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FCNCA First Citizens Bancshares, Inc

Filed: 3 Aug 21, 4:16pm
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 June 30, 2021
or
  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-16715
____________________________________________________
First Citizens BancShares, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________________
Delaware56-1528994
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
4300 Six Forks RoadRaleighNorth Carolina27609
(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 Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, Par Value $1FCNCANasdaq Global Select Market
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series AFCNCPNasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $1
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.    Yes     No  
Indicate by check mark whether the 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 was required to submit and post such files)    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Class A Common Stock—8,811,220 shares
Class B Common Stock—1,005,185 shares
(Number of shares outstanding, by class, as of July 31, 2021)


INDEX
 
2

PART I 
Item 1.Financial Statements
First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, unaudited)June 30, 2021December 31, 2020
Assets
Cash and due from banks$395,364 $362,048 
Overnight investments7,871,382 4,347,336 
Investment in marketable equity securities (cost of $84,297 at June 30, 2021 and $84,837 at December 31, 2020)118,540 91,680 
Investment securities available for sale (cost of $7,335,745 at June 30, 2021 and $6,911,965 at December 31, 2020)7,381,083 7,014,243 
Investment securities held to maturity (fair value of $3,377,085 at June 30, 2021 and $2,838,499 at December 31, 2020)3,394,604 2,816,982 
Loans held for sale107,768 124,837 
Loans and leases32,689,652 32,791,975 
Allowance for credit losses(189,094)(224,314)
Net loans and leases32,500,558 32,567,661 
Premises and equipment1,237,860 1,251,283 
Other real estate owned43,685 50,890 
Income earned not collected133,043 145,694 
Goodwill350,298 350,298 
Other intangible assets47,439 50,775 
Other assets1,593,694 783,953 
Total assets$55,175,318 $49,957,680 
Liabilities
Deposits:
Noninterest-bearing$20,974,111 $18,014,029 
Interest-bearing27,436,485 25,417,580 
Total deposits48,410,596 43,431,609 
Securities sold under customer repurchase agreements692,604 641,487 
Federal Home Loan Bank borrowings646,667 655,175 
Subordinated debt497,290 504,518 
Other borrowings80,531 88,470 
FDIC shared-loss payable15,601 
Other liabilities371,140 391,552 
Total liabilities50,698,828 45,728,412 
Shareholders’ equity
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 8,811,220 shares issued and outstanding at June 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 June 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 June 30, 2021 and December 31, 2020; $1,000 per share liquidity preference)339,937 339,937 
Retained earnings4,148,857 3,867,252 
Accumulated other comprehensive (loss) income(22,120)12,263 
Total shareholders’ equity4,476,490 4,229,268 
Total liabilities and shareholders’ equity$55,175,318 $49,957,680 
See accompanying Notes to Unaudited Consolidated Financial Statements.
3

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
 Three months ended June 30Six months ended June 30
(Dollars in thousands, except per share data, unaudited)2021202020212020
Interest income
Loans and leases$324,288 $326,099 $647,311 $651,647 
Investment securities interest and dividend income35,432 36,605 66,284 76,098 
Overnight investments2,105 553 3,553 5,071 
Total interest income361,825 363,257 717,148 732,816 
Interest expense
Deposits8,542 17,916 17,335 42,110 
Securities sold under customer repurchase agreements356 399 694 841 
Federal Home Loan Bank borrowings2,099 2,472 4,186 5,456 
Subordinated debt4,181 4,677 8,369 7,432 
Other borrowings254 399 519 1,183 
Total interest expense15,432 25,863 31,103 57,022 
Net interest income346,393 337,394 686,045 675,794 
Provision (credit) for credit losses(19,603)20,552 (30,577)48,907 
Net interest income after provision for credit losses365,996 316,842 716,622 626,887 
Noninterest income
Wealth management services31,753 22,371 63,951 48,783 
Service charges on deposit accounts21,883 17,522 43,419 43,935 
Cardholder services, net22,471 17,587 42,431 35,747 
Mortgage income5,929 9,811 18,920 15,035 
Merchant services, net8,532 5,363 17,449 11,251 
Other service charges and fees8,959 7,145 17,448 14,937 
Insurance commissions3,704 3,189 7,702 6,877 
ATM income1,571 1,395 3,053 2,817 
Marketable equity securities gains, net11,654 64,570 27,665 13,162 
Realized gains on investment securities available for sale, net15,830 13,752 25,037 33,547 
Other1,864 2,697 3,724 3,322 
Total noninterest income134,150 165,402 270,799 229,413 
Noninterest expense
Salaries and wages153,643 146,633 301,473 291,888 
Employee benefits35,298 30,364 71,023 68,875 
Occupancy expense28,439 29,556 58,182 57,036 
Equipment expense28,902 28,774 58,705 56,624 
Processing fees paid to third parties14,427 10,186 28,100 20,558 
FDIC insurance expense3,382 3,731 6,600 7,197 
Collection and foreclosure-related expenses173 3,949 2,371 8,003 
Merger-related expenses5,769 4,369 12,588 8,601 
Other31,545 34,117 58,462 72,868 
Total noninterest expense301,578 291,679 597,504 591,650 
Income before income taxes198,568 190,565 389,917 264,650 
Income taxes45,780 36,779 89,813 53,695 
Net income$152,788 $153,786 $300,104 $210,955 
Preferred stock dividends4,636 4,790 9,272 4,790 
Net income available to common shareholders$148,152 $148,996 $290,832 $206,165 
Weighted average common shares outstanding9,816,405 10,105,520 9,816,405 10,289,320 
Earnings per common share$15.09 $14.74 $29.63 $20.04 
See accompanying Notes to Unaudited Consolidated Financial Statements.
4

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
 Three months ended June 30Six months ended June 30
(Dollars in thousands, unaudited)2021202020212020
Net income$152,788 $153,786 $300,104 $210,955 
Other comprehensive income
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) on securities available for sale arising during the period24,598 28,066 (31,903)172,909 
Tax effect(5,658)(6,455)7,337 (39,768)
Reclassification adjustment for realized gains on securities available for sale included in income before income taxes(15,830)(13,752)(25,037)(33,547)
Tax effect3,641 3,163 5,759 7,716 
Unrealized gains (losses) on securities available for sale arising during the period, net of tax6,751 11,022 (43,844)107,310 
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(785)(1,260)
Tax effect181 290 
Total change in unrealized gains on securities available for sale transferred to held to maturity, net of tax(604)(970)
Change in pension obligation:
Amortization of actuarial losses7,018 6,398 13,547 12,662 
Tax effect(1,614)(1,472)(3,116)(2,913)
Total change in pension obligation, net of tax5,404 4,926 10,431 9,749 
Other comprehensive income (loss)11,551 15,948 (34,383)117,059 
Total comprehensive income$164,339 $169,734 $265,721 $328,014 

See accompanying Notes to Unaudited Consolidated Financial Statements.

5

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
Three months ended June 30
(Dollars in thousands, unaudited)Class A
Common Stock
Class B
Common Stock
Preferred
Stock
SurplusRetained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shareholders’
Equity
Balance at March 31, 2020$9,275 $1,005 $339,958 $$3,632,894 $(25,612)$3,957,520 
Cumulative effect of adoption of ASC 326— — — — — 
Net income— — — — 153,786 — 153,786 
Other comprehensive income, net of tax— — — — — 15,948 15,948 
Issuance of preferred stock— — (21)— — — (21)
Repurchase of 346,000 shares of Class A common stock(346)— — (126,645)— (126,991)
Cash dividends declared ($0.40 per common share)
Class A common stock— — — — (3,606)— (3,606)
Class B common stock— — — — (402)— (402)
Preferred stock dividends declared— — — — (4,790)— (4,790)
Balance at June 30, 2020$8,929 $1,005 $339,937 $$3,651,237 $(9,664)$3,991,444 
Balance at March 31, 2021$8,811 $1,005 $339,937 $$4,005,318 $(33,671)$4,321,400 
Net income— — — — 152,788 — 152,788 
Other comprehensive income, net of tax— — — — — 11,551 11,551 
Cash dividends declared ($0.47 per common share)
Class A common stock— — — — (4,141)— (4,141)
Class B common stock— — — — (472)— (472)
Preferred stock dividends declared— — — — (4,636)— (4,636)
Balance at June 30, 2021$8,811 $1,005 $339,937 $$4,148,857 $(22,120)$4,476,490 
Six months ended June 30
(Dollars in thousands, unaudited)Class A
Common Stock
Class B
Common Stock
Preferred
Stock
SurplusRetained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Balance at December 31, 2019$9,624 $1,005 $$44,081 $3,658,197 $(126,723)$3,586,184 
Cumulative effect of adoption of ASC 326— — — — 36,943 — 36,943 
Net income— — — — 210,955 — 210,955 
Other comprehensive income, net of tax— — — — — 117,059 117,059 
Issuance of preferred stock— — 339,937 — — — 339,937 
Repurchase of 695,390 shares of Class A common stock(695)— — (44,081)(241,919)— (286,695)
Cash dividends declared ($0.80 per common share)
Class A common stock— — — — (7,345)— (7,345)
Class B common stock— — — — (804)— (804)
Preferred stock dividends declared— — — — (4,790)— (4,790)
Balance at June 30, 2020$8,929 $1,005 $339,937 $$3,651,237 $(9,664)$3,991,444 
Balance at December 31, 2020$8,811 $1,005 $339,937 $$3,867,252 $12,263 $4,229,268 
Net income— — — — 300,104 — 300,104 
Other comprehensive loss, net of tax— — — — — (34,383)(34,383)
Cash dividends declared ($0.94 per common share)
Class A common stock— — — — (8,283)— (8,283)
Class B common stock— — — — (944)— (944)
Preferred stock dividends declared— — — — (9,272)— (9,272)
Balance at June 30, 2021$8,811 $1,005 $339,937 $$4,148,857 $(22,120)$4,476,490 
See accompanying Notes to Unaudited Consolidated Financial Statements.
6

First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Six months ended June 30
(Dollars in thousands, unaudited)20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$300,104 $210,955 
Adjustments to reconcile net income to cash provided by operating activities:
Provision (credit) for credit losses(30,577)48,907 
Deferred tax expense13,441 17,774 
Net (increase) decrease in prepaid and current tax receivable(805,084)12,122 
Depreciation and amortization54,053 53,806 
Net decrease in accrued interest payable(603)(4,012)
Net decrease (increase) in income earned not collected12,651 (51,784)
Contribution to pension plans(100,000)
Realized gains on investment securities available for sale, net(25,037)(33,547)
Marketable equity securities gains, net(27,665)(13,162)
Origination of loans held for sale(631,104)(503,190)
Proceeds from sale of loans held for sale562,399 474,153 
Gain on sale of loans(19,766)(15,578)
Net (gains) losses on other real estate owned(2,009)2,475 
Net accretion of premiums and discounts1,490 20,889 
Amortization of intangible assets11,220 12,464 
Origination of mortgage servicing rights, net of change in valuation allowance(7,884)357 
Net change in other assets19,040 (17,459)
Net change in other liabilities(22,724)(14,380)
Net cash (used in) provided by operating activities(598,055)100,790 
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans outstanding136,009 (3,488,854)
Purchases of investment securities available for sale(2,956,016)(5,659,704)
Purchases of investment securities held to maturity(1,012,009)(803,307)
Purchases of marketable equity securities(306)(331,952)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity413,600 57,057 
Proceeds from maturities, calls, and principal repayments of investment securities available for sale1,570,492 1,139,291 
Proceeds from sales of investment securities available for sale1,078,187 3,122,454 
Proceeds from sales of marketable equity securities1,111 313,131 
Net increase in overnight investments(3,524,046)(1,964,602)
Cash paid to FDIC for settlement of shared-loss agreement(16,103)(99,468)
Proceeds from sales of other real estate owned20,554 9,263 
Proceeds from sales of premises and equipment1,176 37 
Purchases of premises and equipment(51,282)(62,721)
Business acquisitions, net of cash acquired(59,999)
Other investing activities(14,053)
Net cash used in investing activities(4,352,686)(7,829,374)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in time deposits(266,759)(623,833)
Net increase in demand and other interest-bearing deposits5,246,758 7,649,120 
Net increase (decrease) in short-term borrowings51,117 2,043 
Repayment of long-term obligations(23,947)(75,908)
Origination of long-term obligations745,850 
Net proceeds from preferred stock issuance339,937 
Repurchase of common stock(282,923)
Cash dividends paid(23,112)(13,188)
Net cash provided by financing activities4,984,057 7,741,098 
Change in cash and due from banks33,316 12,514 
Cash and due from banks at beginning of period362,048 376,719 
Cash and due from banks at end of period$395,364 $389,233 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest$31,706 $61,061 
Income taxes867,196 38,453 
Significant noncash investing and financing activities:
Transfers of loans to other real estate4,791 7,138 
Dividends declared but not paid4,007 
Loans held for sale exchanged for investment securities125,804 
Reclassification of portfolio loans to loans held for sale22,655 3,027 
Transfers of premises and equipment to other real estate6,549 2,046 
Unsettled common stock repurchases3,772 
See accompanying Notes to Unaudited Consolidated Financial Statements.
7

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, 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.
Share Repurchases
BancShares did not repurchase shares of Class A common stock during the first half of 2021. During the second quarter of 2020, BancShares purchased a total of 346,000 shares of Class A common stock for $127.0 million at an average cost per share of $367.03. During the six months ended June 30, 2020, BancShares purchased a total of 695,390 shares of Class A common stock for $286.7 million at an average cost per share of $412.28.
During 2020, share repurchases included 45,000 shares of Class A common stock purchased from Ella Ann Holding, as trustee of her revocable trust. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, 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, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for 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 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 half 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 loans as an adjustment to yield using the effective interest method. As of June 30, 2021, SBA-PPP loans outstanding were $1.7 billion.
8

Recently Issued Accounting Pronouncements
There were no Accounting Standards Updates (“ASUs”) issued during the second quarter of 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. 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”). Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System and closing is expected in the third quarter of 2021, subject to such approval and the satisfaction or waiver of other customary closing conditions.
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 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 1 share of a newly created series of preferred stock, Series B, of BancShares and 1 share of a newly created series of preferred stock, Series C, of BancShares, respectively.
9

NOTE C - INVESTMENTS
The amortized cost and fair value of investment securities at June 30, 2021 and December 31, 2020, were as follows:
June 30, 2021
(Dollars in thousands)
Amortized cost(1)
Gross
unrealized
gains
Gross unrealized
losses
Fair
value
Investment securities available for sale
Government agency$824,216 $4,981 $3,747 $825,450 
Residential mortgage-backed securities4,770,205 29,375 14,324 4,785,256 
Commercial mortgage-backed securities1,144,024 12,702 8,196 1,148,530 
Corporate bonds597,300 24,764 217 621,847 
Total investment securities available for sale$7,335,745 $71,822 $26,484 $7,381,083 
Investment in marketable equity securities84,297 34,415 172 118,540 
Investment securities held to maturity
Residential mortgage-backed securities2,208,496 6,567 12,189 2,202,874 
Commercial mortgage-backed securities1,184,101 525 12,422 1,172,204 
Other2,007 2,007 
Total investment securities held to maturity3,394,604 7,092 24,611 3,377,085 
Total investment securities$10,814,646 $113,329 $51,267 $10,876,708 
December 31, 2020
(Dollars in thousands)
Amortized cost(1)
Gross
unrealized
gains
Gross unrealized
losses
Fair
value
Investment securities available for sale
U.S. Treasury$499,832 $101 $$499,933 
Government agency706,241 723 5,573 701,391 
Residential mortgage-backed securities4,369,130 70,283 1,310 4,438,103 
Commercial mortgage-backed securities745,892 25,645 771,537 
Corporate bonds590,870 14,437 2,028 603,279 
Total investment securities available for sale$6,911,965 $111,189 $8,911 $7,014,243 
Investment in marketable equity securities84,837 8,654 1,811 91,680 
Investment securities held to maturity
Residential mortgage-backed securities1,877,692 17,689 1,895,381 
Commercial mortgage-backed securities937,034 3,884 56 940,862 
Other2,256 2,256 
Total investment securities held to maturity2,816,982 21,573 56 2,838,499 
Total investment securities$9,813,784 $141,416 $10,778 $9,944,422 
(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 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.
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. 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.
10

BancShares held FHLB stock of $40.5 million and $45.4 million and other non-marketable equity securities of $11.7 million and $11.6 million at June 30, 2021 and December 31, 2020, respectively. These securities are recorded at cost within other assets.
As of June 30, 2021 and 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 June 30, 2021, accrued interest receivables for available for sale and held to maturity debt securities were $18.0 million and $6.1 million, respectively. At December 31, 2020, accrued interest receivables for available for sale and held to maturity debt securities were $17.6 million and $5.4 million, respectively. During the three and six months ended June 30, 2021 and 2020, 0 accrued interest was deemed uncollectible and written off against interest income.
The following table provides the amortized cost and fair value by contractual maturity 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.
 June 30, 2021December 31, 2020
(Dollars in thousands)Amortized costFair
value
Amortized costFair
value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less$1,213 $1,219 $500,846 $500,954 
One through five years86,917 89,483 72,565 73,881 
Five through 10 years500,186 521,486 508,320 519,570 
Over 10 years8,984 9,659 8,971 8,807 
Government agency824,216 825,450 706,241 701,391 
Residential mortgage-backed securities4,770,205 4,785,256 4,369,130 4,438,103 
Commercial mortgage-backed securities1,144,024 1,148,530 745,892 771,537 
Total investment securities available for sale$7,335,745 $7,381,083 $6,911,965 $7,014,243 
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less1,258 1,258 1,507 1,507 
One through five years749 749 749 749 
Residential mortgage-backed securities2,208,496 2,202,874 1,877,692 1,895,381 
Commercial mortgage-backed securities1,184,101 1,172,204 937,034 940,862 
Total investment securities held to maturity$3,394,604 $3,377,085 $2,816,982 $2,838,499 
The following table provides the gross realized gains and losses on the sales of investment securities available for sale for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Gross realized gains on sales of investment securities available for sale$15,844 $13,752 $25,051 $34,226 
Gross realized losses on sales of investment securities available for sale(14)(14)(679)
Net realized gains on sales of investment securities available for sale$15,830 $13,752 $25,037 $33,547 
The following table provides the realized and unrealized gains and losses on marketable equity securities for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Marketable equity securities gains, net$11,654 $64,570 $27,665 $13,162 
Less net gains recognized on marketable equity securities sold36,993 263 37,316 
Unrealized gains (losses) recognized on marketable equity securities held$11,654 $27,577 $27,402 $(24,154)
11

The following table provides information regarding securities with unrealized losses as of June 30, 2021 and December 31, 2020:
June 30, 2021
 Less than 12 months12 months or moreTotal
(Dollars in thousands)Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Investment securities available for sale
Government agency$301,934 $3,040 $124,577 $707 $426,511 $3,747 
Residential mortgage-backed securities1,849,194 14,305 2,068 19 1,851,262 14,324 
Commercial mortgage-backed securities648,803 8,196 648,803 8,196 
Corporate bonds2,502 14,268 217 16,770 217 
Total$2,802,433 $25,541 $140,913 $943 $2,943,346 $26,484 
December 31, 2020
Less than 12 months12 months or moreTotal
(Dollars in thousands)Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Investment securities available for sale
Government agency$268,622 $3,197 $328,777 $2,376 $597,399 $5,573 
Residential mortgage-backed securities433,816 1,241 23,064 69 456,880 1,310 
Corporate bonds57,715 2,028 57,715 2,028 
Total$760,153 $6,466 $351,841 $2,445 $1,111,994 $8,911 
As of June 30, 2021, there were 39 investment securities available for sale with continuous losses for more than 12 months, of which 36 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and 3 were corporate bonds.
NaN of the unrealized losses identified as of June 30, 2021, or December 31, 2020, relate to the 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 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 $5.4 billion at June 30, 2021, and $4.6 billion at December 31, 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 0 debt securities held to maturity on nonaccrual status as of June 30, 2021.
A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were 0 securities past due as of June 30, 2021.
12

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-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. 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 June 30, 2021 and December 31, 2020:
(Dollars in thousands)June 30, 2021December 31, 2020
Commercial:
Construction and land development$1,183,929 $985,424 
Owner occupied commercial mortgage11,526,070 11,165,012 
Non-owner occupied commercial mortgage3,015,329 2,987,689 
Commercial and industrial and leases5,067,163 5,013,644 
SBA-PPP1,698,416 2,406,291 
Total commercial loans22,490,907 22,558,060 
Consumer:
Residential mortgage5,652,458 5,561,686 
Revolving mortgage1,884,633 2,052,854 
Construction and land development376,492 348,123 
Consumer auto1,287,541 1,255,402 
Consumer other601,115 552,968 
Total consumer loans9,802,239 9,771,033 
PCD loans396,506 462,882 
Total loans and leases$32,689,652 $32,791,975 
At June 30, 2021 and December 31, 2020, accrued interest receivable on loans was $91.0 million and $107.7 million, respectively, and was excluded from the estimate of credit losses.
Certain residential real estate loans are originated to be sold to investors. BancShares has elected the fair value option on these loans, which are recorded in loans held for sale. In addition, BancShares may change 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 the lower of cost or market value. Loans held for sale totaled $107.8 million and $124.8 million at June 30, 2021 and December 31, 2020, respectively.
The following table presents selected components of the amortized cost of loans.
(Dollars in thousands)June 30, 2021December 31, 2020
Deferred fees, including unearned fees and unamortized costs on non-PCD loans
Net deferred fees related to SBA-PPP loans$54,855 $41,064 
Net deferred fees related to other portfolios14,1709,153
Total net deferred fees$69,025 $50,217 
Net unamortized discount on purchased loans
Non-PCD$14,502 $19,473 
PCD35,806 45,254 
Total$50,308 $64,727 

13

The aging of the outstanding loans and leases, by class, at June 30, 2021 and December 31, 2020 is provided in the tables below. Loans and leases past due less than 30 days 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.
June 30, 2021
(Dollars in thousands)30-59 days
past due
60-89 days
past due
90 days or greaterTotal past
due
CurrentTotal loans
and leases
Commercial:
Construction and land development$2,049 $$2,342 $4,391 $1,179,538 $1,183,929 
Owner occupied commercial mortgage11,258 4,071 10,759 26,088 11,499,982 11,526,070 
Non-owner occupied commercial mortgage5,356 3,659 3,353 12,368 3,002,961 3,015,329 
Commercial and industrial and leases11,809 3,370 7,219 22,398 5,044,765 5,067,163 
SBA-PPP1,698,416 1,698,416 
Total commercial loans30,472 11,100 23,673 65,245 22,425,662 22,490,907 
Consumer:
Residential mortgage15,387 5,605 23,988 44,980 5,607,478 5,652,458 
Revolving mortgage7,277 2,157 7,928 17,362 1,867,271 1,884,633 
Construction and land development684 69 127 880 375,612 376,492 
Consumer auto5,410 1,098 1,045 7,553 1,279,988 1,287,541 
Consumer other3,089 1,020 1,142 5,251 595,864 601,115 
Total consumer loans31,847 9,949 34,230 76,026 9,726,213 9,802,239 
PCD loans12,672 4,718 29,113 46,503 350,003 396,506 
Total loans and leases$74,991 $25,767 $87,016 $187,774 $32,501,878 $32,689,652 
December 31, 2020
(Dollars in thousands)30-59 days
past due
60-89 days
past due
90 days or greaterTotal past
due
CurrentTotal loans
and leases
Commercial:
Construction and land development$956 $527 $1,603 $3,086 $982,338 $985,424 
Owner occupied commercial mortgage8,757 2,232 14,082 25,071 11,139,941 11,165,012 
Non-owner occupied commercial mortgage12,370 5,973 18,343 2,969,346 2,987,689 
Commercial and industrial and leases14,532 2,842 3,243 20,617 4,993,027 5,013,644 
SBA-PPP2,406,291 2,406,291 
Total commercial loans36,615 5,601 24,901 67,117 22,490,943 22,558,060 
Consumer:
Residential mortgage43,218 8,364 31,690 83,272 5,478,414 5,561,686 
Revolving mortgage11,977 2,626 7,415 22,018 2,030,836 2,052,854 
Construction and land development932 77 330 1,339 346,784 348,123 
Consumer auto6,825 1,835 1,076 9,736 1,245,666 1,255,402 
Consumer other3,610 1,464 1,505 6,579 546,389 552,968 
Total consumer loans66,562 14,366 42,016 122,944 9,648,089 9,771,033 
PCD loans18,322 6,076 31,026 55,424 407,458 462,882 
Total loans and leases$121,499 $26,043 $97,943 $245,485 $32,546,490 $32,791,975 
14

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 June 30, 2021 and December 31, 2020, were as follows:
 June 30, 2021December 31, 2020
(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:
Construction and land development$1,574 $816 $1,661 $
Owner occupied commercial mortgage24,695 1,226 23,103 3,625 
Non-owner occupied commercial mortgage7,149 7,932 147 
Commercial and industrial and leases24,082 466 10,626 540 
Total commercial loans57,500 2,508 43,322 4,312 
Consumer:
Residential mortgage53,443 66,345 
Revolving mortgage21,143 22,236 
Construction and land development763 652 
Consumer auto3,192 3,166 
Consumer other489 905 823 1,195 
Total consumer loans79,030 905 93,222 1,195 
PCD loans50,934 363 54,939 355 
Total loans and leases$187,464 $3,776 $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.
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 June 30, 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.
15

The following tables represent current credit quality indicators by origination year as of June 30, 2021.
June 30, 2021
Commercial Loans Amortized Cost Basis by Origination Year
Classification:20212020201920182017PriorRevolvingRevolving converted to term loansTotal
(Dollars in thousands)
Construction and land development
Pass$222,124 $441,299 $281,357 $165,495 $47,101 $13,659 $4,395 $$1,175,430 
Special Mention20 218 146 72 138 594 
Substandard144 1,056 1,444 5,110 11 140 7,905 
Total222,144 441,661 282,413 167,085 52,283 13,670 4,673 1,183,929 
Owner occupied commercial mortgage
Pass1,420,375 3,123,179 2,090,297 1,417,269 1,105,141 2,009,482 104,492 116 11,270,351 
Special Mention782 25,052 28,380 33,575 11,938 27,394 3,030 72 130,223 
Substandard9,562 5,902 20,415 10,246 22,560 48,273 8,538 125,496 
Total1,430,719 3,154,133 2,139,092 1,461,090 1,139,639 2,085,149 116,060 188 11,526,070 
Non-owner occupied commercial mortgage
Pass312,438 801,110 584,899 300,019 298,984 576,807 32,061 2,906,318 
Special Mention783 647 855 10,678 832 2,818 500 17,113 
Substandard981 11,897 23,971 10,955 10,696 32,072 1,326 91,898 
Total314,202 813,654 609,725 321,652 310,512 611,697 33,887 3,015,329 
Commercial and industrial and leases
Pass815,211 1,272,974 798,870 397,616 220,881 392,573 988,180 5,214 4,891,519 
Special Mention2,003 9,274 22,326 5,867 4,587 5,746 7,268 192 57,263 
Substandard6,788 6,220 4,606 4,496 3,155 4,124 20,414 1,351 51,154 
Doubtful49 17 67 
Ungraded67,160 67,160 
Total824,002 1,288,517 825,819 407,979 228,623 402,443 1,083,023 6,757 5,067,163 
SBA-PPP
Pass1,157,721 540,695 1,698,416 
Total commercial$3,948,788 $6,238,660 $3,857,049 $2,357,806 $1,731,057 $3,112,959 $1,237,643 $6,945 $22,490,907 
16

Consumer and PCD Loans Amortized Cost Basis by Origination Year
Days Past Due:20212020201920182017PriorRevolvingRevolving converted to term loansTotal
(Dollars in thousands)
Residential mortgage
Current$1,146,230 $1,727,617 $779,136 $477,386 $440,502 $1,014,974 $21,633 $$5,607,478 
30-59 days1,461 1,343 2,201 1,707 2,098 6,539 38 15,387 
60-89 days144 1,025 64 263 451 3,585 73 5,605 
90 days or greater237 1,694 1,544 3,370 17,143 23,988 
Total1,147,835 1,730,222 783,095 480,900 446,421 1,042,241 21,744 5,652,458 
Revolving mortgage
Current1,736,398 130,873 1,867,271 
30-59 days4,234 3,043 7,277 
60-89 days875 1,282 2,157 
90 days or greater4,245 3,683 7,928 
Total1,745,752 138,881 1,884,633 
Construction and land development
Current100,826 209,612 38,606 13,906 7,060 3,669 1,933 375,612 
30-59 days281 114 289 684 
60-89 days15 50 69 
90 days or greater127 127 
Total101,107 209,612 38,621 14,070 7,064 4,085 1,933 376,492 
Consumer auto
Current314,523 432,620 262,684 163,836 72,275 34,050 1,279,988 
30-59 days725 1,516 1,376 925 605 263 5,410 
60-89 days69 347 367 248 16 51 1,098 
90 days or greater365 415 177 78 10 1,045 
Total315,317 434,848 264,842 165,186 72,974 34,374 1,287,541 
Consumer other
Current78,465 38,660 19,115 6,668 5,481 31,966 415,509 595,864 
30-59 days12 127 91 25 26 120 2,688 3,089 
60-89 days18 22 25 954 1,020 
90 days or greater10 37 19 1,067 1,142 
Total78,505 38,846 19,250 6,703 5,507 32,086 420,218 601,115 
Total consumer$1,642,764 $2,413,528 $1,105,808 $666,859 $531,966 $1,112,786 $2,189,647 $138,881 $9,802,239 
PCD loans
Current$$24,591 $22,834 $21,907 $23,877 $227,641 $11,185 $17,968 $350,003 
30-59 days632 469 663 536 9,404 513 455 12,672 
60-89 days420 66 539 56 3,553 52 32 4,718 
90 days or greater732 2,199 3,433 1,637 19,988 81 1,043 29,113 
Total PCD$$26,375 $25,568 $26,542 $26,106 $260,586 $11,831 $19,498 $396,506 
Total loans and leases$5,591,552 $8,678,563 $4,988,425 $3,051,207 $2,289,129 $4,486,331 $3,439,121 $165,324 $32,689,652 


17

The following tables represent current credit quality indicators by origination year as of December 31, 2020.
December 31, 2020
Commercial Loans Amortized Cost Basis by Origination Year
Classification:20202019201820172016PriorRevolvingRevolving converted to term loansTotal
(Dollars in thousands)
Construction and land development
Pass$342,183 $341,233 $190,429 $50,776 $23,969 $11,306 $10,969 $$970,865 
Special Mention246 6,421 5,342 153 12,162 
Substandard229 629 1,450 81 2,397 
Total342,658 341,862 198,300 56,118 23,977 11,387 11,122 985,424 
Owner occupied commercial mortgage
Pass3,183,467 2,201,165 1,625,141 1,301,412 1,049,858 1,454,020 101,556 133 10,916,752 
Special Mention6,274 20,702 36,739 12,387 17,699 25,693 5,115 72 124,681 
Substandard10,280 19,052 9,842 20,928 13,736 41,303 8,438 123,579 
Total3,200,021 2,240,919 1,671,722 1,334,727 1,081,293 1,521,016 115,109 205 11,165,012 
Non-owner occupied commercial mortgage
Pass865,514 609,975 378,136 331,800 282,810 391,517 32,149 2,891,901 
Special Mention569 905 10,794 1,808 5,121 3,279 483 22,959 
Substandard2,899 18,546 12,296 8,764 14,087 15,427 810 72,829 
Total868,982 629,426 401,226 342,372 302,018 410,223 33,442 2,987,689 
Commercial and industrial and leases
Pass1,620,622 983,852 504,463 310,468 234,735 286,996 899,978 5,520 4,846,634 
Special Mention3,146 17,065 7,265 5,393 3,307 4,912 9,152 189 50,429 
Substandard17,811 4,095 4,370 4,257 2,548 3,801 22,384 983 60,249 
Ungraded56,332 56,332 
Total1,641,579 1,005,012 516,098 320,118 240,590 295,709 987,846 6,692 5,013,644 
SBA-PPP
Pass2,406,291 2,406,291 
Total commercial$8,459,531 $4,217,219 $2,787,346 $2,053,335 $1,647,878 $2,238,335 $1,147,519 $6,897 $22,558,060 
18

Consumer and PCD Loans Amortized Cost Basis by Origination Year
Days Past Due:20202019201820172016PriorRevolvingRevolving converted to term loansTotal
(Dollars in thousands)
Residential mortgage
Current$1,882,683 $978,298 $655,798 $596,309 $461,719 $878,634 $24,973 $$5,478,414 
30-59 days2,278 4,573 11,463 3,772 8,613 12,299 220 43,218 
60-89 days30 100 1,246 1,449 834 4,705 8,364 
90 days or greater282 4,831 3,150 4,015 5,689 13,723 31,690 
Total1,885,273 987,802 671,657 605,545 476,855 909,361 25,193 5,561,686 
Revolving mortgage
Current1,879,968 150,868 2,030,836 
30-59 days8,241 3,736 11,977 
60-89 days527 2,099 2,626 
90 days or greater2,301 5,114 7,415 
Total1,891,037 161,817 2,052,854 
Construction and land development
Current215,112 85,707 24,860 10,269 6,093 2,218 2,525 346,784 
30-59 days420 121 370 21 932 
60-89 days68 77 
90 days or greater330 330 
Total215,112 86,127 24,981 10,648 6,093 2,637 2,525 348,123 
Consumer auto
Current521,719 340,594 219,597 104,280 49,872 9,604 1,245,666 
30-59 days2,175 1,873 1,257 842 544 134 6,825 
60-89 days329 689 312 351 109 45 1,835 
90 days or greater170 527 217 57 102 1,076 
Total524,393 343,683 221,383 105,530 50,627 9,786 1,255,402 
Consumer other
Current53,842 27,117 10,911 7,159 2,980 29,336 415,044 546,389 
30-59 days322 114 77 18 11 3,061 3,610 
60-89 days102 20 13 18 23 1,285 1,464 
90 days or greater53 84 1,360 1,505 
Total54,319 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 days999 925 801 718 1,341 12,637 156 745 18,322 
60-89 days447 81 312 695 97 4,098 337 6,076 
90 days or greater721 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 provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of June 30, 2021 and December 31, 2020:
(Dollars in thousands)June 30, 2021December 31, 2020
FHLB of Atlanta
Lendable collateral value of pledged non-PCD loans$8,900,711 $8,637,844 
Less: Advances646,667 652,675 
Available borrowing capacity$8,254,044 $7,985,169 
Pledged non-PCD loans$12,498,810 $12,157,153 
FRB
Lendable collateral value of pledged non-PCD loans$3,532,492 $3,321,762 
Less: Advances
Available borrowing capacity$3,532,492 $3,321,762 
Pledged non-PCD loans$4,380,334 $4,104,866 
19

NOTE E - ALLOWANCE FOR CREDIT LOSSES
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 June 30, 2021, the ACL change since December 31, 2020 was driven by improvement in macroeconomic factors, continued strong credit performance and low net charge-offs. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. 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. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. BancShares’ ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the June 30, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by BancShares’ strong credit quality, low net charge-offs.
Activity in the ACL by portfolio segment is summarized as follows:
Three months ended June 30, 2021
(Dollars in thousands)CommercialConsumerPCDTotal
Allowance for credit losses:
Balance at April 1$74,864 $112,852 $22,935 $210,651 
Provision (credit)3,279 (17,481)(5,401)(19,603)
Charge-offs(3,044)(4,028)(456)(7,528)
Recoveries983 2,929 1,662 5,574 
Balance at June 30$76,082 $94,272 $18,740 $189,094 
Three months ended June 30, 2020
(Dollars in thousands)CommercialConsumerPCDTotal
Balance at April 1$72,410 $109,933 $26,916 $209,259 
Provision (credit)6,628 13,682 242 20,552 
Charge-offs(4,015)(6,657)(1,392)(12,064)
Recoveries1,154 2,387 1,162 4,703 
Balance at June 30$76,177 $119,345 $26,928 $222,450 
Six months ended June 30, 2021
(Dollars in thousands)CommercialConsumerPCDTotal
Balance at January 1$80,842 $119,485 $23,987 $224,314 
Provision (credit)(643)(22,985)(6,949)(30,577)
Charge-offs(6,375)(8,497)(1,219)(16,091)
Recoveries2,258 6,269 2,921 11,448 
Balance at June 30$76,082 $94,272 $18,740 $189,094 
Six months ended June 30, 2020
(Dollars in thousands)CommercialConsumerPCDTotal
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 154,815 105,865 26,537 187,217 
Provision (credit)28,165 23,088 (2,346)48,907 
Initial allowance on PCD loans1,193 1,193 
Charge-offs(9,384)(14,426)(2,515)(26,325)
Recoveries2,581 4,818 4,059 11,458 
Balance at June 30$76,177 $119,345 $26,928 $222,450 
20

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 June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Allowance for credit losses:
Beginning balance$11,571 $10,512 $12,814 $1,055 
Adoption of ASC 3268,885 
Adjusted beginning balance$11,571 $10,512 $12,814 $9,940 
Provision (credit)(468)3,173 (1,711)3,745 
Ending balance11,103 13,685 11,103 13,685 
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 June 30, 2021 and December 31, 2020 were as follows:
June 30, 2021
(Dollars in thousands)Collateral-Dependant LoansNet Realizable Value of CollateralCollateral CoverageAllowance for Credit Losses
Commercial loans:
Construction and land development$1,425 $1,976 138.7 %$
Owner occupied commercial mortgage11,288 15,591 138.1 
Non-owner occupied commercial mortgage5,405 8,017 148.3 
Commercial and industrial and leases7,736 9,672 125.0 230 
Total commercial loans25,854 35,256 136.4 230 
Consumer:
Residential mortgage15,237 23,411 153.6 
Revolving mortgage1,385 1,724 124.5 
Total consumer loans16,622 25,135 151.2 
PCD loans19,894 34,495 173.4 
Total collateral-dependent loans$62,370 $94,886 152.1 %$230 
December 31, 2020
(Dollars in thousands)Collateral-Dependant LoansNet Realizable Value of CollateralCollateral CoverageAllowance for Credit Losses
Commercial loans:
Construction and land development$1,424 $1,795 126.1 %$
Owner occupied commercial mortgage9,792 14,253 145.6 
Non-owner occupied commercial mortgage5,556 7,577 136.4 
Total commercial loans16,772 23,625 140.9 
Consumer:
Residential mortgage23,011 29,775 129.4 131 
PCD loans19,042 27,872 146.4 
Total collateral-dependent loans$58,825 $81,272 138.2 %$131 
Collateral-dependent nonaccrual loans with no recorded allowance totaled $59.2 million and $57.5 million as of June 30, 2021 and December 31, 2020, respectively. All other nonaccrual loans have a recorded allowance.
21

Troubled Debt Restructurings
BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”). In general, the modification or restructuring of a loan is considered a TDR if, for economic 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 BancShares’ ACL loss models, TDRs are not individually evaluated unless determined to be 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 credit quality metrics do not impact the calculation of the ACL on consumer TDRs. For commercial TDRs, the TDR 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 financial 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 did not record these as TDRs.
The following tables provides a summary of total TDRs by accrual status:
June 30, 2021December 31, 2020
(Dollars in thousands)AccruingNonaccruing Total AccruingNonaccruing Total
Commercial loans:
Construction and land development$408 $38 $446 $578 $54 $632 
Owner occupied commercial mortgage37,216 12,097 49,313 37,574 10,889 48,463 
Non-owner occupied commercial mortgage20,364 3,474 23,838 18,336 1,649 19,985 
Commercial and industrial and leases12,761 8,569 21,330 29,131 3,528 32,659 
Total commercial loans70,749 24,178 94,927 85,619 16,120 101,739 
Consumer:
Residential mortgage21,079 17,220 38,299 29,458 19,380 48,838 
Revolving mortgage18,038 7,196 25,234 20,124 7,128 27,252 
Construction and land development2,482 289 2,771 1,573 1,582 
Consumer auto2,134 653 2,787 2,018 696 2,714 
Consumer other841 56 897 955 137 1,092 
Total consumer loans44,574 25,414 69,988 54,128 27,350 81,478 
PCD loans23,981 9,073 33,054 17,617 7,346 24,963 
Total loans$139,304 $58,665 $197,969 $157,364 $50,816 $208,180 
22

The following table provides the types of modifications designated as TDRs during the three and six months ended June 30, 2021 and 2020.
Three months ended June 30, 2021Three months ended June 30, 2020
All restructuringsAll restructurings
(Dollars in thousands)Number of LoansRecorded investment at period endNumber of LoansRecorded investment at period end
Loans and leases
Interest only$3,353 $15,352 
Loan term extension41 4,053 27 2,925 
Below market interest rate37 7,730 69 17,291 
Discharged from bankruptcy39 6,421 43 1,472 
Total restructurings121 $21,557 146 $37,040 
Six months ended June 30, 2021Six months ended June 30, 2020
All restructuringsAll restructurings
(Dollars in thousands)Number of LoansRecorded investment at period endNumber of LoansRecorded investment at period end
Loans and leases
Interest only10 $10,118 17 $19,328 
Loan term extension66 7,700 33 3,657 
Below market interest rate90 15,643 157 25,389 
Discharged from bankruptcy84 10,191 110 5,640 
Total restructurings250 $43,652 317 $54,014 

For the six months ended June 30, 2021 and 2020, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.
23

NOTE F - OTHER REAL ESTATE OWNED
The following table explains changes in other real estate owned (“OREO”) during the six months ended June 30, 2021 and 2020:
(Dollars in thousands)OREO
Balance at December 31, 2020$50,890 
Additions11,340 
Sales(16,600)
Write-downs/losses(1,945)
Balance at June 30, 2021$43,685 
Balance at December 31, 2019$46,591 
Additions9,184 
Acquired in business combinations9,813 
Sales(9,497)
Write-downs/losses(2,241)
Balance at June 30, 2020$53,850 
At June 30, 2021 and December 31, 2020, BancShares had $6.1 million and $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 $27.1 million and $29.4 million at June 30, 2021 and December 31, 2020, respectively. Net gains recorded on the sale of OREO properties were $3.8 million for the six months ended June 30, 2021. Net losses recorded on the sale of OREO properties were $0.2 million for the six months ended June 30, 2020.
NOTE G - MORTGAGE SERVICING RIGHTS
BancShares originates certain residential mortgages loans to sell in the secondary market. BancShares’ portfolio of residential mortgage loans serviced for third parties was $3.4 billion as of June 30, 2021 and December 31, 2020. These loans are originated and sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights are recorded as a servicing asset and are reported in other intangible assets. The associated amortization expense and any valuation allowance recognized 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 month periods ended June 30, 2021 and 2020, and are reported in mortgage income. For the six months ended June 30, 2021 and 2020, mortgage servicing fees, late fees and ancillary fees earned were $4.2 million and $4.3 million, respectively.
The following table presents changes in the servicing asset during the three and six months ended June 30, 2021 and 2020:
Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Beginning balance$22,745 $19,756 $18,426 $22,963 
Servicing rights originated3,101 2,096 6,545 3,679 
Amortization(2,077)(2,119)(4,325)(3,942)
Valuation allowance decrease (increase)(1,784)(1,069)1,339 (4,036)
Ending balance$21,985 $18,664 $21,985 $18,664 
The following table presents the activity in the servicing asset valuation allowance for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Beginning balance$1,242 $3,189 $4,365 $222 
Valuation allowance (decrease) increase1,784 1,069 (1,339)4,036 
Ending balance$3,026 $4,258 $3,026 $4,258 
24

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:
June 30, 2021December 31, 2020
Discount rate - conventional fixed loans8.47 %7.92 %
Discount rate - all loans excluding conventional fixed loans9.47 %8.92 %
Weighted average constant prepayment rate16.57 %20.62 %
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 pledged as collateral under repurchase agreements was $778.4 million and $689.3 million at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021, BancShares held $692.6 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, including $544.2 million collateralized by government agency securities and $148.4 million collateralized by commercial mortgage-backed securities. At December 31, 2020, BancShares held securities sold under agreements to repurchase of $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
For certain FDIC-assisted transactions, the related shared-loss agreement included a provision requiring a payment owed to the FDIC at the termination of the agreement. As of June 30, 2021, these agreements have been satisfied following a $16.1 million payment made to the FDIC related to the final active agreement.
The following table provides changes in the FDIC shared-loss payable since December 31, 2020:
(Dollars in thousands)Total
Balance at December 31, 2020$15,601 
Accretion502 
Payment made to the FDIC to settle shared-loss agreement(16,103)
Balance at June 30, 2021$
25

NOTE J - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income included the following as of June 30, 2021 and December 31, 2020:
 June 30, 2021December 31, 2020
(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$45,338 $10,428 $34,910 $102,278 $23,524 $78,754 
Unrealized gains on securities available for sale transferred to held to maturity4,139 952 3,187 5,399 1,242 4,157 
Defined benefit pension items(78,204)(17,987)(60,217)(91,751)(21,103)(70,648)
Total$(28,727)$(6,607)$(22,120)$15,926 $3,663 $12,263 
The following table highlights changes in accumulated other comprehensive (loss) income by component for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30, 2021
(Dollars in thousands, net of tax)Unrealized gains (losses) on securities available for saleUnrealized gains on securities available for sale transferred to held to maturityDefined benefit pension itemsTotal
Beginning balance$28,159 $3,791 $(65,621)$(33,671)
Net unrealized gains arising during period18,940 18,940 
Amounts reclassified from accumulated other comprehensive loss(12,189)(604)5,404 (7,389)
Net current period other comprehensive (loss) income6,751 (604)5,404 11,551 
Ending balance$34,910 $3,187 $(60,217)$(22,120)
Three months ended June 30, 2020
(Dollars in thousands, net of tax)Unrealized gains (losses) on securities available for saleUnrealized gains on securities available for sale transferred to held to maturityDefined benefit pension itemsTotal
Beginning balance$102,080 $$(127,692)$(25,612)
Net unrealized gains arising during period21,611 21,611 
Amounts reclassified from accumulated other comprehensive loss(10,589)4,926 (5,663)
Net current period other comprehensive income11,022 4,926 15,948 
Ending balance$113,102 $$(122,766)$(9,664)
26

Six months ended June 30, 2021
(Dollars in thousands, net of tax)Unrealized gains on securities available for saleUnrealized gains on securities available for sale transferred to held to maturityDefined benefit pension itemsTotal
Beginning balance$78,754 $4,157 $(70,648)$12,263 
Net unrealized losses arising during period(24,566)(24,566)
Amounts reclassified from accumulated other comprehensive income(19,278)(970)10,431 (9,817)
Net current period other comprehensive (loss) income(43,844)(970)10,431 (34,383)
Ending balance$34,910 $3,187 $(60,217)$(22,120)
Six months ended June 30, 2020
(Dollars in thousands, net of tax)Unrealized gains on securities available for saleUnrealized gains on securities available for sale transferred to held to maturityDefined benefit pension itemsTotal
Beginning balance$5,792 $$(132,515)$(126,723)
Net unrealized gains arising during period133,141 133,141 
Amounts reclassified from accumulated other comprehensive loss(25,831)9,749 (16,082)
Net current period other comprehensive income107,310 9,749 117,059 
Ending balance$113,102 $$(122,766)$(9,664)
27

The following table presents the amounts reclassified from accumulated other comprehensive (loss) income and the line item affected in the statement where net income is presented for the three and six months ended June 30, 2021 and 2020:
(Dollars in thousands)Three months ended June 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$15,830 Realized gains on investment securities available for sale, net
(3,641)Income taxes
$12,189 
Accretion of unrealized gains on securities available for sale transferred to held to maturity$785 Net interest income
(181)Income taxes
$604 
Amortization of defined benefit pension actuarial losses(7,018)Other noninterest expense
1,614 Income taxes
$(5,404)
Total reclassifications for the period$7,389 
(Dollars in thousands)Three months ended June 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$13,752 Realized gains on investment securities available for sale, net
(3,163)Income taxes
$10,589 
Amortization of defined benefit pension actuarial losses(6,398)Other noninterest expense
1,472 Income taxes
$(4,926)
Total reclassifications for the period$5,663 
Six months ended June 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$25,037 Realized gains on investment securities available for sale, net
(5,759)Income taxes
$19,278 
Amortization of unrealized losses on securities available for sale transferred to held to maturity$1,260 Net interest income
(290)Income taxes
$970 
Amortization of defined benefit pension actuarial losses$(13,547)Other noninterest expense
3,116 Income taxes
$(10,431)
Total reclassifications for the period$9,817 
Six months ended June 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$33,547 Realized gains on investment securities available for sale, net
(7,716)Income taxes
$25,831 
Amortization of defined benefit pension actuarial losses(12,662)Other noninterest expense
2,913 Income taxes
$(9,749)
Total reclassifications for the period$16,082 
28

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.
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 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.
29

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 was determined based on payments to the FDIC in accordance with the shared-loss agreements. Cash flows 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 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 June 30, 2021 and December 31, 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.
The table presents the carrying values and estimated fair values for financial instruments as of June 30, 2021 and December 31, 2020:
(Dollars in thousands)June 30, 2021December 31, 2020
Carrying valueFair valueCarrying valueFair value
Assets
Cash and due from banks$395,364 $395,364 $362,048 $362,048 
Overnight investments7,871,382 7,871,382 4,347,336 4,347,336 
Investment in marketable equity securities118,540 118,540 91,680 91,680 
Investment securities available for sale7,381,083 7,381,083 7,014,243 7,014,243 
Investment securities held to maturity3,394,604 3,377,085 2,816,982 2,838,499 
Loans held for sale107,768 107,768 124,837 124,837 
Net loans and leases32,500,558 32,786,935 32,567,661 33,298,166 
Income earned not collected133,043 133,043 145,694 145,694 
Federal Home Loan Bank stock40,450 40,450 45,392 45,392 
Mortgage and other servicing rights22,702 23,155 19,628 20,283 
Liabilities
Deposits with no stated maturity45,789,354 45,789,354 40,542,596 40,542,596 
Time deposits2,621,242 2,626,322 2,889,013 2,905,577 
Securities sold under customer repurchase agreements692,604 692,604 641,487 641,487 
Federal Home Loan Bank borrowings646,667 662,606 655,175 677,579 
Subordinated debt497,290 523,423 504,518 525,610 
Other borrowings80,531 81,201 88,470 89,263 
FDIC shared-loss payable15,601 15,843 
Accrued interest payable8,811 8,811 9,414 9,414 
30

For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of June 30, 2021 and December 31, 2020:
June 30, 2021
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Assets measured at fair value
Investment securities available for sale
Government agency$825,450 $$825,450 $
Residential mortgage-backed securities4,785,256 4,785,256 
Commercial mortgage-backed securities1,148,530 1,148,530 
Corporate bonds621,847 296,399 325,448 
Total investment securities available for sale$7,381,083 $$7,055,635 $325,448 
Marketable equity securities$118,540 $49,293 $69,247 $
Loans held for sale$107,768 $$107,768 $
December 31, 2020
 Fair value measurements using:
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Assets measured at fair value
Investment securities available for sale
U.S. Treasury$499,933 $$499,933 $
Government agency701,391 701,391 
Residential mortgage-backed securities4,438,103 4,438,103 
Commercial mortgage-backed securities771,537 771,537 
Corporate bonds603,279 286,655 316,624 
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 carried at fair value on a recurring basis:
Corporate bonds
Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Beginning balance$318,116 $67,016 $316,624 $69,685 
Purchases7,000 100,595 7,000 100,595 
Unrealized net losses (gains) included in other comprehensive income1,340 2,449 3,491 (1,917)
Amounts included in net income92 (83)183 (168)
Transfers in1,782 
Sales / Calls(1,100)(1,850)
Ending balance$325,448 $169,977 $325,448 $169,977 
During the three months ended June 30, 2021 and 2020, there were 0 transfers between levels. During the six months ended June 30, 2021 there were no transfers from Level 2 to Level 3, compared to $1.8 million for the same period of 2020. The transfers were due to a lack of observable inputs and trade activity for those securities.
The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at June 30, 2021:
(Dollars in thousands)June 30, 2021
Level 3 assetsValuation techniqueSignificant unobservable inputFair Value
Corporate bondsIndicative bid provided by brokerMultiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer$325,448 
31

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 gains of $0.4 million and $2.4 million for the three months ended June 30, 2021 and 2020, respectively. The changes in fair value included a loss of $2.3 million and a gain of $3.6 million for six months ended June 30, 2021 and 2020, respectively. Interest earned on loans held for sale is recorded within interest income on loans and 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 June 30, 2021 and December 31, 2020:
June 30, 2021
(Dollars in thousands)Fair valueAggregate unpaid principal balanceDifference
Originated loans held for sale$107,768 $104,167 $3,601 
December 31, 2020
Fair valueAggregate unpaid principal balanceDifference
Originated loans held for sale$124,837 $118,902 $5,935 
NaN originated loans held for sale were 90 or more days past due or on nonaccrual status as of June 30, 2021 or December 31, 2020.
BancShares 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.
The population of loans measured at fair value on a non-recurring basis is limited to collateral-dependent loans evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated 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 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 7.88%.
OREO acquired or written down within the previous 12 months is deemed to be at fair value. Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts generally between 6% and 15% applied for estimated selling costs and other external factors that may impact the marketability of the property. At June 30, 2021, the weighted average discount applied was 6%. 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 June 30, 2021 and December 31, 2020:
June 30, 2021
  Fair value measurements using:
(Dollars in thousands)Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Collateral-dependent loans$6,183 $$$6,183 
Other real estate owned32,128 32,128 
Mortgage servicing rights20,045 20,045 
December 31, 2020
 Fair value measurements using:
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Collateral-dependent loans$11,779 $$$11,779 
Other real estate owned40,115 40,115 
Mortgage servicing rights16,966 16,966 
NaN financial liabilities were carried at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 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 six months ended June 30, 2021 and 2020, the components of net periodic benefit cost are as follows:
 Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Service cost$4,023 $3,682 $7,676 $7,139 
Interest cost7,528 8,568 14,932 17,099 
Expected return on assets(19,621)(16,435)(39,216)(32,844)
Amortization of net actuarial loss7,018 6,398 13,547 12,662 
Net periodic (benefit) cost$(1,052)$2,213 $(3,061)$4,056 
NaN discretionary contribution was made to the pension plans during the six months ended June 30, 2021. A discretionary contribution of $100.0 million was made to the pension plans during the six months ended June 30, 2020. The funding policy of the pension plans is to contribute an amount each year to meet all Employee Retirement Income Security Act minimum requirements, including 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 maximum tax-deductible amount) in order to achieve certain target funding levels in the plans, with consideration also given to current and future cash flow and tax positions. No contributions are currently expected for the year ending December 31, 2021.
NOTE M - LEASES
The following table presents right-of-use lease assets and liabilities as of June 30, 2021 and December 31, 2020:
(Dollars in thousands)ClassificationJune 30, 2021December 31, 2020
Assets:
OperatingOther assets$65,090 $68,048 
FinancePremises and equipment5,394 6,478 
Total leased assets$70,484 $74,526 
Liabilities:
OperatingOther liabilities$65,659 $68,343 
FinanceOther borrowings5,519 6,308 
Total lease liabilities$71,178 $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 June 30, 2021 and December 31, 2020:
(Dollars in thousands)June 30, 2021December 31, 2020
Unused commitments to extend credit$12,354,224 $12,098,417 
Standby letters of credit132,338 129,819 
33

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 $167.9 million and $163.9 million as of June 30, 2021 and December 31, 2020, respectively, and were recorded in other assets. Unfunded commitments to fund future investments in affordable housing projects totaled $54.7 million and $53.7 million as of June 30, 2021 and December 31, 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.
34

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 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 Annual Report on Form 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 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 2020 Annual Report 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. In response to the outbreak, governments imposed restrictions resulting in business shutdowns, regional quarantines, disruptions of supply chains, changes in consumer behavior and overall economic instability. In recent months, COVID-19 vaccines have been approved and are now generally available for use in the United States and certain other countries, however, we cannot predict how widely utilized they will be or whether they will be effective in preventing the spread of COVID-19 (including its variants).

Although we cannot predict when or if normal economic activity and business operations will resume, we did observe general declines in the level of economic uncertainty and stabilization of macroeconomic forecasts during the first half of 2021. In recent weeks, we have seen an uptick in the number of new cases, although the absolute level of these new cases is significantly below the levels witnessed at the height of the pandemic. We are unable to predict whether these trends will continue and 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 COVID-19 pandemic (including any of its variants) and its effects on the overall economy and our financial results.

During the second quarter of 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 acknowledged the economy’s accelerating recovery from COVID-19, but maintained that the recovery is incomplete and economic risks remain. The FOMC expects to maintain this target range, but could see rate hikes in 2023 and possibly earlier.
In response to 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”) and the Consolidated Appropriations Act 2021 to direct aid via loans to small businesses impacted by the COVID-19 pandemic.
We completed the first round of SBA-PPP funding in the second half 2020. During the second quarter of 2021, we completed the second round of funding, which resulted in the origination of approximately 12,000 SBA-PPP loans totaling $1.2 billion. We recorded $27.2 million of interest and fee income related to SBA-PPP loans for the quarter. As of June 30, 2021, remaining net deferred fees on SBA-PPP loans were $54.9 million.
With respect to the first round of SBA-PPP, we began accepting and processing applications for forgiveness during the third quarter of 2020. We have received approximately 20,000 forgiveness decisions from the SBA to date, representing over $2.6 billion in forgiveness payments. We originated approximately 23,000 loans during round one totaling $3.2 billion.
35

Table 1
SBA-PPP LOAN FORGIVENESS STATUS
(Dollars in thousands)
Round One Forgiveness Status at June 30, 2021$ of Loans% of Round One Total
Received by FCB$2,933,046 91.3 %
Submitted to SBA2,842,312 88.5 
Approved by SBA2,767,706 86.2 
Funds Received2,642,638 82.3 

Through June 30, 2021, over 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, and we have not seen significant declines in overall credit quality.

SIGNIFICANT EVENTS IN 2021
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. 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”). Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System and closing is expected in the third quarter, subject to such approval and the satisfaction or waiver of other customary closing conditions.
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 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 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.
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.
36


FINANCIAL PERFORMANCE SUMMARY
Second Quarter Highlights
Net income for the second quarter of 2021 was $152.8 million, a decrease of $1.0 million, or 0.6% compared to the same quarter in 2020. Net income available to common shareholders totaled $148.2 million for the second quarter of 2021. Net income per common share increased $0.35, or 2.4%, to $15.09 in the second quarter of 2021, from $14.74 per share during the comparable quarter in 2020.
Return on average assets for the second quarter of 2021 was 1.13%, down from 1.36% in the second quarter of 2020. Return on average equity for the second quarter of 2021 was 14.64%, down from 16.43% during the comparable quarter of 2020.
Net interest income was $346.4 million for the second quarter of 2021, an increase of $9.0 million, or 2.7% compared to the same quarter in 2020. This was primarily due to lower rates paid on interest-bearing deposits, interest and fee income on SBA-PPP loans, and organic loan growth, partially offset by a decline in the yield on interest-earning assets. SBA-PPP loans contributed $27.2 million in interest and fee income for the second quarter of 2021 compared to $19.0 million in the same quarter of 2020. The taxable-equivalent net interest margin (“NIM”) was 2.68% for the second quarter of 2021, a decrease of 46 basis points from 3.14% for the second quarter in 2020.
Provision for credit losses was a benefit of $19.6 million for the second quarter of 2021 compared to $20.6 million in expense for the same quarter in 2020. The net charge-off ratio was 0.02% for the second quarter of 2021, down from 0.03% for the first quarter of 2021 and 0.09% for the second quarter of 2020.
Noninterest income was $134.2 million for the second quarter of 2021, a decrease of $31.3 million, or 18.9%, compared to $165.4 million for the same quarter of 2020.
Noninterest expense was $301.6 million for the second quarter of 2021, an increase of $9.9 million or by 3.4% compared to the same quarter of 2020.
The allowance for credit losses was $189.1 million at June 30, 2021, compared to $210.7 million at March 31, 2021. The $21.6 million change was due primarily to a reserve release for the three months ended June 30, 2021 driven by continued improvement in macroeconomic factors, strong credit performance, and low net charge-offs.
Total loans were $32.7 billion as of June 30, 2021, a decrease of $491.2 million, or by 5.9% on an annualized basis, since March 31, 2021. Excluding loans originated under the SBA-PPP, total loans increased $605.6 million, or by 8.0% on an annualized basis, since March 31, 2020.
Total deposits grew to $48.4 billion, an increase of $1.1 billion, or by 9.1% on an annualized basis, since March 31, 2021.
At June 30, 2021, BancShares remained “well capitalized” as defined by regulatory standards with a total risk-based capital ratio of 14.2%, a Tier 1 risk-based capital of 12.1%, a common equity Tier 1 ratio of 11.1% and a leverage ratio of 7.7%.
37

Year to Date Highlights
Net income for the six months ended June 30, 2021 totaled $300.1 million, an increase of $89.1 million, or 42.3% compared to the same period in 2020. Net income available to common shareholders totaled $290.8 million. Earnings per share increased $9.59, or 47.9%, to $29.63 for the six months ended June 30, 2021, from $20.04 during the comparable period in 2020.
Return on average assets for the six months ended June 30, 2021 was 1.14%, up 16 basis points compared to the same period in 2020. Return on average equity for the six months ended June 30, 2021 was 14.67%, up 328 basis points compared to the same period in 2020.
Net interest income for the six months ended June 30, 2021, was $686.0 million, an increase of $10.3 million, or 1.5% compared to the same period of 2020. This was primarily due to lower rates paid on interest-bearing deposits, an increase in interest and fee income on SBA-PPP loans, and organic loan growth, partially offset by a decline in the yield on interest-earning assets. SBA-PPP loans contributed $58.1 million in interest and fee income for the six months ended June 30, 2021 compared to $19.0 million in the comparable period in 2020. The taxable-equivalent NIM was 2.74% for the six months ended June 30, 2021, a decrease of 59 basis points from 3.33% during the comparable period of 2020.
Provision for credit losses was a benefit of $30.6 million for the six months ended June 30, 2021, compared to $48.9 million in expense for the same period in 2020. The net charge-off ratio was 0.03% for the six months ended June 30, 2021, a 7 basis point decrease compared to the same period of 2020.
Noninterest income was $270.8 million for the six months ended June 30, 2021, an increase of $41.4 million, or 18.0%, compared to $229.4 million for the same quarter of 2020.
Noninterest expense was $597.5 million for the six months ended June 30 2021, an increase of $5.9 million or by 1.0% compared to the same quarter of 2020.
The allowance for credit losses was $189.1 million at June 30, 2021, compared to $224.3 million at December 31, 2020. The $35.2 million change was due primarily to a reserve release for the six months ended June 30, 2021 driven by continued improvement in macroeconomic factors, strong credit performance, and low net charge-offs.
Total loans grew to $32.7 billion, a decrease of $102.3 million since December 31, 2020. Excluding SBA-PPP loans, total loans increased $604.7 million, or by 3.7% on an annualized basis, since December 31, 2020.
Total deposits grew to $48.4 billion, an increase of $5.0 billion since December 31, 2020 or by 23.1% on an annualized basis driven by organic growth and the effects of government stimulus.
38

Table 2
SELECTED QUARTERLY DATA
20212020Six months ended June 30
SecondFirstFourthThirdSecond
(Dollars in thousands, except share data)QuarterQuarterQuarterQuarterQuarter20212020
SUMMARY OF OPERATIONS
Interest income$361,825 $355,323 $376,876 $374,334 $363,257 $717,148 $732,816 
Interest expense15,432 15,671 18,160 20,675 25,863 31,103 57,022 
Net interest income346,393 339,652 358,716 353,659 337,394 686,045 675,794 
Provision (credit) for credit losses(19,603)(10,974)5,403 4,042 20,552 (30,577)48,907 
Net interest income after provision for credit losses365,996 350,626 353,313 349,617 316,842 716,622 626,887 
Noninterest income134,150 136,649 126,765 120,572 165,402 270,799 229,413 
Noninterest expense301,578 295,926 305,373 291,662 291,679 597,504 591,650 
Income before income taxes198,568 191,349 174,705 178,527 190,565 389,917 264,650 
Income taxes45,780 44,033 36,621 35,843 36,779 89,813 53,695 
Net income152,788 147,316 138,084 142,684 153,786 300,104 210,955 
Net income available to common shareholders$148,152 $142,680 $133,448 $138,048 $148,996 $290,832 $206,165 
Net interest income, taxable equivalent$347,035 $340,271 $359,370 $354,256 $337,965 $687,306 $677,139 
PER COMMON SHARE DATA
Net income$15.09 $14.53 $13.59 $14.03 $14.74 $29.63 $20.04 
Cash dividends on common shares0.47 0.47 0.47 0.40 0.40 0.94 0.80 
Market price at period end (Class A)832.74 835.77 574.27 318.78 405.02 832.74 405.02 
Book value per share at period-end421.39 405.59 396.21 380.43 367.57 421.39 367.57 
SELECTED QUARTERLY AVERAGE BALANCES
Total assets$54,399,331 $51,409,634 $49,557,803 $48,262,155 $45,553,502 $52,912,741 $43,101,154 
Investment securities10,534,348 9,757,650 9,889,124 9,930,197 8,928,467 10,148,144 8,190,813 
Loans and leases (1)
33,166,049 33,086,656 32,964,390 32,694,996 31,635,958 33,126,572 30,367,030 
Interest-earning assets51,519,684 48,715,279 46,922,823 45,617,376 42,795,781 50,125,228 40,400,061 
Deposits47,751,103 44,858,198 43,123,312 41,905,844 39,146,415 46,312,642 36,948,238 
Interest-bearing liabilities28,909,320 27,898,525 26,401,222 25,591,707 24,407,285 28,406,714 23,780,042 
Securities sold under customer repurchase agreements677,451 641,236 684,311 710,237 659,244 659,444 566,737 
Other short-term borrowings— — — — 45,549 — 101,654 
Long-term borrowings1,227,755 1,235,576 1,250,682 1,256,331 1,275,928 1,231,643 1,118,042 
Common shareholders' equity4,058,236 3,935,267 3,786,158 3,679,138 3,648,284 3,996,751 3,637,129 
Shareholders’ equity$4,398,173 $4,275,204 $4,126,095 $4,019,075 $3,988,225 $4,336,688 $3,835,430 
Common shares outstanding9,816,405 9,816,405 9,816,405 9,836,629 10,105,520 9,816,405 10,289,320 
SELECTED QUARTER-END BALANCES
Total assets$55,175,318 $53,908,606 $49,957,680 $48,666,873 $47,866,194 $55,175,318 $47,866,194 
Investment securities10,894,227 10,222,107 9,922,905 9,860,594 9,508,476 10,894,227 9,508,476 
Loans and leases32,689,652 33,180,851 32,791,975 32,845,144 32,418,425 32,689,652 32,418,425 
Deposits48,410,596 47,330,997 43,431,609 42,250,606 41,479,245 48,410,596 41,479,245 
Securities sold under customer repurchase agreements692,604 680,705 641,487 693,889 740,276 692,604 740,276 
Other short-term borrowings— — — — — — — 
Long-term borrowings1,224,488 1,230,326 1,248,163 1,252,016 1,258,719 1,224,488 1,258,719 
Shareholders’ equity$4,476,490 $4,321,400 $4,229,268 $4,074,414 $3,991,444 $4,476,490 $3,991,444 
Common shares outstanding9,816,405 9,816,405 9,816,405 9,816,405 9,934,105 9,816,405 9,934,105 
SELECTED RATIOS AND OTHER DATA
Return on average assets (annualized)1.13 %1.16 %1.11 %1.18 %1.36 %1.14 %0.98 %
Return on average common shareholders’ equity (annualized)14.64 14.70 14.02 14.93 16.43 14.67 11.40 
Net yield on interest-earning assets (taxable equivalent)2.68 2.80 3.02 3.06 3.14 2.74 3.33 
Net charge-offs to average loans and leases (annualized)0.02 0.03 0.06 0.03 0.09 0.03 0.10 
Allowance for credit losses to total loans and leases(2):
PCD4.73 5.30 5.18 5.07 5.07 4.73 5.07 
Non-PCD0.53 0.57 0.62 0.61 0.61 0.53 0.61 
Total0.58 0.63 0.68 0.68 0.69 0.58 0.69 
Ratio of total nonperforming assets to total loans, leases and other real estate owned0.71 0.73 0.74 0.73 0.77 0.71 0.77 
Total risk-based capital ratio14.15 14.14 13.81 13.70 13.63 14.15 13.63 
Tier 1 risk-based capital ratio12.13 12.02 11.63 11.48 11.38 12.13 11.38 
Common equity Tier 1 ratio11.14 11.00 10.61 10.43 10.32 11.14 10.32 
Tier 1 leverage capital ratio7.67 7.84 7.86 7.80 8.07 7.67 8.07 
Dividend payout ratio3.11 3.23 3.46 2.85 2.71 3.17 3.99 
Average loans and leases to average deposits69.46 73.76 76.44 78.02 80.81 71.53 82.19 
(1) Average loan and lease balances include PCD loans, non-PCD loans and leases, loans held for sale and nonaccrual loans and leases.
(2) Loans originated in relation to the SBA-PPP ($1.7 billion as of June 30, 2021) do not have a recorded ACL. As of June 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans is 0.56%, while the ratio of ACL to total loans excluding SBA-PPP loans is 0.61%.
39

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.
The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. 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 FDIC. Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System and closing is expected in the third quarter, subject to such approval and the satisfaction or waiver of other customary closing conditions.

Federal Deposit Insurance Corporation Assisted Transactions
BancShares completed fourteen FDIC-assisted transactions between 2009 and 2017. Nine of the fourteen FDIC-assisted transactions included shared-loss agreements which, for their terms, protected us from a substantial portion of the credit and asset quality risk we would otherwise incur.
For certain FDIC-assisted transactions, the shared-loss agreement included a provision related to a payment owed to the FDIC at the termination of the agreement. As of June 30, 2021, these agreements have been satisfied following a $16.1 million payment made to the FDIC for the final active agreement during the first quarter of 2021.
40

Table 3
CONSOLIDATED QUARTER-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS
Three months ended June 30
20212020
InterestInterest
AverageIncome/ Yield/AverageIncome/Yield/
(Dollars in thousands)BalanceExpenseRateBalanceExpenseRate
Assets
Loans and leases$33,166,049 $324,891 3.89 %$31,635,958 $326,618 4.10 %
Investment securities:
U.S. Treasury— — — 206,575 679 1.32 
Government agency839,614 1,966 0.94 657,405 1,428 0.87 
Mortgage-backed securities8,968,779 25,273 1.13 7,555,947 28,532 1.51 
Corporate bonds612,516 7,806 5.10 299,250 3,782 5.06 
Other investments113,439 426 1.51 209,290 2,236 4.30 
Total investment securities10,534,348 35,471 1.35 8,928,467 36,657 1.64 
Overnight investments7,819,287 2,105 0.11 2,231,356 553 0.10 
Total interest-earning assets51,519,684 362,467 2.80 42,795,781 363,828 3.38 
Cash and due from banks364,303 404,517 
Premises and equipment1,242,700 1,260,566 
Allowance for credit losses(211,913)(209,973)
Other real estate owned46,074 55,554 
Other assets1,438,483 1,247,057 
Total assets$54,399,331 $45,553,502 
Liabilities
Interest-bearing deposits:
Checking with interest$10,952,753 $1,504 0.06 %$8,562,145 $1,310 0.06 %
Savings3,796,686 326 0.03 2,846,557 312 0.04 
Money market accounts9,581,775 2,634 0.11 7,618,883 6,519 0.34 
Time deposits2,672,900 4,078 0.61 3,398,979 9,775 1.16 
Total interest-bearing deposits27,004,114 8,542 0.13 22,426,564 17,916 0.32 
Securities sold under customer repurchase agreements677,451 356 0.21 659,244 399 0.24 
Other short-term borrowings— — — 45,549 248 2.16 
Long-term borrowings1,227,755 6,534 2.12 1,275,928 7,300 2.26 
Total interest-bearing liabilities28,909,320 15,432 0.21 24,407,285 25,863 0.42 
Noninterest-bearing deposits20,746,989 16,719,851 
Other liabilities344,849 438,141 
Shareholders’ equity4,398,173 3,988,225 
Total liabilities and shareholders’ equity$54,399,331 $45,553,502 
Interest rate spread2.59 %2.96 %
Net interest income and net yield on interest-earning assets$347,035 2.68 %$337,965 3.14 %
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 the three months ended June 30, 2021 and 2020, respectively. The taxable-equivalent adjustment was $642 thousand and $571 thousand for the three months ended June 30, 2021 and 2020, respectively.
41

Table 4
CONSOLIDATED YEAR-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS
Six months ended June 30
20212020
InterestInterest
AverageIncome/ Yield/AverageIncome/Yield/
(Dollars in thousands)BalanceExpenseRateBalanceExpenseRate
Assets
Loans and leases$33,126,572 $648,493 3.91 %$30,367,030 $652,774 4.27 %
Investment securities:
U.S. Treasury190,591 172 0.18 253,176 2,356 1.87 
Government agency815,587 3,865 0.95 689,330 5,548 1.61 
Mortgage-backed securities8,428,730 45,880 1.09 6,808,190 59,239 1.74 
Corporate bonds607,726 15,548 5.12 252,377 6,259 4.96 
Other investments105,510 898 1.72 187,740 2,914 3.12 
Total investment securities10,148,144 66,363 1.31 8,190,813 76,316 1.86 
Overnight investments6,850,512 3,553 0.10 1,842,218 5,071 0.55 
Total interest-earning assets50,125,228 718,409 2.86 40,400,061 734,161 3.62 
Cash and due from banks348,772 352,475 
Premises and equipment1,247,097 1,256,268 
Allowance for credit losses(217,928)(198,621)
Other real estate owned47,325 54,455 
Other assets1,362,247 1,236,516 
Total assets$52,912,741 $43,101,154 
Liabilities
Interest-bearing deposits:
Checking with interest$10,850,059 $2,913 0.05 %$8,375,564 $3,011 0.07 %
Savings3,630,158 625 0.03 2,720,213 597 0.04 
Money market accounts9,296,667 5,142 0.11 7,317,735 15,628 0.43 
Time deposits2,738,743 8,655 0.64 3,580,097 22,874 1.28 
Total interest-bearing deposits26,515,627 17,335 0.13 21,993,609 42,110 0.39 
Securities sold under customer repurchase agreements659,444 694 0.21 566,737 841 0.30 
Other short-term borrowings— — — 101,654 1,052 2.05 
Long-term borrowings1,231,643 13,074 2.12 1,118,042 13,019 2.30 
Total interest-bearing liabilities28,406,714 31,103 0.22 23,780,042 57,022 0.48 
Noninterest-bearing deposits19,797,015 14,954,629 
Other liabilities372,324 531,053 
Shareholders’ equity4,336,688 3,835,430 
Total liabilities and shareholders’ equity$52,912,741 $43,101,154 
Interest rate spread2.64 %3.14 %
Net interest income and net yield on interest-earning assets$687,306 2.74 %$677,139 3.33 %
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 the six months ended June 30, 2021 and 2020, respectively. The taxable-equivalent adjustment was $1.3 million and $1.3 million for the six months ended June 30, 2021 and 2020, respectively.
42

Table 5
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
Three months ended June 30, 2021Six months ended June 30, 2021
Change from prior year period due to:Change from prior year period due to:
(Dollars in thousands)
Volume(1)
Yield/Rate(1)
Total Change
Volume(1)
Yield/Rate(1)
Total Change
Assets
Loans and leases$14,265 $(15,992)$(1,727)$49,996 $(54,277)$(4,281)
Investment securities:
U.S. Treasury(679)— (679)(587)(1,597)(2,184)
Government agency396 142 538 1,016 (2,699)(1,683)
Mortgage-backed securities5,259 (8,518)(3,259)14,066 (27,425)(13,359)
Corporate bonds3,960 64 4,024 8,812 477 9,289 
Other investments(1,025)(785)(1,810)(1,302)(714)(2,016)
Total investment securities7,911 (9,097)(1,186)22,005 (31,958)(9,953)
Overnight investments1,389 163 1,552 13,753 (15,271)(1,518)
Total interest-earning assets$23,565 $(24,926)$(1,361)$85,754 $(101,506)$(15,752)
Liabilities
Interest-bearing deposits:
Checking with interest$370 $(176)$194 $895 $(993)$(98)
Savings105 (91)14 201 (173)28 
Money market accounts1,702 (5,587)(3,885)4,199 (14,685)(10,486)
Time deposits(2,067)(3,630)(5,697)(5,376)(8,843)(14,219)
Total interest-bearing deposits110 (9,484)(9,374)(81)(24,694)(24,775)
Securities sold under customer repurchase agreements12 (55)(43)139 (286)(147)
Other short-term borrowings(248)— (248)(1,052)— (1,052)
Long-term borrowings(271)(495)(766)1,296 (1,241)55 
Total interest-bearing liabilities(397)(10,034)(10,431)302 (26,221)(25,919)
Change in net interest income$23,962 $(14,892)$9,070 $85,452 $(75,285)$10,167 
(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)
Second Quarter 2021 compared to Second Quarter 2020
Taxable-equivalent net interest income was $347.0 million for the second quarter of 2021, an increase of $9.1 million, or 2.7%, compared to the second quarter of 2020. This was primarily due to lower rates paid on interest-bearing deposits, an increase in interest and fee income on SBA-PPP loans, and organic loan growth, partially offset by a decline in the yield on interest-earning assets. SBA-PPP loans contributed $27.2 million in interest and fee income during the second quarter of 2021 compared to $19.0 million in the second quarter of 2020.
The taxable-equivalent NIM was 2.68% in the second quarter of 2021, a decrease of 46 basis points from the comparable quarter in the prior year. The margin decline was primarily due to changes in earning asset mix as excess liquidity drove an increase in overnight investments as a percentage of total assets. This was coupled with a decline in the yield on interest-earning assets and partially offset by lower rates paid on interest-bearing deposits and the yield on SBA-PPP loans.
Average interest-earning assets increased by $8.7 billion to $51.5 billion, compared to the second quarter of 2020. The primary drivers for this change were the excess liquidity build up which led to higher average overnight investments of $5.6 billion, a $1.5 billion increase in average loan balances due to SBA-PPP loans as well as organic loan growth and higher average investment securities of $1.6 billion.
The yield on interest-earning assets decreased by 58 basis points to 2.80% when compared to the second quarter of 2020. The yield on loans and leases decreased to 3.89%, or by 21 basis points, as a result of downward rate resets on variable rate loans and lower rates on new fixed rate loans. The yield on overnight investments increased one basis point, but the large increase in average balances resulted in a change in earning asset mix, which contributed to an overall decline in the yield. The yield on investment securities decreased by 29 basis points primarily due to increased premium amortization on mortgage-backed securities as a result of higher than expected prepayments.
Average interest-bearing liabilities increased by $4.5 billion to $28.9 billion, compared to the second quarter of 2020. This increase was driven by an increase in average interest-bearing deposit balances of $4.6 billion driven by strong deposit growth. This was partially offset by a decrease in average long-term borrowings of $48.2 million.
43

Rates on interest-bearing liabilities decreased by 21 basis points to 0.21%, primarily due to decreased rates paid on interest-bearing deposits as a result of maturing time deposits and a reduction in rates paid on money market accounts. This is coupled with lower rates paid on borrowings.
Six Months of 2021 compared to Six Months of 2020
The taxable-equivalent net interest income for the six months ended June 30, 2021 was $687.3 million, an increase of $10.2 million, or 1.5%, compared to the same period in 2020. The increase in net interest income was primarily due to a decrease in total interest expense of $25.9 million, driven largely by declining rates on interest-bearing deposits. This was partially offset by a decrease in interest on investment securities of $10.0 million and a decrease of $4.3 million in interest earned on loans, driven by a decrease in yields, partially offset by the impact of SBA-PPP loans.
The taxable-equivalent NIM was 2.74% for the six months ended June 30, 2021, a decrease of 59 basis points from the comparable period of 2020. The margin decline was primarily due to changes in earning asset mix and a decline in the yield on interest-earning assets, partially offset by lower rates paid on interest-bearing deposits and the impact of SBA-PPP loans on loan yields.
Average year-to-date interest-earning assets for the six months ended June 30, 2021, increased by $9.7 billion to $50.1 billion, compared to the same period in 2020. This increase was driven by an increase in average overnight investments of $5.0 billion, coupled with a $2.8 billion increase in average loans outstanding and increases in average investment securities of $2.0 billion. The yield on interest-earning assets decreased by 76 basis points to 2.86% for the six months ended June 30, 2021, compared to the same period in 2020. The yield on loans and leases decreased by 36 basis points as a result of decreases in yields on commercial and residential loans. The yield on overnight investments and the investment securities portfolio decreased by 45 basis points and 55 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 and reinvestment at lower yields were the primary drivers of the yield decline on investment securities.
Average year-to-date interest-bearing liabilities for the six months ended June 30, 2021 increased by $4.6 billion to $28.4 billion, compared to the same period in 2020. This increase was primarily due to a $4.5 billion increase in average interest-bearing deposit balances driven by deposit growth. The rate paid on interest-bearing deposits decreased by 26 basis points driven by decreased rates on time deposits and money market accounts. The rate paid on interest-bearing liabilities decreased by 26 basis points to 0.22% for the six months ended June 30, 2021 compared to the same period in 2020 driven by maturing time deposits and declines in the rate paid on money market accounts.
Provision for Credit Losses
Provision for credit losses was a benefit of $19.6 million for the second quarter of 2021, compared to $20.6 million in expense for the comparable quarter in 2020. For the six months ended June 30, 2021, provision for credit losses was a benefit of $30.6 million compared to $48.9 million in expense for the first six months of 2020. The change was driven primarily by reserve release attributable to improvements in macroeconomic factors during 2021, continued low net charge-offs and strong credit performance. Provision expense for the three and six month periods ended June 30, 2020 included reserve builds related to COVID-19 of $14.6 million and $36.1 million, respectively.
Noninterest Income
Table 6
NONINTEREST INCOME
Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Wealth management services$31,753 $22,371 $63,951 $48,783 
Service charges on deposit accounts21,883 17,522 43,419 43,935 
Cardholder services, net22,471 17,587 42,431 35,747 
Mortgage income5,929 9,811 18,920 15,035 
Merchant services, net8,532 5,363 17,449 11,251 
Other service charges and fees8,959 7,145 17,448 14,937 
Insurance commissions3,704 3,189 7,702 6,877 
ATM income1,571 1,395 3,053 2,817 
Marketable equity securities gains, net11,654 64,570 27,665 13,162 
Realized gains on investment securities available for sale, net15,830 13,752 25,037 33,547 
Other1,864 2,697 3,724 3,322 
Total noninterest income$134,150 $165,402 $270,799 $229,413 
44

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, and mortgage lending and servicing.
Noninterest income for the second quarter of 2021 was $134.2 million, compared to $165.4 million for the same period of 2020, a decrease of $31.3 million, or 18.9%. The most significant components of the change were as follows:
A $52.9 million decline in the amount of favorable fair market value adjustments on marketable equity securities. Fair market value adjustments on marketable equity securities were heightened in the second quarter of 2020 as we built up our equity portfolio when the market contracted. As the market started to improve in the second quarter of 2020, we sold a large portion of it to realize the gains. The $64.6 million of gains recognized in the second quarter of 2020 consisted of realized gains of $37.0 million and unrealized gains of $27.6 million.
Mortgage income decreased by $3.9 million primarily due to a decline in gain on sale driven by interest rate movements.
Wealth management services increased by $9.4 million driven by increases in annuity fees, assets under management, and advisory and transaction fees.
Cardholder services income, net increased by $4.9 million, service charges on deposit accounts increased by $4.4 million and merchant services income increased by $3.2 million. These increases were driven by increased transaction activity.

Noninterest income was $270.8 million for the first six months of 2021, compared to $229.4 million for the same period of 2020, an increase of $41.4 million, or 18.0%. The most significant components of the change were as follows:
Wealth management services increased by $15.2 million, due to increased annuity fees, assets under management, and advisory and transaction fees.
Gains on the market value of equity securities, net increased by $14.5 million.
Cardholder services income, net increased $6.7 million primarily due to an increase in transaction volume.
Mortgage income increased $3.9 million primarily due to a mortgage servicing rights impairment reversal in the first quarter of 2021.
Realized gains on investment securities available for sale, net decreased by $8.5 million primarily due to a higher volume of sales of debt securities in the first quarter of 2020.
Noninterest Expense
Table 7
NONINTEREST EXPENSE
Three months ended June 30Six months ended June 30
(Dollars in thousands)2021202020212020
Salaries and wages$153,643 $146,633 $301,473 $291,888 
Employee benefits35,298 30,364 71,023 68,875 
Occupancy expense28,439 29,556 58,182 57,036 
Equipment expense28,902 28,774 58,705 56,624 
Processing fees paid to third parties14,427 10,186 28,100 20,558 
FDIC insurance expense3,382 3,731 6,600 7,197 
Collection and foreclosure-related expenses173 3,949 2,371 8,003 
Merger-related expenses5,769 4,369 12,588 8,601 
Telecommunications expense3,187 2,815 6,220 5,788 
Consultant expense2,773 3,027 4,838 6,287 
Advertising expense2,301 1,980 4,186 4,649 
Core deposit intangible amortization2,841 3,672 5,885 7,531 
Other20,443 22,623 37,333 48,613 
Total noninterest expense$301,578 $291,679 $597,504 $591,650 
45

The primary components of noninterest expense are salaries and related employee benefits, occupancy and equipment expense.
Noninterest expense was $301.6 million during the second quarter of 2021, an increase of $9.9 million, or 3.4%, compared to the same quarter in 2020. The most significant components of the change were as follows:
Personnel expense increased $11.9 million driven by an increase in payroll incentives and higher health insurance claims.
Processing fees paid to third parties increased $4.2 million as we continue to make investments in our digital and technological capabilities.
Collection and foreclosure-related expenses decreased $3.8 million and other noninterest expense decreased by $2.2 million.
Noninterest expense was $597.5 million for the first six months of 2021, compared to $591.7 million for the same period in 2020, an increase of $5.9 million, or 1.0%. The most significant components of the change were as follows:
Personnel expense increased by $11.7 million primarily due to an increase in payroll incentives coupled with the impact of merit increases.
Processing fees paid to third parties increased $7.5 million as we continue to make investments in our digital and technological capabilities.
Merger-related expenses increased $4.0 million in anticipation of the upcoming merger with CIT.
Other expenses decreased $11.3 million primarily due to a decrease in pension expense as a result of higher expected returns on plan assets coupled with improvements in the reserve for unfunded commitments.
Income Taxes
Income tax expense was $45.8 million and $36.8 million for the second quarter of 2021 and 2020, respectively, representing effective tax rates of 23.1% and 19.3% during the periods.
Income tax expense totaled $89.8 million and $53.7 million for the first six months of 2021 and 2020, respectively, representing effective tax rates of 23.0% and 20.3% for the respective six month periods.
The effective tax rates in 2020 were favorably impacted by the utilization of an allowable alternative for computing our federal income tax liability. The allowable alternative enabled us to use the federal income tax rate for certain 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 for the second quarter and first six months of 2020 would have been approximately 23%.

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, 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 $51.6 billion and $47.2 billion at June 30, 2021 and December 31, 2020, respectively. The $4.4 billion increase was primarily composed of a $3.5 billion increase in overnight investments and a $971.3 million increase in investment securities, partially offset by a $102.3 million decrease in loans.
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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 for additional disclosures.
The carrying value of investment securities totaled $10.9 billion at June 30, 2021, an increase of $971.3 million compared to December 31, 2020. The increase in the portfolio was primarily attributable to a strong liquidity position, resulting in investment securities purchases of $4.1 billion, partially offset by sales of $1.1 billion and maturities and paydowns of $2.0 billion.
Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of AOCI, net of deferred taxes. As of June 30, 2021, investment securities available for sale had a net pre-tax unrealized gain of $45.3 million, compared to a net pre-tax unrealized gain of $102.3 million as of December 31, 2020. Management evaluated the available for sale securities in an unrealized loss position and concluded that the unrealized losses relate to changes in interest rates relative to when the securities were purchased, and therefore, no allowance for credit losses was recorded at June 30, 2021 or December 31, 2020.
BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no allowance for credit losses was needed at June 30, 2021 and December 31, 2020.
Table 8
INVESTMENT SECURITIES
June 30, 2021December 31, 2020
(Dollars in thousands)
Composition(1)
Amortized costFair
value
Composition(1)
Amortized costFair
value
Investment securities available for sale
U.S. Treasury— %$— $— 5.0 %$499,832 $499,933 
Government agency7.6 824,216 825,450 7.0 706,241 701,391 
Residential mortgage-backed securities44.0 4,770,205 4,785,256 44.5 4,369,130 4,438,103 
Commercial mortgage-backed securities10.5 1,144,024 1,148,530 7.9 745,892 771,537 
Corporate bonds5.7 597,300 621,847 6.1 590,870 603,279 
Total investment securities available for sale67.8 7,335,745 7,381,083 70.5 6,911,965 7,014,243 
Investment in marketable equity securities1.1 84,297 118,540 0.9 84,837 91,680 
Investment securities held to maturity
Residential mortgage-backed securities20.2 2,208,496 2,202,874 19.1 1,877,692 1,895,381 
Commercial mortgage-backed securities10.8 1,184,101 1,172,204 9.4 937,034 940,862 
Other0.1 2,007 2,007 0.1 2,256 2,256 
Total investment securities held to maturity31.1 3,394,604 3,377,085 28.6 2,816,982 2,838,499 
Total investment securities100.0 %$10,814,646 $10,876,708 100.0 %$9,813,784 $9,944,422 
(1) Calculated as a percent of the total fair value of investment securities.
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Table 9 presents the weighted average taxable-equivalent yields for investment securities held to maturity at June 30, 2021 segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level annualized yields.
Table 9
WEIGHTED AVERAGE YIELD ON INVESTMENT SECURITIES
June 30, 2021
Within
One Year
One to Five
Years
Five to 10
Years
After 10 YearsTotal
Investment securities held to maturity
Residential mortgage-backed securities(1)
— %— %— %1.13 %1.13 %
Commercial mortgage-backed securities(1)
— — — 1.35 1.35 
Other investments0.81 1.17 — — 0.94 
Total investment securities held to maturity0.81 %1.17 %— %1.21 %1.21 %
(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 held for sale were $107.8 million at June 30, 2021, a net decrease of $17.1 million since December 31, 2020.
At June 30, 2021, loans totaled $32.69 billion, a decrease of $102.3 million, or by 0.6% on an annualized basis since December 31, 2020. Excluding SBA-PPP loans, total loans increased $604.7 million, or by 3.7% on an annualized 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 $32.3 billion at both June 30, 2021 and December 31, 2020, representing 98.8% and 98.6% of total loans, respectively. PCD loans at June 30, 2021 were $396.5 million, compared to $462.9 million at December 31, 2020, representing 1.2% and 1.4% of total loans, respectively.
The discount related to acquired non-PCD loans and leases was $14.5 million and $19.5 million at June 30, 2021 and December 31, 2020, respectively. The discount related to PCD loans was $35.8 million and $45.3 million at June 30, 2021 and December 31, 2020, respectively.
During the three months ended June 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $2.5 million while interest and accretion income on PCD loans was $12.8 million and $14.4 million, respectively. During the six months ended June 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $5.0 million while interest and accretion income on PCD loans was $23.7 million and $33.0 million, respectively

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Table 10
LOANS AND LEASES
(Dollars in thousands)June 30, 2021December 31, 2020
Commercial:
Construction and land development$1,183,929 $985,424 
Owner occupied commercial mortgage11,526,070 11,165,012 
Non-owner occupied commercial mortgage3,015,329 2,987,689 
Commercial and industrial and leases5,067,163 5,013,644 
SBA-PPP1,698,416 2,406,291 
Total commercial loans22,490,907 22,558,060 
Consumer:
Residential mortgage5,652,458 5,561,686 
Revolving mortgage1,884,633 2,052,854 
Construction and land development376,492 348,123 
Consumer auto1,287,541 1,255,402 
Consumer other601,115 552,968 
Total consumer loans9,802,239 9,771,033 
Total non-PCD loans and leases32,293,146 32,329,093 
PCD loans396,506 462,882 
Total loans and leases32,689,652 32,791,975 
Less allowance for credit losses(189,094)(224,314)
Net loans and leases$32,500,558 $32,567,661 
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses (“ACL”) was $189.1 million at June 30, 2021, representing a decrease of $35.2 million since December 31, 2020. The ACL as a percentage of total loans and leases was 0.58% at June 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 0.61% at June 30, 2021, compared to 0.74% at December 31, 2020.
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 June 30, 2021, the ACL change since December 31, 2020 was driven by improvement in macroeconomic factors, continued strong credit performance and low net charge-offs. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. For most pools, we use 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. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the June 30, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by our strong credit quality and low net charge-offs.
As of June 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 with a peak of over 5% in the third quarter of 2021 declining to around 4% in early 2023.
GDP Growth - Peak growth of approximately 7% in the third quarter of 2021, decreasing to around 2% in 2022 and thereafter.
Home Pricing Index - Growth rates to fluctuate between 3.5% and 5% throughout the forecast period.
Commercial Real Estate Index - Forecasted downturn with a maximum 8% drop by the end of 2021, and then improving towards positive year over year growth.
At June 30, 2021, the ACL allocated to non-PCD loans and leases was $170.4 million, or 0.53% of non-PCD loans and leases, compared to $200.3 million, or 0.62%, at December 31, 2020. The decrease of 9 basis points since December 31, 2020 was primarily due to improvement in the macroeconomic factors, continued strong credit quality and low net charge-offs. The ACL as
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a percentage of non-PCD loans and leases excluding SBA-PPP loans was 0.56% at June 30, 2021 compared to 0.67% at December 31, 2020.
At June 30, 2021, the ACL for PCD loans totaled $18.7 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 June 30, 2021, the ACL on our commercial portfolio decreased $4.8 million, with the largest share of the decrease within commercial real estate. The ACL on the consumer portfolio decreased $25.2 million, with the largest decrease within residential mortgages. These portfolios were most impacted by the improvement in macroeconomic factors which was the primary driver of the decline.
Net charge-offs for loans and leases were $2.0 million during the second quarter of 2021, compared to $7.4 million during the second quarter of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.02% and 0.09% for the second quarter of 2021 and 2020, respectively. Excluding the impact of SBA-PPP loans on average loan balances, net charge-offs as a percentage of total average loans and leases was 0.03% and 0.10% for the second quarter of 2021 and 2020, respectively.
Net charge-offs for loans and leases were $4.6 million during the six months ended June 30, 2021, compared to $14.9 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 0.03% and 0.10% for the six months ended June 30, 2021 and 2020, respectively. Average SBA-PPP loans did not have an impact on net charge-offs as a percentage of total average loans for the six months ended June 30, 2021 and 2020.








































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Table 11
ALLOWANCE FOR CREDIT LOSSES
<
Three months ended June 30, 2021
(Dollars in thousands)CommercialConsumerPCDTotal
Allowance for credit losses:
Balance at April 1$74,864 $112,852 $22,935 $210,651 
Provision (credit)3,279 (17,481)(5,401)(19,603)
Charge-offs(3,044)(4,028)(456)(7,528)
Recoveries983 2,929 1,662 5,574 
Balance at June 30$76,082 $94,272 $18,740 $189,094 
Percent of loans in each category to total loans68.8 %30.0 %1.2 %100.0 %
Annualized net charge-off ratio0.04 %0.05 %(0.59)%0.02 %
Net charge-offs$2,061 $1,099 $(1,206)$1,954 
Average loans22,883,898 9,744,211 414,183 33,042,292 
Three months ended June 30, 2020
(Dollars in thousands)CommercialConsumerPCDTotal
Balance at April 1$72,410 $109,933 $26,916 $209,259 
Provision (credit)6,628 13,682 242 20,552 
Charge-offs(4,015)(6,657)(1,392)(12,064)
Recoveries1,154 2,387 1,162 4,703 
Balance at June 30$76,177 $119,345 $26,928 $222,450 
Percent of loans in each category to total loans68.4 %30.0 %1.6 %100.0 %
Annualized net charge-off ratio0.05 %0.18 %0.08 %0.09 %
Net charge-offs$2,861 $4,270 $230 $7,361 
Average loans21,372,905 9,619,096 547,000 31,539,001 
Six months ended June 30, 2021
(Dollars in thousands)CommercialConsumerPCDTotal
Balance at January 1$80,842 $119,485 $23,987 $224,314 
Provision (credit)(643)(22,985)(6,949)(30,577)
Initial allowance on PCD loans— — — — 
Charge-offs(6,375)(8,497)(1,219)(16,091)
Recoveries2,258 6,269 2,921 11,448 
Balance at June 30$76,082 $94,272 $18,740 $189,094 
Percent of loans in each category to total loans68.8 %30.0 %1.2 %100.0 %
Annualized net charge-off ratio0.04 %0.05 %(0.79)%0.03 %
Net charge-offs$4,117 $2,228 $(1,702)$4,643 
Average loans22,857,758 9,714,503 434,241 33,006,502 
Six months ended June 30, 2020
(Dollars in thousands)CommercialConsumerPCDTotal
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 154,815 105,865 26,537 187,217 
Provision (credit)28,165 23,088 (2,346)48,907 
Initial allowance on PCD loans— — 1,193 1,193 
Charge-offs(9,384)(14,426)(2,515)(26,325)
Recoveries2,581 4,818 4,059 11,458 
Balance at June 30$76,177 $119,345 $26,928 $222,450 
Percent of loans in each category to total loans68.4 %