UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, ~~2020~~2021

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

Commission File Number: 001-16715

First Citizens BancShares, Inc.

(Exact name of ~~Registrant~~registrant as specified in its charter)


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

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

		(919)	716-7000
(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the ~~Securities Exchange Act of 1934:~~Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, Par Value $1	FCNCA	Nasdaq Global Select Market
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series A	FCNCP	Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the ~~Securities Exchange Act of 1934.~~Act:

Class B Common Stock, Par Value $1

(Title of class)

Indicate by check mark whether the ~~Registrant~~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~~12 months (or for such shorter period that the ~~Registrant~~registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ~~ninety~~90 days. Yes ☒ No ☐

Indicate by check mark whether the ~~Registrant~~registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the ~~Registrant~~registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ~~“larger~~“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act:~~Act.

Large accelerated filer

☒

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~~registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Class A Common Stock—8,811,220 shares

Class B Common Stock—1,005,185 shares

(Number of shares outstanding, by class, as of October ~~30, 2020)~~31, 2021)

Table of Contents

INDEX


		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets (Unaudited)	3

	Consolidated Statements of Income (Unaudited)	4

	Consolidated Statements of Comprehensive Income (Unaudited)	5

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6

	Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4135

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6658

Item 4.	Controls and Procedures	6658

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	6759

Item 1A.	Risk Factors	6759

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	70

Item 6.	Exhibits	7060

Table of Contents

PART I

Item 1.Financial Statements

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets


(Dollars in thousands, unaudited)	(Dollars in thousands, unaudited)	September 30, 2020		December 31, 2019		(Dollars in thousands, unaudited)	September 30, 2021		December 31, 2020
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	352,419	$	376,719	Cash and due from banks	$	337,450	$	362,048
Overnight investments	Overnight investments	3,137,945		1,107,844		Overnight investments	9,875,063		4,347,336
Investment in marketable equity securities (cost of $100,408 at September 30, 2020 and $59,262 at December 31, 2019)		93,074		82,333
Investment securities available for sale (cost of $8,884,548 at September 30, 2020 and $7,052,152 at December 31, 2019)		9,019,788		7,059,674
Investment securities held to maturity (fair value of $761,252 at September 30, 2020 and $30,996 at December 31, 2019)		747,732		30,996
Investment in marketable equity securities (cost of $85,554 at September 30, 2021 and $84,837 at December 31, 2020)						Investment in marketable equity securities (cost of $85,554 at September 30, 2021 and $84,837 at December 31, 2020)	123,147		91,680
Investment securities available for sale (cost of $7,345,143 at September 30, 2021 and $6,911,965 at December 31, 2020)						Investment securities available for sale (cost of $7,345,143 at September 30, 2021 and $6,911,965 at December 31, 2020)	7,371,129		7,014,243
Investment securities held to maturity (fair value of $3,353,078 at September 30, 2021 and $2,838,499 at December 31, 2020)						Investment securities held to maturity (fair value of $3,353,078 at September 30, 2021 and $2,838,499 at December 31, 2020)	3,381,078		2,816,982
Loans held for sale	Loans held for sale	120,305		67,869		Loans held for sale	98,451		124,837
Loans and leases	Loans and leases	32,845,144		28,881,496		Loans and leases	32,516,189		32,791,975
Allowance for credit losses	Allowance for credit losses	(223,936)		(225,141)		Allowance for credit losses	(183,194)		(224,314)
Net loans and leases	Net loans and leases	32,621,208		28,656,355		Net loans and leases	32,332,995		32,567,661
Premises and equipment	Premises and equipment	1,255,250		1,244,396		Premises and equipment	1,230,572		1,251,283
Other real estate owned	Other real estate owned	52,789		46,591		Other real estate owned	40,649		50,890
Income earned not collected	Income earned not collected	151,737		123,154		Income earned not collected	132,911		145,694
Goodwill	Goodwill	350,298		349,398		Goodwill	350,298		350,298
Other intangible assets	Other intangible assets	54,170		68,276		Other intangible assets	44,142		50,775
Other assets	Other assets	710,158		610,891		Other assets	1,584,092		783,953
Total assets	Total assets	$	48,666,873	$	39,824,496	Total assets	$	56,901,977	$	49,957,680
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	18,234,561	$	12,926,796	Noninterest-bearing	$	21,514,407	$	18,014,029
Interest-bearing	Interest-bearing	24,016,045		21,504,440		Interest-bearing	28,551,355		25,417,580
Total deposits	Total deposits	42,250,606		34,431,236		Total deposits	50,065,762		43,431,609
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	693,889		442,956		Securities sold under customer repurchase agreements	663,575		641,487

Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	655,179		572,185		Federal Home Loan Bank borrowings	645,663		655,175
Subordinated debt	Subordinated debt	504,381		163,412		Subordinated debt	497,427		504,518
Other borrowings	Other borrowings	92,456		148,318		Other borrowings	76,139		88,470
FDIC shared-loss payable	FDIC shared-loss payable	15,313		112,395		FDIC shared-loss payable	—		15,601
Other liabilities	Other liabilities	380,635		367,810		Other liabilities	372,116		391,552
Total liabilities	Total liabilities	44,592,459		36,238,312		Total liabilities	52,320,682		45,728,412
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Common stock:	Common stock:					Common stock:
Class A - $1 par value (16,000,000 shares authorized; 8,811,220 and 9,624,310 shares issued and outstanding at September 30, 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 September 30, 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 September 30, 2020 and December 31, 2019, respectively)		339,937		0
Surplus		0		44,081
Class A - $1 par value (16,000,000 shares authorized; 8,811,220 shares issued and outstanding at September 30, 2021 and December 31, 2020)						Class A - $1 par value (16,000,000 shares authorized; 8,811,220 shares issued and outstanding at September 30, 2021 and December 31, 2020)	8,811		8,811
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2021 and December 31, 2020)						Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2021 and December 31, 2020)	1,005		1,005
Preferred stock - $0.01 par value (10,000,000 shares authorized; 345,000 shares issued and outstanding at September 30, 2021 and December 31, 2020; $1,000 per share liquidity preference)						Preferred stock - $0.01 par value (10,000,000 shares authorized; 345,000 shares issued and outstanding at September 30, 2021 and December 31, 2020; $1,000 per share liquidity preference)	339,937		339,937

Retained earnings	Retained earnings	3,738,417		3,658,197		Retained earnings	4,263,679		3,867,252
Accumulated other comprehensive loss		(13,756)		(126,723)
Accumulated other comprehensive (loss) income						Accumulated other comprehensive (loss) income	(32,137)		12,263
Total shareholders’ equity	Total shareholders’ equity	4,074,414		3,586,184		Total shareholders’ equity	4,581,295		4,229,268
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	48,666,873	$	39,824,496	Total liabilities and shareholders’ equity	$	56,901,977	$	49,957,680

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Income


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands, except per share data, unaudited)	(Dollars in thousands, except per share data, unaudited)	2020		2019		2020		2019		(Dollars in thousands, except per share data, unaudited)	2021		2020		2021		2020
Interest income	Interest income									Interest income
Loans and leases	Loans and leases	$	336,382	$	315,012	$	988,029	$	909,167	Loans and leases	$	319,214	$	336,382	$	966,525	$	988,029
Investment securities interest and dividend income	Investment securities interest and dividend income	37,195		40,155		113,293		119,976		Investment securities interest and dividend income	39,246		37,195		105,530		113,293
Overnight investments	Overnight investments	757		7,151		5,828		20,820		Overnight investments	3,395		757		6,948		5,828
Total interest income	Total interest income	374,334		362,318		1,107,150		1,049,963		Total interest income	361,855		374,334		1,079,003		1,107,150
Interest expense	Interest expense									Interest expense
Deposits	Deposits	13,468		21,737		55,578		53,821		Deposits	8,073		13,468		25,408		55,578
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	395		542		1,236		1,516		Securities sold under customer repurchase agreements	358		395		1,052		1,236

Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	2,156		1,316		7,612		4,187		Federal Home Loan Bank borrowings	2,114		2,156		6,300		7,612
Subordinated debt	Subordinated debt	4,351		1,774		11,783		5,398		Subordinated debt	4,174		4,351		12,543		11,783
Other borrowings	Other borrowings	305		524		1,488		796		Other borrowings	249		305		768		1,488
Total interest expense	Total interest expense	20,675		25,893		77,697		65,718		Total interest expense	14,968		20,675		46,071		77,697
Net interest income	Net interest income	353,659		336,425		1,029,453		984,245		Net interest income	346,887		353,659		1,032,932		1,029,453
Provision for credit losses		4,042		6,766		52,949		23,714
Provision (credit) for credit losses										Provision (credit) for credit losses	(1,120)		4,042		(31,697)		52,949
Net interest income after provision for credit losses	Net interest income after provision for credit losses	349,617		329,659		976,504		960,531		Net interest income after provision for credit losses	348,007		349,617		1,064,629		976,504
Noninterest income	Noninterest income									Noninterest income
Wealth management services										Wealth management services	31,935		26,369		95,886		75,152
Service charges on deposit accounts	Service charges on deposit accounts	20,841		27,112		64,776		77,967		Service charges on deposit accounts	24,858		20,841		68,277		64,776
Wealth management services		26,369		25,212		75,152		74,786
Cardholder services, net	Cardholder services, net	19,756		15,957		55,503		51,069		Cardholder services, net	22,879		19,756		65,310		55,503
Other service charges and fees	Other service charges and fees	7,892		8,237		22,829		23,823		Other service charges and fees	9,205		7,892		26,653		22,829
Merchant services, net	Merchant services, net	6,763		6,034		18,014		18,324		Merchant services, net	8,409		6,763		25,858		18,014
Mortgage income	Mortgage income	13,106		7,438		28,141		16,134		Mortgage income	6,106		13,106		25,026		28,141
Insurance commissions	Insurance commissions	3,576		2,960		10,453		9,105		Insurance commissions	4,000		3,576		11,702		10,453
ATM income	ATM income	1,537		1,635		4,354		4,771		ATM income	1,481		1,537		4,534		4,354
Marketable equity securities (losses) gains, net		(2,701)		(967)		10,461		13,505
Realized gains on investment securities available for sale, net	Realized gains on investment securities available for sale, net	21,425		1,136		54,972		6,855		Realized gains on investment securities available for sale, net	8,082		21,425		33,119		54,972
Marketable equity securities gains (losses), net										Marketable equity securities gains (losses), net	3,350		(2,701)		31,015		10,461

Other	Other	2,008		6,176		5,330		15,129		Other	2,639		2,008		6,363		5,330
Total noninterest income	Total noninterest income	120,572		100,930		349,985		311,468		Total noninterest income	122,944		120,572		393,743		349,985
Noninterest expense	Noninterest expense									Noninterest expense
Salaries and wages	Salaries and wages	147,297		137,841		439,185		406,788		Salaries and wages	160,947		147,297		462,420		439,185
Employee benefits	Employee benefits	31,788		28,358		100,663		91,090		Employee benefits	32,146		31,788		103,169		100,663
Occupancy expense	Occupancy expense	27,990		28,163		85,026		82,810		Occupancy expense	29,101		27,990		87,283		85,026
Equipment expense	Equipment expense	29,430		28,770		86,054		83,999		Equipment expense	30,229		29,430		88,934		86,054
Processing fees paid to third parties	Processing fees paid to third parties	11,927		7,250		32,485		20,980		Processing fees paid to third parties	15,602		11,927		43,702		32,485
FDIC insurance expense	FDIC insurance expense	2,167		2,440		9,364		7,857		FDIC insurance expense	3,661		2,167		10,261		9,364
Collection and foreclosure-related expenses	Collection and foreclosure-related expenses	2,168		3,044		10,171		9,725		Collection and foreclosure-related expenses	836		2,168		3,207		10,171
Merger-related expenses	Merger-related expenses	3,507		3,892		12,108		9,695		Merger-related expenses	7,013		3,507		19,601		12,108
Other	Other	35,388		30,667		108,256		98,535		Other	33,283		35,388		91,745		108,256
Total noninterest expense	Total noninterest expense	291,662		270,425		883,312		811,479		Total noninterest expense	312,818		291,662		910,322		883,312
Income before income taxes	Income before income taxes	178,527		160,164		443,177		460,520		Income before income taxes	158,133		178,527		548,050		443,177
Income taxes	Income taxes	35,843		35,385		89,538		105,023		Income taxes	34,060		35,843		123,873		89,538
Net income	Net income	$	142,684	$	124,779	$	353,639	$	355,497	Net income	$	124,073	$	142,684	$	424,177	$	353,639
Less: Preferred stock dividends		4,636		0		9,426		0
Preferred stock dividends										Preferred stock dividends	4,636		4,636		13,908		9,426
Net income available to common shareholders	Net income available to common shareholders	$	138,048	$	124,779	$	344,213	$	355,497	Net income available to common shareholders	$	119,437	$	138,048	$	410,269	$	344,213
Weighted average common shares outstanding	Weighted average common shares outstanding	9,836,629		11,060,462		10,137,321		11,286,984		Weighted average common shares outstanding	9,816,405		9,836,629		9,816,405		10,137,321
Net income per common share		$	14.03	$	11.27	$	33.96	$	31.50
Earnings per common share										Earnings per common share	$	12.17	$	14.03	$	41.79	$	33.96

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands, unaudited)	(Dollars in thousands, unaudited)	2020		2019		2020		2019		(Dollars in thousands, unaudited)	2021		2020		2021		2020
Net income	Net income	$	142,684	$	124,779	$	353,639	$	355,497	Net income	$	124,073	$	142,684	$	424,177	$	353,639
Other comprehensive income	Other comprehensive income									Other comprehensive income
Unrealized gains (losses) on securities available for sale:
Unrealized gains on securities available for sale arising during the period		9,781		3,932		182,690		62,974
Unrealized (losses) gains on securities available for sale:										Unrealized (losses) gains on securities available for sale:
Unrealized (losses) gains on securities available for sale arising during the period										Unrealized (losses) gains on securities available for sale arising during the period	(11,270)		9,781		(43,173)		182,690
Tax effect	Tax effect	(2,251)		(906)		(42,019)		(14,485)		Tax effect	2,593		(2,251)		9,930		(42,019)
Reclassification adjustment for realized gains on securities available for sale included in income before income taxes	Reclassification adjustment for realized gains on securities available for sale included in income before income taxes	(21,425)		(1,136)		(54,972)		(6,855)		Reclassification adjustment for realized gains on securities available for sale included in income before income taxes	(8,082)		(21,425)		(33,119)		(54,972)
Tax effect	Tax effect	4,928		262		12,644		1,577		Tax effect	1,858		4,928		7,617		12,644
Unrealized (losses) gains on securities available for sale arising during the period, net of tax	Unrealized (losses) gains on securities available for sale arising during the period, net of tax	(8,967)		2,152		98,343		43,211		Unrealized (losses) gains on securities available for sale arising during the period, net of tax	(14,901)		(8,967)		(58,745)		98,343

Unrealized losses on securities available for sale transferred from/to held to maturity:
Unrealized gains on securities available for sale transferred to held to maturity:										Unrealized gains on securities available for sale transferred to held to maturity:

Reclassification adjustment for accretion of unrealized losses on securities available for sale transferred to held to maturity		0		6,095		0		18,004
Reclassification adjustment for accretion of unrealized gains on securities available for sale transferred to held to maturity										Reclassification adjustment for accretion of unrealized gains on securities available for sale transferred to held to maturity	(430)		—		(1,690)		—
Tax effect	Tax effect	0		(1,402)		0		(4,141)		Tax effect	99		—		389		—
Total change in unrealized losses on securities available for sale transferred to held to maturity, net of tax		0		4,693		0		13,863
Total change in unrealized gains on securities available for sale transferred to held to maturity, net of tax										Total change in unrealized gains on securities available for sale transferred to held to maturity, net of tax	(331)		—		(1,301)		—
Change in pension obligation:	Change in pension obligation:									Change in pension obligation:

Amortization of actuarial losses and prior service cost		6,332		2,745		18,994		8,235
Amortization of actuarial losses										Amortization of actuarial losses	6,773		6,332		20,320		18,994
Tax effect	Tax effect	(1,457)		(631)		(4,370)		(1,894)		Tax effect	(1,558)		(1,457)		(4,674)		(4,370)
Total change in pension obligation, net of tax	Total change in pension obligation, net of tax	4,875		2,114		14,624		6,341		Total change in pension obligation, net of tax	5,215		4,875		15,646		14,624
Other comprehensive income (loss)		(4,092)		8,959		112,967		63,415
Other comprehensive (loss) income										Other comprehensive (loss) income	(10,017)		(4,092)		(44,400)		112,967
Total comprehensive income	Total comprehensive income	$	138,592	$	133,738	$	466,606	$	418,912	Total comprehensive income	$	114,056	$	138,592	$	379,777	$	466,606

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity


		Three months ended September 30															Three months ended September 30
(Dollars in thousands, unaudited)	(Dollars in thousands, unaudited)	Class A Common Stock		Class B Common Stock		Preferred Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		(Dollars in thousands, unaudited)	Class A Common Stock		Class B Common Stock		Preferred Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Shareholders’ Equity
Balance at June 30, 2019		$	10,175	$	1,005	$	0	$	303,880	$	3,440,284	$	(180,731)	$	3,574,613
Net income		—		—		—		—		124,779		—		124,779
Other comprehensive income, net of tax		—		—		—		—		—		8,959		8,959

Repurchase of 295,900 shares of Class A common stock		(296)		—		—		(135,090)		—		—		(135,386)

Cash dividends declared ($0.40 per common share)
Class A common stock		—		—		—		—		(4,081)		—		(4,081)
Class B common stock		—		—		—		—		(402)		—		(402)

Balance at September 30, 2019		$	9,879	$	1,005	$	0	$	168,790	$	3,560,580	$	(171,772)	$	3,568,482

Balance at June 30, 2020	Balance at June 30, 2020	$	8,929	$	1,005	$	339,937	$	0	$	3,651,237	$	(9,664)	$	3,991,444	Balance at June 30, 2020	$	8,929	$	1,005	$	339,937	$	—	$	3,651,237	$	(9,664)	$	3,991,444

Net income	Net income	—		—		—		—		142,684		—		142,684		Net income	—		—		—		—		142,684		—		142,684
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		—		—		—		—		(4,092)		(4,092)		Other comprehensive loss, net of tax	—		—		—		—		—		(4,092)		(4,092)

Issuance of preferred stock																Issuance of preferred stock	—		—		—		—		—		—		—
Repurchase of 117,700 shares of Class A common stock	Repurchase of 117,700 shares of Class A common stock	(118)		—		—		0		(46,942)		—		(47,060)		Repurchase of 117,700 shares of Class A common stock	(118)		—		—		—		(46,942)		—		(47,060)

Cash dividends declared ($0.40 per common share)	Cash dividends declared ($0.40 per common share)															Cash dividends declared ($0.40 per common share)
Class A common stock	Class A common stock	—		—		—		—		(3,524)		—		(3,524)		Class A common stock	—		—		—		—		(3,524)		—		(3,524)
Class B common stock	Class B common stock	—		—		—		—		(402)		—		(402)		Class B common stock	—		—		—		—		(402)		—		(402)
Preferred stock dividends declared	Preferred stock dividends declared	—		—		—		—		(4,636)		—		(4,636)		Preferred stock dividends declared	—		—		—		—		(4,636)		—		(4,636)
Balance at September 30, 2020	Balance at September 30, 2020	$	8,811	$	1,005	$	339,937	$	0	$	3,738,417	$	(13,756)	$	4,074,414	Balance at September 30, 2020	$	8,811	$	1,005	$	339,937	$	—	$	3,738,417	$	(13,756)	$	4,074,414

Balance at June 30, 2021																Balance at June 30, 2021	$	8,811	$	1,005	$	339,937	$	—	$	4,148,857	$	(22,120)	$	4,476,490

Net income																Net income	—		—		—		—		124,073		—		124,073
Other comprehensive loss, net of tax																Other comprehensive loss, net of tax	—		—		—		—		—		(10,017)		(10,017)

Cash dividends declared ($0.47 per common share)																Cash dividends declared ($0.47 per common share)
Class A common stock																Class A common stock	—		—		—		—		(4,143)		—		(4,143)
Class B common stock																Class B common stock	—		—		—		—		(472)		—		(472)
Preferred stock dividends declared																Preferred stock dividends declared	—		—		—		—		(4,636)		—		(4,636)
Balance at September 30, 2021																Balance at September 30, 2021	$	8,811	$	1,005	$	339,937	$	—	$	4,263,679	$	(32,137)	$	4,581,295

		Nine months ended September 30															Nine months ended September 30
(Dollars in thousands, unaudited)	(Dollars in thousands, unaudited)	Class A Common Stock		Class B Common Stock		Preferred Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		(Dollars in thousands, unaudited)	Class A Common Stock		Class B Common Stock		Preferred Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance at December 31, 2018		$	10,623	$	1,005	$	0	$	493,962	$	3,218,551	$	(235,187)	$	3,488,954
Net income		—		—		—		—		355,497		—		355,497
Other comprehensive income, net of tax		—		—		—		—		—		63,415		63,415

Repurchase of 744,400 shares of Class A common stock		(744)		—		—		(325,172)		—		—		(325,916)

Cash dividends declared ($1.20 per common share)
Class A common stock		—		—		—		—		(12,262)		—		(12,262)
Class B common stock		—		—		—		—		(1,206)		—		(1,206)

Balance at September 30, 2019		$	9,879	$	1,005	$	0	$	168,790	$	3,560,580	$	(171,772)	$	3,568,482

Balance at December 31, 2019	Balance at December 31, 2019	$	9,624	$	1,005	$	0	$	44,081	$	3,658,197	$	(126,723)	$	3,586,184	Balance at December 31, 2019	$	9,624	$	1,005	$	—	$	44,081	$	3,658,197	$	(126,723)	$	3,586,184
Cumulative effect of adoption of ASC 326	Cumulative effect of adoption of ASC 326	—		—		—		—		36,943		—		36,943		Cumulative effect of adoption of ASC 326	—		—		—		—		36,943		—		36,943
Net income	Net income	—		—		—		—		353,639		—		353,639		Net income	—		—		—		—		353,639		—		353,639
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		—		112,967		112,967		Other comprehensive income, net of tax	—		—		—		—		—		112,967		112,967
Issuance of preferred stock	Issuance of preferred stock	—		—		339,937		0		—		—		339,937		Issuance of preferred stock	—		—		339,937		—		—		—		339,937
Repurchase of 813,090 shares of Class A common stock	Repurchase of 813,090 shares of Class A common stock	(813)		—		—		(44,081)		(288,861)		—		(333,755)		Repurchase of 813,090 shares of Class A common stock	(813)		—		—		(44,081)		(288,861)		—		(333,755)

Cash dividends declared ($1.20 per common share)	Cash dividends declared ($1.20 per common share)															Cash dividends declared ($1.20 per common share)
Class A common stock	Class A common stock	—		—		—		—		(10,869)		—		(10,869)		Class A common stock	—		—		—		—		(10,869)		—		(10,869)
Class B common stock	Class B common stock	—		—		—		—		(1,206)		—		(1,206)		Class B common stock	—		—		—		—		(1,206)		—		(1,206)
Preferred stock dividends declared	Preferred stock dividends declared	—		—		—		—		(9,426)		—		(9,426)		Preferred stock dividends declared	—		—		—		—		(9,426)		—		(9,426)
Balance at September 30, 2020	Balance at September 30, 2020	$	8,811	$	1,005	$	339,937	$	0	$	3,738,417	$	(13,756)	$	4,074,414	Balance at September 30, 2020	$	8,811	$	1,005	$	339,937	$	—	$	3,738,417	$	(13,756)	$	4,074,414

Balance at December 31, 2020																Balance at December 31, 2020	$	8,811	$	1,005	$	339,937	$	—	$	3,867,252	$	12,263	$	4,229,268

Net income																Net income	—		—		—		—		424,177		—		424,177
Other comprehensive loss, net of tax																Other comprehensive loss, net of tax	—		—		—		—		—		(44,400)		(44,400)

Cash dividends declared ($1.41 per common share)																Cash dividends declared ($1.41 per common share)
Class A common stock																Class A common stock	—		—		—		—		(12,426)		—		(12,426)
Class B common stock																Class B common stock	—		—		—		—		(1,416)		—		(1,416)
Preferred stock dividends declared																Preferred stock dividends declared	—		—		—		—		(13,908)		—		(13,908)
Balance at September 30, 2021																Balance at September 30, 2021	$	8,811	$	1,005	$	339,937	$	—	$	4,263,679	$	(32,137)	$	4,581,295

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows


		Nine months ended September 30					Nine months ended September 30
(Dollars in thousands, unaudited)	(Dollars in thousands, unaudited)	2020		2019		(Dollars in thousands, unaudited)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	353,639	$	355,497	Net income	$	424,177	$	353,639
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses on loans and leases		52,949		23,714
Provision (credit) for credit losses						Provision (credit) for credit losses	(31,697)		52,949
Deferred tax expense	Deferred tax expense	16,227		43,939		Deferred tax expense	9,266		16,227
Net increase in current tax receivable		(38,878)		(33,433)
Net increase in prepaid and current tax receivable						Net increase in prepaid and current tax receivable	(774,212)		(38,878)
Depreciation and amortization	Depreciation and amortization	81,169		77,024		Depreciation and amortization	80,293		81,169
Net (decrease) increase in accrued interest payable		(7,620)		14,147
Net increase in income earned not collected		(28,025)		(3,567)
Net decrease in accrued interest payable						Net decrease in accrued interest payable	(2,855)		(7,620)
Net decrease (increase) in income earned not collected						Net decrease (increase) in income earned not collected	12,783		(28,025)
Contribution to pension plans	Contribution to pension plans	(100,000)		(3,500)		Contribution to pension plans	—		(100,000)
Realized gains on investment securities available for sale, net	Realized gains on investment securities available for sale, net	(54,972)		(6,855)		Realized gains on investment securities available for sale, net	(33,119)		(54,972)
Marketable equity securities gains, net	Marketable equity securities gains, net	(10,461)		(13,505)		Marketable equity securities gains, net	(31,015)		(10,461)

Origination of loans held for sale	Origination of loans held for sale	(775,900)		(518,894)		Origination of loans held for sale	(911,995)		(775,900)
Proceeds from sale of loans held for sale	Proceeds from sale of loans held for sale	743,508		490,261		Proceeds from sale of loans held for sale	808,172		743,508
Gain on sale of loans held for sale		(25,728)		(10,607)
Gain on sale of loans						Gain on sale of loans	(26,789)		(25,728)

Net write-downs/losses on other real estate owned		2,360		1,924
Net (gains) losses on other real estate owned						Net (gains) losses on other real estate owned	(2,971)		2,360

Net amortization (accretion) of premiums and discounts		4,599		(24,769)
Net accretion of premiums and discounts						Net accretion of premiums and discounts	5,017		4,599
Amortization of intangible assets	Amortization of intangible assets	18,589		17,934		Amortization of intangible assets	16,408		18,589

Net change in mortgage servicing rights		(1,332)		(3,770)
Origination of mortgage servicing rights, net of change in valuation allowance						Origination of mortgage servicing rights, net of change in valuation allowance	(9,775)		(1,332)
Net change in other assets	Net change in other assets	(6,394)		2,536		Net change in other assets	14,233		(6,394)
Net change in other liabilities	Net change in other liabilities	(7,472)		(8,916)		Net change in other liabilities	(7,692)		(7,472)
Net cash provided by operating activities		216,258		399,160

Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(461,771)		216,258
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans outstanding		(3,876,578)		(629,705)
Net (increase) decrease in loans outstanding						Net (increase) decrease in loans outstanding	325,209		(3,876,578)
Purchases of investment securities available for sale	Purchases of investment securities available for sale	(7,608,380)		(3,706,949)		Purchases of investment securities available for sale	(3,620,680)		(7,608,380)
Purchases of investment securities held to maturity	Purchases of investment securities held to maturity	(856,047)		(223,353)		Purchases of investment securities held to maturity	(1,199,419)		(856,047)
Purchases of marketable equity securities	Purchases of marketable equity securities	(333,126)		(23,238)		Purchases of marketable equity securities	(1,563)		(333,126)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity	Proceeds from maturities, calls, and principal repayments of investment securities held to maturity	134,736		305,479		Proceeds from maturities, calls, and principal repayments of investment securities held to maturity	605,664		134,736
Proceeds from maturities, calls, and principal repayments of investment securities available for sale	Proceeds from maturities, calls, and principal repayments of investment securities available for sale	1,909,462		1,690,277		Proceeds from maturities, calls, and principal repayments of investment securities available for sale	1,968,339		1,909,462
Proceeds from sales of investment securities available for sale	Proceeds from sales of investment securities available for sale	3,889,386		1,746,099		Proceeds from sales of investment securities available for sale	1,366,909		3,889,386
Proceeds from sales of marketable equity securities	Proceeds from sales of marketable equity securities	332,762		12,739		Proceeds from sales of marketable equity securities	1,111		332,762
Net increase in overnight investments	Net increase in overnight investments	(1,994,972)		(150,006)		Net increase in overnight investments	(5,527,727)		(1,994,972)
Proceeds from sales of portfolio loans		0		24,247

Cash paid to FDIC for settlement of shared-loss agreement	Cash paid to FDIC for settlement of shared-loss agreement	(99,468)		0		Cash paid to FDIC for settlement of shared-loss agreement	(16,103)		(99,468)
Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	19,683		18,892		Proceeds from sales of other real estate owned	29,666		19,683
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	46		128		Proceeds from sales of premises and equipment	1,194		46
Purchases of premises and equipment	Purchases of premises and equipment	(98,490)		(89,219)		Purchases of premises and equipment	(72,463)		(98,490)
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	(59,999)		(73,792)		Business acquisitions, net of cash acquired	—		(59,999)
Other investing activities						Other investing activities	(18,940)		—
Net cash used in investing activities	Net cash used in investing activities	(8,640,985)		(1,098,401)		Net cash used in investing activities	(6,158,803)		(8,640,985)
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in time deposits		(759,491)		376,596
Net decrease in time deposits						Net decrease in time deposits	(314,004)		(759,491)
Net increase in demand and other interest-bearing deposits	Net increase in demand and other interest-bearing deposits	8,556,808		701,426		Net increase in demand and other interest-bearing deposits	6,949,598		8,556,808
Net decrease in short-term borrowings		(44,344)		(138,741)
Net increase (decrease) in short-term borrowings						Net increase (decrease) in short-term borrowings	22,088		(44,344)
Repayment of long-term obligations	Repayment of long-term obligations	(82,747)		(43,545)		Repayment of long-term obligations	(29,343)		(82,747)
Origination of long-term obligations	Origination of long-term obligations	400,000		100,000		Origination of long-term obligations	—		745,849
Net proceeds from subordinated notes issuance		345,849		0

Net proceeds from preferred stock issuance	Net proceeds from preferred stock issuance	339,937		0		Net proceeds from preferred stock issuance	—		339,937

Repurchase of common stock	Repurchase of common stock	(333,755)		(321,263)		Repurchase of common stock	—		(333,755)
Cash dividends paid	Cash dividends paid	(21,830)		(13,739)		Cash dividends paid	(32,363)		(21,830)
Net cash provided by financing activities	Net cash provided by financing activities	8,400,427		660,734		Net cash provided by financing activities	6,595,976		8,400,427
Change in cash and due from banks	Change in cash and due from banks	(24,300)		(38,507)		Change in cash and due from banks	(24,598)		(24,300)
Cash and due from banks at beginning of period	Cash and due from banks at beginning of period	376,719		327,440		Cash and due from banks at beginning of period	362,048		376,719
Cash and due from banks at end of period	Cash and due from banks at end of period	$	352,419	$	288,933	Cash and due from banks at end of period	$	337,450	$	352,419
See accompanying Notes to Unaudited Consolidated Financial Statements.						See accompanying Notes to Unaudited Consolidated Financial Statements.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION						SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the period for:						Cash paid (received) during the period for:
Interest						Interest	$	48,926	$	85,344
Income taxes						Income taxes	871,327		117,716
Significant noncash investing and financing activities:						Significant noncash investing and financing activities:
Transfers of loans to other real estate						Transfers of loans to other real estate	7,861		10,295
Dividends declared but not paid						Dividends declared but not paid	—		3,926
Unsettled call of investment securities						Unsettled call of investment securities	15,000		—
Loans held for sale exchanged for investment securities						Loans held for sale exchanged for investment securities	177,301		—
Reclassification of portfolio loans to loans held for sale						Reclassification of portfolio loans to loans held for sale	22,655		(3,464)

Transfers of premises and equipment to other real estate						Transfers of premises and equipment to other real estate	8,593		8,133

		Nine months ended September 30
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:		2020		2019
Transfers of loans to other real estate		$	10,295	$	13,242
Dividends declared but not paid		3,926		4,397

Net reclassification of portfolio loans (to) from loans held for sale		(3,464)		22,758

Transfers of premises and equipment to other real estate		8,133		2,184

Unsettled common stock repurchases		0		4,653

See accompanying Notes to Unaudited Consolidated Financial Statements.

Table of Contents

First Citizens BancShares, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

First Citizens BancShares, Inc. (“BancShares”) is a financial holding company organized under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”), which is headquartered in Raleigh, North Carolina.

General

These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in BancShares’ Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Reclassifications

In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders’ equity or net income.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions which affect the amounts reported. Actual results could differ from those estimates. The estimates BancShares considers significant are the allowance for credit losses (“ACL”), fair value measurements, and income taxes.

~~Issuance of Preferred Stock and 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 in 2025. On March 12, 2020, BancShares issued and sold an aggregate of 13,800,000 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, with a liquidation preference of $25 per Depositary Share (equivalent to $1,000 per share of 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 our common stock.

Share Repurchases

BancShares did not repurchase shares of Class A common stock during the nine-month period ended September 30, 2021. During the third quarter of 2020, BancShares repurchased a total of 117,700 shares of Class A common stock for $47.1 million at an average cost per share of $399.82. During the ~~third quarter of~~ ~~2019,~~nine months ended September 30, 2020, BancShares ~~purchased~~repurchased a total of ~~295,900~~813,090 shares of Class A common stock for ~~$135.4~~$333.8 million at an average cost per share of ~~$457.50.~~ $410.48.

During ~~the~~ ~~nine months ended September 30,~~ 2020,~~, BancShares repurchased 813,090~~ share repurchases included 45,000 shares of Class A common stock ~~for~~ ~~$333.8 million~~ ~~at an average cost per share of $410.48. During the~~ ~~nine months ended September 30, 2019, BancShares repurchased a total of 744,400 shares of Class A common stock for~~ ~~$325.9 million~~ ~~at an average cost per share of~~ ~~$437.84. All Class A common stock repurchases were consummated under previously approved authorizations.~~

~~The share repurchases during 2020 and 2019 included 45,000 shares and 50,000 shares, respectively, of Class A common stock repurchased~~purchased from Ella Ann Holding, as trustee of her revocable trust. Pursuant to the existing share repurchase authorization and BancShares’ related person transaction policy, the Board of Director’s (the “Board”) independent Audit Committee reviewed and approved the repurchase of up to 250,000 shares held by Mrs. Holding ~~on or before April 30, 2020.~~

~~Upon expiration~~is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the ~~most recent share repurchase authorization on July 31, 2020, share repurchase activity has ended~~mother of Frank B. Holding, Jr. and ~~will be reevaluated in subsequent periods.~~

~~Table of~~ ~~Contents~~

Hope H. Bryant, BancShares’ Chairman and Chief Executive Officer and Vice Chairman, respectively.

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 a novel strain of coronavirus (“COVID-19”) and was supplemented with subsequent legislation. Overseen by the United States (“U.S.”) Department of the Treasury, ~~Department,~~ the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for ~~expenses incurred between February 15, 2020, and August 8, 2020.~~certain expenses. 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 is made as long as the borrower retains its employees and their compensation levels. The CARES Act authorized the ~~SBA~~United States Small Business Administration (“SBA”) to temporarily guarantee these loans. The SBA began processing forgiveness payments during the fourth quarter of 2020.

The Consolidated Appropriations Act 2021 was signed into law during the fourth quarter of 2020 and contained provisions for a second round of funding of SBA-PPP loans and during the first nine months of 2021, BancShares originated approximately 12,000 SBA-PPP loans totaling approximately $1.2 billion.

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~~loans as an adjustment to yield using the effective interest method. As of September 30, ~~2020,~~2021, SBA-PPP loans outstanding of $3.11 billion have generated $28.9 million and $47.9 million of interest income during the three and nine month periods ended September 30, 2020, respectively. Remaining unamortized deferred fees and costs on SBA-PPP loans are $76.0 million as of September 30, 2020.

~~Recently Adopted Accounting Pronouncements~~

~~Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-13~~ ~~- Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~

This ASU modifies the disclosure requirements on fair value measurements by eliminating the requirements to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public business entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

~~BancShares adopted this ASU during the first quarter of 2020 and have made all applicable updates to the disclosure within the Notes to the Unaudited Consolidated Financial Statements.~~

~~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.

BancShares adopted this ASU during the first quarter 2020 with no impact to our consolidated financial position or consolidated results of operations as a result of the adoption. There was 0 impairment recorded as a result of our annual assessment during the third quarter of 2020.

~~FASB ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~

This ASU (and all subsequent ASUs on this topic) introduce the current expected credit loss (“CECL”) model, a new credit loss methodology, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses. The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity's size, complexity and risk profile. In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination.were $1.1 billion.

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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 purchased credit deteriorated (“PCD”) loans previously accounted for under Accounting Standard Codification (“ASC”) 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 allowance for credit losses (“ACL”) and facilitate revised disclosures.

The information presented below represents changes from Note A, Accounting Policies and Basis of Presentation, included in BancShares’ Annual Report on Form 10-K for the year ended December 31, 2019, as well as information on the impact of adoption.

~~Accounting Policy - Debt Securities~~

BancShares classifies debt securities as held to maturity (“HTM”) or available for sale (“AFS”). Debt securities are classified as HTM when BancShares has the intent and ability to hold the securities to maturity and are reported at amortized cost. Other debt securities are classified as AFS and reported at estimated fair value, with unrealized gains and losses, net of income taxes, reported in Accumulated Other Comprehensive Income (“AOCI”). Amortization of premiums and accretion of discounts for debt securities are included in interest income. Realized gains and losses from the sale of debt securities are determined by specific identification on a trade date basis and are included in noninterest income.

BancShares performs pre-purchase due diligence and evaluates the 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 securities are recorded at fair value at the date of acquisition which includes an associated allowance that is added to the purchase price or fair value to arrive at the Day 1 amortized cost basis. The difference between the purchase price and the 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 securities, management performs a quarterly analysis of the investment portfolio to evaluate securities currently in an unrealized loss position for potential credit-related impairment. If BancShares intends to sell a security, or does not have the intent and ability to hold a security before recovering the amortized cost, the 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 impairment. 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 HTM 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.

~~Accounting Policy - Loans and Leases~~

~~Non-Purchased Credit Deteriorated Loans~~

Non-Purchased Credit Deteriorated (“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.

Originated 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 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.

Purchased loans which 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 at the acquisition date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.

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~~Purchased Credit Deteriorated Loans~~

Purchased 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 estimate of expected credit losses. 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 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 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.

~~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 development of commercial or residential 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 re-finance 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 property. 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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~~Revolving mortgage~~ - Revolving mortgage consists of home equity lines of credit and other lines of credit 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.

~~Accounting Policy - Nonperforming Assets and Troubled Debt Restructurings~~

~~Nonperforming Assets~~

Nonperforming assets (“NPAs”) include nonaccrual loans, past due securities and foreclosed property. Foreclosed property consists of real estate and other assets acquired as a result of loan defaults and is discussed below.

All loans are classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent. Loans are generally placed on nonaccrual when principal or interest becomes 90 days past due or when it is probable the principal or interest is not fully collectible. When loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest 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 are generally removed from nonaccrual status when they become current for a sustained period of time and there is no longer concern as to the collectability of principal and interest.

Securities are also classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent. Missed interest payments on securities are rare. We review all 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 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 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.

~~Accounting Policy - 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.

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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 significant 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 $14.0 million at September 30, 2020, and is recorded within other liabilities with changes recorded through other expense.

~~Adoption Impact~~

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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BancShares adopted this ASU using the prospective transition approach for PCD loans previously accounted for under ASC 310-30. In accordance with the standard, we did not assess whether purchased credit impaired (“PCI”) loans met the criteria of PCD as of the date of adoption and all loans previously classified as PCI were updated to the PCD 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. PCD loans were assessed using the loan level probability of default and loss given default models, as well as utilizing prior specific loan reviews to inform the initial PCD loan ACL. The ACL for PCD loans increased as a result of adoption and the 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 the effective interest rate as of January 1, 2020. At the date of adoption, no securities were determined to be PCD.

BancShares also adopted this ASU under the prospective transition approach for debt securities available for sale. No previously recorded other than temporary impairment was reported on the portfolio of debt securities.

Recently Issued Accounting Pronouncements

~~FASB ASU 2018-14 -~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans~~

This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by eliminating the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and adding a requirement to disclose an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

The amendments in this ASU are effective for public entities for fiscal years ending after December 15, 2020. Early adoption is permitted for all entities. BancShares will adopt all applicable amendments and update the disclosures as appropriateThere were no Accounting Standards Updates (“ASUs”) issued during the ~~fourth~~third quarter of ~~2020.~~2021 by the Financial Accounting Standards Board (“FASB”) that will have a material impact on BancShares’ consolidated financial statements.

NOTE B - BUSINESS COMBINATIONS

Recently Announced Business Combinations

CIT Group 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”).

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. ~~Subject~~The transaction was approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation (“FDIC”).

On September 30, 2021, the parties entered into an amendment to the ~~fulfillment of customary closing conditions,~~merger agreement pursuant to which the parties ~~anticipate that~~mutually agreed to extend until March 1, 2022 the ~~Transaction will close in~~date after which either party may elect to terminate the ~~first half~~merger agreement if the merger has not yet been completed. Completion of ~~2021.~~the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System.

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 CIT or BancShares, will be converted into the right to receive ~~.06200~~0.06200 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 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 ~~one~~1 share of a newly created series of preferred stock, Series B, of BancShares and ~~one~~1 share of a newly created series of preferred stock, Series C, of BancShares, respectively.

~~Completed Business Combinations~~

BancShares evaluated the financial statement significance for all business combinations completed during 2020 and concluded the completed business combinations noted below are not material to its consolidated financial statements, individually or in aggregate, and therefore, pro forma financial data is not included.

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Each transaction is accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available.

As part of the 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 326-20, and non-PCD loans which do not meet this criteria are accounted for under ASC 310-20. 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 shareholders of Community Financial. The merger allows FCB to expand its presence and enhance banking efforts in Georgia.

The fair value of the assets acquired was $221.4 million, including $110.6 million in non-PCD loans, $23.4 million in PCD loans, net of an ACL of $1.2 million, and $536 thousand in a core deposit intangible. No debt securities purchased in the transaction were designated PCD. Liabilities assumed were $219.8 million, of which $209.3 million were deposits. As 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 deductible for income tax purposes as the merger was accounted for as a qualified stock purchase.

~~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:~~


~~(Dollars in thousands)~~	~~As recorded by FCB~~
~~Purchase price~~			$	~~2,320~~
~~Assets~~
~~Cash and due from banks~~	$	~~1,085~~
~~Overnight investments~~	~~35,129~~
~~Investment securities~~	~~30,146~~


~~Loans~~	~~133,989~~

~~Premises and equipment~~	~~7,624~~
~~Other real estate owned~~	~~9,813~~
~~Income earned not collected~~	~~558~~
~~Intangible assets~~	~~536~~
~~Other assets~~	~~2,520~~
~~Total assets acquired~~	~~221,400~~
~~Liabilities~~
~~Deposits~~	~~209,340~~
~~Borrowings~~	~~9,925~~

~~Other liabilities~~	~~501~~
~~Total liabilities assumed~~	$	~~219,766~~
~~Fair value of net assets acquired~~			~~1,634~~
~~Goodwill recorded for Community Financial~~			$	~~686~~

Merger-related expenses of $342 thousand and $2.1 million were recorded for the three and nine months ended September 30, 2020, respectively. Loan-related interest income generated from Community Financial was approximately $4.1 million since the acquisition date. The ongoing contribution of this transaction to BancShares’ financial statements is not considered material, and therefore pro forma financial data is not included.

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~~Entegra Financial Corp.~~

On December 31, 2019, FCB completed the merger of Franklin, North Carolina-based Entegra Financial Corp. (“Entegra”) and its bank subsidiary, Entegra Bank. 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 Franklin. On April 17, 2020, FCB completed the divestiture 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 generated as part of the merger with Entegra Bank.

NOTE C - INVESTMENTS

Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes required by the adoption of this standard which includes evaluating held to maturity and available for sale debt securities to determine the need to record a related allowance for credit losses. Prior period information continues to be reported in accordance with previously applicable GAAP. See Note A - Accounting Policies and Basis for Presentation for more detail on our policies and adoption.

The amortized cost and fair value of investment securities at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, were as follows:


		September 30, 2020											September 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses		Fair value		(Dollars in thousands)	Amortized cost(1)		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale	Investment securities available for sale											Investment securities available for sale
U.S. Treasury		$	654,588	$	174	$	0	$	0	$	654,762

Government agency	Government agency	659,260		642		4,961		0		654,941		Government agency	$	851,860	$	5,348	$	3,480	$	853,728
Residential mortgage-backed securities	Residential mortgage-backed securities	5,968,192		101,788		312		0		6,069,668		Residential mortgage-backed securities	4,800,194		19,219		17,767		4,801,646
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,058,640		32,004		434		0		1,090,210		Commercial mortgage-backed securities	1,092,183		9,875		11,406		1,090,652
Corporate bonds	Corporate bonds	543,868		9,132		2,793		0		550,207		Corporate bonds	600,906		25,295		1,098		625,103

Total investment securities available for sale	Total investment securities available for sale	$	8,884,548	$	143,740	$	8,500	$	0	$	9,019,788	Total investment securities available for sale	$	7,345,143	$	59,737	$	33,751	$	7,371,129
Investment in marketable equity securities	Investment in marketable equity securities	100,408		3,353		10,687				93,074		Investment in marketable equity securities	85,554		37,744		151		123,147
Investment securities held to maturity	Investment securities held to maturity											Investment securities held to maturity
Residential mortgage-backed securities	Residential mortgage-backed securities	614,489		12,905		0		0		627,394		Residential mortgage-backed securities	2,122,299		5,313		15,051		2,112,561
Commercial mortgage-backed securities	Commercial mortgage-backed securities	130,987		650		35				131,602		Commercial mortgage-backed securities	1,256,771		3		18,265		1,238,509
Other	Other	2,256		0		0		0		2,256		Other	2,008		—		—		2,008
Total investment securities held to maturity	Total investment securities held to maturity	747,732		13,555		35		0		761,252		Total investment securities held to maturity	3,381,078		5,316		33,316		3,353,078
Total investment securities	Total investment securities	$	9,732,688	$	160,648	$	19,222	$	0	$	9,874,114	Total investment securities	$	10,811,775	$	102,797	$	67,218	$	10,847,354

				December 31, 2019									December 31, 2020
(Dollars in thousands)	(Dollars in thousands)			Cost		Gross unrealized gains		Gross unrealized losses		Fair value		(Dollars in thousands)	Amortized cost(1)		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale	Investment securities available for sale											Investment securities available for sale
U.S. Treasury	U.S. Treasury			$	409,397	$	602	$	0	$	409,999	U.S. Treasury	$	499,832	$	101	$	—	$	499,933
Government agency	Government agency			684,085		928		2,241		682,772		Government agency	706,241		723		5,573		701,391
Residential mortgage-backed securities	Residential mortgage-backed securities			5,269,060		13,417		15,387		5,267,090		Residential mortgage-backed securities	4,369,130		70,283		1,310		4,438,103
Commercial mortgage-backed securities	Commercial mortgage-backed securities			373,105		6,974		59		380,020		Commercial mortgage-backed securities	745,892		25,645		—		771,537
Corporate bonds	Corporate bonds			198,278		3,420		132		201,566		Corporate bonds	590,870		14,437		2,028		603,279
State, county and municipal				118,227		0		0		118,227

Total investment securities available for sale	Total investment securities available for sale			$	7,052,152	$	25,341	$	17,819	$	7,059,674	Total investment securities available for sale	$	6,911,965	$	111,189	$	8,911	$	7,014,243
Investment in marketable equity securities	Investment in marketable equity securities			59,262		23,304		233		82,333		Investment in marketable equity securities	84,837		8,654		1,811		91,680
Investment securities held to maturity	Investment securities held to maturity											Investment securities held to maturity

Residential mortgage-backed securities												Residential mortgage-backed securities	1,877,692		17,689		—		1,895,381
Commercial mortgage-backed securities												Commercial mortgage-backed securities	937,034		3,884		56		940,862
Other	Other			30,996		0		0		30,996		Other	2,256		—		—		2,256
Total investment securities held to maturity	Total investment securities held to maturity			30,996		0		0		30,996		Total investment securities held to maturity	2,816,982		21,573		56		2,838,499
Total investment securities	Total investment securities			$	7,142,410	$	48,645	$	18,052	$	7,173,003	Total investment securities	$	9,813,784	$	141,416	$	10,778	$	9,944,422
(1)Amortized cost includes any recorded ACL.												(1)Amortized cost includes any recorded ACL.

On November 1, 2020, mortgage-backed securities with an amortized cost of $1.46 billion were transferred from investment securities available for sale to 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 the date of transfer was $5.9 million, or $4.5 million net of tax, and was reported as a component of accumulated other comprehensive income. This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield.

Investments in residential and commercial mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the ~~United States Small Business Administration.~~SBA. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions.

~~Table of~~ ~~Contents~~

BancShares also holds approximately 354,000 shares of Class B common stock of Visa, Inc. (“Visa”). Until the resolution of certain litigation, at which time the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these shares are only transferable to other shareholders of Visa Class B common stock. ~~BancShares’~~As a result, there is limited transfer activity in private transactions between buyers and sellers. Given this limited trading activity and the continuing uncertainty regarding the likelihood, ultimate timing and eventual exchange rate for shares of Visa Class B common stock into shares of Visa Class A common stock, these shares are not considered to have a readily determinable fair value and are recorded at $0. BancShares continues to monitor the trading activity in Visa Class B common stock and the status of the resolution of certain litigation matters at Visa that would trigger the conversion of the Visa Class B common stock into Visa Class A common stock.

Table of Contents

BancShares held ~~FHLB~~Federal Housing Loan Bank (“ FHLB”) stock of ~~$45.4~~$40.5 million and $~~43.0~~45.4 million and other non-marketable equity securities of $~~13.5~~9.6 million and $~~12.5~~11.6 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. These securities are recorded at cost within other assets.

As of September 30, ~~2020~~2021 and ~~January 1,~~December 31, 2020, no ACL was required for available for sale and held to maturity debt securities. Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At September 30, 2021, accrued interest receivables for available for sale and held to maturity debt securities were $21.1 million and $6.0 million, respectively. At December 31, 2020, accrued interest receivables for available for sale and held to maturity debt securities were ~~$23.6~~$17.6 million and ~~$1.7~~$5.4 million, ~~respectively, and were excluded from the estimate of credit losses.~~respectively. During the three and nine months ended September 30, 2021 and 2020, 0no accrued interest was deemed uncollectible and written off against interest income.

The following table provides the amortized cost and fair value by contractual maturity for investment securities available for sale and held to maturity. Expected maturities will differ from contractual maturities on certain securities because issuers and borrowers of underlying collateral may have the right to call or prepay obligations with or without prepayment penalties. Residential and commercial mortgage-backed and government agency securities are stated separately as they are not due at a single maturity date.


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Cost		Fair value		Cost		Fair value		(Dollars in thousands)	Amortized cost(1)		Fair value		Amortized cost(1)		Fair value
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
Non-amortizing securities maturing in:	Non-amortizing securities maturing in:									Non-amortizing securities maturing in:
One year or less	One year or less	$	655,609	$	655,779	$	406,325	$	406,927	One year or less	$	1,204	$	1,208	$	500,846	$	500,954
One through five years	One through five years	71,262		72,446		24,496		24,971		One through five years	37,248		38,540		72,565		73,881
Five through 10 years	Five through 10 years	456,620		461,847		185,209		187,868		Five through 10 years	545,754		568,692		508,320		519,570
Over 10 years	Over 10 years	14,965		14,897		109,872		110,026		Over 10 years	16,700		16,663		8,971		8,807
Government agency	Government agency	659,260		654,941		684,085		682,772		Government agency	851,860		853,728		706,241		701,391
Residential mortgage-backed securities	Residential mortgage-backed securities	5,968,192		6,069,668		5,269,060		5,267,090		Residential mortgage-backed securities	4,800,194		4,801,646		4,369,130		4,438,103
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,058,640		1,090,210		373,105		380,020		Commercial mortgage-backed securities	1,092,183		1,090,652		745,892		771,537
Total investment securities available for sale	Total investment securities available for sale	$	8,884,548	$	9,019,788	$	7,052,152	$	7,059,674	Total investment securities available for sale	$	7,345,143	$	7,371,129	$	6,911,965	$	7,014,243
Investment securities held to maturity	Investment securities held to maturity									Investment securities held to maturity
Non-amortizing securities maturing in:	Non-amortizing securities maturing in:									Non-amortizing securities maturing in:
One year or less	One year or less	1,507		1,507		30,746		30,746		One year or less	1,259		1,259		1,507		1,507
One through five years	One through five years	749		749		250		250		One through five years	749		749		749		749
Residential mortgage-backed securities	Residential mortgage-backed securities	614,489		627,394		0		0		Residential mortgage-backed securities	2,122,299		2,112,561		1,877,692		1,895,381
Commercial mortgage-backed securities	Commercial mortgage-backed securities	130,987		131,602		0		0		Commercial mortgage-backed securities	1,256,771		1,238,509		937,034		940,862
Total investment securities held to maturity	Total investment securities held to maturity	$	747,732	$	761,252	$	30,996	$	30,996	Total investment securities held to maturity	$	3,381,078	$	3,353,078	$	2,816,982	$	2,838,499
(1)Amortized cost includes any recorded ACL.										(1)Amortized cost includes any recorded ACL.

The following table provides the gross realized gains and losses on the sales of investment securities available for sale for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Gross realized gains on sales of investment securities available for sale	Gross realized gains on sales of investment securities available for sale	$	21,425	$	1,326	$	55,651	$	7,045	Gross realized gains on sales of investment securities available for sale	$	8,082	$	21,425	$	33,133	$	55,651
Gross realized losses on sales of investment securities available for sale	Gross realized losses on sales of investment securities available for sale	0		190		679		190		Gross realized losses on sales of investment securities available for sale	—		—		(14)		(679)
Net realized gains on sales of investment securities available for sale	Net realized gains on sales of investment securities available for sale	$	21,425	$	1,136	$	54,972	$	6,855	Net realized gains on sales of investment securities available for sale	$	8,082	$	21,425	$	33,119	$	54,972

The following table provides the realized and unrealized gains and losses on marketable equity securities for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Marketable equity securities (losses) gains, net		$	(2,701)	$	(967)	$	10,461	$	13,505
Marketable equity securities gains (losses), net										Marketable equity securities gains (losses), net	$	3,350	$	(2,701)	$	31,015	$	10,461
Less net gains recognized on marketable equity securities sold	Less net gains recognized on marketable equity securities sold	2,568		714		39,884		3,029		Less net gains recognized on marketable equity securities sold	—		2,568		263		39,884
Unrealized gains (losses) recognized on marketable equity securities held	Unrealized gains (losses) recognized on marketable equity securities held	$	(5,269)	$	(1,681)	$	(29,423)	$	10,476	Unrealized gains (losses) recognized on marketable equity securities held	$	3,350	$	(5,269)	$	30,752	$	(29,423)

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The following table provides information regarding securities with unrealized losses as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020													September 30, 2021
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(Dollars in thousands)	(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale	Investment securities available for sale													Investment securities available for sale

Government agency	Government agency	$	187,167	$	2,570	$	338,169	$	2,391	$	525,336	$	4,961	Government agency	$	302,114	$	2,857	$	119,231	$	623	$	421,345	$	3,480
Residential mortgage-backed securities	Residential mortgage-backed securities	161,578		259		23,717		53		185,295		312		Residential mortgage-backed securities	2,137,675		17,752		1,762		$	15	2,139,437		17,767
Commercial mortgage-backed securities	Commercial mortgage-backed securities	56,703		434		0		0		56,703		434		Commercial mortgage-backed securities	758,798		11,406		—		$	—	758,798		11,406
Corporate bonds	Corporate bonds	81,825		2,738		4,744		55		86,569		2,793		Corporate bonds	42,593		1,042		10,444		$	56	53,037		1,098

Total	Total	$	487,273	$	6,001	$	366,630	$	2,499	$	853,903	$	8,500	Total	$	3,241,180	$	33,057	$	131,437	$	694	$	3,372,617	$	33,751

		December 31, 2019													December 31, 2020
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(Dollars in thousands)	(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale	Investment securities available for sale													Investment securities available for sale

Government agency	Government agency	$	347,081	$	1,827	$	63,947	$	414	$	411,028	$	2,241	Government agency	$	268,622	$	3,197	$	328,777	$	2,376	$	597,399	$	5,573
Residential mortgage-backed securities	Residential mortgage-backed securities	2,387,293		14,016		264,257		1,371		2,651,550		15,387		Residential mortgage-backed securities	433,816		1,241		23,064		69		456,880		1,310
Commercial mortgage-backed securities		35,926		59		0		0		35,926		59

Corporate bonds	Corporate bonds	7,714		123		4,749		9		12,463		132		Corporate bonds	57,715		2,028		—		—		57,715		2,028

Total	Total	$	2,778,014	$	16,025	$	332,953	$	1,794	$	3,110,967	$	17,819	Total	$	760,153	$	6,466	$	351,841	$	2,445	$	1,111,994	$	8,911

As of September 30, ~~2020,~~2021, there were 3836 investment securities available for sale with continuous losses for more than 12 months, of which 3734 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and ~~1 was a~~2 were corporate ~~bond.~~bonds.

~~NaN~~None of the unrealized losses identified as of September 30, ~~2020,~~2021, or December 31, ~~2019,~~2020, relate to the ~~marketability of the securities or the issuers’~~issuer’s ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, ~~NaN~~none 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.

Investment securities having an aggregate carrying value of ~~$4.48~~$5.5 billion at September 30, ~~2020,~~2021, and ~~$3.93~~$4.6 billion at December 31, ~~2019,~~2020, 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 further credit monitoring is performed on these portfolios. 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.

There were 0no debt securities held to maturity on nonaccrual status as of September 30, ~~2020.~~2021.

A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were 0no securities past due as of September 30, ~~2020.~~2021.

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NOTE D - LOANS AND LEASES

BancShares’ accounting methods for loans and leases depends on 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~~Non-purchased credit deteriorated (“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 and classes as defined in Note A - Accounting Polices and Basis of Presentation.~~acquisition. 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 included the following at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


~~(Dollars in thousands)~~	~~September 30, 2020~~
~~Commercial:~~
~~Construction and land development~~	$	~~1,054,186~~
~~Owner occupied commercial mortgage~~	~~10,683,822~~
~~Non-owner occupied commercial mortgage~~	~~2,965,904~~
~~Commercial and industrial and leases~~	~~4,797,344~~
~~SBA-PPP~~	~~3,112,676~~
~~Total commercial loans~~	~~22,613,932~~
~~Consumer:~~
~~Residential mortgage~~	~~5,463,646~~
~~Revolving mortgage~~	~~2,145,506~~
~~Construction and land development~~	~~347,850~~
~~Consumer auto~~	~~1,234,196~~
~~Consumer other~~	~~544,136~~
~~Total consumer loans~~	~~9,735,334~~
~~Total non-PCD loans and leases~~	~~32,349,266~~
~~PCD loans~~	~~495,878~~
~~Total loans and leases~~	$	~~32,845,144~~


(Dollars in thousands)	September 30, 2021		December 31, 2020
Commercial:
Construction and land development	$	1,247,680	$	985,424
Owner occupied commercial mortgage	11,625,554		11,165,012
Non-owner occupied commercial mortgage	3,002,928		2,987,689
Commercial and industrial and leases	5,266,266		5,013,644
SBA-PPP	1,086,917		2,406,291
Total commercial loans	22,229,345		22,558,060
Consumer:
Residential mortgage	5,701,346		5,561,686
Revolving mortgage	1,834,690		2,052,854
Construction and land development	391,768		348,123
Consumer auto	1,350,377		1,255,402
Consumer other	635,408		552,968
Total consumer loans	9,913,589		9,771,033

PCD loans	373,255		462,882
Total loans and leases	$	32,516,189	$	32,791,975


~~(Dollars in thousands)~~	~~December 31, 2019~~
~~Commercial:~~
~~Construction and land development~~	$	~~1,013,454~~
~~Commercial mortgage~~	~~12,282,635~~
~~Other commercial real estate~~	~~542,028~~
~~Commercial and industrial and leases~~	~~4,403,792~~
~~Other~~	~~310,093~~
~~Total commercial loans~~	~~18,552,002~~
~~Noncommercial:~~
~~Residential mortgage~~	~~5,293,917~~
~~Revolving mortgage~~	~~2,339,072~~
~~Construction and land development~~	~~357,385~~
~~Consumer~~	~~1,780,404~~
~~Total noncommercial loans~~	~~9,770,778~~
~~Total non-PCI loans and leases~~	~~28,322,780~~
~~PCI loans~~	~~558,716~~
~~Total loans and leases~~	$	~~28,881,496~~

~~Accrued~~At September 30, 2021 and December 31, 2020, accrued interest receivable on loans ~~at September 30, 2020~~ was ~~$111.8~~$88.1 million and $107.7 million, respectively, and was excluded from the estimate of credit losses. Management reviewed this policy election during the second quarter of 2020 due to increased accrued interest receivable balances as a result of loan deferrals in response to COVID-19. We have concluded that the policy election remains appropriate as of September 30, 2020.

At September 30, 2020, $11.81 billion in non-PCD loans with a lendable collateral value of $8.19 billion were used to secure $652.7 million in Federal Home Loan Bank (“FHLB”) of Atlanta advances, resulting in additional borrowing capacity of $7.54 billion. At December 31, 2019, $9.41 billion in non-PCD loans with a lendable collateral value of $6.57 billion were used to secure $563.7 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $6.01 billion. At September 30, 2020, $3.97 billion in non-PCD loans with a lendable collateral value of $3.21 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (“FRB”). At December 31, 2019, $3.68 billion in non-PCD loans with a lendable collateral value of $2.98 billion were used to secure additional borrowing capacity at the FRB.

~~Table of~~ ~~Contents~~

Certain residential real estate loans are originated to be sold to ~~investors and~~investors. BancShares has elected the fair value option on these loans, which are recorded in loans held for ~~sale at fair value.~~sale. In addition, weBancShares may change ~~our~~its strategy for certain portfolio loans and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at ~~fair~~the lower of cost or market value. Loans held for sale totaled ~~$120.3~~$98.5 million and ~~$67.9~~$124.8 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~Net deferred fees on non-PCD loans and leases, including unearned and unamortized costs and fees, were $83.5 million and $927 thousand at September 30, 2020 and December 31, 2019, respectively. Of~~The following table presents selected components of the ~~amount outstanding as~~amortized cost of ~~September 30, 2020, $76.0 million relates to net deferred fees and costs on SBA-PPP~~ loans. The net unamortized discount related to purchased non-PCD loans and leases was $23.0 million at September 30, 2020 and $30.9 million at December 31, 2019. The net unamortized discount related to PCD loans and leases was $49.2 million at September 30, 2020 and $88.2 million at December 31, 2019.


(Dollars in thousands)	September 30, 2021		December 31, 2020
Deferred fees, including unearned fees and unamortized costs on non-PCD loans
Net deferred fees related to SBA-PPP loans	$	39,372	$	41,064
Net deferred fees related to other portfolios	15,162		9,153
Total net deferred fees	$	54,534	$	50,217

Net unamortized discount on purchased loans
Non-PCD	$	13,350	$	19,473
PCD	32,623		45,254
Total	$	45,973	$	64,727

Table of Contents

The aging of the outstanding loans and leases, by class, at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 is provided in the tables below. Loans and leases past due less than 30 days ~~or less~~ 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.


		September 30, 2020													September 30, 2021
(Dollars in thousands)	(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		(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
Commercial:	Commercial:													Commercial:
Construction and land development	Construction and land development	$	7,860	$	0	$	1,502	$	9,362	$	1,044,824	$	1,054,186	Construction and land development	$	233	$	—	$	1,424	$	1,657	$	1,246,023	$	1,247,680
Owner occupied commercial mortgage	Owner occupied commercial mortgage	23,354		5,212		6,695		35,261		10,648,561		10,683,822		Owner occupied commercial mortgage	7,210		5,553		8,198		20,961		11,604,593		11,625,554
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	9,854		7,381		6,671		23,906		2,941,998		2,965,904		Non-owner occupied commercial mortgage	752		1,245		6,716		8,713		2,994,215		3,002,928
Commercial and industrial and leases	Commercial and industrial and leases	8,401		3,920		3,862		16,183		4,781,161		4,797,344		Commercial and industrial and leases	10,309		3,234		9,690		23,233		5,243,033		5,266,266
SBA-PPP	SBA-PPP	0		0		0		0		3,112,676		3,112,676		SBA-PPP	—		—		—		—		1,086,917		1,086,917
Total commercial loans	Total commercial loans	49,469		16,513		18,730		84,712		22,529,220		22,613,932		Total commercial loans	18,504		10,032		26,028		54,564		22,174,781		22,229,345
Consumer:	Consumer:													Consumer:
Residential mortgage	Residential mortgage	37,921		5,811		36,441		80,173		5,383,473		5,463,646		Residential mortgage	18,417		6,607		20,864		45,888		5,655,458		5,701,346
Revolving mortgage	Revolving mortgage	8,477		1,582		7,508		17,567		2,127,939		2,145,506		Revolving mortgage	5,587		1,443		4,513		11,543		1,823,147		1,834,690
Construction and land development	Construction and land development	923		0		312		1,235		346,615		347,850		Construction and land development	477		1,719		70		2,266		389,502		391,768
Consumer auto	Consumer auto	4,245		1,059		910		6,214		1,227,982		1,234,196		Consumer auto	5,345		1,173		1,263		7,781		1,342,596		1,350,377
Consumer other	Consumer other	4,490		1,324		1,467		7,281		536,855		544,136		Consumer other	2,197		1,122		1,295		4,614		630,794		635,408
Total consumer loans	Total consumer loans	56,056		9,776		46,638		112,470		9,622,864		9,735,334		Total consumer loans	32,023		12,064		28,005		72,092		9,841,497		9,913,589
PCD loans	PCD loans	16,298		3,201		32,438		51,937		443,941		495,878		PCD loans	11,407		5,200		27,111		43,718		329,537		373,255
Total loans and leases	Total loans and leases	$	121,823	$	29,490	$	97,806	$	249,119	$	32,596,025	$	32,845,144	Total loans and leases	$	61,934	$	27,296	$	81,144	$	170,374	$	32,345,815	$	32,516,189

		December 31, 2019													December 31, 2020
(Dollars in thousands)	(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		(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
Commercial:	Commercial:													Commercial:
Construction and land development	Construction and land development	$	3,146	$	195	$	2,702	$	6,043	$	1,007,411	$	1,013,454	Construction and land development	$	956	$	527	$	1,603	$	3,086	$	982,338	$	985,424
Commercial mortgage		20,389		8,774		8,319		37,482		12,245,153		12,282,635
Other commercial real estate		861		331		698		1,890		540,138		542,028
Owner occupied commercial mortgage														Owner occupied commercial mortgage	8,757		2,232		14,082		25,071		11,139,941		11,165,012
Non-owner occupied commercial mortgage														Non-owner occupied commercial mortgage	12,370		—		5,973		18,343		2,969,346		2,987,689
Commercial and industrial and leases	Commercial and industrial and leases	18,269		4,842		5,032		28,143		4,375,649		4,403,792		Commercial and industrial and leases	14,532		2,842		3,243		20,617		4,993,027		5,013,644
Other		51		411		126		588		309,505		310,093
SBA-PPP														SBA-PPP	—		—		—		—		2,406,291		2,406,291
Total commercial loans	Total commercial loans	42,716		14,553		16,877		74,146		18,477,856		18,552,002		Total commercial loans	36,615		5,601		24,901		67,117		22,490,943		22,558,060
Noncommercial:
Consumer:														Consumer:
Residential mortgage	Residential mortgage	45,839		18,289		24,409		88,537		5,205,380		5,293,917		Residential mortgage	43,218		8,364		31,690		83,272		5,478,414		5,561,686
Revolving mortgage	Revolving mortgage	9,729		3,468		9,865		23,062		2,316,010		2,339,072		Revolving mortgage	11,977		2,626		7,415		22,018		2,030,836		2,052,854
Construction and land development	Construction and land development	977		218		1,797		2,992		354,393		357,385		Construction and land development	932		77		330		1,339		346,784		348,123
Consumer		10,481		3,746		3,571		17,798		1,762,606		1,780,404
Total noncommercial loans		67,026		25,721		39,642		132,389		9,638,389		9,770,778
PCI loans		26,478		10,784		28,973		66,235		492,481		558,716
Consumer auto														Consumer auto	6,825		1,835		1,076		9,736		1,245,666		1,255,402
Consumer other														Consumer other	3,610		1,464		1,505		6,579		546,389		552,968
Total consumer loans														Total consumer loans	66,562		14,366		42,016		122,944		9,648,089		9,771,033
PCD loans														PCD loans	18,322		6,076		31,026		55,424		407,458		462,882
Total loans and leases	Total loans and leases	$	136,220	$	51,058	$	85,492	$	272,770	$	28,608,726	$	28,881,496	Total loans and leases	$	121,499	$	26,043	$	97,943	$	245,485	$	32,546,490	$	32,791,975

2014

Table of Contents

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 September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, were as follows:

January 1, 2020(1)
September 30, 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 $ 1,564 $ 0
Owner occupied commercial mortgage 24,476 19,567 1,288
Non-owner occupied commercial mortgage 5,965 8,258 0
Commercial and industrial and leases 7,685 10,710 840
Total commercial loans 42,407 40,099 2,128
Consumer:
Residential mortgage 44,357 63,646 65
Revolving mortgage 22,411 22,945 0
Construction and land development 2,828 689 215
Consumer auto 2,145 2,634 0
Consumer other 798 914 1,179
Total consumer loans 72,539 90,828 1,459
PCD loans 53,771 55,527 0
Total loans and leases $ 168,717 $ 186,454 $ 3,587
(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 September 30, 2020, $27.5 million of these loans remained outstanding.


		December 31, 2019			September 30, 2021						December 31, 2020
(Dollars in thousands)	(Dollars in thousands)		Nonaccrual loans and leases			Loans and leases > 90 days and accruing		(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
Commercial:	Commercial:							Commercial:
Construction and land development	Construction and land development		$	4,281		$	0	Construction and land development	$	1,457	$	—	$	1,661	$	—
Commercial mortgage			29,733			0
Owner occupied commercial mortgage								Owner occupied commercial mortgage	19,886		601		23,103		3,625
Non-owner occupied commercial mortgage								Non-owner occupied commercial mortgage	10,613		—		7,932		147
Commercial and industrial and leases	Commercial and industrial and leases		7,365			1,094		Commercial and industrial and leases	20,689		1,414		10,626		540
Other commercial real estate			708			0
Other			320			0
Total commercial loans	Total commercial loans		42,407			1,094		Total commercial loans	52,645		2,015		43,322		4,312
Noncommercial:
Construction and land development			2,828			0
Consumer:								Consumer:
Residential mortgage	Residential mortgage		44,357			45		Residential mortgage	44,463		779		66,345		—
Revolving mortgage	Revolving mortgage		22,411			0		Revolving mortgage	17,295		—		22,236		—
Consumer			2,943			2,152
Total noncommercial loans			72,539			2,197
PCI loans			6,743			24,257
Construction and land development								Construction and land development	571		—		652		—
Consumer auto								Consumer auto	3,287		—		3,166		—
Consumer other								Consumer other	476		1,033		823		1,195
Total consumer loans								Total consumer loans	66,092		1,812		93,222		1,195
PCD loans								PCD loans	45,038		1,787		54,939		355
Total loans and leases	Total loans and leases		$	121,689		$	27,548	Total loans and leases	$	163,775	$	5,614	$	191,483	$	5,862

Credit Quality

Loans and leases are monitored for credit quality on a recurring basis. Commercial and consumer loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments being evaluated. The credit quality indicators for commercial loans and leases are borrower risk classifications developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated at least annually, with more frequent evaluations done on criticized loans. Commercial loans are also updated if there is evidence of potential credit deterioration, such as delinquency. Commercial credit cards are included in the Commercial and industrial and leases segment, but are evaluated based primarily upon delinquency status. The risk classifications as of the date presented are based on the most recent assessment performed and are defined below:

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

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

~~Table of~~ ~~Contents~~

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 September 30, ~~2020~~2021 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.

Table of Contents

The following tables represent current credit quality indicators by origination year as of September 30, ~~2020.~~2021.


				September 30, 2021
		Commercial Loans Amortized Cost Basis by Origination Year																				Commercial Loans Amortized Cost Basis by Origination Year
Classification:	Classification:	2020			2019		2018		2017		2016		Prior		Revolving		Revolving converted to term loans		Total		Classification:	2021		2020		2019		2018		2017		Prior		Revolving		Revolving converted to term loans		Total
(Dollars in thousands)	(Dollars in thousands)																				(Dollars in thousands)
Construction and land development	Construction and land development																				Construction and land development
Pass	Pass	$	247,187		$	396,322	$	208,736	$	132,518	$	35,780	$	13,144	$	11,909	$	0	$	1,045,596	Pass	$	373,012	$	451,926	$	256,321	$	98,892	$	44,343	$	12,396	$	4,231	$	—	$	1,241,121
Special Mention	Special Mention	176			0		312		5,436		0		0		0		0		5,924		Special Mention	19		157		—		134		63		—		—		—		373
Substandard	Substandard	292			832		1,452		0		8		82		0		0		2,666		Substandard	300		38		326		1,442		4,070		10		—		—		6,186

Total	Total	247,655			397,154		210,500		137,954		35,788		13,226		11,909		0		1,054,186		Total	373,331		452,121		256,647		100,468		48,476		12,406		4,231		—		1,247,680
Owner occupied commercial mortgage	Owner occupied commercial mortgage																				Owner occupied commercial mortgage
Pass	Pass	2,098,636			2,218,063		1,731,557		1,423,847		1,146,027		1,714,102		101,547		135		10,433,914		Pass	2,069,209		3,078,093		1,989,052		1,316,012		1,036,593		1,778,334		122,411		120		11,389,824
Special Mention	Special Mention	5,578			24,032		37,273		12,246		17,433		27,905		3,313		0		127,780		Special Mention	2,082		24,356		29,358		28,165		12,199		20,469		4,047		71		120,747
Substandard	Substandard	17,625			14,618		9,465		24,561		11,693		38,206		5,888		72		122,128		Substandard	9,459		7,495		22,482		10,947		18,598		39,695		6,307		—		114,983

Total	Total	2,121,839			2,256,713		1,778,295		1,460,654		1,175,153		1,780,213		110,748		207		10,683,822		Total	2,080,750		3,109,944		2,040,892		1,355,124		1,067,390		1,838,498		132,765		191		11,625,554
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage																				Non-owner occupied commercial mortgage
Pass	Pass	660,088			624,860		407,230		372,287		304,782		469,429		35,321		0		2,873,997		Pass	438,949		770,507		587,335		278,507		283,867		507,411		31,876		—		2,898,452
Special Mention	Special Mention	355			701		11,740		1,500		5,213		3,340		777		0		23,626		Special Mention	495		487		263		10,219		800		5,654		500		—		18,418
Substandard	Substandard	2,387			19,121		12,839		6,918		10,160		14,873		1,983		0		68,281		Substandard	2,615		11,742		22,600		10,184		10,243		27,352		1,322		—		86,058

Total	Total	662,830			644,682		431,809		380,705		320,155		487,642		38,081		0		2,965,904		Total	442,059		782,736		610,198		298,910		294,910		540,417		33,698		—		3,002,928
Commercial and industrial and leases	Commercial and industrial and leases																				Commercial and industrial and leases
Pass	Pass	1,175,036			1,090,278		562,547		361,442		267,706		352,946		809,256		5,433		4,624,644		Pass	1,238,557		1,162,246		714,374		344,220		193,857		350,870		1,087,462		5,136		5,096,722
Special Mention	Special Mention	3,713			17,409		8,908		5,631		3,641		4,607		13,673		216		57,798		Special Mention	2,323		8,279		22,100		3,528		4,070		4,324		4,575		206		49,405
Substandard	Substandard	12,370			3,598		4,387		5,016		2,707		4,685		25,096		803		58,662		Substandard	7,765		7,978		4,770		4,241		3,175		4,221		17,392		1,280		50,822
Doubtful	Doubtful	0			0		0		0		11		0		2		0		13		Doubtful	—		—		—		—		—		1		1		—		2
Ungraded	Ungraded	0			0		0		0		0		0		56,227		0		56,227		Ungraded	—		—		—		—		—		—		69,315		—		69,315
Total	Total	1,191,119			1,111,285		575,842		372,089		274,065		362,238		904,254		6,452		4,797,344		Total	1,248,645		1,178,503		741,244		351,989		201,102		359,416		1,178,745		6,622		5,266,266
SBA-PPP	SBA-PPP																				SBA-PPP
Pass	Pass	3,112,676			0		0		0		0		0		0		0		3,112,676		Pass	1,011,370		75,547		—		—		—		—		—		—		1,086,917

Total		3,112,676			0		0		0		0		0		0		0		3,112,676

Total commercial	Total commercial	$	7,336,119		$	4,409,834	$	2,996,446	$	2,351,402	$	1,805,161	$	2,643,319	$	1,064,992	$	6,659	$	22,613,932	Total commercial	$	5,156,155	$	5,598,851	$	3,648,981	$	2,106,491	$	1,611,878	$	2,750,737	$	1,349,439	$	6,813	$	22,229,345

2216

Table of Contents


		Consumer and PCD Loans Amortized Cost Basis by Origination Year																			Consumer and PCD Loans Amortized Cost Basis by Origination Year
Days Past Due:	Days Past Due:	2020		2019		2018		2017		2016		Prior		Revolving		Revolving converted to term loans		Total		Days Past Due:	2021		2020		2019		2018		2017		Prior		Revolving		Revolving converted to term loans		Total
(Dollars in thousands)	(Dollars in thousands)																			(Dollars in thousands)
Residential mortgage	Residential mortgage																			Residential mortgage
Current	Current	$	1,349,415	$	1,044,542	$	754,024	$	677,727	$	524,014	$	1,006,894	$	26,857	$	0	$	5,383,473	Current	$	1,591,381	$	1,651,853	$	690,779	$	410,446	$	390,940	$	900,129	$	19,930	$	—	$	5,655,458
30-59 days	30-59 days	1,450		3,274		10,486		6,124		4,627		11,875		85		0		37,921		30-59 days	252		1,506		4,728		3,066		1,486		7,379		—		—		18,417
60-89 days	60-89 days	19		854		187		316		2,241		2,194		0		0		5,811		60-89 days	788		295		—		764		881		3,879		—		—		6,607
90 days or greater	90 days or greater	173		1,573		2,704		3,948		6,187		18,884		2,972		0		36,441		90 days or greater	55		713		1,059		1,511		3,084		14,193		249		—		20,864
Total	Total	1,351,057		1,050,243		767,401		688,115		537,069		1,039,847		29,914		0		5,463,646		Total	1,592,476		1,654,367		696,566		415,787		396,391		925,580		20,179		—		5,701,346
Revolving mortgage	Revolving mortgage																			Revolving mortgage
Current	Current	0		0		0		0		0		0		1,969,703		158,236		2,127,939		Current	—		—		—		—		—		—		1,700,947		122,200		1,823,147
30-59 days	30-59 days	0		0		0		0		0		0		4,993		3,484		8,477		30-59 days	—		—		—		—		—		—		2,939		2,648		5,587
60-89 days	60-89 days	0		0		0		0		0		0		419		1,163		1,582		60-89 days	—		—		—		—		—		—		378		1,065		1,443
90 days or greater	90 days or greater	0		0		0		0		0		0		2,449		5,059		7,508		90 days or greater	—		—		—		—		—		—		1,901		2,612		4,513
Total	Total	0		0		0		0		0		0		1,977,564		167,942		2,145,506		Total	—		—		—		—		—		—		1,706,165		128,525		1,834,690
Construction and land development	Construction and land development																			Construction and land development
Current	Current	144,559		140,794		29,400		13,049		6,818		3,721		8,274		0		346,615		Current	165,993		175,007		26,889		10,258		5,745		3,016		2,594		—		389,502
30-59 days	30-59 days	250		26		466		96		17		68		0		0		923		30-59 days	33		416		—		—		—		28		—		—		477
60-89 days	60-89 days	0		0		0		0		0		0		0		0		0		60-89 days	—		1,650		—		—		69		—		—		—		1,719
90 days or greater	90 days or greater	0		0		0		0		0		97		215		0		312		90 days or greater	—		29		—		—		—		41		—		—		70
Total	Total	144,809		140,820		29,866		13,145		6,835		3,886		8,489		0		347,850		Total	166,026		177,102		26,889		10,258		5,814		3,085		2,594		—		391,768
Consumer auto	Consumer auto																			Consumer auto
Current	Current	398,216		380,919		250,602		122,352		61,076		14,817		0		0		1,227,982		Current	504,537		384,849		229,033		139,764		59,487		24,926		—		—		1,342,596
30-59 days	30-59 days	492		1,400		823		889		425		216		0		0		4,245		30-59 days	889		1,262		1,450		877		586		281		—		—		5,345
60-89 days	60-89 days	120		382		224		160		164		9		0		0		1,059		60-89 days	200		330		234		255		84		70		—		—		1,173
90 days or greater	90 days or greater	39		306		268		191		54		52		0		0		910		90 days or greater	140		347		420		228		83		45		—		—		1,263
Total	Total	398,867		383,007		251,917		123,592		61,719		15,094		0		0		1,234,196		Total	505,766		386,788		231,137		141,124		60,240		25,322		—		—		1,350,377
Consumer other	Consumer other																			Consumer other
Current	Current	39,667		33,269		14,505		7,832		9,269		30,406		401,907		0		536,855		Current	117,047		33,700		16,222		5,431		5,011		29,871		423,512		—		630,794
30-59 days	30-59 days	145		92		109		12		61		21		4,050		0		4,490		30-59 days	89		63		18		24		—		13		1,990		—		2,197
60-89 days	60-89 days	46		42		31		15		0		0		1,190		0		1,324		60-89 days	11		25		89		1		—		—		996		—		1,122
90 days or greater	90 days or greater	7		80		8		1		0		0		1,371		0		1,467		90 days or greater	49		12		17		1		—		—		1,216		—		1,295
Total	Total	39,865		33,483		14,653		7,860		9,330		30,427		408,518		0		544,136		Total	117,196		33,800		16,346		5,457		5,011		29,884		427,714		—		635,408
Total consumer	Total consumer	$	1,934,598	$	1,607,553	$	1,063,837	$	832,712	$	614,953	$	1,089,254	$	2,424,485	$	167,942	$	9,735,334	Total consumer	$	2,381,464	$	2,252,057	$	970,938	$	572,626	$	467,456	$	983,871	$	2,156,652	$	128,525	$	9,913,589
PCD loans	PCD loans																			PCD loans
Current	Current	$	24,169	$	24,565	$	29,739	$	34,617	$	32,149	$	262,095	$	14,236	$	22,371	$	443,941	Current	$	—	$	23,091	$	23,792	$	21,034	$	20,864	$	213,681	$	10,622	$	16,453	$	329,537
30-59 days	30-59 days	3,531		710		940		438		691		9,575		215		198		16,298		30-59 days	—		846		61		785		1,393		7,777		113		432		11,407
60-89 days	60-89 days	0		337		54		155		52		2,054		218		331		3,201		60-89 days	—		98		149		48		—		4,699		29		177		5,200
90 days or greater	90 days or greater	117		2,889		4,594		1,233		773		21,131		54		1,647		32,438		90 days or greater	—		806		230		3,698		1,070		20,319		16		972		27,111
Total PCD	Total PCD	$	27,817	$	28,501	$	35,327	$	36,443	$	33,665	$	294,855	$	14,723	$	24,547	$	495,878	Total PCD	$	—	$	24,841	$	24,232	$	25,565	$	23,327	$	246,476	$	10,780	$	18,034	$	373,255
Total loans and leases	Total loans and leases	$	9,298,534	$	6,045,888	$	4,095,610	$	3,220,557	$	2,453,779	$	4,027,428	$	3,504,200	$	199,148	$	32,845,144	Total loans and leases	$	7,537,619	$	7,875,749	$	4,644,151	$	2,704,682	$	2,102,661	$	3,981,084	$	3,516,871	$	153,372	$	32,516,189

2317

Table of Contents

~~Loans and leases outstanding at~~The following tables represent current credit quality indicators by origination year as of December 31, ~~2019 by credit quality indicator are provided below:~~2020.


																December 31, 2020
																Commercial Loans Amortized Cost Basis by Origination Year
Classification:															Classification:	2020		2019		2018		2017		2016		Prior		Revolving		Revolving converted to term loans		Total
(Dollars in thousands)															(Dollars in thousands)
Construction and land development															Construction and land development
Pass															Pass	$	342,183	$	341,233	$	190,429	$	50,776	$	23,969	$	11,306	$	10,969	$	—	$	970,865
Special Mention															Special Mention	246		—		6,421		5,342		—		—		153		—		12,162
Substandard															Substandard	229		629		1,450		—		8		81		—		—		2,397

Total															Total	342,658		341,862		198,300		56,118		23,977		11,387		11,122		—		985,424
Owner occupied commercial mortgage															Owner occupied commercial mortgage
Pass															Pass	3,183,467		2,201,165		1,625,141		1,301,412		1,049,858		1,454,020		101,556		133		10,916,752
Special Mention															Special Mention	6,274		20,702		36,739		12,387		17,699		25,693		5,115		72		124,681
Substandard															Substandard	10,280		19,052		9,842		20,928		13,736		41,303		8,438		—		123,579

Total															Total	3,200,021		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															Non-owner occupied commercial mortgage
Pass															Pass	865,514		609,975		378,136		331,800		282,810		391,517		32,149		—		2,891,901
Special Mention															Special Mention	569		905		10,794		1,808		5,121		3,279		483		—		22,959
Substandard															Substandard	2,899		18,546		12,296		8,764		14,087		15,427		810		—		72,829

Total															Total	868,982		629,426		401,226		342,372		302,018		410,223		33,442		—		2,987,689
Commercial and industrial and leases															Commercial and industrial and leases
Pass															Pass	1,620,622		983,852		504,463		310,468		234,735		286,996		899,978		5,520		4,846,634
Special Mention															Special Mention	3,146		17,065		7,265		5,393		3,307		4,912		9,152		189		50,429
Substandard															Substandard	17,811		4,095		4,370		4,257		2,548		3,801		22,384		983		60,249

Ungraded															Ungraded	—		—		—		—		—		—		56,332		—		56,332
Total															Total	1,641,579		1,005,012		516,098		320,118		240,590		295,709		987,846		6,692		5,013,644
SBA-PPP															SBA-PPP
Pass															Pass	2,406,291		—		—		—		—		—		—		—		2,406,291

Total commercial															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

	December 31, 2019
	Commercial loans and leases
(Dollars in thousands)	Construction and land development		Commercial mortgage		Other commercial real estate		Commercial and industrial and leases		Other		PCI		Total commercial loans and leases
Grade:
Pass	$	1,004,922	$	12,050,799	$	536,682	$	4,256,456	$	308,796	$	148,412	$	18,157,655
Special mention	2,577		115,164		3,899		44,604		622		44,290		166,866
Substandard	5,955		116,672		1,447		34,148		675		87,970		158,897
Doubtful	0		0		0		3		0		3,657		3
Ungraded	0		0		0		68,581		0		0		68,581
Total	$	1,013,454	$	12,282,635	$	542,028	$	4,403,792	$	310,093	$	284,329	$	18,552,002

December 31, 2019
Noncommercial loans and leases
(Dollars in thousands) Residential mortgage Revolving mortgage Construction and land development Consumer PCI Total noncommercial loans and leases
Days past due:
Current $ 5,205,380 $ 2,316,010 $ 354,393 $ 1,762,606 $ 240,995 $ 9,638,389
30-59 days past due 45,839 9,729 977 10,481 13,764 67,026
60-89 days past due 18,289 3,468 218 3,746 5,608 25,721
90 days or greater past due 24,409 9,865 1,797 3,571 14,020 39,642
Total $ 5,293,917 $ 2,339,072 $ 357,385 $ 1,780,404 $ 274,387 $ 9,770,778

Table of Contents

~~Purchased loans and leases~~


	Consumer and PCD Loans Amortized Cost Basis by Origination Year
Days Past Due:	2020		2019		2018		2017		2016		Prior		Revolving		Revolving converted to term loans		Total
(Dollars in thousands)
Residential mortgage
Current	$	1,882,683	$	978,298	$	655,798	$	596,309	$	461,719	$	878,634	$	24,973	$	—	$	5,478,414
30-59 days	2,278		4,573		11,463		3,772		8,613		12,299		220		—		43,218
60-89 days	30		100		1,246		1,449		834		4,705		—		—		8,364
90 days or greater	282		4,831		3,150		4,015		5,689		13,723		—		—		31,690
Total	1,885,273		987,802		671,657		605,545		476,855		909,361		25,193		—		5,561,686
Revolving mortgage
Current	—		—		—		—		—		—		1,879,968		150,868		2,030,836
30-59 days	—		—		—		—		—		—		8,241		3,736		11,977
60-89 days	—		—		—		—		—		—		527		2,099		2,626
90 days or greater	—		—		—		—		—		—		2,301		5,114		7,415
Total	—		—		—		—		—		—		1,891,037		161,817		2,052,854
Construction and land development
Current	215,112		85,707		24,860		10,269		6,093		2,218		2,525		—		346,784
30-59 days	—		420		121		370		—		21		—		—		932
60-89 days	—		—		—		9		—		68		—		—		77
90 days or greater	—		—		—		—		—		330		—		—		330
Total	215,112		86,127		24,981		10,648		6,093		2,637		2,525		—		348,123
Consumer auto
Current	521,719		340,594		219,597		104,280		49,872		9,604		—		—		1,245,666
30-59 days	2,175		1,873		1,257		842		544		134		—		—		6,825
60-89 days	329		689		312		351		109		45		—		—		1,835
90 days or greater	170		527		217		57		102		3		—		—		1,076
Total	524,393		343,683		221,383		105,530		50,627		9,786		—		—		1,255,402
Consumer other
Current	53,842		27,117		10,911		7,159		2,980		29,336		415,044		—		546,389
30-59 days	322		114		77		18		11		7		3,061		—		3,610
60-89 days	102		20		13		18		3		23		1,285		—		1,464
90 days or greater	53		84		8		—		—		—		1,360		—		1,505
Total	54,319		27,335		11,009		7,195		2,994		29,366		420,750		—		552,968
Total consumer	$	2,679,097	$	1,444,947	$	929,030	$	728,918	$	536,569	$	951,150	$	2,339,505	$	161,817	$	9,771,033
PCD loans
Current	$	31,475	$	25,425	$	27,183	$	27,955	$	28,995	$	232,186	$	13,212	$	21,027	$	407,458
30-59 days	999		925		801		718		1,341		12,637		156		745		18,322
60-89 days	447		81		312		695		97		4,098		9		337		6,076
90 days or greater	721		2,325		4,755		1,208		897		19,963		111		1,046		31,026
Total PCD	$	33,642	$	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

The following table ~~summarizes PCD~~provides information regarding loans ~~acquired in~~pledged as collateral for borrowing capacity through the ~~Community Financial transaction~~FHLB of Atlanta 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 allowance~~

~~1,193~~

~~Discount~~

~~1,055~~

~~Fair value at acquisition date~~

~~23,387~~

~~The recorded fair values of purchased non-PCD loans acquired in the Community Financial transaction~~Federal Reserve Bank (“FRB”) as of ~~the acquisition date are as follows:~~September 30, 2021 and December 31, 2020:

~~(Dollars in thousands)~~

~~Community Financial~~

~~Commercial:~~

~~Construction and land development~~

~~9,428~~

~~Owner occupied commercial mortgage~~

~~31,473~~

~~Non-owner occupied commercial mortgage~~

~~25,143~~

~~Commercial and industrial and leases~~

~~15,065~~

~~Total commercial loans~~

~~81,109~~

~~Consumer:~~

~~Residential mortgage~~

~~21,168~~

~~Revolving mortgage~~

~~2,084~~

~~Construction and land development~~

~~5,254~~

~~Consumer auto~~

~~294~~

~~Consumer other~~

~~693~~

~~Total consumer loans~~

~~29,493~~

~~Total non-PCD loans~~

~~110,602~~


(Dollars in thousands)	September 30, 2021		December 31, 2020
FHLB of Atlanta
Lendable collateral value of pledged non-PCD loans	$	9,171,610	$	8,637,844
Less: Advances	645,663		652,675
Available borrowing capacity	$	8,525,947	$	7,985,169
Pledged non-PCD loans	$	12,646,208	$	12,157,153

FRB
Lendable collateral value of pledged non-PCD loans	$	3,795,878	$	3,321,762
Less: Advances	—		—
Available borrowing capacity	$	3,795,878	$	3,321,762
Pledged non-PCD loans	$	4,610,291	$	4,104,866

2419

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NOTE E - ALLOWANCE FOR CREDIT LOSSES ~~(“ACL”)~~

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 September 30, ~~2020 the primary reason for~~2021, the ACL change since ~~the adoption of ASC 326,~~December 31, 2020 was ~~a $36.1 million reserve build due to the potential economic impact of COVID-19~~driven by continued strong credit performance, low net charge-offs, and ~~its estimated impact on credit losses.~~improvement in macroeconomic factors. 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~~For most pools, BancShares uses a 12-month straight-line reversion period to ~~long term historic~~historical averages ~~over a one year period.~~for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. 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~~BancShares’ ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the September 30, 2021 ACL forecast was calculated using the consensus baseline ~~adverse and upside scenarios. To calculate the ACL, we utilized the baseline~~scenario. This scenario ~~which includes~~showed improvements toin the most significant ~~assumptions and~~economic factors compared to what was used to generate the ~~impact from government stimulus. This result was calibrated using management’s expectation of borrower performance based upon COVID-19 residual risk by industry and geography.~~December 31, 2020 ACL. These loss estimates were also influenced by ~~BancShares~~BancShares’ strong credit quality and low net ~~charge-offs and recent credit trends, which remained stable through the quarter ended September 30, 2020.~~charge-offs.

Activity in the ACL by ~~class of loans~~portfolio segment is summarized as follows:


		Three months ended September 30, 2020																									Three months ended September 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Construction and land development - commercial		Owner occupied commercial mortgage		Non-owner occupied commercial mortgage		Commercial and industrial and leases		Residential mortgage		Revolving mortgage		Construction and land development - consumer		Consumer auto		Consumer other		PCD		Total			(Dollars in thousands)		Commercial			Consumer			PCD			Total
Allowance for credit losses:	Allowance for credit losses:																								Allowance for credit losses:
Balance at July 1	Balance at July 1	$	6,906	$	22,489	$	22,149	$	24,633	$	42,872	$	26,640	$	1,640	$	8,898	$	39,295	$	26,928	$	222,450		Balance at July 1		$	76,082		$	94,272		$	18,740		$	189,094
Provision (credits)		120		625		667		3,381		837		(958)		(54)		708		1,341		(2,625)		4,042
Provision (credit)																								Provision (credit)		975			(223)			(1,872)			(1,120)

Charge-offs	Charge-offs	0		(87)		0		(3,241)		(253)		(359)		0		(824)		(3,673)		(495)		(8,932)			Charge-offs		(5,967)			(4,307)			(799)			(11,073)
Recoveries	Recoveries	264		65		10		1,999		275		336		23		401		1,684		1,319		6,376			Recoveries		1,594			2,330			2,369			6,293
Balance at September 30	Balance at September 30	$	7,290	$	23,092	$	22,826	$	26,772	$	43,731	$	25,659	$	1,609	$	9,183	$	38,647	$	25,127	$	223,936		Balance at September 30		$	72,684		$	92,072		$	18,438		$	183,194

		Three months ended September 30, 2019																									Three months ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Construction and land development - commercial		Commercial mortgage		Other commercial real estate		Commercial and industrial and leases		Other		Residential mortgage		Revolving mortgage		Construction and land development - non - commercial		Consumer		PCI		Total			(Dollars in thousands)		Commercial			Consumer			PCD			Total
Balance at July 1	Balance at July 1	$	31,944	$	48,962	$	2,342	$	56,901	$	2,183	$	16,932	$	21,121	$	2,750	$	35,105	$	8,343	$	226,583		Balance at July 1		$	76,177		$	119,345		$	26,928		$	222,450
Provision (credits)		208		(1,337)		(90)		4,714		54		1,024		(153)		148		3,674		(1,476)		6,766
Provision (credit)																								Provision (credit)		4,793			1,874			(2,625)			4,042

Charge-offs	Charge-offs	(116)		(1)		0		(3,047)		(42)		(313)		(534)		0		(5,594)		0		(9,647)			Charge-offs		(3,328)			(5,109)			(495)			(8,932)
Recoveries	Recoveries	52		226		0		611		20		68		201		0		1,945		0		3,123			Recoveries		2,338			2,719			1,319			6,376
Balance at September 30	Balance at September 30	$	32,088	$	47,850	$	2,252	$	59,179	$	2,215	$	17,711	$	20,635	$	2,898	$	35,130	$	6,867	$	226,825		Balance at September 30		$	79,980		$	118,829		$	25,127		$	223,936

																										Nine months ended September 30, 2021
(Dollars in thousands)																								(Dollars in thousands)		Commercial			Consumer			PCD			Total
Balance at January 1																								Balance at January 1		$	80,842		$	119,485		$	23,987		$	224,314
Provision (credit)																								Provision (credit)		332			(23,208)			(8,821)			(31,697)

Charge-offs																								Charge-offs		(12,342)			(12,804)			(2,018)			(27,164)
Recoveries																								Recoveries		3,852			8,599			5,290			17,741
Balance at September 30																								Balance at September 30		$	72,684		$	92,072		$	18,438		$	183,194

																										Nine months ended September 30, 2020
(Dollars in thousands)																								(Dollars in thousands)		Commercial			Consumer			PCD			Total
Balance at December 31																								Balance at December 31		$	142,369		$	75,236		$	7,536		$	225,141
Adoption of ASC 326																								Adoption of ASC 326		(87,554)			30,629			19,001			(37,924)
Balance at January 1																								Balance at January 1		54,815			105,865			26,537			187,217
Provision (credit)																								Provision (credit)		32,854			25,066			(4,971)			52,949
Initial allowance on PCD loans																								Initial allowance on PCD loans		—			—			1,193			1,193
Charge-offs																								Charge-offs		(12,712)			(19,535)			(3,010)			(35,257)
Recoveries																								Recoveries		5,023			7,433			5,378			17,834
Balance at September 30																								Balance at September 30		$	79,980		$	118,829		$	25,127		$	223,936

2520

Table of Contents

Nine months ended September 30, 2020
(Dollars in thousands) Construction
and land
development
- commercial Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial
and industrial and leases Residential
mortgage Revolving
mortgage Construction and land development - consumer Consumer auto Consumer other PCD Total
Balance at December 31 $ 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 2,152 17,128 11,562 23,973 35,350 23,367 1,418 5,392 40,338 26,537 187,217
Provision (credits) 4,876 6,011 11,165 10,802 9,339 2,557 209 5,708 7,253 (4,971) 52,949
Initial allowance on PCD loans 0 0 0 0 0 0 0 0 0 1,193 1,193
Charge-offs (138) (407) (8) (12,159) (1,513) (1,439) (70) (3,023) (13,490) (3,010) (35,257)
Recoveries 400 360 107 4,156 555 1,174 52 1,106 4,546 5,378 17,834
Balance at September 30 $ 7,290 $ 23,092 $ 22,826 $ 26,772 $ 43,731 $ 25,659 $ 1,609 $ 9,183 $ 38,647 $ 25,127 $ 223,936
Nine months ended September 30, 2019
(Dollars in thousands) Construction
and land
development
- commercial Commercial
mortgage Other
commercial
real estate Commercial
and industrial and leases Other Residential
mortgage Revolving
mortgage Construction
and land
development
- non - commercial Consumer PCI Total
Balance at January 1 $ 35,270 $ 43,451 $ 2,481 $ 55,620 $ 2,221 $ 15,472 $ 21,862 $ 2,350 $ 35,841 $ 9,144 $ 223,712
Provision (credits) (3,217) 4,748 (230) 10,138 (618) 2,903 (272) 548 11,991 (2,277) 23,714
Charge-offs (188) (851) 0 (8,327) (73) (957) (1,990) 0 (18,017) 0 (30,403)
Recoveries 223 502 1 1,748 685 293 1,035 0 5,315 0 9,802
Balance at September 30 $ 32,088 $ 47,850 $ 2,252 $ 59,179 $ 2,215 $ 17,711 $ 20,635 $ 2,898 $ 35,130 $ 6,867 $ 226,825
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:


	Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	2021		2020		2021		2020
Allowance for credit losses:
Beginning balance	$	11,103	$	13,685	$	12,814	$	1,055
Adoption of ASC 326	—		—		—		8,885
Adjusted beginning balance	$	11,103	$	13,685	$	12,814	$	9,940
Provision (credit)	369		286		(1,342)		4,031
Ending balance	11,472		13,971		11,472		13,971

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 presents information on collateral-dependent loans by class and includes the amortized cost of collateral-dependent loans and leases, the net realizable value of the collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as of September 30, 2021 and December 31, 2020 were as follows:


											September 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Collateral-Dependant Loans		Net Realizable Value of Collateral		Collateral Coverage		Allowance for Credit Losses		(Dollars in thousands)	Collateral-Dependent Loans		Net Realizable Value of Collateral		Collateral Coverage		Allowance for Credit Losses
Commercial loans:
Commercial:										Commercial:
Construction and land development	Construction and land development	$	1,425	$	1,952	137.0	%	$	0	Construction and land development	$	1,424	$	1,964	137.9	%	$	—
Owner occupied commercial mortgage	Owner occupied commercial mortgage	5,411		9,428		174.2		0		Owner occupied commercial mortgage	7,411		8,367		112.9		—
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	7,121		10,874		152.7		0		Non-owner occupied commercial mortgage	8,204		11,307		137.8		1,203

Commercial and industrial and leases										Commercial and industrial and leases	4,787		6,530		136.4		230
Total commercial loans	Total commercial loans	13,957		22,254		159.4		0		Total commercial loans	21,826		28,168		129.1		1,433
Consumer:	Consumer:									Consumer:
Residential mortgage	Residential mortgage	22,804		31,779		139.4		162		Residential mortgage	11,423		14,625		128.0		—
Revolving mortgage	Revolving mortgage	310		315		101.6		0		Revolving mortgage	—		—		—		—

Total consumer loans	Total consumer loans	23,114		32,094		138.9		162		Total consumer loans	11,423		14,625		128.0		—
Total non-PCD loans		37,071		54,348		146.6		162
PCD		17,109		25,443		148.7		0
PCD loans										PCD loans	18,154		32,788		180.6		—
Total collateral-dependent loans	Total collateral-dependent loans	$	54,180	$	79,791	147.3	%	$	162	Total collateral-dependent loans	$	51,403	$	75,581	147.0	%	$	1,433

											December 31, 2020
(Dollars in thousands)										(Dollars in thousands)	Collateral-Dependent Loans		Net Realizable Value of Collateral		Collateral Coverage		Allowance for Credit Losses
Commercial:										Commercial:
Construction and land development										Construction and land development	$	1,424	$	1,795	126.1	%	$	—
Owner occupied commercial mortgage										Owner occupied commercial mortgage	9,792		14,253		145.6		—
Non-owner occupied commercial mortgage										Non-owner occupied commercial mortgage	5,556		7,577		136.4		—

Total commercial loans										Total commercial loans	16,772		23,625		140.9		—
Consumer:										Consumer:
Residential mortgage										Residential mortgage	23,011		29,775		129.4		131

PCD loans										PCD loans	19,042		27,872		146.4		—
Total collateral-dependent loans										Total collateral-dependent loans	$	58,825	$	81,272	138.2	%	$	131

Collateral-dependent nonaccrual loans with no recorded allowance totaled ~~$52.0~~$45.5 million and $57.5 million as of September 30, ~~2020.~~2021 and December 31, 2020, respectively. All other nonaccrual loans have a recorded allowance.

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~~The following tables present the allowance and recorded investment in loans and leases by class of loans, as well as the associated impairment method at 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 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 $ 463 $ 3,650 $ 39 $ 1,379 $ 103 $ 3,278 $ 2,722 $ 174 $ 1,107 $ 12,915
ALLL for loans and leases collectively evaluated for impairment 32,750 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 impairment 1,008,799 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

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


~~(Dollars in thousands)~~	~~December 31, 2019~~
~~ALLL for loans acquired with deteriorated credit quality~~	$	~~7,536~~
~~Loans acquired with deteriorated credit quality~~	~~558,716~~

~~At December 31, 2019, $139.4 million of PCI loans experienced an adverse change in expected cash flows since the date of acquisition.~~

~~The following tables provide information on non-PCI impaired loans and leases, exclusive of loans and leases collectively evaluated:~~

December 31, 2019
(Dollars in thousands) With a
recorded
allowance With no
recorded
allowance Total Unpaid
principal
balance Related
allowance
recorded
Non-PCI impaired loans and leases:
Commercial:
Construction and land development $ 1,851 $ 2,804 $ 4,655 $ 5,109 $ 463
Commercial mortgage 42,394 27,755 70,149 74,804 3,650
Other commercial real estate 318 950 1,268 1,360 39
Commercial and industrial and leases 7,547 4,635 12,182 13,993 1,379
Other 406 233 639 661 103
Total commercial loans 52,516 36,377 88,893 95,927 5,634
Noncommercial:
Residential mortgage 48,796 11,646 60,442 64,741 3,278
Revolving mortgage 26,104 2,765 28,869 31,960 2,722
Construction and land development 2,470 1,412 3,882 4,150 174
Consumer 3,472 41 3,513 3,821 1,107
Total noncommercial loans 80,842 15,864 96,706 104,672 7,281
Total non-PCI impaired loans and leases $ 133,358 $ 52,241 $ 185,599 $ 200,599 $ 12,915

~~Non-PCI impaired loans less than $500,000 that were collectively evaluated for impairment totaled $41.0 million at December 31, 2019.~~

~~Table of~~ ~~Contents~~

~~The following tables show the average non-PCI impaired loan balance and the interest income recognized by loan class for the three and nine months ended September 30, 2019:~~

Three months ended September 30, 2019 Nine months ended September 30, 2019
(Dollars in thousands) Average
balance Interest income recognized Average
balance Interest income recognized
Non-PCI impaired loans and leases:
Commercial:
Construction and land development $ 6,130 $ 6 $ 3,460 $ 40
Commercial mortgage 70,351 551 61,962 1,653
Other commercial real estate 1,186 6 797 20
Commercial and industrial and leases 13,085 140 11,478 353
Other 298 2 314 6
Total commercial 91,050 705 78,011 2,072
Noncommercial:
Residential mortgage 56,029 346 49,048 988
Revolving mortgage 30,067 260 29,477 763
Construction and land development 3,124 25 3,473 93
Consumer 3,443 37 3,152 97
Total noncommercial 92,663 668 85,150 1,941
Total non-PCI impaired loans and leases $ 183,713 $ 1,373 $ 163,161 $ 4,013

Troubled Debt Restructurings

BancShares accounts for certain loan modifications or restructurings as ~~TDRs.~~troubled debt restructurings (“TDRs”). In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. Within ~~our allowance for credit~~BancShares’ ACL loss models, TDRs are not individually evaluated unless determined to be ~~collateral-dependent and~~collateral-dependent. Consumer TDRs are included in the definition of default which provides for a 100% probability of default applied within the models. As a result, subsequent changes in ~~default status~~credit quality metrics do not impact the calculation of the ~~allowance for credit losses~~ACL on consumer TDRs. For commercial TDRs, the TDR ~~loans.~~distinction does impact the calculation of ACL, as the standard definition of default is utilized.

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.~~difficulty due to COVID-19. 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 isdid not ~~recording~~record these as TDRs.

The following tables provides a summary of total TDRs by accrual status:


		September 30, 2020						September 30, 2021				December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Accruing		Nonaccruing		Total			(Dollars in thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial loans:
Commercial:									Commercial:
Construction and land development	Construction and land development	$	791	$	57	$	848		Construction and land development	$	346	$	33	$	379	$	578	$	54	$	632
Owner occupied commercial mortgage	Owner occupied commercial mortgage	33,202		9,076		42,278			Owner occupied commercial mortgage	46,255		10,661		56,916		37,574		10,889		48,463
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	17,728		1,180		18,908			Non-owner occupied commercial mortgage	20,022		3,763		23,785		18,336		1,649		19,985
Commercial and industrial and leases	Commercial and industrial and leases	28,942		5,650		34,592			Commercial and industrial and leases	12,506		11,295		23,801		29,131		3,528		32,659
Total commercial loans	Total commercial loans	80,663		15,963		96,626			Total commercial loans	79,129		25,752		104,881		85,619		16,120		101,739
Consumer:	Consumer:								Consumer:
Residential mortgage	Residential mortgage	33,163		17,202		50,365			Residential mortgage	22,106		14,937		37,043		29,458		19,380		48,838
Revolving mortgage	Revolving mortgage	22,232		7,140		29,372			Revolving mortgage	16,533		6,925		23,458		20,124		7,128		27,252
Construction and land development	Construction and land development	2,918		272		3,190			Construction and land development	2,380		282		2,662		1,573		9		1,582
Consumer auto	Consumer auto	1,992		841		2,833			Consumer auto	1,888		636		2,524		2,018		696		2,714
Consumer other	Consumer other	1,010		159		1,169			Consumer other	774		61		835		955		137		1,092
Total consumer loans	Total consumer loans	61,315		25,614		86,929			Total consumer loans	43,681		22,841		66,522		54,128		27,350		81,478
PCD loans	PCD loans	16,801		6,774		23,575			PCD loans	29,207		12,365		41,572		17,617		7,346		24,963
Total loans	Total loans	$	158,779	$	48,351	$	207,130		Total loans	$	152,017	$	60,958	$	212,975	$	157,364	$	50,816	$	208,180

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December 31, 2019
(Dollars in thousands) Accruing Nonaccruing Total
Commercial loans:
Construction and land development $ 487 $ 2,279 $ 2,766
Commercial mortgage 50,819 11,116 61,935
Other commercial real estate 571 0 571
Commercial and industrial and leases 9,430 2,409 11,839
Other 320 105 425
Total commercial loans 61,627 15,909 77,536
Noncommercial:
Residential mortgage 41,813 16,048 57,861
Revolving mortgage 21,032 7,367 28,399
Construction and land development 1,452 2,430 3,882
Consumer 2,826 688 3,514
Total noncommercial loans 67,123 26,533 93,656
Total loans $ 128,750 $ 42,442 $ 171,192

~~Total TDRs included $17.2 million of PCI TDRs at December 31, 2019.~~

The following table provides the types of modifications designated as TDRs during the three and nine months ended September 30, ~~2020~~2021 and September 30, 2019, as well as a summary of loans modified as a TDR during the twelve month periods ended September 30, 2020 and September 30, 2019 that subsequently defaulted during the nine months ended September 30, 2020 and September 30, 2019. 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.2020.


		Three months ended September 30, 2020						Three months ended September 30, 2019							Three months ended September 30, 2021			Three months ended September 30, 2020
		All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default				All restructurings				All restructurings
(Dollars in thousands)	(Dollars in thousands)	Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		(Dollars in thousands)	Number of Loans	Recorded investment at period end				Number of Loans	Recorded investment at period end
Loans and leases	Loans and leases													Loans and leases
Interest only	Interest only	6	$	5,703	3	$	3,730	2	$	1,221	0	$	0	Interest only	7	$	9,639			6	$	5,703
Loan term extension	Loan term extension	29	2,380		18	1,755		5	2,473		0	0		Loan term extension	41	6,371				29	2,380
Below market interest rate	Below market interest rate	55	15,341		26	3,170		80	4,460		34	2,034		Below market interest rate	47	3,126				55	15,341
Discharged from bankruptcy	Discharged from bankruptcy	55	1,654		22	755		55	6,097		25	2,002		Discharged from bankruptcy	21	2,783				55	1,654
Total restructurings	Total restructurings	145	$	25,078	69	$	9,410	142	$	14,251	59	$	4,036	Total restructurings	116	$	21,919			145	$	25,078

		Nine months ended September 30, 2020						Nine months ended September 30, 2019							Nine months ended September 30, 2021			Nine months ended September 30, 2020
		All restructurings			Restructurings with payment default			All restructurings			Restructurings with payment default				All restructurings				All restructurings
(Dollars in thousands)	(Dollars in thousands)	Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		Number of Loans	Recorded investment at period end		(Dollars in thousands)	Number of Loans	Recorded investment at period end				Number of Loans	Recorded investment at period end
Loans and leases	Loans and leases													Loans and leases
Interest only	Interest only	23	$	24,847	6	$	6,967	6	$	3,209	2	$	2,064	Interest only	17	$	19,728			23	$	24,847
Loan term extension	Loan term extension	62	5,885		34	3,244		13	3,870		4	514		Loan term extension	112	14,500				62	5,885
Below market interest rate	Below market interest rate	212	38,740		72	5,088		205	14,968		86	5,977		Below market interest rate	148	21,004				212	38,740
Discharged from bankruptcy	Discharged from bankruptcy	165	7,025		66	2,254		157	13,499		72	5,421		Discharged from bankruptcy	110	12,478				165	7,025
Total restructurings	Total restructurings	462	$	76,497	178	$	17,553	381	$	35,546	164	$	13,976	Total restructurings	387	$	67,710			462	$	76,497

For the nine months ended September 30, ~~2020~~2021 and ~~September 30, 2019,~~2020, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.

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NOTE F - OTHER REAL ESTATE OWNED

The following table explains changes in ~~OREO~~other real estate owned (“OREO”) during the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


(Dollars in thousands)	OREO
Balance at December 31, 2020	$	50,890
Additions	16,454

Sales	(24,311)
Write-downs/losses	(2,384)
Balance at September 30, 2021	$	40,649

Balance at December 31, 2019	$	46,591
Additions	18,428
Acquired in business combinations	9,813
Sales	(18,645)
Write-downs/losses	(3,398)
Balance at September 30, 2020	$	52,789

~~Balance at December 31, 2018~~	$	~~48,030~~
~~Additions~~	~~15,426~~
~~Acquired in business combinations~~	~~3,613~~
~~Sales~~	~~(17,595)~~
~~Write-downs/losses~~	~~(3,221)~~
~~Balance at September 30, 2019~~	$	~~46,253~~

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, BancShares had ~~$8.5~~$3.0 million and ~~$14.5~~$5.8 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 ~~$27.0~~$19.6 million and ~~$23.0~~$29.4 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Net gains recorded on the sale of OREO properties were $5.2 million for the nine months ended September 30, 2021. Net gains recorded on the sale of OREO properties were $1.0 million ~~and $872 thousand~~ for the nine months ended September 30, ~~2020 and September 30, 2019, respectively~~2020.

NOTE G - MORTGAGE SERVICING RIGHTS

~~Mortgage Servicing Rights~~

~~Our~~BancShares originates certain residential mortgages loans to sell in the secondary market. BancShares’ portfolio of residential mortgage loans serviced for third parties was ~~$3.36 billion and $3.38~~$3.3 billion as of September 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020. These loans are originated and sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights ~~were~~are recorded as a servicing asset and are reported in other intangible assets. The associated amortization expense and any valuation allowance recognized ~~were~~are included as a reduction of mortgage income. Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.

Contractually specified mortgage servicing fees, late fees and ancillary fees earned were $2.1 million for each of the three ~~months~~month periods ended September 30, ~~2020~~2021 and ~~2019 were $2.1 million and $1.9 million, respectively,~~2020, and are reported in mortgage income. For the nine months ended September 30, ~~2020~~2021 and ~~2019, contractually specified~~2020, mortgage servicing fees, late fees and ancillary fees earned were each $6.4 ~~million and $5.8 million, respectively.~~million.

The following table presents changes in the servicing asset during the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Beginning balance	Beginning balance	$	18,664	$	20,665	$	22,963	$	21,396	Beginning balance	$	21,985	$	18,664	$	18,426	$	22,963
Servicing rights originated	Servicing rights originated	1,994		1,532		5,673		3,943		Servicing rights originated	1,891		1,994		8,436		5,673
Amortization	Amortization	(2,208)		(1,581)		(6,150)		(4,595)		Amortization	(2,180)		(2,208)		(6,505)		(6,150)

Valuation allowance (increase) decrease	Valuation allowance (increase) decrease	(305)		(45)		(4,341)		(173)		Valuation allowance (increase) decrease	—		(305)		1,339		(4,341)
Ending balance	Ending balance	$	18,145	$	20,571	$	18,145	$	20,571	Ending balance	$	21,696	$	18,145	$	21,696	$	18,145

The following table presents the activity in the servicing asset valuation allowance for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Beginning balance	Beginning balance	$	4,258	$	128	$	222	$	0	Beginning balance	$	3,026	$	4,258	$	4,365	$	222
Valuation allowance increase (decrease)	Valuation allowance increase (decrease)	305		45		4,341		173		Valuation allowance increase (decrease)	—		305		(1,339)		4,341
Ending balance	Ending balance	$	4,563	$	173	$	4,563	$	173	Ending balance	$	3,026	$	4,563	$	3,026	$	4,563

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Mortgage servicing rights valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings. Key economic assumptions used to value mortgage servicing rights were as follows:


		September 30, 2020			December 31, 2019				September 30, 2021			December 31, 2020
Discount rate - conventional fixed loans	Discount rate - conventional fixed loans	7.68		%	8.92		%	Discount rate - conventional fixed loans	8.49		%	7.92		%
Discount rate - all loans excluding conventional fixed loans	Discount rate - all loans excluding conventional fixed loans	8.68		%	9.92		%	Discount rate - all loans excluding conventional fixed loans	9.49		%	8.92		%
Weighted average constant prepayment rate	Weighted average constant prepayment rate	20.80		%	13.72		%	Weighted average constant prepayment rate	17.32		%	20.62		%
Weighted average cost to service a loan	Weighted average cost to service a loan	$	87.30		$	87.09		Weighted average cost to service a loan	$	87.58		$	87.58

The fair value of mortgage servicing rights is sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rate is based on the 10-year U.S. Treasury rate plus a risk premium of 700 basis points for conventional fixed loans and 800 basis points for all other loans. The prepayment rate is derived from the Public Securities Association Standard Prepayment model. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value and may result in the recognition of a valuation allowance. The average cost to service a loan is based on the number of loans serviced and the total cost to service the loans.

NOTE H - REPURCHASE AGREEMENTS

BancShares utilizes securities sold under agreements to repurchase to facilitate the needs of 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 price, and which obligates BancShares to repurchase the security at an agreed upon date, repurchase price, and interest rate. These agreements are recorded at the amount of cash received in connection with the transaction and are reflected as securities sold under customer repurchase agreements.

BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities ~~available for sale~~ pledged as collateral under repurchase agreements was ~~$748.1~~$685.9 million and ~~$477.6~~$689.3 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

At September 30, ~~2020,~~2021, BancShares held ~~$693.9~~$663.6 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, ~~made up of $444.0~~including $571.6 million collateralized by government agency securities and ~~$249.9~~$92.0 million collateralized by commercial mortgage-backed securities. At December 31, ~~2019,~~2020, BancShares held securities sold under agreements to repurchase of ~~$443.0~~$641.5 million, with overnight and continuous remaining contractual maturities, including $432.8 million collateralized by government agency securities and $208.7 million collateralized by commercial mortgage-backed securities.

NOTE I - FDIC SHARED-LOSS PAYABLE

~~At September 30, 2020, shared-loss protection remains for single family residential loans acquired in~~For certain FDIC-assisted transactions, the ~~amount~~ o~~f $36.2 million. The~~related shared-loss agreement ~~for two of the FDIC-assisted transactions include~~included a provision ~~related to~~requiring a payment ~~that may be~~ owed to the FDIC at the termination of the ~~agreement if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time~~agreement.As of ~~acquisition (the “clawback liability”)~~. ~~BancShares issued~~September 30, 2021, these agreements have been satisfied following a $16.1 million payment made to the FDIC induring the first quarter of ~~2020 for $99.5 million~~2021 related to ~~one of~~ the ~~transactions. The remaining clawback liability payment date is March 2021.~~final active agreement.

The following table provides changes in the FDIC shared-loss payable since December 31, ~~2019:~~2020:


(Dollars in thousands)	Total
Balance at December 31, ~~2019~~2020	$	~~112,395~~15,601
Accretion	~~2,386~~502
Payment made to the FDIC to settle shared-loss agreement	~~(99,468)~~(16,103)
Balance at September 30, ~~2020~~2021	$	~~15,313~~—

3125

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NOTE J - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

Accumulated other comprehensive (loss) income ~~(loss)~~ included the following as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020						December 31, 2019							September 30, 2021						December 31, 2020
(Dollars in thousands)	(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		(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	Unrealized gains on securities available for sale	$	135,240	$	31,105	$	104,135	$	7,522	$	1,730	$	5,792	Unrealized gains on securities available for sale	$	25,986	$	5,977	$	20,009	$	102,278	$	23,524	$	78,754

Unrealized gains on securities available for sale transferred to held to maturity														Unrealized gains on securities available for sale transferred to held to maturity	3,709		853		2,856		5,399		1,242		4,157
Defined benefit pension items	Defined benefit pension items	(153,104)		(35,213)		(117,891)		(172,098)		(39,583)		(132,515)		Defined benefit pension items	(71,431)		(16,429)		(55,002)		(91,751)		(21,103)		(70,648)
Total	Total	$	(17,864)	$	(4,108)	$	(13,756)	$	(164,576)	$	(37,853)	$	(126,723)	Total	$	(41,736)	$	(9,599)	$	(32,137)	$	15,926	$	3,663	$	12,263

The following table highlights changes in accumulated other comprehensive (loss) income ~~(loss)~~ by component for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended September 30, 2020						Three months ended September 30, 2021
(Dollars in thousands, net of tax)	(Dollars in thousands, net of tax)	Unrealized gains (losses) on securities available for sale		Unrealized losses on securities available for sale transferred to held to maturity		Defined benefit pension items			Total		(Dollars in thousands, net of tax)	Unrealized gains (losses) on securities available for sale		Unrealized gains on securities available for sale transferred to held to maturity		Defined benefit pension items		Total
Beginning balance	Beginning balance	$	113,102	$	0	$	(122,766)		$	(9,664)	Beginning balance	$	34,910	$	3,187	$	(60,217)	$	(22,120)

Net unrealized gains arising during period		7,530		0		0			7,530
Net unrealized losses arising during period											Net unrealized losses arising during period	(8,677)		—		—		(8,677)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	(16,497)		0		4,875			(11,622)		Amounts reclassified from accumulated other comprehensive loss	(6,224)		(331)		5,215		(1,340)
Net current period other comprehensive (loss) income	Net current period other comprehensive (loss) income	(8,967)		0		4,875			(4,092)		Net current period other comprehensive (loss) income	(14,901)		(331)		5,215		(10,017)
Ending balance	Ending balance	$	104,135	$	0	$	(117,891)		$	(13,756)	Ending balance	$	20,009	$	2,856	$	(55,002)	$	(32,137)

		Three months ended September 30, 2019						Three months ended September 30, 2020
(Dollars in thousands, net of tax)	(Dollars in thousands, net of tax)	Unrealized gains (losses) on securities available for sale		Unrealized losses on securities available for sale transferred to held to maturity		Defined benefit pension items			Total		(Dollars in thousands, net of tax)	Unrealized gains (losses) on securities available for sale		Unrealized gains on securities available for sale transferred to held to maturity		Defined benefit pension items		Total
Beginning balance	Beginning balance	$	2,554	$	(61,979)	$	(121,306)		$	(180,731)	Beginning balance	$	113,102	$	—	$	(122,766)	$	(9,664)

Net unrealized gains arising during period	Net unrealized gains arising during period	3,026		0		0			3,026		Net unrealized gains arising during period	7,530		—		—		7,530
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	(874)		4,693		2,114			5,933		Amounts reclassified from accumulated other comprehensive loss	(16,497)		—		4,875		(11,622)
Net current period other comprehensive income	Net current period other comprehensive income	2,152		4,693		2,114			8,959		Net current period other comprehensive income	(8,967)		—		4,875		(4,092)
Ending balance	Ending balance	$	4,706	$	(57,286)	$	(119,192)		$	(171,772)	Ending balance	$	104,135	$	—	$	(117,891)	$	(13,756)

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		Nine months ended September 30, 2020						Nine months ended September 30, 2021
(Dollars in thousands, net of tax)	(Dollars in thousands, net of tax)	Unrealized gains on securities available for sale		Unrealized losses on securities available for sale transferred to held to maturity		Defined benefit pension items			Total		(Dollars in thousands, net of tax)	Unrealized gains on securities available for sale		Unrealized gains on securities available for sale transferred to held to maturity		Defined benefit pension items		Total
Beginning balance	Beginning balance	$	5,792	$	0	$	(132,515)		$	(126,723)	Beginning balance	$	78,754	$	4,157	$	(70,648)	$	12,263

Net unrealized gains arising during period		140,671		0		0			140,671
Amounts reclassified from accumulated other comprehensive loss		(42,328)		0		14,624			(27,704)
Net current period other comprehensive income		98,343		0		14,624			112,967
Net unrealized losses arising during period											Net unrealized losses arising during period	(33,243)		—		—		(33,243)
Amounts reclassified from accumulated other comprehensive income											Amounts reclassified from accumulated other comprehensive income	(25,502)		(1,301)		15,646		(11,157)
Net current period other comprehensive (loss) income											Net current period other comprehensive (loss) income	(58,745)		(1,301)		15,646		(44,400)
Ending balance	Ending balance	$	104,135	$	0	$	(117,891)		$	(13,756)	Ending balance	$	20,009	$	2,856	$	(55,002)	$	(32,137)

		Nine months ended September 30, 2019						Nine months ended September 30, 2020
(Dollars in thousands, net of tax)	(Dollars in thousands, net of tax)	Unrealized gains on securities available for sale		Unrealized losses on securities available for sale transferred to held to maturity		Defined benefit pension items			Total		(Dollars in thousands, net of tax)	Unrealized gains on securities available for sale		Unrealized gains on securities available for sale transferred to held to maturity		Defined benefit pension items		Total
Beginning balance	Beginning balance	$	(38,505)	$	(71,149)	$	(125,533)		$	(235,187)	Beginning balance	$	5,792	$	—	$	(132,515)	$	(126,723)

Net unrealized gains arising during period	Net unrealized gains arising during period	48,489		0		0			48,489		Net unrealized gains arising during period	140,671		—		—		140,671
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	(5,278)		13,863		6,341			14,926		Amounts reclassified from accumulated other comprehensive loss	(42,328)		—		14,624		(27,704)
Net current period other comprehensive income	Net current period other comprehensive income	43,211		13,863		6,341			63,415		Net current period other comprehensive income	98,343		—		14,624		112,967
Ending balance	Ending balance	$	4,706	$	(57,286)	$	(119,192)		$	(171,772)	Ending balance	$	104,135	$	—	$	(117,891)	$	(13,756)

Table of Contents

The following table presents the amounts reclassified from accumulated other comprehensive (loss) income ~~(loss)~~ and the line item affected in the statement where net income is presented for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

(Dollars in thousands)

Three months ended September 30, 2021

Details about accumulated other comprehensive income (loss)

Amounts reclassified from accumulated other comprehensive income (loss)

Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale

8,082

Realized gains on investment securities available for sale, net

(1,858)

Income taxes

6,224

Accretion of unrealized gains on securities available for sale transferred to held to maturity

430

Net interest income

(99)

Income taxes

331

Amortization of defined benefit pension actuarial losses

(6,773)

Other noninterest expense

1,558

Income taxes

(5,215)

Total reclassifications for the period

1,340

(Dollars in thousands)

Three months ended September 30, 2020

Details about accumulated other comprehensive income (loss)

Amounts reclassified from accumulated other comprehensive income (loss)

Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale

21,425

Realized gains on investment securities available for sale, net

(4,928)

Income taxes

16,497

Amortization of defined benefit pension actuarial losses

(6,332)

Other noninterest expense

1,457

Income taxes

(4,875)

Total reclassifications for the period

11,622

(Dollars in thousands)

~~Three~~Nine months ended September 30, ~~2019~~2021

Details about accumulated other comprehensive income (loss)

Amounts reclassified from accumulated other comprehensive income (loss)

Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale

~~1,136~~33,119

Realized gains on investment securities available for sale, net

~~(262)~~(7,617)

Income taxes

~~874~~25,502

Amortization of unrealized losses on securities available for sale transferred to held to maturity

~~(6,095)~~1,690

Net interest income

~~1,402~~ (389)

Income taxes

~~(4,693)~~1,301

Amortization of defined benefit pension ~~items~~

~~Prior service costs~~actuarial losses

~~(15)~~

~~Salaries and wages~~

~~Actuarial losses~~

~~(2,730)~~(20,320)

Other noninterest expense

~~(2,745)~~

~~Income before income taxes~~

~~631~~4,674

Income taxes

~~(2,114)~~(15,646)

Total reclassifications for the period

~~(5,933)~~11,157

~~Table of~~ ~~Contents~~

(Dollars in thousands)

Nine months ended September 30, 2020

Details about accumulated other comprehensive income (loss)

Amounts reclassified from accumulated other comprehensive income (loss)

Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale

54,972

Realized gains on investment securities available for sale, net

(12,644)

Income taxes

42,328

~~Amortization of defined benefit pension items~~

~~Actuarial~~Amortization of defined benefit pension actuarial losses

(18,994)

Other noninterest expense

4,370

Income taxes

(14,624)

Total reclassifications for the period

27,704

~~Nine months ended September 30, 2019~~

~~Details about accumulated other comprehensive income (loss)~~

~~Amounts reclassified from accumulated other comprehensive income (loss)~~

~~Affected line item in the statement where net income is presented~~

~~Unrealized gains on securities available for sale~~

~~6,855~~

~~Realized gains on investment securities available for sale, net~~

~~(1,577)~~

~~Income taxes~~

~~5,278~~

~~Net income~~

~~Amortization of unrealized losses on securities available for sale transferred to held to maturity~~

~~(18,004)~~

~~Net interest income~~

~~4,141~~

~~Income taxes~~

~~(13,863)~~

~~Amortization of defined benefit pension items~~

~~Prior service costs~~

~~(43)~~

~~Salaries and wages~~

~~Actuarial losses~~

~~(8,192)~~

~~Other noninterest expense~~

~~(8,235)~~

~~Income before income taxes~~

~~1,894~~

~~Income taxes~~

~~(6,341)~~

~~Total reclassifications for the period~~

~~(14,926)~~

Table of Contents

NOTE K - ESTIMATED FAIR VALUES

Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.

ASC 820, Fair Value Measurements and Disclosures, indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the highest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows:

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

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

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

BancShares’ management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Accuracy of the levels of the fair value hierarchy are validated and transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.

~~Table of~~ ~~Contents~~

The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below:

Investment securities available for sale and held to maturity. The fair value of U.S. Treasury, government agency and mortgage-backed securities, municipal securities, as well as a portion of corporate bonds, is 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 that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers which are unadjusted and are not directly observable. These securities are considered Level 3.

Investment in marketable equity securities. Equity securities are measured at fair value using observable closing prices and the market activity. 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. Management elects the fair value option on certain residential real estate loans originated to be sold to investors. The loans are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are classified as Level 2 inputs. Loans held for investment subsequently transferred to held for sale are carried at ~~fair value~~the lower of cost or market. Transfers occur when management intends to sell a pool of loans in the secondary market. This typically occurs when a firm commitment to purchase from a counterparty exists. The fair value of the transferred loans is based on the quoted prices and is considered a Level 1 input.

Net loans and leases. Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs.

FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.

Table of Contents

Mortgage and other servicing rights. Mortgage and other servicing rights are carried at the lower of amortized cost or market value and are, therefore, carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model that relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs.

Deposits. For non-time deposits, carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits with 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 iswas determined based on ~~expected~~ payments to the FDIC in accordance with the shared-loss agreements. Cash flows ~~are~~were 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~~were 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 liabilities, the carrying value is a reasonable estimate of the fair value as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected, securities sold under customer repurchase agreements, and accrued interest payable are considered Level 2.

~~Table of~~ ~~Contents~~

The table presents the carrying values and estimated fair values for financial instruments as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2020				December 31, 2019				(Dollars in thousands)	September 30, 2021				December 31, 2020
		Carrying value		Fair value		Carrying value		Fair value			Carrying value		Fair value		Carrying value		Fair value
Assets										Assets
Cash and due from banks	Cash and due from banks	$	352,419	$	352,419	$	376,719	$	376,719	Cash and due from banks	$	337,450	$	337,450	$	362,048	$	362,048
Overnight investments	Overnight investments	3,137,945		3,137,945		1,107,844		1,107,844		Overnight investments	9,875,063		9,875,063		4,347,336		4,347,336
Investment in marketable equity securities	Investment in marketable equity securities	93,074		93,074		82,333		82,333		Investment in marketable equity securities	123,147		123,147		91,680		91,680
Investment securities available for sale	Investment securities available for sale	9,019,788		9,019,788		7,059,674		7,059,674		Investment securities available for sale	7,371,129		7,371,129		7,014,243		7,014,243
Investment securities held to maturity	Investment securities held to maturity	747,732		761,252		30,996		30,996		Investment securities held to maturity	3,381,078		3,353,078		2,816,982		2,838,499
Loans held for sale	Loans held for sale	120,305		120,305		67,869		67,869		Loans held for sale	98,451		98,451		124,837		124,837
Net loans and leases	Net loans and leases	32,621,208		33,269,733		28,656,355		28,878,550		Net loans and leases	32,332,995		32,349,172		32,567,661		33,298,166
Income earned not collected	Income earned not collected	151,737		151,737		123,154		123,154		Income earned not collected	132,911		132,911		145,694		145,694
Federal Home Loan Bank stock	Federal Home Loan Bank stock	45,392		45,392		43,039		43,039		Federal Home Loan Bank stock	40,450		40,450		45,392		45,392

Mortgage and other servicing rights	Mortgage and other servicing rights	19,484		20,313		24,891		26,927		Mortgage and other servicing rights	22,263		22,624		19,628		20,283
Liabilities										Liabilities
Deposits with no stated maturity	Deposits with no stated maturity	39,110,297		39,110,297		30,593,627		30,593,627		Deposits with no stated maturity	47,492,194		47,492,194		40,542,596		40,542,596
Time deposits	Time deposits	3,140,309		3,162,058		3,837,609		3,842,162		Time deposits	2,573,568		2,573,131		2,889,013		2,905,577
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	693,889		693,889		442,956		442,956		Securities sold under customer repurchase agreements	663,575		663,575		641,487		641,487

Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	655,179		680,718		572,185		577,362		Federal Home Loan Bank borrowings	645,663		659,625		655,175		677,579
Subordinated debt	Subordinated debt	504,381		509,518		163,412		173,685		Subordinated debt	497,427		520,871		504,518		525,610
Other borrowings	Other borrowings	92,456		92,794		148,318		149,232		Other borrowings	76,139		76,643		88,470		89,263
FDIC shared-loss payable	FDIC shared-loss payable	15,313		15,789		112,395		114,252		FDIC shared-loss payable	—		—		15,601		15,843
Accrued interest payable	Accrued interest payable	10,477		10,477		18,124		18,124		Accrued interest payable	6,560		6,560		9,414		9,414

Table of Contents

For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30, 2020
Fair value measurements using:
(Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs
Assets measured at fair value
Investment securities available for sale
U.S. Treasury $ 654,762 $ 0 $ 654,762 $ 0
Government agency 654,941 0 654,941 0
Residential mortgage-backed securities 6,069,668 0 6,069,668 0
Commercial mortgage-backed securities 1,090,210 0 1,090,210 0
Corporate bonds 550,207 0 299,493 250,714
Total investment securities available for sale $ 9,019,788 $ 0 $ 8,769,074 $ 250,714
Marketable equity securities $ 93,074 $ 38,192 $ 54,882 $ 0
Loans held for sale $ 120,305 $ 0 $ 120,305 $ 0
December 31, 2019
Fair value measurements using:
Fair value Level 1 inputs Level 2 inputs Level 3 inputs
Assets measured at fair value
Investment securities available for sale
U.S. Treasury $ 409,999 $ 0 $ 409,999 $ 0
Government agency 682,772 0 682,772 0
Residential mortgage-backed securities 5,267,090 0 5,267,090 0
Commercial mortgage-backed securities 380,020 0 380,020 0
Corporate bonds 201,566 0 131,881 69,685
State, county and municipal 118,227 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 sale $ 67,869 $ 0 $ 67,869 $ 0

~~Table of~~ ~~Contents~~


	September 30, 2021
			Fair value measurements using:
(Dollars in thousands)	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Assets measured at fair value
Investment securities available for sale

Government agency	$	853,728	$	—	$	853,728	$	—
Residential mortgage-backed securities	4,801,646		—		4,801,646		—
Commercial mortgage-backed securities	1,090,652		—		1,090,652		—
Corporate bonds	625,103		—		316,968		308,135

Total investment securities available for sale	$	7,371,129	$	—	$	7,062,994	$	308,135
Marketable equity securities	$	123,147	$	52,991	$	70,156	$	—
Loans held for sale	$	98,451	$	—	$	98,451	$	—



	December 31, 2020
			Fair value measurements using:
	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	499,933	$	—	$	499,933	$	—
Government agency	701,391		—		701,391		—
Residential mortgage-backed securities	4,438,103		—		4,438,103		—
Commercial mortgage-backed securities	771,537		—		771,537		—
Corporate bonds	603,279		—		286,655		316,624

Total investment securities available for sale	$	7,014,243	$	—	$	6,697,619	$	316,624
Marketable equity securities	$	91,680	$	32,855	$	58,825	$	—
Loans held for sale	$	124,837	$	—	$	124,837	$	—

The following tables summarize activity for Level 3 ~~assets:~~assets carried at fair value on a recurring basis:


		Corporate bonds									Corporate bonds
		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Beginning balance	Beginning balance	$	169,977	$	149,137	$	69,685	$	143,226	Beginning balance	$	325,448	$	169,977	$	316,624	$	69,685
Purchases	Purchases	78,000		8,000		178,595		11,991		Purchases	23,878		78,000		30,878		178,595
Unrealized net gains included in other comprehensive income		2,818		1,147		901		2,985
Unrealized net losses (gains) included in other comprehensive income										Unrealized net losses (gains) included in other comprehensive income	436		2,818		3,927		901
Amounts included in net income	Amounts included in net income	(81)		41		(249)		123		Amounts included in net income	2,504		(81)		2,687		(249)
Transfers in	Transfers in	0		0		1,782		0		Transfers in	—		—		—		1,782

Sales / Calls										Sales / Calls	(44,131)		—		(45,981)		—
Ending balance	Ending balance	$	250,714	$	157,325	$	250,714	$	157,325	Ending balance	$	308,135	$	250,714	$	308,135	$	250,714

During the three months ended September 30, 2021 and 2020, there were 0no transfers between levels. During the nine months ended September 30, ~~2020,~~2021 there were no transfers from Level 2 to Level 3, ofcompared to $1.8 million ~~in corporate bonds available~~ for ~~sale.~~the same period of 2020. The transfers were due to a lack of observable inputs and trade activity for those securities. ~~During the three and nine months ended September 30, 2019, there were 0 transfers between levels.~~

The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at September 30, ~~2020:~~2021:

(Dollars in thousands)

September 30, ~~2020~~2021

Level 3 assets

Valuation technique

Significant unobservable input

Fair Value

Corporate bonds

Indicative bid provided by broker

Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer

~~250,714~~308,135

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Fair Value Option

BancShares has elected the fair value option for residential real estate loans originated to be sold. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included ~~a gain~~losses of ~~$567 thousand~~$0.6 million and ~~a gain~~gains of ~~$583 thousand~~$0.6 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The changes in fair value included ~~gains~~a loss of $2.9 million and a gain of $4.2 million ~~and $750 thousand~~ for ~~the~~ nine months ended September 30, 2021 and 2020, respectively. Interest earned on loans held for sale is recorded within interest income on loans and ~~2019, respectively.~~leases in the consolidated statements of income.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate originated for sale measured at fair value as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020							September 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Fair value		Aggregate unpaid principal balance		Difference		(Dollars in thousands)	Fair value		Aggregate unpaid principal balance		Difference
Originated loans held for sale	Originated loans held for sale	$	120,305	$	114,100	$	6,205	Originated loans held for sale	$	98,451	$	95,396	$	3,055

		December 31, 2019							December 31, 2020
		Fair value		Aggregate unpaid principal balance		Difference			Fair value		Aggregate unpaid principal balance		Difference
Originated loans held for sale	Originated loans held for sale	$	67,869	$	65,697	$	2,172	Originated loans held for sale	$	124,837	$	118,902	$	5,935

~~NaN~~No originated loans held for sale were 90 or more days past due or on nonaccrual status as of September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

WeBancShares may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.

~~Following the adoption of ASC 326, the~~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~~ACL or if a charge-off has been recorded in the previous 12 months. A large majority of collateral for these loans is real property. 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%5% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. The weighted average discount for estimated selling costs applied to real estate collateral was ~~7.51%.~~

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Prior to the adoption of ASC 326, impaired loans were deemed to be at fair value if an associated allowance or current period charge-off had been recorded. The value of impaired loans was determined by either collateral valuations or discounted present value of the expected cash flow calculations. Collateral values were 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 were determined using expected payment information at the individual loan level, discounted using the effective interest rate. The effective interest rate for impaired loans generally ranges between 3% and 7%8%.

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%6% and ~~16%~~15% applied for estimated selling costs and other external factors that may impact the marketability of the property. At September 30, ~~2020,~~2021, the weighted average discount applied was ~~8.46%~~8%. 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.

For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020									September 30, 2021
				Fair value measurements using:									Fair value measurements using:
(Dollars in thousands)	(Dollars in thousands)	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs		(Dollars in thousands)	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Collateral-dependent loans	Collateral-dependent loans	$	10,970	$	0	$	0	$	10,970	Collateral-dependent loans	$	12,185	$	—	$	—	$	12,185
Other real estate owned	Other real estate owned	44,557		0		0		44,557		Other real estate owned	32,391		—		—		32,391
Mortgage servicing rights	Mortgage servicing rights	16,819		0		0		16,819		Mortgage servicing rights	20,210		—		—		20,210

		December 31, 2019									December 31, 2020
				Fair value measurements using:									Fair value measurements using:
		Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs			Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Impaired loans		$	132,336	$	0	$	0	$	132,336
Collateral-dependent loans										Collateral-dependent loans	$	11,779	$	—	$	—	$	11,779
Other real estate owned	Other real estate owned	38,310		0		0		38,310		Other real estate owned	40,115		—		—		40,115
Mortgage servicing rights	Mortgage servicing rights	3,757		0		0		3,757		Mortgage servicing rights	16,966		—		—		16,966

~~NaN~~No financial liabilities were carried at fair value on a nonrecurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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NOTE L - EMPLOYEE BENEFIT PLANS

BancShares sponsors noncontributory defined benefit pension plans for its qualifying employees. The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense.

For the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the components of net periodic benefit cost are as follows:


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Service cost	Service cost	$	3,570	$	3,191	$	10,709	$	9,575	Service cost	$	3,838	$	3,570	$	11,514	$	10,709
Interest cost	Interest cost	8,549		9,316		25,648		27,945		Interest cost	7,466		8,549		22,398		25,648
Expected return on assets	Expected return on assets	(16,423)		(15,647)		(49,267)		(46,943)		Expected return on assets	(19,607)		(16,423)		(58,823)		(49,267)
Amortization of prior service cost		0		15		0		43

Amortization of net actuarial loss	Amortization of net actuarial loss	6,332		2,730		18,994		8,192		Amortization of net actuarial loss	6,773		6,332		20,320		18,994
Net periodic cost (benefit)		$	2,028	$	(395)	$	6,084	$	(1,188)
Net periodic (benefit) cost										Net periodic (benefit) cost	$	(1,530)	$	2,028	$	(4,591)	$	6,084

No discretionary contribution was made to the pension plans during the nine months ended September 30, 2021. A discretionary contribution of $100.0 million was made to the pension plans during the nine months ended September 30, 2020. ~~Management evaluates~~The funding policy of the ~~need for its~~ pension ~~plan contributions on a periodic basis based upon numerous factors~~plans is to contribute an amount each year to meet all Employee Retirement Income Security Act minimum requirements, including ~~but not limited~~amounts to meet quarterly funding requirements, avoid “at-risk” status and avoid any benefit restrictions. BancShares may also contribute additional voluntary amounts each year (up to the ~~funded status of~~maximum tax-deductible amount) in order to achieve certain target funding levels in the plans, ~~returns on plan assets, discount rates~~with consideration also given to current and future cash flow and tax positions. No contributions are currently expected for the ~~current economic environment.~~

year ending December 31, 2021.

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NOTE M - LEASES

The following table presents right-of-use lease assets and liabilities as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


(Dollars in thousands)	(Dollars in thousands)	Classification	September 30, 2020		December 31, 2019		(Dollars in thousands)	Classification	September 30, 2021		December 31, 2020
Assets:	Assets:						Assets:
Operating	Operating	Other assets	$	69,968	$	77,115	Operating	Other assets	$	62,214	$	68,048
Finance	Finance	Premises and equipment	7,005		8,820		Finance	Premises and equipment	4,852		6,478
Total leased assets	Total leased assets		$	76,973	$	85,935	Total leased assets		$	67,066	$	74,526
Liabilities:	Liabilities:						Liabilities:
Operating	Operating	Other liabilities	$	70,129	$	76,746	Operating	Other liabilities	$	63,025	$	68,343
Finance	Finance	Other borrowings	6,703		8,230		Finance	Other borrowings	4,720		6,308
Total lease liabilities	Total lease liabilities		$	76,832	$	84,976	Total lease liabilities		$	67,745	$	74,651

NOTE N - 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 involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit.

Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of these 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 collateral be pledged to secure the commitment, including cash deposits, securities and other assets.

Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those commitments are primarily issued to support public and private borrowing arrangements. 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 in extending loans to clients and, therefore, these letters of credit are collateralized when necessary.

The following table presents the commitments to extend credit and standby letters of credit as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2021		December 31, 2020
Unused commitments to extend credit	Unused commitments to extend credit	$	11,972,688	$	10,682,378	Unused commitments to extend credit	$	12,775,929	$	12,098,417
Standby letters of credit	Standby letters of credit	112,016		99,601		Standby letters of credit	116,302		129,819

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BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. Affordable housing project investments were ~~$167.0~~$162.3 million and ~~$167.8~~$163.9 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and were recorded in other assets. Unfunded commitments to fund future investments in affordable housing projects totaled ~~$60.6~~$49.8 million and ~~$70.0~~$53.7 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and were recorded in other 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 were claimed. BancShares has also been 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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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis (“MD&A”) of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and ~~Subsidiaries~~its subsidiaries (“BancShares”). This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this Quarterly Report on Form 10-Q along with our financial statements and related MD&A of financial condition and results of operations included in our ~~2019~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2020 (“2020 Annual Report”). Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform to statement presentations for ~~2020,~~2021, the reclassifications had no effect on shareholders’ equity or net income as previously reported. Unless otherwise noted, the terms “we,” “us” and “BancShares” refer to the consolidated financial position and consolidated results of operations for BancShares.

EXECUTIVE OVERVIEW

BancShares conducts its banking operations through its wholly-owned subsidiary First-Citizens Bank & Trust Company (“FCB”), a state-chartered bank organized under the laws of the state of North Carolina.

BancShares’ earnings and cash flows are primarily derived from our commercial and retail banking activities. We gather deposits from retail and commercial customers and also secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and overnight investments. We also invest in bank premises, hardware, software, furniture and equipment used to conduct our commercial and retail banking business. We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks. The fees and service charges generated from these products and services are primary sources of noninterest income which is an essential component of our total revenue.

We are focused on expanding our position in legacy and target markets through organic growth and strategic acquisitions. We believe our franchise is positioned for continued growth as a result of our client centric banking principles, disciplined lending standards, and our people.

Refer to our ~~2019~~2020 Annual Report ~~on Form 10-K~~ for further discussion of our strategy.

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.~~economies. 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~~Although vaccines for COVID-19 have been made available to ~~volatility~~the general public in the ~~financial markets. This impact was coupled with spikes~~United States and many places around the world, vaccination rates vary and effectiveness may decrease over time. We cannot predict how widely utilized the vaccines and boosters will be or whether and for how long they will be effective in ~~unemployment as a result~~preventing the spread of COVID-19 (including its variants).

Although we cannot predict when or if normal economic activity and business ~~shutdowns that~~operations will resume, we observed general declines in the level of economic uncertainty and stabilization of macroeconomic forecasts during the first three quarters of 2021. The US experienced an uptick in the number of new cases during the third quarter of 2021. We are unable to predict whether these trends will continue ~~to impact financial institutions operationally~~ and ~~financially. For a discussion~~how this will affect the overall economy at the current time. However, we remain vigilant in our review and monitoring efforts around the duration and severity of ~~the risks we face with respect to~~ the COVID-19 pandemic (including any of its variants) and its effects on the ~~associated economic uncertainty, the steps taken to mitigate the pandemic~~overall economy and ~~the resulting economic contraction, see "Item 1A — Risk Factors" in Part II of this quarterly report on Form 10-Q, which should be read in conjunction with the risk factors disclosed in~~ our ~~annual report on Form 10-K for the year ended December 31, 2019.~~financial results.

During the third quarter of ~~2020,~~2021, the Federal Reserve’s Federal Open Market Committee (“FOMC”) maintained the federal funds rate at a target range of 0.00% to 0.25%. The FOMC ~~cited~~acknowledged the ~~effects of~~economy’s accelerating recovery from the COVID-19 onpandemic, but maintained that the recovery is incomplete and economic ~~activity and the~~ risks ~~posed to the economic outlook.~~remain. The FOMC expects to maintain this target range, ~~until labor market conditions have reached levels consistent with~~but rate hikes are expected in late 2022 or early 2023. Further, the ~~FOMC’s assessments~~committee suggested that they will begin tapering asset purchases, potentially as early as the fourth quarter of ~~maximum employment and inflation has risen~~2021 if economic progress continues as expected.

In response to ~~2% and is on track to moderately exceed 2% for some time.~~

~~On March 27, 2020,~~the COVID-19 pandemic, the Small Business Administration Paycheck Protection Program (“SBA-PPP”) was established through the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) ~~was passed. The bill was designed~~and the Consolidated Appropriations Act 2021 to ~~provide short-term economic relief~~direct aid via loans to ~~individuals and~~small businesses ~~most~~ impacted by the ~~fallout~~COVID-19 pandemic.

We completed the first round of SBA-PPP funding in the ~~pandemic. Key provisions include: for individuals, economic impact payments~~second half 2020 and ~~enhanced unemployment benefits; for small businesses, access to~~the second round of funding during the second quarter of 2021. As of September 30, 2021, there were $1.1 billion SBA-PPP loans ~~and support through the Small Business Administration Paycheck Protection Program (“SBA-PPP”), direct aid and loans~~outstanding with remaining net deferred fees of $39.4 million.

With respect to the ~~medical industry~~first round of SBA-PPP, we began accepting and ~~other affected sectors, and certain tax benefits that can be used in conjunction with~~processing applications for forgiveness during the ~~other aid mentioned. While direct aid to financial services entities is not a primary goal~~third quarter of ~~the provisions, financial institutions will function to transmit funds~~2020. As of September 30, 2021, we have received approximately 98% of forgiveness decisions from the ~~Federal Reserve,~~ SBA ~~and United States (“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 todate, representing over $3.1 billion in forgiveness criteria. In addition, 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.payments.

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~~BANCSHARES’ COVID-19 CONTINUED MONITORING AND RESPONSE~~With respect to the second round of SBA-PPP, we began accepting and processing applications for forgiveness during the third quarter of 2021.As of September 30, 2021, we have received approximately 14% of forgiveness decisions from the SBA, representing over $175 million in forgiveness payments.

BancShares remains in a very strong capital and liquidity position providing stability in navigating the COVID-19 crisis. Our leadership team continues to ensure appropriate measures are in place to protect the welfare of our employees and soundness of the organization, while continuing to support our customers. Our branches have re-opened with enhanced safety protocols, and our corporate locations remain at limited occupancy due to current virus trends.

Table 1

SBA-PPP LOAN FORGIVENESS STATUS


(Dollars in thousands)
	Round 1				Round 2
Status	$ of Loans		% of Round Total		$ of Loans		% of Round Total
Total Funded	$	3,199,897	100.0	%	$	1,223,797	100.0	%
Payments Received	3,121,746		97.6		175,660		14.4
Total Remaining	$	78,151	2.4	%	$	1,048,137	85.6	%

Through September 30, ~~2020,~~2021, over ~~94%~~99% of all ~~COVID-19 related~~COVID-19-related loan extensions have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the ~~portfolio. We~~portfolio, and 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.~~

During 2020, BancShares originated over 23,000 SBA-PPP loans with an outstanding balance of $3.11 billion at September 30, 2020. We have collected all $117.2 million in SBA-PPP related loan fees per the program terms. These fees and related costs were deferred and are being recognized in interest income over the life of the loans. We have begun accepting and processing applications for forgiveness, and subsequent to the third quarter, we have begun receiving forgiveness payments. We anticipate acceleration of the fee income as the volume of approved forgiveness applications and payments received from the SBA increase.

~~Table 1~~

~~SBA-PPP LOANS BY LOAN SIZE~~

(Dollars in thousands)
Loan Size $ of Loans % of Loans $
Less than $150,000 $ 862,026 27.7 %
$150,000 to $2,000,000 1,766,649 56.8
Greater than $2,000,000 484,001 15.5
Total $ 3,112,676 100.0 %
quality.

~~Strong Liquidity and Capital Position~~

We maintain a strong level of liquidity. As of September 30, 2020, liquid assets (available cash and unencumbered high quality liquid assets at market value) totaled approximately $8.51 billion representing 17.5% of consolidated assets as of September 30, 2020.

In addition to liquid assets, we had contingent sources of liquidity totaling approximately $11.37 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 September 30, 2020, BancShares’ regulatory capital ratios were well in excess of Basel III capital requirements with a total risk-based capital ratio of 13.7%, a Tier 1 risk-based capital ratio of 11.5%, a common equity Tier 1 ratio of 10.4%, a Tier 1 leverage ratio of 7.8% and a capital conservation buffer of 5.5%, more than twice the required level of 2.5%.

SIGNIFICANT EVENTS IN ~~2020~~

~~On January 1, 2020 BancShares adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Accounting Standards Codification (“ASC”) Topic 326):~~ ~~Measurement of Credit Losses on Financial Instruments,~~ which introduced a new credit loss methodology for the estimation of credit losses.The amendments in this ASU require loss estimates be determined over an asset’s lifetime and broaden the information that an entity must consider in developing its expected credit losses. BancShares adopted this ASU using the modified retrospective approach for all loans, leases, debt securities designated as held to maturity, and unfunded loan commitments. BancShares adopted this ASU using the prospective transition approach for PCD loans previously accounted for under ASC 310-30 and debt securities available for sale. Refer to Note A - Accounting Policies and Basis of Presentation for additional information.

Upon adoption, BancShares recorded a net decrease of $37.9 million in the Allowance for Credit Losses (“ACL”) which included a decrease of $56.9 million in the ACL on non-purchased credit deteriorated (“non-PCD”) loans, offset by an increase of $19.0 million in the ACL on purchased credit deteriorated (“PCD”) loans. The $56.9 million change 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 a net 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.

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2021

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. ~~Subject~~The Transaction has been approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation (“FDIC”).

On September 30, 2021, the parties entered into an amendment to the ~~fulfillment~~merger agreement pursuant to which the parties mutually agreed to extend until March 1, 2022 the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed. Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System and both parties are committed to continuing to seek such approval. The parties have responded to all questions issued by the Staff of the Federal Reserve Board, and the Staff has informed us that they do not have further questions at this time. The parties have been informed that the application is presently at the Governor level, but the Board of Governors has not provided a time frame for its decision on the application. Closing is expected to occur as soon as practicable following receipt of such approval and the satisfaction or waiver of other customary closing ~~conditions, the parties anticipate that the Transaction will close in the first half of 2021.~~conditions.

In addition, at the 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 one share of a newly created series of preferred stock, Series B, of BancShares and one share of a newly created series of preferred stock, Series C, of BancShares, respectively.

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The Merger Agreement requires that, effective as of the Effective 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 Board of Directors of BancShares, and (ii) three of whom will be selected from among the current Board of Directors of CIT and will include as one of those three Ellen R. Alemany, Chairwoman and Chief Executive Officer of CIT. We intend to appoint Michael A. Carpenter and Vice Admiral John R. Ryan, USN (Ret.), as the two other members from CIT’s current Board of Directors who will join the Boards of Directors of the combined company and the combined bank.

FINANCIAL PERFORMANCE SUMMARY

Third Quarter Highlights

•Net income for the third quarter of ~~2020 totaled $142.7~~2021 was $124.1 million, ~~an increase~~a decrease of ~~$17.9~~$18.6 million, or ~~14.3%~~13.0% compared to the same quarter in ~~2019.~~2020. Net income available to common shareholders totaled ~~$138.0 million.~~$119.4 million for the third quarter of 2021. Net income per common share ~~increased $2.76,~~decreased $1.86, or ~~24.5%~~13.3%, to ~~$14.03~~$12.17 in the third quarter of ~~2020,~~2021, from ~~$11.27~~$14.03 per share during the ~~same period~~comparable quarter in ~~2019.~~2020.

•Return on average assets for the third quarter of ~~2020~~2021 was ~~1.18%~~0.88%, down from ~~1.32%~~1.18% in the third quarter of ~~2019.~~2020. Return on average equity for the third quarter of ~~2020~~2021 was ~~14.93%~~11.29%, updown from ~~13.83% in~~14.93% during the ~~the third~~comparable quarter of ~~2019.~~2020.

•Net interest income ~~totaled $353.7~~was $346.9 million for the third quarter of ~~2020, an increase~~2021, a decrease of ~~$17.2~~$6.8 million, or ~~5.1%~~1.9% compared to the same quarter in ~~2019. The increase~~2020, but was ~~primarily due~~relatively stable compared to an increase of $21.3 million in interest earned on loans due to loan growth and lower interest expense on deposits of $8.3 million, partially offset by a decrease in interest earned on overnight investments of $6.4 million. Interest and fee income related to SBA-PPP loans totaled $29.8 million in the ~~third~~second quarter of ~~2020.~~2021. The taxable-equivalent net interest margin (“NIM”) was 2.61% for the third quarter of 2021, a decrease of 45 basis points from 3.06% for the third quarter in 2020 and a decrease of ~~2020, down 71~~7 basis points from ~~3.77%~~2.68% from the second quarter of 2021.

•Provision for credit losses was a benefit of $1.1 million for the third quarter of 2021 compared to an expense of $4.0 million for the same quarter in ~~2019.~~2020. The net charge-off ratio was 0.06% for the third quarter of 2021, up from 0.02% for the second quarter of 2021 and 0.03% for the third quarter of 2020.

•Noninterest income was $122.9 million for the third quarter of ~~2020 totaled $120.6 million,~~2021, an increase of ~~$19.6~~$2.4 million, or ~~19.5%~~2.0%, compared to $120.6 million for the same quarter of 2020.

•Noninterest expense was $312.8 million for the third quarter of 2021, an increase of $21.2 million, or by 7.3% compared to the same quarter of ~~2019, predominantly due to realized gains on the sale of available for sale securities.~~2020.

•~~Noninterest expense~~The allowance for credit losses was ~~$291.7~~$183.2 million at September 30, 2021, compared to $189.1 million at June 30, 2021. The $5.9 million change was due primarily to a reserve release for the ~~third quarter of 2020, compared to $270.4 million during the same quarter of 2019, an increase of $21.3 million or 7.9%.~~three months ended September 30, 2021 driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors.

•Total loans ~~grew to $32.85~~were $32.5 billion ~~an increase~~as of ~~$426.7~~September 30, 2021, a decrease of $173.5 million, or by ~~5.2%~~2.1% on an annualized basis, since June 30, ~~2020. The net charge-off ratio was 0.03% for~~2021. Excluding loans originated under the ~~third quarter of 2020, down from 0.09% for the second quarter of 2020 and 0.10% for the third quarter of 2019.~~SBA-PPP, total loans increased $437.4 million, or by 5.6% on an annualized basis, since June 30, 2021.

•Total deposits grew to ~~$42.25~~$50.1 billion, an increase of ~~$771.4 million,~~$1.7 billion, or by ~~7.4%~~13.6% on an annualized basis, since June 30, ~~2020.~~2021.

•~~BancShares repurchased 117,700 shares of its Class A common stock during the third quarter of 2020 totaling $47.1 million.~~ At September 30, ~~2020,~~2021, BancShares remained ~~well capitalized~~“well-capitalized” as defined by regulatory standards with a total risk-based capital ratio of ~~13.7%~~14.3%, a Tier 1 risk-based capital of ~~11.5%~~12.3%, a common equity Tier 1 ratio of ~~10.4%,~~11.3% and a leverage ratio of ~~7.8%~~7.7%.

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Year to Date Highlights

•Net income for the nine months ended September 30, ~~2020~~2021 totaled ~~$353.6~~$424.2 million, ~~a decrease~~an increase of ~~$1.9~~$70.5 million, or ~~0.5%~~19.9% compared to the same period ~~of 2019.~~in 2020. Net income available to common shareholders totaled ~~$344.2~~$410.3 million. Earnings per share increased ~~$2.46,~~$7.83, or ~~7.8%~~23.1%, to ~~$33.96~~$41.79 for the nine months ended September 30, ~~2020,~~2021, from ~~$31.50 per share~~$33.96 during the ~~same~~comparable period in ~~2019.~~2020.

•Return on average assets for the nine months ended September 30, ~~2020~~2021 was 1.05%, ~~down 24 basis points compared to~~consistent with the same period in ~~2019.~~2020. Return on average equity for the nine months ended September 30, ~~2020~~2021 was ~~12.59%~~13.50%, ~~down 82~~up 91 basis points compared to the same period in ~~2019.~~2020.

•Net interest income for the nine months ended September 30, ~~2020,~~2021, was ~~$1.03~~$1.0 billion, an increase of ~~$45.2~~$3.5 million, or ~~4.6%~~0.3% compared to the same period of 2019. The increase was primarily due to an increase of $78.7 million in interest earned on loans primarily due to loan growth, partially offset by a decrease in interest earned on overnight investments of $15.0 million as well as an increase in total interest expense of $12.0 million. Interest and fee income related to SBA-PPP loans totaled $47.9 million in the first nine months of 2020. The taxable-equivalent NIM was ~~3.23%~~2.69% for the nine months ended September 30, ~~2020, down 57~~2021, a decrease of 54 basis points from ~~3.80%~~3.23% during the ~~same~~comparable period of ~~2019.~~2020.

•~~The allowance~~Provision for credit losses was ~~$223.9~~a benefit of $31.7 million at September 30, 2020, compared to $225.1 million at December 31, 2019. The $1.2 million change was due primarily to the $37.9 million reduction in the allowance as a result of adopting ASC 326, partially offset by a $36.1 million reserve build related to potential COVID-19 impact.

•Total loans grew to $32.85 billion, an increase of $3.96 billion since December 31, 2019. Excluding $3.11 billion of loans originated under the SBA-PPP, total loans increased $851.0 million, or by 3.9% on an annualized basis. The net charge-off ratio was 0.07% for the nine months ended September 30, ~~2020,~~2021, compared to $52.9 million in expense for the same period in 2020. The net charge-off ratio was 0.04% for the nine months ended September 30, 2021, a 3 basis point decrease compared to the same period of ~~2019.~~2020.

•Noninterest income was $393.7 million for the nine months ended September 30, 2021, an increase of $43.8 million, or 12.5%, compared to $350.0 million for the same quarter of 2020.

•Noninterest expense was $910.3 million for the nine months ended September 30 2021, an increase of $27.0 million or by 3.1% compared to the same quarter of 2020.

•The allowance for credit losses was $183.2 million at September 30, 2021, compared to $224.3 million at December 31, 2020. The $41.1 million change was due primarily to a reserve release for the nine months ended September 30, 2021 driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors.

•Total loans were $32.5 billion, a decrease of $275.8 million since December 31, 2020. Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis, since December 31, 2020.

•Total deposits grew to ~~$42.25~~$50.1 billion, an increase of ~~$7.82~~$6.6 billion since December 31, ~~2019. Excluding estimated SBA-PPP deposits of $1.30 billion, total deposits grew $6.52 billion,~~2020 or by ~~25.3%~~20.4% on an annualized basis.

•~~BancShares repurchased~~ ~~813,090 shares of its Class A common stock during the~~ ~~nine months ended September 30, 2020~~ ~~totaling~~ ~~$333.8 million.~~

•~~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 Series A preferred stock.~~

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Table 2

SELECTED QUARTERLY DATA


		2020									2019 (1)						Nine months ended September 30							2021									2020						Nine months ended September 30
		Third			Second			First			Fourth			Third										Third			Second			First			Fourth			Third
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)	Quarter			Quarter			Quarter			Quarter			Quarter			2020			2019			(Dollars in thousands, except share data)	Quarter			Quarter			Quarter			Quarter			Quarter			2021			2020
SUMMARY OF OPERATIONS	SUMMARY OF OPERATIONS																						SUMMARY OF OPERATIONS
Interest income	Interest income	$	374,334		$	363,257		$	369,559		$	354,048		$	362,318		$	1,107,150		$	1,049,963		Interest income	$	361,855		$	361,825		$	355,323		$	376,876		$	374,334		$	1,079,003		$	1,107,150
Interest expense	Interest expense	20,675			25,863			31,159			26,924			25,893			77,697			65,718			Interest expense	14,968			15,432			15,671			18,160			20,675			46,071			77,697
Net interest income	Net interest income	353,659			337,394			338,400			327,124			336,425			1,029,453			984,245			Net interest income	346,887			346,393			339,652			358,716			353,659			1,032,932			1,029,453
Provision for credit losses		4,042			20,552			28,355			7,727			6,766			52,949			23,714
Provision (credit) for credit losses																							Provision (credit) for credit losses	(1,120)			(19,603)			(10,974)			5,403			4,042			(31,697)			52,949
Net interest income after provision for credit losses	Net interest income after provision for credit losses	349,617			316,842			310,045			319,397			329,659			976,504			960,531			Net interest income after provision for credit losses	348,007			365,996			350,626			353,313			349,617			1,064,629			976,504

Noninterest income	Noninterest income	120,572			165,402			64,011			104,393			100,930			349,985			311,468			Noninterest income	122,944			134,150			136,649			126,765			120,572			393,743			349,985
Noninterest expense	Noninterest expense	291,662			291,679			299,971			292,262			270,425			883,312			811,479			Noninterest expense	312,818			301,578			295,926			305,373			291,662			910,322			883,312
Income before income taxes	Income before income taxes	178,527			190,565			74,085			131,528			160,164			443,177			460,520			Income before income taxes	158,133			198,568			191,349			174,705			178,527			548,050			443,177
Income taxes	Income taxes	35,843			36,779			16,916			29,654			35,385			89,538			105,023			Income taxes	34,060			45,780			44,033			36,621			35,843			123,873			89,538
Net income	Net income	142,684			153,786			57,169			101,874			124,779			353,639			355,497			Net income	124,073			152,788			147,316			138,084			142,684			424,177			353,639
Net income available to common shareholders	Net income available to common shareholders	$	138,048		$	148,996		$	57,169		$	101,874		$	124,779		$	344,213		$	355,497		Net income available to common shareholders	$	119,437		$	148,152		$	142,680		$	133,448		$	138,048		$	410,269		$	344,213
Net interest income, taxable equivalent	Net interest income, taxable equivalent	$	354,256		$	337,965		$	339,174		$	328,045		$	337,322		$	1,031,395		$	986,896		Net interest income, taxable equivalent	$	347,451		$	347,035		$	340,271		$	359,370		$	354,256		$	1,034,758		$	1,031,395
PER COMMON SHARE DATA	PER COMMON SHARE DATA																						PER COMMON SHARE DATA
Net income	Net income	$	14.03		$	14.74		$	5.46		$	9.55		$	11.27		$	33.96		$	31.50		Net income	$	12.17		$	15.09		$	14.53		$	13.59		$	14.03		$	41.79		$	33.96
Cash dividends on common shares	Cash dividends on common shares	0.40			0.40			0.40			0.40			0.40			1.20			1.20			Cash dividends on common shares	0.47			0.47			0.47			0.47			0.40			1.41			1.20
Market price at period end (Class A)	Market price at period end (Class A)	318.78			405.02			332.87			532.21			471.55			318.78			471.55			Market price at period end (Class A)	843.17			832.74			835.77			574.27			318.78			843.17			318.78
Book value at period-end		380.43			367.57			351.90			337.38			327.86			380.43			327.86
Book value per share at period-end																							Book value per share at period-end	432.07			421.39			405.59			396.21			380.43			432.07			380.43
SELECTED QUARTERLY AVERAGE BALANCES	SELECTED QUARTERLY AVERAGE BALANCES																						SELECTED QUARTERLY AVERAGE BALANCES
Total assets	Total assets	$	48,262,155		$	45,553,502		$	40,648,806		$	38,326,641		$	37,618,836		$	44,834,045		$	36,770,191		Total assets	$	55,922,358		$	54,399,331		$	51,409,634		$	49,557,803		$	48,262,155		$	53,926,971		$	44,834,045
Investment securities	Investment securities	9,930,197			8,928,467			7,453,159			7,120,023			6,956,981			8,774,840			6,851,348			Investment securities	10,707,519			10,534,348			9,757,650			9,889,124			9,930,197			10,336,652			8,774,840
Loans and leases ~~(2)~~(1)	Loans and leases ~~(2)~~(1)	32,694,996			31,635,958			29,098,101			27,508,062			26,977,476			31,148,683			26,368,922			Loans and leases ~~(2)~~(1)	32,707,591			33,166,049			33,086,656			32,964,390			32,694,996			32,985,376			31,148,683
Interest-earning assets	Interest-earning assets	45,617,376			42,795,781			38,004,341			36,032,680			35,293,979			42,151,861			34,473,814			Interest-earning assets	52,371,165			51,519,684			48,715,279			46,922,823			45,617,376			50,882,100			42,151,861
Deposits	Deposits	41,905,844			39,146,415			34,750,061			33,295,141			32,647,264			38,612,836			31,856,771			Deposits	49,107,087			47,751,103			44,858,198			43,123,312			41,905,844			47,254,360			38,612,836
Interest-bearing liabilities	Interest-bearing liabilities	25,591,707			24,407,285			23,153,777			20,958,943			20,551,393			24,388,339			20,204,705			Interest-bearing liabilities	29,662,791			28,909,320			27,898,525			26,401,222			25,591,707			28,830,007			24,388,339
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	710,237			659,244			474,231			495,804			533,371			614,920			542,618			Securities sold under customer repurchase agreements	672,114			677,451			641,236			684,311			710,237			663,713			614,920
Other short-term borrowings	Other short-term borrowings	—			45,549			157,759			28,284			23,236			67,522			21,335			Other short-term borrowings	—			—			—			—			—			—			67,522
Long-term borrowings	Long-term borrowings	1,256,331			1,275,928			961,132			467,223			384,047			1,164,475			366,850			Long-term borrowings	1,222,452			1,227,755			1,235,576			1,250,682			1,256,331			1,228,546			1,164,475
Common shareholders' equity	Common shareholders' equity	3,679,138			3,648,284			3,625,975			3,570,872			3,580,235			3,651,132			3,545,418			Common shareholders' equity	4,196,655			4,058,236			3,935,267			3,786,158			3,679,138			4,063,386			3,651,132
Shareholders’ equity	Shareholders’ equity	$	4,019,075		$	3,988,225		$	3,682,634		$	3,570,872		$	3,580,235		$	3,896,645		$	3,545,418		Shareholders’ equity	$	4,536,592		$	4,398,173		$	4,275,204		$	4,126,095		$	4,019,075		$	4,403,323		$	3,896,645
Common shares outstanding	Common shares outstanding	9,836,629			10,105,520			10,473,119			10,708,084			11,060,462			10,137,321			11,286,984			Common shares outstanding	9,816,405			9,816,405			9,816,405			9,816,405			9,836,629			9,816,405			10,137,321
SELECTED QUARTER-END BALANCES	SELECTED QUARTER-END BALANCES																						SELECTED QUARTER-END BALANCES
Total assets ~~(1)~~	Total assets ~~(1)~~	$	48,666,873		$	47,866,194		$	41,594,453		$	39,824,496		$	37,748,324		$	48,666,873		$	37,748,324		Total assets ~~(1)~~	$	56,901,977		$	55,175,318		$	53,908,606		$	49,957,680		$	48,666,873		$	56,901,977		$	48,666,873
Investment securities	Investment securities	9,860,594			9,508,476			8,845,197			7,173,003			7,167,680			9,860,594			7,167,680			Investment securities	10,875,354			10,894,227			10,222,107			9,922,905			9,860,594			10,875,354			9,860,594
Loans and leases	Loans and leases	32,845,144			32,418,425			29,240,959			28,881,496			27,196,511			32,845,144			27,196,511			Loans and leases	32,516,189			32,689,652			33,180,851			32,791,975			32,845,144			32,516,189			32,845,144
Deposits	Deposits	42,250,606			41,479,245			35,346,711			34,431,236			32,743,277			42,250,606			32,743,277			Deposits	50,065,762			48,410,596			47,330,997			43,431,609			42,250,606			50,065,762			42,250,606
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	693,889			740,276			540,362			442,956			522,195			693,889			522,195			Securities sold under customer repurchase agreements	663,575			692,604			680,705			641,487			693,889			663,575			693,889
Other short-term borrowings	Other short-term borrowings	—			—			105,000			295,277			—			—			—			Other short-term borrowings	—			—			—			—			—			—			—
Long-term borrowings	Long-term borrowings	1,252,016			1,258,719			1,297,132			588,638			453,876			1,252,016			453,876			Long-term borrowings	1,219,229			1,224,488			1,230,326			1,248,163			1,252,016			1,219,229			1,252,016
Shareholders’ equity	Shareholders’ equity	$	4,074,414		$	3,991,444		$	3,957,520		$	3,586,184		$	3,568,482		$	4,074,414		$	3,568,482		Shareholders’ equity	$	4,581,295		$	4,476,490		$	4,321,400		$	4,229,268		$	4,074,414		$	4,581,295		$	4,074,414
Common shares outstanding	Common shares outstanding	9,816,405			9,934,105			10,280,105			10,629,495			10,884,005			9,816,405			10,884,005			Common shares outstanding	9,816,405			9,816,405			9,816,405			9,816,405			9,816,405			9,816,405			9,816,405
SELECTED RATIOS AND OTHER DATA	SELECTED RATIOS AND OTHER DATA																						SELECTED RATIOS AND OTHER DATA
Return on average assets (annualized)	Return on average assets (annualized)	1.18		%	1.36		%	0.57		%	1.05		%	1.32		%	1.05		%	1.29		%	Return on average assets (annualized)	0.88		%	1.13		%	1.16		%	1.11		%	1.18		%	1.05		%	1.05		%
Return on average common shareholders’ equity (annualized)	Return on average common shareholders’ equity (annualized)	14.93			16.43			6.34			11.32			13.83			12.59			13.41			Return on average common shareholders’ equity (annualized)	11.29			14.64			14.70			14.02			14.93			13.50			12.59
Net yield on interest-earning assets (taxable equivalent)	Net yield on interest-earning assets (taxable equivalent)	3.06			3.14			3.55			3.59			3.77			3.23			3.80			Net yield on interest-earning assets (taxable equivalent)	2.61			2.68			2.80			3.02			3.06			2.69			3.23
Net charge-offs (annualized) to average loans and leases		0.03			0.09			0.10			0.14			0.10			0.07			0.10
Allowance for credit losses to total loans and leases(3):
Net charge-offs to average loans and leases (annualized)																							Net charge-offs to average loans and leases (annualized)	0.06			0.02			0.03			0.06			0.03			0.04			0.07
Allowance for credit losses to total loans and leases(2):																							Allowance for credit losses to total loans and leases(2):
PCD	PCD	5.07			5.07			4.80			1.35			1.34			5.07			1.34			PCD	4.94			4.73			5.30			5.18			5.07			4.94			5.07
Non-PCD	Non-PCD	0.61			0.61			0.64			0.77			0.82			0.61			0.82			Non-PCD	0.51			0.53			0.57			0.62			0.61			0.51			0.61
Total	Total	0.68			0.69			0.72			0.78			0.83			0.68			0.83			Total	0.56			0.58			0.63			0.68			0.68			0.56			0.68
Ratio of total nonperforming assets to total loans, leases and other real estate owned ~~(4)~~	Ratio of total nonperforming assets to total loans, leases and other real estate owned ~~(4)~~	0.73			0.77			0.79			0.58			0.57			0.73			0.57			Ratio of total nonperforming assets to total loans, leases and other real estate owned ~~(4)~~	0.63			0.71			0.73			0.74			0.73			0.63			0.73
Total risk-based capital ratio																							Total risk-based capital ratio	14.30			14.15			14.14			13.81			13.70			14.30			13.70
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	11.48			11.38			11.43			10.86			11.80			11.48			11.80			Tier 1 risk-based capital ratio	12.32			12.13			12.02			11.63			11.48			12.32			11.48
Common equity Tier 1 ratio	Common equity Tier 1 ratio	10.43			10.32			10.36			10.86			11.80			10.43			11.80			Common equity Tier 1 ratio	11.34			11.14			11.00			10.61			10.43			11.34			10.43
Total risk-based capital ratio		13.70			13.63			13.65			12.12			13.09			13.70			13.09��
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	7.80			8.07			8.98			8.81			9.18			7.80			9.18			Tier 1 leverage capital ratio	7.68			7.67			7.84			7.86			7.80			7.68			7.80
Dividend payout ratio	Dividend payout ratio	2.85			2.71			7.33			4.19			3.55			3.53			3.81			Dividend payout ratio	3.86			3.11			3.23			3.46			2.85			3.37			3.53
Average loans and leases to average deposits	Average loans and leases to average deposits	78.02			80.81			83.74			82.62			82.63			80.67			82.77			Average loans and leases to average deposits	66.60			69.46			73.76			76.44			78.02			69.80			80.67

(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.~~

~~(2)~~ Average loan and lease balances include PCD loans, non-PCD loans and leases, loans held for sale and nonaccrual loans and leases.

~~(3)~~(2) Loans originated in relation to the SBA-PPP ($~~3.11~~1.7 billion as of September 30, ~~2020)~~2021) do not have a recorded ACL. As of September 30, ~~2020,~~2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans is ~~0.68%~~0.53%, while the ratio of ACL to total loans excluding SBA-PPP loans is ~~0.75%~~0.58%.

~~(4)~~ Upon adoption of ASC 326, we dissolved pooling of PCI loans allowed under ASC 310-30. This increased the amount of nonaccrual loans as those nonaccrual loans within performing PCI pools were previously excluded from reporting. As of January 1, 2020, there were $47.0 million of nonaccrual loans released from performing PCI pools. Of these nonaccrual loans, $27.5 million were outstanding as of September 30, 2020.

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BUSINESS COMBINATIONS

CIT Group Inc.

On October 15, 2020, BancShares and CIT, entered into the 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 Merger Agreement was unanimously approved by the ~~fulfillment~~Board of ~~customary closing conditions, the parties anticipate that the Transaction will close in the first half~~Directors of ~~2021.~~

~~Community Financial Holding Company, Inc.~~

~~On February 1, 2020, FCB completed the merger~~each of ~~Duluth, Georgia-based Community Financial Holding Company, Inc. (“Community Financial”)~~BancShares 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~~CIT. The transaction has been approved by the shareholders of ~~Community Financial. The merger allows FCB to expand its presence~~both companies and ~~enhance banking efforts in Georgia. The merger contributed $222.1 million in consolidated assets, which included $686 thousand~~has received regulatory approval from the North Carolina Commissioner of ~~goodwill, $134.0 million in loans,~~Banks and ~~$209.3 million in deposits.~~

~~See Note B - Business Combinations for additional disclosures.~~

~~Entegra Financial Corp.~~the FDIC.

On ~~December 31, 2019, FCB completed~~September 30, 2021, the ~~merger of Franklin, North Carolina-based Entegra Financial Corp. (“Entegra”) and its bank subsidiary, Entegra Bank. In order to obtain regulatory approval, FCB~~parties entered into an amendment to the merger agreement ~~for Select Bank~~pursuant to ~~purchase three of our North Carolina branches, located in Highlands, Sylva and Franklin. On April 17, 2020, FCB completed~~which the ~~divestiture~~parties mutually agreed to extend until March 1, 2022 the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed. Completion of the ~~branches including loans and leases, premises and equipment and total deposits with a fair value~~proposed merger remains subject to approval from the Board 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 generated as partGovernors of the ~~merger with Entegra Bank.~~Federal Reserve System and both parties are committed to continuing to seek such approval. The parties have responded to all questions issued by the Staff of the Federal Reserve Board, and the Staff has informed us that they do not have further questions at this time. The parties have been informed that the application is presently at the Governor level, but the Board of Governors has not provided a time frame for its decision on the application. Closing is expected to occur as soon as practicable following receipt of such approval and the satisfaction or waiver of other customary closing conditions.

Federal Deposit Insurance Corporation Assisted Transactions

BancShares completed fourteen ~~Federal Deposit Insurance Corporation (“FDIC”) assisted~~FDIC-assisted transactions between 2009 and 2017. Nine of the fourteen FDIC-assisted transactions included shared-loss agreements which, for their terms, ~~protect~~protected us from a substantial portion of the credit and asset quality risk we would otherwise ~~incur. As of September 30, 2020,~~have incurred.

For certain FDIC-assisted transactions, the shared-loss ~~protection remains for single family residential loans acquired in the amount of $36.2 million.~~

~~The shared-loss~~ agreement ~~for two of the FDIC-assisted transactions~~ included a provision related to a payment owed to the FDIC at the termination of the ~~agreement (the “clawback liability”)~~agreement.. As of September 30, ~~2020 and December 31, 2019, the estimated clawback liability was $15.3~~2021, these agreements have been satisfied following a $16.1 million ~~and $112.4 million, respectively, as a result of a~~ payment made to the FDIC infor the final active agreement during the first quarter of ~~2020 for $99.5 million related to one of the transactions. The remaining clawback liability payment date is March~~ 2021.

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Table 3

CONSOLIDATED QUARTER-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS


		Three months ended September 30													Three months ended September 30
		2020						2019							2021						2020
				Interest						Interest							Interest						Interest
		Average		Income/		Yield/		Average		Income/		Yield/			Average		Income/		Yield/		Average		Income/		Yield/
(Dollars in thousands)	(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate		(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate
Assets	Assets													Assets
Loans and leases	Loans and leases	$	32,694,996	$	336,934	4.06	%	$	26,977,476	$	315,621	4.61	%	Loans and leases	$	32,707,591	$	319,738	3.85	%	$	32,694,996	$	336,934	4.06	%
Investment securities:	Investment securities:													Investment securities:
U.S. Treasury	U.S. Treasury	695,419		497		0.28		834,577		5,262		2.50		U.S. Treasury	—		—		—		695,419		497		0.28
Government agency	Government agency	587,377		1,335		0.91		628,322		4,742		3.02		Government agency	824,499		2,076		1.01		587,377		1,335		0.91
Mortgage-backed securities	Mortgage-backed securities	8,047,247		28,236		1.40		5,195,711		27,891		2.15		Mortgage-backed securities	9,164,180		29,056		1.27		8,047,247		28,236		1.40
Corporate bonds	Corporate bonds	489,602		6,433		5.26		149,888		1,912		5.10		Corporate bonds	597,386		7,610		5.10		489,602		6,433		5.26

Other investments	Other investments	110,552		739		2.66		148,483		636		1.70		Other investments	121,454		544		1.78		110,552		739		2.66
Total investment securities	Total investment securities	9,930,197		37,240		1.50		6,956,981		40,443		2.32		Total investment securities	10,707,519		39,286		1.47		9,930,197		37,240		1.50
Overnight investments	Overnight investments	2,992,183		757		0.10		1,359,522		7,151		2.09		Overnight investments	8,956,055		3,395		0.15		2,992,183		757		0.10
Total interest-earning assets	Total interest-earning assets	45,617,376		374,931		3.24		35,293,979		363,215		4.06		Total interest-earning assets	52,371,165		362,419		2.73		45,617,376		374,931		3.24
Cash and due from banks	Cash and due from banks	349,079						256,379						Cash and due from banks	364,593						349,079
Premises and equipment	Premises and equipment	1,261,864						1,224,118						Premises and equipment	1,239,111						1,261,864
Allowance for credit losses	Allowance for credit losses	(222,793)						(227,707)						Allowance for credit losses	(189,885)						(222,793)
Other real estate owned	Other real estate owned	52,716						46,131						Other real estate owned	40,786						52,716
Other assets	Other assets	1,203,913						1,025,936						Other assets	2,096,588						1,203,913
Total assets	Total assets	$	48,262,155					$	37,618,836					Total assets	$	55,922,358					$	48,262,155

Liabilities	Liabilities													Liabilities
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Checking with interest	Checking with interest	$	9,239,838	$	1,369	0.06	%	$	7,361,758	$	1,509	0.08	%	Checking with interest	$	11,323,503	$	1,350	0.05	%	$	9,239,838	$	1,369	0.06	%
Savings	Savings	3,070,619		314		0.04		2,636,583		528		0.08		Savings	3,979,389		342		0.03		3,070,619		314		0.04
Money market accounts	Money market accounts	8,108,832		3,634		0.18		6,088,740		6,610		0.43		Money market accounts	9,866,327		2,357		0.09		8,108,832		3,634		0.18
Time deposits	Time deposits	3,205,850		8,151		1.01		3,523,658		13,090		1.47		Time deposits	2,599,006		4,024		0.61		3,205,850		8,151		1.01
Total interest-bearing deposits	Total interest-bearing deposits	23,625,139		13,468		0.23		19,610,739		21,737		0.44		Total interest-bearing deposits	27,768,225		8,073		0.12		23,625,139		13,468		0.23
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	710,237		395		0.22		533,371		542		0.40		Securities sold under customer repurchase agreements	672,114		358		0.21		710,237		395		0.22
Other short-term borrowings	Other short-term borrowings	—		—		—		23,236		203		3.50		Other short-term borrowings	—		—		—		—		—		—
Long-term borrowings	Long-term borrowings	1,256,331		6,812		2.15		384,047		3,411		3.51		Long-term borrowings	1,222,452		6,537		2.09		1,256,331		6,812		2.15
Total interest-bearing liabilities	Total interest-bearing liabilities	25,591,707		20,675		0.32		20,551,393		25,893		0.50		Total interest-bearing liabilities	29,662,791		14,968		0.20		25,591,707		20,675		0.32
Noninterest-bearing deposits	Noninterest-bearing deposits	18,280,705						13,036,525						Noninterest-bearing deposits	21,338,862						18,280,705
Other liabilities	Other liabilities	370,668						450,683						Other liabilities	384,113						370,668
Shareholders’ equity	Shareholders’ equity	4,019,075						3,580,235						Shareholders’ equity	4,536,592						4,019,075
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	48,262,155					$	37,618,836					Total liabilities and shareholders’ equity	$	55,922,358					$	48,262,155
Interest rate spread	Interest rate spread					2.92	%					3.56	%	Interest rate spread					2.53	%					2.92	%

Net interest income and net yield on interest-earning assets	Net interest income and net yield on interest-earning assets			$	354,256	3.06	%			$	337,322	3.77	%	Net interest income and net yield on interest-earning assets			$	347,451	2.61	%			$	354,256	3.06	%

Loans and leases include PCD loans, non-PCD loans, nonaccrual loans and loans held for sale. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 21.0%, as well as a blended state income tax rate of 3.3% and 3.4%, for ~~both~~ the three months ended September 30, 2021 and 2020, ~~and 2019.~~respectively. The taxable-equivalent adjustment was ~~$597~~$564 thousand and ~~$897~~$597 thousand for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

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Table 4

CONSOLIDATED YEAR-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS


		Nine months ended September 30													Nine months ended September 30
		2020						2019							2021						2020
				Interest						Interest							Interest						Interest
		Average		Income/		Yield/		Average		Income/		Yield/			Average		Income/		Yield/		Average		Income/		Yield/
(Dollars in thousands)	(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate		(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate
Assets	Assets													Assets
Loans and leases	Loans and leases	$	31,148,683	$	989,708	4.20	%	$	26,368,922	$	910,993	4.58	%	Loans and leases	$	32,985,376	$	968,231	3.89	%	$	31,148,683	$	989,708	4.20	%
Investment securities:	Investment securities:													Investment securities:
U.S. Treasury	U.S. Treasury	401,666		2,853		0.95		1,062,901		18,529		2.33		U.S. Treasury	126,363		172		0.18		401,666		2,853		0.95
Government agency	Government agency	655,097		6,883		1.40		434,097		10,084		3.10		Government agency	818,591		5,942		0.97		655,097		6,883		1.40
Mortgage-backed securities	Mortgage-backed securities	7,224,224		87,475		1.61		5,075,959		84,855		2.23		Mortgage-backed securities	8,676,573		74,936		1.15		7,224,224		87,475		1.61
Corporate bonds	Corporate bonds	332,029		12,692		5.10		147,579		5,780		5.22		Corporate bonds	604,241		23,158		5.11		332,029		12,692		5.10

Other investments	Other investments	161,824		3,653		3.02		130,812		1,552		1.59		Other investments	110,884		1,442		1.74		161,824		3,653		3.02
Total investment securities	Total investment securities	8,774,840		113,556		1.73		6,851,348		120,800		2.35		Total investment securities	10,336,652		105,650		1.36		8,774,840		113,556		1.73
Overnight investments	Overnight investments	2,228,338		5,828		0.35		1,253,544		20,820		2.22		Overnight investments	7,560,072		6,948		0.12		2,228,338		5,828		0.35
Total interest-earning assets	Total interest-earning assets	42,151,861		1,109,092		3.48		34,473,814		1,052,613		4.05		Total interest-earning assets	50,882,100		1,080,829		2.81		42,151,861		1,109,092		3.48
Cash and due from banks	Cash and due from banks	351,334						277,736						Cash and due from banks	354,104						351,334
Premises and equipment	Premises and equipment	1,258,147						1,214,960						Premises and equipment	1,244,405						1,258,147
Allowance for credit losses	Allowance for credit losses	(206,737)						(227,081)						Allowance for credit losses	(208,477)						(206,737)
Other real estate owned	Other real estate owned	53,871						46,488						Other real estate owned	45,122						53,871
Other assets	Other assets	1,225,569						984,274						Other assets	1,609,717						1,225,569
Total assets	Total assets	$	44,834,045					$	36,770,191					Total assets	$	53,926,971					$	44,834,045

Liabilities	Liabilities													Liabilities
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Checking with interest	Checking with interest	$	8,665,758	$	4,380	0.07	%	$	7,467,762	$	4,457	0.08	%	Checking with interest	$	11,009,608	$	4,263	0.05	%	$	8,665,758	$	4,380	0.07	%
Savings	Savings	2,837,867		911		0.04		2,606,781		1,260		0.06		Savings	3,747,847		966		0.03		2,837,867		911		0.04
Money market accounts	Money market accounts	7,583,359		19,262		0.34		5,950,591		16,249		0.37		Money market accounts	9,488,641		7,500		0.11		7,583,359		19,262		0.34
Time deposits	Time deposits	3,454,438		31,025		1.20		3,248,768		31,854		1.31		Time deposits	2,691,652		12,679		0.63		3,454,438		31,025		1.20
Total interest-bearing deposits	Total interest-bearing deposits	22,541,422		55,578		0.33		19,273,902		53,820		0.37		Total interest-bearing deposits	26,937,748		25,408		0.13		22,541,422		55,578		0.33
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	614,920		1,236		0.27		542,618		1,516		0.37		Securities sold under customer repurchase agreements	663,713		1,052		0.21		614,920		1,236		0.27
Other short-term borrowings	Other short-term borrowings	67,522		1,052		2.05		21,335		481		2.99		Other short-term borrowings	—		—		—		67,522		1,052		2.05
Long-term borrowings	Long-term borrowings	1,164,475		19,831		2.24		366,850		9,900		3.56		Long-term borrowings	1,228,546		19,611		2.10		1,164,475		19,831		2.24
Total interest-bearing liabilities	Total interest-bearing liabilities	24,388,339		77,697		0.42		20,204,705		65,717		0.43		Total interest-bearing liabilities	28,830,007		46,071		0.21		24,388,339		77,697		0.42
Noninterest-bearing deposits	Noninterest-bearing deposits	16,071,414						12,582,869						Noninterest-bearing deposits	20,316,612						16,071,414
Other liabilities	Other liabilities	477,647						437,199						Other liabilities	377,029						477,647
Shareholders’ equity	Shareholders’ equity	3,896,645						3,545,418						Shareholders’ equity	4,403,323						3,896,645
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	44,834,045					$	36,770,191					Total liabilities and shareholders’ equity	$	53,926,971					$	44,834,045
Interest rate spread	Interest rate spread					3.06	%					3.62	%	Interest rate spread					2.60	%					3.06	%

Net interest income and net yield on interest-earning assets	Net interest income and net yield on interest-earning assets			$	1,031,395	3.23	%			$	986,896	3.80	%	Net interest income and net yield on interest-earning assets			$	1,034,758	2.69	%			$	1,031,395	3.23	%

Loans and leases include PCD loans, non-PCD loans, nonaccrual loans and loans held for sale. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 21.0%, as well as a blended state income tax rate of 3.3% and 3.4%, for ~~both~~ the nine months ended September 30, 2021 and 2020, ~~and September 30, 2019.~~respectively. The taxable-equivalent adjustment was ~~$1.9~~$1.8 million and ~~$2.7~~$1.9 million for the nine months ended September 30, ~~2020~~2021 and ~~September 30, 2019,~~2020, respectively.

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Table 45

CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME


		Three months ended September 30, 2020						Nine months ended September 30, 2020							Three months ended September 30, 2021						Nine months ended September 30, 2021
		Change from prior year period due to:						Change from prior year period due to:							Change from prior year period due to:						Change from prior year period due to:
(Dollars in thousands)	(Dollars in thousands)	Volume(1)		Yield/Rate(1)		Total Change		Volume(1)		Yield/Rate(1)		Total Change		(Dollars in thousands)	Volume(1)		Yield/Rate(1)		Total Change		Volume(1)		Yield/Rate(1)		Total Change
Assets	Assets													Assets
Loans and leases	Loans and leases	$	70,257	$	(48,944)	$	21,313	$	166,172	$	(87,457)	$	78,715	Loans and leases	$	(4)	$	(17,192)	$	(17,196)	$	50,823	$	(72,300)	$	(21,477)
Investment securities:	Investment securities:													Investment securities:
U.S. Treasury	U.S. Treasury	(889)		(3,876)		(4,765)		(11,531)		(4,145)		(15,676)		U.S. Treasury	(497)		—		(497)		(1,956)		(725)		(2,681)
Government agency	Government agency	(309)		(3,098)		(3,407)		5,134		(8,335)		(3,201)		Government agency	539		202		741		1,718		(2,659)		(941)
Mortgage-backed securities	Mortgage-backed securities	16,028		(15,683)		345		38,131		(35,511)		2,620		Mortgage-backed securities	3,787		(2,967)		820		17,444		(29,983)		(12,539)
Corporate bonds	Corporate bonds	4,334		187		4,521		7,224		(312)		6,912		Corporate bonds	1,416		(239)		1,177		10,406		60		10,466

Other investments	Other investments	(164)		267		103		362		1,739		2,101		Other investments	75		(270)		(195)		(1,180)		(1,031)		(2,211)
Total investment securities	Total investment securities	19,000		(22,203)		(3,203)		39,320		(46,564)		(7,244)		Total investment securities	5,320		(3,274)		2,046		26,432		(34,338)		(7,906)
Overnight investments	Overnight investments	8,544		(14,938)		(6,394)		16,203		(31,195)		(14,992)		Overnight investments	1,516		1,122		2,638		13,953		(12,833)		1,120
Total interest-earning assets	Total interest-earning assets	$	97,801	$	(86,085)	$	11,716	$	221,695	$	(165,216)	$	56,479	Total interest-earning assets	$	6,832	$	(19,344)	$	(12,512)	$	91,208	$	(119,471)	$	(28,263)
Liabilities	Liabilities													Liabilities
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
Checking with interest	Checking with interest	$	380	$	(520)	$	(140)	$	704	$	(781)	$	(77)	Checking with interest	$	313	$	(332)	$	(19)	$	1,195	$	(1,312)	$	(117)
Savings	Savings	85		(299)		(214)		110		(459)		(349)		Savings	94		(66)		28		294		(239)		55
Money market accounts	Money market accounts	2,169		(5,145)		(2,976)		4,407		(1,394)		3,013		Money market accounts	800		(2,077)		(1,277)		4,845		(16,607)		(11,762)
Time deposits	Time deposits	(1,213)		(3,726)		(4,939)		1,934		(2,763)		(829)		Time deposits	1,525		(5,652)		(4,127)		(6,827)		(11,519)		(18,346)
Total interest-bearing deposits	Total interest-bearing deposits	1,421		(9,690)		(8,269)		7,155		(5,397)		1,758		Total interest-bearing deposits	2,732		(8,127)		(5,395)		(493)		(29,677)		(30,170)
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	178		(325)		(147)		199		(479)		(280)		Securities sold under customer repurchase agreements	12		(49)		(37)		101		(285)		(184)
Other short-term borrowings	Other short-term borrowings	(203)		—		(203)		681		(110)		571		Other short-term borrowings	(248)		248		—		(1,052)		—		(1,052)
Long-term borrowings	Long-term borrowings	7,717		(4,316)		3,401		14,003		(4,072)		9,931		Long-term borrowings	(271)		(4)		(275)		2,169		(2,389)		(220)
Total interest-bearing liabilities	Total interest-bearing liabilities	9,113		(14,331)		(5,218)		22,038		(10,058)		11,980		Total interest-bearing liabilities	2,225		(7,932)		(5,707)		725		(32,351)		(31,626)
Change in net interest income	Change in net interest income	$	88,688	$	(71,754)	$	16,934	$	199,657	$	(155,158)	$	44,499	Change in net interest income	$	4,607	$	(11,412)	$	(6,805)	$	90,483	$	(87,120)	$	3,363
(1) The rate/volume variance is allocated proportionally between the changes in volume and rate.	(1) The rate/volume variance is allocated proportionally between the changes in volume and rate.													(1) The rate/volume variance is allocated proportionally between the changes in volume and rate.

RESULTS OF OPERATIONS

Net Interest Income and Margin (Taxable-Equivalent Basis)

Third Quarter ~~2020~~2021 compared to Third Quarter ~~2019~~2020

~~The taxable-equivalent~~Taxable-equivalent net interest income totaled $347.5 million for the third quarter of ~~2020 totaled $354.3 million, an increase~~2021, a decrease of ~~$16.9~~$6.8 million, or ~~5.0%~~1.9%, compared to the third quarter of ~~2019.~~2020. The ~~increase~~decline in net interest income was driven primarily due to an increase of $21.3 million in interest earned on loans due to loan growth and lower interest expense on deposits of $8.3 million, partially offset by a decrease in interest earned on overnight investments of $6.4 million. Interest and fee income related to SBA-PPP loans totaled $29.8 million in the third quarter of 2020.

The taxable-equivalent NIM was 3.06% in the third quarter of 2020, a decrease of 71 basis points from the same quarter in the prior year. The primary drivers of the margin decline were lower yields on interest-earning assets, partially offset by a decline in the ~~rates paid~~yield on ~~interest-bearing deposits, largely in time deposits and money market accounts, and borrowings.~~

~~Average~~ interest-earning assets ~~increased by $10.32 billion to $45.62 billion, compared~~due to the ~~third quarter of 2019. The primary drivers for this change~~sustained low rate environment and a reduction in interest and fee income on SBA-PPP loans. These declines were ~~higher average loan balances, which increased $5.72 billion, due to contributions from loans originated under the SBA-PPP as well as recent acquisitions and~~partially offset by organic loan growth, higher average investment ~~securities~~balances as we have deployed some of ~~$2.97 billion~~the excess liquidity on our balance sheet, and ~~higher average overnight investments of $1.63 billion. The yield~~a decline in the rate paid on ~~interest-earning assets decreased by 82 basis points to 3.24% when compared to~~interest bearing deposits. SBA-PPP loans contributed $20.0 million in interest and fee income for the third quarter of ~~2019. The yield~~2021 compared to $28.9 million for the same quarter in 2020. While SBA-PPP loans continue to support overall net interest income, the contribution from these loans continues to decline as forgiveness activity continues.

Net interest income increased $0.5 million compared to the linked quarter despite a decline in SBA-PPP income and continued low interest rates. Higher investment and overnight yields and balances, organic loan growth and slightly lower deposit costs more than offset rate pressure on loans and ~~leases decreased to 4.06%, or by 55~~a decline in SBA-PPP income. SBA-PPP loans contributed $27.2 million in interest and fee income for the second quarter of 2021.

The taxable-equivalent NIM was 2.61% in the third quarter of 2021, a decrease of 45 basis points ~~primarily due to lower yields on commercial and home equity loans as a result~~from the comparable quarter of ~~downward rate resets on variable rate loans and lower rates on originations.~~2020. The ~~yield on overnight investments and investment securities decreased by 199 basis points and 82 basis points, respectively. The yield decrease on overnight investments~~margin decline was primarily due to ~~a lower federal funds rate, while lower yields on investment securities were primarily due to yield~~changes in earning asset mix driven by excess liquidity and higher balances in overnight investments as well as declines in ~~government agency~~loan yields. These declines were partially offset by lower rates paid on interest-bearing deposits and ~~mortgage-backed securities.~~

~~Average interest-bearing liabilities~~ increased ~~by $5.04~~yield on SBA-PPP loans. As with prior quarters, we continue to operate with liquidity above normal operating ranges which puts downward pressure on net interest margin. The level of organic loan growth has helped to somewhat protect taxable equivalent NIM from the impacts of the low interest rate environment. We have also opportunistically deployed incremental liquidity of $1 billion ~~to $25.59 billion, compared to~~into the investment portfolio since the third quarter of ~~2019. This increase was~~2020.

The taxable-equivalent NIM declined 7 basis points from 2.68% for the linked quarter primarily due to ~~an increase~~changes in ~~average interest-bearing deposit balances of $4.01 billion driven~~earning asset mix as our overnight investments continued to grow, partially offset by ~~contributions from organic deposit growth including SBA-PPP deposits, and recent acquisitions, as well as an increase in average long-term borrowings of $872.3 million.~~higher investment yields.

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Rates on interest-bearing liabilities decreased by 18 basis points to 0.32%, primarily due to decreased rates paid on borrowings and time deposits, checking with interest deposits, and money market accounts.

Nine Months of ~~2020~~2021 compared to Nine Months of ~~2019~~2020

The taxable-equivalent net interest income for the nine months ended September 30, ~~2020,~~2021 was ~~$1.03~~$1.0 billion, an increase of ~~$44.5~~$3.4 million, or ~~4.5%~~0.3%, compared to the same period ~~of 2019. The~~in 2020. This increase ~~in net interest income~~ was primarily due to organic loan growth, an increase ~~of $78.7~~in interest and fee income on SBA-PPP loans, and lower rates paid on interest-bearing deposits. These increases were largely offset by a decline in the yield on interest-earning assets. SBA-PPP loans contributed $78.1 million in interest earned on loans primarily due to loan growth, partially offset by a decrease in interest earned on overnight investments of $15.0 million as well as an increase in total interest expense of $12.0 million. Interest and fee income ~~related to SBA-PPP loans totaled $47.9 million in the first nine months of 2020.~~

~~The taxable-equivalent NIM was 3.23%~~ for the nine months ended September 30, ~~2020, a decrease of 57 basis points from~~2021, compared to $47.9 million for the same period ~~of 2019.~~ in 2020.

The primary drivers of the margin decline were lower yields on interest-earning assets coupled with increased borrowings, partially offset by a decline in the rates paid on interest-bearing deposits, largely in time deposits and money market accounts.

~~Average year-to-date interest-earning assets~~taxable-equivalent NIM was 2.69% for the nine months ended September 30, ~~2020, increased by $7.68 billion to $42.15 billion, compared to~~2021, a decrease of 54 basis points from the ~~same~~comparable period ~~in 2019. This increase~~of 2020. The margin decline was primarily due to changes in earning asset mix and a ~~$4.78 billion increase~~decline in ~~average outstanding loans due~~ the impact of growth from SBA-PPP loans, as well as recent acquisitions and organic loan growth. This increase was coupled with increases in average investment securities of $1.92 billion, primarily consisting of mortgage-backed securities, and average overnight investments of $974.8 million. The yield on interest-earning assets, ~~decreased~~partially offset by 57 basis points to 3.48% for the nine months ended September 30, 2020, compared to the same period in 2019. The yield on loans and leases decreased by 38 basis points primarily due to decreases in yields on commercial and residential loans. The yield on overnight investments and the investment securities portfolio decreased by 187 basis points and 62 basis points, respectively. The lower federal funds rate was the primary driver for the yield decrease on overnight investments, while the accelerated prepayments on mortgage-backed securities with reinvestment at lower yields were the primary drivers of the investment securities yield decline.

Average year-to-date interest-bearing liabilities for the nine months ended September 30, 2020 increased by $4.18 billion to $24.39 billion, compared to the same period in 2019. This increase was primarily due to a $3.27 billion increase in average interest-bearing deposit balances driven by SBA-PPP related deposits, as well as recent acquisitions and organic growth. The raterates paid on interest-bearing deposits ~~decreased by 4 basis points due primarily to decreased rates~~and increased income on time deposits, checking with interest deposits and money market accounts. The rate paid on interest-bearing liabilities decreased by 1 basis points to 0.42% for the nine months ended September 30, 2020 compared to same period in 2019.SBA-PPP loans.

Provision for Credit Losses

~~BancShares recorded net provision~~Provision for credit losses was a benefit of $1.1 million for the third quarter of 2021, compared to an expense of $4.0 million for the ~~three months ended September 30,~~comparable quarter in 2020. The third quarter of 2021 was favorably impacted by a $5.9 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors. The comparable quarter in 2020 ~~compared~~included a $1.5 million reserve build due to ~~$6.8~~continued uncertainties surrounding the COVID-19 pandemic and net loan growth. Total net charge-offs for the third quarter of 2021 were $4.8 million, an increase from $2.6 million for the ~~same period~~comparable quarter in ~~2019. This was~~2020 due to ~~stabilization~~a higher volume of charge-offs and lower recoveries. The net charge-off ratio was 0.06% for the third quarter of 2021 compared to 0.03% for the same quarter in 2020. The impact of SBA-PPP loans on average loan balances did not affect the ~~macroeconomic forecasts, limited movement~~net charge-off ratio in ~~credit quality metrics and continued low net charge-offs.~~ either three-month period.

For the nine months ended September 30, ~~2020, BancShares recorded~~2021, provision for credit losses was a ~~net provision expense~~benefit of ~~$52.9~~$31.7 million compared to ~~$23.7~~$52.9 million in expense for the first nine months of 2020. Provision for credit losses for the nine months ended September 30, 2021 was favorably impacted by a $41.1 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors. The comparable period in 2020 included $36.1 million reserve build related to uncertainties surrounding the COVID-19 pandemic. Net charge-offs for the nine months ended September 30, 2021 were $9.4 million, a decrease from $17.4 million for the comparable period in 2020 due to a lower volume of charge-offs and stable recoveries. The net charge-off ratio was 0.04% for the nine months ended September 30, 2021 compared to 0.07% for the same period in ~~2019. This increase was primarily COVID-19 related reserve build of $36.1 million as loss estimates consider the potential~~2020. The impact of ~~slower economic activity and elevated unemployment, as well as potential mitigants due to government stimulus and~~SBA-PPP loans on average loan ~~accommodations.~~balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.

Noninterest Income

Table 6

NONINTEREST INCOME

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2020 2019 2020 2019
Service charges on deposit accounts $ 20,841 $ 27,112 $ 64,776 $ 77,967
Wealth management services 26,369 25,212 75,152 74,786
Cardholder services, net 19,756 15,957 55,503 51,069
Other service charges and fees 7,892 8,237 22,829 23,823
Merchant services, net 6,763 6,034 18,014 18,324
Mortgage income 13,106 7,438 28,141 16,134
Insurance commissions 3,576 2,960 10,453 9,105
ATM income 1,537 1,635 4,354 4,771
Marketable equity securities (losses) gains, net (2,701) (967) 10,461 13,505
Realized gains on investment securities available for sale, net 21,425 1,136 54,972 6,855
Other 2,008 6,176 5,330 15,129
Total noninterest income $ 120,572 $ 100,930 $ 349,985 $ 311,468

~~Table of~~ ~~Contents~~


	Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	2021		2020		2021		2020
Wealth management services	$	31,935	$	26,369	$	95,886	$	75,152
Service charges on deposit accounts	24,858		20,841		68,277		64,776
Cardholder services, net	22,879		19,756		65,310		55,503
Other service charges and fees	9,205		7,892		26,653		22,829
Merchant services, net	8,409		6,763		25,858		18,014
Mortgage income	6,106		13,106		25,026		28,141
Insurance commissions	4,000		3,576		11,702		10,453
ATM income	1,481		1,537		4,534		4,354
Realized gains on investment securities available for sale, net	8,082		21,425		33,119		54,972
Marketable equity securities gains (losses), net	3,350		(2,701)		31,015		10,461



Other	2,639		2,008		6,363		5,330
Total noninterest income	$	122,944	$	120,572	$	393,743	$	349,985

Noninterest income is an essential component of our total revenue and is critical to our profitability level. The primary sources of noninterest income consist of wealth management services, fees and service charges generated from deposit accounts, cardholder and merchant services, ~~wealth management services,~~ and mortgage lending and servicing.

Table of Contents

Noninterest income for the third quarter of ~~2020~~2021 was ~~$120.6~~$122.9 million, compared to ~~$100.9~~$120.6 million for the same period of ~~2019,~~2020, an increase of ~~$19.6~~$2.4 million, or ~~19.5%~~2.0%. The most significant components of the change were as follows:

•~~Gains~~A $6.1 million favorable change in the fair market value adjustments on ~~sales of investment securities available for sale increased by $20.3 million.~~marketable equity securities.

•~~Mortgage income~~Wealth management services increased by ~~$5.7~~$5.6 million, primarily due to ~~origination volume brought about by lower mortgage rates.~~

•~~Cardholder services income increased by $3.8 million primarily due to a decline~~growth in ~~credit card reward redemptions driven by COVID-19, as well as an increase in~~assets under management driving higher advisory and transaction ~~volume particularly by business customers.~~fees.

•Service charges on deposit accounts ~~declined~~increased by ~~$6.3~~$4.0 million due to volume.

•Cardholder services income, net increased by $3.1 million and merchant services, net increased by $1.6 million, primarily due to an increase in transaction volume.

•Realized gains on investment securities available for sale, net declined by $13.3 million.

•Mortgage income decreased ~~customer activity~~by $7.0 million, driven by reductions in gain on sale margins and ~~fees waived~~lower production volume in 2021 due to ~~aid our customers during the COVID-19 pandemic.~~higher mortgage rates and increased competition.

Noninterest income was ~~$350.0~~$393.7 million for the first nine months of ~~2020,~~2021, compared to ~~$311.5~~$350.0 million for the same period of ~~2019,~~2020, an increase of ~~$38.5~~$43.8 million, or ~~12.4%~~12.5%. The most significant components of the change were as follows:

•~~Gains on sales of investment securities available for sale~~Wealth management services increased by ~~$48.1 million.~~

•~~Mortgage income increased by $12.0~~$20.7 million, primarily due to ~~origination volume brought about by lower mortgage rates. The production-related income was partially offset by mortgage servicing rights impairment of $4.3~~growth in assets under management driving higher advisory and transaction fees.

•A $20.6 million ~~recorded due to declining mortgage rates.~~favorable change in the fair market value adjustments on marketable equity securities.

•Cardholder services income, net increased ~~$4.4~~by $9.8 million and merchant services, net increased by $7.8 million, primarily due to ~~a decline in credit card reward redemptions driven by COVID-19, as well as~~ an increase in transaction ~~volume particularly by business customers.~~volume.

•~~Service charges~~Realized gains on ~~deposit accounts~~investment securities available for sale declined by ~~$13.2 million primarily due to decreased customer activity and fees waived to aid our customers during the COVID-19 pandemic.~~

•Other noninterest income decreased $9.8 million primarily due to acquired recoveries on PCD loans, formerly reported in noninterest income, now being recorded as a component of the allowance for credit losses.$21.9 million.

Noninterest Expense

Table 7

NONINTEREST EXPENSE

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2020 2019 2020 2019
Salaries and wages $ 147,297 $ 137,841 $ 439,185 $ 406,788
Employee benefits 31,788 28,358 100,663 91,090
Occupancy expense 27,990 28,163 85,026 82,810
Equipment expense 29,430 28,770 86,054 83,999
Processing fees paid to third parties 11,927 7,250 32,485 20,980
FDIC insurance expense 2,167 2,440 9,364 7,857
Collection and foreclosure-related expenses 2,168 3,044 10,171 9,725
Merger-related expenses 3,507 3,892 12,108 9,695
Telecommunications expense 3,197 2,391 8,985 6,825
Consultant expense 2,936 2,764 9,223 9,284
Advertising expense 2,396 2,937 7,045 8,431
Core deposit intangible amortization 3,468 4,049 10,999 12,529
Other 23,391 18,526 72,004 61,466
Total noninterest expense $ 291,662 $ 270,425 $ 883,312 $ 811,479

~~Table of~~ ~~Contents~~


	Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	2021		2020		2021		2020
Salaries and wages	$	160,947	$	147,297	$	462,420	$	439,185
Employee benefits	32,146		31,788		103,169		100,663
Occupancy expense	29,101		27,990		87,283		85,026
Equipment expense	30,229		29,430		88,934		86,054
Processing fees paid to third parties	15,602		11,927		43,702		32,485
FDIC insurance expense	3,661		2,167		10,261		9,364
Collection and foreclosure-related expenses	836		2,168		3,207		10,171
Merger-related expenses	7,013		3,507		19,601		12,108
Telecommunications expense	3,111		3,197		9,331		8,985
Consultant expense	3,338		2,936		8,176		9,223
Advertising expense	3,024		2,396		7,210		7,045
Core deposit intangible amortization	2,638		3,468		8,523		10,999
Other	21,172		23,391		58,505		72,004
Total noninterest expense	$	312,818	$	291,662	$	910,322	$	883,312

The primary components of noninterest expense are salaries and related employee benefits, occupancy and equipment expense.

Noninterest expense was ~~$291.7~~$312.8 million during the third quarter of ~~2020,~~2021, an increase of $21.2 million, or 7.3%, compared to ~~$270.4~~the same quarter in 2020. The most significant components of the change were as follows:

•Salaries and wages increased $13.7 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs.

•Processing fees paid to third parties increased $3.7 million driven by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.

•Merger-related expenses increased $3.5 million in anticipation of the upcoming merger with CIT.

Table of Contents

Noninterest expense was $910.3 million for the first nine months of 2021, compared to $883.3 million for the same period in ~~2019,~~2020, an increase of ~~$21.2~~$27.0 million, or ~~7.9%~~3.1%. The most significant components of the change were as follows:

•~~Personnel expense~~Salaries and wages increased ~~$12.9~~$23.2 million driven primarily ~~due to~~by annual merit increases, increases in revenue-driven incentives, and an increase in ~~salaries and wages as a result of merit increases and additional headcount from recent acquisitions.~~

•~~Other noninterest expense increased $4.9 million primarily due to higher write-downs on OREO properties and increased pension costs due to a lower discount rate.~~temporary personnel costs.

•Processing fees paid to third parties increased ~~$4.7~~$11.2 million ~~primarily due~~by our continued investments in digital and technology to ~~the expansion of digital banking offerings as well as processing fees related to recent acquisitions.~~

Noninterest expense was $883.3 million for the first nine months of 2020, compared to $811.5 million for the same period in 2019, an increase of $71.8 million, or 8.9%. The most significant components of the change were as follows:

•~~Personnel expense increased by $42.0 million primarily due to an increase in salaries~~support revenue-generating businesses and ~~wages as a result of merit increases and additional headcount from recent acquisitions.~~

•~~Processing fees paid to third parties increased $11.5 million primarily due to the expansion of digital banking offerings as well as processing fees related to recent acquisitions.~~

•Other noninterest expense increased $10.5 million primarily due to higher provision related to unfunded loan commitments as a result of the potential economic impact of COVID-19 and increased pension costs due to a lower discount rate.improve internal processes.

•Merger-related expenses increased ~~$2.4~~$7.5 million in anticipation of the upcoming merger with CIT.

•Other expenses decreased $16.5 million primarily due to ~~costs related to Entegra.~~a decrease in pension expense as a result of higher returns on plan assets, coupled with a reduction in the reserve for unfunded commitments.

•~~Occupancy expense increased $2.2 million primarily due to cleaning~~Collection and ~~sanitizing efforts in branches and corporate buildings to combat the spread of COVID-19.~~

•~~Telecommunications expense increased $2.2 million primarily due to equipment upgrades to increase network capacity to facilitate remote access as corporate employees continue to work from home.~~foreclosure-related expenses declined $7.0 million.

Income Taxes

Income tax expense was ~~$35.8~~$34.1 million and ~~$35.4~~$35.8 million for the third quarter of ~~2020~~2021 and ~~2019,~~2020, respectively, representing effective tax rates of ~~20.1%~~21.5% and ~~22.1%~~20.1% during the respective periods.

Income tax expense ~~was $89.5~~totaled $123.9 million and ~~$105.0~~$89.5 million for the first nine months ~~ended September 30,~~of 2021 and 2020, ~~and 2019,~~ respectively, representing effective tax rates of 22.6% and 20.2% ~~and 22.8% during~~for the respective nine month periods.

The effective tax rates ~~for the third quarter and first nine months of~~during 2020 were favorably impacted by ~~$3.5 million and $10.4 million, respectively, due to~~ BancShares’ decision ~~in the second quarter~~ to utilize an allowable alternative for computing its ~~2020~~ federal income tax liability. ~~Without this alternative, the effective tax rate would have been approximately 22.0% and 22.6% for the third quarter and first nine months of 2020, respectively.~~ The allowable alternative ~~provides~~provided 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. Without this alternative, the effective tax rate is materially unchanged for the third quarter and first nine months of 2021 and the effective tax rate for the third quarter and first nine months of 2020 would have been approximately 22.0% and 22.6% respectively.

We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns as well as potential or pending audits or assessments by tax auditors.

INTEREST-EARNING ASSETS

Interest-earning assets include overnight investments, investment securities and loans and leases, ~~and overnight investments,~~ all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Riskier investments typically carry a higher interest rate but expose us to higher levels of market risk. We strive to maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum.

Interest-earning assets totaled ~~$45.96~~$53.4 billion and ~~$37.23~~$47.2 billion at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The ~~$8.73~~$6.2 billion increase was primarily composed of a ~~$3.96~~$5.5 billion increase in ~~loans~~overnight investments and ~~leases,~~ a ~~$2.69 billion~~$952.4 million increase in investment securities, ~~and~~partially offset by a ~~$2.03 billion increase~~$275.8 million decrease in ~~overnight investments.~~loans.

~~Table of~~ ~~Contents~~

Investment Securities

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities with minimal liquidity and credit risk, and low to moderate interest rate risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares’ objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made largely under a long-term earnings optimization strategy. Changes in the total balance of our investment 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 and into overnight investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand. See Note C - Investments to our consolidated financial statements for additional disclosures.

The carrying value of investment securities totaled ~~$9.86~~$10.9 billion at September 30, ~~2020,~~2021, an increase of ~~$2.69 billion~~$952.4 million compared to December 31, ~~2019. The increase in the portfolio was primarily~~2020 attributable to ~~deposit~~our continued growth ~~outpacing loan growth for~~in deposits. During the period ~~resulting~~we had $5.0 billion in investment ~~securities~~security purchases, ~~of $8.80 billion,~~ partially offset by sales of ~~$4.22~~$1.4 billion and maturities and paydowns of ~~$2.04~~$2.6 billion.

~~As part~~

Table of the adoption of ASC 326, BancShares evaluated its portfolios of held to maturity and available for sale debt securities to determine the need to record a related allowance for credit losses. See Note A - Accounting Policies and Basis for Presentation for more detail on our policies and adoption. As of January 1, 2020, no allowance for credit losses was required for available for sale and held to maturity debt securities.Contents

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. As of September 30, ~~2020,~~2021, investment securities available for sale had a net pre-tax unrealized gain of ~~$135.2~~$26.0 million, compared to a net pre-tax unrealized gain of ~~$7.5~~$102.3 million as of December 31, ~~2019.~~2020. Management evaluated the available for sale securities in an unrealized loss position and concluded that the unrealized losses relate to changes in interest rates relative to when the securities were purchased, and therefore, no allowance for credit losses was ~~needed~~recorded at September 30, 2021 or December 31, 2020.

~~Table of~~ ~~Contents~~

Table 8

INVESTMENT SECURITIES


		September 30, 2020						December 31, 2019							September 30, 2021						December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Composition(1)		Cost		Fair value		Composition(1)		Cost		Fair value		(Dollars in thousands)	Composition(1)		Amortized cost		Fair value		Composition(1)		Amortized cost		Fair value
Investment securities available for sale	Investment securities available for sale													Investment securities available for sale
U.S. Treasury	U.S. Treasury	6.6	%	$	654,588	$	654,762	5.7	%	$	409,397	$	409,999	U.S. Treasury	—	%	$	—	$	—	5.0	%	$	499,832	$	499,933
Government agency	Government agency	6.6		659,260		654,941		9.5		684,085		682,772		Government agency	7.9		851,860		853,728		7.0		706,241		701,391
Residential mortgage-backed securities	Residential mortgage-backed securities	61.4		5,968,192		6,069,668		73.4		5,269,060		5,267,090		Residential mortgage-backed securities	44.3		4,800,194		4,801,646		44.5		4,369,130		4,438,103
Commercial mortgage-backed securities	Commercial mortgage-backed securities	11.1		1,058,640		1,090,210		5.3		373,105		380,020		Commercial mortgage-backed securities	10.0		1,092,183		1,090,652		7.9		745,892		771,537
Corporate bonds	Corporate bonds	5.6		543,868		550,207		2.8		198,278		201,566		Corporate bonds	5.8		600,906		625,103		6.1		590,870		603,279
State, county and municipal		—		—		—		1.7		118,227		118,227

Total investment securities available for sale	Total investment securities available for sale	91.3		8,884,548		9,019,788		98.4		7,052,152		7,059,674		Total investment securities available for sale	68.0		7,345,143		7,371,129		70.5		6,911,965		7,014,243
Investment in marketable equity securities	Investment in marketable equity securities	0.9		100,408		93,074		1.2		59,262		82,333		Investment in marketable equity securities	1.1		85,554		123,147		0.9		84,837		91,680
Investment securities held to maturity	Investment securities held to maturity													Investment securities held to maturity
Residential mortgage-backed securities	Residential mortgage-backed securities	6.4		614,489		627,394		—		—		—		Residential mortgage-backed securities	19.4		2,122,299		2,112,561		19.1		1,877,692		1,895,381
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1.3		130,987		131,602		—		—		—		Commercial mortgage-backed securities	11.4		1,256,771		1,238,509		9.4		937,034		940,862
Other	Other	0.1		2,256		2,256		0.4		30,996		30,996		Other	0.1		2,008		2,008		0.1		2,256		2,256
Total investment securities held to maturity	Total investment securities held to maturity	7.8		747,732		761,252		0.4		30,996		30,996		Total investment securities held to maturity	30.9		3,381,078		3,353,078		28.6		2,816,982		2,838,499
Total investment securities	Total investment securities	100.0	%	$	9,732,688	$	9,874,114	100.0	%	$	7,142,410	$	7,173,003	Total investment securities	100.0	%	$	10,811,775	$	10,847,354	100.0	%	$	9,813,784	$	9,944,422
(1) Calculated as a percent of the total fair value of investment securities.	(1) Calculated as a percent of the total fair value of investment securities.													(1) Calculated as a percent of the total fair value of investment securities.

Table of Contents

Table 9presents the weighted average taxable-equivalent yields for investment securities available for sale and held to maturity at September 30, 2021 segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level yields.

Table 9

WEIGHTED AVERAGE YIELD ON INVESTMENT SECURITIES


	September 30, 2021
	Within One Year		One to Five Years		Five to 10 Years		After 10 Years		Total
Investment securities available for sale

Government agency	—	%	2.15	%	1.08	%	1.07	%	1.07	%
Residential mortgage-backed securities(1)	—		—		1.80		1.26		1.27
Commercial mortgage-backed securities(1)	—		—		3.19		2.04		2.09
Corporate bonds	4.05		5.87		5.21		4.76		5.24
Total investment securities available for sale	4.05	%	5.70	%	3.71	%	1.38	%	1.71	%

Investment securities held to maturity
Residential mortgage-backed securities(1)	—	%	—	%	—	%	1.17	%	1.17	%
Commercial mortgage-backed securities(1)	—		—		—		1.46		1.46
Other investments	0.81		1.17		—		—		0.94
Total investment securities held to maturity	0.81	%	1.17	%	—	%	1.28	%	1.28	%

(1)Residential 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 will differ from contractual maturities because borrowers have the right to prepay the underlying loans.

Loans and Leases

Loans ~~for~~ held for sale were ~~$120.3~~$98.5 million at September 30, ~~2020,~~2021, a net ~~increase~~decrease of ~~$52.4~~$26.4 million since December 31, ~~2019. The increase is primarily due to originations of $775.9 million driven by low interest rates, partially offset by sales of $743.5 million.~~2020.

~~Loans and leases held for investment were $32.85 billion at~~At September 30, ~~2020,~~2021, loans totaled $32.5 billion, a ~~net increase~~decrease of ~~$3.96 billion, representing~~$275.8 million, or by 1.1% on an annualized ~~growth of 18.3%~~basis since December 31, 2019. This increase was driven by a $4.03 billion net increase in the non-PCD portfolio offset by a $62.8 million net decrease in the PCD loan portfolio. The net increase in the non-PCD portfolio was due to $3.11 billion related to SBA-PPP loans as well as organic growth primarily in our commercial segments. The net decrease in PCD loans was primarily due to pay downs and pay-offs, partially offset by a $19.0 million increase from the adoption of ASC 326.2020. Excluding ~~2020 loans related to~~ SBA-PPP loans, total loans ~~grew~~increased $1.0 billion, or by ~~3.9%~~4.6% on an annualized ~~basis.~~basis since December 31, 2020.

BancShares reports non-PCD and PCD loan portfolios separately, and the non-PCD portfolio is further divided into commercial and consumer segments. Non-PCD loans and leases were $32.1 billion at September 30, ~~2020 were $32.35 billion compared to $28.32~~2021 and $32.3 billion at December 31, ~~2019,~~2020, representing ~~98.5%~~98.9% and ~~98.1%~~98.6% of total loans, respectively. PCD loans at September 30, ~~2020~~2021 were ~~$495.9~~$373.3 million, compared to ~~$558.7~~$462.9 million ~~of PCI loans~~ at December 31, ~~2019,~~2020, representing ~~1.5%~~1.1% and ~~1.9%~~1.4% of total loans, respectively.

The discount related to acquired non-PCD loans and leases was $13.4 million and $19.5 million at September 30, ~~2020~~2021 and ~~non-PCI loans and leases at~~ December 31, ~~2019 was $23.0 million and $30.9 million,~~2020, respectively. The discount related to PCD loans was $32.6 million and $45.3 million at September 30, ~~2020~~2021 and ~~PCI loans at~~ December 31, ~~2019 was $49.2 million and $88.2 million,~~2020, respectively. ~~The primary driver of the decrease in PCD discount is the adoption of ASC 326, which resulted in a reclassification of the credit portion of the loan discount to the ACL of $19.0 million.~~

During the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, accretion income on purchased non-PCD loans and leases was $1.2 million and $2.8 million, ~~and $3.6 million, respectively. During the three months ended September 30, 2020 and 2019,~~respectively, while interest and accretion income on ~~purchased~~ PCD loans was $10.8 million and ~~leases was~~ $15.0 million, ~~and $16.5 million,~~ respectively.

During the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, accretion income on purchased non-PCD loans and leases was $6.1 million and $7.8 million, ~~and $10.3 million, respectively. During the nine months ended September 30, 2020 and 2019,~~respectively, while interest and accretion income on ~~purchased~~ PCD loans was $34.5 million and ~~leases was~~ $48.0 million, ~~and $46.1 million, respectively.~~respectively

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~~Table 9~~

~~LOANS AND LEASES~~


~~(Dollars in thousands)~~	~~September 30, 2020~~
~~Commercial:~~
~~Construction and land development~~	$	~~1,054,186~~
~~Owner occupied commercial mortgage~~	~~10,683,822~~
~~Non-owner occupied commercial mortgage~~	~~2,965,904~~


~~Commercial and industrial and leases~~	~~4,797,344~~

~~SBA-PPP~~	~~3,112,676~~
~~Total commercial loans~~	~~22,613,932~~
~~Consumer:~~
~~Residential mortgage~~	~~5,463,646~~
~~Revolving mortgage~~	~~2,145,506~~
~~Construction and land development~~	~~347,850~~
~~Consumer auto~~	~~1,234,196~~
~~Consumer other~~	~~544,136~~

~~Total consumer loans~~	~~9,735,334~~
~~Total non-PCD loans and leases~~	~~32,349,266~~
~~PCD loans~~	~~495,878~~
~~Total loans and leases~~	~~32,845,144~~
~~Less allowance for credit losses~~	~~(223,936)~~
~~Net loans and leases~~	$	~~32,621,208~~


~~(Dollars in thousands)~~	~~December 31, 2019~~
~~Commercial:~~
~~Construction and land development~~	$	~~1,013,454~~


~~Commercial mortgage~~	~~12,282,635~~
~~Other commercial real estate~~	~~542,028~~
~~Commercial and industrial and leases~~	~~4,403,792~~
~~Other~~	~~310,093~~
~~Total commercial loans~~	~~18,552,002~~
~~Noncommercial:~~
~~Residential mortgage~~	~~5,293,917~~
~~Revolving mortgage~~	~~2,339,072~~
~~Construction and land development~~	~~357,385~~


~~Consumer~~	~~1,780,404~~
~~Total noncommercial loans~~	~~9,770,778~~
~~Total non-PCI loans and leases~~	~~28,322,780~~
~~PCI loans~~	~~558,716~~
~~Total loans and leases~~	~~28,881,496~~
~~Less allowance for loan and lease losses~~	~~(225,141)~~
~~Net loans and leases~~	$	~~28,656,355~~

~~Table of~~ ~~Contents~~

~~ALLOWANCE FOR CREDIT LOSSES (“ACL”)~~

The ACL was $223.9 million at September 30, 2020, representing a decrease of $1.2 million since December 31, 2019. The ACL as a percentage of total loans and leases was 0.68% at September 30, 2020, compared to 0.78% December 31, 2019. The ACL as a percentage of loans and leases excluding SBA-PPP loans, which have no recorded ACL, was 0.75% at September 30, 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 ACL.

At September 30, 2020, the ACL allocated to non-PCD loans and leases was $198.8 million, or 0.61% of non-PCD loans and leases, compared to $217.6 million, or 0.77%, at December 31, 2019. The ACL as a percentage of non-PCD loans and leases excluding SBA-PPP loans was 0.68 at September 30, 2020. The decrease of 16 basis points 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 impact resulted in an increase of 11 basis points.

~~At September 30, 2020, the ACL for PCD loans totaled $25.1 million compared to $7.5 million at December 31, 2019. The increase was primarily due the adoption of ASC 326.~~

Net charge-offs for loans and leases were $2.6 million during the third quarter of 2020, compared to $6.5 million during the third quarter of 2019. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.03% and 0.10% for the third quarter of 2020 and 2019, respectively. The net charge-off ratio was 0.07% and 0.10% for the nine months ended September 30, 2020 and 2019, respectively. The ACL as of September 30, 2020, excluding SBA-PPP loans, covered approximately 9.4 times annualized year to date net charge-offs compared to 6.5 times at January 1, 2020 CECL adoption.

~~Table of~~ Contents

Table 10

LOANS AND LEASES


(Dollars in thousands)	September 30, 2021		December 31, 2020
Commercial:
Construction and land development	$	1,247,680	$	985,424
Owner occupied commercial mortgage	11,625,554		11,165,012
Non-owner occupied commercial mortgage	3,002,928		2,987,689


Commercial and industrial and leases	5,266,266		5,013,644

SBA-PPP	1,086,917		2,406,291
Total commercial loans	22,229,345		22,558,060
Consumer:
Residential mortgage	5,701,346		5,561,686
Revolving mortgage	1,834,690		2,052,854
Construction and land development	391,768		348,123
Consumer auto	1,350,377		1,255,402
Consumer other	635,408		552,968

Total consumer loans	9,913,589		9,771,033
Total non-PCD loans and leases	32,142,934		32,329,093
PCD loans	373,255		462,882
Total loans and leases	32,516,189		32,791,975
Less allowance for credit losses	(183,194)		(224,314)
Net loans and leases	$	32,332,995	$	32,567,661

ALLOWANCE FOR CREDIT LOSSES

Three months ended September 30, 2020
(Dollars in thousands) Construction
and land
development
- commercial Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial
and industrial and leases Residential
mortgage Revolving
mortgage Construction and land development - consumer Consumer auto Consumer other PCD Total
Allowance for credit losses:
Balance at July 1 $ 6,906 $ 22,489 $ 22,149 $ 24,633 $ 42,872 $ 26,640 $ 1,640 $ 8,898 $ 39,295 $ 26,928 $ 222,450
Provision (credits) 120 625 667 3,381 837 (958) (54) 708 1,341 (2,625) 4,042
Charge-offs — (87) — (3,241) (253) (359) — (824) (3,673) (495) (8,932)
Recoveries 264 65 10 1,999 275 336 23 401 1,684 1,319 6,376
Balance at September 30 $ 7,290 $ 23,092 $ 22,826 $ 26,772 $ 43,731 $ 25,659 $ 1,609 $ 9,183 $ 38,647 $ 25,127 $ 223,936
Three months ended September 30, 2019
(Dollars in thousands) Construction
and land
development
- commercial Commercial
mortgage Other
commercial
real estate Commercial
and industrial and leases Other Residential
mortgage Revolving
mortgage Construction and land development - consumer Consumer PCI Total
Balance at July 1 $ 31,944 $ 48,962 $ 2,342 $ 56,901 $ 2,183 $ 16,932 $ 21,121 $ 2,750 $ 35,105 $ 8,343 $ 226,583
Provision (credits) 208 (1,337) (90) 4,714 54 1,024 (153) 148 3,674 (1,476) 6,766
Charge-offs (116) (1) — (3,047) (42) (313) (534) — (5,594) — (9,647)
Recoveries 52 226 — 611 20 68 201 — 1,945 — 3,123
Balance at September 30 $ 32,088 $ 47,850 $ 2,252 $ 59,179 $ 2,215 $ 17,711 $ 20,635 $ 2,898 $ 35,130 $ 6,867 $ 226,825
Nine months ended September 30, 2020
(Dollars in thousands) Construction
and land
development
- commercial Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial
and industrial and leases Residential
mortgage Revolving
mortgage Construction and land development - consumer Consumer auto Consumer other PCD Total
Balance at December 31 $ 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 $ 2,152 $ 17,128 $ 11,562 $ 23,973 $ 35,350 $ 23,367 $ 1,418 $ 5,392 $ 40,338 $ 26,537 $ 187,217
Provision (credits) 4,876 6,011 11,165 10,802 9,339 2,557 209 5,708 7,253 (4,971) 52,949
Initial allowance on PCD loans — — — — — — — — — 1,193 1,193
Charge-offs (138) (407) (8) (12,159) (1,513) (1,439) (70) (3,023) (13,490) (3,010) (35,257)
Recoveries 400 360 107 4,156 555 1,174 52 1,106 4,546 5,378 17,834
Balance at September 30 $ 7,290 $ 23,092 $ 22,826 $ 26,772 $ 43,731 $ 25,659 $ 1,609 $ 9,183 $ 38,647 $ 25,127 $ 223,936
Nine months ended September 30, 2019
(Dollars in thousands) Construction
and land
development
- commercial Commercial
mortgage Other
commercial
real estate Commercial
and industrial and leases Other Residential
mortgage Revolving
mortgage Construction
and land
development
- non - commercial Consumer PCI Total
Balance at January 1 $ 35,270 $ 43,451 $ 2,481 $ 55,620 $ 2,221 $ 15,472 $ 21,862 $ 2,350 $ 35,841 $ 9,144 $ 223,712
Provision (credits) (3,217) 4,748 (230) 10,138 (618) 2,903 (272) 548 11,991 (2,277) 23,714
Charge-offs (188) (851) — (8,327) (73) (957) (1,990) — (18,017) — (30,403)
Recoveries 223 502 1 1,748 685 293 1,035 — 5,315 — 9,802
Balance at September 30 $ 32,088 $ 47,850 $ 2,252 $ 59,179 $ 2,215 $ 17,711 $ 20,635 $ 2,898 $ 35,130 $ 6,867 $ 226,825

The ~~reserve~~allowance for ~~unfunded loan commitments~~credit losses (“ACL”) was ~~$14.0 million and $1.1~~$183.2 million at September 30, ~~2020 and~~2021, representing a decrease of $41.1 million since December 31, ~~2019, respectively.~~2020. The ~~increase~~ACL as a percentage of total loans and leases was 0.56% at September 30, 2021, compared to 0.68% at December 31, 2020. The ACL as a percentage of loans and leases excluding SBA-PPP loans, which have no recorded ACL, was 0.58% at September 30, 2021, compared to 0.74% at December 31, 2020.

As of September 30, 2021, the consensus baseline forecast utilized the following significant inputs over the two-year reasonable and supportable forecast period:

Unemployment - Rates are expected to improve to below 4% through the end of 2022 and stabilizing into early 2023.

GDP Growth - Peak growth of just under 7% in the fourth quarter of 2021, decreasing to below 3% in 2022 and thereafter.

Home Pricing Index - Growth rates of over 7% declining to below 4% over the forecast period.

Commercial Real Estate Index - Small forecasted downturn through the first half of 2022 and then improving to over 6% into 2023.

At September 30, 2021, the ACL allocated to non-PCD loans and leases was $164.8 million, or 0.51% of non-PCD loans and leases, compared to $200.3 million, or 0.62%, at December 31, 2020. The decrease of 11 basis points since December 31, 2020 was primarily due to ~~increases~~continued strong credit performance, low net charge-offs, and improvement in ~~the scope~~macroeconomic factors. The ACL as a percentage of ~~off-balance sheet exposures considered due~~non-PCD loans and leases excluding SBA-PPP loans was 0.53% at September 30, 2021 compared to ~~the provisions of ASC 326.~~

0.67% at December 31, 2020.

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At September 30, 2021, the ACL for PCD loans totaled $18.4 million compared to $24.0 million at December 31, 2020. The decrease was due to paydowns and the decline in the portfolio coupled with the impact of improved macroeconomic factors.

In the period ended September 30, 2021, the ACL on our commercial portfolio decreased $8.2 million, with the largest share of the decrease within commercial real estate. The ACL on the consumer portfolio decreased $27.4 million, with decreases across all portfolios with the largest change in residential mortgages. These portfolios were largely impacted by the improvement in macroeconomic factors.

Net charge-offs for loans and leases were $4.8 million during the third quarter of 2021, compared to $2.6 million during the third quarter of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.06% and 0.03% for the third quarter of 2021 and 2020, respectively. The impact of SBA-PPP loans on average loans balances did not affect the net charge-off ratio in either period.

Net charge-offs for loans and leases were $9.4 million during the nine months ended September 30, 2021, compared to $17.4 million during the same period of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.04% and 0.07% for the nine months ended September 30, 2021 and 2020, respectively. The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.

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Table 11

ALLOWANCE FOR CREDIT LOSSES ~~RATIOS~~

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2020 2019 2020 2019
Average loans and leases:
PCD $ 512,559 $ 530,390 $ 529,819 $ 551,065
Non-PCD 32,065,084 26,379,156 30,525,411 25,762,098
Loans and leases at period-end:
PCD 495,878 513,589 495,878 513,589
Non-PCD 32,349,266 26,682,922 32,349,266 26,682,922
Allowance for credit losses allocated to:
PCD 25,127 6,867 25,127 6,867
Non-PCD 198,809 219,958 198,809 219,958
Total $ 223,936 $ 226,825 $ 223,936 $ 226,825
Net charge-offs (recoveries) to average loans and leases:
PCD (0.64) % — % (0.60) % — %
Non-PCD 0.04 0.10 0.09 0.11
Total 0.03 0.10 0.07 0.10
Allowance for credit losses to total loans and leases(1):
PCD 5.07 1.34 5.07 1.34
Non-PCD 0.61 0.82 0.61 0.82
Total 0.68 0.83 0.68 0.83
(1) Loans originated in relation to the SBA-PPP ($3.11 billion as of September 30, 2020) do not have a recorded ACL. As of September 30, 2020, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans is 0.68% while the ratio of ACL to total loans excluding SBA-PPP loans is 0.75%.


	Three months ended September 30, 2021
(Dollars in thousands)	Commercial			Consumer			PCD			Total
Allowance for credit losses:
Balance at July 1	$	76,082		$	94,272		$	18,740		$	189,094
Provision (credit)	975			(223)			(1,872)			(1,120)

Charge-offs	(5,967)			(4,307)			(799)			(11,073)
Recoveries	1,594			2,330			2,369			6,293
Balance at September 30	$	72,684		$	92,072		$	18,438		$	183,194
Percent of loans in each category to total loans	68.4		%	30.5		%	1.2		%	100.0		%
Annualized net charge-off ratio	0.08		%	0.08		%	(0.55)		%	0.06		%
Net charge-offs	$	4,373		$	1,977		$	(1,570)		$	4,780
Average loans	22,331,889			9,891,071			384,673			32,607,633

	Three months ended September 30, 2020
(Dollars in thousands)	Commercial			Consumer			PCD			Total
Balance at July 1	$	76,177		$	119,345		$	26,928		$	222,450
Provision (credit)	4,793			1,874			(2,625)			4,042

Charge-offs	(3,328)			(5,109)			(495)			(8,932)
Recoveries	2,338			2,719			1,319			6,376
Balance at September 30	$	79,980		$	118,829		$	25,127		$	223,936
Percent of loans in each category to total loans	68.9		%	29.6		%	1.5		%	100.0		%
Annualized net charge-off ratio	0.02		%	0.10		%	(0.21)		%	0.03		%
Net charge-offs	$	990		$	2,390		$	(824)		$	2,556
Average loans	22,361,650			9,703,434			512,559			32,577,643

	Nine months ended September 30, 2021
(Dollars in thousands)	Commercial			Consumer			PCD			Total
Balance at January 1	$	80,842		$	119,485		$	23,987		$	224,314
Provision (credit)	332			(23,208)			(8,821)			(31,697)
Initial allowance on PCD loans	—			—			—			—
Charge-offs	(12,342)			(12,804)			(2,018)			(27,164)
Recoveries	3,852			8,599			5,290			17,741
Balance at September 30	$	72,684		$	92,072		$	18,438		$	183,194
Percent of loans in each category to total loans	68.4		%	30.5		%	1.2		%	100.0		%
Annualized net charge-off ratio	0.05		%	0.06		%	(1.05)		%	0.04		%
Net charge-offs	$	8,490		$	4,205		$	(3,272)		$	9,423
Average loans	22,680,602			9,773,946			417,536			32,872,084

	Nine months ended September 30, 2020
(Dollars in thousands)	Commercial			Consumer			PCD			Total
Balance at December 31	$	142,369		$	75,236		$	7,536		$	225,141
Adoption of ASC 326	(87,554)			30,629			19,001			(37,924)
Balance at January 1	54,815			105,865			26,537			187,217
Provision (credit)	32,854			25,066			(4,971)			52,949
Initial allowance on PCD loans	—			—			1,193			1,193
Charge-offs	(12,712)			(19,535)			(3,010)			(35,257)
Recoveries	5,023			7,433			5,378			17,834
Balance at September 30	$	79,980		$	118,829		$	25,127		$	223,936
Percent of loans in each category to total loans	68.9		%	29.6		%	1.5		%	100.0		%
Annualized net charge-off ratio	0.05		%	0.16		%	(0.60)		%	0.07		%
Net charge-offs	$	7,689		$	12,102		$	(2,368)		$	17,423
Average loans	20,687,348			9,838,064			529,819			31,055,231

The reserve for unfunded loan commitments was $11.5 million and $12.8 million at September 30, 2021 and December 31, 2020, respectively.

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Table 12

ALLOWANCE FOR CREDIT LOSSES RATIOS


(Dollars in thousands)	September 30, 2021			December 31, 2020
Allowance for credit losses to total loans and leases(1):	0.56		%	0.68		%
Allowance for credit losses	$	183,194		$	224,314
Total loans and leases	32,516,189			32,791,975
Allowance for credit losses to non-PCD loans and leases(1):	0.51		%	0.62		%
Allowance for credit losses on non-PCD loans and leases	$	164,756		$	200,327
Total non-PCD loans and leases	32,142,934			32,329,093
Allowance for credit losses to PCD loans:	4.94		%	5.18		%
Allowance for credit losses on PCD loans	$	18,438		$	23,987
Total PCD loans	373,255			462,882



















(1) Loans originated in relation to the SBA-PPP ($1.1 billion as of September 30, 2021 and $2.4 billion as of December 31, 2020) do not have a recorded ACL. As of September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.53% while the ratio of ACL to total loans excluding SBA-PPP loans was 0.58%. As of December 31, 2020, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.67% while the ratio of ACL to total loans excluding SBA-PPP loans is 0.74%.

NONPERFORMING ASSETS

Nonperforming assets include nonaccrual loans and leases and other real estate owned (“OREO”). At September 30, ~~2020,~~2021, BancShares’ nonperforming assets totaled ~~$239.2~~$204.4 million, ~~an increase~~a decrease of ~~$71.0~~$37.9 million since December 31, ~~2019.~~2020.

Nonaccrual loans and leases at September 30, ~~2020~~2021 were ~~$186.5~~$163.8 million, reflecting ~~an increase~~a decrease of ~~$64.8~~$27.7 million since December 31, ~~2019.~~2020. Nonaccrual loans and leases as a percentage of total loans and leases was ~~0.57%~~0.50% and ~~0.42%~~0.58% at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Contributing to this increase was the 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 September 30, 2020, there were $27.5 million of nonaccrual loans that had been released from performing PCI pools. The remaining increase in nonaccrual loans was primarily due to increases within our acquired loan portfolios. 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. At September 30, ~~2020,~~2021, OREO totaled ~~$52.8~~$40.6 million, representing ~~an increase~~a decrease of ~~$6.2~~$10.2 million since December 31, ~~2019 due primarily to additions of OREO through acquisitions of $9.3 million.~~2020. Nonperforming assets as a percentage of total loans, leases and OREO was ~~0.73%~~0.63% as of September 30, ~~2020~~2021 compared to ~~0.58%~~0.74% as of December 31, ~~2019. The additional PCI nonaccrual loans and acquired OREO resulted in an increase of 11 basis points to the nonperforming assets ratio at September 30,~~ 2020.

Table 1213

NONPERFORMING ASSETS


		2020									2019							2021									2020
		Third			Second			First			Fourth			Third				Third			Second			First			Fourth			Third
(Dollars in thousands)	(Dollars in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			(Dollars in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Nonaccrual loans and leases:	Nonaccrual loans and leases:																Nonaccrual loans and leases:
Non-PCD	Non-PCD	$	130,927		$	135,280		$	121,337		$	114,946		$	108,816		Non-PCD	$	118,737		$	136,530		$	141,369		$	136,544		$	130,927
PCD	PCD	55,527			62,511			53,234			6,743			829			PCD	45,038			50,934			53,165			54,939			55,527
Total nonaccrual loans and leases																	Total nonaccrual loans and leases	163,775			187,464			194,534			191,483			186,454
Other real estate owned	Other real estate owned	52,789			53,850			55,707			46,591			46,253			Other real estate owned	40,649			43,685			48,512			50,890			52,789
Total nonperforming assets	Total nonperforming assets	$	239,243		$	251,641		$	230,278		$	168,280		$	155,898		Total nonperforming assets	$	204,424		$	231,149		$	243,046		$	242,373		$	239,243

Accruing loans and leases 90 days or more past due	Accruing loans and leases 90 days or more past due																Accruing loans and leases 90 days or more past due
Non-PCD	Non-PCD	$	3,587		$	3,644		$	2,933		$	3,291		$	4,247		Non-PCD	$	3,827		$	3,413		$	5,945		$	5,507		$	3,587
PCD	PCD	—			152			37			24,257			23,287			PCD	1,787			363			1,432			355			—

Ratio of total nonperforming assets to total loans, leases and other real estate owned	Ratio of total nonperforming assets to total loans, leases and other real estate owned	0.73		%	0.77		%	0.79		%	0.58		%	0.57		%	Ratio of total nonperforming assets to total loans, leases and other real estate owned	0.63		%	0.71		%	0.73		%	0.74		%	0.73		%
Ratio of nonaccrual loans and leases to total loans and leases																	Ratio of nonaccrual loans and leases to total loans and leases	0.50			0.57			0.59			0.58			0.57
Ratio of allowance for credit losses to nonaccrual loans and leases																	Ratio of allowance for credit losses to nonaccrual loans and leases	111.9			100.9			108.3			117.1			120.1

TROUBLED DEBT RESTRUCTURINGS

We selectively agree 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. Troubled debt restructurings (“TDRs”) not accruing interest at the time of restructure are included as nonperforming loans. TDRs accruing at the time of restructure and continuing to perform based on the restructured terms are considered performing loans.

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 accounting and reporting expectations for loan modifications in determining TDR designation 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.

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Table 1314

TROUBLED DEBT RESTRUCTURINGS


(Dollars in thousands)	(Dollars in thousands)	September 30, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2021		December 31, 2020
Accruing TDRs:	Accruing TDRs:					Accruing TDRs:
Non-PCD	Non-PCD	$	141,978	$	111,676	Non-PCD	$	122,810	$	139,747
PCD	PCD	16,801		17,074		PCD	29,207		17,617
Total accruing TDRs	Total accruing TDRs	158,779		128,750		Total accruing TDRs	152,017		157,364
Nonaccruing TDRs:	Nonaccruing TDRs:					Nonaccruing TDRs:
Non-PCD	Non-PCD	41,577		42,331		Non-PCD	48,593		43,470
PCD	PCD	6,774		111		PCD	12,365		7,346
Total nonaccruing TDRs	Total nonaccruing TDRs	48,351		42,442		Total nonaccruing TDRs	60,958		50,816
All TDRs:	All TDRs:					All TDRs:
Non-PCD	Non-PCD	183,555		154,007		Non-PCD	171,403		183,217
PCD	PCD	23,575		17,185		PCD	41,572		24,963
Total TDRs	Total TDRs	$	207,130	$	171,192	Total TDRs	$	212,975	$	208,180

INTEREST-BEARING LIABILITIES

Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, subordinated debt, and other borrowings. Interest-bearing liabilities totaled ~~$25.96~~$30.4 billion at September 30, ~~2020,~~2021, compared to ~~$22.83~~$27.3 billion at December 31, ~~2019.~~2020. The ~~$3.13 billion~~ increase was mostly due to an increase of $3.1 billion in interest-bearing ~~deposits of $2.51 billion and an increase in total borrowings of $619.0 million.~~deposits.

Deposits

~~Due~~We strive to ~~our focus on maintaining~~maintain a strong liquidity position, and therefore a focus on core deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers, ~~but,~~ as evidenced by the significant deposit growth the industry has experienced over the past 18 months. As economic conditions improve, we recognize that our liquidity position could be adversely affected as bank deposits are ~~withdrawn and invested elsewhere.~~withdrawn. Our ability to fund future loan growth is significantly dependent on our success at retaining existing deposits and generating new deposits at a reasonable cost.

At September 30, ~~2020,~~2021, total deposits were ~~$42.25~~$50.1 billion, an increase of ~~$7.82~~$6.6 billion, representing annualized growth of ~~30.3%~~20.4% since December 31, ~~2019. Excluding SBA-PPP deposits of $1.30 billion, total deposits increased $6.52 billion, or~~2020, driven by ~~25.3% annualized, over the same time period. This~~ organic ~~growth primarily occurred in demand and money market accounts, partially offset by a decline in time deposits.~~growth.

Table 1415

DEPOSITS

(Dollars in thousands) September 30, 2020 December 31, 2019
Demand $ 18,234,561 $ 12,926,796
Checking with interest 9,355,731 8,284,302
Money market 8,371,891 6,817,752
Savings 3,148,114 2,564,777
Time 3,140,309 3,837,609
Total deposits $ 42,250,606 $ 34,431,236

~~Borrowings~~

At September 30, 2020, total borrowings were $1.95 billion compared to $1.33 billion at December 31, 2019. The $619.0 million increase was primarily due to a subordinated debt issuance that resulted in $341.0 million outstanding, an increase in securities sold under customer repurchase agreements of $250.9 million, and an increase in FHLB borrowings of $83.0 million, partially offset by a decrease in other borrowings of $55.9 million.


(Dollars in thousands)	September 30, 2021		December 31, 2020
Demand	$	21,514,407	$	18,014,029
Checking with interest	11,768,943		10,591,687
Money market	10,145,752		8,632,713
Savings	4,063,092		3,304,167
Time	2,573,568		2,889,013
Total deposits	$	50,065,762	$	43,431,609

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Borrowings

Total borrowings were relatively unchanged, totaling $1.9 billion at September 30, 2021 and December 31, 2020.

Table 1516

BORROWINGS


(Dollars in thousands)	(Dollars in thousands)	September 30, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2021		December 31, 2020
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	$	693,889	$	442,956	Securities sold under customer repurchase agreements	$	663,575	$	641,487

Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	655,179		572,185		Federal Home Loan Bank borrowings	645,663		655,175
Subordinated debt	Subordinated debt					Subordinated debt
SCB Capital Trust I	SCB Capital Trust I	9,769		9,739		SCB Capital Trust I	9,808		9,779
FCB/SC Capital Trust II	FCB/SC Capital Trust II	17,631		17,532		FCB/SC Capital Trust II	17,764		17,664
FCB/NC Capital Trust III	FCB/NC Capital Trust III	88,145		88,145		FCB/NC Capital Trust III	88,145		88,145
Capital Trust debentures assumed in acquisitions		14,433		14,433
Macon Capital Trust I						Macon Capital Trust I	14,433		14,433
3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030						3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030	347,163		346,541
Other subordinated debt	Other subordinated debt	374,403		33,563		Other subordinated debt	20,114		27,956
Total subordinated debt	Total subordinated debt	504,381		163,412		Total subordinated debt	497,427		504,518
Other borrowings	Other borrowings	92,456		148,318		Other borrowings	76,139		88,470
Total borrowings	Total borrowings	$	1,945,905	$	1,326,871	Total borrowings	$	1,882,804	$	1,889,650

BancShares owns ~~five~~four special purpose entities – SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III ~~CCBI Capital Trust I,~~ and Macon Capital Trust I (the “Trusts”), which mature in ~~2036,~~ 2034, 2034, 2036, and 2034, respectively. Subordinated debt included junior subordinated debentures representing obligations to the Trusts, which may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of the Trusts.

SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY

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. On March 12, 2020, BancShares issued and sold an aggregate of 13,800,000 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, with a liquidation preference of $25 per Depositary Share (equivalent to $1,000 per share of Series A Preferred Stock) for a total of $345 million.

The capital raise provided 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 FCB as regulatory capital, and redeeming or repurchasing our common stock.

The table below shows Class A common stock repurchase activity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. All Class A common stock repurchases completed in 2020 ~~and 2019~~ were consummated under previously approved authorizations. There were no repurchases of Class B common stock or the preferred stock during the three and nine months ended September 30, 2021 or 2020.

Table 1617

CLASS A COMMON STOCK REPURCHASE ACTIVITY


		Three months ended September 30				Nine months ended September 30					Three months ended September 30				Nine months ended September 30
($ in thousands, expect per share data)		2020		2019		2020		2019
(Dollars in thousands, expect per share data)										(Dollars in thousands, expect per share data)	2021		2020		2021		2020
Number of shares repurchased	Number of shares repurchased	117,700		295,900		813,090		744,400		Number of shares repurchased	—		117,700		—		813,090
Total cost	Total cost	$	47,060	$	135,373	$	333,756	$	325,882	Total cost	$	—	$	47,060	$	—	$	333,756
Average price per share	Average price per share	$	399.82	$	457.50	$	410.48	$	437.84	Average price per share	$	—	$	399.82	$	—	$	410.48

Upon expiration of the most recent authorization on July 31, 2020, share repurchase activity ~~has~~ ended and will be reevaluated in subsequent periods.

~~The table below shows activities that caused the change in outstanding Class A common stock over the past five quarters.~~

~~Table 17~~

~~CHANGES IN SHARES OF CLASS A COMMON STOCK OUTSTANDING~~

2020 2019
Third Second First Fourth Third
(in thousands) Quarter Quarter Quarter Quarter Quarter
Class A shares outstanding at beginning of period 8,929 9,275 9,624 9,879 10,175
Share repurchases (118) (346) (349) (255) (296)
Class A shares outstanding at end of period 8,811 8,929 9,275 9,624 9,879

~~Table of~~ ~~Contents~~

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 or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements.

In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within shareholders’ equity. These amounts are excluded from shareholders’ equity in the calculation of our capital ratios under current regulatory guidelines.

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Table 18

ANALYSIS OF CAPITAL ADEQUACY


		Requirements to be well-capitalized		September 30, 2020				December 31, 2019					Requirements to be well-capitalized		September 30, 2021				December 31, 2020
(Dollars in thousands)	(Dollars in thousands)			Amount		Ratio		Amount		Ratio		(Dollars in thousands)			Amount		Ratio		Amount		Ratio
BancShares	BancShares											BancShares
Risk-based capital ratios	Risk-based capital ratios											Risk-based capital ratios
Total risk-based capital												Total risk-based capital	10.00	%	$	4,944,822	14.30	%	$	4,577,212	13.81	%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.00	%	$	3,724,199	11.48	%	$	3,344,305	10.86	%	Tier 1 risk-based capital	8.00		4,260,729		12.32		3,856,086		11.63
Common equity Tier 1	Common equity Tier 1	6.50		3,384,262		10.43		3,344,305		10.86		Common equity Tier 1	6.50		3,920,792		11.34		3,516,149		10.61
Total risk-based capital		10.00		4,445,806		13.70		3,731,501		12.12
Tier 1 leverage ratio~~(1)~~	Tier 1 leverage ratio~~(1)~~	5.00		3,384,262		7.80		3,344,305		8.81		Tier 1 leverage ratio~~(1)~~	5.00		4,260,729		7.68		3,856,086		7.86

FCB	FCB											FCB
Risk-based capital ratios	Risk-based capital ratios											Risk-based capital ratios
Total risk-based capital												Total risk-based capital	10.00	%	$	4,811,214	13.93	%	$	4,543,496	13.72	%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.00	%	$	4,165,911	12.83	%	$	3,554,974	11.54	%	Tier 1 risk-based capital	8.00		4,581,621		13.26		4,276,870		12.92
Common equity Tier 1	Common equity Tier 1	6.50		4,165,911		12.83		3,554,974		11.54		Common equity Tier 1	6.50		4,581,621		13.26		4,276,870		12.92
Total risk-based capital		10.00		4,433,018		13.66		3,837,670		12.46
Tier 1 leverage ratio~~(2)~~	Tier 1 leverage ratio~~(2)~~	5.00		4,165,911		8.73		3,554,974		9.38		Tier 1 leverage ratio~~(2)~~	5.00		4,581,621		8.27		4,276,870		8.72
(1)The SBA-PPP program added $3.11 billion in outstanding loan balances and consequently decreased BancShares’ Tier 1 leverage ratio by 63 bps; BancShares’ Tier 1 leverage ratio would be estimated at 8.43% at September 30, 2020 without the impact the SBA PPP program. (2) The SBA-PPP program added $3.11 billion in outstanding loan balances and consequently decreased FCB’s Tier 1 leverage ratio by 71 bps; FCB’s Tier 1 leverage ratio would be estimated at 9.44% at September 30, 2020 without the impact the SBA PPP program.

As of September 30, ~~2020,~~2021, BancShares and FCB continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines. Trust preferred capital securities continue to be a component of total risk-based capital.

BancShares and FCB had capital conservation buffers of ~~5.48%~~6.30% and ~~5.66%~~5.93%, respectively, at September 30, ~~2020, which exceeded the 2.50% requirement~~2021, and ~~therefore, result~~resulted in no limit on distributions.

RISK MANAGEMENT

Risk is inherent in any business. BancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy that does not preclude higher risk business activities balanced with acceptable returns while meeting regulatory objectives. Through the comprehensive Enterprise Risk Management Framework and Risk Appetite Framework, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares activities may be exposed, with effective challenge and oversight by management committees. In addition, the Board of Directors strives to ensure that the business culture is integrated with the enterprise risk management program and that policies, procedures and metrics for identifying, assessing, measuring, monitoring and managing risk are part of the decision-making process. The Board of Directors’ role in risk oversight is an integral part of our overall Enterprise Risk Management Framework and Risk Appetite Framework. The Board of Directors administers its risk oversight function primarily through the Board Risk Committee.

~~Table of~~ ~~Contents~~

The Board Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The Board Risk Committee is directed to monitor and advise the Board of Directors regarding risk exposures, including credit, market, capital, liquidity, operational, compliance, strategic and reputational risks; review, approve, and monitor adherence to the risk appetite and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework. The Board Risk Committee also reviews: reports of examination by and communications from regulatory agencies; the results of internal and third party testing and qualitative and quantitative assessments related to risk management; and any other matters within the scope of the Committee’s oversight responsibilities. The Board Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the Board Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, information security and other areas of joint responsibility.

In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are part of the Risk Management Framework and conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods.

In response to COVID-19, BancShares assembled a cross-functional leadership team to identify and manage newly identified risks and provide effective risk oversight through this pandemic. New or elevated risks have been identified in multiple areas, including but not limited to, operational risk, credit risk, market risk, liquidity risk, capital adequacy risk, compliance risk, and financial reporting risk. As such, we have incorporated changes to Item 1A. Risk Factors within this Quarterly Report on Form 10-Q to capture these changes. These new or increased areas

Table of ~~risk are being actively managed by senior leadership, and have been incorporated into reporting for key management committees and regular updates are being provided to the Board of Directors.~~Contents

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 expected credit losses ~~inherent~~ in the loan and lease portfolio.

We ~~are~~continue to actively ~~monitoring~~monitor our loan portfolio for areas of increased risk as a result of ~~COVID-19. As of September 30, 2020,~~the COVID-19 ~~related loan extensions decreased~~pandemic and to ~~approximately $466.6 million~~date have not seen any significant declines in ~~outstanding loan balances, representing approximately $13.4 million in payment deferrals.~~credit quality. Through September 30, ~~2020,~~2021, over ~~94%~~99% 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~~participated in both rounds of funding 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.~~customers. At September 30, 2021, BancShares ~~originated approximately 23,000~~had $1.1 billion in SBA-PPP loans ~~with an outstanding balance of $3.11 billion at September 30, 2020.~~

Our ACL estimate for the quarter ended September 30, 2020 included extensive reviews of the changes in credit risk associated with the loan portfolio and 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 and geography 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 September 30, 2020.outstanding.

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.

~~Table of~~ ~~Contents~~

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. Market interest rates ~~declined significantly from~~have increased since year-end, driven by improving economic uncertainty brought on by COVID-19. Net interest income deterioration in down rate shocks will remain muted due to the low absolute value of market interest rates. Assumptions that incorporate customer migration from low rate deposit instruments to intermediate term fixed rate instruments as rates rise have been adjusted based on actual deposit behavior over the last 3 years during a rising rate cycle.conditions.

Table 19 provides the impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table 19

NET INTEREST INCOME SENSITIVITY ANALYSIS


		Estimated percentage (decrease) increase in net interest income					Estimated percentage (decrease) increase in net interest income
Change in interest rate (basis points)	Change in interest rate (basis points)	September 30, 2020		December 31, 2019		Change in interest rate (basis points)	September 30, 2021		December 31, 2020
-100	-100	(3.44)	%	(8.00)	%	-100	(6.94)	%	(6.24)	%
+100	+100	8.37		1.30		+100	7.42		8.09
+200	+200	13.19		0.01		+200	15.41		14.57

~~The increased asset sensitivity in net~~

Net interest income sensitivity metrics as of September 30, ~~2020~~2021 remain largely unchanged when compared to December 31, ~~2019 continues to be affected by the substantial influx of non-maturity deposits that began in the second quarter of 2020 and continued through the third quarter of~~ 2020.

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 20 ~~table~~ presents the EVE profile as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table 20

ECONOMIC VALUE OF EQUITY MODELING ANALYSIS


		Estimated percentage (decrease) increase in EVE					Estimated percentage (decrease) increase in EVE
Change in interest rate (basis points)	Change in interest rate (basis points)	September 30, 2020		December 31, 2019		Change in interest rate (basis points)	September 30, 2021		December 31, 2020
-100	-100	(23.93)	%	(8.25)	%	-100	(15.09)	%	(21.20)	%
+100	+100	12.97		(0.03)		+100	8.32		12.18
+200	+200	16.73		(4.80)		+200	8.77		15.71

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The economic value of equity metrics at September 30, ~~2020~~2021 compared to December 31, ~~2019~~2020 were primarily affected by ~~continued~~ongoing growth in non-maturity deposits ~~of nearly $1.0 billion~~ during the third quarter of 2020 on top of the $6.5 billion increase during the second quarter of 2020. During the third quarter, we implemented assumption changes as a result of an updated core deposit study.2021, coupled with higher market interest rates. We do not typically utilize interest rate swaps, floors, collars or other derivative financial instruments to hedge our overall balance sheet interest rate sensitivity and risk.

LIBOR Transition

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.

We continue to transition away from LIBOR in order to cease issuance of loans indexed to LIBOR by December 31, 2021. Conforming and nonconforming adjustable rate mortgage originations transitioned to alternative rates in 2020. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative to LIBOR. We have introduced SOFR as an alternative rate for other business lines in mid-2021. We do not expect a material financial impact to BancShares or our customers from this transition.

Liquidity risk management

Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient cash or its equivalents on a cost-effective basis to meet commitments as they fall due. The most common sources of liquidity risk arise from mismatches in the timing and value of on-balance sheet and off-balance sheet cash inflows and outflows. In general, on-balance sheet mismatches generate liquidity risk when the effective maturity of assets exceeds the effective maturity of liabilities. A commonly cited example of a balance sheet liquidity mismatch is when long-term loans (assets) are funded with short-term borrowings (liabilities). Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal and reputation risks that can affect an institution’s liquidity risk profile.

We utilize various limit-based measures to monitor, measure and control three different categories of liquidity risk:

•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;

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•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 funding source ~~of liquidity~~ is our branch-generated retail deposit portfolio due to the generally stable balances and low cost. ~~Additional sources~~Sources of liquidity include cash in excess of our reserve requirement at the Federal Reserve Bank, and various other corresponding bank accounts and unencumbered securities, which totaled ~~$8.51~~$15.1 billion at September 30, ~~2020~~2021 compared to ~~$3.57~~$9.6 billion at December 31, ~~2019.~~2020. Another source of available funds ~~was~~is advances from the FHLB of ~~Atlanta and Chicago.~~Atlanta. Outstanding FHLB advances were ~~$655.2~~$645.7 million as of September 30, ~~2020,~~2021, and we had sufficient collateral pledged to secure ~~$7.54~~$8.5 billion of additional borrowings from the FHLB of Atlanta. Also, at September 30, ~~2020, $3.97~~2021, $4.6 billion in non-PCD loans with a lendable collateral value of ~~$3.21~~$3.8 billion were used to create additional borrowing capacity at the Federal Reserve Bank. We also maintain Federal Funds lines and other credit lines, which had ~~$625.0~~$556.0 million of available capacity at September 30, ~~2020.~~2021.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, we are a party to certain financial instruments with off-balance sheet risk, which we enter into in order to meet the financing needs of our customers. These off-balance sheet instruments include commitments to extend credit and standby letters of credit. For more information on these commitments, see Note N - Commitments and Contingencies to our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

~~Except as described below, there~~There have been no significant changes in our Critical Accounting Estimates as described in our ~~2019~~2020 Annual ~~Report on Form 10-K.~~Report.

~~Allowance for credit losses -~~ ~~The allowance for credit losses on loans and leases replaces the allowance for loan and leases losses as a critical accounting estimate, as~~Table of ~~January 1, 2020 with the adoption of ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~.Contents

The allowance for credit losses represents management’s best estimate of current expected credit losses over the life of the portfolio of loan and leases. Estimating credit losses requires judgment in determining loan specific attributes impacting the borrower’s ability to repay contractual obligations. Other factors such as economic forecasts used to determine a reasonable and supportable forecast, prepayment assumptions, the value of underlying collateral, and changes in size composition and risks within the portfolio are also considered.

The allowance for credit losses is assessed at each balance sheet date and adjustments are recorded in the provision for credit losses. The allowance is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast with reversion to historical assumptions. Loan losses are estimated using the fair value of collateral for collateral-dependent loans, or when the borrower is experiencing financial difficulty such that repayment of the loan is expected to be made through the operation or sale of the collateral. Loan balances considered uncollectible are charged-off against the ACL. Recoveries of amounts previously charged-off are credited to the ACL.

PCD assets represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance for credit losses on PCD assets is booked directly the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses.

Management believes that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans and leases as of the balance sheet date. Actual losses incurred may differ materially from our estimates. Particularly, the impact of COVID-19 on both borrower credit and the greater macroeconomic environment is uncertain and changes in the duration, spread and severity of the virus will affect our loss experience.

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q 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, as amended, and Section 21E of the Securities Exchange Act of ~~1934.~~1934, as amended (the “Exchange Act”).

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 2020 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.

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Factors that could influence the accuracy of those forward-looking statements include, but are not limited to, risks, uncertainties and other factors relating to our announced merger with CIT through a series of merger transactions, including the ability to obtain the remaining regulatory approvals and meet other closing conditions to the Transaction, ~~such as approval by our shareholders of the issuance of the shares of our common stock to be issued in the First-Step Merger and approval of the Merger Agreement by CIT’s shareholders,~~ and delay in closing the 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 affect our loan and lease portfolio, the abilities of our borrowers to repay their loans and leases, the values of real estate and other collateral, the impact of our prior acquisitions, the risks discussed in Part ~~II,~~I, Item 1A. Risk Factors of our 2020 Annual Report 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.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values of financial instruments or reduced net interest income in future periods. AsSee the sections entitled “Risk Management” and “Results of September 30, 2020, BancShares’ market risk profile has changed since December 31, 2019 as discussed in the Form 10-K as a result of the outbreak of COVID-19 during 2020. See section Risk ManagementOperations” within Item 2. Management’s Discussion and Analysis of Financial Condition ~~and Results~~ of ~~Operations~~this Quarterly Report for discussion of ~~changes.~~changes, which are incorporated herein by reference. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.

Item 4. Controls and Procedures

BancShares’ management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of BancShares’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report, in accordance with ~~Rule~~Rules 13a-15 and 15d-15 of the ~~Securities~~ Exchange ~~Act of 1934 (“Exchange Act”).~~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.

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.

~~Except as noted above, no~~No changes in BancShares’ internal control over financial reporting occurred during the third quarter of ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

BancShares and various subsidiaries have been named as defendants in various legal actions arising from our normal business activities in which damages in various amounts were claimed. Although the amount of any ultimate liability with respect to those matters cannot be determined, in the opinion of management, no legal actions currently exist that are expected to have a material effect on BancShares’ consolidated financial statements. Additional information relating to legal proceedings is set forth in Note N - Commitments and ~~Contingencies.~~Contingencies, which information is incorporated by reference into this item.

Item 1A. Risk Factors

~~The following paragraphs describe~~There have been no material changes ~~in the~~from risk factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

~~An outbreak of COVID-19 has adversely affected BancShares' business, financial condition and results of operations.~~

~~A novel strain of coronavirus (“COVID-19”) has spread across most of the world, including the United States beginning in the first quarter of~~ 2020. It has caused severe disruptions to the US 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; however, the industries that have been the most negatively impacted to date include hospitality, travel and tourism, retail, medical and dental, and 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 inflationThe 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 has 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 adjust to the new operating environment. BancShares has a comprehensive business continuity and data security plan in place butdescribed may not be ~~able~~the only risks facing us. Additional risks and uncertainties not currently known to ~~mitigate all of the issues identified above.~~

~~Market volatility and general uncertainty in the capital markets~~us or that are currently considered to not be material also 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 impacts laid out above and others will be felt across all of the following categories of risk identified by BancShares in our Annual Report on Form 10-K:~~

•~~Operational Risk~~

•~~Credit Risk~~

•~~Market Risk~~

•~~Liquidity Risk~~

•~~Capital Adequacy Risk~~

•~~Compliance Risk~~

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•~~Strategic Risk~~

•~~Financial Reporting Risk~~

The effects of the COVID-19 pandemic will heighten specific risk factors and could impact substantially all risk factors described in our Annual Report on Form 10-K under the risk categories listed above. Those effects willmaterially 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. As a result, we currently cannot fully assess the risk and adverse impact of the COVID-19 pandemic, but the effects may have a material impact on our business and financial ~~results and heighten many of the individual risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2019.~~

~~Transaction with CIT~~

As a result of us entering into the Merger Agreement, certain new risk factors have been identified. These risks and the other risks associated with the Transaction will be more fully discussed in the joint proxy statement/prospectus that will be included in the registration statement on Form S-4 that we will file with the Securities and Exchange Commission in connection with the Transaction.

~~Merger-Related Risk~~

~~The consummation of the Transaction is contingent upon the satisfaction of a number of conditions, including shareholder and regulatory approvals, that may be outside of our~~ condition and/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:~~

•~~approval of the Merger Agreement by CIT’s shareholders and the approval by our shareholders of the issuance of the shares of our common stock to be issued in First-Step Merger;~~

•~~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;

•~~effectiveness of the registration statement on Form S-4 for our common stock to be issued in the First-Step Merger; 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;~~

•~~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, before or after receipt of the requisite approvals by our or CIT's shareholders, 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.operating results.

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We and CIT may also be 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 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 momentum in, the activities of one or more of the combined company's businesses. Inconsistencies in standards, controls, procedures and policies could adversely 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 and operations.~~

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, CIT or the combined company, reducing the anticipated benefits of the Transaction. We and CIT are also subject to certain 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 key employees. If key 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.

~~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 elimination of duplicative expenses and the realization of economies of scale. The amount and timing of any charges to earnings as a result of Transaction 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. 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 the Transaction.

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~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Information concerning BancShares’ repurchases of outstanding common stock during the three month period ended September 30, 2020, is included in the following table:~~

Class A common stock Total Number of Class A Shares Repurchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet be Repurchased Under the Plans or Programs
Repurchases from July 1, 2020 to July 31, 2020 117,700 $ 399.82 117,700 148,000
The Board authorized the repurchase of up to 500,000 shares of Class A common stock for the period May 1, 2020 through July 31, 2020. The authorization was publicly announced on April 28, 2020.

~~Upon expiration of the share repurchase authorization on July 31, 2020, share repurchase activity ended and will be reevaluated in subsequent periods.~~

Item 6. Exhibits




2.1			Amendment No. 1, dated September 30, 2021, to the Agreement and Plan of Merger dated ~~as of~~ October 15, 2020 ~~by and among First Citizens BancShares, Inc., First-Citizens Bank & Trust Company, FC Merger Subsidiary IX, Inc., and CIT Group Inc.~~ (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K dated ~~October 15, 2020)~~

~~10.1~~			VSeptember 30, 2021 oting Agreement, dated as of October 15, by and among CIT Group Inc., Frank B. Holding, Jr., Hope H. Bryant, Peter M. Bristow, and Claire H. Bristow (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K dated October 15, 2020))

31.1			Certification of Chief Executive Officer (filed herewith)

31.2			Certification of Chief Financial Officer (filed herewith)

32.1			Certification of Chief Executive Officer (filed herewith)

32.2			Certification of Chief Financial Officer (filed herewith)

101.INS			Inline XBRL Instance Document (filed herewith)

101.SCH			Inline XBRL Taxonomy Extension Schema (filed herewith)

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith)

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)

104			Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)

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SIGNATURES

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

Date:

November ~~3, 2020~~2, 2021

FIRST CITIZENS BANCSHARES, INC.

(Registrant)

By:

/s/ CRAIG L. NIX

Craig L. Nix

Chief Financial Officer

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	January 1, 2020(1)		September 30, 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	$	1,564	$	0
Owner occupied commercial mortgage	24,476		19,567		1,288
Non-owner occupied commercial mortgage	5,965		8,258		0
Commercial and industrial and leases	7,685		10,710		840
Total commercial loans	42,407		40,099		2,128
Consumer:
Residential mortgage	44,357		63,646		65
Revolving mortgage	22,411		22,945		0
Construction and land development	2,828		689		215
Consumer auto	2,145		2,634		0
Consumer other	798		914		1,179
Total consumer loans	72,539		90,828		1,459
PCD loans	53,771		55,527		0
Total loans and leases	$	168,717	$	186,454	$	3,587
(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 September 30, 2020, $27.5 million of these loans remained outstanding.











	December 31, 2019
	Noncommercial loans and leases
(Dollars in thousands)	Residential mortgage		Revolving mortgage		Construction and land development		Consumer		PCI		Total noncommercial loans and leases
Days past due:
Current	$	5,205,380	$	2,316,010	$	354,393	$	1,762,606	$	240,995	$	9,638,389
30-59 days past due	45,839		9,729		977		10,481		13,764		67,026
60-89 days past due	18,289		3,468		218		3,746		5,608		25,721
90 days or greater past due	24,409		9,865		1,797		3,571		14,020		39,642
Total	$	5,293,917	$	2,339,072	$	357,385	$	1,780,404	$	274,387	$	9,770,778




















	December 31, 2019
(Dollars in thousands)	With a recorded allowance		With no recorded allowance		Total		Unpaid principal balance		Related allowance recorded
Non-PCI impaired loans and leases:
Commercial:
Construction and land development	$	1,851	$	2,804	$	4,655	$	5,109	$	463
Commercial mortgage	42,394		27,755		70,149		74,804		3,650
Other commercial real estate	318		950		1,268		1,360		39
Commercial and industrial and leases	7,547		4,635		12,182		13,993		1,379
Other	406		233		639		661		103
Total commercial loans	52,516		36,377		88,893		95,927		5,634
Noncommercial:
Residential mortgage	48,796		11,646		60,442		64,741		3,278
Revolving mortgage	26,104		2,765		28,869		31,960		2,722
Construction and land development	2,470		1,412		3,882		4,150		174
Consumer	3,472		41		3,513		3,821		1,107
Total noncommercial loans	80,842		15,864		96,706		104,672		7,281
Total non-PCI impaired loans and leases	$	133,358	$	52,241	$	185,599	$	200,599	$	12,915


(Dollars in thousands)
Loan Size	$ of Loans		% of Loans $
Less than $150,000	$	862,026	27.7	%
$150,000 to $2,000,000	1,766,649		56.8
Greater than $2,000,000	484,001		15.5
Total	$	3,112,676	100.0	%


Class A common stock	Total Number of Class A Shares Repurchased	Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Repurchased Under the Plans or Programs
Repurchases from July 1, 2020 to July 31, 2020	117,700	$	399.82	117,700	148,000



The Board authorized the repurchase of up to 500,000 shares of Class A common stock for the period May 1, 2020 through July 31, 2020. The authorization was publicly announced on April 28, 2020.