What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-03 · 344 added, 747 removed, 775 unchanged (58% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

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

(Dollars in thousands, unaudited) March 31, 2021 December 31, 2020

Cash and due from banks $ 410,495 $ 362,048

Overnight investments 7,588,757 4,347,336

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

Investment in marketable equity securities (cost of $ 84,297 at March 31, 2021 and $ 84,837 at December 31, 2020)

106,886 91,680

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

Investment securities available for sale (cost of $ 7,270,552 at March 31, 2021 and $ 6,911,965 at December 31, 2020)

7,307,122 7,014,243

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

Investment securities held to maturity (fair value of $ 2,774,982 at March 31, 2021 and $ 2,838,499 at December 31, 2020)

2,808,099 2,816,982

23 unchanged sentences

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

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

8,811,220 shares issued and outstanding at March 31, 2021 and December 31, 2020)

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

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

1,005,185 shares issued and outstanding at March 31, 2021 and December 31, 2020)

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

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

Surplus — 44,081

345,000 shares issued and outstanding at March 31, 2021 and December 31, 2020;

$1,000 per share liquidity preference)

339,937 339,937

Retained earnings 4,005,318 3,867,252

Accumulated other comprehensive loss ( 13,756 ) ( 126,723 )

Accumulated other comprehensive (loss) income ( 33,671 ) 12,263

Total shareholders’ equity 4,321,400 4,229,268

4 unchanged sentences

Consolidated Statements of Income

Three months ended September 30 Nine months ended September 30

Three months ended March 31

(Dollars in thousands, except per share data, unaudited) 2021 2020

12 unchanged sentences

Net interest income 339,652 338,400

Provision for credit losses 4,042 6,766 52,949 23,714

Provision (credit) for credit losses ( 10,974 ) 28,355

Net interest income after provision for credit losses 350,626 310,045

Noninterest income

Service charges on deposit accounts 20,841 27,112 64,776 77,967

Wealth management services 32,198 26,412

Service charges on deposit accounts 21,536 26,413

Cardholder services, net 19,960 18,160

Other service charges and fees 7,892 8,237 22,829 23,823

Merchant services, net 6,763 6,034 18,014 18,324

Mortgage income 12,991 5,224

Merchant services, net 8,917 5,888

Other service charges and fees 8,489 7,792

Insurance commissions 3,998 3,688

ATM income 1,482 1,422

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

Marketable equity securities gains (losses), net 16,011 ( 51,408 )

Realized gains on investment securities available for sale, net 9,207 19,795

18 unchanged sentences

Weighted average common shares outstanding 9,816,405 10,473,119

Net income per common share $ 14.03 $ 11.27 $ 33.96 $ 31.50

Earnings per common share $ 14.53 $ 5.46

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

Consolidated Statements of Comprehensive Income

Three months ended September 30 Nine months ended September 30

Three months ended March 31

(Dollars in thousands, unaudited) 2021 2020

1 unchanged sentence

Other comprehensive income

Unrealized gains (losses) on securities available for sale:

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

Unrealized (losses) gains on securities available for sale:

Unrealized (losses) gains on securities available for sale arising during the period

( 56,501 ) 144,843

Tax effect 12,995 ( 33,313 )

2 unchanged sentences

Unrealized (losses) gains on securities available for sale arising during the period, net of tax

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

Reclassification adjustment for accretion of unrealized losses on securities available for sale transferred to held to maturity — 6,095 — 18,004

( 50,595 ) 96,288

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 ( 475 ) —

Tax effect 109 —

Total change in unrealized losses on securities available for sale transferred to held to maturity, net of tax — 4,693 — 13,863

Total change in unrealized gains on securities available for sale transferred to held to maturity, net of tax ( 366 ) —

Change in pension obligation:

Amortization of actuarial losses and prior service cost 6,332 2,745 18,994 8,235

Amortization of actuarial losses 6,529 6,264

Tax effect ( 1,502 ) ( 1,441 )

Total change in pension obligation, net of tax 5,027 4,823

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

Other comprehensive (loss) income ( 45,934 ) 101,111

Total comprehensive income $ 101,382 $ 158,280

3 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

Three months ended September 30

(Dollars in thousands, unaudited) Class A

Common Stock Class B

Common Stock Preferred

Stock Surplus Retained

Earnings Accumulated

Comprehensive

Shareholders’

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

Other comprehensive income, net of tax — — — — — 8,959 8,959

Repurchase of 295,900 shares of Class A common stock

( 296 ) — — ( 135,090 ) — — ( 135,386 )

Cash dividends declared ($ 0.40 per common share)

Class A common stock — — — — ( 4,081 ) — ( 4,081 )

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

Balance at September 30, 2019 $ 9,879 $ 1,005 $ — $ 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

Net income — — — — 142,684 — 142,684

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

Repurchase of 117,700 shares of Class A common stock

( 118 ) — — — ( 46,942 ) — ( 47,060 )

Cash dividends declared ($ 0.40 per common share)

Class A common stock — — — — ( 3,524 ) — ( 3,524 )

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

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

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

Nine months ended September 30

Three months ended March 31

(Dollars in thousands, unaudited) Class A

4 unchanged sentences

Comprehensive

(Loss) Income Total

Shareholders’

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 — — — — 57,169 — 57,169

Other comprehensive income, net of tax — — — — — 101,111 101,111

Issuance of preferred stock — — 339,958 — — — 339,958

Repurchase of 349,390 shares of Class A common stock

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

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

Cumulative effect of adoption of ASC 326 — — — — 36,943 — 36,943

Net income — — — — 147,316 — 147,316

Other comprehensive income, net of tax — — — — — 112,967 112,967

Issuance of preferred stock — — 339,937 — — — 339,937

Repurchase of 813,090 shares of Class A common stock

( 813 ) — — ( 44,081 ) ( 288,861 ) — ( 333,755 )

Other comprehensive loss, net of tax — — — — — ( 45,934 ) ( 45,934 )

Cash dividends declared ($ 0.47 per common share)

2 unchanged sentences

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

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

Balance at March 31, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,005,318 $ ( 33,671 ) $ 4,321,400

See accompanying Notes to Unaudited Consolidated Financial Statements.

2 unchanged sentences

Consolidated Statements of Cash Flows

Nine months ended September 30

Three months ended March 31

(Dollars in thousands, unaudited) 2021 2020

2 unchanged sentences

Adjustments to reconcile net income to cash provided by operating activities:

Provision for credit losses on loans and leases 52,949 23,714

Deferred tax expense 16,227 43,939

Provision (credit) for credit losses ( 10,974 ) 28,355

Deferred tax expense (benefit) 8,555 ( 11,485 )

Net increase in current tax receivable 26,703 11,829

Depreciation and amortization 27,864 26,879

Net (decrease) increase in accrued interest payable ( 7,620 ) 14,147

Net decrease in accrued interest payable ( 4,264 ) ( 4,624 )

Net increase in income earned not collected ( 2,328 ) ( 1,914 )

1 unchanged sentence

Realized gains on investment securities available for sale, net ( 9,207 ) ( 19,795 )

Marketable equity securities gains, net ( 10,461 ) ( 13,505 )

Marketable equity securities (gains) losses, net ( 16,011 ) 51,408

Origination of loans held for sale ( 315,451 ) ( 205,986 )

Proceeds from sale of loans held for sale 279,180 201,886

Gain on sale of loans held for sale ( 25,728 ) ( 10,607 )

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

Net amortization (accretion) of premiums and discounts 4,599 ( 24,769 )

Gain on sale of loans ( 9,365 ) ( 5,682 )

Net (gains) losses on other real estate owned ( 527 ) 1,419

Net accretion of premiums and discounts 116 4,674

Amortization of intangible assets 5,795 6,160

Net change in mortgage servicing rights ( 1,332 ) ( 3,770 )

Origination of mortgage servicing rights, net of change in valuation allowance ( 6,567 ) 1,384

Net change in other assets 17,535 4,067

10 unchanged sentences

Proceeds from sales of marketable equity securities 1,111 2,438

Net increase in overnight investments ( 1,994,972 ) ( 150,006 )

Proceeds from sales of portfolio loans — 24,247

Net (increase) decrease in overnight investments ( 3,241,421 ) 454,455

Cash paid to FDIC for settlement of shared-loss agreement ( 16,103 ) ( 99,468 )

3 unchanged sentences

Business acquisitions, net of cash acquired — ( 1,235 )

Other investing activities ( 8,009 ) —

Net cash used in investing activities ( 3,968,346 ) ( 1,441,295 )

CASH FLOWS FROM FINANCING ACTIVITIES

Net (decrease) increase in time deposits ( 759,491 ) 376,596

Net decrease in time deposits ( 159,035 ) ( 310,224 )

Net increase in demand and other interest-bearing deposits 4,058,956 1,017,371

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

Net increase (decrease) in short-term borrowings 39,218 ( 92,871 )

Repayment of long-term obligations ( 17,973 ) ( 38,583 )

Origination of long-term obligations — 745,886

Net proceeds from subordinated notes issuance 345,849 —

Net proceeds from preferred stock issuance — 339,958

5 unchanged sentences

Cash and due from banks at end of period $ 410,495 $ 454,220

Nine months ended September 30

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid (received) during the period for:

Interest $ 19,935 $ 35,783

Income taxes 11 ( 592 )

Significant noncash investing and financing activities:

Transfers of loans to other real estate 2,374 4,560

Dividends declared but not paid 4,614 4,141

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

Unsettled call of investment securities 3,000 —

Loans held for sale exchanged for investment securities 63,526 —

Reclassification of portfolio loans to loans held for sale 22,655 1,304

Transfers of premises and equipment to other real estate 4,732 1,427

Premises and equipment acquired through finance leases and other financing arrangements — 1,191

Unsettled common stock repurchases — 3,610

8 unchanged sentences

In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made.

The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in BancShares’ Annual Report on Form 10-K for the year ended December 31, 2019.

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

4 unchanged sentences

Actual results could differ from those estimates.

The estimates BancShares considers significant are the allowance for credit losses, fair value measurements, and income taxes.

Issuance of Preferred Stock and Subordinated Debt

On March 4, 2020, BancShares completed its public offering of $ 350 million aggregate principal amount of its 3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030 and redeemable at the option of BancShares starting in 2025.

On March 12, 2020, BancShares issued and sold an aggregate of 13,800,000 depositary shares, each representing a 1/40th interest in a share of 5.375 % Non-Cumulative Perpetual Preferred Stock, Series A, par value $ 0.01 per share, with a liquidation preference of $ 25 per Depositary Share (equivalent to $ 1,000 per share of Series A Preferred Stock) for a total of $ 345 million.

The capital raise provides liquidity for general corporate purposes, which may include, but is not limited to, providing capital to support our growth organically or through strategic acquisitions, financing investments and capital expenditures, for funding investments in First Citizens Bank as regulatory capital, and redeeming or repurchasing our common stock.

The estimates BancShares considers significant are the allowance for credit losses, “ACL”, fair value measurements, and income taxes.

Share Repurchases

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 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.

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

During the first quarter of 2021, BancShares did not repurchase shares of Class A common stock .

During the first quarter of 2020, BancShares purchased a total of 349,390 shares of Class A common stock for $ 159.7 million at an average cost per share of $ 457.10 .

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

Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B.

Holding, and the mother of Frank B.

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 coronavirus (“COVID-19”) and was supplemented with subsequent legislation.

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.”) 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.

2 unchanged sentences

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.

During the first quarter of 2021, BancShares originated over 9,600 SBA-PPP loans totaling over $ 1.1 billion.

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

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

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

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

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-13 - Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

This ASU modifies the disclosure requirements on fair value measurements by eliminating the requirements to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements.

This ASU also added specific disclosure requirements for fair value measurements for public business entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

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

FASB ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment

This ASU eliminates Step 2 from the goodwill impairment test.

Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

This ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative test.

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

There was 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):

Measurement of Credit Losses on Financial Instruments

This ASU (and all subsequent ASUs on this topic) introduce the current expected credit loss (“CECL”) model, a new credit loss methodology, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized.

The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses.

The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity's size, complexity and risk profile.

In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination.

BancShares adopted this ASU (and all subsequent ASUs on this topic) as of January 1, 2020 using the modified retrospective approach for all loans, leases, debt securities designated as held to maturity, and unfunded loan commitments.

BancShares adopted the ASU using the prospective approach for debt securities available for sale and purchased credit deteriorated (“PCD”) loans previously accounted for under Accounting Standard Codification (“ASC”) ASC 310-30.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

BancShares made changes to loan classifications and segmentation in order to align with ASC 326 requirements and facilitate CECL modeling.

Using this updated segmentation, BancShares developed new loan level models to estimate the allowance for credit losses (“ACL”) and facilitate revised disclosures.

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

Accounting Policy - Debt Securities

BancShares classifies debt securities as held to maturity (“HTM”) or available for sale (“AFS”).

Debt securities are classified as HTM when BancShares has the intent and ability to hold the securities to maturity and are reported at amortized cost.

Other debt securities are classified as AFS and reported at estimated fair value, with unrealized gains and losses, net of income taxes, reported in Accumulated Other Comprehensive Income (“AOCI”).

Amortization of premiums and accretion of discounts for debt securities are included in interest income.

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

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

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

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.

The difference between the purchase price and the Day 1 amortized cost is amortized or accreted to interest income over the contractual life of the securities using the effective interest method.

For AFS securities, management performs a quarterly analysis of the investment portfolio to evaluate securities currently in an unrealized loss position for potential credit-related impairment.

If BancShares intends to sell a security, or does not have the intent and ability to hold a security before recovering the amortized cost, the entirety of the unrealized loss is immediately recorded in earnings.

For the remaining securities, an analysis is performed to determine if any portion of the unrealized loss recorded relates to credit impairment.

If credit related impairment exists, the amount is recorded through the ACL and related provision.

This review includes indicators such as changes in credit rating, delinquency, bankruptcy or other significant news event impacting the issuer.

BancShares’ portfolio of HTM debt securities is made up of mortgage-backed securities issued by government agencies and government sponsored entities.

Given the historically strong credit rating of the U.S.

Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, we determined zero expected credit losses on the HTM portfolio.

Accounting Policy - 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 as of the date of 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.

Nonrefundable fees collected and certain direct costs incurred related to loan originations are deferred and recorded as an adjustment to loans outstanding.

The net amount of the nonrefundable fees and costs is amortized to interest income over the contractual lives using methods that approximate a constant yield.

Purchased loans which do not reflect more than insignificant credit deterioration at acquisition are classified as non-PCD loans.

These loans are recorded at fair value at the date of acquisition and an initial allowance is recorded on these assets as provision expense at the date of acquisition.

The difference between the fair value and the unpaid principal balance at the acquisition date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.

Purchased Credit Deteriorated Loans

Purchased loans which reflect a more than insignificant credit deterioration since origination as of the date of acquisition are classified as PCD and are recorded at acquisition-date amortized cost, which is the purchase price or fair value in a business combination, plus our initial estimate of expected credit losses.

The difference between the unpaid principal balance and the acquisition date amortized cost is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.

The performance of all loans within the BancShares portfolio is subject to a number of external risks, including but not limited to changes in the overall health of the economy, declines in real estate or other collateral values, changes in the demand for products and services and personal events, such as death, disability or change in marital status.

BancShares evaluates and reports its non-PCD and PCD loan portfolios separately, and each non-PCD portfolio is further divided into commercial and consumer segments based on the type of borrower, purpose, collateral and/or our underlying credit management processes.

Additionally, non-PCD commercial and consumer loans are assigned to loan classes, which further disaggregate the loan portfolio.

PCD loans are reported as a single loan segment and class.

Upon adoption of ASC 326, owner occupied and non-owner occupied commercial real estate were segregated into separate classes within the commercial segment.

Similarly, consumer auto was segregated into its own class within the consumer segment.

These enhancements were made to capture the unique credit characteristics used in our CECL models.

Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes to the respective classes, while prior period amounts continue to be reported in accordance with previously applicable GAAP and have not been reclassified to conform to the current financial statement presentation.

The following represent our classes of loans as of January 1, 2020 upon adoption of ASC 326 (with the exception of SBA-PPP, which was added during second quarter 2020):

Commercial loans and leases

Construction and land development - Construction and land development consists of loans to finance land for development of commercial or residential real property and construction of multifamily apartments or other commercial properties.

These loans are highly dependent on the supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired for development.

Deterioration in demand could result in decreased collateral values, which could make repayments of outstanding loans difficult for customers.

Owner occupied commercial mortgage - Owner occupied commercial mortgages consists of loans to purchase or re-finance owner occupied nonresidential properties.

This includes office buildings, other commercial facilities, and farmland.

Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination.

While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.

Non-owner occupied commercial mortgage - Non-owner occupied commercial mortgage consists of loans to purchase or refinance investment nonresidential properties.

This includes office buildings and other facilities rented or leased to unrelated parties, as well as farmland and multifamily properties.

The primary risk associated with income producing commercial mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt.

While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.

Commercial and industrial and leases - Commercial and industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets.

The primary risk associated with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those projected at origination.

Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease.

SBA-PPP - These loans were originated as part of the SBA-PPP to finance payroll and other costs for nonprofit and small businesses impacted by the COVID-19 pandemic.

These loans are guaranteed by the SBA and borrowers have the ability to qualify for loan forgiveness through the U.S.

Consumer loans

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

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

Revolving mortgage - Revolving mortgage consists of home equity lines of credit and other lines of credit secured by first or second liens on the borrower’s primary residence.

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

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

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

These loans are typically secured by undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property.

There is risk these construction and development projects can experience delays and cost overruns exceeding the borrower’s financial ability to complete the project.

Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.

Consumer auto loans - Consumer auto loans consist of installment loans to finance purchases of vehicles.

These loans include direct auto loans originated in bank branches, as well indirect auto loans originated through agreements with auto dealerships.

The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.

Other consumer - Other consumer loans consist of loans to finance unsecured home improvements, student loans and revolving lines of credit that can be secured or unsecured, including personal credit cards.

The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.

Accounting Policy - Nonperforming Assets and Troubled Debt Restructurings

Nonperforming Assets

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

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

All loans are classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent.

Loans are generally placed on nonaccrual when principal or interest becomes 90 days past due or when it is probable the principal or interest is not fully collectible.

When loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued.

All payments received thereafter are applied as a reduction of the remaining principal balance as long as doubt exists as to the ultimate collection of the principal.

Loans and leases are generally removed from nonaccrual status when they become current for a sustained period of time and there is no longer concern as to the collectability of principal and interest.

Securities are also classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent.

Missed interest payments on securities are rare.

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

Troubled Debt Restructurings

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

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

TDR concessions could include short-term deferrals of interest, modifications of payment terms, or (in certain limited instances) forgiveness of principal or interest.

Loans restructured as a TDR are treated and reported as such for the remaining life of the loan.

TDR loans can be nonaccrual or accrual, depending on the individual facts and circumstances of the borrower.

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

Accounting Policy - Allowance for Credit Losses

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

These loan level ACL models estimate the probability of default and loss given default for individual loans within the risk pool based on historical loss experience, borrower characteristics, collateral type, forecasts of relevant economic conditions, expected future recoveries and other factors.

Pools for estimating the ACL are aggregated into loan classes, as described above, which roll up into commercial and consumer loan segments.

Non-PCD and PCD loans are modeled together within the loan level models using acquired and PCD indicator variables to provide differentiation of individual loan risk.

BancShares uses a two year reasonable and supportable forecast period which incorporates economic forecasts at the time of evaluation.

For most pools, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs;

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

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

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

The ACL represents management’s best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and the impact of prepayment expectations.

Prepayment assumptions were developed through a review of BancShares’ historical prepayment activity and began with a review of prepayment assumptions utilized in other modeling activities.

Estimates for loan losses are determined by analyzing quantitative and qualitative components present as of the evaluation date.

Adjustments to the ACL are recorded with a corresponding entry to provision for credit losses.

Loan balances considered uncollectible are charged-off against the ACL.

Recoveries of amounts previously charged-off are credited to the ACL.

A primary component of determining the ACL on loans is the actual net loss history of the various loan pools.

For commercial pools, key factors utilized in the models include delinquency trends as well as macroeconomic variables such as unemployment and commercial real estate price index.

For consumer pools, key factors include delinquency trends and the borrower’s original credit score, as well as other macroeconomic variables such as unemployment, gross domestic product, home price index, and commercial real estate index.

As the models project losses over the life of the loans, prepayment assumptions also serve as significant inputs.

Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not captured within the models including credit quality, concentrations, and significant policy and underwriting changes.

Within our ACL model, TDRs meet the definition of default and are given a 100% probability of default rating.

TDRs are not individually evaluated unless determined to be collateral-dependent.

Therefore, loss given default is calculated based on the individual risk characteristics of the loan as defined in the model.

When loans do not share risk characteristics similar to others in the pool, the ACL is evaluated on an individual basis.

Given that BancShares' CECL models are loan level models, the population of loans evaluated individually is minimal and consists primarily of loans greater than $ 500 thousand and determined to be collateral-dependent.

BancShares elected the practical expedient allowed under ASC 326 to assess the collectability of these loans, where repayment is expected to be provided substantially through operation or sale of collateral, based on the fair value of the underlying collateral.

The fair value of the collateral is estimated using appraised and market values (appropriately adjusted for an assessment of the sales and marketing costs when applicable).

A specific allowance is established, or partial charge-off is recorded, for the difference between the excess amortized cost of loan and the collateral’s estimated fair value.

Accrued Interest Receivable

BancShares has elected not to measure an ACL for accrued interest receivable and has excluded it from the amortized cost basis of loans and held to maturity debt securities as our accounting policies and credit monitoring provide that uncollectible accrued interest is reversed or written off against interest income in a timely manner.

Unfunded Commitments

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

commitment cannot be canceled at any time).

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

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

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

Adoption Impact

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

The $ 56.9 million reduction in the ACL on non-PCD loans, as well as an $ 8.9 million increase in the reserve for unfunded commitments, net of deferred taxes, resulted in an increase in retained earnings of $ 36.9 million.

The $ 19.0 million increase in the ACL on PCD loans was a reclassification of the PCD credit discount and resulted in a gross up of loan balances by this same amount and did not have any effect on retained earnings.

Impact to total capital and capital ratios was not significant and we did not elect the capital phase-in option allowable for regulatory reporting purposes.

There was no ACL recorded on debt securities held to maturity at adoption.

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

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

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

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

In accordance with the standard, we did not assess whether purchased credit impaired (“PCI”) loans met the criteria of PCD as of the date of adoption and all loans previously classified as PCI were updated to the PCD classification.

Pools utilized for PCI accounting under ASC 310-30 were dissolved upon adoption.

Loans from performing PCI pools, not previously considered nonaccrual of $47.0 million, were reclassified into nonaccrual status as a result of adoption.

PCD loans were assessed using the loan level probability of default and loss given default models, as well as utilizing prior specific loan reviews to inform the initial PCD loan ACL.

The ACL for PCD loans increased as a result of adoption and the amortized cost basis of these loans was adjusted to reflect the transfer of this amount from credit discount to ACL.

The remaining noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2020.

At the date of adoption, no securities were determined to be PCD.

BancShares also adopted this ASU under the prospective transition approach for debt securities available for sale.

No previously recorded other than temporary impairment was reported on the portfolio of debt securities.

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 March 31, 2021, SBA-PPP loans outstanding were $ 2.8 billion.

Recently Issued Accounting Pronouncements

FASB ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

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

The amendments in this ASU are effective for public entities for fiscal years ending after December 15, 2020.

Early adoption is permitted for all entities.

BancShares will adopt all applicable amendments and update the disclosures as appropriate during the fourth quarter of 2020.

There were no Accounting Standards Updates (“ASUs”) issued during the first 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

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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.

The Transaction was approved by the North Carolina Commissioner of Banks on February 5, 2021, as well as the shareholders of both companies on February 9, 2021.

The parties are continuing to work with other regulators on remaining approvals and anticipate closing in mid-2021 subject to regulatory approval and the satisfaction of 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.

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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.

Each transaction is accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date.

Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available.

As part of the accounting for each acquisition, we perform an analysis of the acquired bank’s loan portfolio and based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations segregate the acquired loans into PCD loans and non-PCD loans.

PCD loans are accounted for under ASC 326-20, and non-PCD loans which do not meet this criteria are accounted for under ASC 310-20.

Additionally, we perform an analysis of the acquired bank’s portfolio of debt securities to determine if any debt securities should be designated PCD.

Community Financial Holding Company, Inc.

On February 1, 2020, FCB completed the merger of Duluth, Georgia-based Community Financial Holding Company, Inc.

(“Community Financial”) and its bank subsidiary, Gwinnett Community Bank.

Under the terms of the agreement, total cash consideration of $ 2.3 million was paid to the shareholders of Community Financial.

The merger allows FCB to expand its presence and enhance banking efforts in Georgia.

The fair value of the assets acquired was $ 221.4 million, including $ 110.6 million in non-PCD loans, $ 23.4 million in PCD loans, net of an ACL of $ 1.2 million, and $ 536 thousand in a core deposit intangible.

No debt securities purchased in the transaction were designated PCD.

Liabilities assumed were $ 219.8 million, of which $ 209.3 million were deposits.

As a result of the transaction, FCB recorded $ 686 thousand of goodwill.

The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired.

The premium paid reflects the increased market share and related synergies expected to result from the acquisition.

None of the goodwill was deductible for income tax purposes as the merger was accounted for as a qualified stock purchase.

The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values:

(Dollars in thousands) As recorded by FCB

Purchase price $ 2,320

Cash and due from banks $ 1,085

Overnight investments 35,129

Investment securities 30,146

Loans 133,989

Premises and equipment 7,624

Other real estate owned 9,813

Income earned not collected 558

Intangible assets 536

Other assets 2,520

Total assets acquired 221,400

Deposits 209,340

Borrowings 9,925

Other liabilities 501

Total liabilities assumed $ 219,766

Fair value of net assets acquired 1,634

Goodwill recorded for Community Financial $ 686

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

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

The ongoing contribution of this transaction to BancShares’ financial statements is not considered material, and therefore pro forma financial data is not included.

Entegra Financial Corp.

On December 31, 2019, FCB completed the merger of Franklin, North Carolina-based Entegra Financial Corp.

(“Entegra”) and its bank subsidiary, Entegra Bank.

In order to obtain regulatory approval, FCB entered into an agreement for Select Bank & Trust Company (“Select Bank”) to purchase three North Carolina branches, located in Highlands, Sylva and Franklin.

On April 17, 2020, FCB completed the divestiture of the branches including loans and leases, premises and equipment and total deposits with fair values of $ 110.1 million, $ 2.1 million and $ 184.8 million, respectively.

The Select Bank purchase price for the divested branches included an 8 % premium for deposits acquired that was applied against goodwill generated as part of the merger with Entegra Bank.

BancShares intends 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 .

NOTE C - INVESTMENTS

Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes required by the adoption of this standard which includes evaluating held to maturity and available for sale debt securities to determine the need to record a related allowance for credit losses.

Prior period information continues to be reported in accordance with previously applicable GAAP.

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

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

September 30, 2020

(Dollars in thousands) Cost Gross

The amortized cost and fair value of investment securities at March 31, 2021 and December 31, 2020, were as follows:

March 31, 2021

(Dollars in thousands) Amortized cost Gross

gains Gross unrealized

losses Allowance for credit losses Fair

Investment securities available for sale

Treasury $ 654,588 $ 174 $ — $ — $ 654,762

Government agency $ 852,305 $ 784 $ 6,403 $ 846,686

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December 31, 2020

(Dollars in thousands) Cost Gross

(Dollars in thousands) Amortized cost Gross

gains Gross unrealized

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Corporate bonds 590,870 14,437 2,028 603,279

State, county and municipal 118,227 — — 118,227

Total investment securities available for sale $ 6,911,965 $ 111,189 $ 8,911 $ 7,014,243

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Investment securities held to maturity

Residential mortgage-backed securities 1,877,692 17,689 — 1,895,381

Commercial mortgage-backed securities 937,034 3,884 56 940,862

Other 2,256 — — 2,256

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Total investment securities $ 9,813,784 $ 141,416 $ 10,778 $ 9,944,422

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 AOCI.

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.

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Other held to maturity investments include certificates of deposit with other financial institutions.

BancShares also holds approximately 354,000 shares of Visa Class B common stock.

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

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.

BancShares also holds approximately 354,000 shares of Visa Class B common stock, which are not considered to have a readily determinable fair value and are recorded at $ 0 .

BancShares held FHLB stock of $ 40.6 million and $ 45.4 million and other non-marketable equity securities of $ 11.4 million and $ 11.6 million at March 31, 2021 and December 31, 2020, 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.

As of March 31, 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 March 31, 2021, accrued interest receivables for available for sale and held to maturity debt securities were $ 21.3 million and $ 5.3 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 months ended March 31, 2021 and 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.

September 30, 2020 December 31, 2019

(Dollars in thousands) Cost Fair

value Cost Fair

Residential and commercial mortgage-backed and government agency securities are stated separately as they are not due at a single maturity date.

March 31, 2021 December 31, 2020

(Dollars in thousands) Amortized cost Fair

value Amortized cost Fair

Investment securities available for sale

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Total investment securities held to maturity $ 2,808,099 $ 2,774,982 $ 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 nine months ended September 30, 2020 and 2019:

Three months ended September 30 Nine months ended September 30

The following table provides the gross realized gains and losses on the sales of investment securities available for sale for the three months ended March 31, 2021 and 2020:

Three months ended March 31

(Dollars in thousands) 2021 2020

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Net realized gains on sales of investment securities available for sale $ 9,207 $ 19,795

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

The following table provides the realized and unrealized gains and losses on marketable equity securities for the three months ended March 31, 2021 and 2020:

Three months ended March 31

(Dollars in thousands) 2021 2020

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

Marketable equity securities gains (losses), net $ 16,011 $ ( 51,408 )

Less net gains recognized on marketable equity securities sold 263 323

Unrealized gains (losses) recognized on marketable equity securities held $ 15,748 $ ( 51,731 )

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

September 30, 2020

The following table provides information regarding securities with unrealized losses as of March 31, 2021 and December 31, 2020:

March 31, 2021

Less than 12 months 12 months or more Total

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Residential mortgage-backed securities 433,816 1,241 23,064 69 456,880 1,310

Commercial mortgage-backed securities 35,926 59 — — 35,926 59

Corporate bonds 57,715 2,028 — — 57,715 2,028

Total $ 760,153 $ 6,466 $ 351,841 $ 2,445 $ 1,111,994 $ 8,911

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.

As of March 31, 2021, there were 60 investment securities available for sale with continuous losses for more than 12 months, of which 54 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and six were corporate bonds.

None of the unrealized losses identified as of March 31, 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.

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

Investment securities having an aggregate carrying value of $ 4.48 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.

Investment securities having an aggregate carrying value of $ 4.8 billion at March 31, 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.

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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 September 30, 2020.

There were no debt securities held to maturity on nonaccrual status as of March 31, 2021.

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 September 30, 2020.

There were no securities past due as of March 31, 2021.

NOTE D - LOANS AND LEASES

Non-PCD loans consist of loans originated by BancShares and loans purchased from other institutions, that do not reflect more than insignificant credit deterioration at acquisition and are reported by loan segments and classes as defined in Note A - Accounting Polices and Basis of Presentation.

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 September 30, 2020 and December 31, 2019:

(Dollars in thousands) September 30, 2020

Loans and leases outstanding included the following at March 31, 2021 and December 31, 2020:

(Dollars in thousands) March 31, 2021 December 31, 2020

Construction and land development $ 1,022,087 $ 985,424

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Total consumer loans 9,650,776 9,771,033

Total non-PCD loans and leases 32,349,266

PCD loans 432,773 462,882

Total loans and leases $ 33,180,851 $ 32,791,975

(Dollars in thousands) December 31, 2019

Construction and land development $ 1,013,454

Commercial mortgage 12,282,635

Other commercial real estate 542,028

Commercial and industrial and leases 4,403,792

Other 310,093

Total commercial loans 18,552,002

Noncommercial:

Residential mortgage 5,293,917

Revolving mortgage 2,339,072

Construction and land development 357,385

Consumer 1,780,404

Total noncommercial loans 9,770,778

Total non-PCI loans and leases 28,322,780

PCI loans 558,716

Total loans and leases $ 28,881,496

Accrued 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 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.

At March 31, 2021 and December 31, 2020, accrued interest receivable on loans was $ 103.2 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 and are recorded in loans held for sale at fair value.

In addition, we may change our strategy for certain portfolio loans and decide to sell them in the secondary market.

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 fair value.

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.

September 30, 2020

Loans held for sale totaled $ 129.3 million and $ 124.8 million at March 31, 2021 and December 31, 2020, respectively.

The following table presents selected components of the amortized cost of loans.

(Dollars in thousands) March 31, 2021 December 31, 2020

Deferred fees, including unearned fees and unamortized costs on non-PCD loans

Net deferred fees related to SBA-PPP loans $ 66,717 $ 41,064

Net deferred fees related to other portfolios 11,932 9,153

Total net deferred fees $ 78,649 $ 50,217

Net unamortized discount on purchased loans

Non-PCD $ 17,009 $ 19,473

PCD 41,141 45,254

Total $ 58,150 $ 64,727

The aging of the outstanding loans and leases, by class, at March 31, 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.

March 31, 2021

(Dollars in thousands) 30-59 days

22 unchanged sentences

Construction and land development $ 956 $ 527 $ 1,603 $ 3,086 $ 982,338 $ 985,424

Commercial mortgage 20,389 8,774 8,319 37,482 12,245,153 12,282,635

Other commercial real estate 861 331 698 1,890 540,138 542,028

Owner occupied commercial mortgage 8,757 2,232 14,082 25,071 11,139,941 11,165,012

Non-owner occupied commercial mortgage 12,370 — 5,973 18,343 2,969,346 2,987,689

Commercial and industrial and leases 14,532 2,842 3,243 20,617 4,993,027 5,013,644

Other 51 411 126 588 309,505 310,093

SBA-PPP — — — — 2,406,291 2,406,291

Total commercial loans 36,615 5,601 24,901 67,117 22,490,943 22,558,060

Noncommercial:

Residential mortgage 43,218 8,364 31,690 83,272 5,478,414 5,561,686

1 unchanged sentence

Construction and land development 932 77 330 1,339 346,784 348,123

Consumer 10,481 3,746 3,571 17,798 1,762,606 1,780,404

Total noncommercial loans 67,026 25,721 39,642 132,389 9,638,389 9,770,778

PCI loans 26,478 10,784 28,973 66,235 492,481 558,716

Consumer auto 6,825 1,835 1,076 9,736 1,245,666 1,255,402

Consumer other 3,610 1,464 1,505 6,579 546,389 552,968

Total consumer loans 66,562 14,366 42,016 122,944 9,648,089 9,771,033

PCD loans 18,322 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

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)

September 30, 2020

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 March 31, 2021 and December 31, 2020, were as follows:

March 31, 2021 December 31, 2020

(Dollars in thousands) Nonaccrual

leases Nonaccrual

leases Loans and

accruing Nonaccrual

leases Loans and

Construction and land development $ 1,648 $ — $ 1,661 $ —

11 unchanged sentences

Total loans and leases $ 194,534 $ 7,377 $ 191,483 $ 5,862

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

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

December 31, 2019

(Dollars in thousands) Nonaccrual

leases Loans and

Construction and land development $ 4,281 $ —

Commercial mortgage 29,733 —

Commercial and industrial and leases 7,365 1,094

Other commercial real estate 708 —

Total commercial loans 42,407 1,094

Noncommercial:

Construction and land development 2,828 —

Residential mortgage 44,357 45

Revolving mortgage 22,411 —

Consumer 2,943 2,152

Total noncommercial loans 72,539 2,197

PCI loans 6,743 24,257

Total loans and leases $ 121,689 $ 27,548

Credit Quality

17 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 September 30, 2020 relate to business credit cards.

The majority of ungraded loans at March 31, 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.

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 September 30, 2020.

The following tables represent current credit quality indicators by origination year as of March 31, 2021.

March 31, 2021

Commercial Loans Amortized Cost Basis by Origination Year

25 unchanged sentences

Pass 936,012 1,833,894 — — — — — — 2,769,906

Total 3,112,676 — — — — — — — 3,112,676

Total commercial $ 2,207,869 $ 7,728,147 $ 4,060,239 $ 2,552,670 $ 1,890,073 $ 3,510,422 $ 1,140,955 $ 6,927 $ 23,097,302

40 unchanged sentences

Total loans and leases $ 2,948,428 $ 10,313,757 $ 5,359,399 $ 3,375,272 $ 2,546,743 $ 5,091,470 $ 3,359,588 $ 186,194 $ 33,180,851

Loans and leases outstanding at December 31, 2019 by credit quality indicator are provided below:

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

December 31, 2020

Commercial loans and leases

(Dollars in thousands) Construction and land

development Commercial mortgage Other commercial real estate Commercial and industrial and leases Other PCI Total commercial loans and leases

Commercial Loans Amortized Cost Basis by Origination Year

Classification:

2020 2019 2018 2017 2016 Prior Revolving Revolving converted to term loans Total

(Dollars in thousands)

Construction and land development

Pass $ 342,183 $ 341,233 $ 190,429 $ 50,776 $ 23,969 $ 11,306 $ 10,969 $ — $ 970,865

1 unchanged sentence

Substandard 229 629 1,450 — 8 81 — — 2,397

Doubtful — — — 3 — 3,657 3

Ungraded — — — 68,581 — — 68,581

Total 342,658 341,862 198,300 56,118 23,977 11,387 11,122 — 985,424

December 31, 2019

Noncommercial loans and leases

(Dollars in thousands) Residential mortgage Revolving mortgage Construction and land development Consumer PCI Total noncommercial loans and leases

Days past due:

Current $ 5,205,380 $ 2,316,010 $ 354,393 $ 1,762,606 $ 240,995 $ 9,638,389

30-59 days past due 45,839 9,729 977 10,481 13,764 67,026

60-89 days past due 18,289 3,468 218 3,746 5,608 25,721

90 days or greater past due 24,409 9,865 1,797 3,571 14,020 39,642

Total $ 5,293,917 $ 2,339,072 $ 357,385 $ 1,780,404 $ 274,387 $ 9,770,778

Purchased loans and leases

The following table summarizes PCD loans acquired in the Community Financial transaction and provides the contractually required payments, less the initial allowance for credit losses and discount to produce the fair value of acquired loans with evidence of more than insignificant credit quality deterioration since origination at the acquisition date:

(Dollars in thousands) Community Financial

Contractually required payments $ 25,635

Initial PCD allowance 1,193

Discount 1,055

Fair value at acquisition date $ 23,387

The recorded fair values of purchased non-PCD loans acquired in the Community Financial transaction as of the acquisition date are as follows:

(Dollars in thousands) Community Financial

Construction and land development $ 9,428

Owner occupied commercial mortgage

Pass 3,183,467 2,201,165 1,625,141 1,301,412 1,049,858 1,454,020 101,556 133 10,916,752

Special Mention 6,274 20,702 36,739 12,387 17,699 25,693 5,115 72 124,681

Substandard 10,280 19,052 9,842 20,928 13,736 41,303 8,438 — 123,579

Total 3,200,021 2,240,919 1,671,722 1,334,727 1,081,293 1,521,016 115,109 205 11,165,012

Non-owner occupied commercial mortgage

Pass 865,514 609,975 378,136 331,800 282,810 391,517 32,149 — 2,891,901

Special Mention 569 905 10,794 1,808 5,121 3,279 483 — 22,959

Substandard 2,899 18,546 12,296 8,764 14,087 15,427 810 — 72,829

Total 868,982 629,426 401,226 342,372 302,018 410,223 33,442 — 2,987,689

Commercial and industrial and leases

Total commercial loans 81,109

Pass 1,620,622 983,852 504,463 310,468 234,735 286,996 899,978 5,520 4,846,634

Special Mention 3,146 17,065 7,265 5,393 3,307 4,912 9,152 189 50,429

Substandard 17,811 4,095 4,370 4,257 2,548 3,801 22,384 983 60,249

Ungraded — — — — — — 56,332 — 56,332

Total 1,641,579 1,005,012 516,098 320,118 240,590 295,709 987,846 6,692 5,013,644

Pass 2,406,291 — — — — — — — 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

Consumer and PCD Loans Amortized Cost Basis by Origination Year

Days Past Due:

2020 2019 2018 2017 2016 Prior Revolving Revolving converted to term loans Total

(Dollars in thousands)

Residential mortgage

Current $ 1,882,683 $ 978,298 $ 655,798 $ 596,309 $ 461,719 $ 878,634 $ 24,973 $ — $ 5,478,414

30-59 days 2,278 4,573 11,463 3,772 8,613 12,299 220 — 43,218

60-89 days 30 100 1,246 1,449 834 4,705 — — 8,364

90 days or greater 282 4,831 3,150 4,015 5,689 13,723 — — 31,690

Total 1,885,273 987,802 671,657 605,545 476,855 909,361 25,193 — 5,561,686

Revolving mortgage

Current — — — — — — 1,879,968 150,868 2,030,836

30-59 days — — — — — — 8,241 3,736 11,977

60-89 days — — — — — — 527 2,099 2,626

90 days or greater — — — — — — 2,301 5,114 7,415

Total — — — — — — 1,891,037 161,817 2,052,854

Construction and land development

Current 215,112 85,707 24,860 10,269 6,093 2,218 2,525 — 346,784

30-59 days — 420 121 370 — 21 — — 932

60-89 days — — — 9 — 68 — — 77

90 days or greater — — — — — 330 — — 330

Total 215,112 86,127 24,981 10,648 6,093 2,637 2,525 — 348,123

Consumer auto

Current 521,719 340,594 219,597 104,280 49,872 9,604 — — 1,245,666

30-59 days 2,175 1,873 1,257 842 544 134 — — 6,825

60-89 days 329 689 312 351 109 45 — — 1,835

90 days or greater 170 527 217 57 102 3 — — 1,076

Total 524,393 343,683 221,383 105,530 50,627 9,786 — — 1,255,402

Consumer other

Total consumer loans 29,493

Total non-PCD loans $ 110,602

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

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.

Current 53,842 27,117 10,911 7,159 2,980 29,336 415,044 — 546,389

30-59 days 322 114 77 18 11 7 3,061 — 3,610

60-89 days 102 20 13 18 3 23 1,285 — 1,464

90 days or greater 53 84 8 — — — 1,360 — 1,505

Total 54,319 27,335 11,009 7,195 2,994 29,366 420,750 — 552,968

Total consumer $ 2,679,097 $ 1,444,947 $ 929,030 $ 728,918 $ 536,569 $ 951,150 $ 2,339,505 $ 161,817 $ 9,771,033

Current $ 31,475 $ 25,425 $ 27,183 $ 27,955 $ 28,995 $ 232,186 $ 13,212 $ 21,027 $ 407,458

30-59 days 999 925 801 718 1,341 12,637 156 745 18,322

60-89 days 447 81 312 695 97 4,098 9 337 6,076

90 days or greater 721 2,325 4,755 1,208 897 19,963 111 1,046 31,026

Total PCD $ 33,642 $ 28,756 $ 33,051 $ 30,576 $ 31,330 $ 268,884 $ 13,488 $ 23,155 $ 462,882

Total loans and leases $ 11,172,270 $ 5,690,922 $ 3,749,427 $ 2,812,829 $ 2,215,777 $ 3,458,369 $ 3,500,512 $ 191,869 $ 32,791,975

The following table provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of March 31, 2021 and December 31, 2020:

(Dollars in thousands) March 31, 2021 December 31, 2020

FHLB of Atlanta

Lendable collateral value of pledged non-PCD loans $ 8,847,178 $ 8,637,844

Advances 648,671 652,675

Available borrowing capacity $ 8,198,507 $ 7,985,169

Pledged non-PCD loans $ 12,327,626 $ 12,157,153

Lendable collateral value of pledged non-PCD loans $ 3,367,466 $ 3,321,762

Available borrowing capacity $ 3,367,466 $ 3,321,762

Pledged non-PCD loans $ 4,181,520 $ 4,104,866

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 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.

For the period ended March 31, 2021, the primary reason for the ACL change since December 31, 2020 was improvement in macroeconomic factors.

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

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

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 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 September 30, 2020

(Dollars in thousands) Construction

- commercial Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial

and industrial and leases Residential

mortgage Revolving

mortgage Construction and land development - consumer Consumer auto Consumer other PCD Total

Allowance for credit losses:

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

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

Charge-offs — ( 87 ) — ( 3,241 ) ( 253 ) ( 359 ) — ( 824 ) ( 3,673 ) ( 495 ) ( 8,932 )

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

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

Three months ended September 30, 2019

(Dollars in thousands) Construction

- commercial Commercial

mortgage Other

real estate Commercial

and industrial and leases Other Residential

mortgage Revolving

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

Our ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the March 31, 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, low net charge-offs and recent credit trends, which remained stable through the quarter ended March 31, 2021, despite potential impacts from COVID-19.

Activity in the ACL by portfolio segment is summarized as follows:

Three months ended March 31, 2021

(Dollars in thousands) Commercial Consumer PCD Total

Balance at January 1 $ 80,842 $ 119,485 $ 23,987 $ 224,314

Provision (credit) ( 3,922 ) ( 5,504 ) ( 1,548 ) ( 10,974 )

Charge-offs ( 3,331 ) ( 4,469 ) ( 763 ) ( 8,563 )

Recoveries 1,275 3,340 1,259 5,874

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

- commercial Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial

and industrial and leases Residential

mortgage Revolving

mortgage Construction and land development - consumer Consumer auto Consumer other PCD Total

Balance at March 31 $ 74,864 $ 112,852 $ 22,935 $ 210,651

Three months ended March 31, 2020

(Dollars in thousands) Commercial Consumer PCD Total

Balance at December 31 $ 142,369 $ 75,236 $ 7,536 $ 225,141

1 unchanged sentence

Balance at January 1 54,815 105,865 26,537 187,217

Provision (credits) 4,876 6,011 11,165 10,802 9,339 2,557 209 5,708 7,253 ( 4,971 ) 52,949

Provision (credit) 21,537 9,406 ( 2,588 ) 28,355

Initial allowance on PCD loans — — 1,193 1,193

1 unchanged sentence

Recoveries 1,427 2,431 2,897 6,755

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

- commercial Commercial

mortgage Other

real estate Commercial

and industrial and leases Other Residential

mortgage Revolving

mortgage Construction

- non - commercial Consumer PCI Total

Balance at January 1 $ 35,270 $ 43,451 $ 2,481 $ 55,620 $ 2,221 $ 15,472 $ 21,862 $ 2,350 $ 35,841 $ 9,144 $ 223,712

Provision (credits) ( 3,217 ) 4,748 ( 230 ) 10,138 ( 618 ) 2,903 ( 272 ) 548 11,991 ( 2,277 ) 23,714

Charge-offs ( 188 ) ( 851 ) — ( 8,327 ) ( 73 ) ( 957 ) ( 1,990 ) — ( 18,017 ) — ( 30,403 )

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

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

Balance at March 31 $ 72,410 $ 109,933 $ 26,916 $ 209,259

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 March 31

(Dollars in thousands) 2021 2020

Allowance for credit losses:

Beginning balance $ 12,814 $ 1,055

Adoption of ASC 326 — 8,885

Adjusted beginning balance $ 12,814 $ 9,940

Provision (credit) ( 1,243 ) 572

Ending balance 11,571 10,512

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 September 30, 2020 were as follows:

March 31, 2021

(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 6,951 9,312 134.0 —

Commercial and industrial and leases 1,256 2,916 232.2 —

Total commercial loans 21,517 30,440 141.5 —

2 unchanged sentences

Total consumer loans 22,688 29,003 127.8 120

Total non-PCD loans 37,071 54,348 146.6 162

PCD 17,109 25,443 148.7 —

PCD loans 20,361 35,016 172.0 —

Total collateral-dependent loans $ 64,566 $ 94,459 146.3 % $ 120

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.

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

December 31, 2020

(Dollars in thousands) Construction

- commercial Commercial

mortgage Other

real estate Commercial

and industrial

and leases Other Residential

mortgage Revolving

mortgage Construction

commercial Consumer Total

Non-PCI Loans

Allowance for loan and lease losses:

ALLL for loans and leases individually evaluated for impairment $ 463 $ 3,650 $ 39 $ 1,379 $ 103 $ 3,278 $ 2,722 $ 174 $ 1,107 $ 12,915

ALLL for loans and leases collectively evaluated for impairment 32,750 41,685 2,172 57,995 2,133 14,954 16,980 2,535 33,486 204,690

Total allowance for loan and lease losses $ 33,213 $ 45,335 $ 2,211 $ 59,374 $ 2,236 $ 18,232 $ 19,702 $ 2,709 $ 34,593 $ 217,605

Loans and leases:

Loans and leases individually evaluated for impairment $ 4,655 $ 70,149 $ 1,268 $ 12,182 $ 639 $ 60,442 $ 28,869 $ 3,882 $ 3,513 $ 185,599

Loans and leases collectively evaluated for impairment 1,008,799 12,212,486 540,760 4,391,610 309,454 5,233,475 2,310,203 353,503 1,776,891 28,137,181

Total loan and leases $ 1,013,454 $ 12,282,635 $ 542,028 $ 4,403,792 $ 310,093 $ 5,293,917 $ 2,339,072 $ 357,385 $ 1,780,404 $ 28,322,780

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

(Dollars in thousands) December 31, 2019

ALLL for loans acquired with deteriorated credit quality $ 7,536

Loans acquired with deteriorated credit quality 558,716

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

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

December 31, 2019

(Dollars in thousands) With a

allowance With no

allowance Total Unpaid

balance Related

Non-PCI impaired loans and leases:

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

Commercial loans:

Construction and land development $ 1,424 $ 1,795 126.1 % $ —

Commercial mortgage 42,394 27,755 70,149 74,804 3,650

Other commercial real estate 318 950 1,268 1,360 39

Commercial and industrial and leases 7,547 4,635 12,182 13,993 1,379

Other 406 233 639 661 103

Owner occupied commercial mortgage 9,792 14,253 145.6 —

Non-owner occupied commercial mortgage 5,556 7,577 136.4 —

Total commercial loans 16,772 23,625 140.9 —

Noncommercial:

Residential mortgage 23,011 29,775 129.4 131

Revolving mortgage 26,104 2,765 28,869 31,960 2,722

Construction and land development 2,470 1,412 3,882 4,150 174

Consumer 3,472 41 3,513 3,821 1,107

Total noncommercial loans 80,842 15,864 96,706 104,672 7,281

Total non-PCI impaired loans and leases $ 133,358 $ 52,241 $ 185,599 $ 200,599 $ 12,915

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

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

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

(Dollars in thousands) Average

balance Interest income recognized Average

balance Interest income recognized

Non-PCI impaired loans and leases:

Construction and land development $ 6,130 $ 6 $ 3,460 $ 40

Commercial mortgage 70,351 551 61,962 1,653

Other commercial real estate 1,186 6 797 20

Commercial and industrial and leases 13,085 140 11,478 353

Other 298 2 314 6

Total commercial 91,050 705 78,011 2,072

Noncommercial:

Residential mortgage 56,029 346 49,048 988

Revolving mortgage 30,067 260 29,477 763

Construction and land development 3,124 25 3,473 93

Consumer 3,443 37 3,152 97

Total noncommercial 92,663 668 85,150 1,941

Total non-PCI impaired loans and leases $ 183,713 $ 1,373 $ 163,161 $ 4,013

PCD loans 19,042 27,872 146.4 —

Total collateral-dependent loans $ 58,825 $ 81,272 138.2 % $ 131

Collateral-dependent nonaccrual loans with no recorded allowance totaled $ 61.7 million and $ 57.5 million as of March 31, 2021 and December 31, 2020, respectively.

All other nonaccrual loans have a recorded allowance.

Troubled Debt Restructurings

BancShares accounts for certain loan modifications or restructurings as TDRs.

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 our allowance for credit loss models, TDRs are not individually evaluated unless determined to be collateral-dependent and are included in the definition of default which provides for a 100% probability of default applied within the models.

As a result, subsequent changes in default status do not impact the calculation of the allowance for credit losses on TDR loans.

The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing COVID-19-related financial difficulty.

BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs.

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.

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:

September 30, 2020

(Dollars in thousands) Accruing Nonaccruing Total

March 31, 2021 December 31, 2020

(Dollars in thousands) Accruing Nonaccruing Total Accruing Nonaccruing Total

Commercial loans:

12 unchanged sentences

Total loans $ 160,551 $ 56,395 $ 216,946 $ 157,364 $ 50,816 $ 208,180

December 31, 2019

(Dollars in thousands) Accruing Nonaccruing Total

Commercial loans:

Construction and land development $ 487 $ 2,279 $ 2,766

Commercial mortgage 50,819 11,116 61,935

Other commercial real estate 571 — 571

Commercial and industrial and leases 9,430 2,409 11,839

Other 320 105 425

Total commercial loans 61,627 15,909 77,536

Noncommercial:

Residential mortgage 41,813 16,048 57,861

Revolving mortgage 21,032 7,367 28,399

Construction and land development 1,452 2,430 3,882

Consumer 2,826 688 3,514

Total noncommercial loans 67,123 26,533 93,656

Total loans $ 128,750 $ 42,442 $ 171,192

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

The following table provides the types of modifications designated as TDRs during the 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.

The following table provides the types of modifications designated as TDRs during the three months ended March 31, 2021 and March 31, 2020, as well as a summary of loans modified as a TDR during the twelve-month periods ended March 31, 2021 and March 31, 2020 that subsequently defaulted during the three months ended March 31, 2021 and March 31, 2020.

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 September 30, 2020 Three months ended September 30, 2019

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

(Dollars in thousands) Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end

Loans and leases

Interest only 6 $ 5,703 3 $ 3,730 2 $ 1,221 — $ —

Loan term extension 29 2,380 18 1,755 5 2,473 — —

Below market interest rate 55 15,341 26 3,170 80 4,460 34 2,034

Discharged from bankruptcy 55 1,654 22 755 55 6,097 25 2,002

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

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

Three months ended March 31, 2021 Three months ended March 31, 2020

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

6 unchanged sentences

Total restructurings 129 $ 23,032 46 $ 5,584 172 $ 17,977 60 $ 3,451

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.

For the three months ended March 31, 2021 and March 31, 2020, 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 nine months ended September 30, 2020 and 2019:

The following table explains changes in other real estate owned (“OREO”) during the three months ended March 31, 2021 and 2020:

(Dollars in thousands) OREO

1 unchanged sentence

Additions 7,106

Acquired in business combinations 9,813

Sales ( 8,102 )

Write-downs/losses ( 1,382 )

Balance at September 30, 2020 $ 52,789

Balance at March 31, 2021 $ 48,512

Balance at December 31, 2019 $ 46,591

3 unchanged sentences

Write-downs/losses ( 1,363 )

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 $ 3.36 billion and $ 3.38 billion as of September 30, 2020 and December 31, 2019, respectively.

Balance at March 31, 2020 $ 55,707

At March 31, 2021 and December 31, 2020, BancShares had $ 6.5 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 March 31, 2021 and December 31, 2020, respectively.

Net gains recorded on the sale of OREO properties were $ 1.8 million for the three months ended March 31, 2021.

Net losses recorded on the sale of OREO properties were $ 0.1 million for the three months ended March 31, 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 $ 3.3 billion as of March 31, 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 were recorded as a servicing asset and are reported in other intangible assets.

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 were 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 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

Contractually specified mortgage servicing fees, late fees and ancillary fees earned were $ 2.1 million for the three months ended March 31, 2021 and 2020, and are reported in mortgage income.

The following table presents changes in the servicing asset during the three months ended March 31, 2021 and 2020:

Three months ended March 31

(Dollars in thousands) 2021 2020

2 unchanged sentences

Amortization ( 2,248 ) ( 1,823 )

Valuation allowance (increase) decrease ( 305 ) ( 45 ) ( 4,341 ) ( 173 )

Valuation allowance decrease (increase) 3,123 ( 2,967 )

Ending balance $ 22,745 $ 19,756

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

The following table presents the activity in the servicing asset valuation allowance for the three months ended March 31, 2021 and 2020:

Three months ended March 31

(Dollars in thousands) 2021 2020

Beginning balance $ 4,365 $ 222

Valuation allowance increase (decrease) 305 45 4,341 173

Valuation allowance (decrease) increase ( 3,123 ) 2,967

Ending balance $ 1,242 $ 3,189

1 unchanged sentence

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Discount rate - conventional fixed loans 8.74 % 7.92 %

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 $ 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.

The carrying value of investment securities pledged as collateral under repurchase agreements was $ 685.6 million and $ 689.3 million at March 31, 2021 and December 31, 2020, respectively.

At March 31, 2021, BancShares held $ 680.7 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $ 485.8 million collateralized by government agency securities and $ 194.9 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, made up of $ 432.8 million collateralized by government agency securities and $ 208.7 million collateralized by commercial mortgage-backed securities.

NOTE I - FDIC SHARED-LOSS PAYABLE

At September 30, 2020, shared-loss protection remains for single family residential loans acquired in 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”) .

BancShares issued a payment to the FDIC in the first quarter of 2020 for $99.5 million related to one of the transactions.

The remaining clawback liability payment date is March 2021.

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 March 31, 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:

3 unchanged sentences

Payment made to the FDIC to settle shared-loss agreement ( 16,103 )

Balance at September 30, 2020 $ 15,313

NOTE J - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

September 30, 2020 December 31, 2019

Balance at March 31, 2021 $ —

NOTE J - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

Accumulated other comprehensive (loss) income included the following as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

(Dollars in thousands) Accumulated

11 unchanged sentences

Unrealized gains on securities available for sale $ 36,570 $ 8,411 $ 28,159 $ 102,278 $ 23,524 $ 78,754

Unrealized gains on securities available for sale transferred from (to) held to maturity 4,924 1,133 3,791 5,399 1,242 4,157

Defined benefit pension items ( 85,222 ) ( 19,601 ) ( 65,621 ) ( 91,751 ) ( 21,103 ) ( 70,648 )

Total $ ( 43,728 ) $ ( 10,057 ) $ ( 33,671 ) $ 15,926 $ 3,663 $ 12,263

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

The following table highlights changes in accumulated other comprehensive (loss) income by component for the three months ended March 31, 2021 and 2020:

Three months ended March 31, 2021

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

Beginning balance $ 78,754 $ 4,157 $ ( 70,648 ) $ 12,263

Net unrealized gains arising during period 7,530 — — 7,530

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

Net unrealized losses arising during period ( 43,506 ) — — ( 43,506 )

Amounts reclassified from accumulated other comprehensive income ( 7,089 ) ( 366 ) 5,027 ( 2,428 )

Net current period other comprehensive (loss) income ( 50,595 ) ( 366 ) 5,027 ( 45,934 )

Ending balance $ 28,159 $ 3,791 $ ( 65,621 ) $ ( 33,671 )

Three months ended September 30, 2019

Beginning balance $ 2,554 $ ( 61,979 ) $ ( 121,306 ) $ ( 180,731 )

Net unrealized gains arising during period 3,026 — — 3,026

Amounts reclassified from accumulated other comprehensive loss ( 874 ) 4,693 2,114 5,933

Net current period other comprehensive income 2,152 4,693 2,114 8,959

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

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

Beginning balance $ 5,792 $ — $ ( 132,515 ) $ ( 126,723 )

Net unrealized gains arising during period 140,671 — — 140,671

Amounts reclassified from accumulated other comprehensive loss ( 42,328 ) — 14,624 ( 27,704 )

Net current period other comprehensive income 98,343 — 14,624 112,967

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

Nine months ended September 30, 2019

Three months ended March 31, 2020

Beginning balance $ 5,792 $ — $ ( 132,515 ) $ ( 126,723 )

3 unchanged sentences

Ending balance $ 102,080 $ — $ ( 127,692 ) $ ( 25,612 )

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 nine months ended September 30, 2020 and 2019:

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

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

Unrealized gains on securities available for sale $ 21,425 Realized gains on investment securities available for sale, net

( 4,928 ) Income taxes

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 September 30, 2019

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 three months ended March 31, 2021 and 2020:

(Dollars in thousands) Three months ended March 31, 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

1 unchanged sentence

( 2,118 ) Income taxes

Amortization of unrealized losses on securities available for sale transferred to held to maturity $ ( 6,095 ) Net interest income

1,402 Income taxes

Amortization of defined benefit pension items

Prior service costs $ ( 15 ) Salaries and wages

Actuarial losses ( 2,730 ) Other noninterest expense

( 2,745 ) Income before income taxes

631 Income taxes

Total reclassifications for the period $ ( 5,933 )

Nine months ended September 30, 2020

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

Unrealized gains on securities available for sale $ 54,972 Realized gains on investment securities available for sale, net

Accretion of unrealized gains on securities available for sale transferred to held to maturity $ 475 Net interest income

( 109 ) Income taxes

Amortization of defined benefit pension items

Actuarial losses $ ( 18,994 ) Other

Amortization of defined benefit pension actuarial losses ( 6,529 ) Other noninterest expense

1,502 Income taxes

Total reclassifications for the period $ 2,428

Nine months ended September 30, 2019

(Dollars in thousands) Three months ended March 31, 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

( 4,553 ) Income taxes

$ 5,278 Net income

Amortization of unrealized losses on securities available for sale transferred to held to maturity $ ( 18,004 ) Net interest income

4,141 Income taxes

Amortization of defined benefit pension items

Prior service costs $ ( 43 ) Salaries and wages

Actuarial losses ( 8,192 ) Other noninterest expense

( 8,235 ) Income before income taxes

Amortization of defined benefit pension actuarial losses ( 6,264 ) Other noninterest expense

1,441 Income taxes

15 unchanged sentences

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 at the end of the reporting period.

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:

4 unchanged sentences

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 and are not directly observable.

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.

27 unchanged sentences

Payable to the FDIC for shared-loss agreements.

The fair value of the payable to the FDIC for shared-loss agreements is determined based on expected payments to the FDIC in accordance with the shared-loss agreements.

Cash flows are discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC.

The inputs used in the fair value measurement for the payable to the FDIC are considered Level 3 inputs.

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.

2 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 September 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 March 31, 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.

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 September 30, 2020 and December 31, 2019:

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

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

(Dollars in thousands) March 31, 2021 December 31, 2020

Carrying value Fair value Carrying value Fair value

17 unchanged sentences

Accrued interest payable 5,149 5,149 9,414 9,414

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

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

March 31, 2021

Fair value measurements using:

2 unchanged sentences

Investment securities available for sale

Treasury $ 654,762 $ — $ 654,762 $ —

Government agency $ 846,686 $ — $ 846,686 $ —

15 unchanged sentences

Corporate bonds 603,279 — 286,655 316,624

State, county and municipal 118,227 — 118,227 —

Total investment securities available for sale $ 7,014,243 $ — $ 6,697,619 $ 316,624

3 unchanged sentences

Corporate bonds

Three months ended September 30 Nine months ended September 30

Three months ended March 31

(Dollars in thousands) 2021 2020

Beginning balance $ 316,624 $ 69,685

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

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

Unrealized net losses (gains) included in other comprehensive income 2,333 ( 4,366 )

Amounts included in net income ( 91 ) ( 85 )

Transfers in — 1,782

Sales / Calls ( 750 ) —

Ending balance $ 318,116 $ 67,016

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.

During the three months ended March 31, 2021, there were no transfers between levels.

During the three months ended March 31, 2020, there were transfers from Level 2 to Level 3 of $ 1.8 million.

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

During the three and nine months ended September 30, 2019, there were 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

The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at March 31, 2021:

(Dollars in thousands) March 31, 2021

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 $ 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.

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

September 30, 2020

The changes in fair value were recorded as a component of mortgage income and included a loss of $ 2.7 million and a gain of $ 1.2 million for the three months ended March 31, 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.

March 31, 2021

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

3 unchanged sentences

Originated loans held for sale $ 124,837 $ 118,902 $ 5,935

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.

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

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

These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.

Following the adoption of ASC 326, the population of loans measured at fair value on a non-recurring basis has greatly diminished and is limited to collateral-dependent loans evaluated individually.

These collateral-dependent loans are deemed to be at fair value if there is an associated allowance for credit losses or if a charge-off has been recorded in the previous 12 months.

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.

Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 6 % and 10 %, and immaterial adjustments for other external factors that may impact the marketability of the collateral.

The weighted average discount for estimated selling costs applied was 6.81 %.

Prior to the adoption of ASC 326, impaired loans were deemed to be at fair value if an associated allowance or current period charge-off had been recorded.

The value of impaired loans was determined by either collateral valuations or discounted present value of the expected cash flow calculations.

Collateral values were determined using appraisals or other third-party value estimates of the subject property with discounts, generally between 6 % and 11 %, applied for estimated selling costs and other external factors that may impact the marketability of the property.

Expected cash flows were determined using expected payment information at the individual loan level, discounted using the effective interest rate.

The effective interest rate for impaired loans generally ranges between 3 % and 7 %.

OREO acquired or written down within the previous 12 months is deemed to be at fair value.

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

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

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 March 31, 2021, the weighted average discount applied was 8.76 %.

Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset.

If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals ordered to ensure the reported values reflect the most current information.

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

September 30, 2020

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

March 31, 2021

Fair value measurements using:

6 unchanged sentences

Fair value Level 1 inputs Level 2 inputs Level 3 inputs

Impaired loans $ 132,336 $ — $ — $ 132,336

Collateral-dependent loans $ 11,779 $ — $ — $ 11,779

Other real estate owned 40,115 — — 40,115

Mortgage servicing rights 16,966 — — 16,966

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

No financial liabilities were carried at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020.

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 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

For the three months ended March 31, 2021 and 2020, the components of net periodic benefit cost are as follows:

Three months ended March 31

(Dollars in thousands) 2021 2020

2 unchanged sentences

Expected return on assets ( 19,595 ) ( 16,409 )

Amortization of prior service cost — 15 — 43

Amortization of net actuarial loss 6,529 6,264

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 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.

Net periodic (benefit) cost $ ( 2,009 ) $ 1,843

No discretionary contribution was made to the pension plans during the three months ended March 31, 2021.

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 lease assets and liabilities as of September 30, 2020 and December 31, 2019:

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

The following table presents right-of-use lease assets and liabilities as of March 31, 2021 and December 31, 2020:

(Dollars in thousands) Classification March 31, 2021 December 31, 2020

Operating Other assets $ 65,330 $ 68,048

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 September 30, 2020 and December 31, 2019:

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

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

(Dollars in thousands) March 31, 2021 December 31, 2020

Unused commitments to extend credit $ 12,126,186 $ 12,098,417

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 $ 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.

Affordable housing project investments were $ 162.4 million and $ 163.9 million as of March 31, 2021 and December 31, 2020, respectively, and were recorded in other assets.

Unfunded commitments to fund future investments in affordable housing projects totaled $ 49.7 million and $ 53.7 million as of March 31, 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.

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