted on December 22, 2017. The Tax Act included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We will adopt the guidance during the first quarter of 2018. The change in accounting principle will be accounted for as a cumulative-effect adjustment to the balance sheet resulting in a $27.2 million increase to retained earnings and a corresponding decrease to AOCI on January 1, 2018.
FASB ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
This ASU requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Employers will present the other components separately from the line item that includes the service cost. In addition, only the service cost component of net benefit cost is eligible for capitalization.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will adopt the guidance during the first quarter of 2018. BancShares does not anticipate any material impact to our consolidated financial position or consolidated results of operations as a result of the adoption.



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 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
This ASU addresses the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU provide guidance on (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance requires application using a retrospective transition method. We will adopt the guidance during the first quarter of 2018. BancShares does not anticipate a material impact to our Consolidated Statements of Cash Flows.
FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU eliminates the delayed recognition of the full amount of credit losses until the loss was probable of occurring and instead will reflect an entity's current estimate of all expected credit losses. The amendments in this ASU broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. 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. We will adopt the guidance by 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 held to maturity. We have formed a cross-functional team co-led by Finance and Risk Management and engaged a third party to assist with the adoption. The implementation team has developed a detailed project plan and is staying informed about the broader industry's perspective and insights, and identifying and researching key decision points. We have completed the readiness assessment and gap analysis related to data, modeling IT, accounting policy, controls and reporting which has enabled us to determine the areas of focus and estimate total body of work. Our current critical activities include model design, accounting policy development, data feasibility remediation, evaluation of reporting and disclosure solutions and completion of specific work stream project plans. We will continue to evaluate the impact the new standard will have on our consolidated financial statements as the final impact will be dependent, among other items, upon the loan portfolio composition and credit quality at the adoption date, as well as economic conditions, financial models used and forecasts at that time.
FASB 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 existing standards and this


ASU is the requirement for lessees to recognize on their balance sheet all lease contracts. An entity may make an accounting election by classification to not recognize leases with terms less than 12 months on their balance sheet. Both a right-of-use asset, representing the right to use the leased asset, and a lease liability, representing the contractual obligation, are required to be recognized on the balance sheet of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the current 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.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. For BancShares, the impact of this ASU will primarily relate to its accounting and reporting of leases as a lessee. We will adopt during the first quarter of 2019. We have engaged a third party and completed an inventory of all leases and their terms and service contracts with embedded leases. While we continue to evaluate the impact of the new standard, we expect an increaseNotes to the Consolidated Balance SheetsFinancial Statements for right-of-use assets and associated lease liabilities, as well as resulting depreciation expense of the right-of-use assets and interest expense of the lease liabilities in the Consolidated Statements of Income, for arrangements previously accounted for as operating leases. Additionally, adding these assets to our balance sheet will impact our total risk-weighted assets used to determine our regulatory capital levels. Our impact analysis on this change in accounting principle estimates an increase to the Consolidated Balance Sheets for total lease liability ranging between $65.0 million and $85.0 million, as the initial gross up of both assets and liabilities. Capital is expected to be impacted by an estimated four to six basis points. These preliminary ranges are subject to change and will continue to be refined closer to adoption.
FASB ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of certain financial instruments. The amendments in this ASU (1) require most equity investments to be measured at fair value with changes in fair value recognized in net income; (2) simplify the impairment assessment of equity investments without a readily determinable fair value; (3) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized costmore detail on the balance sheet; (4) require public business entities to use exit price notion, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (5) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assetsimpact on the balance sheet or the accompanying notes to the financial statements; (6) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (7) state that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will adopt the ASU during the first quarter of 2018. The change in accounting principle will be accounted for as a cumulative-effect adjustment to the balance sheet resulting in an $18.7 million increase to retained earnings and a decrease to AOCI on January 1, 2018. With the adoption of this ASU equity securities can no longer be classified as available for sale, as such marketable equity securities will be disclosed as a separate line item on the balance sheet with changes in the fair value of equity securities reflected in net income.
For equity investments without a readily determinable fair value, BancShares has elected to measure the equity investments using the measurement alternative which requires BancShares to make a qualitative assessment of whether the investment is impaired at each reporting period. Under the measurement alternative these investments will be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. If a qualitative assessment indicates that the investment is impaired, BancShares will have to estimate the investment's fair value in accordance with ASC 820 and, if the fair value is less than the investment's carrying value, recognize an impairment loss in net income equal to the difference between carrying value and fair value. Equity investments without a readily determinable fair value are recorded within other assets in the consolidated balance sheets.
FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively


and improves guidance for multiple-element arrangements. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify guidance for identifying performance obligations and licensing implementation. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, to clarify and improve the guidance for certain aspects of Topic 606. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, to clarify guidance for certain aspects of Topic 606. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (SEC Update). This ASU adds SEC paragraphs to the new revenue and leases sections of the Codification pursuant to an SEC Staff announcement made on July 20, 2017 as well as supersedes certain SEC paragraphs related to previous SEC staff announcements. In November 2017, the FASB issued ASU 2017-14, Income Statement - Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update), to supersede, amend and add SEC paragraphs to the Codification to reflect the August 2017 issuance of SEC staff Accounting Bulletin (SAB) 116 and SEC Release No. 33-10403.
Per ASU 2015-14, Deferral of the Effective Date, this guidance was deferred and is effective for fiscal periods beginning after December 15, 2017, including interim reporting periods within that reporting period. We will adopt the guidance during the first quarter of 2018. Our revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new guidance, and noninterest income. The contracts that are in scope of the guidance are primarily related to service charges on deposit accounts, cardholder and merchant income, wealth advisory services income, other service charges and fees, sales of other real estate, insurance commissions and miscellaneous fees. Based on our overall assessment of revenue streams and review of related contracts affected by the ASU, BancShares does not anticipate a material impact to our consolidated financial position or consolidated results of operations as a result of the adoption.statements.
Table 2

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
StandardDate of Adoption
ASU 2016-13 - Financial Instruments-Credit Losses (Topic 326): Measure of Credit Losses on Financial Instruments (including all subsequent ASUs on this topic)
January 1, 2020
ASU 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
January 1, 2020
ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
January 1, 2020
ASU 2018-14 - Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans
December 31, 2020
EXECUTIVE OVERVIEW

BancShares conducts its banking operations through its wholly owned subsidiary 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 alsowe 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, computer hardware and software and furniture and equipment used to conduct our commercial and retail banking business. We provide treasury management services, products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks.

BancShares conducts its banking operations through its wholly-owned subsidiary FCB, The fees generated from these products and services are a state-chartered bank organized under the lawsprimary source of the statenoninterest income and an essential component of North Carolina.
our total revenue.
Our strong financial position enables us to pursue growth through strategic acquisitions thatto enhance organizational value by providing us the opportunityopportunities to grow capital and enhanceincrease earnings. These transactions allow us to strengthen our presence in existing markets as well as expand our footprint ininto new markets.
InterestWith interest rates have presented significant challenges to commercial banks’ effortsat historical lows, our ability to generate earnings and shareholder value. Our strategy continuesvalue has been challenging. While our balance sheet is asset sensitive overall, we seek to focus on maintaining anreduce volatility and minimize the risk to earnings from interest rate risk profile that will benefit net interest incomemovements 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.either direction. Additionally, our initiatives focus on growth of noninterest income sources, controlmanagement of noninterest expenses, optimization of our branch network and further enhancements to our technology and delivery channels.

In lending, we continue to focus our activities within our core competencies of retail, small business, medical, commercial and commercial real estate lending to build a diversified portfolio. Our low to moderate risk appetite continues to govern all lending activities.

Our initiativesWe also pursue additional non-interest feenoninterest income through enhanced credit card offerings and expanded wealth management and merchant services. We have recently redesigned our credit card programs to offer more competitive products, intended to both increase the number of accounts and frequency of card usage. Enhancements include more comprehensive reward programs and improved card benefits. In wealth management, we have broadened our products and services to better align with the specialized needs and desires of those customers.



Services include holistic financial planning, business owner advisory services and enhanced private banking offerings.
Our goals are to increase efficiencies and control costs while effectively executing an operating model that best serves our customers’ needs. We seek the appropriate footprint and staffing levels to take efficient advantage of the revenue opportunities in each of our markets. Management is pursuing opportunities to improve our operational efficiency and increase profitability through expense reductions,control, while continuing enterprise sustainability projects to stabilizeimprove the operating environment. Such initiatives include the automation of certain manual processes, elimination of duplicated and outdated systems, enhancements to existing technology, reductionimplementation of discretionary spendingnew digital technologies, outsourcing to third party service providers and actively managing personnel expenses.expenses and discretionary spending. We routinely review vendor agreements and larger third party contracts for cost savings. We also seek to increase profitability through optimizing our branch network.

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Recent Economic and Industry Developments
During the first quarter of 2020, a novel strain of coronavirus (“COVID-19”) spread throughout the world, causing significant disruptions to the domestic and global economies which continue to date. In response to the outbreak, governments have imposed restrictions resulting in business shutdowns, regional quarantines, disruptions of supply chains, changes in consumer behavior and overall economic instability. This uncertainty has led to volatility in the financial markets. This impact was coupled with spikes in unemployment as a result of business shutdowns that continue to impact financial institutions operationally and financially. For a discussion of the risks we face with respect to the COVID-19 pandemic, the associated economic uncertainty, the steps taken to mitigate the pandemic and the resulting economic contraction, see Item 1A. Risk Factors in Part I of this Annual Report on Form 10-K. 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)(“GDP”) information available, the Bureau of Economic Analysis’ advancerevised estimate of fourth quarter 20172020 GDP growth was 2.6 percent, down4.0%, up from 3.2 percent2.1% GDP growth in the thirdfourth quarter 2017.2020. The estimatedacceleration in real GDP growth duringin the fourth quarter was due to positive contributions fromreflected increases in exports, nonresidential fixed investment, personal consumption expenditures, residential fixed investment, and nonresidential fixed investments, exports,private inventory investment that were partly offset by decreases in state and state, local government spending and federal government spending, partially offset by negative contributions from private inventory investments and anspending. Imports, which are a subtraction in the calculation of GDP, increased. The increase in imports. For allfourth quarter GDP reflected both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of 2017, the economy grewCOVID-19 pandemic, including new restrictions and closures that took effect in some areas of the United States. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the fourth quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.
On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) was passed. The bill was designed to provide short-term economic relief to individuals and businesses most impacted by 2.3 percent, comparedthe fallout of the pandemic. Key provisions include: for individuals, economic impact payments and enhanced unemployment benefits; for small businesses, access to an increaseloans and support through the Small Business Administration Paycheck Protection Program (“SBA-PPP”), direct aid and loans to the medical industry and other affected sectors, and certain tax benefits that can be used in conjunction with the other aid mentioned. While direct aid to financial services entities is not a primary goal of 1.5 percentthe provisions, financial institutions will function to transmit funds from the Federal Reserve, SBA and United States (the “U.S.”) Treasury to the public. This was supplemented by the Paycheck Protection Program Flexibility Act, which was signed into law on June 5, 2020 and amended provisions of the SBA-PPP including timing of the program and changes to forgiveness criteria. Additionally, the Consolidated Appropriations Act 2021 was signed into law on December 27, 2020, and contained provisions for new funding of SBA-PPP loans. We began accepting applications for this round of funding in 2016.the first quarter of 2021.
There were other regulatory actions taken that may impact our business including changes in credit reporting on customer forbearance, federally backed mortgage forbearance, potential legal lending limit relaxation and other economic stabilization efforts. Further legislation is expected as the government continues to mitigate the economic impact on the crisis.
The U.S. unemployment rate droppedincreased from 4.7 percent3.5%in December 20162019 to 4.1 percent6.7% in December 2017. However, according2020. According to the U.S. Department of Labor, nonfarm payroll employment declined 9.2 million in 2020, compared to growth in 2017 wasof 2.1 million compared to 2.2 million in 2016.2019.
The Federal Reserve’s Federal Open Market Committee (FOMC) indicated inDuring the fourthfirst quarter that the labor market continued to strengthen and economic activity expanded at a solid rate. In light of the cumulative progress made during the fourth quarter,2020, the FOMC decided to raise the target range forlowered the federal funds rate by 0.25 percent to 1.5 percent. In determininga target range of 0.00% to 0.25%. The FOMC cited the timingeffects of COVID-19 on economic activity and size of future adjustmentsthe risks posed to the economic outlook. The FOMC expects to maintain this target range foruntil labor market conditions have reached levels consistent with the federal funds rate, the FOMC will assess realized and expected economic conditions relative to its objectivesFOMC’s assessments of maximum employment and 2.0 percent inflation. inflation has risen to 2% and is on track to moderately exceed 2% for some time.
The FOMC expects that economic activity will expandU.S. Census Bureau and the Department of Housing and Urban Development’s latest estimate for sales of new single-family homes in December 2020 was at a moderate pace and labor market conditions will remain strong with gradual increases in the federal fundsseasonally adjusted annual rate in the future.
The housing market remained solid during the year, fueled by low mortgage interest rates, economic growth and job creation. An estimated 608,000 new homes were purchased in 2017,of 842,000, up 8.3 percent,15.2% from the 2016 figureDecember 2019 estimate of 561,000.731,000. Purchases of existing homes in 2017 and 2016 remained flat at 5.5 million.2020 are also up 5.6% from a year ago.
TheSimilar to the economic environment, the performance trends in the banking industry are similar to those of the broader economymixed, as shown in the latest national banking results from the third quarter of 2017.2020. FDIC-insured institutions reported a 5.7 percent increase10.7% decrease in net income compared to the third quarter of 2016, mainly attributable to an increase in net operating revenue and higher net2019 primarily a result of lower interest income. Across the industry, bankingrates. Loan-loss provisions increased by 3.5% while noninterest expense rose by 3.0% from a year earlier. Banking industry average net interest margin increased to 3.30 percent(“NIM”) was 2.68% in the third quarter of 20172020, down from 3.18 percent3.35% in the same quarter a year ago. Total loans and leases increased by 3.5 percent from the same quarter a year ago primarily due to a decline in interest-earning asset yields. Total loans increased by 4.9% over the past twelve months primarily due to growth in residential mortgagecommercial and industrial loans. Total deposits increased 19.9%, largely driven by government stimulus.
EARNINGS
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BANCSHARES’ COVID-19 CONTINUED MONITORING AND RESPONSE
We remain in a strong capital and liquidity position providing stability in navigating the COVID-19 crisis. Our leadership team continues to work to identify and enact appropriate measures in an effort to protect the welfare of our employees and soundness of the organization, while continuing to support our customers. A significant majority of our branches have re-opened with enhanced safety protocols and our corporate locations remain at limited occupancy due to current virus trends.
Through December 31, 2020, we granted over 22,000 COVID-19 related loan extensions, representing loan balances of approximately $6.31 billion. Of these extensions, over 97% of have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the portfolio. We have not seen significant declines in overall credit quality, though the impacts of the SBA-PPP and payment extensions could be delaying signs of credit deterioration.
During 2020, we originated over 23,000 SBA-PPP loans with an original balance of over $3.2 billion and an outstanding balance of $2.4 billion at December 31, 2020. We have collected all $117.2 million in SBA-PPP related loan fees per the program terms. These fees were deferred and are being recognized in interest income over the life of the respective loans. SBA-PPP loans have a stated rate of 1.00%, but with the accretion of these fees, the average yield on the portfolio was 4.33% for 2020. As of December 31, 2020, remaining net deferred fees were $41.1 million.
Table 3
SBA-PPP LOANS BY LOAN SIZE
(Dollars in thousands)
Loan Size$ of Loans% of Loans $
Less than $150,000$688,354 28.6 %
$150,000 to $2,000,0001,236,448 51.4 
Greater than $2,000,000481,489 20.0 
Total$2,406,291 100.0 %
We began accepting and processing applications for forgiveness during the third quarter of 2020. Table 4 represents the forgiveness status of SBA-PPP loans as of December 31, 2020.
Table 4
SBA-PPP LOAN FORGIVENESS STATUS
(Dollars in thousands)
Forgiveness Status$ of Loans% of Total
Received by FCB$1,384,859 43.1 %
Submitted to SBA1,190,171 37.1 
Approved by SBA746,643 23.3 
Funds Received746,442 23.2 

To date, we have received over 7,200 forgiveness decisions from the SBA, representing approximately $1.0 billion in forgiveness payments. The Consolidated Appropriations Act 2021 was signed into law during the fourth quarter of 2020 and contained provisions for new funding of SBA-PPP loans. We began accepting applications for this round of funding in January 2021 and have funded over $670 million of loans to date.
Strong Liquidity and Capital Position
We maintain a strong level of liquidity. As of December 31, 2020, liquid assets (available cash and unencumbered high quality liquid assets at market value) totaled approximately $9.63 billion representing 19.8% of consolidated assets as of December 31, 2020.
In addition to liquid assets, we had contingent sources of liquidity totaling approximately $11.90 billion in the form of Federal Home Loan Bank (“FHLB”) borrowing capacity, Federal Reserve Discount Window availability, federal funds lines and a committed line of credit.
At December 31, 2020, our regulatory capital ratios were well in excess of Basel III capital requirements.
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FINANCIAL PERFORMANCE SUMMARY
Income Statement Highlights
For the year ended December 31, 2017,2020, net income was $323.8$491.7 million, or $26.96$47.50 per share, compared to $225.5$457.4 million, or $18.77$41.05 per share, during 2016.2019. The $98.3return on average assets was 1.07% during 2020, compared to 1.23% during 2019. The return on average shareholders’ equity was 12.96% and 12.88% for the respective periods. The $34.3 million, or 43.6 percent,7.5% increase in net income was primarily due to higher net interest income, resulting from strong loan growth and higher interest income earned on investment securities and overnight investments, lower provision expense and higher noninterest income, largely related to gains earned on the acquisitions of HCB and Guaranty and higher fee-based income, partially offset by increases in noninterest expense and income taxes.
Key financial highlights for 2017 include:
Loan growth was strong during 2017, as net balances increased by $1.86 billion to $23.60 billion, primarily driven by originated portfolio growth and net loans acquired from HCB and Guaranty.
Deposit growth continued in 2017, up $1.10 billion to $29.27 billion, primarily due to organic growth in demand deposit account balances, interest-bearing savings and checking accounts, and the addition of deposit balances from the HCB and Guaranty acquisitions.
The yield on the investment portfolio continued to improve, while deposit funding costs remained relatively unchanged.
Earnings in 2017 included gains of $134.7 million recognized in connection with the HCB and Guaranty acquisitions.
Core fee-based business contributed to higher noninterest income, led by growth of $20.1 million in merchant and cardholder income primarily reflecting increases in sales volume.


The allowance for loan and lease losses as a percentage of total loans and leases declined to 0.94 percent at December 31, 2017, compared to 1.01 percent at December 31, 2016, primarily due to favorable experience in certain loan loss factors.
Provision expense related to loan and lease losses decreased $7.2 million primarily due to lower loan loss estimates.
Net charge-offs as a percentage of average loans and leases remained low at 0.10 percent in 2017, unchanged from 2016.
Earnings in the fourth quarter of 2017 included additional income tax expense of $25.8 million related to the re-measurement of deferred taxes as a result of the Tax Act. Although earnings per share fornet effect of the three and twelve months ended December 31, 2017 were up compared to the same periods in the prior year, the increase in income tax expense had a negative impact on earnings per share.following:
BancShares remained well-capitalized at December 31, 2017 under Basel III capital requirements with a total risk-based capital ratio of 14.21 percent, Tier 1 risk-based capital ratio of 12.88 percent, common equity Tier 1 ratio of 12.88 percent and leverage capital ratio of 9.47 percent.
For the fourth quarter of 2017, BancShares declared and paid dividends of $0.35 per share of outstanding common stock to shareholders, which is approximately a 17 percent increase from the $0.30 per share in previous periods.
The return on average assets was 0.94 percent during 2017, compared to 0.70 percent during 2016. The return on average shareholders' equity was 10.10 percent and 7.51 percent for the respective periods. Excluding the deferred tax asset valuation adjustment of $25.8 million resulting from the Tax Act, return on average assets and return on average shareholders' equity during 2017 would have been 1.02 percent and 10.90 percent, respectively.
•Net interest income for the year ended December 31, 20172020 increased by $115.2$76.8 million, or 12.2 percent,by 5.9%, compared to $1.06 billion. Interest incomethe year ended 2019. The increase was up $115.9 million due to higher interest income earned on loans, investments and excess cash heldloan growth driven largely by SBA-PPP balances, partially offset by a decrease in overnight investments. interest-earning asset yields.
•The year-to-date taxable-equivalent net interest margin for 2017 was 3.30 percent, compared to 3.14 percent during 2016. The margin increase was primarily due to higher loan balances and improved yields on investments and excess cash held in overnight investments.
BancShares recorded net provision expense of $25.7 million for loan and lease losses for 2017, compared to $32.9 million net provision expense for 2016. The net provision expense on non-PCI loans and leases was $29.1 million for 2017, compared to $34.9 million in 2016. The $5.7 million decrease in 2017 was primarily due to favorable experience in certain in loan loss factors. The PCI loan portfolio net provision credit was $3.4 million3.17% for the year ended 2017, compared to2020, a net provision creditdecrease of $1.9 million during the same period of 2016. The PCI provision credit increased by $1.5 million, primarily due to improved future projected cash flows and improved default rates.
Noninterest income was $641.0 million for57 basis points from the year ended 2017, compared to $488.1 million for 2016. Excluding the $134.7 million in gains from the HCB and Guaranty acquisitions in 2017 and the $5.8 million in gains from the NMSB and FCSB acquisitions in 2016, total noninterest income increased $24.0 million. This growth2019. The decrease was primarily due to a $20.1 milliondecline in yield on interest-earning assets coupled with an increase in merchanttotal borrowings, partially offset by a decline in the rate paid on interest-bearing deposits.
•We recorded provision for credit losses of $58.4 million in 2020, compared to $31.4 million in 2019. Provision expense includes $36.1 million of reserve build for credit losses specifically related to the uncertainty surrounding COVID-19 and cardholderconsiders the potential impact of slower economic activity and elevated unemployment, as well as potential mitigants due to government stimulus and loan accommodations. The net charge-off to loans ratio was 0.07% for the year, down 4 basis points from 2019.
•Noninterest income gain of $12.5for the year ended 2020 was $476.8 million, recognized on the early termination of two forward-starting FHLB advances, higher service charges on deposit accounts of $11.8 million and an increase of $6.5$60.9 million, in wealth management services income.or 14.6%, from the prior year. Fair value adjustments on marketable equity securities and realized gains on available for sale securities increased by a combined $61.9 million. Mortgage income increased by $18.5 million due to increased production and sales resulting from lower mortgage interest rates. These increasespositive impacts were partially offset by a decline in service charges on deposits of $17.5 million due to lower securities gains of $22.4 millionvolume with increased deposit balances and an increase in waived fees to aid our customers during the positive impact from the FDIC shared-loss termination of $16.6 million recognized in 2016.COVID-19 pandemic.
•Noninterest expense was $1.13$1.19 billion for the year ended December 31, 2017,2020, compared to $1.05$1.10 billion for the same period in 2016. The $82.8 million2019. This 7.7% increase was primarily attributable to higher personnel expenses of $55.6 million, an increase in merchant and cardholder processing expense of $8.8 million, higher processing fees paid to third parties of $6.7 million, primarily acquisition related, higher equipment expense of $5.0 millionreflecting continued investment in digital and increases of $4.0 million and $3.7 million in consultant services and merger-related expenses, respectively.technological capabilities.
•Income tax expense was $219.9$126.2 million and $125.6$134.7 million for the years ended 20172020 and 2016, respectively.2019, respectively, representing effective tax rates of 20.4% and 22.7%. The increasedecline in 2017 wasthe effective tax rate related primarily due to higher pre-tax earnings andthe decision to utilize an additionalallowable alternative for computing our 2020 federal income tax expense of $25.8 million fromliability. The allowable alternative provided us the re-measurement of deferred taxes as a result ofability to use the Tax Act.federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax.
Loan balances during 2017Balance Sheet Highlights
•During 2020, loans increased by $1.86$3.91 billion, or 8.6 percent,by 13.5% to $32.79 billion. Of this growth, $2.41 billion was related to SBA-PPP loans. Excluding SBA-PPP loans and loans from acquisitions, total loans increased $1.40 billion since December 31, 2016. This increase was primarily driven2019, or by $1.46 billion of organic growth in the non-PCI portfolio and the addition of $447.7 million in non-PCI loans from the Guaranty acquisition. The PCI portfolio declined over this period by $46.2 million, as a result of continued loan runoff of $208.8 million, offset by net loans acquired from Guaranty and HCB, which were $97.6 million and $65.0 million, respectively, at December 31, 2017.4.9%.


•The allowance for loan and leasecredit losses as a percentage of total loans was 0.94 percent0.68% at December 31, 20172020, compared to 1.01 percent0.78% at December 31, 2016.2019. At December 31, 2017,2020, BancShares’ nonperforming assets, including nonaccrual loans and OREO, decreased $2.7increased $74.1 million to $144.3$242.4 million or 0.74% of total loans from $147.0$168.3 million or 0.58% of total loans at December 31, 2016.2019. Of the increase in nonperforming assets, $24.9 million related to the transfer of loans in performing PCI pools to nonaccrual status under the adoption of ASC 326. A majority of the remainder of the increase related to increases within our acquired residential real estate loan portfolio.
At December 31, 2017, deposits were $29.27 billion, an increase of $1.10•Deposit growth continued in 2020, up $9.00 billion, or 3.9 percent,by 26.1% to $43.43 billion. This growth includes estimated deposits of $0.93 billion related to the SBA-PPP and deposits from acquisitions of $203.2 million. Excluding the impact of these deposits, total deposits increased $7.87 billion since December 31, 2016.2019, or by 22.9%.
•During the first quarter of 2020, BancShares successfully completed a $695 million capital raise which consisted of $350 million of subordinated notes and $345 million of depositary shares (the “Depositary Shares”) each representing a 1/40th interest in a share of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share.
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Capital Highlights
•In 2020, we returned $364.5 million of capital to shareholders through the repurchase of 813,090 shares of Class A common stock and cash dividends to common and preferred shareholders.
•Total shareholders’ equity increased from $3.59 billion on December 31, 2019 to $4.23 billion on December 31, 2020. The increase was primarily due to organic growth of $553.4 million primarily in demand deposit account balances, interest-bearing savings and checking accounts,earnings and the additionnet proceeds of deposit balances from the HCBissuance of the Depositary Shares, partially offset by share repurchases and Guaranty acquisitions of $551.6 milliondividends during the year.
•Under Basel III capital requirements, BancShares remained well-capitalized at December 31, 2017, offset by runoff in time deposits2020, with a total risk-based capital ratio of 10.61%, Tier 1 risk based capital ratio of 13.81%, common Tier 1 ratio of 11.63%, Tier 1 leverage capital ratio of 7.86% and lower money market account balances.a capital conservation buffer of 5.6%.
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BUSINESS COMBINATIONS

Recently Announced Business Combinations
HomeBancorp,CIT Group Inc.
On December 18, 2017, FCBOctober 15, 2020, BancShares and HomeBancorpCIT entered into a definitivethe Merger Agreement by and among BancShares, FCB, the Merger Sub, and CIT, the parent company of CIT Bank. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub and CIT will ultimately merge with and into FCB, with FCB as the surviving entity. The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank. Subject to the fulfillment of customary closing conditions, the parties anticipate that the Transaction will close in the first half of 2021.
Completed Business Combinations
We evaluated the financial statement significance for all business combinations completed during 2020 and 2019 and concluded the completed business combinations noted below are not material to BancShares’ financial statements, individually or in aggregate, and therefore, pro forma financial data is not included.
Community Financial Holding Co. Inc.
On February 1, 2020, we completed the merger agreement.of Duluth, Georgia-based Community Financial Holding Company, Inc. (“Community Financial”) and its bank subsidiary, Gwinnett Community Bank, into FCB. Under the terms of the agreement, total cash consideration of $2.3 million was paid to the shareholders of Community Financial. The agreement provides formerger allowed us to expand our presence and enhance banking efforts in Georgia. The merger contributed $222.1 million in consolidated assets, which included $686 thousand of goodwill, $134.0 million in loans, and $209.3 million in deposits.
Entegra Financial Corp.
On December 31, 2019, we completed the acquisitionmerger of Tampa, Florida-based HomeBancorp by FCB.Franklin, North Carolina-based Entegra Financial Corp. (“Entegra”) and its bank subsidiary, Entegra Bank. Under the terms of the agreement, cash consideration of $15.03 will be$30.18 for each share of common stock was paid to the shareholders of HomeBancorpEntegra, totaling approximately $222.8 million. The merger allowed us to enhance banking efforts and expand our presence in western North Carolina. As part of the transaction, we agreed to divest certain branches, other assets and liabilities as a requirement of regulatory approval. The merger contributed $1.73 billion in consolidated assets, which included $1.03 billion in loans, and $1.33 billion in deposits.
On April 17, 2020, we completed the divestiture of the branches including loans and leases, premises and equipment and total deposits with a fair value of $110.1 million, $2.1 million and $184.8 million, respectively. The divestiture included an 8% premium for deposits acquired that was applied as a reduction of goodwill generated as part of the merger with Entegra.
First South Bancorp, Inc.
On May 1, 2019, we completed the merger of Spartanburg, South Carolina-based First South Bancorp, Inc. (“First South Bancorp”) and its bank subsidiary, First South Bank. Under the terms of the agreement, cash consideration of $1.15 for each share of HomeBancorp's common stock was paid to the shareholders of First South Bancorp, totaling approximately $113.6$37.5 million. The transaction is expectedmerger allowed us to close no later than the second quarter of 2018, subject to the receipt of regulatory approvalsexpand our presence and the approval of HomeBancorp's shareholders, and will be accounted for under the acquisition method of accounting.enhance banking efforts in South Carolina. The merger will allow FCB to expand its presence in Florida and enter into two new markets in Tampa and Orlando. As of September 30, 2017, HomeBancorp reported $954.9contributed $253.0 million in consolidated assets, $699.4which included $179.2 million in loans, and $207.6 million in deposits, and $637.5 million in loans.

Guaranty Bank
On May 5, 2017, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of Guaranty of Milwaukee, Wisconsin. The acquisition provides FCB with the opportunity to grow capital and enhance earnings.

The Guaranty transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the relevant acquisition as additional information regarding closing date fair values becomes available. As of December 31, 2017, there have been no refinements to the fair value of these assets acquired and liabilities assumed.

The fair value of the assets acquired was $875.1 million, including $574.6 million in non-PCI loans, $114.5 million in PCI loans and $9.9 million in core deposit intangible. Liabilities assumed were $982.7 million, of which $982.3 million were deposits. The total gain on the transaction was $122.7 million which is included in noninterest income in the Consolidated Statements of Income.

Table 2 provides the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.

Table 2
GUARANTY BANK NET ASSETS ACQUIRED AND NET LIABILITIES ASSUMED
(Dollars in thousands)As recorded by FCB
Assets 
Cash and due from banks$48,824
Overnight investments94,134
Investment securities12,140
Loans689,086
Premises and equipment8,603
Income earned not collected6,720
Intangible assets9,870
Other assets5,748
Total assets acquired875,125
Liabilities 
Deposits982,307
Other liabilities440
Total liabilities assumed982,747
Fair value of net liabilities assumed(107,622)
Cash received from FDIC230,350
Gain on acquisition of Guaranty$122,728



Merger-related expenses of $7.4 million from the Guaranty transaction were recorded in the Consolidated Statements of Income for the year ended December 31, 2017. Loan-related interest income generated from Guaranty was approximately $20.5 million since the acquisitionmerger date.

Based on such credit factors as past due status, nonaccrual status, loan-to-value, credit scores and other quantitative and qualitative considerations, the acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30 (included in PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (included in non-PCI loans).

Harvest Community Bank
On January 13, 2017, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of HCB of Pennsville, New Jersey. The acquisition provides FCB with the opportunity to grow capital and enhance earnings.

The HCB transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the relevant acquisition as additional information regarding closing date fair values becomes available. As of December 31, 2017, there have been no refinements to the fair value of these assets acquired and liabilities assumed.

The fair value of the assets acquired was $111.6 million, including $85.1 million in PCI loans and $850 thousand in core deposit intangible. Liabilities assumed were $121.8 million, of which the majority were deposits. As a result of the transaction, FCB recorded a gain on the acquisition of $12.0 million which is included in noninterest income in the Consolidated Statements of Income.

Table 3 provides the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.

Table 3
HARVEST COMMUNITY BANK NET ASSETS ACQUIRED AND NET LIABILITIES ASSUMED
(Dollars in thousands)As recorded by FCB
Assets 
Cash and due from banks$3,350
Overnight investments7,478
Investment securities14,455
Loans85,149
Income earned not collected31
Intangible assets850
Other assets237
Total assets acquired111,550
Liabilities 
Deposits121,755
Other liabilities74
Total liabilities assumed121,829
Fair value of net liabilities assumed(10,279)
Cash received from FDIC22,296
Gain on acquisition of HCB$12,017

Merger-related expenses of $1.2 million were recorded in the Consolidated Statements of Income for the year ended December 31, 2017. Loan-related interest income generated from HCB was approximately $3.8 million for the year ended December 31, 2017.

All loans resulting from the HCB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI under ASC 310-30.




Cordia Bancorp,Biscayne Bancshares, Inc.
On September 1, 2016,April 2, 2019, FCB completed the merger of CordiaCoconut Grove, Florida-based Biscayne Bancshares, Inc. (“Biscayne Bancshares”) and its bank subsidiary, BVA, into FCB.Biscayne Bank. Under the terms of the merger agreement, cash consideration of $5.15$25.05 for each share of common stock was paid to Cordia’sthe shareholders for each of their shares of Cordia’s common stock, with total consideration paid of $37.1Biscayne Bancshares, totaling approximately $118.9 million. The Cordia transaction was accounted for under the acquisition method of accountingmerger allowed us to expand our presence in Florida and accordingly,enhance banking efforts in South Florida. The merger contributed $1.08 billion in consolidated assets, acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. These fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on August 31, 2017.

The fair value of assets acquired was $349.3 million, including $241.4which included $863.4 million in loans, and $2.2$786.5 million in core deposit intangible. Liabilities assumed were $323.1 million, including $292.2 million in deposits. As a resultdeposits, as of the transaction, FCB recorded $10.8 million of goodwill. The amount of goodwill recorded represents the excess purchase price over the estimated fair value of the net assets acquired. This premium paid reflects the increased market share and related synergies that are expected to result from the acquisition. None of the goodwill is deductible for income tax purposes as the merger is accounted for as a qualified stock purchase.date.

Merger-related expenses of $260 thousand and $3.8 million were recordedSee Note B, Business Combinations, in the Notes to Consolidated Financial Statements of Income for the years ended December 31, 2017 and 2016, respectively. Loan-related interest income generated from Cordia was approximately $5.6 million and $4.2 million for the years ended December 31, 2017 and 2016, respectively.additional disclosures.

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Due to the immaterial amount of loans resulting from the Cordia transaction that had evidence of credit quality deterioration, all loans were accounted for as non-PCI loans under ASC 310-20.


First CornerStone Bank
On May 6, 2016, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of FCSB of King of Prussia, Pennsylvania. The FCSB transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. These fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on May 5, 2017.

The fair value of the assets acquired was $87.4 million, including $43.8 million in loans and $390 thousand of core deposit intangible. Liabilities assumed were $96.9 million, of which the majority were deposits. The fair value of the net liabilities assume was $9.5 million and cash received from the FDIC was $12.5 million. The total gain on the transaction was $3.0 million which is included in noninterest income in the Consolidated Statements of Income.

Merger-related expenses were immaterial for the year ended December 31, 2017 and $1.0 million was recorded in the Consolidated Statements of Income for the year ended December 31, 2016. Loan-related interest income generated from FCSB was approximately $1.7 million and $1.6 million for the years ended December 31, 2017 and 2016, respectively.

All loans resulting from the FCSB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI loans under ASC 310-30.

North Milwaukee State Bank
On March 11, 2016, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of NMSB of Milwaukee, Wisconsin. The NMSB transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. These fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on March 10, 2017.

The fair value of the assets acquired was $53.6 million, including $36.9 million in loans and $240 thousand of core deposit intangible. Liabilities assumed were $60.9 million, of which $59.2 million were deposits. The fair value of the net liabilities assumed was $7.3 million and cash received from the FDIC was $10.2 million. The total gain on the transaction was $2.9 million which is included in noninterest income in the Consolidated Statements of Income.



Merger-related expenses of $112 thousand and $517 thousand were recorded in the Consolidated Statements of Income for the years ended December 31, 2017 and 2016, respectively. Loan-related interest income generated from NMSB was approximately $2.4 million and $1.9 million for the years ended December 31, 2017 and 2016, respectively.

All loans resulting from the NMSB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI loans under ASC 310-30.

FDIC-ASSISTED TRANSACTIONS

BancSharesBetween 2009 and 2017, we completed elevenfourteen FDIC-assisted transactions during the period beginningwith a carrying value of loans acquired in 2009 through 2017. Thesethese transactions provided us significant contributions to capital and earnings. Prior to its merger into BancShares in 2014, First Citizens Bancorporation, Inc. (Bancorporation) completed three FDIC-assisted transactions: Georgian Bank of Atlanta, Georgia (acquired in 2009); Williamsburg First National Bank of Williamsburg, South Carolina (acquired in 2010); and Atlantic Bank & Trust of Charleston, South Carolina (acquired in 2011).approximately $410.4 million at December 31, 2020. Nine of the fourteen FDIC-assisted transactions (including the three completed by Bancorporation) included shared-loss agreements that for their terms, protectprotected us from a substantial portion of the credit and asset quality risk we would otherwise incur.
Table 4 provides information regardingAt December 31, 2020, shared-loss protection remains for a single acquired bank related to single family residential loans of $34.5 million. Cumulative losses for all fourteen acquisitions incurred through December 31, 2020 totaled $1.21 billion. Cumulative amounts reimbursed by the fair value of loansFDIC through December 31, 2020 totaled $674.9 million. The shared-loss agreements for two FDIC-assisted transactions include provisions related to payments owed to the FDIC at the acquisition date for the fourteen FDIC-assisted transactions consummated from 2009 through 2017.
Table 4
FDIC-ASSISTED TRANSACTIONS
Entity 
Date of
transaction
 Fair value of loans at acquisition date
    (Dollars in thousands)
Guaranty Bank (Guaranty) May 5, 2017 $689,086
Harvest Community Bank (HCB) January 13, 2017 85,149
First Cornerstone Bank (FCSB) May 6, 2016 43,776
North Milwaukee State Bank (NMSB) March 11, 2016 36,914
Capitol City Bank & Trust (CCBT) February 13, 2015 154,496
Colorado Capital Bank (CCB) July 8, 2011 320,789
Atlantic Bank & Trust (ABT) (1)
 June 3, 2011 112,238
United Western Bank (United Western) January 21, 2011 759,351
Williamsburg First National Bank (WFNB) (1)
 July 23, 2010 55,054
Sun American Bank (SAB) March 5, 2010 290,891
First Regional Bank (First Regional) January 29, 2010 1,260,249
Georgian Bank (GB) (1)
 September 25, 2009 979,485
Venture Bank (VB) September 11, 2009 456,995
Temecula Valley Bank (TVB) July 17, 2009 855,583
Total   $6,100,056
Carrying value of FDIC-assisted acquired loans as of December 31, 2017   $1,031,943
(1) Date of transaction and fair value of loans acquired represent when Bancorporation acquired the entities and the fair valuetermination of the loansagreements if actual cumulative losses on that date.

covered assets are lower than originally estimated by the FDIC at the time of acquisition (“clawback liability”). As of December 31, 2017, shared-loss agreements are still active2020, and December 31, 2019, the estimated clawback liability was $15.6 million and $112.4 million, respectively. The reduction in the clawback liability was the result of a payment to the FDIC in the first quarter of 2020 for First Regional Bank (FRB), Georgian Bank (GB) and United Western Bank (UWB). Shared-loss protection remains for single family residential loans acquired from UWB and GB$99.5 million related to one of the transactions. We expect to make a clawback liability payment to the FDIC in March 2021 in the amount of $67.8$15.9 million. FRB remains
Table 5 provides changes in a recovery period, where any recoveries are shared with the FDIC until March 2020.

FDIC shared-loss termination. During 2017, FCB entered into an agreement withclawback liability for the FDIC to terminate the shared-loss agreement for Venture Bank (VB). Under the terms of the agreement, FCB made a payment of $285 thousand to the FDIC as consideration for early termination of the shared-loss agreement. The early termination resulted in an adjustment of $240 thousand to the FDIC shared-loss receivableyears ended December 31, 2020 and a $45 thousand loss on the termination of the shared-loss agreement. In addition to the shared-loss agreement termination for VB, FCB terminated five shared-loss agreements in 2016, including Temecula Valley Bank, Sun American Bank, Williamsburg First National Bank, Atlantic Bank & Trust and Colorado Capital Bank. In connection with the 2016 termination, FCB recognized a positive net impact to pre-tax earnings of $16.6 million.





Table 5 provides the various terms of each shared-loss agreement and the components of the receivable from the FDIC.

2019.
Table 5
SHARED-LOSS PROVISIONS FOR FDIC-ASSISTED TRANSACTIONSFDIC CLAWBACK LIABILITY
(Dollars in thousands)20202019
Beginning balance$112,395 $105,618 
Accretion2,674 6,777 
Payments to FDIC for settlement of shared-loss agreements(99,468)— 
Ending balance$15,601 $112,395 
33
  
Fair value at acquisition date (1)
Losses/expenses incurred through 12/31/2017 (2)
Cumulative amount reimbursed by FDIC through 12/31/2017 (3)
Carrying value at
December 31, 2017		Current portion of receivable due from (to) FDIC for 12/31/2017 filings
Prospective amortization (accretion) (4)
(Dollars in thousands)FDIC shared-loss receivableFDIC shared-loss payable
Entity
GB - combined losses279,310
898,334
462,807
(1,132)—
(1,132)—
First Regional - combined losses378,695
206,930
132,573
(1,860)88,019
(1,860)—
United Western       
Non-single family residential losses112,672
92,314
76,506
17
13,323
17
—
Single family residential losses24,781
5,918
4,580
5,198
—
—
5,215
Total$795,458
$1,203,496
$676,466
$2,223
$101,342
$(2,975)$5,215
         
(1)  
Fair value at acquisition date represents the initial fair value of the receivable from FDIC, excluding the payable to FDIC. For GB the acquisition date is when Bancorporation initially acquired the banks.
(2)  
For GB the losses/expenses incurred through December 31, 2017 include amounts prior to BancShares' acquisition through merger with Bancorporation.
(3)  
For GB the cumulative amount reimbursed by FDIC through December 31, 2017 include amounts prior to BancShares' acquisition through merger with Bancorporation.
(4)  
Prospective amortization (accretion) reflects balances that, due to post-acquisition credit quality improvement, will be amortized over the shorter of the covered asset's life or the term of the loss share period.
  
Except where noted, each FDIC-assisted transaction has a separate shared-loss agreement for Single-Family Residential loans (SFR) and Non-Single-Family Residential loans (NSFR).
 
For GB, combined losses are covered at 0 percent up to $327.0 million, 80 percent for losses between $327.0 million and $853.0 million and 95 percent above $853.0 million. The shared-loss agreement expired on September 25, 2014 for all GB NSFR loans and will expire on September 25, 2019 for the SFR loans.
 
For First Regional, NSFR losses were covered at 0 percent up to $41.8 million, 80 percent for losses between $41.8 million and $1.02 billion and 95 percent for losses above $1.02 billion. The shared-loss agreement expired on January 29, 2015 for all First Regional NSFR loans. First Regional had no SFR loans.
 
For United Western NSFR loans, losses are covered at 80 percent up to $111.5 million, 30 percent between $111.5 million and $227.0 million and 80 percent for losses above $227.0 million. The shared-loss agreement expired on January 21, 2016.
 
For United Western SFR loans, losses are covered at 80 percent up to $32.5 million, 0 percent between $32.5 million and $57.7 million and 80 percent for losses above $57.7 million. The shared-loss agreement expires on January 21, 2021.
 




Table 6
AVERAGE BALANCE SHEETS
 20202019
(Dollars in thousands, taxable equivalent)Average
Balance		Interest
Income/
Expense		Yield/
Rate		Average
Balance		Interest
Income/
Expense		Yield/
Rate
Assets
Loans and leases(1)
$31,605,090 $1,335,008 4.18 %$26,656,048 $1,219,825 4.54 %
Investment securities:
U.S. Treasury432,938 3,103 0.72 945,094 22,235 2.35 
Government agency665,318 8,457 1.27 491,001 14,308 2.91 
Mortgage-backed securities7,414,661 108,604 1.46 5,198,884 114,819 2.21 
Corporate bonds397,322 20,349 5.12 153,841 7,945 5.16 
Other investments144,694 4,254 2.94 130,249 2,205 1.69 
Total investment securities9,054,933 144,767 1.60 6,919,069 161,512 2.33 
Overnight investments2,691,096 6,847 0.25 1,291,617 26,245 2.03 
Total interest-earning assets43,351,119 $1,486,622 3.40 %34,866,734 $1,407,582 4.01 %
Cash and due from banks344,938 271,466 
Premises and equipment1,259,325 1,218,611 
Allowance for credit losses(211,413)(226,600)
Other real estate owned53,137 45,895 
Other assets1,224,332 985,613 
 Total assets$46,021,438 $37,161,719 
Liabilities
Interest-bearing deposits:
Checking with interest$8,922,902 $5,913 0.07 %$7,503,325 $6,018 0.08 %
Savings2,936,593 1,217 0.04 2,604,217 1,700 0.07 
Money market accounts7,821,266 22,504 0.29 6,025,740 23,315 0.39 
Time deposits3,344,492 37,001 1.11 3,315,478 45,221 1.36 
Total interest-bearing deposits23,025,253 66,635 0.29 19,448,760 76,254 0.39 
Securities sold under customer repurchase agreements632,362 1,610 0.25 530,818 1,995 0.38 
Other short-term borrowings50,549 1,054 2.05 23,087 671 2.87 
Long-term obligations1,186,145 26,558 2.20 392,150 13,722 3.45 
Total interest-bearing liabilities24,894,309 95,857 0.38 20,394,815 92,642 0.45 
Demand deposits16,721,363 12,769,776 
Other liabilities451,759 445,347 
Shareholders’ equity3,954,007 3,551,781 
 Total liabilities and shareholders’ equity$46,021,438 $37,161,719 
Interest rate spread3.02 %3.56 %
Net interest income and net yield on interest-earning assets$1,390,765 3.17 %$1,314,940 3.74 %
 2017 2016 
(Dollars in thousands, taxable equivalent)Average
Balance		 Interest
Income/
Expense		 Yield/
Rate		 Average
Balance		 Interest
Income/
Expense		 Yield/
Rate		 
Assets            
Loans and leases$22,725,665
 $959,785
 4.22
%$20,897,395
 $881,266
 4.22
%
Investment securities:            
U.S. Treasury1,628,088
 18,015
 1.11
 1,548,895
 12,078
 0.78
 
Government agency38,948
 647
 1.66
 332,107
 2,941
 0.89
 
Mortgage-backed securities5,206,897
 98,341
 1.89
 4,631,927
��79,336
 1.71
 
Corporate bonds60,950
 3,877
 6.36
 30,347
 1,783
 5.88
 
State, county and municipal—
 —
 —
 49
 1
 2.69
 
Other101,681
 698
 0.69
 73,030
 911
 1.25
 
Total investment securities7,036,564
 121,578
 1.73
 6,616,355
 97,050
 1.47
 
Overnight investments2,451,417
 26,846
 1.10
 2,754,038
 14,534
 0.53
 
Total interest-earning assets32,213,646
 $1,108,209
 3.44
%30,267,788
 $992,850
 3.28
 
Cash and due from banks417,229
     467,315
     
Premises and equipment1,133,255
     1,128,870
     
FDIC shared-loss receivable5,111
     7,370
     
Allowance for loan and lease losses(226,465)     (209,232)     
Other real estate owned56,478
     66,294
     
Other assets703,613
     711,087
     
 Total assets$34,302,867
     $32,439,492
     
             
Liabilities            
Interest-bearing deposits:            
Checking with interest$4,956,498
 $1,021
 0.02
%$4,484,557
 $910
 0.02
%
Savings2,278,895
 717
 0.03
 2,024,656
 615
 0.03
 
Money market accounts8,136,731
 6,969
 0.09
 8,148,123
 6,472
 0.08
 
Time deposits2,634,434
 7,489
 0.28
 2,959,757
 10,172
 0.34
 
Total interest-bearing deposits18,006,558
 16,196
 0.09
 17,617,093
 18,169
 0.10
 
Repurchase obligations649,252
 2,179
 0.34
 721,933
 1,861
 0.26
 
Other short-term borrowings77,680
 2,659
 3.39
 7,536
 104
 1.38
 
Long-term obligations842,863
 22,760
 2.67
 811,755
 22,948
 2.83
 
Total interest-bearing liabilities19,576,353
 43,794
 0.22
 19,158,317
 43,082
 0.22
 
Demand deposits11,112,786
     9,898,068
     
Other liabilities407,478
     381,838
     
Shareholders' equity3,206,250
     3,001,269
     
 Total liabilities and shareholders' equity$34,302,867
     $32,439,492
     
Interest rate spread    3.22
%    3.06
%
Net interest income and net yield            
on interest-earning assets  $1,064,415
 3.30
%  $949,768
 3.14
%
(1)Loans and leases include PCInon-PCD and non-PCIPCD loans, nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. Loan fees were $55.8$85.7 million, $37.5 million, $30.9 million, $16.4$9.7 million, and $14.1$8.8 million for the years ended 2017, 2016, 2015, 2014,2020, 2019, and 2013,2018, respectively. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming statutory federal income tax rates of 35.0 percent21.0% for each period2020, 2019, and 2018, as well as state income tax rates of 3.1 percent, 3.1 percent, 5.5 percent, 6.2 percent,3.5%, 3.9%, and 6.9 percent3.4% for the years ended 2017, 2016, 2015, 2014,2020, 2019, and 2013,2018, respectively. The taxable-equivalent adjustment was $4,519, $5,093, $6,326, $3,988$2.6 million, $3.6 million, and $2,660$3.4 million, for the years ended 2017, 2016, 2015, 2014,2020, 2019, and 2013,2018, respectively.

(2)The rate/volume variance is allocated proportionally between the changes in volume and rate.


34

Table 6
AVERAGE BALANCE SHEETS (continued)
20202019
2018Change from previous year due to:Change from previous year due to:
Average
Balance		Interest
Income/
Expense		Yield/
Rate		VolumeYield/Rate
Total Change(2)
VolumeYield/Rate
Total Change(2)
$24,483,719 $1,075,682 4.36 %$232,398 $(117,215)$115,183 $83,908 $60,235 $144,143 
1,514,598 28,277 1.87 (12,058)(7,074)(19,132)(10,632)4,590 (6,042)
106,067 2,697 2.54 5,080 (10,931)(5,851)9,787 1,824 11,611 
5,241,865 113,698 2.17 51,357 (57,572)(6,215)(191)1,312 1,121 
104,796 5,727 5.46 12,575 (171)12,404 2,680 (462)2,218 
107,603 1,059 0.98 208 1,841 2,049 230 916 1,146 
7,074,929 151,458 2.14 57,162 (73,907)(16,745)1,874 8,180 10,054 
1,289,013 21,997 1.71 28,418 (47,816)(19,398)45 4,203 4,248 
32,847,661 $1,249,137 3.78 %$317,978 $(238,938)$79,040 $85,827 $72,618 $158,445 
281,510 
1,164,542 
(223,300)
47,053 
762,446 
$34,879,912 
$7,278,662 $3,725 0.05 %$1,122 $(1,227)$(105)$112 $2,181 $2,293 
2,466,734 789 0.03 214 (697)(483)44 867 911 
5,903,823 8,196 0.14 6,886 (7,697)(811)170 14,949 15,119 
2,427,949 9,773 0.40 295 (8,515)(8,220)3,572 31,876 35,448 
18,077,168 22,483 0.12 8,517 (18,136)(9,619)3,898 49,873 53,771 
555,555 1,738 0.31 377 (762)(385)(77)334 257 
58,686 1,919 3.27 788 (405)383 (1,164)(84)(1,248)
304,318 10,717 3.48 28,558 (15,722)12,836 3,057 (52)3,005 
18,995,727 36,857 0.19 38,240 (35,025)3,215 5,714 50,071 55,785 
12,088,081 
373,163 
3,422,941 
$34,879,912 
3.59 %
$1,212,280 3.66 %$279,738 $(203,913)$75,825 $80,113 $22,547 $102,660 

35

2015 2014 2013 
Average
Balance		 Interest
Income/
Expense		 Yield/
Rate		 Average
Balance		 Interest
Income/
Expense		 Yield/
Rate		 Average
Balance		 Interest
Income/
Expense		 Yield/
Rate		 
                  
$19,528,153
 $880,381
 4.51%$14,820,126
 $703,716
 4.75%$13,163,743
 $759,261
 5.77%
                  
2,065,750
 15,918
 0.77 1,690,186
 12,139
 0.72 610,327
 1,714
 0.28 
801,408
 7,095
 0.89 1,509,868
 7,717
 0.51 2,829,328
 12,783
 0.45 
4,141,703
 65,815
 1.59 2,769,255
 36,492
 1.32 1,745,540
 22,642
 1.30 
1,042
 178
 17.08 4,779
 254
 5.31 —
 —
 — 
903
 53
 5.85 295
 21
 7.12 276
 20
 7.25 
961
 28
 2.93 19,697
 385
 1.95 20,529
 321
 1.56 
7,011,767
 89,087
 1.27 5,994,080
 57,008
 0.95 5,206,000
 37,480
 0.72 
2,353,237
 6,067
 0.26 1,417,845
 3,712
 0.26 1,064,204
 2,723
 0.26 
28,893,157
 $975,535
 3.38%22,232,051
 $764,436
 3.44%19,433,947
 $799,464
 4.12%
469,270
     493,947
     483,186
     
1,125,159
     943,270
     874,862
     
18,637
     61,605
     168,281
     
(206,342)     (210,937)     (257,791)     
76,845
     87,944
     119,694
     
695,509
     496,524
     473,408
     
$31,072,235
     $24,104,404
     $21,295,587
     
                  
                  
                  
$4,170,598
 $856
 0.02%$2,988,287
 $779
 0.03%$2,346,192
 $600
 0.03%
1,838,531
 479
 0.03 1,196,096
 624
 0.05 968,251
 482
 0.05 
8,236,160
 7,051
 0.09 6,733,959
 6,527
 0.10 6,338,622
 9,755
 0.15 
3,359,794
 12,844
 0.38 3,159,510
 16,856
 0.53 3,198,606
 23,658
 0.74 
17,605,083
 21,230
 0.12 14,077,852
 24,786
 0.18 12,851,671
 34,495
 0.27 
606,357
 1,481
 0.24 159,696
 350
 0.22 108,612
 316
 0.29 
227,937
 3,179
 1.39 632,146
 8,827
 1.40 487,813
 2,408
 0.49 
547,378
 18,414
 3.36 403,925
 16,388
 4.06 462,203
 19,399
 4.20 
18,986,755
 44,304
 0.23 15,273,619
 50,351
 0.33 13,910,299
 56,618
 0.41 
8,880,162
     6,290,423
     5,096,325
     
408,018
     284,070
     352,068
     
2,797,300
     2,256,292
     1,936,895
     
$31,072,235
     $24,104,404
     $21,295,587
     
    3.15%    3.11%    3.71%
                  
  $931,231
 3.22%  $714,085
 3.21%  $742,846
 3.82%
RESULTS OF OPERATIONS

Net Interest Margin and Income (Taxable Equivalent Basis)


Table 7 isolates the changes in taxable-equivalentTaxable-equivalent net interest income due to changes in volume and interest rates for 2017 and 2016.
Table 7
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
 2017 2016
 Change from previous year due to: Change from previous year due to:
   Yield/ Total   Yield/ Total
(Dollars in thousands)Volume Rate Change Volume Rate Change
Assets           
Loans and leases$77,836
 $683
 $78,519
 $59,635
 $(58,750) $885
Investment securities:           
U.S. Treasury722
 5,215
 5,937
 (4,013) 173
 (3,840)
Government agency(3,730) 1,436
 (2,294) (4,165) 11
 (4,154)
Mortgage-backed securities10,250
 8,755
 19,005
 8,173
 5,348
 13,521
Corporate bonds1,874
 220
 2,094
 3,363
 (1,758) 1,605
State, county and municipal(1) —
 (1) (37) (15) (52)
Other277
 (490) (213) 1,505
 (622) 883
Total investment securities9,392
 15,136
 24,528
 4,826
 3,137
 7,963
Overnight investments(2,495) 14,807
 12,312
 1,578
 6,889
 8,467
Total interest-earning assets$84,733
 $30,626
 $115,359
 $66,039
 $(48,724) $17,315
Liabilities           
Interest-bearing deposits:           
Checking with interest$103
 $8
 $111
 $58
 $(4) $54
Savings89
 13
 102
 96
 40
 136
Money market accounts(163) 660
 497
 83
 (662) (579)
Time deposits(1,007) (1,676) (2,683) (1,424) (1,248) (2,672)
Total interest-bearing deposits(978) (995) (1,973) (1,187) (1,874) (3,061)
Repurchase obligations(224) 542
 318
 268
 112
 380
Other short-term borrowings1,686
 869
 2,555
 (3,058) (17) (3,075)
Long-term obligations996
 (1,184) (188) 8,159
 (3,625) 4,534
Total interest-bearing liabilities1,480
 (768) 712
 4,182
 (5,404) (1,222)
Change in net interest income$83,253
 $31,394
 $114,647
 $61,857
 $(43,320) $18,537
Loans and leases include PCI loans, non-PCI loans, nonaccrual loans, and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. The rate/volume variance is allocated equally between the changes in volume and rate.

NET INTEREST INCOME

Net interest income of $1.06was $1.39 billion for the year ended December 31, 2017 increased by $115.22020, an increase of $75.8 million, or 12.2 percent,5.8%, compared to the same period in 2016.2019. Interest income was up $115.9 million primarily due to higher non-PCI loan interest income ofincreased $79.0 million as a result of originated loan growth and the contribution from the Guaranty acquisition, a $24.5 million improvement in interest income earned on investments and a $12.3 million increase in interest income earned on excess cash held in overnight investments. Interest expense increased by $712 thousand resulting from higher interest expense on short-term FHLB borrowings and repurchase obligations. This increase was partially offset by lower interest on deposits, primarily from continued run-off of time deposits, and long-term obligations. Net interest income for the year ended December 31, 2016 was $944.7 million, a $19.8 million increase from 2015, primarily due to strong core originated loan growth, higher investment interest income and a decrease in interest expense, offset by a decline in loan interest income on PCI loans.$3.2 million.
Interest income fromearned on loans and leases was $955.6 million$1.34 billion during 2017,2020, an increase of $79.2$115.2 million compared to 2016.2019. The increase was primarily the result of a $79.0 million increase in non-PCI loan interest income due to originated loan growththe impacts of SBA-PPP loans, which contributed $90.1 million, and the contribution from Guaranty. Interest income increased $18.5 million between 2016 and 2015, reflecting an increase in non-PCI loan interest income due to originatedorganic loan growth, partially offset by a decline in PCI loan interest income due to portfolio run-off.lower yields.
Interest income earned on investment securities was $121.2 million, $96.8$144.8 million and $88.3$161.5 million during 2017, 2016,2020 and 2015,2019, respectively. The $24.4$16.7 million increase in 2017decrease was primarily due to a 2673 basis point improvementdecline in the investment yield, resulting from reinvesting investment securities cash flows from maturities and sales intopartially offset by higher yielding short duration mortgage-backed securities. Interest income earned on investment securities in 2016 increased $8.5 million, compared to 2015, primarily due to a


20 basis point improvement in the investment yield resulting from reinvesting investment securities cash flows from maturities and sales into higher yielding short duration mortgage-based securities.average balances.
Interest expense on interest-bearing deposits was $16.2$66.6 million in 2017,2020, a decrease of $2.0$9.6 million compared to 2016,2019, primarily due to lower rates paid on money market and time deposits. Interest expense on borrowings was $29.2 million in 2020, an increase of $12.8 million compared to 2019, primarily due to an increase in average borrowings, partially offset by lower rates paid.
The year-to-date taxable equivalent net interest margin for 2020 was 3.17%, compared to 3.74% during 2019. The margin compression was primarily due to a decline in time deposit balances. Interest expensethe yield on interest-bearing deposits decreased $3.1 million between 2016 and 2015 primarily due to a decline in time deposit balances and funding costs. Interest expense on borrowings was $27.6 million in 2017, an increase of $2.7 million, compared to 2016, primarily related tointerest-earning assets coupled with an increase in short-termtotal borrowings, partially offset by a decline in interestthe rate paid on long-term borrowings. Interest expense on borrowings increased $1.8 million between 2016 and 2015 primarily related to an increase in long-term borrowings, partially offset by a decline in interest paid on short-term borrowings.
The year-to-date taxable-equivalent net interest margin for 2017 was 3.30 percent, compared to 3.14 percent during 2016. The margin increase was primarily due to higher loan balances and improvedinterest-bearing deposits. During 2020, yields on investments and excess cash held in overnight investments. Investment yields improved 26 basis points compared to 2016 primarily due to reinvestingloans, investment securities cash flows from maturities, sales and paydowns into higher yielding short duration securities, mainly U.S. Treasury and mortgage-backed securities. The yield on overnight investments improved 57 basis points compared to 2016 primarily due to the positive impact of three 25 basis point increases in the federal funds rate since the fourth quarter of 2016. The year-to-date taxable equivalent net interest margin decreased 836 basis points to 3.14 percent in 2016, compared4.18%, 73 basis points to 2015, primarily due1.60% and 178 basis points to higher yielding PCI loan portfolio run-off, partially offset by the favorable impacts of originated loan growth, higher yields on investments and lower funding costs.0.25%, respectively.
Average interest-earning assets increased $1.94$8.48 billion, or by 6.4 percent,24.3% for the year ended December 31, 2017.2020. Growth in average interest-earning assets during 20172020 was primarily due to originatedhigher investment balances, the impact of SBA-PPP loans and other organic loan growth funded largely by deposit growth and loans acquired from Guaranty and HCB.growth. The year-to-date taxable-equivalent yield on interest-earning assets improved 16in 2020 declined by 61 basis points in 2017 to 3.44 percent. The increase was primarily the result of higher yields on investments and excess cash held in overnight investments. Average interest-earning assets increased $1.38 billion between 2016 and 2015 primarily due to originated loan growth and net loans acquired in the NMSB, FCSB and Cordia acquisitions.3.40%.
Average interest-bearing liabilities increased $418.0 million$4.50 billion for the full year of 2017, compared to 2016ended December 31, 2020, primarily due to growth inincreased interest-bearing savingsdeposits and checking accounts and incremental FHLB borrowings of $175.0 million in 2017. Average interest-bearing liabilities increased $171.6 million between 2016 and 2015 primarily due to incremental FHLB borrowings of $150.0 million in 2016.borrowings. The rate paid on interest-bearing liabilities remained flat at 0.22 percentdecreased 7 basis points in 2020 from 0.45% to 0.38%.
Provision for Credit Losses
BancShares recorded a provision for credit losses for loans and leases of $58.4 million for the full year 2017 and 2016 and decreased 1 basis point between 2016 and 2015,ended December 31, 2020, compared to $31.4 million for same period in 2019. This increase was primarily due to lower deposita COVID-19-related reserve build of $36.1 million during the first half of 2020 as loss estimates consider the potential uncertainty of slower economic activity and borrowing costs.elevated unemployment, as well as potential mitigants due to government stimulus and loan accommodations.
Noninterest Income
Table 7
NONINTEREST INCOME

Table 8
NONINTEREST INCOME

Year ended December 31
(Dollars in thousands)202020192018
Wealth management services$102,776 $99,241 $97,966 
Service charges on deposit accounts87,662 105,191 105,486 
Cardholder services, net74,291 69,078 65,478 
Mortgage income39,592 21,126 16,433 
Other service charges and fees30,911 31,644 30,606 
Merchant services, net24,122 24,304 24,504 
Insurance commissions14,544 12,810 12,702 
ATM income5,758 6,296 7,980 
Realized gains on investment securities available for sale, net60,253 7,115 351 
Marketable equity securities gains (losses), net29,395 20,625 (7,610)
Gain on extinguishment of debt— — 26,553 
Other7,446 18,431 19,700 
Total noninterest income$476,750 $415,861 $400,149 
36
 Year ended December 31
(Dollars in thousands)2017 2016 2015
Gain on acquisitions$134,745
 $5,831
 $42,930
Cardholder services95,365
 83,417
 77,342
Merchant services103,962
 95,774
 84,207
Service charges on deposit accounts101,201
 89,359
 90,546
Wealth management services86,719
 80,221
 82,865
Securities gains4,293
 26,673
 10,817
Other service charges and fees28,321
 27,011
 23,987
Mortgage income23,251
 20,348
 18,168
Insurance commissions12,465
 11,150
 11,757
ATM income9,143
 7,283
 7,119
Adjustments to FDIC shared-loss receivable(6,232) (9,725) (19,009)
Net impact from FDIC loss share termination(45) 16,559
 —
Recoveries of PCI loans previously charged-off21,111
 20,126
 21,169
Other26,730
 14,044
 15,190
Total noninterest income$641,029
 $488,071
 $467,088


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 have traditionally consisted of gains on acquisitions, gains on the sale of investment securities as well as fees and service charge generated from cardholder services, merchant services, deposit accounts,


wealth management services and mortgage lending and servicing. Recoveries on PCI loans that have been previously charged-off are additional sources of noninterest income. BancShares records the portion of recoveries not covered under shared-loss agreements as noninterest income rather than as an adjustment to the allowance for loan losses. Charge-offs on PCI loans are recorded against the discount recognized on the date of acquisition versus through the allowance for loan losses unless an allowance was established subsequent to the acquisition date due to declining expected cash flow.

For the year ended December 31, 2017,2020, total noninterest income was $641.0$476.8 million, compared to $488.1$415.9 million for the same period in 2016,2019, an increase of $153.0$60.9 million, or by 31.3 percent. Excluding $134.7 million in gains on the HCB and Guaranty acquisitions in 2017 and the $5.8 million in gains on the FCSB and NMSB acquisitions in 2016, total noninterest income increased $24.0 million, or by 5.0 percent.14.6%. The year-to-date change was primarily attributable to the following:
Merchant and cardholder services•Gains on sale of investment securities available for sale increased by $53.1 million.
•Mortgage income increased by $20.1$18.5 million primarily due to increases in salesorigination volume andbrought about by lower mortgage rates. The production-related income fromwas partially offset by a $4.1 million impairment of mortgage servicing rights recorded due to accelerated prepayments.
•The $29.4 million net gain included realized gains on the Guaranty acquisition.sale equity securities of $44.6 million.
Other income increased by $12.7 million, driven primarily by the early termination of two forward-starting FHLB advances which resulted in a realized gain of $12.5 million.
•Service charges on deposit accounts increased by $11.8decreased $17.5 million primarily attributabledue to the Guaranty acquisition, as well aslower volume with increased fees charged on certain transactions.
Wealth management services income increased by $6.5 million, driven primarily bydeposit balances and an increase in sales volume on annuity products, increased brokeragewaived fees to aid our customers during the COVID-19 pandemic.
•Other noninterest income and higher commissions earned on trust services.
Lower FDIC shared-loss receivable adjustments of $3.5decreased $11.0 million primarily due to acquired recoveries on PCD loans, formerly reported in noninterest income. After adoption of CECL, these are recorded as a decrease in OREO and loan expenses related to shared-loss agreements.
Mortgage income increased $2.9 million primarily attributable to interest rate movements and mortgage servicing rights retained related to the sale of certain residential mortgage loans.
Gains on sales of securities decreased by $22.4 million due to lower investment portfolio sales in 2017 compared to 2016.
Net impact from the FDIC shared-loss termination of $16.6 million recognized in 2016.
For the year ended December 31, 2016, total noninterest income was $488.1 million, compared to $467.1 million for the same period in 2015, an increase of $21.0 million, or by 4.5 percent. Excluding the $5.8 million in gains on the FCSB and NMSB acquisitions in 2016 and the $42.9 million in gains on the CCBT acquisition in 2015, total noninterest income increased $58.1 million, or by 13.7 percent. The year-to-date change was attributable to the following:

Merchant and cardholder services income increased by $17.6 million, reflecting sales volume growth.
Net impact from the FDIC shared-loss termination of $16.6 million.
Gains on sales of securities increased by $15.9 million.
Lower FDIC receivable adjustments of $9.3 million resulting from a reduction in claims and lower amortization expense due to the early terminationcomponent of the shared-loss agreements.allowance for credit losses.
NONINTEREST EXPENSENoninterest Expense

Table 98
NONINTEREST EXPENSE
Year ended December 31
(Dollars in thousands)202020192018
Salaries and wages$590,020 $551,112 $527,691 
Employee benefits132,244 120,501 118,203 
Occupancy expense117,169 111,179 109,169 
Equipment expense115,535 112,290 102,909 
Processing fees paid to third parties44,791 29,552 30,017 
Merger-related expenses17,450 17,166 6,462 
Core deposit intangible amortization14,255 16,346 17,165 
Collection and foreclosure-related expenses13,658 11,994 16,567 
Consultant expense12,751 12,801 14,345 
FDIC insurance expense12,701 10,664 18,890 
Telecommunications expense12,179 9,391 10,471 
Advertising expense10,010 11,437 11,650 
Other95,922 89,308 93,432 
Total noninterest expense$1,188,685 $1,103,741 $1,076,971 
 Year ended December 31
(Dollars in thousands)2017 2016 2015
Salaries and wages$475,214
 $428,351
 $429,742
Employee benefits113,231
 104,518
 113,309
Occupancy expense104,690
 102,609
 98,191
Equipment expense97,478
 92,501
 92,639
Merchant processing78,537
 71,150
 62,473
Cardholder processing30,573
 29,207
 25,296
FDIC insurance expense22,191
 20,967
 18,340
Collection and foreclosure-related expenses14,407
 13,379
 12,311
Processing fees paid to third parties25,673
 18,976
 18,779
Cardholder reward programs9,956
 10,615
 11,069
Telecommunications12,172
 14,496
 14,406
Consultant14,963
 10,931
 8,925
Advertising11,227
 10,239
 12,431
Core deposit intangible amortization17,194
 16,851
 18,892
Merger-related expenses9,015
 5,341
 14,174
Other95,014
 98,607
 87,938
Total noninterest expense$1,131,535
 $1,048,738
 $1,038,915


For the year ended December 31, 2017,2020, total noninterest expense was $1.13$1.19 billion, compared to $1.05$1.10 billion for the same period in 2016,2019, an increase of $82.8$84.9 million, or 7.9 percent.7.7%. The year-to-date change was primarily attributable to the following:


•Personnel expense, which includes salaries, wages and employee benefits, increased by $55.6$50.7 million, primarily driven by acquired bank personnel,due to an increase in salaries and wages as a result of merit increases staff additions, and payroll incentive plans.additional headcount from recent acquisitions.
Merchant processing expense increased by $7.4 million aligned with higher sales volumes during 2017.
•Processing fees paid to third parties increased by $6.7$15.2 million primarily due to core processing expenses related to the acquisitions of Guaranty and HCB.
Equipment expense increased by $5.0 million attributable to investmentscontinued investment in new technologyour digital banking offerings as well as upgradesprocessing fees related to existing equipment.recent acquisitions.
Consultant expenses•Other noninterest expense increased by $4.0$6.6 million primarily due to regulatory, accounting and compliance-related services.
Merger-related expense increased by $3.7 million primarily driven bypension costs associated with the Guaranty and HCB acquisitions in 2017.
For the year ended December 31, 2016, total noninterest expense was $1.05 billion, compared to $1.04 billion for the same period in 2015, an increase of $9.8 million, or 0.9 percent. The year-to-date change was primarily attributable to the following:
Processing expenses for merchant and cardholder services increased by $12.6 million aligned with higher sales volume.
Other expense increased by $10.7 million primarily as a result of higher operational losses, including losses on debit and credit cards of $4.5 million and costs related to branch closures of $3.2 million.
Occupancy expense increased by $4.4 million as a result of repairs to bank buildings related to Hurricane Matthew and an increase in depreciation expense for technological investments put into production during 2016.
FDIC insurance expense increased $2.6 million due to a higher surcharge imposed during 2016.
Employee benefits expense decreased by $8.8 million driven primarily by lower pension costs as a result of an increase to the discount rate used to estimate pension expense in 2016.
Merger-related expense decreased by $8.8 million due primarily to increased costsand a higher provision related to the Bancorporation merger in 2015.



INCOME TAXES

For 2017, income tax expense was $219.9 million compared to $125.6 million during 2016 and $122.0 million during 2015, reflecting effective tax rates of 40.5 percent, 35.8 percent and 36.7 percent during the respective periods. The increase in the effective tax rate during 2017 was primarily due to the re-measurement of deferred tax assetsunfunded loan commitments as a result of the Tax Act whichpotential economic impact of COVID-19. The increase was enacted on December 22, 2017partially offset by a decrease in travel expense.
•Occupancy expense increased $6.0 million primarily due to cleaning and reducessanitizing efforts in branches and corporate buildings to combat the federal corporatespread of COVID-19.
Income Taxes
For 2020, income tax rateexpense was $126.2 million compared to 21 percent effective January 1,$134.7 million during 2019 and $103.3 million during 2018. 2017Effective tax expense includes a provisional $25.8 million to reflectrates were 20.4%, 22.7% and 20.5% during the Tax Act changes. respective periods.
37

The ultimate impact may differ from this provisional amount due to additional analysis, changes in interpretations and assumptions and additional regulatory guidance that may be issued. A reduction in the North Carolina corporate income tax rate applicable to the 2016 tax year contributed to the lower effective tax rate for 2016 comparedthe year ended 2020 was favorably impacted by $13.9 million due to 2015. Based upon current 2018 projections, we expect the 2018decision to utilize an allowable alternative for computing our 2020 federal income tax liability. Without this alternative, the effective tax rate will bewould have been approximately 23 percent.22.7% for the year ended 2020. The actual 2018 effectiveallowable alternative provides us the ability to use the federal income tax rate will depend upon the nature and amount of future income and expenses as well as transactions with discrete tax effects.for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax.

INTEREST-EARNING ASSETS

Interest-earning assets include loans and leases,overnight investments, investment securities and overnight investments,loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. RiskierHigher risk investments typically carry a higher interest rate, but expose us to higher levels of market and/or credit risk.

We have historically focused on maintaining high-asset quality, which results in a loan and lease portfolio subjectedstrive to strenuous underwriting and monitoring procedures. We avoid high-risk industry concentrations, but we do maintain a concentrationhigh level of owner-occupied real estate loansinterest-earning assets relative to borrowers in medical and medical-related fields. Our focus on asset quality also influences the composition of our investment securities portfolio.

total assets, while keeping non-earning assets at a minimum.
Interest-earning assets averaged $32.21totaled $47.19 billion in 2017, compared to $30.27and $37.23 billion in 2016.at December 31, 2020 and December 31, 2019, respectively. The increase of $1.94$9.96 billion or 6.4 percent,increase was primarily the resultcomposed of strong originated loan growtha $3.91 billion increase in loans and the loans acquiredleases, a $3.24 billion increase in the Guarantyovernight investments and HCB acquisitions.a $2.75 billion increase in investment securities.

Investment securities

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 and credit 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'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 A, Accounting Policies and Basis of Presentation, and Note C, Investments, in the Notes to Consolidated Financial Statements for additional disclosures regarding investment securities.

The faircarrying value of all investment securities was $7.18$9.92 billion at December 31, 2017,2020, an increase of $173.6 million when$2.75 billion compared to $7.01$7.17 billion at December 31, 2016. This follows an increase of $145.1 million in total investment securities from December 31, 2015 to December 31, 2016.2019. The increase in 2017 and 2016the portfolio was primarily attributable to investing overnight funds intopurchases totaling $10.64 billion, partially offset by maturities and paydowns of $3.09 billion and sales of $4.94 billion. This increase was due to excess liquidity generated by significant deposit growth during the investment portfolio and a decline in the net pre-tax unrealized losses on the available for sale portfolio.

year.
As of December 31, 2017,2020, investment securities available for sale had a net pre-tax unrealized lossgain of $48.8$102.3 million, compared to a net pre-tax unrealized lossgain of $72.7$7.5 million as of December 31, 2016. Available2019. After evaluating the investment securities with unrealized losses, management concluded that no credit-related impairment existed as of December 31, 2020. Investment securities classified as available for sale securities are reported at fair value and unrealized gains and losses are included as a component of accumulated other comprehensive income (“AOCI”), net of deferred taxes. After evaluating the
On November 1, 2020, mortgage-backed securities with unrealized losses, management concluded that no other than temporary impairment existed asan amortized cost of December 31, 2017.

Sales of investment securities for 2017 resulted in a net realized gain of $4.3 million compared to a net realized gain of $26.7 million in 2016. The net realized gain of $4.3 million in 2017 includes gross gains of $11.6 million and gross losses of $7.3 million.

At December 31, 2017, mortgage-backed securities represented 74.5 percent of$1.46 billion were transferred from investment securities available for sale compared to U.S. Treasury, equitythe held to maturity portfolio. At the time of transfer, the mortgage-backed securities corporate bondshad a fair value of $1.47 billion and other, which represented 23.1 percent, 1.5 percent, 0.8 percenta weighted average contractual maturity of 18 years. The unrealized gain on these securities at the date of transfer was $5.9 million, or $4.5 million net of tax, and 0.1 percentwas reported as a component of AOCI. This unrealized gain is accreted over the remaining expected life of the portfolio, respectively. Overnight investments are withsecurities as an adjustment of yield.
On November 1, 2019, as part of the Federal Reserve Bank and other financial institutions.



Due primarily to deploymentadoption of overnight funds and spread tightening inASU 2019-04, mortgage-backed securities products since December 31, 2016,with an amortized cost of $2.08 billion were transferred from investment securities held to maturity to the carryingavailable for sale portfolio. At the time of the transfer, the mortgage-backed securities had a fair value of mortgage-backed securities has increased by $174.0 million. U.S. Treasury securities increased $7.5$2.15 billion. The transfer resulted in a reclassification of unrealized losses of $72.5 million, benefiting from rising interest ratesor $55.8 million net of tax, previously frozen in 2017. Government agency securities decreased $40.4 million asAOCI. The transfer does not impact our intent and ability to hold the maturities proceeds were reinvested primarily into other typesremainder of securities in the investment portfolio. Equity securities, comprised of investments in other financial institutions, increased $21.7 million since December 31, 2016 primarily dueheld to higher market prices at December 31, 2017.

Table 10
INVESTMENT SECURITIESmaturity portfolio to maturity.
38

 December 31
 2017 2016 2015
(Dollars in thousands) Cost  Fair value  Cost Fair value Cost Fair value
Investment securities available for sale           
U.S. Treasury1,658,410
 1,657,864
 1,650,675
 1,650,319
 1,675,996
 1,674,882
Government agency—
 —
 40,291
 40,398
 498,804
 498,660
Mortgage-backed securities5,428,074
 5,349,426
 5,259,466
 5,175,425
 4,692,447
 4,668,198
Equity securities75,471
 105,208
 71,873
 83,507
 7,935
 8,893
Corporate bonds59,414
 59,963
 49,367
 49,562
 8,500
 8,500
Other7,645
 7,719
 7,615
 7,369
 2,115
 2,160
Total investment securities available for sale$7,229,014
 $7,180,180
 7,079,287
 7,006,580
 6,885,797
 6,861,293
Investment securities held to maturity           
Mortgage-backed securities76
 81
 98
 104
 255
 265
Total investment securities$7,229,090
 $7,180,261
 $7,079,385
 $7,006,684
 $6,886,052
 $6,861,558



Table 11 9presents the investment securities portfolio at December 31, 20172020 segregated by major category.
Table 9
INVESTMENT SECURITIES
December 31, 2020December 31, 2019
(Dollars in thousands)
Composition(1)
CostFair
Value
Composition(1)
CostFair
Value
Investment securities available for sale
U.S. Treasury5.0 %$499,832 $499,933 5.7 %$409,397 $409,999 
Government agency7.0 706,241 701,391 9.5 684,085 682,772 
Residential mortgage-backed securities44.5 4,369,130 4,438,103 73.4 5,269,060 5,267,090 
Commercial mortgage-backed securities7.9 745,892 771,537 5.3 373,105 380,020 
Corporate bonds6.1 590,870 603,279 2.8 198,278 201,566 
State, county and municipal— — — 1.7 118,227 118,227 
Total investment securities available for sale70.5 6,911,965 7,014,243 98.4 7,052,152 7,059,674 
Investment in marketable equity securities0.9 84,837 91,680 1.2 59,262 82,333 
Investment securities held to maturity
Residential mortgage-backed securities19.1 1,877,692 1,895,381 — — — 
Commercial mortgage-backed securities9.4 937,034 940,862 — — — 
Other0.1 2,256 2,256 0.4 30,996 30,996 
Total investment securities held to maturity28.6 2,816,982 2,838,499 0.4 30,996 30,996 
Total investment securities100.0 %$9,813,784 $9,944,422 100.0 %$7,142,410 $7,173,003 
(1) Calculated as a percent of the total fair value of investment securities.
Table 10presents the weighted average taxable-equivalent yields for investment securities held to maturity at December 31, 2020 segregated by major category with ranges of contractual maturities,maturities. The weighted average contractual maturities and taxable equivalentyield on the portfolio is calculated using security-level annualized yields.

Table 1110
WEIGHTED AVERAGE YIELD ON INVESTMENT SECURITIES
December 31, 2020
Within
One Year		One to Five
Years		Five to 10
Years		After 10 YearsTotal
Investment securities held to maturity
Residential mortgage-backed securities(1)
— %— %— %1.13 %1.13 %
Commercial mortgage-backed securities(1)
— — — 1.27 1.27 
Other investments1.17 1.37 — — 1.31 
Total investment securities held to maturity1.17 %1.37 %— %1.18 %1.18 %
 December 31, 2017
     
Average maturity
(Yrs./mos.)
 Taxable equivalent yield
(Dollars in thousands) Cost Fair value  
 Investment securities available for sale:    
 U.S. Treasury       
 Within one year$808,768
 $808,301
 0/7 1.35%
 One to five years849,642
 849,563
 1/4 1.85
 Total1,658,410
 1,657,864
 1/0 1.61
Mortgage-backed securities(1)
      
 One to five years890
 886
 2/2 1.73
 Five to ten years1,086,285
 1,072,184
 9/7 1.91
 Over ten years4,340,899
 4,276,356
 14/11 1.98
 Total5,428,074
 5,349,426
 13/10 1.97
 Corporate bonds       
 Five to ten years59,414
 59,963
 8/4 6.08
 Total59,414
 59,963
 8/4 6.08
Other       
Over ten years7,645
 7,719
 23/9 6.57
 Total7,645
 7,719
 23/9 6.57
 Equity securities75,471
 105,208
 — —
 Total investment securities available for sale7,229,014
 7,180,180
    
 Investment securities held to maturity:       
Mortgage-backed securities      
 One to five years3
 3
 4/8 2.93
 Five to ten years3
 3
 7/5 2.74
 Over ten years70
 75
 11/7 7.41
 Total investment securities held to maturity76
 81
 11/2 7.07
 Total investment securities$7,229,090
 $7,180,261
    
(1) Mortgage-backedResidential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgage loans.

Table 12 provides information on investment securities issued by any one issuer exceeding ten percent of shareholders' equity.

Table 12
INVESTMENT SECURITIES - ISSUERS EXCEEDING TEN PERCENT OF SHAREHOLDERS' EQUITY
 December 31, 2017
(Dollars in thousands)Cost Fair Value
Federal Home Loan Mortgage Corporation$1,770,572
 $1,744,040
Federal National Mortgage Association3,547,885
 3,496,787

Loans and leasesLeases

Loans held for sale were $124.8 million at December 31, 2020, a net increase of $57.0 million since December 31, 2019. The increase is primarily due to originations of $1.08 billion driven by low interest rates, partially offset by sales of $1.05 billion.
Loans and leases held for investment are classified differently, dependent on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination as of the date of acquisition. Non-PCD loans consist of loans which were $23.60originated by us or purchased from other institutions that did not reflect more than insignificant credit deterioration at acquisition. PCD loans are purchased loans which reflect a more than insignificant credit deterioration since origination as of the date of acquisition.
Loans and leases held for investment were $32.79 billion at December 31, 2017,2020, a net increase of $1.86$3.91 billion, or 8.6 percent,representing growth of 13.5% since December 31, 2016.2019. This increase was primarily driven by $1.46a $4.01 billion ofnet increase in the non-PCD portfolio offset by a $95.8 million net decrease in the PCD loan portfolio. The net increase in the non-PCD portfolio was due to $2.41 billion related to SBA-PPP loans as well as organic growth, primarily in the non-PCI portfolio and the addition of $447.7 millionour commercial segments. The net decrease in non-PCIPCD loans from the Guaranty acquisition. The PCI portfolio declined over this period by $46.2 million, as a result of loan run-off of $208.8 million, offset by net loans acquired from Guaranty and HCB, which were $97.6 million and $65.0 million, respectively, at December 31, 2017. Loans and leases were $21.74 billion at December 31, 2016, a net increase of $1.50 billion, or 7.4 percent, from December 31, 2015was primarily due to organic non-PCI loan growth of $1.41 billionpay downs and the addition of $225.0 million in non-PCI loans from the Cordia acquisition,pay-offs, partially offset by a net decline in$19.0 million increase from the PCI portfolioadoption of $141.3 million.ASC 326. Excluding 2020 loans related to SBA-PPP and acquired loans, total loans grew by 4.9%.

39



BancShares reports non-PCIWe report non-PCD and PCIPCD loan portfolios separately, and eachwith the non-PCD portfolio is further divided into commercial and non-commercial. Additionally,consumer segments. Non-PCD loans are assignedand leases at December 31, 2020 were $32.33 billion compared to $28.32 billion at December 31, 2019, representing 98.6% and 98.1% of total loans, respectively. PCD loans at December 31, 2020 were $462.9 million, compared to $558.7 million of PCI loans at December 31, 2019, representing 1.4% and 1.9% of loans, respectively.
The discount related to acquired non-PCD loans and leases at December 31, 2020 and non-PCI loans and leases at December 31, 2019 was $19.5 million and $30.9 million, respectively. The discount related to PCD loans at December 31, 2020 and PCI loans at December 31, 2019 was $45.3 million and $88.2 million, respectively. The primary driver of the decrease in PCD discount was loan classes,payoffs as well as the adoption of ASC 326, which further disaggregateresulted in a $19.0 million reclassification of the credit portion of the loan discount to the ACL.
During the year ended December 31, 2020 and 2019, accretion income on purchased non-PCD loans based upon common risk characteristics, such as commercial real estate, commercial & industrial or residential mortgage. and leases was $11.3 million and $13.2 million, respectively. During the year ended December 31, 2020 and 2019, interest and accretion income on purchased PCD loans and leases was $59.7 million and $58.0 million, respectively.

Table 1311 provides the composition of non-PCI and PCInet loans and leases for the past fivethree years.


Non-PCI Loans and Leases
40


The non-PCI portfolio includes loans that management has the intent and ability to hold and is reported at the principal balance outstanding, net of deferred loan fees and costs. Non-PCI loans include originated commercial, originated noncommercial, purchased non-credit impaired loans and leases and certain purchased revolving credit. Purchased non-credit impaired loans included as non-PCI do not have evidence of credit deterioration at acquisition. Purchased non-impaired loans are initially recorded at their fair value at the date of acquisition.

Non-PCI loans at December 31, 2017 were $22.83 billion, an increase of $1.90 billion from $20.93 billion at December 31, 2016. Non-PCI loans represented 96.8 percent and 96.3 percent of total loans and leases at December 31, 2017 and December 31, 2016, respectively.

Non-PCI Commercial Loans

The non-PCI commercial loan portfolio is composed of Commercial Mortgage, Commercial and Industrial, Construction and Land Development, Lease Financing, Other Commercial Real Estate and Other Commercial loans. Non-PCI commercial loans were $14.80 billion at December 31, 2017, an increase of $1.04 billion, or 7.5 percent, compared to December 31, 2016, following an increase of $1.13 billion, or 8.9 percent, between December 31, 2016 and December 31, 2015. The increase from both periods was primarily due to strong originated loan growth. The Guaranty acquisition also positively contributed $2.5 million to the non-PCI commercial loan portfolio during 2017.

Non-PCI commercial mortgage loans were $9.73 billion at December 31, 2017. The December 31, 2017 balance increased $702.8 million, or 7.8 percent, since December 31, 2016, following an increase of $751.7 million, or 9.1 percent, between December 31, 2016 and December 31, 2015. We attribute the growth in both years to improving confidence among small business customers and our continued focus on this segment.

Non-PCI commercial and industrial loans were $2.73 billion at December 31, 2017, an increase of $162.9 million, or 6.3 percent, since December 31, 2016, following an increase of $198.5 million, or 8.4 percent, between December 31, 2016 and December 31, 2015. We attribute the growth from both periods to our continued focus on small business customers, particularly among medical, dental or other professional customers.

Non-PCI other commercial real estate loans were $473.4 million at December 31, 2017, an increase of $122.1 million, or 34.8 percent, since December 31, 2016, following an increase of $30.3 million, or 9.4 percent, between December 31, 2016 and December 31, 2015. The current year growth reflects originated loan growth and contributions from the Guaranty acquisition.

Non-PCI Noncommercial Loans

The non-PCI noncommercial loan portfolio is composed of Residential Mortgage, Revolving Mortgage, Consumer and Construction and Land Development loans. Non-PCI noncommercial loans were $8.03 billion at December 31, 2017, an increase of $866.8 million, or 12.1 percent, compared to December 31, 2016, following an increase of $509.0 million, or 7.6 percent between December 31, 2016 and December 31, 2015 primarily due to originated loan growth in both periods. The Guaranty acquisition also positively contributed $445.2 million to the non-PCI noncommercial loan portfolio during 2017.

At December 31, 2017, residential mortgage loans were $3.52 billion, an increase of $634.7 million or 22.0 percent, since December 31, 2016, following an increase of $193.1 million, or 7.2 percent, between December 31, 2016 and December 31, 2015. The increase from both periods reflects originated loan growth and the current year growth was also attributable to the large residential mortgage loan portfolio of $391.4 million acquired in the Guaranty transaction. While a majority of residential mortgage loans originated were sold to investors, other loans, including affordable housing loans, medical mortgage loans and certain construction loans, were originated based on our intent to retain them in the loan portfolio.

At December 31, 2017, revolving mortgage loans were $2.70 billion, an increase of $100.2 million, or 3.9 percent, since December 31, 2016, following an increase of $78.2 million, or 3.1 percent, between December 31, 2016 and December 31, 2015. The increase from both periods was primarily the result of originated loan growth. The increase in 2017 was also attributable to loans acquired in the Guaranty acquisition which were $42.2 million.


At December 31, 2017, consumer loans were $1.56 billion, an increase of $115.0 million, or 8.0 percent, compared to December 31, 2016, following an increase of $226.3 million, or 18.6 percent, between December 31, 2016 and December 31, 2015. Growth in both periods primarily reflects increases in indirect auto lending and our credit card portfolio as well as loans acquired in the Guaranty acquisition during 2017 and the Cordia acquisition during 2016.

Management believes 2017 organic loan growth resulted from improved economic conditions and our initiatives to broaden and diversify the loan portfolio through loan products with high growth potential. Management has maintained sound underwriting standards across all loan products while achieving this growth. Originated loan growth in 2018 will be dependent on overall economic conditions and will continue to be impacted by intense competition for loans and other external factors.

PCI Loans

The PCI portfolio includes loans acquired in a transfer, including business combinations, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition that we will not collect all contractually required principal and interest payments. All nonrevolving loans are evaluated at acquisition and where a discount is required at least in part due to credit quality, the loans are accounted for under the guidance in ASC Topic 310-30. PCI loans are valued at fair value at the date of acquisition.

PCI loans at December 31, 2017 were $763.0 million, representing 3.2 percent of total loans and leases, a decrease of $46.2 million, or 5.7 percent from $809.2 million at December 31, 2016 as a result of continued loan run-off of $208.8 million, offset by net loans acquired from Guaranty and HCB, which were $97.6 million and $65.0 million, respectively, at December 31, 2017.

PCI commercial loans were $396.9 million at December 31, 2017, a decrease of $103.0 million, or 20.6 percent, since December 31, 2016, following a decrease of $93.6 million, or 15.8 percent, between December 31, 2016 and December 31, 2015. At December 31, 2017, PCI noncommercial loans were $366.1 million, an increase of $56.9 million, or 18.4 percent, since December 31, 2016, following a decrease of $47.7 million, or 13.4 percent, between December 31, 2016 and December 31, 2015.































Table 1311
LOANS AND LEASES

December 31
(Dollars in thousands)2020
Non-PCD loans and leases:
Commercial:
Construction and land development$985,424 
Owner occupied commercial mortgage11,165,012 
Non-owner occupied commercial mortgage2,987,689 
Commercial and industrial and leases5,013,644 
SBA-PPP2,406,291 
Total commercial loans22,558,060 
Consumer:
Residential mortgage5,561,686 
Revolving mortgage2,052,854 
Construction and land development348,123 
Consumer auto1,255,402 
Consumer other552,968 
Total consumer loans9,771,033 
Total non-PCD loans and leases32,329,093 
PCD loans462,882 
Total loans and leases32,791,975 
Less allowance for credit losses(224,314)
Net loans and leases$32,567,661 
December 31
(Dollars in thousands)20192018
Non-PCI loans and leases:
Commercial:
Construction and land development$1,013,454 $757,854 
Commercial mortgage12,282,635 10,717,234 
Other commercial real estate542,028 426,985 
Commercial and industrial and leases4,403,792 3,938,730 
Other310,093 296,424 
Total commercial loans18,552,002 16,137,227 
Noncommercial:
Residential mortgage5,293,917 4,265,687 
Revolving mortgage2,339,072 2,542,975 
Construction and land development357,385 257,030 
Consumer1,780,404 1,713,781 
Total noncommercial loans9,770,778 8,779,473 
Total non-PCI loans and leases$28,322,780 $24,916,700 
PCI loans$558,716 $606,576 
Total loans and leases28,881,496 25,523,276 
Less allowance for credit losses(225,141)(223,712)
Net loans and leases$28,656,355 $25,299,564 
41
 December 31
(Dollars in thousands)2017 2016 2015 2014 2013
Non-PCI loans and leases(1):
         
Commercial:         
Construction and land development$669,215
 $649,157
 $620,352
 $493,133
 $319,847
Commercial mortgage9,729,022
 9,026,220
 8,274,548
 7,552,948
 6,362,490
Other commercial real estate473,433
 351,291
 321,021
 244,875
 178,754
Commercial and industrial2,730,407
 2,567,501
 2,368,958
 1,988,934
 1,081,158
Lease financing894,801
 826,270
 730,778
 571,916
 381,763
Other302,176
 340,264
 314,832
 353,833
 175,336
Total commercial loans14,799,054
 13,760,703
 12,630,489
 11,205,639
 8,499,348
Noncommercial:         
Residential mortgage3,523,786
 2,889,124
 2,695,985
 2,493,058
 982,421
Revolving mortgage2,701,525
 2,601,344
 2,523,106
 2,561,800
 2,113,285
Construction and land development248,289
 231,400
 220,073
 205,016
 122,792
Consumer1,561,173
 1,446,138
 1,219,821
 1,117,454
 386,452
Total noncommercial loans8,034,773
 7,168,006
 6,658,985
 6,377,328
 3,604,950
Total non-PCI loans and leases$22,833,827
 $20,928,709
 $19,289,474
 $17,582,967
 $12,104,298
PCI loans:         
Commercial:         
Construction and land development$13,654
 $20,766
 $33,880
 $78,079
 $78,915
Commercial mortgage358,103
 453,013
 525,468
 577,518
 642,891
Other commercial real estate17,124
 12,645
 17,076
 40,193
 41,381
Commercial and industrial6,374
 11,844
 15,182
 27,254
 17,254
Other1,683
 1,702
 2,008
 3,079
 866
Total commercial loans396,938
 499,970
 593,614
 726,123
 781,307
Noncommercial:         
Residential mortgage299,318
 268,777
 302,158
 382,340
 213,851
Revolving mortgage63,908
 38,650
 52,471
 74,109
 30,834
Construction and land development644
 —
 —
 912
 2,583
Consumer2,190
 1,772
 2,273
 3,014
 851
Total noncommercial loans366,060
 309,199
 356,902
 460,375
 248,119
Total PCI loans762,998
 809,169
 950,516
 1,186,498
 1,029,426
Total loans and leases23,596,825
 21,737,878
 20,239,990
 18,769,465
 13,133,724
Less allowance for loan and lease losses(221,893) (218,795) (206,216) (204,466) (233,394)
Net loans and leases$23,374,932
 $21,519,083
 $20,033,774
 $18,564,999
 $12,900,330
(1) Non-PCI loans include originated and purchased non-impaired loans, including non-accrual and TDR loans.


Allowance for loanCredit Losses
During January 2020, we adopted ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), which changed the methodology, accounting policies, and lease losses (ALLL)

The ALLL was $221.9 million at December 31, 2017, representing an increaseinputs used in determining the ACL. Refer to Note A, Accounting Policies and Basis of $3.1 million since December 31, 2016, following an increase of $12.6 million between December 31, 2016 and December 31, 2015. The ALLL as a percentage of total loans was 0.94 percent at December 31, 2017, compared to 1.01 percent and 1.02 percent at December 31, 2016 and December 31, 2015, respectively. The decline in the ALLL ratio from both periods was primarily due to favorable experience in certain loan loss factors.

BancShares has continued to sustain improvement in credit quality indicators which have reduced the ALLL ratio since December 31, 2016 and December 31, 2015. In the commercial non-PCI loan portfolio, loans with higher credit risk ratings continued to migrate to lower credit risk ratings. The noncommercial non-PCI loan portfolio has sustained low net charge-offs, partially offset by higher delinquency trends.

At December 31, 2017, the ALLL allocated to non-PCI loans was $211.9 million, or 0.93 percent of non-PCI loans and leases, compared to $205.0 million, or 0.98 percent, at December 31, 2016, and $189.9 million, or 0.98 percent, at December 31, 2015.
The increase in the dollar amount of reserves was primarily attributable to originated loan growth.



The ALLL allocated to originated non-PCI loans and leases of $211.3 million at December 31, 2017 was 1.00 percent of originated non-PCI loans and leases, compared to 1.09 percent and 1.14 percent at December 31, 2016 and December 31, 2015, respectively. The decline in the allowance ratio was primarily related to the sustained favorable credit quality trends, offset by originated loan growth. Originated non-PCI loans were $21.13 billion, $18.82 billion, and $16.60 billion at December 31, 2017, December 31, 2016 and December 31, 2015, respectively, and do not include purchased revolving, purchased non-PCI loans or PCI loans.

The ALLL allocated to PCI loans at December 31, 2017 was $10.0 million, or 1.31 percent of PCI loans, compared to $13.8 million, or 1.70 percent, at December 31, 2016, and $16.3 million, or 1.72 percent, at December 31, 2015. The ALLL for PCI loans decreased from both periods primarily due to improved projected cash flows, lower estimated default rates and continued portfolio run-off.

Provision

BancShares recorded $25.7 million net provision expense for loan and lease losses during 2017, compared to net provision expense of $32.9 million for 2016 and $20.7 million for 2015. The decrease in provision expense in 2017 was primarily due to favorable experience in certain loan loss factors, offset by loan growth.

Provision expense on non-PCI loans and leases was $29.1 million during 2017, compared to $34.9 million and $22.9 million in 2016 and 2015, respectively. The decrease in provision expense in 2017 primarily resulted from lower reserves on impaired loans and sustained low loan loss rates. Net charge-offs on non-PCI loans and leases were $22.3 million, $19.7 million, and $15.9 million for 2017, 2016, and 2015, respectively. On an annualized basis, net charge-offs of non-PCI loans and leases represented 0.10 percent of average non-PCI loans and leases during 2017, compared to 0.10 percent during 2016 and 0.09 percent during 2015.

The net provision credit for commercial construction and land development non-PCI loans was $4.3 million for the year ended December 31, 2017, compared to net provision expense of $12.9 million for the same period of 2016. The decrease in provision expense was primarily the result of updating loan loss factors for this portfolio given a decrease in loss experience. This follows an increase in provision expense when comparing 2016 to 2015, primarily the result of updating of loan loss factors for an increase in loss experience.

Commercial mortgage non-PCI loans had a net provision credit of $5.7 million in 2017, compared to $21.9 million in 2016. The net provision credit in both years was primarily the result of improvements in credit risk ratings and lower loan defaults.

The provision expense for commercial and industrial non-PCI loans was $10.7 million for the year ended December 31, 2017 compared to $14.6 million for the year ended December 31, 2016. The decrease was primarily the result of updating loan loss factors for this portfolio given a decrease in loss experience as well as lower loan growth within this portfolio as compared to the prior year. Provision expense also decreased when comparing 2016 to 2015 primarily due to lower loan growth.

The provision expense for residential mortgage non-PCI loans was $2.1 million in 2017, compared to $801 thousand in 2016. The increase in provision expense was primarily due to higher loan growth within this portfolio compared to the previous year. This follows a decrease in provision expense for 2016 compared to 2015 as a result of updating loan loss factors primarily related to delinquency trends.

The provision expense for revolving mortgage non-PCI loans was $2.5 million in 2017, compared to $7.4 million in 2016. The decrease in provision expense was primarily the result of updating loan loss factors for a decrease in loss experience. Provision expense for revolving mortgage non-PCI loans increased in 2016 compared to 2015 as a result of updating loan loss factors for this portfolio primarily related to an increase in loss experience as well as loan growth within this portfolio compared to the prior year.

The provision expense for consumer non-PCI loans was $17.1 million in 2017, compared to $18.6 million in 2016. The decrease in provision expense in resulted from lower loan growth within this portfolio compared to the prior year and updating loan loss factors primarily related to loan defaults. This follows an increase in provision expense for 2016 compared to 2015 as a result of updating loan loss factors for this portfolio primarily related to delinquency trends.

The PCI loan portfolio net provision credit was $3.4 million during the year ended December 31, 2017, compared to net provision credits of $1.9 million and $2.3 million during the same periods of 2016 and 2015, respectively. The higher net provision credit was attributable to improved projected cash flows and improved default rates. Net charge-offs on PCI loans were $296 thousand during 2017, compared to $614 thousand and $3.0 million for the same periods of 2016 and 2015, respectively. Net charge-offs of PCI loans represented 0.04 percent, 0.07 percent, and 0.27 percent of average PCI loans for 2017, 2016, and 2015, respectively.



Management considers the ALLL adequate to absorb estimated probable losses that relate to loans and leases outstanding at December 31, 2017, although future adjustments may be necessary based on changes in economic conditions and other factors. In addition, various regulatory agencies periodically review the ALLL as part of their exam process which could result in adjustments to the ALLL based on information available to them at the time of their examination. See "Critical Accounting Policies" and Note APresentation, in the Notes to Consolidated Financial Statements for a discussion of our accounting policiesthe methodology used in the determination of the ACL, as well as further information about the adoption, under the "Recently Issued Accounting Pronouncements" section.
The ACL was $224.3 million at December 31, 2020, compared to $225.1 million and $223.7 million at December 31, 2019 and 2018, respectively. The ACL as a percentage of total loans and leases was 0.68% at December 31, 2020, compared to 0.78% and 0.88% at December 31, 2019 and 2018, respectively. The ACL as a percentage of total loans and leases excluding SBA-PPP loans, which have no associated ACL, was 0.74% at December 31, 2020.
Upon adoption of ASC 326 on January 1, 2020, BancShares recorded a net decrease of $37.9 million in the ACL which included a decrease of $56.9 million in the ACL on non-PCD loans, partially offset by an increase of $19.0 million in the ACL on PCD loans. The decrease in the ACL on non-PCD loans was primarily in the commercial segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. This decrease was partially offset by an increase in the consumer segments due to their longer average lives. The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into the ACL. At the time of adoption of ASC 326, the scope and severity of the COVID-19 pandemic and the related impacts were unknown. The economic forecasts did not project the impacts of the recession.
The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended December 31, 2020 the primary reason for the ALLL.ACL change since the adoption of ASC 326, was a $36.1 million reserve build due to the potential economic impact of COVID-19 and its estimated potential impact on credit losses. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a reasonable and supportable forecast period of two years. Assumptions revert to the long term historic averages over a one year period. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our model results consider baseline, adverse and upside scenarios. To calculate the ACL, we utilized the baseline scenario, which considers government stimulus and incorporates significant improvements to the most significant forecast assumptions when compared on the COVID-19-impacted levels from early in 2020.

As of December 31, 2020, the baseline forecast utilized the following significant inputs over the two-year reasonable and supportable forecast period:
Unemployment - Rates are projected to remain elevated, and will generally decrease to just below 6% by the end of 2022.
GDP Growth - Peak growth of 3.6% in the first quarter of 2021, primarily decreasing to under 3% in late 2022.
Home Pricing Index- Growth rates below 1% in early 2021 which increase to close to 4% in late 2022.
Commercial Real Estate Index - Forecasted downturn beginning 1Q21 with a maximum 20.7% drop by the end of 2021, and then slowly improving towards positive growth.
The model result was calibrated using management’s expectation of borrower performance based upon COVID-19 residual risk by industry. These loss estimates were also influenced by strong credit quality, low net charge-offs and recent credit trends, which remained relatively stable through the period ended December 31, 2020.
At December 31, 2020, the ACL on non-PCD loans and leases was $200.3 million, or 0.62% of non-PCD loans and leases, compared to $217.6 million, or 0.77%, at December 31, 2019, and $214.6 million, or 0.86%, at December 31, 2018. The ACL as a percentage of non-PCD loans and leases excluding SBA-PPP loans was 0.67% at December 31, 2020. Aside from SBA-PPP loans, which have no allowance, the decrease since December 31, 2019 was primarily due to the adoption of ASC 326, partially offset by the forecasted potential economic impact of the COVID-19 pandemic on expected credit losses. The adoption of ASC 326 resulted in a decrease of 18 basis points, while the COVID-19 reserve build resulted in an increase of 11 basis points.
In the period after adoption of ASC 326, the ACL on commercial portfolios increased $26.0 million, with the largest share of the increase within the non-owner occupied commercial real estate as this portfolio contained industries hardest hit by the pandemic such as hospitality, lessors and retail. The ACL on consumer portfolios increased $13.6 million, with the largest increase within residential mortgages, due to loan growth during the year.
At December 31, 2020, the ACL on PCD loans totaled $24.0 million compared to $7.5 million at December 31, 2019 and $9.1 million, at December 31, 2018. The increase was primarily due the adoption of ASC 326, partially offset by loan payoffs.
42

At December 31, 2020, the ACL on unfunded commitments was $12.8 million compared to $1.1 million at December 31, 2019 and $1.1 million, at December 31, 2018. The increase was primarily due the adoption of ASC 326.
Table 1412 provides details of the ALLLACL, provision components and provision componentsnet charge-off ratio by loan class for the past fivethree years.

Table 1412
ALLOWANCE FOR LOAN AND LEASECREDIT LOSSES
Year ended December 31, 2020
(Dollars in thousands)Construction
and land
development
- commercial		Owner occupied commercial mortgageNon-owner occupied commercial mortgageCommercial
and industrial and leases		Residential
mortgage		Revolving
mortgage		Construction and land development - consumerConsumer autoConsumer otherPCDTotal
Allowance for credit losses:
Balance at December 31, 2019$33,213 $36,444 $11,102 $61,610 $18,232 $19,702 $2,709 $4,292 $30,301 $7,536 $225,141 
Adoption of ASC 326(31,061)(19,316)460 (37,637)17,118 3,665 (1,291)1,100 10,037 19,001 (37,924)
Balance at January 1, 20202,152 17,128 11,562 23,973 35,350 23,367 1,418 5,392 40,338 26,537 187,217 
Provision (credits)4,301 6,729 12,917 13,816 9,684 1,134 266 6,297 10,410 (7,202)58,352 
Initial allowance on PCD loans— — — — — — — — — 1,193 1,193 
Charge-offs(138)(593)(1,951)(14,904)(1,653)(1,662)(70)(3,646)(17,188)(3,300)(45,105)
Recoveries431 401 124 4,894 717 1,918 117 1,417 5,879 6,759 22,657 
Balance at December 31, 2020$6,746 $23,665 $22,652 $27,779 $44,098 $24,757 $1,731 $9,460 $39,439 $23,987 $224,314 
Net charge-off ratio(0.03)%— %0.06 %0.21 %0.02 %(0.01)%(0.01)%0.18 %2.06 %(0.67)%0.07 %
Net charge-offs$(293)$192 $1,827 $10,010 $936 $(256)$(47)$2,229 $11,309 $(3,459)$22,448 
Average loans1,017,595 10,418,447 2,995,382 4,881,884 5,382,045 2,122,144 355,368 1,207,820 550,223 517,121 31,417,256 
Years ended December 31, 2019 and 2018
(Dollars in thousands)Construction
and land
development
- commercial		Commercial
mortgage		Other
commercial
real estate		Commercial
and
industrial and leases		OtherResidential
mortgage		Revolving
mortgage		Construction
and land
development
- non-
commercial		ConsumerPCITotal
Allowance for credit losses:
Balance at January 1, 2019$35,270 $43,451 $2,481 $55,620 $2,221 $15,472 $21,862 $2,350 $35,841 $9,144 $223,712 
Provision (credits)(2,171)2,384 (285)14,212 (754)3,481 (788)359 16,611 (1,608)31,441 
Charge-offs(196)(1,096)— (13,352)(100)(1,137)(2,584)— (24,562)— (43,027)
Recoveries310 596 15 2,894 869 416 1,212 — 6,703 — 13,015 
Balance at December 31, 2019$33,213 $45,335 $2,211 $59,374 $2,236 $18,232 $19,702 $2,709 $34,593 $7,536 $225,141 
Net charge-off ratio(0.01)%— %— %0.26 %(0.26)%0.02 %0.06 %— %1.03 %— %0.11 %
Net charge-offs$(114)$500 $(15)$10,458 $(769)$721 $1,372 $— $17,859 $— $30,012 
Average loans817,633 11,240,281 495,737 4,024,300 297,849 4,709,971 2,430,788 302,118 1,739,693 537,131 26,595,501 
Balance at January 1, 201824,470 45,005 4,571 59,824 4,689 15,706 22,436 3,962 31,204 10,026 221,893 
Provision (credits)10,533 (1,490)(2,171)2,511 (2,827)897 1,112 (1,520)22,187 (765)28,467 
Charge-offs(44)(1,140)(69)(10,211)(130)(1,689)(3,235)(219)(22,817)(117)(39,671)
Recoveries311 1,076 150 3,496 489 558 1,549 127 5,267 — 13,023 
Balance at December 31, 2018$35,270 $43,451 $2,481 $55,620 $2,221 $15,472 $21,862 $2,350 $35,841 $9,144 $223,712 
Net charge-off ratio(0.04)%— %(0.02)%0.18 %(0.12)%0.03 %0.06 %0.04 %1.10 %0.02 %0.11 %
Net charge-offs$(267)$64 $(81)$6,715 $(359)$1,131 $1,686 $92 $17,550 $117 $26,648 
Average loans717,668 10,255,531 443,956 3,732,452 298,364 3,903,796 2,610,110 249,488 1,601,226 671,128 24,483,719 
43

(Dollars in thousands)2017 2016 2015 2014 2013
Allowance for loan and lease losses at beginning of period$218,795
 $206,216
 $204,466
 $233,394
 $319,018
Reclassification (1)
—
 —
 —
 —
 7,368
Non-PCI provision for loan and lease losses29,139
 34,870
 22,937
 15,260
 19,289
PCI provision for loan losses(3,447) (1,929) (2,273) (14,620) (51,544)
Non-PCI Charge-offs:         
Commercial:         
Construction and land development(599) (680) (1,012) (316) (4,685)
Commercial mortgage(421) (987) (1,498) (1,147) (3,904)
Other commercial real estate(5) —
 (178) —
 (312)
Commercial and industrial(10,926) (9,013) (5,952) (3,014) (4,785)
Lease financing(995) (442) (402) (100) (272)
Other(912) (144) —
 (13) (6)
Total commercial loans(13,858) (11,266) (9,042) (4,590) (13,964)
Noncommercial:         
Residential mortgage(1,376) (926) (1,619) (1,260) (2,387)
Revolving mortgage(2,368) (3,287) (2,925) (4,744) (6,064)
Construction and land development—
 —
 (22) (118) (392)
Consumer(18,784) (14,108) (11,696) (9,787) (10,311)
Total noncommercial loans(22,528) (18,321) (16,262) (15,909) (19,154)
Total non-PCI charge-offs(36,386) (29,587) (25,304) (20,499) (33,118)
Non-PCI Recoveries:         
Commercial:         
Construction and land development521
 398
 566
 207
 1,039
Commercial mortgage2,842
 1,281
 2,027
 2,825
 996
Other commercial real estate27
 176
 45
 124
 109
Commercial and industrial3,740
 1,539
 909
 938
 1,213
Lease financing249
 190
 38
 110
 107
Other285
 539
 91
 —
 1
Total commercial loans7,664
 4,123
 3,676
 4,204
 3,465
Noncommercial:         
Residential mortgage539
 467
 861
 191
 559
Revolving mortgage1,282
 916
 1,173
 854
 660
Construction and land development—
 66
 74
 84
 209
Consumer4,603
 4,267
 3,650
 2,869
 2,396
Total noncommercial loans6,424
 5,716
 5,758
 3,998
 3,824
Total non-PCI recoveries14,088
 9,839
 9,434
 8,202
 7,289
Non-PCI loans and leases charged-off, net(22,298) (19,748) (15,870) (12,297) (25,829)
PCI loans charged-off, net(296) (614) (3,044) (17,271) (34,908)
Allowance for loan and lease losses at end of period$221,893
 $218,795
 $206,216
 $204,466
 $233,394
Reserve for unfunded commitments (1)
$1,032
 $1,133
 $379
 $333
 $357
(1) During 2013, BancShares modified the ALLL model and the methodology for estimating losses on unfunded commitments. As a result of these modifications, $7.4 million of the balance previously reported as a reserve of unfunded commitments was reclassified to the ALLL.
















Table 1513provides trends of the ALLLACL ratios for the past fivethree years.

Table 1513
ALLOWANCE FOR LOAN AND LEASECREDIT LOSSES RATIOS
(Dollars in thousands)202020192018
Allowance for credit losses to total loans and leases:0.68 %0.78 %0.88 %
Allowance for credit losses$224,314 $225,141 $223,712 
Total loans and leases32,791,975 28,881,496 25,523,276 
Allowance for credit losses to non-PCD loans and leases:0.62 %0.77 %0.86 %
Allowance for credit losses on non-PCD loans and leases$200,327 $217,605 $214,568 
Total non-PCD loans and leases32,329,093 28,322,780 24,916,700 
Allowance for credit losses to PCD loans:5.18 %1.35 %1.51 %
Allowance for credit losses on PCD loans$23,987 $7,536 $9,144 
Total PCD loans462,882 558,716 606,576 
44
(Dollars in thousands)2017 2016 2015 2014 2013
Average loans and leases:         
PCI$845,030
 $898,706
 $1,112,286
 $1,195,238
 $1,403,341
Non-PCI21,880,635
 19,998,689
 18,415,867
 13,624,888
 11,760,402
Loans and leases at period end:         
PCI762,998
 809,169
 950,516
 1,186,498
 1,029,426
Non-PCI22,833,827
 20,928,709
 19,289,474
 17,582,967
 12,104,298
Allowance for loan and lease losses allocated to loans and leases:         
PCI$10,026
 $13,769
 $16,312
 $21,629
 $53,520
Non-PCI211,867
 205,026
 189,904
 182,837
 179,874
Total$221,893
 $218,795
 $206,216
 $204,466
 $233,394
          
Net charge-offs to average loans and leases:         
PCI0.04% 0.07% 0.27% 1.44% 2.49%
Non-PCI0.10
 0.10
 0.09
 0.09
 0.22
Total0.10
 0.10
 0.10
 0.20
 0.46
Allowance for loan and lease losses to total loans and leases:         
PCI1.31
 1.70
 1.72
 1.82
 5.20
Non-PCI0.93
 0.98
 0.98
 1.04
 1.49
Total0.94
 1.01
 1.02
 1.09
 1.78




Table 1614details the allocation of the ALLLACL among the various loan types. See Note E, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements for additional disclosures regarding the ALLL.ACL.

Table 1614
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASECREDIT LOSSES

 December 31
 2020
(dollars in thousands)Allowance for credit lossesPercent of loans to total loans
Non-PCI loans and leases
Commercial:
Construction and land development$6,746 3.0 %
Owner occupied commercial mortgage23,665 34.0 
Non-owner occupied commercial mortgage22,652 9.1 
Commercial and industrial and leases27,779 15.3 
SBA-PPP— 7.3 
Total commercial loans and leases80,842 68.7 
Consumer:
Residential mortgage44,098 17.0 
Revolving mortgage24,757 6.3 
Construction and land development1,731 1.1 
Consumer auto9,460 3.8 
Consumer other39,439 1.7 
Total consumer loans119,485 29.9 
Total non-PCD loans and leases200,327 98.6 
PCD loans23,987 1.4 
Total loans and leases$224,314 100.0 %
December 31
20192018
(dollars in thousands)Allowance for loan and lease lossesPercent of loans to total loansAllowance for loan and lease lossesPercent of loans to total loans
Non-PCI loans and leases
Commercial:
Construction and land development$33,213 3.5 %$35,270 3.0 %
Commercial mortgage45,335 42.5 43,451 42.0 
Other commercial real estate2,211 1.9 2,481 1.7 
Commercial and industrial and leases59,374 15.3 55,620 15.3 
Other2,236 1.1 2,221 1.2 
Total commercial loans and leases142,369 64.3 139,043 63.2 
Noncommercial:
Residential mortgage18,232 18.3 15,472 16.7 
Revolving mortgage19,702 8.1 21,862 10.0 
Construction and land development2,709 1.2 2,350 1.0 
Consumer34,593 6.2 35,841 6.7 
Total noncommercial loans75,236 33.8 75,525 34.4 
Total non-PCI loans and leases217,605 98.1 214,568 97.6 
PCI loans7,536 1.9 9,144 2.4 
Total loans and leases$225,141 100.0 %$223,712 100.0 %
45
 December 31 
 2017 2016 2015 2014 2013 
(dollars in thousands)Allowance
for loan
and lease
losses		 Percent
of loans
to total
loans		 Allowance
for loan
and lease
losses		 Percent
of loans
to total
loans		 Allowance
for loan
and lease
losses		 Percent
of loans
to total
loans		 Allowance
for loan
and lease
losses		 Percent
of loans
to total
loans		 Allowance
for loan
and lease
losses		 Percent
of loans
to total
loans		 
Allowance for loan and lease losses allocated to:                    
Non-PCI loans and leases                    
Commercial:                    
Construction and land development - commercial$24,470
 2.8%$28,877
 3.0%$16,288
 3.1%$11,961
 2.9%$10,335
 2.4%
Commercial mortgage45,005
 41.2 48,278
 41.4 69,896
 40.8 85,189
 40.3 100,257
 48.5 
Other commercial real estate4,571
 2.0 3,269
 1.6 2,168
 1.6 732
 1.3 1,009
 1.4 
Commercial and industrial53,697
 11.6 50,225
 11.8 43,116
 11.7 30,727
 10.6 22,362
 8.2 
Lease financing6,127
 3.8 5,907
 3.8 5,524
 3.6 4,286
 3.0 4,749
 2.9 
Other4,689
 1.3 3,127
 1.6 1,855
 1.6 3,184
 1.9 190
 1.3 
Total commercial138,559
 62.7 139,683
 63.2 138,847
 62.4 136,079
 60.0 138,902
 64.7 
Noncommercial:                    
Residential mortgage15,706
 15.0 12,366
 13.3 14,105
 13.3 10,661
 13.4 10,511
 7.5 
Revolving mortgage22,436
 11.4 23,094
 12.0 15,971
 12.5 18,650
 13.7 16,239
 16.1 
Construction and land development - noncommercial3,962
 1.1 1,596
 1.1 1,485
 1.1 892
 0.6 681
 1.0 
Consumer31,204
 6.6 28,287
 6.7 19,496
 6.0 16,555
 6.0 13,541
 2.9 
Total noncommercial73,308
 34.1 65,343
 33.1 51,057
 32.9 46,758
 33.7 40,972
 27.5 
Total allowance for non-PCI loan and lease losses211,867
 96.8 205,026
 96.3 189,904
 95.3 182,837
 93.7 179,874
 92.2 
PCI loans10,026
 3.2 13,769
 3.7 16,312
 4.7 21,629
 6.3 53,520
 7.8 
Total allowance for loan and lease losses$221,893
 100.0%$218,795
 100.0%$206,216
 100.0%$204,466
 100.0%$233,394
 100.0%


Nonperforming Assets
NONPERFORMING ASSETS

Nonperforming assets include nonaccrual loans and leases and OREOother real estate owned (“OREO”) resulting from both non-PCInon-PCD and PCIPCD loans. The accrual ofNon-PCD loans are generally placed on nonaccrual when principal or interest on non-PCI loans and leasesbecomes 90 days past due or when it is discontinued when we deemprobable that collection of additional principal or interest is doubtful. Non-PCInot fully collectable. When non-PCD loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued. Non-PCD loans and leases are generally removed from nonaccrual status when they become current for somea sustained period of time as to both principal and interest and concernthere is no longer existsconcern as to the collectability of principal and interest. Accretion of income for PCIPCD loans is discontinued when we are unable to estimate the amount or timing of cash flows. PCIPCD loans may begin or resume accretion of income when information becomes available that allows us to estimate the amount and timing of future cash flows. In addition, impaired, accruing non-PCI loans
OREO includes foreclosed property and branch facilities that we have closed but not sold. Net book values of OREO are reviewed at least annually to evaluate if write-downs are required. The level of review is dependent on the value and type of the collateral, with higher value and more complex properties receiving a more detailed review. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. The asset manager uses the information gathered from brokers and other market sources to identify any significant changes in the market or the subject property as they occur. Valuations are then adjusted or new appraisals are ordered to ensure the reported values reflect the most current information.
Since OREO is carried at the lower of cost or market value, less than 90estimated selling costs, book value adjustments are only recorded when fair values have declined. Decisions regarding write-downs are based on factors including appraisals, previous offers received on the property, market conditions and the number of days past due that have notthe property has been restructured are closely monitored by management. There were none to report atDecember 31, 2017, compared to $652 thousand at December 31, 2016.on the market.




Table 1715 provides details on nonperforming assets and other risk elements.

Table 1715
NONPERFORMING ASSETS
December 31
(Dollars in thousands, except ratios)202020192018
Nonaccrual loans and leases:
Non-PCD$136,544 $114,946 $84,546 
PCD54,939 6,743 1,276 
Total nonaccrual loans191,483 121,689 85,822 
Other real estate owned50,890 46,591 48,030 
Total nonperforming assets$242,373 $168,280 $133,852 
Accruing loans and leases 90 days or more past due:
Non-PCD$5,507 $3,291 $2,888 
PCD355 24,257 37,020 
Ratio of total nonperforming assets to total loans, leases and other real estate owned0.74 0.58 0.52 
Ratio of nonaccrual loans and leases to total loans and leases0.58 0.42 0.34 
Ratio of allowance for credit losses to nonaccrual loans and leases117.1 185.0 260.7 
 December 31
(Dollars in thousands, except ratios)2017 2016 2015 2014 2013
Nonaccrual loans and leases:         
Non-PCI$92,534
 $82,307
 $95,854
 $44,005
 $53,170
PCI624
 3,451
 7,579
 33,422
 28,493
Other real estate51,097
 61,231
 65,559
 93,436
 83,979
Total nonperforming assets$144,255
 $146,989
 $168,992
 $170,863
 $165,642
          
Nonaccrual loans and leases:         
Covered under shared-loss agreements$95
 $93
 $2,992
 $27,020
 $28,493
Not covered under shared-loss agreements93,063
 85,665
 100,441
 50,407
 53,170
Other real estate owned:         
Covered271
 472
 6,817
 22,982
 47,081
Noncovered50,826
 60,759
 58,742
 70,454
 36,898
Total nonperforming assets$144,255
 $146,989
 $168,992
 $170,863
 $165,642
          
Loans and leases at December 31:         
Covered$67,757
 $84,821
 $272,554
 $485,308
 $1,029,426
Noncovered23,529,068
 21,653,057
 19,967,436
 18,284,157
 12,104,298
          
Accruing loans and leases 90 days or more past due         
Non-PCI2,978
 2,718
 3,315
 11,250
 8,784
PCI58,740
 65,523
 73,751
 104,430
 193,892
Interest income recognized on nonperforming loans and leases1,527
 1,873
 3,204
 1,364
 2,062
Interest income that would have been earned on nonperforming loans and leases had they been performing6,237
 7,304
 9,628
 6,600
 18,430
Ratio of nonperforming assets to total loans, leases, and other real estate owned:         
Covered0.54% 0.66% 3.51% 9.84% 7.02%
Noncovered0.61
 0.67
 0.79
 0.66
 0.74
Total0.61
 0.67
 0.83
 0.91
 1.25

At December 31, 2017, BancShares’ nonperforming assets, including nonaccrual loans and OREO, were $144.3 million, or 0.61 percent, of total loans and leases plus OREO, compared to $147.0 million, or 0.67 percent, at December 31, 2016 and $169.0 million, or 0.83 percent, at December 31, 2015.

For the year, nonperforming assets decreased by $2.7 million, or 1.9 percent, compared to December 31, 2016. The decline in nonperforming assets from December 31, 2016 results from a $10.1 million decline in OREO balances due to problem asset resolutions, offset by a $7.4 million increase in nonaccrual loans and leases primarily in residential and revolving mortgage loans.
Nonperforming assets decreasedwas impacted by $22.0 million, or 13.02 percent, betweenthe dissolution of PCI loan pools under the adoption of ASC 326 as those nonaccrual loans within performing PCI pools were previously excluded from reporting. As of December 31, 2016 and December 31, 20152020, there were $24.9 million of nonaccrual loans that had been released from performing PCI pools. The remaining increase in nonaccrual loans was primarily due to declinesincreases within our acquired residential real estate loan portfolio. The credit quality of the portfolio remains in line with our risk tolerances and management is actively monitoring any potential increases in portfolio risk due to COVID-19.
46

Troubled Debt Restructurings
A loan is considered a troubled debt restructuring (“TDR”) when both of the following occur: (1) a modification to a borrower’s debt agreement is made and (2) a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be granted. TDR concessions could include deferrals of interest, modifications of payment terms, or, in certain limited instances, forgiveness of principal or interest. Acquired loans are classified as TDRs if a modification is made subsequent to acquisition. We further classify TDRs as performing and nonperforming. Performing TDRs accrue interest at the time of restructure and continue to perform based on the restructured terms. Nonperforming TDRs do not accrue interest and are included with other nonperforming assets within nonaccrual loans and leases in Table 14 above.
The Interagency Statement on Loan Modifications and OREO balances due to problem asset resolutions.

Of the $144.3 million in nonperforming assets at December 31, 2017, $366 thousand related to loans and OREO covered by shared-loss agreements, compared to $565 thousand at December 31, 2016 and $9.8 million at December 31, 2015. Covered nonperforming assets continue to decline due to the expiration and termination of FDIC shared-loss agreements and loan resolutions.

OREO includes foreclosed property and branch facilities that we have closed but not sold. Once acquired, net book values of OREO are reviewed at least annually to evaluate if write-downs are required. Real estate appraisals are reviewedReporting for Financial Institutions Working with Customers Affected by the appraisal review departmentCoronavirus was published by banking regulators in April 2020 to ensureclarify expectations around loan modifications and the qualitydetermination of the appraised valueTDRs for borrowers experiencing COVID-19-related financial difficulty. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs. See Note A, Accounting Policies and Basis of Presentation, in the report. The levelNotes to Consolidated Financial Statements for discussion of review is dependentour accounting policies for TDRs.
Table 16 provides further details on performing and nonperforming TDRs for the value and type of the collateral, with higher value and more complex properties receiving a more detailed review. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviewslast three years.

Table 16

by the asset manager assigned to each asset. The asset manager uses the information gathered from brokers and other market sources to identify any significant changes in the market or the subject property as they occur. Valuations are then adjusted or new appraisals are ordered to ensure the reported values reflect the most current information. Since OREO is carried at the lower of cost or market less estimated selling costs, only when fair values have declined are adjustments recorded. Decisions regarding write-downs are based on factors that include appraisals, previous offers received on the property, market conditions and the number of days the property has been on the market.

TROUBLED DEBT RESTRUCTURINGS

December 31
(Dollars in thousands)202020192018
Accruing TDRs:
Non-PCD$139,747 $111,676 $108,992 
PCD17,617 17,074 18,101 
Total accruing TDRs$157,364 $128,750 $127,093 
Nonaccruing TDRs:
Non-PCD43,470 42,331 28,918 
PCD7,346 111 119 
Total nonaccruing TDRs$50,816 $42,442 $29,037 
All TDRs:
Non-PCD183,217 154,007 137,910 
PCD24,963 17,185 18,220 
Total TDRs$208,180 $171,192 $156,130 
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 are not accruing interest and are included as nonperforming assets within nonaccrual loans and leases. TDRs which are accruing at the time of restructure and continue to perform based on the restructured terms are considered performing. See Note A in the Notes to Consolidated Financial Statements for discussion of our accounting policies for TDRs.
Total PCI and non-PCI loans classified as TDRs as of December 31, 2017 were $164.6 million, compared to $150.9 million at December 31, 2016, and $144.8 million at December 31, 2015. At December 31, 2017, accruing non-PCI TDRs were $112.2 million, an increase of $10.7 million from $101.5 million at December 31, 2016, primarily due to an increase in revolving mortgage loan modifications. At December 31, 2017, nonaccruing non-PCI TDRs were $33.9 million, an increase of $10.8 million from $23.1 million at December 31, 2016, primarily related to an increase in residential and revolving mortgage loan modifications. The increase in residential mortgage loans modifications is primarily related to non-payment on nonconforming loans. Revolving mortgage loan modifications increased as customers entered the repayment phase of the note or the line of credit matured and the customer needed adjustments to make payments manageable. PCI TDRs continue to decline as a result of loan pay downs and pay offs.
Between December 31, 2016 and December 31, 2015, accruing TDRs increased $14.2 million, primarily related to an increase in commercial and residential mortgage loan modifications, and nonaccruing TDRs decreased $8.2 million, primarily due to payoffs in the commercial loan portfolio.
Table 18 provides further details on performing and nonperforming TDRs for the last five years.

Table 18
TROUBLED DEBT RESTRUCTURINGS
 December 31
(Dollars in thousands)2017 2016 2015 2014 2013
Accruing TDRs:         
PCI$18,163
 $26,068
 $29,231
 $44,647
 $90,829
Non-PCI112,228
 101,462
 84,065
 91,316
 85,126
Total accruing TDRs$130,391
 $127,530
 $113,296
 $135,963
 $175,955
Nonaccruing TDRs:         
PCI$272
 $301
 $1,420
 $2,225
 $11,479
Non-PCI33,898
 23,085
 30,127
 13,291
 19,322
Total nonaccruing TDRs$34,170
 $23,386
 $31,547
 $15,516
 $30,801
All TDRs:         
PCI$18,435
 $26,369
 $30,651
 $46,872
 $102,308
Non-PCI146,126
 124,547
 114,192
 104,607
 104,448
Total TDRs$164,561
 $150,916
 $144,843
 $151,479
 $206,756

INTEREST-BEARING LIABILITIES

Interest-bearing liabilities include interest-bearing deposits, short-termsecurities sold under customer repurchase agreements, FHLB borrowings, subordinated debt, and long-term obligations.other borrowings. Interest-bearing liabilities were $19.59totaled $27.31 billion at December 31, 2017,2020, compared to $22.83 billion at December 31, 2019. The $4.48 billion increase was due to an increase in interest-bearing deposits of $125.7 million from December 31, 2016, primarily resulting from additional FHLB$3.91 billion and an increase in total borrowings of $175.0 million during 2017. This increase was offset by a FHLB borrowing maturity of $10.0 million, lower customer repurchase agreements of $34.6 million, a redemption of $5.0 million aggregate principal amount of Trust Preferred Securities issued by FCB/SC Capital Trust II and a $1.9 million decrease in interest-bearing deposit accounts. Average interest-bearing liabilities increased $418.0 million, or by 2.2 percent, from 2016 to 2017, due to organic growth in interest-bearing checking and savings deposits and incremental FHLB borrowings of $175.0 million during 2017.


$562.8 million.
Deposits

At December 31, 2017,2020, total deposits were $29.27$43.43 billion, an increase of $1.10$9.00 billion, or 3.9 percent,26.1%, since 2019. This growth includes estimated deposits of $0.93 billion related to the SBA-PPP and deposits from acquisitions of $203.2 million. Excluding the impact of these deposits, total deposits increased $7.87 billion since December 31, 2016 and an increase of $1.23 billion,2019, or 4.6 percent, between December 31, 2016 and December 31, 2015. The increase for both periods was due to organic growth in demand deposit accounts, checking with interest and savings accounts, offset by run-off in time deposits and lower money market account balances. Demand deposits increased by $1.11 billion during 2017, following an increase of $856.1 million during 2016. Time deposits decreased by $419.0 million during 2017, following a decrease of $278.1 million in 2016. Additionally, deposit balances from the Guaranty acquisition of $541.3 million contributed to the increase during 2017.22.9%.

47

Table 1917 provides deposit balances as of December 31, 2017, December 31, 20162020 and December 31, 2015.

2019.
Table 1917
DEPOSITS
December 31December 31
(Dollars in thousands)2017 2016 2015(Dollars in thousands)20202019
Demand$11,237,375
 $10,130,549
 $9,274,470
Demand$18,014,029 $12,926,796 
Checking with interest5,230,060
 4,919,727
 4,445,353
Checking with interest10,591,687 8,284,302 
Money market8,059,271
 8,193,392
 8,205,705
Money market8,632,713 6,817,752 
Savings2,340,449
 2,099,579
 1,909,021
Savings3,304,167 2,564,777 
Time2,399,120
 2,818,096
 3,096,206
Time2,889,013 3,837,609 
Total deposits$29,266,275
 $28,161,343
 $26,930,755
Total deposits$43,431,609 $34,431,236 
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.

Table 18 provides the expected maturity of time deposits in excess of $250 thousand, the FDIC insurance limit, as of December 31, 2020.
Table 2018
MATURITIES OF TIME DEPOSITS IN EXCESS OF $100,000 OR MORE$250,000
December 31
(Dollars in thousands)20202019
Time deposits maturing in:
Three months or less$136,200 $245,743 
Over three months through six months118,496 164,335 
Over six months through 12 months86,260 200,199 
More than 12 months311,956 209,941 
Total$652,912 $820,218 
We estimate total uninsured deposits were $18.02 billion and $12.31 billion at December 31, 2020 and 2019, respectively.
(Dollars in thousands)December 31, 2017
Time deposits maturing in: 
Three months or less$340,461
Over three months through six months117,236
Over six months through 12 months174,155
More than 12 months289,965
Total$921,817
Short-term Borrowings
At December 31, 2017, short-term2020, total borrowings were $693.8 million$1.89 billion compared to $603.5 million$1.33 billion at December 31, 2016.2019. The $562.8 million increase was primarily due to reclassificationsan increase in subordinated debt of $90.0$341.1 million in FHLB borrowings, subordinated notes payable of $15.0 million and a repurchase agreement of $30.0 million from long-term obligations, offset by a FHLB borrowing maturity of $10.0 million and lower customer repurchase agreement balances. Table 21 provides information on short-term borrowings.



Table 21
SHORT-TERM BORROWINGS
 2017 2016 2015
(dollars in thousands)Amount Rate Amount Rate Amount Rate
Master notes           
At December 31$—
 —% $—
 —% $—
 —%
Average during year—
 —
 —
 —
 133,001
 0.35
Maximum month-end balance during year—
   —
   417,924
  
Repurchase agreements           
At December 31586,171
 0.30
 590,772
 0.31
 592,182
 0.28
Average during year649,252
 0.34
 721,933
 0.26
 606,357
 0.24
Maximum month-end balance during year725,711
   779,613
   747,206
  
Federal funds purchased           
At December 312,551
 0.12
 2,551
 0.12
 2,551
 0.12
Average during year2,551
 0.12
 2,556
 0.12
 2,551
 0.12
Maximum month-end balance during year2,551
   2,551
   2,551
  
Notes payable to Federal Home Loan Banks           
At December 3190,000
 2.95 - 3.57
 10,000
 4.74
 —
 —
Average during year70,115
 3.17
 4,898
 2.14
 22,192
 2.61
Maximum month-end balance during year90,000
   10,000
   80,000
  
Subordinated notes payable           
At December 3115,000
 8.00
 —
 —
 —
 —
Average during year5,014
 8.00
 —
 —
 70,193
 2.34
Maximum month-end balance during year15,000
   —
   200,000
  
Unamortized purchase accounting adjustments           
At December 3185
 —
 164
 —
 —
 —
Average during year41
 —
 82
 —
 —
 —
Maximum month-end balance during year140
   257
   —
  

Long-term obligations
Long-term obligations were $870.2 million at December 31, 2017, an increase of $37.3$198.5 million from December 31, 2016, due to additional FHLB borrowings of $175.0 million during 2017. This increase was partially offset by FHLB borrowings of $90.0 million, subordinated notes payable of $15.0 million and ain securities sold under customer repurchase agreement of $30.0 million with maturities less than one year being reclassified from long-term obligations, as well as a redemption of $5.0 million aggregate principal amount ofagreements.
Table 19
BORROWINGS
December 31
(Dollars in thousands)20202019
Securities sold under customer repurchase agreements$641,487 $442,956 
Federal Home Loan Bank borrowings655,175 572,185 
Subordinated debt
SCB Capital Trust I9,779 9,739 
FCB/SC Capital Trust II17,664 17,532 
FCB/NC Capital Trust III88,145 88,145 
Capital Trust debentures assumed in acquisitions14,433 14,433 
3.375 %Fixed-to-Floating Rate Subordinated Notes due 2030346,541 — 
Other subordinated debt27,956 33,563 
Total subordinated debt504,518 163,412 
Other borrowings88,470 148,318 
Total borrowings$1,889,650 $1,326,871 
48

BancShares owns four special purpose entities – SCB Capital Trust Preferred Securities issued byI, FCB/SC Capital Trust II.
At December 31, 2017II, FCB/NC Capital Trust III, and December 31, 2016, long-term obligationsMacon Capital Trust I (the “Trusts”), which mature in 2034, 2034, 2036 and 2034, respectively. Subordinated debentures included $120.1 million and $125.3 million, respectively, in junior subordinated debentures representing obligations to FCB/NC Capital Trust III, FCB/SC Capital Trust II, and SCB Capital Trust I, special purpose entities and grantor trusts for $116.5 million and $121.5 million, on each of those dates, of trust preferred securities. FCB/NC Capital Trust III, FCB/SC Capital Trust II and SCB Capital Trust I's (the Trusts) trust preferred securities mature in 2036, 2034 and 2034, respectively, andthe Trusts, which may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of the Trusts.
On January 17, 2018, BancShares prepaid four FHLB advances totaling $325.0 million resulting inMarch 4, 2020, we completed a net gainpublic offering of $13.6 million. On February 7, 2018, BancShares acquired $2.0$350 million aggregate principal amount of Trust Preferred Securities issued by FCB/NC Capital Trust III. BancShares paid approximately $1.8 million, plus unpaid accrued distributions onour 3.375% Fixed-to-Floating Rate Subordinated Notes due 2030 and redeemable starting with the securitiesinterest payment due March 15, 2025, subject to obtaining the prior approval of the Federal Reserve to the extent such approval is then required under the rules of the Federal Reserve, or earlier upon the occurrence of certain events.
Commitments and Contractual Obligations
Table 20 identifies significant obligations and commitments as of December 31, 2020 representing required and potential cash outflows. See Note T, Commitments and Contingencies, for the current distribution period. On February 9, 2018, BancShares prepaid four additional FHLB advances totaling $350.0 million resulting in a net gaininformation regarding total commitments. Loan commitments and standby letters of $12.1 million.credit are presented at contractual amounts and do not necessarily reflect future cash outflows as many are expected to expire unused or partially used.

Table 20
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
Type of obligationPayments due by period
(Dollars in thousands)Less than 1 year1-3 years3-5 yearsThereafterTotal
Contractual obligations:
Time deposits$1,844,860 $791,788 $110,868 $141,497 $2,889,013 
Short-term borrowings641,487 — — — 641,487 
Long-term obligations10,000 224,209 13,644 1,000,310 1,248,163 
Estimated payment to settle FDIC clawback liability15,888 — — — 15,888 
Total contractual obligations$2,512,235 $1,015,997 $124,512 $1,141,807 $4,794,551 
Commitments:
Loan commitments$6,043,887 $2,065,797 $692,086 $3,296,647 $12,098,417 
Standby letters of credit114,042 15,572 45 160 129,819 
Affordable housing partnerships27,423 22,751 2,526 1,039 53,739 
Total commitments$6,185,352 $2,104,120 $694,657 $3,297,846 $12,281,975 
SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY

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 thatwhich could have a material impact on our consolidated financial statements.


In accordance with GAAP, the unrealized gains and losses on certain assets and liabilities, netDuring 2020, BancShares repurchased a total of deferred taxes, are included in accumulated other comprehensive income (AOCI) within shareholders' equity. These amounts are excluded from shareholders' equity in the calculation of our capital ratios under current regulatory guidelines. In the aggregate, these items represented a net decrease in shareholders' equity of $122.3 million at December 31, 2017, compared to a net reduction of $135.2 million at December 31, 2016. The $12.9 million increase in AOCI from December 31, 2016 primarily reflects a decrease in unrealized losses on investment securities available for sale as a result of higher market interest rates and higher market prices on our equity securities.

During 2017, our Board authorized the purchase of up to 800,000813,090 shares of Class A common stock. Thestock, or 8.4% of outstanding Class A shares may be purchased from time to time at management's discretion from November 1, 2017 through October 31, 2018. It does not obligate BancShares to purchase any particular amount of shares and purchases may be suspended or discontinued at any time. The Board's action replaced existing authority to purchase up to 200,000 shares in effect during the twelve months preceding November 1, 2017. Asas of December 31, 2017, no purchases had occurred pursuant to either authorization.2019, for $333.8 million at an average cost per share of $410.48. During 2019, BancShares repurchased a total of 998,910 shares of Class A common stock, or 9.4% of outstanding Class A shares of as of December 31, 2018, for $450.8 million at an average cost per share of $451.33. All share repurchases were executed under previously approved authorities.

Upon expiration of the most recent share repurchase authorization on July 31, 2020, share repurchase activity has ended and will be reevaluated in subsequent periods.
During 2020 and 2019, the share repurchases included 45,000 and 100,000 shares, respectively, of Class A common stock purchased from Ella Anna Holding, as trustee of her revocable trust. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, our Chairman and Chief Executive Officer and Vice Chairman, respectively.
49

Table 2221 provides information on capital adequacy for BancShares and FCB as of December 31, 2017, 20162020 and 2015.

2019.
Table 2221
ANALYSIS OF CAPITAL ADEQUACY
December 31, 2020December 31, 2019
(Dollars in thousands)Requirements to be well-capitalizedAmountRatioAmountRatio
BancShares
Risk-based capital ratios
Total risk-based capital10.00 %$4,577,212 13.81 %$3,731,501 12.12 %
Tier 1 risk-based capital8.00 3,856,086 11.63 3,344,305 10.86 
Common equity Tier 16.50 3,516,149 10.61 3,344,305 10.86 
Tier 1 leverage capital(1)
5.00 3,856,086 7.86 3,344,305 8.81 
FCB
Risk-based capital ratios
Total risk-based capital10.00 4,543,496 13.72 3,837,670 12.46 
Tier 1 risk-based capital8.00 4,276,870 12.92 3,554,974 11.54 
Common equity Tier 16.50 4,276,870 12.92 3,554,974 11.54 
Tier 1 leverage capital(2)
5.00 4,276,870 8.72 3,554,974 9.38 
(1)The SBA-PPP program added $2.41 billion in outstanding loan balances and consequently decreased BancShares’ Tier 1 leverage ratio by 59 bps; BancShares’ Tier 1 leverage ratio would be estimated at 8.45% at December 31, 2020 without the impact of the SBA PPP program.
(2) The SBA-PPP program added $2.41 billion in outstanding loan balances and consequently decreased FCB’s Tier 1 leverage ratio by 65 bps; FCB’s Tier 1 leverage ratio would be estimated at 9.37% at December 31, 2020 without the impact of the SBA PPP program.
(Dollars in thousands)December 31, 2017 December 31, 2016 December 31, 2015 
Regulatory
minimum (1)
 
Well-capitalized requirement (1)
Tier 1 risk-based capital$3,287,364
 $2,995,557
 $2,831,242
    
Tier 2 risk-based capital339,425
 344,429
 308,970
    
Total risk-based capital$3,626,789
 $3,339,986
 $3,140,212
    
Common equity Tier 1 capital$3,287,364
 $2,995,557
 $2,799,163
    
Risk-adjusted assets25,528,286
 24,113,117
 22,376,034
    
Risk-based capital ratios         
Tier 1 risk-based capital12.88% 12.42% 12.65% 6.00% 8.00%
Common equity Tier 112.88
 12.42
 12.51
 4.50
 6.50
Total risk-based capital14.21
 13.85
 14.03
 8.00
 10.00
Tier 1 leverage ratio9.47
 9.05
 8.96
 4.00
 5.00
Capital conservation buffer (2)
6.21
 5.85
 N/A
 1.25
 N/A
(1) RegulatoryBancShares and FCB are required to meet minimum and well-capitalizedcapital requirements are based on 2016set forth by regulatory authorities. Bank regulatory agencies have approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. Basel III regulatory capital guidelines.
(2) The capital conservation buffer, which only applies to minimumbecame effective for BancShares on January 1, 2015. Under Basel III, requirements include total risk-based capital ratio minimum of 8.00%, Tier 1 risk-based capital minimum of 6.00%, a common equity Tier 1 ratio minimum of 4.50%, and Tier 1 leverage capital ratio minimum of 4.00%. Failure to meet minimum capital requirements became effective under Basel III guidelines January 1, 2016; therefore, this data is not applicable for periods prior to January 1, 2016.may result in certain actions by regulators which could have a direct material effect on the consolidated financial statements.

As aligned with expectationsBancShares and incorporated in our capital planning process, BancShares remainedFCB both remain well-capitalized under Basel III capital requirements with a leveragerequirements. BancShares and FCB had capital ratioconservation buffers of 9.47 percent, Tier 1 risk-based capital ratio of 12.88 percent, common equity Tier 1 ratio of 12.88 percent5.63% and total risk-based capital ratio of 14.21 percent5.72%, respectively, at December 31, 2017. BancShares had a capital conservation buffer above minimum risk-based capital requirements of 6.21 percent at December 31, 2017. The buffer2020. These buffers exceeded the 1.25 percent2.50% minimum requirement and, therefore, results in no limitbelow which the regulators may impose limits on distributions.

BancShares had no trust preferred capital securities included in Tier 1 capital at December 31, 2017 or December 31, 2016, compared to $32.1 million at December 31, 2015. Effective January 1, 2015, 75 percent of our trust preferred capital securities were excluded from Tier 1 capital, and the remaining 25 percent were phased out on January 1, 2016 under Basel III requirements. At December 31, 20172020, BancShares and December 31, 2016, BancSharesFCB had $116.5$128.5 million and $121.5$24.0 million, respectively, of trust preferred capital securities that were excluded from Tier 1 capital as a result of Basel III implementation. Trust preferred capital securities continue to be a component of total risk-based capital.

At December 31, 2017 and December 31, 2016, Tier 2 capital of BancShares included $0$377.5 million and $3.0$27.5 million, respectively, of qualifying subordinated debt acquireddebentures included in the Bancorporation merger with a scheduled maturity dateTier 2 capital. At December 31, 2019, BancShares and FCB had $128.5 million and $24.0 million, respectively, of June 1, 2018.trust preferred capital securities and $32.5 million of qualifying subordinated debentures included in Tier 2 capital. Under current regulatory guidelines, when subordinated debt isdebentures are within five years of its scheduled maturity date, issuers must discount the amount included in Tier 2 capital by 20 percent20% for each year until the debt matures. Once the debt is within one year of its scheduled maturity date, no amount of the debt is allowed to be included in Tier 2 capital.



Item 7A. Quantitative and Qualitative Disclosure about Market Risk
RISK MANAGEMENT

Risk is inherent in any business. SeniorBancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy which 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 company associates. TheSenior management applies various strategies to reduce the risks to which BancShares may be exposed, with effective challenge and oversight by management committees. In addition, the Board of Directors strives to ensure that risk management is part of the business culture is integrated with the Enterprise Risk Management program and that policies, procedures and proceduresmetrics for identifying, assessing, measuring, monitoring and managing risk are part of the decision-making process. The Board of Director’sBoard’s 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.
50

The Board Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk relatedrisk-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, legal,Credit, Market, Capital, Liquidity, Operational, Compliance, Strategic and reputationalReputational risks; review, approve, and monitor adherence to the risk appetiteRisk Appetite Statement and supporting risk tolerance levels;levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Enterprise Risk Management Framework and Risk Appetite Framework. The Board Risk Committee also reviewsreviews: reports of examination by and communications from regulatory agencies; the results of internal and third party testing analyses and reviews,qualitative and quantitative assessments related to risks; risk management; and any other matters within the scope of the Committee’s oversight responsibilities. The Board Risk Committee reviews and monitors management'smanagement’s response to certain risk relatedrisk-related regulatory orand 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, the results of enterprise wideenterprise-wide stress testing activities are considered a key part of our risk management program. One key componentthe 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.
Enactment of enterprise wide stress testing includesthe Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018 significantly altered several provisions of the Dodd-Frank Act, including how stress tests as mandated in the Dodd-Frank Act. The Dodd-Frank Act requires that stress tests be developed and performed to ensure that financial institutions have sufficient capital to absorb losses and support operations during multiple economic and bank scenarios.are run. Bank holding companies with total consolidated assets between $10of less than $100 billion, and $50 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 undergo annual company-runcontinue to monitor and stress tests. As directed bytest its capital and liquidity consistent with the Federal Reserve, summariessafety and soundness expectations of BancShares’ results in the severely adverse stress tests are available to the public.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 other than acquired loans,we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCIPCD or non-PCI,non-PCD, 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 acquiredoriginated and originatedacquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. The riskThese 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 ALLLACL that accounts for losses that are inherent in the loan and lease portfolio.
We are actively monitoring our loan portfolio for areas of increased risk as a result of COVID-19. As of December 31, 2020, COVID-19 related loan extensions decreased to approximately $230.6 million in outstanding loan balances, representing approximately $6.3 million in payment deferrals. Through December 31, 2020, over 97% of all COVID-19 related loan extensions have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the portfolio. We have not seen significant declines in overall credit quality, though the impact of the SBA-PPP and payment extensions could be delaying signs of credit deterioration.
Additionally, we are participating in the SBA-PPP program, which provided much needed funds to our existing small business customers, and we continue to assess both the credit and operational risks this program presents. BancShares originated approximately 23,000 SBA-PPP loans with an outstanding balance of $2.41 billion at December 31, 2020.
Our ACL estimate for the year ended December 31, 2020, included extensive reviews of the changes in credit risk associated with the uncertainties around economic forecasts and the overall economic impact of COVID-19. Expected loss estimates within each portfolio considered the potential impact of slower economic activity with elevated unemployment, as well as potential mitigating impact from the government stimulus and loan modification programs. These loss estimates additionally considered BancShares industry risk, historically strong credit quality and actual net losses incurred during prior periods of economic stress, as well as recent credit trends, which have not seen significant deterioration from COVID-19 as of December 31, 2020.
We maintain a well-diversified loan and lease portfolio and seek to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of our loan portfolio subject us to significant risk, such as our concentrations of real estate secured loans, revolving mortgage loans and medical-andmedical- and dental-related loans.
51

We have historically carried a significant concentration of real estate secured loans but actively mitigate that exposure through our underwriting policies thatwhich primarily rely on borrower cash flow rather than underlying collateral values. When we do rely on underlying real property values, we favor financing secured by owner-occupied real property and, as a result, a large percentage of our real estate secured loans are owner occupied. At December 31, 2017,2020, loans secured by real estate were $18.10$23.56 billion, or 76.7 percent,71.8%, of total loans and leases compared to $16.54$22.38 billion, or 76.1 percent, of total loans and leases77.5% at December 31, 2016,2019, and $15.59$19.57 billion, or 77.0 percent,76.7%, at December 31, 2015.2018.


Similar to our branch footprint, the collateral of loans secured by real estate is concentrated within North Carolina and South Carolina. At December 31, 2020, real estate located in North Carolina and South Carolina represented 37.0% and 15.8%, respectively, of all real estate used as collateral.
Table 2322 provides the geographic distribution of real estate collateral by state.
Table 22
GEOGRAPHIC DISTRIBUTIONCOMMITMENTS AND CONTRACTUAL OBLIGATIONS
Type of obligationPayments due by period
(Dollars in thousands)Less than 1 year1-3 years3-5 yearsThereafterTotal
Contractual obligations:
Time deposits$1,844,860 $791,788 $110,868 $141,497 $2,889,013 
Short-term borrowings641,487 — — — 641,487 
Long-term obligations10,000 224,209 13,644 1,000,310 1,248,163 
Estimated payment to settle FDIC clawback liability15,888 — — — 15,888 
Total contractual obligations$2,512,235 $1,015,997 $124,512 $1,141,807 $4,794,551 
Commitments:
Loan commitments$6,043,887 $2,065,797 $692,086 $3,296,647 $12,098,417 
Standby letters of credit114,042 15,572 45 160 129,819 
Affordable housing partnerships27,423 22,751 2,526 1,039 53,739 
Total commitments$6,185,352 $2,104,120 $694,657 $3,297,846 $12,281,975 
SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY
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 which could have a material impact on our consolidated financial statements.
During 2020, BancShares repurchased a total of 813,090 shares of Class A common stock, or 8.4% of outstanding Class A shares as of December 31, 2019, for $333.8 million at an average cost per share of $410.48. During 2019, BancShares repurchased a total of 998,910 shares of Class A common stock, or 9.4% of outstanding Class A shares of as of December 31, 2018, for $450.8 million at an average cost per share of $451.33. All share repurchases were executed under previously approved authorities.
Upon expiration of the most recent share repurchase authorization on July 31, 2020, share repurchase activity has ended and will be reevaluated in subsequent periods.
During 2020 and 2019, the share repurchases included 45,000 and 100,000 shares, respectively, of Class A common stock purchased from Ella Anna Holding, as trustee of her revocable trust. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, our Chairman and Chief Executive Officer and Vice Chairman, respectively.
49

Table 21 provides information on capital adequacy for BancShares and FCB as of December 31, 2020 and 2019.
Table 21
ANALYSIS OF REAL ESTATE COLLATERALCAPITAL ADEQUACY
December 31, 2020December 31, 2019
(Dollars in thousands)Requirements to be well-capitalizedAmountRatioAmountRatio
BancShares
Risk-based capital ratios
Total risk-based capital10.00 %$4,577,212 13.81 %$3,731,501 12.12 %
Tier 1 risk-based capital8.00 3,856,086 11.63 3,344,305 10.86 
Common equity Tier 16.50 3,516,149 10.61 3,344,305 10.86 
Tier 1 leverage capital(1)
5.00 3,856,086 7.86 3,344,305 8.81 
FCB
Risk-based capital ratios
Total risk-based capital10.00 4,543,496 13.72 3,837,670 12.46 
Tier 1 risk-based capital8.00 4,276,870 12.92 3,554,974 11.54 
Common equity Tier 16.50 4,276,870 12.92 3,554,974 11.54 
Tier 1 leverage capital(2)
5.00 4,276,870 8.72 3,554,974 9.38 
(1)The SBA-PPP program added $2.41 billion in outstanding loan balances and consequently decreased BancShares’ Tier 1 leverage ratio by 59 bps; BancShares’ Tier 1 leverage ratio would be estimated at 8.45% at December 31, 2020 without the impact of the SBA PPP program.
(2) The SBA-PPP program added $2.41 billion in outstanding loan balances and consequently decreased FCB’s Tier 1 leverage ratio by 65 bps; FCB’s Tier 1 leverage ratio would be estimated at 9.37% at December 31, 2020 without the impact of the SBA PPP program.
BancShares and FCB are required to meet minimum capital requirements set forth by regulatory authorities. Bank regulatory agencies have approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. Basel III became effective for BancShares on January 1, 2015. Under Basel III, requirements include total risk-based capital ratio minimum of 8.00%, Tier 1 risk-based capital minimum of 6.00%, a common equity Tier 1 ratio minimum of 4.50%, and Tier 1 leverage capital ratio minimum of 4.00%. Failure to meet minimum capital requirements may result in certain actions by regulators which could have a direct material effect on the consolidated financial statements.
BancShares and FCB both remain well-capitalized under Basel III capital requirements. BancShares and FCB had capital conservation buffers of 5.63% and 5.72%, respectively, at December 31, 2020. These buffers exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.
At December 31, 2020, BancShares and FCB had $128.5 million and $24.0 million, respectively, of trust preferred capital securities and $377.5 million and $27.5 million, respectively, of qualifying subordinated debentures included in Tier 2 capital. At December 31, 2019, BancShares and FCB had $128.5 million and $24.0 million, respectively, of trust preferred capital securities and $32.5 million of qualifying subordinated debentures included in Tier 2 capital. Under current regulatory guidelines, when subordinated debentures are within five years of scheduled maturity date, issuers must discount the amount included in Tier 2 capital by 20% for each year until the debt matures. Once the debt is within one year of its scheduled maturity date, no amount of the debt is allowed to be included in Tier 2 capital.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
RISK MANAGEMENT
Risk is inherent in any business. BancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy which 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 may be exposed, with effective challenge and oversight by management committees. In addition, the Board strives to ensure the business culture is integrated with the Enterprise Risk Management program and policies, procedures and metrics for identifying, assessing, monitoring and managing risk are part of the decision-making process. The Board’s role in risk oversight is an integral part of our overall Enterprise Risk Management Framework and Risk Appetite Framework. The Board administers its risk oversight function primarily through the Board Risk Committee.
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December 31, 2017
Collateral locationPercentThe 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 Statement 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.
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 PCD or non-PCD, 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 ACL that accounts for losses inherent in the loan and lease portfolio.
We are actively monitoring our loan portfolio for areas of increased risk as a result of COVID-19. As of December 31, 2020, COVID-19 related loan extensions decreased to approximately $230.6 million in outstanding loan balances, representing approximately $6.3 million in payment deferrals. Through December 31, 2020, over 97% of all COVID-19 related loan extensions have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the portfolio. We have not seen significant declines in overall credit quality, though the impact of the SBA-PPP and payment extensions could be delaying signs of credit deterioration.
Additionally, we are participating in the SBA-PPP program, which provided much needed funds to our existing small business customers, and we continue to assess both the credit and operational risks this program presents. BancShares originated approximately 23,000 SBA-PPP loans with an outstanding balance of $2.41 billion at December 31, 2020.
Our ACL estimate for the year ended December 31, 2020, included extensive reviews of the changes in credit risk associated with the uncertainties around economic forecasts and the overall economic impact of COVID-19. Expected loss estimates within each portfolio considered the potential impact of slower economic activity with elevated unemployment, as well as potential mitigating impact from the government stimulus and loan modification programs. These loss estimates additionally considered BancShares industry risk, historically strong credit quality and actual net losses incurred during prior periods of economic stress, as well as recent credit trends, which have not seen significant deterioration from COVID-19 as of December 31, 2020.
We maintain a well-diversified loan and lease portfolio and seek to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of our loan portfolio subject us to significant risk, such as our concentrations of real estate secured loans with collateral located in the state
North Carolina39.9%
South Carolina16.1
California9.5
Virginia7.6
Georgia5.9
Florida3.7
Washington2.9
Texas2.6
Tennessee1.7
All other locations10.1
Among real estate secured loans, our revolving mortgage loans (also knownand medical- and dental-related loans.
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We have historically carried a significant concentration of real estate secured loans but actively mitigate exposure through underwriting policies which primarily rely on borrower cash flow rather than underlying collateral values. When we do rely on underlying real property values, we favor financing secured by owner-occupied real property and, as Home Equity Lines of Credit or HELOCs) present a heightened risk due to long commitment periods during which the financial position of individual borrowers or collateral values may deteriorate significantly. In addition,result, a large percentage of our revolving mortgagereal estate secured loans are secured by junior liens. Substantial declines in collateral values could cause junior lien positions to become effectively unsecured. Revolving mortgageowner occupied. At December 31, 2020, loans secured by real estate were $2.77$23.56 billion, or 11.7 percent, of total loans at December 31, 2017, compared to $2.64 billion, or 12.1 percent, at December 31, 2016, and $2.58 billion, or 12.7 percent, at December 31, 2015.
Except for loans acquired through mergers and acquisitions, we have not purchased revolving mortgages in the secondary market nor have we originated these loans to customers outside of our market areas. All originated revolving mortgage loans were underwritten by us based on our standard lending criteria. The revolving mortgage loan portfolio consists largely of variable rate lines of credit which allow customer draws during the entire contractual period of the line of credit, typically 15 years. Approximately 78.9 percent of the revolving mortgage portfolio relates to properties in North Carolina and South Carolina. Approximately 35.3 percent of the loan balances outstanding are secured by senior collateral positions while the remaining 64.7 percent are secured by junior liens.
We actively monitor the portion of our HELOC loans that are in the interest-only period and when they will mature. Approximately 83.6 percent of outstanding balances at December 31, 2017, require interest-only payments, while the remaining require monthly payments equal to the greater of 1.5 percent of the outstanding balance or $100. When HELOC loans switch from interest-only to fully amortizing, including principal and interest, some borrowers may not be able to afford the higher monthly payments. As of December 31, 2017, approximately 5 percent of the HELOC portfolio is due to mature by the end of 2019 with remaining loan maturities spread similarly over future years thereafter. In the normal course of business, the bank will work with each borrower as they approach the revolving period maturity date to discuss options for refinance or repayment.
Loans and leases to borrowers in medical, dental or related fields were $4.86 billion as of December 31, 2017, which represents 20.6 percent71.8%, of total loans and leases compared to $4.66$22.38 billion, or 21.5 percent of total loans and leases77.5% at December 31, 2016,2019, and $4.28$19.57 billion, or 21.2 percent of total loans and leases76.7%, at December 31, 2015. The credit risk2018.
Similar to our branch footprint, the collateral of this industry concentration is mitigated through our underwriting policies that emphasize reliance on adequate borrower cash flow rather than underlying collateral value and our preference for financingloans secured by owner-occupied real property. Except for this single concentration, no other industry represented more than 10 percent of total loansestate is concentrated within North Carolina and leases outstanding atSouth Carolina. At December 31, 2017.2020, real estate located in North Carolina and South Carolina represented 37.0% and 15.8%, respectively, of all real estate used as collateral.
Interest rate risk management
Interest rate risk (IRR) results principally from assets and liabilities maturing or repricing at different points in time, from assets and liabilities repricing at the same point in time but in different amounts, and from 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 forecast net interest income assuming stable rates. Rate shock scenarios represent an instantaneous and parallel shift in rates, up or down, from a base yield curve. Despite the current increase in market interest rates, the overall rate on interest-bearing deposits remains at cycle lows and as such, it is unlikely that the rates on most interest-bearing deposits can decline materially from current levels. Our shock projections incorporate assumptions of likely customer migration from low rate deposit instruments to intermediate term fixed rate instruments, such as certificates of deposit, as rates rise. Various other IRR scenarios


are modeled to supplement shock scenarios. This may include interest rate ramps, changes in the shape of the yield curve and changes in the relationships of FCB rates to market rates. Table 2422 provides the impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios asgeographic distribution of December 31, 2017 and 2016.

real estate collateral by state.
Table 2422
NET INTEREST INCOME SENSITIVITY SIMULATION ANAYLYSIS
 Estimated increase (decrease) in net interest income
Change in interest rate (basis point)December 31, 2017 December 31, 2016
-100(12.25)% (11.21)%
+1003.66
 4.12
+2004.61
 5.06
+3002.43
 2.08

Net interest income sensitivity metrics at December 31, 2017 compared to December 31, 2016 remained relatively stable with the slight decline in the -100 bps, +100 bps and +200 bps scenarios primarily driven by growth in the fixed rate loan portfolio. FCB assumes that a portion of low cost non-maturity deposits will be replaced with higher cost time deposits in rising rate shock scenarios and at +300 bps net interest income could modestly increase as a the rise in asset yields is enough to offset the higher deposit expenses.

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 25 presents the EVE profile as of December 31, 2017 and 2016.

Table 25
ECONOMIC VALUE OF EQUITY MODELING ANALYSIS
 Estimated increase (decrease) in EVE
Change in interest rate (basis point)December 31, 2017 December 31, 2016
-100(15.44)% (15.72)%
+1003.38
 3.10
+2001.06
 0.85
+300(5.52) (5.44)

The economic value of equity metrics at December 31, 2017 compared to December 31, 2016 remained relatively stable with the minor improvement in the -100 bps, +100 bps and +200 bps scenarios primarily due to the growth in demand deposit account balances. However, given the extended period of historically low market rates and FCB's balance sheet risk management, the economic value of equity could be negatively impacted if rates suddenly increase at least +300 bps where FCB expects that some of the non-maturity deposit balances will be replace with higher cost time deposits. This will reduce the economic value of equity as the duration of FCB's deposit book shortens.

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.









Table 26 provides loan maturity distribution and information regarding the sensitivity of loans and leases to changes in interest rates.

Table 26
LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
 At December 31, 2017, maturing
(Dollars in thousands)Within
One Year		 One to Five
Years		 After
Five Years		 Total
Loans and leases:       
Secured by real estate$1,239,684
 $5,668,584
 $11,189,753
 $18,098,021
Commercial and industrial801,116
 1,048,933
 886,732
 2,736,781
Other516,070
 1,413,293
 832,660
 2,762,023
Total loans and leases$2,556,870
 $8,130,810
 $12,909,145
 $23,596,825
Loans maturing after one year with:       
Fixed interest rates  $6,731,497
 $8,252,103
 $14,983,600
Floating or adjustable rates  1,399,313
 4,657,042
 6,056,355
Total  $8,130,810
 $12,909,145
 $21,039,955

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 deposits (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 correspondent bank accounts and unencumbered securities, which totaled $3.70 billion at December 31, 2017, compared to $3.88 billion at December 31, 2016. Another source of available funds is advances from the FHLB of Atlanta. Outstanding FHLB advances were $835.2 million as of December 31, 2017, and we had sufficient collateral pledged to secure $5.24 billion of additional borrowings. Also, at December 31, 2017, $2.77 billion in noncovered loans with a lendable collateral value of $2.08 billion were used to create additional borrowing capacity at the Federal Reserve Bank. We also maintain Federal Funds lines and other borrowing facilities which had $665.0 million of available capacity at December 31, 2017.

We entered into forward-starting advances with the FHLB of Atlanta in June 2016 to receive $200.0 million of fixed rate long-term funding. There were two advances of $100.0 million each scheduled to fund in June 2018, but both advances were terminated in December 2017. BancShares received cash of $12.5 million associated with the early termination and recorded this as a gain in other noninterest income in the Consolidated Statements of Income.







COMMITMENTS AND CONTRACTUAL OBLIGATIONS
Type of obligationPayments due by period
(Dollars in thousands)Less than 1 year1-3 years3-5 yearsThereafterTotal
Contractual obligations:
Time deposits$1,844,860 $791,788 $110,868 $141,497 $2,889,013 
Short-term borrowings641,487 — — — 641,487 
Long-term obligations10,000 224,209 13,644 1,000,310 1,248,163 
Estimated payment to settle FDIC clawback liability15,888 — — — 15,888 
Total contractual obligations$2,512,235 $1,015,997 $124,512 $1,141,807 $4,794,551 
Commitments:
Loan commitments$6,043,887 $2,065,797 $692,086 $3,296,647 $12,098,417 
Standby letters of credit114,042 15,572 45 160 129,819 
Affordable housing partnerships27,423 22,751 2,526 1,039 53,739 
Total commitments$6,185,352 $2,104,120 $694,657 $3,297,846 $12,281,975 
Table 27 identifies significant obligations
SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY
We are committed to effectively managing our capital to protect our depositors, creditors and commitmentsshareholders. 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 which could have a material impact on our consolidated financial statements.
During 2020, BancShares repurchased a total of 813,090 shares of Class A common stock, or 8.4% of outstanding Class A shares as of December 31, 20172019, for $333.8 million at an average cost per share of $410.48. During 2019, BancShares repurchased a total of 998,910 shares of Class A common stock, or 9.4% of outstanding Class A shares of as of December 31, 2018, for $450.8 million at an average cost per share of $451.33. All share repurchases were executed under previously approved authorities.
Upon expiration of the most recent share repurchase authorization on July 31, 2020, share repurchase activity has ended and will be reevaluated in subsequent periods.
During 2020 and 2019, the share repurchases included 45,000 and 100,000 shares, respectively, of Class A common stock purchased from Ella Anna Holding, as trustee of her revocable trust. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, our Chairman and Chief Executive Officer and Vice Chairman, respectively.
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Table 21 provides information on capital adequacy for BancShares and FCB as of December 31, 2020 and 2019.
Table 21
ANALYSIS OF CAPITAL ADEQUACY
December 31, 2020December 31, 2019
(Dollars in thousands)Requirements to be well-capitalizedAmountRatioAmountRatio
BancShares
Risk-based capital ratios
Total risk-based capital10.00 %$4,577,212 13.81 %$3,731,501 12.12 %
Tier 1 risk-based capital8.00 3,856,086 11.63 3,344,305 10.86 
Common equity Tier 16.50 3,516,149 10.61 3,344,305 10.86 
Tier 1 leverage capital(1)
5.00 3,856,086 7.86 3,344,305 8.81 
FCB
Risk-based capital ratios
Total risk-based capital10.00 4,543,496 13.72 3,837,670 12.46 
Tier 1 risk-based capital8.00 4,276,870 12.92 3,554,974 11.54 
Common equity Tier 16.50 4,276,870 12.92 3,554,974 11.54 
Tier 1 leverage capital(2)
5.00 4,276,870 8.72 3,554,974 9.38 
(1)The SBA-PPP program added $2.41 billion in outstanding loan balances and consequently decreased BancShares’ Tier 1 leverage ratio by 59 bps; BancShares’ Tier 1 leverage ratio would be estimated at 8.45% at December 31, 2020 without the impact of the SBA PPP program.
(2) The SBA-PPP program added $2.41 billion in outstanding loan balances and consequently decreased FCB’s Tier 1 leverage ratio by 65 bps; FCB’s Tier 1 leverage ratio would be estimated at 9.37% at December 31, 2020 without the impact of the SBA PPP program.
BancShares and FCB are required to meet minimum capital requirements set forth by regulatory authorities. Bank regulatory agencies have approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. Basel III became effective for BancShares on January 1, 2015. Under Basel III, requirements include total risk-based capital ratio minimum of 8.00%, Tier 1 risk-based capital minimum of 6.00%, a common equity Tier 1 ratio minimum of 4.50%, and Tier 1 leverage capital ratio minimum of 4.00%. Failure to meet minimum capital requirements may result in certain actions by regulators which could have a direct material effect on the consolidated financial statements.
BancShares and FCB both remain well-capitalized under Basel III capital requirements. BancShares and FCB had capital conservation buffers of 5.63% and 5.72%, respectively, at December 31, 2020. These buffers exceeded the 2.50% minimum requirement below which the regulators may impose limits on distributions.
At December 31, 2020, BancShares and FCB had $128.5 million and $24.0 million, respectively, of trust preferred capital securities and $377.5 million and $27.5 million, respectively, of qualifying subordinated debentures included in Tier 2 capital. At December 31, 2019, BancShares and FCB had $128.5 million and $24.0 million, respectively, of trust preferred capital securities and $32.5 million of qualifying subordinated debentures included in Tier 2 capital. Under current regulatory guidelines, when subordinated debentures are within five years of scheduled maturity date, issuers must discount the amount included in Tier 2 capital by 20% for each year until the debt matures. Once the debt is within one year of its scheduled maturity date, no amount of the debt is allowed to be included in Tier 2 capital.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
RISK MANAGEMENT
Risk is inherent in any business. BancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy which 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 may be exposed, with effective challenge and oversight by management committees. In addition, the Board strives to ensure the business culture is integrated with the Enterprise Risk Management program and policies, procedures and metrics for identifying, assessing, monitoring and managing risk are part of the decision-making process. The Board’s role in risk oversight is an integral part of our overall Enterprise Risk Management Framework and Risk Appetite Framework. The Board administers its risk oversight function primarily through the Board Risk Committee.
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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 Statement 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.
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 PCD or non-PCD, 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 ACL that accounts for losses inherent in the loan and lease portfolio.
We are actively monitoring our loan portfolio for areas of increased risk as a result of COVID-19. As of December 31, 2020, COVID-19 related loan extensions decreased to approximately $230.6 million in outstanding loan balances, representing requiredapproximately $6.3 million in payment deferrals. Through December 31, 2020, over 97% of all COVID-19 related loan extensions have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the portfolio. We have not seen significant declines in overall credit quality, though the impact of the SBA-PPP and payment extensions could be delaying signs of credit deterioration.
Additionally, we are participating in the SBA-PPP program, which provided much needed funds to our existing small business customers, and we continue to assess both the credit and operational risks this program presents. BancShares originated approximately 23,000 SBA-PPP loans with an outstanding balance of $2.41 billion at December 31, 2020.
Our ACL estimate for the year ended December 31, 2020, included extensive reviews of the changes in credit risk associated with the uncertainties around economic forecasts and the overall economic impact of COVID-19. Expected loss estimates within each portfolio considered the potential impact of slower economic activity with elevated unemployment, as well as potential mitigating impact from the government stimulus and loan modification programs. These loss estimates additionally considered BancShares industry risk, historically strong credit quality and actual net losses incurred during prior periods of economic stress, as well as recent credit trends, which have not seen significant deterioration from COVID-19 as of December 31, 2020.
We maintain a well-diversified loan and lease portfolio and seek to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of our loan portfolio subject us to significant risk, such as our concentrations of real estate secured loans, revolving mortgage loans and medical- and dental-related loans.
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We have historically carried a significant concentration of real estate secured loans but actively mitigate exposure through underwriting policies which primarily rely on borrower cash outflows. See Note Tflow rather than underlying collateral values. When we do rely on underlying real property values, we favor financing secured by owner-occupied real property and, as a result, a large percentage of our real estate secured loans are owner occupied. At December 31, 2020, loans secured by real estate were $23.56 billion, or 71.8%, of total loans and leases compared to $22.38 billion, or 77.5% at December 31, 2019, and $19.57 billion, or 76.7%, at December 31, 2018.
Similar to our branch footprint, the collateral of loans secured by real estate is concentrated within North Carolina and South Carolina. At December 31, 2020, real estate located in North Carolina and South Carolina represented 37.0% and 15.8%, respectively, of all real estate used as collateral.
Table 22 provides the geographic distribution of real estate collateral by state.
Table 22
GEOGRAPHIC DISTRIBUTION OF REAL ESTATE COLLATERAL
December 31, 2020
Collateral locationPercent of real estate secured loans with collateral located in the state
North Carolina37.0
South Carolina15.8
California10.5
Florida7.5
Georgia6.7
Virginia6.2
Washington3.4
Texas2.7
Tennessee1.6
All other locations8.6
Among real estate secured loans, our revolving mortgage loans (“Home Equity Lines of Credit” or “HELOCs”) present a heightened risk due to long commitment periods during which the financial position of individual borrowers or collateral values may deteriorate significantly. In addition, a large percentage of our HELOCs are secured by junior liens. Substantial declines in collateral values could cause junior lien positions to become effectively unsecured. HELOCs secured by real estate were $2.09 billion, or 6.4%, of total loans at December 31, 2020, compared to $2.38 billion, or 8.2%, at December 31, 2019, and $2.59 billion, or 10.2%, at December 31, 2018.
Except for additionalloans acquired through mergers and acquisitions, we have not purchased HELOCs in the secondary market, nor have we originated these loans to customers outside of our market areas. All originated HELOCs were underwritten by us based on our standard lending criteria. The HELOC portfolio consists of variable rate lines of credit which allow customer draws during a specified period of the line of credit, with a portion switching to an amortizing term following the draw period. Approximately 80.9% of the revolving mortgage portfolio relates to properties in North Carolina and South Carolina. Approximately 37.3% of the loan balances outstanding are secured by senior collateral positions while the remaining 62.7% are secured by junior liens.
We actively monitor the portion of our HELOCs in the interest-only period and when they will mature. Approximately 87.5% of outstanding balances at December 31, 2020, require interest-only payments, while the remaining require monthly payments equal to the greater of 1.5% of the outstanding balance, or $100. When HELOCs switch from interest-only to fully amortizing, including principal and interest, some borrowers may not be able to afford the higher monthly payments. We have not experienced a significant increase in defaults as a result of these increased payments. In the normal course of business, the bank will work with each borrower as they approach the revolving period maturity date to discuss options for refinance or repayment.
Loans and leases to borrowers in medical, dental or related fields were $5.54 billion as of December 31, 2020, which represents 16.9% of total loans and leases, compared to $5.16 billion or 17.9% of total loans and leases at December 31, 2019, and $4.98 billion or 21.1% of total loans and leases at December 31, 2018. The credit risk of this industry concentration is mitigated through our underwriting policies which emphasize reliance on adequate borrower cash flow rather than underlying collateral value and our preference for financing secured by owner-occupied real property. Except for this single concentration, no other industry represented more than 10% of total loans and leases outstanding at December 31, 2020.
52

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.
Table 23 provides the impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios as of December 31, 2020 and 2019.
Table 23
NET INCOME SENSITIVITY SIMULATION ANALYSIS
 Estimated (decrease) increase in net interest income
Change in interest rate (basis points)December 31, 2020December 31, 2019
-100(6.24)%(8.00)%
+1008.09 1.30 
+20014.57 0.01 
Net interest income sensitivity metrics at December 31, 2020, compared to December 31, 2019, were primarily affected by an influx of non-maturity deposits during the year, following the onset of the COVID-19 pandemic, which helped boost overnight investments and improve sensitivity to rising interest rate shocks.
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 under different interest rate scenarios. 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 24 presents the EVE profile as of December 31, 2020 and 2019.
Table 24
ECONOMIC VALUE OF EQUITY MODELING ANALYSIS
Estimated (decrease) increase in EVE
Change in interest rate (basis points)December 31, 2020December 31, 2019
-100(21.20)%(8.25)%
+10012.18 (0.03)
+20015.71 (4.80)
The economic value of equity metrics at December 31, 2020, compared to December 31, 2019, saw improvement when measured against moderate rising rate shocks due largely to the same factors that impacted net interest income sensitivity.
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.
53

Table 25 provides loan maturity distribution information.
Table 25
LOAN MATURITY DISTRIBUTION
 At December 31, 2020, maturing
(Dollars in thousands)Within
One Year		One to Five
Years		Five to 15
Years		After 15 yearsTotal
Commercial:
Construction and land development$250,382 $331,498 $307,768 $95,776 $985,424 
Owner occupied commercial mortgage572,611 3,311,479 6,857,005 423,917 11,165,012 
Non-owner occupied commercial mortgage257,558 1,289,739 1,385,624 54,768 2,987,689 
Commercial and industrial and leases1,024,974 2,502,099 1,475,041 11,530 5,013,644 
SBA-PPP— 2,406,291 — — 2,406,291 
Total commercial loans and leases2,105,525 9,841,106 10,025,438 585,991 22,558,060 
Consumer:
Residential mortgage145,012 454,419 1,334,611 3,627,644 5,561,686 
Revolving mortgage78,774 400,154 155,984 1,417,942 2,052,854 
Construction and land development33,709 84,692 15,450 214,272 348,123 
Consumer auto10,521 629,433 615,448 — 1,255,402 
Consumer other342,512 128,717 40,968 40,771 552,968 
Total consumer loans610,528 1,697,415 2,162,461 5,300,629 9,771,033 
PCD loans65,754 116,227 181,640 99,261 462,882 
Total loans and leases$2,781,807 $11,654,748 $12,369,539 $5,985,881 $32,791,975 
Table 26 provides information regarding total commitments.

the sensitivity of loans and leases to changes in interest rates.
Table 2726
COMMITMENTS AND CONTRACTUAL OBLIGATIONSLOAN INTEREST RATE SENSITIVITY
Loans maturing after one year with
(Dollars in thousands)Fixed interest ratesVariable interest rates
Commercial:
Construction and land development$473,204 $261,838 
Owner occupied commercial mortgage9,779,082 813,319 
Non-owner occupied commercial mortgage2,322,234 407,897 
Commercial and industrial and leases3,551,690 436,980 
SBA-PPP2,406,291 — 
Total commercial loans and leases18,532,501 1,920,034 
Consumer:
Residential mortgage2,322,787 3,093,887 
Revolving mortgage41,232 1,932,848 
Construction and land development104,648 209,766 
Consumer auto1,244,881 — 
Consumer other124,526 85,930 
Total consumer loans3,838,074 5,322,431 
PCD loans188,458 208,670 
Total loans and leases$22,559,033 $7,451,135 
Liquidity risk management
Liquidity risk is the risk 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 affecting an institution’s liquidity risk profile.
54

Type of obligationPayments due by period
(Dollars in thousands)Less than 1 year 1-3 years 3-5 years Thereafter Total
Contractual obligations:         
Time deposits$1,684,017
 $580,368
 $134,732
 $3
 $2,399,120
Short-term borrowings693,807
 —
 —
 —
 693,807
Long-term obligations1,298
 2,724
 147,672
 718,546
 870,240
Operating leases25,797
 31,529
 19,961
 45,138
 122,425
Estimated payment to FDIC due to claw-back provisions under shared-loss agreements—
 88,019
 13,323
 —
 101,342
Total contractual obligations$2,404,919
 $702,640
 $315,688
 $763,687
 $4,186,934
Commitments:         
Loan commitments$5,268,707
 $877,249
 $649,854
 $2,833,555
 $9,629,365
Standby letters of credit68,150
 12,809
 571
 —
 81,530
Affordable housing partnerships34,297
 22,928
 3,797
 797
 61,819
Total commitments$5,371,154
 $912,986
 $654,222
 $2,834,352
 $9,772,714
We utilize various limit-based measures to monitor, measure and control liquidity risk across three different types of liquidity:

•Tactical - 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 - Measures the amount by which illiquid assets are supported by long-term funding; and
•Contingent - Measures the risk of having insufficient liquidity sources to support cash needs under potential future stressed market conditions or having an inability to access wholesale funding sources in a timely and cost effective manner.
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 branch-generated deposit portfolio due to the generally stable balances and low cost. Additional sources include cash in excess of our reserve requirement at the Federal Reserve Bank and various other correspondent bank accounts and unencumbered securities, which totaled $9.63 billion at December 31, 2020, compared to $3.57 billion at December 31, 2019. Another source of available funds is advances from the FHLB of Atlanta and Chicago. Outstanding FHLB advances were $655.2 million as of December 31, 2020, and we had sufficient collateral pledged to secure $7.99 billion of additional borrowings. Further, in the current year, $4.10 billion in non-PCD loans with a lendable collateral value of $3.32 billion were used to create additional borrowing capacity at the Federal Reserve Bank. We also maintain Federal Funds and other credit lines, which had $598.0 million of available capacity at December 31, 2020.
FOURTH QUARTER ANALYSIS
For the quarter ended December 31, 2017, BancShares reported consolidated2020, net income of $54.4was $138.1 million compared to $52.7$101.9 million for the corresponding periodquarter of 2016. Per2019, an increase of $36.2 million or 35.5%. The increase was primarily the result of higher net interest income, higher noninterest income and lower provision expense, partially offset by higher noninterest expense. Earnings per share income was $4.53were $13.59 for the fourth quarter of 2017 and $4.392020 compared to $9.55 for the same period a year ago.
Income tax expense totaled $68.7Net interest income was $358.7 million, inan increase of $31.6 million, or 9.7%, compared to the fourth quarter of 2017, up from $28.4 million in the fourth quarter of 2016, representing effective tax rates of 55.8 percent and 35.0 percentduring the respective periods. The increase in income tax expense was due to higher pre-tax earnings during the fourth quarter and the increase in the effective tax rate was primarily due to the impact of the Tax Act, which was enacted on December 22, 2017. Earnings in the fourth quarter of 2017 included income tax expense of $25.8 million due primarily to the re-measurement of deferred taxes as a result of the Tax Act reducing the federal tax rate to 21 percent effective January 1, 2018.
Net interest income increased $30.9 million, or by 12.6 percent, to $274.8 million over the fourth quarter of 2016.2019. The increase was primarily due to higher non-PCI loan interest income of $21.0driven by SBA-PPP loans, and organic loan growth and lower rates paid on interest-bearing liabilities. SBA-PPP loans contributed $42.2 million in interest and fee income during the quarter. This favorable impact was partially offset by a decline in investment securities interest income as a result of originated loan growth and the contribution from the Guaranty acquisition, a $5.7 million improvement in interest income earned on investments and a $3.7 million increase in interest income earned on excess cash held in overnight investments. Interest income earned on overnight investments was positively impacted by three 25 basis point increases in the federal funds rate since the fourth quarter of 2016. These favorable impacts were offset by an increase in interest expense of $324 thousand primarily related to higher rates paid on short-term borrowings.lower yields.
The taxable-equivalent net interest margin for the fourth quarter of 20172020 was 3.34 percent, an increase3.02%, a decrease of 2057 basis points from 3.59% in the same quarter in the prior year. The margin improvementdecline was primarily due to improved loana lower yield on interest-earning assets, partially offset by a decline in rates paid on deposits and investment yieldsborrowings.
Income tax expense was $36.6 million in the fourth quarter of 2020, up from $29.7 million in the fourth quarter of 2019. The increase in income tax expense was a result of higher gross earnings, partially offset by a $3.5 million decrease due to BancShares’ decision to utilize an allowable alternative for computing its 2020 federal income tax liability. An allowable alternative provides BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax. The effective tax rates were 21.0% and higher loan balances.22.5%during each of these respective periods. Without the alternative, the effective tax rate would have been approximately 23.0% for the fourth quarter.
BancShares recorded a net provisionProvision for credit of $2.8losses was $5.4 million for loan and lease losses during the fourth quarter of 2017,2020, compared to a net provision expense of $16.0$7.7 million for the fourth quarter of 2016.2019. The net provision credit in the current quarter$2.3 million decrease was primarily due to favorable experiencelimited movement in certain loan loss factors.credit quality metrics and continued low net charge-offs. The net charge-off ratio was 0.07% for the fourth quarter of 2020, compared to 0.11% for the fourth quarter of 2019.
Noninterest income was $140.2$126.8 million for the fourth quarter of 2017,2020, an increase of $15.5$22.4 million from the same period of 2016.2019. The increase was primarily driven by a gain of $12.5 million related to the early termination of two forward-starting FHLB advances. Noninterest income also benefited from higher merchant and cardholder income of $6.0 million resulting from higher sales volume, a $4.8an $11.8 million increase in service charges on deposit accounts, primarily related to the Guaranty acquisition, andmarketable equity securities gains, a $3.2$6.5 million increase in wealth management fees.mortgage income and a $5.0 million increase in gain on sale of investment securities available for sale. These increases were partially offset by lower securities gains of $9.5 million and a decrease of $3.9$4.3 million in mortgage income, primarily due to mortgage servicing rights valuation adjustments in the fourth quarter of 2016.


service charges on deposit accounts.
Noninterest expense was $294.6$305.4 million for the fourth quarter of 2017,2020, an increase of $23.1$13.1 million from the same quarter last year, largely due to a $16.1an $8.7 million increase in personnel expenses,expense, primarily related to merit increases as well as personnel additions from acquisitions, a $3.8 million increase in occupancy expense, primarily due to higher wages fromenhanced cleaning and sanitation efforts in response to the GuarantyCOVID-19 pandemic, and HCB acquisitions, annual merit increases and higher benefit costs. Noninterest expense also increased due to growtha $3.7 million increase in cardholder and merchant processing expense of $3.0 million resulting from higher sales volume and an increase of $2.4 million and $1.4 million in consultant services and processing fees paid to third parties, respectively.parties.
Table 2826 provides quarterly information for each ofquarter in 2020 and 2019. Table 27 provides the quarters in 2017 and 2016. Table 29 analyzes the components of changes in net interest incometaxable equivalent rate/volume variance analysis between the fourth quarter of 20172020 and 20162019.


55

Table 2827
SELECTED QUARTERLY DATA
 2020
2019(1)
(Dollars in thousands, except share data and ratios)Fourth
Quarter		Third
Quarter		Second
Quarter		First
Quarter		Fourth
Quarter		Third
Quarter		Second
Quarter		First
Quarter
SUMMARY OF OPERATIONS
Interest income$376,876 $374,334 $363,257 $369,559 $354,048 $362,318 $350,721 $336,924 
Interest expense18,160 20,675 25,863 31,159 26,924 25,893 23,373 16,452 
Net interest income358,716 353,659 337,394 338,400 327,124 336,425 327,348 320,472 
Provision for credit losses5,403 4,042 20,552 28,355 7,727 6,766 5,198 11,750 
Net interest income after provision for credit losses353,313 349,617 316,842 310,045 319,397 329,659 322,150 308,722 
Noninterest income126,765 120,572 165,402 64,011 104,393 100,930 106,875 103,663 
Noninterest expense305,373 291,662 291,679 299,971 292,262 270,425 273,397 267,657 
Income before income taxes174,705 178,527 190,565 74,085 131,528 160,164 155,628 144,728 
Income taxes36,621 35,843 36,779 16,916 29,654 35,385 36,269 33,369 
Net income138,084 142,684 153,786 57,169 101,874 124,779 119,359 111,359 
Net income available to common shareholders$133,448 $138,048 $148,996 $57,169 $101,874 $124,779 $119,359 $111,359 
Net interest income, taxable equivalent$359,370 $354,256 $337,965 $339,174 $328,045 $337,322 $328,201 $321,372 
PER COMMON SHARE DATA
Net income$13.59 $14.03 $14.74 $5.46 $9.55 $11.27 $10.56 $9.67 
Cash dividends on common shares0.47 0.40 0.40 0.40 0.40 0.40 0.40 0.40 
Market price at period end (Class A)574.27 318.78 405.02 332.87 532.21 471.55 450.27 407.20 
Book value at period-end396.21 380.43 367.57 351.90 337.38 327.86 319.74 309.46 
SELECTED QUARTERLY AVERAGE BALANCES
Total assets$49,557,803 $48,262,155 $45,553,502 $40,648,806 $38,326,641 $37,618,836 $37,049,030 $35,625,885 
Investment securities9,889,124 9,930,197 8,928,467 7,453,159 7,120,023 6,956,981 6,803,570 6,790,671 
Loans and leases(2)
32,964,390 32,694,996 31,635,958 29,098,101 27,508,062 26,977,476 26,597,242 25,515,988 
Interest-earning assets46,922,823 45,617,376 42,795,781 38,004,341 36,032,680 35,293,979 34,674,842 33,432,162 
Deposits43,123,312 41,905,844 39,146,415 34,750,061 33,295,141 32,647,264 32,100,210 30,802,567 
Interest-bearing liabilities26,401,222 25,591,707 24,407,285 23,153,777 20,958,943 20,551,393 20,397,445 19,655,434 
Securities sold under customer repurchase agreements684,311 710,237 659,244 474,231 495,804 533,371 556,374 538,162 
Other short-term borrowings— — 45,549 157,759 28,284 23,236 40,513 — 
Long-term borrowings1,250,682 1,256,331 1,275,928 961,132 467,223 384,047 371,843 344,225 
Common shareholders' equity3,786,158 3,679,138 3,648,284 3,625,975 3,570,872 3,580,235 3,546,041 3,509,746 
Shareholders' equity$4,126,095 $4,019,075 $3,988,225 $3,682,634 $3,570,872 $3,580,235 $3,546,041 $3,509,746 
Common shares outstanding9,816,405 9,836,629 10,105,520 10,473,119 10,708,084 11,060,462 11,286,520 11,519,008 
SELECTED QUARTER-END BALANCES
Total assets$49,957,680 $48,666,873 $47,866,194 $41,594,453 $39,824,496 $37,748,324 $37,655,094 $35,961,670 
Investment securities9,922,905 9,860,594 9,508,476 8,845,197 7,173,003 7,167,680 6,695,578 6,914,513 
Loans and leases32,791,975 32,845,144 32,418,425 29,240,959 28,881,496 27,196,511 26,728,237 25,463,785 
Deposits43,431,609 42,250,606 41,479,245 35,346,711 34,431,236 32,743,277 32,719,671 31,198,093 
Securities sold under customer repurchase agreements641,487 693,889 740,276 540,362 442,956 522,195 544,527 508,508 
Other short-term borrowings— — — 105,000 295,277 — — — 
Long-term borrowings1,248,163 1,252,016 1,258,719 1,297,132 588,638 453,876 369,854 341,108 
Shareholders' equity$4,229,268 $4,074,414 $3,991,444 $3,957,520 $3,586,184 $3,568,482 $3,574,613 $3,523,309 
Common shares outstanding9,816,405 9,816,405 9,934,105 10,280,105 10,629,495 10,884,005 11,179,905 11,385,405 
SELECTED RATIOS AND OTHER DATA
Rate of return on average assets (annualized)1.11 %1.18 %1.36 %0.57 %1.05 %1.32 %1.29 %1.27 %
Rate of return on average shareholders’ equity (annualized)14.02 14.93 16.43 6.34 11.32 13.83 13.50 12.86 
Net yield on interest-earning assets (taxable equivalent)3.02 3.06 3.14 3.55 3.59 3.77 3.77 3.86 
Allowance for credit losses to total loans and leases:
PCD5.18 5.07 5.07 4.80 1.35 1.34 1.51 1.61 
Non-PCD0.62 0.61 0.61 0.64 0.77 0.82 0.83 0.88 
Total0.68 0.68 0.69 0.72 0.78 0.83 0.85 0.90 
Ratio of total nonperforming assets to total loans, leases and other real estate owned0.74 0.73 0.77 0.79 0.58 0.57 0.56 0.53 
Total risk-based capital ratio13.81 13.70 13.63 13.65 12.12 13.09 13.34 14.02 
Tier 1 risk-based capital ratio11.63 11.48 11.38 11.43 10.86 11.80 12.03 12.69 
Tier 1 common equity ratio10.61 10.43 10.32 10.36 10.86 11.80 12.03 12.69 
Tier 1 leverage capital ratio7.86 7.80 8.07 8.98 8.81 9.18 9.35 9.80 
Dividend payout ratio3.46 2.85 2.71 7.33 4.19 3.55 3.79 4.14 
Average loans and leases to average deposits76.44 78.02 80.81 83.74 82.62 82.63 82.86 82.84 
 2017 2016
(Dollars in thousands, except share data and ratios)Fourth
Quarter		 Third
Quarter		 Second
Quarter		 First
Quarter		 Fourth
Quarter		 Third
Quarter		 Second
Quarter		 First
Quarter
SUMMARY OF OPERATIONS               
Interest income$285,958
 $284,333
 $272,542
 $260,857
 $254,782
 $246,494
 $243,369
 $243,112
Interest expense11,189
 11,158
 10,933
 10,514
 10,865
 10,645
 11,180
 10,392
Net interest income274,769
 273,175
 261,609
 250,343
 243,917
 235,849
 232,189
 232,720
Provision (credit) for loan and lease losses(2,809) 7,946
 12,324
 8,231
 16,029
 7,507
 4,562
 4,843
Net interest income after provision for loan and lease losses277,578
 265,229
 249,285
 242,112
 227,888
 228,342
 227,627
 227,877
Gain on acquisitions—
 —
 122,728
 12,017
 —
 837
 3,290
 1,704
Noninterest income140,150
 125,387
 125,472
 115,275
 124,698
 117,004
 136,960
 103,578
Noninterest expense294,617
 286,967
 285,606
 264,345
 271,531
 267,233
 258,303
 251,671
Income before income taxes123,111
 103,649
 211,879
 105,059
 81,055
 78,950
 109,574
 81,488
Income taxes68,704
 36,585
 77,219
 37,438
 28,365
 27,546
 40,258
 29,416
Net income$54,407
 $67,064
 $134,660
 $67,621
 $52,690
 $51,404
 $69,316
 $52,072
Net interest income, taxable equivalent$276,002
 $274,272
 $262,549
 $251,593
 $245,330
 $237,146
 $233,496
 $234,187
PER SHARE DATA               
Net income$4.53
 $5.58
 $11.21
 $5.63
 $4.39
 $4.28
 $5.77
 $4.34
Cash dividends0.35
 0.30
 0.30
 0.30
 0.30
 0.30
 0.30
 0.30
Market price at period end (Class A)403.00
 373.89
 372.70
 335.37
 355.00
 293.89
 258.91
 251.07
Book value at period end277.60
 275.91
 269.75
 258.17
 250.82
 256.76
 252.76
 246.55
SELECTED QUARTERLY AVERAGE BALANCES            
Total assets$34,864,720
 $34,590,503
 $34,243,527
 $33,494,500
 $33,223,995
 $32,655,417
 $32,161,905
 $31,705,658
Investment securities7,044,534
 6,906,345
 7,112,267
 7,084,986
 6,716,873
 6,452,532
 6,786,463
 6,510,248
Loans and leases (1)
23,360,235
 22,997,195
 22,575,323
 21,951,444
 21,548,313
 21,026,510
 20,657,094
 20,349,091
Interest-earning assets32,874,233
 32,555,597
 32,104,717
 31,298,970
 31,078,428
 30,446,592
 29,976,629
 29,558,629
Deposits29,525,843
 29,319,384
 29,087,852
 28,531,166
 28,231,477
 27,609,418
 27,212,814
 26,998,026
Long-term obligations866,198
 887,948
 799,319
 816,953
 835,509
 842,715
 817,750
 750,446
Interest-bearing liabilities19,425,404
 19,484,663
 19,729,956
 19,669,075
 19,357,282
 19,114,740
 19,092,287
 19,067,251
Shareholders’ equity$3,329,562
 $3,284,044
 $3,159,004
 $3,061,099
 $3,056,426
 $3,058,155
 $2,989,097
 $2,920,611
Shares outstanding12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
SELECTED QUARTER-END BALANCES              
Total assets$34,527,512
 $34,584,154
 $34,769,850
 $34,018,405
 $32,990,836
 $32,971,910
 $32,230,403
 $32,195,657
Investment securities7,180,256
 6,992,955
 6,596,530
 7,119,944
 7,006,678
 6,384,940
 6,557,736
 6,687,483
Loans and leases:               
PCI762,998
 834,167
 894,863
 848,816
 809,169
 868,200
 921,467
 945,887
Non-PCI22,833,827
 22,314,906
 21,976,602
 21,057,633
 20,928,709
 20,428,780
 19,821,104
 19,471,802
Deposits29,266,275
 29,333,949
 29,456,338
 29,002,768
 28,161,343
 27,925,253
 27,257,774
 27,365,245
Long-term obligations870,240
 866,123
 879,957
 727,500
 832,942
 840,266
 850,504
 779,087
Shareholders’ equity$3,334,064
 $3,313,831
 $3,239,851
 $3,100,696
 $3,012,427
 $3,083,748
 $3,035,704
 $2,961,194
Shares outstanding12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
 12,010,405
SELECTED RATIOS AND OTHER DATA              
Rate of return on average assets (annualized)0.62% 0.77% 1.58% 0.82% 0.63% 0.63% 0.87% 0.66%
Rate of return on average shareholders’ equity (annualized)6.48
 8.10
 17.10
 8.96
 6.86
 6.69
 9.33
 7.17
Net yield on interest-earning assets (taxable equivalent)3.34
 3.35
 3.28
 3.25
 3.14
 3.10
 3.13
 3.18
Allowance for loan and lease losses to loans and leases:               
PCI1.31
 1.55
 1.51
 1.29
 1.70
 1.34
 1.25
 1.45
Non-PCI0.93
 0.98
 0.98
 1.00
 0.98
 0.98
 0.99
 0.99
Total0.94
 1.00
 1.00
 1.01
 1.01
 1.01
 1.00
 1.01
Nonperforming assets to total loans and leases and other real estate at period end:               
Covered0.54
 0.35
 0.35
 0.59
 0.66
 0.75
 1.17
 4.74
Noncovered0.61
 0.63
 0.66
 0.66
 0.67
 0.75
 0.77
 0.74
Total0.61
 0.63
 0.65
 0.66
 0.67
 0.75
 0.77
 0.80
Tier 1 risk-based capital ratio12.88
 12.95
 12.69
 12.57
 12.42
 12.50
 12.63
 12.58
Common equity Tier 1 ratio12.88
 12.95
 12.69
 12.57
 12.42
 12.50
 12.63
 12.58
Total risk-based capital ratio14.21
 14.34
 14.07
 13.99
 13.85
 13.96
 14.10
 14.09
Leverage capital ratio9.47
 9.43
 9.33
 9.15
 9.05
 9.07
 9.09
 9.00
Dividend payout ratio7.73
 5.38
 2.68
 5.33
 6.83
 7.01
 5.20
 6.91
Average loans and leases to average deposits79.12
 78.44
 77.61
 76.94
 76.33
 76.16
 75.91
 75.37
(1) We adopted ASC Topic 326 (“CECL”) utilizing the modified retrospective approach. We did not restate selected financial data for the quarters prior to 2020 presented above.
(1)(2)Average loan and lease balances include PCI loans, non-PCI loans and leases, loans held for sale and nonaccrual loans and leases.


56

Table 2928
CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS - FOURTH QUARTER

20202019Increase (decrease) due to:
InterestInterest
AverageIncome/Yield/AverageIncome/Yield/Yield/Total
(Dollars in thousands, taxable equivalent)BalanceExpense
 Rate(2)
BalanceExpenseRateVolumeRateChange
Assets
Loans and leases(1)
$32,964,390 $345,300 4.12 %$27,508,062 $308,832 4.42 %$66,088 $(29,620)$36,468 
Investment securities:
U.S. Treasury526,072 250 0.19 595,515 3,706 2.47 (441)(3,015)(3,456)
Government agency695,757 1,574 0.90 659,857 4,224 2.56 230 (2,880)(2,650)
Mortgage-backed securities7,981,834 21,130 1.06 5,563,653 29,964 2.15 13,286 (22,120)(8,834)
Corporate bonds591,780 7,657 5.18 172,424 2,165 5.02 5,266 226 5,492 
Other investments93,681 600 2.55 128,574 653 2.02 (174)121 (53)
Total investment securities9,889,124 31,211 1.26 7,120,023 40,712 2.29 18,167 (27,668)(9,501)
Overnight investments4,069,309 1,019 0.10 1,404,595 5,425 1.53 10,248 (14,654)(4,406)
Total interest-earning assets46,922,823 $377,530 3.17 %36,032,680 $354,969 3.89 %$94,503 $(71,942)$22,561 
Cash and due from banks325,890 255,963 
Premises and equipment1,262,831 1,229,445 
Allowance for credit losses(225,339)(225,170)
Other real estate owned50,949 44,134 
Other assets1,220,649 989,589 
Total assets$49,557,803 $38,326,641 
Liabilities
Interest-bearing deposits:
Checking with interest$9,688,744 $1,533 0.06 %$7,608,857 $1,561 0.08 %$421 $(449)$(28)
Savings3,230,625 306 0.04 2,596,608 439 0.07 106 (239)(133)
Money market accounts8,529,816 3,242 0.15 6,248,735 7,066 0.45 2,553 (6,377)(3,824)
Time deposits3,017,044 5,976 0.79 3,513,432 13,367 1.51 (1,920)(5,471)(7,391)
Total interest-bearing deposits24,466,229 11,057 0.18 19,967,632 22,433 0.45 1,160 (12,536)(11,376)
Securities sold under customer repurchase agreements684,311 374 0.22 495,804 479 0.38 180 (285)(105)
Other short-term borrowings— — — 28,284 190 2.63 (190)— (190)
Long-term borrowings1,250,682 6,729 2.13 467,223 3,822 3.20 7,058 (4,151)2,907 
Total interest-bearing liabilities26,401,222 18,160 0.27 20,958,943 26,924 0.51 8,208 (16,972)(8,764)
Demand deposits18,657,083 13,327,509 
Other liabilities373,403 469,317 
Shareholders' equity4,126,095 3,570,872 
 Total liabilities and shareholders' equity$49,557,803 $38,326,641 
Interest rate spread2.90 %3.38 %
Net interest income and net yield on interest-earning assets$359,370 3.02 %$328,045 3.59 %$86,295 $(54,970)$31,325 
 2017 2016 Increase (decrease) due to:
   Interest     Interest        
 Average Income/ Yield/ Average Income/ Yield/   Yield/ Total
(Dollars in thousands)Balance Expense  Rate Balance Expense Rate Volume Rate Change
Assets 
Loans and leases$23,360,235
 $248,151
 4.22
%$21,548,313
 $226,651
 4.19
%$19,503
 $1,997
 $21,500
Investment securities:                 
U. S. Treasury1,627,968
 4,784
 1.17
 1,593,610
 3,328
 0.83
 81
 1,375
 1,456
Government agency9,659
 69
 2.85
 172,037
 396
 0.92
 (765) 438
 (327)
Mortgage-backed securities5,233,293
 25,351
 1.94
 4,802,198
 20,937
 1.74
 1,944
 2,470
 4,414
Corporate bonds63,911
 991
 6.20
 54,255
 772
 5.69
 144
 75
 219
Other109,703
 246
 0.89
 94,773
 253
 1.06
 37
 (44) (7)
Total investment securities7,044,534
 31,441
 1.78
 6,716,873
 25,686
 1.53
 1,441
 4,314
 5,755
Overnight investments2,469,464
 7,599
 1.22
 2,813,242
 3,858
 0.55
 (743) 4,484
 3,741
Total interest-earning assets32,874,233
 $287,191
 3.47
%31,078,428
 $256,195
 3.28
%$20,201
 $10,795
 $30,996
Cash and due from banks316,851
     478,779
          
Premises and equipment1,137,075
     1,134,228
          
FDIC shared-loss receivable5,104
     5,584
          
Allowance for loan and lease losses(232,653)     (214,463)          
Other real estate owned52,103
     65,670
          
Other assets712,007
     675,769
          
 Total assets$34,864,720
     $33,223,995
          
                  
Liabilities                 
Interest-bearing deposits:                 
Checking with interest$5,028,978
 $262
 0.02
%$4,696,279
 $261
 0.02
%$9
 $(8) $1
Savings2,337,993
 172
 0.03
 2,080,598
 161
 0.03
 15
 (4) 11
Money market accounts8,047,691
 1,732
 0.09
 8,113,686
 1,619
 0.08
 (52) 165
 113
Time deposits2,421,749
 1,623
 0.27
 2,892,143
 2,411
 0.33
 (371) (417) (788)
Total interest-bearing deposits17,836,411
 3,789
 0.08
 17,782,706
 4,452
 0.10
 (399) (264) (663)
Repurchase agreements615,244
 622
 0.40
 726,318
 485
 0.27
 (88) 225
 137
Other short-term borrowings107,551
 1,031
 3.77
 12,749
 52
 1.63
 650
 329
 979
Long-term obligations866,198
 5,747
 2.61
 835,509
 5,876
 2.81
 252
 (381) (129)
Total interest-bearing liabilities19,425,404
 $11,189
 0.23
%19,357,282
 $10,865
 0.22
%$415
 $(91) $324
Demand deposits11,689,432
     10,448,771
          
Other liabilities420,322
     361,516
          
Shareholders' equity3,329,562
     3,056,426
          
 Total liabilities and shareholders' equity$34,864,720
     $33,223,995
          
Interest rate spread    3.24
%    3.06
%     
Net interest income and net yield                 
on interest-earning assets  $276,002
 3.34%  $245,330
 3.14
%$19,786
 $10,886
 $30,672
(1)Loans and leases include PCI loans and non-PCI loans, nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. Loan fees were $15.6$39.8 million and $12.1$3.0 million for the three months ended December 31, 20172020, and 2016,2019, respectively.
(2)Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a taxable-equivalent basis assuming statutory federal income tax rates of 35.0 percent for each period and21.0% as well as state income tax rates of 3.1 percent3.5% and 3.1 percent3.9% for the three months ended December 31, 20172020, and 2016,2019, respectively. The taxable-equivalent adjustment was $1,233$654 thousand and $1,413$921 thousand for the three months ended December 31, 20172020, and 2016,2019, respectively. The rate/volume variance is allocated equally between the changes in volume and rate.




57
Item 9A. 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 Annual 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 fourth quarter of 2017 that have materially affected, or are reasonably likely to materially affect, BancShares' internal control over financial reporting.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of First Citizens BancShares, Inc. (BancShares) is responsible for establishing and maintaining adequate internal control over financial reporting. BancShares’ internal control system was designed to provide reasonable assurance to the company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. As permitted by guidance provided by the Staff of U.S. Securities and Exchange Commission, the scope of management's assessment of internal control over financial reporting as of December 31, 2017 has excluded Harvest Community Bank (HCB) acquired on January 13, 2017 and Guaranty Bank (Guaranty) acquired on May 5, 2017. HCB and Guaranty represented 0.27 percent and 2.04 percent of consolidated revenue (total interest income and total noninterest income, excluding any related gains on acquisition) for the year ended December 31, 2017, respectively, and 0.20 percent and 0.81 percent of consolidated total assets as of December 31, 2017, respectively.
BancShares' management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2017. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, BancShares' management believes that, as of December 31, 2017, BancShares' internal control over financial reporting is effective based on those criteria.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting. A material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.
BancShares' independent registered public accounting firm has issued an audit report on the company's internal control over financial reporting. This report appears on page 64.




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of First Citizens BancShares, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of First Citizens BancShares, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard

As discussed in Notes A and E to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Accounting Standards Codification (ASC) Topic 326 Financial Instruments – Credit Losses.

Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses (ACL)

The Company’s loans and leases portfolio totaled $32.8 billion and the associated allowance for credit losses (ACL) was $224.3 million at December 31, 2020. As described in Note A, the Company adopted ASC 326, Financial Instruments – Credit Losses as of January 1, 2020.As described in Notes A and E of the consolidated financial statements, the ACL represents management’s best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and estimated prepayments. Loans within the various reporting classes are segregated into pools with similar risk characteristics and each have a model that is utilized to estimate the ACL. These models estimate the probability of default and loss given default
58

for individual loans within each pool based on historical loss experience, borrower characteristics, collateral type, forecasts of relevant economic conditions, expected future recoveries and other factors. The Company uses a two-year reasonable and supportable forecast period which incorporates macroeconomic forecasts. Significant economic factors used in estimating the expected losses include unemployment, gross domestic product, home price and commercial real estate indices. A twelve month straight-line reversion period to historical averages is used for model inputs, however for the commercial card and certain consumer portfolios, immediate reversion to historical net loss rates is utilized. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not captured within the models including credit quality, concentrations, and significant policy and underwriting changes.

We identified the ACL for loans and leases as a critical audit matter. The principal considerations for our determination of the ACL for loans and leases as a critical audit matter includes the subjectivity, complexity and estimation uncertainty involved in determining significant model assumptions and adjusting model outputs to reflect economic and portfolio trends and conditions not captured within the models. This required a high degree of auditor effort, including specialized skills and knowledge, and subjective and complex auditor judgment in evaluating the estimated credit losses for the loan and lease portfolios.

The primary procedures we performed to address this critical audit matter included:

•We obtained an understanding of the Company’s models and the process for establishing the ACL for the loan and lease portfolio, tested the design and operating effectiveness of controls relating to management’s determination of the ACL for loans and leases, including controls over the ACL models and the inputs and assumptions used to support the reserve calculations. Controls over the models include review of the model calculations, the macro-economic forecasts utilized in the models which also included sensitivity and other analysis by management as it relates to unemployment, gross domestic product, home price indices and commercial real estate indices, as well as monitoring of past due trends and adversely classified assets as well as risk ratings by industry. Additionally, we tested controls over the approval of key policies and decisions during the implementation of the new accounting standard and validation of the models.
•We involved valuation specialists to test the appropriateness of the design and operation of the models, including recalculations of modeled ACL reserves on certain portfolios.
•We evaluated the reasonableness of management’s application of industry and qualitative factor adjustments to the ACL, including the comparison of factors considered by management to third party or internal sources as well as evaluated the appropriateness and level of the qualitative factor adjustments.
•We assessed the overall trends in credit quality by comparing the Company’s year-over-year and quarterly changes in qualitative factors and the ACL.
•We evaluated management’s determination of reasonable and supportable forecasts, including comparing key factors to independent sources as well as involving our valuation specialists in testing the application of forecasts in the model calculation.
•We evaluated subsequent events and transactions and considered whether they corroborated or contradicted the Company’s conclusion.

/s/ Dixon Hughes Goodman LLP
We have served as the Company’s auditor since 2004.
Raleigh, North Carolina
February 24, 2021
59


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of First Citizens BancShares, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited First Citizens BancShares, Inc. and Subsidiaries’ (the “Company”) internal control overfinancial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, First Citizens BancShares, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 20172020 and 20162019 and for each of the three years in the three-year period ended December 31, 2017,2020, and our report dated February 21, 201824, 2021 expressed an unqualified opinion on those consolidated financial statements.


Basis for Opinion

The Company’s management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control overfinancial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

As described in Management’s Annual Report on Internal Control Over Financial Reporting, the scope of management’s assessment of internal control over financial reporting as of December 31, 20172020 has excluded Harvest Community Bank (HCB)Financial Holding Company, Inc. acquired on January 13, 2017 and Guaranty Bank (Guaranty) acquired on May 5, 2017.February 1, 2020. We have also excluded HCB and GuarantyCommunity Financial Holding Company, Inc. from the scope of our audit of internal control over financial reporting. HCB and Guaranty represent 0.27Community Financial Holding Company, Inc. represented 0.34 percent and 2.040.22 percent of consolidated revenuerevenues (total interest income and total noninterest income, excluding the related gains on acquisition)income) and consolidated total assets, respectively, for the year ended December 31, 2017, respectively, and 0.20 percent and 0.81 percent of consolidated total assets as of December 31, 2017, respectively.2020.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.



60

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Dixon Hughes Goodman LLP
Charlotte, North Carolina
February 21, 2018




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of First Citizens BancShares, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of First Citizens BancShares, Inc. and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ Dixon Hughes Goodman LLP
We have served as the Company’s auditor since 2004.
Charlotte,Raleigh, North Carolina
February 21, 201824, 2021

61



First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets

(Dollars in thousands, except share data)December 31, 2020December 31, 2019
Assets
Cash and due from banks$362,048 $376,719 
Overnight investments4,347,336 1,107,844 
Investment in marketable equity securities (cost of $84,837 at December 31, 2020 and $59,262 at December 31, 2019)91,680 82,333 
Investment securities available for sale (cost of $6,911,965 at December 31, 2020 and $7,052,152 at December 31, 2019)7,014,243 7,059,674 
Investment securities held to maturity (fair value of $2,838,499 at December 31, 2020 and $30,996 at December 31, 2019)2,816,982 30,996 
Loans held for sale124,837 67,869 
Loans and leases32,791,975 28,881,496 
Allowance for credit losses(224,314)(225,141)
Net loans and leases32,567,661 28,656,355 
Premises and equipment1,251,283 1,244,396 
Other real estate owned50,890 46,591 
Income earned not collected145,694 123,154 
Goodwill350,298 349,398 
Other intangible assets50,775 68,276 
Other assets783,953 610,891 
Total assets$49,957,680 $39,824,496 
Liabilities
Deposits:
Noninterest-bearing$18,014,029 $12,926,796 
Interest-bearing25,417,580 21,504,440 
Total deposits43,431,609 34,431,236 
Securities sold under customer repurchase agreements641,487 442,956 
Federal Home Loan Bank borrowings655,175 572,185 
Subordinated debt504,518 163,412 
Other borrowings88,470 148,318 
FDIC shared-loss payable15,601 112,395 
Other liabilities391,552 367,810 
Total liabilities45,728,412 36,238,312 
Shareholders’ equity
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 8,811,220 and 9,624,310 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively)8,811 9,624 
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at December 31, 2020 and December 31, 2019)1,005 1,005 
Preferred stock - $0.01 par value (10,000,000 shares authorized; 345,000 and 0 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively)339,937 0 
Surplus0 44,081 
Retained earnings3,867,252 3,658,197 
Accumulated other comprehensive income (loss)12,263 (126,723)
Total shareholders’ equity4,229,268 3,586,184 
Total liabilities and shareholders’ equity$49,957,680 $39,824,496 
(Dollars in thousands, except share data)December 31, 2017 December 31, 2016
Assets   
Cash and due from banks$336,150
 $539,741
Overnight investments1,387,927
 1,872,594
Investment securities available for sale (cost of $7,229,014 at December 31, 2017 and $7,079,287 at December 31, 2016)7,180,180
 7,006,580
Investment securities held to maturity (fair value of $81 at December 31, 2017 and $104 at December 31, 2016)76
 98
Loans held for sale51,179
 74,401
Loans and leases23,596,825
 21,737,878
Allowance for loan and lease losses(221,893) (218,795)
Net loans and leases23,374,932
 21,519,083
Premises and equipment1,138,431
 1,133,044
Other real estate owned51,097
 61,231
Income earned not collected95,249
 79,839
FDIC shared-loss receivable2,223
 4,172
Goodwill150,601
 150,601
Other intangible assets73,096
 78,040
Other assets686,371
 471,412
Total assets$34,527,512
 $32,990,836
Liabilities   
Deposits:   
Noninterest-bearing$11,237,375
 $10,130,549
Interest-bearing18,028,900
 18,030,794
Total deposits29,266,275
 28,161,343
Short-term borrowings693,807
 603,487
Long-term obligations870,240
 832,942
FDIC shared-loss payable101,342
 97,008
Other liabilities261,784
 283,629
Total liabilities31,193,448
 29,978,409
Shareholders’ equity   
Common stock:   
Class A - $1 par value (16,000,000 shares authorized; 11,005,220 shares issued and outstanding at December 31, 2017 and December 31, 2016)11,005
 11,005
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at December 31, 2017 and December 31, 2016)1,005
 1,005
Preferred stock - $0.01 par value (10,000,000 shares authorized; no shares issued and outstanding at December 31, 2017 and December 31, 2016)—
 —
Surplus658,918
 658,918
Retained earnings2,785,430
 2,476,691
Accumulated other comprehensive loss(122,294) (135,192)
Total shareholders’ equity3,334,064
 3,012,427
Total liabilities and shareholders’ equity$34,527,512
 $32,990,836


See accompanying Notes to Consolidated Financial Statements.

62

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
 
Year ended December 31 Year ended December 31
(Dollars in thousands, except share and per share data)2017 2016 2015(Dollars in thousands, except share and per share data)202020192018
Interest income     Interest income
Loans and leases$955,637
 $876,472
 $874,892
Loans and leases$1,332,720 $1,217,306 $1,073,051 
Investment securities:     
U. S. Treasury17,657
 11,837
 15,353
Government agency634
 2,883
 6,843
Mortgage-backed securities98,341
 79,336
 65,815
Corporate bonds3,877
 1,783
 —
Other698
 912
 239
Total investment securities interest and dividend income121,207
 96,751
 88,250
Investment securities interest and dividend incomeInvestment securities interest and dividend income144,459 160,460 150,709 
Overnight investments26,846
 14,534
 6,067
Overnight investments6,847 26,245 21,997 
Total interest income1,103,690
 987,757
 969,209
Total interest income1,484,026 1,404,011 1,245,757 
Interest expense     Interest expense
Deposits16,196
 18,169
 21,230
Deposits66,635 76,254 22,483 
Short-term borrowings4,838
 1,965
 4,660
Long-term obligations22,760
 22,948
 18,414
Securities sold under customer repurchase agreementsSecurities sold under customer repurchase agreements1,610 1,995 1,594 
Federal Home Loan Bank borrowingsFederal Home Loan Bank borrowings9,763 5,472 5,801 
Subordinated debtSubordinated debt16,074 7,099 6,277 
Other borrowingsOther borrowings1,775 1,822 702 
Total interest expense43,794
 43,082
 44,304
Total interest expense95,857 92,642 36,857 
Net interest income1,059,896
 944,675
 924,905
Net interest income1,388,169 1,311,369 1,208,900 
Provision for loan and lease losses25,692
 32,941
 20,664
Net interest income after provision for loan and lease losses1,034,204
 911,734
 904,241
Provision for credit lossesProvision for credit losses58,352 31,441 28,468 
Net interest income after provision for credit lossesNet interest income after provision for credit losses1,329,817 1,279,928 1,180,432 
Noninterest income     Noninterest income
Gain on acquisitions134,745
 5,831
 42,930
Cardholder services95,365
 83,417
 77,342
Merchant services103,962
 95,774
 84,207
Wealth management servicesWealth management services102,776 99,241 97,966 
Service charges on deposit accounts101,201
 89,359
 90,546
Service charges on deposit accounts87,662 105,191 105,486 
Wealth management services86,719
 80,221
 82,865
Securities gains, net4,293
 26,673
 10,817
Cardholder services, netCardholder services, net74,291 69,078 65,478 
Mortgage incomeMortgage income39,592 21,126 16,433 
Other service charges and fees28,321
 27,011
 23,987
Other service charges and fees30,911 31,644 30,606 
Mortgage income23,251
 20,348
 18,168
Merchant services, netMerchant services, net24,122 24,304 24,504 
Insurance commissions12,465
 11,150
 11,757
Insurance commissions14,544 12,810 12,702 
ATM income9,143
 7,283
 7,119
ATM income5,758 6,296 7,980 
Adjustments to FDIC shared-loss receivable(6,232) (9,725) (19,009)
Net impact from FDIC shared-loss agreement terminations(45) 16,559
 —
Realized gains on investment securities available for sale, netRealized gains on investment securities available for sale, net60,253 7,115 351 
Marketable equity securities gains (losses), netMarketable equity securities gains (losses), net29,395 20,625 (7,610)
Gain on extinguishment of debtGain on extinguishment of debt0 0 26,553 
Other47,841
 34,170
 36,359
Other7,446 18,431 19,700 
Total noninterest income641,029
 488,071
 467,088
Total noninterest income476,750 415,861 400,149 
Noninterest expense     Noninterest expense
Salaries and wages475,214
 428,351
 429,742
Salaries and wages590,020 551,112 527,691 
Employee benefits113,231
 104,518
 113,309
Employee benefits132,244 120,501 118,203 
Occupancy expense104,690
 102,609
 98,191
Occupancy expense117,169 111,179 109,169 
Equipment expense97,478
 92,501
 92,639
Equipment expense115,535 112,290 102,909 
Merchant processing78,537
 71,150
 62,473
Cardholder processing30,573
 29,207
 25,296
Processing fees paid to third partiesProcessing fees paid to third parties44,791 29,552 30,017 
FDIC insurance expense22,191
 20,967
 18,340
FDIC insurance expense12,701 10,664 18,890 
Collection and foreclosure-related expenses14,407
 13,379
 12,311
Collection and foreclosure-related expenses13,658 11,994 16,567 
Merger-related expenses9,015
 5,341
 14,174
Merger-related expenses17,450 17,166 6,462 
Other186,199
 180,715
 172,440
Other145,117 139,283 147,063 
Total noninterest expense1,131,535
 1,048,738
 1,038,915
Total noninterest expense1,188,685 1,103,741 1,076,971 
Income before income taxes543,698
 351,067
 332,414
Income before income taxes617,882 592,048 503,610 
Income taxes219,946
 125,585
 122,028
Income taxes126,159 134,677 103,297 
Net income$323,752
 $225,482
 $210,386
Net income$491,723 $457,371 $400,313 
Net income per share$26.96
 $18.77
 $17.52
Dividends declared per share$1.25
 $1.20
 $1.20
Average shares outstanding12,010,405
 12,010,405
 12,010,405
Less: Preferred stock dividendsLess: Preferred stock dividends14,062 0 0 
Net income available to common shareholdersNet income available to common shareholders$477,661 $457,371 $400,313 
Weighted average common shares outstandingWeighted average common shares outstanding10,056,654 11,141,069 11,938,439 
Earnings per common shareEarnings per common share$47.50 $41.05 $33.53 
Dividends declared per common shareDividends declared per common share1.67 1.60 1.45 


See accompanying Notes to Consolidated Financial Statements.

63



First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income


Year ended December 31 Year ended December 31
2017 2016 2015 202020192018
(Dollars in thousands) (Dollars in thousands)
Net income$323,752
 $225,482
 $210,386
Net income$491,723 $457,371 $400,313 
Other comprehensive income (loss)     
Unrealized gains (losses) on securities:     
Change in unrealized securities gains (losses) arising during period28,166
 (21,530) (22,030)
Other comprehensive incomeOther comprehensive income
Unrealized gains on securities available for sale:Unrealized gains on securities available for sale:
Unrealized gains on securities available for sale arising during the periodUnrealized gains on securities available for sale arising during the period155,009 64,644 29,170 
Tax effect(10,531) 7,584
 8,486
Tax effect(35,652)(14,868)(6,709)
Reclassification adjustment for net gains realized and included in income before income taxes(4,293) (26,673) (10,817)
Reclassification adjustment for realized gains on securities available for sale included in income before income taxesReclassification adjustment for realized gains on securities available for sale included in income before income taxes(60,253)(7,115)(351)
Tax effect1,588
 9,869
 4,138
Tax effect13,858 1,636 81 
Total change in unrealized gains (losses) on securities, net of tax14,930
 (30,750) (20,223)
Change in fair value of cash flow hedges:     
Change in unrecognized loss on cash flow hedges—
 1,429
 2,908
Unrealized gains on securities available for sale arising during the period, net of taxUnrealized gains on securities available for sale arising during the period, net of tax72,962 44,297 22,191 
Unrealized gains (losses) on securities available for sale transferred from/to held to maturity:Unrealized gains (losses) on securities available for sale transferred from/to held to maturity:
Unrealized gains (losses) on securities available for sale transferred from/to held to maturityUnrealized gains (losses) on securities available for sale transferred from/to held to maturity5,894 72,512 (109,507)
Tax effect—
 (537) (1,136)Tax effect(1,356)(16,678)25,186 
Total change in unrecognized loss on cash flow hedges, net of tax—
 892
 1,772
Change in pension obligation:     
Change in pension obligation(12,945) (70,424) 691
Reclassification adjustment for accretion of unrealized (gains) losses on securities available for sale transferred to held to maturityReclassification adjustment for accretion of unrealized (gains) losses on securities available for sale transferred to held to maturity(495)19,889 17,106 
Tax effectTax effect114 (4,574)(3,934)
Total change in unrealized gains (losses) on securities available for sale transferred to held to maturity, net of taxTotal change in unrealized gains (losses) on securities available for sale transferred to held to maturity, net of tax4,157 71,149 (71,149)
Defined benefit pension items:Defined benefit pension items:
Actuarial gains (losses) arising during the periodActuarial gains (losses) arising during the period55,023 (20,049)(32,012)
Tax effect4,789
 25,077
 (297)Tax effect(12,656)4,611 7,363 
Amortization of actuarial losses and prior service cost9,720
 7,069
 11,586
Amortization of actuarial losses and prior service cost25,324 10,981 13,981 
Tax effect(3,596) (2,616) (4,988)Tax effect(5,824)(2,525)(3,216)
Total change in pension obligation, net of tax(2,032) (40,894) 6,992
Total change from defined benefit plans, net of taxTotal change from defined benefit plans, net of tax61,867 (6,982)(13,884)
Other comprehensive income (loss)12,898
 (70,752) (11,459)Other comprehensive income (loss)138,986 108,464 (62,842)
Total comprehensive income$336,650
 $154,730
 $198,927
Total comprehensive income$630,709 $565,835 $337,471 
See accompanying Notes to Consolidated Financial Statements.




64


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
Class A
Common Stock		Class B
Common Stock		Preferred StockSurplusRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity
(Dollars in thousands, except share and per share data)
Balance at December 31, 2017$11,005 $1,005 $0 $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— — — — 400,313 — 400,313 
Other comprehensive loss, net of tax— — — — — (62,842)(62,842)
Repurchase of 382,000 shares of Class A common stock(382)— — (164,956)— — (165,338)
Cash dividends declared ($1.45 per common share)
Class A common stock— — — — (15,785)— (15,785)
Class B common stock— — — — (1,458)— (1,458)
Balance at December 31, 201810,623 1,005 0 493,962 3,218,551 (235,187)3,488,954 
Net income— — — — 457,371 — 457,371 
Other comprehensive income, net of tax— — — — — 108,464 108,464 
Repurchase of 998,910 shares of Class A common stock(999)— — (449,881)— — (450,880)
Cash dividends declared ($1.60 per common share)
Class A common stock— — — — (16,117)— (16,117)
Class B common stock0 0 — 0 (1,608)0 (1,608)
Balance at December 31, 20199,624 1,005 0 44,081 3,658,197 (126,723)3,586,184 
Cumulative effect of adoption of ASC 326— — — — 36,943 — 36,943 
Net income— — — — 491,723 — 491,723 
Other comprehensive income, net of tax— — — — — 138,986 138,986 
Issuance of preferred stock— — 339,937 — — — 339,937 
Repurchase of 813,090 shares of Class A common stock(813)— — (44,081)(288,861)— (333,755)
Cash dividends declared ($1.67 per common share)
Class A common stock— — — — (15,010)— (15,010)
Class B common stock— — — — (1,678)— (1,678)
Preferred stock dividends declared— — — — (14,062)— (14,062)
Balance at December 31, 2020$8,811 $1,005 $339,937 $0 $3,867,252 $12,263 $4,229,268 

See accompanying Notes to Consolidated Financial Statements.

65


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ EquityCash Flows
 Year ended December 31
(Dollars in thousands)202020192018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$491,723 $457,371 $400,313 
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses on loans and leases58,352 31,441 28,468 
Deferred tax (benefit) expense(25,535)54,598 (13,377)
Net (increase) decrease in current tax receivable(5,894)(19,564)23,353 
Depreciation and amortization108,641 103,828 96,781 
Net (decrease) increase in accrued interest payable(8,683)14,412 (240)
Net increase in income earned not collected(21,982)(4,151)(10,785)
Contribution to pension plans(100,000)(3,592)(50,000)
Realized gains on investment securities available for sale, net(60,253)(7,115)(351)
Marketable equity securities (gains) losses, net(29,395)(20,625)7,610 
Gain on extinguishment of debt0 0 (26,553)
Origination of loans held for sale(1,078,096)(736,015)(593,307)
Proceeds from sale of loans held for sale1,045,937 731,803 608,549 
Gain on sale of loans(37,594)(15,183)(11,210)
Net write-downs/losses on other real estate owned4,056 2,664 4,390 
Net accretion of premiums and discounts(8,513)(27,263)(32,291)
Amortization of intangible assets32,801 23,861 23,648 
Net change in mortgage servicing rights(12,149)(5,927)(5,258)
Net change in other assets(7,286)(24,274)(5,076)
Net change in other liabilities(6,115)(15,992)9,105 
Net cash provided by operating activities340,015 540,277 453,769 
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans outstanding(3,803,188)(1,282,880)(1,023,885)
Purchases of investment securities available for sale(8,678,543)(4,705,038)(1,451,287)
Purchases of investment securities held to maturity(1,633,165)(223,598)(97,827)
Purchases of marketable equity securities(333,140)(26,166)(2,818)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity301,347 341,077 296,632 
Proceeds from maturities, calls, and principal repayments of investment securities available for sale2,791,291 2,345,512 1,664,730 
Proceeds from sales of investment securities available for sale4,585,002 2,308,856 360,218 
Proceeds from sales of marketable equity securities352,835 56,749 9,528 
Net (increase) decrease in overnight investments(3,204,363)(65,181)601,979 
Proceeds from sales of loans held for investment13,368 24,247 9,591 
Cash paid to FDIC for settlement of shared-loss agreement(99,468)0 0 
Proceeds from sales of other real estate owned28,280 25,918 28,128 
Proceeds from sales of premises and equipment1,369 132 1,721 
Purchases of premises and equipment(133,384)(121,077)(140,444)
Business acquisitions, net of cash acquired(59,999)(236,728)(155,126)
Net cash (used in) provided by investing activities(9,871,758)(1,558,177)101,140 
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in time deposits(1,010,190)284,611 33,023 
Net increase in demand and other interest-bearing deposits9,989,107 1,154,815 457,196 
Net decrease in short-term borrowings(96,746)(27,703)(246,517)
Repayment of long-term obligations(86,737)(73,284)(752,447)
Origination of long-term obligations400,000 200,000 125,000 
Net proceeds from subordinated notes issuance345,849 0 0 
Net proceeds from preferred stock issuance339,937 0 0 
Repurchase of common stock(333,755)(453,123)(163,095)
Cash dividends paid(30,393)(18,137)(16,779)
Net cash provided by (used in) financing activities9,517,072 1,067,179 (563,619)
Change in cash and due from banks(14,671)49,279 (8,710)
Cash and due from banks at beginning of period376,719 327,440 336,150 
Cash and due from banks at end of period$362,048 $376,719 $327,440 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest$104,567 $78,230 $37,097 
Income taxes116,583 83,038 73,806 
Significant noncash investing and financing activities:
Transfers of loans to other real estate11,635 14,639 23,375 
Dividends declared but not paid4,613 4,256 4,668 
Net reclassification of portfolio loans from (to) loans held for sale1,687 22,034 (2,433)
Transfer of investment securities available for sale to (from) held to maturity1,460,745 (2,080,617)2,485,761 
Transfer of investment securities available for sale to marketable equity securities0 0 107,578 
Transfers of premises and equipment to other real estate15,187 7,045 1,622 
Premises and equipment acquired through finance leases and other financing arrangements0 0 12,196 
Unsettled common stock repurchases0 0 2,243 

 
Class A
Common Stock
 
Class B
Common Stock
 Surplus 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
(Dollars in thousands, except share data) 
Balance at December 31, 2014$11,005
 $1,005
 $658,918
 $2,069,647
 $(52,981) $2,687,594
Net income—
 —
 —
 210,386
 —
 210,386
Other comprehensive loss, net of tax—
 —
 —
 —
 (11,459) (11,459)
Cash dividends ($1.20 per share)—
 —
 —
 (14,412) —
 (14,412)
Balance at December 31, 201511,005
 1,005
 658,918
 2,265,621
 (64,440) 2,872,109
Net income—
 —
 —
 225,482
 —
 225,482
Other comprehensive loss, net of tax—
 —
 —
 —
 (70,752) (70,752)
Cash dividends ($1.20 per share)—
 —
 —
 (14,412) —
 (14,412)
Balance at December 31, 201611,005
 1,005
 658,918
 2,476,691
 (135,192) 3,012,427
Net income—
 —
 —
 323,752
 —
 323,752
Other comprehensive income, net of tax—
 —
 —
 —
 12,898
 12,898
Cash dividends ($1.25 per share)—
 —
 —
 (15,013) —
 (15,013)
Balance at December 31, 2017$11,005
 $1,005
 $658,918
 $2,785,430
 $(122,294) $3,334,064



See accompanying Notes to Consolidated Financial Statements.



First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
66
 Year ended December 31
(Dollars in thousands)2017 2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES 
Net income$323,752
 $225,482
 $210,386
Adjustments to reconcile net income to cash provided by operating activities:     
Provision for loan and lease losses25,692
 32,941
 20,664
Deferred tax expense125,838
 33,146
 550
Net change in current taxes(10,616) (24,380) (19,477)
Depreciation90,804
 88,777
 87,717
Net change in accrued interest payable155
 (1,916) (2,481)
Net change in income earned not collected(8,899) (7,805) (12,782)
Gain on acquisitions(134,745) (5,831) (42,930)
Gain on branch sale—
 —
 (216)
Net securities gains(4,293) (26,673) (10,817)
Loss on termination of FDIC shared-loss agreements45
 3,377
 —
Origination of loans held for sale(622,503) (795,963) (685,631)
Proceeds from sale of loans held for sale660,808
 797,123
 701,412
Gain on sale of loans held for sale(14,843) (15,795) (11,851)
Gain on sale of portfolio loans(1,007) (3,758) —
Net write-downs/losses on other real estate4,460
 6,201
 2,168
Gain on sale of premises and equipment(524) —
 —
Gain on extinguishment of long-term obligations(919) (1,717) —
Net amortization of premiums and discounts(40,028) (44,618) (85,066)
Amortization of intangible assets22,842
 21,808
 22,894
Reduction in FDIC receivable for shared-loss agreements7,764
 14,745
 47,044
Net change in FDIC payable for shared-loss agreements4,334
 (11,245) 9,918
Net change in other assets(46,920) (27,873) (12,904)
Net change in other liabilities(29,542) (25,520) 14,458
Net cash provided by operating activities351,655
 230,506
 233,056
CASH FLOWS FROM INVESTING ACTIVITIES     
Net change in loans outstanding(1,213,686) (1,214,433) (1,311,447)
Purchases of investment securities available for sale(3,648,312) (4,086,855) (2,467,993)
Proceeds from maturities/calls of investment securities held to maturity22
 157
 263
Proceeds from maturities/calls of investment securities available for sale1,842,563
 2,149,130
 1,478,608
Proceeds from sales of investment securities available for sale1,345,746
 1,829,305
 1,286,120
Net change in overnight investments586,279
 233,433
 (338,213)
Cash paid to the FDIC for shared-loss agreements(7,440) (21,059) (33,296)
Net cash paid to the FDIC for termination of shared-loss agreements(285) (20,115) —
Proceeds from sales of other real estate40,709
 34,944
 80,932
Proceeds from sale of premises and equipment3,061
 —
 —
Proceeds from sales of portfolio loans162,649
 77,665
 45,862
Additions to premises and equipment(84,798) (81,841) (89,734)
Net cash used in branch sale—
 —
 (22,242)
Net cash acquired in business acquisitions304,820
 (727) 123,137
Net cash used by investing activities(668,672) (1,100,396) (1,248,003)
CASH FLOWS FROM FINANCING ACTIVITIES     
Net decrease in time deposits(538,250) (505,548) (590,773)
Net increase in demand and other interest-bearing deposits539,120
 1,287,856
 1,607,487
Net decrease in short-term borrowings(44,680) (33,072) (397,952)
Repayment of long-term obligations(6,955) (9,279) (5,896)
Origination of long-term obligations175,000
 150,000
 350,000
Cash dividends paid(10,809) (14,412) (18,015)
Net cash provided by financing activities113,426
 875,545
 944,851
Change in cash and due from banks(203,591) 5,655
 (70,096)
Cash and due from banks at beginning of period539,741
 534,086
 604,182
Cash and due from banks at end of period$336,150
 $539,741
 $534,086
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION     
Cash paid during the period for:     
Interest$43,639
 $44,998
 $46,785
Income taxes88,565
 108,741
 136,900
Noncash investing and financing activities:     
Transfers of loans to other real estate34,980
 35,272
 55,032
Dividends declared but not paid4,204
 —
 —
Unsettled sales of investment securities309,623
 —
 —
Reclassification of portfolio loans to loans held for sale161,719
 73,907
 —
See accompanying Notes to Consolidated Financial Statements.



First Citizens BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

NOTE A
ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Nature of Operations
First Citizens BancShares, Inc. (BancShares)(“we,” “us,” “our,” “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)(“FCB,” or “the Bank”), which is headquartered in Raleigh, North Carolina.
FCB operates 545 BancShares and its subsidiaries operate 542 branches in Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Minnesota, Missouri, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia19 states predominantly located in the Southeast, Mid-Atlantic, Midwest and Wisconsin. FCB provides full-service banking services designedWestern United States (the “U.S.”). BancShares seeks to meet the financial needs of individuals and commercial entities in its market areas through a wide range of retail and commercial customers in the markets in which they operate. Thebanking services. Loan services provided include transaction and savings deposit accounts,various types of commercial, business and consumer loans, trustlending. Deposit services include checking, savings, money market and asset management. Investment services, including sales of annuities and third party mutual funds are offered throughtime deposit accounts. First Citizens Investor Services, Inc. (FCIS), title insurance is offered through Neuse Financial Services, Inc., andWealth Management provides holistic, goals-based advisory services encompassing a broad range of client deliverables. These deliverables include wealth planning, discretionary investment advisory services, are provided through First Citizens Asset Management, Inc. (FCAM).insurance, brokerage, defined benefit and defined contribution services, private banking, trust, fiduciary, philanthropy and special asset services.
Principles of Consolidation and Segment ReportingBasis of Presentation
The accounting and reporting policies of BancShares and its subsidiaries are in accordance with accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, BancShares' policies conform to(“GAAP”) and general practices within the accounting and reporting guidelines prescribed by bank regulatory authorities.banking industry.
The consolidated financial statements of BancShares include the accounts of BancShares and its subsidiaries, that are majority or wholly-owned, certain partnership interests and variable interest entities. All material wholly-owned and majority-owned subsidiaries are consolidated unless GAAP requires otherwise. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition.eliminated upon consolidation. BancShares operates with centralized management and combined reporting,reporting; thus, BancShares operates as one1 consolidated reportable segment.
Variable interest entities (“VIE”) are legal entities that either do not have sufficient equity to finance their activities without the support from other parties or whose equity investors lack a controlling financial interest. FCB has investments in certain partnerships and limited liability entities primarily for the purposes of fulfilling Community Reinvestment Act requirements and/or obtaining tax credits. These entitiesthat have been evaluated and determined to be variable interest entities (VIEs). VIEs are legal entities in which equity investors do not have sufficient equity at risk for the entity to independently finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack the power through voting or similar rights to direct the activities of the entity that most significantly impact its economic performance, or do not have the obligation to absorb the expected losses of the entity or the right to receive expected residual returns of the entity.VIEs. Consolidation of a VIE is considered appropriate if a reporting entity holds a controlling financial interest in the VIE. Management concluded thatVIE and is the primary beneficiary. FCB is not the primary beneficiary and does not hold a controlling interest in the VIEs as it does not have the power to direct the activities that most significantly impact the VIEsVIEs’ economic performance. AssetsAs such, assets and liabilities of these entities are not consolidated into the financial statements of FCB or BancShares. The recorded investment in these entities is reported within other assets in the Consolidated Balance Sheets.assets.
Reclassifications
In certain instances, amounts reported in prior years'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'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 affectimpacting the amounts reported. Actual results could differ from those estimates. The estimates BancShares considers significant are the allowance for credit losses, fair value measurements, and different assumptions in the application of these policies could result in material changes in BancShares' consolidated financial position, the consolidated results of its operations or related disclosures. Material estimates that are particularly susceptible to significant change include:
Allowance for loan and lease losses;
Fair value of financial instruments, including acquired assets and assumed liabilities;
Pension plan assumptions;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash flow estimates on purchased credit-impaired (PCI) loans;
Goodwill and other intangible assets;
FDIC shared-loss receivable and payable; and
Income tax assets, liabilities and expenseincome taxes.
Business Combinations
BancShares accounts for all business combinations using the acquisition method of accounting. Under this method, of accounting, acquired assets and assumed liabilities are included with the acquirer'sacquirer’s accounts as of the date of acquisition, with any excess of purchase price over the fair value of the net assets acquired recognized as either finite lived intangibles or capitalized as goodwill. In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred. See Note B, Business Combinations, for additional information regarding Business Combinations.information.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks and federal funds sold. Cash and cash equivalents have initial maturities of three months or less. The carrying value of cash and cash equivalents approximates its fair value due to its short-term nature.
Investment
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Debt Securities
BancShares classifies marketable investmentdebt securities as held to maturity (“HTM”) or available for sale or trading. At December 31, 2017 and 2016, BancShares had no investment securities held for trading purposes. Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to interest income using the interest method.
(“AFS”). Debt securities are classified as held to maturity whereHTM when BancShares has both the intent and ability to hold the securities to maturity. TheseHTM securities are reported at amortized cost.
Investment Other debt securities that may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements or unforeseen changes in market conditions, are classified as available for sale. Securities available for sale areAFS and reported at estimated fair value, with unrealized gains and losses, net of income taxes, reported in accumulated other comprehensive income or loss, netAccumulated Other Comprehensive Income (“AOCI”). Amortization of deferred income taxes,premiums and accretion of discounts for debt securities are recorded in the shareholders' equity section of the Consolidated Balance Sheets. Gains orinterest income. Realized gains and losses realized from the sale of debt securities available for sale are determined by specific identification on a trade date basis and are included in noninterest income.
BancShares performs pre-purchase due diligence and evaluates each heldthe credit risk of AFS and HTM debt securities purchased directly into our portfolio or via acquisition. If securities have evidence of more than insignificant credit deterioration since issuance, they are designated as purchased credit deteriorated (“PCD”). PCD debt securities are recorded at fair value at the date of acquisition, which includes an associated allowance for credit losses (“ACL”) that is added to maturitythe purchase price or fair value to arrive at the Day 1 amortized cost basis. Excluding the ACL, the difference between the purchase price and available for sale securitythe Day 1 amortized cost is amortized or accreted to interest income over the contractual life of the securities using the effective interest method.
For AFS debt securities, management performs a quarterly analysis of the investment portfolio to evaluate securities currently in aan unrealized loss position for other-than-temporary impairment (OTTI) at least quarterly.potential credit-related impairment. If BancShares considers such factors as the length of time and the extent to which the market value has been below amortized cost, long term expectations and recent experience regarding principal and interest payments, BancShares' intentintends to sell a security, or does not have the intent and whether it is more likely than not that it would be requiredability to sell those securitieshold a security before the anticipated recovery ofrecovering the amortized cost, basis. Thethe entirety of the unrealized loss is immediately recorded in earnings. For the remaining securities, an analysis is performed to determine if any portion of the unrealized loss recorded relates to credit componentimpairment. If credit-related impairment exists, the amount is recorded through the ACL and related provision. This review includes indicators such as changes in credit rating, delinquency, bankruptcy or other significant news event impacting the issuer.
BancShares’ portfolio of an OTTI lossHTM debt securities is made up of mortgage-backed securities issued by government agencies and government sponsored entities. Given the historically strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, we determined 0 expected credit losses on the HTM portfolio.
Equity Securities
Equity securities are recorded on a trade date basis and measured at fair value. Realized and unrealized gains and losses are determined by specific identification and are included in noninterest income. Non-marketable equity securities are securities with no readily determinable fair values and are measured at cost. BancShares evaluates its non-marketable equity securities for impairment and recoverability of the recorded investment by considering positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience. Impairment is assessed at each reporting period and if identified, is recognized in earningsnoninterest expense. Non-marketable equity securities were $11.6 million and the non-credit component is recognized$12.5 million at December 31, 2020 and 2019, respectively, and are included in accumulated other comprehensive income in situations where BancShares does not intend to sell the security, and it is more likely than not that BancShares will not be required to sell the security prior to recovery.assets.
Non-marketableOther Securities
Federal law requires a member institution ofMembership in the Federal Home Loan Bank (FHLB) system to purchase and hold(“FHLB”) network requires ownership of FHLB restricted stock of its district FHLB according to a predetermined formula.stock. This stock is restricted in thatas it may only be sold to the FHLB and all sales must be at par. Accordingly, the FHLB restricted stock is carried at cost, less any applicable impairment charges.
Non-marketable securities are periodically evaluated for impairment. BancShares considers positivecharges 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 recorded investment. Non-marketable securities areis recorded within other assets in the Consolidated Balance Sheets.assets. FHLB and non-marketable securities were $53.0restricted stock was $45.4 million and $43.8$43.0 million at December 31, 20172020 and 2016,2019, respectively.


70
Table Additionally, BancShares holds approximately 354,000 shares of ContentsVisa Class B common stock. Visa Class B shares are not considered to have a readily determinable fair value and are recorded at $0.
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments in Qualified Affordable Housing Projects
BancShares and FCB have investments in certain partnerships and limited liability entities that typically include qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. These investments are accounted for using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received, and the net investment performance is recognized in the income statement as a component of income tax expense. All of the investments held in qualified affordable housing projects qualify for the proportional amortization method and were $128.0totaled $163.9 million and $109.8$167.8 million at December 31, 20172020 and December 31, 2016,2019, respectively, and are included in other assets on the Consolidated Balance Sheets.assets.
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Loans Held For Sale
BancShares elected to apply the fair value option for new originations of prime residential mortgage loans originated to be sold. BancShares elected the fair value option and accounts for the forward commitments usedsold to economically hedge the loans held for sale at fair value.investors. Gains and losses on sales of mortgage loans are recognized in the Consolidated Statements of Income inwithin mortgage income. Origination fees collected are deferred and recorded in mortgage income in the period the corresponding loan is sold.
Loans and Leases
BancShares'BancShares’ accounting methods for loans and leases differ dependingdepends on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit impaired (PCI) or non-PCI loans. All acquired loans are recorded at fair value atdeterioration since origination as of the date of acquisition.
Non-Purchased Credit Impaired (Non-PCI)Deteriorated Loans
Non-Purchased Credit Deteriorated (“Non-PCD”) loans consist of loans originated by BancShares and Leasesloans purchased from other institutions that do not reflect more than insignificant credit deterioration at acquisition.
Loans and leasesOriginated loans for which management has the intent and ability to hold for the foreseeable future are classified as held for investment and carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan originations are deferred and recorded as an adjustment to loans and leases outstanding. The net amount of the nonrefundable fees and costs is amortized to interest income over the contractual lives using methods that approximate a constant yield.
Non-PCIPurchased loans include originated commercial, originated noncommercial, purchased non-credit impaired loans and leases and certain purchased revolving credit. Purchased non-credit impaired loans are acquired loans thatwhich do not reflect more than insignificant credit deterioration at acquisition are classified as non-PCD loans. These loans are recorded at fair value at the date of acquisition and an initial allowance is recorded on these assets as provision expense at the date of acquisition. The difference between the fair value and the unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the estimatedcontractual life of the loansloan using the effective interest method or on a straight-line basis for revolving credits.method.
Purchased Credit Impaired (PCI)Deteriorated Loans
PCIPurchased loans which reflect a more than insignificant credit deterioration since origination as of the date of acquisition are classified as PCD and are recorded at acquisition-date amortized cost, which is the purchase price or fair value in a business combination, plus our initial ACL. Excluding the ACL, the difference between the unpaid principal balance and the acquisition date amortized cost is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.
The performance of all loans within the BancShares portfolio is subject to a number of external risks, including but not limited to changes in the overall health of the economy, declines in real estate or other collateral values, changes in the demand for products and services and personal events, such as death, disability or change in marital status. BancShares evaluates and reports its non-PCD and PCD loan portfolios separately, and each non-PCD portfolio is further divided into commercial and consumer segments based on the type of borrower, purpose, collateral and/or our underlying credit management processes. Additionally, non-PCD commercial and consumer loans are assigned to loan classes, which further disaggregate the loan portfolio. PCD loans are reported as a single loan segment and class.
Upon adoption of Accounting Standard Codification (“ASC”) 326, owner occupied and non-owner occupied commercial real estate were segregated into separate classes within the commercial segment. Similarly, consumer auto was segregated into its own class within the consumer segment. These enhancements were made to capture the unique credit characteristics used in our current expected credit loss (“CECL”) models. Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes to the respective classes, while prior period amounts continue to be reported in accordance with previously applicable GAAP and have not been reclassified to conform to the current financial statement presentation.
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Small Business Administration Paycheck Protection Program
The Small Business Administration Paycheck Protection Program (“SBA-PPP”) is one of the centerpieces of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which was passed on March 27, 2020 in response to the outbreak of coronavirus (“COVID-19”) and was supplemented with subsequent legislation. Overseen by the U.S. Treasury Department, the SBA-PPP offered cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020. Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of between eight and 24-weeks after the loan was made as long as the borrower retains its employees and their compensation levels. The CARES Act authorized the SBA to temporarily guarantee these loans. The SBA began processing forgiveness payments during the fourth quarter of 2020.
The Consolidated Apportions Act 2021 was signed into law during the fourth quarter of 2020 and contained provisions for new funding of SBA-PPP loans. We began accepting applications for this round of funding beginning in the first quarter of 2021.
Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate loan class. Origination fees received from the SBA are capitalized into the carrying amount of the loans. The deferred fee income, net of origination costs, is recognized over the life of the loan as an adjustment to yield using the effective interest method.
The following represent our classes of loans as of January 1, 2020 upon adoption of ASC 326 (with the exception of SBA-PPP, which was added during second quarter 2020):
Commercial loans and leases
Construction and land development - Construction and land development consists of loans to finance land for commercial development of real property and construction of multifamily apartments or other commercial properties. These loans are highly dependent on the supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired for development. Deterioration in demand could result in decreased collateral values, which could make repayments of outstanding loans difficult for customers.
Owner occupied commercial mortgage - Owner occupied commercial mortgages consists of loans to purchase or refinance owner occupied nonresidential properties. This includes office buildings, other commercial facilities and farmland. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.
Non-owner occupied commercial mortgage - Non-owner occupied commercial mortgage consists of loans to purchase or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as farmland and multifamily properties. The primary risk associated with income producing commercial mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.
Commercial and industrial and leases - Commercial and industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease.
SBA-PPP - These loans were originated as part of the SBA-PPP to finance payroll and other costs for nonprofit and small businesses impacted by the COVID-19 pandemic. These loans are guaranteed by the SBA and borrowers have the ability to qualify for loan forgiveness through the U.S. Treasury.
Consumer loans
Residential mortgage - Residential mortgage consists of loans to purchase or refinance the borrower’s primary dwelling, secondary residence or vacation home and are often secured by 1-4 family residential properties. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral.
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revolving mortgage - Revolving mortgage consists of home equity lines of credit and other lines of credit or loans secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior lines as a substantial decline in value could render the junior lien position effectively unsecured.
Construction and land development - Construction and land development consists of loans to construct a borrower’s primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date. These loans are typically secured by undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property. There is risk these construction and development projects can experience delays and cost overruns exceeding the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.
Consumer auto loans - Consumer auto loans consist of installment loans to finance purchases of vehicles. These loans include direct auto loans originated in bank branches, as well indirect auto loans originated through agreements with auto dealerships. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.
Other consumer - Other consumer loans consist of loans to finance unsecured home improvements, student loans and revolving lines of credit that can be secured or unsecured, including personal credit cards. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.
Loans and Leases - (Prior to Adoption of ASC 326)
Prior to the adoption of ASC 326, BancShares’ accounting methods for loans and leases depended on whether they were originated or purchased, and if purchased, whether or not the loans reflected credit deterioration at the date of acquisition.
Non-Purchased Credit Impaired (“Non-PCI”) Loans
Non-PCI loans consisted of loans originated by BancShares or loans purchased from other institutions that did not reflect credit deterioration at acquisition.
Originated loans for which management had the intent and ability to hold for the foreseeable future were classified as held for investment and carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan originations were deferred and recorded as an adjustment to loans outstanding. The net amount of the nonrefundable fees and costs was amortized to interest income over the contractual lives using methods that approximated a constant yield.
Purchased loans which did not reflect credit deterioration at acquisition were classified as non-PCI loans. These loans were recorded at fair value at the date of acquisition. No allowance for loanThe difference between the fair value and lease losses is recorded onthe unpaid principal balance at the acquisition date aswas amortized or accreted to interest income over the fair valuecontractual life of the acquired assets incorporates assumptions regarding credit risk.loan using the effective interest method.
PCIPurchased Credit Impaired (“PCI”) Loans
Purchased loans are evaluated at acquisition and where a discount is required at least in part due to credit, the loans are accounted for under the guidance in Accounting Standard Codification (ASC) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. PCI loans reflectwhich reflected credit deterioration since origination, such that it iswas probable at acquisition that BancShares willwould be unable to collect all contractually required payments.payments, were classified as PCI loans. PCI loans were recorded at fair value at the date of acquisition. If the timing and amount of the future cash flows iscould be reasonably estimable,estimated, any excess of cash flows expected at acquisition over the estimated fair value arewere recognized as interest income over the life of the loans using the effective yield method. Subsequent to the acquisition date, increases in cash flows over those expected at the acquisition date arewere recognized prospectively as interest income. Decreases in expected cash flows due to credit deterioration arewere recognized by recording an allowance for loan losses. In the event of prepayment, the remaining unamortized amount was recognized in interest income. To the extent possible, PCI loans were aggregated into pools based upon common risk characteristics and each pool was accounted for as a single unit.
Impaired Loans, Troubled Debt Restructurings (TDR)The performance of all loans within the BancShares portfolio was subject to a number of external risks, including changes in the overall health of the economy, declines in real estate values, changes in the demand for products and Nonperforming Assets
Management will deemservices and personal events, such as death, disability or change in marital status. BancShares evaluated and reported its non-PCI loans and leases to be impaired when,PCI loan portfolios separately, and each portfolio was further divided into commercial and non-commercial segments based on current information and events, it is probable that athe type of borrower, will be unable to pay all amounts due according to the contractual terms of the loan agreement. Generally,purpose, collateral and/or our underlying credit management considers the following loans to be impaired: all TDR loans, commercial and consumer relationships which are nonaccrual or 90+ days past due and greater than $500,000 as well as any other loan management deems impaired. Non-PCI loans and leases $500,000 and greater are individually evaluated for impairment where as those less than $500,000 are collectively evaluated for impairment. When the ultimate collectability of an impaired loan's principal is doubtful, all cash receipts are appliedprocesses.

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Nonperforming Assets and Troubled Debt Restructurings
to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied first to all previously charged-off principal until fully collected, then to interest income, to the extent that any interest has been foregone.
A loan is considered a TDR when both of the following occur: (1) a modification to a borrower's debt agreement is made and (2) a concession is granted for economic or legal reasons related to a borrower's financial difficulties that otherwise would not be granted. TDRs are undertaken in order to improve the likelihood of collection on the loan and may result in a stated interest rate lower than the current market rate for new debt with similar risk, other modifications to the structure of the loan that fall outside of normal underwriting policies and procedures or, in certain limited circumstances, forgiveness of principal or interest. Loans that have been restructured as a TDR are treated and reported as such for the remaining life of the loan. Modifications of PCI loans that are part of a pool accounted for as a single asset are not designated as TDRs. Modifications of non-pooled PCI loans are designated as TDRs in the same manner as non-PCI loans and leases. TDRs can be loans remaining on nonaccrual, moving to nonaccrual or continuing on accruing status, depending on the individual facts and circumstances of the borrower. In circumstances where a portion of the loan balance is charged-off, BancShares typically classifies the remaining balance as nonaccrual.
In connection with commercial TDRs, the decision to maintain accrual status for loans that have been restructured is based on a current credit evaluation of the borrower's financial condition and prospects for repayment under the modified terms. This evaluation includes consideration of the borrower's current capacity to pay, which may include a review of the borrower's current financial statements, an analysis of cash flow documenting the borrower's capacity to pay all debt obligations and an evaluation of secondary sources of payment from the borrower and any guarantors. This process also includes an evaluation of the borrower's payment history, an evaluation of the borrower's willingness to provide information on a timely basis and consideration of offers from the borrower to provide additional collateral or guarantor support. The credit evaluation also reflects consideration of the adequacy of collateral, where applicable, to cover all principal and interest and trends indicating improving profitability and collectability of receivables.Nonperforming Assets
Nonperforming assets (“NPAs”) include nonaccrual loans, past due debt securities and leases and foreclosed property. Foreclosed property consists ofother real estate and other assets acquired as a result of loan defaults.owned.
BancShares classifies all non-PCIAll loans and leasesare classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days or greater delinquent. Generally, commercial loansLoans are generally placed on nonaccrual status when principal or interest becomes 90 days past due or when it is probable thatthe principal or interest is not fully collectible, whichever occurs first. Once a loan is placed on nonaccrual status it is evaluated for impairment and a charge-off is recorded in the amount of the impairment if the loss is deemed confirmed. Consumercollectible. When loans are subject to mandatory charge-off at a specified delinquency date consistent with regulatory guidelines.
Generally, when loans and leases are placed on nonaccrual, status all previously uncollected accrued interest is reversed from interest income.income and the ongoing accrual of interest is discontinued. All payments received thereafter are applied as a reduction of the remaining principal balance as long as doubt exists as to the ultimate collection of the principal. Loans and leases including TDRs, are generally removed from nonaccrual status when they become current as to both principal and interest, the borrower has demonstratedfor a sustained period of repayment performance for a reasonable period, generally a minimum of six months,time and doubtthere is no longer existsconcern as to the collectability of principal and interest.
Debt securities are also classified as past due when the payment of principal and interest based upon contractual terms is 30 days delinquent or greater. Missed interest payments on debt securities are rare. We review all debt securities with delinquent interest and immediately charge off any accrued interest determined to be uncollectible.
Troubled Debt Restructurings
A loan is considered a troubled debt restructuring (“TDR”) when both a modification to a borrower’s debt agreement is made and a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be granted. TDR concessions could include short-term deferrals of interest, modifications of payment terms or, in certain limited instances, forgiveness of principal or interest. Loans restructured as a TDR are treated and reported as such for the remaining life of the loan. TDR loans can be nonaccrual or accrual, depending on the individual facts and circumstances of the borrower. In circumstances where a portion of the loan balance is charged-off, the remaining balance is typically classified as nonaccrual.
Allowance for Credit Losses
Loans
Loans within the various reporting classes are segregated into pools with similar risk characteristics and models are built to estimate the ACL. These loan level ACL models estimate the probability of default and loss given default for individual loans within the risk pool based on historical loss experience, borrower characteristics, collateral type, forecasts of relevant economic conditions, expected future recoveries and other factors. Pools for estimating the ACL are aggregated into loan classes, as described above, which roll up into commercial and consumer loan segments. Non-PCD and PCD loans are modeled together within the loan level models using acquired and PCD indicator variables to provide differentiation of individual loan risk. BancShares uses a two year reasonable and supportable forecast period which incorporates economic forecasts at the time of evaluation. For most pools, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized.
The ACL for SBA-PPP loans originated during 2020 are separately evaluated given the explicit government guarantee. This analysis, which incorporated historical experience with similar SBA guarantees and underwriting, concluded the likelihood of loss was remote and therefore these loans were assigned a 0 expected credit loss in the ACL.
The ACL represents management’s best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and the impact of prepayment expectations. Prepayment assumptions were developed through a review of BancShares’ historical prepayment activity and began with a review of prepayment assumptions utilized in other modeling activities. Estimates for loan losses are determined by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the ACL are recorded with a corresponding entry to provision for credit losses. Loan balances considered uncollectible are charged-off against the ACL. Recoveries of amounts previously charged-off are credited to the ACL.
A primary component of determining the ACL on loans is the actual net loss history of the various loan pools. For commercial pools, key factors utilized in the models include delinquency trends as well as macroeconomic variables such as unemployment and commercial real estate price index. For consumer pools, key factors include delinquency trends and the borrower’s original credit score, as well as other macroeconomic variables such as unemployment, gross domestic product, home price index, and commercial real estate index. As the models project losses over the life of the loans, prepayment assumptions also serve as
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inputs. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not captured within the models including credit quality, concentrations, and significant policy and underwriting changes.
Within our ACL model, TDRs meet the definition of default and are given a 100% probability of default rating. TDRs are not individually evaluated unless determined to be collateral-dependent. Therefore, loss given default is calculated based on the individual risk characteristics of the loan as defined in the model.
When loans do not share risk characteristics similar to others in the pool, the ACL is evaluated on an individual basis. Given that BancShares' CECL models are loan level models, the population of loans evaluated individually is minimal and consists primarily of loans greater than $500 thousand and determined to be collateral-dependent. BancShares elected the practical expedient allowed under ASC 326 to assess the collectability of these loans, where repayment is expected to be provided substantially through operation or sale of collateral, based on the fair value of the underlying collateral. The fair value of the collateral is estimated using appraised and market values (appropriately adjusted for an assessment of the sales and marketing costs when applicable). A specific allowance is established, or partial charge-off is recorded, for the difference between the excess amortized cost of loan and the collateral’s estimated fair value.
Accrued Interest Receivable
BancShares has elected not to measure an ACL for accrued interest receivable and has excluded it from the amortized cost basis of loans and held to maturity debt securities as our accounting policies and credit monitoring provide that uncollectible accrued interest is reversed or written off against interest income in a timely manner.
Unfunded Commitments
A reserve for unfunded commitments is established for off-balance sheet exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). These unfunded commitments are assessed to determine both the probability of funding as well the expectation of future losses. The expected funding balance is used in the probability of default and loss given default models to determine the reserve. The reserve for unfunded commitments was $12.8 million at December 31, 2020, and is recorded within other liabilities with changes recorded through other noninterest expense.
Other Real Estate Owned
Other Real Estate Owned (OREO)
OREO acquired as a result of foreclosure(“OREO”) includes foreclosed real estate property and closed branch properties and is initially recorded at the asset’s estimated fair value less costs to sell. Any excess in the recorded investment in the loan over the estimated fair value less costs to sell is charged-off against the allowance for loan lossesACL at the time of foreclosure. If the estimated value of the OREO exceeds the recorded investment of the loan, the difference is recorded as a gain within other income.
OREO is subsequently carried at the lower of cost or market value less estimated selling costs. OREOcosts and is subject toevaluated at least annual periodic evaluations of the underlying collateral.annually. The periodic evaluations are generally based on the appraised value of the property and may include additional adjustments based upon management'smanagement’s review of the valuation estimate and specific knowledge of the OREO.property. Routine maintenance costs, income and expenses related to the operation of the foreclosed asset, subsequent declines in market value and net gains or losses on disposal are included in collection and foreclosure-related expense.
Covered Assets and Receivable from FDICPayable to the Federal Deposit Insurance Corporation for Shared-Loss Agreements
Assets subject to shared-loss agreements with the FDIC include certain loans and leases and OREO. These shared-loss agreements afford BancShares significant protection as they cover realized losses on certain loans and other assets purchased from the FDIC during the time period specified in the agreements. Realized losses covered include loan contractual balances, accrued interest on loans for up to 90 days, the book value of foreclosed real estate acquired and certain direct costs, less cash or other consideration received by BancShares.

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The FDIC indemnification asset is a receivable recorded for expected losses incurred by the bank subject to shared-loss agreements where the FDIC reimburses a certain percentage (dependent on each agreement). The indemnification asset is measured on the same basis as the underlying assets and initially valued during the same time period. Subsequent to initial valuation, the indemnification asset is adjusted quarterly for changes in loss expectations. The indemnification asset is amortized based on the calculated remaining difference between the carrying value of the indemnification assets and the gross undiscounted cash flows of the asset over the remaining contractual life of the loans or the respective shared-loss agreement, whichever is shorter.
Payable to the FDIC for Shared-Loss Agreements
The purchase and assumption agreements for certain FDIC-assistedFederal Deposit Insurance Corporation (“FDIC”) assisted transactions include payments that may be owed to the FDIC at the termination of the shared-loss agreements. The payment is due 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. The liability is calculated by discounting estimated future payments and is reported in the Consolidated Balance Sheets as an FDIC shared-loss payable. The ultimate settlement amount of the payment is dependent upon the performance of the underlying covered loans, recoveries, the passage of time and actual claims submitted to the FDIC.
Allowance for Loan and Lease Losses (ALLL)
The ALLL represents management's best estimate of probable credit losses within the loan and lease portfolio at the balance sheet date. Management determines the ALLL based on an ongoing evaluation of the loan portfolio. Estimates for loan losses are determined by analyzing historical loan losses, historical loan migration to charge-off experience, current trends in delinquencies and charge-offs, expected cash flows on PCI loans, current assessment of impaired loans, changes in the size, and composition and risk assessment of the loan portfolio. This allowance estimate also contains qualitative components that allow management to adjust reserves based on changes in the economic environment and other factors not captured in the quantitative calculation. Adjustments to the ALLL are recorded with a corresponding entry to provision for loan and lease losses. Loan balances deemed to be uncollectible are charged-off against the ALLL. Recoveries of amounts previously charged-off are generally credited to the ALLL.
Accounting standards require the presentation of certain ALLL information at the portfolio segment level, which represents the level at which the company has developed and documents a systematic methodology to determine its ALLL. BancShares evaluates its loan and lease portfolio using three portfolio segments; non-PCI commercial, non-PCI noncommercial and PCI. The non-PCI commercial segment includes classes as follows: commercial construction and land development, commercial mortgage, commercial and industrial, lease financing and other commercial real estate loans. The non-PCI noncommercial segment includes classes as follows: noncommercial construction and land development, residential mortgage, revolving mortgage and consumer loans. The PCI segment includes classes as follows: commercial construction and land development, commercial mortgage, commercial and industrial, other commercial real estate, noncommercial construction and land development, residential mortgage, and revolving mortgage loans.
A primary component of determining the general allowance for performing and classified loans not analyzed specifically is the actual loss history of the various classes. Loan loss factors based on historical experience may be adjusted for significant factors that in management's judgment affect the collectability of the portfolio at the balance sheet date. For non-PCI commercial loans and leases, management incorporates historical net loss data to develop the applicable loan loss factors. For the non-PCI noncommercial segment, management incorporates specific loan class and delinquency status trends into the loan loss factors. In accordance with our allowance methodology, loan loss factors are monitored quarterly and may be adjusted based on changes in the level of historical net charge-offs and updates by management, such as the number of periods included in the calculation of loss factors, loss severity and portfolio attrition.
The qualitative framework used in estimating the general allowance considers economic conditions, composition of the loan portfolio, trends in delinquent and nonperforming loans, historical loss experience by categories of loans, concentrations of credit, changes in lending policies and underwriting standards, regulatory exam results and other factors indicative of inherent losses remaining in the portfolio. Management may adjust the ALLL by the factors in the qualitative framework to address environmental factors not reflected in the historical experience. These adjustments are specific to the loan class level.
If it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement a specific valuation allowance component is determined when management believes a loss is probable. For purchased impaired loans, the methodology also considers the remaining discounts recognized upon acquisition in estimating a general allowance.


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PCI loans are aggregated into loan pools based upon common risk characteristics or evaluated at the loan level. At each balance sheet date, BancShares evaluates whether the estimated cash flows and corresponding present value of its loans determined using their effective interest rates has decreased and if so, recognizes provision for loan losses. Management continuously monitors and actively manages the credit quality of the entire loan portfolio and adjusts the ALLL to an appropriate level. By assessing the probable estimated incurred losses in the loan portfolio on a quarterly basis, management is able to adjust specific and general loss estimates based upon the most recent information available. Future adjustments to the ALLL may be necessary based on changes in economic and other conditions. Management considers the established ALLL adequate to absorb probable losses that relate to loans and leases outstanding as of December 31, 2017.
Each portfolio segment and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of the loan and lease portfolio and the related ALLL. Management has identified the most significant risks as described below that are generally similar among the segments and classes. While the list is not exhaustive, it provides a description of the risks management has determined are the most significant.
Non-PCI Commercial Loans and Leases
Non-PCI commercial loans or leases, excluding purchased non-impaired loans, purchased leases and certain purchased revolving credit, are centrally underwritten based primarily upon the customer's ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. A complete understanding of the borrower's business, including the experience and background of the principals, is obtained prior to approval. To the extent that the loan or lease is secured by collateral, which is true for the majority of commercial loans and leases, the likely value of the collateral and what level of strength the collateral brings to the transaction is evaluated. To the extent that the principals or other parties provide personal guarantees, the relative financial strength and liquidity of each guarantor is assessed.
The significant majority of relationships in the non-PCI commercial segment are assigned credit risk grades based upon an assessment of conditions that affect the borrower's ability to meet contractual obligations under the loan agreement. This process includes reviewing the borrowers' financial information, payment history, credit documentation, public information and other information specific to each borrower. Credit risk grades are reviewed annually, or at any point management becomes aware of information affecting the borrowers' ability to fulfill their obligations. Our credit risk grading standards are described in Note D.
The impairment assessment and determination of the related specific reserve for each impaired loan is based on the loan's characteristics. Impairment measurement for loans that are dependent on borrower cash flow for repayment is based on the present value of expected cash flows discounted at the loan's effective interest rate. Impairment measurement for most real estate loans, particularly when a loan is considered to be a probable foreclosure, is based on the fair value of the underlying collateral. Collateral is appraised and market value, appropriately adjusted for an assessment of the sales and marketing costs, is used to calculate a fair value estimate. A specific valuation allowance is established or partial charge-off is recorded for the difference between the excess recorded investment in the loan and the loans estimated fair value less costs to sell.
General reserves for collective impairment are based on estimated incurred losses related to unimpaired commercial loans as of the balance sheet date. Incurred loss estimates for the originated commercial segment are based on average loss rates by credit risk ratings, which are estimated using historical loss experience and credit risk rating migrations. Incurred loss estimates may be adjusted through a qualitative assessment to reflect current economic conditions and portfolio trends including credit quality, concentrations, aging of the portfolio and significant policy and underwriting changes.
Common risks to each class of commercial loans include general economic conditions within the markets BancShares serves, as well as risks that are specific to each transaction including demand for products and services, personal events, such as disability or change in marital status and reductions in the value of collateral. Due to the concentration of loans in the medical, dental and related fields, BancShares is susceptible to risks that governmental actions will materially alter the medical care industry in the United States.
In addition to these common risks for the majority of the non-PCI commercial segment, additional risks are inherent in certain classes of non-PCI commercial loans and leases.
Commercial construction and land development
Commercial construction and land development loans are highly dependent on the supply and demand for commercial real estate in the markets served by BancShares as well as the demand for newly constructed residential homes and lots that customers are developing. Deterioration in demand could result in decreases in collateral values and could make repayment of the outstanding loans more difficult for customers.

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Commercial mortgage, commercial and industrial and lease financing
Commercial mortgage loans, commercial and industrial loans and lease financing are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer's business results are materially unfavorable versus the original projections, the ability for the loan to be serviced on a basis consistent with the contractual terms may be at risk. While these loans and leases are generally secured by real property, personal property or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.
Other commercial real estate
Other commercial real estate loans consist primarily of loans secured by multifamily housing and agricultural loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in borrowers having to provide rental rate concessions to achieve adequate occupancy rates. The performance of agricultural loans is highly dependent on favorable weather, reasonable costs for seed and fertilizer and the ability to successfully market the product at a profitable margin. The demand for these products is also dependent on macroeconomic conditions that are beyond the control of the borrower.
Non-PCI Noncommercial Loans and Leases
Non-PCI noncommercial loans, excluding purchased non-impaired loans and certain purchased revolving credit, are centrally underwritten using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use and recent credit inquiries. To the extent that the loan is secured by collateral, the likely value of that collateral is evaluated.
The ALLL for the non-PCI noncommercial segment is primarily calculated on a pooled basis using a delinquency-based approach. Estimates of incurred losses are based on historical loss experience and the migration of receivables through the various delinquency pools applied to the current risk mix. These estimates may be adjusted through a qualitative assessment to reflect current economic conditions, portfolio trends and other factors. The remaining portion of the ALLL related to the non-PCI noncommercial segment results from loans that are deemed impaired.
The impairment assessment and determination of the related specific reserve for each impaired loan is based on the loan's characteristics. Impairment measurement for loans that are dependent on borrower cash flow for repayment is based on the present value of expected cash flows discounted at the loan's effective interest rate. Impairment measurement for most real estate loans, particularly when a loan is considered to be a probable foreclosure, is based on the fair value of the underlying collateral. Collateral is appraised and market value, appropriately adjusted for an assessment of the sales and marketing costs, are used to calculate a fair value estimate. A specific valuation allowances is established or partial charge-off is recorded for the excess of the recorded investment in the loan and the loan’s estimated fair value less cost to sell.
Common risks to each class of noncommercial loans include risks that are not specific to individual transactions such as general economic conditions within the markets BancShares serves, particularly unemployment and declines in real estate values. Personal events such as death, disability or change in marital status also add risk to noncommercial loans.
In addition to these common risks for the majority of noncommercial loans, additional risks are inherent in certain classes of noncommercial loans.
Revolving mortgage
Revolving mortgage loans are often secured by second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render a second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies, disputes with first lienholders and uncertainty regarding the customer's performance with respect to the first lien that may further weaken the collateral position. Further, the open-end structure of these loans creates the risk that customers may draw on the lines in excess of the collateral value if there have been significant declines since origination.
Consumer
The consumer loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt and student loans. The value of

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underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination, potentially in excess of principal balances.
Residential mortgage and noncommercial construction and land development
Residential mortgage and noncommercial construction and land development loans are made to individuals and are typically secured by 1-4 family residential property, undeveloped land and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral. Noncommercial construction and land development projects can experience delays in completion and cost overruns that exceed the borrower's financial ability to complete the project. Such cost overruns can routinely result in foreclosure of partially completed and unmarketable collateral.
PCI Loans
The risks associated with PCI loans are generally consistent with the risks identified for commercial and noncommercial non-PCI loans and the classes of loans within those segments. However, these loans were underwritten by other institutions, often with different lending standards and methods. Additionally, in some cases, collateral for PCI loans is located in regions that have experienced deterioration in real estate values and the underlying collateral may therefore not support full repayment of these loans.
The ALLL for PCI loans is estimated based on the expected cash flows over the life of the loan. BancShares continues to estimate and update cash flows expected to be collected on individual loans or pools of loans sharing common risk characteristics. BancShares compares the carrying value of all PCI loans to the present value at each balance sheet date. The present value is calculated by updating the life of loan cash flows and discounting that result by the individual loan's effective interest rate. If the updated present value is less than the current value, then ALLL is recorded and if so, recognizes provision for loan and lease losses. For any increases in cash flows expected to be collected, BancShares adjusts any prior recorded allowance for loan and lease losses first and then the amount of accretable yield recognized on a prospective basis over the loan's or pool's remaining life.
Reserve for Unfunded Commitments
The reserve for unfunded commitments represents the estimated probable losses related to standby letters of credit and other commitments to extend credit. The reserve is calculated in a manner similar to the loans evaluated collectively for impairment, while also considering the applicable regulatory capital credit conversion factors for these off-balance sheet instruments as well as the exposure upon default. The reserve for unfunded commitments is presented within other liabilities on the Consolidated Balance Sheets, distinct from the ALLL, and adjustments to the reserve for unfunded commitments are included in other noninterest expense in the Consolidated Statements of Income. The reserve for unfunded commitments was not material at December 31, 2017 or 2016.
Premises and Equipment
Premises and equipment and capital leases are statedcarried at cost less accumulated depreciation and amortization. For financial reporting purposes, depreciation and amortization aredepreciation. Land is carried at cost. Depreciation expense is generally computed using the straight-line method and are expensed over the estimated useful lives of the assets, which range from 3 to 40 years for premises and 3 to 10 years for furniture, software and equipment.assets. Leasehold improvements and capitalized leases are amortized on a straight-line basis over the termslesser of the respective leases, including renewal period if renewal period is reasonably assured (often throughlease terms or the presence of a bargain renewal option), or theestimated useful lives of the improvements, whichever is shorter. Gains and losses on dispositions are recorded in other noninterest expense. Maintenance and repairs are charged to occupancy expense or equipment expense as incurred. Obligations under capital leases are amortized over the life of the lease using the effective interest method to allocate payments between principal and interest. Rent expense and rental income on operating leases are recorded in noninterest expense and noninterest income, respectively, using the straight-line method over the appropriate lease terms.
Goodwill and Other Intangible Assets
BancShares accounts for acquisitions using the acquisition method of accounting. Under that methodology, if the purchase price of an acquired company exceeds the fair value of its net assets, the excess is carried on the acquirer's balance sheet as goodwill. An intangible asset is recognized as an asset apart from goodwill if it arises from contractual or other legal rights, or if it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. Intangible assets that are separately identifiable assets, such as core deposit intangibles, resulting from acquisitions are amortized on an accelerated basis over an estimated useful life and evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable.

assets.
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Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the identifiable assets acquired. Goodwill is not amortized, but is evaluated at least annually for impairment as of July 31st during the third quarter, or more frequently ifwhen events occur or changes in circumstances change that may trigger a decline in the value of the reporting unit or otherwise indicate that a potential impairment exists. The evaluation of goodwill is based on a variety of factors, including common stock trading multiples and data from recent market transactions. Potential impairment of goodwill exists when the carrying amount of a reporting unit exceeds its fair value.
If the carrying value of the reporting unit exceeds its fair value, a second analysis is performed that requires an assignment of the reporting unit’s fair value to the reporting unit’sOther acquired intangible assets and liabilities to determine the implied fair value of the reporting unit’s goodwill. If the implied fair value of the reporting unit's goodwill is lower than its carrying amount, an impairment loss is recognized for the excess of carrying value.
Based on the July 31, 2017 impairment tests, management concluded there was no indication of goodwill impairment. Subsequent to the annual impairment test, no events occurred or circumstances changed that would indicate goodwill should be tested for impairment during the interim period between annual tests.
Mortgage servicing rights (MSRs) are recognized separately when they are retainedwith finite lives, such as loans are sold or acquired through acquisition. When mortgage loans are sold, servicing rightscore deposit intangibles, are initially recorded at fair value within other assets in the Consolidated Balance Sheets and gainsare amortized on sale of loans are recorded within mortgage income in the Consolidated Statements of Income. All classes of servicingan accelerated basis typically between five to twelve years over their estimated useful lives. Intangible assets are subsequently measured using the amortization method which requiresevaluated for impairment when events or changes in circumstances indicate a potential impairment exists.
Mortgage Servicing Rights
Mortgage servicing rights (“MSRs”) represent the right to beprovide servicing under various loan servicing contracts is either retained in connection with a loan sale or acquired in a business combination. MSRs are initially recorded at fair value and amortized against mortgage income in noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans with the offset being a reduction in the cost basis of the servicing asset.loan. At each reporting period, MSRs are evaluated for impairment quarterly based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics and is recorded as a reduction of mortgage income in the Consolidated Statements of Income. If BancShares later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the valuation reserve may be recorded as an increase to mortgage income in the Consolidated Statements of Income, but only to the extent of previous impairment recognized.
Other intangible assets with estimable lives are amortized over their estimated useful lives, which are periodically reviewed for reasonableness. Identifiable intangible assets represent the estimated value of the core deposits acquired and certain customer relationships.
Securities Sold Under Repurchase Agreements
Securities sold under repurchase agreements primarily with commercial customers generally have maturities of one day and are reflected as short-term borrowings on the Consolidated Balance Sheets and are recorded based on the amount of cash received in connection with the borrowing.value.
Fair Values
FairThe fair value disclosures are required for allof financial instruments whether or not recognizedand the methods and assumptions used in the balance sheet, for which it is practicable to estimate that value. Under GAAP, individualestimating fair value estimates are ranked on a three-tier scale based on the relative reliability of the inputs used in the valuation. Fair values determined using level 1 inputs rely on activeamounts and observable markets to price identical assets or liabilities. In situations where identicalfinancial assets and liabilities are not traded in active markets, fair values may be determined based on level 2 inputs,for which represent observable data for similar assets and liabilities. Fair values for assets and liabilities that are not actively traded in observable markets are based on level 3 inputs, which are considered to be nonobservable. Fair value estimates derived from level 3 inputs cannot be substantiated by comparison to independent markets and, in many cases, cannot be realized through immediate settlement of the instrument. Additionally, valuation adjustments, such as those pertaining to counterparty and BancShares' own credit quality and liquidity, may be necessary to ensure that assets and liabilities are recorded at fair value. Credit valuation adjustments are made when market pricing does not accurately reflect the counterparty's credit quality. As determined by BancShares management, liquidity valuation adjustments may be made to the fair value of certain assets to reflect the uncertaintywas elected are detailed in the pricing and trading of the instruments when recent market transactions for identical or similar instruments are not observed. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value to BancShares. For additional information, see Note M.P,Estimated Fair Values.
Income Taxes
Deferred incomeIncome taxes are reported when different accounting methods have been used in determining incomeaccounted for income tax purposes and for financial reporting purposes. Deferred taxes are computed using the asset and liability approach as prescribed in ASC 740, Income Taxes. Under this method, a deferred tax asset or liability is determined based on the currently enacted tax rates applicable to the period in which the differences between the financial statement carrying amounts and tax basis of existing assets

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and liabilities are expected to be reported in BancShares'BancShares’ income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period thatwhich includes the enactment date.
BancShares continually monitors and evaluates theThe potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, BancShares evaluates its incomeliabilities is continually monitored and evaluated. Income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions that BancShares is required to filewhere income tax returns are filed, as well as potential or pending audits or assessments by such tax auditors.auditors are evaluated on a periodic basis.
BancShares has unrecognized tax benefits related to the uncertain portion of tax positions that BancShares has taken or expects to take. A liability may be created or an amount refundable may be reduced for the amount of unrecognized tax benefits. These uncertainties result from the application of complex tax laws, rules, regulations and interpretations, primarily in state taxing jurisdictions. Unrecognized tax benefits are assessed quarterly and may be adjusted through current income tax expense in future periods based on changing facts and circumstances, completion of examinations by taxing authorities or expiration of a statute of limitations. Estimated penalties and interest on uncertain tax positions are recognized in income tax expense.
BancShares files a consolidated federal income tax return and various combined and separate company state tax returns. See Note P in the Notes to Consolidated Financial StatementsO, Income Taxes, for additional disclosures.
Derivative Financial Instruments
A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest rate swaps, caps, floors, collars, options or other financial instruments designed to hedge exposures to interest rate risk or for speculative purposes.
BancShares selectively uses interest rate swaps for interest rate risk management purposes. BancShares had an interest rate swap, entered into during 2011, that qualified as a cash flow hedge under GAAP and which converted variable-rate exposure on outstanding debt to a fixed rate. BancShares' interest rate swap expired in June 2016.
Per Share Data
Net incomeEarnings per common share is computed by dividing net income available to common shareholders by the weighted average number of both classes of common shares outstanding during each period. BancShares had no potential dilutive common shares outstanding in any period and did not report diluted net incomeearnings per common share.
Cash dividends per share apply to both Class A and Class B common stock. Shares of Class A common stock carry one1 vote per share, while shares of Class B common stock carry 16 votes per share.
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Defined Benefit Pension PlanPlans
BancShares maintains noncontributory defined benefit pension plans covering certain qualifying employees. The calculation of the obligations and related expenses under the plans require the use of actuarial valuation methods and assumptions. Actuarial assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used. All assumptions are reviewed annually for appropriateness. The discount rate assumption used to measure the plan obligations is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plans are discounted based on this yield curve, and a single discount rate is calculated to achieve the same present value. The assumed rate of future compensation increases is reviewed annually based on actual experience and future salary expectations. We also estimate a long-term rate of return on pension plan assets that is used to estimate the future value of plan assets. In developing the long-term rate of return, we consider such factors as the actual return earned on plan assets, historical returns on the various asset classes in the plans and projections of future returns on various asset classes. Refer to Note NQ, Employee Benefit Plans, for disclosures related to BancShares'BancShares’ defined benefit pension plans.
Recently Adopted Accounting PronouncementsLeases
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-03, Accounting ChangesBancShares leases certain branch locations, administrative offices and Error Corrections (Topic 250)equipment. Operating lease ROU assets are included in other assets and Investments - Equity Methodthe associated lease obligations are included in other liabilities. Finance leases are included in premises and Joint Ventures (Topic 323): Amendmentsequipment and other borrowings. 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 SEC Paragraphs Pursuantuse an underlying asset for the lease term and lease liabilities represent our corresponding obligation to Staff Announcementsmake 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. The incremental borrowing rate is determined using secured rates for new FHLB advances under similar terms as the lease at inception. We utilize the implicit or incremental borrowing rate at the September 22, 2016effective date of a modification not accounted for as a separate contract or a change in the lease terms to determine the present value of lease payments. For operating leases commencing prior to January 1, 2019, BancShares used the incremental borrowing rate as of 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 we will exercise our option to renew or extend the lease term, the option is included in calculating the value of the ROU asset and November 17, 2016 EITF Meetings (SEC Update)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.
This ASU addsWe determine if an SEC paragraph and amends other Topics pursuant to an SEC Staff Announcement that statesarrangement is a registrant should evaluate ASUslease at inception. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not lease any properties or facilities from any related party. As of December 31, 2020,there were no leases that have not yet commenced that would have a material impact on our consolidated financial statements. See Note R, Leases, for additional disclosures.
Revenue Recognition
BancShares generally acts in a principal capacity, on its own behalf, in its contracts with customers. In these transactions, we recognize revenues and the related costs to generate those revenues on a gross basis. In certain, circumstances, we act in an agent capacity, on behalf of the customers with other entities, and recognize revenues and the related costs to provide our services on a net basis. Business lines where BancShares acts as an agent include cardholder and merchant services, insurance, and brokerage. Descriptions of our noninterest revenue-generating activities are broadly segregated as follows:
Cardholder and Merchant Services - These represent interchange fees from customer debit and credit card transactions earned when a cardholder engages in a transaction with a merchant as well as fees charged to merchants for providing them the ability to accept and process the debit and credit card transaction. Revenue is recognized when the performance obligation has been adopted, including ASU 2014-09, Revenue from Contractssatisfied, which is upon completion of the card transaction. Additionally, as FCB is acting as an agent for the customer and transaction processor, costs associated with Customers (Topic 606), ASU 2016-02, Leases (Topic 842),cardholder and ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to determinemerchant services transactions are netted against the appropriate financial statement disclosures about the potential material effects of those

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Service charges on deposit accounts - These deposit account-related fees represent monthly account maintenance and transaction-based service fees such as overdraft fees, stop payment fees and charges for issuing cashier’s checks and money orders. For account maintenance services, revenue is recognized at the end of the statement period when our performance obligation has been satisfied. All other revenues from transaction-based services are recognized at a point in time when the performance obligation has been completed.
ASUsWealth management services - These primarily represent sales commissions on various product offerings, transaction fees and trust and asset management fees. The performance obligation for wealth management services is the provision of services to place annuity products issued by the counterparty to investors and the provision of services to manage the client’s assets, including brokerage custodial and other management services. Revenue from wealth management services is recognized over the period in which services are performed, and is based on a percentage of the value of the assets under management/administration.
Other service charges and fees - These include, but are not limited to, check cashing fees, international banking fees, internet banking fees, wire transfer fees and safe deposit fees. The performance obligation is fulfilled and revenue is recognized, at the point in time the requested service is provided to the customer.
Insurance commissions - These represent commissions earned on the financial statementsissuance of insurance products and services. The performance obligation is generally satisfied upon the issuance of the insurance policy and revenue is recognized when adopted. If a registrant does not knowthe commission payment is remitted by the insurance carrier or cannot reasonably estimatepolicy holder depending on whether the impact thatbilling is performed by BancShares or the carrier.
ATM income - These represent fees imposed on customers and non-customers for engaging in an ATM transaction. Revenue is recognized at the time of the transaction as the performance obligation of rendering the ATM service has been met.
Other - This consists of several forms of recurring revenue such as FHLB dividends and income earned on changes in the cash surrender value of bank-owned life insurance. Prior to adoption of ASC 326, other income included recoveries on PCI loans previously charged-off. For the ASUs referenced are expectedremaining immaterial transactions, revenue is recognized when, or as, the performance obligation is satisfied. Refer to haveNote N, Other Noninterest Income and Other Noninterest Expense, for additional disclosures on the financial statements, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact the adoption will have on the financial statements, and a comparisonother noninterest income.
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the registrant's current accounting policies. A registrant should describe the status of its process to implement the new standards and the significant matters yet to be addressed.Disclosure Requirements for Defined Benefit Plans
This ASU also addressesmodifies the accountingdisclosure requirements for tax benefits resulting from investmentsemployers that sponsor defined benefit pension or other postretirement plans by eliminating the requirement to disclose the amounts in qualified affordable housing projects where the decision to apply the proportional amortization method of accounting is an accounting policy decisionaccumulated other comprehensive income expected to be applied consistentlyrecognized as components of net periodic benefit cost over the next fiscal year and adding a requirement to all investments that meetdisclose an explanation of the conditions, rather than a decisionreasons for significant gains and losses related to be applied to individual investments that qualifychanges in the benefit obligation for the use of the proportional amortization method.
The amendments in this ASU are effective upon issuance. We adopted the guidance effective in the first quarter of 2017. The disclosures required by this ASU are included within the “Recently Issued Accounting Pronouncements” section below. The adoption did not have an impact to our consolidated financial position or consolidated results of operations.
FASB ASU 2016-17, Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control
This ASU does not change the characteristics of a primary beneficiary in current GAAP; however, it requires that a reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. If, after performing that assessment, a reporting entity that is the single decision maker of a VIE concludes that it does not have the characteristics of a primary beneficiary, the amendments continue to require that reporting entity to evaluate whether it and one or more of its related parties under common control, as a group, have the characteristics of a primary beneficiary, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary.period.
The amendments in this ASU are effective for public business entities for fiscal years beginningending after December 15, 2016,2020. Early adoption is permitted for all entities. BancShares adopted all applicable amendments during the fourth quarter of 2020. See Note Q. Employee Benefit Plans for changes to disclosure.
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 interim periods within those fiscal years. Wethe 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.
BancShares adopted the guidance effective inthis ASU during the first quarter of 2017. The adoption did not2020 and have an impact to our consolidated financial position or consolidated results of operations.
FASB ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transitionmade all applicable updates to the Equity Method of Accounting
This ASU eliminatesdisclosure within the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the equity method investor add the cost of acquiring the additional interest in the investeeNotes to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. Further, the ASU requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings, the unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted the guidance effective in the first quarter of 2017. The adoption did not have an impact on our consolidated financial position or consolidated results of operations.
Recently Issued Accounting Pronouncements
FASB ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This ASU requires a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (Tax Act), which was enacted on December 22, 2017. The Tax Act included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate.

Consolidated Financial Statements.
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The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We will adopt the guidance during the first quarter of 2018. The change in accounting principle will be accounted for as a cumulative-effect adjustment to the balance sheet resulting in a $27.2 million increase to retained earnings and a corresponding decrease to AOCI on January 1, 2018.
FASB ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
This ASU requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Employers will present the other components separately from the line item that includes the service cost. In addition, only the service cost component of net benefit cost is eligible for capitalization.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will adopt the guidance during the first quarter of 2018. BancShares does not anticipate any material impact to our consolidated financial position or consolidated results of operations as a result of the adoption.
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.
ThisBancShares adopted 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 adoptduring the guidance for our annual impairment test in fiscal year 2020. BancShares does not anticipate anyfirst quarter 2020 with no impact to our consolidated financial position or consolidated results of operations as a result of the adoption.
FASB ASU 2016-15, Statement There was 0 impairment recorded as a result of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
This ASU addresses the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU provide guidance on (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance requires application using a retrospective transition method. We will adopt the guidanceour annual assessment during the firstthird quarter of 2018. BancShares does not anticipate a material impact to our Consolidated Statements of Cash Flows.2020.
FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU eliminates(and all subsequent ASUs on this topic) introduce the delayed recognition of the full amount ofCECL model, a new credit losses until the loss was probable of occurring and instead will reflect an entity'smethodology, replacing multiple existing impairment methods in current estimate of all expected credit losses.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 loss estimate for assets measured either collectively or individually.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.

BancShares adopted this ASU (and all subsequent ASUs on this topic) as of January 1, 2020 using the modified retrospective approach for all loans, leases, debt securities designated as held to maturity, and unfunded loan commitments. BancShares adopted the ASU using the prospective approach for debt securities available for sale and PCD loans previously accounted for under ASC 310-30. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. BancShares made changes to loan classifications and segmentation in order to align with ASC 326 requirements and facilitate CECL modeling. Using this updated segmentation, BancShares developed new loan level models to estimate the ACL and facilitate revised disclosures.
Upon adoption, BancShares recorded a net decrease of $37.9 million in the ACL which included a reduction of $56.9 million in the ACL on non-PCD loans, offset by an increase of $19.0 million in the ACL on PCD loans. The $56.9 million reduction in the ACL on non-PCD loans, as well as an $8.9 million increase in the reserve for unfunded commitments, net of deferred taxes, resulted in an increase in retained earnings of $36.9 million. The $19.0 million increase in the ACL on PCD loans was a reclassification of the PCD credit discount and resulted in a gross up of loan balances by this same amount and did not have any effect on retained earnings. Impact to total capital and capital ratios was not significant and we did not elect the capital phase-in option allowable for regulatory reporting purposes. There was 0 ACL recorded on debt securities held to maturity at adoption.
The largest changes in the ACL, affecting beginning retained earnings as a result of the adoption, were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives. The increase in the reserve for unfunded commitments was primarily due to increases in the scope of off-balance sheet exposures considered in this estimate due to the provisions in ASC 326.
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The amendments inBancShares adopted this ASU are effectiveusing the prospective transition approach for public business entitiesPCD loans previously accounted 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. We will adoptunder ASC 310-30. In accordance with the guidance bystandard, we did not assess whether purchased credit impaired (“PCI”) loans met the first quartercriteria of 2020 with a cumulative-effect adjustment to retained earningsPCD as of the beginningdate of adoption and all loans previously classified as PCI were updated to the yearPCD classification. Pools utilized for PCI accounting under ASC 310-30 were dissolved upon adoption. Loans from performing PCI pools, not previously considered nonaccrual of $47.0 million, were reclassified into nonaccrual status as a result of adoption. For BancShares, the standard will apply toPCD loans unfunded loan commitments and debt securities held to maturity. We have formed a cross-functional team co-led by Finance and Risk Management and engaged a third party to assist with the adoption. The implementation team has developed a detailed project plan and is staying informed about the broader industry's perspective and insights, and identifying and researching key decision points. We have completed the readiness assessment and gap analysis related to data, modeling IT, accounting policy, controls and reporting which has enabled us to determine the areas of focus and estimate total body of work. Our current critical activities include model design, accounting policy development, data feasibility analysis, evaluation of reporting and disclosure solutions and completion of specific work stream project plans. We will continue to evaluate the impact the new standard will have on our consolidated financial statements as the final impact will be dependent, among other items, uponwere assessed using the loan portfolio compositionlevel probability of default and credit quality at the adoption date,loss given default models, as well as economic conditions, financial models usedutilizing prior specific loan reviews to inform the initial PCD loan ACL. The ACL for PCD loans increased as a result of adoption and forecaststhe amortized cost basis of these loans was adjusted to reflect the transfer of this amount from credit discount to ACL. The remaining noncredit discount will be accreted into interest income at that time.the effective interest rate as of January 1, 2020. At the date of adoption, no securities were determined to be PCD.
FASBBancShares also adopted this ASU 2016-02, Leases (Topic 842)
This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilitiesunder the prospective transition approach for debt securities available for sale. No previously recorded other than temporary impairment was reported on the balance sheetportfolio of debt securities.
NOTE B
BUSINESS COMBINATIONS
Recently Announced Business Combinations
CIT Group Inc.
On October 15, 2020, BancShares and disclosing key information about leasing arrangements.CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”). The key difference between existing standardsMerger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and this ASU isinto FCB, with FCB as the requirementsurviving bank (together with the Mergers, the “Transaction”).
The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. On February 9, 2021, BancShares and CIT both held a special meeting of shareholders where they received the necessary shareholder approvals for lesseesthe consummation of the Transaction from their respective shareholders. Subject to recognize on their balance sheet all lease contracts. An entity may make an accounting electionthe fulfillment of customary closing conditions, the parties anticipate that the Transaction will close in the first half of 2021.
Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of CIT common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (“CIT Common Stock”), except for certain shares of CIT Common Stock owned by classification to not recognize leases with terms less than 12 months on their balance sheet. Both a right-of-use asset, representingCIT or BancShares, will be converted into the right to usereceive .06200 shares of BancShares Class A common stock, par value $1.00 per share. Holders of CIT Common Stock will receive cash in lieu of fractional shares.
In addition, at the leased asset,Effective Time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, of CIT and 5.625% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share, of CIT issued and outstanding will automatically be converted into the right to receive 1 share of a lease liability, representing the contractual obligation, are required to be recognized on the balance sheetnewly created series of preferred stock, Series B, of BancShares and 1 share of a newly created series of preferred stock, Series C, of BancShares, respectively.
The Merger Agreement requires that, effective as of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar toEffective Time, the Boards of Directors of the combined company and the combined bank will consist of 14 directors, (i) 11 of whom will be members of the current operatingBoard of Directors of BancShares, and capital leases classifications. The distinction between these two classifications under(ii) 3 of whom will be selected from among the new standard does not relate to balance sheet treatment, but relates to treatment in the statementscurrent Board of income and cash flows. Lessor guidance remains largely unchanged with the exceptionDirectors of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. For BancShares, the impact of this ASU will primarily relate to its accounting and reporting of leases as a lessee. We will adopt during the first quarter of 2019. We have engaged a third party and completed an inventory of all leases and their terms and service contracts with embedded leases. While we continue to evaluate the impact of the new standard, we expect an increase to the Consolidated Balance Sheets for right-of-use assets and associated lease liabilities, as well as resulting depreciation expense of the right-of-use assets and interest expense of the lease liabilities in the Consolidated Statements of Income, for arrangements previously accounted for as operating leases. Additionally, adding these assets to our balance sheet will impact our total risk-weighted assets used to determine our regulatory capital levels. Our impact analysis on this change in accounting principle estimates an increase to the Consolidated Balance Sheets for total lease liability ranging between $65.0 million and $85.0 million, as the initial gross up of both assets and liabilities. Capital is expected to be impacted by an estimated four to six basis points. These preliminary ranges are subject to changeCIT and will continue to be refined closer to adoption.
FASB ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognitioninclude as one of those 3, Ellen R. Alemany, Chairwoman and MeasurementChief Executive Officer of Financial Assets and Financial Liabilities
This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of certain financial instruments. The amendments in this ASU (1) require most equity investments to be measured at fair value with changes in fair value recognized in net income; (2) simplify the impairment assessment of equity investments without a readily determinable fair value; (3) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (4) require public business entities to use exit price notion, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (5) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (6) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (7) state that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets.
The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We will adopt the ASU during the first quarter of 2018. The change in accounting principle will be accounted for as a cumulative-effect adjustment to the balance sheet resulting in an $18.7 million increase to retained

CIT.
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Completed Business Combinations
earningsFCB has evaluated the financial statement significance for all business combinations completed during 2020 and a decrease2019. FCB has concluded the completed business combinations noted below are not material to AOCI on January 1, 2018. With the adoption of this ASU equity securities can no longer be classified as available for sale, as such marketable equity securities will be disclosed as a separate line item on the balance sheet with changes in the fair value of equity securities reflected in net income.
For equity investments without a readily determinable fair value, BancShares has elected to measure the equity investments using the measurement alternative which requires BancShares to make a qualitative assessment of whether the investment is impaired at each reporting period. Under the measurement alternative these investments will be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. If a qualitative assessment indicates that the investment is impaired, BancShares will have to estimate the investment's fair value in accordance with ASC 820 and, if the fair value is less than the investment's carrying value, recognize an impairment loss in net income equal to the difference between carrying value and fair value. Equity investments without a readily determinable fair value are recorded within other assets in the consolidated balance sheets.
FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued a standard on the recognition of revenue from contracts with customers with the core principle being for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify guidance for identifying performance obligations and licensing implementation. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, to clarify and improve the guidance for certain aspects of Topic 606. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, to clarify guidance for certain aspects of Topic 606. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (SEC Update). This ASU adds SEC paragraphs to the new revenue and leases sections of the Codification pursuant to an SEC Staff announcement made on July 20, 2017 as well as supersedes certain SEC paragraphs related to previous SEC staff announcements. In November 2017, the FASB issued ASU 2017-14, Income Statement - Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update), to supersede, amend and add SEC paragraphs to the Codification to reflect the August 2017 issuance of SEC staff Accounting Bulletin (SAB) 116 and SEC Release No. 33-10403.
Per ASU 2015-14, Deferral of the Effective Date, this guidance was deferred and is effective for fiscal periods beginning after December 15, 2017, including interim reporting periods within that reporting period. We will adopt the guidance during the first quarter of 2018. Our revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new guidance, and noninterest income. The contracts that are in scope of the guidance are primarily related to service charges on deposit accounts, cardholder and merchant income, wealth advisory services income, other service charges and fees, sales of other real estate, insurance commissions and miscellaneous fees. Based on our overall assessment of revenue streams and review of related contracts affected by the ASU, BancShares does not anticipate a material impact to ourBancShares’ consolidated financial positionstatements, individually or consolidated results of operations as a result of the adoption.in aggregate, and therefore, pro forma financial data has not been included.
NOTE B
BUSINESS COMBINATIONS

HomeBancorp, Inc.
On December 18, 2017, FCB and HomeBancorp, Inc. (HomeBancorp) entered into a definitive merger agreement. The agreement provides for the acquisition of Tampa, Florida-based HomeBancorp by FCB. Under the terms of the agreement, cash consideration of $15.03 will be paid to the shareholders of HomeBancorp for each share of HomeBancorp's common stock totaling approximately $113.6 million. The transaction is expected to close no later than the second quarter of 2018, subject to the receipt of regulatory approvals and the approval of HomeBancorp's shareholders, and will be accounted for under the acquisition method of accounting. The merger will allow FCB to expand its presence in Florida and enter into two new markets in Tampa and Orlando. As of September 30, 2017, HomeBancorp reported $954.9 million in consolidated assets, $699.4 million in deposits and $637.5 million in loans.


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Guaranty Bank
On May 5, 2017, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of Guaranty Bank (Guaranty) of Milwaukee, Wisconsin. The acquisition provides FCB with the opportunity to grow capital and enhance earnings.

The GuarantyEach transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the relevant acquisition as additional information regarding closing date fair valuesvalue becomes available.
As part of December 31, 2017, there have been no refinementsthe accounting for each acquisition, we perform an analysis of the acquired bank’s loan portfolio and based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations segregate the acquired loans into PCD loans and non-PCD loans. PCD loans are accounted for under ASC 326, and non-PCD loans which do not meet this criteria are accounted for under ASC 310. Additionally, we perform an analysis of the acquired bank’s portfolio of debt securities to determine if any debt securities should be designated PCD.
Community Financial Holding Company, Inc.
On February 1, 2020, FCB completed the merger of Duluth, Georgia-based Community Financial Holding Company, Inc. (“Community Financial”) and its bank subsidiary, Gwinnett Community Bank. Under the terms of the agreement, total cash consideration of $2.3 million was paid to the fair valueshareholders of these assets acquiredCommunity Financial. The merger allows FCB to expand its presence and liabilities assumed.

enhance banking efforts in Georgia.
The fair value of the assets acquired was $875.1$221.4 million, including $574.6$110.6 million in non-PCInon-PCD loans, $114.5$23.4 million in PCIPCD loans, net of an ACL of $1.2 million, and $9.9 million$536 thousand in a core deposit intangible. No debt securities purchased in the transaction were designated PCD. Liabilities assumed were $982.7$219.8 million, of which $982.3$209.3 million were deposits. The total gain onAs a result of the transaction, FCB recorded $686 thousand of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies expected to result from the acquisition. None of the goodwill was $122.7 million which is included in noninterestdeductible for income intax purposes as the Consolidated Statementsmerger was accounted for as a qualified stock purchase.
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The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.values:
(Dollars in thousands)As recorded by FCB
Purchase price$2,320 
Assets
Cash and due from banks$1,085 
Overnight investments35,129 
Investment securities30,146 
Loans133,989 
Premises and equipment7,624 
Other real estate owned9,813 
Income earned not collected558 
Intangible assets536 
Other assets2,520 
Total assets acquired221,400 
Liabilities
Deposits209,340 
Borrowings9,925 
Other liabilities501 
Total liabilities assumed$219,766 
Fair value of net assets acquired1,634 
Goodwill recorded for Community Financial$686
(Dollars in thousands)As recorded by FCB
Assets 
Cash and due from banks$48,824
Overnight investments94,134
Investment securities12,140
Loans689,086
Premises and equipment8,603
Income earned not collected6,720
Intangible assets9,870
Other assets5,748
Total assets acquired875,125
Liabilities 
Deposits982,307
Other liabilities440
Total liabilities assumed982,747
Fair value of net liabilities assumed(107,622)
Cash received from FDIC230,350
Gain on acquisition of Guaranty$122,728

Merger-relatedThe Community Financial transaction resulted in merger-related expenses of $7.4$3.5 million from the Guaranty transaction were recorded in the Consolidated Statements of Income for the year ended December 31, 2017. Loan-related2020. Additionally, loan-related interest income generated from Guaranty was approximately $20.5$5.3 million since the acquisition date. While the acquisition gain of $122.7 million is significant for 2017, theThe ongoing contributionscontribution of this transaction to BancShares'BancShares’ financial statements is not considered material, and therefore pro forma financial data is not included.

Based on such credit factors as past due status, nonaccrual status, loan-to-value, credit scores, and other quantitative and qualitative considerations, the acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30 (included in PCI loans), and loans that do not meet this criteria, which are accounted for under ASC 310-20 (included in non-PCI loans).

Harvest Community BankEntegra Financial Corp.
On January 13, 2017, FCB entered into an agreement with the FDIC, as Receiver, to purchase certain assets and assume certain liabilities of Harvest Community Bank (HCB) of Pennsville, New Jersey. The acquisition provides FCB with the opportunity to grow capital and enhance earnings.

The HCB transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the relevant acquisition as additional information regarding closing date fair values

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becomes available. As of December 31, 2017, there have been no refinements to the fair value of these assets acquired and liabilities assumed.

The fair value of the assets acquired was $111.6 million, including $85.1 million in PCI loans and $850 thousand in a core deposit intangible. Liabilities assumed were $121.8 million, of which the majority were deposits. As a result of the transaction, FCB recorded a gain on the acquisition of $12.0 million which is included in noninterest income in the Consolidated Statements of Income.

The following table provides the identifiable assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.
(Dollars in thousands)As recorded by FCB
Assets 
Cash and due from banks$3,350
Overnight investments7,478
Investment securities14,455
Loans85,149
Income earned not collected31
Intangible assets850
Other assets237
Total assets acquired111,550
Liabilities 
Deposits121,755
Other liabilities74
Total liabilities assumed121,829
Fair value of net liabilities assumed(10,279)
Cash received from FDIC22,296
Gain on acquisition of HCB$12,017

Merger-related expenses of $1.2 million were recorded in the Consolidated Statements of Income for the year ended December 31, 2017. Loan-related interest income generated from HCB was approximately $3.8 million for the year ended December 31, 2017. The transaction is not considered material to BancShares' financial statements and therefore pro forma financial data is not included.

All loans resulting from the HCB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI under ASC 310-30.

Cordia Bancorp, Inc.
On September 1, 2016,2019, FCB completed the merger of Midlothian, Virginia-based Cordia Bancorp, Inc. (Cordia)Franklin, North Carolina-based Entegra Financial Corp. (“Entegra”) and its bank subsidiary, Bank of Virginia (BVA), into FCB. Under the terms of the merger agreement, cash consideration of $5.15 was paid to Cordia’s shareholders for each of their shares of Cordia’s common stock, with total consideration paid of $37.1 million. The Cordia transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. These fairEntegra Bank. Fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on August 31, 2017.

December 30, 2020.
The fair value of the assets acquired was $349.3 million,$1.68 billion, including $241.4$953.7 million in non-PCI loans, $77.5 million in PCI loans and $2.2$4.5 million in a core deposit intangible. Liabilities assumed were $323.1 million, including $292.2 million in$1.51 billion, of which $1.33 billion were deposits. As a result of the transaction, FCB recorded $10.8$52.6 million of goodwill. The amount of goodwill recorded represents the excess purchase price over the estimated fair value of the net assets acquired. ThisSubsequent to the merger, management made a measurement period adjustment of $214 thousand related to an increase in the discount for PCD loans, an increase in the premium paid reflectson deposits divested and adjustments to the increased market sharedeferred tax asset for these items.
In order to obtain regulatory approval, FCB entered into an agreement for Select Bank & Trust Company (“Select Bank”) to purchase three North Carolina branches, located in Highlands, Sylva and related synergies that are expected to result fromFranklin. On April 17, 2020, FCB completed the acquisition. Nonedivestiture of the branches including loans and leases, premises and equipment and total deposits with fair values of $110.1 million, $2.1 million and $184.8 million, respectively. The Select Bank purchase price for the divested branches included an 8% premium for deposits acquired that was applied against goodwill is deductible for income tax purposesgenerated as part of the merger is accounted for as a qualified stock purchase.with Entegra Bank.
Merger-relatedThe Entegra transaction resulted in merger-related expenses of $260 thousand$7.8 million and $3.8$5.4 million were recorded in the Consolidated Statements of Income foror the years ended December 31, 20172020 and 2016,2019, respectively. Loan-relatedAdditionally, loan-related interest income generated from Cordia was approximately $5.6 million and $4.2$40.3 million for the yearsyear ended December 31, 2017 and 2016, respectively. The transaction is not considered material to BancShares' financial statements and therefore pro forma financial data is not included.


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Due to2020, while 0 loan-related interest income was recorded for the immaterial amount of loans resulting from the Cordia transaction that had evidence of credit quality deterioration, all loans were accounted for as non-PCI loans under ASC 310-20.

year ended December 31, 2019.
First CornerStone BankSouth Bancorp, Inc.
On May 6, 2016,1, 2019, FCB entered into an agreement withcompleted the FDIC, as Receiver, to purchase certain assetsmerger of Spartanburg, South Carolina-based First South Bancorp, Inc. (“First South Bancorp”) and assume certain liabilities ofits bank subsidiary, First Cornerstone Bank (FCSB) of King of Prussia, Pennsylvania. The FCSB transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. These fairSouth Bank. Fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on May 5, 2017.April 30, 2020, with no material changes to the original calculated fair values.

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The fair value of the assets acquired was $87.4$239.2 million, including $43.8$162.8 million in non-PCI loans, $16.4 million in PCI loans and $390 thousand of cored$2.3 million in a core deposit intangible. Liabilities assumed were $96.9$215.6 million, of which the majority$207.6 million were deposits. As a result of the transaction, FCB recorded $13.9 million of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net liabilities assumed was $9.5 million and cash received from the FDIC was $12.5 million. assets acquired.
The total gain on theFirst South Bancorp transaction was $3.0 million which is includedresulted in noninterest income in the Consolidated Statements of Income0 merger-related expenses for the year ended December 31, 2016.
Merger-related expenses were immaterial2020 and $4.1 million for the year ended December 31, 2017 and $1.0 million were recorded in the Consolidated Statements of Income for the year ended December 31, 2016. Loan-related2019. Additionally, loan-related interest income generated from FCSB was approximately $1.7$5.7 million and $1.6$6.1 million for the years ended December 31, 20172020 and 2016,2019, respectively. The transaction is not considered material to BancShares' financial statements and therefore pro forma financial data is not included.

All loans resulting from the FCSB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI loans under ASC 310-30.

North Milwaukee State BankBiscayne Bancshares, Inc.
On March 11, 2016,April 2, 2019, FCB entered into an agreement withcompleted the FDIC, as Receiver, to purchase certain assetsmerger of Coconut Grove, Florida-based Biscayne Bancshares, Inc. (“Biscayne Bancshares”) and assume certain liabilities of North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin. The NMSB transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. These fairits bank subsidiary, Biscayne Bank. Fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on March 10, 2017.

April 1, 2020, with no material changes to the original calculated fair values.
The fair value of the assets acquired was $53.6 million,$1.03 billion, including $36.9$850.4 million in non-PCI loans, $13.0 million in PCI loans and $240 thousand of$4.7 million in a core deposit intangible. Liabilities assumed were $60.9$956.8 million, of which $59.2$786.5 million were deposits. As a result of the transaction, FCB recorded $46.5 million of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net liabilities assume was $7.3 million and cash received from the FDIC was $10.2 million. assets acquired.
The total gain on theBiscayne Bancshares transaction was $2.9 million which is includedresulted in noninterest income in the Consolidated Statements of Income for the year ended December 31, 2016.
Merger-relatedmerger-related expenses of $112$847 thousand and $517 thousand were recorded in the Consolidated Statements of Income for$5.8 million the years ended December 31, 20172020 and 2016,2019, respectively. Loan-relatedAdditionally, loan-related interest income generated from NMSB was approximately $2.4$37.8 million and $1.9$33.8 million for the years ended December 31, 20172020 and 2016,2019, respectively. The transaction is not considered material to BancShares' financial statements and therefore pro forma financial data is not included.

All loans resulting from the NMSB transaction were recorded at the acquisition date with a discount attributable, at least in part, to credit quality deterioration, and are therefore accounted for as PCI loans under ASC 310-30.


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NOTE C
INVESTMENTS
The amortized cost and fair value of investment and marketable equity securities classifiedat December 31, 2020 and 2019, were as follows:
December 31, 2020
(Dollars in thousands)CostGross
unrealized
gains		Gross unrealized
losses		Allowance for credit lossesFair
value
Investment securities available for sale
U.S. Treasury$499,832 $101 $0 $0 $499,933 
Government agency706,241 723 5,573 0 701,391 
Residential mortgage-backed securities4,369,130 70,283 1,310 0 4,438,103 
Commercial mortgage-backed securities745,892 25,645 0 0 771,537 
Corporate bonds590,870 14,437 2,028 0 603,279 
Total investment securities available for sale$6,911,965 $111,189 $8,911 $0 $7,014,243 
Investment in marketable equity securities84,837 8,654 1,811 91,680 
Investment securities held to maturity
Residential mortgage-backed securities1,877,692 17,689 0 0 1,895,381 
Commercial mortgage-backed securities937,034 3,884 56 0 940,862 
Other2,256 0 0 0 2,256 
Total investment securities held to maturity2,816,982 21,573 56 0 2,838,499 
Total investment securities$9,813,784 $141,416 $10,778 $0 $9,944,422 
December 31, 2019
CostGross
unrealized gains		Gross unrealized
losses		Fair
value
Investment securities available for sale
U.S. Treasury$409,397 $602 $0 $409,999 
Government agency684,085 928 2,241 682,772 
Residential mortgage-backed securities5,269,060 13,417 15,387 5,267,090 
Commercial mortgage-backed securities373,105 6,974 59 380,020 
Corporate bonds198,278 3,420 132 201,566 
State, county and municipal118,227 0 0 118,227 
Total investment securities available for sale$7,052,152 $25,341 $17,819 $7,059,674 
Investment in marketable equity securities59,262 23,304 233 82,333 
Investment securities held to maturity
Other30,996 0 0 30,996 
Total investment securities$7,142,410 $48,645 $18,052 $7,173,003 
On November 1, 2020, mortgage-backed securities with an amortized cost of $1.46 billion were transferred from investment securities available for sale andto the held to maturity portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $1.47 billion and a weighted average contractual maturity of 18 years. The unrealized gain on these securities at December 31, 2017the date of transfer was $5.9 million, or $4.5 million net of tax, and 2016,was reported as a component of AOCI. This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield.
On November 1, 2019, as part of the adoption of ASU 2019-04, mortgage-backed securities with an amortized cost of $2.08 billion were transferred from investment securities held to maturity to the available for sale portfolio. At the time of the transfer, the securities had a fair value of $2.15 billion. The transfer resulted in a reclassification of unrealized losses of $72.5 million, or $55.8 million net of tax, previously frozen in AOCI as follows:a result of the initial transfer to held to maturity. FCB still has the intent and ability to hold the remainder of the held to maturity portfolio to maturity.
 December 31, 2017
(Dollars in thousands)Cost 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities available for sale       
U.S. Treasury$1,658,410
 $—
 $546
 $1,657,864
Mortgage-backed securities5,428,074
 1,544
 80,192
 5,349,426
Equity securities75,471
 29,737
 —
 105,208
Corporate bonds59,414
 557
 8
 59,963
Other7,645
 256
 182
 7,719
Total investment securities available for sale$7,229,014
 $32,094
 $80,928
 $7,180,180
        
 December 31, 2016
 Cost 
Gross
unrealized gains
 
Gross unrealized
losses
 
Fair
value
U.S. Treasury$1,650,675
 $579
 $935
 $1,650,319
Government agency40,291
 107
 —
 40,398
Mortgage-backed securities5,259,466
 2,809
 86,850
 5,175,425
Equity securities71,873
 11,634
 —
 83,507
Corporate bonds49,367
 195
 —
 49,562
Other7,615
 —
 246
 7,369
Total investment securities available for sale$7,079,287
 $15,324
 $88,031
 $7,006,580
        
 December 31, 2017
 Cost 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Investment securities held to maturity       
Mortgage-backed securities$76
 $5
 $—
 $81
        
 December 31, 2016
 Cost 
Gross
unrealized
gains
 
Gross unrealized
losses
 
Fair
value
Mortgage-backed securities$98
 $6
 $—
 $104

Investments in mortgage-backed securities primarily 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 SBA. Investments in corporate bonds and marketable equity securities and corporate bonds represent positions in securities of other financial institutions. Other held to maturity investments include trust preferredcertificates of deposit with other financial institutions.
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As of December 31, 2020 and January 1, 2020, no ACL was required for available for sale and held to maturity debt securities. At December 31, 2020, accrued interest receivable for available for sale and held to maturity debt securities were $17.6 million and $5.4 million, respectively, and were excluded from the estimate of financial institutions. credit losses. During the year ended December 31, 2020, 0 accrued interest was deemed uncollectible and written off against interest income.
The following table provides the amortized cost and fair value by contractual 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 ofResidential and commercial mortgage-backed and government agency securities are dependentstated separately as they are not due at a single maturity date.
 December 31, 2020December 31, 2019
(Dollars in thousands)CostFair
value		CostFair
value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less$500,846 $500,954 $406,325 $406,927 
One through five years72,565 73,881 24,496 24,971 
Five through 10 years508,320 519,570 185,209 187,868 
Over 10 years8,971 8,807 109,872 110,026 
Government agency706,241 701,391 684,085 682,772 
Residential mortgage-backed securities4,369,130 4,438,103 5,269,060 5,267,090 
Commercial mortgage-backed securities745,892 771,537 373,105 380,020 
Total investment securities available for sale$6,911,965 $7,014,243 $7,052,152 $7,059,674 
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less$1,507 $1,507 $30,746 $30,746 
One through five years749 749 250 250 
Residential mortgage-backed securities1,877,692 1,895,381 0 0 
Commercial mortgage-backed securities937,034 940,862 0 0 
Total investment securities held to maturity$2,816,982 $2,838,499 $30,996 $30,996 

For each period presented, realized gains on investment securities available for sale included the repayments offollowing:
 Year ended December 31
(Dollars in thousands)202020192018
Gross gains on retirement/sales of investment securities available for sale$60,932 $8,993 $353 
Gross losses on sales of investment securities available for sale(679)(1,878)(2)
Realized gains on investment securities available for sale, net$60,253 $7,115 $351 

For each period presented, realized and unrealized gains or losses on marketable equity securities included the underlying loan balances. Equity securities do not have a stated maturity date.following:

Year ended December 31
(Dollars in thousands)202020192018
Marketable equity securities gains (losses), net$29,395 $20,625 $(7,610)
Less net gains recognized on marketable equity securities sold44,550 16,344 1,190 
Unrealized (losses) gains recognized on marketable equity securities held$(15,155)$4,281 $(8,800)
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 December 31, 2017 December 31, 2016
(Dollars in thousands)Cost Fair value Cost Fair value
Investment securities available for sale       
Non-amortizing securities maturing in:       
One year or less$808,768
 $808,301
 $842,798
 $842,947
One through five years849,642
 849,563
 848,168
 847,770
Five through 10 years59,414
 59,963
 49,367
 49,562
Over 10 years7,645
 7,719
 7,615
 7,369
Mortgage-backed securities5,428,074
 5,349,426
 5,259,466
 5,175,425
Equity securities75,471
 105,208
 71,873
 83,507
Total investment securities available for sale$7,229,014
 $7,180,180
 $7,079,287
 $7,006,580
Investment securities held to maturity       
Mortgage-backed securities held to maturity$76
 $81
 $98
 $104
For each period presented, securities gains (losses) include the following:
 Year ended December 31
(Dollars in thousands)2017 2016 2015
Gross gains on retirement/sales of investment securities available for sale$11,635
 $27,104
 $10,834
Gross losses on sales of investment securities available for sale(7,342) (431) (17)
Net securities gains$4,293
 $26,673
 $10,817
The following table provides information regarding investment securities with unrealized losses as of December 31, 20172020 and 2016:2019:
December 31, 2020
 Less than 12 months12 months or moreTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
Investment securities available for sale
Government agency$268,622 $3,197 $328,777 $2,376 $597,399 $5,573 
Residential mortgage-backed securities433,816 1,241 23,064 69 456,880 1,310 
Corporate bonds57,715 2,028 0 0 57,715 2,028 
Total$760,153 $6,466 $351,841 $2,445 $1,111,994 $8,911 
December 31, 2019
Less than 12 months12 months or moreTotal
Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
Investment securities available for sale
Government agency$347,081 $1,827 $63,947 $414 $411,028 $2,241 
Residential mortgage-backed securities2,387,293 14,016 264,257 1,371 2,651,550 15,387 
Commercial mortgage-backed securities35,926 59 0 0 35,926 59 
Corporate bonds7,714 123 4,749 9 12,463 132 
Total$2,778,014 $16,025 $332,953 $1,794 $3,110,967 $17,819 
 December 31, 2017
 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$1,408,166
 $345
 $249,698
 $201
 $1,657,864
 $546
Mortgage-backed securities2,334,102
 20,923
 2,725,933
 59,269
 5,060,035
 80,192
Corporate bonds5,025
 8
 —
 —
 5,025
 8
Other5,349
 182
 —
 —
 5,349
 182
Total$3,752,642
 $21,458
 $2,975,631
 $59,470
 $6,728,273
 $80,928
            
 December 31, 2016
 Less than 12 months 12 months or more Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Investment securities available for sale:           
U.S. Treasury$807,822
 $935
 $—
 $—
 $807,822
 $935
Mortgage-backed securities4,442,700
 82,161
 362,351
 4,689
 4,805,051
 86,850
Other7,369
 246
 —
 —
 7,369
 246
Total$5,257,891
 $83,342
 $362,351
 $4,689
 $5,620,242
 $88,031
InvestmentAs of December 31, 2020, there were 39 investment securities available for sale with an aggregate fair value of $2.98 billion have had continuous unrealized losses for more than 12 months, asall of December 31, 2017 with an aggregate unrealized loss of $59.5 million. As of December 31, 2017, 227 of these investmentswhich are government sponsored, enterprise-issued mortgage-backed securities and 4 are U.S. Treasuryor government agency securities.
NoneNaN of the unrealized losses identified as of December 31, 20172020 or December 31, 20162019 relate to the marketability of the securities or the issuer’s ability to honor redemption obligations. Rather, the unrealized losses relatedrelate to changes in interest rates relative to when the investment securities were purchased. For all periods presented,purchased, and do not indicate credit-related impairment. BancShares hadconsidered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, NaN of the securities were deemed to require an allowance for credit losses. 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.

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Investment securities having an aggregate carrying value of $4.59$4.64 billion at December 31, 20172020 and $4.55$3.93 billion at December 31, 20162019, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.
BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no allowance for credit losses has been recorded on these securities. Should there be downgrades to the credit rating of the U.S. Treasury or losses reported on securities issued by government agencies and government sponsored entities, BancShares will reevaluate its determination of zero expected credit losses on held to maturity debt securities.
NOTE DThere were 0 debt securities held to maturity on nonaccrual status as of December 31, 2020.
LOANS AND LEASES
BancShares' accounting methods for loans and leases differ depending on whether they are purchased credit-impaired (PCI) or non-PCI. Non-PCI loans and leases include originated commercial, originated noncommercial, purchased non-impaired loans, purchased leases and certain purchased revolving credit. For purchased non-impaired loans to be included as non-PCI, it must be determined that the loans do not have any credit deterioration at the time of acquisition. Conversely, loans for whichA security is considered past due once it is probable at acquisition that all required payments will not be collected in accordance with contractual terms are considered impaired and, therefore, classified as PCI loans. PCI loans are accounted for30 days contractually past due under the guidance in ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. PCI loans are recorded at fair value at the date of acquisition. No allowance for loan and lease losses is recorded on the acquisition date as the fair valueterms of the acquired assets incorporates assumptions regarding credit risk over the lifeagreement. There were 0 securities past due as of the loans. An allowance is recorded if there is additional credit deterioration after the acquisition date. See Note A for additional information on PCI and non-PCI loans and leases.
BancShares reports PCI and non-PCI loan portfolios separately, and each portfolio is further divided into commercial and non-commercial based on the type of borrower, purpose, collateral, and/or our underlying credit management processes. Additionally, commercial and non-commercial loans are assigned to loan classes, which further disaggregate loans based upon common risk characteristics.
Commercial – Commercial loan classes include construction and land development, commercial mortgage, other commercial real estate, commercial and industrial, lease financing and other.
Construction and land development – Construction and land development consists of loans to finance land for development, investment, and use in a commercial business enterprise; multifamily apartments; and other commercial buildings that may be owner-occupied or income generating investments for the owner.
Commercial mortgage – Commercial mortgage consists of loans to purchase or refinance owner-occupied nonresidential and investment properties. Investment properties include office buildings and other facilities that are rented or leased to unrelated parties.
Other commercial real estate – Other commercial real estate consists of loans secured by farmland (including residential farms and other improvements) and multifamily (5 or more) residential properties.
Commercial and industrial – Commercial and industrial consists of loans or lines of credit to finance corporate credit cards, accounts receivable, inventory and other general business purposes.
Lease financing – Lease financing consists solely of lease financing agreements for business equipment, vehicles and other assets.
Other – Other consists of all other commercial loans not classified in one of the preceding classes. These typically include loans to non-profit organizations such as churches, hospitals, educational and charitable organizations, and certain loans repurchased with government guarantees.
Noncommercial – Noncommercial loan classes consist of residential and revolving mortgage, construction and land development, and consumer loans.
Residential mortgage – Residential real estate consists of loans to purchase, construct or refinance the borrower's primary dwelling, second residence or vacation home.
Revolving mortgage – Revolving mortgage consists of home equity lines of credit that are secured by first or second liens on the borrower's primary residence.
Construction and land development – Construction and land development consists of loans to construct the borrower's primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date.
Consumer – Consumer loans consist of installment loans to finance purchases of vehicles, unsecured home improvements, student loans and revolving lines of credit that can be secured or unsecured, including personal credit cards.

December 31, 2020.
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NOTE D
LOANS AND LEASES
BancShares’ accounting methods for loans and leases depends whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination, which is determined as of the acquisition date. Non-PCD loans consist of loans originated by BancShares and loans purchased from other institutions that do not reflect more than insignificant credit deterioration at acquisition and are reported by loan segments as defined in Note A, Accounting Policies and Basis of Presentation. Purchased loans which reflect more than insignificant credit deterioration are classified as PCD and reported as a single loan segment or class. At the date of acquisition, all acquired loans are recorded at fair value.
Loans and leases outstanding include the following at December 31, 20172020 and 2016:2019:
(Dollars in thousands)December 31, 2020
Commercial:
Construction and land development$985,424 
Owner occupied commercial mortgage11,165,012 
Non-owner occupied commercial mortgage2,987,689 
Commercial and industrial and leases5,013,644 
SBA-PPP2,406,291 
Total commercial loans22,558,060 
Consumer:
Residential mortgage5,561,686 
Revolving mortgage2,052,854 
Construction and land development348,123 
Consumer auto1,255,402 
Consumer other552,968 
Total consumer loans9,771,033 
Total non-PCD loans and leases32,329,093 
PCD loans462,882 
Total loans and leases$32,791,975 
(Dollars in thousands)December 31, 2017 December 31, 2016
Non-PCI loans and leases:   
Commercial:   
Construction and land development$669,215
 $649,157
Commercial mortgage9,729,022
 9,026,220
Other commercial real estate473,433
 351,291
Commercial and industrial2,730,407
 2,567,501
Lease financing894,801
 826,270
Other302,176
 340,264
Total commercial loans14,799,054
 13,760,703
Noncommercial:   
Residential mortgage3,523,786
 2,889,124
Revolving mortgage2,701,525
 2,601,344
Construction and land development248,289
 231,400
Consumer1,561,173
 1,446,138
Total noncommercial loans8,034,773
 7,168,006
Total non-PCI loans and leases22,833,827
 20,928,709
PCI loans:   
Commercial:   
Construction and land development13,654
 20,766
Commercial mortgage358,103
 453,013
Other commercial real estate17,124
 12,645
Commercial and industrial6,374
 11,844
Other1,683
 1,702
Total commercial loans396,938
 499,970
Noncommercial:   
Residential mortgage299,318
 268,777
Revolving mortgage63,908
 38,650
Construction and land development644
 —
Consumer2,190
 1,772
Total noncommercial loans366,060
 309,199
Total PCI loans762,998
 809,169
Total loans and leases$23,596,825
 $21,737,878
At December 31, 2017, $67.8 million of total residential loans and leases were covered under shared-loss agreements with the FDIC, compared to $84.8 million at December 31, 2016. The shared-loss agreements, for their terms, protect BancShares from a substantial portion of the credit and asset quality risk that would otherwise be incurred.
At December 31, 2017, $8.75 billion in noncovered loans with a lendable collateral value of $6.08 billion were used to secure $835.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $5.24 billion. At December 31, 2016, $8.26 billion in noncovered loans with a lendable collateral value of $5.50 billion were used to secure $660.2 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $4.84 billion. At December 31, 2017, $2.77 billion in noncovered loans with a lendable collateral value of $2.08 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (FRB). There were no loans used to secure additional borrowing capacity at the FRB at December 31, 2016.
(Dollars in thousands)December 31, 2019
Commercial:
Construction and land development$1,013,454 
Commercial mortgage12,282,635 
Other commercial real estate542,028 
Commercial and industrial and leases4,403,792 
Other310,093 
Total commercial loans18,552,002 
Noncommercial:
Residential mortgage5,293,917 
Revolving mortgage2,339,072 
Construction and land development357,385 
Consumer1,780,404 
Total noncommercial loans9,770,778 
Total non-PCI loans and leases28,322,780 
PCI loans558,716 
Total loans and leases$28,881,496 
Certain residential real estate loans are originated to be sold to investors and are recorded in loans held for sale at fair value. Loans held for sale were $51.2totaled $124.8 million and $74.4$67.9 million at December 31, 20172020 and 2016,2019, respectively. In addition, weWe may change our strategy for certain portfolio loans and sell them in the secondary market. At thatsuch time, portfolio loans are transferred to loans held for sale at the lower of amortized cost or market. fair value.
During 2017,2020, total proceeds from sales of residential mortgage loans held for sale were $823.5 million$1.05 billion, the majority of which $162.6were originated to be sold. An additional $7.6 million inrelated to sales of portfolio loans, which were transferred to loans held for sale from the residential mortgage portfolio, resulting in a gain of $1.0 million.sold at par. During 2016,2019, total proceeds from sales of residential mortgage loans were $756.0 million, of which $731.8 million related to sales of loans held for sale were $874.8sale. The remaining $24.2 million related to sales of portfolio loans, which $77.7 million in sales were transferred to loans held for sale from the residential mortgage portfolio, resultingresulted in a gain of $3.8$0.3 million.
Net deferred fees on originated non-PCI loans and leases, including unearned income, unamortized costs and fees, were $1.7 million and $6.7 million at December 31, 2017 and December 31, 2016, respectively. The unamortized discount related to purchased non-PCI loans and leases in the Guaranty, Cordia and First Citizens Bancorporation, Inc. (Bancorporation) acquisitions was $14.2 million, $2.7 million and $18.1 million at December 31, 2017, respectively. At December 31, 2016, the unamortized discount


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Net deferred fees on originated non-PCD loans and leases, including unearned income as well as unamortized costs, were $50.2 million and $0.9 million at December 31, 2020 and 2019, respectively. Of the amount outstanding as of December 31, 2020, $41.1 million relates to net deferred fees and costs on SBA-PPP loans. The unamortized discounts related to purchased non-PCInon-PCD loans and leases from the Cordia and Bancorporation acquisitions was $4.2$19.5 million and $27.4 million, respectively. During the years endedat December 31, 20172020 and $30.9 million at December 31, 2016, accretion income on purchased non-PCI2019. The net unamortized discount related to PCD loans and leases was $13.6$45.3 million at December 31, 2020 and $14.3$88.2 million respectively.at December 31, 2019.
Loans and leases to borrowers in medical, dental or related fields were $4.86$5.54 billion as of December 31, 2017,2020, which represents 20.6 percentrepresented 16.9% of total loans and leases, compared to $4.66$5.16 billion or 21.5 percent17.9% of total loans and leases at December 31, 2016.2019. The credit risk of this industry concentration is mitigated through our underwriting policies, which emphasize reliance on adequate borrower cash flow, rather than underlying collateral value, and our preference for financing secured by owner-occupied real property. Except for this single concentration, no other industry represented more than 10 percent10% of total loans and leases outstanding at December 31, 2017.2020.
The aging of the outstanding loans and leases, by class, at December 31, 2020 and December 31, 2019 is 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.
December 31, 2020
(Dollars in thousands)30-59 days
past due		60-89 days
past due		90 days or greaterTotal past
due		CurrentTotal loans
and leases
Commercial:
Construction and land development$956 $527 $1,603 $3,086 $982,338 $985,424 
Owner occupied commercial mortgage8,757 2,232 14,082 25,071 11,139,941 11,165,012 
Non-owner occupied commercial mortgage12,370 0 5,973 18,343 2,969,346 2,987,689 
Commercial and industrial and leases14,532 2,842 3,243 20,617 4,993,027 5,013,644 
SBA-PPP0 0 0 0 2,406,291 2,406,291 
Total commercial loans36,615 5,601 24,901 67,117 22,490,943 22,558,060 
Consumer:
Residential mortgage43,218 8,364 31,690 83,272 5,478,414 5,561,686 
Revolving mortgage11,977 2,626 7,415 22,018 2,030,836 2,052,854 
Construction and land development932 77 330 1,339 346,784 348,123 
Consumer auto6,825 1,835 1,076 9,736 1,245,666 1,255,402 
Consumer other3,610 1,464 1,505 6,579 546,389 552,968 
Total consumer loans66,562 14,366 42,016 122,944 9,648,089 9,771,033 
PCD loans18,322 6,076 31,026 55,424 407,458 462,882 
Total loans and leases$121,499 $26,043 $97,943 $245,485 $32,546,490 $32,791,975 
December 31, 2019
(Dollars in thousands)30-59 days
past due		60-89 days
past due		90 days or greaterTotal past
due		CurrentTotal loans
and leases
Commercial:
Construction and land development$3,146 $195 $2,702 $6,043 $1,007,411 $1,013,454 
Commercial mortgage20,389 8,774 8,319 37,482 12,245,153 12,282,635 
Other commercial real estate861 331 698 1,890 540,138 542,028 
Commercial and industrial and leases18,269 4,842 5,032 28,143 4,375,649 4,403,792 
Other51 411 126 588 309,505 310,093 
Total commercial loans42,716 14,553 16,877 74,146 18,477,856 18,552,002 
Noncommercial:
Residential mortgage45,839 18,289 24,409 88,537 5,205,380 5,293,917 
Revolving mortgage9,729 3,468 9,865 23,062 2,316,010 2,339,072 
Construction and land development977 218 1,797 2,992 354,393 357,385 
Consumer10,481 3,746 3,571 17,798 1,762,606 1,780,404 
Total noncommercial loans67,026 25,721 39,642 132,389 9,638,389 9,770,778 
PCI loans26,478 10,784 28,973 66,235 492,481 558,716 
Total loans and leases$136,220 $51,058 $85,492 $272,770 $28,608,726 $28,881,496 
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The amortized cost, by class, of loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at December 31, 2020 and December 31, 2019, were as follows:
 
January 1, 2020(1)
December 31, 2020
(Dollars in thousands)Nonaccrual
loans and
leases		Nonaccrual
loans and
leases		Loans and
leases > 90
days and
accruing
Commercial:
Construction and land development$4,281 $1,661 $0 
Owner occupied commercial mortgage24,476 23,103 3,625 
Non-owner occupied commercial mortgage5,965 7,932 147 
Commercial and industrial and leases7,685 10,626 540 
Total commercial loans42,407 43,322 4,312 
Consumer:
Residential mortgage44,357 66,345 0 
Revolving mortgage22,411 22,236 0 
Construction and land development2,828 652 0 
Consumer auto2,145 3,166 0 
Consumer other798 823 1,195 
Total consumer loans72,539 93,222 1,195 
PCD loans53,771 54,939 355 
Total loans and leases$168,717 $191,483 $5,862 
(1)Upon the adoption of ASC 326, BancShares eliminated the pooling of PCI loans and as a result $47.0 million in additional PCD loans were recognized as nonaccrual loans at January 1, 2020. As of December 31, 2020, $24.9 million of these loans remained outstanding.
 December 31, 2019
(Dollars in thousands)Nonaccrual
loans and
leases		Loans and
leases > 90 days and accruing
Commercial:
Construction and land development$4,281 $0 
Commercial mortgage29,733 0 
Commercial and industrial and leases7,365 1,094 
Other commercial real estate708 0 
Other320 0 
Total commercial loans42,407 1,094 
Consumer:
Construction and land development2,828 0 
Residential mortgage44,357 45 
Revolving mortgage22,411 0 
Consumer2,943 2,152 
Total noncommercial loans72,539 2,197 
Total non-PCI loans and leases$114,946 $3,291 
Credit quality indicators
Loans and leases are monitored for credit quality on a recurring basis. The credit quality indicators used are dependent on the portfolio segment to which the loan relates. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segmentsegments being evaluated. The credit quality indicators for non-PCI and PCInon-PCD 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 more severely criticized loans or leases. The credit quality indicators for PCI and non-PCI noncommercial loans are based on the delinquency status of the borrower. As the borrower becomes more delinquent, the likelihood of loss increases.loans. The indicators represent the rating for loans or leases as of the date presented are based on the most recent assessment performed. These credit quality indicatorsperformed and are defined as follows: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 thatwhich 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.
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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 December 31, 20172020 and December 31, 20162019, 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 consumer and PCD 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.

The following tables represent current credit quality indicators by origination year as of December 31, 2020.








Commercial Loans Amortized Cost Basis by Origination Year
Classification:20202019201820172016PriorRevolvingRevolving converted to term loansTotal
(Dollars in thousands)
Construction and land development
Pass$342,183 $341,233 $190,429 $50,776 $23,969 $11,306 $10,969 $0 $970,865 
Special Mention246 0 6,421 5,342 0 0 153 0 12,162 
Substandard229 629 1,450 0 8 81 0 0 2,397 
Total342,658 341,862 198,300 56,118 23,977 11,387 11,122 0 985,424 
Owner occupied commercial mortgage
Pass3,183,467 2,201,165 1,625,141 1,301,412 1,049,858 1,454,020 101,556 133 10,916,752 
Special Mention6,274 20,702 36,739 12,387 17,699 25,693 5,115 72 124,681 
Substandard10,280 19,052 9,842 20,928 13,736 41,303 8,438 0 123,579 
Total3,200,021 2,240,919 1,671,722 1,334,727 1,081,293 1,521,016 115,109 205 11,165,012 
Non-owner occupied commercial mortgage
Pass865,514 609,975 378,136 331,800 282,810 391,517 32,149 0 2,891,901 
Special Mention569 905 10,794 1,808 5,121 3,279 483 0 22,959 
Substandard2,899 18,546 12,296 8,764 14,087 15,427 810 0 72,829 
Total868,982 629,426 401,226 342,372 302,018 410,223 33,442 0 2,987,689 
Commercial and industrial and leases
Pass1,620,622 983,852 504,463 310,468 234,735 286,996 899,978 5,520 4,846,634 
Special Mention3,146 17,065 7,265 5,393 3,307 4,912 9,152 189 50,429 
Substandard17,811 4,095 4,370 4,257 2,548 3,801 22,384 983 60,249 
Ungraded0 0 0 0 0 0 56,332 0 56,332 
Total1,641,579 1,005,012 516,098 320,118 240,590 295,709 987,846 6,692 5,013,644 
SBA-PPP
Pass2,406,291 0 0 0 0 0 0 0 2,406,291 
Total commercial$8,459,531 $4,217,219 $2,787,346 $2,053,335 $1,647,878 $2,238,335 $1,147,519 $6,897 $22,558,060 
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The composition of the loans and leases outstanding at December 31, 2017, and December 31, 2016, by credit quality indicator is provided below:
Consumer and PCD Loans Amortized Cost Basis by Origination Year
Days Past Due:20202019201820172016PriorRevolvingRevolving converted to term loansTotal
(Dollars in thousands)
Residential mortgage
Current$1,882,683 $978,298 $655,798 $596,309 $461,719 $878,634 $24,973 $0 $5,478,414 
30-59 days2,278 4,573 11,463 3,772 8,613 12,299 220 0 43,218 
60-89 days30 100 1,246 1,449 834 4,705 0 0 8,364 
90 days or greater282 4,831 3,150 4,015 5,689 13,723 0 0 31,690 
Total1,885,273 987,802 671,657 605,545 476,855 909,361 25,193 0 5,561,686 
Revolving mortgage
Current0 0 0 0 0 0 1,879,968 150,868 2,030,836 
30-59 days0 0 0 0 0 0 8,241 3,736 11,977 
60-89 days0 0 0 0 0 0 527 2,099 2,626 
90 days or greater0 0 0 0 0 0 2,301 5,114 7,415 
Total0 0 0 0 0 0 1,891,037 161,817 2,052,854 
Construction and land development
Current215,112 85,707 24,860 10,269 6,093 2,218 2,525 0 346,784 
30-59 days0 420 121 370 0 21 0 0 932 
60-89 days0 0 0 9 0 68 0 0 77 
90 days or greater0 0 0 0 0 330 0 0 330 
Total215,112 86,127 24,981 10,648 6,093 2,637 2,525 0 348,123 
Consumer auto
Current521,719 340,594 219,597 104,280 49,872 9,604 0 0 1,245,666 
30-59 days2,175 1,873 1,257 842 544 134 0 0 6,825 
60-89 days329 689 312 351 109 45 0 0 1,835 
90 days or greater170 527 217 57 102 3 0 0 1,076 
Total524,393 343,683 221,383 105,530 50,627 9,786 0 0 1,255,402 
Consumer other
Current53,842 27,117 10,911 7,159 2,980 29,336 415,044 0 546,389 
30-59 days322 114 77 18 11 7 3,061 0 3,610 
60-89 days102 20 13 18 3 23 1,285 0 1,464 
90 days or greater53 84 8 0 0 0 1,360 0 1,505 
Total54,319 27,335 11,009 7,195 2,994 29,366 420,750 0 552,968 
Total consumer2,679,097 1,444,947 929,030 728,918 536,569 951,150 2,339,505 161,817 9,771,033 
PCD loans
Current31,475 25,425 27,183 27,955 28,995 232,186 13,212 21,027 407,458 
30-59 days999 925 801 718 1,341 12,637 156 745 18,322 
60-89 days447 81 312 695 97 4,098 9 337 6,076 
90 days or greater721 2,325 4,755 1,208 897 19,963 111 1,046 31,026 
Total PCD33,642 28,756 33,051 30,576 31,330 268,884 13,488 23,155 462,882 
Total loans and leases$11,172,270 $5,690,922 $3,749,427 $2,812,829 $2,215,777 $3,458,369 $3,500,512 $191,869 $32,791,975 
89
 December 31, 2017
(Dollars in thousands)Non-PCI commercial loans and leases
Grade:Construction and land
development		 Commercial
mortgage		 Other
commercial real estate		 Commercial and
industrial		 Lease financing Other Total non-PCI commercial loans and leases
Pass$665,197
 $9,521,019
 $468,942
 $2,511,307
 $883,779
 $298,064
 $14,348,308
Special mention691
 78,643
 1,260
 44,130
 4,340
 2,919
 131,983
Substandard3,327
 128,848
 3,224
 18,617
 6,585
 1,193
 161,794
Doubtful—
 262
 —
 385
 —
 —
 647
Ungraded—
 250
 7
 155,968
 97
 —
 156,322
Total$669,215
 $9,729,022
 $473,433
 $2,730,407
 $894,801
 $302,176
 $14,799,054
              
 December 31, 2016
 Non-PCI commercial loans and leases
 Construction and land
development		 Commercial
mortgage		 Other
commercial real estate		 Commercial and
industrial		 Lease financing Other Total non-PCI commercial loans and leases
Pass$645,232
 $8,821,439
 $347,509
 $2,402,659
 $818,008
 $335,831
 $13,370,678
Special mention2,236
 76,084
 1,433
 22,804
 2,675
 1,020
 106,252
Substandard1,683
 126,863
 2,349
 17,870
 5,415
 3,413
 157,593
Doubtful6
 334
 —
 8
 —
 —
 348
Ungraded—
 1,500
 —
 124,160
 172
 —
 125,832
Total$649,157
 $9,026,220
 $351,291
 $2,567,501
 $826,270
 $340,264
 $13,760,703

 December 31, 2017
 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$3,465,935
 $2,674,390
 $239,648
 $1,546,473
 $7,926,446
30-59 days past due27,886
 13,428
 7,154
 8,812
 57,280
60-89 days past due8,064
 3,485
 108
 2,893
 14,550
90 days or greater past due21,901
 10,222
 1,379
 2,995
 36,497
Total$3,523,786
 $2,701,525
 $248,289
 $1,561,173
 $8,034,773
          
 December 31, 2016
 Non-PCI noncommercial loans and leases
 Residential
mortgage		 Revolving
mortgage		 Construction
and land
development		 Consumer Total non-PCI noncommercial
loans and leases
Current$2,839,045
 $2,576,942
 $229,106
 $1,434,658
 $7,079,751
30-59 days past due27,760
 14,290
 1,139
 6,775
 49,964
60-89 days past due7,039
 2,698
 598
 2,779
 13,114
90 days or greater past due15,280
 7,414
 557
 1,926
 25,177
Total$2,889,124
 $2,601,344
 $231,400
 $1,446,138
 $7,168,006

91
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Loans and leases outstanding at December 31, 2019 by credit quality indicator are provided below:
December 31, 2019
Commercial loans and leases
(Dollars in thousands)Construction and land
development		Commercial mortgageOther commercial real estateCommercial and industrial and leasesOtherPCITotal commercial loans and leases
Grade:
Pass$1,004,922 $12,050,799 $536,682 $4,256,456 $308,796 $148,412 $18,306,067 
Special mention2,577 115,164 3,899 44,604 622 44,290 211,156 
Substandard5,955 116,672 1,447 34,148 675 87,970 246,867 
Doubtful0 0 0 3 0 3,657 3,660 
Ungraded0 0 0 68,581 0 0 68,581 
Total$1,013,454 $12,282,635 $542,028 $4,403,792 $310,093 $284,329 $18,836,331 
December 31, 2019
Noncommercial loans and leases
(Dollars in thousands)Residential mortgageRevolving mortgageConstruction and land developmentConsumerPCITotal noncommercial loans and leases
Days past due:
Current$5,205,380 $2,316,010 $354,393 $1,762,606 $240,995 $9,879,384 
30-59 days past due45,839 9,729 977 10,481 13,764 80,790 
60-89 days past due18,289 3,468 218 3,746 5,608 31,329 
90 days or greater past due24,409 9,865 1,797 3,571 14,020 53,662 
Total$5,293,917 $2,339,072 $357,385 $1,780,404 $274,387 $10,045,165 
The following table provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of December 31, 2020 and 2019:
(Dollars in thousands)December 31, 2020December 31, 2019
FHLB of Atlanta
Lendable collateral value of pledged non-PCD loans$8,637,844 $6,574,636 
Less: advances652,675 563,690 
Available borrowing capacity$7,985,169 $6,010,946 
Pledged non-PCD loans$12,157,153 $9,407,688 
FRB
Lendable collateral value of pledged non-PCD loans$3,321,762 $2,981,712 
Less: advances— — 
Available borrowing capacity$3,321,762 $2,981,712 
Pledged non-PCD loans$4,104,866 $3,684,919 
Purchased loans and leases
The following table summarizes PCD loans acquired in the Community Financial transaction and provides the contractually required payments, less the initial allowance for credit losses and discount to produce the fair value of acquired loans with evidence of more than insignificant credit quality deterioration since origination at the acquisition date:
(Dollars in thousands)Community Financial
Contractually required payments$25,635 
Initial PCD allowance1,193 
Discount1,055 
Fair value at acquisition date$23,387 
90
 December 31, 2017
(Dollars in thousands)PCI commercial loans
Grade:Construction
and land
development		 Commercial
mortgage		 Other
commercial
real estate		 Commercial
and
industrial		 Other Total PCI commercial
loans
Pass$5,336
 $181,353
 $13,830
 $4,057
 $275
 $204,851
Special mention320
 61,295
 323
 374
 945
 63,257
Substandard5,792
 106,807
 2,163
 1,843
 463
 117,068
Doubtful2,206
 8,648
 808
 73
 —
 11,735
Ungraded—
 —
 —
 27
 —
 27
Total$13,654
 $358,103
 $17,124
 $6,374
 $1,683
 $396,938
            
 December 31, 2016
 PCI commercial loans
 Construction
and land
development		 Commercial
mortgage		 Other
commercial
real estate		 Commercial
and
industrial		 Other Total PCI commercial
loans
Pass$8,103
 $234,023
 $8,744
 $7,253
 $696
 $258,819
Special mention950
 67,848
 102
 620
 —
 69,520
Substandard7,850
 138,312
 3,462
 3,648
 1,006
 154,278
Doubtful3,863
 12,830
 337
 303
 —
 17,333
Ungraded—
 —
 —
 20
 —
 20
Total$20,766
 $453,013
 $12,645
 $11,844
 $1,702
 $499,970

 December 31, 2017
 PCI noncommercial loans
(Dollars in thousands)Residential
mortgage		 Revolving
mortgage		 Construction
and land
development		 Consumer Total PCI noncommercial
loans
Current$257,166
 $55,871
 $2
 $2,074
 $315,113
30-59 days past due10,525
 2,767
 —
 51
 13,343
60-89 days past due4,846
 701
 642
 23
 6,212
90 days or greater past due26,781
 4,569
 —
 42
 31,392
Total$299,318
 $63,908
 $644
 $2,190
 $366,060
          
 December 31, 2016
 PCI noncommercial loans
 Residential
mortgage		 Revolving
mortgage		 Construction
and land
development		 Consumer Total PCI noncommercial
loans
Current$230,065
 $33,827
 $—
 $1,637
 $265,529
30-59 days past due9,595
 618
 —
 68
 10,281
60-89 days past due6,528
 268
 —
 4
 6,800
90 days or greater past due22,589
 3,937
 —
 63
 26,589
Total$268,777
 $38,650
 $—
 $1,772
 $309,199


92
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The agingrecorded fair values of purchased non-PCD loans acquired in the Community Financial transaction as of the outstanding non-PCI loans and leases, by class, at December 31, 2017, and December 31, 2016 is provided in the table below.
The calculation of days past due begins on the day after payment is due and includes all days through which all required interest or principal has not been paid. Loans and leases 30 days or less past dueacquisition date are considered current as various grace periods that allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.
 December 31, 2017
(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:           
Construction and land development - commercial$491
 $442
 $357
 $1,290
 $667,925
 $669,215
Commercial mortgage12,288
 2,375
 6,490
 21,153
 9,707,869
 9,729,022
Other commercial real estate107
 —
 75
 182
 473,251
 473,433
Commercial and industrial6,694
 1,510
 1,266
 9,470
 2,720,937
 2,730,407
Lease financing2,983
 167
 973
 4,123
 890,678
 894,801
Residential mortgage27,886
 8,064
 21,901
 57,851
 3,465,935
 3,523,786
Revolving mortgage13,428
 3,485
 10,222
 27,135
 2,674,390
 2,701,525
Construction and land development - noncommercial7,154
 108
 1,379
 8,641
 239,648
 248,289
Consumer8,812
 2,893
 2,995
 14,700
 1,546,473
 1,561,173
Other188
 6
 133
 327
 301,849
 302,176
Total non-PCI loans and leases$80,031
 $19,050
 $45,791
 $144,872
 $22,688,955
 $22,833,827
            
 December 31, 2016
 
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:           
Construction and land development - commercial$1,845
 $39
 $286
 $2,170
 $646,987
 $649,157
Commercial mortgage11,592
 2,773
 10,329
 24,694
 9,001,526
 9,026,220
Other commercial real estate310
 —
 —
 310
 350,981
 351,291
Commercial and industrial7,918
 2,102
 1,051
 11,071
 2,556,430
 2,567,501
Lease financing1,175
 444
 863
 2,482
 823,788
 826,270
Residential mortgage27,760
 7,039
 15,280
 50,079
 2,839,045
 2,889,124
Revolving mortgage14,290
 2,698
 7,414
 24,402
 2,576,942
 2,601,344
Construction and land development - noncommercial1,139
 598
 557
 2,294
 229,106
 231,400
Consumer6,775
 2,779
 1,926
 11,480
 1,434,658
 1,446,138
Other72
 —
 198
 270
 339,994
 340,264
Total non-PCI loans and leases$72,876
 $18,472
 $37,904
 $129,252
 $20,799,457
 $20,928,709

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 December 31, 2017 and December 31, 2016 for non-PCI loans, were as follows:
(Dollars in thousands)Community Financial
Commercial:
Construction and land development$9,428 
Owner occupied commercial mortgage31,473 
Non-owner occupied commercial mortgage25,143 
Commercial and industrial and leases15,065 
Total commercial loans81,109 
Consumer:
Residential mortgage21,168 
Revolving mortgage2,084 
Construction and land development5,254 
Consumer auto294 
Consumer other693 
Total consumer loans29,493 
Total non-PCD loans$110,602 

 December 31, 2017 December 31, 2016
(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$1,040
 $—
 $606
 $—
Commercial mortgage22,625
 397
 26,527
 482
Other commercial real estate916
 ���
 86
 —
Commercial and industrial2,884
 428
 4,275
 440
Lease financing1,992
 —
 359
 683
Residential mortgage38,942
 —
 32,470
 37
Revolving mortgage19,990
 —
 14,308
 —
Construction and land development - noncommercial1,989
 —
 1,121
 —
Consumer1,992
 2,153
 2,236
 1,076
Other164
 —
 319
 —
Total non-PCI loans and leases$92,534
 $2,978
 $82,307
 $2,718
NOTE E

ALLOWANCE FOR CREDIT LOSSES
As noted in Note A, Accounting Polices and Basis of Presentation, BancShares determined SBA-PPP loans have 0 expected credit losses and as such these are excluded from ACL disclosures included in the following tables.
Upon adoption of ASC 326, BancShares recorded a net decrease of $37.9 million in the ACL which included a decrease of $56.9 million in the ACL on non-PCD loans, offset by an increase of $19.0 million in the ACL on PCD loans. The largest changes as a result of adoption were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives. The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into ACL.
The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended December 31, 2020 the primary reason for the ACL change since the adoption of ASC 326, was a $36.1 million reserve build due to the potential economic impact of COVID-19 and its estimated impact on credit losses. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. Assumptions revert to long term historic averages over a one year period. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our model results consider baseline, adverse and upside scenarios. To calculate the ACL, we utilized the baseline scenario, which considers government stimulus and incorporates significant improvements to the most significant forecast assumptions when compared on the COVID-19-impacted levels from early in 2020. This result was calibrated using management’s expectation of borrower performance based upon COVID-19 residual risk by industry. These loss estimates were also influenced by BancShares strong credit quality, low net charge-offs and recent credit trends, which remained stable through the latter half of year ended December 31, 2020, despite potential impacts from COVID-19.
93
91
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Activity in the allowance for credit losses by class of loans is summarized as follows:
Purchased non-PCI
Year ended December 31, 2020
(Dollars in thousands)Construction and land development - commercialOwner occupied commercial mortgageNon-owner occupied commercial mortgageCommercial and industrial and leasesResidential mortgageRevolving mortgageConstruction and land development - consumerConsumer autoConsumer otherPCDTotal
Allowance for credit losses:
Balance at December 31, 2019$33,213 $36,444 $11,102 $61,610 $18,232 $19,702 $2,709 $4,292 $30,301 $7,536 $225,141 
Adoption of ASC 326(31,061)(19,316)460 (37,637)17,118 3,665 (1,291)1,100 10,037 19,001 (37,924)
Balance at January 1, 20202,152 17,128 11,562 23,973 35,350 23,367 1,418 5,392 40,338 26,537 187,217 
Provision (credits)4,301 6,729 12,917 13,816 9,684 1,134 266 6,297 10,410 (7,202)58,352 
Initial allowance on PCD loans0 0 0 0 0 0 0 0 0 1,193 1,193 
Charge-offs(138)(593)(1,951)(14,904)(1,653)(1,662)(70)(3,646)(17,188)(3,300)(45,105)
Recoveries431 401 124 4,894 717 1,918 117 1,417 5,879 6,759 22,657 
Balance at December 31, 2020$6,746 $23,665 $22,652 $27,779 $44,098 $24,757 $1,731 $9,460 $39,439 $23,987 $224,314 
Years ended December 31, 2019 and 2018
(Dollars in thousands)Construction
and land
development
- commercial		Commercial
mortgage		Other
commercial
real estate		Commercial
and
industrial and leases		OtherResidential
mortgage		Revolving
mortgage		Construction
and land
development
- non-
commercial		ConsumerPCITotal
Allowance for credit losses:
Balance at January 1, 2018$24,470 $45,005 $4,571 $59,824 $4,689 $15,706 $22,436 $3,962 $31,204 $10,026 $221,893 
Provision (credits)10,533 (1,490)(2,171)2,511 (2,827)897 1,112 (1,520)22,187 (765)28,467 
Charge-offs(44)(1,140)(69)(10,211)(130)(1,689)(3,235)(219)(22,817)(117)(39,671)
Recoveries311 1,076 150 3,496 489 558 1,549 127 5,267 0 13,023 
Balance at December 31, 201835,270 43,451 2,481 55,620 2,221 15,472 21,862 2,350 35,841 9,144 223,712 
Provision (credits)(2,171)2,384 (285)14,212 (754)3,481 (788)359 16,611 (1,608)31,441 
Charge-offs(196)(1,096)0 (13,352)(100)(1,137)(2,584)0 (24,562)0 (43,027)
Recoveries310 596 15 2,894 869 416 1,212 0 6,703 0 13,015 
Balance at December 31, 2019$33,213 $45,335 $2,211 $59,374 $2,236 $18,232 $19,702 $2,709 $34,593 $7,536 $225,141 
BancShares records an allowance for credit losses on unfunded commitments within other liabilities. Activity in the allowance for credit losses for unfunded commitments is summarized as follows:
(Dollars in thousands)Year ended December 31, 2020
Allowance for credit losses:
Balance at December 31, 2019$1,055 
Adoption of ASC 3268,885 
Balance at January 1, 2020$9,940 
Provision2,874 
Balance at December 31, 202012,814 
BancShares individually reviews loans greater than $500 thousand that are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by business assets, while the remaining loan classes are collateralized by real property.
The following table relates to purchased non-PCIpresents information on collateral-dependent loans acquired inby class and includes the Guaranty transaction in 2017amortized cost of collateral-dependent loans and leases, the Cordia transaction in 2016 and provides the contractually required payments, estimate of contractual cash flows not expected to be collected and fairnet realizable value of the acquiredcollateral, the extent to which collateral secures collateral-dependent loans at the acquisition date.
(Dollars in thousands)Guaranty Cordia
Contractually required payments$703,916
 $296,529
Contractual cash flows not expected to be collected$16,073
 $2,678
Fair value at acquisition date$574,553
 $241,392

The recorded fair values of purchased non-PCI loans acquired in the Guaranty transaction in 2017 and the Cordia transaction in 2016associated ACL as of the acquisition date are as follows:
(Dollars in thousands)Guaranty Cordia
Commercial:   
Construction and land development$—
 $3,066
Commercial mortgage850
 77,455
Other commercial real estate—
 22,174
Commercial and industrial583
 31,773
Other183,816
 —
Total commercial loans and leases185,249
 134,468
Noncommercial:   
Residential mortgage309,612
 16,839
Revolving mortgage54,780
 9,867
Consumer24,912
 80,218
Total noncommercial loans and leases389,304
 106,924
Total non-PCI loans$574,553
 $241,392
Purchased credit-impaired (PCI) loans
The following table relates to PCI loans acquired in the HCB and Guaranty transactions in 2017 and the NMSB and FCSB transactions in 2016. The table summarizes the contractually required payments, which include principal and interest, expected cash flows to be collected, and the fair value of PCI loans at the respective acquisition dates.
(Dollars in thousands)Guaranty HCB FCSB NMSB
Contractually required payments$158,456
 $111,250
 $58,036
 $50,613
Cash flows expected to be collected$142,000
 $101,802
 $50,665
 $42,513
Fair value of loans at acquisition$114,533
 $85,149
 $43,776
 $36,914
The recorded fair values of PCI loans acquired in the HCB and Guaranty transactions in 2017 and the NMSB and FCSB transactions in 2016 as of their respective acquisition dateDecember 31, 2020 were as follows:
92
(Dollars in thousands)Guaranty HCB FCSB NMSB
Commercial:       
Construction and land development$55
 $7,061
 $559
 $125
Commercial mortgage644
 21,836
 24,156
 26,216
Other commercial real estate—
 6,404
 1,158
 1,471
Commercial and industrial2
 19,675
 1,783
 1,847
Other—
 —
 1,619
 —
Total commercial loans701
 54,976
 29,275
 29,659
Noncommercial:       
Residential mortgage80,475
 25,857
 12,518
 6,416
Revolving mortgage33,319
 3,434
 1,117
 121
Construction and land development26
 —
 340
 —
Consumer12
 882
 526
 718
Total noncommercial loans113,832
 30,173
 14,501
 7,255
Total PCI loans$114,533
 $85,149
 $43,776
 $36,914

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)Collateral-Dependant LoansNet Realizable Value of CollateralCollateral CoverageAllowance for Credit Losses
Commercial loans:
Construction and land development$1,424 $1,795 126.1 %$0 
Owner occupied commercial mortgage9,792 14,253 145.6 0 
Non-owner occupied commercial mortgage5,556 7,577 136.4 0 
Total commercial loans16,772 23,625 140.9 0 
Consumer:
Residential mortgage23,011 29,775 129.4 131 
Total non-PCD loans39,783 53,400 134.2 131 
PCD19,042 27,872 146.4 0 
Total collateral-dependent loans$58,825 $81,272 138.2 %$131 
Collateral-dependent nonaccrual loans with no recorded allowance totaled $57.5 million as of December 31, 2020. All other nonaccrual loans have a recorded allowance.
Allowance for Loan and Lease Losses
Prior to adoption of ASC 326, management calculated estimated loan losses through the allowance for loan and lease losses (“ALLL”). The following table providesALLL represented management’s best estimate of inherent credit losses within the loan and lease portfolio at the balance sheet date. Management determined the ALLL based on an ongoing evaluation of the loan portfolio. Estimates for loan losses were determined by analyzing quantitative and qualitative components, such as: economic conditions, historical loan losses, historical loan migration to charge-off experience, current trends in delinquencies and charge-offs, expected cash flows on PCI loans, current assessment of impaired loans, and changes in the carryingsize, composition and/or risk within the loan portfolio. Adjustments to the ALLL were recorded with a corresponding entry to provision for loan and lease losses. Loan balances considered uncollectible were charged-off against the ALLL. Recoveries of amounts previously charged-off were generally credited to the ALLL.
A primary component of determining the allowance on non-PCI loans collectively evaluated was the actual loss history of the various loan classes. Loan loss factors were based on historical experience and, when necessary, were adjusted for significant factors, that in management’s judgment, affect the collectability of principal and interest at the balance sheet date. Loan loss factors were monitored quarterly and, when necessary, adjusted based on changes in the level of historical net charge-offs and updates by management, such as the number of periods included in the calculation of loss factors, loss severity, loss emergence period and portfolio attrition.
For commercial non-PCI loans, management incorporated historical net loss data to develop the applicable loan loss factors. General reserves for collective impairment were based on incurred loss estimates for the loan class based on average loss rates by credit quality indicators, which were estimated using historical loss experience and credit risk rating migrations. Credit quality indicators include borrower classification codes and facility risk ratings. Incurred loss estimates were adjusted through a qualitative assessment to reflect current economic conditions and portfolio trends including credit quality, concentrations, aging of the portfolio and significant policy and underwriting changes.
For noncommercial non-PCI loans, management incorporated specific loan class and delinquency status trends into the loan loss factors. General reserve estimates of incurred losses were based on historical loss experience and the migration of loans through the various delinquency pools applied to the current risk mix.
Non-PCI loans were considered to be impaired when, based on current information and events, it was probable that a borrower would be unable to pay all amounts due according to the contractual terms of the loan agreement. Generally, management considered the following loans to be impaired: all TDR loans and all loan relationships which were on nonaccrual or 90+ days past due and greater than $500,000. Non-PCI impaired loans greater than $500,000 were evaluated individually for impairment while others were evaluated collectively.
The impairment assessment and determination of the related specific reserve for each impaired loan was based on the loan’s characteristics. Impairment measurement for loans dependent on borrower cash flow for repayment was based on the present value of PCI loans during the years ended December 31, 2017 and 2016:
(Dollars in thousands)2017 2016
Balance at January 1$809,169
 $950,516
Fair value of PCI loans acquired during the year199,682
 80,690
Accretion76,594
 76,565
Payments received and other changes, net(322,447) (298,602)
Balance at December 31$762,998
 $809,169
Unpaid principal balance at December 31$1,175,441
 $1,266,395

The carrying value of loans on the cost recovery method was $345 thousand at December 31, 2017, and $498 thousand at December 31, 2016. The cost recovery method is applied to loans when the timing of future cash flows is not reasonably estimable due to borrower nonperformance or uncertainty in the ultimate disposition of the asset. The recorded investment of PCI loans on nonaccrual status was $624 thousand and $3.5 million at December 31, 2017 and December 31, 2016, respectively.
For PCI loans, improved credit loss expectations generally result in the reclassification of nonaccretable difference to accretable yield. Changes in expected cash flows not relateddiscounted at the interest rate implicit in the original loan agreement. Impairment measurement for most real estate loans, particularly when a loan was considered to credit improvementsbe a probable foreclosure, was based on the fair value of the underlying collateral. Collateral was appraised and market value (appropriately adjusted for an assessment of the sales and marketing costs) was used to calculate a fair value estimate. A specific valuation allowance was established or deterioration do not affectpartial charge-off was recorded for the nonaccretable difference.
The following table documents changesdifference between the excess recorded investment in the loan and the loan’s estimated fair value less costs to the amount of accretable yield for 2017 and 2016.sell.
93
(Dollars in thousands)2017 2016
Balance at January 1$335,074
 $343,856
Additions from acquisitions44,120
 12,488
Accretion(76,594) (76,565)
Reclassifications from nonaccretable difference18,901
 29,931
Changes in expected cash flows that do not affect nonaccretable difference(4,822) 25,364
Balance at December 31$316,679
 $335,074



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The ALLL for PCI loans was estimated based on the expected cash flows over the life of the loan. BancShares estimated and updated cash flows expected to be collected on individual loans or pools of loans sharing common risk characteristics. BancShares compared the carrying value of all PCI loans to the present value at each balance sheet date. If the present value was less than the carrying value, the shortfall reduced the remaining credit discount and if it was in excess of the remaining credit discount, an ALLL was recorded through the recognition of provision expense. The ALLL for PCI loans with subsequent increases in expected cash flows to be collected was reduced and any remaining excess was recorded as an adjustment to the accretable yield over the loan’s or pool’s remaining life.
NOTE E
ALLOWANCE FOR LOAN AND LEASE LOSSES

Activity inThe following tables present the allowance for loan and lease losses is as follows:
 Non-PCI PCI Total
(Dollars in thousands)     
Balance at January 1, 2015$182,837
 $21,629
 $204,466
Provision (credit) for loan and lease losses22,937
 (2,273) 20,664
Loans and leases charged-off(25,304) (3,044) (28,348)
Loans and leases recovered9,434
 —
 9,434
Net charge-offs(15,870) (3,044) (18,914)
Balance at December 31, 2015189,904
 16,312
 206,216
Provision (credit) for loan and lease losses34,870
 (1,929) 32,941
Loans and leases charged-off(29,587) (614) (30,201)
Loans and leases recovered9,839
 —
 9,839
Net charge-offs(19,748) (614) (20,362)
Balance at December 31, 2016205,026
 13,769
 218,795
Provision (credit) for loan and lease losses29,139
 (3,447) 25,692
Loans and leases charged-off(36,386) (296) (36,682)
Loans and leases recovered14,088
 —
 14,088
Net charge-offs(22,298) (296) (22,594)
Balance at December 31, 2017$211,867
 $10,026
 $221,893

Activityrecorded investment in the allowance for loan and lease losses, ending balances of loans and leases and related allowance by class of loans, is summarized as follows:well as the associated impairment method at December 31, 2019.
December 31, 2019
(Dollars in thousands)Construction
and land
development
- commercial		Commercial
mortgage		Other
commercial
real estate		Commercial
and industrial and leases		OtherResidential
mortgage		Revolving
mortgage		Construction
and land
development
- non-commercial		ConsumerTotal
Non-PCI Loans
Allowance for loan and lease losses:
ALLL for loans and leases individually evaluated for impairment$463 $3,650 $39 $1,379 $103 $3,278 $2,722 $174 $1,107 $12,915 
ALLL for loans and leases collectively evaluated for impairment32,750 41,685 2,172 57,995 2,133 14,954 16,980 2,535 33,486 204,690 
Total allowance for loan and lease losses$33,213 $45,335 $2,211 $59,374 $2,236 $18,232 $19,702 $2,709 $34,593 $217,605 
Loans and leases:
Loans and leases individually evaluated for impairment$4,655 $70,149 $1,268 $12,182 $639 $60,442 $28,869 $3,882 $3,513 $185,599 
Loans and leases collectively evaluated for impairment1,008,799 12,212,486 540,760 4,391,610 309,454 5,233,475 2,310,203 353,503 1,776,891 28,137,181 
Total loan and leases$1,013,454 $12,282,635 $542,028 $4,403,792 $310,093 $5,293,917 $2,339,072 $357,385 $1,780,404 $28,322,780 
 Years ended December 31, 2017, 2016 and 2015
(Dollars in thousands)
Construction
and land
development
- commercial
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and
industrial
 
Lease
financing
 Other 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
- non-
commercial
 Consumer Total
Non-PCI Loans                     
Allowance for loan and lease losses:                     
Balance at January 1, 2015$11,961
 $85,189
 $732
 $30,727
 $4,286
 $3,184
 $10,661
 $18,650
 $892
 $16,555
 $182,837
Provision (credits)4,773
 (15,822) 1,569
 17,432
 1,602
 (1,420) 4,202
 (927) 541
 10,987
 22,937
Charge-offs(1,012) (1,498) (178) (5,952) (402) —
 (1,619) (2,925) (22) (11,696) (25,304)
Recoveries566
 2,027
 45
 909
 38
 91
 861
 1,173
 74
 3,650
 9,434
Balance at December 31, 201516,288
 69,896
 2,168
 43,116
 5,524
 1,855
 14,105
 15,971
 1,485
 19,496
 189,904
Provision (credits)12,871
 (21,912) 925
 14,583
 635
 877
 801
 7,413
 45
 18,632
 34,870
Charge-offs(680) (987) —
 (9,013) (442) (144) (926) (3,287) —
 (14,108) (29,587)
Recoveries398
 1,281
 176
 1,539
 190
 539
 467
 916
 66
 4,267
 9,839
Balance at December 31, 201628,877
 48,278
 3,269
 50,225
 5,907
 3,127
 14,447
 21,013
 1,596
 28,287
 205,026
Provision (credits)(4,329) (5,694) 1,280
 10,658
 966
 2,189
 2,096
 2,509
 2,366
 17,098
 29,139
Charge-offs(599) (421) (5) (10,926) (995) (912) (1,376) (2,368) —
 (18,784) (36,386)
Recoveries521
 2,842
 27
 3,740
 249
 285
 539
 1,282
 —
 4,603
 14,088
Balance at December 31, 2017$24,470
 $45,005
 $4,571
 $53,697
 $6,127
 $4,689
 $15,706
 $22,436
 $3,962
 $31,204
 $211,867
The following table presents the PCI allowance and recorded investment in loans at December 31, 2019.



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 December 31, 2017
(Dollars in thousands)
Construction
and land
development
- commercial
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and industrial
 
Lease
financing
 Other 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
- non-commercial
 Consumer Total
Non-PCI Loans                     
Allowance for loan and lease losses:                     
ALLL for loans and leases individually evaluated for impairment$185
 $3,648
 $209
 $665
 $397
 $—
 $2,733
 $1,085
 $68
 $738
 $9,728
ALLL for loans and leases collectively evaluated for impairment24,285
 41,357
 4,362
 53,032
 5,730
 4,689
 12,973
 21,351
 3,894
 30,466
 202,139
Total allowance for loan and lease losses$24,470
 $45,005
 $4,571
 $53,697
 $6,127
 $4,689
 $15,706
 $22,436
 $3,962
 $31,204
 $211,867
Loans and leases:                     
Loans and leases individually evaluated for impairment$788
 $73,655
 $1,857
 $7,974
 $1,914
 $521
 $37,842
 $23,770
 $4,551
 $2,774
 $155,646
Loans and leases collectively evaluated for impairment668,427
 9,655,367
 471,576
 2,722,433
 892,887
 301,655
 3,485,944
 2,677,755
 243,738
 1,558,399
 22,678,181
Total loan and leases$669,215
 $9,729,022
 $473,433
 $2,730,407
 $894,801
 $302,176
 $3,523,786
 $2,701,525
 $248,289
 $1,561,173
 $22,833,827
 December 31, 2016
(Dollars in thousands)
Construction
and land
development
- commercial
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and industrial
 
Lease
financing
 Other 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development
- non-commercial
 Consumer Total
Non-PCI Loans                     
Allowance for loan and lease losses:                     
ALLL for loans and leases individually evaluated for impairment$151
 $3,488
 $152
 $1,732
 $75
 $23
 $2,447
 $366
 $109
 $667
 $9,210
ALLL for loans and leases collectively evaluated for impairment28,726
 44,790
 3,117
 48,493
 5,832
 3,104
 12,000
 20,647
 1,487
 27,620
 195,816
Total allowance for loan and lease losses$28,877
 $48,278
 $3,269
 $50,225
 $5,907
 $3,127
 $14,447
 $21,013
 $1,596
 $28,287
 $205,026
Loans and leases:                     
Loans and leases individually evaluated for impairment$1,045
 $76,361
 $1,563
 $12,600
 $1,074
 $142
 $31,476
 $7,613
 $2,613
 $1,912
 $136,399
Loans and leases collectively evaluated for impairment648,112
 8,949,859
 349,728
 2,554,901
 825,196
 340,122
 2,857,648
 2,593,731
 228,787
 1,444,226
 20,792,310
Total loan and leases$649,157
 $9,026,220
 $351,291
 $2,567,501
 $826,270
 $340,264
 $2,889,124
 $2,601,344
 $231,400
 $1,446,138
 $20,928,709

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 Years ended December 31, 2017, 2016 and 2015
(Dollars in thousands)
Construction
and land
development -
commercial
 
Commercial
mortgage
 
Other
commercial
real estate
 
Commercial
and
industrial
 
Residential
mortgage
 
Revolving
mortgage
 
Construction
and land
development -
noncommercial
 
Consumer
and other
 Total
PCI Loans                 
Allowance for loan losses:                 
Balance at January 1, 2015$150
 $10,135
 $75
 $1,240
 $5,820
 $3,999
 $183
 $27
 $21,629
Provision (credits)1,029
 (1,426) 698
 (470) 72
 (2,720) (183) 727
 (2,273)
Charge-offs(97) (871) —
 (325) (494) (756) —
 (501) (3,044)
Recoveries—
 —
 —
 —
 —
 —
 —
 —
 —
Balance at December 31, 20151,082
 7,838
 773
 445
 5,398
 523
 —
 253
 16,312
Provision (credits)(599) (1,249) (266) 59
 (209) 433
 —
 (98) (1,929)
Charge-offs—
 (166) (5) —
 (371) —
 —
 (72) (614)
Recoveries—
 —
 —
 —
 —
 —
 —
 —
 —
Balance at December 31, 2016483
 6,423
 502
 504
 4,818
 956
 —
 83
 13,769
Provision (credits)(148) 437
 (281) (198) (2,701) (697) —
 141
 (3,447)
Charge-offs—
 (296) —
 —
 —
 —
 —
 —
 (296)
Recoveries—
 —
 —
 —
 —
 —
 —
 —
 —
Balance at December 31, 2017$335
 $6,564
 $221
 $306
 $2,117
 $259
 $—
 $224
 $10,026
                  
December 31, 2017                 
ALLL for loans acquired with deteriorated credit quality$335
 $6,564
 $221
 $306
 $2,117
 $259
 $—
 $224
 $10,026
Loans acquired with deteriorated credit quality13,654
 358,103
 17,124
 6,374
 299,318
 63,908
 644
 3,873
 762,998
                  
December 31, 2016                 
ALLL for loans acquired with deteriorated credit quality483
 6,423
 502
 504
 4,818
 956
 —
 83
 13,769
Loans acquired with deteriorated credit quality20,766
 453,013
 12,645
 11,844
 268,777
 38,650
 —
 3,474
 809,169

(Dollars in thousands)December 31, 2019
Allowance for loan losses:
ALLL for loans acquired with deteriorated credit quality$7,536 
Loans acquired with deteriorated credit quality558,716 
At December 31, 2017 and December 31, 2016, $279.8 million and $359.72019, $139.4 million, respectively, in PCI loans experienced an adverse change in expected cash flows since the date of acquisition. The corresponding valuation reserve was $10.0 million and $13.8 million, respectively.


$7.5 million.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables provide information onpresent the recorded investment and related allowance in non-PCI impaired loans and leases exclusiveby class of loans, and leases evaluated collectively as a homogeneous group, including interest income recognized inwell as the period during which the loans and leases were considered impaired.unpaid principle balance.
December 31, 2017December 31, 2019
(Dollars in thousands)
With a
recorded
allowance
 
With no
recorded
allowance
 Total Unpaid
principal
balance		 
Related
allowance
recorded
(Dollars in thousands)With a
recorded
allowance		With no
recorded
allowance		TotalUnpaid
principal
balance		Related
allowance
recorded
Non-PCI impaired loans and leases         Non-PCI impaired loans and leases
Construction and land development - commercial$788
 $—
 $788
 $1,110
 $185
Commercial:Commercial:
Construction and land developmentConstruction and land development$1,851 $2,804 $4,655 $5,109 $463 
Commercial mortgage39,135
 34,520
 73,655
 78,936
 3,648
Commercial mortgage42,394 27,755 70,149 74,804 3,650 
Other commercial real estate1,351
 506
 1,857
 2,267
 209
Other commercial real estate318 950 1,268 1,360 39 
Commercial and industrial6,326
 1,648
 7,974
 10,475
 665
Lease financing1,890
 24
 1,914
 2,571
 397
Commercial and industrial and leasesCommercial and industrial and leases7,547 4,635 12,182 13,993 1,379 
Other—
 521
 521
 521
 —
Other406 233 639 661 103 
Total commercial loansTotal commercial loans52,516 36,377 88,893 95,927 5,634 
Noncommercial:Noncommercial:
Residential mortgage19,135
 18,707
 37,842
 39,946
 2,733
Residential mortgage48,796 11,646 60,442 64,741 3,278 
Revolving mortgage5,875
 17,895
 23,770
 25,941
 1,085
Revolving mortgage26,104 2,765 28,869 31,960 2,722 
Construction and land development - noncommercial592
 3,959
 4,551
 5,224
 68
Construction and land developmentConstruction and land development2,470 1,412 3,882 4,150 174 
Consumer2,107
 667
 2,774
 3,043
 738
Consumer3,472 41 3,513 3,821 1,107 
Total noncommercial loansTotal noncommercial loans80,842 15,864 96,706 104,672 7,281 
Total non-PCI impaired loans and leases$77,199
 $78,447
 $155,646
 $170,034
 $9,728
Total non-PCI impaired loans and leases$133,358 $52,241 $185,599 $200,599 $12,915 
         
December 31, 2016
(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$1,002
 $43
 $1,045
 $1,172
 $151
Commercial mortgage42,875
 33,486
 76,361
 82,658
 3,488
Other commercial real estate1,279
 284
 1,563
 1,880
 152
Commercial and industrial8,920
 3,680
 12,600
 16,637
 1,732
Lease financing1,002
 72
 1,074
 1,074
 75
Other142
 —
 142
 233
 23
Residential mortgage20,269
 11,207
 31,476
 32,588
 2,447
Revolving mortgage1,825
 5,788
 7,613
 8,831
 366
Construction and land development - noncommercial645
 1,968
 2,613
 3,030
 109
Consumer1,532
 380
 1,912
 2,086
 667
Total non-PCI impaired loans and leases$79,491
 $56,908
 $136,399
 $150,189
 $9,210
Non-PCI impaired loans less than $500,000 that arewere collectively evaluated were $49.1 million and $47.4was $41.0 million at December 31, 2017 and 2016, respectively.






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2019.
The following tables show the average non-PCI impaired loan balance and the interest income recognized by loan class for the years ended December 31, 2017, 20162019 and 2015:2018:
 Year ended December 31, 2017
(Dollars in thousands)
YTD
Average
Balance
 YTD Interest Income Recognized
Non-PCI impaired loans and leases:   
Construction and land development - commercial$858
 $37
Commercial mortgage73,815
 2,596
Other commercial real estate1,642
 34
Commercial and industrial9,847
 376
Lease financing1,753
 51
Other426
 22
Residential mortgage33,818
 990
Revolving mortgage14,022
 436
Construction and land development - noncommercial3,383
 145
Consumer2,169
 103
Total non-PCI impaired loans and leases$141,733
 $4,790
    
 Year ended December 31, 2016
Non-PCI impaired loans and leases:   
Construction and land development - commercial$2,700
 $138
Commercial mortgage82,146
 2,671
Other commercial real estate1,112
 38
Commercial and industrial11,878
 417
Lease financing1,307
 63
Other687
 33
Residential mortgage26,774
 805
Revolving mortgage6,915
 171
Construction and land development - noncommercial983
 50
Consumer1,480
 80
Total non-PCI impaired loans and leases$135,982
 $4,466
    
 Year ended December 31, 2015
Non-PCI impaired loans and leases:   
Construction and land development - commercial$3,164
 $146
Commercial mortgage89,934
 3,129
Other commercial real estate481
 12
Commercial and industrial14,587
 510
Lease financing1,718
 74
Other1,673
 37
Residential mortgage18,524
 557
Revolving mortgage4,368
 97
Construction and land development - noncommercial829
 38
Consumer1,126
 75
Total non-PCI impaired loans and leases$136,404
 $4,675
    




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20192018
(Dollars in thousands)Average
Balance		Interest Income RecognizedAverage
Balance		Interest Income Recognized
Non-PCI impaired loans and leases:
Commercial:
Construction and land development$3,915 $53 $1,734 $84 
Commercial mortgage64,363 2,188 65,943 2,569 
Other commercial real estate919 27 1,225 43 
Commercial and industrial and leases11,884 482 9,560 364 
Other396 11 135 3 
Total commercial81,477 2,761 78,597 3,063 
Noncommercial:
Residential mortgage52,045 1,386 41,368 1,237 
Revolving mortgage29,516 1,009 26,759 900 
Construction and land development3,589 116 3,677 172 
Consumer3,311 138 2,722 116 
Total noncommercial88,461 2,649 74,526 2,425 
Total non-PCI impaired loans and leases$169,938 $5,410 $153,123 $5,488 
Troubled Debt Restructurings

BancShares accounts for certain loan modifications or restructurings as 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'sborrower’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. In accordance with GAAP, loans acquired under ASC 310-30, excluding pooled loans,Within our allowance for credit loss models, TDRs are not initially consideredindividually evaluated unless determined 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.

The following table provides a summary of total TDRs by accrual status.
 December 31, 2017 December 31, 2016
(Dollars in thousands)Accruing  Nonaccruing  Total  Accruing  Nonaccruing  Total
Commercial loans           
Construction and land development - commercial$4,089
 $483
 $4,572
 $3,292
 $308
 $3,600
Commercial mortgage62,358
 15,863
 78,221
 70,263
 14,435
 84,698
Other commercial real estate1,012
 788
 1,800
 1,635
 80
 1,715
Commercial and industrial7,598
 910
 8,508
 9,193
 1,436
 10,629
Lease financing722
 1,048
 1,770
 882
 192
 1,074
Other521
 —
 521
 64
 78
 142
Total commercial loans76,300
 19,092
 95,392
 85,329
 16,529
 101,858
Noncommercial           
Residential mortgage34,067
 9,475
 43,542
 34,012
 5,117
 39,129
Revolving mortgage17,673
 5,180
 22,853
 6,346
 1,431
 7,777
Construction and land development - noncommercial—
 —
 —
 240
 —
 240
Consumer and other2,351
 423
 2,774
 1,603
 309
 1,912
Total noncommercial loans54,091
 15,078
 69,169
 42,201
 6,857
 49,058
Total loans$130,391
 $34,170
 $164,561
 $127,530
 $23,386
 $150,916

Total troubled debt restructurings at December 31, 2017, were $164.6 million, of which $18.5 million were PCIcollateral-dependent and $146.1 million were non-PCI. TDRs at December 31, 2016, were $150.9 million, of which $26.4 million were PCI and $124.5 million were non-PCI.

The majority of TDRs are included in the special mention, substandard or doubtful grading categories,definition of default which resultsprovides for a 100% probability of default applied within the models. As a result, subsequent changes in more elevated loss expectations when projectingdefault status do not impact the expected cash flows that are used to determinecalculation of the allowance for loancredit losses associated with theseon TDR loans. When a restructured loan subsequently defaults, it is evaluated and downgraded if appropriate. The more severely graded the loan, the lower the estimated expected cash flows and the greater the allowance recorded. Further, all TDRs are individually evaluated for impairment through a review of collateral values or analysis of cash flows at least annually.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing COVID-19-related financial difficulty. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs.
The following tables provides a summary of total TDRs by accrual status. Total TDRs at December 31, 2020 were $208.2 million. Total TDRs at December 31, 2019, were $171.2 million, of which $154.0 million were non-PCI and $17.2 million were PCI. Total TDRs at December 31, 2018, were $156.1 million, of which $137.9 million were non-PCI and $18.2 million were PCI.
December 31, 2020
(Dollars in thousands)AccruingNonaccruingTotal
Commercial loans:
Construction and land development$578 $54 $632 
Owner occupied commercial mortgage37,574 10,889 48,463 
Non-owner occupied commercial mortgage18,336 1,649 19,985 
Commercial and industrial and leases29,131 3,528 32,659 
Total commercial loans85,619 16,120 101,739 
Consumer:
Residential mortgage29,458 19,380 48,838 
Revolving mortgage20,124 7,128 27,252 
Construction and land development1,573 9 1,582 
Consumer auto2,018 696 2,714 
Consumer other955 137 1,092 
Total consumer loans54,128 27,350 81,478 
PCD loans17,617 7,346 24,963 
Total loans$157,364 $50,816 $208,180 
December 31, 2019December 31, 2018
(Dollars in thousands)AccruingNonaccruing TotalAccruingNonaccruingTotal
Commercial loans:
Construction and land development$487 $2,279 $2,766 $1,946 $352 $2,298 
Commercial mortgage50,819 11,116 61,935 53,270 7,795 61,065 
Other commercial real estate571 0 571 851 9 860 
Commercial and industrial and leases9,430 2,409 11,839 7,986 2,060 10,046 
Other320 105 425 118 173 291 
Total commercial loans61,627 15,909 77,536 64,171 10,389 74,560 
Noncommercial:
Residential mortgage41,813 16,048 57,861 37,903 9,621 47,524 
Revolving mortgage21,032 7,367 28,399 20,492 8,196 28,688 
Construction and land development1,452 2,430 3,882 2,227 110 2,337 
Consumer2,826 688 3,514 2,300 721 3,021 
Total noncommercial loans67,123 26,533 93,656 62,922 18,648 81,570 
Total loans$128,750 $42,442 $171,192 $127,093 $29,037 $156,130 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables provide the types of modifications designated TDRs made during the years ended December 31, 2017,2020, 2019 and 2016,2018, as well as a summary of loans that were modified as a TDR during the years ended December 31, 2017,2020, 2019 and 20162018 that subsequently defaulted during the years ended December 31, 2017,2020, 2019 and 2016.2018. 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.
202020192018
All restructuringsRestructurings with payment defaultAll restructuringsRestructurings with payment defaultAll restructuringsRestructurings with payment default
Number of loansAmortized cost at period endNumber of loansAmortized cost at period endNumber of loansAmortized cost at period endNumber of loansAmortized cost at period endNumber of loansAmortized cost at period endNumber of loansAmortized cost at period end
(Dollars in thousands)
Loans and leases
Interest only period provided
Commercial loans31$28,145 4$4,498 11$1,595 1$238 3$1,003 0$0 
Consumer loans64,169 52,569 74,018 22,717 00 00 
Total interest only3732,314 97,067 185,613 32,955 31,003 00 
Loan term extension
Commercial loans265,444 51,471 163,904 5533 213,933 4675 
Consumer loans665,689 433,241 2342 1306 211,554 4190 
Total loan term extension9211,133 484,712 184,246 6839 425,487 8865 
Below market interest rate
Commercial loans9833,870 261,912 9013,932 242,634 8512,859 242,998 
Consumer loans1566,074 603,897 17612,458 664,014 18415,545 685,461 
Total below market interest rate25439,944 865,809 26626,390 906,648 26928,404 928,459 
Discharged from bankruptcy
Commercial loans301,168 17286 255,571 205,028 262,043 8825 
Consumer loans1868,129 662,928 17810,349 714,239 1516,617 563,169 
Total discharged from bankruptcy2169,297 833,214 20315,920 919,267 1778,660 643,994 
Total restructurings599$92,688 226$20,802 505$52,169 190$19,709 491$43,554 164$13,318 
For the years ended December 31, 2020, 2019 and 2018, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.
97
 Year ended December 31, 2017 Year ended December 31, 2016
 All restructurings Restructurings with payment default All restructurings Restructurings with payment default
 Number of LoansRecorded investment at period end Number of LoansRecorded investment at period end Number of LoansRecorded investment at period end Number of LoansRecorded investment at period end
(Dollars in thousands)           
Non-PCI loans and leases           
Interest only period provided           
Commercial mortgage4$490
 —$—
 2$569
 1$326
Residential mortgage——
 ——
 1122
 1122
Revolving mortgage182
 ——
 ——
 ——
Total interest only5572
 ——
 3691
 2448
            
Loan term extension           
Construction and land development - commercial——
 ——
 140
 140
Commercial mortgage32,240
 ——
 72,428
 ——
Other commercial real estate——
 ——
 1747
 ——
Commercial and industrial9246
 ——
 81,070
 ——
Residential mortgage101,915
 1243
 152,183
 ——
Revolving mortgage141,233
 130
 ——
 ——
Construction and land development - noncommercial135
 ——
 2421
 ——
Consumer9327
 ——
 330
 
—
Other1521
 ——
 ——
 ——
Total loan term extension476,517
 2273
 376,919
 140
            
Below market interest rate           
Construction and land development - commercial3170
 2170
 6231
 1—
Commercial mortgage4911,716
 162,001
 4512,030
 161,986
Commercial and industrial271,227
 9452
 343,056
 111,144
Other commercial real estate5340
 3181
 3619
 ——
Lease financing3633
 2588
 4152
 4152
Residential mortgage1046,858
 332,867
 18511,087
 482,583
Revolving mortgage1296,457
 361,550
 5106
 ——
Construction and land development - noncommercial161,877
 343
 15676
 496
Consumer1895
 530
 10222
 215
Other1—
 ——
 2120
 178
Total below market interest rate35529,373
 1097,882
 30928,299
 876,054
            
Discharged from bankruptcy           
Construction and land development - commercial115
 115
 122
 122
Commercial mortgage82,052
 1—
 4347
 273
Commercial and industrial1056
 7—
 683
 ——
Lease financing17431
 16431
 184
 ——
Residential mortgage413,723
 171,161
 22773
 14326
Revolving mortgage462,597
 15724
 513,043
 13345
Construction and land development - noncommercial235
 235
 ——
 ——
Consumer851,003
 30315
 69770
 23250
Total discharged from bankruptcy2109,912
 892,681
 1545,122
 531,016
Total non-PCI restructurings617$46,374
 200$10,836
 503$41,031
 143$7,558


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Year ended December 31, 2017 Year ended December 31, 2016
 All restructurings Restructurings with payment default All restructurings Restructurings with payment default
 Number of LoansRecorded investment at period end Number of LoansRecorded investment at period end Number of LoansRecorded investment at period end Number of LoansRecorded investment at period end
(Dollars in thousands)           
PCI loans           
Interest only period provided           
Commercial and industrial1$634
 1$634
 —$—
 —$—
Total interest only1634
 1634
 ——
 ——
            
Below market interest rate           
Construction and land development - commercial——
 ——
 152
 ——
Commercial mortgage4725
 ——
 43,255
 ——
Residential mortgage4314
 1101
 3172
 ——
Total below market interest rate81,039
 1101
 83,479
 ——
            
Discharged from bankruptcy           
Commercial mortgage3458
 1262
 22,965
 13
Residential mortgage3495
 1157
 ——
 ——
Total discharged from bankruptcy6953
 2419
 22,965
 13
Total PCI restructurings15$2,626
 4$1,154
 10$6,444
 1$3

NOTE F
PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31, 20172020 and 20162019 are summarized as follows:
(Dollars in thousands)
Useful Life ( years)
20202019
Landindefinite$336,258 $335,093 
Premises and leasehold improvements3 - 401,286,092 1,228,588 
Furniture, equipment and software3 - 10639,109 595,686 
Total2,261,459 2,159,367 
Less accumulated depreciation and amortization1,010,176 914,971 
Total premises and equipment$1,251,283 $1,244,396 
(Dollars in thousands)2017 2016
Land$290,990
 $285,612
Premises and leasehold improvements1,158,699
 1,130,650
Furniture and equipment489,067
 443,560
Total1,938,756
 1,859,822
Less accumulated depreciation and amortization800,325
 726,778
Total premises and equipment$1,138,431
 $1,133,044

BancShares leases certain premisesDepreciation and equipment under various lease agreements that provideamortization expense was $108.6 million, $103.8 million and $96.8 million for payment of property taxes, insurance and maintenance costs. Operating leases frequently provide for one or more renewal options on the same basis as current rental terms. However, certain leases require increased rentals under cost of living escalation clauses. Some leases also provide purchase options.
Future minimum rental commitments for noncancellable operating leases with initial or remaining terms of one or more years consisted of the following atended December 31, 2017:
(Dollars in thousands)Year ended December 31
2018$25,797
201918,838
202012,691
202110,780
20229,181
Thereafter45,138
Total minimum payments$122,425
Total rent expense for all operating leases amounted to $15.2 million in 2017, $13.0 million in 20162020, 2019 and $13.8 million in 2015, net of rent income, which was $6.6 million, $6.5 million and $6.4 million during 2017, 2016 and 2015,2018, respectively.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE G
OTHER REAL ESTATE OWNED (OREO)


The following table explains changes in other real estate owned during 2017(“OREO”) for the years ended December 31, 2020 and 2016.2019.
(Dollars in thousands)Covered Noncovered Total
Balance at January 1, 2016$6,817
 $58,742
 $65,559
Additions4,888
 30,384
 35,272
Additions acquired in the Cordia acquisition—
 1,170
 1,170
Additions acquired in the FCSB acquisition—
 375
 375
Sales(937) (33,241) (34,178)
Write-downs(580) (6,387) (6,967)
Transfers (1)
(9,716) 9,716
 —
Balance at December 31, 2016472
 60,759
 61,231
Additions260
 34,720
 34,980
Additions acquired in the Guaranty acquisition—
 55
 55
Sales(369) (37,997) (38,366)
Write-downs(92) (6,711) (6,803)
Balance at December 31, 2017$271
 $50,826
 $51,097
(1)Transfers include OREO balances associated with expired or terminated shared-loss agreements.
(Dollars in thousands)20202019
Balance at January 1$46,591 $48,030 
Additions26,822 21,684 
Acquired in business combinations9,813 5,459 
Sales(26,726)(24,432)
Write-downs/losses(5,610)(4,150)
Balance at December 3150,890 46,591 
At December 31, 20172020 and 2016,2019, BancShares had $19.8$5.8 million and $15.0$14.5 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 $26.9$29.4 million and $21.8$23.0 million at December 31, 20172020, and December 31, 2016,2019, respectively.
NOTE H
FDIC SHARED-LOSS RECEIVABLE

BancShares completed six FDIC-assisted transactions with shared-loss agreements during the period beginning in 2009 through 2011. Prior to its merger into BancShares, First Citizens Bancorporation, Inc. (Bancorporation) completed three FDIC-assisted transactions with shared-loss agreements: Georgian Bank (acquired in 2009); Williamsburg First National Bank (acquired in 2010); and Atlantic Bank & Trust (acquired in 2011).

During 2017, FCB entered into an agreement with the FDIC to terminate the shared-loss agreement for Venture Bank (VB). Under the terms of the agreement, FCB made a payment of $285 thousand to the FDIC as consideration for early termination of the shared-loss agreement. The early termination resulted in an adjustment of $240 thousand to the FDIC shared-loss receivable and a $45 thousand loss Gains recorded on the terminationsale of the shared-loss agreement. In addition to the shared-loss agreement termination for VB, FCB terminated five shared-loss agreements in 2016, including Temecula Valley Bank, Sun American Bank, Williamsburg First National Bank, Atlantic Bank & TrustOREO were $1.6 million and Colorado Capital Bank. The resulting positive net impact to pre-tax earnings from the early termination of the five FDIC shared-loss agreements in 2016 was $16.6 million.

As of December 31, 2017, shared-loss agreements are still active for First Regional Bank (FRB), Georgian Bank (GB) and United Western Bank (UWB). Shared-loss protection remains for single family residential loans acquired from UWB and GB in the amount of $67.8 million. FRB remains in a recovery period, where any recoveries are shared with the FDIC, until March 2020.

The following table provides changes in the receivable from the FDIC$1.5 million for the years ended December 31, 2017, 20162020 and 2015:2019, respectively.
 Year ended December 31
(Dollars in thousands)2017 2016 2015
Balance at January 1$4,172
 $4,054
 $28,701
Amortization(1,865) (4,734) (10,899)
Net cash payments to the FDIC7,440
 21,059
 33,296
Post-acquisition adjustments(7,764) (14,745) (47,044)
Termination of FDIC shared-loss agreements240
 (1,462) —
Balance at December 31$2,223
 $4,172
 $4,054


NOTE IH

GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
BancShares’ annual impairment test, conducted as of July 31 each year, or more frequently if events occur or circumstances change that may trigger a decline in the value of the reporting unit or otherwise indicate that a potential impairment exists, resulted in no indication of goodwill impairment. Subsequent to the annual impairment test, there were no events or changes in circumstances that would indicate goodwill should be tested for impairment during the interim period between annual tests. No goodwill impairment was recorded during 2020 or 2019.

The following table presents the changes in the carrying amount of goodwill as of December 31, 2020 and 2019:
Year ended December 31
(Dollars in thousands)20202019
Balance at January 1$349,398 $236,347 
Recognized in the Community Financial acquisition686 — 
Measurement period adjustments(1)
214 — 
Recognized in the Biscayne Bancshares acquisition— 46,521 
Recognized in the First South Bancorp acquisition— 13,896 
Recognized in the Entegra acquisition0 52,634 
Balance at December 31$350,298 $349,398 
(1)See Note B, Business Combinations for additional information
104
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Intangible Assets
Other intangible assets include mortgage servicing rights (“MSRs”) on loans sold to third parties with servicing retained, core deposit intangibles which represent the estimated fair value of acquired core deposits and other customer relationships, and other intangible assets acquired such as other servicing rights and noncompete agreements.
Mortgage Servicing Rights
Our portfolio of residential mortgage loans serviced for third parties was $3.31 billion, $3.38 billion and $2.95 billion as of December 31, 2020, 2019 and 2018, respectively. The majority of these loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. At December 31, 2020, a portion of the MSRs were related to originations by Entegra prior to acquisition. These retained servicing rights are recorded as a servicing asset and reported in other intangible assets. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair market value. The amortization expense related to mortgage servicing rights is included as a reduction of mortgage income.
The activity of the mortgage servicing asset for the years ended December 31, 2020, 2019 and 2018 is presented in the following table:
(Dollars in thousands)202020192018
Balance at January 1$22,963 $21,396 $21,945 
Servicing rights originated8,006 6,149 5,258 
Servicing rights acquired in Entegra transaction0 1,873 0 
Amortization(8,400)(6,233)(5,807)
Valuation allowance increase(4,143)(222)0 
Balance at December 31$18,426 $22,963 $21,396 
The following table presents the activity in the servicing asset valuation allowance for the years ended December 31, 2020, 2019 and 2018:
(Dollars in thousands)202020192018
Beginning balance$222 $0 $0 
Valuation allowance increase4,143 222 0 
Ending balance$4,365 $222 $0 
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.
Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the years ended December 31, 2020, 2019 and 2018, were $8.5 million, $7.9 million and $7.5 million, respectively, and reported in mortgage income.
Key economic assumptions used to value mortgage servicing rights as of December 31, 2020 and 2019, were as follows:
20202019
Discount rate - conventional fixed loans7.92 %8.92 %
Discount rate - all loans excluding conventional fixed loans8.92 %9.92 %
Weighted average constant prepayment rate20.62 %13.72 %
Weighted average cost to service a loan$87.58 $87.09 
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, which compared to actual prepayment rates annually for reasonableness. The average cost to service a loan is based on the number of loans serviced and the total costs to service the loans.
Core Deposit Intangibles
Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired. They are being amortized on an accelerated basis over their estimated useful lives. The weighted average useful life of core deposit intangibles acquired in 2020 is 9 years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following information relates to core deposit intangible assets, which are being amortized over their estimated useful lives:
(Dollars in thousands)20202019
Balance at January 1$43,386 $48,232 
Acquired in Community Financial transaction536 — 
Acquired in Biscayne Bancshares transaction— 4,745 
Acquired in First South Bancorp transaction— 2,268 
Acquired in Entegra transaction— 4,487 
Amortization(14,255)(16,346)
Balance at December 31$29,667 $43,386 
The gross amount of core deposit intangible assets and accumulated amortization as of December 31, 2020 and 2019, are:
(Dollars in thousands)20202019
Gross balance$127,842 $154,507 
Accumulated amortization(98,175)(111,121)
Carrying value$29,667 $43,386 
Based on current estimated useful lives and carrying values, BancShares anticipates amortization expense for core deposit intangibles in subsequent periods will be:
(Dollars in thousands)
2021$10,948 
20227,743 
20235,129 
20242,658 
2025 and subsequent3,189 
$29,667 

NOTE I
DEPOSITS
Deposits at December 31, are summarized2020 and 2019 were as follows:
(Dollars in thousands)2017 2016(Dollars in thousands)20202019
Demand$11,237,375
 $10,130,549
Demand$18,014,029 $12,926,796 
Checking with interest5,230,060
 4,919,727
Checking with interest10,591,687 8,284,302 
Money market accounts8,059,271
 8,193,392
Money market accounts8,632,713 6,817,752 
Savings2,340,449
 2,099,579
Savings3,304,167 2,564,777 
Time2,399,120
 2,818,096
Time2,889,013 3,837,609 
Total deposits$29,266,275
 $28,161,343
Total deposits$43,431,609 $34,431,236 
Time deposits with a denomination of $250,000 or more were $414.0$670.4 million and $519.7$891.2 million at December 31, 20172020 and 2016,2019, respectively.

At December 31, 2017,2020, the scheduled maturities of time deposits were:
(Dollars in thousands)Year ended December 31
2021$1,844,860 
2022648,516 
2023143,272 
202467,908 
202542,960 
Thereafter141,497 
Total time deposits$2,889,013 
100
(Dollars in thousands)Year ended December 31
2018$1,684,017
2019378,234
2020202,134
202195,179
202239,553
Thereafter3
Total time deposits$2,399,120

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE J
SHORT-TERM BORROWINGS

Short-term Borrowings
Short-term borrowings at December 31, 2020 and 2019 are as follows:
(Dollars in thousands)2017 2016
Repurchase agreements$586,171
 $590,772
Notes payable to Federal Home Loan Banks90,000
 10,000
Federal funds purchased2,551
 2,551
Subordinated notes payable15,000
 —
Unamortized purchase accounting adjustments85
 164
Total short-term borrowings$693,807
 $603,487
(Dollars in thousands)20202019
Securities sold under customer repurchase agreements$641,487 $442,956 
Notes payable to FHLB of Atlanta0 255,000 
Other short-term debt0 40,277 
Total short-term borrowings$641,487 $738,233 
At December 31, 2017,2020, BancShares had unused credit lines allowing contingent access to overnight borrowings of up to $665.0$598.0 million on an unsecured basis. Additionally, under borrowing arrangements with the Federal Reserve BankFRB of Richmond and Federal Home Loan BankFHLB of Atlanta, BancShares has access to an additional $7.33$11.31 billion on a secured basis.

NOTE K
REPURCHASE AGREEMENTSRepurchase Agreements
BancShares utilizes securities sold under agreements to repurchase to facilitate the needs of our customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates BancShares to repurchase the security onat an agreed upon date, at an agreed upon repurchase price plusand interest at an agreed upon rate. Securities sold underThese agreements to repurchase are recorded at the amount of cash received in connection with the transaction and are generally reflected as short-term borrowings on the Consolidated Balance Sheets.securities sold under customer repurchase agreements.
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 our 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 available for sale investment securities pledged as collateral under repurchase agreements was $684.2$689.3 million and $690.8$477.6 million at December 31, 20172020 and December 31, 2016,2019, respectively.

At December 31, 2020, BancShares held $641.5 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $432.8 million collateralized by government agency securities and $208.7 million collateralized by commercial mortgage-backed securities. At December 31, 2019, BancShares held securities sold under agreements to repurchase of $443.0 million, with overnight and continuous remaining contractual maturities collateralized by government agency securities.
105
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in borrowings on the Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016 is presented in the following tables.
 December 31, 2017
 Remaining Contractual Maturity of the Agreements
(Dollars in thousands)Overnight and continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
Repurchase agreements         
U.S. Treasury$556,171
 $—
 $30,000
 $—
 $586,171
Gross amount of recognized liabilities for repurchase agreements $586,171
          
 December 31, 2016
 Remaining Contractual Maturity of the Agreements
 Overnight and continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
Repurchase agreements         
U.S. Treasury$590,772
 $—
 $—
 $30,000
 $620,772
Gross amount of recognized liabilities for repurchase agreements $620,772

NOTE L
LONG-TERM OBLIGATIONS

Long-term Borrowings
Long-term obligationsborrowings at December 31, 2020 and 2019 include:
(Dollars in thousands)20202019
Fixed-to-Floating subordinated notes at 3.375% maturing March 15, 2030$350,000 $0 
Junior subordinated debenture at 3-month LIBOR plus 1.75% maturing June 30, 203688,145 88,145 
Junior subordinated debenture at 3-month LIBOR plus 2.25% maturing June 15, 203419,588 19,588 
Junior subordinated debenture at 3-month LIBOR plus 2.85% maturing April 7, 203410,310 10,310 
Junior subordinated debentures at 3-month LIBOR plus 2.80% maturing March 30, 203414,433 14,433 
Junior subordinated debentures at 7.00% maturing December 31, 2026(1)
20,000 20,000 
Junior subordinated debentures at 6.50% maturing October 1, 2025(2)
7,500 7,500 
Junior subordinated debentures at 7.13% called February 25, 2020(2)
0 5,000 
Notes payable to FHLBs of Atlanta and Chicago with rates ranging from 0.75% to 2.99% and maturing through March 2032655,175 317,191 
Unsecured term loan at 1-month LIBOR plus 1.10% maturing September 5, 202282,125 96,425 
Obligations under capitalized leases extending to December 20506,308 8,230 
Unamortized issuance costs(3,459)0 
Unamortized purchase accounting adjustments(3)
(1,999)(1,569)
Other long-term debt37 3,385 
Total long-term obligations$1,248,163 $588,638 
(1) Assumed in HomeBancorp acquisition.
(2) Assumed in Biscayne BancShares acquisition.
(3) At December 31, 2020, unamortized purchase accounting adjustments were $2.0 million for subordinated debentures. At December 31, 2019, unamortized purchase accounting adjustments were $1.6 million for subordinated debentures and $6 thousand for FHLB advances.
(Dollars in thousands)2017 2016
Junior subordinated debenture at 3-month LIBOR plus 1.75 percent maturing June 30, 2036$90,207
 $90,207
Junior subordinated debenture at 3-month LIBOR plus 2.25 percent maturing June 15, 203419,588
 24,742
Junior subordinated debenture at 3-month LIBOR plus 2.85 percent maturing April 7, 203410,310
 10,310
Subordinated notes payable at 8.00 percent maturing June 1, 2018—
 15,000
Obligations under capitalized leases extending to June 20267,795
 5,701
Notes payable to Federal Home Loan Bank of Atlanta with rates ranging from 2.00 percent to 3.06 percent and maturing through February 2026745,221
 660,237
Unamortized purchase accounting adjustments(2,964) (3,350)
Other long-term debt83
 30,095
Total long-term obligations$870,240
 $832,942
Issuance of Subordinated Debt

On March 4, 2020, BancShares completed its public offering of $350 million aggregate principal amount of its 3.375% Fixed-to-Floating Rate Subordinated Notes due 2030 and redeemable at the option of BancShares starting with the interest payment due March 15, 2025, subject to obtaining the prior approval of the Federal Reserve to the extent such approval is then required under the rules of the Federal Reserve, or earlier upon the occurrence of certain events.
At December 31, 2017, long-term obligations included $120.12020 and 2019, BancShares held $132.5 million in junior subordinated debentures representing obligations to FCB/NC Capital Trust III, FCB/SC Capital Trust II, SCB Capital Trust I and SCBMacon Capital Trust I special purpose entities and grantor trusts (“the Trusts”) for $116.5 million of trust preferred securities. FCB/NC Capital Trust III, FCB/SC Capital Trust II and SCB Capital Trust I's (the Trusts)The Trusts had outstanding trust preferred securities of $128.5 million at December 31, 2020 and 2019, which mature in 2036, 2034, 2034 and 2034, respectively, and may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of the Trusts.

On January 17, 2018, BancShares prepaid four FHLB advances totaling $325.0 million resulting in a net gain of $13.6 million. On February 7, 2018, BancShares acquired $2.0 million aggregate principal amount of Trust Preferred Securities issued by FCB/NCits subsidiaries, FCB Capital Trust III. BancShares paid approximately $1.8 million, plus unpaid accrued distributions onIII and FCB/SC Capital Trust II. FCB has guaranteed all obligations of its trust subsidiaries, SCB Capital Trust I and Macon Capital Trust I, which was acquired from Entegra during the securities for the current distribution period. On February 9, 2018, BancShares prepaid four additional FHLB advances totaling $350.0 million resulting infourth quarter of 2019 and has a net gainrelated obligation of $12.1$14.4 million.



Long-term obligationsborrowings maturing in each of the five years subsequent to December 31, 20172020 and thereafter include:
(Dollars in thousands)Year ended December 31
2021$10,000 
202298,709 
2023125,500 
20246,144 
20257,500 
Thereafter1,000,310 
Total long-term borrowings$1,248,163 
102
 Year ended December 31
2018$1,298
20191,340
20201,384
202171,431
202276,241
Thereafter718,546
Total long-term obligations$870,240

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE K
FDIC SHARED-LOSS PAYABLE
At December 31, 2020, shared-loss protection remains for single family residential loans acquired in the amount of $34.5 million. The shared-loss agreements for two FDIC-assisted transactions include provisions related to payments owed to the FDIC at the termination of the agreements if actual cumulative losses on covered assets are lower than originally estimated by the FDIC at the time of acquisition (“clawback liability”). As of December 31, 2020 and 2019, the estimated clawback liability was $15.6 million and $112.4 million, respectively, as a result of a payment to the FDIC in the first quarter of 2020 for $99.5 million related to one of the transactions. We expect to make a clawback liability payment to the FDIC in March 2021 in the amount of $15.9 million.
The following table provides changes in the FDIC shared-loss payable for the years ended December 31, 2020 and 2019.
(Dollars in thousands)20202019
Beginning balance$112,395 $105,618 
Accretion2,674 6,777 
Payment made to the FDIC to settle shared-loss agreement(99,468)0 
Ending balance$15,601 $112,395 
NOTE L
SHAREHOLDERS’ EQUITY, DIVIDEND RESTRICTIONS AND OTHER REGULATORY MATTERS
BancShares and FCB are required to meet minimum capital requirements set forth by regulatory authorities. Certain activities such as, the ability to undertake new business initiatives, including acquisitions, the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit insurance costs, and the level and nature of regulatory oversight depend, in large part, on a financial institution’s capital strength.
Bank regulatory agencies approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. Basel III became effective for BancShares on January 1, 2015. Under Basel III, requirements include a common equity Tier 1 ratio minimum of 4.50%, Tier 1 risk-based capital minimum of 6.00%, total risk-based capital ratio minimum of 8.00% and Tier 1 leverage capital ratio minimum of 4.00%. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct, material effect on the consolidated financial statements.
Based on the most recent notifications from its regulators, BancShares and FCB is well-capitalized under the regulatory framework for prompt corrective action. As of December 31, 2020, BancShares and FCB met all capital adequacy requirements to which they are subject and were not aware of any conditions or events that would affect each entity’s well-capitalized status.
Following is an analysis of capital ratios under Basel III guidelines for BancShares and FCB as of December 31, 2020 and 2019:
December 31, 2020December 31, 2019
(Dollars in thousands)Requirements to be well-capitalizedAmountRatioAmountRatio
BancShares
Total risk-based capital10.00 %$4,577,212 13.81 %$3,731,501 12.12 %
Tier 1 risk-based capital8.00 3,856,086 11.63 3,344,305 10.86 
Common equity Tier 16.50 3,516,149 10.61 3,344,305 10.86 
Leverage capital5.00 3,856,086 7.86 3,344,305 8.81 
FCB
Total risk-based capital10.00 4,543,496 13.72 3,837,670 12.46 
Tier 1 risk-based capital8.00 4,276,870 12.92 3,554,974 11.54 
Common equity Tier 16.50 4,276,870 12.92 3,554,974 11.54 
Leverage capital5.00 4,276,870 8.72 3,554,974 9.38 
As of January 1, 2019, the capital conservation buffer was fully phased in at 2.50%. BancShares and FCB had capital conservation buffers of 5.63% and 5.72%, respectively, at December 31, 2020.
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2020, Tier 2 capital of BancShares included $128.5 million of trust preferred capital securities and $377.5 million of qualifying subordinated debentures, compared to $128.5 million of trust preferred capital securities and $32.5 million of qualifying subordinated debentures included at December 31, 2019.
BancShares has two classes of common stock—Class A common and Class B common shares. Shares of Class A common have 1 vote per share, while shares of Class B common have 16 votes per share.
During 2020, BancShares repurchased a total of 813,090 shares of Class A common stock, or 8.4% of outstanding shares of as of December 31, 2019, for $333.8 million at an average cost per share of $410.48. During 2019, BancShares repurchased a total of 998,910 shares of Class A common stock, or 9.4% of outstanding shares of as of December 31, 2018, for $450.8 million at an average cost per share of $451.33. All share repurchases were executed under previously approved authorities.
Upon expiration of the most recent share repurchase authorization on July 31, 2020, share repurchase activity has ended and will be reevaluated in subsequent periods.
Issuance of Depositary Shares
On March 12, 2020, BancShares issued and sold an aggregate of 13,800,000 depositary shares (the “Depositary Shares”), each representing a 1/40th interest in a share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the “Series A Preferred Stock”), with a liquidation preference of $25 per Depositary Share (equivalent to $1,000 per share of the Series A Preferred Stock) for a total of $345 million.
The capital raise provides liquidity for general corporate purposes, which may include, but is not limited to, providing capital to support our growth organically or through strategic acquisitions, financing investments and capital expenditures, for funding investments in First Citizens Bank as regulatory capital, and redeeming or repurchasing BancShares’ common stock.
Dividend Restrictions
The Board of Directors of FCB may approve distributions, including dividends, as it deems appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, provided that the distributions do not reduce capital below applicable capital requirements. As of December 31, 2020, the maximum amount of distributions was limited to $1.70 billion to preserve well-capitalized status. Dividends declared by FCB and paid to BancShares amounted to $229.7 million in 2020, $149.8 million in 2019 and $242.9 million in 2018. Payment of dividends is made at the discretion of the Board of Directors and is contingent upon satisfactory earnings as well as projected future capital needs. BancShares’ principal source of liquidity for payment of shareholder dividends is the dividend it receives from FCB.
BancShares and FCB are subject to various requirements imposed by state and federal banking statutes and regulations, including regulations requiring the maintenance of reserve balances at the Federal Reserve Bank. Banks are allowed to reduce the required balances by the amount of vault cash. For 2020, the requirements averaged $115.2 million. Effective March 26, 2020, the Federal Reserve Board reduced the reserve requirement ratio to 0%, eliminating the reserve requirement for all depository institutions.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE M
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) included the following at December 31, 2020 and 2019:
 December 31, 2020December 31, 2019
(Dollars in thousands)Accumulated
other
comprehensive income
(loss)		Deferred
tax expense
(benefit)		Accumulated
other
comprehensive
income (loss),
net of tax		Accumulated
other
comprehensive income
(loss)		Deferred
tax expense
(benefit)		Accumulated
other
comprehensive
income (loss),
net of tax
Unrealized gains on securities available for sale$102,278 $23,524 $78,754 $7,522 $1,730 $5,792 
Unrealized gains on securities available for sale transferred from (to) held to maturity5,399 1,242 4,157 0 0 0 
Defined benefit pension items(91,751)(21,103)(70,648)(172,098)(39,583)(132,515)
Total$15,926 $3,663 $12,263 $(164,576)$(37,853)$(126,723)
The following table highlights changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2020 and 2019:
(Dollars in thousands)
Unrealized gains (losses) on securities available-for-sale(1)
Unrealized gains (losses) on securities available for sale transferred to held to maturity(1)(2)
Defined benefit pension items(1)
Total
Balance at January 1, 2019$(38,505)$(71,149)$(125,533)$(235,187)
Net unrealized gains (losses) arising during period49,776 55,834 (15,438)90,172 
Amounts reclassified from accumulated other comprehensive loss(5,479)15,315 8,456 18,292 
Net current period other comprehensive income (loss)44,297 71,149 (6,982)108,464 
Balance at December 31, 20195,792 0 (132,515)(126,723)
Net unrealized gains arising during period119,357 4,538 42,367 166,262 
Amounts reclassified from accumulated other comprehensive loss(46,395)(381)19,500 (27,276)
Net current period other comprehensive income72,962 4,157 61,867 138,986 
Balance at December 31, 2020$78,754 $4,157 $(70,648)$12,263 
(1) All amounts are net of tax. Amounts in parentheses indicate debits.
(2) Net unrealized gains (losses) represent unrealized gains and losses related to the reclassification of investment securities between categories. See Note C, Investments, for additional information.
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the amounts reclassified from accumulated other comprehensive income (loss) and the line item affected in the statement where net income is presented for years ended December 31, 2020 and 2019:
(Dollars in thousands)Year ended December 31, 2020
Details about accumulated other comprehensive income (loss)
Amount reclassified from accumulated other comprehensive income (loss)(1)
Affected line item in the statement where net income is presented
Unrealized gains on available for sale securities$60,253 Realized gains on investment securities available for sale, net
(13,858)Income taxes
$46,395 
Amortization of unrealized gains on securities available for sale transferred to held to maturity$495 Net interest income
(114)Income taxes
$381 
Amortization of actuarial losses on defined benefit pension items$(25,324)Other noninterest expense
5,824 Income taxes
$(19,500)
Total reclassifications for the period$27,276 
Year ended December 31, 2019
Details about accumulated other comprehensive (loss) income
Amount reclassified from accumulated other comprehensive income (loss)(1)
Affected line item in the statement where net income is presented
Unrealized gains on available for sale securities$7,115 Realized gains on investment securities available for sale, net
(1,636)Income taxes
$5,479 
Amortization of unrealized losses on securities available for sale transferred to held to maturity$(19,889)Net interest income
4,574 Income taxes
$(15,315)
Amortization of defined benefit pension items
Prior service costs$(57)Salaries and wages
Actuarial losses(10,924)Other noninterest expense
(10,981)Income before income taxes
2,525 Income taxes
$(8,456)
Total reclassifications for the period$(18,292)
(1) Amounts in parentheses indicate debits to profit/loss.
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE N
OTHER NONINTEREST INCOME AND OTHER NONINTEREST EXPENSE
Other noninterest income for the years ended December 31, 2020, 2019 and 2018 was $7.4 million, $18.4 million and $19.7 million, respectively. Prior to the adoption of ASC 326, the most significant item in other noninterest income was recoveries on PCI loans previously charged-off. BancShares recorded the portion of recoveries related to loans and leases written off prior to the closing of an acquisition as noninterest income rather than as an adjustment to the allowance for loan losses. These recoveries were $17.4 million and $16.6 million for the years ended December 31, 2019 and 2018, respectively. Following the adoption of ASC 326, these recoveries are recorded as an adjustment to the ACL. Other noninterest income also includes FHLB dividends and other various income items.
Other noninterest expense for the years ended December 31, 2020, 2019 and 2018 included the following:
(Dollars in thousands)202020192018
Core deposit intangible amortization$14,255 $16,346 $17,165 
Consultant expense12,751 12,801 14,345 
Advertising expense10,010 11,437 11,650 
Telecommunications expense12,179 9,391 10,471 
Other95,922 89,308 93,432 
Total other noninterest expense$145,117 $139,283 $147,063 
Other expense consists of miscellaneous expenses including travel, postage, supplies, appraisal expense and other operational losses. Advertising expense related to non-direct response advertisements are expensed as incurred.
NOTE O
INCOME TAXES
At December 31, 2020, 2019 and 2018 income tax expense consisted of the following:
(Dollars in thousands)202020192018
Current tax expense
Federal$137,162 $68,984 $95,151 
State14,532 11,095 21,523 
Total current tax expense151,694 80,079 116,674 
Deferred tax (benefit) expense
Federal(28,535)50,522 (10,944)
State3,000 4,076 (2,433)
Total deferred tax (benefit) expense(25,535)54,598 (13,377)
Total income tax expense$126,159 $134,677 $103,297 
Income tax expense differed from the amounts computed by applying the statutory federal income tax rate of 21% to pretax income as a result of the following:
(Dollars in thousands)202020192018
Income taxes at federal statutory rates$129,755 $124,330 $105,758 
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses(1,581)(1,639)(1,796)
Excess tax benefits of compensation1,146 1,070 371 
State and local income taxes, including any change in valuation allowance, net of federal income tax benefit13,850 11,985 15,081 
Effect of federal rate change0 0 (15,736)
Tax credits net of amortization(5,367)(4,474)(2,891)
Repayment of claim of right income(13,926)0 0 
Other, net2,282 3,405 2,510 
Total income tax expense$126,159 $134,677 $103,297 
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net deferred tax liability included the following components at December 31, 2020, and 2019:
(Dollars in thousands)20202019
Allowance for credit losses$52,293 $53,073 
Operating lease liabilities15,737 17,752 
Executive separation from service agreements8,989 12,334 
Net operating loss carryforwards9,545 11,085 
Employee compensation16,083 13,313 
FDIC assisted transactions timing differences0 8,678 
Other reserves5,376 5,001 
Other6,898 10,698 
Deferred tax asset114,921 131,934 
Accelerated depreciation14,984 51,249 
Lease financing activities15,265 8,101 
Operating lease assets15,670 17,837 
Net unrealized gain on securities included in accumulated other comprehensive loss24,857 1,821 
Net deferred loan fees and costs13,975 11,781 
Intangible assets13,012 9,148 
Security, loan and debt valuations2,051 5,767 
FDIC assisted transactions timing differences2,393 0 
Pension liability44,549 5,079 
Other10,193 15,993 
Deferred tax liability156,949 126,776 
Net deferred tax (liability) asset$(42,028)$5,158 
At December 31, 2020, the gross tax benefit related to net operating loss carryforwards were $41.7 million and $19.5 million related to federal and state taxes, respectively. These carryforwards expire in years beginning in 2024. The net operating losses were obtained through various acquisitions and are subject to the annual limitations set forth by Internal Revenue Code Section 382. NaN valuation allowance was necessary as of December 31, 2020 and 2019, to reduce BancShares’ gross deferred tax asset to the amount more likely than not to be realized.
Income tax expense for 2020 was favorably impacted by $13.9 million due to BancShares’ decision in the second quarter to utilize an allowable alternative for computing its 2020 federal income tax liability. The allowable alternative provides BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax.
BancShares regularly adjusts its net deferred tax asset as a result of changes in tax rates in the state where it files tax returns. These changes in tax rates did not have a material impact on tax expense in 2020, 2019 or 2018.
BancShares’ and its subsidiaries’ federal income tax returns for 2017 through 2019 remain open for examination. Generally, BancShares is no longer subject to examination by state and local taxing authorities for taxable years prior to 2015.
The following table provides a rollforward of BancShares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31, 2020, 2019 and 2018:
(Dollars in thousands)202020192018
Unrecognized tax benefits at the beginning of the year$32,226 $28,255 $29,004 
Additions (reductions) related to tax positions taken in prior year153 (683)(1,054)
Additions related to tax positions taken in current year1,295 6,554 1,433 
Settlements(1,516)0 0 
Reductions related to lapse of statute of limitations(783)(1,900)(1,128)
Unrecognized tax benefits at the end of the year$31,375 $32,226 $28,255 
All of the unrecognized tax benefits, if recognized, would affect BancShares’ effective tax rate.
BancShares has unrecognized tax benefits relating to uncertain state tax positions in North Carolina and other state jurisdictions resulting from tax filings submitted to the states. No tax benefit has been recorded for these uncertain tax positions in the consolidated financial statements. BancShares does not expect the unrecognized tax benefits to change significantly during 2021.
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. BancShares recognized $467 thousand, ($135) thousand and $114 thousand for the years ended December 31, 2020, 2019 and 2018, respectively. BancShares had $896 thousand and $429 thousand accrued for the payment of interest and penalties as of December 31, 2020 and 2019, respectively.
NOTE P
ESTIMATED FAIR VALUES

Fair value estimates are intended to representrepresents 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. WhereBancShares estimates fair value using discounted cash flows or other valuation techniques when there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques.instrument. Inputs toused in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore cannot be determined with precision. Accordingly,judgment. Therefore, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares couldwould realize in a current market exchange.
ASC 820, Fair Value Measurements and Disclosures, indicates that assetsAssets 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 highestlowest level of input that is significant to the fair value measurement (withwith Level 1 inputs considered highest and Level 3 inputs considered lowest).lowest. A brief description of each input level follows:
•Level 1 valuesinputs are based on quoted prices in active markets for identical instruments in active markets.assets and liabilities.
•Level 2 valuesinputs are based on quoted prices for similar instrumentsassets or liabilities in active markets, quoted prices for identical or similar instrumentsassets or liabilities in markets that are not active and model-based valuation techniquesinputs other than quoted prices observable for which all significant assumptions are observable in the market.assets or liabilities and market corroborated inputs.
•Level 3 valuesinputs are generated from model-based techniques that use at least one significant assumption not observable inunobservable inputs for the market.asset or liability. These unobservable inputs and assumptions reflect the 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'BancShares’ management reviews any changes to its valuation methodologies to ensure they are appropriate and justified,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. There have been no changes for 2017 or 2016.
The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below:below.
Investment securities available for sale. The fair value of U.S. Treasury, government agency, mortgage-backed securities,and municipal securities and a portion of our corporate bonds are generally estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and trust preferredmarket data and will utilize pricing models which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers using a third party pricing service or recent comparable market transactions in similar or identicalinputs that are not directly observable. These securities and are classified asconsidered Level 2 instruments.3.
Marketable equity securities. Equity securities are measured at fair value using observable closing prices and theprices. 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 on a heavilyin 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 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 asconsidered Level 2 inputs. Portfolio loans that are subsequently transferred to held for sale to be sold in the secondary market are carriedtransferred 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.inputs.

Net loans and leases (PCI(Non-PCD and Non-PCI)PCD). 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. An additional valuation adjustment is made for liquidity. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs.


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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.

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 assetamortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model thatwhich 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 with no stated maturity, the 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.

Long-term obligations.Borrowings. For fixed rate trust preferred securities,borrowings, the fair values are determined based on recent trades or sales of the actual security, if available. For other long-term obligations,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 obligationsFHLB borrowings, subordinated debentures, and other 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'BancShares’ financial position.

For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of December 31, 20172020 and 2016.2019. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short termshort-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 short-term borrowings and accrued interest payable are considered Level 2. Lastly,
The table presents the receivable from the FDICcarrying values and estimated fair values for shared-loss agreements is designatedfinancial instruments as Level 3.of December 31, 2020 and 2019.
 December 31, 2020December 31, 2019
(Dollars in thousands)Carrying valueFair valueCarrying valueFair value
Cash and due from banks$362,048 $362,048 $376,719 $376,719 
Overnight investments4,347,336 4,347,336 1,107,844 1,107,844 
Investment securities available for sale7,014,243 7,014,243 7,059,674 7,059,674 
Investment securities held to maturity2,816,982 2,838,499 30,996 30,996 
Investment in marketable equity securities91,680 91,680 82,333 82,333 
Loans held for sale124,837 124,837 67,869 67,869 
Net loans and leases32,567,661 33,298,166 28,656,355 28,878,550 
Income earned not collected145,694 145,694 123,154 123,154 
Federal Home Loan Bank stock45,392 45,392 43,039 43,039 
Mortgage and other servicing rights19,628 20,283 24,891 26,927 
Deposits with no stated maturity40,542,596 40,542,596 30,593,627 30,593,627 
Time deposits2,889,013 2,905,577 3,837,609 3,842,162 
Securities sold under customer repurchase agreements641,487 641,487 442,956 442,956 
Federal Home Loan Bank borrowings655,175 677,579 572,185 577,362 
Subordinated debt504,518 525,610 163,412 173,685 
Other borrowings88,470 89,263 148,318 149,232 
FDIC shared-loss payable15,601 15,843 112,395 114,252 
Accrued interest payable9,414 9,414 18,124 18,124 
110
 December 31, 2017 December 31, 2016
(Dollars in thousands)Carrying value Fair value Carrying value Fair value
Cash and due from banks$336,150
 $336,150
 $539,741
 $539,741
Overnight investments1,387,927
 1,387,927
 1,872,594
 1,872,594
Investment securities available for sale7,180,180
 7,180,180
 7,006,580
 7,006,580
Investment securities held to maturity76
 81
 98
 104
Loans held for sale51,179
 51,179
 74,401
 74,401
Net loans and leases23,374,932
 22,257,803
 21,519,083
 20,614,548
Receivable from the FDIC for shared-loss agreements2,223
 2,223
 4,172
 4,172
Income earned not collected95,249
 95,249
 79,839
 79,839
Federal Home Loan Bank stock52,685
 52,685
 43,495
 43,495
Mortgage servicing rights21,945
 26,170
 20,415
 24,446
Deposits29,266,275
 29,230,768
 28,161,343
 28,135,698
Short-term borrowings693,807
 693,807
 603,487
 603,487
Long-term obligations870,240
 852,112
 832,942
 832,201
Payable to the FDIC for shared-loss agreements101,342
 102,684
 97,008
 100,069
Accrued interest payable3,952
 3,952
 3,797
 3,797


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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 December 31, 20172020 and 2019.
December 31, 2020
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1Level 2Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury$499,933 $0 $499,933 $0 
Government agency701,391 0 701,391 0 
Residential mortgage-backed securities4,438,103 0 4,438,103 0 
Commercial mortgage-backed securities771,537 0 771,537 0 
Corporate bonds603,279 0 286,655 316,624 
Total investment securities available for sale$7,014,243 $0 $6,697,619 $316,624 
Marketable equity securities$91,680 $32,855 $58,825 0 
Loans held for sale124,837 0 124,837 0 
December 31, 2019
 Fair value measurements using:
Fair valueLevel 1Level 2Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury$409,999 $0 $409,999 $0 
Government agency682,772 0 682,772 0 
Residential mortgage-backed securities5,267,090 0 5,267,090 0 
Commercial mortgage-backed securities380,020 0 380,020 0 
Corporate bonds201,566 0 131,881 69,685 
State, county and municipal118,227 0 118,227 0 
Total investment securities available for sale$7,059,674 $0 $6,989,989 $69,685 
Marketable equity securities$82,333 $29,458 $52,875 $0 
Loans held for sale67,869 0 67,869 0 
During the year ended December 31, 2016.2020, $1.8 million of corporate bonds available for sale were transferred from Level 2 to Level 3. The transfers were due to a lack of observable inputs and trade activity for those securities. During the year ended December 31, 2019, $112.6 million of corporate bonds available for sale were transferred from Level 3 to Level 2. The transfers were due to the availability of additional observable inputs for those securities.
 December 31, 2017
   Fair value measurements using:
(Dollars in thousands)Fair value Level 1 Level 2 Level 3
Assets measured at fair value       
Investment securities available for sale       
U.S. Treasury$1,657,864
 $—
 $1,657,864
 $—
Mortgage-backed securities5,349,426
 —
 5,349,426
 —
Equity securities105,208
 19,341
 85,867
 —
Corporate bonds59,963
 —
 59,963
 —
Other7,719
 —
 7,719
 —
Total investment securities available for sale$7,180,180
 $19,341
 $7,160,839
 $—
Loans held for sale$51,179
 $—
 $51,179
 $—
        
 December 31, 2016
   Fair value measurements using:
 Fair value Level 1 Level 2 Level 3
Assets measured at fair value       
Investment securities available for sale       
U.S. Treasury$1,650,319
 $—
 $1,650,319
 $—
Government agency40,398
 —
 40,398
 —
Mortgage-backed securities5,175,425
 —
 5,175,425
 —
Equity securities83,507
 29,145
 54,362
 —
Corporate bonds49,562
 —
 49,562
 —
Other7,369
 —
 7,369
 —
Total investment securities available for sale$7,006,580
 $29,145
 $6,977,435
 $—
Loans held for sale$74,401
 $—
 $74,401
 $—

There were no transfers between levels duringThe following table summarizes activity for Level 3 assets for the years ended December 31, 20172020 and 2016.2019:

20202019
(Dollars in thousands)Corporate bondsCorporate bonds
Beginning balance$69,685 $143,226 
Purchases(1)
242,595 35,993 
Unrealized net gains included in other comprehensive income2,898 3,891 
Amounts included in net income(336)174 
Transfers in1,782 0 
Transfers out0 (112,599)
Sales / Calls0 (1,000)
Ending balance$316,624 $69,685 
(1) The year ended December 31, 2019, includes Corporate bonds of $500 thousand acquired in Entegra transaction.
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The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at December 31, 2020.
(Dollars in thousands)December 31, 2020
Level 3 assetsValuation techniqueSignificant unobservable inputFair Value
Corporate bondsIndicative bid provided by brokerMultiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer$316,624 
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 Statements 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 were gains of $2.9$3.9 million, $289 thousand and $176$50 thousand for the years ended December 31, 20172020, 2019 and 2015, respectively, and a loss of $2.4 million for the year ended December 31, 2016.2018, respectively.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate loans originated for sale measured at fair value as of December 31, 20172020 and 2016.
2019.
December 31, 2017December 31, 2020
(Dollars in thousands)Fair Value Aggregate Unpaid Principal Balance Difference(Dollars in thousands)Fair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$51,179
 $49,796
 $1,383
Originated loans held for sale$124,837 $118,902 $5,935 
     
December 31, 2016December 31, 2019
Fair Value Aggregate Unpaid Principal Balance DifferenceFair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$74,401
 $75,893
 $(1,492)Originated loans held for sale$67,869 $65,697 $2,172 
NoNaN originated loans held for sale were 90 or more days past due or on nonaccrual status as of December 31, 2017 and 2016.

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2020 or December 31, 2019.
Certain other assets are adjusted to their fair value on a nonrecurring basis, including impairedcertain loans, OREO, and goodwill, which are periodically tested for impairment, and mortgage servicing rights, which are carried at the lower of amortized cost or market. Non-impairedMost loans held for investment, deposits, short-termand borrowings and long-term obligations are not reported at fair value.
ImpairedFollowing the adoption of ASC 326, the population of loans measured at fair value on a non-recurring basis has greatly diminished and is limited to collateral-dependent loans evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated allowance for credit losses or if a charge-off has been recorded in the previous 12 months. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 6% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. At December 31, 2020, the weighted average discount for estimated selling costs applied was 7.63%.
Prior to the adoption of ACS 326, impaired loans were considered to be at fair value if an associated allowance adjustment or current period charge-off has beenwas 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 66% and 11 percent11% applied for estimated holding and 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 for the majority of impaired loans generally rangesranged between 23% and 18 percent.7%.
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OREO that has been acquired or written down inwithin the current yearprevious 12 months is deemed to be at fair value, which uses asset valuations.value. Asset valuesvaluations are determined by using appraisals or other third-party value estimates of the subject property with with discounts, generally between 67% and 11 percent16%, applied for estimated holding and selling costs and other external factors that may impact the marketability of the property. At December 31, 2020, the weighted average discount applied was 8.44%. 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.
Mortgage servicing rights are carried at the lower of cost or market and are, therefore, carried at fair value only when fair value is less than the amortized asset cost. The fair value of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates, and the weighted average cost to service the loans, isare used to determine the fair value.
For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of December 31, 20172020 and December 31, 2016.2019.
December 31, 2020
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1Level 2Level 3
Collateral-dependent loans11,779 0 0 11,779 
Other real estate remeasured during the year40,115 0 0 40,115 
Mortgage servicing rights16,966 0 0 16,966 
December 31, 2019
 Fair value measurements using:
Fair valueLevel 1Level 2Level 3
Impaired loans$132,336 $0 $0 $132,336 
Other real estate remeasured during the year38,310 0 0 38,310 
Mortgage servicing rights3,757 0 0 3,757 
 December 31, 2017
   Fair value measurements using:
(Dollars in thousands)Fair value Level 1 Level 2 Level 3
Impaired loans$72,539
 $—
 $—
 $72,539
Other real estate remeasured during current year40,167
 —
 —
 40,167
        
 December 31, 2016
   Fair value measurements using:
 Fair value Level 1 Level 2 Level 3
Impaired loans$70,977
 $—
 $—
 $70,977
Other real estate remeasured during current year45,402
 —
 —
 45,402
Mortgage servicing rights342
 —
 —
 342

NoNaN financial liabilities were carried at fair value on a nonrecurring basis as of December 31, 20172020 and December 31, 2016.2019.


NOTE NQ
EMPLOYEE BENEFIT PLANS

FCB sponsors benefit plans for its qualifying employees and former First Citizens Bancorporation, Inc. employees (legacy Bancorporation)(“legacy Bancorporation”) including noncontributory defined benefit pension plans, a 401(k) savings plan and an enhanced 401(k) savings plan. These plans are qualified under the Internal Revenue Code. FCB also maintains agreements with certain executives that provideproviding supplemental benefits that are paid upon death or separation from service at an agreed-upon age.

Defined Benefit Pension Plans
EmployeesBancShares employees who were hired prior to April 1, 2007 and qualified under length of service and other requirements are covered by a noncontributory defined benefitthe BancShares pension plan, (BancShares Plan). The BancShares planwhich was closed to new participants as of April 1, 2007. Discretionary contributions of $80.0 million were made to the BancShares pension plan in 2020, while discretionary contributions of $71 thousand were made in 2019.
Certain legacy Bancorporation employees who qualified under length of service and other requirements are covered by the legacy Bancorporation pension plan, which was closed to new participants as of September 1, 2007. Discretionary contributions of $20.0 million were made to the legacy Bancorporation pension plan for 2020, while discretionary contributions of $3.5 million were made for 2019.
Participants in the noncontributory defined benefit pension plans (“the Plans”) were fully vested in the Plans after five years of service. Retirement benefits are based on years of service and highest annual compensation for five consecutive years during the last ten years of employment. Covered employees fully vested in the BancShares Plan after five years of service. FCB makes contributions to the pension planPlans in amounts between the minimum required for funding and the maximum amount deductible for federal income tax purposes. Discretionary contributions of $50.0 million were made to the BancShares Plan during both 2017 and 2016. Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors

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including, but not limited to, the funded status of and returns on the BancShares Plan, discount rates and the current economic environment.

Certain legacy Bancorporation employees who qualified under length of service and other requirements are covered by a noncontributory defined benefit pension plan (Bancorporation Plan). The Bancorporation plan was closed to new participants as of September 1, 2007. Retirement benefits are based on years of service and highest average annual compensation for five consecutive years during the last ten years of employment. Covered employees fully vested in the Bancorporation Plan after five years of service. FCB makes contributions to the Bancorporation Plan in amounts between the minimum required for funding and the maximum amount deductible for federal income tax purposes. No contributions were made to the Bancorporation Plan for 2017 and 2016. Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors including, but not limited to, the pension plan funded status, of and returns on the BancShares Plan,plan assets, discount rates and the current economic environment.

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Due to the Plans having the same terms in both form and substance, the following tables and disclosures will report the Plans in total.
Obligations and Funded Status

BancShares Plan
The following table provides the changes in benefit obligation and plan assets and the funded status of the planPlans at December 31, 20172020 and 2016.2019.
(Dollars in thousands)2017 2016(Dollars in thousands)20202019
Change in benefit obligation   Change in benefit obligation
Projected benefit obligation at January 1$673,227
 $611,502
Projected benefit obligation at January 1$990,406 $852,975 
Service cost12,638
 12,618
Service cost14,279 12,767 
Interest cost28,940
 28,892
Interest cost34,197 37,260 
Actuarial loss57,041
 40,571
Actuarial lossesActuarial losses72,080 118,964 
Benefits paid(21,898) (20,356)Benefits paid(33,309)(31,560)
Projected benefit obligation at December 31749,948
 673,227
Projected benefit obligation at December 311,077,653 990,406 
Change in plan assets   Change in plan assets
Fair value of plan assets at January 1600,616
 550,025
Fair value of plan assets at January 1976,072 842,534 
Actual return on plan assets84,281
 20,947
Actual return on plan assets192,792 161,506 
Employer contributions50,000
 50,000
Employer contributions100,000 3,592 
Benefits paid(21,898) (20,356)Benefits paid(33,309)(31,560)
Fair value of plan assets at December 31712,999
 600,616
Fair value of plan assets at December 311,235,555 976,072 
Funded status at December 31$(36,949) $(72,611)Funded status at December 31$157,902 $(14,334)
The amountsamount recognized in the consolidated balance sheetsother assets at December 31, 2017 and 2016 consist of:
(Dollars in thousands)2017 2016
Other assets$—
 $—
Other liabilities(36,949) (72,611)
Net liability recognized$(36,949) $(72,611)

2020 was $157.9 million. The amount recognized in other liabilities at December 31, 2019 was $14.3 million.
The following table details the amounts recognized in accumulated other comprehensive income at December 31, 20172020 and 2016.2019.
(Dollars in thousands)2017 2016
Net loss$125,745
 $119,766
Less prior service cost137
 347
Accumulated other comprehensive loss, excluding income taxes$125,882
 $120,113




The following table provides expected amortization amounts for 2018.

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(Dollars in thousands) 
Actuarial loss$12,998
Prior service cost79
Total$13,077

(Dollars in thousands)20202019
Net actuarial loss$91,751 $172,098 
The accumulated benefit obligation for the planPlans at December 31, 20172020 and 20162019, was $659.0$985.0 million and $587.3$904.5 million, respectively. The BancShares Plan usesPlans use a measurement date of December 31.

The projected benefit obligation exceeded the fair value of plan assets as of December 31, 2017 and 2016. The fair value of plan assets exceeded the accumulated benefit obligation as of December 31, 2017 and 2016.

The following table shows the components of periodic benefit cost related to the pension planPlans and changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2017, 20162020, 2019 and 2015.2018.
 Year ended December 31
(Dollars in thousands)202020192018
Service cost$14,279 $12,767 $16,154 
Interest cost34,197 37,260 34,733 
Expected return on assets(65,689)(62,590)(60,296)
Amortization of prior service cost0 57 79 
Amortization of net actuarial loss25,324 10,924 13,902 
Total net periodic benefit cost (income)8,111 (1,582)4,572 
Current year actuarial (gain) loss(55,023)20,049 32,012 
Amortization of actuarial loss(25,324)(10,924)(13,902)
Amortization of prior service cost0 (57)(79)
Net (gain) loss recognized in other comprehensive income(80,347)9,068 18,031 
Total recognized in net periodic benefit cost and other comprehensive income$(72,236)$7,486 $22,603 
Actuarial gains in 2020 were primarily driven by return on assets greater than expected, partially offset by the impact of a decreased discount rate.
Service costs and the amortization of prior service costs are recorded in personnel expense, while interest cost, expected return on plan assets and the amortization of actuarial (gains)/losses are recorded in other noninterest expense.
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 Year ended December 31
(Dollars in thousands)2017 2016 2015
Service cost$12,638
 $12,618
 $14,083
Interest cost28,940
 28,892
 26,975
Expected return on assets(42,074) (36,643) (33,198)
Amortization of prior service cost210
 210
 210
Amortization of net actuarial loss8,855
 6,859
 11,376
Total net periodic benefit cost8,569
 11,936
 19,446
Current year actuarial loss14,834
 56,268
 927
Amortization of actuarial loss(8,855) (6,859) (11,376)
Amortization of prior service cost(210) (210) (210)
Total recognized in other comprehensive income5,769
 49,199
 (10,659)
Total recognized in net periodic benefit cost and other comprehensive income$14,338
 $61,135
 $8,787
The assumptions used to determine the benefit obligations at December 31, 20172020 and 20162019 are as follows:
20202019
(Dollars in thousands)2017 2016
Discount rate3.76% 4.30%Discount rate2.76 %3.46 %
Rate of compensation increase4.00
 4.00
Rate of compensation increase5.60 5.60 
The assumptions used to determine the net periodic benefit cost for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, are as follows:
202020192018
(Dollars in thousands)2017 2016 2015
Discount rate4.30% 4.68% 4.27%Discount rate3.46 %4.38 %3.76 %
Rate of compensation increase4.00
 4.00
 4.00
Rate of compensation increase5.60 5.60 4.00 
Expected long-term return on plan assets7.50
 7.50
 7.50
Expected long-term return on plan assets7.50 7.50 7.50 
The estimated discount rate, which represents the interest rate that could be obtained for a suitable investment used to fund the benefit obligations, is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension planplans are discounted based on this yield curve and a single discount rate is calculated to achieve the same present value.
The weighted average expected long-term rate of return on BancShares Planthe Plans’ assets represents the average rate of return expected to be earned on BancShares Planthe Plans’ assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, historical and current returns, as well as investment allocation strategies, on BancShares Planthe Plans’ assets are considered.



Bancorporation Plan

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table provides the changes in benefit obligation and plan assets and the funded status of the plan at December 31, 2017 and 2016.
(Dollars in thousands)2017 2016
Change in benefit obligation   
Projected benefit obligation at January 1$156,831
 $143,241
Service cost2,548
 2,567
Interest cost6,653
 6,775
Actuarial loss9,168
 9,682
Benefits paid(5,720) (5,434)
Projected benefit obligation at December 31169,480
 156,831
Change in plan assets   
Fair value of plan assets at January 1152,084
 150,893
Actual return on plan assets22,227
 6,625
Benefits paid(5,720) (5,434)
Fair value of plan assets at December 31168,591
 152,084
Funded status at December 31$(889) $(4,747)
The amounts recognized in the consolidated balance sheets at December 31, 2017 and 2016 consist of:
(Dollars in thousands)2017 2016
Other assets$—
 $—
Other liabilities(889) (4,747)
Net liability recognized$(889) $(4,747)
The following table details the amounts recognized in accumulated other comprehensive loss at December 31, 2017 and 2016.
(Dollars in thousands)2017 2016
Net loss$19,117
 $21,661
Less prior service cost—
 —
Accumulated other comprehensive loss, excluding income taxes$19,117
 $21,661
The following table provides expected amortization amounts for 2018.
(Dollars in thousands) 
Actuarial loss$329
Prior service cost—
Total$329
The accumulated benefit obligation for the plan at December 31, 2017 and 2016 was $157.6 million and $143.7 million, respectively. The Bancorporation Plan uses a measurement date of December 31.
The projected benefit obligation exceeded the fair value of plan assets as of December 31, 2017 and 2016. The fair value of plan assets exceeded the accumulated benefit obligation as of December 31, 2017 and 2016.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table shows the components of periodic benefit cost related to the pension plan and changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2017, 2016 and 2015.
 Year ended December 31
(Dollars in thousands)2017 2016 2015
Service cost$2,548
 $2,567
 $3,341
Interest cost6,653
 6,775
 6,393
Expected return on assets(11,170) (11,101) (11,482)
Amortization of net actuarial loss655
 —
 —
Total net periodic benefit cost(1,314) (1,759) (1,748)
Current year actuarial loss(1,889) 14,157
 458
Amortization of actuarial loss(655) —
 —
Curtailments—
 —
 (2,076)
Total recognized in other comprehensive income(2,544) 14,157
 (1,618)
Total recognized in net periodic benefit cost and other comprehensive income$(3,858) $12,398
 $(3,366)
The assumptions used to determine the benefit obligations at December 31, 2017 and 2016 are as follows:
(Dollars in thousands)2017 2016
Discount rate3.76% 4.30%
Rate of compensation increase4.00
 4.00
The assumptions used to determine the net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows:
(Dollars in thousands)2017 2016 2015
Discount rate4.30% 4.68% 4.27%
Rate of compensation increase4.00
 4.00
 4.00
Expected long-term return on plan assets7.50
 7.50
 7.50

The estimated discount rate, which represents the interest rate that could be obtained for a suitable investment used to fund the benefit obligations, is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plan are discounted based on this yield curve and a single discount rate is calculated to achieve the same present value.
The weighted average expected long-term rate of return on Bancorporation Plan assets represents the average rate of return expected to be earned on Bancorporation Plan assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, historical and current returns, as well as investment allocation strategies, on Bancorporation Plan assets are considered.

Plan AssetsOTHER NONINTEREST INCOME AND OTHER NONINTEREST EXPENSE

For the BancShares Plan and Bancorporation Plan, our primary total return objective is to achieve returns that, over the long term, will fund retirement liabilities and provideOther noninterest income for the desired plan benefitsyears ended December 31, 2020, 2019 and 2018 was $7.4 million, $18.4 million and $19.7 million, respectively. Prior to the adoption of ASC 326, the most significant item in a manner that satisfiesother noninterest income was recoveries on PCI loans previously charged-off. BancShares recorded the fiduciary requirementsportion of recoveries related to loans and leases written off prior to the closing of an acquisition as noninterest income rather than as an adjustment to the allowance for loan losses. These recoveries were $17.4 million and $16.6 million for the years ended December 31, 2019 and 2018, respectively. Following the adoption of ASC 326, these recoveries are recorded as an adjustment to the ACL. Other noninterest income also includes FHLB dividends and other various income items.
Other noninterest expense for the years ended December 31, 2020, 2019 and 2018 included the following:
(Dollars in thousands)202020192018
Core deposit intangible amortization$14,255 $16,346 $17,165 
Consultant expense12,751 12,801 14,345 
Advertising expense10,010 11,437 11,650 
Telecommunications expense12,179 9,391 10,471 
Other95,922 89,308 93,432 
Total other noninterest expense$145,117 $139,283 $147,063 
Other expense consists of miscellaneous expenses including travel, postage, supplies, appraisal expense and other operational losses. Advertising expense related to non-direct response advertisements are expensed as incurred.
NOTE O
INCOME TAXES
At December 31, 2020, 2019 and 2018 income tax expense consisted of the Employee Retirement following:
(Dollars in thousands)202020192018
Current tax expense
Federal$137,162 $68,984 $95,151 
State14,532 11,095 21,523 
Total current tax expense151,694 80,079 116,674 
Deferred tax (benefit) expense
Federal(28,535)50,522 (10,944)
State3,000 4,076 (2,433)
Total deferred tax (benefit) expense(25,535)54,598 (13,377)
Total income tax expense$126,159 $134,677 $103,297 
Income Security Act. The plan assets havetax expense differed from the amounts computed by applying the statutory federal income tax rate of 21% to pretax income as a long-term time horizon that runs concurrent with the average life expectancyresult of the participants. As such, the Plans can assume a time horizon that extends well beyond a full market cycle and can assume a reasonable level of risk. It is expected, however, that both professional investment management and sufficient portfolio diversification will smooth volatility and help to generate a reasonable consistency of return. The investments are broadly diversified across global, economic and market risk factors in an attempt to reduce volatility and target multiple return sources. Within approved guidelines and restrictions, the investment manager has discretion over the timing and selection of individual investments. Plan assets are currently held by FCB Trust Department.following:

(Dollars in thousands)202020192018
Income taxes at federal statutory rates$129,755 $124,330 $105,758 
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses(1,581)(1,639)(1,796)
Excess tax benefits of compensation1,146 1,070 371 
State and local income taxes, including any change in valuation allowance, net of federal income tax benefit13,850 11,985 15,081 
Effect of federal rate change0 0 (15,736)
Tax credits net of amortization(5,367)(4,474)(2,891)
Repayment of claim of right income(13,926)0 0 
Other, net2,282 3,405 2,510 
Total income tax expense$126,159 $134,677 $103,297 
114
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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

BancShares Plan
The fair values of pension plan assetsnet deferred tax liability included the following components at December 31, 20172020, and 2016, by asset class are as follows:2019:
(Dollars in thousands)20202019
Allowance for credit losses$52,293 $53,073 
Operating lease liabilities15,737 17,752 
Executive separation from service agreements8,989 12,334 
Net operating loss carryforwards9,545 11,085 
Employee compensation16,083 13,313 
FDIC assisted transactions timing differences0 8,678 
Other reserves5,376 5,001 
Other6,898 10,698 
Deferred tax asset114,921 131,934 
Accelerated depreciation14,984 51,249 
Lease financing activities15,265 8,101 
Operating lease assets15,670 17,837 
Net unrealized gain on securities included in accumulated other comprehensive loss24,857 1,821 
Net deferred loan fees and costs13,975 11,781 
Intangible assets13,012 9,148 
Security, loan and debt valuations2,051 5,767 
FDIC assisted transactions timing differences2,393 0 
Pension liability44,549 5,079 
Other10,193 15,993 
Deferred tax liability156,949 126,776 
Net deferred tax (liability) asset$(42,028)$5,158 
 December 31, 2017
(Dollars in thousands)Market Value Quoted prices in
Active Markets
for Identical
Assets (Level 1)		 Significant
Observable
Inputs
(Level 2)		 Significant
Nonobservable
Inputs
(Level 3)		 Target Allocation Actual %
of Plan
Assets
Cash and equivalents$67,084
 $67,084
 —
 —
 0-5% 9%
Equity securities        30-70% 65%
Common and preferred stock76,920
 76,920
 —
 —
    
Mutual funds381,747
 360,175
 21,572
 —
    
Fixed income        15-45% 23%
U.S. government and government agency securities60,663
 —
 60,663
 —
    
Corporate bonds83,571
 —
 83,571
 —
    
Mutual funds20,497
 20,497
 —
 —
    
Alternative investments        0-30% 3%
Mutual funds22,517
 22,517
 —
 —
    
Total pension assets$712,999
 $547,193
 $165,806
 $—
   100%
            
 December 31, 2016
 Market Value Quoted prices in
Active Markets
for Identical
Assets (Level 1)		 Significant
Observable
Inputs
(Level 2)		 Significant
Nonobservable
Inputs
(Level 3)		 Target Allocation Actual %
of Plan
Assets
Cash and equivalents$60,674
 $60,674
 $—
 $—
 0 - 1% 10%
Equity securities        30 - 70% 54%
Common and preferred stock66,015
 65,964
 51
 —
    
Mutual funds256,976
 252,710
 4,266
 —
    
Fixed income        15 - 45% 28%
U.S. government and government agency securities57,890
 —
 57,890
 —
    
Corporate bonds68,198
 —
 68,198
 —
    
Mutual funds42,849
 42,849
 —
 —
    
Alternative investments

 

 
 
 0 - 30% 8%
Mutual funds48,014
 48,014
 —
 —
    
Total pension assets$600,616
 $470,211
 $130,405
 $—
   100%

Cash and equivalents comprise approximately 9 percent of BancShares actual plan assets atAt December 31, 2017, exceeding2020, the target allocation rangegross tax benefit related to net operating loss carryforwards were $41.7 million and $19.5 million related to federal and state taxes, respectively. These carryforwards expire in years beginning in 2024. The net operating losses were obtained through various acquisitions and are subject to the annual limitations set forth by Internal Revenue Code Section 382. NaN valuation allowance was necessary as of December 31, 2020 and 2019, to reduce BancShares’ gross deferred tax asset to the amount more likely than not to be realized.
Income tax expense for 2020 was favorably impacted by $13.9 million due to BancShares’ decision in the $50.0 million contributionsecond quarter to utilize an allowable alternative for computing its 2020 federal income tax liability. The allowable alternative provides BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax.
BancShares regularly adjusts its net deferred tax asset as a result of changes in tax rates in the state where it files tax returns. These changes in tax rates did not have a material impact on tax expense in 2020, 2019 or 2018.
BancShares’ and its subsidiaries’ federal income tax returns for 2017 through 2019 remain open for examination. Generally, BancShares is no longer subject to examination by state and local taxing authorities for taxable years prior to 2015.
The following table provides a rollforward of BancShares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31, 2020, 2019 and 2018:
(Dollars in thousands)202020192018
Unrecognized tax benefits at the beginning of the year$32,226 $28,255 $29,004 
Additions (reductions) related to tax positions taken in prior year153 (683)(1,054)
Additions related to tax positions taken in current year1,295 6,554 1,433 
Settlements(1,516)0 0 
Reductions related to lapse of statute of limitations(783)(1,900)(1,128)
Unrecognized tax benefits at the end of the year$31,375 $32,226 $28,255 
All of the unrecognized tax benefits, if recognized, would affect BancShares’ effective tax rate.
BancShares has unrecognized tax benefits relating to uncertain state tax positions in North Carolina and other state jurisdictions resulting from tax filings submitted to the planstates. No tax benefit has been recorded for these uncertain tax positions in December 2017.


the consolidated financial statements. BancShares does not expect the unrecognized tax benefits to change significantly during 2021.
115
108
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. BancShares recognized $467 thousand, ($135) thousand and $114 thousand for the years ended December 31, 2020, 2019 and 2018, respectively. BancShares had $896 thousand and $429 thousand accrued for the payment of interest and penalties as of December 31, 2020 and 2019, respectively.
Bancorporation Plan
NOTE P
 December 31, 2017
(Dollars in thousands)Market Value Quoted prices in
Active Markets
for Identical
Assets (Level 1)		 Significant
Observable
Inputs
(Level 2)		 Significant
Nonobservable
Inputs
(Level 3)		 Target Allocation Actual %
of Plan
Assets
Cash and equivalents$3,941
 $3,941
 $—
 $—
 0-5% 2%
Equity securities        30-70% 70%
Common and preferred stock26,892
 26,892
 —
 —
    
Mutual funds90,466
 84,954
 5,512
 —
    
Fixed income        15-45% 25%
U.S. government and government agency securities15,798
 —
 15,798
 —
    
Corporate bonds20,572
 —
 20,572
 —
    
Mutual funds5,163
 5,163
 —
 —
    
Alternative investments        0-30% 3%
Mutual funds5,759
 5,759
 —
 —
    
Total pension assets$168,591
 $126,709
 $41,882
 —
   100%
            
 December 31, 2016
 Market Value Quoted prices in
Active Markets
for Identical
Assets (Level 1)		 Significant
Observable
Inputs
(Level 2)		 Significant
Nonobservable
Inputs
(Level 3)		 Target Allocation Actual %
of Plan
Assets
Cash and equivalents$3,839
 $3,839
 $—
 $—
 0 - 1% 2%
Equity securities        30 - 70% 58%
Common and preferred stock18,274
 18,260
 14
 —
    
Mutual funds69,978
 68,832
 1,146
 —
    
Fixed income        15 - 45% 31%
U.S. government and government agency securities15,407
 —
 15,407
 —
    
Corporate bonds19,496
 —
 19,496
 —
    
Mutual funds11,822
 11,822
 —
 —
    
Alternative investments        0 - 30% 9%
Mutual funds13,268
 13,268
 —
 —
    
Total pension assets$152,084
 $116,021
 $36,063
 —
   100%
ESTIMATED FAIR VALUES

Fair value represents 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. BancShares estimates fair value using discounted cash flows or other valuation techniques when there is no active market for a financial instrument. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment. Therefore, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.
Cash FlowsAssets 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 lowest level of input significant to the fair value measurement with Level 1 inputs considered highest and Level 3 inputs considered lowest. A brief description of each input level follows:

•Level 1 inputs are quoted prices in active markets for identical assets and liabilities.
Following•Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices observable for the assets or liabilities and market corroborated inputs.
•Level 3 inputs are unobservable inputs for the asset or liability. These unobservable inputs and assumptions reflect the estimates market participants would use in pricing the asset or liability.
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. The fair value of U.S. Treasury, government agency, mortgage-backed and municipal securities and a portion of our corporate bonds are generally estimated paymentsusing 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 which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers using inputs that are not directly observable. These securities are considered Level 3.
Marketable equity securities. Equity securities are measured at fair value using observable closing prices. 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 originated to pension plan participantsbe 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 considered Level 2 inputs. Portfolio loans subsequently transferred to held for sale to be sold in the indicated periodssecondary market are transferred at fair value. The fair value of the transferred portfolio loans is based on quoted prices and considered Level 1 inputs.
Net loans and leases (Non-PCD and PCD). 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 each plan:loans and leases are considered Level 3 inputs.
109
(Dollars in thousands)BancShares Plan Bancorporation Plan
2018$26,051
 $6,797
201927,514
 7,099
202029,061
 7,451
202130,634
 7,879
202232,074
 8,364
2023-2027186,617
 47,307


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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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.
401(k) Savings PlansMortgage 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 which 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 deposits with no stated maturity, the 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.
Effective January 1, 2015, 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 FHLB borrowings, subordinated debentures, and other 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 December 31, 2020 and 2019. 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 and accrued interest payable are considered Level 2.
The table presents the carrying values and estimated fair values for financial instruments as of December 31, 2020 and 2019.
 December 31, 2020December 31, 2019
(Dollars in thousands)Carrying valueFair valueCarrying valueFair value
Cash and due from banks$362,048 $362,048 $376,719 $376,719 
Overnight investments4,347,336 4,347,336 1,107,844 1,107,844 
Investment securities available for sale7,014,243 7,014,243 7,059,674 7,059,674 
Investment securities held to maturity2,816,982 2,838,499 30,996 30,996 
Investment in marketable equity securities91,680 91,680 82,333 82,333 
Loans held for sale124,837 124,837 67,869 67,869 
Net loans and leases32,567,661 33,298,166 28,656,355 28,878,550 
Income earned not collected145,694 145,694 123,154 123,154 
Federal Home Loan Bank stock45,392 45,392 43,039 43,039 
Mortgage and other servicing rights19,628 20,283 24,891 26,927 
Deposits with no stated maturity40,542,596 40,542,596 30,593,627 30,593,627 
Time deposits2,889,013 2,905,577 3,837,609 3,842,162 
Securities sold under customer repurchase agreements641,487 641,487 442,956 442,956 
Federal Home Loan Bank borrowings655,175 677,579 572,185 577,362 
Subordinated debt504,518 525,610 163,412 173,685 
Other borrowings88,470 89,263 148,318 149,232 
FDIC shared-loss payable15,601 15,843 112,395 114,252 
Accrued interest payable9,414 9,414 18,124 18,124 
110
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 December 31, 2020 and 2019.
December 31, 2020
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1Level 2Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury$499,933 $0 $499,933 $0 
Government agency701,391 0 701,391 0 
Residential mortgage-backed securities4,438,103 0 4,438,103 0 
Commercial mortgage-backed securities771,537 0 771,537 0 
Corporate bonds603,279 0 286,655 316,624 
Total investment securities available for sale$7,014,243 $0 $6,697,619 $316,624 
Marketable equity securities$91,680 $32,855 $58,825 0 
Loans held for sale124,837 0 124,837 0 
December 31, 2019
 Fair value measurements using:
Fair valueLevel 1Level 2Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury$409,999 $0 $409,999 $0 
Government agency682,772 0 682,772 0 
Residential mortgage-backed securities5,267,090 0 5,267,090 0 
Commercial mortgage-backed securities380,020 0 380,020 0 
Corporate bonds201,566 0 131,881 69,685 
State, county and municipal118,227 0 118,227 0 
Total investment securities available for sale$7,059,674 $0 $6,989,989 $69,685 
Marketable equity securities$82,333 $29,458 $52,875 $0 
Loans held for sale67,869 0 67,869 0 
During the year ended December 31, 2020, $1.8 million of corporate bonds available for sale were transferred from Level 2 to Level 3. The transfers were due to a lack of observable inputs and trade activity for those securities. During the year ended December 31, 2019, $112.6 million of corporate bonds available for sale were transferred from Level 3 to Level 2. The transfers were due to the availability of additional observable inputs for those securities.
The following table summarizes activity for Level 3 assets for the years ended December 31, 2020 and 2019:
20202019
(Dollars in thousands)Corporate bondsCorporate bonds
Beginning balance$69,685 $143,226 
Purchases(1)
242,595 35,993 
Unrealized net gains included in other comprehensive income2,898 3,891 
Amounts included in net income(336)174 
Transfers in1,782 0 
Transfers out0 (112,599)
Sales / Calls0 (1,000)
Ending balance$316,624 $69,685 
(1) The year ended December 31, 2019, includes Corporate bonds of $500 thousand acquired in Entegra transaction.
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The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at December 31, 2020.
(Dollars in thousands)December 31, 2020
Level 3 assetsValuation techniqueSignificant unobservable inputFair Value
Corporate bondsIndicative bid provided by brokerMultiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer$316,624 
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 Statements 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 were gains of $3.9 million, $289 thousand and $50 thousand for the years ended December 31, 2020, 2019 and 2018, respectively.
The following table summarizes the difference between the aggregate fair value and the unpaid principal balance for residential real estate loans originated for sale measured at fair value as of December 31, 2020 and 2019.
December 31, 2020
(Dollars in thousands)Fair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$124,837 $118,902 $5,935 
December 31, 2019
Fair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$67,869 $65,697 $2,172 
NaN originated loans held for sale were 90 or more days past due or on nonaccrual status as of December 31, 2020 or December 31, 2019.
Certain other assets are adjusted to their fair value on a nonrecurring basis, including certain loans, OREO, goodwill, which are periodically tested for impairment, and mortgage servicing rights, which are carried at the lower of amortized cost or market. Most loans held for investment, deposits, and borrowings are not reported at fair value.
Following the adoption of ASC 326, the population of loans measured at fair value on a non-recurring basis has greatly diminished and is limited to collateral-dependent loans evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated allowance for credit losses or if a charge-off has been recorded in the previous 12 months. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 6% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. At December 31, 2020, the weighted average discount for estimated selling costs applied was 7.63%.
Prior to the adoption of ACS 326, impaired loans were considered to be at fair value if an associated allowance adjustment or current period charge-off was 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 for the majority of impaired loans generally ranged between 3% and 7%.
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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 with discounts, generally between 7% and 16%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At December 31, 2020, the weighted average discount applied was 8.44%. 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.
Mortgage servicing rights are carried at the lower of cost or market and are, therefore, carried at fair value only when fair value is less than amortized cost. The fair value of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates, and the weighted average cost to service the loans, are used to determine the fair value.
For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of December 31, 2020 and December 31, 2019.
December 31, 2020
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1Level 2Level 3
Collateral-dependent loans11,779 0 0 11,779 
Other real estate remeasured during the year40,115 0 0 40,115 
Mortgage servicing rights16,966 0 0 16,966 
December 31, 2019
 Fair value measurements using:
Fair valueLevel 1Level 2Level 3
Impaired loans$132,336 $0 $0 $132,336 
Other real estate remeasured during the year38,310 0 0 38,310 
Mortgage servicing rights3,757 0 0 3,757 
NaN financial liabilities were carried at fair value on a nonrecurring basis as of December 31, 2020 and December 31, 2019.

NOTE Q
EMPLOYEE BENEFIT PLANS
FCB merged the sponsors benefit plans for its qualifying employees and former First Citizens Bancorporation, Inc. employees (“legacy BancorporationBancorporation”) including noncontributory defined benefit pension plans, a 401(k) savings plan and Bancorporation enhanced 401(k) savings plan into the existing BancShares 401(k) savings plan and BancShares enhanced 401(k) savings plan. Participation in and terms of the FCB 401(k) plan and enhanced 401(k) plan did not change as a result of the mergers.

Certain employees enrolled in the defined benefit plan are also eligible to participate in a 401(k) savings plan through deferral of portions of their salary. For employees who participate in the 401(k) savings plan who also continue to accrue additional years of service under the defined benefit plan, FCB makes a makes a matching contribution equal to 100 percent of the first 3 percent and 50 percent of the next 3 percent of the participant's deferral up to and including a maximum contribution of 4.5 percent of the participant's eligible compensation. The matching contribution immediately vests.
At the end of 2007, current employees were given the option to continue to accrue additional years of service under the defined benefit plan or to elect to join an enhanced 401(k) savings plan. Under the enhanced 401(k) savings plan, FCB matches up to 100 percent of the participant's deferrals not to exceed 6 percent of the participant's eligible compensation. The matching contribution immediately vests. In addition to the employer match of the employee contributions, the enhanced 401(k) savings plan provides a guaranteed contribution equal to 3 percent of the compensation of a participant who remains employed at the end of the calendar year. Employees who elected to enroll in the enhanced 401(k) savings plan discontinued the accrual of additional years of serviceThese plans are qualified under the defined benefit plan and became enrolled in the enhanced 401(k) savings plan effective January 1, 2008. Eligible employees hired after January 1, 2008, are eligible to participate in the enhanced 401(k) savings plan.

Internal Revenue Code. FCB made participating contributions to the 401(k) plans of $25.3 million, $23.5 million and $22.6 million during 2017, 2016 and 2015, respectively.

Additional Benefits for Executives and Directors and Officers of Acquired Entities
FCB has entered into contractualalso maintains agreements with certain executives that provide payments for a period of no more than ten years followingproviding supplemental benefits paid upon death or separation from service that occurs no earlier thanat an agreed-upon age. These agreements also provide a death benefit
Defined Benefit Pension Plans
BancShares employees who were hired prior to April 1, 2007 and qualified under length of service and other requirements are covered by the BancShares pension plan, which was closed to new participants as of April 1, 2007. Discretionary contributions of $80.0 million were made to the BancShares pension plan in 2020, while discretionary contributions of $71 thousand were made in 2019.
Certain legacy Bancorporation employees who qualified under length of service and other requirements are covered by the legacy Bancorporation pension plan, which was closed to new participants as of September 1, 2007. Discretionary contributions of $20.0 million were made to the legacy Bancorporation pension plan for 2020, while discretionary contributions of $3.5 million were made for 2019.
Participants in the event a participant dies prior to separation fromnoncontributory defined benefit pension plans (“the Plans”) were fully vested in the Plans after five years of service. Retirement benefits are based on years of service orand highest annual compensation for five consecutive years during the payment periodlast ten years of employment. FCB makes contributions to the Plans in amounts between the minimum required for funding and the maximum amount deductible for federal income tax purposes. Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors including, but not limited to, the pension plan funded status, returns on plan assets, discount rates and the current economic environment.
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Due to the Plans having the same terms in both form and substance, the following separation from service. FCB has also assumed liability for contractual obligations to directorstables and officers of previously-acquired entities.disclosures will report the Plans in total.
Obligations and Funded Status
The following table provides the accrued liability aschanges in benefit obligation and plan assets and the funded status of the Plans at December 31, 2020 and 2019.
(Dollars in thousands)20202019
Change in benefit obligation
Projected benefit obligation at January 1$990,406 $852,975 
Service cost14,279 12,767 
Interest cost34,197 37,260 
Actuarial losses72,080 118,964 
Benefits paid(33,309)(31,560)
Projected benefit obligation at December 311,077,653 990,406 
Change in plan assets
Fair value of plan assets at January 1976,072 842,534 
Actual return on plan assets192,792 161,506 
Employer contributions100,000 3,592 
Benefits paid(33,309)(31,560)
Fair value of plan assets at December 311,235,555 976,072 
Funded status at December 31$157,902 $(14,334)
The amount recognized in other assets at December 31, 2020 was $157.9 million. The amount recognized in other liabilities at December 31, 2019 was $14.3 million.
The following table details the amounts recognized in accumulated other comprehensive income at December 31, 2020 and 2019.
(Dollars in thousands)20202019
Net actuarial loss$91,751 $172,098 
The accumulated benefit obligation for the Plans at December 31, 2020 and 2019, was $985.0 million and $904.5 million, respectively. The Plans use a measurement date of December 31.
The following table shows the components of periodic benefit cost related to the Plans and changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 20172020, 2019 and 2016,2018.
 Year ended December 31
(Dollars in thousands)202020192018
Service cost$14,279 $12,767 $16,154 
Interest cost34,197 37,260 34,733 
Expected return on assets(65,689)(62,590)(60,296)
Amortization of prior service cost0 57 79 
Amortization of net actuarial loss25,324 10,924 13,902 
Total net periodic benefit cost (income)8,111 (1,582)4,572 
Current year actuarial (gain) loss(55,023)20,049 32,012 
Amortization of actuarial loss(25,324)(10,924)(13,902)
Amortization of prior service cost0 (57)(79)
Net (gain) loss recognized in other comprehensive income(80,347)9,068 18,031 
Total recognized in net periodic benefit cost and other comprehensive income$(72,236)$7,486 $22,603 
Actuarial gains in 2020 were primarily driven by return on assets greater than expected, partially offset by the impact of a decreased discount rate.
Service costs and the changesamortization of prior service costs are recorded in personnel expense, while interest cost, expected return on plan assets and the amortization of actuarial (gains)/losses are recorded in other noninterest expense.
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The assumptions used to determine the benefit obligations at December 31, 2020 and 2019 are as follows:
20202019
Discount rate2.76 %3.46 %
Rate of compensation increase5.60 5.60 
The assumptions used to determine the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018, are as follows:
202020192018
Discount rate3.46 %4.38 %3.76 %
Rate of compensation increase5.60 5.60 4.00 
Expected long-term return on plan assets7.50 7.50 7.50 
The estimated discount rate, which represents the interest rate that could be obtained for a suitable investment used to fund the benefit obligations, is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plans are discounted based on this yield curve and a single discount rate is calculated to achieve the same present value.
The weighted average expected long-term rate of return on the Plans’ assets represents the average rate of return expected to be earned on the Plans’ assets over the period the benefits included in the accrued liability duringbenefit obligation are to be paid. In developing the years then ended:
(Dollars in thousands)2017 2016
Present value of accrued liability as of January 1$38,597
 $39,878
Benefit expense and interest cost3,262
 3,232
Benefits paid(4,560) (4,194)
Benefits forfeited—
 (319)
Present value of accrued liability as of December 31$37,299
 $38,597
Discount rate at December 313.76% 4.30%

Other Compensation Plans

FCB offers various short-termexpected rate of return, historical and long-term incentive plans for certain employees. Compensation awarded under these plans may be basedcurrent returns, as well as investment allocation strategies, on defined formulas or other performance criteria, or it may be at the discretion of management. The incentive compensation programs were designed to motivate employees through a balanced approach of risk and reward for their contributions toward FCB's success. As of December 31, 2017 and 2016, the accrued liability for incentive compensation was $33.4 million and $28.4 million, respectively.Plans’ assets are considered.

NOTE O
OTHER NONINTEREST INCOME AND OTHER NONINTEREST EXPENSE
Other noninterest income for the years ended December 31, 2017, 20162020, 2019 and 20152018 was $47.8$7.4 million, $34.2$18.4 million and $36.4$19.7 million, respectively. ThePrior to the adoption of ASC 326, the most significant item in other noninterest income was recoveries on PCI loans that have been previously charged-off. BancShares recordsrecorded the portion of recoveries not covered under shared-loss agreementsrelated to loans and leases written off prior to the closing of an acquisition as noninterest income rather than as an adjustment to the allowance for loan losses. These recoveries were $21.1 million, $20.1$17.4 million and $21.2$16.6 million for the years ended December 31, 2017, 20162019 and 2015,2018, respectively. Charge-offs on PCI loansFollowing the adoption of ASC 326, these recoveries are recorded against the discount


recognized on the date of acquisition versus through the allowance for loan losses unlessas an allowance was established subsequentadjustment to the acquisition date due to declining expected cash flow. Additionally, another large increase in otherACL. Other noninterest income in 2017 was related to the early termination of two forward startingalso includes FHLB advances that resulted in a gain of $12.5 million.dividends and other various income items.
Other noninterest expense for the years ended December 31, 2017, 20162020, 2019 and 20152018 included the following:
(Dollars in thousands)202020192018
Core deposit intangible amortization$14,255 $16,346 $17,165 
Consultant expense12,751 12,801 14,345 
Advertising expense10,010 11,437 11,650 
Telecommunications expense12,179 9,391 10,471 
Other95,922 89,308 93,432 
Total other noninterest expense$145,117 $139,283 $147,063 
(Dollars in thousands)2017 2016 2015
Processing fees paid to third parties25,673
 18,976
 18,779
Cardholder reward programs9,956
 10,615
 11,069
Telecommunications12,172
 14,496
 14,406
Consultant14,963
 10,931
 8,925
Core deposit intangible amortization17,194
 16,851
 18,892
Advertising11,227
 10,239
 12,431
Other95,014
 98,607
 87,938
Total other noninterest expense$186,199
 $180,715
 $172,440
Other expense consists of miscellaneous expenses including travel, postage, supplies, appraisal expense and other operational losses. Advertising expense related to non-direct response advertisements are expensed as incurred.

NOTE PO
INCOME TAXES
At December 31, 2020, 2019 and 2018 income tax expense consisted of the following:
(Dollars in thousands)2017 2016 2015(Dollars in thousands)202020192018
Current tax expense     Current tax expense
Federal$87,992
 $84,946
 $105,367
Federal$137,162 $68,984 $95,151 
State6,116
 7,493
 16,111
State14,532 11,095 21,523 
Total current tax expense94,108
 92,439
 121,478
Total current tax expense151,694 80,079 116,674 
Deferred tax expense (benefit)     
Deferred tax (benefit) expenseDeferred tax (benefit) expense
Federal115,392
 23,144
 (2,758)Federal(28,535)50,522 (10,944)
State10,446
 10,002
 3,308
State3,000 4,076 (2,433)
Total deferred tax expense125,838
 33,146
 550
Total deferred tax (benefit) expenseTotal deferred tax (benefit) expense(25,535)54,598 (13,377)
Total income tax expense$219,946
 $125,585
 $122,028
Total income tax expense$126,159 $134,677 $103,297 
Income tax expense differed from the amounts computed by applying the statutory federal income tax rate of 35 percent21% to pretax income as a result of the following:
(Dollars in thousands)2017 2016 2015(Dollars in thousands)202020192018
Income taxes at federal statutory rates$190,294
 $122,874
 $116,345
Income taxes at federal statutory rates$129,755 $124,330 $105,758 
Increase (reduction) in income taxes resulting from:     Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses(2,525) (2,901) (3,020)Nontaxable income on loans, leases and investments, net of nondeductible expenses(1,581)(1,639)(1,796)
State and local income taxes, including change in valuation allowance, net of federal income tax benefit10,765
 11,372
 12,622
Excess tax benefits of compensationExcess tax benefits of compensation1,146 1,070 371 
State and local income taxes, including any change in valuation allowance, net of federal income tax benefitState and local income taxes, including any change in valuation allowance, net of federal income tax benefit13,850 11,985 15,081 
Effect of federal rate change25,762
 —
 —
Effect of federal rate change0 0 (15,736)
Acquisition stock settlement—
 (98) —
Tax credits net of amortization(4,840) (4,138) (3,060)Tax credits net of amortization(5,367)(4,474)(2,891)
Repayment of claim of right incomeRepayment of claim of right income(13,926)0 0 
Other, net490
 (1,524) (859)Other, net2,282 3,405 2,510 
Total income tax expense$219,946
 $125,585
 $122,028
Total income tax expense$126,159 $134,677 $103,297 
118
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The net deferred tax assetliability included the following components at December 31:31, 2020, and 2019:
(Dollars in thousands)(Dollars in thousands)20202019
Allowance for credit lossesAllowance for credit losses$52,293 $53,073 
Operating lease liabilitiesOperating lease liabilities15,737 17,752 
Executive separation from service agreementsExecutive separation from service agreements8,989 12,334 
Net operating loss carryforwardsNet operating loss carryforwards9,545 11,085 
(Dollars in thousands)2017 2016
Allowance for loan and lease losses$50,853
 $80,939
Pension liability704
 15,679
Executive separation from service agreements8,548
 14,278
Federal net operating loss carryforward2,685
 5,019
Net unrealized loss on securities included in accumulated other comprehensive loss10,849
 26,832
Accelerated depreciation—
 133
Employee compensationEmployee compensation16,083 13,313 
FDIC assisted transactions timing differences—
 52,579
FDIC assisted transactions timing differences0 8,678 
Other reserves5,570
 10,504
Other reserves5,376 5,001 
Other10,116
 26,663
Other6,898 10,698 
Deferred tax asset89,325
 232,626
Deferred tax asset114,921 131,934 
Accelerated depreciation7,562
 —
Accelerated depreciation14,984 51,249 
Lease financing activities9,131
 11,651
Lease financing activities15,265 8,101 
Operating lease assetsOperating lease assets15,670 17,837 
Net unrealized gain on securities included in accumulated other comprehensive lossNet unrealized gain on securities included in accumulated other comprehensive loss24,857 1,821 
Net deferred loan fees and costs8,708
 10,867
Net deferred loan fees and costs13,975 11,781 
Intangible assets12,252
 6,335
Intangible assets13,012 9,148 
Security, loan and debt valuations7,018
 22,656
Security, loan and debt valuations2,051 5,767 
FDIC assisted transactions timing differences1,113
 —
FDIC assisted transactions timing differences2,393 0 
Pension liabilityPension liability44,549 5,079 
Other4,565
 8,501
Other10,193 15,993 
Deferred tax liability50,349
 60,010
Deferred tax liability156,949 126,776 
Net deferred tax asset$38,976
 $172,616
Net deferred tax (liability) assetNet deferred tax (liability) asset$(42,028)$5,158 
At December 31, 2017, $12.8 million of existing2020, the gross deferred tax assets relatebenefit related to net operating loss carryforwards whichwere $41.7 million and $19.5 million related to federal and state taxes, respectively. These carryforwards expire in years beginning in 2024 through 2034.2024. The net operating losses were acquiredobtained through the acquisition of Cordiavarious acquisitions and are subject to the annual limitationlimitations set forth by Internal Revenue Code Section 382. NoNaN valuation allowance was necessary as of December 31, 20172020 and 2019, to reduce BancShares’ gross deferred tax asset to the amount that is more likely than not to be realized.
The Tax ActIncome tax expense for 2020 was enacted on December 22, 2017. The SEC issued Staff Accounting Bulletin No. 118favorably impacted by $13.9 million due to address uncertainty in applying ASC Topic 740BancShares’ decision in the reporting period in whichsecond quarter to utilize an allowable alternative for computing its 2020 federal income tax liability. The allowable alternative provides BancShares the Tax Act was enacted. The Tax Act included a reductionability to use the corporatefederal income tax rate from 35 percent to 21 percent effective January 1, 2018. Tax expense was increased in the fourth quarter by a provisional $25.8 million to reflect the Tax Act changes. This increase includes additional tax expensefor certain current year deductible amounts related to our investments in low income housing tax creditsand revaluation of the deferred tax asset for items charged or credited directlyprior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to AOCI. The revaluation of the deferred tax asset related to items that are charged or credited directly to AOCI was a component of 2017 income tax expense and recognized in continuing operations as required by ASC Topic 740. The ultimate impact may differ from this provisional amount due to additional analysis, changes in interpretations and assumptions and additional regulatory guidance that may be issued. The provisional amount is expected to be finalized when the 2017 U.S. Corporate income tax return is filed in 2018.tax.

During the second quarter of 2017 and third quarter of 2016, BancShares adjustedregularly adjusts its net deferred tax asset as a result of reductionschanges in tax rates in the North Carolina corporate incomestate where it files tax rate that were enacted June 28, 2017 and July 23, 2013, respectively. The lower corporate incomereturns. These changes in tax rate resulted in a reduction in the deferred tax asset and an increase in income tax expense in 2017 and 2016. The lower state corporate income tax raterates did not have a material impact on income tax expense.expense in 2020, 2019 or 2018.
BancSharesBancShares’ and its subsidiaries'subsidiaries’ federal income tax returns for 20142017 through 20162019 remain open for examination. Generally, the state jurisdictions in which BancShares files income tax returns areis no longer subject to examination by state and local taxing authorities for a period uptaxable years prior to four years after returns are filed. BancShares' state tax returns are currently under exam by North Carolina for 2012 through 2015, California for 2011 through 2015 and Florida for 2012 through 2013.2015.
The following table provides a rollforward of Bancshares’BancShares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31:31, 2020, 2019 and 2018:
(Dollars in thousands)2017 2016 2015
Unrecognized tax benefits at the beginning of the year$28,879
 $5,975
 $3,865
Reductions related to tax positions taken in prior year—
 (327) (79)
Additions related to tax positions taken in current year125
 23,231
 2,189
Unrecognized tax benefits at the end of the year$29,004
 $28,879
 $5,975

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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands)202020192018
Unrecognized tax benefits at the beginning of the year$32,226 $28,255 $29,004 
Additions (reductions) related to tax positions taken in prior year153 (683)(1,054)
Additions related to tax positions taken in current year1,295 6,554 1,433 
Settlements(1,516)0 0 
Reductions related to lapse of statute of limitations(783)(1,900)(1,128)
Unrecognized tax benefits at the end of the year$31,375 $32,226 $28,255 
All of the unrecognized tax benefits, if recognized, would affect Bancshares’BancShares’ effective tax rate.
BancShares has unrecognized tax benefits relating to uncertain state tax positions in North Carolina and other state jurisdictions resulting from tax filings submitted to the states. No tax benefit has been recorded for these uncertain tax positions in the consolidated financial statements. BancsharesBancShares does not expect the unrecognized tax benefits to change significantly during 2018.2021.
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BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. ForBancShares recognized $467 thousand, ($135) thousand and $114 thousand for the years ended December 31, 2017, 20162020, 2019 and 2015, Bancshares recorded $450 thousand, $3572018, respectively. BancShares had $896 thousand and $298$429 thousand accrued for the payment of interest and penalties as of December 31, 2020 and 2019, respectively.
NOTE P
ESTIMATED FAIR VALUES
Fair value represents 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. BancShares estimates fair value using discounted cash flows or other valuation techniques when there is no active market for a financial instrument. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment. Therefore, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.
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 primarily representthe 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 lowest level of input significant to the fair value measurement with Level 1 inputs considered highest and Level 3 inputs considered lowest. A brief description of each input level follows:
•Level 1 inputs are quoted prices in active markets for identical assets and liabilities.
•Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices observable for the assets or liabilities and market corroborated inputs.
•Level 3 inputs are unobservable inputs for the asset or liability. These unobservable inputs and assumptions reflect the estimates market participants would use in pricing the asset or liability.
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. The fair value of U.S. Treasury, government agency, mortgage-backed and municipal securities and a portion of our corporate bonds are generally estimated 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 which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers using inputs that are not directly observable. These securities are considered Level 3.
Marketable equity securities. Equity securities are measured at fair value using observable closing prices. 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 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 considered Level 2 inputs. Portfolio loans subsequently transferred to held for sale to be sold in the secondary market are transferred at fair value. The fair value of the transferred portfolio loans is based on quoted prices and considered Level 1 inputs.
Net loans and leases (Non-PCD and PCD). 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.
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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 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.
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 which 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 deposits with no stated maturity, the 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 FHLB borrowings, subordinated debentures, and other 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 December 31, 2020 and 2019. 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 and accrued interest.interest payable are considered Level 2.
The table presents the carrying values and estimated fair values for financial instruments as of December 31, 2020 and 2019.
 December 31, 2020December 31, 2019
(Dollars in thousands)Carrying valueFair valueCarrying valueFair value
Cash and due from banks$362,048 $362,048 $376,719 $376,719 
Overnight investments4,347,336 4,347,336 1,107,844 1,107,844 
Investment securities available for sale7,014,243 7,014,243 7,059,674 7,059,674 
Investment securities held to maturity2,816,982 2,838,499 30,996 30,996 
Investment in marketable equity securities91,680 91,680 82,333 82,333 
Loans held for sale124,837 124,837 67,869 67,869 
Net loans and leases32,567,661 33,298,166 28,656,355 28,878,550 
Income earned not collected145,694 145,694 123,154 123,154 
Federal Home Loan Bank stock45,392 45,392 43,039 43,039 
Mortgage and other servicing rights19,628 20,283 24,891 26,927 
Deposits with no stated maturity40,542,596 40,542,596 30,593,627 30,593,627 
Time deposits2,889,013 2,905,577 3,837,609 3,842,162 
Securities sold under customer repurchase agreements641,487 641,487 442,956 442,956 
Federal Home Loan Bank borrowings655,175 677,579 572,185 577,362 
Subordinated debt504,518 525,610 163,412 173,685 
Other borrowings88,470 89,263 148,318 149,232 
FDIC shared-loss payable15,601 15,843 112,395 114,252 
Accrued interest payable9,414 9,414 18,124 18,124 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 December 31, 2020 and 2019.
December 31, 2020
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1Level 2Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury$499,933 $0 $499,933 $0 
Government agency701,391 0 701,391 0 
Residential mortgage-backed securities4,438,103 0 4,438,103 0 
Commercial mortgage-backed securities771,537 0 771,537 0 
Corporate bonds603,279 0 286,655 316,624 
Total investment securities available for sale$7,014,243 $0 $6,697,619 $316,624 
Marketable equity securities$91,680 $32,855 $58,825 0 
Loans held for sale124,837 0 124,837 0 
December 31, 2019
 Fair value measurements using:
Fair valueLevel 1Level 2Level 3
Assets measured at fair value
Investment securities available for sale
U.S. Treasury$409,999 $0 $409,999 $0 
Government agency682,772 0 682,772 0 
Residential mortgage-backed securities5,267,090 0 5,267,090 0 
Commercial mortgage-backed securities380,020 0 380,020 0 
Corporate bonds201,566 0 131,881 69,685 
State, county and municipal118,227 0 118,227 0 
Total investment securities available for sale$7,059,674 $0 $6,989,989 $69,685 
Marketable equity securities$82,333 $29,458 $52,875 $0 
Loans held for sale67,869 0 67,869 0 
During the year ended December 31, 2020, $1.8 million of corporate bonds available for sale were transferred from Level 2 to Level 3. The transfers were due to a lack of observable inputs and trade activity for those securities. During the year ended December 31, 2019, $112.6 million of corporate bonds available for sale were transferred from Level 3 to Level 2. The transfers were due to the availability of additional observable inputs for those securities.
The following table summarizes activity for Level 3 assets for the years ended December 31, 2020 and 2019:
20202019
(Dollars in thousands)Corporate bondsCorporate bonds
Beginning balance$69,685 $143,226 
Purchases(1)
242,595 35,993 
Unrealized net gains included in other comprehensive income2,898 3,891 
Amounts included in net income(336)174 
Transfers in1,782 0 
Transfers out0 (112,599)
Sales / Calls0 (1,000)
Ending balance$316,624 $69,685 
(1) The year ended December 31, 2019, includes Corporate bonds of $500 thousand acquired in Entegra transaction.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at December 31, 2020.
(Dollars in thousands)December 31, 2020
Level 3 assetsValuation techniqueSignificant unobservable inputFair Value
Corporate bondsIndicative bid provided by brokerMultiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer$316,624 
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 Statements 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 were gains of $3.9 million, $289 thousand and $50 thousand for the years ended December 31, 2020, 2019 and 2018, respectively.
The following table summarizes the difference between the aggregate fair value and the unpaid principal balance for residential real estate loans originated for sale measured at fair value as of December 31, 2020 and 2019.
December 31, 2020
(Dollars in thousands)Fair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$124,837 $118,902 $5,935 
December 31, 2019
Fair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$67,869 $65,697 $2,172 
NaN originated loans held for sale were 90 or more days past due or on nonaccrual status as of December 31, 2020 or December 31, 2019.
Certain other assets are adjusted to their fair value on a nonrecurring basis, including certain loans, OREO, goodwill, which are periodically tested for impairment, and mortgage servicing rights, which are carried at the lower of amortized cost or market. Most loans held for investment, deposits, and borrowings are not reported at fair value.
Following the adoption of ASC 326, the population of loans measured at fair value on a non-recurring basis has greatly diminished and is limited to collateral-dependent loans evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated allowance for credit losses or if a charge-off has been recorded in the previous 12 months. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 6% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. At December 31, 2020, the weighted average discount for estimated selling costs applied was 7.63%.
Prior to the adoption of ACS 326, impaired loans were considered to be at fair value if an associated allowance adjustment or current period charge-off was 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 for the majority of impaired loans generally ranged between 3% and 7%.
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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 with discounts, generally between 7% and 16%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At December 31, 2020, the weighted average discount applied was 8.44%. 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.
Mortgage servicing rights are carried at the lower of cost or market and are, therefore, carried at fair value only when fair value is less than amortized cost. The fair value of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates, and the weighted average cost to service the loans, are used to determine the fair value.
For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of December 31, 2020 and December 31, 2019.
December 31, 2020
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1Level 2Level 3
Collateral-dependent loans11,779 0 0 11,779 
Other real estate remeasured during the year40,115 0 0 40,115 
Mortgage servicing rights16,966 0 0 16,966 
December 31, 2019
 Fair value measurements using:
Fair valueLevel 1Level 2Level 3
Impaired loans$132,336 $0 $0 $132,336 
Other real estate remeasured during the year38,310 0 0 38,310 
Mortgage servicing rights3,757 0 0 3,757 
NaN financial liabilities were carried at fair value on a nonrecurring basis as of December 31, 2020 and December 31, 2019.

NOTE Q
EMPLOYEE BENEFIT PLANS
FCB sponsors benefit plans for its qualifying employees and former First Citizens Bancorporation, Inc. employees (“legacy Bancorporation”) including noncontributory defined benefit pension plans, a 401(k) savings plan and an enhanced 401(k) savings plan. These plans are qualified under the Internal Revenue Code. FCB also maintains agreements with certain executives providing supplemental benefits paid upon death or separation from service at an agreed-upon age.
Defined Benefit Pension Plans
BancShares employees who were hired prior to April 1, 2007 and qualified under length of service and other requirements are covered by the BancShares pension plan, which was closed to new participants as of April 1, 2007. Discretionary contributions of $80.0 million were made to the BancShares pension plan in 2020, while discretionary contributions of $71 thousand were made in 2019.
Certain legacy Bancorporation employees who qualified under length of service and other requirements are covered by the legacy Bancorporation pension plan, which was closed to new participants as of September 1, 2007. Discretionary contributions of $20.0 million were made to the legacy Bancorporation pension plan for 2020, while discretionary contributions of $3.5 million were made for 2019.
Participants in the noncontributory defined benefit pension plans (“the Plans”) were fully vested in the Plans after five years of service. Retirement benefits are based on years of service and highest annual compensation for five consecutive years during the last ten years of employment. FCB makes contributions to the Plans in amounts between the minimum required for funding and the maximum amount deductible for federal income tax purposes. Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors including, but not limited to, the pension plan funded status, returns on plan assets, discount rates and the current economic environment.
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Due to the Plans having the same terms in both form and substance, the following tables and disclosures will report the Plans in total.
Obligations and Funded Status
The following table provides the changes in benefit obligation and plan assets and the funded status of the Plans at December 31, 2020 and 2019.
(Dollars in thousands)20202019
Change in benefit obligation
Projected benefit obligation at January 1$990,406 $852,975 
Service cost14,279 12,767 
Interest cost34,197 37,260 
Actuarial losses72,080 118,964 
Benefits paid(33,309)(31,560)
Projected benefit obligation at December 311,077,653 990,406 
Change in plan assets
Fair value of plan assets at January 1976,072 842,534 
Actual return on plan assets192,792 161,506 
Employer contributions100,000 3,592 
Benefits paid(33,309)(31,560)
Fair value of plan assets at December 311,235,555 976,072 
Funded status at December 31$157,902 $(14,334)
The amount recognized in other assets at December 31, 2020 was $157.9 million. The amount recognized in other liabilities at December 31, 2019 was $14.3 million.
The following table details the amounts recognized in accumulated other comprehensive income at December 31, 2020 and 2019.
(Dollars in thousands)20202019
Net actuarial loss$91,751 $172,098 
The accumulated benefit obligation for the Plans at December 31, 2020 and 2019, was $985.0 million and $904.5 million, respectively. The Plans use a measurement date of December 31.
The following table shows the components of periodic benefit cost related to the Plans and changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2020, 2019 and 2018.
 Year ended December 31
(Dollars in thousands)202020192018
Service cost$14,279 $12,767 $16,154 
Interest cost34,197 37,260 34,733 
Expected return on assets(65,689)(62,590)(60,296)
Amortization of prior service cost0 57 79 
Amortization of net actuarial loss25,324 10,924 13,902 
Total net periodic benefit cost (income)8,111 (1,582)4,572 
Current year actuarial (gain) loss(55,023)20,049 32,012 
Amortization of actuarial loss(25,324)(10,924)(13,902)
Amortization of prior service cost0 (57)(79)
Net (gain) loss recognized in other comprehensive income(80,347)9,068 18,031 
Total recognized in net periodic benefit cost and other comprehensive income$(72,236)$7,486 $22,603 
Actuarial gains in 2020 were primarily driven by return on assets greater than expected, partially offset by the impact of a decreased discount rate.
Service costs and the amortization of prior service costs are recorded in personnel expense, while interest cost, expected return on plan assets and the amortization of actuarial (gains)/losses are recorded in other noninterest expense.
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The assumptions used to determine the benefit obligations at December 31, 2020 and 2019 are as follows:
20202019
Discount rate2.76 %3.46 %
Rate of compensation increase5.60 5.60 
The assumptions used to determine the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018, are as follows:
202020192018
Discount rate3.46 %4.38 %3.76 %
Rate of compensation increase5.60 5.60 4.00 
Expected long-term return on plan assets7.50 7.50 7.50 
The estimated discount rate, which represents the interest rate that could be obtained for a suitable investment used to fund the benefit obligations, is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plans are discounted based on this yield curve and a single discount rate is calculated to achieve the same present value.
The weighted average expected long-term rate of return on the Plans’ assets represents the average rate of return expected to be earned on the Plans’ assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, historical and current returns, as well as investment allocation strategies, on the Plans’ assets are considered.
Plan Assets
For the Plans, our primary total return objective is to achieve returns over the long term that will fund retirement liabilities and provide desired plan benefits in a manner that satisfies the fiduciary requirements of the Employee Retirement Income Security Act. The Plans’ assets have a long-term time horizon that runs concurrent with the average life expectancy of the participants. As such, the Plans can assume a time horizon that extends well beyond a full market cycle and can assume a reasonable level of risk. It is expected, however, that both professional investment management and sufficient portfolio diversification will smooth volatility and help generate a consistent level of return. The investments are broadly diversified across global, economic and market risk factors in an attempt to reduce volatility and target multiple return sources. Within approved guidelines and restrictions, the investment manager has discretion over the timing and selection of individual investments. The Plans’ assets are currently held by the FCB trust department.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair values of pension plan assets at December 31, 2020 and 2019, by asset class are as follows:
December 31, 2020
(Dollars in thousands)Market ValueQuoted prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Observable
Inputs
(Level 2)		Significant
Nonobservable
Inputs
(Level 3)		Target AllocationActual %
of Plan
Assets
Cash and equivalents$37,913 $37,913 0 0 0 - 5%3 %
Equity securities30 - 70%77 %
Common and preferred stock144,924 144,924 0 0 
Mutual funds559,472 559,472 0 0 
Exchange traded funds248,819 248,819 0 0 
Fixed income15 - 45%20 %
U.S. government and government agency securities90,292 0 90,292 0 
Corporate bonds154,135 0 154,135 0 
Total pension assets$1,235,555 $991,128 $244,427 $0 100 %
December 31, 2019
Market ValueQuoted prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Observable
Inputs
(Level 2)		Significant
Nonobservable
Inputs
(Level 3)		Target AllocationActual %
of Plan
Assets
Cash and equivalents$10,974 $10,974 $0 $0 0 - 5%1 %
Equity securities30 - 70%73 %
Common and preferred stock142,157 142,157 0 0 
Mutual funds565,343 565,343 0 0 
Fixed income15 - 45%23 %
U.S. government and government agency securities78,175 0 78,175 0 
Corporate bonds122,370 0 122,370 0 
Mutual funds25,288 25,288 0 0 
Alternative investments0 - 30%3 %
Mutual funds31,765 31,765 0 0 
Total pension assets$976,072 $775,527 $200,545 $0 100 %
Cash Flows
The following are estimated payments to pension plan participants in the indicated periods:
(Dollars in thousands)Estimated Payments
2021$38,660 
202241,340 
202343,777 
202446,161 
202548,343 
2026-2030269,256 
401(k) Savings Plans
Certain employees enrolled in the defined benefit plan are also eligible to participate in a 401(k) savings plan through deferral of portions of their salary. For employees who participate in the 401(k) savings plan who also continue to accrue additional years of service under the defined benefit plan, FCB makes a matching contribution equal to 100% of the first 3% and 50% of the next 3% of the participant’s deferral up to and including a maximum contribution of 4.5% of the participant’s eligible compensation. The matching contribution immediately vests.
At the end of 2007, current employees were given the option to continue to accrue additional years of service under the defined benefit plans or to elect to join an enhanced 401(k) savings plan. Under the enhanced 401(k) savings plan, FCB matches up to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
100% of the participant’s deferrals not to exceed 6% of the participant’s eligible compensation. The matching contribution immediately vests. In addition to the employer match of the employee contributions, the enhanced 401(k) savings plan provides a required employer non-elective contribution equal to 3% of the compensation of a participant who remains employed at the end of the calendar year. This employer contribution vests after three years of service. Employees who elected to enroll in the enhanced 401(k) savings plan discontinued the accrual of additional years of service under the defined benefit plans and became enrolled in the enhanced 401(k) savings plan effective January 1, 2008. Eligible employees hired after January 1, 2008, are eligible to participate in the enhanced 401(k) savings plan. FCB recognized expense related to contributions to the 401(k) plans of $35.6 million, $30.8 million and $28.6 million during 2020, 2019 and 2018, respectively.
Additional Benefits for Executives, Directors, and Officers
FCB has entered into contractual agreements with certain executives providing payments for a period of no more than ten years following separation from service occurring no earlier than an agreed-upon age. These agreements also provide a death benefit in the event a participant dies prior to separation from service or during the payment period following separation from service. FCB has also assumed liability for contractual obligations to directors and officers of previously acquired entities.
The following table provides the accrued liability as of December 31, 2020 and 2019, and the changes in the accrued liability during the years then ended:
(Dollars in thousands)20202019
Accrued liability as of January 1$45,295 $34,063 
Liability assumed in the Biscayne Bancshares acquisition0 1,138 
Liability assumed in the First South Bancorp acquisition0 1,067 
Liability assumed in the Entegra acquisition0 9,738 
Discount rate adjustment1,719 1,574 
Benefit expense and interest cost3,503 2,396 
Benefits paid(7,862)(4,681)
Accrued liability as of December 31$42,655 $45,295 
Discount rate at December 312.76 %3.46 %
Other Compensation Plans
FCB offers various short-term and long-term incentive plans for certain employees. Compensation awarded under these plans may be based on defined formulas, performance criteria, or at the discretion of management. The incentive compensation programs were designed to motivate employees through a balanced approach of risk and reward for their contributions toward FCB’s success. As of December 31, 2020 and 2019, the accrued liability for incentive compensation was $68.2 million and $57.0 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE R
LEASES
The following table presents lease assets and liabilities as of December 31, 2020 and 2019:
(Dollars in thousands)ClassificationDecember 31, 2020December 31, 2019
Assets:
OperatingOther assets$68,048 $77,115 
FinancePremises and equipment6,478 8,820 
Total leased assets$74,526 $85,935 
Liabilities:
OperatingOther liabilities$68,343 $76,746 
FinanceOther borrowings6,308 8,230 
Total lease liabilities$74,651 $84,976 
The following table presents lease costs for the years ended December 31, 2020 and 2019. Variable lease cost primarily represents variable payments such as common area maintenance and utilities recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred.
(Dollars in thousands)Classification20202019
Lease cost:
Operating lease cost (1)
Occupancy expense$15,023 $16,094 
Finance lease cost:
Amortization of leased assetsEquipment expense2,168 1,975 
Interest on lease liabilitiesInterest expense - Other borrowings220 259 
Variable lease costOccupancy expense3,231 2,394 
Sublease incomeOccupancy expense(350)(390)
Net lease cost$20,292 $20,332 
(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 LeasesFinance LeasesTotal
2020$12,865 $2,159 $15,024 
202111,757 1,876 13,633 
20229,980 993 10,973 
20238,146 617 8,763 
20245,223 635 5,858 
Thereafter32,045 431 32,476 
Total lease payments$80,016 $6,711 $86,727 
Less: Interest11,673 403 12,076 
Present value of lease liabilities$68,343 $6,308 $74,651 
The following table presents the remaining weighted average lease terms and discount rates as of December 31, 2020:
Weighted average remaining lease term (years):December 31, 2020
Operating9.2
Finance4.0
Weighted average discount rate:
Operating3.14 %
Finance3.08 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019:
Year ended December 31
(Dollars in thousands)20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$14,237 $15,703 
Operating cash flows from finance leases220 259 
Financing cash flows from finance leases1,922 1,850 
Right-of-use assets obtained in exchange for new operating lease liabilities4,595 17,837 
Right-of-use assets obtained in exchange for new finance lease liabilities0 1,886 

NOTE S
TRANSACTIONS WITH RELATED PERSONS

BancShares has, and expects to have in the future, banking transactions in the ordinary course of business with directors, officers and their associates (Related Persons)(“Related Persons”) and entities that are controlled by Related Persons.

For those identified as Related Persons as of December 31, 2017,2020, the following table provides an analysis of changes in the loans outstanding during 20172020 and 2016:2019:
Year ended December 31
(dollars in thousands)20202019
Balance at January 1$145 $199 
New loans19 5 
Repayments(47)(59)
Balance at December 31$117 $145 
 Year ended December 31
(dollars in thousands)2017 2016
Balance at January 1$353
 $79
New loans11
 314
Repayments(290) (40)
Balance at December 31$74
 $353

The amounts presented exclude loans to Related Persons for credit card lines of $15,000 or less, overdraft lines of $5,000 or less and intercompany transactions between BancShares and FCB.
Unfunded loan commitments available to Related Persons were $2.1 million and $1.8$2.6 million as of December 31, 20172020 and 2016, respectively.2019.

NOTE R
GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill was $150.6 million at December 31, 2017 and 2016, with no impairment recorded during 2017, 2016 and 2015. The following table presents the changes in the carrying amount of goodwill forDuring the years ended December 31, 20172020 and 2016:
(Dollars in thousands)2017 2016
Balance at January 1$150,601
 $139,773
Acquired in the Cordia merger—
 10,828
Balance at December 31$150,601
 $150,601

Mortgage Servicing Rights

Our portfolio of residential mortgage loans serviced for third parties was $2.81 billion, $2.49 billion2019, BancShares repurchased 45,000 and $2.15 billion as of December 31, 2017, 2016 and 2015, respectively. These loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset and reported in other intangible assets on the Consolidated Balance Sheets. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair market value.


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The activity of the servicing asset for the years ended December 31, 2017, 2016 and 2015 is presented in the following table:
(Dollars in thousands)2017 2016 2015
Balance at January 1$20,415
 $19,351
 $16,688
Servicing rights originated7,174
 5,931
 5,910
Amortization(5,648) (4,958) (4,002)
Valuation allowance reversal4
 91
 755
Balance at December 31$21,945
 $20,415
 $19,351

The following table presents the activity in the servicing asset valuation allowance for the years ended December 31, 2017, 2016 and 2015:
(Dollars in thousands)2017 2016 2015
Balance at January 1$4
 $95
 $850
Valuation allowance reversal(4) (91) (755)
Balance at December 31$—
 $4
 $95
Contractually specified mortgage servicing fees, late fees, and ancillary fees earned for the years ended December 31, 2017, 2016 and 2015 were $7.1 million, $5.8 million, and $5.4 million,100,000 shares, respectively, and reported in mortgage income in the Consolidated Statements of Income.
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 as of December 31, 2017 and 2016 were as follows:
 2017 2016
Discount rate - conventional fixed loans9.41% 9.45%
Discount rate - all loans excluding conventional fixed loans10.41% 10.45%
Weighted average constant prepayment rate10.93% 10.42%
Weighted average cost to service a loan$64.03
 $62.75

Other Intangible Assets
Core deposit intangibles comprise the majority of the other intangible assets as of December 31, 2017 and 2016. Intangible assets generated by acquisitions, which represent the estimated fair value of core deposits and other customer relationships that were acquired, are being amortized on an accelerated basis over their estimated useful lives. The estimated useful remaining lives range from 1 year to less than 8 years.

The following information relates to other intangible assets, all customer-related, which are being amortized over their estimated useful lives:
(Dollars in thousands)2017 2016
Balance at January 1$57,625
 $71,635
Acquired in the NMSB acquisition—
 240
Acquired in the FCSB acquisition—
 390
Acquired in the Cordia acquisition—
 2,210
Acquired in the HCB acquisition850
 —
Acquired in the Guaranty acquisition9,870
 —
Amortization(17,194) (16,850)
Balance at December 31$51,151
 $57,625
The gross amount of other intangible assets and accumulated amortization as of December 31, 2017 and 2016, are:
(Dollars in thousands)2017 2016
Gross balance$128,761
 $118,041
Accumulated amortization(77,610) (60,416)
Carrying value$51,151
 $57,625


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Based on current estimated useful lives and carrying values, BancShares anticipates amortization expense for intangible assets in subsequent periods will be:
(Dollars in thousands) 
2018$15,394
201912,275
20209,431
20216,799
20224,288
NOTE S
SHAREHOLDERS' EQUITY, DIVIDEND RESTRICTIONS AND OTHER REGULATORY MATTERS

BancShares and FCB are required to meet minimum capital requirements set forth by regulatory authorities. Bank regulatory agencies approved regulatory capital guidelines (Basel III) aimed at strengthening existing capital requirements for banking organizations. Under Basel III, requirements include a common equity Tier 1 ratio minimum of 4.50 percent, Tier 1 risk-based capital minimum of 6.00 percent, total risk-based capital ratio minimum of 8.00 percent and Tier 1 leverage capital ratio minimum of 4.00 percent. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on the consolidated financial statements. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established by Basel III above the regulatory minimum requirements. This capital conservation buffer was phased in beginning January 1, 2016 at 0.625 percent of risk-weighted assets and will increase each subsequent year by an additional 0.625 percent until reaching its final level of 2.50 percent on January 1, 2019. Basel III became effective for BancShares on January 1, 2015, with full compliance of all Basel III requirements phased in over a multi-year schedule, to be fully phased in by January 1, 2019.
Based on the most recent notifications from its regulators, FCB is well-capitalized under the regulatory framework for prompt corrective action. As of December 31, 2017, BancShares and FCB met all capital adequacy requirements to which they are subject and were not aware of any conditions or events that would affect each entity's well-capitalized status.
Following is an analysis of capital ratios under Basel III guidelines for BancShares and FCB as of December 31, 2017 and 2016:
 December 31, 2017 December 31, 2016
(Dollars in thousands)Amount Ratio Requirements to be well-capitalized Amount Ratio Requirements to be well-capitalized
BancShares           
Tier 1 risk-based capital$3,287,364
 12.88% 8.00% $2,995,557
 12.42% 8.00%
Common equity Tier 13,287,364
 12.88
 6.50
 2,995,557
 12.42
 6.50
Total risk-based capital3,626,789
 14.21
 10.00
 3,339,986
 13.85
 10.00
Leverage capital3,287,364
 9.47
 5.00
 2,995,557
 9.05
 5.00
FCB           
Tier 1 risk-based capital3,189,709
 12.54
 8.00
 2,942,829
 12.25
 8.00
Common equity Tier 13,189,709
 12.54
 6.50
 2,942,829
 12.25
 6.50
Total risk-based capital3,422,634
 13.46
 10.00
 3,172,757
 13.21
 10.00
Leverage capital3,189,709
 9.22
 5.00
 2,942,829
 8.94
 5.00

BancShares and FCB had capital conservation buffers above minimum total risk-based capital requirements of 6.21 percent and 5.46 percent, respectively, at December 31, 2017. The buffers exceed the 1.25 percent requirement and, therefore, result in no limit on distributions.

BancShares had no trust preferred capital securities included in Tier 1 capital at December 31, 2017 and December 31, 2016 under Basel III guidelines. Trust preferred capital securities continue to be a component of total risk-based capital.

At December 31, 2017, Tier 2 capital of BancShares included no amount of qualifying subordinated debt with a scheduled maturity date of June 18, 2018 compared to $3.0 million at December 31, 2016. Under current regulatory guidelines, when subordinated debt is within five years of its scheduled maturity date, issuers must discount the amount included in Tier 2 capital by 20 percent for each year until the debt matures. Once the debt is within one year of its scheduled maturity date, no amount of the debt is allowed to be included in Tier 2 capital.


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BancShares has two classes of common stock—outstanding Class A common and Class B common. Sharesstock from Ella Anna Holding, as trustee of Class A common have one vote per share, while sharesher revocable trust. Mrs. Holding is the widow of Class B common have 16 votes per share.

During 2017, our Board authorized the purchase of up to 800,000 shares of our Class A common stock. The shares may be purchased from time to time at management's discretion from November 1, 2017 through October 31, 2018. It does not obligate BancShares to purchase any particular amount of shares and purchases may be suspended or discontinued at any time. The Board's action replaced existing authority to purchase up to 200,000 shares in effect during the twelve months preceding November 1, 2017. As of December 31, 2017, no purchases had occurred pursuant to either authorization.

The Board of Directors of FCB may approve distributions, including dividends, as it deems appropriate, subject to the requirements of the FDICBancShares’ former Executive Vice Chairman, Frank B. Holding, and the General Statutesmother of North Carolina, provided that the distributions do not reduce capital below applicable capital requirements. As of December 31, 2017, the maximum amount of the dividend was limited to $1.07 billion to preserve well-capitalized status. Dividends declared by FCBFrank B. Holding, Jr. and paid to BancShares amounted to $50.4 million in 2017, $90.1 million in 2016Hope H. Bryant, BancShares’ Chairman and $75.0 million in 2015.Chief Executive Officer and Vice Chairman, respectively.

BancShares and FCB are subject to various requirements imposed by state and federal banking statutes and regulations, including regulations requiring the maintenance of noninterest-bearing reserve balances at the Federal Reserve Bank. Banks are allowed to reduce the required balances by the amount of vault cash. For 2017, the requirements averaged $625.7 million.

NOTE T
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 and standby letters of credit and recourse obligations on mortgage loans sold.credit. These instruments involve elements of credit, interest rate or liquidity risk.

Commitments to extend credit are legally binding agreements to lend to customers. CommitmentsThese 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. ThoseThese commitments are primarily issued to support public and private borrowing arrangements, and thetheir 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 thatthose involved in extending loans to clients and, therefore, these letters of credit are collateralized when necessary.

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The following table presents the commitments to extend credit and unfunded commitments as of December 31, 20172020 and 2016:2019:
(Dollars in thousands)20202019
Unused commitments to extend credit$12,098,417 $10,682,378 
Standby letters of credit129,819 99,601 
(Dollars in thousands)2017 2016
Unused commitments to extend credit9,629,365
 8,808,218
Standby letters of credit81,530
 83,750
Unfunded commitments for investments in affordable housing projects61,819
 57,079

PursuantBancShares and FCB have investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. Unfunded commitments to standard representationsfund future investments in affordable housing projects totaled $53.7 million and warranties relating to residential mortgage loan sales sold on a non-recourse basis, contingent obligations exist for various events that may occur following the loan sale. If underwriting or documentation deficiencies are discovered at any point in the life of the loan or if the loan fails to perform per the terms of the loan purchase agreement, typically within 180 days from the date of sale, the investor may require BancShares to repurchase the loan or to repay a portion of the sale proceeds. Other liabilities included reserves of $882 thousand and $3.0$70.0 million as of December 31, 2017 and 2016, respectively, for estimated losses arising from these standard representation and warranty provisions. The methodology used to estimate the loan repurchase obligation was enhanced during 2017. The enhancements resulted in lower required reserves as of December 31, 2017.

BancShares has a receivable from the FDIC totaling $2.2 million and $4.2 million as of December 31, 2017 and 2016, respectively, for the expected reimbursement of losses on assets covered under the various shared-loss agreements. The shared-loss agreements are subject to interpretation by both the FDIC and BancShares, and disagreements may arise regarding coverage of losses, expenses

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and contingencies and requests for reimbursement may be delayed or disallowed for noncompliance. See Note H for additional information on the receivable from the FDIC regarding the early termination of a shared-loss agreement during 2017.

The shared-loss agreements for two FDIC-assisted transactions, FRB and UWB, 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. The clawback liability is estimated by discounting estimated future payments and is recorded in the Consolidated Balance Sheets as a payable to the FDIC under the relevant shared-loss agreements. As of December 31, 2017 and 2016, the clawback liability was $101.3 million and $97.0 million, respectively. The clawback liability payment dates for FRB and UWB are March 2020 and March 2021, respectively.

BancShares entered into forward-starting advances with the FHLB of Atlanta in June 2016 to receive $200.0 million of fixed rate long-term funding. There2019, respectively, and were two advances of $100.0 million each scheduled to fund in June 2018 but both advances were terminated in December 2017. BancShares received cash of $12.5 million associated with the early termination and recorded this as a gain inwithin other noninterest income in the Consolidated Statements of Income.

liabilities.
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.


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NOTE U
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

Accumulated other comprehensive loss included the following at December 31, 2017 and 2016:
 December 31, 2017 December 31, 2016
(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 investment securities available for sale$(48,834) $(17,889) $(30,945) $(72,707) $(26,832) $(45,875)
Funded status of defined benefit plan(144,999) (53,650) (91,349) (141,774) (52,457) (89,317)
Total$(193,833) $(71,539) $(122,294) $(214,481) $(79,289) $(135,192)

The following table highlights changes in accumulated other comprehensive (loss) income by component for the years ended December 31, 2017 and 2016:
(Dollars in thousands)
Unrealized (losses) gains on available-for-sale securities(1)
 
(Losses) gains on cash flow hedges(1)
 
Defined benefit pension items(1)
 Total
Balance at January 1, 2016$(15,125) $(892) $(48,423) $(64,440)
Other comprehensive (loss) income before reclassifications(13,946) 892
 (45,347) (58,401)
Amounts reclassified from accumulated other comprehensive loss(16,804) —
 4,453
 (12,351)
Net current period other comprehensive (loss) income(30,750) 892
 (40,894) (70,752)
Balance at December 31, 2016(45,875) —
 (89,317) (135,192)
Other comprehensive income (loss) before reclassifications17,635
 —
 (8,156) 9,479
Amounts reclassified from accumulated other comprehensive loss(2,705) —
 6,124
 3,419
Net current period other comprehensive income (loss)14,930
 —
 (2,032) 12,898
Balance at December 31, 2017$(30,945) $—
 $(91,349) $(122,294)
(1) All amounts are net of tax. Amounts in parentheses indicate debits.

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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 twelve months ended December 31, 2017 and 2016:
(Dollars in thousands) Year ended December 31, 2017
Details about accumulated other comprehensive (loss) income 
Amount reclassified from accumulated other comprehensive (loss) income(1)
 Affected line item in the statement where net income is presented
Unrealized gains and losses on available for sale securities $4,293
 Securities gains
  (1,588) Income taxes
  $2,705
 Net income
     
Amortization of defined benefit pension items    
Prior service costs $(210) Employee benefits
Actuarial losses (9,510) Employee benefits
  (9,720) Employee benefits
  3,596
 Income taxes
  $(6,124) Net income
Total reclassifications for the period $(3,419)  
     
  Year ended December 31, 2016
Details about accumulated other comprehensive (loss) income 
Amount reclassified from accumulated other comprehensive (loss) income(1)
 Affected line item in the statement where net income is presented
Unrealized gains and losses on available for sale securities $26,673
 Securities gains
  (9,869) Income taxes
  $16,804
 Net income
     
Amortization of defined benefit pension items    
Prior service costs $(210) Employee benefits
Actuarial losses (6,859) Employee benefits
  (7,069) Employee benefits
  2,616
 Income taxes
  $(4,453) Net income
Total reclassifications for the period $12,351
  
(1) Amounts in parentheses indicate debits to profit/loss.
























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NOTE V
PARENT COMPANY FINANCIAL STATEMENTS
Parent CompanyParent CompanyParent Company
Condensed Balance SheetsCondensed Balance SheetsCondensed Balance Sheets
(Dollars in thousands)December 31, 2017 December 31, 2016(Dollars in thousands)December 31, 2020December 31, 2019
Assets   Assets
Cash$45,411
 $8,278
Cash and due from banksCash and due from banks$49,716 $4,573 
Overnight investments14,476
 26,157
Overnight investments1,607 2,547 
Investments in marketable equity securitiesInvestments in marketable equity securities91,680 82,333 
Investment securities available for sale117,513
 95,564
Investment securities available for sale2,010 3,015 
Investment in banking subsidiaries3,203,491
 2,932,048
Investment in banking subsidiaries4,621,676 3,763,947 
Investment in other subsidiaries41,165
 41,066
Investment in other subsidiaries3,241 3,555 
Due from subsidiaries4
 —
Due from subsidiaries786 0 
Other assets46,674
 43,077
Other assets48,591 45,164 
Total assets$3,468,734
 $3,146,190
Total assets$4,819,307 $3,905,134 
Liabilities and Shareholders' Equity   
Short-term borrowings$15,000
 $—
Long-term obligations107,479
 126,861
Liabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity
Subordinated debenturesSubordinated debentures$452,350 $105,677 
Other borrowingsOther borrowings128,125 201,702 
Due to subsidiaries728
 2,350
Due to subsidiaries0 1,670 
Other liabilities11,463
 4,552
Other liabilities9,564 9,901 
Shareholders' equity3,334,064
 3,012,427
Total liabilities and shareholders' equity$3,468,734
 $3,146,190
Shareholders’ equityShareholders’ equity4,229,268 3,586,184 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$4,819,307 $3,905,134 
120
Parent Company
Condensed Income Statements
 
 Year ended December 31
(Dollars in thousands)2017 2016 2015
Interest income$921
 $1,110
 $645
Interest expense4,814
 6,067
 6,793
Net interest loss(3,893) (4,957) (6,148)
Dividends from banking subsidiaries50,424
 90,055
 75,006
Dividends from other subsidiaries—
 —
 23,500
Other income8,377
 9,330
 1,870
Other operating expense6,821
 5,641
 2,634
Income before income tax benefit and equity in undistributed net income of subsidiaries48,087
 88,787
 91,594
Income tax benefit(5,395) (730) (2,618)
Income before equity in undistributed net income of subsidiaries53,482
 89,517
 94,212
Equity in undistributed net income of subsidiaries270,270
 135,965
 116,174
Net income$323,752
 $225,482
 $210,386



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Parent Company
Condensed Income Statements
Year ended December 31
(Dollars in thousands)202020192018
Interest and dividend income$3,952 $1,327 $1,362 
Interest expense16,817 7,187 5,154 
Net interest loss(12,865)(5,860)(3,792)
Dividends from banking subsidiaries229,685 149,819 242,910 
Marketable equity securities gains (losses), net29,395 20,625 (7,610)
Other income574 257 347 
Other operating expense13,168 9,497 11,127 
Income before income tax benefit and equity in undistributed net income of subsidiaries233,621 155,344 220,728 
Income tax expense (benefit)879 892 (5,184)
Income before equity in undistributed net income of subsidiaries232,742 154,452 225,912 
Equity in undistributed net income of subsidiaries258,981 302,919 174,401 
Net income491,723 457,371 400,313 
Less: Preferred stock dividends14,062 0 0 
Net income available to common shareholders$477,661 $457,371 $400,313 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Parent CompanyParent CompanyParent Company
Condensed Statements of Cash FlowsCondensed Statements of Cash FlowsCondensed Statements of Cash Flows
Year ended December 31Year ended December 31
(Dollars in thousands)2017 2016 2015(Dollars in thousands)202020192018
OPERATING ACTIVITIES     OPERATING ACTIVITIES
Net income$323,752
 $225,482
 $210,386
Net income$491,723 $457,371 $400,313 
Adjustments     Adjustments
Undistributed net income of subsidiaries(270,270) (135,965) (116,174)Undistributed net income of subsidiaries(258,981)(302,919)(174,401)
Net amortization of premiums and discounts759
 398
 (2,712)Net amortization of premiums and discounts824 119 88 
Gain on extinguishment of long-term obligations(919) (1,717) —
Securities gains(8,003) (9,446) (236)
Marketable equity securities (gains) losses, netMarketable equity securities (gains) losses, net(29,395)(20,625)7,610 
Gain on extinguishment of debtGain on extinguishment of debt0 0 (160)
Realized gains (losses) on investment securities available for sale, netRealized gains (losses) on investment securities available for sale, net0 (20)0 
Net change in due to/from subsidiariesNet change in due to/from subsidiaries(2,456)(2,185)(381)
Change in other assets(10,509) (980) 22,663
Change in other assets(3,074)(2,001)3,657 
Change in other liabilities2,707
 2,483
 (1,157)Change in other liabilities(694)981 (2,595)
Net cash provided by operating activities37,517
 80,255
 112,770
Net cash provided by operating activities197,947 130,721 234,131 
INVESTING ACTIVITIES     INVESTING ACTIVITIES
Net change in due from subsidiaries(4) —
 299,889
Net change in loansNet change in loans0 100,000 (100,000)
Net change in overnight investments11,681
 (24,741) (1,416)Net change in overnight investments940 2,162 14,091 
Purchases of marketable equity securitiesPurchases of marketable equity securities(333,140)(26,166)(2,818)
Proceeds from sales of marketable equity securitiesProceeds from sales of marketable equity securities352,835 56,749 9,528 
Purchases of investment securities(28,012) (93,003) (7,818)Purchases of investment securities0 0 (6,438)
Proceeds from sales, calls, and maturities of securities32,463
 38,316
 100,586
Proceeds from sales, calls, and maturities of securities1,000 3,477 9,997 
Net cash provided (used) by investing activities16,128
 (79,428) 391,241
Investment in subsidiariesInvestment in subsidiaries(422,500)0 0 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(400,865)136,222 (75,640)
FINANCING ACTIVITIES     FINANCING ACTIVITIES
Net change in due to subsidiaries(1,622) 2,296
 54
Net change in short-term borrowings—
 —
 (485,207)Net change in short-term borrowings(40,277)40,277 (15,000)
Repayment of long-term obligations(4,081) (5,302) —
Repayment of long-term obligations(33,300)(3,575)(1,840)
Origination of long-term obligationsOrigination of long-term obligations0 165,000 0 
Net proceeds from subordinated notes issuanceNet proceeds from subordinated notes issuance345,849 0 0 
Net proceeds from preferred stock issuanceNet proceeds from preferred stock issuance339,937 0 0 
Repurchase of common stockRepurchase of common stock(333,755)(453,123)(163,095)
Cash dividends paid(10,809) (14,412) (18,015)Cash dividends paid(30,393)(18,137)(16,779)
Net cash provided (used) by financing activities(16,512) (17,418) (503,168)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities248,061 (269,558)(196,714)
Net change in cash37,133
 (16,591) 843
Net change in cash45,143 (2,615)(38,223)
Cash balance at beginning of year8,278
 24,869
 24,026
Cash balance at beginning of year4,573 7,188 45,411 
Cash balance at end of year$45,411
 $8,278
 $24,869
Cash balance at end of year$49,716 $4,573 $7,188 
CASH PAYMENTS FOR:CASH PAYMENTS FOR:
InterestInterest$13,338 $7,187 $5,154 
Income taxesIncome taxes106,618 78,345 73,806 

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Item 9A. 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 Annual Report, in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (“Exchange Act”). Based upon the evaluation, as of the end of the period covered by this report, the Chief Executive Officer and the Chief Financial Officer concluded BancShares’ disclosure controls and procedures were effective to provide reasonable assurance it is able to record, process, summarize and report information required to be disclosed in the reports it files under the Exchange Act in a timely and accurate manner.
During the first quarter of 2020, BancShares adopted ASC 326 which resulted in a material change to our methodology for estimating credit losses on the loan portfolio. As a result, the Company implemented changes to policies, processes, and controls over estimating the allowance for credit losses. Many of these controls are similar to those previously used for estimating the allowance for loan and lease losses under legacy GAAP, however, there were changes implemented to account for the additional complexity of the credit loss models, review of economic forecasts and other assumptions used in the estimation process.
During the second quarter of 2020, BancShares originated over $3.2 billion of loans as part of the SBA-PPP. As a result, BancShares enhanced existing as well as implemented new controls over financial reporting related to the origination, disbursement, recording and reporting processes involving this portfolio.
There have been no changes in BancShares’ internal control over financial reporting during the fourth quarter of 2020 which have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial reporting.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of First Citizens BancShares, Inc. (“BancShares”) is responsible for establishing and maintaining adequate internal control over financial reporting. BancShares’ internal control system was designed to provide reasonable assurance to the company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. As permitted by guidance provided by the Staff of U.S. Securities and Exchange Commission, the scope of management’s assessment of internal control over financial reporting as of December 31, 2020, has excluded Community Financial Holding Company, Inc., acquired on February 1, 2020, which represented 0.34% and 0.22% of consolidated revenue (total interest income and total noninterest income) and consolidated total assets, respectively, as of December 31, 2020.
BancShares’ management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on that assessment, BancShares’ management believes, as of December 31, 2020, BancShares’ internal control over financial reporting is effective.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. A material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
BancShares’ independent registered public accounting firm has issued an audit report on the company’s internal control over financial reporting. This report appears on page 56.
123


Item 15. Exhibits and Financial Statement Schedules
EXHIBIT INDEX
2.1
2.2
Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated September 11, 2009 (incorporated by reference from Registrant’s Form 8-K/A filed December 21, 2009 to Form 8-K dated September 11, 2009)
2.3
Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated January 29, 2010 (incorporated by reference fromto Exhibit 2.1 to the Registrant’s Form 8-K/A dated January 29, 2010 and filed June 9, 2010 to Form 8-K dated January 29, 2010)
2.42.2
2.5
Purchase and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Federal Deposit Insurance Corporation dated January 21, 2011 (incorporated by reference fromto Exhibit 2.1 to the Registrant’s Form 8-K dated January 21, 2011)
2.62.3
2.4
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.44.11
4.54.12

4.64.13
4.74.14
124


4.810.1
4.9
8% Subordinated Note due 2018 (Louise T. Adams) (incorporated by reference from Registrant's Form 8-K dated October 1, 2014)
4.10
8% Subordinated Note due 2018 (Greta T. Covington) (incorporated by reference from Registrant's Form 8-K dated October 1, 2014)
4.11
8% Subordinated Note due 2018 (John H. Terrell, III) (incorporated by reference from Registrant's Form 8-K dated October 1, 2014)
10.1
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Frank B. Holding, Jr. (incorporated by reference fromto Exhibit 9.1 to the Registrant’s Form 8-K dated February 18, 2011)
10.2


10.3
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary First-Citizens Bank & Trust Company and Edward L. Willingham, IV (incorporated by reference from Registrant’s Form 8-K dated February 18, 2011)
10.410.3
10.5
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to IronStone Bank, and James M. Parker (incorporated by reference from Registrant’s Form 10-K for the year ended December 31, 2008)
10.6
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to IronStone Bank, and James M. Parker (incorporated by reference from Registrant’s Form 8-K dated February 4, 2009)
10.7
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to IronStone Bank, and James M. Parker (incorporated by reference from Registrant’s Form 10-K for the year ended December 31, 2010)
10.8
Employee Consultation, Post-Retirement, Non-Competition and Death Benefit Agreement between Registrant'sRegistrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to First Citizens Bank and Trust Company, Inc., and Peter M. Bristow. (incorporated by reference fromto Exhibit 10.10 to the Registrant’s Form 10-K for the year ended December 31, 2014)
10.910.4
10.1010.5
10.6
10.1110.7
10.1210.8
10.1310.9
10.10
10.1410.11
10.1521
10.16
Long-Term Compensation Plan 2013 award agreement between Registrant's subsidiary, First-Citizens Bank & Trust Company, as successor by merger to First Citizens Bank and Trust Company, Inc., and Peter Bristow (incorporated by reference from Registrant’s Form 10-K for the year ended December 31, 2014)
21
Subsidiaries of the Registrant (filed herewith)
2423.1
24
31.1
31.2
32.1
32.2
*101.INSInline XBRL Instance Document (filed herewith)
*101.SCHInline XBRL Taxonomy Extension Schema (filed herewith)
*101.CALInline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
*101.LABInline XBRL Taxonomy Extension Label Linkbase (filed herewith)
*101.PREInline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
*101.DEFInline XBRL Taxonomy Definition Linkbase (filed herewith)
*104Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)
*Interactive data files are furnished but not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

125



SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: February 21, 2018
24, 2021
FIRST CITIZENS BANCSHARES, INC. (Registrant)
/S/    FRANK B. HOLDING, JR.   
Frank B. Holding, Jr.

Chairman and Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the Registrant and in the capacities indicated on February 21, 2018.24, 2021.
 
SignatureTitleDate
/s/    FRANK B. HOLDING, JR.
Frank B. Holding, Jr.
Chairman and Chief Executive OfficerFebruary 24, 2021
/S/    CRAIG L. NIX
Craig L. Nix
Chief Financial Officer (principal financial officer and principal accounting officer)February 24, 2021
/s/    JOHN M. ALEXANDER, JR.  *
John M. Alexander, Jr.
DirectorFebruary 24, 2021
/s/    VICTOR E. BELL, III  *
Victor E. Bell, III
DirectorFebruary 24, 2021
/s/    HOPE HOLDING BRYANT  *
Hope Holding Bryant
DirectorFebruary 24, 2021
/s/    PETER M. BRISTOW  *
Peter M. Bristow
DirectorFebruary 24, 2021
/s/    H. LEE DURHAM, JR.  *
H. Lee Durham, Jr.
DirectorFebruary 24, 2021
/s/    DANIEL L. HEAVNER  *
Daniel L. Heavner
DirectorFebruary 24, 2021
/s/    ROBERT R. HOPPE  *
Robert R. Hoppe
DirectorFebruary 24, 2021

126


SignatureTitleDate
SignatureTitleDate
/s/    FRANK B. HOLDING, JR.
Frank B. Holding, Jr.
Chairman and Chief Executive OfficerFebruary 21, 2018
/S/    CRAIG L. NIX
Craig L. Nix
Chief Financial Officer (principal financial officer)February 21, 2018
/S/    JASON W. GROOTERS  
Jason W. Grooters
Assistant Vice President and Chief Accounting Officer (principal accounting officer)February 21, 2018
/s/    JOHN M. ALEXANDER, JR.  *
John M. Alexander, Jr.
DirectorFebruary 21, 2018
/s/    VICTOR E. BELL, III  *
Victor E. Bell, III
DirectorFebruary 21, 2018
/s/    HOPE HOLDING BRYANT  *
Hope Holding Bryant
DirectorFebruary 21, 2018
/s/    PETER M. BRISTOW  *
Peter M. Bristow
DirectorFebruary 21, 2018






SignatureTitleDate
/s/    H. LEE DURHAM, JR.  *
H. Lee Durham, Jr.
DirectorFebruary 21, 2018
/s/    DANIEL L. HEAVNER  *
Daniel L. Heavner
DirectorFebruary 21, 2018
/s/    ROBERT R. HOPPE  *
Robert R. Hoppe
DirectorFebruary 21, 2018
/s/    FLOYD L. KEELS    *
                                                                                          
Floyd L. Keels
DirectorFebruary 21, 201824, 2021
/s/    ROBERT E. MASON, IV    *
                                                                                          
Robert E. Mason, IV
DirectorFebruary 21, 201824, 2021
/s/    ROBERT T. NEWCOMB  *
                                                                                         
Robert T. Newcomb
DirectorFebruary 21, 2018
/s/    JAMES M. PARKER  *
James M. Parker
DirectorFebruary 21, 2018
24, 2021
*
*Craig L. Nix hereby signs this Annual Report on Form 10-K on February 21, 2018,24, 2021, on behalf of each of the indicated persons for whom he is attorney-in-fact pursuant to a Power of Attorney filed herewith.
 
By:/S/    CRAIG L. NIX
Craig L. Nix

As Attorney-In-Fact


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