FIRST CITIZENS BANCSHARES INC /DE/ 10-Q

Item 1. Financial Statements First Citizens BancShares, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, unaudited) March 31, 2021 December 31, 2020 Assets Cash and due from banks $ 410,495 $ 362,048 Overnight investments 7,588,757 4,347,336 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 $ 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 $ 2,774,982 at March 31, 2021 and $ 2,838,499 at December 31, 2020) 2,808,099 2,816,982 Loans held for sale 129,334 124,837 Loans and leases 33,180,851 32,791,975 Allowance for credit losses ( 210,651 ) ( 224,314 ) Net loans and leases 32,970,200 32,567,661 Premises and equipment 1,238,874 1,251,283 Other real estate owned 48,512 50,890 Income earned not collected 148,022 145,694 Goodwill 350,298 350,298 Other intangible assets 51,547 50,775 Other assets 750,460 783,953 Total assets $ 53,908,606 $ 49,957,680 Liabilities Deposits: Noninterest-bearing $ 20,515,142 $ 18,014,029 Interest-bearing 26,815,855 25,417,580 Total deposits 47,330,997 43,431,609 Securities sold under customer repurchase agreements 680,705 641,487 Federal Home Loan Bank borrowings 648,671 655,175 Subordinated debt 497,153 504,518 Other borrowings 84,502 88,470 FDIC shared-loss payable — 15,601 Other liabilities 345,178 391,552 Total liabilities 49,587,206 45,728,412 Shareholders’ equity Common stock: Class A - $ 1 par value ( 16,000,000 shares authorized; 8,811,220 shares issued and outstanding at March 31, 2021 and December 31, 2020) 8,811 8,811 Class B - $ 1 par value ( 2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2021 and December 31, 2020) 1,005 1,005 Preferred stock - $ 0.01 par value ( 10,000,000 shares authorized; 345,000 shares issued and outstanding at 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) income ( 33,671 ) 12,263 Total shareholders’ equity 4,321,400 4,229,268 Total liabilities and shareholders’ equity $ 53,908,606 $ 49,957,680 See accompanying Notes to Unaudited Consolidated Financial Statements. 3 Table of Contents First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Income Three months ended March 31 (Dollars in thousands, except per share data, unaudited) 2021 2020 Interest income Loans and leases $ 323,023 $ 325,548 Investment securities interest and dividend income 30,852 39,493 Overnight investments 1,448 4,518 Total interest income 355,323 369,559 Interest expense Deposits 8,793 24,194 Securities sold under customer repurchase agreements 338 442 Federal Home Loan Bank borrowings 2,087 2,984 Subordinated debt 4,188 2,755 Other borrowings 265 784 Total interest expense 15,671 31,159 Net interest income 339,652 338,400 Provision (credit) for credit losses ( 10,974 ) 28,355 Net interest income after provision for credit losses 350,626 310,045 Noninterest income Wealth management services 32,198 26,412 Service charges on deposit accounts 21,536 26,413 Cardholder services, net 19,960 18,160 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 gains (losses), net 16,011 ( 51,408 ) Realized gains on investment securities available for sale, net 9,207 19,795 Other 1,860 625 Total noninterest income 136,649 64,011 Noninterest expense Salaries and wages 147,830 145,255 Employee benefits 35,725 38,511 Occupancy expense 29,743 27,480 Equipment expense 29,803 27,850 Processing fees paid to third parties 13,673 10,372 FDIC insurance expense 3,218 3,466 Collection and foreclosure-related expenses 2,198 4,054 Merger-related expenses 6,819 4,232 Other 26,917 38,751 Total noninterest expense 295,926 299,971 Income before income taxes 191,349 74,085 Income taxes 44,033 16,916 Net income $ 147,316 $ 57,169 Preferred stock dividends 4,636 — Net income available to common shareholders $ 142,680 $ 57,169 Weighted average common shares outstanding 9,816,405 10,473,119 Earnings per common share $ 14.53 $ 5.46 See accompanying Notes to Unaudited Consolidated Financial Statements. 4 Table of Contents First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Three months ended March 31 (Dollars in thousands, unaudited) 2021 2020 Net income $ 147,316 $ 57,169 Other comprehensive income 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 ) Reclassification adjustment for realized gains on securities available for sale included in income before income taxes ( 9,207 ) ( 19,795 ) Tax effect 2,118 4,553 Unrealized (losses) gains on securities available for sale arising during the period, net of tax ( 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 gains on securities available for sale transferred to held to maturity, net of tax ( 366 ) — Change in pension obligation: 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 (loss) income ( 45,934 ) 101,111 Total comprehensive income $ 101,382 $ 158,280 See accompanying Notes to Unaudited Consolidated Financial Statements. 5 Table of Contents First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Three months ended March 31 (Dollars in thousands, unaudited) Class A Common Stock Class B Common Stock Preferred Stock Surplus Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders’ Equity Balance at 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 ( 349 ) — — ( 44,081 ) ( 115,274 ) — ( 159,704 ) Cash dividends declared ($ 0.40 per common share) Class A common stock — — — — ( 3,739 ) — ( 3,739 ) Class B common stock — — — — ( 402 ) — ( 402 ) 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 Net income — — — — 147,316 — 147,316 Other comprehensive loss, net of tax — — — — — ( 45,934 ) ( 45,934 ) Cash dividends declared ($ 0.47 per common share) Class A common stock — — — — ( 4,142 ) — ( 4,142 ) Class B common stock — — — — ( 472 ) — ( 472 ) Preferred stock dividends declared — — — — ( 4,636 ) — ( 4,636 ) 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. 6 Table of Contents First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Cash Flows Three months ended March 31 (Dollars in thousands, unaudited) 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 147,316 $ 57,169 Adjustments to reconcile net income to cash provided by operating activities: 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 in accrued interest payable ( 4,264 ) ( 4,624 ) Net increase in income earned not collected ( 2,328 ) ( 1,914 ) Contribution to pension plans — ( 100,000 ) Realized gains on investment securities available for sale, net ( 9,207 ) ( 19,795 ) 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 ( 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 Origination of mortgage servicing rights, net of change in valuation allowance ( 6,567 ) 1,384 Net change in other assets 17,535 4,067 Net change in other liabilities ( 33,494 ) ( 28,135 ) Net cash provided by operating activities 104,876 17,609 CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans outstanding ( 383,507 ) ( 202,667 ) Purchases of investment securities available for sale ( 1,737,890 ) ( 4,305,818 ) Purchases of investment securities held to maturity ( 207,313 ) ( 724,412 ) Purchases of marketable equity securities ( 306 ) ( 287,014 ) Proceeds from maturities, calls, and principal repayments of investment securities held to maturity 206,282 14,166 Proceeds from maturities, calls, and principal repayments of investment securities available for sale 1,079,216 572,937 Proceeds from sales of investment securities available for sale 351,984 3,156,988 Proceeds from sales of marketable equity securities 1,111 2,438 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 ) Proceeds from sales of other real estate owned 10,011 5,265 Proceeds from sales of premises and equipment 1,143 — Purchases of premises and equipment ( 23,544 ) ( 26,930 ) 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 in time deposits ( 159,035 ) ( 310,224 ) Net increase in demand and other interest-bearing deposits 4,058,956 1,017,371 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 preferred stock issuance — 339,958 Repurchase of common stock — ( 156,094 ) Cash dividends paid ( 9,249 ) ( 4,256 ) Net cash provided by financing activities 3,911,917 1,501,187 Change in cash and due from banks 48,447 77,501 Cash and due from banks at beginning of period 362,048 376,719 Cash and due from banks at end of period $ 410,495 $ 454,220 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 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 See accompanying Notes to Unaudited Consolidated Financial Statements. 7 Table of Contents First Citizens BancShares, Inc. and Subsidiaries Notes to Unaudited Consolidated Financial Statements NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION First Citizens BancShares, Inc. (“BancShares”) is a financial holding company organized under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”), which is headquartered in Raleigh, North Carolina. General These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in BancShares’ Annual Report on Form 10-K for the year ended December 31, 2020. Reclassifications In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders’ equity or net income. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions which affect the amounts reported. Actual results could differ from those estimates. The estimates BancShares considers significant are the allowance for credit losses, “ACL”, fair value measurements, and income taxes. Share Repurchases 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. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, BancShares’ Chairman and Chief Executive Officer and Vice Chairman, respectively. Small Business Administration Paycheck Protection Program The Small Business Administration Paycheck Protection Program (“SBA-PPP”) is one of the centerpieces of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which was passed on March 27, 2020 in response to the outbreak of a novel strain of coronavirus (“COVID-19”) and was supplemented with subsequent legislation. Overseen by the United States (“U.S.”) Treasury Department, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020. Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of between eight and 24-weeks after the loan is made as long as the borrower retains its employees and their compensation levels. The CARES Act authorized the SBA to temporarily guarantee these loans. The SBA began processing forgiveness payments during the fourth quarter of 2020. 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 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 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. 8 Table of Contents NOTE B - BUSINESS COMBINATIONS Recently Announced Business Combinations CIT Group Inc. On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”). The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”). The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. The Transaction was approved by the 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. Holders of CIT Common Stock will receive cash in lieu of fractional shares. In addition, at the Effective Time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $ 0.01 per share, of CIT and 5.625 % Non-Cumulative Perpetual Preferred Stock, Series B, par value $ 0.01 per share, of CIT issued and outstanding will automatically be converted into the right to receive one share of a newly created series of preferred stock, Series B, of BancShares and one share of a newly created series of preferred stock, Series C, of BancShares, respectively. The Merger Agreement requires that, effective as of the Effective Time, the Boards of Directors of the combined company and the combined bank will consist of 14 directors, (i) 11 of whom will be members of the current Board of Directors of BancShares, and (ii) three of whom will be selected from among the current Board of Directors of CIT and will include as one of those three Ellen R. Alemany, Chairwoman and Chief Executive Officer of CIT. 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 . 9 Table of Contents NOTE C - INVESTMENTS 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 unrealized gains Gross unrealized losses Fair value Investment securities available for sale Government agency $ 852,305 $ 784 $ 6,403 $ 846,686 Residential mortgage-backed securities 4,736,893 47,742 26,046 4,758,589 Commercial mortgage-backed securities 1,096,259 14,619 11,891 1,098,987 Corporate bonds 585,095 18,313 548 602,860 Total investment securities available for sale $ 7,270,552 $ 81,458 $ 44,888 $ 7,307,122 Investment in marketable equity securities 84,297 22,872 283 106,886 Investment securities held to maturity Residential mortgage-backed securities 1,740,314 5,191 20,510 1,724,995 Commercial mortgage-backed securities 1,065,778 13 17,811 1,047,980 Other 2,007 — — 2,007 Total investment securities held to maturity 2,808,099 5,204 38,321 2,774,982 Total investment securities $ 10,162,948 $ 109,534 $ 83,492 $ 10,188,990 December 31, 2020 (Dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale U.S. Treasury $ 499,832 $ 101 $ — $ 499,933 Government agency 706,241 723 5,573 701,391 Residential mortgage-backed securities 4,369,130 70,283 1,310 4,438,103 Commercial mortgage-backed securities 745,892 25,645 — 771,537 Corporate bonds 590,870 14,437 2,028 603,279 Total investment securities available for sale $ 6,911,965 $ 111,189 $ 8,911 $ 7,014,243 Investment in marketable equity securities 84,837 8,654 1,811 91,680 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 Total investment securities held to maturity 2,816,982 21,573 56 2,838,499 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. Investments in government agency securities represent securities issued by the United States Small Business Administration. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions. BancShares also holds approximately 354,000 shares of 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. 10 Table of Contents 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. 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 value Investment securities available for sale Non-amortizing securities maturing in: One year or less $ 1,020 $ 1,021 $ 500,846 $ 500,954 One through five years 72,340 74,536 72,565 73,881 Five through 10 years 502,757 517,922 508,320 519,570 Over 10 years 8,978 9,381 8,971 8,807 Government agency 852,305 846,686 706,241 701,391 Residential mortgage-backed securities 4,736,893 4,758,589 4,369,130 4,438,103 Commercial mortgage-backed securities 1,096,259 1,098,987 745,892 771,537 Total investment securities available for sale $ 7,270,552 $ 7,307,122 $ 6,911,965 $ 7,014,243 Investment securities held to maturity Non-amortizing securities maturing in: One year or less 998 998 1,507 1,507 One through five years 1,009 1,009 749 749 Residential mortgage-backed securities 1,740,314 1,724,995 1,877,692 1,895,381 Commercial mortgage-backed securities 1,065,778 1,047,980 937,034 940,862 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 months ended March 31, 2021 and 2020: Three months ended March 31 (Dollars in thousands) 2021 2020 Gross realized gains on sales of investment securities available for sale $ 9,207 $ 20,474 Gross realized losses on sales of investment securities available for sale — ( 679 ) 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 months ended March 31, 2021 and 2020: Three months ended March 31 (Dollars in thousands) 2021 2020 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 ) 11 Table of Contents 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 (Dollars in thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Investment securities available for sale Government agency $ 331,034 $ 3,501 $ 415,379 $ 2,902 $ 746,413 $ 6,403 Residential mortgage-backed securities 2,345,301 26,001 12,495 45 2,357,796 26,046 Commercial mortgage-backed securities 685,575 11,891 — — 685,575 11,891 Corporate bonds 8,394 14 26,183 534 34,577 548 Total $ 3,370,304 $ 41,407 $ 454,057 $ 3,481 $ 3,824,361 $ 44,888 December 31, 2020 Less than 12 months 12 months or more Total (Dollars in thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Investment securities available for sale Government agency $ 268,622 $ 3,197 $ 328,777 $ 2,376 $ 597,399 $ 5,573 Residential mortgage-backed securities 433,816 1,241 23,064 69 456,880 1,310 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 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. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, none of the securities were deemed to require an allowance for credit losses. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Investment securities having an aggregate carrying value of $ 4.8 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. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no further credit monitoring is performed on these portfolios. Should there be downgrades to the credit rating of the U.S. Treasury or losses reported on securities issued by government agencies and government sponsored entities, BancShares will reevaluate its determination of zero expected credit losses on held to maturity debt securities. There were 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 March 31, 2021. 12 Table of Contents NOTE D - LOANS AND LEASES BancShares’ accounting methods for loans and leases depends on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination, which is determined as of the acquisition date. Non purchased credit deteriorated (“PCD”) loans consist of loans originated by BancShares and loans purchased from other institutions, that do not reflect more than insignificant credit deterioration at acquisition. Purchased loans which reflect more than insignificant credit deterioration are classified as PCD and reported as a single loan segment or class. At the date of acquisition, all acquired loans are recorded at fair value. Loans and leases outstanding included the following at March 31, 2021 and December 31, 2020: (Dollars in thousands) March 31, 2021 December 31, 2020 Commercial: Construction and land development $ 1,022,087 $ 985,424 Owner occupied commercial mortgage 11,340,966 11,165,012 Non-owner occupied commercial mortgage 3,017,898 2,987,689 Commercial and industrial and leases 4,946,445 5,013,644 SBA-PPP 2,769,906 2,406,291 Total commercial loans 23,097,302 22,558,060 Consumer: Residential mortgage 5,566,026 5,561,686 Revolving mortgage 1,938,422 2,052,854 Construction and land development 336,065 348,123 Consumer auto 1,271,586 1,255,402 Consumer other 538,677 552,968 Total consumer loans 9,650,776 9,771,033 PCD loans 432,773 462,882 Total loans and leases $ 33,180,851 $ 32,791,975 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, 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 $ 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 13 Table of Contents 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 past due 60-89 days past due 90 days or greater Total past due Current Total loans and leases Commercial: Construction and land development $ 277 $ — $ 1,595 $ 1,872 $ 1,020,215 $ 1,022,087 Owner occupied commercial mortgage 13,153 2,996 11,028 27,177 11,313,789 11,340,966 Non-owner occupied commercial mortgage 5,046 303 8,917 14,266 3,003,632 3,017,898 Commercial and industrial and leases 13,284 4,771 3,249 21,304 4,925,141 4,946,445 SBA-PPP — — — — 2,769,906 2,769,906 Total commercial loans 31,760 8,070 24,789 64,619 23,032,683 23,097,302 Consumer: Residential mortgage 34,350 7,396 30,789 72,535 5,493,491 5,566,026 Revolving mortgage 6,222 1,603 8,531 16,356 1,922,066 1,938,422 Construction and land development 266 944 652 1,862 334,203 336,065 Consumer auto 4,432 1,014 860 6,306 1,265,280 1,271,586 Consumer other 2,246 1,213 1,516 4,975 533,702 538,677 Total consumer loans 47,516 12,170 42,348 102,034 9,548,742 9,650,776 PCD loans 11,250 4,322 33,694 49,266 383,507 432,773 Total loans and leases $ 90,526 $ 24,562 $ 100,831 $ 215,919 $ 32,964,932 $ 33,180,851 December 31, 2020 (Dollars in thousands) 30-59 days past due 60-89 days past due 90 days or greater Total past due Current Total loans and leases Commercial: Construction and land development $ 956 $ 527 $ 1,603 $ 3,086 $ 982,338 $ 985,424 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 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 Consumer: Residential mortgage 43,218 8,364 31,690 83,272 5,478,414 5,561,686 Revolving mortgage 11,977 2,626 7,415 22,018 2,030,836 2,052,854 Construction and land development 932 77 330 1,339 346,784 348,123 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 14 Table of Contents The amortized cost, by class, of loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at March 31, 2021 and December 31, 2020, were as follows: March 31, 2021 December 31, 2020 (Dollars in thousands) Nonaccrual loans and leases Loans and leases > 90 days and accruing Nonaccrual loans and leases Loans and leases > 90 days and accruing Commercial: Construction and land development $ 1,648 $ — $ 1,661 $ — Owner occupied commercial mortgage 22,796 1,400 23,103 3,625 Non-owner occupied commercial mortgage 10,939 2,211 7,932 147 Commercial and industrial and leases 15,718 607 10,626 540 Total commercial loans 51,101 4,218 43,322 4,312 Consumer: Residential mortgage 61,907 29 66,345 — Revolving mortgage 23,952 — 22,236 — Construction and land development 566 543 652 — Consumer auto 3,027 — 3,166 — Consumer other 816 1,155 823 1,195 Total consumer loans 90,268 1,727 93,222 1,195 PCD loans 53,165 1,432 54,939 355 Total loans and leases $ 194,534 $ 7,377 $ 191,483 $ 5,862 Credit Quality Loans and leases are monitored for credit quality on a recurring basis. Commercial and consumer loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments being evaluated. The credit quality indicators for commercial loans and leases are borrower risk classifications developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated at least annually, with more frequent evaluations done on criticized loans. Commercial loans are also updated if there is evidence of potential credit deterioration, such as delinquency. Commercial credit cards are included in the Commercial and industrial and leases segment, but are evaluated based primarily upon delinquency status. The risk classifications as of the date presented are based on the most recent assessment performed and are defined below: Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification. Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification. Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected. Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values. Loss – Assets classified as loss are considered uncollectible and of such little value that it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather that it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future. Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at 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. The remaining balance is comprised of a small amount of commercial mortgage, lease financing and other commercial real estate loans. The credit quality indicators for consumer and PCD loans are based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases. 15 Table of Contents 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 Classification: 2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total (Dollars in thousands) Construction and land development Pass $ 46,039 $ 399,172 $ 310,753 $ 168,534 $ 48,089 $ 28,797 $ 12,548 $ — $ 1,013,932 Special Mention — 232 — 181 85 — 145 — 643 Substandard — 225 590 1,447 5,170 80 — — 7,512 Total 46,039 399,629 311,343 170,162 53,344 28,877 12,693 — 1,022,087 Owner occupied commercial mortgage Pass 632,239 3,202,842 2,166,465 1,521,886 1,206,771 2,249,426 106,579 101 11,086,309 Special Mention 687 10,398 29,975 39,868 12,074 37,441 2,974 72 133,489 Substandard 3,564 9,322 14,441 9,287 26,702 49,856 7,996 — 121,168 Total 636,490 3,222,562 2,210,881 1,571,041 1,245,547 2,336,723 117,549 173 11,340,966 Non-owner occupied commercial mortgage Pass 158,815 809,647 603,274 332,010 319,514 638,882 35,835 — 2,897,977 Special Mention 794 676 880 10,778 1,440 2,918 500 — 17,986 Substandard 75 12,018 22,293 12,643 8,762 44,396 1,748 — 101,935 Total 159,684 822,341 626,447 355,431 329,716 686,196 38,083 — 3,017,898 Commercial and industrial and leases Pass 424,035 1,423,941 884,987 442,129 251,356 445,265 874,664 5,150 4,751,527 Special Mention 102 10,601 22,183 8,335 6,160 7,764 11,376 194 66,715 Substandard 5,507 15,179 4,398 5,572 3,950 5,597 24,608 1,410 66,221 Doubtful — — — — — — 2 — 2 Ungraded — — — — — — 61,980 — 61,980 Total 429,644 1,449,721 911,568 456,036 261,466 458,626 972,630 6,754 4,946,445 SBA-PPP Pass 936,012 1,833,894 — — — — — — 2,769,906 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 Consumer and PCD Loans Amortized Cost Basis by Origination Year Days Past Due: 2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total (Dollars in thousands) Residential mortgage Current $ 521,849 $ 1,810,979 $ 889,902 $ 561,267 $ 518,205 $ 1,166,958 $ 24,331 $ — $ 5,493,491 30-59 days 2,367 2,193 236 9,619 4,113 15,567 255 — 34,350 60-89 days — 256 1,012 1,040 558 4,530 — — 7,396 90 days or greater — 286 1,455 838 3,797 24,384 29 — 30,789 Total 524,216 1,813,714 892,605 572,764 526,673 1,211,439 24,615 — 5,566,026 Revolving mortgage Current — — — — — — 1,772,173 149,893 1,922,066 30-59 days — — — — — — 3,877 2,345 6,222 60-89 days — — — — — — 699 904 1,603 90 days or greater — — — — — — 4,112 4,419 8,531 Total — — — — — — 1,780,861 157,561 1,938,422 Construction and land development Current 40,360 209,701 52,406 16,883 8,037 5,241 1,575 — 334,203 30-59 days — 108 15 61 30 52 — — 266 60-89 days — 240 138 59 366 141 — — 944 90 days or greater — 543 — — 59 50 — — 652 Total 40,360 210,592 52,559 17,003 8,492 5,484 1,575 — 336,065 16 Table of Contents Consumer auto Current 155,101 484,026 302,622 191,055 87,139 45,337 — — 1,265,280 30-59 days — 1,327 962 1,054 703 386 — — 4,432 60-89 days — 433 197 253 117 14 — — 1,014 90 days or greater — 294 134 217 129 86 — — 860 Total 155,101 486,080 303,915 192,579 88,088 45,823 — — 1,271,586 Consumer other Current 20,879 45,239 22,631 8,552 6,246 34,873 395,282 — 533,702 30-59 days 3 131 100 106 1 — 1,905 — 2,246 60-89 days — 95 7 10 — — 1,101 — 1,213 90 days or greater — 14 114 6 — — 1,382 — 1,516 Total 20,882 45,479 22,852 8,674 6,247 34,873 399,670 — 538,677 Total consumer $ 740,559 $ 2,555,865 $ 1,271,931 $ 791,020 $ 629,500 $ 1,297,619 $ 2,206,721 $ 157,561 $ 9,650,776 PCD loans Current $ — $ 28,056 $ 24,347 $ 26,763 $ 24,879 $ 247,606 $ 11,788 $ 20,068 $ 383,507 30-59 days — 344 390 407 300 9,423 19 367 11,250 60-89 days — 51 88 — 165 3,896 — 122 4,322 90 days or greater — 1,294 2,404 4,412 1,826 22,504 105 1,149 33,694 Total PCD $ — $ 29,745 $ 27,229 $ 31,582 $ 27,170 $ 283,429 $ 11,912 $ 21,706 $ 432,773 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 The following tables represent current credit quality indicators by origination year as of December 31, 2020. December 31, 2020 Commercial Loans Amortized Cost Basis by Origination Year Classification: 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 Special Mention 246 — 6,421 5,342 — — 153 — 12,162 Substandard 229 629 1,450 — 8 81 — — 2,397 Total 342,658 341,862 198,300 56,118 23,977 11,387 11,122 — 985,424 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 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 SBA-PPP 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 17 Table of Contents Consumer and PCD Loans Amortized Cost Basis by Origination Year Days Past Due: 2020 2019 2018 2017 2016 Prior Revolving Revolving converted to term loans Total (Dollars in thousands) Residential mortgage Current $ 1,882,683 $ 978,298 $ 655,798 $ 596,309 $ 461,719 $ 878,634 $ 24,973 $ — $ 5,478,414 30-59 days 2,278 4,573 11,463 3,772 8,613 12,299 220 — 43,218 60-89 days 30 100 1,246 1,449 834 4,705 — — 8,364 90 days or greater 282 4,831 3,150 4,015 5,689 13,723 — — 31,690 Total 1,885,273 987,802 671,657 605,545 476,855 909,361 25,193 — 5,561,686 Revolving mortgage Current — — — — — — 1,879,968 150,868 2,030,836 30-59 days — — — — — — 8,241 3,736 11,977 60-89 days — — — — — — 527 2,099 2,626 90 days or greater — — — — — — 2,301 5,114 7,415 Total — — — — — — 1,891,037 161,817 2,052,854 Construction and land development Current 215,112 85,707 24,860 10,269 6,093 2,218 2,525 — 346,784 30-59 days — 420 121 370 — 21 — — 932 60-89 days — — — 9 — 68 — — 77 90 days or greater — — — — — 330 — — 330 Total 215,112 86,127 24,981 10,648 6,093 2,637 2,525 — 348,123 Consumer auto Current 521,719 340,594 219,597 104,280 49,872 9,604 — — 1,245,666 30-59 days 2,175 1,873 1,257 842 544 134 — — 6,825 60-89 days 329 689 312 351 109 45 — — 1,835 90 days or greater 170 527 217 57 102 3 — — 1,076 Total 524,393 343,683 221,383 105,530 50,627 9,786 — — 1,255,402 Consumer other Current 53,842 27,117 10,911 7,159 2,980 29,336 415,044 — 546,389 30-59 days 322 114 77 18 11 7 3,061 — 3,610 60-89 days 102 20 13 18 3 23 1,285 — 1,464 90 days or greater 53 84 8 — — — 1,360 — 1,505 Total 54,319 27,335 11,009 7,195 2,994 29,366 420,750 — 552,968 Total consumer $ 2,679,097 $ 1,444,947 $ 929,030 $ 728,918 $ 536,569 $ 951,150 $ 2,339,505 $ 161,817 $ 9,771,033 PCD loans Current $ 31,475 $ 25,425 $ 27,183 $ 27,955 $ 28,995 $ 232,186 $ 13,212 $ 21,027 $ 407,458 30-59 days 999 925 801 718 1,341 12,637 156 745 18,322 60-89 days 447 81 312 695 97 4,098 9 337 6,076 90 days or greater 721 2,325 4,755 1,208 897 19,963 111 1,046 31,026 Total PCD $ 33,642 $ 28,756 $ 33,051 $ 30,576 $ 31,330 $ 268,884 $ 13,488 $ 23,155 $ 462,882 Total loans and leases $ 11,172,270 $ 5,690,922 $ 3,749,427 $ 2,812,829 $ 2,215,777 $ 3,458,369 $ 3,500,512 $ 191,869 $ 32,791,975 The following table 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 Less: Advances 648,671 652,675 Available borrowing capacity $ 8,198,507 $ 7,985,169 Pledged non-PCD loans $ 12,327,626 $ 12,157,153 FRB Lendable collateral value of pledged non-PCD loans $ 3,367,466 $ 3,321,762 Less: Advances — — Available borrowing capacity $ 3,367,466 $ 3,321,762 Pledged non-PCD loans $ 4,181,520 $ 4,104,866 18 Table of Contents 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 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 . For most pools, we use a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the 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 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 Adoption of ASC 326 ( 87,554 ) 30,629 19,001 ( 37,924 ) Balance at January 1 54,815 105,865 26,537 187,217 Provision (credit) 21,537 9,406 ( 2,588 ) 28,355 Initial allowance on PCD loans — — 1,193 1,193 Charge-offs ( 5,369 ) ( 7,769 ) ( 1,123 ) ( 14,261 ) Recoveries 1,427 2,431 2,897 6,755 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. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by business assets, while the remaining loan classes are collateralized by real property. 19 Table of Contents 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 March 31, 2021 and December 31, 2020 were as follows: March 31, 2021 (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 % $ — Owner occupied commercial mortgage 11,886 16,417 138.1 — 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 — Consumer: Residential mortgage 21,303 27,279 128.1 120 Revolving mortgage 1,385 1,724 124.5 — Total consumer loans 22,688 29,003 127.8 120 PCD loans 20,361 35,016 172.0 — Total collateral-dependent loans $ 64,566 $ 94,459 146.3 % $ 120 December 31, 2020 (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 % $ — 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 — Consumer: Residential mortgage 23,011 29,775 129.4 131 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 troubled debt restructurings (“TDRs”). In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. Within BancShares’ ACL loss models, TDRs are not individually evaluated unless determined to be collateral-dependent. Consumer TDRs are included in the definition of default which provides for a 100% probability of default applied within the models. As a result, subsequent changes in credit quality metrics do not impact the calculation of the ACL on consumer TDRs. For commercial TDRs, the TDR distinction does impact the calculation of ACL, as the standard definition of default is utilized. The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing financial difficulty due to COVID-19. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases did not record these as TDRs. 20 Table of Contents The following tables provides a summary of total TDRs by accrual status: March 31, 2021 December 31, 2020 (Dollars in thousands) Accruing Nonaccruing Total Accruing Nonaccruing Total Commercial loans: Construction and land development $ 529 $ 41 $ 570 $ 578 $ 54 $ 632 Owner occupied commercial mortgage 38,969 9,986 48,955 37,574 10,889 48,463 Non-owner occupied commercial mortgage 20,541 1,335 21,876 18,336 1,649 19,985 Commercial and industrial and leases 30,956 6,551 37,507 29,131 3,528 32,659 Total commercial loans 90,995 17,913 108,908 85,619 16,120 101,739 Consumer: Residential mortgage 25,323 20,802 46,125 29,458 19,380 48,838 Revolving mortgage 18,729 7,331 26,060 20,124 7,128 27,252 Construction and land development 1,501 9 1,510 1,573 9 1,582 Consumer auto 2,173 668 2,841 2,018 696 2,714 Consumer other 910 163 1,073 955 137 1,092 Total consumer loans 48,636 28,973 77,609 54,128 27,350 81,478 PCD loans 20,920 9,509 30,429 17,617 7,346 24,963 Total loans $ 160,551 $ 56,395 $ 216,946 $ 157,364 $ 50,816 $ 208,180 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 March 31, 2021 Three months ended March 31, 2020 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 $ 6,947 2 $ 42 10 $ 3,986 — $ — Loan term extension 25 3,863 12 1,749 6 794 3 263 Below market interest rate 53 8,122 20 1,428 88 8,165 29 1,421 Discharged from bankruptcy 45 4,100 12 2,365 68 5,032 28 1,767 Total restructurings 129 $ 23,032 46 $ 5,584 172 $ 17,977 60 $ 3,451 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. 21 Table of Contents NOTE F - OTHER REAL ESTATE OWNED 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 Balance at December 31, 2020 $ 50,890 Additions 7,106 Sales ( 8,102 ) Write-downs/losses ( 1,382 ) Balance at March 31, 2021 $ 48,512 Balance at December 31, 2019 $ 46,591 Additions 5,987 Acquired in business combinations 9,813 Sales ( 5,321 ) Write-downs/losses ( 1,363 ) 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 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 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 Beginning balance $ 18,426 $ 22,963 Servicing rights originated 3,444 1,583 Amortization ( 2,248 ) ( 1,823 ) 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 months ended March 31, 2021 and 2020: Three months ended March 31 (Dollars in thousands) 2021 2020 Beginning balance $ 4,365 $ 222 Valuation allowance (decrease) increase ( 3,123 ) 2,967 Ending balance $ 1,242 $ 3,189 22 Table of Contents Mortgage servicing rights valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings. Key economic assumptions used to value mortgage servicing rights were as follows: March 31, 2021 December 31, 2020 Discount rate - conventional fixed loans 8.74 % 7.92 % Discount rate - all loans excluding conventional fixed loans 9.74 % 8.92 % Weighted average constant prepayment rate 16.54 % 20.62 % Weighted average cost to service a loan $ 87.58 $ 87.58 The fair value of mortgage servicing rights is sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rate is based on the 10-year U.S. Treasury rate plus a risk premium of 700 basis points for conventional fixed loans and 800 basis points for all other loans. The prepayment rate is derived from the Public Securities Association Standard Prepayment model. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value and may result in the recognition of a valuation allowance. The average cost to service a loan is based on the number of loans serviced and the total cost to service the loans. NOTE H - REPURCHASE AGREEMENTS BancShares utilizes securities sold under agreements to repurchase to facilitate the needs of customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a counterparty an undivided interest in an eligible security at an agreed upon price, and which obligates BancShares to repurchase the security at an agreed upon date, repurchase price, and interest rate. These agreements are recorded at the amount of cash received in connection with the transaction and are reflected as securities sold under customer repurchase agreements. BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities pledged as collateral under repurchase agreements was $ 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 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: (Dollars in thousands) Total Balance at December 31, 2020 $ 15,601 Accretion 502 Payment made to the FDIC to settle shared-loss agreement ( 16,103 ) Balance at March 31, 2021 $ — 23 Table of Contents 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 other comprehensive income (loss) Deferred tax expense (benefit) Accumulated other comprehensive income (loss), net of tax Accumulated other comprehensive income (loss) Deferred tax expense (benefit) Accumulated other comprehensive income (loss), net of tax Unrealized gains on securities available for sale $ 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 (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 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 March 31, 2020 (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 $ 5,792 $ — $ ( 132,515 ) $ ( 126,723 ) Net unrealized gains arising during period 111,530 — — 111,530 Amounts reclassified from accumulated other comprehensive loss ( 15,242 ) — 4,823 ( 10,419 ) Net current period other comprehensive income 96,288 — 4,823 101,111 Ending balance $ 102,080 $ — $ ( 127,692 ) $ ( 25,612 ) 24 Table of Contents 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 Unrealized gains on securities available for sale $ 9,207 Realized gains on investment securities available for sale, net ( 2,118 ) Income taxes $ 7,089 Accretion of unrealized gains on securities available for sale transferred to held to maturity $ 475 Net interest income ( 109 ) Income taxes $ 366 Amortization of defined benefit pension actuarial losses ( 6,529 ) Other noninterest expense 1,502 Income taxes $ ( 5,027 ) Total reclassifications for the period $ 2,428 (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 Unrealized gains on securities available for sale $ 19,795 Realized gains on investment securities available for sale, net ( 4,553 ) Income taxes $ 15,242 Amortization of defined benefit pension actuarial losses ( 6,264 ) Other noninterest expense 1,441 Income taxes $ ( 4,823 ) Total reclassifications for the period $ 10,419 NOTE K - ESTIMATED FAIR VALUES Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange. ASC 820, Fair Value Measurements and Disclosures , indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the highest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows: • Level 1 values are based on quoted prices for identical instruments in active markets. • Level 2 values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market. • Level 3 values are derived from valuation techniques in which one or more significant inputs or assumptions are not observable in the market. These unobservable inputs and assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques. BancShares’ management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Accuracy of the levels of the fair value hierarchy are validated and transfers between levels of the fair value hierarchy are recognized at the end of the reporting period. 25 Table of Contents The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below: Investment securities available for sale and held to maturity . The fair value of U.S. Treasury, government agency and mortgage-backed securities, municipal securities, as well as a portion of corporate bonds, is generally estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers which are unadjusted and are not directly observable. These securities are considered Level 3. Investment in marketable equity securities. Equity securities are measured at fair value using observable closing prices and the market activity. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market. Loans held for sale. Management elects the fair value option on certain residential real estate loans originated to be sold to investors. The loans are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are classified as Level 2 inputs. Loans held for investment subsequently transferred to held for sale are carried at fair value when a firm commitment to purchase from a counterparty exists. The fair value of the transferred loans is based on the quoted prices and is considered a Level 1 input. Net loans and leases. Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs. FHLB stock . The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs. Mortgage and other servicing rights. Mortgage and other servicing rights are carried at the lower of amortized cost or market value and are, therefore, carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model that relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs. Deposits. For non-time deposits, carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits with similar remaining maturities. The inputs used in the fair value measurement for deposits are considered Level 2 inputs. Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security if available. Otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, subordinated debentures, and other borrowings are considered Level 2 inputs. Payable to the FDIC for shared-loss agreements. The fair value of the payable to the FDIC for shared-loss agreements was determined based on payments to the FDIC in accordance with the shared-loss agreements. Cash flows were discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurement for the payable to the FDIC were considered Level 3 inputs. Off-balance-sheet commitments and contingencies. Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position. For all other financial assets and liabilities, the carrying value is a reasonable estimate of the fair value as of 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. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected, securities sold under customer repurchase agreements, and accrued interest payable are considered Level 2. 26 Table of Contents 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 Assets Cash and due from banks $ 410,495 $ 410,495 $ 362,048 $ 362,048 Overnight investments 7,588,757 7,588,757 4,347,336 4,347,336 Investment in marketable equity securities 106,886 106,886 91,680 91,680 Investment securities available for sale 7,307,122 7,307,122 7,014,243 7,014,243 Investment securities held to maturity 2,808,099 2,774,982 2,816,982 2,838,499 Loans held for sale 129,334 129,334 124,837 124,837 Net loans and leases 32,970,200 33,202,437 32,567,661 33,298,166 Income earned not collected 148,022 148,022 145,694 145,694 Federal Home Loan Bank stock 40,563 40,563 45,392 45,392 Mortgage and other servicing rights 23,728 24,322 19,628 20,283 Liabilities Deposits with no stated maturity 44,601,552 44,601,552 40,542,596 40,542,596 Time deposits 2,729,445 2,738,244 2,889,013 2,905,577 Securities sold under customer repurchase agreements 680,705 680,705 641,487 641,487 Federal Home Loan Bank borrowings 648,671 664,996 655,175 677,579 Subordinated debt 497,153 517,091 504,518 525,610 Other borrowings 84,502 85,067 88,470 89,263 FDIC shared-loss payable — — 15,601 15,843 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 March 31, 2021 and December 31, 2020: March 31, 2021 Fair value measurements using: (Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs Assets measured at fair value Investment securities available for sale Government agency $ 846,686 $ — $ 846,686 $ — Residential mortgage-backed securities 4,758,589 — 4,758,589 — Commercial mortgage-backed securities 1,098,987 — 1,098,987 — Corporate bonds 602,860 — 284,744 318,116 Total investment securities available for sale $ 7,307,122 $ — $ 6,989,006 $ 318,116 Marketable equity securities $ 106,886 $ 43,677 $ 63,209 $ — Loans held for sale $ 129,334 $ — $ 129,334 $ — December 31, 2020 Fair value measurements using: Fair value Level 1 inputs Level 2 inputs Level 3 inputs Assets measured at fair value Investment securities available for sale U.S. Treasury $ 499,933 $ — $ 499,933 $ — Government agency 701,391 — 701,391 — Residential mortgage-backed securities 4,438,103 — 4,438,103 — Commercial mortgage-backed securities 771,537 — 771,537 — Corporate bonds 603,279 — 286,655 316,624 Total investment securities available for sale $ 7,014,243 $ — $ 6,697,619 $ 316,624 Marketable equity securities $ 91,680 $ 32,855 $ 58,825 $ — Loans held for sale $ 124,837 $ — $ 124,837 $ — 27 Table of Contents The following tables summarize activity for Level 3 assets: Corporate bonds Three months ended March 31 (Dollars in thousands) 2021 2020 Beginning balance $ 316,624 $ 69,685 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 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. 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 Corporate bonds Indicative bid provided by broker Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer $ 318,116 Fair Value Option BancShares has elected the fair value option for residential real estate loans originated to be sold. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included a 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. 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 March 31, 2021 and December 31, 2020: March 31, 2021 (Dollars in thousands) Fair value Aggregate unpaid principal balance Difference Originated loans held for sale $ 129,334 $ 126,113 $ 3,221 December 31, 2020 Fair value Aggregate unpaid principal balance Difference 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 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. 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 %. 28 Table of Contents OREO acquired or written down within the previous 12 months is deemed to be at fair value. Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts generally between 6 % and 15 % applied for estimated selling costs and other external factors that may impact the marketability of the property. At 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 March 31, 2021 and December 31, 2020: March 31, 2021 Fair value measurements using: (Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs Collateral-dependent loans $ 10,247 $ — $ — $ 10,247 Other real estate owned 36,642 — — 36,642 Mortgage servicing rights 20,409 — — 20,409 December 31, 2020 Fair value measurements using: Fair value Level 1 inputs Level 2 inputs Level 3 inputs 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 March 31, 2021 and December 31, 2020. NOTE L - EMPLOYEE BENEFIT PLANS BancShares sponsors noncontributory defined benefit pension plans for its qualifying employees. The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense. For the three 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 Service cost $ 3,653 $ 3,457 Interest cost 7,404 8,531 Expected return on assets ( 19,595 ) ( 16,409 ) Amortization of net actuarial loss 6,529 6,264 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. 29 Table of Contents NOTE M - LEASES 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 Assets: Operating Other assets $ 65,330 $ 68,048 Finance Premises and equipment 5,936 6,478 Total leased assets $ 71,266 $ 74,526 Liabilities: Operating Other liabilities $ 65,841 $ 68,343 Finance Other borrowings 5,915 6,308 Total lease liabilities $ 71,756 $ 74,651 NOTE N - COMMITMENTS AND CONTINGENCIES To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit. Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires collateral be pledged to secure the commitment, including cash deposits, securities and other assets. Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those commitments are primarily issued to support public and private borrowing arrangements. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as in extending loans to clients and, therefore, these letters of credit are collateralized when necessary. The following table presents the commitments to extend credit and standby letters of credit as of 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 Standby letters of credit 139,572 129,819 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 $ 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. BancShares has also been exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed in the various merger transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares’ consolidated financial statements. 30 Table of Contents