FIRST CITIZENS BANCSHARES INC /DE/ 10-Q

Item 1. Financial Statements First Citizens BancShares, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, unaudited) September 30, 2021 December 31, 2020 Assets Cash and due from banks $ 337,450 $ 362,048 Overnight investments 9,875,063 4,347,336 Investment in marketable equity securities (cost of $ 85,554 at September 30, 2021 and $ 84,837 at December 31, 2020) 123,147 91,680 Investment securities available for sale (cost of $ 7,345,143 at September 30, 2021 and $ 6,911,965 at December 31, 2020) 7,371,129 7,014,243 Investment securities held to maturity (fair value of $ 3,353,078 at September 30, 2021 and $ 2,838,499 at December 31, 2020) 3,381,078 2,816,982 Loans held for sale 98,451 124,837 Loans and leases 32,516,189 32,791,975 Allowance for credit losses ( 183,194 ) ( 224,314 ) Net loans and leases 32,332,995 32,567,661 Premises and equipment 1,230,572 1,251,283 Other real estate owned 40,649 50,890 Income earned not collected 132,911 145,694 Goodwill 350,298 350,298 Other intangible assets 44,142 50,775 Other assets 1,584,092 783,953 Total assets $ 56,901,977 $ 49,957,680 Liabilities Deposits: Noninterest-bearing $ 21,514,407 $ 18,014,029 Interest-bearing 28,551,355 25,417,580 Total deposits 50,065,762 43,431,609 Securities sold under customer repurchase agreements 663,575 641,487 Federal Home Loan Bank borrowings 645,663 655,175 Subordinated debt 497,427 504,518 Other borrowings 76,139 88,470 FDIC shared-loss payable — 15,601 Other liabilities 372,116 391,552 Total liabilities 52,320,682 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 September 30, 2021 and December 31, 2020) 8,811 8,811 Class B - $ 1 par value ( 2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2021 and December 31, 2020) 1,005 1,005 Preferred stock - $ 0.01 par value ( 10,000,000 shares authorized; 345,000 shares issued and outstanding at September 30, 2021 and December 31, 2020; $ 1,000 per share liquidity preference) 339,937 339,937 Retained earnings 4,263,679 3,867,252 Accumulated other comprehensive (loss) income ( 32,137 ) 12,263 Total shareholders’ equity 4,581,295 4,229,268 Total liabilities and shareholders’ equity $ 56,901,977 $ 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 September 30 Nine months ended September 30 (Dollars in thousands, except per share data, unaudited) 2021 2020 2021 2020 Interest income Loans and leases $ 319,214 $ 336,382 $ 966,525 $ 988,029 Investment securities interest and dividend income 39,246 37,195 105,530 113,293 Overnight investments 3,395 757 6,948 5,828 Total interest income 361,855 374,334 1,079,003 1,107,150 Interest expense Deposits 8,073 13,468 25,408 55,578 Securities sold under customer repurchase agreements 358 395 1,052 1,236 Federal Home Loan Bank borrowings 2,114 2,156 6,300 7,612 Subordinated debt 4,174 4,351 12,543 11,783 Other borrowings 249 305 768 1,488 Total interest expense 14,968 20,675 46,071 77,697 Net interest income 346,887 353,659 1,032,932 1,029,453 Provision (credit) for credit losses ( 1,120 ) 4,042 ( 31,697 ) 52,949 Net interest income after provision for credit losses 348,007 349,617 1,064,629 976,504 Noninterest income Wealth management services 31,935 26,369 95,886 75,152 Service charges on deposit accounts 24,858 20,841 68,277 64,776 Cardholder services, net 22,879 19,756 65,310 55,503 Other service charges and fees 9,205 7,892 26,653 22,829 Merchant services, net 8,409 6,763 25,858 18,014 Mortgage income 6,106 13,106 25,026 28,141 Insurance commissions 4,000 3,576 11,702 10,453 ATM income 1,481 1,537 4,534 4,354 Realized gains on investment securities available for sale, net 8,082 21,425 33,119 54,972 Marketable equity securities gains (losses), net 3,350 ( 2,701 ) 31,015 10,461 Other 2,639 2,008 6,363 5,330 Total noninterest income 122,944 120,572 393,743 349,985 Noninterest expense Salaries and wages 160,947 147,297 462,420 439,185 Employee benefits 32,146 31,788 103,169 100,663 Occupancy expense 29,101 27,990 87,283 85,026 Equipment expense 30,229 29,430 88,934 86,054 Processing fees paid to third parties 15,602 11,927 43,702 32,485 FDIC insurance expense 3,661 2,167 10,261 9,364 Collection and foreclosure-related expenses 836 2,168 3,207 10,171 Merger-related expenses 7,013 3,507 19,601 12,108 Other 33,283 35,388 91,745 108,256 Total noninterest expense 312,818 291,662 910,322 883,312 Income before income taxes 158,133 178,527 548,050 443,177 Income taxes 34,060 35,843 123,873 89,538 Net income $ 124,073 $ 142,684 $ 424,177 $ 353,639 Preferred stock dividends 4,636 4,636 13,908 9,426 Net income available to common shareholders $ 119,437 $ 138,048 $ 410,269 $ 344,213 Weighted average common shares outstanding 9,816,405 9,836,629 9,816,405 10,137,321 Earnings per common share $ 12.17 $ 14.03 $ 41.79 $ 33.96 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 September 30 Nine months ended September 30 (Dollars in thousands, unaudited) 2021 2020 2021 2020 Net income $ 124,073 $ 142,684 $ 424,177 $ 353,639 Other comprehensive income Unrealized (losses) gains on securities available for sale: Unrealized (losses) gains on securities available for sale arising during the period ( 11,270 ) 9,781 ( 43,173 ) 182,690 Tax effect 2,593 ( 2,251 ) 9,930 ( 42,019 ) Reclassification adjustment for realized gains on securities available for sale included in income before income taxes ( 8,082 ) ( 21,425 ) ( 33,119 ) ( 54,972 ) Tax effect 1,858 4,928 7,617 12,644 Unrealized (losses) gains on securities available for sale arising during the period, net of tax ( 14,901 ) ( 8,967 ) ( 58,745 ) 98,343 Unrealized gains on securities available for sale transferred to held to maturity: Reclassification adjustment for accretion of unrealized gains on securities available for sale transferred to held to maturity ( 430 ) — ( 1,690 ) — Tax effect 99 — 389 — Total change in unrealized gains on securities available for sale transferred to held to maturity, net of tax ( 331 ) — ( 1,301 ) — Change in pension obligation: Amortization of actuarial losses 6,773 6,332 20,320 18,994 Tax effect ( 1,558 ) ( 1,457 ) ( 4,674 ) ( 4,370 ) Total change in pension obligation, net of tax 5,215 4,875 15,646 14,624 Other comprehensive (loss) income ( 10,017 ) ( 4,092 ) ( 44,400 ) 112,967 Total comprehensive income $ 114,056 $ 138,592 $ 379,777 $ 466,606 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 September 30 (Dollars in thousands, unaudited) Class A Common Stock Class B Common Stock Preferred Stock Surplus Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders’ Equity Balance at June 30, 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 ) Issuance of preferred stock — — — — — — — 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 Balance at June 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,148,857 $ ( 22,120 ) $ 4,476,490 Net income — — — — 124,073 — 124,073 Other comprehensive loss, net of tax — — — — — ( 10,017 ) ( 10,017 ) Cash dividends declared ($ 0.47 per common share) Class A common stock — — — — ( 4,143 ) — ( 4,143 ) Class B common stock — — — — ( 472 ) — ( 472 ) Preferred stock dividends declared — — — — ( 4,636 ) — ( 4,636 ) Balance at September 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,263,679 $ ( 32,137 ) $ 4,581,295 Nine months ended September 30 (Dollars in thousands, unaudited) Class A Common Stock Class B Common Stock Preferred Stock Surplus Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance at December 31, 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 — — — — 353,639 — 353,639 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 ) Cash dividends declared ($ 1.20 per common share) Class A common stock — — — — ( 10,869 ) — ( 10,869 ) Class B common stock — — — — ( 1,206 ) — ( 1,206 ) Preferred stock dividends declared — — — — ( 9,426 ) — ( 9,426 ) Balance at September 30, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,738,417 $ ( 13,756 ) $ 4,074,414 Balance at December 31, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,867,252 $ 12,263 $ 4,229,268 Net income — — — — 424,177 — 424,177 Other comprehensive loss, net of tax — — — — — ( 44,400 ) ( 44,400 ) Cash dividends declared ($ 1.41 per common share) Class A common stock — — — — ( 12,426 ) — ( 12,426 ) Class B common stock — — — — ( 1,416 ) — ( 1,416 ) Preferred stock dividends declared — — — — ( 13,908 ) — ( 13,908 ) Balance at September 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,263,679 $ ( 32,137 ) $ 4,581,295 See accompanying Notes to Unaudited Consolidated Financial Statements. 6 Table of Contents First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Cash Flows Nine months ended September 30 (Dollars in thousands, unaudited) 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 424,177 $ 353,639 Adjustments to reconcile net income to cash provided by operating activities: Provision (credit) for credit losses ( 31,697 ) 52,949 Deferred tax expense 9,266 16,227 Net increase in prepaid and current tax receivable ( 774,212 ) ( 38,878 ) Depreciation and amortization 80,293 81,169 Net decrease in accrued interest payable ( 2,855 ) ( 7,620 ) Net decrease (increase) in income earned not collected 12,783 ( 28,025 ) Contribution to pension plans — ( 100,000 ) Realized gains on investment securities available for sale, net ( 33,119 ) ( 54,972 ) Marketable equity securities gains, net ( 31,015 ) ( 10,461 ) Origination of loans held for sale ( 911,995 ) ( 775,900 ) Proceeds from sale of loans held for sale 808,172 743,508 Gain on sale of loans ( 26,789 ) ( 25,728 ) Net (gains) losses on other real estate owned ( 2,971 ) 2,360 Net accretion of premiums and discounts 5,017 4,599 Amortization of intangible assets 16,408 18,589 Origination of mortgage servicing rights, net of change in valuation allowance ( 9,775 ) ( 1,332 ) Net change in other assets 14,233 ( 6,394 ) Net change in other liabilities ( 7,692 ) ( 7,472 ) Net cash (used in) provided by operating activities ( 461,771 ) 216,258 CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in loans outstanding 325,209 ( 3,876,578 ) Purchases of investment securities available for sale ( 3,620,680 ) ( 7,608,380 ) Purchases of investment securities held to maturity ( 1,199,419 ) ( 856,047 ) Purchases of marketable equity securities ( 1,563 ) ( 333,126 ) Proceeds from maturities, calls, and principal repayments of investment securities held to maturity 605,664 134,736 Proceeds from maturities, calls, and principal repayments of investment securities available for sale 1,968,339 1,909,462 Proceeds from sales of investment securities available for sale 1,366,909 3,889,386 Proceeds from sales of marketable equity securities 1,111 332,762 Net increase in overnight investments ( 5,527,727 ) ( 1,994,972 ) Cash paid to FDIC for settlement of shared-loss agreement ( 16,103 ) ( 99,468 ) Proceeds from sales of other real estate owned 29,666 19,683 Proceeds from sales of premises and equipment 1,194 46 Purchases of premises and equipment ( 72,463 ) ( 98,490 ) Business acquisitions, net of cash acquired — ( 59,999 ) Other investing activities ( 18,940 ) — Net cash used in investing activities ( 6,158,803 ) ( 8,640,985 ) CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in time deposits ( 314,004 ) ( 759,491 ) Net increase in demand and other interest-bearing deposits 6,949,598 8,556,808 Net increase (decrease) in short-term borrowings 22,088 ( 44,344 ) Repayment of long-term obligations ( 29,343 ) ( 82,747 ) Origination of long-term obligations — 745,849 Net proceeds from preferred stock issuance — 339,937 Repurchase of common stock — ( 333,755 ) Cash dividends paid ( 32,363 ) ( 21,830 ) Net cash provided by financing activities 6,595,976 8,400,427 Change in cash and due from banks ( 24,598 ) ( 24,300 ) Cash and due from banks at beginning of period 362,048 376,719 Cash and due from banks at end of period $ 337,450 $ 352,419 See accompanying Notes to Unaudited Consolidated Financial Statements. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid (received) during the period for: Interest $ 48,926 $ 85,344 Income taxes 871,327 117,716 Significant noncash investing and financing activities: Transfers of loans to other real estate 7,861 10,295 Dividends declared but not paid — 3,926 Unsettled call of investment securities 15,000 — Loans held for sale exchanged for investment securities 177,301 — Reclassification of portfolio loans to loans held for sale 22,655 ( 3,464 ) Transfers of premises and equipment to other real estate 8,593 8,133 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 BancShares did not repurchase shares of Class A common stock during the nine-month period ended September 30, 2021 . During the third quarter of 2020, BancShares repurchased a total of 117,700 shares of Class A common stock for $ 47.1 million at an average cost per share of $ 399.82 . During the nine months ended September 30, 2020, BancShares repurchased a total of 813,090 shares of Class A common stock for $ 333.8 million at an average cost per share of $ 410.48 . During 2020, share repurchases included 45,000 shares of Class A common stock purchased from Ella Ann Holding, as trustee of her revocable trust. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, BancShares’ Chairman and Chief Executive Officer and Vice Chairman, respectively. Small Business Administration Paycheck Protection Program The Small Business Administration Paycheck Protection Program (“SBA-PPP”) is one of the centerpieces of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which was passed on March 27, 2020 in response to the outbreak of a novel strain of coronavirus (“COVID-19”) and was supplemented with subsequent legislation. Overseen by the United States (“U.S.”) Department of the Treasury, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for certain expenses. Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of between eight and 24-weeks after the loan is made as long as the borrower retains its employees and their compensation levels. The CARES Act authorized the United States Small Business Administration (“SBA”) to temporarily guarantee these loans. The SBA began processing forgiveness payments during the fourth quarter of 2020. The Consolidated Appropriations Act 2021 was signed into law during the fourth quarter of 2020 and contained provisions for a second round of funding of SBA-PPP loans and during the first nine months of 2021, BancShares originated approximately 12,000 SBA-PPP loans totaling approximately $ 1.2 billion. Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate loan class. Origination fees received from the SBA are capitalized into the carrying amount of the loans. The deferred fee income, net of origination costs, is recognized over the life of the loans as an adjustment to yield using the effective interest method. As of September 30, 2021, SBA-PPP loans outstanding were $ 1.1 billion. 8 Table of Contents Recently Issued Accounting Pronouncements There were no Accounting Standards Updates (“ASUs”) issued during the third quarter of 2021 by the Financial Accounting Standards Board (“FASB”) that will have a material impact on BancShares’ consolidated financial statements. NOTE B - BUSINESS COMBINATIONS Recently Announced Business Combinations CIT Group Inc. On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”). The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”). The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. The transaction was approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation (“FDIC”). On September 30, 2021, the parties entered into an amendment to the merger agreement pursuant to which the parties mutually agreed to extend until March 1, 2022 the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed. Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System. 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. 9 Table of Contents NOTE C - INVESTMENTS The amortized cost and fair value of investment securities at September 30, 2021 and December 31, 2020, were as follows: September 30, 2021 (Dollars in thousands) Amortized cost (1) Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale Government agency $ 851,860 $ 5,348 $ 3,480 $ 853,728 Residential mortgage-backed securities 4,800,194 19,219 17,767 4,801,646 Commercial mortgage-backed securities 1,092,183 9,875 11,406 1,090,652 Corporate bonds 600,906 25,295 1,098 625,103 Total investment securities available for sale $ 7,345,143 $ 59,737 $ 33,751 $ 7,371,129 Investment in marketable equity securities 85,554 37,744 151 123,147 Investment securities held to maturity Residential mortgage-backed securities 2,122,299 5,313 15,051 2,112,561 Commercial mortgage-backed securities 1,256,771 3 18,265 1,238,509 Other 2,008 — — 2,008 Total investment securities held to maturity 3,381,078 5,316 33,316 3,353,078 Total investment securities $ 10,811,775 $ 102,797 $ 67,218 $ 10,847,354 December 31, 2020 (Dollars in thousands) Amortized cost (1) Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale U.S. Treasury $ 499,832 $ 101 $ — $ 499,933 Government 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 (1) Amortized cost includes any recorded ACL. On November 1, 2020, mortgage-backed securities with an amortized cost of $ 1.46 billion were transferred from investment securities available for sale to the held to maturity portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $ 1.47 billion and a weighted average contractual maturity of 18 years. The unrealized gain on these securities at the date of transfer was $ 5.9 million, or $ 4.5 million net of tax, and was reported as a component of accumulated other comprehensive income. This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield. Investments in residential and commercial mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the SBA. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions. BancShares also holds approximately 354,000 shares of Class B common stock of Visa, Inc. (“Visa”). Until the resolution of certain litigation, at which time the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these shares are only transferable to other shareholders of Visa Class B common stock. As a result, there is limited transfer activity in private transactions between buyers and sellers. Given this limited trading activity and the continuing uncertainty regarding the likelihood, ultimate timing and eventual exchange rate for shares of Visa Class B common stock into shares of Visa Class A common stock, these shares are not considered to have a readily determinable fair value and are recorded at $ 0 . BancShares continues to monitor the trading activity in Visa Class B common stock and the status of the resolution of certain litigation matters at Visa that would trigger the conversion of the Visa Class B common stock into Visa Class A common stock. 10 Table of Contents BancShares held Federal Housing Loan Bank (“ FHLB”) stock of $ 40.5 million and $ 45.4 million and other non-marketable equity securities of $ 9.6 million and $ 11.6 million at September 30, 2021 and December 31, 2020, respectively. These securities are recorded at cost within other assets. As of September 30, 2021 and December 31, 2020, no ACL was required for available for sale and held to maturity debt securities. Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At September 30, 2021, accrued interest receivables for available for sale and held to maturity debt securities were $ 21.1 million and $ 6.0 million, respectively. At December 31, 2020, accrued interest receivables for available for sale and held to maturity debt securities were $ 17.6 million and $ 5.4 million, respectively. During the three and nine months ended September 30, 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. September 30, 2021 December 31, 2020 (Dollars in thousands) Amortized cost (1) Fair value Amortized cost (1) Fair value Investment securities available for sale Non-amortizing securities maturing in: One year or less $ 1,204 $ 1,208 $ 500,846 $ 500,954 One through five years 37,248 38,540 72,565 73,881 Five through 10 years 545,754 568,692 508,320 519,570 Over 10 years 16,700 16,663 8,971 8,807 Government agency 851,860 853,728 706,241 701,391 Residential mortgage-backed securities 4,800,194 4,801,646 4,369,130 4,438,103 Commercial mortgage-backed securities 1,092,183 1,090,652 745,892 771,537 Total investment securities available for sale $ 7,345,143 $ 7,371,129 $ 6,911,965 $ 7,014,243 Investment securities held to maturity Non-amortizing securities maturing in: One year or less 1,259 1,259 1,507 1,507 One through five years 749 749 749 749 Residential mortgage-backed securities 2,122,299 2,112,561 1,877,692 1,895,381 Commercial mortgage-backed securities 1,256,771 1,238,509 937,034 940,862 Total investment securities held to maturity $ 3,381,078 $ 3,353,078 $ 2,816,982 $ 2,838,499 (1) Amortized cost includes any recorded ACL. 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, 2021 and 2020: Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 Gross realized gains on sales of investment securities available for sale $ 8,082 $ 21,425 $ 33,133 $ 55,651 Gross realized losses on sales of investment securities available for sale — — ( 14 ) ( 679 ) Net realized gains on sales of investment securities available for sale $ 8,082 $ 21,425 $ 33,119 $ 54,972 The following table provides the realized and unrealized gains and losses on marketable equity securities for the three and nine months ended September 30, 2021 and 2020: Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 Marketable equity securities gains (losses), net $ 3,350 $ ( 2,701 ) $ 31,015 $ 10,461 Less net gains recognized on marketable equity securities sold — 2,568 263 39,884 Unrealized gains (losses) recognized on marketable equity securities held $ 3,350 $ ( 5,269 ) $ 30,752 $ ( 29,423 ) 11 Table of Contents The following table provides information regarding securities with unrealized losses as of September 30, 2021 and December 31, 2020: September 30, 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 $ 302,114 $ 2,857 $ 119,231 $ 623 $ 421,345 $ 3,480 Residential mortgage-backed securities 2,137,675 17,752 1,762 $ 15 2,139,437 17,767 Commercial mortgage-backed securities 758,798 11,406 — $ — 758,798 11,406 Corporate bonds 42,593 1,042 10,444 $ 56 53,037 1,098 Total $ 3,241,180 $ 33,057 $ 131,437 $ 694 $ 3,372,617 $ 33,751 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 September 30, 2021, there were 36 investment securities available for sale with continuous losses for more than 12 months, of which 34 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and two were corporate bonds. None of the unrealized losses identified as of September 30, 2021, or December 31, 2020, relate to the issuer’s ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, 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 $ 5.5 billion at September 30, 2021, and $ 4.6 billion at December 31, 2020, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law. BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no further credit monitoring is performed on these portfolios. Should there be downgrades to the credit rating of the U.S. Treasury or losses reported on securities issued by government agencies and government sponsored entities, BancShares will reevaluate its determination of zero expected credit losses on held to maturity debt securities. There were no debt securities held to maturity on nonaccrual status as of September 30, 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, 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 September 30, 2021 and December 31, 2020: (Dollars in thousands) September 30, 2021 December 31, 2020 Commercial: Construction and land development $ 1,247,680 $ 985,424 Owner occupied commercial mortgage 11,625,554 11,165,012 Non-owner occupied commercial mortgage 3,002,928 2,987,689 Commercial and industrial and leases 5,266,266 5,013,644 SBA-PPP 1,086,917 2,406,291 Total commercial loans 22,229,345 22,558,060 Consumer: Residential mortgage 5,701,346 5,561,686 Revolving mortgage 1,834,690 2,052,854 Construction and land development 391,768 348,123 Consumer auto 1,350,377 1,255,402 Consumer other 635,408 552,968 Total consumer loans 9,913,589 9,771,033 PCD loans 373,255 462,882 Total loans and leases $ 32,516,189 $ 32,791,975 At September 30, 2021 and December 31, 2020, accrued interest receivable on loans was $ 88.1 million and $ 107.7 million, respectively, and was excluded from the estimate of credit losses. Certain residential real estate loans are originated to be sold to investors. BancShares has elected the fair value option on these loans, which are recorded in loans held for sale. In addition, BancShares may change its strategy for certain portfolio loans and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at the lower of cost or market value. Loans held for sale totaled $ 98.5 million and $ 124.8 million at September 30, 2021 and December 31, 2020, respectively. The following table presents selected components of the amortized cost of loans. (Dollars in thousands) September 30, 2021 December 31, 2020 Deferred fees, including unearned fees and unamortized costs on non-PCD loans Net deferred fees related to SBA-PPP loans $ 39,372 $ 41,064 Net deferred fees related to other portfolios 15,162 9,153 Total net deferred fees $ 54,534 $ 50,217 Net unamortized discount on purchased loans Non-PCD $ 13,350 $ 19,473 PCD 32,623 45,254 Total $ 45,973 $ 64,727 13 Table of Contents The aging of the outstanding loans and leases, by class, at September 30, 2021 and December 31, 2020 is provided in the tables below. Loans and leases past due less than 30 days are considered current as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement. September 30, 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 $ 233 $ — $ 1,424 $ 1,657 $ 1,246,023 $ 1,247,680 Owner occupied commercial mortgage 7,210 5,553 8,198 20,961 11,604,593 11,625,554 Non-owner occupied commercial mortgage 752 1,245 6,716 8,713 2,994,215 3,002,928 Commercial and industrial and leases 10,309 3,234 9,690 23,233 5,243,033 5,266,266 SBA-PPP — — — — 1,086,917 1,086,917 Total commercial loans 18,504 10,032 26,028 54,564 22,174,781 22,229,345 Consumer: Residential mortgage 18,417 6,607 20,864 45,888 5,655,458 5,701,346 Revolving mortgage 5,587 1,443 4,513 11,543 1,823,147 1,834,690 Construction and land development 477 1,719 70 2,266 389,502 391,768 Consumer auto 5,345 1,173 1,263 7,781 1,342,596 1,350,377 Consumer other 2,197 1,122 1,295 4,614 630,794 635,408 Total consumer loans 32,023 12,064 28,005 72,092 9,841,497 9,913,589 PCD loans 11,407 5,200 27,111 43,718 329,537 373,255 Total loans and leases $ 61,934 $ 27,296 $ 81,144 $ 170,374 $ 32,345,815 $ 32,516,189 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 September 30, 2021 and December 31, 2020, were as follows: September 30, 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 $ 1,457 $ — $ 1,661 $ — Owner occupied commercial mortgage 19,886 601 23,103 3,625 Non-owner occupied commercial mortgage 10,613 — 7,932 147 Commercial and industrial and leases 20,689 1,414 10,626 540 Total commercial loans 52,645 2,015 43,322 4,312 Consumer: Residential mortgage 44,463 779 66,345 — Revolving mortgage 17,295 — 22,236 — Construction and land development 571 — 652 — Consumer auto 3,287 — 3,166 — Consumer other 476 1,033 823 1,195 Total consumer loans 66,092 1,812 93,222 1,195 PCD loans 45,038 1,787 54,939 355 Total loans and leases $ 163,775 $ 5,614 $ 191,483 $ 5,862 Credit Quality Loans and leases are monitored for credit quality on a recurring basis. Commercial and consumer loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments being evaluated. The credit quality indicators for commercial loans and leases are borrower risk classifications developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated at least annually, with more frequent evaluations done on criticized loans. Commercial loans are also updated if there is evidence of potential credit deterioration, such as delinquency. Commercial credit cards are included in the Commercial and industrial and leases segment, but are evaluated based primarily upon delinquency status. The risk classifications as of the date presented are based on the most recent assessment performed and are defined below: Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification. Special mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification. Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected. Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values. Loss – Assets classified as loss are considered uncollectible and of such little value that it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather that it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future. Ungraded – Ungraded loans represent loans that are not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at September 30, 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 September 30, 2021. September 30, 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 $ 373,012 $ 451,926 $ 256,321 $ 98,892 $ 44,343 $ 12,396 $ 4,231 $ — $ 1,241,121 Special Mention 19 157 — 134 63 — — — 373 Substandard 300 38 326 1,442 4,070 10 — — 6,186 Total 373,331 452,121 256,647 100,468 48,476 12,406 4,231 — 1,247,680 Owner occupied commercial mortgage Pass 2,069,209 3,078,093 1,989,052 1,316,012 1,036,593 1,778,334 122,411 120 11,389,824 Special Mention 2,082 24,356 29,358 28,165 12,199 20,469 4,047 71 120,747 Substandard 9,459 7,495 22,482 10,947 18,598 39,695 6,307 — 114,983 Total 2,080,750 3,109,944 2,040,892 1,355,124 1,067,390 1,838,498 132,765 191 11,625,554 Non-owner occupied commercial mortgage Pass 438,949 770,507 587,335 278,507 283,867 507,411 31,876 — 2,898,452 Special Mention 495 487 263 10,219 800 5,654 500 — 18,418 Substandard 2,615 11,742 22,600 10,184 10,243 27,352 1,322 — 86,058 Total 442,059 782,736 610,198 298,910 294,910 540,417 33,698 — 3,002,928 Commercial and industrial and leases Pass 1,238,557 1,162,246 714,374 344,220 193,857 350,870 1,087,462 5,136 5,096,722 Special Mention 2,323 8,279 22,100 3,528 4,070 4,324 4,575 206 49,405 Substandard 7,765 7,978 4,770 4,241 3,175 4,221 17,392 1,280 50,822 Doubtful — — — — — 1 1 — 2 Ungraded — — — — — — 69,315 — 69,315 Total 1,248,645 1,178,503 741,244 351,989 201,102 359,416 1,178,745 6,622 5,266,266 SBA-PPP Pass 1,011,370 75,547 — — — — — — 1,086,917 Total commercial $ 5,156,155 $ 5,598,851 $ 3,648,981 $ 2,106,491 $ 1,611,878 $ 2,750,737 $ 1,349,439 $ 6,813 $ 22,229,345 16 Table of Contents 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 $ 1,591,381 $ 1,651,853 $ 690,779 $ 410,446 $ 390,940 $ 900,129 $ 19,930 $ — $ 5,655,458 30-59 days 252 1,506 4,728 3,066 1,486 7,379 — — 18,417 60-89 days 788 295 — 764 881 3,879 — — 6,607 90 days or greater 55 713 1,059 1,511 3,084 14,193 249 — 20,864 Total 1,592,476 1,654,367 696,566 415,787 396,391 925,580 20,179 — 5,701,346 Revolving mortgage Current — — — — — — 1,700,947 122,200 1,823,147 30-59 days — — — — — — 2,939 2,648 5,587 60-89 days — — — — — — 378 1,065 1,443 90 days or greater — — — — — — 1,901 2,612 4,513 Total — — — — — — 1,706,165 128,525 1,834,690 Construction and land development Current 165,993 175,007 26,889 10,258 5,745 3,016 2,594 — 389,502 30-59 days 33 416 — — — 28 — — 477 60-89 days — 1,650 — — 69 — — — 1,719 90 days or greater — 29 — — — 41 — — 70 Total 166,026 177,102 26,889 10,258 5,814 3,085 2,594 — 391,768 Consumer auto Current 504,537 384,849 229,033 139,764 59,487 24,926 — — 1,342,596 30-59 days 889 1,262 1,450 877 586 281 — — 5,345 60-89 days 200 330 234 255 84 70 — — 1,173 90 days or greater 140 347 420 228 83 45 — — 1,263 Total 505,766 386,788 231,137 141,124 60,240 25,322 — — 1,350,377 Consumer other Current 117,047 33,700 16,222 5,431 5,011 29,871 423,512 — 630,794 30-59 days 89 63 18 24 — 13 1,990 — 2,197 60-89 days 11 25 89 1 — — 996 — 1,122 90 days or greater 49 12 17 1 — — 1,216 — 1,295 Total 117,196 33,800 16,346 5,457 5,011 29,884 427,714 — 635,408 Total consumer $ 2,381,464 $ 2,252,057 $ 970,938 $ 572,626 $ 467,456 $ 983,871 $ 2,156,652 $ 128,525 $ 9,913,589 PCD loans Current $ — $ 23,091 $ 23,792 $ 21,034 $ 20,864 $ 213,681 $ 10,622 $ 16,453 $ 329,537 30-59 days — 846 61 785 1,393 7,777 113 432 11,407 60-89 days — 98 149 48 — 4,699 29 177 5,200 90 days or greater — 806 230 3,698 1,070 20,319 16 972 27,111 Total PCD $ — $ 24,841 $ 24,232 $ 25,565 $ 23,327 $ 246,476 $ 10,780 $ 18,034 $ 373,255 Total loans and leases $ 7,537,619 $ 7,875,749 $ 4,644,151 $ 2,704,682 $ 2,102,661 $ 3,981,084 $ 3,516,871 $ 153,372 $ 32,516,189 17 Table of Contents 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 18 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 September 30, 2021 and December 31, 2020: (Dollars in thousands) September 30, 2021 December 31, 2020 FHLB of Atlanta Lendable collateral value of pledged non-PCD loans $ 9,171,610 $ 8,637,844 Less: Advances 645,663 652,675 Available borrowing capacity $ 8,525,947 $ 7,985,169 Pledged non-PCD loans $ 12,646,208 $ 12,157,153 FRB Lendable collateral value of pledged non-PCD loans $ 3,795,878 $ 3,321,762 Less: Advances — — Available borrowing capacity $ 3,795,878 $ 3,321,762 Pledged non-PCD loans $ 4,610,291 $ 4,104,866 19 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 September 30, 2021, the ACL change since December 31, 2020 was driven by continued strong credit performance, low net charge-offs, and 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, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. BancShares’ ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the September 30, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs. Activity in the ACL by portfolio segment is summarized as follows: Three months ended September 30, 2021 (Dollars in thousands) Commercial Consumer PCD Total Allowance for credit losses: Balance at July 1 $ 76,082 $ 94,272 $ 18,740 $ 189,094 Provision (credit) 975 ( 223 ) ( 1,872 ) ( 1,120 ) Charge-offs ( 5,967 ) ( 4,307 ) ( 799 ) ( 11,073 ) Recoveries 1,594 2,330 2,369 6,293 Balance at September 30 $ 72,684 $ 92,072 $ 18,438 $ 183,194 Three months ended September 30, 2020 (Dollars in thousands) Commercial Consumer PCD Total Balance at July 1 $ 76,177 $ 119,345 $ 26,928 $ 222,450 Provision (credit) 4,793 1,874 ( 2,625 ) 4,042 Charge-offs ( 3,328 ) ( 5,109 ) ( 495 ) ( 8,932 ) Recoveries 2,338 2,719 1,319 6,376 Balance at September 30 $ 79,980 $ 118,829 $ 25,127 $ 223,936 Nine months ended September 30, 2021 (Dollars in thousands) Commercial Consumer PCD Total Balance at January 1 $ 80,842 $ 119,485 $ 23,987 $ 224,314 Provision (credit) 332 ( 23,208 ) ( 8,821 ) ( 31,697 ) Charge-offs ( 12,342 ) ( 12,804 ) ( 2,018 ) ( 27,164 ) Recoveries 3,852 8,599 5,290 17,741 Balance at September 30 $ 72,684 $ 92,072 $ 18,438 $ 183,194 Nine months ended September 30, 2020 (Dollars in thousands) Commercial Consumer PCD Total Balance at December 31 $ 142,369 $ 75,236 $ 7,536 $ 225,141 Adoption of ASC 326 ( 87,554 ) 30,629 19,001 ( 37,924 ) Balance at January 1 54,815 105,865 26,537 187,217 Provision (credit) 32,854 25,066 ( 4,971 ) 52,949 Initial allowance on PCD loans — — 1,193 1,193 Charge-offs ( 12,712 ) ( 19,535 ) ( 3,010 ) ( 35,257 ) Recoveries 5,023 7,433 5,378 17,834 Balance at September 30 $ 79,980 $ 118,829 $ 25,127 $ 223,936 20 Table of Contents BancShares records an allowance for credit losses on unfunded commitments within other liabilities. Activity in the allowance for credit losses for unfunded commitments is summarized as follows: Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 Allowance for credit losses: Beginning balance $ 11,103 $ 13,685 $ 12,814 $ 1,055 Adoption of ASC 326 — — — 8,885 Adjusted beginning balance $ 11,103 $ 13,685 $ 12,814 $ 9,940 Provision (credit) 369 286 ( 1,342 ) 4,031 Ending balance 11,472 13,971 11,472 13,971 BancShares individually reviews loans greater than $ 500 thousand that are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by business assets, while the remaining loan classes are collateralized by real property. The following table presents information on collateral-dependent loans by class and includes the amortized cost of collateral-dependent loans and leases, the net realizable value of the collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as of September 30, 2021 and December 31, 2020 were as follows: September 30, 2021 (Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses Commercial: Construction and land development $ 1,424 $ 1,964 137.9 % $ — Owner occupied commercial mortgage 7,411 8,367 112.9 — Non-owner occupied commercial mortgage 8,204 11,307 137.8 1,203 Commercial and industrial and leases 4,787 6,530 136.4 230 Total commercial loans 21,826 28,168 129.1 1,433 Consumer: Residential mortgage 11,423 14,625 128.0 — Revolving mortgage — — — — Total consumer loans 11,423 14,625 128.0 — PCD loans 18,154 32,788 180.6 — Total collateral-dependent loans $ 51,403 $ 75,581 147.0 % $ 1,433 December 31, 2020 (Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses Commercial: 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 $ 45.5 million and $ 57.5 million as of September 30, 2021 and December 31, 2020, respectively. All other nonaccrual loans have a recorded allowance. 21 Table of Contents Troubled Debt Restructurings BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”). In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. Within BancShares’ ACL loss models, TDRs are not individually evaluated unless determined to be collateral-dependent. Consumer TDRs are included in the definition of default which provides for a 100% probability of default applied within the models. As a result, subsequent changes in credit quality metrics do not impact the calculation of the ACL on consumer TDRs. For commercial TDRs, the TDR distinction does impact the calculation of ACL, as the standard definition of default is utilized. The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing financial difficulty due to COVID-19. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases did not record these as TDRs. The following tables provides a summary of total TDRs by accrual status: September 30, 2021 December 31, 2020 (Dollars in thousands) Accruing Nonaccruing Total Accruing Nonaccruing Total Commercial: Construction and land development $ 346 $ 33 $ 379 $ 578 $ 54 $ 632 Owner occupied commercial mortgage 46,255 10,661 56,916 37,574 10,889 48,463 Non-owner occupied commercial mortgage 20,022 3,763 23,785 18,336 1,649 19,985 Commercial and industrial and leases 12,506 11,295 23,801 29,131 3,528 32,659 Total commercial loans 79,129 25,752 104,881 85,619 16,120 101,739 Consumer: Residential mortgage 22,106 14,937 37,043 29,458 19,380 48,838 Revolving mortgage 16,533 6,925 23,458 20,124 7,128 27,252 Construction and land development 2,380 282 2,662 1,573 9 1,582 Consumer auto 1,888 636 2,524 2,018 696 2,714 Consumer other 774 61 835 955 137 1,092 Total consumer loans 43,681 22,841 66,522 54,128 27,350 81,478 PCD loans 29,207 12,365 41,572 17,617 7,346 24,963 Total loans $ 152,017 $ 60,958 $ 212,975 $ 157,364 $ 50,816 $ 208,180 22 Table of Contents The following table provides the types of modifications designated as TDRs during the three and nine months ended September 30, 2021 and 2020. Three months ended September 30, 2021 Three months ended September 30, 2020 All restructurings All restructurings (Dollars in thousands) Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end Loans and leases Interest only 7 $ 9,639 6 $ 5,703 Loan term extension 41 6,371 29 2,380 Below market interest rate 47 3,126 55 15,341 Discharged from bankruptcy 21 2,783 55 1,654 Total restructurings 116 $ 21,919 145 $ 25,078 Nine months ended September 30, 2021 Nine months ended September 30, 2020 All restructurings All restructurings (Dollars in thousands) Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end Loans and leases Interest only 17 $ 19,728 23 $ 24,847 Loan term extension 112 14,500 62 5,885 Below market interest rate 148 21,004 212 38,740 Discharged from bankruptcy 110 12,478 165 7,025 Total restructurings 387 $ 67,710 462 $ 76,497 For the nine months ended September 30, 2021 and 2020, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different. 23 Table of Contents NOTE F - OTHER REAL ESTATE OWNED The following table explains changes in other real estate owned (“OREO”) during the nine months ended September 30, 2021 and 2020: (Dollars in thousands) OREO Balance at December 31, 2020 $ 50,890 Additions 16,454 Sales ( 24,311 ) Write-downs/losses ( 2,384 ) Balance at September 30, 2021 $ 40,649 Balance at December 31, 2019 $ 46,591 Additions 18,428 Acquired in business combinations 9,813 Sales ( 18,645 ) Write-downs/losses ( 3,398 ) Balance at September 30, 2020 $ 52,789 At September 30, 2021 and December 31, 2020, BancShares had $ 3.0 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 $ 19.6 million and $ 29.4 million at September 30, 2021 and December 31, 2020, respectively. Net gains recorded on the sale of OREO properties were $ 5.2 million for the nine months ended September 30, 2021. Net gains recorded on the sale of OREO properties were $ 1.0 million for the nine months ended September 30, 2020 . NOTE G - MORTGAGE SERVICING RIGHTS BancShares originates certain residential mortgages loans to sell in the secondary market. BancShares’ portfolio of residential mortgage loans serviced for third parties was $ 3.3 billion as of September 30, 2021 and December 31, 2020. These loans are originated and sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights are recorded as a servicing asset and are reported in other intangible assets. The associated amortization expense and any valuation allowance recognized are included as a reduction of mortgage income. Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value. Contractually specified mortgage servicing fees, late fees and ancillary fees earned were $ 2.1 million for each of the three month periods ended September 30, 2021 and 2020, and are reported in mortgage income. For the nine months ended September 30, 2021 and 2020, mortgage servicing fees, late fees and ancillary fees earned were each $ 6.4 million. The following table presents changes in the servicing asset during the three and nine months ended September 30, 2021 and 2020: Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 Beginning balance $ 21,985 $ 18,664 $ 18,426 $ 22,963 Servicing rights originated 1,891 1,994 8,436 5,673 Amortization ( 2,180 ) ( 2,208 ) ( 6,505 ) ( 6,150 ) Valuation allowance (increase) decrease — ( 305 ) 1,339 ( 4,341 ) Ending balance $ 21,696 $ 18,145 $ 21,696 $ 18,145 The following table presents the activity in the servicing asset valuation allowance for the three and nine months ended September 30, 2021 and 2020: Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 Beginning balance $ 3,026 $ 4,258 $ 4,365 $ 222 Valuation allowance increase (decrease) — 305 ( 1,339 ) 4,341 Ending balance $ 3,026 $ 4,563 $ 3,026 $ 4,563 24 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: September 30, 2021 December 31, 2020 Discount rate - conventional fixed loans 8.49 % 7.92 % Discount rate - all loans excluding conventional fixed loans 9.49 % 8.92 % Weighted average constant prepayment rate 17.32 % 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 $ 685.9 million and $ 689.3 million at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, BancShares held $ 663.6 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, including $ 571.6 million collateralized by government agency securities and $ 92.0 million collateralized by commercial mortgage-backed securities. At December 31, 2020, BancShares held securities sold under agreements to repurchase of $ 641.5 million, with overnight and continuous remaining contractual maturities, including $ 432.8 million collateralized by government agency securities and $ 208.7 million collateralized by commercial mortgage-backed securities. NOTE I - FDIC SHARED-LOSS PAYABLE For certain FDIC-assisted transactions, the related shared-loss agreement included a provision requiring a payment owed to the FDIC at the termination of the agreement. As of September 30, 2021, these agreements have been satisfied following a $ 16.1 million payment made to the FDIC during the first quarter of 2021 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 September 30, 2021 $ — 25 Table of Contents NOTE J - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Accumulated other comprehensive (loss) income included the following as of September 30, 2021 and December 31, 2020: September 30, 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 $ 25,986 $ 5,977 $ 20,009 $ 102,278 $ 23,524 $ 78,754 Unrealized gains on securities available for sale transferred to held to maturity 3,709 853 2,856 5,399 1,242 4,157 Defined benefit pension items ( 71,431 ) ( 16,429 ) ( 55,002 ) ( 91,751 ) ( 21,103 ) ( 70,648 ) Total $ ( 41,736 ) $ ( 9,599 ) $ ( 32,137 ) $ 15,926 $ 3,663 $ 12,263 The following table highlights changes in accumulated other comprehensive (loss) income by component for the three and nine months ended September 30, 2021 and 2020: Three months ended September 30, 2021 (Dollars in thousands, net of tax) Unrealized gains (losses) on securities available for sale Unrealized gains on securities available for sale transferred to held to maturity Defined benefit pension items Total Beginning balance $ 34,910 $ 3,187 $ ( 60,217 ) $ ( 22,120 ) Net unrealized losses arising during period ( 8,677 ) — — ( 8,677 ) Amounts reclassified from accumulated other comprehensive loss ( 6,224 ) ( 331 ) 5,215 ( 1,340 ) Net current period other comprehensive (loss) income ( 14,901 ) ( 331 ) 5,215 ( 10,017 ) Ending balance $ 20,009 $ 2,856 $ ( 55,002 ) $ ( 32,137 ) Three months ended September 30, 2020 (Dollars in thousands, net of tax) Unrealized gains (losses) on securities available for sale Unrealized gains on securities available for sale transferred to held to maturity Defined benefit pension items Total Beginning balance $ 113,102 $ — $ ( 122,766 ) $ ( 9,664 ) Net unrealized gains arising during period 7,530 — — 7,530 Amounts reclassified from accumulated other comprehensive loss ( 16,497 ) — 4,875 ( 11,622 ) Net current period other comprehensive income ( 8,967 ) — 4,875 ( 4,092 ) Ending balance $ 104,135 $ — $ ( 117,891 ) $ ( 13,756 ) 26 Table of Contents Nine months ended September 30, 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 ( 33,243 ) — — ( 33,243 ) Amounts reclassified from accumulated other comprehensive income ( 25,502 ) ( 1,301 ) 15,646 ( 11,157 ) Net current period other comprehensive (loss) income ( 58,745 ) ( 1,301 ) 15,646 ( 44,400 ) Ending balance $ 20,009 $ 2,856 $ ( 55,002 ) $ ( 32,137 ) Nine months ended September 30, 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 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 ) 27 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 nine months ended September 30, 2021 and 2020: (Dollars in thousands) Three months ended September 30, 2021 Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented Unrealized gains on securities available for sale $ 8,082 Realized gains on investment securities available for sale, net ( 1,858 ) Income taxes $ 6,224 Accretion of unrealized gains on securities available for sale transferred to held to maturity $ 430 Net interest income ( 99 ) Income taxes $ 331 Amortization of defined benefit pension actuarial losses ( 6,773 ) Other noninterest expense 1,558 Income taxes $ ( 5,215 ) Total reclassifications for the period $ 1,340 (Dollars in thousands) Three months ended September 30, 2020 Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented Unrealized gains on securities available for sale $ 21,425 Realized gains on investment securities available for sale, net ( 4,928 ) Income taxes $ 16,497 Amortization of defined benefit pension actuarial losses ( 6,332 ) Other noninterest expense 1,457 Income taxes $ ( 4,875 ) Total reclassifications for the period $ 11,622 (Dollars in thousands) Nine months ended September 30, 2021 Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented Unrealized gains on securities available for sale $ 33,119 Realized gains on investment securities available for sale, net ( 7,617 ) Income taxes $ 25,502 Amortization of unrealized losses on securities available for sale transferred to held to maturity $ 1,690 Net interest income ( 389 ) Income taxes $ 1,301 Amortization of defined benefit pension actuarial losses $ ( 20,320 ) Other noninterest expense 4,674 Income taxes $ ( 15,646 ) Total reclassifications for the period $ 11,157 (Dollars in thousands) Nine months ended September 30, 2020 Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented Unrealized gains on securities available for sale $ 54,972 Realized gains on investment securities available for sale, net ( 12,644 ) Income taxes $ 42,328 Amortization of defined benefit pension actuarial losses ( 18,994 ) Other noninterest expense 4,370 Income taxes $ ( 14,624 ) Total reclassifications for the period $ 27,704 28 Table of Contents NOTE K - ESTIMATED FAIR VALUES Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange. ASC 820, Fair Value Measurements and Disclosures , indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the highest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows: • Level 1 values are based on quoted prices for identical instruments in active markets. • Level 2 values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market. • Level 3 values are derived from valuation techniques in which one or more significant inputs or assumptions are not observable in the market. These unobservable inputs and assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques. BancShares’ management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Accuracy of the levels of the fair value hierarchy are validated and transfers between levels of the fair value hierarchy are recognized at the end of the reporting period. The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below: Investment securities available for sale and held to maturity . The fair value of U.S. Treasury, government agency and mortgage-backed securities, municipal securities, as well as a portion of corporate bonds, is generally estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers which are unadjusted and are not directly observable. These securities are considered Level 3. Investment in marketable equity securities. Equity securities are measured at fair value using observable closing prices and the market activity. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market. Loans held for sale. Management elects the fair value option on certain residential real estate loans originated to be sold to investors. The loans are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are classified as Level 2 inputs. Loans held for investment subsequently transferred to held for sale are carried at the lower of cost or market. Transfers occur when management intends to sell a pool of loans in the secondary market. This typically occurs when a firm commitment to purchase from a counterparty exists. The fair value of the transferred loans is based on the quoted prices and is considered a Level 1 input. Net loans and leases. Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs. FHLB stock . The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs. 29 Table of Contents Mortgage and other servicing rights. Mortgage and other servicing rights are carried at the lower of amortized cost or market value and are, therefore, carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model that relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs. Deposits. For non-time deposits, carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits with similar remaining maturities. The inputs used in the fair value measurement for deposits are considered Level 2 inputs. Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security if available. Otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, subordinated debentures, and other borrowings are considered Level 2 inputs. Payable to the FDIC for shared-loss agreements. The fair value of the payable to the FDIC for shared-loss agreements 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 September 30, 2021 and December 31, 2020. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected, securities sold under customer repurchase agreements, and accrued interest payable are considered Level 2. The table presents the carrying values and estimated fair values for financial instruments as of September 30, 2021 and December 31, 2020: (Dollars in thousands) September 30, 2021 December 31, 2020 Carrying value Fair value Carrying value Fair value Assets Cash and due from banks $ 337,450 $ 337,450 $ 362,048 $ 362,048 Overnight investments 9,875,063 9,875,063 4,347,336 4,347,336 Investment in marketable equity securities 123,147 123,147 91,680 91,680 Investment securities available for sale 7,371,129 7,371,129 7,014,243 7,014,243 Investment securities held to maturity 3,381,078 3,353,078 2,816,982 2,838,499 Loans held for sale 98,451 98,451 124,837 124,837 Net loans and leases 32,332,995 32,349,172 32,567,661 33,298,166 Income earned not collected 132,911 132,911 145,694 145,694 Federal Home Loan Bank stock 40,450 40,450 45,392 45,392 Mortgage and other servicing rights 22,263 22,624 19,628 20,283 Liabilities Deposits with no stated maturity 47,492,194 47,492,194 40,542,596 40,542,596 Time deposits 2,573,568 2,573,131 2,889,013 2,905,577 Securities sold under customer repurchase agreements 663,575 663,575 641,487 641,487 Federal Home Loan Bank borrowings 645,663 659,625 655,175 677,579 Subordinated debt 497,427 520,871 504,518 525,610 Other borrowings 76,139 76,643 88,470 89,263 FDIC shared-loss payable — — 15,601 15,843 Accrued interest payable 6,560 6,560 9,414 9,414 30 Table of Contents For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of September 30, 2021 and December 31, 2020: September 30, 2021 Fair value measurements using: (Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs Assets measured at fair value Investment securities available for sale Government agency $ 853,728 $ — $ 853,728 $ — Residential mortgage-backed securities 4,801,646 — 4,801,646 — Commercial mortgage-backed securities 1,090,652 — 1,090,652 — Corporate bonds 625,103 — 316,968 308,135 Total investment securities available for sale $ 7,371,129 $ — $ 7,062,994 $ 308,135 Marketable equity securities $ 123,147 $ 52,991 $ 70,156 $ — Loans held for sale $ 98,451 $ — $ 98,451 $ — December 31, 2020 Fair value measurements using: Fair value Level 1 inputs Level 2 inputs Level 3 inputs Assets measured at fair value Investment securities available for sale U.S. Treasury $ 499,933 $ — $ 499,933 $ — Government agency 701,391 — 701,391 — Residential mortgage-backed securities 4,438,103 — 4,438,103 — Commercial mortgage-backed securities 771,537 — 771,537 — Corporate bonds 603,279 — 286,655 316,624 Total investment securities available for sale $ 7,014,243 $ — $ 6,697,619 $ 316,624 Marketable equity securities $ 91,680 $ 32,855 $ 58,825 $ — Loans held for sale $ 124,837 $ — $ 124,837 $ — The following tables summarize activity for Level 3 assets carried at fair value on a recurring basis: Corporate bonds Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 Beginning balance $ 325,448 $ 169,977 $ 316,624 $ 69,685 Purchases 23,878 78,000 30,878 178,595 Unrealized net losses (gains) included in other comprehensive income 436 2,818 3,927 901 Amounts included in net income 2,504 ( 81 ) 2,687 ( 249 ) Transfers in — — — 1,782 Sales / Calls ( 44,131 ) — ( 45,981 ) — Ending balance $ 308,135 $ 250,714 $ 308,135 $ 250,714 During the three months ended September 30, 2021 and 2020, there were no transfers between levels. During the nine months ended September 30, 2021 there were no transfers from Level 2 to Level 3, compared to $ 1.8 million for the same period of 2020. The transfers were due to a lack of observable inputs and trade activity for those securities. The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at September 30, 2021: (Dollars in thousands) September 30, 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 $ 308,135 31 Table of Contents 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 losses of $ 0.6 million and gains of $ 0.6 million for the three months ended September 30, 2021 and 2020, respectively. The changes in fair value included a loss of $ 2.9 million and a gain of $ 4.2 million for nine months ended September 30, 2021 and 2020, respectively. Interest earned on loans held for sale is recorded within interest income on loans and leases in the consolidated statements of income. The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate originated for sale measured at fair value as of September 30, 2021 and December 31, 2020: September 30, 2021 (Dollars in thousands) Fair value Aggregate unpaid principal balance Difference Originated loans held for sale $ 98,451 $ 95,396 $ 3,055 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 September 30, 2021 or December 31, 2020. BancShares may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment. The population of loans measured at fair value on a non-recurring basis is limited to collateral-dependent loans evaluated individually. These collateral-dependent loans are deemed to be at fair value if there is an associated ACL or if a charge-off has been recorded in the previous 12 months. A large majority of collateral for these loans is real property. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 5 % and 10 %, and immaterial adjustments for other external factors that may impact the marketability of the collateral. The weighted average discount for estimated selling costs applied to real estate collateral was 8 %. OREO acquired or written down within the previous 12 months is deemed to be at fair value. Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts generally between 6 % and 15 % applied for estimated selling costs and other external factors that may impact the marketability of the property. At September 30, 2021, the weighted average discount applied was 8 %. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals ordered to ensure the reported values reflect the most current information. For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2021 and December 31, 2020: September 30, 2021 Fair value measurements using: (Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs Collateral-dependent loans $ 12,185 $ — $ — $ 12,185 Other real estate owned 32,391 — — 32,391 Mortgage servicing rights 20,210 — — 20,210 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 September 30, 2021 and December 31, 2020. 32 Table of Contents NOTE L - EMPLOYEE BENEFIT PLANS BancShares sponsors noncontributory defined benefit pension plans for its qualifying employees. The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense. For the three and nine months ended September 30, 2021 and 2020, the components of net periodic benefit cost are as follows: Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 Service cost $ 3,838 $ 3,570 $ 11,514 $ 10,709 Interest cost 7,466 8,549 22,398 25,648 Expected return on assets ( 19,607 ) ( 16,423 ) ( 58,823 ) ( 49,267 ) Amortization of net actuarial loss 6,773 6,332 20,320 18,994 Net periodic (benefit) cost $ ( 1,530 ) $ 2,028 $ ( 4,591 ) $ 6,084 No discretionary contribution was made to the pension plans during the nine months ended September 30, 2021. A discretionary contribution of $ 100.0 million was made to the pension plans during the nine months ended September 30, 2020. The funding policy of the pension plans is to contribute an amount each year to meet all Employee Retirement Income Security Act minimum requirements, including amounts to meet quarterly funding requirements, avoid “at-risk” status and avoid any benefit restrictions. BancShares may also contribute additional voluntary amounts each year (up to the maximum tax-deductible amount) in order to achieve certain target funding levels in the plans, with consideration also given to current and future cash flow and tax positions. No contributions are currently expected for the year ending December 31, 2021. NOTE M - LEASES The following table presents right-of-use lease assets and liabilities as of September 30, 2021 and December 31, 2020: (Dollars in thousands) Classification September 30, 2021 December 31, 2020 Assets: Operating Other assets $ 62,214 $ 68,048 Finance Premises and equipment 4,852 6,478 Total leased assets $ 67,066 $ 74,526 Liabilities: Operating Other liabilities $ 63,025 $ 68,343 Finance Other borrowings 4,720 6,308 Total lease liabilities $ 67,745 $ 74,651 NOTE N - COMMITMENTS AND CONTINGENCIES To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit. Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires collateral be pledged to secure the commitment, including cash deposits, securities and other assets. Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those commitments are primarily issued to support public and private borrowing arrangements. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as in extending loans to clients and, therefore, these letters of credit are collateralized when necessary. The following table presents the commitments to extend credit and standby letters of credit as of September 30, 2021 and December 31, 2020: (Dollars in thousands) September 30, 2021 December 31, 2020 Unused commitments to extend credit $ 12,775,929 $ 12,098,417 Standby letters of credit 116,302 129,819 33 Table of Contents 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 $ 162.3 million and $ 163.9 million as of September 30, 2021 and December 31, 2020, respectively, and were recorded in other assets. Unfunded commitments to fund future investments in affordable housing projects totaled $ 49.8 million and $ 53.7 million as of September 30, 2021 and December 31, 2020, respectively, and were recorded in other liabilities. BancShares and various subsidiaries have been named as defendants in legal actions arising from their normal business activities in which damages in various amounts were claimed. BancShares has also been exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed in the various merger transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares’ consolidated financial statements. 34 Table of Contents