# FIRST CITIZENS BANCSHARES INC /DE/ (FCNCA) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from FIRST CITIZENS BANCSHARES INC /DE/'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/798941/000079894122000014/fcnca-20211231.htm
Accession: 0000798941-22-000014
Filing date: 2022-02-25
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/FCNCA/
All MD&A years: /company/FCNCA/mda/
Next year: /company/FCNCA/mda/fy2022/ (FY 2022)

Item 7. 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 is presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. (the “Parent Company” and when including all of its subsidiaries on a consolidated basis, “BancShares”, “we,” “us,” or “our”) and its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”). Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares” in this section refer to the consolidated financial position and consolidated results of operations for BancShares.

This MD&A is expected to provide our investors with a view of BancShares’ financial condition and results of operations from our management’s perspective. This MD&A should be read in conjunction with the audited consolidated financial statements and related notes presented in this Annual Report on Form 10-K. Intercompany accounts and transactions have been eliminated. Refer to further detail in Note A, Accounting Policies and Basis of Presentation, of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. 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.

On January 3, 2022, BancShares completed its largest acquisition to date with the merger with CIT Group Inc. (“CIT”) and its subsidiary CIT Bank, N.A., a national banking association (“CIT Bank”) pursuant to the terms and subject to the conditions set forth in the Agreement and Plan of Merger (as amended, the “Merger Agreement”). CIT had consolidated total assets of approximately $53.2 billion at December 31, 2021. We expect substantive changes to our future results due to the merger with CIT (the “CIT Merger”). Some key anticipated reporting impacts related to the CIT Merger include, but are not limited to: (i) increases in our interest income from the loans acquired in the CIT Merger and expected originations and funding of similar types of loans, (ii) increases in interest expense from deposits and debt assumed from CIT, (iii) higher non-interest income generated from the legacy CIT activity, plus an added revenue stream from the operating lease equipment, (iv) higher non-interest expenses related to the added employees as well as the depreciation and maintenance costs on the operating lease portfolio, and (v) higher net charge-offs due to the loans acquired in the CIT Merger and expected originations and funding of similar types of loans. We also expect changes in our regulatory capital ratios due to (i) increases in risk weighted assets from the assets acquired in the CIT Merger and (ii) increases in regulatory capital, primarily related the conversion of common and preferred stock and the assumption of subordinated debt in connection with the CIT Merger. The CIT Merger is described further in the “Business Combinations” section of this MD&A and in Item 1. Business included in this Annual Report on Form 10-K.

Year-over-year comparisons of the financial results for 2020 and 2019 are contained in Item 7. of BancShares’ Annual Report on Form 10-K for 2020 filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021 and available through FCB’s website www.firstcitizens.com or the SEC’s EDGAR database.

FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and future performance of BancShares. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “targets,” “designed,” “could,” “may,” “should,” “will” or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future conditions.

Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other factors that are difficult to predict. Many possible events or factors could affect BancShares’ future financial results and performance and could cause the actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, general competitive, economic, political, and market conditions, the impacts of the global COVID-19 pandemic on BancShares’ business, and customers, the financial success or changing conditions or strategies of BancShares’ customers or vendors, fluctuations in interest rates, actions of government regulators, the availability of capital and personnel, the failure to realize the anticipated benefits of BancShares’ previously announced acquisition transaction(s), including the recently-completed CIT Merger discussed further in the “Business Combinations” section of this MD&A, and the risks discussed in Item 1A. Risk Factors of this Annual Report on Form 10-K and other developments or changes in our business that we do not expect.

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Except to the extent required by applicable law or regulation, BancShares disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.

CRITICAL ACCOUNTING ESTIMATES

The accounting and reporting policies of BancShares are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are described in Note A, Accounting Policies and Basis of Presentation, of the Notes to the Consolidated Financial Statements. The preparation of financial statements in conformity with GAAP requires us to exercise judgment in determining many of the estimates and assumptions utilized to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations could be materially affected by changes to these estimates and assumptions.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. Accounting policies related to the allowance for credit losses (“ACL”) are considered to be critical accounting estimates as these policies involve considerable judgment and estimation by management.

The ACL represents management’s best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and the impact of prepayment expectations. Prepayment assumptions were developed through a review of BancShares’ historical prepayment activity and considered forecasts of relevant economic conditions, as well as prepayment assumptions utilized in other modeling activities. Estimates for loan losses are determined by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the ACL are recorded with a corresponding entry to provision for credit losses. Loan balances considered uncollectible are charged-off against the ACL. Forecasted loss given defaults (LGDs) are adjusted for expected recoveries and realized recoveries of amounts previously charged-off are credited to the ACL.

While management utilizes its best judgment and information available, the ultimate adequacy of our ACL is dependent upon a variety of factors beyond our control which are inherently difficult to predict, the most significant being the economic scenario forecast used in the models. Our ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario and the December 31, 2021 ACL forecast was calculated using the consensus baseline scenario. Results ranged from approximately $170 million in the upside scenario to approximately $260 million in the severely adverse scenario. Our recorded ACL at December 31, 2021 totaled $178.5 million.

Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Current economic conditions and forecasts can change which could affect the anticipated amount of estimated credit losses and therefore the appropriateness of the ACL. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ACL because a wide variety of factors and inputs are considered in estimating the ACL and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

Refer to Note A, Accounting Policies and Basis of Presentation, in the Notes to Consolidated Financial Statements for discussion of our accounting policies for the ACL and the implementation impact of ASC 326. Refer to Note E, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements for additional disclosures.

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CURRENT ACCOUNTING PRONOUNCEMENTS

Table 1 below lists the Accounting Standard Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) that were recently adopted by BancShares. Refer to Note A, Accounting Policies and Basis of Presentation, in the Notes to the Consolidated Financial Statements for further discussion.

Table 1

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

[[GREPCENT_TABLE]]
[["Standard","","Date of Adoption"],["FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.","","January 1, 2021"],["ASU 2020-01 - Clarifying the Interactions between Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)","","January 1, 2021"],["FASB ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs","","January 1, 2021"],["ASU 2020-10, Codification Improvements","","January 1, 2021"]]
[[/GREPCENT_TABLE]]

EXECUTIVE OVERVIEW

The Parent Company conducts its banking operations through FCB, a state-chartered bank organized under the laws of the state of North Carolina.

Our earnings and cash flows are primarily derived from our commercial and retail banking activities. We gather deposits from retail and commercial customers and we secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans, investment securities and overnight investments. We also invest in bank premises, computer hardware and software and furniture and equipment used to conduct our commercial and retail banking business. We provide treasury management services, cardholder and merchant services, wealth management services and other products and services typically offered by commercial banks. The fees generated from these products and services are a primary source of noninterest income and an essential component of our total revenue.

Our strong financial position enables us to pursue growth through strategic acquisitions to enhance organizational value by providing opportunities to grow capital and increase earnings. These transactions allow us to strengthen our presence in existing markets as well as expand our footprint into new markets.

With interest rates near historical lows, our ability to generate earnings and shareholder value has been challenging. While our balance sheet is asset sensitive overall, we seek to reduce volatility and minimize the risk to earnings from interest rate movements in either direction. Additionally, our initiatives focus on growth of noninterest income sources, management of noninterest expenses, optimization of our branch network and further enhancements to our technology and delivery channels.

In lending, we continue to focus our activities within our core competencies of retail, small business, medical, commercial and commercial real estate lending to build a diversified portfolio. Our low to moderate risk appetite continues to govern all lending activities.

We also pursue noninterest income through enhanced credit card offerings and wealth management and merchant services. We have recently redesigned our credit card programs to offer more competitive products, intended to both increase the number of accounts and frequency of card usage. Enhancements include more comprehensive reward programs and improved card benefits. In wealth management, we have broadened our products and services to better align with the specialized needs and desires of those customers. Services include holistic financial planning, business owner advisory services and enhanced private banking offerings.

Our goals are to increase efficiencies and control costs while effectively executing an operating model that best serves our customers’ needs. We seek the appropriate footprint and staffing levels to take advantage of the revenue opportunities in each of our markets. Management is pursuing opportunities to improve operational efficiency and increase profitability through expense control, while continuing enterprise sustainability projects to improve the operating environment. Such initiatives include the automation of certain manual processes, elimination of duplicated and outdated systems, enhancements to existing technology, implementation of new digital technologies, outsourcing to third party service providers and actively managing personnel expenses and discretionary spending. We routinely review vendor agreements and third party contracts for cost savings.

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The CIT Merger is addressed in the “Business Combinations” section of this MD&A.

Economic and Industry Updates

The COVID-19 pandemic that began in 2020 has caused significant disruptions to the domestic and global economies which continue to date. 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.

Indicators of economic activity have begun to return to pre-pandemic levels, but as 2021 progressed variants to COVID-19 led to a significant rise in cases. This uncertainty contributed to continued volatility in the financial markets, and supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. For a discussion of the risks we face with respect to the COVID-19 pandemic, the associated economic uncertainty, the steps taken to mitigate the pandemic and the resulting economic contraction, refer to Item 1A. Risk Factors included in this Annual Report on Form 10-K.

Various external factors influence the focus of our business efforts and the results of our operations can change significantly based on those external factors. Based on the real gross domestic product (“GDP”) information available (Bureau of Economic Analysis (“BEA”) release, January 2022), the BEA’s revised estimate for GDP showed an annual rate increase of 6.9% percent in the fourth quarter of 2021, in contrast to a decrease of 4.0% percent in 2020. In accordance with this BEA release, the increase in real GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. The fourth quarter GDP continued to reflect the ongoing impact of the COVID-19 pandemic, including continued restrictions and disruptions in operations of businesses in certain areas of the United States. In the fourth quarter of 2021, government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off. The full economic effects of the COVID-19 pandemic were not quantified in the GDP estimate for the fourth quarter because the impacts are generally embedded in source data and cannot be separately identified.

The U.S. unemployment rate decreased from 6.7% in December 2020 to 3.9% in December 2021. According to the U.S. Department of Labor, nonfarm payroll employment increased 6.5 million in 2021, compared to decline of 9.2 million in 2020.

During the first quarter of 2020, the FOMC lowered the federal funds rate to a target range of 0.00% to 0.25%. The FOMC cited the effects of COVID-19 on economic activity and the risks posed to the economic outlook. In its release in January 2022, the FOMC said it seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the FOMC kept the target range for the federal funds rate at 0.00% to 0.25%. The release stated that, with inflation well above 2 percent and a strong labor market, the FOMC expects it will soon be appropriate to raise the target range for the federal funds rate.

The U.S. Census Bureau and the Department of Housing and Urban Development’s latest estimate for sales of new single-family homes in December 2021 was at a seasonally adjusted annual rate of 811,000, down 14% from the December 2020 estimate of 943,000. Purchases of existing homes in 2021 are up 8.5% from a year ago.

COVID-19 Monitoring and Response

Throughout the outbreak of the “COVID-19” pandemic, we remained in a strong capital and liquidity position providing stability to our employees, customers and shareholders. Our leadership team worked quickly to identify and enact appropriate measures in an effort to protect the welfare of our employees and soundness of the organization, while continuing to support our customers.

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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 COVID-19 and was supplemented with subsequent legislation. Overseen by the U.S. Treasury Department, the SBA-PPP offered cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020 (“Round 1”). 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 was made as long as the borrower retains its employees and their compensation levels. The CARES Act authorized the SBA to temporarily guarantee these loans. The SBA began processing forgiveness payments during the fourth quarter of 2020. The Consolidated Appropriations Act 2021 was signed into law during the fourth quarter of 2020 and contained provisions for a second round of funding of SBA-PPP loans (“Round 2”). BancShares originated a total of $3.2 billion of Round 1 loans and $1.2 billion of Round 2 loans. As of December 31, 2021, the total remaining balance of SBA-PPP loans was $493.8 million, net of deferred fees, primarily due to $3.9 billion of forgiveness. To date, we have not seen declines in overall credit quality, though the impacts of these actions and other government stimulus could be delaying signs of credit deterioration

Strong Liquidity and Capital Position

We maintain a strong level of liquidity. As of December 31, 2021, liquid assets (available cash and unencumbered high quality liquid assets at market value) totaled approximately $16.41 billion, representing 28.1% of consolidated assets as of December 31, 2021. In addition to liquid assets, we had contingent sources of liquidity totaling approximately $13.43 billion in the form of Federal Home Loan Bank (“FHLB”) borrowing capacity, Federal Reserve Discount Window availability, federal funds lines and a committed line of credit. At December 31, 2021, our regulatory capital ratios were well in excess of Basel III requirements as further addressed in the Shareholders’ Equity and Capital Adequacy discussion in this MD&A.

Changes to Approach for Nonsufficient Funds and Overdraft Fees

As previously announced, we plan to change our approach for nonsufficient fund (“NSF”) and overdraft fees. Beginning mid-year 2022, we plan to eliminate our NSF fees and significantly lower our overdraft fees from $36 to $10 on consumer accounts. We believe these changes are necessary to remain competitive in the current marketplace.

FINANCIAL PERFORMANCE SUMMARY

Income Statement Highlights

For the year ended December 31, 2021, net income available to common shareholders was $528.9 million, or $53.88 per share, compared to $477.7 million, or $47.50 per share, during 2021. The return on average assets was 1.00% during 2021, compared to 1.07% during 2020. The return on average common shareholders’ equity was 12.84% and 12.96% for 2021 and 2020, respectively. The $51.2 million, or 10.7% increase in net income available to common shareholders was primarily the result of the net effect of the following:

•Net interest income for the year ended December 31, 2021 increased $2.2 million, or by 0.2%, compared to the year ended December 31, 2020. While total net interest income did not fluctuate significantly year over year, there were individual components that did fluctuate. The items positively impacting net interest income included increased loan, investment and overnight balances, as well as lower deposit rates and an increase in SBA-PPP income. These increases were largely offset by a decline in the yield on interest-earning assets.

•The taxable-equivalent net interest margin was 2.66% for the year ended December 31, 2021, a decrease of 51 basis points from the year ended December 31, 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 fee income from SBA-PPP loans.

•The benefit for credit losses was $36.8 million for the year ending December 31, 2021, compared to a provision for credit losses of $58.4 million for 2020. Credit losses in 2021 were favorably impacted by a $45.8 million reserve release, primarily driven by improvement in macroeconomic factors, continued strong credit performance, and low net charge-offs, while 2020 included a $35.9 million reserve build, primarily related to uncertainties surrounding the COVID-19 pandemic. The net charge-off to average loans ratio was 0.03% for 2021, down 4 basis points from 0.07% in 2020.

•Noninterest income for the year ended December 31, 2021 was $508.0 million, an increase of $31.3 million, or 6.6%, from 2020. The favorable changes from the prior year were primarily driven by improvements in revenue related to

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wealth, card, and merchant, partially offset by lower realized gains on sales of available for sale securities and a decline in mortgage income.

•Noninterest expense was $1.23 billion for the year ended December 31, 2021, compared to $1.19 billion for 2020. This increase was primarily attributable to higher personnel expenses and other operating expenses such as processing fees to third parties, and merger-related expenses. These increases were partially offset by declines in other expense categories, such as collection and foreclosure-related expenses.

•Income tax expense was $154.2 million and $126.2 million for the years ended December 31, 2021 and 2020, respectively, representing effective tax rates of 22.0% and 20.4%, respectively.

Balance Sheet Highlights

•Total loans were $32.37 billion as of December 31, 2021, a decrease of $420.5 million or 1.3% compared to $32.79 billion as of December 31, 2020. The decrease was primarily due to declines of $1.91 billion or 79.5% in SBA-PPP loans, which were primarily due to forgiveness of approximately $3.9 billion, partially offset by originations and recognition of deferred fees. The decrease in SBA-PPP loans was largely offset by increases of $827.6 million in owner occupied commercial mortgages and $697.0 million in commercial and industrial. These increases are primarily due to growth in commercial lines, equipment leasing, and our government lending portfolios.

•The allowance for credit losses as a percentage of total loans was 0.55% as of December 31, 2021, compared to 0.68% as of December 31, 2020. Nonperforming assets include nonaccrual loans and other real estate owned (“OREO”). Nonperforming assets decreased $82.7 million to $159.6 million, or 0.49% of total loans, as of December 31, 2021 from $242.4 million, or 0.74% of total loans, as of December 31, 2020.

•Total deposits increased by $7.97 billion, or 18.4%, to $51.41 billion as of December 31, 2021 from $43.43 billion as of December 31, 2020. The increases were primarily composed of $3.39 billion in demand deposits, $2.10 billion in checking with interest, and $1.96 billion in money market. The growth in deposits is composed of a mix of new clients and existing clients and is generally from our commercial customers.

Capital Highlights

•For the year ended December 31, 2021, we returned $37.0 million of capital to shareholders through the distribution of cash dividends to common and preferred shareholders.

•Total shareholders’ equity increased $508.0 million or 12.0% to $4.74 billion as of December 31, 2021 from $4.23 billion as of December 31, 2020. The increase was primarily due to net income, partially offset by common and preferred dividends during the year.

•Under Basel III capital requirements, BancShares remained well-capitalized at December 31, 2021, with a total risk-based capital ratio of 14.35%, Tier 1 risk-based capital ratio of 12.47%, common equity Tier 1 risk-based ratio of 11.50%, and Tier 1 leverage ratio of 7.59%.

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BUSINESS COMBINATIONS

CIT Group Inc.

On January 3, 2022, BancShares completed the CIT Merger pursuant to the Merger Agreement. The CIT Merger brings together FCB’s retail franchise and full suite of banking products with CIT’s nationwide commercial lending and direct digital banking. Due to the timing of the CIT Merger, the balances and results of operations of CIT are not included in BancShares’ reported financial results in this Annual Report on Form 10-K. Refer to further discussion in Note W, Subsequent Events, in the Notes to the Consolidated Financial Statements and Item 1. Business included in this Annual Report on Form 10-K.

The CIT Merger will be accounted for as a business combination. The assets and liabilities of CIT will be recorded at fair value. Due to the timing of the CIT Merger, the fair value estimates of CIT’s assets and liabilities are not available to disclose in this Annual Report on Form 10-K as of and for the year ended December 31, 2021. At December 31, 2021, the book value of CIT’s total assets was approximately $53.2 billion, which primarily consisted of approximately $32.8 billion of loans, $8.0 billion of operating lease assets, $6.8 billion of investment securities and $3.0 billion of cash. At December 31, 2021, the book value of CIT’s total liabilities was approximately $46.9 billion, which primarily consisted of approximately $39.4 billion of deposits, $3.7 billion senior unsecured notes and $495 million subordinated unsecured notes.

Pursuant to the Merger Agreement, the Boards of Directors of the Parent Company and FCB now consist of 14 directors, (i) 11 of whom were members of the legacy Board of Directors of the Parent Company, and (ii) three of whom were selected from among the former Board of Directors of CIT, including Ellen R. Alemany, former Chairwoman and Chief Executive Officer of CIT, Michael A. Carpenter, and Vice Admiral John R. Ryan, USN (Ret.).

Common Stock Conversion

Pursuant to the Merger Agreement, each share of CIT common stock, par value $0.01 per share (“CIT Common Stock”), issued and outstanding, except for certain shares of CIT Common Stock owned by CIT or BancShares, was converted into the right to receive 0.062 shares (the “Exchange Ratio” and such shares, the “Merger Consideration”) of the Parent Company’s Class A Common Stock, par value $1.00 per share (“Class A Common Stock”), plus, cash in lieu of fractional shares of Class A Common Stock. The Parent Company issued approximately 6.1 million shares of its Class A Common Stock in connection with the consummation of the CIT Merger. The closing share price of the Class A Common Stock on the Nasdaq Global Select Market was $859.76 on January 3, 2022. There were approximately 8,800 fractional shares for which the Parent Company paid cash of approximately $7.2 million.

Preferred Stock Conversion

Pursuant to the terms of the Merger Agreement, each issued and outstanding share of fixed-to-floating rate non-cumulative perpetual preferred stock, series A, par value $0.01 per share, of CIT (“CIT Series A Preferred Stock”) and each issued and outstanding share of 5.625% non-cumulative perpetual preferred stock, series B, par value $0.01 per share, of CIT (“CIT Series B Preferred Stock”), converted into the right to receive one share of a newly created series of preferred stock, series B, of the Parent Company (“BancShares Series B Preferred Stock”) and one share of a newly created series of preferred stock, series C, of the Parent Company (“BancShares Series C Preferred Stock” and together with the BancShares Series B Preferred Stock, the “New BancShares Preferred Stock”), respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, that are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, of the CIT Series A Preferred Stock and the CIT Series B Preferred Stock, respectively. The non-callable period for the New BancShares Preferred Stock was extended for five years to January 4, 2027. There are 325,000 shares of BancShares Series B Preferred Stock with a liquidation preference of $1,000 per share, resulting in a total liquidation preference of $325 million. There are 8 million shares of BancShares Series C Preferred Stock with a liquidation preference of $25 per share, resulting in a total liquidation preference of $200 million. The New BancShares Preferred Stock qualifies as Tier 1 capital.

Restricted Stock Conversion

Pursuant to the terms of the Merger Agreement, (i) each restricted stock unit (“RSU”) award or performance stock unit (“PSU”) award in respect of shares of CIT Common Stock, including any deferred RSU award (each, a “CIT Award”) outstanding, other than a CIT Director RSU Award (defined below), automatically converted into a RSU in respect of a number of shares of Class A Common Stock (a “BancShares Award”) equal to (a) the number of shares of CIT Common Stock subject to such CIT Award based on target level performance multiplied by (b) the Exchange Ratio, subject to the same terms and conditions applicable to the existing CIT Award (except, in the case of PSU awards, for any performance goals or metrics), and (ii) each RSU award in respect of shares of CIT Common Stock that (a) was outstanding and unvested, (b) was held by a member of the Board of

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Directors of CIT, (c) automatically vested upon close of the CIT Merger in accordance with its terms, and (d) was not subject to a deferral election (each, a “CIT Director RSU Award”) automatically converted into the right to receive the applicable Merger Consideration.

Assumption of Debt Securities

In connection with the CIT Merger, FCB assumed the following issued and outstanding series of CIT debt securities: (i) $1.25 billion 5.00% Senior Unsecured Notes due 2022 (the “2022 Notes”), (ii) $750 million 5.00% Senior Unsecured Notes due 2023 (the “2023 Notes”); (iii) $500 million 4.750% Senior Unsecured Notes due 2024 (the “2024 Notes”); (iv) $500 million 3.929% Senior Unsecured Fixed-to-Floating Rate Notes due 2024; (v) $500 million 5.250% Senior Unsecured Notes due 2025 (the “2025 Notes”); (vi) $550 million 2.969% Senior Unsecured Fixed-to-Floating Rate Notes due 2025; (vii) $500 million 6.00% Senior Notes due 2036; (viii) $400 million 6.125% Subordinated Notes due 2028; and (ix) $100 million 4.125% Fixed-to-Floating Rate Subordinated Notes due 2029.

Redemption of Assumed Senior Unsecured Notes

As part of its liability management to reduce higher debt costs, on January 24, 2022 BancShares announced FCB’s intention, and on February 24, 2022, completed, a redemption of approximately $2.9 billion of senior unsecured notes that were assumed in the CIT Merger. Using excess liquidity, FCB redeemed all of the outstanding $1.1 billion aggregate principal amount of the 2022 Notes, $750 million aggregate principal amount of the 2023 Notes, $500.0 million aggregate principal amount of the 2024 Notes, and $500 million aggregate principal amount of the 2025 Notes.

Expected Impact to Segment Reporting

As of December 31, 2021, we manage our business and report our financial results as a single segment. Due to the CIT Merger, we intend to begin reporting multiple segments in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022. We plan to report financial results in three operating segments: General Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate. We will also conform prior period comparisons to the new segment presentation. Based on the planned approach for segment disclosures to be implemented during the first quarter of 2022, the substantial majority of BancShares’ operations for historical periods prior to the CIT Merger will be reflected in the General Banking segment. This is further addressed in the “Business Combinations” section of Item 1. Business in this Annual Report on Form 10-K.

Community Financial Holding Co. Inc.

On February 1, 2020, we completed the merger of Duluth, Georgia-based Community Financial Holding Company, Inc. (“Community Financial”) and its bank subsidiary, Gwinnett Community Bank, into FCB. Under the terms of the agreement, total cash consideration of $2.3 million was paid to the shareholders of Community Financial. The merger allowed us to expand our presence and enhance banking efforts in Georgia. The merger contributed $221.4 million in consolidated assets (when including purchase accounting adjustments), which included $686 thousand of goodwill, $134.0 million in loans, and $209.3 million in deposits.

Refer to Note B, Business Combinations, in the Notes to Consolidated Financial Statements for additional disclosures.

FDIC-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.

FDIC-assisted transactions may include provisions related to payments owed to the FDIC at the termination of the agreements if actual cumulative losses on covered assets are lower than originally estimated by the FDIC at the time of acquisition (“Clawback Liability”). There was no Clawback Liability remaining at December 31, 2021 as FCB remitted the final payment of $16.1 million to the FDIC during the first quarter of 2021.

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Table 2 provides changes in the FDIC Clawback Liability for the years ended December 31, 2021 and 2020.

Table 2

FDIC CLAWBACK LIABILITY

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","2021","","2020"],["Beginning balance","$","15,601","","","$","112,395"],["Accretion","502","","","2,674"],["Payments to FDIC for settlement of shared-loss agreements","(16,103)","","","(99,468)"],["Ending balance","$","\u2014","","","$","15,601"]]
[[/GREPCENT_TABLE]]

Table 3

AVERAGE BALANCE SHEETS

[[GREPCENT_TABLE]]
[["","2021","","2020"],["(Dollars in thousands, taxable equivalent)","Average Balance","","Interest Income/ Expense","","Yield/ Rate","","Average Balance","","Interest Income/ Expense","","Yield/ Rate"],["Assets"],["Loans and leases(1)(2)","$","32,860,019","","","$","1,297,012","","","3.91","","%","$","31,605,090","","","$","1,335,008","","","4.18","","%"],["Investment securities(2):"],["U.S. Treasury","235,849","","","1,573","","","0.67","","","432,938","","","3,103","","","0.72"],["Government agency","822,177","","","7,323","","","0.89","","","665,318","","","8,457","","","1.27"],["Mortgage-backed securities","8,833,957","","","103,534","","","1.17","","","7,414,661","","","108,604","","","1.46"],["Corporate bonds","608,299","","","30,940","","","5.09","","","397,322","","","20,349","","","5.12"],["Other investments","110,468","","","2,005","","","1.82","","","144,694","","","4,254","","","2.94"],["Total investment securities","10,610,750","","","145,375","","","1.37","","","9,054,933","","","144,767","","","1.60"],["Overnight investments","8,348,903","","","10,997","","","0.13","","","2,691,096","","","6,847","","","0.25"],["Total interest-earning assets","51,819,672","","","$","1,453,384","","","2.78","","%","43,351,119","","","$","1,486,622","","","3.40","","%"],["Cash and due from banks","349,721","","","","","","","344,938"],["Premises and equipment","1,243,052","","","","","","","1,259,325"],["Allowance for credit losses","(202,260)","","","","","","","(211,413)"],["Other real estate owned","44,252","","","","","","","53,137"],["Other assets","1,728,384","","","","","","","1,224,332"],["Total assets","$","54,982,821","","","","","","","$","46,021,438"],["Liabilities"],["Interest-bearing deposits:"],["Checking with interest","$","11,257,713","","","$","5,645","","","0.05","","%","$","8,922,902","","","$","5,913","","","0.07","","%"],["Savings","3,846,732","","","1,291","","","0.03","","","2,936,593","","","1,217","","","0.04"],["Money market accounts","9,707,747","","","9,722","","","0.10","","","7,821,266","","","22,504","","","0.29"],["Time deposits","2,647,697","","","16,582","","","0.63","","","3,344,492","","","37,001","","","1.11"],["Total interest-bearing deposits","27,459,889","","","33,240","","","0.12","","","23,025,253","","","66,635","","","0.29"],["Securities sold under customer repurchase agreements","660,288","","","1,312","","","0.20","","","632,362","","","1,610","","","0.25"],["Other short-term borrowings","\u2014","","","\u2014","","","\u2014","","","50,549","","","1,054","","","2.05"],["Long-term obligations","1,225,661","","","26,124","","","2.12","","","1,186,145","","","26,558","","","2.20"],["Total interest-bearing liabilities","29,345,838","","","60,676","","","0.21","","","24,894,309","","","95,857","","","0.38"],["Demand deposits","20,798,697","","","","","","","16,721,363"],["Other liabilities","377,564","","","","","","","451,759"],["Shareholders\u2019 equity","4,460,722","","","","","","","3,954,007"],["Total liabilities and shareholders\u2019 equity","$","54,982,821","","","","","","","$","46,021,438"],["Interest rate spread","","","","","2.57","","%","","","","","3.02","","%"],["Net interest income and net yield on interest-earning assets","","","$","1,392,708","","","2.66","","%","","","$","1,390,765","","","3.17","","%"]]
[[/GREPCENT_TABLE]]

(1)Loans and leases include non-PCD and PCD loans, nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. Loan fees were $110.1 million, $85.7 million, and $9.7 million for the years ended 2021, 2020, and 2019, respectively.

(2)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 statutory federal income tax rates of 21.0% for 2021, 2020, and 2019, as well as state income tax rates of 3.3%, 3.5%, and 3.9% for the years ended 2021, 2020, and 2019, respectively. The taxable-equivalent adjustment was $2.4 million, $2.6 million, and $3.6 million, for the years ended 2021, 2020, and 2019, respectively.

(3)The rate/volume variance is allocated proportionally between the changes in volume and rate.

42

Table 3

AVERAGE BALANCE SHEETS (continued)

[[GREPCENT_TABLE]]
[["","","","","","","2021","","2020"],["2019","","Change from previous year due to:","","Change from previous year due to:"],["Average Balance","","Interest Income/ Expense","","Yield/ Rate","","Volume","","Yield/Rate","","Total Change(3)","","Volume","","Yield/Rate","","Total Change(3)"],["$","26,656,048","","","$","1,219,825","","","4.54","","%","$","44,393","","","$","(82,389)","","","$","(37,996)","","","$","232,399","","","$","(117,216)","","","$","115,183"],["945,094","","","22,235","","","2.35","","","(1,408)","","","(122)","","","(1,530)","","","(12,058)","","","(7,074)","","","(19,132)"],["491,001","","","14,308","","","2.91","","","1,994","","","(3,128)","","","(1,134)","","","5,080","","","(10,931)","","","(5,851)"],["5,198,884","","","114,819","","","2.21","","","20,629","","","(25,699)","","","(5,070)","","","51,357","","","(57,572)","","","(6,215)"],["153,841","","","7,945","","","5.16","","","10,805","","","(214)","","","10,591","","","12,575","","","(171)","","","12,404"],["130,249","","","2,205","","","1.69","","","(1,039)","","","(1,210)","","","(2,249)","","","209","","","1,840","","","2,049"],["6,919,069","","","161,512","","","2.33","","","30,981","","","(30,373)","","","608","","","57,163","","","(73,908)","","","(16,745)"],["1,291,617","","","26,245","","","2.03","","","14,425","","","(10,275)","","","4,150","","","28,418","","","(47,816)","","","(19,398)"],["34,866,734","","","$","1,407,582","","","4.01","","%","$","89,799","","","$","(123,037)","","","$","(33,238)","","","$","317,980","","","$","(238,940)","","","$","79,040"],["271,466"],["1,218,611"],["(226,600)"],["45,895"],["985,613"],["$","37,161,719"],["$","7,503,325","","","$","6,018","","","0.08","","%","$","1,816","","","$","(2,084)","","","$","(268)","","","$","1,122","","","$","(1,227)","","","$","(105)"],["2,604,217","","","1,700","","","0.07","","","381","","","(307)","","","74","","","214","","","(697)","","","(483)"],["6,025,740","","","23,315","","","0.39","","","5,455","","","(18,237)","","","(12,782)","","","6,886","","","(7,697)","","","(811)"],["3,315,478","","","45,221","","","1.36","","","(7,663)","","","(12,756)","","","(20,419)","","","295","","","(8,515)","","","(8,220)"],["19,448,760","","","76,254","","","0.39","","","(11)","","","(33,384)","","","(33,395)","","","8,517","","","(18,136)","","","(9,619)"],["530,818","","","1,995","","","0.38","","","75","","","(373)","","","(298)","","","377","","","(762)","","","(385)"],["23,087","","","671","","","2.87","","","(1,054)","","","\u2014","","","(1,054)","","","788","","","(405)","","","383"],["392,150","","","13,722","","","3.45","","","(1,297)","","","863","","","(434)","","","27,393","","","(14,557)","","","12,836"],["20,394,815","","","92,642","","","0.45","","","(2,287)","","","(32,894)","","","(35,181)","","","37,075","","","(33,860)","","","3,215"],["12,769,776"],["445,347"],["3,551,781"],["$","37,161,719"],["","","","","3.56","","%"],["","","$","1,314,940","","","3.74","","%","$","92,086","","","$","(90,143)","","","$","1,943","","","$","280,905","","","$","(205,080)","","","$","75,825"]]
[[/GREPCENT_TABLE]]

43

RESULTS OF OPERATIONS

Net Interest Margin and Income (Taxable Equivalent Basis)

Taxable-equivalent net interest income was $1.39 billion for the year ended December 31, 2021, an increase of $1.9 million compared to 2020. Interest income decreased by $33.2 million and interest expense decreased by $35.2 million.

Interest income earned on loans and leases was $1.30 billion for the year ended December 31, 2021, a decrease of $38.0 million compared to 2020. The decrease was primarily due to lower loan yields driven by a full year of a lower rate environment, partially offset by growth in loans, excluding SBA-PPP loans, and an increase in SBA-PPP interest and fee income.    

Interest income earned on investment securities was $145.4 million and $144.8 million for the year ending December 31, 2021 and 2020, respectively. The increase was primarily due to the higher average investment balances, partially offset by a decline in the overall portfolio yield. During 2021, excess liquidity was used to invest in $2.0 billion of US Treasury securities.

Interest expense on interest-bearing deposits was $33.2 million for the year ended December 31, 2021, a decrease of $33.4 million compared to 2020, primarily due to lower rates paid on money market and time deposits. We were able to maintain competitive rates, while also growing our money market deposits. Interest expense on borrowings was $27.4 million for the year ended December 31, 2021, a decrease of $1.8 million compared to 2020, primarily due to a decrease in the rate paid.

The taxable equivalent net interest margin for the year ended December 31, 2021 was 2.66%, compared to 3.17% for the year ending December 31, 2020. The margin decline of 51 basis points was primarily due to changes in the earning asset mix as a result of excess liquidity, (primarily resulting from deposit inflows) being maintained in overnight investments which decreased the margin by 37 basis points, a decline in the yield on loans which decreased the margin by 23 basis points, and a decline in the yield on investment securities and overnight investments which decreased the margin by 6 basis points. These declines in margin were partially offset by lower rates paid on interest-bearing deposits which increased the margin by 9 basis points and increased fee recognition from SBA-PPP loans which increased the margin by 5 basis points. During the year ended December 31, 2021, yields on loans, investment securities and overnight investments decreased 27 basis points to 3.91%, 23 basis points to 1.37% and 12 basis points to 0.13%, respectively, compared to 2020.

Average interest-earning assets increased $8.47 billion or 19.5% for the year ended December 31, 2021 compared to 2020. Growth in average interest-earning assets during 2021 was primarily due to increases in average balances of overnight investments, investment securities, and loans. The taxable-equivalent yield on interest-earning assets was 2.78% for the year ended December 31, 2021, a decline of 62 basis points compared to 3.40% for 2020.

Average interest-bearing liabilities for the year ended December 31, 2021 were $29.35 billion, an increase of $4.45 billion compared to $24.89 billion for 2020. The increase is primarily due to growth in interest-bearing deposits. The average rate paid on interest-bearing liabilities was 0.21% for the year ended December 31, 2021, a decrease of 17 basis points compared to 0.38% for 2020.

Credit Losses

The benefit for credit losses was $36.8 million for the year ending December 31, 2021, compared to a provision for credit losses of $58.4 million for 2020. Credit losses in 2021 were favorably impacted by a $45.8 million reserve release, primarily driven by improvement in macroeconomic factors, continued strong credit performance, and low net charge-offs, while 2020 included a $35.9 million reserve build, primarily related to uncertainties surrounding the COVID-19 pandemic. Net charge-offs for the year ending December 31, 2021 were $9.0 million, a decrease of $13.5 million compared to $22.4 million in 2020. The net charge-off to average loans ratio was 0.03% for the year ending December 31, 2021, a decline of 4 basis points from 0.07% for 2020.

44

Noninterest Income

Table 4

NONINTEREST INCOME

[[GREPCENT_TABLE]]
[["","Year ended December 31"],["(Dollars in thousands)","2021","","2020","","2019"],["Wealth management services","$","128,788","","","$","102,776","","","$","99,241"],["Service charges on deposit accounts","94,756","","","87,662","","","105,191"],["Cardholder services, net","86,684","","","74,291","","","69,078"],["Other service charges and fees","35,923","","","30,911","","","31,644"],["Merchant services, net","33,140","","","24,122","","","24,304"],["Mortgage income","30,508","","","39,592","","","21,126"],["Insurance commissions","15,556","","","14,544","","","12,810"],["ATM income","6,002","","","5,758","","","6,296"],["Marketable equity securities gains, net","34,081","","","29,395","","","20,625"],["Realized gains on investment securities available for sale, net","33,119","","","60,253","","","7,115"],["Other","9,445","","","7,446","","","18,431"],["Total noninterest income","$","508,002","","","$","476,750","","","$","415,861"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2021, total noninterest income was $508.0 million, compared to $476.8 million for 2020, an increase of $31.3 million, or 6.6%. The increases were primarily attributable to the following:

•Wealth management services income increased by $26.0 million, primarily due to growth in assets under management resulting in higher advisory and transaction fees.

•Service charges on deposit accounts increased by $7.1 million and other service charges and fees increased $5.0 million as impacts from the COVID-19 pandemic abated and service charges trended back toward pre-pandemic levels. We recently announced our intent to eliminate our NSF fees and significantly lower our overdraft fees from $36 to $10 on consumer accounts beginning mid-year 2022. This could reduce our income from service charges on deposit accounts.

•Cardholder services income increased $12.4 million, primarily due to an increase in the volume of transactions processed, which reflected improved consumer sentiment in 2021 as the impact of COVID-19 subsided.

•Merchant services increased by $9.0 million, primarily due to an increase in volume, as well as a decrease in processing rates paid as a result of changes in service providers.

•A $4.7 million favorable change related to gains on sales and the fair market value adjustment of marketable equity securities.

The increases in noninterest income were partially offset by a $27.1 million decrease in realized gains on sales of available for sale securities, primarily due to lower sales volume and the interest rate environment, and a $9.1 million decline in mortgage income, primarily due to lower production volume driven by higher mortgage rates and increased competition.

45

Noninterest Expense

Table 5

NONINTEREST EXPENSE

[[GREPCENT_TABLE]]
[["","Year ended December 31"],["(Dollars in thousands)","2021","","2020","","2019"],["Salaries and wages","$","623,194","","","$","590,020","","","$","551,112"],["Employee benefits","135,659","","","132,244","","","120,501"],["Occupancy expense","117,180","","","117,169","","","111,179"],["Equipment expense","119,171","","","115,535","","","112,290"],["Processing fees paid to third parties","59,743","","","44,791","","","29,552"],["Merger-related expenses","29,463","","","17,450","","","17,166"],["Core deposit intangible amortization","10,948","","","14,255","","","16,346"],["Collection and foreclosure-related expenses","5,442","","","13,658","","","11,994"],["Consultant expense","12,507","","","12,751","","","12,801"],["FDIC insurance expense","14,132","","","12,701","","","10,664"],["Telecommunications expense","12,714","","","12,179","","","9,391"],["Advertising expense","9,763","","","10,010","","","11,437"],["Other","83,594","","","95,922","","","89,308"],["Total noninterest expense","$","1,233,510","","","$","1,188,685","","","$","1,103,741"]]
[[/GREPCENT_TABLE]]

For the year ending December 31, 2021, total noninterest expense was $1.23 billion, an increase of $44.8 million or 3.8%, compared to $1.19 billion for 2020. The change was primarily attributable to the following:

•Personnel expense, which includes salaries, wages and employee benefits, increased by $36.6 million, primarily due to an increase in salaries and wages as a result of annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs, largely attributable to transitioning customers to the new business online banking platform.

•Processing fees paid to third parties increased $15.0 million primarily driven by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.

•Merger-related expenses increased $12.0 million associated with the CIT Merger, primarily due to legal and other professional fees.

•These increases were partially offset by decreases totaling $15.6 million. The decreases were largely attributable to a decline of $14.2 million in net periodic benefit cost related to the defined benefit pension plans.

Income Taxes

Income tax expense was $154.2 million and $126.2 million for the years ended December 31, 2021 and 2020, respectively, representing effective tax rates of 22.0% and 20.4%, respectively.

Income tax expense for 2021 and 2020 was favorably impacted by $2.3 million and $13.9 million, respectively, due to BancShares’ decision in the second quarter of 2020 to utilize an allowable alternative for computing its 2021 and 2020 federal income tax liability. The allowable alternative provides 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.

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. Higher risk investments typically carry a higher interest rate, but expose us to higher levels of market and/or credit 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 $54.70 billion and $47.19 billion at December 31, 2021 and December 31, 2020, respectively. The $7.51 billion increase was primarily composed of a $4.77 billion increase in overnight investments and a $3.19 billion increase in investment securities, partially offset by a $420 million decrease in loans and leases.

46

Investment Securities

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity risk and low to moderate interest rate risk and credit 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 securities 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 or into overnight investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow any overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand. Refer to Note A, Accounting Policies and Basis of Presentation, and Note C, Investments, in the Notes to Consolidated Financial Statements for additional disclosures regarding investment securities.

The carrying value of total investment securities was $13.11 billion at December 31, 2021, an increase of $3.19 billion compared to $9.92 billion at December 31, 2020. The increase in the portfolio was primarily attributable to purchases totaling $7.78 billion, partially offset by maturities and paydowns of $3.26 billion and sales of $1.40 billion. This increase was due to excess liquidity generated by significant deposit growth during the year.

At December 31, 2021, investment securities available for sale had a net pre-tax unrealized loss of $11.8 million, compared to a net pre-tax unrealized gain of $102.3 million at December 31, 2020. After evaluating the investment securities with unrealized losses, management concluded that no credit-related impairment existed as of December 31, 2021. Investment securities classified as available for sale are reported at fair value and unrealized gains and losses are included as a component of accumulated other comprehensive income (“AOCI”), net of deferred taxes.

On October 1, 2021, mortgage-backed securities with an amortized cost of $451.7 million 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 $439.02 million and a weighted average contractual maturity of approximately 5 years. The unrealized loss on these securities at the date of transfer was $12.7 million, or $9.7 million net of tax, and was reported as a component of AOCI. This unrealized loss is amortized over the remaining expected life of the securities as an adjustment of yield.

On November 1, 2020, mortgage-backed securities with an amortized cost of $1.46 billion were transferred from investment securities available for sale to the held to maturity portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $1.47 billion and a weighted average contractual maturity of 18 years. The unrealized gain on these securities at the date of transfer was $5.9 million, or $4.5 million net of tax, and was reported as a component of AOCI. This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield.

Table 6 presents the investment securities portfolio by major category at December 31, 2021 and December 31, 2020.

Table 6

INVESTMENT SECURITIES

[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["(Dollars in thousands)","Composition(1)","","Cost","","Fair Value","","Composition(1)","","Cost","","Fair Value"],["Investment securities available for sale"],["U.S. Treasury","15.4","%","","$","2,006,788","","","$","2,004,970","","","5.0","%","","$","499,832","","","$","499,933"],["Government agency","6.1","","","797,725","","","798,760","","","7.0","","","706,241","","","701,391"],["Residential mortgage-backed securities","36.2","","","4,756,977","","","4,728,413","","","44.5","","","4,369,130","","","4,438,103"],["Commercial mortgage-backed securities","8.1","","","1,071,309","","","1,062,749","","","7.9","","","745,892","","","771,537"],["Corporate bonds","4.7","","","582,420","","","608,535","","","6.1","","","590,870","","","603,279"],["State, county and municipal","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total investment securities available for sale","70.5","","","9,215,219","","","9,203,427","","","70.5","","","6,911,965","","","7,014,243"],["Investment in marketable equity securities","0.7","","","72,894","","","97,528","","","0.9","","","84,837","","","91,680"],["Investment securities held to maturity"],["Residential mortgage-backed securities","17.6","","","2,322,529","","","2,306,262","","","19.1","","","1,877,692","","","1,895,381"],["Commercial mortgage-backed securities","11.1","","","1,484,916","","","1,451,380","","","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","28.8","","","3,809,453","","","3,759,650","","","28.6","","","2,816,982","","","2,838,499"],["Total investment securities","100.0","%","","$","13,097,566","","","$","13,060,605","","","100.0","%","","$","9,813,784","","","$","9,944,422"],["(1) Calculated as a percent of the total fair value of investment securities."]]
[[/GREPCENT_TABLE]]

47

Table 7 presents the weighted average taxable-equivalent yields for investment securities held to maturity by major category at December 31, 2021 with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level annualized yields.

Table 7

WEIGHTED AVERAGE YIELD ON INVESTMENT SECURITIES

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["","Within One Year","","One to Five Years","","Five to 10 Years","","After 10 Years","","Total"],["Investment securities held to maturity"],["Residential mortgage-backed securities(1)","\u2014","%","","\u2014","%","","\u2014","%","","1.23","%","","1.23","%"],["Commercial mortgage-backed securities(1)","\u2014","","","\u2014","","","\u2014","","","1.47","","","1.47"],["Other investments","0.94","","","\u2014","","","\u2014","","","\u2014","","","0.94"],["Total investment securities held to maturity","0.94","%","","\u2014","%","","\u2014","%","","1.33","%","","1.33","%"]]
[[/GREPCENT_TABLE]]

(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 $98.7 million as of December 31, 2021, a net decrease of $26.1 million compared to $124.8 million as of December 31, 2020. The decrease is primarily due to sales of $1.00 billion, loans held for sale exchanged for investment securities of $230.5 million, partially offset by originations of $1.12 billion and transfers from loans held for investment to loans held for sale of $87.8 million.

Total loans were $32.37 billion as of December 31, 2021, a decrease of $420.5 million or 1.3% compared to $32.79 billion as of December 31, 2020. The decrease was primarily due to declines of $1.91 billion or 79.5% in SBA-PPP loans, which were primarily due to forgiveness of approximately $3.9 billion, partially offset by originations and recognition of deferred fees. The decrease in SBA-PPP loans was largely offset by increases of $827.6 million in owner occupied commercial mortgages and $697.0 million in commercial and industrial. These increases are primarily due to growth in commercial lines, equipment leasing, and our government lending portfolios.

Loans and leases held for investment are classified differently, dependent on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination as of the date of acquisition. Non-purchased credit deteriorated (“non-PCD”) loans consist of loans which were originated by us or purchased from other institutions that did not reflect more than insignificant credit deterioration at acquisition. Purchased credit deteriorated (“PCD”) loans are purchased loans which reflect a more than insignificant credit deterioration since origination as of the date of acquisition. The net decrease of $125.3 million in PCD loans as of December 31, 2021 compared to December 31, 2020 was primarily due to pay downs and payoffs.

We report non-PCD and PCD loan portfolios separately, with the non-PCD portfolio further divided into commercial and consumer segments. Non-PCD loans and leases at December 31, 2021 were $32.03 billion compared to $32.33 billion at December 31, 2020, representing 99.0% and 98.6% of total loans, respectively. PCD loans at December 31, 2021 were $337.6 million, compared to $462.9 million at December 31, 2020, representing 1.0% and 1.4% of loans, respectively.

The discount related to acquired non-PCD loans and leases at December 31, 2021 and December 31, 2020 was $11.4 million and $19.5 million, respectively. The discount related to PCD loans at December 31, 2021 and December 31, 2020 was $29.0 million and $45.3 million, respectively. The primary driver of the decrease in PCD discount was loan payoffs.

During the year ended December 31, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $8.0 million and $11.3 million, respectively. During the year ended December 31, 2021 and 2020, interest and accretion income on purchased PCD loans and leases was $44.3 million and $59.7 million, respectively.

48

Table 8 provides the composition of net loans and leases for the past three years.

Table 8

LOANS AND LEASES

[[GREPCENT_TABLE]]
[["","December 31"],["(Dollars in thousands)","2021","","2020"],["Non-PCD loans and leases:"],["Commercial:"],["Construction and land development","$","1,111,797","","","$","985,424"],["Owner occupied commercial mortgage","11,992,625","","","11,165,012"],["Non-owner occupied commercial mortgage","2,971,393","","","2,987,689"],["Commercial and industrial and leases","5,710,652","","","5,013,644"],["SBA-PPP","493,821","","","2,406,291"],["Total commercial loans","22,280,288","","","22,558,060"],["Consumer:"],["Residential mortgage","5,679,919","","","5,561,686"],["Revolving mortgage","1,795,005","","","2,052,854"],["Construction and land development","399,570","","","348,123"],["Consumer auto","1,331,388","","","1,255,402"],["Consumer other","547,728","","","552,968"],["Total consumer loans","9,753,610","","","9,771,033"],["Total non-PCD loans and leases","32,033,898","","","32,329,093"],["PCD loans","337,624","","","462,882"],["Total loans and leases","32,371,522","","","32,791,975"],["Less allowance for credit losses","(178,493)","","","(224,314)"],["Net loans and leases","$","32,193,029","","","$","32,567,661"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","December 31"],["(Dollars in thousands)","","","2019"],["Non-PCI loans and leases:"],["Commercial:"],["Construction and land development","","","$","1,013,454"],["Commercial mortgage","","","12,282,635"],["Other commercial real estate","","","542,028"],["Commercial and industrial and leases","","","4,403,792"],["Other","","","310,093"],["Total commercial loans","","","18,552,002"],["Noncommercial:"],["Residential mortgage","","","5,293,917"],["Revolving mortgage","","","2,339,072"],["Construction and land development","","","357,385"],["Consumer","","","1,780,404"],["Total noncommercial loans","","","9,770,778"],["Total non-PCI loans and leases","","","$","28,322,780"],["PCI loans","","","$","558,716"],["Total loans and leases","","","28,881,496"],["Less allowance for credit losses","","","(225,141)"],["Net loans and leases","","","$","28,656,355"]]
[[/GREPCENT_TABLE]]

49

Allowance for Credit Losses

During January 2020, we adopted ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), which changed the methodology, accounting policies, and inputs used in determining the ACL. Refer to Note A, Accounting Policies and Basis of Presentation, in the Notes to Consolidated Financial Statements for a discussion of the methodology used in the determination of the ACL.

The ACL was $178.5 million at December 31, 2021, compared to $224.3 million and $225.1 million at December 31, 2020 and 2019, respectively. The ACL as a percentage of total loans and leases was 0.55% at December 31, 2021, compared to 0.68% and 0.78% at December 31, 2020 and 2019, respectively. The decrease in the ACL as of December 31, 2021 compared to December 31, 2020 was primarily driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors.

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. 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 forecasts consider a range of economic scenarios from an upside scenario to a severely adverse scenario, but the December 31, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by our strong credit quality and low net charge-offs.

As of December 31, 2021, the baseline forecast utilized the following significant inputs over the two-year reasonable and supportable forecast period:

Unemployment - Expected to improve to below 4% by the end of 2022, slightly increasing to just above 4% in the first quarter of 2023, stabilizing below 4% through the remainder of 2023

GDP Growth - Peak quarter over quarter annualized growth of just under 7% in the fourth quarter of 2021, decreasing to below 3% in the second half of 2022 and thereafter

Home Pricing Index - Year over year growth rates of approximately 7% during 2022, declining to below 3% by the second half of 2023

Commercial Real Estate Index - Slight downturn in year over year change in the second quarter of 2022, relatively flat throughout the rest of 2022, followed by continued growth reaching 9% in the second and third quarters of 2023.

At December 31, 2021, the ACL allocated to non-PCD loans and leases was $163.7 million, or 0.51% of non-PCD loans and leases, compared to $200.3 million, or 0.62%, at December 31, 2020, and $217.6 million, or 0.77%, at December 31, 2019. Aside from SBA-PPP loans, which have no allowance, the decrease at December 31, 2021 compared to 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 0.52% at December 31, 2021 compared to 0.67% at December 31, 2020.

At December 31, 2021, the ACL on PCD loans totaled $14.8 million compared to $24.0 million at December 31, 2020 and $7.5 million, at December 31, 2019. The decrease at December 31, 2021 compared to December 31, 2020 was primarily due to a $9.2 million reserve release for the year ended December 31, 2021, driven primarily by continued strong credit performance, low net charge-offs, improvement in macroeconomic factors, and lower PCD loan balances.

At December 31, 2021, the ACL on unfunded commitments was $11.8 million compared to $12.8 million at December 31, 2020 and $1.1 million, at December 31, 2019.

50

Table 9 provides details of the ACL, provision components and net charge-off ratio by loan class for the past three years.

Table 9

ALLOWANCE FOR CREDIT LOSSES

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2021"],["(Dollars in thousands)","Commercial","","Consumer","","PCD","","Total"],["Allowance for credit losses:"],["Balance at January 1, 2021","80,842","","","119,485","","","23,987","","","224,314"],["Benefit for credit losses","(1,228)","","","(21,278)","","","(14,329)","","","(36,835)"],["Charge-offs","(15,924)","","","(17,181)","","","(2,317)","","","(35,422)"],["Recoveries","7,523","","","11,452","","","7,461","","","26,436"],["Balance at December 31, 2021","$","71,213","","","$","92,478","","","$","14,802","","","$","178,493"],["Net charge-off (recovery) ratio","0.04","%","","0.06","%","","(1.28)","%","","0.03","%"],["Net charge-offs (recoveries)","$","8,401","","","$","7,048","","","$","(5,144)","","","$","8,986"],["Average loans","22,550,607","","","9,797,112","","","402,277","","","32,749,996"],["","Year Ended December 31, 2020"],["","Commercial","","Consumer","","PCD","","Total"],["Balance at December 31, 2019","$","142,369","","","$","75,236","","","$","7,536","","","$","225,141"],["Adoption of ASC 326","(87,554)","","","30,629","","","19,001","","","(37,924)"],["Balance at January 1, 2020","54,815","","","105,865","","","26,537","","","187,217"],["Provision (benefit)","37,763","","","27,791","","","(7,202)","","","58,352"],["Initial allowance on PCD loans","\u2014","","","\u2014","","","1,193","","","1,193"],["Charge-offs","(17,586)","","","(24,219)","","","(3,300)","","","(45,105)"],["Recoveries","5,850","","","10,048","","","6,759","","","22,657"],["Balance at December 31, 2020","$","80,842","","","$","119,485","","","$","23,987","","","$","224,314"],["Net charge-off (recovery) ratio","0.06","%","","0.15","%","","(0.67)","%","","0.07","%"],["Net charge-offs (recoveries)","$","11,736","","","$","14,171","","","$","(3,459)","","","$","22,448"],["Average loans","21,282,535","","","9,617,600","","","517,121","","","31,417,256"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2019"],["(Dollars in thousands)","Commercial","","Consumer","","PCI","","Total"],["Balance at January 1, 2019","$","139,043","","","$","75,525","","","9,144","","","223,712"],["Provision (benefit)","13,386","","","19,663","","","(1,608)","","","31,441"],["Charge-offs","(14,744)","","","(28,283)","","","\u2014","","","(43,027)"],["Recoveries","4,684","","","8,331","","","\u2014","","","13,015"],["Balance at December 31, 2019","$","142,369","","","$","75,236","","","$","7,536","","","$","225,141"],["Net charge-off ratio","0.06","%","","0.22","%","","\u2014","%","","0.11","%"],["Net charge-offs","$","10,060","","","$","19,952","","","$","\u2014","","","$","30,012"],["Average loans","16,875,800","","","9,182,570","","","537,131","","","26,595,501"]]
[[/GREPCENT_TABLE]]

Table 10 provides trends of the ACL ratios for the past three years.

Table 10

ALLOWANCE FOR CREDIT LOSSES RATIOS

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","2021","","2020","","2019"],["Allowance for credit losses to total loans and leases:","0.55","%","","0.68","%","","0.78","%"],["Allowance for credit losses","$","178,493","","","$","224,314","","","$","225,141"],["Total loans and leases","32,371,522","","","32,791,975","","","28,881,496"],["Allowance for credit losses to non-PCD loans and leases:","0.51","%","","0.62","%","","0.77","%"],["Allowance for credit losses on non-PCD loans and leases","$","163,691","","","$","200,327","","","$","217,605"],["Total non-PCD loans and leases","32,033,898","","","32,329,093","","","28,322,780"],["Allowance for credit losses to PCD loans:","4.38","%","","5.18","%","","1.35","%"],["Allowance for credit losses on PCD loans","$","14,802","","","$","23,987","","","$","7,536"],["Total PCD loans","337,624","","","462,882","","","558,716"]]
[[/GREPCENT_TABLE]]

51

Table 11 details the allocation of the ACL among the various loan types. See Note E, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements for additional disclosures regarding the ACL.

Table 11

ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES

[[GREPCENT_TABLE]]
[["","December 31"],["","2021","2020"],["(dollars in thousands)","Allowance for credit losses","","Percent of loans to total loans","","Allowance for loan and lease losses","","Percent of loans to total loans"],["Non-PCD loans and leases"],["Commercial:"],["Construction and land development","$","4,465","","","3.4","%","","$","6,746","","","3.0","%"],["Owner occupied commercial mortgage","21,964","","","37.0","","","23,665","","","34.0"],["Non-owner occupied commercial mortgage","14,149","","","9.2","","","22,652","","","9.1"],["Commercial and industrial and leases","30,635","","","17.7","","","27,779","","","15.3"],["SBA-PPP","\u2014","","","1.5","","","\u2014","","","7.3"],["Total commercial loans and leases","71,213","","","68.8","","","80,842","","","68.7"],["Consumer:"],["Residential mortgage","32,865","","","17.5","","","44,098","","","17.0"],["Revolving mortgage","16,750","","","5.6","","","24,757","","","6.3"],["Construction and land development","976","","","1.2","","","1,731","","","1.1"],["Consumer auto","5,762","","","4.1","","","9,460","","","3.8"],["Consumer other","36,125","","","1.7","","","39,439","","","1.7"],["Total consumer loans","92,478","","","30.1","","","119,485","","","29.9"],["Total non-PCD loans and leases","163,691","","","98.9","","","200,327","","","98.6"],["PCD loans","14,802","","","1.1","","","23,987","","","1.4"],["Total loans and leases","$","178,493","","","100.0","%","","$","224,314","","","100.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","","","December 31"],["","","","","2019"],["(dollars in thousands)","","","","","","Allowance for loan and lease losses","","Percent of loans to total loans"],["Non-PCI loans and leases"],["Commercial:"],["Construction and land development","","","","","","$","33,213","","","3.5","%"],["Commercial mortgage","","","","","","45,335","","","42.5"],["Other commercial real estate","","","","","","2,211","","","1.9"],["Commercial and industrial and leases","","","","","","59,374","","","15.3"],["Other","","","","","","2,236","","","1.1"],["Total commercial loans and leases","","","","","","142,369","","","64.3"],["Noncommercial:"],["Residential mortgage","","","","","","18,232","","","18.3"],["Revolving mortgage","","","","","","19,702","","","8.1"],["Construction and land development","","","","","","2,709","","","1.2"],["Consumer","","","","","","34,593","","","6.2"],["Total noncommercial loans","","","","","","75,236","","","33.8"],["Total non-PCI loans and leases","","","","","","217,605","","","98.1"],["PCI loans","","","","","","7,536","","","1.9"],["Total loans and leases","","","","","","$","225,141","","","100.0","%"]]
[[/GREPCENT_TABLE]]

52

Nonperforming Assets

Nonperforming assets include nonaccrual loans and OREO resulting from both non-PCD and PCD loans. Non-PCD loans are generally placed on nonaccrual when principal or interest becomes 90 days past due or when it is probable that principal or interest is not fully collectable. When non-PCD loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued. Non-PCD loans and leases are generally removed from nonaccrual status when they become current for a sustained period of time as to both principal and interest and there is no longer concern as to the collectability of principal and interest. Accretion of income for PCD loans is discontinued when we are unable to estimate the amount or timing of cash flows. PCD loans may begin or resume accretion of income when information becomes available that allows us to estimate the amount and timing of future cash flows.

OREO includes foreclosed property and branch facilities that we have closed but not sold. Net book values of OREO are reviewed at least annually to evaluate if write-downs are required. The level of review is dependent on the value and type of the collateral, with higher value and more complex properties receiving a more detailed review. Changes to the value of the assets between scheduled valuation dates are monitored through communication with brokers and monthly reviews by the asset manager assigned to each asset. The asset manager uses the information gathered from brokers and other market sources to identify any significant changes in the market or the subject property as they occur. Valuations are then adjusted or new appraisals are ordered to ensure the reported values reflect the most current information.

Since OREO is carried at the lower of cost or market value, less estimated selling costs, book value adjustments are only recorded when fair values have declined. Decisions regarding write-downs are based on factors including appraisals, previous offers received on the property, market conditions and the number of days the property has been on the market.

Table 12 provides details on nonperforming assets and other risk elements.

Table 12

NONPERFORMING ASSETS

[[GREPCENT_TABLE]]
[["","December 31"],["(Dollars in thousands, except ratios)","2021","","2020","2019"],["Nonaccrual loans and leases:"],["Non-PCD","$","90,690","","","$","136,544","","$","114,946"],["PCD","29,616","","","54,939","","6,743"],["Total nonaccrual loans","120,306","","","191,483","","121,689"],["Other real estate owned","39,328","","","50,890","","46,591"],["Total nonperforming assets","$","159,634","","","$","242,373","","$","168,280"],["Accruing loans and leases 90 days or more past due:"],["Non-PCD","$","6,382","","","$","5,507","","$","3,291"],["PCD","543","","","355","","24,257"],["Ratio of total nonperforming assets to total loans, leases and other real estate owned","0.49","","","0.74","","0.58"],["Ratio of nonaccrual loans and leases to total loans and leases","0.37","","","0.58","","0.42"],["Ratio of allowance for credit losses to nonaccrual loans and leases","148.4","","","117.1","","185.0"]]
[[/GREPCENT_TABLE]]

Troubled Debt Restructurings

A loan is considered a troubled debt restructuring (“TDR”) when both of the following occur: (1) a modification to a borrower’s debt agreement is made and (2) a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be granted. TDR concessions could include deferrals of interest, modifications of payment terms, or, in certain limited instances, forgiveness of principal or interest. Acquired loans are classified as TDRs if a modification is made subsequent to acquisition. We further classify TDRs as performing and nonperforming. Performing TDRs accrue interest at the time of restructure and continue to perform based on the restructured terms. Nonperforming TDRs do not accrue interest and are included with other nonperforming assets within nonaccrual loans and leases in Table 12 above.

53

The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing COVID-19-related financial difficulty. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs. Refer to Note A, Accounting Policies and Basis of Presentation, in the Notes to Consolidated Financial Statements for discussion of our accounting policies for TDRs.

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. TDR 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.

Table 13 provides further details on performing and nonperforming TDRs for the last three years.

Table 13

TROUBLED DEBT RESTRUCTURINGS

[[GREPCENT_TABLE]]
[["","December 31"],["(Dollars in thousands)","2021","","2020","","2019"],["Accruing TDRs:"],["Non-PCD","$","117,380","","","$","139,747","","","$","111,676"],["PCD","29,401","","","17,617","","","17,074"],["Total accruing TDRs","$","146,781","","","$","157,364","","","$","128,750"],["Nonaccruing TDRs:"],["Non-PCD","37,832","","","43,470","","","42,331"],["PCD","9,935","","","7,346","","","111"],["Total nonaccruing TDRs","$","47,767","","","$","50,816","","","$","42,442"],["All TDRs:"],["Non-PCD","155,212","","","183,217","","","154,007"],["PCD","39,336","","","24,963","","","17,185"],["Total TDRs","$","194,548","","","$","208,180","","","$","171,192"]]
[[/GREPCENT_TABLE]]

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 $31.78 billion at December 31, 2021, compared to $27.31 billion at December 31, 2020. The $4.48 billion increase was primarily due to an increase in interest-bearing deposits of $4.58 billion, partially offset by a decrease in total borrowings of $106.2 million.

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.

Total deposits increased by $7.97 billion, or 18.4%, to $51.41 billion as of December 31, 2021 from $43.43 billion as of December 31, 2020. The increases were primarily due to increases of $3.39 billion in demand deposits, $2.10 billion in checking with interest, and $1.96 billion in money market. The growth in deposits is coming from a mix of new clients and existing clients and is generally from our commercial customers.

54

Table 14 provides deposit balances as of December 31, 2021 and 2020.

Table 14

DEPOSITS

[[GREPCENT_TABLE]]
[["","December 31"],["(Dollars in thousands)","2021","","2020"],["Demand","$","21,404,808","","","$","18,014,029"],["Checking with interest","12,694,389","","","10,591,687"],["Money market","10,590,106","","","8,632,713"],["Savings","4,235,824","","","3,304,167"],["Time","2,480,967","","","2,889,013"],["Total deposits","$","51,406,094","","","$","43,431,609"]]
[[/GREPCENT_TABLE]]

Table 15 provides the expected maturity of time deposits in excess of $250 thousand, the FDIC insurance limit, as of December 31, 2021.

Table 15

MATURITIES OF TIME DEPOSITS IN EXCESS OF $250,000

[[GREPCENT_TABLE]]
[["","December 31"],["(Dollars in thousands)","2021","","2020"],["Time deposits maturing in:"],["Three months or less","$","224,156","","","$","136,200"],["Over three months through six months","115,507","","","118,496"],["Over six months through 12 months","84,996","","","86,260"],["More than 12 months","154,862","","","311,956"],["Total","$","579,521","","","$","652,912"]]
[[/GREPCENT_TABLE]]

We estimate total uninsured deposits were $22.95 billion and $18.02 billion at December 31, 2021 and 2020, respectively.

Borrowings

At December 31, 2021, total borrowings were $1.78 billion compared to $1.89 billion at December 31, 2020. The $106.2 million decrease was primarily due to a decrease of $52.4 million in securities sold under customer repurchase agreements and a decrease of $27.0 million in total subordinated debt.

Table 16

BORROWINGS

[[GREPCENT_TABLE]]
[["","December 31"],["(Dollars in thousands)","2021","","2020"],["Securities sold under customer repurchase agreements","$","589,101","","","$","641,487"],["Federal Home Loan Bank borrowings","644,659","","","655,175"],["Subordinated debt"],["SCB Capital Trust I","9,817","","","9,779"],["FCB/SC Capital Trust II","17,798","","","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","347,371","","","346,541"],["Other subordinated debt","\u2014","","","27,956"],["Total subordinated debt","477,564","","","504,518"],["Other borrowings","72,155","","","88,470"],["Total borrowings","$","1,783,479","","","$","1,889,650"]]
[[/GREPCENT_TABLE]]

55

The Parent Company 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.

On March 4, 2020, we completed a public offering of $350 million aggregate principal amount of our 3.375% Fixed-to-Floating Rate Subordinated Notes due 2030, which are redeemable starting with the interest payment due March 15, 2025, subject to obtaining the prior approval of the Federal Reserve to the extent such approval is then required under the rules of the Federal Reserve, or earlier upon the occurrence of certain events.

In conjunction with the CIT Merger, FCB assumed approximately $3.7 billion senior unsecured notes (principal balance) and $500 million subordinated unsecured notes (principal balance). On February 24, 2022, FCB redeemed approximately $2.9 billion of senior unsecured notes, leaving approximately $900 million of senior unsecured debt and $500 million of subordinated unsecured debt outstanding. Refer to Note W, Subsequent Events, in the Notes to Consolidated Financial Statements for further discussion of the redemption of this debt.

Commitments and Contractual Obligations

Table 17 identifies significant obligations and commitments as of December 31, 2021 representing required and potential cash outflows. See Note T, Commitments and Contingencies, for additional information regarding total commitments. Loan commitments and standby letters of credit are presented at contractual amounts and do not necessarily reflect future cash outflows as many are expected to expire unused or partially used.

Table 17

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

[[GREPCENT_TABLE]]
[["Type of obligation","Payments due by period"],["(Dollars in thousands)","Less than 1 year","","1-3 years","","3-5 years","","Thereafter","","Total"],["Contractual obligations:"],["Time deposits","$","1,937,216","","","$","306,928","","","$","56,970","","","$","179,853","","","$","2,480,967"],["Short-term borrowings","589,101","","","\u2014","","","\u2014","","","\u2014","","","589,101"],["Long-term obligations","82,735","","","131,271","","","2,649","","","977,723","","","1,194,378"],["Total contractual obligations","$","2,609,052","","","$","438,199","","","$","59,619","","","$","1,157,576","","","$","4,264,446"],["Commitments:"],["Loan commitments","$","6,391,757","","","$","2,086,781","","","$","769,469","","","$","3,763,147","","","$","13,011,154"],["Standby letters of credit","100,520","","","15,916","","","212","","","\u2014","","","116,648"],["Affordable housing partnerships","28,407","","","13,658","","","556","","","795","","","43,416"],["Total commitments","$","6,520,684","","","$","2,116,355","","","$","770,237","","","$","3,763,942","","","$","13,171,218"]]
[[/GREPCENT_TABLE]]

CRA Investment Commitment

Prior to the CIT Merger, CIT announced a Community Benefits Plan developed in collaboration with the California Reinvestment Coalition (“CRC”) and the National Community Reinvestment Coalition (“NCRC”). Through the plan, CIT Bank agreed to fund $7.75 billion in CRA qualified lending and investments over a four-year term, covering the period of January 1, 2020 through December 31, 2023. Of the $7.75 billion commitment, $6.5 billion over the four-year plan period will be within California for statewide CRA lending and investments, with sub-targets for specified multi-family, small business and mortgage lending. Outside of California, CIT Bank had committed $1.25 billion over the four-year term in CRA qualified lending and investments to communities where it will have physical branches. In conjunction with the CIT Merger, BancShares agreed to honor the CRA commitments.

SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY

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 requirements imposed by regulatory authorities and to ensure they are appropriate, given growth projections, risk profile and potential changes in the regulatory environment. Failure to meet certain capital requirements may result in actions by regulatory agencies, which could have a material impact on our consolidated financial statements.

56

During 2021, the Parent Company did not repurchase any Class A common stock. During 2020, the Parent Company repurchased a total of 813,090 shares of Class A common stock, or 8.4% of outstanding Class A shares as of December 31, 2019, for $333.8 million at an average cost per share of $410.48. There were no repurchases of Class B common stock or preferred stock during the year ended December 31, 2021 or 2020. All share repurchases were executed under previously approved authorities.

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

During 2020 and 2019, the share repurchases included 45,000 and 100,000 shares, respectively, of Class A common stock purchased from Ella Anna Holding, as trustee of her revocable trust. Mrs. Holding is the widow of the Parent Company’s former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, our Chairman and Chief Executive Officer and Vice Chairman, respectively.

In connection with the consummation of the CIT Merger, the Parent Company issued approximately 6.1 million shares of its Class A Common Stock. The closing share price of the Class A Common Stock on the Nasdaq Global Select Market was $859.76 on January 3, 2022. Additionally, CIT Series A and B Preferred Stock was converted into the rights to receive BancShares Series B and C Preferred Stock, respectively. In connection with the consummation of the CIT Merger, the Parent Company issued (a) 325,000 shares of BancShares Series B Preferred Stock with a liquidation preference of $1,000 per share, resulting in a total liquidation preference of $325 million, and (b) 8 million shares of BancShares Series C Preferred Stock with a liquidation preference of $25 per share, resulting in a total liquidation preference of $200 million. The issuance of Class A Common Stock and the conversion of preferred stock is further discussed in the “Business Combinations” section of this MD&A.

57

Table 18 provides information on capital adequacy for BancShares and FCB as of December 31, 2021 and 2020.

Table 18

ANALYSIS OF CAPITAL ADEQUACY

[[GREPCENT_TABLE]]
[["","","","","","December 31, 2021","","December 31, 2020"],["(Dollars in thousands)","Basel III Requirements","","PCA well-capitalized thresholds","","Amount","","Ratio","","Amount","","Ratio"],["BancShares"],["Total risk-based capital","10.50","%","","10.00","%","","$","5,041,686","","","14.35","%","","$","4,577,212","","","13.81","%"],["Tier 1 risk-based capital","8.50","","","8.00","","","4,380,452","","","12.47","","","3,856,086","","","11.63"],["Common equity Tier 1","7.00","","","6.50","","","4,040,515","","","11.50","","","3,516,149","","","10.61"],["Tier 1 leverage","4.00","","","5.00","","","4,380,452","","","7.59","","","3,856,086","","","7.86"],["FCB"],["Total risk-based capital","10.50","%","","10.00","","","4,857,960","","","13.85","","","4,543,496","","","13.72"],["Tier 1 risk-based capital","8.50","","","8.00","","","4,651,226","","","13.26","","","4,276,870","","","12.92"],["Common equity Tier 1","7.00","","","6.50","","","4,651,226","","","13.26","","","4,276,870","","","12.92"],["Tier 1 leverage","4.00","","","5.00","","","4,651,226","","","8.07","","","4,276,870","","","8.72"]]
[[/GREPCENT_TABLE]]

Federal banking agencies approved regulatory capital guidelines (“Basel III”) aimed at strengthening previous capital requirements for banking organizations. Basel III became effective for BancShares on January 1, 2015 and the associated capital conservation buffers of 2.5% were fully phased in by January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Additionally, federal banking agencies have developed Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios. Failure to meet regulatory capital requirements may result in certain actions by regulators which could have a direct material effect on our consolidated financial statements. Table 18 demonstrates that the regulatory capital ratios for BancShares and FCB exceed the Basel III requirements and the PCA well-capitalized thresholds as of December 31, 2021 and 2020. At December 31, 2021, BancShares and FCB had total risk-based capital ratio conservation buffers of 6.35% and 5.85%, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of December 31, 2021 over the Basel III minimum. The Basel III minimums, conservation buffers, and requirements are discussed further in the “Capital Requirements” section in Item 1. Business included in this Annual Report on Form 10-K.

At December 31, 2021 and 2020, BancShares had additional Tier 1 Capital of $339.9 million, which consists of 5.375% non-cumulative perpetual preferred stock, series A. BancShares had Tier 2 capital totaling $661.2 million and $721.1 million at December 31, 2021 and 2020, respectively. FCB had Tier 2 capital totaling $206.7 million and $266.6 million at December 31, 2021 and 2020, respectively. Tier 2 capital consists of the allowance for credit losses (up to 1.25% of risk weighted assets), trust preferred securities, and qualifying subordinated debt. Under Basel III regulations, when subordinated debt is within five years of its scheduled maturity date, issuers must discount the amount included in Tier 2 capital by 20% each year until the debt matures. Once the subordinated debt is within one year of its scheduled maturity date, none of the subordinated debt qualifies as Tier 2 capital.