FIRST CITIZENS BANCSHARES INC /DE/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis (“MD&A”) of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and its subsidiaries (“BancShares”). This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this Quarterly Report on Form 10-Q along with our financial statements and related MD&A of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Annual Report”). Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform to statement presentations for 2021, the reclassifications had no effect on shareholders’ equity or net income as previously reported. Unless otherwise noted, the terms “we,” “us” and “BancShares” refer to the consolidated financial position and consolidated results of operations for BancShares. EXECUTIVE OVERVIEW BancShares conducts its banking operations through its wholly-owned subsidiary First-Citizens Bank & Trust Company (“FCB”), a state-chartered bank organized under the laws of the state of North Carolina. BancShares’ earnings and cash flows are primarily derived from our commercial and retail banking activities. We gather deposits from retail and commercial customers and also secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and overnight investments. We also invest in bank premises, hardware, software, furniture and equipment used to conduct our commercial and retail banking business. We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks. The fees and service charges generated from these products and services are primary sources of noninterest income which is an essential component of our total revenue. We are focused on expanding our position in legacy and target markets through organic growth and strategic acquisitions. We believe our franchise is positioned for continued growth as a result of our client centric banking principles, disciplined lending standards, and our people. Refer to our 2020 Annual Report for further discussion of our strategy. RECENT ECONOMIC AND INDUSTRY DEVELOPMENTS During the first quarter of 2020, a novel strain of coronavirus (“COVID-19”) spread throughout the world, causing significant disruptions to the domestic and global economies. In response to the outbreak, governments imposed restrictions resulting in business shutdowns, regional quarantines, disruptions of supply chains, changes in consumer behavior and overall economic instability. Although vaccines for COVID-19 have been made available to the general public in the United States and many places around the world, vaccination rates vary and effectiveness may decrease over time. We cannot predict how widely utilized the vaccines and boosters will be or whether and for how long they will be effective in preventing the spread of COVID-19 (including its variants). Although we cannot predict when or if normal economic activity and business operations will resume, we observed general declines in the level of economic uncertainty and stabilization of macroeconomic forecasts during the first three quarters of 2021. The US experienced an uptick in the number of new cases during the third quarter of 2021. We are unable to predict whether these trends will continue and how this will affect the overall economy at the current time. However, we remain vigilant in our review and monitoring efforts around the duration and severity of the COVID-19 pandemic (including any of its variants) and its effects on the overall economy and our financial results. During the third quarter of 2021, the Federal Reserve’s Federal Open Market Committee (“FOMC”) maintained the federal funds rate at a target range of 0.00% to 0.25%. The FOMC acknowledged the economy’s accelerating recovery from the COVID-19 pandemic, but maintained that the recovery is incomplete and economic risks remain. The FOMC expects to maintain this target range, but rate hikes are expected in late 2022 or early 2023. Further, the committee suggested that they will begin tapering asset purchases, potentially as early as the fourth quarter of 2021 if economic progress continues as expected. In response to the COVID-19 pandemic, the Small Business Administration Paycheck Protection Program (“SBA-PPP”) was established through the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act 2021 to direct aid via loans to small businesses impacted by the COVID-19 pandemic. We completed the first round of SBA-PPP funding in the second half 2020 and the second round of funding during the second quarter of 2021. As of September 30, 2021, there were $1.1 billion SBA-PPP loans outstanding with remaining net deferred fees of $39.4 million. With respect to the first round of SBA-PPP, we began accepting and processing applications for forgiveness during the third quarter of 2020. As of September 30, 2021, we have received approximately 98% of forgiveness decisions from the SBA to date, representing over $3.1 billion in forgiveness payments. 35 Table of Contents With respect to the second round of SBA-PPP, we began accepting and processing applications for forgiveness during the third quarter of 2021. As of September 30, 2021, we have received approximately 14% of forgiveness decisions from the SBA, representing over $175 million in forgiveness payments. Table 1 SBA-PPP LOAN FORGIVENESS STATUS (Dollars in thousands) Round 1 Round 2 Status $ of Loans % of Round Total $ of Loans % of Round Total Total Funded $ 3,199,897 100.0 % $ 1,223,797 100.0 % Payments Received 3,121,746 97.6 175,660 14.4 Total Remaining $ 78,151 2.4 % $ 1,048,137 85.6 % Through September 30, 2021, over 99% of all COVID-19-related loan extensions have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the portfolio, and we have not seen significant declines in overall credit quality. SIGNIFICANT EVENTS IN 2021 On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”). The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”). The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. The Transaction has been approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation (“FDIC”). 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 and both parties are committed to continuing to seek such approval. The parties have responded to all questions issued by the Staff of the Federal Reserve Board, and the Staff has informed us that they do not have further questions at this time. The parties have been informed that the application is presently at the Governor level, but the Board of Governors has not provided a time frame for its decision on the application. Closing is expected to occur as soon as practicable following receipt of such approval and the satisfaction or waiver of other customary closing conditions. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of CIT common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (“CIT Common Stock”), except for certain shares of CIT Common Stock owned by CIT or BancShares, will be converted into the right to receive 0.06200 shares of BancShares Class A common stock, par value $1.00 per share. Holders of CIT Common Stock will receive cash in lieu of fractional shares. In addition, at the Effective Time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, of CIT and 5.625% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share, of CIT issued and outstanding will automatically be converted into the right to receive one share of a newly created series of preferred stock, Series B, of BancShares and one share of a newly created series of preferred stock, Series C, of BancShares, respectively. 36 Table of Contents The Merger Agreement requires that, effective as of the Effective Time, the Boards of Directors of the combined company and the combined bank will consist of 14 directors, (i) 11 of whom will be members of the current Board of Directors of BancShares, and (ii) three of whom will be selected from among the current Board of Directors of CIT and will include as one of those three Ellen R. Alemany, Chairwoman and Chief Executive Officer of CIT. We intend to appoint Michael A. Carpenter and Vice Admiral John R. Ryan, USN (Ret.), as the two other members from CIT’s current Board of Directors who will join the Boards of Directors of the combined company and the combined bank. FINANCIAL PERFORMANCE SUMMARY Third Quarter Highlights • Net income for the third quarter of 2021 was $124.1 million, a decrease of $18.6 million, or 13.0% compared to the same quarter in 2020. Net income available to common shareholders totaled $119.4 million for the third quarter of 2021. Net income per common share decreased $1.86, or 13.3%, to $12.17 in the third quarter of 2021, from $14.03 per share during the comparable quarter in 2020. • Return on average assets for the third quarter of 2021 was 0.88%, down from 1.18% in the third quarter of 2020. Return on average equity for the third quarter of 2021 was 11.29%, down from 14.93% during the comparable quarter of 2020. • Net interest income was $346.9 million for the third quarter of 2021, a decrease of $6.8 million, or 1.9% compared to the same quarter in 2020, but was relatively stable compared to the second quarter of 2021. The taxable-equivalent net interest margin (“NIM”) was 2.61% for the third quarter of 2021, a decrease of 45 basis points from 3.06% for the third quarter in 2020 and a decrease of 7 basis points from 2.68% from the second quarter of 2021. • Provision for credit losses was a benefit of $1.1 million for the third quarter of 2021 compared to an expense of $4.0 million for the same quarter in 2020. The net charge-off ratio was 0.06% for the third quarter of 2021, up from 0.02% for the second quarter of 2021 and 0.03% for the third quarter of 2020. • Noninterest income was $122.9 million for the third quarter of 2021, an increase of $2.4 million, or 2.0%, compared to $120.6 million for the same quarter of 2020. • Noninterest expense was $312.8 million for the third quarter of 2021, an increase of $21.2 million, or by 7.3% compared to the same quarter of 2020. • The allowance for credit losses was $183.2 million at September 30, 2021, compared to $189.1 million at June 30, 2021. The $5.9 million change was due primarily to a reserve release for the three months ended September 30, 2021 driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. • Total loans were $32.5 billion as of September 30, 2021, a decrease of $173.5 million, or by 2.1% on an annualized basis, since June 30, 2021. Excluding loans originated under the SBA-PPP, total loans increased $437.4 million, or by 5.6% on an annualized basis, since June 30, 2021. • Total deposits grew to $50.1 billion, an increase of $1.7 billion, or by 13.6% on an annualized basis, since June 30, 2021. • At September 30, 2021, BancShares remained “well-capitalized” as defined by regulatory standards with a total risk-based capital ratio of 14.3%, a Tier 1 risk-based capital of 12.3%, a common equity Tier 1 ratio of 11.3% and a leverage ratio of 7.7%. 37 Table of Contents Year to Date Highlights • Net income for the nine months ended September 30, 2021 totaled $424.2 million, an increase of $70.5 million, or 19.9% compared to the same period in 2020. Net income available to common shareholders totaled $410.3 million. Earnings per share increased $7.83, or 23.1%, to $41.79 for the nine months ended September 30, 2021, from $33.96 during the comparable period in 2020. • Return on average assets for the nine months ended September 30, 2021 was 1.05%, consistent with the same period in 2020. Return on average equity for the nine months ended September 30, 2021 was 13.50%, up 91 basis points compared to the same period in 2020. • Net interest income for the nine months ended September 30, 2021, was $1.0 billion, an increase of $3.5 million, or 0.3% compared to the same period of 2020. The taxable-equivalent NIM was 2.69% for the nine months ended September 30, 2021, a decrease of 54 basis points from 3.23% during the comparable period of 2020. • Provision for credit losses was a benefit of $31.7 million for the nine months ended September 30, 2021, compared to $52.9 million in expense for the same period in 2020. The net charge-off ratio was 0.04% for the nine months ended September 30, 2021, a 3 basis point decrease compared to the same period of 2020. • Noninterest income was $393.7 million for the nine months ended September 30, 2021, an increase of $43.8 million, or 12.5%, compared to $350.0 million for the same quarter of 2020. • Noninterest expense was $910.3 million for the nine months ended September 30 2021, an increase of $27.0 million or by 3.1% compared to the same quarter of 2020. • The allowance for credit losses was $183.2 million at September 30, 2021, compared to $224.3 million at December 31, 2020. The $41.1 million change was due primarily to a reserve release for the nine months ended September 30, 2021 driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. • Total loans were $32.5 billion, a decrease of $275.8 million since December 31, 2020. Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis, since December 31, 2020. • Total deposits grew to $50.1 billion, an increase of $6.6 billion since December 31, 2020 or by 20.4% on an annualized basis. 38 Table of Contents Table 2 SELECTED QUARTERLY DATA 2021 2020 Nine months ended September 30 Third Second First Fourth Third (Dollars in thousands, except share data) Quarter Quarter Quarter Quarter Quarter 2021 2020 SUMMARY OF OPERATIONS Interest income $ 361,855 $ 361,825 $ 355,323 $ 376,876 $ 374,334 $ 1,079,003 $ 1,107,150 Interest expense 14,968 15,432 15,671 18,160 20,675 46,071 77,697 Net interest income 346,887 346,393 339,652 358,716 353,659 1,032,932 1,029,453 Provision (credit) for credit losses (1,120) (19,603) (10,974) 5,403 4,042 (31,697) 52,949 Net interest income after provision for credit losses 348,007 365,996 350,626 353,313 349,617 1,064,629 976,504 Noninterest income 122,944 134,150 136,649 126,765 120,572 393,743 349,985 Noninterest expense 312,818 301,578 295,926 305,373 291,662 910,322 883,312 Income before income taxes 158,133 198,568 191,349 174,705 178,527 548,050 443,177 Income taxes 34,060 45,780 44,033 36,621 35,843 123,873 89,538 Net income 124,073 152,788 147,316 138,084 142,684 424,177 353,639 Net income available to common shareholders $ 119,437 $ 148,152 $ 142,680 $ 133,448 $ 138,048 $ 410,269 $ 344,213 Net interest income, taxable equivalent $ 347,451 $ 347,035 $ 340,271 $ 359,370 $ 354,256 $ 1,034,758 $ 1,031,395 PER COMMON SHARE DATA Net income $ 12.17 $ 15.09 $ 14.53 $ 13.59 $ 14.03 $ 41.79 $ 33.96 Cash dividends on common shares 0.47 0.47 0.47 0.47 0.40 1.41 1.20 Market price at period end (Class A) 843.17 832.74 835.77 574.27 318.78 843.17 318.78 Book value per share at period-end 432.07 421.39 405.59 396.21 380.43 432.07 380.43 SELECTED QUARTERLY AVERAGE BALANCES Total assets $ 55,922,358 $ 54,399,331 $ 51,409,634 $ 49,557,803 $ 48,262,155 $ 53,926,971 $ 44,834,045 Investment securities 10,707,519 10,534,348 9,757,650 9,889,124 9,930,197 10,336,652 8,774,840 Loans and leases (1) 32,707,591 33,166,049 33,086,656 32,964,390 32,694,996 32,985,376 31,148,683 Interest-earning assets 52,371,165 51,519,684 48,715,279 46,922,823 45,617,376 50,882,100 42,151,861 Deposits 49,107,087 47,751,103 44,858,198 43,123,312 41,905,844 47,254,360 38,612,836 Interest-bearing liabilities 29,662,791 28,909,320 27,898,525 26,401,222 25,591,707 28,830,007 24,388,339 Securities sold under customer repurchase agreements 672,114 677,451 641,236 684,311 710,237 663,713 614,920 Other short-term borrowings — — — — — — 67,522 Long-term borrowings 1,222,452 1,227,755 1,235,576 1,250,682 1,256,331 1,228,546 1,164,475 Common shareholders' equity 4,196,655 4,058,236 3,935,267 3,786,158 3,679,138 4,063,386 3,651,132 Shareholders’ equity $ 4,536,592 $ 4,398,173 $ 4,275,204 $ 4,126,095 $ 4,019,075 $ 4,403,323 $ 3,896,645 Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,836,629 9,816,405 10,137,321 SELECTED QUARTER-END BALANCES Total assets $ 56,901,977 $ 55,175,318 $ 53,908,606 $ 49,957,680 $ 48,666,873 $ 56,901,977 $ 48,666,873 Investment securities 10,875,354 10,894,227 10,222,107 9,922,905 9,860,594 10,875,354 9,860,594 Loans and leases 32,516,189 32,689,652 33,180,851 32,791,975 32,845,144 32,516,189 32,845,144 Deposits 50,065,762 48,410,596 47,330,997 43,431,609 42,250,606 50,065,762 42,250,606 Securities sold under customer repurchase agreements 663,575 692,604 680,705 641,487 693,889 663,575 693,889 Other short-term borrowings — — — — — — — Long-term borrowings 1,219,229 1,224,488 1,230,326 1,248,163 1,252,016 1,219,229 1,252,016 Shareholders’ equity $ 4,581,295 $ 4,476,490 $ 4,321,400 $ 4,229,268 $ 4,074,414 $ 4,581,295 $ 4,074,414 Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 SELECTED RATIOS AND OTHER DATA Return on average assets (annualized) 0.88 % 1.13 % 1.16 % 1.11 % 1.18 % 1.05 % 1.05 % Return on average common shareholders’ equity (annualized) 11.29 14.64 14.70 14.02 14.93 13.50 12.59 Net yield on interest-earning assets (taxable equivalent) 2.61 2.68 2.80 3.02 3.06 2.69 3.23 Net charge-offs to average loans and leases (annualized) 0.06 0.02 0.03 0.06 0.03 0.04 0.07 Allowance for credit losses to total loans and leases (2) : PCD 4.94 4.73 5.30 5.18 5.07 4.94 5.07 Non-PCD 0.51 0.53 0.57 0.62 0.61 0.51 0.61 Total 0.56 0.58 0.63 0.68 0.68 0.56 0.68 Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.63 0.71 0.73 0.74 0.73 0.63 0.73 Total risk-based capital ratio 14.30 14.15 14.14 13.81 13.70 14.30 13.70 Tier 1 risk-based capital ratio 12.32 12.13 12.02 11.63 11.48 12.32 11.48 Common equity Tier 1 ratio 11.34 11.14 11.00 10.61 10.43 11.34 10.43 Tier 1 leverage capital ratio 7.68 7.67 7.84 7.86 7.80 7.68 7.80 Dividend payout ratio 3.86 3.11 3.23 3.46 2.85 3.37 3.53 Average loans and leases to average deposits 66.60 69.46 73.76 76.44 78.02 69.80 80.67 (1) Average loan and lease balances include PCD loans, non-PCD loans and leases, loans held for sale and nonaccrual loans and leases. (2) Loans originated in relation to the SBA-PPP ($1.7 billion as of September 30, 2021) do not have a recorded ACL. As of September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans is 0.53%, while the ratio of ACL to total loans excluding SBA-PPP loans is 0.58%. 39 Table of Contents BUSINESS COMBINATIONS CIT Group Inc. On October 15, 2020, BancShares and CIT, entered into the Merger Agreement by and among BancShares, FCB, the Merger Sub, and CIT, the parent company of CIT Bank. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub and CIT will ultimately merge with and into FCB, with FCB as the surviving entity. The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank. The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. The transaction has been approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the FDIC. 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 and both parties are committed to continuing to seek such approval. The parties have responded to all questions issued by the Staff of the Federal Reserve Board, and the Staff has informed us that they do not have further questions at this time. The parties have been informed that the application is presently at the Governor level, but the Board of Governors has not provided a time frame for its decision on the application. Closing is expected to occur as soon as practicable following receipt of such approval and the satisfaction or waiver of other customary closing conditions. Federal Deposit Insurance Corporation Assisted Transactions BancShares completed fourteen FDIC-assisted transactions between 2009 and 2017. Nine of the fourteen FDIC-assisted transactions included shared-loss agreements which, for their terms, protected us from a substantial portion of the credit and asset quality risk we would otherwise have incurred. For certain FDIC-assisted transactions, the shared-loss agreement included a provision related to a payment owed to the FDIC at the termination of the agreement. As of September 30, 2021, these agreements have been satisfied following a $16.1 million payment made to the FDIC for the final active agreement during the first quarter of 2021. 40 Table of Contents Table 3 CONSOLIDATED QUARTER-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS Three months ended September 30 2021 2020 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Assets Loans and leases $ 32,707,591 $ 319,738 3.85 % $ 32,694,996 $ 336,934 4.06 % Investment securities: U.S. Treasury — — — 695,419 497 0.28 Government agency 824,499 2,076 1.01 587,377 1,335 0.91 Mortgage-backed securities 9,164,180 29,056 1.27 8,047,247 28,236 1.40 Corporate bonds 597,386 7,610 5.10 489,602 6,433 5.26 Other investments 121,454 544 1.78 110,552 739 2.66 Total investment securities 10,707,519 39,286 1.47 9,930,197 37,240 1.50 Overnight investments 8,956,055 3,395 0.15 2,992,183 757 0.10 Total interest-earning assets 52,371,165 362,419 2.73 45,617,376 374,931 3.24 Cash and due from banks 364,593 349,079 Premises and equipment 1,239,111 1,261,864 Allowance for credit losses (189,885) (222,793) Other real estate owned 40,786 52,716 Other assets 2,096,588 1,203,913 Total assets $ 55,922,358 $ 48,262,155 Liabilities Interest-bearing deposits: Checking with interest $ 11,323,503 $ 1,350 0.05 % $ 9,239,838 $ 1,369 0.06 % Savings 3,979,389 342 0.03 3,070,619 314 0.04 Money market accounts 9,866,327 2,357 0.09 8,108,832 3,634 0.18 Time deposits 2,599,006 4,024 0.61 3,205,850 8,151 1.01 Total interest-bearing deposits 27,768,225 8,073 0.12 23,625,139 13,468 0.23 Securities sold under customer repurchase agreements 672,114 358 0.21 710,237 395 0.22 Other short-term borrowings — — — — — — Long-term borrowings 1,222,452 6,537 2.09 1,256,331 6,812 2.15 Total interest-bearing liabilities 29,662,791 14,968 0.20 25,591,707 20,675 0.32 Noninterest-bearing deposits 21,338,862 18,280,705 Other liabilities 384,113 370,668 Shareholders’ equity 4,536,592 4,019,075 Total liabilities and shareholders’ equity $ 55,922,358 $ 48,262,155 Interest rate spread 2.53 % 2.92 % Net interest income and net yield on interest-earning assets $ 347,451 2.61 % $ 354,256 3.06 % Loans and leases include PCD loans, non-PCD loans, nonaccrual loans and loans held for sale. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 21.0%, as well as a blended state income tax rate of 3.3% and 3.4%, for the three months ended September 30, 2021 and 2020, respectively. The taxable-equivalent adjustment was $564 thousand and $597 thousand for the three months ended September 30, 2021 and 2020, respectively. 41 Table of Contents Table 4 CONSOLIDATED YEAR-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS Nine months ended September 30 2021 2020 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Assets Loans and leases $ 32,985,376 $ 968,231 3.89 % $ 31,148,683 $ 989,708 4.20 % Investment securities: U.S. Treasury 126,363 172 0.18 401,666 2,853 0.95 Government agency 818,591 5,942 0.97 655,097 6,883 1.40 Mortgage-backed securities 8,676,573 74,936 1.15 7,224,224 87,475 1.61 Corporate bonds 604,241 23,158 5.11 332,029 12,692 5.10 Other investments 110,884 1,442 1.74 161,824 3,653 3.02 Total investment securities 10,336,652 105,650 1.36 8,774,840 113,556 1.73 Overnight investments 7,560,072 6,948 0.12 2,228,338 5,828 0.35 Total interest-earning assets 50,882,100 1,080,829 2.81 42,151,861 1,109,092 3.48 Cash and due from banks 354,104 351,334 Premises and equipment 1,244,405 1,258,147 Allowance for credit losses (208,477) (206,737) Other real estate owned 45,122 53,871 Other assets 1,609,717 1,225,569 Total assets $ 53,926,971 $ 44,834,045 Liabilities Interest-bearing deposits: Checking with interest $ 11,009,608 $ 4,263 0.05 % $ 8,665,758 $ 4,380 0.07 % Savings 3,747,847 966 0.03 2,837,867 911 0.04 Money market accounts 9,488,641 7,500 0.11 7,583,359 19,262 0.34 Time deposits 2,691,652 12,679 0.63 3,454,438 31,025 1.20 Total interest-bearing deposits 26,937,748 25,408 0.13 22,541,422 55,578 0.33 Securities sold under customer repurchase agreements 663,713 1,052 0.21 614,920 1,236 0.27 Other short-term borrowings — — — 67,522 1,052 2.05 Long-term borrowings 1,228,546 19,611 2.10 1,164,475 19,831 2.24 Total interest-bearing liabilities 28,830,007 46,071 0.21 24,388,339 77,697 0.42 Noninterest-bearing deposits 20,316,612 16,071,414 Other liabilities 377,029 477,647 Shareholders’ equity 4,403,323 3,896,645 Total liabilities and shareholders’ equity $ 53,926,971 $ 44,834,045 Interest rate spread 2.60 % 3.06 % Net interest income and net yield on interest-earning assets $ 1,034,758 2.69 % $ 1,031,395 3.23 % Loans and leases include PCD loans, non-PCD loans, nonaccrual loans and loans held for sale. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 21.0%, as well as a blended state income tax rate of 3.3% and 3.4%, for the nine months ended September 30, 2021 and 2020, respectively. The taxable-equivalent adjustment was $1.8 million and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively. 42 Table of Contents Table 5 CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME Three months ended September 30, 2021 Nine months ended September 30, 2021 Change from prior year period due to: Change from prior year period due to: (Dollars in thousands) Volume (1) Yield/Rate (1) Total Change Volume (1) Yield/Rate (1) Total Change Assets Loans and leases $ (4) $ (17,192) $ (17,196) $ 50,823 $ (72,300) $ (21,477) Investment securities: U.S. Treasury (497) — (497) (1,956) (725) (2,681) Government agency 539 202 741 1,718 (2,659) (941) Mortgage-backed securities 3,787 (2,967) 820 17,444 (29,983) (12,539) Corporate bonds 1,416 (239) 1,177 10,406 60 10,466 Other investments 75 (270) (195) (1,180) (1,031) (2,211) Total investment securities 5,320 (3,274) 2,046 26,432 (34,338) (7,906) Overnight investments 1,516 1,122 2,638 13,953 (12,833) 1,120 Total interest-earning assets $ 6,832 $ (19,344) $ (12,512) $ 91,208 $ (119,471) $ (28,263) Liabilities Interest-bearing deposits: Checking with interest $ 313 $ (332) $ (19) $ 1,195 $ (1,312) $ (117) Savings 94 (66) 28 294 (239) 55 Money market accounts 800 (2,077) (1,277) 4,845 (16,607) (11,762) Time deposits 1,525 (5,652) (4,127) (6,827) (11,519) (18,346) Total interest-bearing deposits 2,732 (8,127) (5,395) (493) (29,677) (30,170) Securities sold under customer repurchase agreements 12 (49) (37) 101 (285) (184) Other short-term borrowings (248) 248 — (1,052) — (1,052) Long-term borrowings (271) (4) (275) 2,169 (2,389) (220) Total interest-bearing liabilities 2,225 (7,932) (5,707) 725 (32,351) (31,626) Change in net interest income $ 4,607 $ (11,412) $ (6,805) $ 90,483 $ (87,120) $ 3,363 (1) The rate/volume variance is allocated proportionally between the changes in volume and rate. RESULTS OF OPERATIONS Net Interest Income and Margin (Taxable-Equivalent Basis) Third Quarter 2021 compared to Third Quarter 2020 Taxable-equivalent net interest income totaled $347.5 million for the third quarter of 2021, a decrease of $6.8 million, or 1.9%, compared to the third quarter of 2020. The decline in net interest income was driven primarily by a decline in the yield on interest-earning assets due to the sustained low rate environment and a reduction in interest and fee income on SBA-PPP loans. These declines were partially offset by organic loan growth, higher average investment balances as we have deployed some of the excess liquidity on our balance sheet, and a decline in the rate paid on interest bearing deposits. SBA-PPP loans contributed $20.0 million in interest and fee income for the third quarter of 2021 compared to $28.9 million for the same quarter in 2020. While SBA-PPP loans continue to support overall net interest income, the contribution from these loans continues to decline as forgiveness activity continues. Net interest income increased $0.5 million compared to the linked quarter despite a decline in SBA-PPP income and continued low interest rates. Higher investment and overnight yields and balances, organic loan growth and slightly lower deposit costs more than offset rate pressure on loans and a decline in SBA-PPP income. SBA-PPP loans contributed $27.2 million in interest and fee income for the second quarter of 2021. The taxable-equivalent NIM was 2.61% in the third quarter of 2021, a decrease of 45 basis points from the comparable quarter of 2020. The margin decline was primarily due to changes in earning asset mix driven by excess liquidity and higher balances in overnight investments as well as declines in loan yields. These declines were partially offset by lower rates paid on interest-bearing deposits and increased yield on SBA-PPP loans. As with prior quarters, we continue to operate with liquidity above normal operating ranges which puts downward pressure on net interest margin. The level of organic loan growth has helped to somewhat protect taxable equivalent NIM from the impacts of the low interest rate environment. We have also opportunistically deployed incremental liquidity of $1 billion into the investment portfolio since the third quarter of 2020. The taxable-equivalent NIM declined 7 basis points from 2.68% for the linked quarter primarily due to changes in earning asset mix as our overnight investments continued to grow, partially offset by higher investment yields. 43 Table of Contents Nine Months of 2021 compared to Nine Months of 2020 The taxable-equivalent net interest income for the nine months ended September 30, 2021 was $1.0 billion, an increase of $3.4 million, or 0.3%, compared to the same period in 2020. This increase was primarily due to organic loan growth, an increase in interest and fee income on SBA-PPP loans, and lower rates paid on interest-bearing deposits. These increases were largely offset by a decline in the yield on interest-earning assets. SBA-PPP loans contributed $78.1 million in interest and fee income for the nine months ended September 30, 2021, compared to $47.9 million for the same period in 2020. The taxable-equivalent NIM was 2.69% for the nine months ended September 30, 2021, a decrease of 54 basis points from the comparable period of 2020. The margin decline was primarily due to changes in earning asset mix and a decline in the yield on interest-earning assets, partially offset by lower rates paid on interest-bearing deposits and increased income on SBA-PPP loans. Provision for Credit Losses Provision for credit losses was a benefit of $1.1 million for the third quarter of 2021, compared to an expense of $4.0 million for the comparable quarter in 2020. The third quarter of 2021 was favorably impacted by a $5.9 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors. The comparable quarter in 2020 included a $1.5 million reserve build due to continued uncertainties surrounding the COVID-19 pandemic and net loan growth. Total net charge-offs for the third quarter of 2021 were $4.8 million, an increase from $2.6 million for the comparable quarter in 2020 due to a higher volume of charge-offs and lower recoveries. The net charge-off ratio was 0.06% for the third quarter of 2021 compared to 0.03% for the same quarter in 2020. The impact of SBA-PPP loans on average loan balances did not affect the net charge-off ratio in either three-month period. For the nine months ended September 30, 2021, provision for credit losses was a benefit of $31.7 million compared to $52.9 million in expense for the first nine months of 2020. Provision for credit losses for the nine months ended September 30, 2021 was favorably impacted by a $41.1 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors. The comparable period in 2020 included $36.1 million reserve build related to uncertainties surrounding the COVID-19 pandemic. Net charge-offs for the nine months ended September 30, 2021 were $9.4 million, a decrease from $17.4 million for the comparable period in 2020 due to a lower volume of charge-offs and stable recoveries. The net charge-off ratio was 0.04% for the nine months ended September 30, 2021 compared to 0.07% for the same period in 2020. The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020. Noninterest Income Table 6 NONINTEREST INCOME Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 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 income is an essential component of our total revenue and is critical to our profitability level. The primary sources of noninterest income consist of wealth management services, fees and service charges generated from deposit accounts, cardholder and merchant services, and mortgage lending and servicing. 44 Table of Contents Noninterest income for the third quarter of 2021 was $122.9 million, compared to $120.6 million for the same period of 2020, an increase of $2.4 million, or 2.0%. The most significant components of the change were as follows: • A $6.1 million favorable change in the fair market value adjustments on marketable equity securities. • Wealth management services increased by $5.6 million, primarily due to growth in assets under management driving higher advisory and transaction fees. • Service charges on deposit accounts increased by $4.0 million due to volume. • Cardholder services income, net increased by $3.1 million and merchant services, net increased by $1.6 million, primarily due to an increase in transaction volume. • Realized gains on investment securities available for sale, net declined by $13.3 million. • Mortgage income decreased by $7.0 million, driven by reductions in gain on sale margins and lower production volume in 2021 due to higher mortgage rates and increased competition. Noninterest income was $393.7 million for the first nine months of 2021, compared to $350.0 million for the same period of 2020, an increase of $43.8 million, or 12.5%. The most significant components of the change were as follows: • Wealth management services increased by $20.7 million, primarily due to growth in assets under management driving higher advisory and transaction fees. • A $20.6 million favorable change in the fair market value adjustments on marketable equity securities. • Cardholder services income, net increased by $9.8 million and merchant services, net increased by $7.8 million, primarily due to an increase in transaction volume. • Realized gains on investment securities available for sale declined by $21.9 million. Noninterest Expense Table 7 NONINTEREST EXPENSE Three months ended September 30 Nine months ended September 30 (Dollars in thousands) 2021 2020 2021 2020 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 Telecommunications expense 3,111 3,197 9,331 8,985 Consultant expense 3,338 2,936 8,176 9,223 Advertising expense 3,024 2,396 7,210 7,045 Core deposit intangible amortization 2,638 3,468 8,523 10,999 Other 21,172 23,391 58,505 72,004 Total noninterest expense $ 312,818 $ 291,662 $ 910,322 $ 883,312 The primary components of noninterest expense are salaries and related employee benefits, occupancy and equipment expense. Noninterest expense was $312.8 million during the third quarter of 2021, an increase of $21.2 million, or 7.3%, compared to the same quarter in 2020. The most significant components of the change were as follows: • Salaries and wages increased $13.7 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs. • Processing fees paid to third parties increased $3.7 million driven by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes. • Merger-related expenses increased $3.5 million in anticipation of the upcoming merger with CIT. 45 Table of Contents Noninterest expense was $910.3 million for the first nine months of 2021, compared to $883.3 million for the same period in 2020, an increase of $27.0 million, or 3.1%. The most significant components of the change were as follows: • Salaries and wages increased $23.2 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs. • Processing fees paid to third parties increased $11.2 million by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes. • Merger-related expenses increased $7.5 million in anticipation of the upcoming merger with CIT. • Other expenses decreased $16.5 million primarily due to a decrease in pension expense as a result of higher returns on plan assets, coupled with a reduction in the reserve for unfunded commitments. • Collection and foreclosure-related expenses declined $7.0 million. Income Taxes Income tax expense was $34.1 million and $35.8 million for the third quarter of 2021 and 2020, respectively, representing effective tax rates of 21.5% and 20.1% during the respective periods. Income tax expense totaled $123.9 million and $89.5 million for the first nine months of 2021 and 2020, respectively, representing effective tax rates of 22.6% and 20.2% for the respective nine month periods. The effective tax rates during 2020 were favorably impacted by BancShares’ decision to utilize an allowable alternative for computing its federal income tax liability. The allowable alternative provided BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax. Without this alternative, the effective tax rate is materially unchanged for the third quarter and first nine months of 2021 and the effective tax rate for the third quarter and first nine months of 2020 would have been approximately 22.0% and 22.6% respectively. We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns as well as potential or pending audits or assessments by tax auditors. INTEREST-EARNING ASSETS Interest-earning assets include overnight investments, investment securities and loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Riskier investments typically carry a higher interest rate but expose us to higher levels of market risk. We strive to maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum. Interest-earning assets totaled $53.4 billion and $47.2 billion at September 30, 2021 and December 31, 2020, respectively. The $6.2 billion increase was primarily composed of a $5.5 billion increase in overnight investments and a $952.4 million increase in investment securities, partially offset by a $275.8 million decrease in loans. Investment Securities The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities with minimal liquidity and credit risk, and low to moderate interest rate risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares’ objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made largely under a long-term earnings optimization strategy. Changes in the total balance of our investment portfolio result from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio and into overnight investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand. See Note C - Investments to our consolidated financial statements for additional disclosures. The carrying value of investment securities totaled $10.9 billion at September 30, 2021, an increase of $952.4 million compared to December 31, 2020 attributable to our continued growth in deposits. During the period we had $5.0 billion in investment security purchases, partially offset by sales of $1.4 billion and maturities and paydowns of $2.6 billion. 46 Table of Contents Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of accumulated other comprehensive income, net of deferred taxes. As of September 30, 2021, investment securities available for sale had a net pre-tax unrealized gain of $26.0 million, compared to a net pre-tax unrealized gain of $102.3 million as of December 31, 2020. Management evaluated the available for sale securities in an unrealized loss position and concluded that the unrealized losses relate to changes in interest rates relative to when the securities were purchased, and therefore, no allowance for credit losses was recorded at September 30, 2021 or December 31, 2020. BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no allowance for credit losses was needed at September 30, 2021 and December 31, 2020. Table 8 INVESTMENT SECURITIES September 30, 2021 December 31, 2020 (Dollars in thousands) Composition (1) Amortized cost Fair value Composition (1) Amortized cost Fair value Investment securities available for sale U.S. Treasury — % $ — $ — 5.0 % $ 499,832 $ 499,933 Government agency 7.9 851,860 853,728 7.0 706,241 701,391 Residential mortgage-backed securities 44.3 4,800,194 4,801,646 44.5 4,369,130 4,438,103 Commercial mortgage-backed securities 10.0 1,092,183 1,090,652 7.9 745,892 771,537 Corporate bonds 5.8 600,906 625,103 6.1 590,870 603,279 Total investment securities available for sale 68.0 7,345,143 7,371,129 70.5 6,911,965 7,014,243 Investment in marketable equity securities 1.1 85,554 123,147 0.9 84,837 91,680 Investment securities held to maturity Residential mortgage-backed securities 19.4 2,122,299 2,112,561 19.1 1,877,692 1,895,381 Commercial mortgage-backed securities 11.4 1,256,771 1,238,509 9.4 937,034 940,862 Other 0.1 2,008 2,008 0.1 2,256 2,256 Total investment securities held to maturity 30.9 3,381,078 3,353,078 28.6 2,816,982 2,838,499 Total investment securities 100.0 % $ 10,811,775 $ 10,847,354 100.0 % $ 9,813,784 $ 9,944,422 (1) Calculated as a percent of the total fair value of investment securities. 47 Table of Contents Table 9 presents the weighted average taxable-equivalent yields for investment securities available for sale and held to maturity at September 30, 2021 segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level yields. Table 9 WEIGHTED AVERAGE YIELD ON INVESTMENT SECURITIES September 30, 2021 Within One Year One to Five Years Five to 10 Years After 10 Years Total Investment securities available for sale Government agency — % 2.15 % 1.08 % 1.07 % 1.07 % Residential mortgage-backed securities (1) — — 1.80 1.26 1.27 Commercial mortgage-backed securities (1) — — 3.19 2.04 2.09 Corporate bonds 4.05 5.87 5.21 4.76 5.24 Total investment securities available for sale 4.05 % 5.70 % 3.71 % 1.38 % 1.71 % Investment securities held to maturity Residential mortgage-backed securities (1) — % — % — % 1.17 % 1.17 % Commercial mortgage-backed securities (1) — — — 1.46 1.46 Other investments 0.81 1.17 — — 0.94 Total investment securities held to maturity 0.81 % 1.17 % — % 1.28 % 1.28 % (1) Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans. Loans and Leases Loans held for sale were $98.5 million at September 30, 2021, a net decrease of $26.4 million since December 31, 2020. At September 30, 2021, loans totaled $32.5 billion, a decrease of $275.8 million, or by 1.1% on an annualized basis since December 31, 2020. Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis since December 31, 2020. BancShares reports non-PCD and PCD loan portfolios separately, and the non-PCD portfolio is further divided into commercial and consumer segments. Non-PCD loans and leases were $32.1 billion at September 30, 2021 and $32.3 billion at December 31, 2020, representing 98.9% and 98.6% of total loans, respectively. PCD loans at September 30, 2021 were $373.3 million, compared to $462.9 million at December 31, 2020, representing 1.1% and 1.4% of total loans, respectively. The discount related to acquired non-PCD loans and leases was $13.4 million and $19.5 million at September 30, 2021 and December 31, 2020, respectively. The discount related to PCD loans was $32.6 million and $45.3 million at September 30, 2021 and December 31, 2020, respectively. During the three months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $1.2 million and $2.8 million, respectively, while interest and accretion income on PCD loans was $10.8 million and $15.0 million, respectively. During the nine months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $6.1 million and $7.8 million, respectively, while interest and accretion income on PCD loans was $34.5 million and $48.0 million, respectively 48 Table of Contents Table 10 LOANS AND LEASES (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 Total non-PCD loans and leases 32,142,934 32,329,093 PCD loans 373,255 462,882 Total loans and leases 32,516,189 32,791,975 Less allowance for credit losses (183,194) (224,314) Net loans and leases $ 32,332,995 $ 32,567,661 ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses (“ACL”) was $183.2 million at September 30, 2021, representing a decrease of $41.1 million since December 31, 2020. The ACL as a percentage of total loans and leases was 0.56% at September 30, 2021, compared to 0.68% at December 31, 2020. The ACL as a percentage of loans and leases excluding SBA-PPP loans, which have no recorded ACL, was 0.58% at September 30, 2021, compared to 0.74% at December 31, 2020. The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended 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, we use a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the 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 our strong credit quality and low net charge-offs. As of September 30, 2021, the consensus baseline forecast utilized the following significant inputs over the two-year reasonable and supportable forecast period: Unemployment - Rates are expected to improve to below 4% through the end of 2022 and stabilizing into early 2023. GDP Growth - Peak growth of just under 7% in the fourth quarter of 2021, decreasing to below 3% in 2022 and thereafter. Home Pricing Index - Growth rates of over 7% declining to below 4% over the forecast period. Commercial Real Estate Index - Small forecasted downturn through the first half of 2022 and then improving to over 6% into 2023. At September 30, 2021, the ACL allocated to non-PCD loans and leases was $164.8 million, or 0.51% of non-PCD loans and leases, compared to $200.3 million, or 0.62%, at December 31, 2020. The decrease of 11 basis points since December 31, 2020 was primarily due to continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. The ACL as a percentage of non-PCD loans and leases excluding SBA-PPP loans was 0.53% at September 30, 2021 compared to 0.67% at December 31, 2020. 49 Table of Contents At September 30, 2021, the ACL for PCD loans totaled $18.4 million compared to $24.0 million at December 31, 2020. The decrease was due to paydowns and the decline in the portfolio coupled with the impact of improved macroeconomic factors. In the period ended September 30, 2021, the ACL on our commercial portfolio decreased $8.2 million, with the largest share of the decrease within commercial real estate. The ACL on the consumer portfolio decreased $27.4 million, with decreases across all portfolios with the largest change in residential mortgages. These portfolios were largely impacted by the improvement in macroeconomic factors. Net charge-offs for loans and leases were $4.8 million during the third quarter of 2021, compared to $2.6 million during the third quarter of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.06% and 0.03% for the third quarter of 2021 and 2020, respectively. The impact of SBA-PPP loans on average loans balances did not affect the net charge-off ratio in either period. Net charge-offs for loans and leases were $9.4 million during the nine months ended September 30, 2021, compared to $17.4 million during the same period of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.04% and 0.07% for the nine months ended September 30, 2021 and 2020, respectively. The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020. 50 Table of Contents Table 11 ALLOWANCE FOR CREDIT LOSSES 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 Percent of loans in each category to total loans 68.4 % 30.5 % 1.2 % 100.0 % Annualized net charge-off ratio 0.08 % 0.08 % (0.55) % 0.06 % Net charge-offs $ 4,373 $ 1,977 $ (1,570) $ 4,780 Average loans 22,331,889 9,891,071 384,673 32,607,633 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 Percent of loans in each category to total loans 68.9 % 29.6 % 1.5 % 100.0 % Annualized net charge-off ratio 0.02 % 0.10 % (0.21) % 0.03 % Net charge-offs $ 990 $ 2,390 $ (824) $ 2,556 Average loans 22,361,650 9,703,434 512,559 32,577,643 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) Initial allowance on PCD loans — — — — 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 Percent of loans in each category to total loans 68.4 % 30.5 % 1.2 % 100.0 % Annualized net charge-off ratio 0.05 % 0.06 % (1.05) % 0.04 % Net charge-offs $ 8,490 $ 4,205 $ (3,272) $ 9,423 Average loans 22,680,602 9,773,946 417,536 32,872,084 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 Percent of loans in each category to total loans 68.9 % 29.6 % 1.5 % 100.0 % Annualized net charge-off ratio 0.05 % 0.16 % (0.60) % 0.07 % Net charge-offs $ 7,689 $ 12,102 $ (2,368) $ 17,423 Average loans 20,687,348 9,838,064 529,819 31,055,231 The reserve for unfunded loan commitments was $11.5 million and $12.8 million at September 30, 2021 and December 31, 2020, respectively. 51 Table of Contents Table 12 ALLOWANCE FOR CREDIT LOSSES RATIOS (Dollars in thousands) September 30, 2021 December 31, 2020 Allowance for credit losses to total loans and leases (1) : 0.56 % 0.68 % Allowance for credit losses $ 183,194 $ 224,314 Total loans and leases 32,516,189 32,791,975 Allowance for credit losses to non-PCD loans and leases (1) : 0.51 % 0.62 % Allowance for credit losses on non-PCD loans and leases $ 164,756 $ 200,327 Total non-PCD loans and leases 32,142,934 32,329,093 Allowance for credit losses to PCD loans: 4.94 % 5.18 % Allowance for credit losses on PCD loans $ 18,438 $ 23,987 Total PCD loans 373,255 462,882 (1) Loans originated in relation to the SBA-PPP ($1.1 billion as of September 30, 2021 and $2.4 billion as of December 31, 2020) do not have a recorded ACL. As of September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.53% while the ratio of ACL to total loans excluding SBA-PPP loans was 0.58%. As of December 31, 2020, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.67% while the ratio of ACL to total loans excluding SBA-PPP loans is 0.74%. NONPERFORMING ASSETS Nonperforming assets include nonaccrual loans and leases and other real estate owned (“OREO”). At September 30, 2021, BancShares’ nonperforming assets totaled $204.4 million, a decrease of $37.9 million since December 31, 2020. Nonaccrual loans and leases at September 30, 2021 were $163.8 million, reflecting a decrease of $27.7 million since December 31, 2020. Nonaccrual loans and leases as a percentage of total loans and leases was 0.50% and 0.58% at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, OREO totaled $40.6 million, representing a decrease of $10.2 million since December 31, 2020. Nonperforming assets as a percentage of total loans, leases and OREO was 0.63% as of September 30, 2021 compared to 0.74% as of December 31, 2020. Table 13 NONPERFORMING ASSETS 2021 2020 Third Second First Fourth Third (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Nonaccrual loans and leases: Non-PCD $ 118,737 $ 136,530 $ 141,369 $ 136,544 $ 130,927 PCD 45,038 50,934 53,165 54,939 55,527 Total nonaccrual loans and leases 163,775 187,464 194,534 191,483 186,454 Other real estate owned 40,649 43,685 48,512 50,890 52,789 Total nonperforming assets $ 204,424 $ 231,149 $ 243,046 $ 242,373 $ 239,243 Accruing loans and leases 90 days or more past due Non-PCD $ 3,827 $ 3,413 $ 5,945 $ 5,507 $ 3,587 PCD 1,787 363 1,432 355 — Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.63 % 0.71 % 0.73 % 0.74 % 0.73 % Ratio of nonaccrual loans and leases to total loans and leases 0.50 0.57 0.59 0.58 0.57 Ratio of allowance for credit losses to nonaccrual loans and leases 111.9 100.9 108.3 117.1 120.1 TROUBLED DEBT RESTRUCTURINGS We selectively agree to modify existing loan terms to provide relief to customers who are experiencing financial difficulties or other circumstances that could affect their ability to meet debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Troubled debt restructurings (“TDRs”) not accruing interest at the time of restructure are included as nonperforming loans. TDRs accruing at the time of restructure and continuing to perform based on the restructured terms are considered performing loans. 52 Table of Contents Table 14 TROUBLED DEBT RESTRUCTURINGS (Dollars in thousands) September 30, 2021 December 31, 2020 Accruing TDRs: Non-PCD $ 122,810 $ 139,747 PCD 29,207 17,617 Total accruing TDRs 152,017 157,364 Nonaccruing TDRs: Non-PCD 48,593 43,470 PCD 12,365 7,346 Total nonaccruing TDRs 60,958 50,816 All TDRs: Non-PCD 171,403 183,217 PCD 41,572 24,963 Total TDRs $ 212,975 $ 208,180 INTEREST-BEARING LIABILITIES Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, subordinated debt, and other borrowings. Interest-bearing liabilities totaled $30.4 billion at September 30, 2021, compared to $27.3 billion at December 31, 2020. The increase was mostly due to an increase of $3.1 billion in interest-bearing deposits. Deposits We strive to maintain a strong liquidity position, and therefore a focus on core deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers, as evidenced by the significant deposit growth the industry has experienced over the past 18 months. As economic conditions improve, we recognize that our liquidity position could be adversely affected as bank deposits are withdrawn. Our ability to fund future loan growth is significantly dependent on our success at retaining existing deposits and generating new deposits at a reasonable cost. At September 30, 2021, total deposits were $50.1 billion, an increase of $6.6 billion, representing annualized growth of 20.4% since December 31, 2020, driven by organic growth. Table 15 DEPOSITS (Dollars in thousands) September 30, 2021 December 31, 2020 Demand $ 21,514,407 $ 18,014,029 Checking with interest 11,768,943 10,591,687 Money market 10,145,752 8,632,713 Savings 4,063,092 3,304,167 Time 2,573,568 2,889,013 Total deposits $ 50,065,762 $ 43,431,609 53 Table of Contents Borrowings Total borrowings were relatively unchanged, totaling $1.9 billion at September 30, 2021 and December 31, 2020. Table 16 BORROWINGS (Dollars in thousands) September 30, 2021 December 31, 2020 Securities sold under customer repurchase agreements $ 663,575 $ 641,487 Federal Home Loan Bank borrowings 645,663 655,175 Subordinated debt SCB Capital Trust I 9,808 9,779 FCB/SC Capital Trust II 17,764 17,664 FCB/NC Capital Trust III 88,145 88,145 Macon Capital Trust I 14,433 14,433 3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030 347,163 346,541 Other subordinated debt 20,114 27,956 Total subordinated debt 497,427 504,518 Other borrowings 76,139 88,470 Total borrowings $ 1,882,804 $ 1,889,650 BancShares owns four special purpose entities – SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III and Macon Capital Trust I (the “Trusts”), which mature in 2034, 2034, 2036, and 2034, respectively. Subordinated debt included junior subordinated debentures representing obligations to the Trusts, which may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of the Trusts. SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY The table below shows Class A common stock repurchase activity for the three and nine months ended September 30, 2021 and 2020. All Class A common stock repurchases completed in 2020 were consummated under previously approved authorizations. There were no repurchases of Class B common stock or the preferred stock during the three and nine months ended September 30, 2021 or 2020. Table 17 CLASS A COMMON STOCK REPURCHASE ACTIVITY Three months ended September 30 Nine months ended September 30 (Dollars in thousands, expect per share data) 2021 2020 2021 2020 Number of shares repurchased — 117,700 — 813,090 Total cost $ — $ 47,060 $ — $ 333,756 Average price per share $ — $ 399.82 $ — $ 410.48 Upon expiration of the most recent authorization on July 31, 2020, share repurchase activity ended and will be reevaluated in subsequent periods. We are committed to effectively managing our capital to protect our depositors, creditors and shareholders. We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements. In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within shareholders’ equity. These amounts are excluded from shareholders’ equity in the calculation of our capital ratios under current regulatory guidelines. 54 Table of Contents Table 18 ANALYSIS OF CAPITAL ADEQUACY Requirements to be well-capitalized September 30, 2021 December 31, 2020 (Dollars in thousands) Amount Ratio Amount Ratio BancShares Risk-based capital ratios Total risk-based capital 10.00 % $ 4,944,822 14.30 % $ 4,577,212 13.81 % Tier 1 risk-based capital 8.00 4,260,729 12.32 3,856,086 11.63 Common equity Tier 1 6.50 3,920,792 11.34 3,516,149 10.61 Tier 1 leverage ratio 5.00 4,260,729 7.68 3,856,086 7.86 FCB Risk-based capital ratios Total risk-based capital 10.00 % $ 4,811,214 13.93 % $ 4,543,496 13.72 % Tier 1 risk-based capital 8.00 4,581,621 13.26 4,276,870 12.92 Common equity Tier 1 6.50 4,581,621 13.26 4,276,870 12.92 Tier 1 leverage ratio 5.00 4,581,621 8.27 4,276,870 8.72 As of September 30, 2021, BancShares and FCB continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines. Trust preferred capital securities continue to be a component of total risk-based capital. BancShares and FCB had capital conservation buffers of 6.30% and 5.93%, respectively, at September 30, 2021, and resulted in no limit on distributions. RISK MANAGEMENT Risk is inherent in any business. BancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy that does not preclude higher risk business activities balanced with acceptable returns while meeting regulatory objectives. Through the comprehensive Enterprise Risk Management Framework and Risk Appetite Framework, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares activities may be exposed, with effective challenge and oversight by management committees. In addition, the Board of Directors strives to ensure that the business culture is integrated with the enterprise risk management program and that policies, procedures and metrics for identifying, assessing, measuring, monitoring and managing risk are part of the decision-making process. The Board of Directors’ role in risk oversight is an integral part of our overall Enterprise Risk Management Framework and Risk Appetite Framework. The Board of Directors administers its risk oversight function primarily through the Board Risk Committee. The Board Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The Board Risk Committee is directed to monitor and advise the Board of Directors regarding risk exposures, including credit, market, capital, liquidity, operational, compliance, strategic and reputational risks; review, approve, and monitor adherence to the risk appetite and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework. The Board Risk Committee also reviews: reports of examination by and communications from regulatory agencies; the results of internal and third party testing and qualitative and quantitative assessments related to risk management; and any other matters within the scope of the Committee’s oversight responsibilities. The Board Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the Board Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, information security and other areas of joint responsibility. In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are part of the Risk Management Framework and conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods. 55 Table of Contents Credit risk management Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCD or non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an adequate ACL that accounts for expected credit losses in the loan and lease portfolio. We continue to actively monitor our loan portfolio for areas of increased risk as a result of the COVID-19 pandemic and to date have not seen any significant declines in credit quality. Through September 30, 2021, over 99% of all COVID-19 related loan extensions have begun repayment. Additionally, we participated in both rounds of funding in the SBA-PPP program, which provided much needed funds to our existing small business customers. At September 30, 2021, BancShares had $1.1 billion in SBA-PPP loans outstanding. Interest rate risk management Interest rate risk (“IRR”) results principally from: assets and liabilities maturing or repricing at different points in time, assets and liabilities repricing at the same point in time but in different amounts, and short-term and long-term interest rates changing in different magnitudes. We assess our short-term IRR by forecasting net interest income over 24 months under various interest rate scenarios and comparing those results to forecasted net interest income, assuming stable rates. IRR scenarios modeled include, but are not limited to, immediate, parallel rate shocks, interest rate ramps, changes in the shape of the yield curve and changes in the relationships of our rates to market rates. Market interest rates have increased since year-end, driven by improving economic conditions. Table 19 provides the impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios as of September 30, 2021 and December 31, 2020. Table 19 NET INTEREST INCOME SENSITIVITY ANALYSIS Estimated percentage (decrease) increase in net interest income Change in interest rate (basis points) September 30, 2021 December 31, 2020 -100 (6.94) % (6.24) % +100 7.42 8.09 +200 15.41 14.57 Net interest income sensitivity metrics as of September 30, 2021 remain largely unchanged when compared to December 31, 2020. Long-term interest rate risk exposure is measured using the economic value of equity (“EVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE represents the difference between the sum of the present value of all asset cash flows and the sum of the present value of the liability cash flows. EVE sensitivity analysis involves discounting cash flows of balance sheet items under different interest rate scenarios. Cash flows will vary by interest rate scenario, resulting in variations in EVE. The base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet. Table 20 presents the EVE profile as of September 30, 2021 and December 31, 2020. Table 20 ECONOMIC VALUE OF EQUITY MODELING ANALYSIS Estimated percentage (decrease) increase in EVE Change in interest rate (basis points) September 30, 2021 December 31, 2020 -100 (15.09) % (21.20) % +100 8.32 12.18 +200 8.77 15.71 56 Table of Contents The economic value of equity metrics at September 30, 2021 compared to December 31, 2020 were primarily affected by ongoing growth in non-maturity deposits during 2021, coupled with higher market interest rates. We do not typically utilize interest rate swaps, floors, collars or other derivative financial instruments to hedge our overall balance sheet interest rate sensitivity and risk. LIBOR Transition In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). Subsequent announcements have delayed the potential date for certain LIBOR tenors until June 30, 2023. We continue to transition away from LIBOR in order to cease issuance of loans indexed to LIBOR by December 31, 2021. Conforming and nonconforming adjustable rate mortgage originations transitioned to alternative rates in 2020. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative to LIBOR. We have introduced SOFR as an alternative rate for other business lines in mid-2021. We do not expect a material financial impact to BancShares or our customers from this transition. Liquidity risk management Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient cash or its equivalents on a cost-effective basis to meet commitments as they fall due. The most common sources of liquidity risk arise from mismatches in the timing and value of on-balance sheet and off-balance sheet cash inflows and outflows. In general, on-balance sheet mismatches generate liquidity risk when the effective maturity of assets exceeds the effective maturity of liabilities. A commonly cited example of a balance sheet liquidity mismatch is when long-term loans (assets) are funded with short-term borrowings (liabilities). Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal and reputation risks that can affect an institution’s liquidity risk profile. We utilize various limit-based measures to monitor, measure and control three different categories of liquidity risk: • Tactical - Measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon out to nine weeks; • Structural - Measures the amount by which illiquid assets are supported by long-term funding; and • Contingent - Measures the risk of having insufficient liquidity sources to support cash needs under potential future stressed market conditions or having an inability to access wholesale funding sources in a timely and cost effective manner. We aim to maintain a diverse mix of liquidity sources to support the liquidity management function, while aiming to avoid funding concentrations by diversifying our external funding with respect to maturities, counterparties and nature. Our primary funding source is our branch-generated retail deposit portfolio due to the generally stable balances and low cost. Sources of liquidity include cash in excess of our reserve requirement at the Federal Reserve Bank, and various other corresponding bank accounts and unencumbered securities, which totaled $15.1 billion at September 30, 2021 compared to $9.6 billion at December 31, 2020. Another source of available funds is advances from the FHLB of Atlanta. Outstanding FHLB advances were $645.7 million as of September 30, 2021, and we had sufficient collateral pledged to secure $8.5 billion of additional borrowings from the FHLB of Atlanta. Also, at September 30, 2021, $4.6 billion in non-PCD loans with a lendable collateral value of $3.8 billion were used to create additional borrowing capacity at the Federal Reserve Bank. We also maintain Federal Funds lines and other credit lines, which had $556.0 million of available capacity at September 30, 2021. OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, we are a party to certain financial instruments with off-balance sheet risk, which we enter into in order to meet the financing needs of our customers. These off-balance sheet instruments include commitments to extend credit and standby letters of credit. For more information on these commitments, see Note N - Commitments and Contingencies to our consolidated financial statements. CRITICAL ACCOUNTING ESTIMATES There have been no significant changes in our Critical Accounting Estimates as described in our 2020 Annual Report. 57 Table of Contents FORWARD-LOOKING STATEMENTS Statements in this Quarterly Report on Form 10-Q and Exhibits relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to, factors discussed in our 2020 Annual Report and in other documents filed by us from time to time with the Securities and Exchange Commission. Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “projects,” “potential” or “continue,” or similar terms or the negative of these terms, or other statements concerning opinions or judgments of BancShares’ management about future events. Factors that could influence the accuracy of those forward-looking statements include, but are not limited to, risks, uncertainties and other factors relating to our announced merger with CIT through a series of merger transactions, including the ability to obtain the remaining regulatory approvals and meet other closing conditions to the Transaction, and delay in closing the Transaction, as well as risks, uncertainties and other factors relating to the impact of COVID-19 on our business and the economy, the financial success or changing strategies of our customers, customer acceptance of our services, products and fee structure, the competitive nature of the financial services industry, our ability to compete effectively against other financial institutions in our banking markets, actions of government regulators, the level of market interest rates and our ability to manage our interest rate risk, changes in general economic conditions that affect our loan and lease portfolio, the abilities of our borrowers to repay their loans and leases, the values of real estate and other collateral, the impact of our prior acquisitions, the risks discussed in Part I, Item 1A. Risk Factors of our 2020 Annual Report and other developments or changes in our business that we do not expect. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, BancShares undertakes no obligation to revise or update publicly any forward-looking statements for any reason.