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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2021
or
 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-16715
____________________________________________________
First Citizens BancShares, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________________
Delaware 56-1528994
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer
Identification Number)
4300 Six Forks Road Raleigh North Carolina 27609
(Address of principle executive offices) (Zip code)
(919) 716-7000
(Registrant’s telephone number, including area code)
____________________________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, Par Value $1 FCNCA Nasdaq Global Select Market
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series A FCNCP Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $1
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Class A Common Stock—8,811,220 shares
Class B Common Stock—1,005,185 shares
(Number of shares outstanding, by class, as of October 31, 2021)

Table of Contents
INDEX
 
    Page No.
PART I. FINANCIAL INFORMATION
Item 1.
3
4
5
6
7
8
Item 2.
35
Item 3.
58
Item 4.
58
PART II. OTHER INFORMATION
Item 1.
59
Item 1A.
59
Item 6.
60
2
Table of Contents
PART I 
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.
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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.
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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.
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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.
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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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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

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
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
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
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
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 
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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.
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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 
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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 
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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.
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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 
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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.
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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.
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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.
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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%.
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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.
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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%.
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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.
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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.
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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.
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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
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
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
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
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.
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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

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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
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.









































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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.

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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.

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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 
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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.
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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.
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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 
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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.
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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.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values of financial instruments or reduced net interest income in future periods. See the sections entitled “Risk Management” and “Results of Operations” within Item 2. Management’s Discussion and Analysis of Financial Condition of this Quarterly Report for discussion of changes, which are incorporated herein by reference. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.
Item 4.    Controls and Procedures
BancShares’ management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of BancShares’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report, in accordance with Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, as of the end of the period covered by this report, the Chief Executive Officer and the Chief Financial Officer concluded that BancShares’ disclosure controls and procedures were effective to provide reasonable assurance that it is able to record, process, summarize and report in a timely manner the information required to be disclosed in the reports it files under the Exchange Act.
No changes in BancShares’ internal control over financial reporting occurred during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial reporting.
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PART II
Item 1. Legal Proceedings
BancShares and various subsidiaries have been named as defendants in various legal actions arising from our normal business activities in which damages in various amounts were claimed. Although the amount of any ultimate liability with respect to those matters cannot be determined, in the opinion of management, no legal actions currently exist that are expected to have a material effect on BancShares’ consolidated financial statements. Additional information relating to legal proceedings is set forth in Note N - Commitments and Contingencies, which information is incorporated by reference into this item.
Item 1A. Risk Factors
There have been no material changes from risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2020. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition and/or operating results.
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Table of Contents
Item 6. Exhibits
2.1
31.1
31.2
32.1
32.2
101.INS Inline XBRL Instance Document (filed herewith)
101.SCH Inline XBRL Taxonomy Extension Schema (filed herewith)
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
104 Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
Date: November 2, 2021 FIRST CITIZENS BANCSHARES, INC.
(Registrant)
By:   /s/ CRAIG L. NIX
Craig L. Nix
Chief Financial Officer
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Exhibit 31.1
CERTIFICATION
I, Frank B. Holding, Jr., certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of First Citizens BancShares, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(i)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(ii)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(iii)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(iv)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(i)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(ii)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 2, 2021
 
/s/ Frank B. Holding, Jr.
Frank B. Holding, Jr.
Chief Executive Officer


Exhibit 31.2
CERTIFICATION
I, Craig L. Nix, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of First Citizens BancShares, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(i)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(ii)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(iii)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(iv)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(i)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(ii)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 2, 2021
/s/ Craig L. Nix
Craig L. Nix
Chief Financial Officer


Exhibit 32.1
CERTIFICATION
The undersigned hereby certifies that (i) the Form 10-Q filed by First Citizens BancShares, Inc. (the “Issuer”) for the period ended September 30, 2021, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.
November 2, 2021
 
/s/ Frank B. Holding, Jr.
Frank B. Holding, Jr.
Chief Executive Officer


Exhibit 32.2
CERTIFICATION
The undersigned hereby certifies that (i) the Form 10-Q filed by First Citizens BancShares, Inc. (the “Issuer”) for the period ended September 30, 2021, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.
November 2, 2021
 
/s/ Craig L. Nix
Craig L. Nix
Chief Financial Officer