What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-05 · 210 added, 193 removed, 1312 unchanged (23% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(Dollars in thousands, unaudited) June 30, 2020 December 31, 2019

(Dollars in thousands, unaudited) September 30, 2020 December 31, 2019

Cash and due from banks $ 352,419 $ 376,719

Overnight investments 3,137,945 1,107,844

Investment in marketable equity securities (cost of $ 116,322 at June 30, 2020 and $ 59,262 at December 31, 2019)

Investment in marketable equity securities (cost of $ 100,408 at September 30, 2020 and $ 59,262 at December 31, 2019)

93,074 82,333

Investment securities available for sale (cost of $ 8,472,398 at June 30, 2020 and $ 7,052,152 at December 31, 2019)

Investment securities available for sale (cost of $ 8,884,548 at September 30, 2020 and $ 7,052,152 at December 31, 2019)

9,019,788 7,059,674

Investment securities held to maturity (fair value of $ 791,325 at June 30, 2020 and $ 30,996 at December 31, 2019)

Investment securities held to maturity (fair value of $ 761,252 at September 30, 2020 and $ 30,996 at December 31, 2019)

747,732 30,996

23 unchanged sentences

Class A - $ 1 par value ( 16,000,000 shares authorized;

8,928,920 and 9,624,310 shares issued and outstanding at June 30, 2020 and December 31, 2019 respectively)

8,811,220 and 9,624,310 shares issued and outstanding at September 30, 2020 and December 31, 2019 respectively)

Class B - $ 1 par value ( 2,000,000 shares authorized;

1,005,185 shares issued and outstanding at June 30, 2020 and December 31, 2019)

1,005,185 shares issued and outstanding at September 30, 2020 and December 31, 2019)

Preferred stock - $ 0.01 par value ( 10,000,000 shares authorized;

345,000 and no shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively)

345,000 and no shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively)

Surplus — 44,081

7 unchanged sentences

Consolidated Statements of Income

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

(Dollars in thousands, except per share data, unaudited) 2020 2019 2020 2019

23 unchanged sentences

ATM income 1,537 1,635 4,354 4,771

Marketable equity securities gains, net 64,570 3,144 13,162 14,472

Marketable equity securities (losses) gains, net ( 2,701 ) ( 967 ) 10,461 13,505

Realized gains on investment securities available for sale, net 21,425 1,136 54,972 6,855

23 unchanged sentences

Consolidated Statements of Comprehensive Income

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

(Dollars in thousands, unaudited) 2020 2019 2020 2019

1 unchanged sentence

Other comprehensive income

Unrealized gains on securities available for sale:

Unrealized gains (losses) on securities available for sale:

Unrealized gains on securities available for sale arising during the period 9,781 3,932 182,690 62,974

2 unchanged sentences

Tax effect 4,928 262 12,644 1,577

Unrealized gains on securities available for sale arising during the period, net of tax 11,022 19,444 107,310 41,059

Unrealized (losses) gains on securities available for sale arising during the period, net of tax ( 8,967 ) 2,152 98,343 43,211

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

6 unchanged sentences

Total change in pension obligation, net of tax 4,875 2,114 14,624 6,341

Other comprehensive income 15,948 26,129 117,059 54,456

Other comprehensive income (loss) ( 4,092 ) 8,959 112,967 63,415

Total comprehensive income $ 138,592 $ 133,738 $ 466,606 $ 418,912

3 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

Three months ended June 30

Three months ended September 30

(Dollars in thousands, unaudited) Class A

5 unchanged sentences

Shareholders’

Balance at March 31, 2019 $ 10,380 $ 1,005 $ — $ 393,449 $ 3,325,335 $ ( 206,860 ) $ 3,523,309

Balance at June 30, 2019 $ 10,175 $ 1,005 $ — $ 303,880 $ 3,440,284 $ ( 180,731 ) $ 3,574,613

Net income — — — — 124,779 — 124,779

5 unchanged sentences

Class B common stock — — — — ( 402 ) — ( 402 )

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

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

Balance at March 31, 2020 $ 9,275 $ 1,005 $ 339,958 $ — $ 3,632,894 $ ( 25,612 ) $ 3,957,520

Net income — — — — 142,684 — 142,684

Other comprehensive income, net of tax — — — — — 15,948 15,948

Issuance of preferred stock — — ( 21 ) — — — ( 21 )

Other comprehensive loss, net of tax — — — — — ( 4,092 ) ( 4,092 )

Repurchase of 117,700 shares of Class A common stock

4 unchanged sentences

Preferred stock dividends declared — — — — ( 4,636 ) — ( 4,636 )

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

Six months ended June 30

Balance at September 30, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,738,417 $ ( 13,756 ) $ 4,074,414

Nine months ended September 30

(Dollars in thousands, unaudited) Class A

13 unchanged sentences

Class B common stock — — — — ( 1,206 ) — ( 1,206 )

Balance at June 30, 2019 $ 10,175 $ 1,005 $ — $ 303,880 $ 3,440,284 $ ( 180,731 ) $ 3,574,613

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

Balance at December 31, 2019 $ 9,624 $ 1,005 $ — $ 44,081 $ 3,658,197 $ ( 126,723 ) $ 3,586,184

9 unchanged sentences

Preferred stock dividends declared — — — — ( 9,426 ) — ( 9,426 )

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

Balance at September 30, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,738,417 $ ( 13,756 ) $ 4,074,414

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

Consolidated Statements of Cash Flows

Six months ended June 30

Nine months ended September 30

(Dollars in thousands, unaudited) 2020 2019

4 unchanged sentences

Deferred tax expense 16,227 43,939

Net decrease (increase) in current tax receivable 12,122 ( 23,826 )

Net increase in current tax receivable ( 38,878 ) ( 33,433 )

Depreciation and amortization 81,169 77,024

34 unchanged sentences

Net increase in demand and other interest-bearing deposits 8,556,808 701,426

Net increase (decrease) in short-term borrowings 2,043 ( 109,109 )

Net decrease in short-term borrowings ( 44,344 ) ( 138,741 )

Repayment of long-term obligations ( 82,747 ) ( 43,545 )

8 unchanged sentences

Cash and due from banks at end of period $ 352,419 $ 288,933

Six months ended June 30

Nine months ended September 30

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

1 unchanged sentence

Dividends declared but not paid 3,926 4,397

Unsettled maturities of investment securities — 150,122

Unsettled purchases of investment securities — 1,126

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

23 unchanged sentences

Share Repurchases

During the second quarter of 2020, BancShares repurchased 346,000 shares of Class A common stock for $ 127.0 million at an average cost per share of $ 366.98 .

During the second quarter of 2019, BancShares purchased a total of 205,500 shares of Class A common stock for $ 89.8 million at an average cost per share of $ 436.81 .

During the six months ended June 30, 2020 , BancShares repurchased 695,390 shares of Class A common stock for $ 286.7 million at an average cost per share of $ 412.23 .

During the six months ended June 30, 2019 , BancShares repurchased a total of 448,500 shares of Class A common stock for $ 190.5 million at an average cost per share of $ 424.77 .

During the third quarter of 2020, BancShares repurchased 117,700 shares of Class A common stock for $ 47.1 million at an average cost per share of $ 399.82 .

During the third quarter of 2019, BancShares purchased a total of 295,900 shares of Class A common stock for $ 135.4 million at an average cost per share of $ 457.50 .

During the nine months ended September 30, 2020 , BancShares repurchased 813,090 shares of Class A common stock for $ 333.8 million at an average cost per share of $ 410.48 .

During the nine months ended September 30, 2019 , BancShares repurchased a total of 744,400 shares of Class A common stock for $ 325.9 million at an average cost per share of $ 437.84 .

All Class A common stock repurchases were consummated under previously approved authorizations.

The share repurchases during 2020 included 45,000 shares of Class A common stock repurchased from Ella Ann Holding, as trustee of her revocable trust.

The share repurchases during 2020 and 2019 included 45,000 shares and 50,000 shares, respectively, of Class A common stock repurchased from Ella Ann Holding, as trustee of her revocable trust.

Pursuant to the existing share repurchase authorization and BancShares’ related person transaction policy, the Board of Director’s (the “Board”) independent Audit Committee reviewed and approved the repurchase of up to 250,000 shares held by Mrs.

Holding on or before April 30, 2020.

Subsequent to quarter-end through July 31, 2020, BancShares repurchased an additional 117,700 shares of Class A common stock for $ 47.1 million at an average cost per share of $ 399.77 .

Upon completion of the current authorization on July 31, 2020, share repurchase activity has been suspended and will be reevaluated in subsequent periods.

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

Small Business Administration Paycheck Protection Program

1 unchanged sentence

Overseen by the United States (“U.S.”) Treasury Department, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020.

Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period between eight and 24-weeks after the loan is made as long as the borrower retains its employees and their compensation levels.

Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of between eight and 24-weeks after the loan is made as long as the borrower retains its employees and their compensation levels.

The CARES Act authorized the SBA to temporarily guarantee these loans.

The SBA began processing forgiveness payments during the fourth quarter of 2020.

Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate loan class.

Origination fees received by the SBA are capitalized into the carrying amount of the loans.

Origination fees received from the SBA are capitalized into the carrying amount of the loans.

The deferred fee income, net of origination costs, is recognized over the life of the loan as an adjustment to yield using the effective interest method.

Loans outstanding as of June 30, 2020 totaled $ 3.08 billion and generated $ 19.0 million of interest income during the second quarter of 2020.

As of September 30, 2020, loans outstanding of $ 3.11 billion have generated $ 28.9 million and $ 47.9 million of interest income during the three and nine month periods ended September 30, 2020, respectively.

Remaining unamortized deferred fees and costs on SBA-PPP loans are $ 76.0 million as of September 30, 2020.

Recently Adopted Accounting Pronouncements

15 unchanged sentences

BancShares adopted this ASU during the first quarter 2020 with no impact to our consolidated financial position or consolidated results of operations as a result of the adoption.

There was no impairment recorded as a result of our annual assessment during the third quarter of 2020.

FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

16 unchanged sentences

Realized gains and losses from the sale of debt securities are determined by specific identification on a trade date basis and are included in noninterest income.

BancShares performs pre-purchase due diligence and evaluates the credit risk of AFS and HTM securities purchased directly into our portfolio or via acquisition.

If securities have evidence of more than insignificant credit deterioration since issuance, they are designated as PCD.

BancShares performs pre-purchase due diligence and evaluates the credit risk of AFS and HTM debt securities purchased directly into our portfolio or via acquisition.

If securities have evidence of more than insignificant credit deterioration since issuance, they are designated as purchased credit deteriorated (“PCD”).

P CD securities are recorded at fair value at the date of acquisition which includes an associated allowance that is added to the purchase price or fair value to arrive at the Day 1 amortized cost basis.

10 unchanged sentences

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 as of the date of acquisition.

Non-Purchased Credit Deteriorated (“Non-PCD”) Loans

Non-PCD loans consist of loans originated by BancShares and loans purchased from other institutions that do not reflect more than insignificant credit deterioration at acquisition.

Non-Purchased Credit Deteriorated Loans

Non-Purchased Credit Deteriorated (“Non-PCD”) loans consist of loans originated by BancShares and loans purchased from other institutions that do not reflect more than insignificant credit deterioration at acquisition.

Originated loans for which management has the intent and ability to hold for the foreseeable future are classified as held for investment and carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs.

34 unchanged sentences

Consumer loans

Residential mortgage - Residential mortgage consists of loans to purchase or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property.

Residential mortgage - Residential mortgage consists of loans to purchase or refinance the borrower’s primary dwelling, secondary residence or vacation home and are often secured by 1-4 family residential property.

Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral.

1 unchanged sentence

These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values.

This risk is elevated for loans secured by junior lines as a substantial decline in value could render a the junior lien position effectively unsecured.

This risk is elevated for loans secured by junior lines as a substantial decline in value could render the junior lien position effectively unsecured.

Construction and land development - Construction and land development consists of loans to construct a borrower’s primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date.

8 unchanged sentences

Accounting Policy - Nonperforming Assets and Troubled Debt Restructurings

Nonperforming Assets (“NPA”)

NPAs include nonaccrual loans, past due securities and foreclosed property.

Nonperforming Assets

Nonperforming assets (“NPAs”) include nonaccrual loans, past due securities and foreclosed property.

Foreclosed property consists of real estate and other assets acquired as a result of loan defaults and is discussed below.

7 unchanged sentences

We review all securities with delinquent interest and immediately charge off any accrued interest determined to be uncollectible.

Troubled Debt Restructurings (“TDR”)

A loan is considered a TDR when both of the following occur:

Troubled Debt Restructurings

A loan is considered a troubled debt restructuring (“TDR”) when both of the following occur:

(1) a modification to a borrower’s debt agreement is made and (2) a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be granted.

3 unchanged sentences

In circumstances where a portion of the loan balance is charged-off, the remaining balance is typically classified as nonaccrual.

Accounting Policy - Allowance for Credit Losses (“ACL”)

Accounting Policy - Allowance for Credit Losses

Loans within the various reporting classes are segregated into pools with similar risk characteristics and models are built to estimate the ACL.

5 unchanged sentences

however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized.

The ACL for SBA-PPP loans originated during the second quarter of 2020 were separately evaluated given the explicit government guarantee.

The ACL for SBA-PPP loans originated during 2020 are separately evaluated given the explicit government guarantee.

This analysis, which incorporated historical experience with similar SBA guarantees and underwriting, concluded the likelihood of loss was remote and therefore these loans were assigned a zero expected credit loss in the ACL.

21 unchanged sentences

Unfunded Commitments

A reserve for unfunded commitments is established for off-balance sheet exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well a both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e.

commitment cannot canceled at any time).

A reserve for unfunded commitments is established for off-balance sheet exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e.

commitment cannot be canceled at any time).

These unfunded commitments are assessed to determine both the probability of funding as well the expectation of future losses.

The expected funding balance is used in the probability of default and loss given default models to determine the reserve.

The reserve for unfunded commitments was $ 13.7 million at June 30, 2020, and is recorded within other liabilities with changes recorded through other expense.

The reserve for unfunded commitments was $ 14.0 million at September 30, 2020, and is recorded within other liabilities with changes recorded through other expense.

Adoption Impact

6 unchanged sentences

The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives.

The increase in the reserve for unfunded commitments was primarily due to increases in the scope of off-balance sheet exposures considered in this estimate due to the provisions in ASU 2016-13.

The increase in the reserve for unfunded commitments was primarily due to increases in the scope of off-balance sheet exposures considered in this estimate due to the provisions in ASC 326.

BancShares adopted this ASU using the prospective transition approach for PCD loans previously accounted for under ASC 310-30.

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NOTE B - BUSINESS COMBINATIONS

Recently Announced Business Combinations

CIT Group Inc.

On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”).

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”).

The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”).

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT.

Subject to the fulfillment of customary closing conditions, the parties anticipate that the Transaction will close in the first half of 2021.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of CIT common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (“CIT Common Stock”), except for certain shares of CIT Common Stock owned by CIT or BancShares, will be converted into the right to receive .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.

Completed Business Combinations

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

35 unchanged sentences

Goodwill recorded for Community Financial $ 686

Merger-related expenses of $ 495 thousand and $ 1.7 million were recorded for the three and six months ended June 30, 2020, respectively.

Merger-related expenses of $ 342 thousand and $ 2.1 million were recorded for the three and nine months ended September 30, 2020, respectively.

Loan-related interest income generated from Community Financial was approximately $ 4.1 million since the acquisition date.

10 unchanged sentences

See Note A - Accounting Policies and Basis for Presentation for more detail on our policies and adoption.

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

June 30, 2020

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

September 30, 2020

(Dollars in thousands) Cost Gross

37 unchanged sentences

BancShares’ Visa Class B shares are not considered to have a readily determinable fair value and are recorded at $ 0 .

BancShares held FHLB stock of $ 45.4 million and $ 43.0 million and other non-marketable equity securities of $ 13.1 million and $ 12.5 million at June 30, 2020 and December 31, 2019, respectively.

These securities are recorded in other assets.

As of June 30, 2020 and January 1, 2020, no ACL was required for available for sale and held to maturity debt securities.

Accrued interest receivable on debt securities at June 30, 2020 was $ 21.3 million and was excluded from the estimate of credit losses.

During the three and six months ended June 30, 2020, no accrued interest was deemed uncollectible and written off against interest income.

BancShares held FHLB stock of $ 45.4 million and $ 43.0 million and other non-marketable equity securities of $ 13.5 million and $ 12.5 million at September 30, 2020 and December 31, 2019, respectively.

These securities are recorded at cost within other assets.

As of September 30, 2020 and January 1, 2020, no ACL was required for available for sale and held to maturity debt securities.

At September 30, 2020, accrued interest receivables for available for sale and held to maturity debt securities were $ 23.6 million and $ 1.7 million, respectively, and were excluded from the estimate of credit losses.

During the three and nine months ended September 30, 2020, no 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.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(Dollars in thousands) Cost Fair

17 unchanged sentences

Total investment securities held to maturity $ 747,732 $ 761,252 $ 30,996 $ 30,996

There were gross gains of $ 13.8 million on sales of investment securities available for sale during the three months ended June 30, 2020 and no gross losses.

There were gross gains of $ 34.2 million and gross losses of $ 679 thousand on sales of investment securities available for sale during the six months ended June 30, 2020.

There were $ 5.7 million gross gains on sales of investment securities available for sale for the three and six months ended June 30, 2019 and no gross losses.

The following table provides the realized and unrealized gains and losses on marketable equity securities for the six months ended June 30, 2020 and 2019:

Three months ended June 30 Six months ended June 30

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

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2020 2019 2020 2019

Marketable equity securities gains, net $ 64,570 $ 3,144 $ 13,162 $ 14,472

Gross realized gains on sales of investment securities available for sale $ 21,425 $ 1,326 $ 55,651 $ 7,045

Gross realized losses on sales of investment securities available for sale — 190 679 190

Net realized gains on sales of investment securities available for sale $ 21,425 $ 1,136 $ 54,972 $ 6,855

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

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2020 2019 2020 2019

Marketable equity securities (losses) gains, net $ ( 2,701 ) $ ( 967 ) $ 10,461 $ 13,505

Less net gains recognized on marketable equity securities sold 2,568 714 39,884 3,029

Unrealized gains (losses) recognized on marketable equity securities held $ ( 5,269 ) $ ( 1,681 ) $ ( 29,423 ) $ 10,476

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

June 30, 2020

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

September 30, 2020

Less than 12 months 12 months or more Total

6 unchanged sentences

Residential mortgage-backed securities 161,578 259 23,717 53 185,295 312

Commercial mortgage-backed securities 56,703 434 — — 56,703 434

Corporate bonds 81,825 2,738 4,744 55 86,569 2,793

12 unchanged sentences

Total $ 2,778,014 $ 16,025 $ 332,953 $ 1,794 $ 3,110,967 $ 17,819

As of June 30, 2020, there were 47 investment securities available for sale with continuous losses for more than 12 months, of which 45 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and two were corporate bonds.

None of the unrealized losses identified as of June 30, 2020, or December 31, 2019, relate to the marketability of the securities or the issuers’ ability to honor redemption obligations.

As of September 30, 2020, there were 38 investment securities available for sale with continuous losses for more than 12 months, of which 37 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and one was a corporate bond.

None of the unrealized losses identified as of September 30, 2020, or December 31, 2019, relate to the marketability of the securities or the issuers’ ability to honor redemption obligations.

Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment.

2 unchanged sentences

BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses.

Investment securities having an aggregate carrying value of $ 4.53 billion at June 30, 2020, and $ 3.93 billion at December 31, 2019, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

Investment securities having an aggregate carrying value of $ 4.48 billion at September 30, 2020, and $ 3.93 billion at December 31, 2019, 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.

3 unchanged sentences

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 no debt securities held to maturity on nonaccrual status as of June 30, 2020.

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

A security is considered past due once it is 30 days contractually past due under the terms of the agreement.

There were no securities past due as of June 30, 2020.

There were no securities past due as of September 30, 2020.

NOTE D - LOANS AND LEASES

3 unchanged sentences

At the date of acquisition, all acquired loans are recorded at fair value.

Loans and leases outstanding included the following at June 30, 2020 and December 31, 2019:

(Dollars in thousands) June 30, 2020

Loans and leases outstanding included the following at September 30, 2020 and December 31, 2019:

(Dollars in thousands) September 30, 2020

Construction and land development $ 1,054,186

29 unchanged sentences

Total loans and leases $ 28,881,496

Accrued interest receivable on loans at June 30, 2020 was $ 139.8 million and was excluded from the estimate of credit losses.

Management reviewed this policy election during the second quarter of 2020 due to the increase in accrued interest receivable and concluded the policy election remained appropriate.

At June 30, 2020, $ 11.78 billion in non-PCD loans with a lendable collateral value of $ 8.52 billion were used to secure $ 653.7 million in Federal Home Loan Bank (“FHLB”) of Atlanta advances, resulting in additional borrowing capacity of $ 7.86 billion.

Accrued interest receivable on loans at September 30, 2020 was $ 111.8 million and was excluded from the estimate of credit losses.

Management reviewed this policy election during the second quarter of 2020 due to increased accrued interest receivable balances as a result of loan deferrals in response to COVID-19.

We have concluded that the policy election remains appropriate as of September 30, 2020.

At September 30, 2020, $ 11.81 billion in non-PCD loans with a lendable collateral value of $ 8.19 billion were used to secure $ 652.7 million in Federal Home Loan Bank (“FHLB”) of Atlanta advances, resulting in additional borrowing capacity of $ 7.54 billion.

At December 31, 2019, $ 9.41 billion in non-PCD loans with a lendable collateral value of $ 6.57 billion were used to secure $ 563.7 million in FHLB of Atlanta advances, resulting in additional borrowing capacity of $ 6.01 billion.

At June 30, 2020, $ 3.93 billion in non-PCD loans with a lendable collateral value of $ 3.14 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (“FRB”).

At September 30, 2020, $ 3.97 billion in non-PCD loans with a lendable collateral value of $ 3.21 billion were used to secure additional borrowing capacity at the Federal Reserve Bank (“FRB”).

At December 31, 2019, $ 3.68 billion in non-PCD loans with a lendable collateral value of $ 2.98 billion were used to secure additional borrowing capacity at the FRB.

2 unchanged sentences

At that time, portfolio loans are transferred to loans held for sale at fair value.

Loans held for sale totaled $ 107.9 million and $ 67.9 million at June 30, 2020 and December 31, 2019, respectively.

Net deferred fees on non-PCD loans and leases, including unearned and unamortized costs and fees, were $ 100.7 million and $ 927 thousand at June 30, 2020 and December 31, 2019, respectively.

Of the amount outstanding as of June 30, 2020, $ 96.6 million relates to net deferred fees and costs on SBA-PPP loans.

The net unamortized discount related to purchased non-PCD loans and leases was $ 25.8 million at June 30, 2020 and $ 30.9 million at December 31, 2019.

The net unamortized discount related to PCD loans and leases was $ 54.7 million at June 30, 2020 and $ 88.2 million at December 31, 2019.

The aging of the outstanding loans and leases, by class, at June 30, 2020 and December 31, 2019 is provided in the tables below.

Loans held for sale totaled $ 120.3 million and $ 67.9 million at September 30, 2020 and December 31, 2019, respectively.

Net deferred fees on non-PCD loans and leases, including unearned and unamortized costs and fees, were $ 83.5 million and $ 927 thousand at September 30, 2020 and December 31, 2019, respectively.

Of the amount outstanding as of September 30, 2020, $ 76.0 million relates to net deferred fees and costs on SBA-PPP loans.

The net unamortized discount related to purchased non-PCD loans and leases was $ 23.0 million at September 30, 2020 and $ 30.9 million at December 31, 2019.

The net unamortized discount related to PCD loans and leases was $ 49.2 million at September 30, 2020 and $ 88.2 million at December 31, 2019.

The aging of the outstanding loans and leases, by class, at September 30, 2020 and December 31, 2019 is provided in the tables below.

Loans and leases past due 30 days or less are considered current as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement.

June 30, 2020

September 30, 2020

(Dollars in thousands) 30-59 days

35 unchanged sentences

Total loans and leases $ 136,220 $ 51,058 $ 85,492 $ 272,770 $ 28,608,726 $ 28,881,496

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, 2020 and December 31, 2019, were as follows:

The amortized cost, by class, of loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at September 30, 2020 and December 31, 2019, were as follows:

January 1, 2020 (1)

June 30, 2020

September 30, 2020

(Dollars in thousands) Nonaccrual

15 unchanged sentences

(1) Upon the adoption of ASC 326, BancShares eliminated the pooling of PCI loans and as a result $ 47.0 million in additional PCD loans were recognized as nonaccrual loans at January 1, 2020.

As of June 30, 2020, $ 35.9 million of these loans remained outstanding.

As of September 30, 2020, $ 27.5 million of these loans remained outstanding.

December 31, 2019

33 unchanged sentences

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, 2020 relate to business credit cards.

The majority of ungraded loans at September 30, 2020 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.

2 unchanged sentences

As the borrower becomes more delinquent, the likelihood of loss increases.

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

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

Commercial Loans Amortized Cost Basis by Origination Year

66 unchanged sentences

90 days or greater 117 2,889 4,594 1,233 773 21,131 54 1,647 32,438

Total $ 23,038 $ 32,662 $ 41,251 $ 41,608 $ 35,203 $ 314,661 $ 15,769 $ 26,459 $ 530,651

Total PCD $ 27,817 $ 28,501 $ 35,327 $ 36,443 $ 33,665 $ 294,855 $ 14,723 $ 24,547 $ 495,878

Total loans and leases $ 9,298,534 $ 6,045,888 $ 4,095,610 $ 3,220,557 $ 2,453,779 $ 4,027,428 $ 3,504,200 $ 199,148 $ 32,845,144

42 unchanged sentences

As noted in Note A - Accounting Polices and Basis of Presentation, BancShares determined SBA-PPP loans have zero expected credit losses and as such these are excluded from ACL disclosures included in the following tables.

Upon adoption of ASC 326, BancShares recorded a net decrease of $ 37.9 million in the ACL which included a decrease of $ 56.9 million in the ACL on non-PCD loans, offset by an increase of $ 19.0 million in the ACL on PCD loans.

The largest changes as a result of adoption were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives.

The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives.

The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into ACL.

The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality.

For the period ended September 30, 2020 the primary reason for the ACL change since the adoption of ASC 326, was a $ 36.1 million reserve build due to the potential economic impact of COVID-19 and its estimated impact on credit losses.

Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years .

Assumptions revert to long term historic averages over a one year period.

Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index.

Our model results consider baseline, adverse and upside scenarios.

To calculate the ACL, we utilized the baseline scenario, which includes improvements to the most significant assumptions and the impact from government stimulus.

This result was calibrated using management’s expectation of borrower performance based upon COVID-19 residual risk by industry and geography.

These loss estimates were also influenced by BancShares strong credit quality, low net charge-offs and recent credit trends, which remained stable through the quarter ended September 30, 2020.

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

Three months ended June 30, 2020

Three months ended September 30, 2020

(Dollars in thousands) Construction

4 unchanged sentences

Allowance for credit losses:

Balance at April 1 $ 2,290 $ 22,970 $ 16,531 $ 30,619 $ 38,366 $ 24,557 $ 1,140 $ 5,769 $ 40,101 $ 26,916 $ 209,259

Balance at July 1 $ 6,906 $ 22,489 $ 22,149 $ 24,633 $ 42,872 $ 26,640 $ 1,640 $ 8,898 $ 39,295 $ 26,928 $ 222,450

Provision (credits) 120 625 667 3,381 837 ( 958 ) ( 54 ) 708 1,341 ( 2,625 ) 4,042

1 unchanged sentence

Recoveries 264 65 10 1,999 275 336 23 401 1,684 1,319 6,376

Balance at June 30 $ 6,906 $ 22,489 $ 22,149 $ 24,633 $ 42,872 $ 26,640 $ 1,640 $ 8,898 $ 39,295 $ 26,928 $ 222,450

Three months ended June 30, 2019

Balance at September 30 $ 7,290 $ 23,092 $ 22,826 $ 26,772 $ 43,731 $ 25,659 $ 1,609 $ 9,183 $ 38,647 $ 25,127 $ 223,936

Three months ended September 30, 2019

(Dollars in thousands) Construction

4 unchanged sentences

mortgage Revolving

mortgage Construction and land development - consumer Consumer PCD Total

Balance at April 1 $ 37,476 $ 45,281 $ 2,399 $ 57,025 $ 2,167 $ 16,987 $ 21,495 $ 2,473 $ 34,492 $ 8,980 $ 228,775

mortgage Construction

- non - commercial Consumer PCI Total

Balance at July 1 $ 31,944 $ 48,962 $ 2,342 $ 56,901 $ 2,183 $ 16,932 $ 21,121 $ 2,750 $ 35,105 $ 8,343 $ 226,583

Provision (credits) 208 ( 1,337 ) ( 90 ) 4,714 54 1,024 ( 153 ) 148 3,674 ( 1,476 ) 6,766

1 unchanged sentence

Recoveries 52 226 — 611 20 68 201 — 1,945 — 3,123

Balance at June 30 $ 31,944 $ 48,962 $ 2,342 $ 56,901 $ 2,183 $ 16,932 $ 21,121 $ 2,750 $ 35,105 $ 8,343 $ 226,583

Six months ended June 30, 2020

Balance at September 30 $ 32,088 $ 47,850 $ 2,252 $ 59,179 $ 2,215 $ 17,711 $ 20,635 $ 2,898 $ 35,130 $ 6,867 $ 226,825

Nine months ended September 30, 2020

(Dollars in thousands) Construction

10 unchanged sentences

Recoveries 400 360 107 4,156 555 1,174 52 1,106 4,546 5,378 17,834

Balance at June 30 $ 6,906 $ 22,489 $ 22,149 $ 24,633 $ 42,872 $ 26,640 $ 1,640 $ 8,898 $ 39,295 $ 26,928 $ 222,450

Six months ended June 30, 2019

Balance at September 30 $ 7,290 $ 23,092 $ 22,826 $ 26,772 $ 43,731 $ 25,659 $ 1,609 $ 9,183 $ 38,647 $ 25,127 $ 223,936

Nine months ended September 30, 2019

(Dollars in thousands) Construction

10 unchanged sentences

Recoveries 223 502 1 1,748 685 293 1,035 — 5,315 — 9,802

Balance at June 30 $ 31,944 $ 48,962 $ 2,342 $ 56,901 $ 2,183 $ 16,932 $ 21,121 $ 2,750 $ 35,105 $ 8,343 $ 226,583

The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives.

The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into ACL.

For the period ended June 30, 2020 the primary reason for the ACL change since the adoption of ASC 326, was a $ 36.1 million reserve build due to the potential economic impact of COVID-19 and its estimated impact on credit losses.

Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years .

Assumptions revert to long term historic averages over a one year period.

Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index.

Our model results included baseline, adverse and upside scenarios, as well as management’s expectation of borrower performance based upon COVID-19 residual risk by industry and geography.

Expected loss estimates considered the potential impact of slower economic activity and elevated unemployment, as well as mitigating impacts from the government stimulus and loan modification programs.

These loss estimates were also influenced by BancShares strong credit quality, historically low net charge-offs and recent credit trends, which remained stable through the quarter ended June 30, 2020.

Balance at September 30 $ 32,088 $ 47,850 $ 2,252 $ 59,179 $ 2,215 $ 17,711 $ 20,635 $ 2,898 $ 35,130 $ 6,867 $ 226,825

BancShares individually reviews loans greater than $ 500 thousand that are determined to be collateral-dependent.

1 unchanged sentence

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, 2020 were as follows:

(Dollars in thousands) Collateral-Dependant Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses

3 unchanged sentences

Non-owner occupied commercial mortgage 7,121 10,874 152.7 —

Commercial and industrial and leases — — — —

Total commercial loans 13,957 22,254 159.4 —

1 unchanged sentence

Revolving mortgage 310 315 101.6 —

Construction and land development — — — —

Total consumer loans 23,114 32,094 138.9 162

2 unchanged sentences

Total collateral-dependent loans $ 54,180 $ 79,791 147.3 % $ 162

Collateral-dependent nonaccrual loans with no recorded allowance totaled $58.8 million as of June 30, 2020.

Collateral-dependent nonaccrual loans with no recorded allowance totaled $ 52.0 million as of September 30, 2020.

All other nonaccrual loans have a recorded allowance.

45 unchanged sentences

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

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

Three months ended June 30, 2019 Six months ended June 30, 2019

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

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

(Dollars in thousands) Average

24 unchanged sentences

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

June 30, 2020

September 30, 2020

(Dollars in thousands) Accruing Nonaccruing Total

30 unchanged sentences

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

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

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

BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due for TDRs, foreclosure or charge-off, whichever occurs first.

Three months ended June 30, 2020 Three months ended June 30, 2019

Three months ended September 30, 2020 Three months ended September 30, 2019

All restructurings Restructurings with payment default All restructurings Restructurings with payment default

6 unchanged sentences

Total restructurings 145 $ 25,078 69 $ 9,410 142 $ 14,251 59 $ 4,036

Six months ended June 30, 2020 Six months ended June 30, 2019

Nine months ended September 30, 2020 Nine months ended September 30, 2019

All restructurings Restructurings with payment default All restructurings Restructurings with payment default

6 unchanged sentences

Total restructurings 462 $ 76,497 178 $ 17,553 381 $ 35,546 164 $ 13,976

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

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

NOTE F - OTHER REAL ESTATE OWNED

The following table explains changes in OREO during the six months ended June 30, 2020 and 2019:

The following table explains changes in OREO during the nine months ended September 30, 2020 and 2019:

(Dollars in thousands) OREO

4 unchanged sentences

Write-downs/losses ( 3,398 )

Balance at June 30, 2020 $ 53,850

Balance at September 30, 2020 $ 52,789

Balance at December 31, 2018 $ 48,030

3 unchanged sentences

Write-downs/losses ( 3,221 )

Balance at June 30, 2019 $ 46,236

At June 30, 2020 and December 31, 2019, BancShares had $ 11.7 million and $ 14.5 million, respectively, of foreclosed residential real estate property in OREO.

The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure was $ 25.5 million and $ 23.0 million at June 30, 2020 and December 31, 2019, respectively.

Net gains and losses recorded on the sale of OREO properties were losses of $ 234 thousand and gains of $ 872 thousand for the six months ended June 30, 2020 and June 30, 2019 , respectively

Balance at September 30, 2019 $ 46,253

At September 30, 2020 and December 31, 2019, BancShares had $ 8.5 million and $ 14.5 million, respectively, of foreclosed residential real estate property in OREO.

The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure was $ 27.0 million and $ 23.0 million at September 30, 2020 and December 31, 2019, respectively.

Net gains recorded on the sale of OREO properties were $ 1.0 million and $ 872 thousand for the nine months ended September 30, 2020 and September 30, 2019 , respectively

NOTE G - SERVICING RIGHTS

Mortgage Servicing Rights

Our portfolio of residential mortgage loans serviced for third parties was $ 3.37 billion and $ 3.38 billion as of June 30, 2020 and December 31, 2019, respectively.

Our portfolio of residential mortgage loans serviced for third parties was $ 3.36 billion and $ 3.38 billion as of September 30, 2020 and December 31, 2019, respectively.

These loans are originated and sold to third parties on a non-recourse basis with servicing rights retained.

2 unchanged sentences

Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.

Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the three months ended June 30, 2020 and 2019 were $ 2.1 million and $ 2.0 million, respectively, and are reported in mortgage income.

For the six months ended June 30, 2020 and 2019, contractually specified mortgage servicing fees, late fees, and ancillary fees earned were $ 4.3 million and $ 3.9 million, respectively.

The following table presents changes in the servicing asset during the three and six months ended June 30, 2020 and 2019:

Three months ended June 30 Six months ended June 30

Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the three months ended September 30, 2020 and 2019 were $ 2.1 million and $ 1.9 million, respectively, and are reported in mortgage income.

For the nine months ended September 30, 2020 and 2019, contractually specified mortgage servicing fees, late fees, and ancillary fees earned were $ 6.4 million and $ 5.8 million, respectively.

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

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2020 2019 2020 2019

4 unchanged sentences

Ending balance $ 18,145 $ 20,571 $ 18,145 $ 20,571

The following table presents the activity in the servicing asset valuation allowance for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30 Six months ended June 30

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

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2020 2019 2020 2019

4 unchanged sentences

Key economic assumptions used to value mortgage servicing rights were as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Discount rate - conventional fixed loans 7.68 % 8.92 %

15 unchanged sentences

Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents.

The carrying value of investment securities available for sale pledged as collateral under repurchase agreements was $ 766.8 million and $ 477.6 million at June 30, 2020 and December 31, 2019, respectively.

At June 30, 2020, BancShares held $ 740.3 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $ 470.8 million collateralized by government agency securities and $ 269.5 million collateralized by commercial mortgage-backed securities.

The carrying value of investment securities available for sale pledged as collateral under repurchase agreements was $ 748.1 million and $ 477.6 million at September 30, 2020 and December 31, 2019, respectively.

At September 30, 2020, BancShares held $ 693.9 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $ 444.0 million collateralized by government agency securities and $ 249.9 million collateralized by commercial mortgage-backed securities.

At December 31, 2019, BancShares held securities sold under agreements to repurchase of $ 443.0 million, with overnight and continuous remaining contractual maturities collateralized by government agency securities.

NOTE I - FDIC SHARED-LOSS PAYABLE

At June 30, 2020, shared-loss protection remains for single family residential loans acquired in the amount o f $ 38.0 million.

At September 30, 2020, shared-loss protection remains for single family residential loans acquired in the amount o f $ 36.2 million.

The shared-loss agreement for two of the FDIC-assisted transactions include a provision related to a payment that may be owed to the FDIC at the termination of the agreement if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition (the “clawback liability”) .

6 unchanged sentences

Payment made to the FDIC to settle shared-loss agreement ( 99,468 )

Balance at June 30, 2020 $ 15,025

Balance at September 30, 2020 $ 15,313

NOTE J - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

June 30, 2020 December 31, 2019

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

September 30, 2020 December 31, 2019

(Dollars in thousands) Accumulated

13 unchanged sentences

Total $ ( 17,864 ) $ ( 4,108 ) $ ( 13,756 ) $ ( 164,576 ) $ ( 37,853 ) $ ( 126,723 )

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

Three months ended June 30, 2020

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

Three months ended September 30, 2020

(Dollars in thousands, net of tax) Unrealized gains (losses) on securities available for sale Unrealized losses on securities available for sale transferred to held to maturity Defined benefit pension items Total

2 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss ( 16,497 ) — 4,875 ( 11,622 )

Net current period other comprehensive income 11,022 — 4,926 15,948

Net current period other comprehensive (loss) income ( 8,967 ) — 4,875 ( 4,092 )

Ending balance $ 104,135 $ — $ ( 117,891 ) $ ( 13,756 )

Three months ended June 30, 2019

Three months ended September 30, 2019

4 unchanged sentences

Ending balance $ 4,706 $ ( 57,286 ) $ ( 119,192 ) $ ( 171,772 )

Six months ended June 30, 2020

Nine months ended September 30, 2020

(Dollars in thousands, net of tax) Unrealized gains on securities available for sale Unrealized losses on securities available for sale transferred to held to maturity Defined benefit pension items Total

4 unchanged sentences

Ending balance $ 104,135 $ — $ ( 117,891 ) $ ( 13,756 )

Six months ended June 30, 2019

Nine months ended September 30, 2019

4 unchanged sentences

Ending balance $ 4,706 $ ( 57,286 ) $ ( 119,192 ) $ ( 171,772 )

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

(Dollars in thousands) Three months ended June 30, 2020

(Dollars in thousands) Three months ended September 30, 2020

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

1 unchanged sentence

( 4,928 ) Income taxes

Amortization of defined benefit pension actuarial losses ( 6,398 ) Other

Amortization of defined benefit pension actuarial losses ( 6,332 ) Other noninterest expense

1,457 Income taxes

Total reclassifications for the period $ 11,622

Three months ended June 30, 2019

Three months ended September 30, 2019

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

5 unchanged sentences

Prior service costs $ ( 15 ) Salaries and wages

Actuarial losses ( 2,721 ) Other

Actuarial losses ( 2,730 ) Other noninterest expense

( 2,745 ) Income before income taxes

1 unchanged sentence

Total reclassifications for the period $ ( 5,933 )

Six months ended June 30, 2020

Nine months ended September 30, 2020

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

5 unchanged sentences

Total reclassifications for the period $ 27,704

Six months ended June 30, 2019

Nine months ended September 30, 2019

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

6 unchanged sentences

Prior service costs $ ( 43 ) Salaries and wages

Actuarial losses ( 5,462 ) Other

Actuarial losses ( 8,192 ) Other noninterest expense

( 8,235 ) Income before income taxes

60 unchanged sentences

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, 2020 and December 31, 2019.

For all other financial assets and liabilities, the carrying value is a reasonable estimate of the fair value as of September 30, 2020 and December 31, 2019.

The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value.

1 unchanged sentence

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, 2020 and December 31, 2019:

(Dollars in thousands) June 30, 2020 December 31, 2019

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

(Dollars in thousands) September 30, 2020 December 31, 2019

Carrying value Fair value Carrying value Fair value

17 unchanged sentences

Accrued interest payable 10,477 10,477 18,124 18,124

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

June 30, 2020

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

September 30, 2020

Fair value measurements using:

26 unchanged sentences

Corporate bonds

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2020 2019 2020 2019

1 unchanged sentence

Purchases 78,000 8,000 178,595 11,991

Unrealized net gains (losses) included in other comprehensive income 2,449 1,822 ( 1,917 ) 1,838

Unrealized net gains included in other comprehensive income 2,818 1,147 901 2,985

Amounts included in net income ( 81 ) 41 ( 249 ) 123

1 unchanged sentence

Ending balance $ 250,714 $ 157,325 $ 250,714 $ 157,325

During the three months ended June 30, 2020, there were no transfers between levels.

During the six months ended June 30, 2020, there were transfers from Level 2 to Level 3 of $ 1.8 million in corporate bonds available for sale.

During the three months ended September 30, 2020, there were no transfers between levels.

During the nine months ended September 30, 2020, there were transfers from Level 2 to Level 3 of $ 1.8 million in corporate bonds available for sale.

The transfers were due to a lack of observable inputs and trade activity for those securities.

During the three and six months ended June 30, 2019, there were no transfers between levels.

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

(Dollars in thousands) June 30, 2020

During the three and nine months ended September 30, 2019, there were no transfers between levels.

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

(Dollars in thousands) September 30, 2020

Level 3 assets Valuation technique Significant unobservable input Fair Value

3 unchanged sentences

This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective.

The changes in fair value were recorded as a component of mortgage income and included a gain of $ 2.4 million and a loss of $ 82 thousand for the three months ended June 30, 2020 and 2019, respectively.

The changes in fair value included gains of $ 3.6 million and $ 167 thousand for the six months ended June 30, 2020 and 2019, respectively.

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

June 30, 2020

The changes in fair value were recorded as a component of mortgage income and included a gain of $ 567 thousand and a gain of $ 583 thousand for the three months ended September 30, 2020 and 2019, respectively.

The changes in fair value included gains of $ 4.2 million and $ 750 thousand for the nine months ended September 30, 2020 and 2019, respectively.

September 30, 2020

(Dollars in thousands) Fair value Aggregate unpaid principal balance Difference

3 unchanged sentences

Originated loans held for sale $ 67,869 $ 65,697 $ 2,172

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

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

We may be required to measure certain financial assets at fair value on a nonrecurring basis.

11 unchanged sentences

Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with with discounts generally between 7 % and 16 % applied for estimated selling costs and other external factors that may impact the marketability of the property.

At June 30, 2020, the weighted average discount applied was 8.16 %.

At September 30, 2020, the weighted average discount applied was 8.46 %.

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, 2020 and December 31, 2019:

June 30, 2020

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

September 30, 2020

Fair value measurements using:

9 unchanged sentences

Mortgage servicing rights 3,757 — — 3,757

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

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

NOTE L - EMPLOYEE BENEFIT PLANS

1 unchanged sentence

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, 2020 and 2019, the components of net periodic benefit cost are as follows:

Three months ended June 30 Six months ended June 30

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

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2020 2019 2020 2019

5 unchanged sentences

Net periodic cost (benefit) $ 2,028 $ ( 395 ) $ 6,084 $ ( 1,188 )

A discretionary contribution of $ 100.0 million was made to the pension plans during the six months ended June 30, 2020.

A discretionary contribution of $ 100.0 million was made to the pension plans during the nine months ended September 30, 2020.

Management evaluates the need for its pension plan contributions on a periodic basis based upon numerous factors including, but not limited to, the funded status of the plans, returns on plan assets, discount rates and the current economic environment.

NOTE M - LEASES

The following table presents lease assets and liabilities as of June 30, 2020 and December 31, 2019:

(Dollars in thousands) Classification June 30, 2020 December 31, 2019

The following table presents lease assets and liabilities as of September 30, 2020 and December 31, 2019:

(Dollars in thousands) Classification September 30, 2020 December 31, 2019

Operating Other assets $ 69,968 $ 77,115

16 unchanged sentences

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, 2020 and December 31, 2019:

(Dollars in thousands) June 30, 2020 December 31, 2019

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

(Dollars in thousands) September 30, 2020 December 31, 2019

Unused commitments to extend credit $ 11,972,688 $ 10,682,378

1 unchanged sentence

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 $ 169.3 million and $ 167.8 million as of June 30, 2020 and December 31, 2019, respectively, and were recorded in other assets.

Unfunded commitments to fund future investments in affordable housing projects totaled $ 68.3 million and $ 70.0 million as of June 30, 2020 and December 31, 2019, respectively, and were recorded in other liabilities.

Affordable housing project investments were $ 167.0 million and $ 167.8 million as of September 30, 2020 and December 31, 2019, respectively, and were recorded in other assets.

Unfunded commitments to fund future investments in affordable housing projects totaled $ 60.6 million and $ 70.0 million as of September 30, 2020 and December 31, 2019, 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.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements