The following is a list of certain abbreviations and acronyms we use throughout this document. You may find it helpful to refer back to this table. We also include a Glossary of Key Terms in Part 1, Item 2. Management’s Discussion and Analysis.


Acronym	Definition	Acronym	Definition
ACL	Allowance for Credit Losses	IRC	Internal Revenue Code
AOCI	Accumulated Other Comprehensive Income	ISDA	International Swaps and Derivative Association
ASC	Accounting Standards Codification	LIBOR	London Inter-Bank Offered Rate
ASU	Accounting Standards Update	LOCOM	Lower of the Cost or Market Value
BHC	Bank Holding Company	MD&A	Management’s Discussion and Analysis
BOLI	Bank Owned Life Insurance	MSRs	Mortgage Servicing Rights
bps	Basis point(s); 1 bp = 0.01%	NCCOB	North Carolina Commissioner of Banks
CAB	Community Association Banking	NII	Net Interest Income
CECL	Current Expected Credit Losses	NII Sensitivity	Net Interest Income Sensitivity
DPA	Deferred Purchase Agreement	NIM	Net Interest Margin
DTAs	Deferred Tax Assets	NSF	Nonsufficient Funds
ETR	Effective Tax Rate	OREO	Other Real Estate Owned
EVE Sensitivity	Economic Value of Equity Sensitivity	PAA	Purchase Accounting Adjustments
FASB	Financial Accounting Standards Board	PB	Primary Beneficiary
FCB	First-Citizens Bank & Trust Company	PCA	Prompt corrective action
FDIC	Federal Deposit Insurance Corporation	PCD	Purchased Credit Deteriorated
FHA	Federal Housing Administration	PD	Probability of Obligor Default
FHC	Financial Holding Company	ROU	Right of Use
FHLB	Federal Home Loan Bank	RSU	Restricted Stock Unit
FOMC	Federal Open Market Committee	SBA	Small Business Administration
FRB	Federal Reserve Bank	SBA-PPP	Small Business Administration Paycheck Protection Plan
GAAP	Accounting Principles Generally Accepted in the U.S.	SOFR	Secured Overnight Financing Rate
GDP	Gross Domestic Product	TDRs	Troubled Debt Restructuring
HAMP	Home Affordable Modification Program	UPB	Unpaid Principal Balance
HOA	Home Owner’s Association	VA	Veteran’s Administration
HQLS	High Quality Liquid Securities	VIE	Variable Interest Entity



~~Item 6.~~	~~Exhibits~~	60

~~Table of Contents~~

PART I

Item 1.Financial Statements

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, unaudited) September 30, 2021 December 31, 2020
Assets
Cash and due from banks $ 337,450 $ 362,048
Overnight investments 9,875,063 4,347,336
Investment in marketable equity securities (cost of $85,554 at September 30, 2021 and $84,837 at December 31, 2020) 123,147 91,680
Investment securities available for sale (cost of $7,345,143 at September 30, 2021 and $6,911,965 at December 31, 2020) 7,371,129 7,014,243
Investment securities held to maturity (fair value of $3,353,078 at September 30, 2021 and $2,838,499 at December 31, 2020) 3,381,078 2,816,982
Loans held for sale 98,451 124,837
Loans and leases 32,516,189 32,791,975
Allowance for credit losses (183,194) (224,314)
Net loans and leases 32,332,995 32,567,661
Premises and equipment 1,230,572 1,251,283
Other real estate owned 40,649 50,890
Income earned not collected 132,911 145,694
Goodwill 350,298 350,298
Other intangible assets 44,142 50,775
Other assets 1,584,092 783,953
Total assets $ 56,901,977 $ 49,957,680
Liabilities
Deposits:
Noninterest-bearing $ 21,514,407 $ 18,014,029
Interest-bearing 28,551,355 25,417,580
Total deposits 50,065,762 43,431,609
Securities sold under customer repurchase agreements 663,575 641,487
Federal Home Loan Bank borrowings 645,663 655,175
Subordinated debt 497,427 504,518
Other borrowings 76,139 88,470
FDIC shared-loss payable — 15,601
Other liabilities 372,116 391,552
Total liabilities 52,320,682 45,728,412
Shareholders’ equity
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 8,811,220 shares issued and outstanding at September 30, 2021 and December 31, 2020) 8,811 8,811
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2021 and December 31, 2020) 1,005 1,005
Preferred stock - $0.01 par value (10,000,000 shares authorized; 345,000 shares issued and outstanding at September 30, 2021 and December 31, 2020; $1,000 per share liquidity preference) 339,937 339,937
Retained earnings 4,263,679 3,867,252
Accumulated other comprehensive (loss) income (32,137) 12,263
Total shareholders’ equity 4,581,295 4,229,268
Total liabilities and shareholders’ equity $ 56,901,977 $ 49,957,680


dollars in millions, except share data	September 30, 2022		December 31, 2021
Assets
Cash and due from banks	$	481	$	338
Interest-earning deposits at banks	6,172		9,115

Investments in marketable equity securities (cost of $73 million at September 30, 2022 and December 31, 2021)	92		98
Investment securities available for sale (cost of $10,083 million at September 30, 2022 and $9,215 million at December 31, 2021)	9,088		9,203
Investment securities held to maturity (fair value of $8,166 million at September 30, 2022 and $3,759 million at December 31, 2021)	9,661		3,809
Assets held for sale	21		99
Loans and leases	69,790		32,372
Allowance for credit losses	(882)		(178)
Loans and leases, net of allowance for credit losses	68,908		32,194
Operating lease equipment, net	7,984		—
Premises and equipment, net	1,410		1,233
Bank-owned life insurance	1,342		116
Goodwill	346		346
Other intangible assets	145		19
Other assets	3,660		1,739
Total assets	$	109,310	$	58,309
Liabilities
Deposits:
Noninterest-bearing	$	26,587	$	21,405
Interest-bearing	60,966		30,001
Total deposits	87,553		51,406
Credit balances of factoring clients	1,147		—
Borrowings:



Short-term borrowings	3,128		589




Long-term borrowings	5,215		1,195
Total borrowings	8,343		1,784
Other liabilities	2,434		381
Total liabilities	99,477		53,571
Stockholders’ equity
Preferred stock - $0.01 par value (10,000,000 shares authorized at September 30, 2022 and December 31, 2021)	881		340
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 13,970,944 and 8,811,220 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)	14		9
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2022 and December 31, 2021)	1		1
Additional paid in capital	4,506		—
Retained earnings	5,160		4,378
Accumulated other comprehensive (loss) income	(729)		10
Total stockholders’ equity	9,833		4,738
Total liabilities and stockholders’ equity	$	109,310	$	58,309

See accompanying Notes to the Unaudited Consolidated Financial Statements.

~~Table of Contents~~

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)

Three months ended September 30 Nine months ended September 30
(Dollars in thousands, except per share data, unaudited) 2021 2020 2021 2020
Interest income
Loans and leases $ 319,214 $ 336,382 $ 966,525 $ 988,029
Investment securities interest and dividend income 39,246 37,195 105,530 113,293
Overnight investments 3,395 757 6,948 5,828
Total interest income 361,855 374,334 1,079,003 1,107,150
Interest expense
Deposits 8,073 13,468 25,408 55,578
Securities sold under customer repurchase agreements 358 395 1,052 1,236
Federal Home Loan Bank borrowings 2,114 2,156 6,300 7,612
Subordinated debt 4,174 4,351 12,543 11,783
Other borrowings 249 305 768 1,488
Total interest expense 14,968 20,675 46,071 77,697
Net interest income 346,887 353,659 1,032,932 1,029,453
Provision (credit) for credit losses (1,120) 4,042 (31,697) 52,949
Net interest income after provision for credit losses 348,007 349,617 1,064,629 976,504
Noninterest income
Wealth management services 31,935 26,369 95,886 75,152
Service charges on deposit accounts 24,858 20,841 68,277 64,776
Cardholder services, net 22,879 19,756 65,310 55,503
Other service charges and fees 9,205 7,892 26,653 22,829
Merchant services, net 8,409 6,763 25,858 18,014
Mortgage income 6,106 13,106 25,026 28,141
Insurance commissions 4,000 3,576 11,702 10,453
ATM income 1,481 1,537 4,534 4,354
Realized gains on investment securities available for sale, net 8,082 21,425 33,119 54,972
Marketable equity securities gains (losses), net 3,350 (2,701) 31,015 10,461
Other 2,639 2,008 6,363 5,330
Total noninterest income 122,944 120,572 393,743 349,985
Noninterest expense
Salaries and wages 160,947 147,297 462,420 439,185
Employee benefits 32,146 31,788 103,169 100,663
Occupancy expense 29,101 27,990 87,283 85,026
Equipment expense 30,229 29,430 88,934 86,054
Processing fees paid to third parties 15,602 11,927 43,702 32,485
FDIC insurance expense 3,661 2,167 10,261 9,364
Collection and foreclosure-related expenses 836 2,168 3,207 10,171
Merger-related expenses 7,013 3,507 19,601 12,108
Other 33,283 35,388 91,745 108,256
Total noninterest expense 312,818 291,662 910,322 883,312
Income before income taxes 158,133 178,527 548,050 443,177
Income taxes 34,060 35,843 123,873 89,538
Net income $ 124,073 $ 142,684 $ 424,177 $ 353,639
Preferred stock dividends 4,636 4,636 13,908 9,426
Net income available to common shareholders $ 119,437 $ 138,048 $ 410,269 $ 344,213
Weighted average common shares outstanding 9,816,405 9,836,629 9,816,405 10,137,321
Earnings per common share $ 12.17 $ 14.03 $ 41.79 $ 33.96


	Three Months Ended September 30,				Nine Months Ended September 30,
dollars in millions, except share and per share data	2022		2021		2022		2021
Interest income
Interest and fees on loans	$	785	$	320	$	2,061	$	967
Interest on investment securities	90		40		262		106
Interest on deposits at banks	31		3		50		7
Total interest income	906		363		2,373		1,080
Interest expense
Deposits	78		8		159		25
Borrowings	33		8		70		22
Total interest expense	111		16		229		47
Net interest income	795		347		2,144		1,033
Provision (benefit) for credit losses	60		(1)		566		(32)
Net interest income after provision for credit losses	735		348		1,578		1,065
Noninterest income
Rental income on operating leases	219		—		640		—
Fee income and other service charges	44		10		118		31
Wealth management services	35		32		107		96
Service charges on deposit accounts	21		26		77		69
Factoring commissions	24		—		78		—
Cardholder services, net	25		23		76		65
Merchant services, net	8		9		27		26
Insurance commissions	11		4		34		12
Realized gain on sale of investment securities available for sale, net	—		8		—		33
Fair value adjustment on marketable equity securities, net	(2)		3		(5)		31
Bank-owned life insurance	8		1		25		2
Gain on sale of leasing equipment, net	2		—		13		—
Gain on acquisition	—		—		431		—
Gain on extinguishment of debt	1		—		7		—
Other noninterest income	37		8		79		29
Total noninterest income	433		124		1,707		394
Noninterest expense
Depreciation on operating lease equipment	87		—		257		—
Maintenance and other operating lease expenses	52		—		142		—
Salaries and benefits	351		194		1,044		566
Net occupancy expense	47		29		144		87
Equipment expense	55		30		161		89
Professional fees	13		5		44		13
Third-party processing fees	27		16		77		44
FDIC insurance expense	5		3		26		10
Marketing	15		3		32		7
Merger-related expenses	33		7		202		20
Intangible asset amortization	5		3		17		9
Other noninterest expense	70		24		169		66
Total noninterest expense	760		314		2,315		911
Income before income taxes	408		158		970		548
Income tax expense	93		34		129		124
Net income	$	315	$	124	$	841	$	424
Preferred stock dividends	12		5		36		14
Net income available to common stockholders	$	303	$	119	$	805	$	410
Earnings per common share
Basic	$	19.27	$	12.17	$	50.76	$	41.79
Diluted	$	19.25	$	12.17	$	50.70	$	41.79
Weighted average common shares outstanding
Basic	15,711,976		9,816,405		15,849,219		9,816,405
Diluted	15,727,993		9,816,405		15,867,314		9,816,405

See accompanying Notes to the Unaudited Consolidated Financial Statements.

~~Table of Contents~~

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Three months ended September 30 Nine months ended September 30
(Dollars in thousands, unaudited) 2021 2020 2021 2020
Net income $ 124,073 $ 142,684 $ 424,177 $ 353,639
Other comprehensive income
Unrealized (losses) gains on securities available for sale:
Unrealized (losses) gains on securities available for sale arising during the period (11,270) 9,781 (43,173) 182,690
Tax effect 2,593 (2,251) 9,930 (42,019)
Reclassification adjustment for realized gains on securities available for sale included in income before income taxes (8,082) (21,425) (33,119) (54,972)
Tax effect 1,858 4,928 7,617 12,644
Unrealized (losses) gains on securities available for sale arising during the period, net of tax (14,901) (8,967) (58,745) 98,343
Unrealized gains on securities available for sale transferred to held to maturity:
Reclassification adjustment for accretion of unrealized gains on securities available for sale transferred to held to maturity (430) — (1,690) —
Tax effect 99 — 389 —
Total change in unrealized gains on securities available for sale transferred to held to maturity, net of tax (331) — (1,301) —
Change in pension obligation:
Amortization of actuarial losses 6,773 6,332 20,320 18,994
Tax effect (1,558) (1,457) (4,674) (4,370)
Total change in pension obligation, net of tax 5,215 4,875 15,646 14,624
Other comprehensive (loss) income (10,017) (4,092) (44,400) 112,967
Total comprehensive income $ 114,056 $ 138,592 $ 379,777 $ 466,606
(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
dollars in millions	2022		2021		2022		2021
Net income	$	315	$	124	$	841	$	424
Other comprehensive loss, net of tax
Net unrealized loss on securities available for sale	(266)		(15)		(747)		(59)
Net change in unrealized loss on securities available for sale transferred to securities held to maturity	—		(1)		1		(1)
Net change in pension obligations	2		6		7		16


Other comprehensive loss, net of tax	$	(264)	$	(10)	$	(739)	$	(44)
Total comprehensive income	$	51	$	114	$	102	$	380

See accompanying Notes to the Unaudited Consolidated Financial Statements.

~~Table of Contents~~

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Changes in ~~Shareholders’~~Stockholders’ Equity (Unaudited)

Three months ended September 30
(Dollars in thousands, unaudited) Class A
Common Stock Class B
Common Stock Preferred
Stock Surplus Retained
Earnings Accumulated
Other
Comprehensive
(Loss) Income Total
Shareholders’
Equity
Balance at June 30, 2020 $ 8,929 $ 1,005 $ 339,937 $ — $ 3,651,237 $ (9,664) $ 3,991,444
Net income — — — — 142,684 — 142,684
Other comprehensive loss, net of tax — — — — — (4,092) (4,092)
Issuance of preferred stock — — — — — — —
Repurchase of 117,700 shares of Class A common stock (118) — — — (46,942) — (47,060)
Cash dividends declared ($0.40 per common share)
Class A common stock — — — — (3,524) — (3,524)
Class B common stock — — — — (402) — (402)
Preferred stock dividends declared — — — — (4,636) — (4,636)
Balance at September 30, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,738,417 $ (13,756) $ 4,074,414
Balance at June 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,148,857 $ (22,120) $ 4,476,490
Net income — — — — 124,073 — 124,073
Other comprehensive loss, net of tax — — — — — (10,017) (10,017)
Cash dividends declared ($0.47 per common share)
Class A common stock — — — — (4,143) — (4,143)
Class B common stock — — — — (472) — (472)
Preferred stock dividends declared — — — — (4,636) — (4,636)
Balance at September 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,263,679 $ (32,137) $ 4,581,295
Nine months ended September 30
(Dollars in thousands, unaudited) Class A
Common Stock Class B
Common Stock Preferred
Stock Surplus Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shareholders’
Equity
Balance at December 31, 2019 $ 9,624 $ 1,005 $ — $ 44,081 $ 3,658,197 $ (126,723) $ 3,586,184
Cumulative effect of adoption of ASC 326 — — — — 36,943 — 36,943
Net income — — — — 353,639 — 353,639
Other comprehensive income, net of tax — — — — — 112,967 112,967
Issuance of preferred stock — — 339,937 — — — 339,937
Repurchase of 813,090 shares of Class A common stock (813) — — (44,081) (288,861) — (333,755)
Cash dividends declared ($1.20 per common share)
Class A common stock — — — — (10,869) — (10,869)
Class B common stock — — — — (1,206) — (1,206)
Preferred stock dividends declared — — — — (9,426) — (9,426)
Balance at September 30, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,738,417 $ (13,756) $ 4,074,414
Balance at December 31, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,867,252 $ 12,263 $ 4,229,268
Net income — — — — 424,177 — 424,177
Other comprehensive loss, net of tax — — — — — (44,400) (44,400)
Cash dividends declared ($1.41 per common share)
Class A common stock — — — — (12,426) — (12,426)
Class B common stock — — — — (1,416) — (1,416)
Preferred stock dividends declared — — — — (13,908) — (13,908)
Balance at September 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,263,679 $ (32,137) $ 4,581,295


	Three Months Ended September 30,
dollars in millions, except share data	Preferred Stock		Class A Common Stock		Class B Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
Balance at June 30, 2022	$	881	$	15	$	1	$	5,345	$	4,865	$	(465)	$	10,642
Net income	—		—		—		—		315		—		315
Other comprehensive loss, net of tax	—		—		—		—		—		(264)		(264)






Stock based compensation	—		—		—		2		—		—		2
Repurchased 1,027,414 shares of Class A common stock	—		(1)		—		(841)		—		—		(842)
Cash dividends declared ($0.47 per common share):
Class A common stock	—		—		—		—		(7)		—		(7)
Class B common stock	—		—		—		—		(1)		—		(1)
Preferred stock dividends declared:
Series A	—		—		—		—		(5)		—		(5)
Series B	—		—		—		—		(5)		—		(5)
Series C	—		—		—		—		(2)		—		(2)
Balance at September 30, 2022	881		14		1		4,506		5,160		(729)		9,833

Balance at June 30, 2021	340		9		1		—		4,149		(22)		4,477
Net income	—		—		—		—		124		—		124
Other comprehensive income, net of tax	—		—		—		—		—		(10)		(10)
Cash dividends declared ($0.47 per common share):
Class A common stock	—		—		—		—		(4)		—		(4)
Class B common stock	—		—		—		—		—		—		—
Preferred stock dividends declared	—		—		—		—		(5)		—		(5)
Balance at September 30, 2021	$	340	$	9	$	1	$	—	$	4,264	$	(32)	$	4,582


	Nine Months Ended September 30,
dollars in millions, except share data	Preferred Stock		Class A Common Stock		Class B Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
Balance at December 31, 2021	$	340	$	9	$	1	$	—	$	4,378	$	10	$	4,738
Net income	—		—		—		—		841		—		841
Other comprehensive loss, net of tax	—		—		—		—		—		(739)		(739)
Issued in CIT Merger:
Common stock	—		6		—		5,273		—		—		5,279
Series B preferred stock	334		—		—		—		—		—		334
Series C preferred stock	207		—		—		—		—		—		207


Stock based compensation	—		—		—		74		—		—		74
Repurchased 1,027,414 shares of Class A common stock	—		(1)		—		(841)		—		—		(842)
Cash dividends declared ($0.47 per common share):
Class A common stock	—		—		—		—		(21)		—		(21)
Class B common stock	—		—		—		—		(2)		—		(2)
Preferred stock dividends declared:
Series A	—		—		—		—		(14)		—		(14)
Series B	—		—		—		—		(14)		—		(14)
Series C	—		—		—		—		(8)		—		(8)
Balance at September 30, 2022	881		14		1		4,506		5,160		(729)		9,833

Balance at December 31, 2020	340		9		1		—		3,867		12		4,229
Net income	—		—		—		—		424		—		424
Other comprehensive loss, net of tax	—		—		—		—		—		(44)		(44)
Cash dividends declared ($0.47 per common share):
Class A common stock	—		—		—		—		(12)		—		(12)
Class B common stock	—		—		—		—		(1)		—		(1)
Preferred stock dividends declared	—		—		—		—		(14)		—		(14)
Balance at September 30, 2021	$	340	$	9	$	1	$	—	$	4,264	$	(32)	$	4,582

See accompanying Notes to the Unaudited Consolidated Financial Statements.

~~Table of Contents~~

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Nine months ended September 30
(Dollars in thousands, unaudited) 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 424,177 $ 353,639
Adjustments to reconcile net income to cash provided by operating activities:
Provision (credit) for credit losses (31,697) 52,949
Deferred tax expense 9,266 16,227
Net increase in prepaid and current tax receivable (774,212) (38,878)
Depreciation and amortization 80,293 81,169
Net decrease in accrued interest payable (2,855) (7,620)
Net decrease (increase) in income earned not collected 12,783 (28,025)
Contribution to pension plans — (100,000)
Realized gains on investment securities available for sale, net (33,119) (54,972)
Marketable equity securities gains, net (31,015) (10,461)
Origination of loans held for sale (911,995) (775,900)
Proceeds from sale of loans held for sale 808,172 743,508
Gain on sale of loans (26,789) (25,728)
Net (gains) losses on other real estate owned (2,971) 2,360
Net accretion of premiums and discounts 5,017 4,599
Amortization of intangible assets 16,408 18,589
Origination of mortgage servicing rights, net of change in valuation allowance (9,775) (1,332)
Net change in other assets 14,233 (6,394)
Net change in other liabilities (7,692) (7,472)
Net cash (used in) provided by operating activities (461,771) 216,258
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans outstanding 325,209 (3,876,578)
Purchases of investment securities available for sale (3,620,680) (7,608,380)
Purchases of investment securities held to maturity (1,199,419) (856,047)
Purchases of marketable equity securities (1,563) (333,126)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity 605,664 134,736
Proceeds from maturities, calls, and principal repayments of investment securities available for sale 1,968,339 1,909,462
Proceeds from sales of investment securities available for sale 1,366,909 3,889,386
Proceeds from sales of marketable equity securities 1,111 332,762
Net increase in overnight investments (5,527,727) (1,994,972)
Cash paid to FDIC for settlement of shared-loss agreement (16,103) (99,468)
Proceeds from sales of other real estate owned 29,666 19,683
Proceeds from sales of premises and equipment 1,194 46
Purchases of premises and equipment (72,463) (98,490)
Business acquisitions, net of cash acquired — (59,999)
Other investing activities (18,940) —
Net cash used in investing activities (6,158,803) (8,640,985)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in time deposits (314,004) (759,491)
Net increase in demand and other interest-bearing deposits 6,949,598 8,556,808
Net increase (decrease) in short-term borrowings 22,088 (44,344)
Repayment of long-term obligations (29,343) (82,747)
Origination of long-term obligations — 745,849
Net proceeds from preferred stock issuance — 339,937
Repurchase of common stock — (333,755)
Cash dividends paid (32,363) (21,830)
Net cash provided by financing activities 6,595,976 8,400,427
Change in cash and due from banks (24,598) (24,300)
Cash and due from banks at beginning of period 362,048 376,719
Cash and due from banks at end of period $ 337,450 $ 352,419
See accompanying Notes to Unaudited Consolidated Financial Statements.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest $ 48,926 $ 85,344
Income taxes 871,327 117,716
Significant noncash investing and financing activities:
Transfers of loans to other real estate 7,861 10,295
Dividends declared but not paid — 3,926
Unsettled call of investment securities 15,000 —
Loans held for sale exchanged for investment securities 177,301 —
Reclassification of portfolio loans to loans held for sale 22,655 (3,464)
Transfers of premises and equipment to other real estate 8,593 8,133


	Nine Months Ended September 30,
dollars in millions	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	841	$	424
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Provision (benefit) for credit losses	566		(32)
Deferred tax expense	80		9
Depreciation, amortization, and accretion, net	399		102
Stock based compensation expense	17		—
Realized gain on sales of investment securities available for sale, net	—		(33)
Fair value adjustment on marketable equity securities, net	5		(31)
Gain on sale of loans, net	(16)		(27)
Gain on sale of operating lease equipment, net	(10)		—
Loss on sale of premises and equipment, net	1		—
Gain on other real estate owned, net	(13)		(3)
Gain on acquisition	(431)		—

Gain on extinguishment of debt	(7)		—
Origination of loans held for sale	(320)		(861)
Proceeds from sale of loans held for sale	388		808
Net change in other assets	84		(747)
Net change in other liabilities	216		(11)
Other operating activities	(29)		(9)
Net cash provided by (used in) operating activities	1,771		(411)
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-earning deposits at banks	5,817		(5,528)
Purchases of marketable equity securities	—		(2)
Proceeds from sales of investments in marketable equity securities	—		1
Purchases of investment securities available for sale	(1,813)		(3,621)
Proceeds from maturities of investment securities available for sale	927		1,968
Proceeds from sales of investment securities available for sale	—		1,367
Purchases of investment securities held to maturity	—		(1,199)
Proceeds from maturities of investment securities held to maturity	699		606

Net change in loans	(4,648)		275
Proceeds from sales of loans	173		—
Purchases of operating lease equipment	(464)		—
Proceeds from sales of operating lease equipment	58		—
Purchases of premises and equipment	(81)		(72)
Proceeds from sales of premises and equipment	13		1

Proceeds from sales of other real estate owned	38		30
Acquisition, net of cash acquired	134		—
Other investing activities	(67)		(35)
Net cash provided by (used in) investing activities	786		(6,209)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in time deposits	(1,741)		(314)
Net change in demand and other interest-bearing deposits	(1,831)		6,949
Net change in securities sold under customer repurchase agreements	(11)		22
Repayment of short-term borrowings	(450)		—
Proceeds from issuance of short-term borrowings	3,000		—
Repayment of long-term borrowings	(3,740)		(29)
Proceeds from issuance of long-term borrowings	3,253		—


Repurchase of Class A common stock	(792)		—
Cash dividends paid	(58)		(32)
Other financing activities	(44)		—
Net cash (used in) provided by financing activities	(2,414)		6,596

Change in cash and due from banks	143		(24)
Cash and due from banks at beginning of period	338		362
Cash and due from banks at end of period	$	481	$	338


	Nine Months Ended September 30,
dollars in millions	2022		2021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the period for:
Interest	$	315	$	49
Income taxes	(12)		871
Significant non-cash investing and financing activities:
Transfers of loans to other real estate	13		8
Transfers of premises and equipment to other real estate	18		9

Dividends declared but not paid	1		—
Transfer of assets from held for investment to held for sale	98		73
Transfer of assets from held for sale to held for investment	19		2
Loans held for sale exchanged for investment securities	38		177
Commitments extended during the period on affordable housing investment credits	55		15
Issuance of common stock as consideration for acquisition	5,279		—
Stock based compensation as consideration for acquisition	81		—
Issuance of preferred stock as consideration for acquisition	541		—

See accompanying Notes to the Unaudited Consolidated Financial Statements.

~~Table of Contents~~

~~First Citizens BancShares, Inc. and Subsidiaries~~

Notes to the Unaudited Consolidated Financial Statements

NOTE ~~A -~~1 — ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Nature of Operations

First Citizens BancShares, Inc. ~~(“BancShares”~~(the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,” “us,” “our,” “BancShares”) is a financial holding company organized under the laws of Delaware ~~and~~that conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (“~~FCB”~~FCB,” or the “Bank”), which is headquartered in Raleigh, North Carolina. BancShares and its subsidiaries operate more than 550 branches in 22 states, predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United States.

~~General~~

BASIS OF PRESENTATION

Principles of Consolidation and Basis of Presentation

These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in BancShares’ Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 (the “2021 Form 10-K”).

The consolidated financial statements of BancShares include the accounts of BancShares and its subsidiaries, certain partnership interests and variable interest entities (“VIEs”) where BancShares is the primary beneficiary (“PB”), if applicable. Assets held in agency or fiduciary capacity are not included in the consolidated financial statements.

Reclassifications

In certain instances, amounts reported in ~~prior periods’~~the 2021 consolidated financial statements have been reclassified to conform to the current financial statement ~~presentation.~~presentation, primarily driven by impacts from the CIT Merger, as defined below. Such reclassifications had no effect on previously reported ~~cash flows, shareholders’~~stockholders’ equity or net income.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions ~~which affect~~impacting the amounts ~~reported.~~reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. ~~The estimates~~ BancShares considers ~~significant are~~ the allowance for credit losses (“ACL”), to be a significant estimate.

Business Combinations

BancShares accounts for all business combinations using the acquisition method of accounting. Under this method, acquired assets and assumed liabilities are included with the acquirer’s accounts at their estimated fair value ~~measurements,~~as of the date of acquisition, with any excess of purchase price over the fair value of the net assets acquired recognized as either finite lived intangibles or capitalized as goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceeds the purchase price, a gain on acquisition is recognized. Acquisition-related and ~~income taxes.~~

~~Share Repurchases~~restructuring costs are recognized as period expenses as incurred.

On January 3, 2022, BancShares ~~did not repurchase shares~~completed its previously announced merger (the “CIT Merger”) with CIT Group Inc. (“CIT”), pursuant to an Agreement and Plan of ~~Class A common stock during the nine-month period ended~~Merger, dated as of October 15, 2020, as amended by Amendment No. 1, dated as of September 30, 2021 (as amended, the “Merger Agreement”). ~~During~~Results as of and for the ~~third quarter of~~ ~~2020, BancShares repurchased a total of 117,700 shares of Class A common stock for $47.1 million at an average cost per share of $399.82. During the~~three and nine months ended September 30, ~~2020,~~2022 include activity of the combined entity. See Note 2 — Business Combinations for additional information.

ACCOUNTING POLICIES

Significant accounting policies are described in the 2021 Form 10-K. We have further described relevant updates to the significant accounting policies presented below.

Reportable Segments

As of December 31, 2021, BancShares ~~repurchased~~managed its business and reported its financial results as a ~~total~~single segment. BancShares began reporting multiple segments during the first quarter of ~~813,090 shares of Class A common stock for $333.8 million at an average cost per share of $410.48.~~

~~During 2020, share repurchases included 45,000 shares of Class A common stock purchased from Ella Ann Holding, as trustee of her revocable trust. Mrs. Holding is~~2022. BancShares now has three operating segments: General Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate. BancShares conformed the ~~widow~~comparative prior periods presented to reflect the new segments. The substantial majority of BancShares’ ~~former Executive Vice Chairman, Frank B. Holding,~~operations for historical periods prior to completion of the CIT Merger are included in the General Banking segment. The Commercial Banking and Rail segments primarily relate to operations acquired in the ~~mother~~CIT Merger. Reportable segments are discussed further in Note 22 — Business Segment Information.

Loans and Leases

Loan Classes

We re-evaluated our loan classes to reflect the characteristics of ~~Frank B. Holding, Jr. and Hope H. Bryant,~~ BancShares’ ~~Chairman and Chief Executive Officer and Vice Chairman, respectively.~~

~~Small Business Administration Paycheck Protection Program~~

portfolio. The changes to the loan classes primarily include: (i) reclassifying Small Business Administration Paycheck Protection Program (“SBA-PPP”) loans into the commercial and industrial class, (ii) identifying a separate loan class for leases, and (iii) purchased credit deteriorated (“PCD”) loans are no longer a separate loan class. The following represent our classes of loans as of September 30, 2022. Prior period disclosures have been conformed to the current presentation.

Commercial Loans and Leases

Commercial Construction - Commercial construction consists of loans to finance land for commercial development of real property and construction of multifamily apartments or other commercial properties. These loans are highly dependent on the supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired for development. Deterioration in demand could result in decreased collateral values, which could make repayments of outstanding loans difficult for customers.

Owner OccupiedCommercial Mortgage - Owner occupied commercial mortgage consists of loans to purchase or refinance owner occupied nonresidential properties. This includes office buildings, other commercial facilities and farmland. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans are collateralized by real property in an effort to mitigate risk, it is ~~one~~possible the liquidation of collateral will not fully satisfy the obligation.

Non-owner Occupied Commercial Mortgage - Non-owner occupied commercial mortgage consists of loans to purchase or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as farmland and multifamily properties. The primary risk associated with income producing commercial mortgage loans is the ability of the ~~centerpieces~~income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.

Commercial and Industrial - Commercial and industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, and business credit cards. The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the ~~Coronavirus Aid Relief~~loan.

Factoring - We provide factoring, receivable management, and ~~Economic Security Act (the “CARES Act”)~~secured financing to businesses (our clients, who are generally manufacturers or importers of goods) that operate in several industries, including apparel, textile, furniture, home furnishings and consumer electronics. Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from the sale of goods by our clients to their customers (generally retailers) that have been factored (i.e., ~~which was passed on March 27, 2020 in response~~sold or assigned to the ~~outbreak~~factor). The most prevalent risk in factoring transactions is customer credit risk, which relates to the financial inability of a ~~novel strain~~customer to pay undisputed factored trade accounts receivable. Factoring receivables are primarily included in the commercial and industrial loan class.

Leases – Leases consists of ~~coronavirus~~finance lease arrangements for technology and office equipment and large and small industrial, medical, and transportation equipment.

Consumer Loans

Residential Mortgage- Consumer mortgage consists of loans to purchase, construct, or refinance the borrower’s primary dwelling, secondary residence or vacation home and are often secured by 1-4 family residential properties or undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral. Delays in construction and development projects can cause cost overruns exceeding the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.

Revolving Mortgage - Revolving mortgage consists of home equity lines of credit and other lines of credit or loans secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior liens as a substantial decline in value could render the junior lien position effectively unsecured.

Consumer Auto - Consumer auto loans consist of installment loans to finance purchases of vehicles. These loans include direct auto loans originated in bank branches, as well as indirect auto loans originated through agreements with auto dealerships. The value of the underlying collateral within this class is at risk of potential rapid depreciation, which could result in unpaid balances in excess of the collateral.

ConsumerOther -Other consumer loans consist of loans to finance unsecured home improvements, student loans, and revolving lines of credit that can be secured or unsecured, including personal credit cards. The value of the underlying collateral within this class is at risk of potential rapid depreciation, which could result in unpaid balances in excess of the collateral.

Assets Held for Sale

Assets held for sale at September 30, 2022 primarily consist of residential mortgage loans held for sale of $7 million carried at fair value and commercial loans held for sale of $11 million carried at the lower of the cost or fair market value less disposal costs (“~~COVID-19”~~LOCOM”). The remainder related to operating lease equipment held for sale.

Goodwill

BancShares applied the acquisition method of accounting for the CIT Merger. The fair value of the net assets acquired exceeded the purchase price. Consequently, there was a gain on acquisition (and no goodwill) related to the CIT Merger as discussed further in Note 2 — Business Combinations. BancShares had goodwill of $346 million at September 30, 2022 and December 31, 2021. The entire balance of goodwill relates to business combinations that BancShares completed prior to the CIT Merger. All of the goodwill relates to the General Banking reporting unit. There was ~~supplemented~~no goodwill impairment during the three or nine month periods ended September 30, 2022. Goodwill and other intangibles are discussed further in Note 7 — Goodwill and Other Intangibles.

Derivative Financial Instruments

BancShares did not have any significant derivative financial instruments prior to completion of the CIT Merger. However, BancShares acquired various derivative financial instruments in connection with ~~subsequent legislation. Overseen~~the CIT Merger as further described in Note 13 — Derivative Financial Instruments. BancShares manages economic risk and exposure to interest rate and foreign currency risk through derivative transactions in over-the-counter markets with other financial institutions. BancShares also offers derivative products to its customers in order for them to manage their interest rate and currency risks. BancShares does not enter into derivative financial instruments for speculative purposes.

Derivatives utilized by BancShares may include swaps, forward settlement contracts and options contracts. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. Forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, index, currency or commodity at a predetermined future date, and rate or price. An option contract is an agreement that gives the buyer the right, but not the obligation, to buy or sell an underlying asset from or to another party at a predetermined price or rate over a specific period of time.

BancShares documents, at inception, all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various hedges. Upon executing a derivative contract, BancShares designates the derivative as either a qualifying hedge or non-qualifying hedge. The designation may change based upon management’s reassessment of circumstances. BancShares does not have any qualifying fair value, cash flow or net investment hedges as of September 30, 2022.

BancShares provides interest rate derivative contracts to support the business requirements of its customers. The derivative contracts include interest rate swap agreements and interest rate cap and floor agreements wherein BancShares acts as a seller of these derivative contracts to its customers. To mitigate the market risk associated with these customer derivatives, BancShares enters into similar offsetting positions with broker-dealers.

BancShares has both bought and sold credit protection in the form of participations in interest rate swaps (risk participations). These risk participations were entered into in the ordinary course of business to facilitate customer credit needs. Swap participations where BancShares has sold credit protection have maturities ranging between 2022 and 2040 and may require BancShares to make payment to the counterparty if the customer fails to make payment on any amounts due to the counterparty upon early termination of the swap transaction.

BancShares uses foreign currency forward contracts, interest rate swaps, and options to hedge interest rate and foreign currency risks arising from its asset and liability mix. These are treated as economic hedges.

All derivative instruments are recorded at their respective fair value. BancShares reports all derivatives on a gross basis in the Consolidated Balance Sheets and does not offset derivative assets and liabilities and cash collateral under master netting agreements except for swap contracts cleared by the ~~United States (“U.S.”) Department~~Chicago Mercantile Exchange and LCH Clearnet. These swap contracts are accounted as “settled-to-market” and cash variation margin paid or received is characterized as settlement of the ~~Treasury,~~derivative exposure and variation margin balances are offset against the ~~SBA-PPP offers cash-flow assistance~~corresponding derivative asset and liability balances on the balance sheet. Nonqualifying hedges are presented in the Consolidated Balance Sheets in other assets or other liabilities, but with their resulting gains or losses recognized in other noninterest income. For non-qualifying derivatives with periodic interest settlements, BancShares reports such settlements with other changes in fair value in other noninterest income.

Fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair value may require significant management judgment or estimation. Valuations of derivative assets and liabilities reflect the value of the instrument including BancShares’ and the counterparty’s credit risk.

BancShares is exposed to ~~nonprofit and small business employers through guaranteed loans for certain expenses. Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans~~credit risk to the extent that the ~~proceeds were used~~counterparty fails to ~~cover eligible payroll costs, interest costs, rent,~~perform under the terms of a derivative agreement. Losses related to credit risk are reflected in other noninterest income. BancShares manages this credit risk by requiring that all derivative transactions entered into as hedges be conducted with counterparties rated investment grade at the initial transaction by nationally recognized rating agencies, and ~~utility costs over~~by setting limits on the exposure with any individual counterparty. In addition, pursuant to the terms of the Credit Support Annexes between BancShares and its counterparties, BancShares may be required to post collateral or may be entitled to receive collateral in the form of cash or highly liquid securities depending on the valuation of the derivative instruments as measured on a ~~period~~daily basis. Derivatives are discussed further in Note 13 — Derivative Financial Instruments.

Bank-Owned Life Insurance (“BOLI”)

Banks can purchase life insurance policies on the lives of ~~between eight~~certain officers and ~~24-weeks after the loan is made as long as the borrower retains its~~ employees and ~~their compensation levels. The CARES Act authorized~~are the ~~United States Small Business Administration (“SBA”) to temporarily guarantee these loans. The SBA began processing forgiveness payments during~~owner and beneficiary of the ~~fourth quarter~~policies. These policies, known as BOLI, offset the cost of ~~2020.~~

~~The Consolidated Appropriations Act~~providing employee benefits. BancShares had BOLI of $1.3 billion and $116 million at September 30, 2022 and December 31, 2021, ~~was signed into law during~~respectively. BancShares acquired BOLI of $1.2 billion in the ~~fourth quarter of 2020 and contained provisions for a second round of funding of SBA-PPP loans and during the first nine months of 2021,~~CIT Merger. BancShares ~~originated approximately 12,000 SBA-PPP loans totaling approximately $1.2 billion.~~

~~Due to the unique nature of these provisions, SBA-PPP loans have been disclosed~~records BOLI as a separate ~~loan class. Origination fees received from~~line item in the ~~SBA are capitalized into~~Consolidated Balance Sheets at each policy’s respective cash surrender value, with changes recorded as noninterest income in the Consolidated Statements of Income.

Impairment of Operating Lease Equipment

BancShares did not have significant amounts of equipment related to operating leases prior to completion of the CIT Merger. At September 30, 2022, BancShares has operating lease equipment of approximately $8.0 billion, primarily related to the Rail segment. A review for impairment of long-lived assets, such as operating lease equipment, is performed at least annually or when events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. Impairment of long-lived assets is determined by comparing the ~~loans.~~carrying amount to future undiscounted net cash flows expected to be generated. If a long-lived asset is impaired, the impairment is the amount by which the carrying amount exceeds the fair value of the long-lived asset. Fair value is based upon discounted cash flow analysis and available market data. Current lease rentals, as well as relevant and available market information (including third party sales for similar equipment and published appraisal data), are considered both in determining undiscounted future cash flows when testing for the existence of impairment and in determining estimated fair value in measuring impairment. Depreciation expense is adjusted when the projected fair value is below the projected book value at the end of the depreciable life. Assets to be disposed of are included in assets held for sale in the Consolidated Balance Sheets and are reported at LOCOM.

Stock-Based Compensation

BancShares did not have stock-based compensation awards prior to completion of the CIT Merger. Certain CIT employees received grants of restricted stock unit awards (“CIT RSUs”) or performance stock unit awards (“CIT PSUs”). Upon completion of the CIT Merger and pursuant to the terms of the Merger Agreement, (i) the CIT RSUs and PSUs converted into “BancShares RSUs” based on the 0.062 exchange ratio (the “Exchange Ratio”) and (ii) the BancShares RSUs became subject to the same terms and conditions (including vesting terms, payment timing and rights to receive dividend equivalents) applicable to the CIT RSUs and CIT PSUs, except that vesting for the converted CIT PSUs was no longer subject to any performance goals or metrics. Upon completion of the CIT Merger, the fair value of the BancShares RSUs was determined based on the closing share price of the Parent Company’s Class A Common Stock (the “Class A Common Stock”) on January 3, 2022. The ~~deferred fee income, net~~fair value of ~~origination costs,~~the BancShares RSUs is (i) included in the purchase price consideration for the portion related to employee services provided prior to completion of the CIT Merger and (ii) recognized in expenses for the portion related to employee services to be provided after completion of the CIT Merger. For “graded vesting” awards, each vesting tranche of the award is amortized separately as if each were a separate award. For “cliff vesting” awards, compensation expense is recognized over the ~~life~~requisite service period. BancShares recognizes the effect of forfeitures in compensation expense when they occur. In the event of involuntary termination of employees after the Merger Date, vesting occurs on the employee termination date for BancShares RSUs subject to change in control provisions. Expenses related to stock-based compensation are included in merger-related expenses in the Consolidated Statements of Income. Stock-based compensation is discussed further in Note 21 — Employee Benefit Plans.

Members of the ~~loans as an adjustment~~CIT Board of Directors had RSU awards, stock settled annual awards, and deferred stock-settled annual awards (collectively, the “CIT Director Equity Awards”), which vested immediately upon the completion of the CIT Merger. The fair value of the CIT Director Equity Awards was determined based on the Exchange Ratio and the closing share price of the Class A Common Stock on January 3, 2022, and was included in the purchase price consideration disclosed in Note 2 — Business Combinations.

Per Share Data

Earnings per common share is computed by dividing net income available to ~~yield~~common stockholders by the weighted average number of Class A Common Stock and Class B Common Stock outstanding during each period. Diluted earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding increased by the weighted-average potential impact of dilutive shares. BancShares’ potential dilutive instruments include unvested RSUs assumed in the CIT Merger. The dilutive effect is computed using the ~~effective interest method.~~ treasury stock method, which assumes the conversion of these instruments. However, in periods when there is a net loss, these shares would not be included in the diluted earnings per common share computation as the result would have an anti-dilutive effect. BancShares had no potential dilutive common shares outstanding prior to the CIT Merger and did not report diluted earnings per common share for prior periods.

Defined Benefit Pension Plans and Other Postretirement Benefits

As disclosed in the 2021 Form 10-K, BancShares has both funded and unfunded noncontributory defined benefit pension and postretirement plans covering certain employees, each of ~~September 30, 2021, SBA-PPP loans outstanding were $1.1 billion.~~which is designed in accordance with the practices and regulations in the related countries. In conjunction with the CIT Merger, BancShares assumed the funded and unfunded noncontributory defined benefit pension and postretirement plans of CIT. See Note 21 — Employee Benefit Plans for disclosures related to the plans.

Revenue Recognition and Noninterest Income

Descriptions of significant noninterest revenue-generating activities new to BancShares due to the CIT Merger are as follows:

Rental income on operating leases is recognized on a straight-line basis over the lease term for lease contract fixed payments and is included in noninterest income. Rental income also includes variable lease income which is recognized as earned. The accrual of rental income on operating leases is suspended when the collection of substantially all rental payments is no longer probable and rental income for such leases is recognized when cash payments are received. In the period we conclude that collection of rental payments is no longer probable, accrued but uncollected rental revenue is reversed against rental income.

Factoring commissions, which are earned in the Commercial Banking segment, are driven by factoring volumes, principally in the retail sectors. Factoring commissions are charged as a percentage of the invoice amount of the receivables assigned to BancShares. The volume of factoring activity and the commission rates charged impact factoring commission income earned. Factoring commissions are deferred and recognized as income over time based on the underlying terms of the assigned receivables. See Commercial Loans and Leases section for additional commentary on factoring.

814

~~Table~~

Gains on leasing equipment are recognized upon completion of ~~Contents~~sale (sale closing) and transfer of title. The gain is determined based on sales price less book carrying value (net of accumulated depreciation).

~~Table of Contents~~

~~The following tables represent current credit quality indicators by origination year as of September 30, 2021.~~

September 30, 2021
Commercial Loans Amortized Cost Basis by Origination Year
Classification: 2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total
(Dollars in thousands)
Construction and land development
Pass $ 373,012 $ 451,926 $ 256,321 $ 98,892 $ 44,343 $ 12,396 $ 4,231 $ — $ 1,241,121
Special Mention 19 157 — 134 63 — — — 373
Substandard 300 38 326 1,442 4,070 10 — — 6,186
Total 373,331 452,121 256,647 100,468 48,476 12,406 4,231 — 1,247,680
Owner occupied commercial mortgage
Pass 2,069,209 3,078,093 1,989,052 1,316,012 1,036,593 1,778,334 122,411 120 11,389,824
Special Mention 2,082 24,356 29,358 28,165 12,199 20,469 4,047 71 120,747
Substandard 9,459 7,495 22,482 10,947 18,598 39,695 6,307 — 114,983
Total 2,080,750 3,109,944 2,040,892 1,355,124 1,067,390 1,838,498 132,765 191 11,625,554
Non-owner occupied commercial mortgage
Pass 438,949 770,507 587,335 278,507 283,867 507,411 31,876 — 2,898,452
Special Mention 495 487 263 10,219 800 5,654 500 — 18,418
Substandard 2,615 11,742 22,600 10,184 10,243 27,352 1,322 — 86,058
Total 442,059 782,736 610,198 298,910 294,910 540,417 33,698 — 3,002,928
Commercial and industrial and leases
Pass 1,238,557 1,162,246 714,374 344,220 193,857 350,870 1,087,462 5,136 5,096,722
Special Mention 2,323 8,279 22,100 3,528 4,070 4,324 4,575 206 49,405
Substandard 7,765 7,978 4,770 4,241 3,175 4,221 17,392 1,280 50,822
Doubtful — — — — — 1 1 — 2
Ungraded — — — — — — 69,315 — 69,315
Total 1,248,645 1,178,503 741,244 351,989 201,102 359,416 1,178,745 6,622 5,266,266
SBA-PPP
Pass 1,011,370 75,547 — — — — — — 1,086,917
Total commercial $ 5,156,155 $ 5,598,851 $ 3,648,981 $ 2,106,491 $ 1,611,878 $ 2,750,737 $ 1,349,439 $ 6,813 $ 22,229,345

~~Table of Contents~~

Consumer and PCD Loans Amortized Cost Basis by Origination Year
Days Past Due: 2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total
(Dollars in thousands)
Residential mortgage
Current $ 1,591,381 $ 1,651,853 $ 690,779 $ 410,446 $ 390,940 $ 900,129 $ 19,930 $ — $ 5,655,458
30-59 days 252 1,506 4,728 3,066 1,486 7,379 — — 18,417
60-89 days 788 295 — 764 881 3,879 — — 6,607
90 days or greater 55 713 1,059 1,511 3,084 14,193 249 — 20,864
Total 1,592,476 1,654,367 696,566 415,787 396,391 925,580 20,179 — 5,701,346
Revolving mortgage
Current — — — — — — 1,700,947 122,200 1,823,147
30-59 days — — — — — — 2,939 2,648 5,587
60-89 days — — — — — — 378 1,065 1,443
90 days or greater — — — — — — 1,901 2,612 4,513
Total — — — — — — 1,706,165 128,525 1,834,690
Construction and land development
Current 165,993 175,007 26,889 10,258 5,745 3,016 2,594 — 389,502
30-59 days 33 416 — — — 28 — — 477
60-89 days — 1,650 — — 69 — — — 1,719
90 days or greater — 29 — — — 41 — — 70
Total 166,026 177,102 26,889 10,258 5,814 3,085 2,594 — 391,768
Consumer auto
Current 504,537 384,849 229,033 139,764 59,487 24,926 — — 1,342,596
30-59 days 889 1,262 1,450 877 586 281 — — 5,345
60-89 days 200 330 234 255 84 70 — — 1,173
90 days or greater 140 347 420 228 83 45 — — 1,263
Total 505,766 386,788 231,137 141,124 60,240 25,322 — — 1,350,377
Consumer other
Current 117,047 33,700 16,222 5,431 5,011 29,871 423,512 — 630,794
30-59 days 89 63 18 24 — 13 1,990 — 2,197
60-89 days 11 25 89 1 — — 996 — 1,122
90 days or greater 49 12 17 1 — — 1,216 — 1,295
Total 117,196 33,800 16,346 5,457 5,011 29,884 427,714 — 635,408
Total consumer $ 2,381,464 $ 2,252,057 $ 970,938 $ 572,626 $ 467,456 $ 983,871 $ 2,156,652 $ 128,525 $ 9,913,589
PCD loans
Current $ — $ 23,091 $ 23,792 $ 21,034 $ 20,864 $ 213,681 $ 10,622 $ 16,453 $ 329,537
30-59 days — 846 61 785 1,393 7,777 113 432 11,407
60-89 days — 98 149 48 — 4,699 29 177 5,200
90 days or greater — 806 230 3,698 1,070 20,319 16 972 27,111
Total PCD $ — $ 24,841 $ 24,232 $ 25,565 $ 23,327 $ 246,476 $ 10,780 $ 18,034 $ 373,255
Total loans and leases $ 7,537,619 $ 7,875,749 $ 4,644,151 $ 2,704,682 $ 2,102,661 $ 3,981,084 $ 3,516,871 $ 153,372 $ 32,516,189

Consumer Loans - Delinquency Status by Class


September 30, 2022
Days Past Due:	Term Loans by Origination Year														Revolving Converted to Term Loans
dollars in millions	2022		2021		2020		2019		2018		2017 & Prior		Revolving				Total
Residential mortgage
Current	$	2,797	$	3,759	$	2,156	$	842	$	432	$	2,763	$	23	$	—	$	12,772
30-59 days	6		5		3		5		5		50		—		—		74
60-89 days	—		3		1		—		1		11		—		—		16
90 days or greater	—		1		1		2		2		42		—		—		48
Total residential mortgage	2,803		3,768		2,161		849		440		2,866		23		—		12,910
Revolving mortgage
Current	—		—		—		—		—		—		1,784		120		1,904
30-59 days	—		—		—		—		—		—		6		3		9
60-89 days	—		—		—		—		—		—		1		1		2
90 days or greater	—		—		—		—		—		—		3		5		8
Total revolving mortgage	—		—		—		—		—		—		1,794		129		1,923
Consumer auto
Current	470		437		241		128		71		28		—		—		1,375
30-59 days	1		2		2		1		1		—		—		—		7
60-89 days	—		1		—		—		—		—		—		—		1
90 days or greater	—		1		—		—		—		1		—		—		2
Total consumer auto	471		441		243		129		72		29		—		—		1,385
Consumer other
Current	121		91		15		7		3		19		346		—		602
30-59 days	—		—		—		—		—		2		2		—		4
60-89 days	—		—		—		—		—		1		1		—		2
90 days or greater	—		—		—		—		—		3		1		—		4
Total consumer other	121		91		15		7		3		25		350		—		612
Total consumer	$	3,395	$	4,300	$	2,419	$	985	$	515	$	2,920	$	2,167	$	129	$	16,830

1729

~~Table of Contents~~

The following tables represent current credit quality indicators by origination year as of December 31, ~~2020.~~2021.

December 31, 2020
Commercial Loans Amortized Cost Basis by Origination Year
Classification: 2020 2019 2018 2017 2016 Prior Revolving Revolving converted to term loans Total
(Dollars in thousands)
Construction and land development
Pass $ 342,183 $ 341,233 $ 190,429 $ 50,776 $ 23,969 $ 11,306 $ 10,969 $ — $ 970,865
Special Mention 246 — 6,421 5,342 — — 153 — 12,162
Substandard 229 629 1,450 — 8 81 — — 2,397
Total 342,658 341,862 198,300 56,118 23,977 11,387 11,122 — 985,424
Owner occupied commercial mortgage
Pass 3,183,467 2,201,165 1,625,141 1,301,412 1,049,858 1,454,020 101,556 133 10,916,752
Special Mention 6,274 20,702 36,739 12,387 17,699 25,693 5,115 72 124,681
Substandard 10,280 19,052 9,842 20,928 13,736 41,303 8,438 — 123,579
Total 3,200,021 2,240,919 1,671,722 1,334,727 1,081,293 1,521,016 115,109 205 11,165,012
Non-owner occupied commercial mortgage
Pass 865,514 609,975 378,136 331,800 282,810 391,517 32,149 — 2,891,901
Special Mention 569 905 10,794 1,808 5,121 3,279 483 — 22,959
Substandard 2,899 18,546 12,296 8,764 14,087 15,427 810 — 72,829
Total 868,982 629,426 401,226 342,372 302,018 410,223 33,442 — 2,987,689
Commercial and industrial and leases
Pass 1,620,622 983,852 504,463 310,468 234,735 286,996 899,978 5,520 4,846,634
Special Mention 3,146 17,065 7,265 5,393 3,307 4,912 9,152 189 50,429
Substandard 17,811 4,095 4,370 4,257 2,548 3,801 22,384 983 60,249
Ungraded — — — — — — 56,332 — 56,332
Total 1,641,579 1,005,012 516,098 320,118 240,590 295,709 987,846 6,692 5,013,644
SBA-PPP
Pass 2,406,291 — — — — — — — 2,406,291
Total commercial $ 8,459,531 $ 4,217,219 $ 2,787,346 $ 2,053,335 $ 1,647,878 $ 2,238,335 $ 1,147,519 $ 6,897 $ 22,558,060

Commercial Loans - Risk Classifications by Class


December 31, 2021
Risk Classification:	Term Loans by Origination Year														Revolving Converted to Term Loans
dollars in millions	2021		2020		2019		2018		2017		2016 & Prior		Revolving				Total
Commercial construction
Pass	$	540	$	400	$	189	$	29	$	48	$	11	$	10	$	—	$	1,227
Special Mention	—		—		—		—		—		1		—		—		1
Substandard	2		—		1		2		4		1		—		—		10
Doubtful	—		—		—		—		—		—		—		—		—
Ungraded	—		—		—		—		—		—		—		—		—
Total commercial construction	542		400		190		31		52		13		10		—		1,238
Owner occupied commercial mortgage
Pass	3,045		3,022		1,873		1,194		963		1,572		125		—		11,794
Special Mention	3		35		37		22		13		33		5		—		148
Substandard	31		16		18		12		18		56		6		—		157
Doubtful	—		—		—		—		—		—		—		—		—
Ungraded	—		—		—		—		—		—		—		—		—
Total owner occupied commercial mortgage	3,079		3,073		1,928		1,228		994		1,661		136		—		12,099
Non-owner occupied commercial mortgage
Pass	644		737		578		263		266		412		37		—		2,937
Special Mention	1		—		—		3		3		10		—		—		17
Substandard	9		11		24		12		7		22		1		—		86
Doubtful	—		—		—		—		1		—		—		—		1
Ungraded	—		—		—		—		—		—		—		—		—
Total non-owner occupied commercial mortgage	654		748		602		278		277		444		38		—		3,041
Commercial and industrial
Pass	2,107		1,018		599		257		149		281		1,342		5		5,758
Special Mention	9		7		20		2		4		5		5		—		52
Substandard	20		7		3		4		2		2		16		1		55
Doubtful	—		—		—		—		—		—		—		—		—
Ungraded	—		—		—		—		—		—		72		—		72
Total commercial and industrial	2,136		1,032		622		263		155		288		1,435		6		5,937
Leases
Pass	93		68		38		42		17		8		—		—		266
Special Mention	—		1		—		—		—		—		—		—		1
Substandard	2		1		—		1		—		—		—		—		4
Doubtful	—		—		—		—		—		—		—		—		—
Ungraded	—		—		—		—		—		—		—		—		—
Total leases	95		70		38		43		17		8		—		—		271
Total commercial	$	6,506	$	5,323	$	3,380	$	1,843	$	1,495	$	2,414	$	1,619	$	6	$	22,586

1830

~~Table of Contents~~

Consumer and PCD Loans Amortized Cost Basis by Origination Year
Days Past Due: 2020 2019 2018 2017 2016 Prior Revolving Revolving converted to term loans Total
(Dollars in thousands)
Residential mortgage
Current $ 1,882,683 $ 978,298 $ 655,798 $ 596,309 $ 461,719 $ 878,634 $ 24,973 $ — $ 5,478,414
30-59 days 2,278 4,573 11,463 3,772 8,613 12,299 220 — 43,218
60-89 days 30 100 1,246 1,449 834 4,705 — — 8,364
90 days or greater 282 4,831 3,150 4,015 5,689 13,723 — — 31,690
Total 1,885,273 987,802 671,657 605,545 476,855 909,361 25,193 — 5,561,686
Revolving mortgage
Current — — — — — — 1,879,968 150,868 2,030,836
30-59 days — — — — — — 8,241 3,736 11,977
60-89 days — — — — — — 527 2,099 2,626
90 days or greater — — — — — — 2,301 5,114 7,415
Total — — — — — — 1,891,037 161,817 2,052,854
Construction and land development
Current 215,112 85,707 24,860 10,269 6,093 2,218 2,525 — 346,784
30-59 days — 420 121 370 — 21 — — 932
60-89 days — — — 9 — 68 — — 77
90 days or greater — — — — — 330 — — 330
Total 215,112 86,127 24,981 10,648 6,093 2,637 2,525 — 348,123
Consumer auto
Current 521,719 340,594 219,597 104,280 49,872 9,604 — — 1,245,666
30-59 days 2,175 1,873 1,257 842 544 134 — — 6,825
60-89 days 329 689 312 351 109 45 — — 1,835
90 days or greater 170 527 217 57 102 3 — — 1,076
Total 524,393 343,683 221,383 105,530 50,627 9,786 — — 1,255,402
Consumer other
Current 53,842 27,117 10,911 7,159 2,980 29,336 415,044 — 546,389
30-59 days 322 114 77 18 11 7 3,061 — 3,610
60-89 days 102 20 13 18 3 23 1,285 — 1,464
90 days or greater 53 84 8 — — — 1,360 — 1,505
Total 54,319 27,335 11,009 7,195 2,994 29,366 420,750 — 552,968
Total consumer $ 2,679,097 $ 1,444,947 $ 929,030 $ 728,918 $ 536,569 $ 951,150 $ 2,339,505 $ 161,817 $ 9,771,033
PCD loans
Current $ 31,475 $ 25,425 $ 27,183 $ 27,955 $ 28,995 $ 232,186 $ 13,212 $ 21,027 $ 407,458
30-59 days 999 925 801 718 1,341 12,637 156 745 18,322
60-89 days 447 81 312 695 97 4,098 9 337 6,076
90 days or greater 721 2,325 4,755 1,208 897 19,963 111 1,046 31,026
Total PCD $ 33,642 $ 28,756 $ 33,051 $ 30,576 $ 31,330 $ 268,884 $ 13,488 $ 23,155 $ 462,882
Total loans and leases $ 11,172,270 $ 5,690,922 $ 3,749,427 $ 2,812,829 $ 2,215,777 $ 3,458,369 $ 3,500,512 $ 191,869 $ 32,791,975
Consumer Loans - Delinquency Status by Class


December 31, 2021
Days Past Due:	Term Loans by Origination Year														Revolving Converted to Term Loans
dollars in millions	2021		2020		2019		2018		2017		2016 & Prior		Revolving				Total
Residential mortgage
Current	$	2,139	$	1,663	$	627	$	368	$	349	$	867	$	22	$	—	$	6,035
30-59 days	2		3		2		2		1		14		—		—		24
60-89 days	—		—		—		1		1		4		—		—		6
90 days or greater	1		1		1		2		1		17		—		—		23
Total residential mortgage	2,142		1,667		630		373		352		902		22		—		6,088
Revolving mortgage
Current	—		—		—		—		—		—		1,678		126		1,804
30-59 days	—		—		—		—		—		—		4		2		6
60-89 days	—		—		—		—		—		—		—		2		2
90 days or greater	—		—		—		—		—		—		2		4		6
Total revolving mortgage	—		—		—		—		—		—		1,684		134		1,818
Consumer auto
Current	597		343		198		119		48		19		—		—		1,324
30-59 days	1		2		1		1		—		1		—		—		6
60-89 days	—		—		—		—		—		1		—		—		1
90 days or greater	—		—		—		—		—		1		—		—		1
Total consumer auto	598		345		199		120		48		22		—		—		1,332
Consumer other
Current	131		24		11		4		2		29		342		—		543
30-59 days	—		—		—		—		—		—		2		—		2
60-89 days	1		—		—		—		—		—		1		—		2
90 days or greater	—		—		—		—		—		—		1		—		1
Total consumer other	132		24		11		4		2		29		346		—		548
Total consumer	$	2,872	$	2,036	$	840	$	497	$	402	$	953	$	2,052	$	134	$	9,786

Purchased loans and leases

The following table ~~provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of September 30, 2021 and December 31, 2020:~~

(Dollars in thousands) September 30, 2021 December 31, 2020
FHLB of Atlanta
Lendable collateral value of pledged non-PCD loans $ 9,171,610 $ 8,637,844
Less: Advances 645,663 652,675
Available borrowing capacity $ 8,525,947 $ 7,985,169
Pledged non-PCD loans $ 12,646,208 $ 12,157,153
FRB
Lendable collateral value of pledged non-PCD loans $ 3,795,878 $ 3,321,762
Less: Advances — —
Available borrowing capacity $ 3,795,878 $ 3,321,762
Pledged non-PCD loans $ 4,610,291 $ 4,104,866

~~Table of Contents~~

~~NOTE E - ALLOWANCE FOR CREDIT LOSSES~~

The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended September 30, 2021, the ACL change since December 31, 2020 was driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. For most pools, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. BancShares’ ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the September 30, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs.

~~Activity in the ACL by portfolio segment is summarized as follows:~~

~~Table of Contents~~

~~BancShares records an allowance for credit losses on unfunded commitments within other liabilities. Activity in the allowance for credit losses for unfunded commitments is summarized as follows:~~

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2021 2020 2021 2020
Allowance for credit losses:
Beginning balance $ 11,103 $ 13,685 $ 12,814 $ 1,055
Adoption of ASC 326 — — — 8,885
Adjusted beginning balance $ 11,103 $ 13,685 $ 12,814 $ 9,940
Provision (credit) 369 286 (1,342) 4,031
Ending balance 11,472 13,971 11,472 13,971

BancShares individually reviews loans greater than $500 thousand that are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrialsummarizes PCD loans and leases ~~are collateralized by business assets, while~~that BancShares acquired in the ~~remaining loan classes are collateralized by real property.~~CIT Merger.

PCD Loans and Leases - CIT Merger


dollars in millions	Total PCD from CIT Merger
UPB	$	3,550
Initial PCD ACL	(272)
Fair value discount, net of the PCD Gross-Up	(45)
Purchase price	$	3,233

The ~~following table presents information on collateral-dependent~~recorded fair values of Non-PCD loans ~~by class and includes~~acquired in the ~~amortized cost of collateral-dependent loans and leases, the net realizable value~~CIT Merger as of the ~~collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as~~acquisition date was $29.5 billion, resulting in a PAA discount of ~~September 30, 2021 and December 31, 2020 were as follows:~~$61 million.

September 30, 2021
(Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses
Commercial:
Construction and land development $ 1,424 $ 1,964 137.9 % $ —
Owner occupied commercial mortgage 7,411 8,367 112.9 —
Non-owner occupied commercial mortgage 8,204 11,307 137.8 1,203
Commercial and industrial and leases 4,787 6,530 136.4 230
Total commercial loans 21,826 28,168 129.1 1,433
Consumer:
Residential mortgage 11,423 14,625 128.0 —
Revolving mortgage — — — —
Total consumer loans 11,423 14,625 128.0 —
PCD loans 18,154 32,788 180.6 —
Total collateral-dependent loans $ 51,403 $ 75,581 147.0 % $ 1,433
December 31, 2020
(Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses
Commercial:
Construction and land development $ 1,424 $ 1,795 126.1 % $ —
Owner occupied commercial mortgage 9,792 14,253 145.6 —
Non-owner occupied commercial mortgage 5,556 7,577 136.4 —
Total commercial loans 16,772 23,625 140.9 —
Consumer:
Residential mortgage 23,011 29,775 129.4 131
PCD loans 19,042 27,872 146.4 —
Total collateral-dependent loans $ 58,825 $ 81,272 138.2 % $ 131

Collateral-dependent nonaccrual loans with no recorded allowance totaled $45.5 million and $57.5 million as of September 30, 2021 and December 31, 2020, respectively. All other nonaccrual loans have a recorded allowance.

~~Table of Contents~~

Troubled Debt ~~Restructurings~~Restructuring

As part of BancShares’ ongoing risk-management practices, BancShares attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications are made in accordance with internal policies and guidelines to conform to regulatory guidance. BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”). In general, ~~the~~a modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. BancShares may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if is probable that a borrower may default in the foreseeable future. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.

Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. ~~Within BancShares’ ACL loss models,~~The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty, and whether a concession has been granted, are subjective in nature and management’s judgment is required when determining whether a modification is classified as a TDR. In accordance with regulatory guidance discussed below, certain loan modifications that might ordinarily have qualified as TDRs ~~are~~were not ~~individually evaluated unless determined to be collateral-dependent. Consumer TDRs are included in the definition of default which provides~~accounted for ~~a 100% probability of default applied within the models. As a result, subsequent changes in credit quality metrics do not impact the calculation of the ACL on consumer~~as TDRs. ~~For commercial TDRs, the TDR distinction does impact the calculation of ACL, as the standard definition of default is utilized.~~

The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the “Interagency Statement”) 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. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and Interagency Statement offer some practical expedients for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are TDRs. Any loan modification that meets these practical expedients would not automatically be considered a TDR because the borrower is presumed not to be experiencing financial difficulty ~~due to COVID-19.~~at the time of the loan modification. BancShares applied this regulatory guidance during its TDR identification process through January 1, 2022 for short-term loan forbearance agreements as a result of COVID-19 and in most cases did not record these as TDRs.

Modified loans that meet the definition of a TDR are subject to BancShares’ individually reviewed loans policy.

The following ~~tables provides a summary~~table presents amortized cost of ~~total TDRs by accrual status:~~TDRs.

September 30, 2021 December 31, 2020
(Dollars in thousands) Accruing Nonaccruing Total Accruing Nonaccruing Total
Commercial:
Construction and land development $ 346 $ 33 $ 379 $ 578 $ 54 $ 632
Owner occupied commercial mortgage 46,255 10,661 56,916 37,574 10,889 48,463
Non-owner occupied commercial mortgage 20,022 3,763 23,785 18,336 1,649 19,985
Commercial and industrial and leases 12,506 11,295 23,801 29,131 3,528 32,659
Total commercial loans 79,129 25,752 104,881 85,619 16,120 101,739
Consumer:
Residential mortgage 22,106 14,937 37,043 29,458 19,380 48,838
Revolving mortgage 16,533 6,925 23,458 20,124 7,128 27,252
Construction and land development 2,380 282 2,662 1,573 9 1,582
Consumer auto 1,888 636 2,524 2,018 696 2,714
Consumer other 774 61 835 955 137 1,092
Total consumer loans 43,681 22,841 66,522 54,128 27,350 81,478
PCD loans 29,207 12,365 41,572 17,617 7,346 24,963
Total loans $ 152,017 $ 60,958 $ 212,975 $ 157,364 $ 50,816 $ 208,180

TDRs


dollars in millions	September 30, 2022
	Accruing		Non-Accruing		Total
Commercial
Commercial construction	$	2	$	1	$	3
Owner occupied commercial mortgage	45		10		55
Non-owner occupied commercial mortgage	28		31		59
Commercial and industrial	49		11		60
Leases	—		1		1
Total commercial	124		54		178
Consumer
Residential mortgage	32		18		50
Revolving mortgage	17		6		23
Consumer auto	2		—		2
Consumer other	—		—		—
Total consumer	51		24		75
Total TDRs	$	175	$	78	$	253


	December 31, 2021
	Accruing		Non-Accruing		Total
Commercial
Commercial construction	$	2	$	—	$	2
Owner occupied commercial mortgage	57		8		65
Non-owner occupied commercial mortgage	26		3		29
Commercial and industrial	12		9		21
Leases	—		1		1
Total commercial	97		21		118
Consumer
Residential mortgage	29		18		47
Revolving mortgage	17		7		24
Consumer auto	2		—		2
Consumer other	1		—		1
Total consumer	49		25		74
Total TDRs	$	146	$	46	$	192

2232

~~Table of Contents~~

The following table ~~provides~~summarizes the ~~types of modifications designated as TDRs~~loan restructurings during the three and nine months ended September 30, 2022 and 2021 that were designated as TDRs. BancShares defines payment default as movement of the TDR to non-accrual status, which is generally 90 days past due, foreclosure or charge-off, whichever occurs first.

Restructurings


dollars in millions (except for number of loans)	Three Months Ended September 30,
	2022			2021
	Number of Loans	Amortized Cost at Period End			Number of Loans	Amortized Cost at Period End
Loans and leases
Interest only	5	$	31		7	$	10
Loan term extension	35	30			41	6
Below market rates	17	4			47	3
Discharge from bankruptcy	36	2			21	3
Total	93	$	67		116	$	22

	Nine Months Ended September 30,
	2022			2021
	Number of Loans	Amortized Cost at Period End			Number of Loans	Amortized Cost at Period End
Loans and leases
Interest only	13	$	37		17	$	20
Loan term extension	110	51			112	15
Below market rates	62	8			148	21
Discharge from bankruptcy	78	4			110	12
Total	263	$	100		387	$	68

There were $3 million and $0.4 million of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs as of September 30, 2022 and December 31, 2021, respectively.

After a loan is determined to be a TDR, BancShares continues to track its performance under its most recent restructured terms. TDRs that subsequently defaulted during the three and nine months ended September 30, 2022 and 2021, and ~~2020.~~were classified as TDRs during the applicable 12-month period preceding September 30, 2022 and 2021 were as follows:

Three months ended September 30, 2021 Three months ended September 30, 2020
All restructurings All restructurings
(Dollars in thousands) Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end
Loans and leases
Interest only 7 $ 9,639 6 $ 5,703
Loan term extension 41 6,371 29 2,380
Below market interest rate 47 3,126 55 15,341
Discharged from bankruptcy 21 2,783 55 1,654
Total restructurings 116 $ 21,919 145 $ 25,078
Nine months ended September 30, 2021 Nine months ended September 30, 2020
All restructurings All restructurings
(Dollars in thousands) Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end
Loans and leases
Interest only 17 $ 19,728 23 $ 24,847
Loan term extension 112 14,500 62 5,885
Below market interest rate 148 21,004 212 38,740
Discharged from bankruptcy 110 12,478 165 7,025
Total restructurings 387 $ 67,710 462 $ 76,497

TDR Defaults


dollars in millions	Three Months Ended September 30,
	2022		2021
TDR Defaults	$	2	$	1

	Nine Months Ended September 30,
	2022		2021
TDR Defaults	$	4	$	5

Loans Pledged

The following table provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of September 30, 2022 and December 31, 2021:

Loans Pledged


dollars in millions	September 30, 2022		December 31, 2021
FHLB of Atlanta
Lendable collateral value of pledged non-PCD loans	$	14,390	$	9,564
Less: Advances	5,800		645
Less: Letters of Credit	1,450		—
Available borrowing capacity	$	7,140	$	8,919
Pledged non-PCD loans (contractual balance)	$	21,093	$	14,507

FRB
Lendable collateral value of pledged non-PCD loans	$	4,464	$	3,951
Less: Advances	—		—
Available borrowing capacity	$	4,464	$	3,951
Pledged non-PCD loans (contractual balance)	$	5,533	$	4,806

NOTE 5 — ALLOWANCE FOR CREDIT LOSSES

The ACL for loans and leases is reported in the allowance for credit losses on the Consolidated Balance Sheets, while the ACL for unfunded commitments is reported in other liabilities. The provision or benefit for credit losses related to both (i) loans and leases and (ii) unfunded commitments is reported in the Consolidated Statements of Income as provision or benefit for credit losses. The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. Forecasted economic conditions are developed using third party macroeconomic scenarios and may be adjusted based on management’s expectations over the lives of the portfolios. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product (“GDP”), home price index, commercial real estate index, corporate profits, and credit spreads.

The processes and methodologies we utilized to determine the ACL at September 30, 2022 were consistent with those utilized to determine the ACL at June 30, 2022. As previously disclosed in our Quarterly Report on Form 10-Q as of and for the quarterly period ended March 31, 2022, we changed certain aspects of our ACL methodology during the three month period ended March 31, 2022. BancShares made these changes to integrate the ACL methodologies of CIT and BancShares. The most significant changes in the ACL methodology compared to that utilized to determine the ACL at December 31, 2021 include the following: (i) utilized economic scenario forecasts over the lives of the loan portfolios instead of using a two year reasonable and supportable period with a one year reversion period followed by a historical long run average economic forecast for the remainder of the portfolio life; and (ii) implemented scenario weighting of a range of economic scenarios, including baseline, upside, and downside scenarios instead of utilizing just the consensus baseline scenario as the basis of the quantitative ACL estimate.

The initial ACL for PCD loans and leases acquired in the CIT Merger (the “Initial PCD ACL”) of $272 million was established through the PCD Gross-Up and there was no corresponding increase to the provision for credit losses. The PCD Gross-Up is discussed further in Note 2 — Business Combinations. The initial ACL for Non-PCD loans and leases acquired in the CIT Merger was established through a corresponding increase of $454 million to the provision for credit losses (the “Initial Non-PCD Provision”).

The ACL activity for loans and leases and the ACL for unfunded commitments is summarized in the following tables.

ACL for Loans and Leases


dollars in millions	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	740	$	110	$	850	$	80	$	98	$	178
Initial PCD ACL(1)	—		—		—		258		14		272
Initial Non-PCD Provision	—		—		—		432		22		454
Provision (benefit) for credit losses - loans and leases	43		7		50		53		(20)		33
Total provision for credit losses- loans and leases	43		7		50		485		2		487
Charge-offs(1)	(28)		(5)		(33)		(92)		(15)		(107)
Recoveries	11		4		15		35		17		52

Balance at September 30, 2022	$	766	$	116	$	882	$	766	$	116	$	882

	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	86	$	103	$	189	$	92	$	133	$	225
Provision (benefit) for credit losses - loans and leases	—		(1)		(1)		(3)		(29)		(32)
Charge-offs	(7)		(4)		(11)		(14)		(13)		(27)
Recoveries	3		3		6		7		10		17

Balance at September 30, 2021	$	82	$	101	$	183	$	82	$	101	$	183

ACL for Unfunded Commitments


dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Beginning balance	$	81	$	11	$	12	$	13
Provision (benefit) for credit losses - unfunded commitments	10		—		79		(2)
Ending balance	$	91	$	11	$	91	$	11

For the period ended September 30, 2022, the increase in the ACL for unfunded commitments compared to September 30, 2021 primarily reflected the additional commitments acquired in the CIT Merger.

NOTE 6 — LEASES

Lessee

BancShares leases primarily include administrative offices and bank locations. Substantially all of our lease liabilities relate to United States real estate leases under operating lease arrangements. Our real estate leases have remaining lease terms of up to 17 years. Our lease terms may include options to extend or terminate the lease. The options are included in the lease term when it is determined that it is reasonably certain the option will be exercised.

The following table presents supplemental balance sheet information and remaining weighted average lease terms and discount rates.

Supplemental Lease Information


dollars in millions	Classification	September 30, 2022			December 31, 2021
ROU assets:
Operating leases	Other assets	$	366		$	64
Finance leases	Premises and equipment	7			4
Total ROU assets		$	373		$	68
Lease liabilities:
Operating leases	Other liabilities	$	373		$	64
Finance leases	Other borrowings	8			4
Total lease liabilities		$	381		$	68
Weighted-average remaining lease terms:
Operating leases		9.6 years			8.9 years
Finance leases		4.4 years			3.5 years
Weighted-average discount rate:
Operating leases		2.13		%	3.00		%
Finance leases		2.34		%	3.12		%

The following table presents components of lease cost:

Components of Net Lease Cost


dollars in millions		Three Months Ended September 30,				Nine Months Ended September 30,
	Classification	2022		2021		2022		2021
Lease cost
Operating lease cost(1)(2)	Occupancy Expense	$	14	$	3	$	44	$	10
Finance lease cost
Amortization of leased assets	Equipment expense	1		1		2		2
Interest on lease liabilities	Interest expense - Other borrowings	—		—		—		—
Variable lease cost	Occupancy Expense	3		1		9		3
Sublease income	Occupancy Expense	(1)		—		(2)		—
Net lease cost		$	17	$	5	$	53	$	15

(1) Includes short-term lease cost, which is not significant.

(2) In addition, approximately $2 million and $6 million of costs related to leased branches to be closed or subleased was included in merger-related expenses in the consolidated statements of income for the three and nine months ended September 30, ~~2021 and 2020, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.~~

~~Table of Contents~~2022, respectively.

~~NOTE F - OTHER REAL ESTATE OWNED~~Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased premises recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured because of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. Sublease income results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining lease terms of up to 14 years.

The following table ~~explains changes in other real estate owned (“OREO”) during~~presents supplemental cash flow information related to leases:

Supplemental Cash Flow Information


dollars in millions	Nine Months Ended September 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	40	$	10
Operating cash flows from finance leases	—		—
Financing cash flows from finance leases	2		2
ROU assets obtained in exchange for new operating lease liabilities	17		3
ROU assets obtained in exchange for new finance lease liabilities	5		—

The following table presents lease liability maturities for the ~~nine months ended~~remainder of 2022 through 2027 and thereafter at September 30, ~~2021~~2022:

Maturity of Lease Liabilities


dollars in millions	Operating Leases		Finance Leases		Total
Remainder of 2022	$	8	$	—	$	8
2023	55		2		57
2024	52		2		54
2025	47		2		49
2026	44		1		45
2027	41		1		42
Thereafter	167		—		167
Total undiscounted lease payments	$	414	$	8	$	422
Difference between undiscounted cash flows and discounted cash flows	41		—		41
Lease liabilities, at present value	$	373	$	8	$	381

Lessor

BancShares leases equipment to commercial end-users under operating lease and ~~2020:~~finance lease arrangements. The majority of operating lease equipment is long-lived rail equipment, which is typically leased several times over its life. We also lease technology and office equipment, and large and small industrial, medical, and transportation equipment under both operating leases and finance leases.

Our Rail operating leases typically do not include purchase options. Many of our finance leases, and other equipment operating leases, offer the lessee the option to purchase the equipment at fair market value or for a nominal fixed purchase option; and many of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond the initial contractual term. Our leases typically do not include early termination options; and continued rent payments are due if leased equipment is not returned at the end of the lease.

The following table provides the net book value of operating lease equipment (net of accumulated depreciation of $236 million at September 30, 2022) by equipment type.

Operating Lease Equipment


~~(Dollars~~dollars in ~~thousands)~~millions	~~OREO~~September 30, 2022
Railcars and locomotives(1)	$	7,248
Other equipment	736
Total(1)	$	7,984

(1) Includes off-lease rail equipment of $509 million at September 30, 2022.

The following table presents the components of the finance lease net investment on a discounted basis:

Components of Net Investment in Finance Leases


dollars in millions	September 30, 2022		December 31, 2021
Lease receivables	$	1,803	$	246
Unguaranteed residual assets	318		25
Total net investment in finance leases	2,121		271
Leveraged lease net investment(1)	63		—
Total	$	2,184	$	271

(1) Leveraged leases are reported net of non-recourse debt of $23 million at September 30, 2022. Our leveraged lease arrangements commenced before the Accounting Standards Codification (“ASC”) 842 effective date and continue to be reported under the leveraged lease accounting model. ASC 842 eliminated leveraged lease accounting for new leases and for existing leases modified on or after the standard’s effective date.

The table that follows presents lease income related to BancShares’ operating and finance leases:

Lease Income


dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Lease income – Operating leases	$	201	$	—	$	592	$	—
Variable lease income – Operating leases(1)	18		—		48		—
Rental income on operating leases	219		—		640		—
Interest income - Sales type and direct financing leases	43		4		127		14
Variable lease income included in Other noninterest income(2)	13		—		37		—
Interest income - Leveraged leases	5		—		14		—
Total lease income	$	280	$	4	$	818	$	14

(1) Primarily includes per diem railcar operating lease rental income earned on a time or mileage usage basis.

(2) Includes leased equipment property tax reimbursements due from customers of $4 million and $13 million for the three and nine months ended September 30, 2022, respectively and revenue related to insurance coverage on leased equipment of $9 million and $24 million for the three and nine months ended September 30, 2022, respectively. There was no revenue related to property tax reimbursements due from customers or insurance coverage on leased equipment during 2021.

The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance leases at September 30, 2022. Excluded from these tables are variable lease payments, including rentals calculated based on asset usage levels, rentals from future renewal and re-leasing activity, and expected sales proceeds from remarketing equipment at lease expiration, all of which are components of lease profitability.

Maturity Analysis of Operating Lease Payments


dollars in millions
Remainder of 2022	$	221
2023	611
2024	448
2025	285
2026	179
2027	99
Thereafter	218
Total	$	2,061

Maturity Analysis of Lease Receivable Payments - Sales Type and Direct Financing Leases


dollars in millions
Remainder of 2022	$	245
2023	757
2024	492
2025	285
2026	144
2027	56
Thereafter	14
Total undiscounted lease receivables	$	1,993
Difference between undiscounted cash flows and discounted cash flows	190
Lease receivables, at present value	$	1,803

NOTE 7 — GOODWILL AND OTHER INTANGIBLES

Goodwill

BancShares applied the acquisition method of accounting for the CIT Merger. The fair value of the net assets acquired exceeded the purchase price. Consequently, there was a gain on acquisition (and no goodwill) related to the CIT Merger as discussed further in Note 2 — Business Combinations. BancShares had goodwill of $346 million at September 30, 2022 and December 31, 2021. The entire amount of goodwill relates to business combinations that BancShares completed prior to the CIT Merger and is reported in the General Banking segment. There was no goodwill impairment during 2022.

Core Deposit Intangibles

Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired. Core deposit intangibles are being amortized over their estimated useful life. The following tables summarize the activity for core deposit intangibles during the quarter ending September 30, 2022.

Core Deposit Intangibles


dollars in millions	2022
Balance, net of accumulated amortization at ~~December 31, 2020~~January 1	$	~~50,890~~19
~~Additions~~Core deposit intangibles related to the CIT Merger	~~16,454~~143

~~Sales~~Amortization for the period	~~(24,311)~~
~~Write-downs/losses~~	~~(2,384)~~(17)
Balance at September 30, ~~2021~~net of accumulated amortization	$	~~40,649~~145

Core Deposit Intangible Accumulated Amortization


dollars in millions	September 30, 2022		December 31, 2021
Gross balance	$	271	$	128
Accumulated amortization	(126)		(109)
Balance, net of accumulated amortization	$	145	$	19

The following table summarizes the expected amortization expense as of September 30, 2022 in subsequent periods for core deposit intangibles.

Core Deposit Intangible Expected Amortization


dollars in millions
Remainder 2022	$	5
2023	19
2024	17
2025	16
2026	15
2027	15
Thereafter	58
Total	$	145

Intangible Liability

An intangible liability of $52 million was recorded in other liabilities for net below market lessor lease contract rental rates related to the rail portfolio as a result of the CIT Merger. This lease intangible is being amortized on a straight-line basis over the lease term, thereby increasing rental income (a component of noninterest income) over the remaining term of the lease agreements.

The following tables summarize the activity for the intangible liability during the nine month period ending September 30, 2022.

Intangible Liability


dollars in millions	2022
Balance at ~~December 31, 2019~~January 1	$	~~46,591~~
~~Additions~~	~~18,428~~—
Acquired in ~~business combinations~~CIT Merger	~~9,813~~52
~~Sales~~Amortization	~~(18,645)~~
~~Write-downs/losses~~	~~(3,398)~~(12)
Balance at September 30, ~~2020~~net of accumulated amortization	$	~~52,789~~40

The following table summarizes the expected amortization as of September 30, ~~2021 and December 31, 2020, BancShares had $3.0 million and $5.8 million, respectively, of foreclosed residential real estate property~~2022 in OREO. The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure was $19.6 million and $29.4 million at September 30, 2021 and December 31, 2020, respectively. Net gains recorded on the sale of OREO properties were $5.2 millionsubsequent periods for the ~~nine months ended September 30, 2021. Net gains recorded on the sale of OREO properties were $1.0 million for the nine months ended September 30, 2020.~~intangible liability.

Intangible Liability


dollars in millions
Remainder 2022	$	4
2023	12
2024	6
2025	4
2026	3
2027	2
Thereafter	9
Total	$	40

NOTE ~~G -~~8 — MORTGAGE SERVICING RIGHTS

BancShares originates certain residential mortgages loans to sell in the secondary market. BancShares’ portfolio of residential mortgage loans serviced for third parties was ~~$3.3~~approximately $3.7 billion as of September 30, ~~2021~~2022 and December 31, ~~2020. These~~2021. For certain loans, ~~are~~the originated ~~and~~loans are sold to third parties on a non-recourse basis with servicing rights retained. The retained servicing rights are recorded as a servicing asset and are reported in other ~~intangible~~ assets. The associated amortization expense and any changes in the valuation allowance recognized ~~are~~were included as a reduction of mortgage income. Mortgage servicing rights (“MSRs”) are initially recorded at fair value and then carried at the lower of amortized cost or fair value.

Contractually specified mortgage servicing fees, late fees and ancillary fees earned are reported in mortgage income and were ~~$2.1~~$2 million for each of the three ~~month periods~~months ended September 30, 2022 and 2021, and ~~2020,~~$7 million and ~~are reported in mortgage income. For~~$6 million for the nine months ended September 30, 2022 and 2021, ~~and 2020, mortgage servicing fees, late fees and ancillary fees earned were each $6.4 million.~~respectively.

The following table presents changes in the servicing asset during the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2021 2020 2021 2020
Beginning balance $ 21,985 $ 18,664 $ 18,426 $ 22,963
Servicing rights originated 1,891 1,994 8,436 5,673
Amortization (2,180) (2,208) (6,505) (6,150)
Valuation allowance (increase) decrease — (305) 1,339 (4,341)
Ending balance $ 21,696 $ 18,145 $ 21,696 $ 18,145

Servicing Asset


dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Beginning balance	$	28	$	22	$	23	$	18
Servicing rights originated	—		2		4		9
Servicing rights obtained in CIT Merger	—		—		3		—
Amortization	(2)		(2)		(5)		(6)
Valuation allowance benefit	—		—		1		1
Ending balance	$	26	$	22	$	26	$	22

The following table presents the activity in the servicing asset valuation ~~allowance for the three and nine months ended September 30, 2021 and 2020:~~allowance:

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2021 2020 2021 2020
Beginning balance $ 3,026 $ 4,258 $ 4,365 $ 222
Valuation allowance increase (decrease) — 305 (1,339) 4,341
Ending balance $ 3,026 $ 4,563 $ 3,026 $ 4,563

Servicing Asset Valuation Allowance


dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Beginning balance	$	—	$	3	$	1	$	4
Valuation allowance benefit	—		—		(1)		(1)
Ending balance	$	—	$	3	$	—	$	3

~~Table of Contents~~

NOTE ~~K - ESTIMATED~~15 — FAIR ~~VALUES~~VALUE

Fair Value Hierarchy

BancShares measures certain financial assets and liabilities at fair value. Fair value ~~estimates are intended to represent~~is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants ~~as of~~at the measurement date. ~~Where there is no active market for~~U.S. GAAP also establishes a ~~financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques. Inputs used in these~~fair value hierarchy, which prioritizes the inputs to valuation techniques ~~are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision. Accordingly, the derived~~used to measure fair value ~~estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.~~into three levels.

~~ASC 820,~~
~~Fair Value Measurements and Disclosures, indicates that assets~~

Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the ~~highest~~lowest level of input ~~that is~~ significant to the fair value measurement ~~(with~~with Level 1 inputs considered highest and Level 3 inputs considered ~~lowest).~~lowest. A brief description of each input level follows:

•Level 1 ~~values~~inputs are ~~based on~~ quoted prices in active markets for identical ~~instruments in active markets.~~assets and liabilities.

•Level 2 ~~values~~inputs are ~~based on~~ quoted prices for similar ~~instruments~~assets or liabilities in active markets, quoted prices for identical or similar ~~instruments~~assets or liabilities in markets that are not active and ~~model-based valuation techniques~~inputs other than quoted prices observable for ~~which all significant assumptions are observable in~~ the ~~market.~~assets or liabilities and market corroborated inputs.

•Level 3 ~~values~~inputs are ~~derived from valuation techniques in which one~~unobservable inputs for the asset or ~~more significant inputs or assumptions are not observable in the market.~~liability. These unobservable inputs and assumptions reflect the estimates ~~that~~ market participants would use in pricing the asset or liability. ~~Valuation techniques include the use of discounted cash flow models~~

Assets and ~~similar techniques.~~Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes BancShares’ ~~management reviews any changes to its valuation methodologies to ensure they are appropriate~~assets and ~~supportable, and refines valuation methodologies as more market-based data becomes available. Accuracy of the levels of the~~liabilities measured at estimated fair value ~~hierarchy are validated~~on a recurring basis.

Assets and ~~transfers between levels of the~~Liabilities Measured at Fair Value - Recurring Basis (dollars in millions)


dollars in millions	September 30, 2022
	Total		Level 1		Level 2		Level 3
Assets
Investment securities available for sale
U.S. Treasury	$	1,900	$	—	$	1,900	$	—
Government agency	173		—		173		—
Residential mortgage-backed securities	4,784		—		4,784		—
Commercial mortgage-backed securities	1,673		—		1,673		—
Corporate bonds	558		—		382		176

Total investment securities available for sale	$	9,088	$	—	$	8,912	$	176
Marketable equity securities	92		30		62		—
Loans held for sale	7		—		7		—
Derivative assets(1)
Interest rate contracts — non-qualifying hedges	143		—		142		1
Other derivative — non-qualifying hedges	6		—		6		—
Total derivative assets	$	149	$	—	$	148	$	1
Liabilities
Derivative liabilities(1)
Interest rate contracts — non-qualifying hedges	$	500	$	—	$	500	$	—
Other derivative— non-qualifying hedges	—		—		—		—
Total derivative liabilities	$	500	$	—	$	500	$	—

	December 31, 2021
dollars in millions	Total		Level 1		Level 2		Level 3
Assets
Investment securities available for sale
U.S. Treasury	$	2,005	$	—	$	2,005	$	—
Government agency	221		—		221		—
Residential mortgage-backed securities	4,729		—		4,729		—
Commercial mortgage-backed securities	1,640		—		1,640		—
Corporate bonds	608		—		401		207
Total investment securities available for sale	$	9,203	$	—	$	8,996	$	207
Marketable equity securities	98		34		64		—
Loans held for sale	99		—		99		—

(1) Derivative fair ~~value hierarchy are recognized at the end of the reporting period.~~values include accrued interest.

The ~~methodologies~~methods and assumptions used to estimate the fair value of each class of financial ~~assets and financial liabilities~~instruments measured at fair value on a recurring basis are ~~discussed below:~~as follows:

Investment securities available for sale ~~and held to maturity~~. The fair value of U.S. Treasury, government agency, ~~and~~ mortgage-backed securities, ~~municipal securities, as well as~~and a portion of the corporate bonds isare generally estimated using a ~~third party~~third-party pricing service. To obtain an understanding of the processes and methodologies used, management reviews correspondence from the third-party pricing service. Management also performs a price variance analysis process to corroborate the reasonableness of prices. The ~~third party~~third-party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models ~~that~~which use a variety of inputs, such as benchmark yields, reported trades, ~~broker-dealer quotes,~~ issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers ~~which are unadjusted and~~using inputs that are not directly observable. These securities are ~~considered~~classified as Level 3.

~~Investment in marketable~~

Marketable equity securities. Equity securities are measured at fair value using observable closing ~~prices and~~prices. The valuation also considers the amount of market ~~activity.~~activity by examining the trade volume of each security. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market.

Loans held for sale. ~~Management elects the fair value option on certain~~Certain residential real estate loans originated to be sold to ~~investors. The loans~~investors are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are ~~classified as~~considered Level 2 inputs.

Derivative Assets and Liabilities. Derivatives were valued using models that incorporate inputs depending on the type of derivative. Other than the fair value of credit derivatives, which were estimated using Level 3 inputs, most derivative instruments were valued using Level 2 inputs based on observed pricing for similar assets and liabilities and model-based valuation techniques for which all significant assumptions are observable in the market. See Note 13 — Derivative Financial Instruments for notional principal amounts and fair values.

The following tables summarize information about significant unobservable inputs related to BancShares’ categories of Level 3 financial assets and liabilities measured on a recurring basis.

Quantitative Information About Level 3 Fair Value Measurements - Recurring Basis

dollars in millions

Financial Instrument

Estimated
Fair Value

Valuation
Technique(s)

Significant Unobservable Inputs

September 30, 2022

Assets

Corporate bonds

176

Indicative bid provided by broker

Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer.

Interest rate & other derivative — non-qualifying hedges

Internal valuation model

Not material

December 31, 2021

Assets

Corporate bonds

207

Indicative bid provided by broker

Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer.

The following table summarizes the changes in estimated fair value for all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3).

Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities - Recurring Basis


dollars in millions	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	Corporate Bonds		Other Derivative Assets — Non-Qualifying		Other Derivative Liabilities — Non-Qualifying		Corporate Bonds
Beginning balance	$	207	$	—	$	—	$	317
Purchases	—		—		1		31
Included in earnings	—		1		(1)		2
Included in comprehensive income	(17)		—		—		4

Transfers out	(14)		—		—		—
Maturity and settlements	—		—		—		(46)
Ending balance	$	176	$	1	$	—	$	308

Fair Value Option

The following table summarizes the difference between the aggregate fair value and the UPB for residential real estate loans originated for sale measured at fair value as of September 30, 2022 and December 31, 2021.


dollars in millions	September 30, 2022
	Fair Value		Unpaid Principal Balance		Difference
Originated loans held for sale	$	7	$	7	$	—

	December 31, 2021
	Fair Value		Unpaid Principal Balance		Difference
Originated loans held for sale	$	99	$	96	$	3

BancShares has elected the fair value option for residential real estate loans originated for sale. This election reduces certain timing differences in the Consolidated Statements of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included a loss of $1 million for each of the three months ended September 30, 2022 and 2021 and a loss of $3 million for each of the nine months ended September 30, 2022 and 2021. Interest earned on loans held for sale is recorded within interest income on loans and leases in the Consolidated Statements of Income.

No originated loans held for sale were 90 or more days past due or on non-accrual status as of September 30, 2022 or December 31, 2021.

Assets Measured at Estimated Fair Value on a Non-recurring Basis

Certain assets or liabilities are required to be measured at estimated fair value on a non-recurring basis subsequent to initial recognition. Generally, these adjustments are the result of LOCOM or other impairment accounting. The following table presents carrying value of assets measured at estimated fair value on a non-recurring basis for which gains and losses from a non-recurring fair value adjustment have been recorded in the periods. The gains and losses reflect amounts recorded for the respective periods, regardless of whether the asset is still held at period end.

Assets Measured at Fair Value - Non-recurring Basis


dollars in millions	Fair Value Measurements
	Total		Level 1		Level 2		Level 3		Total Gains (Losses)
September 30, 2022
Assets held for sale - loans	$	3	$	—	$	—	$	3	$	(1)
Loans - collateral dependent loans	78		—		—		78		(10)
Other real estate owned	51		—		—		51		13
Mortgage servicing rights	—		—		—		—		1
Total	$	132	$	—	$	—	$	132	$	3
December 31, 2021
Loans - collateral dependent loans	$	3	$	—	$	—	$	3	$	(2)
Other real estate owned	34		—		—		34		(4)
Mortgage servicing rights	22		—		—		22		3
Total	$	59	$	—	$	—	$	59	$	(3)

Certain other assets are adjusted to their fair value on a non-recurring basis, including certain loans, OREO, and goodwill, which are periodically tested for impairment, and MSRs, which are carried at the lower of amortized cost or market. Most loans held for investment, deposits, and borrowings are not reported at fair value.

The methods and assumptions used to estimate the fair value of each class of financial instruments measured at fair value on a non-recurring basis are as follows:

Assets held for sale - loans. Loans held for investment subsequently transferred to held for sale are carried at the lower of cost or market. ~~Transfers occur when management intends to sell a pool of~~When available, the fair values for the transferred loans inare based on quoted prices from the ~~secondary market. This typically occurs when a firm commitment to~~ purchase ~~from a counterparty exists.~~commitments for the individual loans being transferred and are considered Level 1 inputs. The fair value of Level 2 assets was primarily estimated based on prices of recent trades of similar assets. For other loans held for sale, the ~~transferred~~fair value of Level 3 assets was primarily measured under the income approach using the discounted cash flow model based on Level 3 inputs including discount rate or the price of committed trades.

Loans - collateral dependent loans. The population of Level 3 loans measured at fair value on a non-recurring basis includes collateral-dependent loans evaluated individually. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, and immaterial adjustments for other external factors that may impact the marketability of the collateral.

Other real estate owned. OREO is carried at the lower of cost or fair value. OREO asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts, generally between 6% and 15%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At September 30, 2022 and December 31, 2021, the weighted average discount applied was 6.82% and 8.79%, respectively. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals are ordered to ensure the reported values reflect the most current information.

Mortgage servicing rights. MSRs are carried at the lower of amortized cost or market and are, therefore, carried at fair value only when fair value is less than amortized cost. The fair value of MSRs is determined using a pooling methodology. Similar loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates, and the weighted average cost to service the loans, is ~~based on~~used to determine the ~~quoted prices~~fair value.

Financial Instruments Fair Value

The table below presents the carrying values and ~~is considered a Level 1 input.~~estimated fair values for financial instruments, excluding leases and certain other assets and liabilities for which these disclosures are not required.

Carrying Values and Fair Values of Financial Assets and Liabilities


dollars in millions	September 30, 2022
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from banks	$	481	$	481	$	—	$	—	$	481
Interest earning deposits at banks	6,172		6,172		—		—		6,172
Investment in marketable equity securities	92		30		62		—		92
Investment securities available for sale	9,088		—		8,912		176		9,088
Investment securities held to maturity	9,661		—		8,166		—		8,166
Loans held for sale	18		—		7		14		21
Net loans	66,757		—		1,612		61,280		62,892
Accrued interest receivable	286		—		286		—		286
Federal Home Loan Bank stock	234		—		234		—		234

Mortgage and other servicing rights	26		—		—		48		48
Derivative assets	149		—		148		1		149
Financial Liabilities
Deposits	87,553		—		87,435		—		87,435

Credit balances of factoring clients	1,147		—		—		1,147		1,147
Securities sold under customer repurchase agreements	578		—		578		—		578
Other short-term borrowings	2,550		—		2,550		—		2,550
Long-term borrowings	5,207		—		5,042		17		5,059
Accrued interest payable	35		—		35		—		35
Derivative liabilities	500		—		500		—		500

	December 31, 2021
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from banks	$	338	$	338	$	—	$	—	$	338
Interest earning deposits at banks	9,115		9,115		—		—		9,115
Investment in marketable equity securities	98		34		64		—		98
Investment securities available for sale	9,203		—		8,996		207		9,203
Investment securities held to maturity	3,809		—		3,759		—		3,759
Loans held for sale	99		—		99		—		99
Net loans	32,193		—		—		31,890		31,890
Accrued interest receivable	134		—		134		—		134
Federal Home Loan Bank stock	40		—		40		—		40

Mortgage and other servicing rights	23		—		—		23		23
Financial Liabilities
Deposits with no stated maturity	48,925		—		48,925		—		48,925
Time deposits	2,481		—		2,471		—		2,471
Securities sold under customer repurchase agreements	589		—		589		—		589

Long-term borrowings	1,195		—		1,222		—		1,222



Accrued interest payable	8		—		8		—		8

The methods and assumptions used to estimate the fair value of each class of financial instruments not discussed elsewhere are as follows:

Net loans. The carrying value of net loans ~~and leases.~~ ~~Fair value~~ is ~~estimated based on discounted future~~net of the ACL. Loans are generally valued by discounting expected cash flows using market inputs with adjustments based on cohort level assumptions for certain loan types as well as internally developed estimates at a business segment level. Due to the ~~current interest rates~~significance of the unobservable market inputs and assumptions, as well as the absence of a liquid secondary market for most loans, these loans are classified as Level 3. Certain loans are measured based on observable market prices sourced from external data providers and classified as Level 2. Nonaccrual loans are written down and reported at their estimated recovery value which ~~loans~~approximates their fair value and classified as Level 3.

Investment securities held to maturity. BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the World Bank and FDIC guaranteed CDs with ~~similar terms would be made~~other financial institutions. We primarily use prices obtained from pricing services to ~~borrowers of similar credit quality. The inputs used in~~determine the fair value ~~measurements for loans and leases~~of securities, which are ~~considered~~ Level 32 inputs.

FHLB ~~stock~~stock. . The carrying amount of FHLB stock is a reasonable estimate of fair value, as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares ~~believes its~~ investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.

~~Table of Contents~~

Mortgage and other servicing rights. Mortgage and other servicing rights are initially recorded at fair value and subsequently carried at the lower of amortized cost or ~~market value and~~market. Therefore, servicing rights are ~~therefore,~~ carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is ~~performed~~determined using a pooling methodology. Similar loans are pooled together and a model ~~that~~which relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs.

Deposits. ~~For non-time~~The estimated fair value of deposits ~~carrying value is a reasonable estimate of fair value.~~with no stated maturity, such as demand deposit accounts, money market accounts, and savings accounts was the amount payable on demand at the reporting date. The fair value of time deposits was estimated based on a discounted cash flow technique using Level 2 inputs appropriate to the contractual maturity.

Credit balances of factoring clients. The impact of the time value of money from the unobservable discount rate for credit balances of factoring clients is ~~estimated by discounting future cash flows using~~inconsequential due to the ~~interest rates currently offered for deposits with similar remaining maturities. The inputs used in~~short term nature of these balances, therefore, the fair value ~~measurement for deposits are considered~~approximated carrying value, and the credit balances were classified as Level ~~2 inputs.~~ 3

~~Borrowings.~~

Short-term borrowed funds. Includes federal funds purchased, repurchase agreements and certain other short-term borrowings and payables. The fair value approximates carrying value and are classified as Level 2.

Long-term Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security, if available. Otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, senior and subordinated debentures, and other borrowings are considered Level 2 inputs.

~~Payable to the FDIC for shared-loss agreements.~~ The fair value of ~~the payable to the FDIC for shared-loss agreements~~other secured borrowings was ~~determined~~estimated based on ~~payments to the FDIC in accordance with the shared-loss agreements. Cash flows were discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC. The~~unobservable inputs ~~used in the fair value measurement for the payable to the FDIC were considered~~and are classified as Level ~~3 inputs.~~3.

~~Off-balance-sheet commitments and contingencies.~~ Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position.

For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively ~~short term~~short-term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks, isand interest earning deposits at banks, are classified on the fair value hierarchy as Level 1. ~~Overnight investments, income earned not collected, securities sold under customer repurchase agreements,~~Accrued interest receivable and accrued interest payable are ~~considered~~classified as Level 2.

NOTE 16 — STOCKHOLDERS' EQUITY

A roll forward of common stock activity is presented in the following table.

Number of Shares of Common Stock


	Outstanding
	Class A	Class B
Common stock - June 30, 2022	14,997,202	1,005,185
Shares purchased under authorized repurchase plan	(1,027,414)	—
Restricted stock units vested, net of shares held to cover taxes	1,156	—
Common stock - September 30, 2022	13,970,944	1,005,185


	Outstanding
	Class A	Class B
Common stock - December 31, 2021	8,811,220	1,005,185
Common stock issuance - CIT Merger	6,140,010	—
Restricted stock units vested, net of shares held to cover taxes	47,128	—
Shares purchased under authorized repurchase plan	(1,027,414)	—
Common stock - September 30, 2022	13,970,944	1,005,185

Common Stock

The Parent Company has Class A Common Stock and Class B Common Stock. Class A Common Stock have one vote per share, while shares of Class B Common Stock have 16 votes per share. In connection with the consummation of the CIT Merger, the Parent Company issued approximately 6.1 million shares of Class A Common Stock as further discussed in Note 2 — Business Combinations.

Restricted Stock Units

Refer to Note 21 — Employee Benefit Plans for discussion of the BancShares RSUs.

Non-Cumulative Perpetual Preferred Stock

On March 12, 2020, BancShares issued and sold an aggregate of 13,800,000 depositary shares (the “Depositary Shares”), each representing a 1/40th interest in a share of 5.375% non-cumulative perpetual preferred stock, series A (“BancShares Series A Preferred Stock”) (equivalent to $1,000 per share of the BancShares Series A Preferred Stock) for a total of $345 million. As part of the CIT Merger, each issued and outstanding share of CIT Series A Preferred Stock and CIT Series B Preferred Stock automatically converted into the right to receive one share of BancShares Series B Preferred Stock and BancShares Series C Preferred Stock, respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, that were 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 following table summarizes BancShares’ non-cumulative perpetual preferred stock.


dollars in millions, except per share and par value data
Preferred Stock	Issuance Date	Earliest Redemption Date	Par Value	Shares Authorized, Issued and Outstanding	Liquidation Preference Per Share		Total Liquidation Preference		Dividend	Dividend Payment Dates
Series A	March 12, 2020	March 15, 2025	$0.01	345,000	$	1,000	$	345	5.375%	Quarterly in arrears, beginning June 15, 2020
Series B	January 3, 2022	January 4, 2027	$0.01	325,000	1,000		325		5.8%, converting to LIBOR + 3.972% beginning June 15, 2022	Semi-annually during the fixed rate period, then quarterly in arrears, beginning June 15, 2022
Series C	January 3, 2022	January 4, 2027	$0.01	8,000,000	25		200		5.625%	Quarterly in arrears, beginning March 15, 2022

Dividends on BancShares Series A, B, and C Preferred Stock (together, “BancShares Preferred Stock”) will be paid when, as, and if declared by the Board of Directors of the Parent Company, or a duly authorized committee thereof, to the extent that the Parent Company has lawfully available funds to pay dividends. If declared, dividends with respect to the BancShares Series A Preferred Stock and BancShares Series C Preferred Stock will accrue and be payable quarterly in arrears on March 15, June 15, September 15, and December 15 of each year, beginning on the “Dividend Payment Dates” in the table above. Dividends on the BancShares Series B Preferred Stock initially accrued and were payable on a semi-annual basis during the fixed rate period. Upon expiration of the fixed rate period on June 15, 2022, dividends with respect to the BancShares Series B Preferred Stock, if declared, now accrue and are payable quarterly in arrears on March 15, June 15, September 15, and December 15 of each year. Dividends on the BancShares Preferred Stock will not be cumulative.

The Parent Company may redeem the BancShares Preferred Stock at its option, and subject to any required regulatory approval, at a redemption price equal to the “Liquidation Preference Per Share” in the table above, plus any declared and unpaid dividends to, but excluding, the redemption date, (i) in whole or in part, from time to time, on any dividend payment date on or after the “Earliest Redemption Date” in the table above, or (ii) in whole but not in part, at any time within 90 days following a regulatory capital treatment event.

NOTE 17 — ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following table details the components of Accumulated Other Comprehensive (Loss) Income (“AOCI”):

Components of Accumulated Other Comprehensive Income (Loss)


dollars in millions	September 30, 2022						December 31, 2021
	Gross Unrealized		Income Taxes		Net Unrealized		Gross Unrealized		Income Taxes		Net Unrealized
Unrealized loss on securities available for sale	$	(995)	$	239	$	(756)	$	(12)	$	3	$	(9)
Unrealized loss on securities available for sale transferred to securities held to maturity	(8)		2		(6)		(9)		2		(7)
Defined benefit pension items	43		(10)		33		34		(8)		26


Total accumulated other comprehensive (loss) income	$	(960)	$	231	$	(729)	$	13	$	(3)	$	10

The following table details the changes in the components of AOCI, net of income taxes:

Changes in Accumulated Other Comprehensive Income (Loss) by Component


dollars in millions	Unrealized (loss) gain on securities available for sale		Unrealized loss on securities available for sale transferred to securities held to maturity		Net change in Defined Benefit Pension Items		Total AOCI
Balance as of December 31, 2021	$	(9)	$	(7)	$	26	$	10
AOCI activity before reclassifications	(747)		—		—		(747)
Amounts reclassified from AOCI	—		1		7		8
Net current period AOCI	(747)		1		7		(739)
Balance as of September 30, 2022	$	(756)	$	(6)	$	33	$	(729)

Balance as of December 31, 2020	$	79	$	4	$	(71)	$	12
AOCI activity before reclassifications	(33)		—		—		(33)
Amounts reclassified from AOCI	(26)		(1)		16		(11)
Net current period AOCI	(59)		(1)		16		(44)
Balance as of September 30, 2021	$	20	$	3	$	(55)	$	(32)

Other Comprehensive Income

The amounts included in the Condensed Consolidated Statements of Comprehensive Income are net of income taxes. The following table presents the ~~carrying values~~pretax and ~~estimated fair values~~after-tax components of other comprehensive income.

Other Comprehensive Income (Loss) by Component


dollars in millions	Three Months Ended September 30,
	2022						2021
	Gross Amount		Tax		Net Amount		Gross Amount		Tax		Net Amount		Income Statement Line Item





Net change in pension obligations
AOCI activity before reclassification	$	—	$	—	$	—	$	—	$	—	$	—
Reclassifications out of AOCI	2		—		2		7		(1)		6		Other noninterest expense
Net Change	$	2	$	—	$	2	$	7	$	(1)	$	6

Unrealized loss on securities available for sale transferred to securities held to maturity
AOCI activity before reclassification	$	—	$	—	$	—	$	—	$	—	$	—
Reclassifications out of AOCI	—		—		—		(1)		—		(1)		Interest on investment securities
Net Change	$	—	$	—	$	—	$	(1)	$	—	$	(1)

Unrealized loss on securities available for sale
AOCI activity before reclassification	$	(348)	$	82	$	(266)	$	(11)	$	3	$	(8)
Reclassifications out of AOCI	—		—		—		(8)		1		(7)		Realized gain on sales of investment securities available for sale, net
Net Change	$	(348)	$	82	$	(266)	$	(19)	$	4	$	(15)
Net current period AOCI	$	(346)	$	82	$	(264)	$	(13)	$	3	$	(10)

	Nine Months Ended September 30,
	2022						2021

	Gross Amount		Tax		Net Amount		Gross Amount		Tax		Net Amount		Income Statement Line Item





Net change in pension obligations
AOCI activity before reclassification	$	—	$	—	$	—	$	—	$	—	$	—
Reclassifications out of AOCI	9		(2)		7		20		(4)		16		Other noninterest expense
Net Change	$	9	$	(2)	$	7	$	20	$	(4)	$	16

Unrealized loss on securities available for sale transferred to securities held to maturity
AOCI activity before reclassification	$	—	$	—	$	—	$	—	$	—	$	—
Reclassifications out of AOCI	1		—		1		(1)		—		(1)		Interest on investment securities
Net Change	$	1	$	—	$	1	$	(1)	$	—	$	(1)

Unrealized loss on securities available for sale
AOCI activity before reclassification	$	(983)	$	236	$	(747)	$	(43)	$	10	$	(33)
Reclassifications out of AOCI	—		—		—		(33)		7		(26)		Realized gain on sales of investment securities available for sale, net
Net Change	$	(983)	$	236	$	(747)	$	(76)	$	17	$	(59)
Net current period AOCI	$	(973)	$	234	$	(739)	$	(57)	$	13	$	(44)

NOTE 18 — REGULATORY CAPITAL

BancShares and FCB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the BancShares’ Consolidated Financial Statements. Certain activities, such as the ability to undertake new business initiatives, including acquisitions, the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit insurance costs, and the level and nature of regulatory oversight, largely depend on a financial ~~instruments~~institution’s capital strength.

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 following table includes the Basel III requirements for regulatory capital ratios.


	Basel III Minimums		Basel III Conservation Buffers		Basel III Requirements
Regulatory capital ratios
Total risk-based capital	8.00	%	2.50	%	10.50	%
Tier 1 risk-based capital	6.00		2.50		8.50
Common equity Tier 1	4.50		2.50		7.00
Tier 1 leverage	4.00		—		4.00

The FDIC also has Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios. The regulatory capital ratios for BancShares and FCB are calculated in accordance with the guidelines of the federal banking authorities. The regulatory capital ratios for BancShares and FCB exceed the Basel III requirements and the PCA well-capitalized thresholds as of September 30, ~~2021~~2022 and December 31, ~~2020:~~

(Dollars in thousands) September 30, 2021 December 31, 2020
Carrying value Fair value Carrying value Fair value
Assets
Cash and due from banks $ 337,450 $ 337,450 $ 362,048 $ 362,048
Overnight investments 9,875,063 9,875,063 4,347,336 4,347,336
Investment in marketable equity securities 123,147 123,147 91,680 91,680
Investment securities available for sale 7,371,129 7,371,129 7,014,243 7,014,243
Investment securities held to maturity 3,381,078 3,353,078 2,816,982 2,838,499
Loans held for sale 98,451 98,451 124,837 124,837
Net loans and leases 32,332,995 32,349,172 32,567,661 33,298,166
Income earned not collected 132,911 132,911 145,694 145,694
Federal Home Loan Bank stock 40,450 40,450 45,392 45,392
Mortgage and other servicing rights 22,263 22,624 19,628 20,283
Liabilities
Deposits with no stated maturity 47,492,194 47,492,194 40,542,596 40,542,596
Time deposits 2,573,568 2,573,131 2,889,013 2,905,577
Securities sold under customer repurchase agreements 663,575 663,575 641,487 641,487
Federal Home Loan Bank borrowings 645,663 659,625 655,175 677,579
Subordinated debt 497,427 520,871 504,518 525,610
Other borrowings 76,139 76,643 88,470 89,263
FDIC shared-loss payable — — 15,601 15,843
Accrued interest payable 6,560 6,560 9,414 9,414

~~Table of Contents~~

~~For assets and liabilities carried at fair value on a recurring basis,~~2021 as summarized in the following ~~table provides fair value information~~table.


dollars in millions					September 30, 2022				December 31, 2021
	Basel III Requirements		PCA well-capitalized thresholds		Amount		Ratio		Amount		Ratio
BancShares
Total risk-based capital	10.50	%	10.00	%	$	11,927	13.46	%	$	5,042	14.35	%
Tier 1 risk-based capital	8.50		8.00		10,066		11.36		4,380		12.47
Common equity Tier 1	7.00		6.50		9,185		10.37		4,041		11.50
Tier 1 leverage	4.00		5.00		10,066		9.31		4,380		7.59
FCB
Total risk-based capital	10.50	%	10.00	%	$	11,732	13.26	%	$	4,858	13.85	%
Tier 1 risk-based capital	8.50		8.00		10,327		11.67		4,651		13.26
Common equity Tier 1	7.00		6.50		10,327		11.67		4,651		13.26
Tier 1 leverage	4.00		5.00		10,327		9.56		4,651		8.07

At September 30, 2022, BancShares and FCB had total risk-based capital ratio conservation buffers of 5.36% and 5.26%, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%. At December 31, 2021, BancShares and FCB had risk-based capital ratio conservation buffers of 6.35% and 5.85%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021 over the Basel III minimum.

September 30, 2021
Fair value measurements using:
(Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs
Assets measured at fair value
Investment securities available for sale
Government agency $ 853,728 $ — $ 853,728 $ —
Residential mortgage-backed securities 4,801,646 — 4,801,646 —
Commercial mortgage-backed securities 1,090,652 — 1,090,652 —
Corporate bonds 625,103 — 316,968 308,135
Total investment securities available for sale $ 7,371,129 $ — $ 7,062,994 $ 308,135
Marketable equity securities $ 123,147 $ 52,991 $ 70,156 $ —
Loans held for sale $ 98,451 $ — $ 98,451 $ —
December 31, 2020
Fair value measurements using:
Fair value Level 1 inputs Level 2 inputs Level 3 inputs
Assets measured at fair value
Investment securities available for sale
U.S. Treasury $ 499,933 $ — $ 499,933 $ —
Government agency 701,391 — 701,391 —
Residential mortgage-backed securities 4,438,103 — 4,438,103 —
Commercial mortgage-backed securities 771,537 — 771,537 —
Corporate bonds 603,279 — 286,655 316,624
Total investment securities available for sale $ 7,014,243 $ — $ 6,697,619 $ 316,624
Marketable equity securities $ 91,680 $ 32,855 $ 58,825 $ —
Loans held for sale $ 124,837 $ — $ 124,837 $ —

Additional Tier 1 capital for BancShares includes preferred stock discussed further in Note 16 — Stockholders’ Equity. Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ACL and qualifying subordinated debt.

Dividend Restrictions

Dividends paid from FCB to the Parent Company are the primary source of funds available to the Parent Company for payment of dividends to its stockholders. The Board of Directors of FCB may approve distributions, including dividends, as it deems appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, provided that the distributions do not reduce the regulatory capital ratios below the applicable requirements. FCB could have paid additional dividends to the Parent Company in the amount of $2.9 billion while continuing to meet the requirements for well-capitalized banks at September 30, 2022. Dividends declared by FCB and paid to the Parent Company amounted to $930 million for the nine months ended September 30, 2022. Payment of dividends is made at the discretion of FCB’s Board of Directors and is contingent upon satisfactory earnings as well as projected capital needs.

NOTE 19 — EARNINGS PER COMMON SHARE

The following ~~tables summarize activity~~table sets forth the computation of the basic and diluted earnings per common share:

Earnings per Common Share


dollars in millions, except per share data	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	315	$	124	$	841	$	424
Preferred stock dividends	12		5		36		14
Net income available to common stockholders	$	303	$	119	$	805	$	410
Weighted average common shares outstanding
Basic shares outstanding	15,711,976		9,816,405		15,849,219		9,816,405
Stock-based awards	16,017		—		18,095		—
Diluted shares outstanding	15,727,993		9,816,405		15,867,314		9,816,405
Earnings per common share
Basic	$	19.27	$	12.17	$	50.76	$	41.79
Diluted	$	19.25	$	12.17	$	50.70	$	41.79

BancShares RSUs are discussed in Note 21 — Employee Benefit Plans.

NOTE 20 — INCOME TAXES

BancShares’ global effective income tax rate was 22.9% and 13.3% for ~~Level 3 assets carried at fair value on a recurring basis:~~

Corporate bonds
Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2021 2020 2021 2020
Beginning balance $ 325,448 $ 169,977 $ 316,624 $ 69,685
Purchases 23,878 78,000 30,878 178,595
Unrealized net losses (gains) included in other comprehensive income 436 2,818 3,927 901
Amounts included in net income 2,504 (81) 2,687 (249)
Transfers in — — — 1,782
Sales / Calls (44,131) — (45,981) —
Ending balance $ 308,135 $ 250,714 $ 308,135 $ 250,714

~~During~~the three and nine months ended September 30, 2022, respectively, and 21.5% and 22.6% for the three and nine months ended September 30, 2021, respectively. The increase in the income tax rate for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was primarily driven by the increase in state and ~~2020, there were no transfers between levels. During~~local taxes resulting from the CIT Merger. The decrease in the income tax rate for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 ~~there were no transfers~~was primarily driven by the non-taxable nature of the bargain purchase gain arising from ~~Level 2~~the CIT Merger.

The quarterly income tax expense is based on a projection of BancShares’ annual effective tax rate (“ETR”). This annual ETR is applied to ~~Level 3, compared~~the year-to-date consolidated pre-tax income to ~~$1.8 million~~determine the interim provision for income taxes before discrete items. The ETR each period is also impacted by a number of factors, including the ~~same period~~relative mix of ~~2020.~~domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items. The ~~transfers were~~currently forecasted ETR may vary from the actual year-end 2022 ETR due to the changes in these factors.

Uncertain Tax Benefits

BancShares’ recognizes tax benefits when it is more likely than not that the position will prevail, based solely on the technical merits under the tax law of the relevant jurisdiction. BancShares will recognize the tax benefit if the position meets this recognition threshold determined based on the largest amount of the benefit that is more than likely to be realized.

Net Operating Loss Carryforwards and Valuation Adjustments

As a ~~lack~~result of ~~observable inputs~~the CIT Merger, BancShares’ net deferred tax liabilities increased by approximately $297 million. That amount included an increase to deferred tax assets (“DTAs”) primarily from net operating losses, capitalized costs and ~~trade activity for those securities.~~tax credits net of deferred tax liabilities primarily from operating leases.

~~The following table presents quantitative information about Level 3 fair value measurements for fair value~~

BancShares’ ability to recognize DTAs is evaluated on a ~~recurring~~quarterly basis ~~at September 30, 2021:~~

~~(Dollars in thousands)~~

~~September 30, 2021~~

~~Level 3 assets~~

~~Valuation technique~~

~~Significant unobservable input~~

~~Fair Value~~

~~Corporate bonds~~

~~Indicative bid provided by broker~~

~~Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer~~

~~308,135~~

~~Table of Contents~~

~~Fair Value Option~~

~~BancShares has elected the fair value option for residential real estate loans originated~~ to be sold. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included losses of $0.6 million and gains of $0.6 million for the three months ended September 30, 2021 and 2020, respectively. The changes in fair value included a loss of $2.9 million and a gain of $4.2 million for nine months ended September 30, 2021 and 2020, respectively. Interest earned on loans held for sale is recorded within interest income on loans and leases in the consolidated statements of income.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate originated for sale measured at fair value as of September 30, 2021 and December 31, 2020:

September 30, 2021
(Dollars in thousands) Fair value Aggregate unpaid principal balance Difference
Originated loans held for sale $ 98,451 $ 95,396 $ 3,055
December 31, 2020
Fair value Aggregate unpaid principal balance Difference
Originated loans held for sale $ 124,837 $ 118,902 $ 5,935

~~No originated loans held for sale were 90 or more days past due or on nonaccrual status as of September 30, 2021 or December 31, 2020.~~

BancShares may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.

~~The population of loans measured at fair value on a non-recurring basis is limited to collateral-dependent loans evaluated individually. These collateral-dependent loans are deemed to be at fair value~~determine if there is an associated ACL or if a charge-off has been recorded in the previous 12 months. A large majority of collateral for these loans is real property. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 5% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. The weighted average discount for estimated selling costs applied to real estate collateral was 8%.

OREO acquired or written down within the previous 12 months is deemed to be at fair value. Asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts generally between 6% and 15% applied for estimated selling costs and other external factors that may impact the marketability of the property. At September 30, 2021, the weighted average discount applied was 8%. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant ~~changes in the market or the subject property, valuations~~events that would affect our ability to utilize existing DTAs. If events are identified that affect our ability to utilize our DTAs, valuation adjustments may be adjusted ~~or new appraisals ordered to ensure the reported values reflect the most current information.~~

~~For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2021 and December 31, 2020:~~

September 30, 2021
Fair value measurements using:
(Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs
Collateral-dependent loans $ 12,185 $ — $ — $ 12,185
Other real estate owned 32,391 — — 32,391
Mortgage servicing rights 20,210 — — 20,210
December 31, 2020
Fair value measurements using:
Fair value Level 1 inputs Level 2 inputs Level 3 inputs
Collateral-dependent loans $ 11,779 $ — $ — $ 11,779
Other real estate owned 40,115 — — 40,115
Mortgage servicing rights 16,966 — — 16,966

~~No financial liabilities were carried at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020.~~accordingly.

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NOTE ~~L -~~21 — EMPLOYEE BENEFIT PLANS

BancShares sponsors ~~noncontributory~~non-contributory defined benefit pension plans for its qualifying employees. The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense.

~~For the three and nine months ended September 30, 2021 and 2020, the~~

The components of net periodic benefit cost are as follows:


dollars in millions										dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
		Three months ended September 30				Nine months ended September 30					2022		2021		2022		2021
(Dollars in thousands)		2021		2020		2021		2020
Service cost	Service cost	$	3,838	$	3,570	$	11,514	$	10,709	Service cost	$	3	$	4	$	10	$	12
Interest cost	Interest cost	7,466		8,549		22,398		25,648		Interest cost	11		7		33		22
Expected return on assets	Expected return on assets	(19,607)		(16,423)		(58,823)		(49,267)		Expected return on assets	(22)		(20)		(65)		(59)

Amortization of prior service cost										Amortization of prior service cost	—		—		—		—
Amortization of net actuarial loss	Amortization of net actuarial loss	6,773		6,332		20,320		18,994		Amortization of net actuarial loss	3		7		9		20
Net periodic (benefit) cost		$	(1,530)	$	2,028	$	(4,591)	$	6,084
Net periodic benefit										Net periodic benefit	$	(5)	$	(2)	$	(13)	$	(5)

~~Table~~

The foregoing statements about BancShares’ Litigation are based on BancShares’ judgments, assumptions, and estimates and are necessarily subjective and uncertain. In the event of ~~Contents~~unexpected future developments, it is possible that the ultimate resolution of these cases, matters, and proceedings, if unfavorable, may be material to BancShares’ consolidated financial position in a particular period.

NOTE 24 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CIT Northbridge Credit LLC (“Northbridge”) is an asset-based-lending joint venture between FCB (as successor to CIT Bank) and Allstate Insurance Company and its subsidiary (“Allstate”) that extends credit in asset-based lending middle-market loans. FCB holds a 20% equity investment in Northbridge, and CIT Asset Management LLC, a non-bank subsidiary of FCB, acts as an investment advisor and servicer of the loan portfolio. Allstate is an 80% equity investor. FCB’s investment was $36 million at September 30, 2022, with the expectation of additional investment as the joint venture grows. Management fees were earned on loans under management. The joint venture is not consolidated, and the investment is being accounted for using the equity method.

BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. ~~Affordable housing project~~These investments are accounted for using the proportional amortization method. BancShares also has investments in various trusts, partnerships, and limited liability corporations established in conjunction with structured financing transactions of equipment, power and infrastructure projects and workout transactions. BancShares’ interests in these entities were ~~$162.3~~entered into in the ordinary course of business that are accounted for under the equity or cost methods. Other assets included $722 million ~~and $163.9 million as of~~at September 30, ~~2021~~2022 and $169 million at December 31, ~~2020, respectively,~~2021, of tax credit investments and ~~were recorded in other assets. Unfunded commitments to fund future~~ investments in ~~affordable housing projects totaled $49.8 million and $53.7 million as of September 30, 2021 and December 31, 2020, respectively, and were recorded in other liabilities.~~

BancShares and various subsidiaries have been named as defendants in legal actions arising from their normal business activities in which damages in various amounts were claimed. BancShares has also been exposed to litigation riskunconsolidated entities relating to ~~the prior business activities~~such transactions.

The combination of ~~banks from which assets were acquired~~investments in and ~~liabilities assumed in the various merger transactions. Although the amount~~loans to unconsolidated entities represents BancShares’ maximum exposure to loss, as BancShares does not provide guarantees or other forms of ~~any ultimate liability with respect~~indemnification to ~~such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares’ consolidated financial statements.~~unconsolidated entities.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis (“MD&A”) of earnings and related financial data ~~are~~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, “we,” “us,” “our,” or “BancShares”) and its ~~subsidiaries~~banking subsidiary, First-Citizens Bank & Trust Company (“~~BancShares”~~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 discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this Quarterly Report on Form 10-Q along with our financial statements and related MD&A of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2020 (“2020 Annual Report”~~2021 (the “2021 Form 10-K”). Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform to statement presentations for ~~2021,~~2022, the reclassifications had no effect on ~~shareholders’~~stockholders’ equity or net income as previously reported. ~~Unless otherwise noted, the terms “we,” “us” and “BancShares” refer~~

Throughout this MD&A we reference specific "Notes" to our financial statements. These are Notes to the consolidated financial ~~position~~statements in Part I, Item 1. Financial Statements.

Management uses certain non-GAAP financial measures in its analysis of the financial condition and ~~consolidated~~ results of operations of BancShares. See "Non-GAAP Financial Measurements" for ~~BancShares.~~a reconciliation of these financial measures to the most directly comparable financial measures in accordance with GAAP.

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”) (such acquisition, the “CIT Merger”). CIT had consolidated total assets of approximately $53.2 billion as of December 31, 2021. The CIT Merger is described further below and in Note 2 — Business Combinations. Financial data for periods prior to the CIT Merger does not include any CIT related data, and therefore is not directly comparable to the three and nine months ended September 30, 2022.

EXECUTIVE OVERVIEW

The Parent Company is a bank holding company ("BHC") and Financial Holding Company (“FHC”). BancShares is regulated by the Board of Governors of the Federal Reserve System under the U.S. Bank Holding Company Act of 1956, as amended. BancShares is also registered under the BHC laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks (“NCCOB”). BancShares conducts its banking operations through its wholly-owned subsidiary ~~First-Citizens Bank & Trust Company (“FCB”),~~FCB, a state-chartered bank organized under the laws of the state of North Carolina. FCB is regulated by the NCCOB. In addition, FCB, as an insured depository institution, is supervised by the Federal Deposit Insurance Corporation (“FDIC”).

BancShares’ earnings and cash flows are primarily derived from ~~our~~its commercial and retail banking activities. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that drive the performance of BancShares. We expanded our products and services with the CIT Merger, and now have leased assets, primarily rail-related, and offer factoring services. We gather deposits from retail and commercial customers and also secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and ~~overnight investments.~~interest-earning deposits at banks. We also invest in bank premises, hardware, software, furniture and equipment used to conduct our commercial and retail banking business. We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by ~~commercial~~ banks. The fees and service charges generated from these products and services are primary sources of noninterest income, which is an essential component of our total revenue.

We are focused on expanding our position in legacy and target markets through organic growth and strategic acquisitions. We believe our franchise is positioned for continued growth as a result of our client centric banking principles, disciplined lending standards, and our people.

Refer to our ~~2020 Annual Report~~2021 Form 10-K for further discussion of our strategy.

~~RECENT ECONOMIC AND INDUSTRY DEVELOPMENTS~~

Significant Events in 2022

CIT Merger

As discussed in detail in Note 2 — Business Combinations, the CIT Merger closed on January 3, 2022.

Significant items related to the CIT Merger are as follows:

•The fair value of total assets acquired was $53.8 billion, which mainly consisted of approximately $32.7 billion of loans, $7.8 billion of operating lease equipment and approximately $6.6 billion of investment securities. Loans consisted of commercial and industrial loans, commercial real estate loans and finance leases, which are included in our Commercial Banking segment, and consumer loans (primarily residential mortgages), which are in our General Banking segment, as further discussed below. Acquired rail assets were mostly operating lease equipment and reported in the new Rail segment.

•The fair value of deposits acquired was $39.4 billion that included deposits derived from online banking and Home Owner’s Association (“HOA”) deposits related to Community Association Banking (“CAB”), and commercial deposits. The transaction also included approximately 80 bank branches, about 60 of which were in Southern California and the remaining primarily in the Southwest, Midwest and Southeast.

•FCB assumed certain issued and outstanding series of CIT debt securities with a fair value of $4.5 billion in connection with the CIT Merger. On February 24, 2022, BancShares redeemed approximately $2.9 billion of senior unsecured notes that were assumed in the CIT Merger as part of a liability management transaction.

•FCB recorded a preliminary gain on acquisition of $431 million, representing the excess of the net assets acquired over the purchase price, and recorded a $143 million core deposit intangible and a $52 million intangible liability for net below market lessor lease contract rental rates related to the rail portfolio.

Share Repurchase Program

On July 26, 2022, our Board of Directors (the “Board”) authorized a share repurchase program for up to 1,500,000 shares of BancShares’ Class A Common Stock for the period commencing August 1, 2022 through July 28, 2023. Under the authorized share repurchase program, shares of Class A Common Stock were authorized to be repurchased from time to time on the open market or in privately negotiated transactions, including through a Rule 10b5-1 plan. During the three months ended September 30, 2022, we purchased 1,027,414 shares of Class A Common Stock, and subsequent to September 30, 2022, we purchased an additional 472,586 shares of Class A Common Stock, thereby completing the share repurchase program. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q for further details on these purchases.

Segment Updates

As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment. BancShares began reporting multiple segments during the first quarter of ~~2020,~~2022. BancShares now has three operating segments: General Banking, Commercial Banking, and Rail, and a ~~novel strain~~non-operating segment, Corporate. BancShares conformed the comparative prior periods presented to reflect the new segments. The substantial majority of ~~coronavirus (“COVID-19”) spread throughout~~BancShares’ operations for historical periods prior to completion of the world, causing significant disruptions to the domestic and global economies. In response to the outbreak, governments imposed restrictions resulting in business shutdowns, regional quarantines, disruptions of supply chains, changes in consumer behavior and overall economic instability. Although vaccines for COVID-19 have been made available to the general publicCIT Merger are included in the ~~United States~~General Banking segment. The Commercial Banking and ~~many places around~~Rail segments primarily relate to operations acquired in the world, vaccination rates vary and effectiveness may decrease over time. We cannot predict how widely utilized the vaccines and boosters will be or whether and for how long they will be effective in preventing the spread of COVID-19 (including its variants).CIT Merger.

~~Although we cannot predict when or if normal economic activity~~Information about our segments is included in Note 22 — Business Segment Information and ~~business operations will resume, we observed general declines~~ in the ~~level of economic uncertainty and stabilization of macroeconomic forecasts during the first three quarters of 2021. The US experienced an uptick~~section entitled “Results by Business Segments” later in ~~the number of new cases during the third quarter of 2021. We are unable to predict whether these trends will continue and how~~ this will affect the overall economy at the current time. However, we remain vigilant in our review and monitoring efforts around the duration and severity of the COVID-19 pandemic (including any of its variants) and its effects on the overall economy and our financial results.MD&A.

~~During~~Financial Performance Summary

The following table summarizes the third quarter of 2021, the Federal Reserve’s Federal Open Market Committee (“FOMC”) maintained the federal funds rate at a target range of 0.00% to 0.25%. The FOMC acknowledged the economy’s accelerating recovery from the COVID-19 pandemic, but maintained that the recovery is incomplete and economic risks remain. The FOMC expects to maintain this target range, but rate hikes are expectedBancShares’ results in ~~late 2022 or early 2023. Further, the committee suggested that they will begin tapering asset purchases, potentially as early as the fourth quarter of 2021 if economic progress continues as expected.~~

~~In response~~accordance with U.S. GAAP, unless otherwise noted. Refer to the ~~COVID-19 pandemic,~~section entitled “Non-GAAP Financial Measurements” at the ~~Small Business Administration Paycheck Protection Program (“SBA-PPP”) was established through~~end of this MD&A for a reconciliation of non-GAAP measures to the ~~Coronavirus Aid Relief~~most directly comparable GAAP measures.

Additionally, due to the CIT Merger, current quarter and ~~Economic Security Act (the “CARES Act”)~~year-to-date activity and ending and average balances are not comparable to the ~~Consolidated Appropriations Act~~ 2021 ~~to direct aid via loans to small businesses impacted by the COVID-19 pandemic.~~

~~We completed the first round of SBA-PPP funding in the second half 2020 and the second round of funding during~~periods. Beginning with the second quarter of ~~2021. As~~2022, we presented a linked quarter comparison in the discussions of ~~September 30, 2021, there were $1.1 billion SBA-PPP loans outstanding with remaining net deferred fees~~our consolidated results of ~~$39.4 million.~~

~~With respect~~operations and consolidated financial position, as permitted by applicable rules of the Securities and Exchange Commission. We believe this provides relevant information to our investors relating to our performance due to the ~~first round~~inclusion of ~~SBA-PPP, we began accepting and processing applications for forgiveness during~~ the ~~third quarter~~CIT Merger in both quarters. Further discussions are included in the remaining sections of ~~2020. As of September 30, 2021, we have received approximately 98% of forgiveness decisions from the SBA to date, representing over $3.1 billion in forgiveness payments.~~this MD&A.

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Table 1

Selected Quarterly Data


dollars in millions, except share data	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
SUMMARY OF OPERATIONS
Interest income	$	906		$	757		$	363		$	2,373		$	1,080
Interest expense	111			57			16			229			47
Net interest income	795			700			347			2,144			1,033
Provision (benefit) for credit losses	60			42			(1)			566			(32)
Net interest income after provision for credit losses	735			658			348			1,578			1,065
Noninterest income	433			424			124			1,707			394
Noninterest expense	760			745			314			2,315			911
Income before income taxes	408			337			158			970			548
Income taxes	93			82			34			129			124
Net income	315			255			124			841			424
Preferred stock dividends	12			17			5			36			14
Net income available to common stockholders	$	303		$	238		$	119		$	805		$	410



PER COMMON SHARE DATA
Average diluted common shares	15,727,993			16,035,090			9,816,405			15,867,314			9,816,405
Net income available to common stockholders (diluted)	$	19.25		$	14.86		$	12.17		$	50.70		$	41.79

Book value per common share	$	597.75		$	609.95		$	432.07		$	597.75		$	432.07


KEY PERFORMANCE METRICS
Return on average assets (ROA)	1.16		%	0.95		%	0.88		%	1.03		%	1.05		%

Return on average common stockholders' equity (ROE)	12.49		%	9.87		%	11.29		%	11.18		%	13.50		%





Net interest margin (NIM)(1)	3.40		%	3.04		%	2.61		%	3.06		%	2.69		%

SELECTED QUARTERLY AVERAGE BALANCES
Total investments	$	19,119		$	19,185		$	10,708		$	19,264		$	10,337
Total loans and leases(2)	68,824			66,488			32,708			66,885			32,985
Total operating lease equipment (net)	7,981			7,973			—			7,960			—
Total assets	107,987			107,575			55,922			108,643			53,927
Total deposits	88,422			90,621			49,107			90,209			47,254
Total common stockholders' equity	9,618			9,686			4,197			9,622			4,063


SELECTED QUARTER-END BALANCES
Total investments	$	18,841		$	19,136		$	10,875		$	18,841		$	10,875
Total loans and leases	69,790			67,735			32,516			69,790			32,516
Total operating lease equipment (net)	7,984			7,971			—			7,984			—
Total assets	109,310			107,673			56,902			109,310			56,902
Total deposits	87,553			89,329			50,065			87,553			50,065
Total common stockholders' equity	8,952			9,761			4,242			8,952			4,242

Loan to deposit ratio	79.71		%	75.83		%	64.95		%	79.71		%	64.95		%
Noninterest-bearing deposits to total deposits	30.37		%	29.75		%	42.97		%	30.37		%	42.97		%

CAPITAL RATIOS
Common equity tier 1 ratio	10.37		%	11.35		%	11.34		%	10.37		%	11.34		%
Tier 1 risk-based capital ratio	11.36		%	12.37		%	12.32		%	11.36		%	12.32		%
Total risk-based capital ratio	13.46		%	14.46		%	14.30		%	13.46		%	14.30		%
Tier 1 leverage capital ratio	9.31		%	9.85		%	7.68		%	9.31		%	7.68		%


ASSET QUALITY
Ratio of nonaccrual loans to total loans	0.65		%	0.76		%	0.50		%	0.65		%	0.50		%
Allowance for credit losses to loans ratio	1.26		%	1.26		%	0.56		%	1.26		%	0.56		%
Net charge off ratio	0.10		%	0.13		%	0.06		%	0.11		%	0.04		%

~~With respect to the second round~~(1) The rate presented is calculated net of ~~SBA-PPP, we began accepting~~average credit balances of factoring clients.

(2) Average loan balances include held for sale and ~~processing applications for forgiveness during the third quarter of 2021.As of September 30, 2021, we have received approximately 14% of forgiveness decisions from the SBA, representing over $175 million in forgiveness payments.~~non-accrual loans.

~~Table 1~~

~~SBA-PPP LOAN FORGIVENESS STATUS~~

(Dollars in thousands)
Round 1 Round 2
Status $ of Loans % of Round Total $ of Loans % of Round Total
Total Funded $ 3,199,897 100.0 % $ 1,223,797 100.0 %
Payments Received 3,121,746 97.6 175,660 14.4
Total Remaining $ 78,151 2.4 % $ 1,048,137 85.6 %

~~Through~~

Third Quarter Income Statement Highlights

For the three months ended September 30, 2021, over 99% of all COVID-19-related loan extensions have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the portfolio, and we have not seen significant declines in overall credit quality.

~~SIGNIFICANT EVENTS IN 2021~~

On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant2022 compared to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”). The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”).

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. The Transaction has been approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporationthree months ended June 30, 2022 (“~~FDIC”).~~

On September 30, 2021, the parties entered into an amendment to the merger agreement pursuant to which the parties mutually agreed to extend until March 1, 2022 the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed. Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System and both parties are committed to continuing to seek such approval. The parties have responded to all questions issued by the Staff of the Federal Reserve Board, and the Staff has informed us that they do not have further questions at this time. The parties have been informed that the application is presently at the Governor level, but the Board of Governors has not provided a time frame for its decision on the application. Closing is expected to occur as soon as practicable following receipt of such approval and the satisfaction or waiver of other customary closing conditions.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of CIT common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (“CIT Common Stock”), except for certain shares of CIT Common Stock owned by CIT or BancShares, will be converted into the right to receive 0.06200 shares of BancShares Class A common stock, par value $1.00 per share. Holders of CIT Common Stock will receive cash in lieu of fractional shares.

In addition, at the Effective Time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, of CIT and 5.625% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share, of CIT issued and outstanding will automatically be converted into the right to receive one share of a newly created series of preferred stock, Series B, of BancShares and one share of a newly created series of preferred stock, Series C, of BancShares, respectively.

~~Table of Contents~~

The Merger Agreement requires that, effective as of the Effective Time, the Boards of Directors of the combined company and the combined bank will consist of 14 directors, (i) 11 of whom will be members of the current Board of Directors of BancShares, and (ii) three of whom will be selected from among the current Board of Directors of CIT and will include as one of those three Ellen R. Alemany, Chairwoman and Chief Executive Officer of CIT. We intend to appoint Michael A. Carpenter and Vice Admiral John R. Ryan, USN (Ret.), as the two other members from CIT’s current Board of Directors who will join the Boards of Directors of the combined company and the combined bank.

~~FINANCIAL PERFORMANCE SUMMARY~~

~~Third Quarter Highlights~~linked quarter” comparisons):

•Net income for the ~~third quarter~~three months ended September 30, 2022 was $315 million, an increase of ~~2021 was $124.1 million, a decrease of $18.6~~$60 million, or ~~13.0%~~23% compared to the ~~same quarter in 2020.~~linked quarter. The increase was primarily due to higher net interest income, partially offset by higher provision for credit losses and operating expenses. Net income available to common ~~shareholders totaled $119.4 million~~stockholders for the ~~third quarter~~three months ended September 30, 2022 totaled $303 million, an increase of ~~2021.~~$65 million, or 27% compared to the linked quarter. Net income per diluted common share ~~decreased $1.86, or 13.3%, to $12.17 in~~for the ~~third quarter~~three months ended September 30, 2022 was $19.25, an increase of ~~2021, from $14.03 per share during~~30% over the ~~comparable quarter in 2020.~~linked quarter.

•Return on average assets for the ~~third quarter of 2021~~three months ended September 30, 2022 was ~~0.88%~~1.16%, ~~down from 1.18% in the third quarter of 2020. Return on average equity~~compared to 0.95% for the ~~third quarter of 2021 was 11.29%, down from 14.93% during the comparable quarter of 2020.~~three months ended June 30, 2022.

•Net interest income ~~was $346.9 million~~ (“NII”) for the ~~third quarter~~three months ended September 30, 2022 was $795 million, an increase of ~~2021, a decrease of $6.8~~$95 million, or ~~1.9%~~13% compared to the ~~same quarter in 2020, but~~three months ended June 30, 2022. This was ~~relatively stable compared~~primarily due to ~~the second quarter of 2021.~~loan growth, higher yields on loans and overnight investments, and higher purchase accounting accretion, partially offset by higher costs on interest-bearing deposits and borrowings. The ~~taxable-equivalent~~ net interest margin (“NIM”) ~~was 2.61%~~ for the ~~third quarter~~three months ended September 30, 2022 was 3.40%, an increase of ~~2021, a decrease of 45 basis points~~36 bps from ~~3.06%~~3.04% for the ~~third quarter in 2020~~three months ended June 30, 2022, reflecting the rising interest rate environment that increased yields on our earning assets, partially offset by a higher rate paid on interest-bearing deposits and ~~a decrease of 7 basis points from 2.68% from the second quarter of 2021.~~borrowings.

•Provision for credit losses for the three months ended September 30, 2022 was $60 million compared to a ~~benefit~~provision of ~~$1.1~~$42 million for the ~~third quarter of 2021 compared to an expense of $4.0 million for~~three months ended June 30, 2022. The increase reflects moderate deterioration in the ~~same quarter~~macroeconomic forecast used in ~~2020.~~the CECL forecasting process and loan portfolio growth, partially offset by benefits from improved credit quality and portfolio mix. The net charge-off ratio ~~was 0.06%~~ for the ~~third quarter of 2021, up~~three months ended September 30, 2022 was 0.10%, down from ~~0.02%~~0.13% for the ~~second quarter of 2021 and 0.03% for the third quarter of 2020.~~three months ended June 30, 2022.

•Noninterest income for the three months ended September 30, 2022 was ~~$122.9~~$433 million, compared to $424 million for the ~~third quarter of 2021, an~~three months ended June 30, 2022. The increase ~~of $2.4 million, or 2.0%, compared to $120.6 million for the same quarter of 2020.~~included higher rental income on operating lease equipment, higher capital markets fees revenue, and various other miscellaneous income items, partially offset by lower service charges on deposit accounts.

•Noninterest expense for the three months ended September 30, 2022 was ~~$312.8~~$760 million, compared to $745 million in the three months ended June 30, 2022. The increase of $15 million primarily reflects higher personnel costs and higher marketing expenses due to digital marketing efforts, partially offset by lower FDIC insurance expense and professional fees.

•Select items in the current and linked quarters include:

•For the three months ended September 30, 2022:

•A settlement gain related to returned equipment in other non-interest income of $5 million.

•Impairment charge in noninterest expense of $5 million related to the closure of an office facility.

•CIT Merger-related expenses of $33 million in noninterest expense.

•For the three months ended June 30, 2022:

•Gain on sale of corporate aircraft acquired in the CIT Merger of $6 million in other noninterest income.

•CIT Merger-related expenses of $34 million in noninterest expense.

For the three months ended September 30, 2022 compared to the three months ended September 30, 2021:

•Net income for the three months ended September 30, 2022 was $315 million, an increase of $191 million, or 154% compared to the three months ended September 30, 2021. Net income available to common stockholders for the three months ended September 30, 2022 totaled $303 million, an increase of $184 million, or 154% compared to the three months ended September 30, 2021. Net income per diluted common share for the three months ended September 30, 2022 was $19.25, an increase of 58% over the three months ended September 30, 2021.

•Select items for the three months ended September 30, 2022 are mentioned above.

•Return on average assets for the three months ended September 30, 2022 was 1.16%, compared to 0.88% in the same quarter in 2021.

•NII was $795 million for the ~~third quarter of 2021,~~three months ended September 30, 2022, an increase of ~~$21.2~~$448 million, or ~~by 7.3%~~129% compared to the ~~same quarter of 2020.~~

•~~The allowance for credit losses was $183.2 million at~~three months ended September 30, ~~2021, compared~~2021. This was primarily due to ~~$189.1 million at June~~the CIT Merger, as well as subsequent loan growth and rising interest rates, partially offset by a decline in interest income on SBA-PPP loans. NIM was 3.40% for the three months ended September 30, ~~2021. The $5.9 million change was due primarily to a reserve release~~2022, an increase of 79 bps from 2.61% for the three months ended September 30, 2021, ~~driven by continued strong credit performance, low net charge-offs,~~reflecting higher interest rate environment and ~~improvement~~the assets acquired and liabilities assumed in ~~macroeconomic factors.~~the CIT Merger.

•~~Total loans were $32.5 billion as~~Provision for credit losses for the three months ended September 30, 2022 was $60 million, compared to a benefit of $1 million for the three months ended September 30, 2021, primarily due to the CIT Merger, as well as moderate deterioration in the macroeconomic forecast used in the CECL forecasting process and loan growth, compared to a ~~decrease~~reserve release in the third quarter of ~~$173.5 million, or by 2.1% on an annualized basis, since June~~2021. The net charge-off ratio for the three months ended September 30, ~~2021. Excluding loans originated under~~2022 was 0.10%, up from 0.06% for the ~~SBA-PPP, total loans increased $437.4 million, or by 5.6% on an annualized basis, since June~~three months ended September 30, 2021.

•~~Total deposits grew~~Noninterest income for the three months ended September 30, 2022 was $433 million, compared to ~~$50.1 billion, an~~$124 million for the three months ended September 30, 2021. The largest component of the increase ~~of $1.7 billion, or~~was rental income on operating leases totaling $219 million. The remaining increase was driven primarily by ~~13.6% on an annualized basis, since June 30, 2021.~~the added activity due to the CIT Merger.

•AtNoninterest expense for the three months ended September 30, ~~2021, BancShares remained “well-capitalized”~~2022was $760 million, compared to $314 million for the three months ended September 30, 2021. The increase is associated with higher expenses for the combined company, led by higher salaries and benefit costs of $157 million due to the increase in employees and certain new costs, such as ~~defined by regulatory standards~~$139 million of depreciation and maintenance costs associated with ~~a total risk-based capital ratio of 14.3%, a Tier 1 risk-based capital of 12.3%, a common equity Tier 1 ratio of 11.3% and a leverage ratio of 7.7%.~~the operating lease portfolio.

~~Table of Contents~~

Year to Date Income Statement Highlights

•Net income for the nine months ended September 30, ~~2021 totaled $424.2~~2022 was $841 million, an increase of ~~$70.5~~$417 million, or ~~19.9%~~98% compared to the same period in ~~2020.~~2021. Net income available to common ~~shareholders totaled $410.3 million. Earnings per share increased $7.83, or 23.1%, to $41.79~~stockholders for the nine months ended September 30, ~~2021, from $33.96 during~~2022 totaled $805 million, an increase of $395 million, or 96% compared to the ~~comparable~~same period in ~~2020.~~2021. Net income per diluted common share for the nine months ended September 30, 2022 was $50.70, an increase 21% over the same period in 2021. The increases are primarily attributed to the CIT Merger.

•Return on average assets for the nine months ended September 30, ~~2021~~2022 was ~~1.05%~~1.03%, ~~consistent with~~compared to 1.05% in the same period in ~~2020. Return on average equity~~2021.

•NII for the nine months ended September 30, ~~2021~~2022 was ~~13.50%, up 91 basis points~~$2,144 million, an increase of $1,111 million, or 108% compared to the same period in ~~2020.~~

•~~Net~~2021. This was primarily due to the CIT Merger, as well as loan growth and a higher interest rate environment, partially offset by a decline in interest income on SBA-PPP loans. NIM for the nine months ended September 30, ~~2021,~~2022 was ~~$1.0 billion,~~3.06%, an increase of ~~$3.5 million, or 0.3% compared to~~37 bps from 2.69% for the same period ~~of 2020. The taxable-equivalent NIM was 2.69%~~in 2021.

•Provision for credit losses for the nine months ended September 30, ~~2021, a decrease of 54 basis points from 3.23% during the comparable period of 2020.~~

•~~Provision for credit losses~~2022 was $566 million, compared to a benefit of ~~$31.7~~$32 million for the same period in 2021. The provision in 2022 included the day 2 CECL provision of $513 million, and reflects the CIT Merger, as well as moderate deterioration in the macroeconomic forecast used in the CECL forecasting process and loan growth. The net charge-off ratio for the nine months ended September 30, ~~2021, compared to $52.9 million in expense~~2022 was 0.11%, up from 0.04% for the same period in ~~2020. The net charge-off ratio was 0.04%~~2021.

•Noninterest income for the nine months ended September 30, ~~2021, a 3 basis point decrease~~2022 was $1,707 million, compared to $394 million for the same period in 2021. The nine months ended September 30, 2022 includes a preliminary gain on acquisition of ~~2020.~~$431 million and rental income on operating leases of $640 million. The remaining increase was primarily driven by the added activity due to the CIT Merger.

•Noninterest ~~income was $393.7 million~~ expense for the nine months ended September 30, ~~2021, an increase of $43.8~~2022 was $2,315 million, ~~or 12.5%,~~ compared to ~~$350.0~~$911 million for the same ~~quarter~~period in 2021. The increase is primarily associated with the CIT Merger, including higher salaries and benefit costs of ~~2020.~~$478 million due to the increase in employees, $399 million of depreciation and maintenance costs associated with the operating lease portfolio and higher merger-related costs of $182 million.

•~~Noninterest expense was $910.3 million~~Select items for the nine months ended September 30, ~~2021,~~2022 are as follows:

•Current expected credit losses (“CECL”) day 2 provision for loans and leases and unfunded commitments of $513 million.

•Preliminary gain on acquisition of $431 million in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price.

•Gain on sale of corporate aircraft acquired in the CIT Merger of $6 million in other noninterest income.

•Gain on debt redemptions in noninterest income of $6 million from $2.9 billion of borrowings assumed in the CIT Merger.

•Merger-related expenses of $202 million in noninterest expenses.

•A reduction in other noninterest expense of $27 million related to the termination of certain legacy CIT retiree benefits, reflecting amounts previously accrued.

Balance Sheet Highlights

•Total loans and leases at September 30, 2022 were $69.8 billion, an increase of ~~$27.0 million~~$2.1 billion or ~~by 3.1% compared~~12.0% annualized, from June 30, 2022. We continued to see growth in our branch network, as well as growth in our commercial bank from a number of our industry verticals, such as healthcare and technology, and small business lending, and growth in both commercial mortgage loans and consumer mortgage loans. Total loans and leases increased $37.4 billion from December 31, 2021, primarily reflecting the ~~same quarter~~addition of ~~2020.~~$32.7 billion from the CIT Merger.

•~~The allowance for credit losses was $183.2 million~~ Total deposits at September 30, ~~2021,~~2022 were $87.6 billion, a decrease of $1.8 billion or 7.9% annualized, from June 30, 2022. Total deposits declined during the second quarter and continued lower in the third quarter, reflecting the most rate sensitive customers moving funds in response to increases in the target federal funds rate. The decline in total deposits as compared to ~~$224.3 million at~~June 30, 2022 was primarily concentrated in acquired branches and commercial banking, partially offset by growth in our Direct Bank. Total deposits increased $36.1 billion from December 31, ~~2020.~~2021, reflecting the addition of $39.4 billion from the CIT Merger, partially offset by the noted declines.

•At September 30, 2022, BancShares remained well capitalized with a total risk-based capital ratio of 13.46%, a Tier 1 risk-based capital of 11.36%, a common equity Tier 1 ratio of 10.37% and a leverage ratio of 9.31%.

Recent Economic and Industry Developments

Throughout 2022, the Federal Reserve’s Federal Open Market Committee (“FOMC”) has significantly raised its target for the federal funds rate in an effort to combat rising inflation. The ~~$41.1 million change was due primarily~~FOMC raised interest rates at its March, May, June, July and September meetings by 25, 50, 75, 75 and 75 basis points, respectively. With the latest increase at the September meeting, the FOMC raised their benchmark federal funds rate to a ~~reserve release~~range between 3.00% - 3.25%. Possible further increases could be made at their remaining meetings in November and December 2022. The FOMC’s efforts to control inflation has increased concerns over the possibility of a recession within the next twelve months. In addition, geopolitical events, including the ongoing conflict between Russia and Ukraine and related events, are likely to create additional upward pressure on inflation and weigh on economic activity. The timing and impact of inflation, continued volatility in the stock market, rising interest rates and possible recession will depend on future developments, which are highly uncertain and difficult to predict.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

NII is the difference between interest income earned on assets such as loans, leases, securities and cash, and interest expense incurred on liabilities such as deposits and borrowings and is included as a line item on the Consolidated Statements of Income. NII for the three months ended September 30, 2022 was $795 million, up from $700 million in the three months ended June 30, 2022, and up from $347 million for the three months ended September 30, 2021. NII for the nine months ended September 30, ~~2021 driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors.~~

•Total loans were $32.5 billion, a decrease of $275.8 million since December 31, 2020. Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis, since December 31, 2020.

•~~Total deposits grew to $50.1~~2022 was $2.14 billion, an increase of ~~$6.6~~$1.11 billion, ~~since December 31, 2020~~ or 108% from $1.03 billion in the same period in 2021.

NII is affected by ~~20.4%~~changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The following table presents the average balance sheet and related rates, along with disaggregated quarter-over-quarter changes in NII between volume (level of lending, investing or borrowing) and rate (rates charged to customers, received on ~~an annualized basis.~~investments or incurred on borrowings). Volume change is calculated as change in volume times the previous rate, while rate change is calculated as change in rate times the previous volume. The rate/volume change, change in rate times change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total. Tax equivalent net interest income was not materially different from NII, therefore we present NII in our analysis.

3868

~~Table of Contents~~

Table 2

~~SELECTED QUARTERLY DATA~~Average Balances and Rates

2021 2020 Nine months ended September 30
Third Second First Fourth Third
(Dollars in thousands, except share data) Quarter Quarter Quarter Quarter Quarter 2021 2020
SUMMARY OF OPERATIONS
Interest income $ 361,855 $ 361,825 $ 355,323 $ 376,876 $ 374,334 $ 1,079,003 $ 1,107,150
Interest expense 14,968 15,432 15,671 18,160 20,675 46,071 77,697
Net interest income 346,887 346,393 339,652 358,716 353,659 1,032,932 1,029,453
Provision (credit) for credit losses (1,120) (19,603) (10,974) 5,403 4,042 (31,697) 52,949
Net interest income after provision for credit losses 348,007 365,996 350,626 353,313 349,617 1,064,629 976,504
Noninterest income 122,944 134,150 136,649 126,765 120,572 393,743 349,985
Noninterest expense 312,818 301,578 295,926 305,373 291,662 910,322 883,312
Income before income taxes 158,133 198,568 191,349 174,705 178,527 548,050 443,177
Income taxes 34,060 45,780 44,033 36,621 35,843 123,873 89,538
Net income 124,073 152,788 147,316 138,084 142,684 424,177 353,639
Net income available to common shareholders $ 119,437 $ 148,152 $ 142,680 $ 133,448 $ 138,048 $ 410,269 $ 344,213
Net interest income, taxable equivalent $ 347,451 $ 347,035 $ 340,271 $ 359,370 $ 354,256 $ 1,034,758 $ 1,031,395
PER COMMON SHARE DATA
Net income $ 12.17 $ 15.09 $ 14.53 $ 13.59 $ 14.03 $ 41.79 $ 33.96
Cash dividends on common shares 0.47 0.47 0.47 0.47 0.40 1.41 1.20
Market price at period end (Class A) 843.17 832.74 835.77 574.27 318.78 843.17 318.78
Book value per share at period-end 432.07 421.39 405.59 396.21 380.43 432.07 380.43
SELECTED QUARTERLY AVERAGE BALANCES
Total assets $ 55,922,358 $ 54,399,331 $ 51,409,634 $ 49,557,803 $ 48,262,155 $ 53,926,971 $ 44,834,045
Investment securities 10,707,519 10,534,348 9,757,650 9,889,124 9,930,197 10,336,652 8,774,840
Loans and leases (1)
32,707,591 33,166,049 33,086,656 32,964,390 32,694,996 32,985,376 31,148,683
Interest-earning assets 52,371,165 51,519,684 48,715,279 46,922,823 45,617,376 50,882,100 42,151,861
Deposits 49,107,087 47,751,103 44,858,198 43,123,312 41,905,844 47,254,360 38,612,836
Interest-bearing liabilities 29,662,791 28,909,320 27,898,525 26,401,222 25,591,707 28,830,007 24,388,339
Securities sold under customer repurchase agreements 672,114 677,451 641,236 684,311 710,237 663,713 614,920
Other short-term borrowings — — — — — — 67,522
Long-term borrowings 1,222,452 1,227,755 1,235,576 1,250,682 1,256,331 1,228,546 1,164,475
Common shareholders' equity 4,196,655 4,058,236 3,935,267 3,786,158 3,679,138 4,063,386 3,651,132
Shareholders’ equity $ 4,536,592 $ 4,398,173 $ 4,275,204 $ 4,126,095 $ 4,019,075 $ 4,403,323 $ 3,896,645
Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,836,629 9,816,405 10,137,321
SELECTED QUARTER-END BALANCES
Total assets $ 56,901,977 $ 55,175,318 $ 53,908,606 $ 49,957,680 $ 48,666,873 $ 56,901,977 $ 48,666,873
Investment securities 10,875,354 10,894,227 10,222,107 9,922,905 9,860,594 10,875,354 9,860,594
Loans and leases 32,516,189 32,689,652 33,180,851 32,791,975 32,845,144 32,516,189 32,845,144
Deposits 50,065,762 48,410,596 47,330,997 43,431,609 42,250,606 50,065,762 42,250,606
Securities sold under customer repurchase agreements 663,575 692,604 680,705 641,487 693,889 663,575 693,889
Other short-term borrowings — — — — — — —
Long-term borrowings 1,219,229 1,224,488 1,230,326 1,248,163 1,252,016 1,219,229 1,252,016
Shareholders’ equity $ 4,581,295 $ 4,476,490 $ 4,321,400 $ 4,229,268 $ 4,074,414 $ 4,581,295 $ 4,074,414
Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405
SELECTED RATIOS AND OTHER DATA
Return on average assets (annualized) 0.88 % 1.13 % 1.16 % 1.11 % 1.18 % 1.05 % 1.05 %
Return on average common shareholders’ equity (annualized) 11.29 14.64 14.70 14.02 14.93 13.50 12.59
Net yield on interest-earning assets (taxable equivalent) 2.61 2.68 2.80 3.02 3.06 2.69 3.23
Net charge-offs to average loans and leases (annualized) 0.06 0.02 0.03 0.06 0.03 0.04 0.07
Allowance for credit losses to total loans and leases(2):
PCD 4.94 4.73 5.30 5.18 5.07 4.94 5.07
Non-PCD 0.51 0.53 0.57 0.62 0.61 0.51 0.61
Total 0.56 0.58 0.63 0.68 0.68 0.56 0.68
Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.63 0.71 0.73 0.74 0.73 0.63 0.73
Total risk-based capital ratio 14.30 14.15 14.14 13.81 13.70 14.30 13.70
Tier 1 risk-based capital ratio 12.32 12.13 12.02 11.63 11.48 12.32 11.48
Common equity Tier 1 ratio 11.34 11.14 11.00 10.61 10.43 11.34 10.43
Tier 1 leverage capital ratio 7.68 7.67 7.84 7.86 7.80 7.68 7.80
Dividend payout ratio 3.86 3.11 3.23 3.46 2.85 3.37 3.53
Average loans and leases to average deposits 66.60 69.46 73.76 76.44 78.02 69.80 80.67


dollars in millions	Three Months Ended
	September 30, 2022						June 30, 2022						Change in NII Due to:
	Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)		Yield /Rate(1)		Total Change
Loans and leases (1)(2)	$	67,733	$	785	4.58	%	$	65,298	$	655	4.01	%	$	28	$	102	$	130
Total investment securities	19,119		90		1.88		19,185		89		1.85		—		1		1

Interest-earning deposits at banks	5,685		31		2.17		7,629		13		0.72		(4)		22		18
Total interest-earning assets (2)	$	92,537	$	906	3.87	%	$	92,112	$	757	3.28	%	$	24	$	125	$	149

Operating lease equipment, net	$	7,981					$	7,973
Cash and due from banks	489						524
Allowance for credit losses	(851)						(849)
All other noninterest-earning assets	7,831						7,815
Total assets	$	107,987					$	107,575

Interest-bearing deposits:
Checking with interest	$	16,160	$	7	0.17	%	$	16,503	$	4	0.12	%	$	1	$	2	$	3
Money market	22,993		32		0.55		25,468		18		0.28		(2)		16		14
Savings	13,956		28		0.78		13,303		11		0.34		1		16		17
Time deposits	8,436		11		0.54		8,796		9		0.38		(1)		3		2
Total interest-bearing deposits	61,545		78		0.50		64,070		42		0.26		(1)		37		36
Borrowings:
Securities sold under customer repurchase agreements	617		1		0.16		627		—		0.16		1		—		1
Short-term FHLB borrowings	1,188		8		2.57		—		—		—		8		—		8
Short-term borrowings	1,805		9		1.74		627		—		0.16		9		—		9
Federal Home Loan Bank borrowings	1,784		11		2.45		386		2		1.64		8		1		9
Senior unsecured borrowings	898		5		2.00		894		4		2.05		1		—		1
Subordinated debt	1,054		8		3.21		1,057		8		3.06		—		—		—
Other borrowings	67		—		4.51		83		1		2.46		(1)		—		(1)
Long-term borrowings	3,803		24		2.59		2,420		15		2.43		8		1		9
Total borrowings	5,608		33		2.32		3,047		15		1.96		17		1		18
Total interest-bearing liabilities	$	67,153	$	111	0.65	%	$	67,117	$	57	0.34	%	$	16	$	38	$	54

Noninterest-bearing deposits	$	26,877					$	26,551
Credit balances of factoring clients	1,089						1,189
Other noninterest-bearing liabilities	2,369						2,151
Stockholders' equity	10,499						10,567
Total liabilities and stockholders' equity	$	107,987					$	107,575

Interest rate spread (2)					3.22	%					2.94	%
Net interest income and net yield on interest-earning assets (2)			$	795	3.40	%			$	700	3.04	%

(1) ~~Average loan~~Loans and ~~lease balances~~leases include non-PCD and PCD loans, ~~non-PCD~~nonaccrual loans and held for sale. Interest income on loans and leases ~~loans held for sale~~includes accretion income and ~~nonaccrual loans and leases.~~loan fees.

(2) ~~Loans originated in relation to the SBA-PPP ($1.7 billion as~~The balance and rate presented is calculated net of ~~September 30, 2021) do not have a recorded ACL. As~~average credit balances of ~~September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans is 0.53%, while the ratio of ACL to total loans excluding SBA-PPP loans is 0.58%.~~factoring clients.

~~Table of Contents~~

~~BUSINESS COMBINATIONS~~

~~CIT Group Inc.~~

On October 15, 2020, BancShares and CIT, entered into the Merger Agreement by and among BancShares, FCB, the Merger Sub, and CIT, the parent company of CIT Bank. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub and CIT will ultimately merge with and into FCB, with FCB as the surviving entity. The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank.

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. The transaction has been approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the FDIC.

~~Federal Deposit Insurance Corporation Assisted Transactions~~

BancShares completed fourteen FDIC-assisted transactions between 2009 and 2017. Nine of the fourteen FDIC-assisted transactions included shared-loss agreements which, for their terms, protected us from a substantial portion of the credit and asset quality risk we would otherwise have incurred.

~~For certain FDIC-assisted transactions, the shared-loss agreement included a provision related to a payment owed to the FDIC at the termination of the agreement.As of September 30, 2021, these agreements have been satisfied following a $16.1 million payment made to the FDIC for the final active agreement during the first quarter of 2021.~~

4069

~~Table of Contents~~

~~Table 3~~


dollars in millions	Three Months Ended
	September 30, 2022						September 30, 2021						Change in NII Due to:
	Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)			Yield /Rate(1)			Total Change
Loans and leases (1)(2)	$	67,733	$	785	4.58	%	$	32,708	$	320	3.85	%	$	456		$	9		$	465
Total investment securities	19,119		90		1.88		10,708		40		1.47		33			17			50

Interest-earning deposits at banks	5,685		31		2.17		8,956		3		0.15		16			12			28
Total interest-earning assets (2)	$	92,537	$	906	3.87	%	$	52,372	$	363	2.73	%	$	505	505	$	38		$	543

Operating lease equipment, net	$	7,981					$	—
Cash and due from banks	489						365
Allowance for credit losses	(851)						(190)
All other noninterest-earning assets	7,831						3,377
Total assets	$	107,987					$	55,924

Interest-bearing deposits:
Checking with interest	$	16,160	$	7	0.17	%	$	11,324	$	1	0.05	%	$	4		$	2		$	6
Money market	22,993		32		0.55		9,866		2		0.09		23			7			30
Savings	13,956		28		0.78		3,979		1		0.03		18			9			27
Time deposits	8,436		11		0.54		2,599		4		0.61		9			(2)			7
Total interest-bearing deposits	61,545		78		0.50		27,768		8		0.12		54			16		16	70
Borrowings:
Securities sold under customer repurchase agreements	617		1		0.16		672		—		0.21		1			—			1
Short-term FHLB borrowings	1,188		8		2.57		—		—		—		8			—			8
Short-term borrowings	1,805		9		1.74		672		—		0.21		9			—			9
Federal Home Loan Bank borrowings	1,784		11		2.45		646		4		1.28		4			3			7
Senior unsecured borrowings	898		5		2.00		—		—		—		5			—			5
Subordinated debt	1,054		8		3.21		497		3		3.35		5			—			5
Other borrowings	67		—		4.51		79		1		1.24		(2)			1			(1)
Long-term borrowings	3,803		24		2.59		1,222		8		2.12		12			4			16
Total borrowings	5,608		33		2.32		1,894		8		1.44		21			4			25
Total interest-bearing liabilities	$	67,153	$	111	0.65	%	$	29,662	$	16	0.20	%	$	75		$	20		$	95

Noninterest-bearing deposits	$	26,877					$	21,339
Credit balances of factoring clients	1,089						—
Other noninterest-bearing liabilities	2,369						362
Stockholders' equity	10,499						4,561
Total liabilities and stockholders' equity	$	107,987					$	55,924

Interest rate spread (2)					3.22	%					2.53	%
Net interest income and net yield on interest-earning assets (2)			$	795	3.40	%			$	347	2.61	%

~~CONSOLIDATED QUARTER-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS~~(1), (2) See footnotes to previous table.

Three months ended September 30
2021 2020
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
Assets
Loans and leases $ 32,707,591 $ 319,738 3.85 % $ 32,694,996 $ 336,934 4.06 %
Investment securities:
U.S. Treasury — — — 695,419 497 0.28
Government agency 824,499 2,076 1.01 587,377 1,335 0.91
Mortgage-backed securities 9,164,180 29,056 1.27 8,047,247 28,236 1.40
Corporate bonds 597,386 7,610 5.10 489,602 6,433 5.26
Other investments 121,454 544 1.78 110,552 739 2.66
Total investment securities 10,707,519 39,286 1.47 9,930,197 37,240 1.50
Overnight investments 8,956,055 3,395 0.15 2,992,183 757 0.10
Total interest-earning assets 52,371,165 362,419 2.73 45,617,376 374,931 3.24
Cash and due from banks 364,593 349,079
Premises and equipment 1,239,111 1,261,864
Allowance for credit losses (189,885) (222,793)
Other real estate owned 40,786 52,716
Other assets 2,096,588 1,203,913
Total assets $ 55,922,358 $ 48,262,155
Liabilities
Interest-bearing deposits:
Checking with interest $ 11,323,503 $ 1,350 0.05 % $ 9,239,838 $ 1,369 0.06 %
Savings 3,979,389 342 0.03 3,070,619 314 0.04
Money market accounts 9,866,327 2,357 0.09 8,108,832 3,634 0.18
Time deposits 2,599,006 4,024 0.61 3,205,850 8,151 1.01
Total interest-bearing deposits 27,768,225 8,073 0.12 23,625,139 13,468 0.23
Securities sold under customer repurchase agreements 672,114 358 0.21 710,237 395 0.22
Other short-term borrowings — — — — — —
Long-term borrowings 1,222,452 6,537 2.09 1,256,331 6,812 2.15
Total interest-bearing liabilities 29,662,791 14,968 0.20 25,591,707 20,675 0.32
Noninterest-bearing deposits 21,338,862 18,280,705
Other liabilities 384,113 370,668
Shareholders’ equity 4,536,592 4,019,075
Total liabilities and shareholders’ equity $ 55,922,358 $ 48,262,155
Interest rate spread 2.53 % 2.92 %
Net interest income and net yield on interest-earning assets $ 347,451 2.61 % $ 354,256 3.06 %

~~Loans and leases include PCD loans, non-PCD loans, nonaccrual loans and loans held for sale. Yields related~~


dollars in millions	Nine Months Ended
	September 30, 2022						September 30, 2021						Change in NII Due to:
	Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)		Yield /Rate(1)		Total Change
Loans and leases (1)(2)	$	65,739	$	2,061	4.17	%	$	32,985	$	967	3.89	%	$	1,022	$	72	$	1,094
Total investment securities	19,264		262		1.81	%	10,337		106		1.36	%	112		44		156

Interest-earning deposits at banks	8,242		50		0.81	%	7,560		7		0.12	%	1		42		43
Total interest-earning assets (2)	$	93,245	$	2,373	3.39	%	$	50,882	$	1,080	2.81	%	$	1,135	$	158	$	1,293

Operating lease equipment, net	$	7,960					$	—
Cash and due from banks	517						354
Allowance for credit losses	(871)						(208)
All other noninterest-earning assets	7,792						2,899
Total assets	$	108,643					$	53,927

Interest-bearing deposits:
Checking with interest	$	16,437	$	16	0.14	%	$	11,010	$	4	0.05	%	$	3	$	9	$	12
Money market	24,875		65		0.35	%	9,489		7		0.11	%	24		34		58
Savings	13,640		48		0.47	%	3,748		1		0.03	%	8		39		47
Time deposits	9,004		30		0.45	%	2,692		13		0.63	%	22		(5)		17
Total interest-bearing deposits	63,956		159		0.33	%	26,939		25		0.13	%	57		77		134
Borrowings:
Securities sold under customer repurchase agreements	615		1		0.16	%	664		1		0.21	%	—		—		—
Short-term FHLB borrowings	400		8		2.57	%	—		—		—	%	8		—		8
Short-term borrowings	1,015		9		1.11	%	664		1		0.21	%	8		—		8
Federal Home Loan Bank borrowings	941		15		2.07	%	649		7		1.28	%	3		5		8
Senior unsecured borrowings	1,497		21		1.83	%	—		—		—	%	21		—		21
Subordinated debt	1,057		24		3.07	%	497		10		3.36	%	15		(1)		14
Other borrowings	79		1		2.86	%	83		4		1.22	%	(4)		1		(3)
Long-term borrowings	3,574		61		2.29	%	1,229		21		2.12	%	35		5		40
Total borrowings	4,589		70		2.03	%	1,893		22		1.45	%	43		5		48
Total interest-bearing liabilities	$	68,545	$	229	0.45	%	$	28,832	$	47	0.21	%	$	100	$	82	$	182

Noninterest-bearing deposits	$	26,253					$	20,316
Credit balances of factoring clients	1,146						—
Other noninterest-bearing liabilities	2,202						352
Stockholders' equity	10,497						4,427
Total liabilities and stockholders' equity	$	108,643					$	53,927

Interest rate spread (2)					2.94	%					2.60	%
Net interest income and net yield on interest-earning assets (2)			$	2,144	3.06	%			$	1,033	2.69	%

(1), (2) See footnotes to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 21.0%, as well as a blended state income tax rate of 3.3% and 3.4%,previous table.

Third Quarter 2022 compared to Second Quarter 2022

•NII for the three months ended September 30, ~~2021~~2022 was $795 million, an increase of $95 million compared to the second quarter of 2022. This was primarily due to higher yields on loans and ~~2020, respectively. The taxable-equivalent adjustment was $564 thousand~~overnight investments, loan growth and ~~$597 thousand~~higher purchase accounting accretion, partially offset by higher costs on interest-bearing deposit and borrowings.

◦Interest income earned on loans and leases for the three months ended September 30, ~~2021~~2022 was $785 million, an increase of $130 million compared to the second quarter of 2022. The increase was primarily due to higher yields and ~~2020, respectively.~~growth in the average loans and leases balance from $65.3 billion in the previous quarter to $67.7 billion in the current quarter. In addition, the third quarter benefited from higher purchase accounting accretion, an increase of $15 million, partially offset by lower SBA PPP income, down $3 million.

◦Interest income earned on investment securities for the three months ended September 30, 2022 was $90 million, an increase of $1 million compared to the second quarter of 2022. The slight increase was primarily due to higher reinvestment rates.

4171

~~Table of Contents~~

~~Table 4~~◦Interest income earned on interest earning deposits at banks for the three months ended September 30, 2022 was $31 million, an increase of $18 million, reflecting higher Fed Funds rates that offset the decline in the average balance.

~~CONSOLIDATED YEAR-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS~~◦Interest expense on interest-bearing deposits for the three months ended September 30, 2022 was $78 million, an increase of $36 million compared to the second quarter of 2022, as higher deposit rates were partially offset by lower balances, with the decline primarily concentrated in higher cost money market accounts. Interest expense on borrowings for the three months ended September 30, 2022 was $33 million, an increase of $18 million compared to the second quarter of 2022, driven by higher FHLB borrowings to fund our loan growth.

Nine months ended September 30
2021 2020
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
Assets
Loans and leases $ 32,985,376 $ 968,231 3.89 % $ 31,148,683 $ 989,708 4.20 %
Investment securities:
U.S. Treasury 126,363 172 0.18 401,666 2,853 0.95
Government agency 818,591 5,942 0.97 655,097 6,883 1.40
Mortgage-backed securities 8,676,573 74,936 1.15 7,224,224 87,475 1.61
Corporate bonds 604,241 23,158 5.11 332,029 12,692 5.10
Other investments 110,884 1,442 1.74 161,824 3,653 3.02
Total investment securities 10,336,652 105,650 1.36 8,774,840 113,556 1.73
Overnight investments 7,560,072 6,948 0.12 2,228,338 5,828 0.35
Total interest-earning assets 50,882,100 1,080,829 2.81 42,151,861 1,109,092 3.48
Cash and due from banks 354,104 351,334
Premises and equipment 1,244,405 1,258,147
Allowance for credit losses (208,477) (206,737)
Other real estate owned 45,122 53,871
Other assets 1,609,717 1,225,569
Total assets $ 53,926,971 $ 44,834,045
Liabilities
Interest-bearing deposits:
Checking with interest $ 11,009,608 $ 4,263 0.05 % $ 8,665,758 $ 4,380 0.07 %
Savings 3,747,847 966 0.03 2,837,867 911 0.04
Money market accounts 9,488,641 7,500 0.11 7,583,359 19,262 0.34
Time deposits 2,691,652 12,679 0.63 3,454,438 31,025 1.20
Total interest-bearing deposits 26,937,748 25,408 0.13 22,541,422 55,578 0.33
Securities sold under customer repurchase agreements 663,713 1,052 0.21 614,920 1,236 0.27
Other short-term borrowings — — — 67,522 1,052 2.05
Long-term borrowings 1,228,546 19,611 2.10 1,164,475 19,831 2.24
Total interest-bearing liabilities 28,830,007 46,071 0.21 24,388,339 77,697 0.42
Noninterest-bearing deposits 20,316,612 16,071,414
Other liabilities 377,029 477,647
Shareholders’ equity 4,403,323 3,896,645
Total liabilities and shareholders’ equity $ 53,926,971 $ 44,834,045
Interest rate spread 2.60 % 3.06 %
Net interest income and net yield on interest-earning assets $ 1,034,758 2.69 % $ 1,031,395 3.23 %
•NIM for the three months ended September 30, 2022 was 3.40%, an increase of 36 bps from the second quarter of 2022, due to the impact of the items noted above, including higher earning asset yields, strong loan growth and higher purchase accounting accretion, partially offset by higher interest-bearing deposit and borrowing costs and higher borrowings.

~~Loans~~•Average interest-earning assets for the three months ended September 30, 2022 were $92.5 billion. This is an increase from $92.1 billion for the three months ended June 30, 2022, reflecting an increase in average loans and leases ~~include PCD loans, non-PCD loans, nonaccrual loans~~presented above of $2.4 billion, which offset a decline in lower yielding average interest-earning cash deposits of $1.9 billion.

•Average interest-bearing liabilities for the three months ended September 30, 2022 were $67.2 billion, essentially unchanged from the three months ended June 30, 2022, reflecting higher FHLB borrowings that offset lower deposits. The average rate on interest-bearing liabilities for the three months ended September 30, 2022 was 0.65%. This is an increase of 31 bps compared to the three months ended June 30, 2022, reflecting the higher interest rate environment and ~~loans held~~shift in funding mix as the declines in interest-bearing deposits were replaced by increased borrowings to fund loan growth. Total deposits had declined during the second quarter and continued lower in the third quarter, reflecting the most rate sensitive customers moving funds in response to increases in the federal funds rate. The decline in total deposits compared to June 30, 2022 was primarily concentrated in acquired branches and commercial banking, partially offset by growth in our Direct Bank.

Third Quarter 2022 compared to Third Quarter 2021

•NII for ~~sale. Yields related~~the three months ended September 30, 2022 was $795 million, an increase of $448 million compared to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax ratethe third quarter of ~~21.0%,~~2021, primarily due to the CIT Merger, as well as subsequent loan growth and rising interest rates, partially offset by a ~~blended state~~decline in interest income ~~tax~~on SBA-PPP loans.

◦Interest income earned on loans and leases for the three months ended September 30, 2022 was $785 million, an increase of $465 million compared to the third quarter of 2021. The increase was primarily due to the addition of $32.7 billion of loans acquired in the CIT Merger, along with organic growth in loans, partially offset by lower SBA-PPP interest income. SBA-PPP loans contributed $2 million of interest income during the third quarter of 2022 compared to $20 million in the third quarter of 2021.

◦Interest income earned on investment securities for the three months ended September 30, 2022 was $90 million, an increase of $50 million compared to the third quarter of 2021. The increase was due to the addition of $6.6 billion of investment securities acquired in the CIT Merger partially offset by maturities, and a higher portfolio yield.

◦Interest income earned on interest-earning deposits at banks for the three months ended September 30, 2022 was $31 million, an increase of $28 million compared to the third quarter of 2021, reflecting higher interest rates, which offset the decline in balance.

◦Interest expense on interest-bearing deposits for the three months ended September 30, 2022 was $78 million, an increase of $70 million compared to third quarter of 2021. The increase was primarily due to the additional interest-bearing deposits acquired in the CIT Merger, which carried a higher average rate than legacy FCB interest-bearing deposits, and due to increases in rates paid on deposits. Interest expense on borrowings for the three months ended September 30, 2022 was $33 million, an increase of ~~3.3%~~$25 million compared to the third quarter of 2021. The increase was primarily due to the assumed borrowings in the CIT Merger along with the noted increase in FHLB borrowings and ~~3.4%,~~higher rate environment.

•NIM was 3.40% for the three months ended September 30, 2022, an increase of 79 bps from the third quarter of 2021, primarily reflective of the higher interest rate environment and the assets acquired and liabilities assumed in the CIT Merger.

•Average interest-earning assets for the three months ended September 30, 2022 were $92.5 billion, an increase of $40.2 billion compared to the third quarter of 2021. This increase was primary due to the added interest-earning assets from the CIT Merger.

•Average interest-bearing liabilities for the three months ended September 30, 2022 were $67.2 billion, an increase of $37.5 billion compared to the third quarter of 2021. The increase was primarily due to the addition of deposits and borrowings from the CIT Merger. Rates on interest-bearing liabilities for the three months ended September 30, 2022 were 0.65%. This increase of 45 bps from the third quarter of 2021 was primarily due to the higher rates on the deposits and borrowings acquired in the CIT Merger.

Year to Date 2022 compared to 2021

•NII for the nine months ended September 30, 2022 was $2.14 billion, an increase of $1.11 billion compared to the same period in 2021, primarily due to the CIT Merger, as well as loan growth and ~~2020, respectively. The taxable-equivalent adjustment was $1.8 million~~a higher interest rate environment, partially offset by a decline in interest income on SBA-PPP loans.

◦Interest income earned on loans and ~~$1.9 million~~leases for the nine months ended September 30, ~~2021 and 2020, respectively.~~

~~Table~~2022 was $2.06 billion, an increase of ~~Contents~~

~~Table 5~~

~~CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME~~

Three months ended September 30, 2021 Nine months ended September 30, 2021
Change from prior year period due to: Change from prior year period due to:
(Dollars in thousands)
Volume(1)
Yield/Rate(1)
Total Change
Volume(1)
Yield/Rate(1)
Total Change
Assets
Loans and leases $ (4) $ (17,192) $ (17,196) $ 50,823 $ (72,300) $ (21,477)
Investment securities:
U.S. Treasury (497) — (497) (1,956) (725) (2,681)
Government agency 539 202 741 1,718 (2,659) (941)
Mortgage-backed securities 3,787 (2,967) 820 17,444 (29,983) (12,539)
Corporate bonds 1,416 (239) 1,177 10,406 60 10,466
Other investments 75 (270) (195) (1,180) (1,031) (2,211)
Total investment securities 5,320 (3,274) 2,046 26,432 (34,338) (7,906)
Overnight investments 1,516 1,122 2,638 13,953 (12,833) 1,120
Total interest-earning assets $ 6,832 $ (19,344) $ (12,512) $ 91,208 $ (119,471) $ (28,263)
Liabilities
Interest-bearing deposits:
Checking with interest $ 313 $ (332) $ (19) $ 1,195 $ (1,312) $ (117)
Savings 94 (66) 28 294 (239) 55
Money market accounts 800 (2,077) (1,277) 4,845 (16,607) (11,762)
Time deposits 1,525 (5,652) (4,127) (6,827) (11,519) (18,346)
Total interest-bearing deposits 2,732 (8,127) (5,395) (493) (29,677) (30,170)
Securities sold under customer repurchase agreements 12 (49) (37) 101 (285) (184)
Other short-term borrowings (248) 248 — (1,052) — (1,052)
Long-term borrowings (271) (4) (275) 2,169 (2,389) (220)
Total interest-bearing liabilities 2,225 (7,932) (5,707) 725 (32,351) (31,626)
Change in net interest income $ 4,607 $ (11,412) $ (6,805) $ 90,483 $ (87,120) $ 3,363
(1) The rate/volume variance is allocated proportionally between the changes in volume and rate.

~~RESULTS OF OPERATIONS~~

~~Net Interest Income and Margin (Taxable-Equivalent Basis)~~

~~Third Quarter 2021 compared to Third Quarter 2020~~

~~Taxable-equivalent net interest income totaled $347.5 million for the third quarter of 2021, a decrease of $6.8 million, or 1.9%,~~$1.09 billion compared to the ~~third quarter of 2020.~~same period in 2021. The ~~decline in net interest income~~increase was ~~driven~~ primarily ~~by a decline in the yield on interest-earning assets~~volume driven due to the ~~sustained low rate environment and a reduction~~addition of $32.7 billion of loans acquired in ~~interest and fee income on SBA-PPP loans. These declines were~~the CIT Merger, along with organic growth in loans, partially offset by ~~organic loan growth, higher average investment balances as we have deployed some of the excess liquidity on our balance sheet, and a decline in the rate paid on~~lower SBA-PPP interest bearing deposits. SBA-PPP loans contributed $20.0 million in interest and fee income for the third quarter of 2021 compared to $28.9 million for the same quarter in 2020. While SBA-PPP loans continue to support overall net interest income, the contribution from these loans continues to decline as forgiveness activity continues.

Net interest income increased $0.5 million compared to the linked quarter despite a decline in SBA-PPP income and continued low interest rates. Higher investment and overnight yields and balances, organic loan growth and slightly lower deposit costs more than offset rate pressure on loans and a decline in SBA-PPP income. SBA-PPP loans contributed ~~$27.2~~$16 million of interest income during the nine months ended September 30, 2022 compared to $78 million in ~~interest and fee income for~~ the ~~second quarter of~~same period in 2021.

◦

The taxable-equivalent NIM was 2.61% in the third quarter of 2021, a decrease of 45 basis points from the comparable quarter of 2020. The margin decline was primarily due to changes in earning asset mix driven by excess liquidity and higher balances in overnight investments as well as declines in loan yields. These declines were partially offset by lower rates paidInterest income earned on interest-bearing deposits and increased yield on SBA-PPP loans. As with prior quarters, we continue to operate with liquidity above normal operating ranges which puts downward pressure on net interest margin. The level of organic loan growth has helped to somewhat protect taxable equivalent NIM from the impacts of the low interest rate environment. We have also opportunistically deployed incremental liquidity of $1 billion into the investment ~~portfolio since the third quarter of 2020.~~

The taxable-equivalent NIM declined 7 basis points from 2.68% for the linked quarter primarily due to changes in earning asset mix as our overnight investments continued to grow, partially offset by higher investment yields.

~~Table of Contents~~

~~Nine Months of 2021 compared to Nine Months of 2020~~

~~The taxable-equivalent net interest income~~securities for the nine months ended September 30, ~~2021~~2022 was ~~$1.0 billion,~~$262 million, an increase of ~~$3.4~~$156 million ~~or 0.3%,~~ compared to the same period in ~~2020. This~~2021. The increase was primarily due to ~~organic loan growth, an increase in interest and fee income on SBA-PPP loans, and lower rates paid on interest-bearing deposits. These increases were largely offset by a decline~~the addition of $6.6 billion of investment securities acquired in the ~~yield~~CIT Merger and a higher portfolio yield.

◦Interest income earned on interest-earning ~~assets. SBA-PPP loans contributed $78.1 million in interest and fee income~~deposits at banks for the nine months ended September 30, ~~2021,~~2022 was $50 million, an increase of $43 million compared to ~~$47.9 million for~~ the same period in ~~2020.~~2021, reflecting higher interest rates.

~~The taxable-equivalent NIM was 2.69%~~◦Interest expense on interest-bearing deposits for the nine months ended September 30, ~~2021, a decrease~~2022 was $159 million, an increase of ~~54 basis points from~~$134 million compared to the ~~comparable~~same period ~~of 2020.~~in 2021. The ~~margin decline~~increase was primarily due to ~~changes in earning asset mix and a decline~~the additional interest-bearing deposits acquired in the ~~yield on interest-earning assets, partially offset by lower rates paid on interest-bearing~~CIT Merger, which carried a higher average rate than legacy FCB deposits, and ~~increased income on SBA-PPP loans.~~

~~Provision for Credit Losses~~

~~Provision for credit losses~~ was ~~a benefit of $1.1 million for the third quarter of 2021, compared to an expense of $4.0 million for the comparable quarter in 2020. The third quarter of 2021 was favorably~~also impacted by a $5.9 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors. The comparable quarter in 2020 included a $1.5 million reserve build due to continued uncertainties surrounding the ~~COVID-19 pandemic and net loan growth. Total net charge-offs~~rising interest rate environment. Interest expense on borrowings for the third quarter of 2021 were $4.8 million, an increase from $2.6 million for the comparable quarter in 2020 due to a higher volume of charge-offs and lower recoveries. The net charge-off ratio was 0.06% for the third quarter of 2021 compared to 0.03% for the same quarter in 2020. The impact of SBA-PPP loans on average loan balances did not affect the net charge-off ratio in either three-month period.

~~For~~ the nine months ended September 30, 2022 was $70 million, an increase of $48 million compared to the same period in 2021. The increase was primarily due to the assumed borrowings in the CIT Merger. Utilizing excess cash, we redeemed approximately $2.9 billion of the $4.5 billion assumed debt during the first quarter.

•NIM for the nine months ended September 30, 2022 was 3.06%, an increase of 37 bps from the same period in 2021, reflective of the higher interest rate environment and the impacts from the CIT Merger.

•Average interest-earning assets for the nine months ended September 30, 2022 were $93.2 billion, compared to $50.9 billion in 2021. The change was primarily due to the interest-earning assets acquired in the CIT Merger.

•Average interest-bearing liabilities for nine months ended September 30, 2022 were $68.5 billion. This is an increase from $28.8 billion in the same period in 2021, primarily due to the addition of deposits and borrowings from the CIT Merger. Rates on interest-bearing liabilities for the nine months ended September 30, 2022 were 0.45%. This increase of 24 bps from the same period in 2021 was primarily due to the higher rates on the deposits and borrowings acquired in the CIT Merger.

The following table details the average interest earning assets by category.

Table 3

Average Interest-earning Asset Mix


	% of Total Interest-earning Assets
	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Loans and leases	73	%	71	%	62	%	70	%	65	%
Investment securities	21	%	21	%	21	%	21	%	20	%

Interest-earning deposits at banks	6	%	8	%	17	%	9	%	15	%
Total interest earning assets	100	%	100	%	100	%	100	%	100	%

The following table shows our average funding mix.

Table 4

Average Funding Mix


	% of Total Interest-bearing Liabilities
	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Total interest-bearing deposits	92	%	95	%	94	%	93	%	94	%
Short-term borrowings	3	%	1	%	2	%	2	%	2	%

Long-term borrowings	5	%	4	%	4	%	5	%	4	%
	100	%	100	%	100	%	100	%	100	%

PROVISION FOR CREDIT LOSSES

BancShares provides an amount for expected credit losses within the loan and lease portfolio and for unfunded commitments that is based on factors discussed in the Critical Accounting Estimates section of our 2021 Form 10-K. The provision is recorded to bring the ACL and reserve for unfunded commitments to a level deemed appropriate to cover losses expected in the portfolios.

The provision for credit losses for the three months ended September 30, 2022 was $60 million, compared to a provision of $42 million for the three months ended June 30, 2022 and a benefit of ~~$31.7~~$1 million ~~compared to $52.9 million in expense~~ for the ~~first nine months of 2020. Provision~~same quarter in 2021. The provision for credit losses for the nine months ended September 30, ~~2021~~2022 was ~~favorably impacted by~~$566 million, compared to a ~~$41.1~~benefit of $32 million ~~reserve release driven~~in the same period of 2021.

The increase in the provision for credit losses for the three months ended September 30, 2022 compared to the three months ended June 30, 2022 was primarily ~~by continued strong~~due to moderate deterioration in the macroeconomic forecast used in the CECL forecasting process. The provision for credit ~~performance, low net charge-offs and improvement in macroeconomic factors. The comparable period in 2020~~losses included ~~$36.1~~$10 million ~~reserve build~~ related to ~~uncertainties surrounding~~ the ~~COVID-19 pandemic. Net charge-offs~~provision for unfunded commitments, which is up from $6 million for the three months ended June 30, 2022. The ACL is further discussed in Risk Management - Credit Risk below.

The increases in the provision for credit losses compared to the three and nine months ended September 30, 2021 were ~~$9.4 million, a decrease~~primarily related to the impact of the CIT Merger and the moderate deterioration in the macroeconomic forecast used in the CECL forecasting process, while the prior year benefited from ~~$17.4 million for the comparable period in 2020 due to a lower volume of charge-offs and stable recoveries.~~reserve releases. The ~~net charge-off ratio was 0.04% for the~~ nine months ended September 30, ~~2021 compared~~2022 provision for credit losses includes the initial ACL for Non-Purchased Credit Deteriorated (“Non-PCD”) loans and leases acquired in the CIT Merger, which was established through an increase of $454 million to ~~0.07%~~the provision for credit losses (the “Initial Non-PCD Provision”). Also, the ~~same period in 2020. The impact of SBA-PPP loans on average loan balances did not have an impact~~provision for credit losses included $59 million related to unfunded commitments on the ~~net charge-off ratio for~~Merger Date related to off balance sheet exposures acquired at the ~~nine months ended September 30, 2021. Excluding~~time of the ~~impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.~~CIT Merger.

NONINTEREST INCOME

Noninterest Income

~~Table 6~~

~~NONINTEREST INCOME~~

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2021 2020 2021 2020
Wealth management services $ 31,935 $ 26,369 $ 95,886 $ 75,152
Service charges on deposit accounts 24,858 20,841 68,277 64,776
Cardholder services, net 22,879 19,756 65,310 55,503
Other service charges and fees 9,205 7,892 26,653 22,829
Merchant services, net 8,409 6,763 25,858 18,014
Mortgage income 6,106 13,106 25,026 28,141
Insurance commissions 4,000 3,576 11,702 10,453
ATM income 1,481 1,537 4,534 4,354
Realized gains on investment securities available for sale, net 8,082 21,425 33,119 54,972
Marketable equity securities gains (losses), net 3,350 (2,701) 31,015 10,461
Other 2,639 2,008 6,363 5,330
Total noninterest income $ 122,944 $ 120,572 $ 393,743 $ 349,985

Noninterest income is an essential component of our total ~~revenue and is critical to our profitability level.~~revenue. The primary sources of noninterest income consist of rental income on operating leases, fee income and other service charges, wealth management services, fees and service charges generated from deposit accounts, cardholder and merchant services, factoring commissions and mortgage lending and servicing.

Table 5

Noninterest Income


dollars in millions	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Rental income on operating leases	$	219	$	213	$	—	$	640	$	—
Other noninterest income:
Fee income and other service charges	44		39		10		118		31
Wealth management services	35		37		32		107		96
Service charges on deposit accounts	21		28		26		77		69
Factoring commissions	24		27		—		78		—
Cardholder services, net	25		26		23		76		65
Merchant services, net	8		9		9		27		26
Insurance commissions	11		11		4		34		12
Realized gain on sale of investment securities available for sale, net	—		—		8		—		33
Fair value adjustment on marketable equity securities, net	(2)		(6)		3		(5)		31
Bank-owned life insurance	8		9		1		25		2
Gain on sale of leasing equipment, net	2		5		—		13		—
Gain on acquisition	—		—		—		431		—
Gain on extinguishment of debt	1		—		—		7		—
Other noninterest income	37		26		8		79		29
Total other noninterest income	214		211		124		1,067		394
Total noninterest income	$	433	$	424	$	124	$	1,707	$	394

~~Table of Contents~~

Rental Income on Operating Leases

Rental income from equipment we lease for the three months ended September 30, 2022 was $219 million, an increase of $6 million compared to three months ended June 30, 2022. Rental income is generated primarily in the Rail segment and to a lesser extent, in the Commercial Banking segment. Revenue is generally dictated by the size of the portfolio, utilization of the railcars, re-pricing of equipment upon lease maturities and pricing on new equipment leases. Re-pricing refers to the rental rate in the renewed equipment contract compared to the prior contract. Refer to the Rail discussion in the section entitled “Results by Business Segment” of this MD&A for further details.

Other Noninterest Income

Other noninterest income for the ~~third quarter of 2021~~three months ended September 30, 2022 was ~~$122.9~~$214 million, compared to ~~$120.6~~$211 million in the three months ended June 30, 2022 and $124 million for the same period in 2021. Other noninterest income for the nine months ended September 30, 2022 was $1.07 billion, compared to $394 million in the same period of ~~2020, an increase~~2021. The increases for the comparable 2021 periods were primarily due to the additional activity related to the CIT Merger, both complimentary to existing BancShares services and products, as well as new items such as factoring services and gain on sale of ~~$2.4~~leasing equipment, along with the preliminary estimated gain of $431 million ~~or 2.0%.~~ on acquisition related to the CIT Merger. See Note 2 — Business Combinations for details.

The ~~most~~linked quarter comparison to the three months ended June 30, 2022 reflects increases and decreases among various noninterest income accounts. The more significant ~~components of the change were as follows:~~variances follow:

•~~A $6.1 million favorable change in the fair market value adjustments on marketable equity securities.~~

•~~Wealth management services~~Fee income and other service charges, consisting of items such as capital market-related fees, fees for lines and letters of credit, and servicing fees, increased by ~~$5.6~~$5 million, primarily ~~due to growth in assets under management driving~~reflecting higher ~~advisory and transaction~~capital market fees.

•Service charges on deposit accounts ~~increased~~decreased by ~~$4.0 million due~~$7 million. While the volume of transactions was up, the decline reflected lower rates we are charging our customers, for items such as overdraft fees. As previously disclosed, in January we announced our intent to ~~volume.~~eliminate our nonsufficient funds (“NSF”) fees and lower our overdraft fees from $36 to $10 on consumer accounts beginning mid-year 2022.

•~~Cardholder services~~Other noninterest income ~~net increased by $3.1 million and merchant services, net increased by $1.6 million,~~ primarily ~~due to an increase in transaction volume.~~

•~~Realized gains on investment securities available for sale, net declined by $13.3 million.~~

•~~Mortgage~~consisted of bank owned life insurance (“BOLI”) income, ~~decreased by $7.0 million, driven by reductions in~~ gain on sale ~~margins~~of loans and ~~lower production volume~~OREO. Other noninterest income also includes derivative-related gains and losses and other various income items. Other noninterest income increased by $11 million, which included a $5 million settlement gain related to returned equipment, a $4 million recovery on a restructured transaction, a $2 million reserve release on prior loan sales, and a net $2 million derivative gain. The prior quarter included a $6 million gain on sale of a corporate aircraft acquired in ~~2021 due to higher mortgage rates and increased competition.~~the CIT Merger.

Noninterest income was $393.7 million for the first nine months of 2021, compared to $350.0 million for the same period of 2020, an increase of $43.8 million, or 12.5%. The most significant components of the change were as follows:

•~~Wealth management services increased by $20.7 million, primarily due to growth in assets under management driving higher advisory and transaction fees.~~

•~~A $20.6 million favorable change in the fair market value adjustments on marketable equity securities.~~

•~~Cardholder services income, net increased by $9.8 million and merchant services, net increased by $7.8 million, primarily due to an increase in transaction volume.~~

•~~Realized gains on investment securities available for sale declined by $21.9 million.~~

~~Noninterest Expense~~

~~Table 7~~

NONINTEREST EXPENSE

Three months ended September 30 Nine months ended September 30
(Dollars in thousands) 2021 2020 2021 2020
Salaries and wages $ 160,947 $ 147,297 $ 462,420 $ 439,185
Employee benefits 32,146 31,788 103,169 100,663
Occupancy expense 29,101 27,990 87,283 85,026
Equipment expense 30,229 29,430 88,934 86,054
Processing fees paid to third parties 15,602 11,927 43,702 32,485
FDIC insurance expense 3,661 2,167 10,261 9,364
Collection and foreclosure-related expenses 836 2,168 3,207 10,171
Merger-related expenses 7,013 3,507 19,601 12,108
Telecommunications expense 3,111 3,197 9,331 8,985
Consultant expense 3,338 2,936 8,176 9,223
Advertising expense 3,024 2,396 7,210 7,045
Core deposit intangible amortization 2,638 3,468 8,523 10,999
Other 21,172 23,391 58,505 72,004
Total noninterest expense $ 312,818 $ 291,662 $ 910,322 $ 883,312

Table 6

Noninterest Expense


dollars in millions	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Depreciation on operating lease equipment	$	87	$	89	$	—	$	257	$	—
Maintenance and other operating lease expenses	52		47		—		142		—
Operating expenses:
Salaries and benefits	351		341		194		1,044		566
Net occupancy expense	47		48		29		144		87
Equipment expense	55		54		30		161		89
Professional fees	13		15		5		44		13
Third-party processing fees	27		26		16		77		44
FDIC insurance expense	5		9		3		26		10
Marketing	15		9		3		32		7
Merger-related expenses	33		34		7		202		20
Intangible asset amortization	5		6		3		17		9
Other noninterest expense	70		67		24		169		66
Total operating expenses	621		609		314		1,916		911
Total noninterest expense	$	760	$	745	$	314	$	2,315	$	911

Depreciation on Operating Lease Equipment

Depreciation expense is driven by rail equipment and small and large ticket equipment we own and lease to others. The decrease in expense from the prior quarter reflects higher adjustments to residual values that were recorded in the prior quarter. Operating lease activity is in the Rail and Commercial Banking segments. The useful lives of rail equipment is generally longer in duration, 40-50 years, whereas small and large ticket equipment is generally 3-10 years. Refer to the Rail discussion in the section entitled “Results by Business Segments” of this MD&A for further details.

Maintenance and Other Operating Lease Expenses

Rail provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible for railcar maintenance and repair. Maintenance and other operating lease expenses for the three months ended September 30, 2022 and June 30, 2022 were $52 million and $47 million, respectively, and $142 million for nine months ended September 30, 2022. Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable. The increase from the prior quarter reflects higher repair costs for railcars put back on lease and inflationary pressures. Refer to the Rail discussion in the section entitled “Results by Business Segments” of this MD&A for further details.

Operating Expenses

The primary components of ~~noninterest expense~~operating expenses are salaries and related employee benefits, occupancy and equipment expense.

~~Noninterest expense was $312.8~~

Operating expenses for the three months ended September 30, 2022 were $621 million, ~~during the third quarter of 2021, an increase of $21.2 million, or 7.3%,~~ compared to ~~the same quarter in 2020. The most significant components of the change were as follows:~~

•~~Salaries and wages increased $13.7 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs.~~

•~~Processing fees paid to third parties increased $3.7 million driven by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.~~

•~~Merger-related expenses increased $3.5~~$609 million in ~~anticipation of~~ the ~~upcoming merger with CIT.~~

~~Table of Contents~~

~~Noninterest expense was $910.3 million for the first nine~~three months ~~of 2021, compared to $883.3~~ended June 30, 2022 and $314 million for the same period in ~~2020,~~2021. Operating expenses for the nine months ended September 30, 2022 were $1.92 billion compared to $911 million in the same period of 2021. The increases compared to the same periods in 2021 were primarily driven by the CIT Merger, of which significant drivers included higher employee headcount, more branches and office space, additional technology systems and merger-related expenses. Other expense for nine months ended September 30, 2022 included a $27 million reversal of an ~~increase of $27.0~~accrual related to legacy CIT postretirement plans that were terminated after the Merger Date. See Note 21 — Employee Benefit Plans.

Operating expenses for the three months ended September 30, 2022 increased by $12 million ~~or 3.1%. The most significant components~~compared to the linked quarter, primarily comprised of the ~~change were as follows:~~following:

•Salaries and ~~wages~~benefits increased ~~$23.2~~by $10 million, ~~driven~~ primarily reflecting higher salary expense due to new hires, promotions and other salary adjustments, higher costs for temporary workers, and higher revenue-based incentive compensation, partially offset by ~~annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel~~lower employee benefit costs. The staff additions were the result of building out teams to support our move to large bank compliance, as well as to backfill vacancies.

•~~Processing fees paid to third parties increased $11.2~~A $4 million ~~by our continued investments~~decrease in ~~digital and technology to support revenue-generating businesses and improve internal processes.~~FDIC insurance expense.

•~~Merger-related expenses~~Marketing costs increased ~~$7.5~~by $6 million, ~~in anticipation~~reflecting the timing of our advertising relating to marketing efforts for the ~~upcoming merger with CIT.~~Direct Bank.

•Other expenses ~~decreased $16.5~~consisted of other insurance and taxes (other than income tax), foreclosure, collection and other OREO-related expenses, consulting, telecommunications and other miscellaneous expenses including travel, postage, supplies, and appraisal expense. Changes in these items were not material, while a select item included an impairment charge of $5 million ~~primarily due~~related to the closure of an office facility, and the prior quarter included a ~~decrease in pension expense as a result of higher returns on plan assets, coupled with a reduction in the reserve for unfunded commitments.~~legal settlement accrual.

•~~Collection and foreclosure-related expenses declined $7.0 million.~~

~~Income Taxes~~INCOME TAXES

Table 7

Income ~~tax expense was $34.1 million and $35.8 million for the third quarter of 2021 and 2020, respectively, representing effective tax rates of 21.5% and 20.1% during the respective periods.~~Tax Data

Income tax expense totaled $123.9 million and $89.5 million for the first nine months of 2021 and 2020, respectively, representing effective tax rates of 22.6% and 20.2% for the respective nine month periods.


dollars in millions	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Income before income taxes	$	408		$	337		$	158		$	970		$	548
Income tax expense	$	93		$	82		$	34		$	129		$	124
Effective tax rate	22.9		%	24.2		%	21.5		%	13.3		%	22.6		%

The effective tax ~~rates during 2020 were favorably~~rate (“ETR”) was 22.9% in the three months ended September 30, 2022, compared to 24.2% for the three months ended June 30, 2022 and 21.5% for the same period in 2021. The increase in effective rate from 21.5% in the year ago quarter to 22.9% for the three months ended September 30, 2022 was primarily driven by the increase in state and local taxes resulting from the CIT Merger. The decrease in the ETR from 24.2% for the three months ended June 30, 2022 to 22.9% for the three months ended September 30, 2022 was primarily driven by the effects of changes from enacted state tax laws. The decrease in the ETR from 22.6% for the nine months ended September 30, 2021 to 13.3% for the nine months ended September 30, 2022 was driven by the non-taxable nature of the preliminary bargain purchase gain arising from the CIT Merger.

The ETR each quarter is impacted by ~~BancShares’ decision~~a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to ~~utilize an allowable alternative for computing its federal income tax liability.~~valuation allowances, and discrete items. The ~~allowable alternative provided BancShares~~ETR in future periods may vary from the ~~ability~~actual 2022 ETR due to ~~use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when~~changes in these amounts were originally subjected to tax. Without this alternative, the effective tax rate is materially unchanged for the third quarter and first nine months of 2021 and the effective tax rate for the third quarter and first nine months of 2020 would have been approximately 22.0% and 22.6% respectively.factors.

We monitor and evaluate the potential impact of current events on the estimates used to establish income tax ~~expenses~~expense and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or pending audits or assessments by tax auditors.

See Note 20 — Income Taxes for additional information.

RESULTS BY BUSINESS SEGMENT

Prior to the CIT Merger, BancShares operated with centralized management and combined reporting and, therefore, BancShares operated as one consolidated reportable segment. In connection with the CIT Merger, we made changes to reflect the inclusion of CIT operations and to reflect how we manage the combined business. As summarized in the sections below, BancShares now reports financial results in three operating segments: General Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate. We conformed prior period comparisons to this new segment presentation. Based on the approach for segment disclosures, the substantial majority of BancShares’ operations for historical periods prior to the CIT Merger are reflected in the General Banking segment. See Note 22 — Business Segments for related disclosures on the segments.

Results in our business segments reflect our funds transfer policy and allocation of expenses. Unallocated balances and, when applicable, certain select items, are reflected in Corporate.

General Banking

General Banking delivers services to individuals and businesses through an extensive branch network, digital banking, telephone banking and various ATM networks, including a full suite of deposit products, loans (primarily residential mortgages and commercial loans), and various fee-based services. General Banking also provides a variety of wealth management products and services to individuals and institutional clients, including brokerage, investment advisory, and trust services; and deposit, cash management and lending to HOA and property management companies. As part of the CIT Merger, CAB products were added that will drive the associated HOA deposit channel. Revenue is primarily generated from interest earned on residential mortgages, small business loans and fees for banking services.

Table 8

General Banking: Financial Data and Metrics


dollars in millions	Three Months Ended						Nine Months Ended
Earnings Summary	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net interest income	$	495	$	468	$	363	$	1,400	$	1,071
Provision (benefit) for credit losses	2		7		(1)		(7)		(32)
Net interest income after provision (benefit) for credit losses	493		461		364		1,407		1,103
Noninterest income	118		126		110		365		325
Noninterest expense	410		391		295		1,210		875
Income before income taxes	201		196		179		562		553
Income tax expense	55		40		38		134		125
Net income	$	146	$	156	$	141	$	428	$	428
Select Period End Balances
Loans and leases	$	41,693	$	40,444	$	31,849	$	41,693	$	31,849
Deposits	82,730		83,535		49,992		82,730		49,992

Results for the 2022 periods reflect the additional activity from the CIT Merger, which were not included in 2021 income statements.

Net income for the three months ended September 30, 2022 decreased compared to the three months ended June 30, 2022, reflecting higher NII, mostly due to growth in the loan portfolio, offset by lower noninterest income, higher noninterest expenses and higher taxes. Noninterest income for the three months ended September 30, 2022 decreased compared to the three months ended June 30, 2022, reflecting lower service charges on deposits. Noninterest expenses for the three months ended September 30, 2022 increased compared to the three months ended June 30, 2022, reflecting items discussed previously in the section entitled “Noninterest Expenses” of this MD&A. Net income compared to the 2021 periods was relatively unchanged as higher NII and noninterest income was essentially offset by higher expense levels, resulting from the increased size due to the CIT Merger.

Loans and leases at September 30, 2022 increased from June 30, 2022 reflecting strong demand through our branch network. Growth was primarily concentrated in commercial and business loans. Our consumer mortgage loans also grew, reflecting lower prepayments and originating loans that were held on-balance sheet. Compared to September 30, 2021, loans and leases increased reflecting the additional residential mortgages and consumer loans acquired in the CIT Merger, partially offset by run-off of SBA-PPP loans.

Deposits include deposits from the branch, online and CAB channels. The additional branches acquired in the CIT Merger were mostly in California. Deposits at September 30, 2022 were down from June 30, 2022, driven by lower money market accounts, partially offset by an increase in savings accounts. While deposits were down in our branch network, deposits from our direct banking grew. The increase compared to September 30, 2021 reflects deposits acquired in the CIT Merger. See consolidated discussions in the sections entitled “Net Interest Income,” “Net Interest Margin” and “Balance Sheet Analysis—Deposits” of this MD&A for additional information.

Commercial Banking

Commercial Banking provides lending, leasing and other financial and advisory services, primarily to small and middle-market companies across various industries. Commercial Banking also provides asset-based lending, factoring, receivables management products and supply chain financing. Revenue is primarily generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and related activities.

We provide factoring, receivable management, and secured financing to businesses (our clients, who are generally manufacturers or importers of goods) that operate in several industries, including apparel, textile, furniture, home furnishings and consumer electronics. Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from the sale of goods by our clients to their customers (generally retailers) that have been factored (i.e., sold or assigned to the factor).

Table 9

Commercial Banking: Financial Data and Metrics


dollars in millions	Three Months Ended						Nine Months Ended
Earnings Summary	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net interest income	$	230	$	203	$	5	$	641	$	12
Provision for credit losses	58		35		—		60		—
Net interest income after provision for credit losses	172		168		5		581		12
Noninterest income	133		129		—		376		—
Noninterest expense	186		180		1		557		3
Income before income taxes	119		117		4		400		9
Income tax expense	25		24		1		90		2
Net income	$	94	$	93	$	3	$	310	$	7
Select Period End Balances
Loans and leases	$	28,023	$	27,220	$	667	$	28,023	$	667
Deposits	3,682		4,449		73		3,682		73

Results for the 2022 periods primarily reflect activity from the former CIT businesses, which were not included in 2021 periods.

Net income for the three months ended September 30, 2022 was essentially unchanged compared to the three months ended June 30, 2022, reflecting higher NII and noninterest income, which offset higher provision for credit losses and noninterest expenses. The provision for credit losses for the three months ended September 30, 2022 reflects moderate deterioration in the macroeconomic forecasts and loan portfolio growth. For the three months ended September 30, and June 30, 2022, noninterest income included rental income on operating lease equipment of $54 million and $53 million, respectively, and $155 million for the nine months ended September 30, 2022. Noninterest expense includes operating expenses and depreciation on operating lease equipment. Noninterest expenses for the three months ended September 30, 2022 increased compared to the three months ended June 30, 2022, reflecting items discussed previously in the section entitled “Noninterest Expense” of this MD&A. Depreciation on operating lease equipment totaled $43 million for the three months ended September 30, 2022 and $42 million for the three months ended June 30, 2022 ($125 million for the nine months ended September 30, 2022).

Loans and leases at September 30, 2022 increased from June 30, 2022, reflecting growth in a number of our industry verticals, such as healthcare and technology, and small business lending, while middle market banking was down. The increase in loans and leases and deposits for the 2022 periods compared to 2021 was driven by those acquired in the CIT Merger.

Rail

Rail offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers throughout North America. Railcar types include covered hopper cars used to ship grain and agricultural products, plastic pellets, sand, and cement; tank cars for energy products and chemicals; gondolas for coal, steel coil and mill service products; open hopper cars for coal and aggregates; boxcars for paper and auto parts, and center beams and flat cars for lumber. Revenues are primarily generated from operating lease income.

Table 10

Rail: Financial Data and Metrics


dollars in millions	Three Months Ended						Nine Months Ended
Earnings Summary	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Rental income on operating leases	$	165	$	160	$	—	$	485	$	—
Depreciation on operating lease equipment	44		47		—		132		—
Maintenance and other operating lease expenses	52		47		—		142		—
Net revenue on operating leases(1)	69		66		—		211		—
Interest expense, net	20		18		—		57		—
Noninterest income	6		—		—		8		—
Operating expenses	15		16		—		47		—
Income before income taxes	40		32		—		115		—
Income tax expense	10		8		—		28		—
Net income	$	30	$	24	$	—	$	87	$	—
Select Period End Balances
Operating lease equipment, net	$	7,248	$	7,247	$	—	$	7,248	$	—

(1) Net revenue on operating leases is a non-GAAP measure. See the “Non-GAAP Financial Measures” section for a reconciliation from the GAAP measure (segment net income) to the non-GAAP measure (net revenue on operating leases).

Net income and net revenue on operating leases are utilized to measure the profitability of our Rail segment. Net revenue on operating leases reflects rental income on operating lease equipment less depreciation, maintenance and other operating lease expenses. Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable. Due to the nature of our portfolio, which is essentially all operating lease equipment, certain financial measures commonly used by banks, such as NII, are not as meaningful for this business. NII is not used because it includes the impact of debt costs of our operating lease assets but excludes the associated rental income.

Net income and net revenue on operating leases for the three months ended September 30, 2022 were $30 million and $69 million, respectively, both up from the three months ended June 30, 2022. Depreciation is recognized on railcars, and the prior quarter included higher costs driven by adjustments to residual values. Maintenance and other operating lease expenses increased from the prior quarter, reflecting higher costs for railcars put back on lease and inflationary pressures. Other noninterest income for the three months ended September 30, 2022 reflects a $5 million settlement gain related to returned equipment.

Our fleet is diverse and the average re-pricing of equipment upon lease maturities was 105% of the average prior or expiring lease rate during the quarter. Our railcar utilization, including commitments to lease, at September 30, 2022 was 96.2%, unchanged from June 30, 2022.

Portfolio

Rail customers include all of the U.S. and Canadian Class I railroads (i.e., railroads with annual revenues of approximately $500 million and greater), other railroads, as well as manufacturers and commodity shippers. Our total operating lease fleet at September 30, 2022 consisted of approximately 118,500 railcars, down slightly from June 30, 2022. The following table reflects the proportion of railcars by type based on units and net investment, respectively:

Table 11

Operating lease Railcar Portfolio by Type (units and net investment)


	September 30, 2022				June 30, 2022
Railcar Type	Total Owned Fleet - % Total Units		Total Owned Fleet - % Total Net Investment		Total Owned Fleet - % Total Units		Total Owned Fleet - % Total Net Investment
Covered Hoppers	43	%	40	%	42	%	40	%
Tank Cars	30	%	41	%	30	%	41	%
Mill/Coil Gondolas	8	%	6	%	8	%	6	%
Coal	8	%	1	%	8	%	1	%
Boxcars	6	%	7	%	6	%	7	%
Other	5	%	5	%	6	%	5	%
Total	100	%	100	%	100	%	100	%

Table 12

Rail Operating Lease Equipment by Obligor Industry


dollars in millions	September 30, 2022				June 30, 2022
Manufacturing	$	2,985	41	%	$	3,057	42	%
Rail	2,010		28	%	1,937		27	%
Wholesale	991		14	%	980		14	%
Oil and gas extraction / services	538		7	%	556		8	%
Energy and utilities	245		3	%	237		3	%
Other	479		7	%	480		6	%
Total	$	7,248	100	%	$	7,247	100	%

Corporate

Certain items that are not allocated to operating segments are included in the Corporate segment. Some of the more significant and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate funding costs (including brokered deposits), income on BOLI (other noninterest income), merger-related expenses, as well as certain unallocated costs and intangible asset amortization expense (operating expenses). Corporate also includes certain significant items that are infrequent, such as the Initial Non-PCD Provision for loans and leases and unfunded commitments, and the preliminary gain on acquisition, both of which related to the CIT Merger.

Table 13

Corporate: Financial Data and Metrics


dollars in millions	Three Months Ended						Nine Months Ended
Earnings Summary	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net interest income (expense)	$	90	$	47	$	(21)	$	161	$	(50)
Provision for credit losses	—		—		—		513		—
Net interest income (expense) after provision for credit losses	90		47		(21)		(352)		(50)
Noninterest income	12		9		14		473		69
Noninterest expense	54		64		18		228		33
Income (loss) before income taxes	48		(8)		(25)		(107)		(14)
Income tax expense (benefit)	3		10		(5)		(123)		(3)
Net income (loss)	$	45	$	(18)	$	(20)	$	16	$	(11)

Results for 2022 were driven by impacts from the CIT Merger. Results for the three months ended September 30, 2022 benefited from higher NII reflecting higher interest income. Included in noninterest expenses for the 2022 periods were $33 million, $34 million and $202 million of merger-related expenses, for the three months ended September 30, 2022, June 30, 2022 and nine months ended September 30, 2022, respectively. In addition to these items, the nine months ended September 30, 2022 also included a provision for credit losses of $513 million related to the Initial Non-PCD Provision, a preliminary gain on acquisition of $431 million and a benefit of approximately $27 million related to the termination of certain legacy CIT retiree benefit plans in noninterest expenses.

BALANCE SHEET ANALYSIS

INTEREST-EARNING ASSETS

Interest-earning assets include ~~overnight investments,~~interest-bearing cash, investment securities, assets held for sale and loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. ~~Riskier~~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 $53.4 billion and $47.2 billion~~Deposits at Banks

Interest-earning deposits at banks at September 30, ~~2021~~2022 totaled $6.2 billion. This was down from $6.5 billion at June 30, 2022 and $9.1 billion at December 31, ~~2020, respectively. The $6.2~~2021. These declines related to lower deposits, loan growth, and the timing of investment maturities. While the CIT Merger added approximately $2.9 billion ~~increase~~of interest-earning deposits at banks as of the Merger Date, that amount was ~~primarily composed of a $5.5 billion increase in overnight investments and a $952.4 million increase in investment securities, partially~~ offset by ~~a $275.8 million decrease~~the use of cash for the redemption of approximately $2.9 billion of assumed debt from the CIT Merger in ~~loans.~~February.

Investment Securities

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities ~~with~~that have minimal liquidity ~~and credit~~ 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 ~~and~~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. See Note ~~C -~~1 — Accounting Policies and Basis of Presentation and Note 3 — Investments ~~to our consolidated financial statements~~ for additional ~~disclosures.~~disclosures regarding investment securities.

The carrying value of investment securities ~~totaled $10.9 billion~~ at September 30, ~~2021, an increase of $952.4 million compared to December 31, 2020 attributable to our continued growth in deposits. During the period we had $5.0~~2022 totaled $18.8 billion. This was down from $19.1 billion inat June 30, 2022, reflecting investment security purchases ~~partially offset by sales~~ of ~~$1.4~~$0.5 billion, ~~and~~ maturities and paydowns of ~~$2.6~~$0.5 billion, and the remaining due to change in fair value. The increase from $13.1 billion at December 31, 2021 primarily reflected the CIT Merger, which added $6.6 billion. The remaining year to date activity in the portfolio included investment securities purchases of $1.8 billion, partially offset by maturities and paydowns of $1.7 billion, and fair value changes.

~~Table of Contents~~

Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of ~~accumulated other comprehensive income,~~AOCI, net of deferred taxes. As of September 30, ~~2021,~~2022, investment securities available for sale had a net pre-tax unrealized ~~gain~~loss of ~~$26.0~~$995 million, compared to a net pre-tax unrealized ~~gain~~loss of ~~$102.3~~$647 million as of June 30, 2022 and $12 million as of December 31, ~~2020.~~2021. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of the investment securities portfolio generally decreases when interest rates increase or when credit spreads widen. Management evaluated the available for sale securities in an unrealized loss position and concluded that the unrealized losses ~~relate~~related to changes in interest rates relative to when the securities were purchased, and therefore BancShares management determined that no ~~allowance for credit losses~~ACL was ~~recorded~~needed at September 30, ~~2021 or December 31, 2020.~~2022.

BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored ~~entities.~~entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the World Bank and FDIC guaranteed CDs with other financial institutions. Given the consistently strong credit rating of the U.S. Treasury, the World Bank and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, BancShares management determined that no ~~allowance for credit losses~~ACL was needed at September 30, ~~2021~~2022 and December 31, ~~2020.~~

~~Table 8~~

~~INVESTMENT SECURITIES~~

September 30, 2021 December 31, 2020
(Dollars in thousands)
Composition(1)
Amortized cost Fair
value
Composition(1)
Amortized cost Fair
value
Investment securities available for sale
U.S. Treasury — % $ — $ — 5.0 % $ 499,832 $ 499,933
Government agency 7.9 851,860 853,728 7.0 706,241 701,391
Residential mortgage-backed securities 44.3 4,800,194 4,801,646 44.5 4,369,130 4,438,103
Commercial mortgage-backed securities 10.0 1,092,183 1,090,652 7.9 745,892 771,537
Corporate bonds 5.8 600,906 625,103 6.1 590,870 603,279
Total investment securities available for sale 68.0 7,345,143 7,371,129 70.5 6,911,965 7,014,243
Investment in marketable equity securities 1.1 85,554 123,147 0.9 84,837 91,680
Investment securities held to maturity
Residential mortgage-backed securities 19.4 2,122,299 2,112,561 19.1 1,877,692 1,895,381
Commercial mortgage-backed securities 11.4 1,256,771 1,238,509 9.4 937,034 940,862
Other 0.1 2,008 2,008 0.1 2,256 2,256
Total investment securities held to maturity 30.9 3,381,078 3,353,078 28.6 2,816,982 2,838,499
Total investment securities 100.0 % $ 10,811,775 $ 10,847,354 100.0 % $ 9,813,784 $ 9,944,422
(1) Calculated as a percent of the total fair value of investment securities.
2021.

4781

~~Table of Contents~~

Table 914 presents the ~~weighted average taxable-equivalent yields for~~ investment securities ~~available for sale and held to maturity~~portfolio at September 30, 2022, June 30, 2022, and December 31, 2021, segregated by major ~~category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level yields.~~

~~Table 9~~

~~WEIGHTED AVERAGE YIELD ON INVESTMENT SECURITIES~~

September 30, 2021
Within
One Year One to Five
Years Five to 10
Years After 10 Years Total
Investment securities available for sale
Government agency — % 2.15 % 1.08 % 1.07 % 1.07 %
Residential mortgage-backed securities(1)
— — 1.80 1.26 1.27
Commercial mortgage-backed securities(1)
— — 3.19 2.04 2.09
Corporate bonds 4.05 5.87 5.21 4.76 5.24
Total investment securities available for sale 4.05 % 5.70 % 3.71 % 1.38 % 1.71 %
Investment securities held to maturity
Residential mortgage-backed securities(1)
— % — % — % 1.17 % 1.17 %
Commercial mortgage-backed securities(1)
— — — 1.46 1.46
Other investments 0.81 1.17 — — 0.94
Total investment securities held to maturity 0.81 % 1.17 % — % 1.28 % 1.28 %

~~(1)~~Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans.

~~Loans and Leases~~

~~Loans held for sale were $98.5 million at September 30, 2021, a net decrease of $26.4 million since December 31, 2020.~~

At September 30, 2021, loans totaled $32.5 billion, a decrease of $275.8 million, or by 1.1% on an annualized basis since December 31, 2020. Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis since December 31, 2020.

BancShares reports non-PCD and PCD loan portfolios separately, and the non-PCD portfolio is further divided into commercial and consumer segments. Non-PCD loans and leases were $32.1 billion at September 30, 2021 and $32.3 billion at December 31, 2020, representing 98.9% and 98.6% of total loans, respectively. PCD loans at September 30, 2021 were $373.3 million, compared to $462.9 million at December 31, 2020, representing 1.1% and 1.4% of total loans, respectively.

The discount related to acquired non-PCD loans and leases was $13.4 million and $19.5 million at September 30, 2021 and December 31, 2020, respectively. The discount related to PCD loans was $32.6 million and $45.3 million at September 30, 2021 and December 31, 2020, respectively.

During the three months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $1.2 million and $2.8 million, respectively, while interest and accretion income on PCD loans was $10.8 million and $15.0 million, respectively. During the nine months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $6.1 million and $7.8 million, respectively, while interest and accretion income on PCD loans was $34.5 million and $48.0 million, respectively

~~Table of Contents~~

~~Table 10~~

~~LOANS AND LEASES~~

(Dollars in thousands) September 30, 2021 December 31, 2020
Commercial:
Construction and land development $ 1,247,680 $ 985,424
Owner occupied commercial mortgage 11,625,554 11,165,012
Non-owner occupied commercial mortgage 3,002,928 2,987,689
Commercial and industrial and leases 5,266,266 5,013,644
SBA-PPP 1,086,917 2,406,291
Total commercial loans 22,229,345 22,558,060
Consumer:
Residential mortgage 5,701,346 5,561,686
Revolving mortgage 1,834,690 2,052,854
Construction and land development 391,768 348,123
Consumer auto 1,350,377 1,255,402
Consumer other 635,408 552,968
Total consumer loans 9,913,589 9,771,033
Total non-PCD loans and leases 32,142,934 32,329,093
PCD loans 373,255 462,882
Total loans and leases 32,516,189 32,791,975
Less allowance for credit losses (183,194) (224,314)
Net loans and leases $ 32,332,995 $ 32,567,661

~~ALLOWANCE FOR CREDIT LOSSES~~

The allowance for credit losses (“ACL”) was $183.2 million at September 30, 2021, representing a decrease of $41.1 million since December 31, 2020. The ACL as a percentage of total loans and leases was 0.56% at September 30, 2021, compared to 0.68% at December 31, 2020. The ACL as a percentage of loans and leases excluding SBA-PPP loans, which have no recorded ACL, was 0.58% at September 30, 2021, compared to 0.74% at December 31, 2020.

The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended September 30, 2021, the ACL change since December 31, 2020 was driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. For most pools, we use a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. Our ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the September 30, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by our strong credit quality and low net charge-offs.

~~As of September 30, 2021, the consensus baseline forecast utilized the following significant inputs over the two-year reasonable and supportable forecast period:~~

~~Unemployment - Rates are expected to improve to below 4% through the end of 2022 and stabilizing into early 2023.~~

~~GDP Growth - Peak growth of just under 7% in the fourth quarter of 2021, decreasing to below 3% in 2022 and thereafter.~~

~~Home Pricing Index - Growth rates of over 7% declining to below 4% over the forecast period.~~

~~Commercial Real Estate Index - Small forecasted downturn through the first half of 2022 and then improving to over 6% into 2023.~~

At September 30, 2021, the ACL allocated to non-PCD loans and leases was $164.8 million, or 0.51% of non-PCD loans and leases, compared to $200.3 million, or 0.62%, at December 31, 2020. The decrease of 11 basis points since December 31, 2020 was primarily due to continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. The ACL as a percentage of non-PCD loans and leases excluding SBA-PPP loans was 0.53% at September 30, 2021 compared to 0.67% at December 31, 2020.

~~Table of Contents~~

At September 30, 2021, the ACL for PCD loans totaled $18.4 million compared to $24.0 million at December 31, 2020. The decrease was due to paydowns and the decline in the portfolio coupled with the impact of improved macroeconomic factors.

In the period ended September 30, 2021, the ACL on our commercial portfolio decreased $8.2 million, with the largest share of the decrease within commercial real estate. The ACL on the consumer portfolio decreased $27.4 million, with decreases across all portfolios with the largest change in residential mortgages. These portfolios were largely impacted by the improvement in macroeconomic factors.

Net charge-offs for loans and leases were $4.8 million during the third quarter of 2021, compared to $2.6 million during the third quarter of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.06% and 0.03% for the third quarter of 2021 and 2020, respectively. The impact of SBA-PPP loans on average loans balances did not affect the net charge-off ratio in either period.

Net charge-offs for loans and leases were $9.4 million during the nine months ended September 30, 2021, compared to $17.4 million during the same period of 2020. On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.04% and 0.07% for the nine months ended September 30, 2021 and 2020, respectively. The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.

category.

Table 14

Investment Securities


dollars in millions	September 30, 2022						June 30, 2022						December 31, 2021
	Composition(1)		Amortized cost		Fair value		Composition(1)		Amortized cost		Fair value		Composition(1)		Amortized cost		Fair value
Investment securities available for sale:
U.S. Treasury	11.0	%	$	2,047	$	1,900	10.5	%	$	2,005	$	1,903	15.4	%	$	2,007	$	2,005
Government agency	1.0	%	175		173		1.1	%	191		190		1.7	%	221		221
Residential mortgage-backed securities	27.6	%	5,450		4,784		27.7	%	5,448		5,020		36.2	%	4,757		4,729
Commercial mortgage-backed securities	9.6	%	1,828		1,673		8.4	%	1,632		1,527		12.6	%	1,648		1,640
Corporate bonds	3.2	%	583		558		3.1	%	581		570		4.7	%	582		608

Total investment securities available for sale	52.4	%	$	10,083	$	9,088	50.8	%	$	9,857	$	9,210	70.6	%	$	9,215	$	9,203
Investment in marketable equity securities	0.5	%	$	73	$	92	0.5	%	$	73	$	94	0.7	%	$	73	$	98
Investment securities held to maturity:
U.S. Treasury	2.4	%	$	473	$	419	2.4	%	$	472	$	437	—	%	$	—	$	—
Government agency	7.8	%	1,546		1,350		7.9	%	1,544		1,424		—	%	—		—
Residential mortgage-backed securities	21.6	%	4,510		3,745		22.8	%	4,633		4,119		17.7	%	2,322		2,306
Commercial mortgage-backed securities	13.8	%	2,834		2,397		14.1	%	2,886		2,563		11.0	%	1,485		1,451
Supranational securities	1.5	%	295		252		1.5	%	294		266		—	%	—		—
Other investments	—	%	3		3		—	%	3		3		—	%	2		2
Total investment securities held to maturity	47.1	%	$	9,661	$	8,166	48.7	%	$	9,832	$	8,812	28.7	%	$	3,809	$	3,759
Total investment securities	100	%	$	19,817	$	17,346	100	%	$	19,762	$	18,116	100	%	$	13,097	$	13,060
(1) Calculated as a percent of the total fair value of investment securities.

5082

~~Table of Contents~~

Table 11

~~ALLOWANCE FOR CREDIT LOSSES~~

Three months ended September 30, 2021
(Dollars in thousands) Commercial Consumer PCD Total
Allowance for credit losses:
Balance at July 1 $ 76,082 $ 94,272 $ 18,740 $ 189,094
Provision (credit) 975 (223) (1,872) (1,120)
Charge-offs (5,967) (4,307) (799) (11,073)
Recoveries 1,594 2,330 2,369 6,293
Balance at September 30 $ 72,684 $ 92,072 $ 18,438 $ 183,194
Percent of loans in each category to total loans 68.4 % 30.5 % 1.2 % 100.0 %
Annualized net charge-off ratio 0.08 % 0.08 % (0.55) % 0.06 %
Net charge-offs $ 4,373 $ 1,977 $ (1,570) $ 4,780
Average loans 22,331,889 9,891,071 384,673 32,607,633
Three months ended September 30, 2020
(Dollars in thousands) Commercial Consumer PCD Total
Balance at July 1 $ 76,177 $ 119,345 $ 26,928 $ 222,450
Provision (credit) 4,793 1,874 (2,625) 4,042
Charge-offs (3,328) (5,109) (495) (8,932)
Recoveries 2,338 2,719 1,319 6,376
Balance at September 30 $ 79,980 $ 118,829 $ 25,127 $ 223,936
Percent of loans in each category to total loans 68.9 % 29.6 % 1.5 % 100.0 %
Annualized net charge-off ratio 0.02 % 0.10 % (0.21) % 0.03 %
Net charge-offs $ 990 $ 2,390 $ (824) $ 2,556
Average loans 22,361,650 9,703,434 512,559 32,577,643
Nine months ended September 30, 2021
(Dollars in thousands) Commercial Consumer PCD Total
Balance at January 1 $ 80,842 $ 119,485 $ 23,987 $ 224,314
Provision (credit) 332 (23,208) (8,821) (31,697)
Initial allowance on PCD loans — — — —
Charge-offs (12,342) (12,804) (2,018) (27,164)
Recoveries 3,852 8,599 5,290 17,741
Balance at September 30 $ 72,684 $ 92,072 $ 18,438 $ 183,194
Percent of loans in each category to total loans 68.4 % 30.5 % 1.2 % 100.0 %
Annualized net charge-off ratio 0.05 % 0.06 % (1.05) % 0.04 %
Net charge-offs $ 8,490 $ 4,205 $ (3,272) $ 9,423
Average loans 22,680,602 9,773,946 417,536 32,872,084
Nine months ended September 30, 2020
(Dollars in thousands) Commercial Consumer PCD Total
Balance at December 31 $ 142,369 $ 75,236 $ 7,536 $ 225,141
Adoption of ASC 326 (87,554) 30,629 19,001 (37,924)
Balance at January 1 54,815 105,865 26,537 187,217
Provision (credit) 32,854 25,066 (4,971) 52,949
Initial allowance on PCD loans — — 1,193 1,193
Charge-offs (12,712) (19,535) (3,010) (35,257)
Recoveries 5,023 7,433 5,378 17,834
Balance at September 30 $ 79,980 $ 118,829 $ 25,127 $ 223,936
Percent of loans in each category to total loans 68.9 % 29.6 % 1.5 % 100.0 %
Annualized net charge-off ratio 0.05 % 0.16 % (0.60) % 0.07 %
Net charge-offs $ 7,689 $ 12,102 $ (2,368) $ 17,423
Average loans 20,687,348 9,838,064 529,819 31,055,231
15presents the weighted average yields for investment securities available for sale and held to maturity at September 30, 2022, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level annualized yields.

~~The reserve for unfunded loan commitments was $11.5 million and $12.8 million at September 30, 2021 and December 31, 2020, respectively.~~Table 15

Weighted Average Yield on Investment Securities


	September 30, 2022
	Within One Year		One to Five Years		Five to 10 Years		After 10 Years		Total
Investment securities available for sale:
U.S. Treasury	3.25	%	0.96	%	—	%	—	%	1.01	%
Government agency	4.42	%	4.58	%	4.09	%	4.14	%	4.09	%
Residential mortgage-backed securities	1.09	%	2.38	%	2.12	%	1.78	%	1.78	%
Commercial mortgage-backed securities	4.06	%	3.55	%	5.37	%	2.71	%	2.86	%
Corporate bonds	5.00	%	6.61	%	5.28	%	4.67	%	5.40	%

Total investment securities available for sale	3.65	%	1.42	%	4.84	%	1.99	%	2.07	%

Investment securities held to maturity:
U.S. Treasury	—	%	1.37	%	1.57	%	—	%	1.38	%
Government agency	0.44	%	1.36	%	1.75	%	—	%	1.49	%
Residential mortgage-backed securities(1)	—	%	4.03	%	3.71	%	1.76	%	1.76	%
Commercial mortgage-backed securities(1)	—	%	—	%	2.20	%	1.83	%	1.83	%
Supranational Securities	—	%	1.23	%	1.64	%	—	%	1.56	%
Other investments	0.78	%	—	%	—	%	—	%	0.78	%
Total investment securities held to maturity	0.46	%	1.36	%	1.73	%	1.79	%	1.72	%

(1)

~~Table of Contents~~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.

~~Table 12~~

~~ALLOWANCE FOR CREDIT LOSSES RATIOS~~

(Dollars in thousands) September 30, 2021 December 31, 2020
Allowance for credit losses to total loans and leases(1):
0.56 % 0.68 %
Allowance for credit losses $ 183,194 $ 224,314
Total loans and leases 32,516,189 32,791,975
Allowance for credit losses to non-PCD loans and leases(1):
0.51 % 0.62 %
Allowance for credit losses on non-PCD loans and leases $ 164,756 $ 200,327
Total non-PCD loans and leases 32,142,934 32,329,093
Allowance for credit losses to PCD loans: 4.94 % 5.18 %
Allowance for credit losses on PCD loans $ 18,438 $ 23,987
Total PCD loans 373,255 462,882
(1) Loans originated in relation to the SBA-PPP ($1.1 billion as of September 30, 2021 and $2.4 billion as of December 31, 2020) do not have a recorded ACL. As of September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.53% while the ratio of ACL to total loans excluding SBA-PPP loans was 0.58%. As of December 31, 2020, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.67% while the ratio of ACL to total loans excluding SBA-PPP loans is 0.74%.

~~NONPERFORMING ASSETS~~Assets Held for Sale

~~Nonperforming~~Assets held for sale at September 30, 2022 were $21 million, of which $18 million related to loans and the remainder to non-interest earning operating lease equipment. Assets held for sale totaled $38 million at June 30, 2022 and $99 million at December 31, 2021. The declines were primarily due to loan sales.

Certain residential real estate loans and commercial loans are originated to be sold to investors or lenders, respectively, and are recorded in assets ~~include nonaccrual~~held for sale at fair value. In addition, BancShares may change its strategy for certain portfolio loans and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value.

Loans and Leases

Loans and leases held for investment at September 30, 2022 were $69.8 billion, an increase from $67.7 billion, at June 30, 2022. Our commercial loans were up $1.5 billion from June 30, 2022. We continued to see strong loan growth in our branch network, as well as commercial banking. The increase in our branch network loans was driven by higher commercial loans. In commercial banking, growth was in a number of our industry verticals, such as healthcare and technology, and small business lending, while middle market banking was down. We also had growth in consumer mortgage loans. Our consumer loans were up $0.6 billion from June 30, 2022. Total loans and leases ~~and other real estate owned (“OREO”). At September 30, 2021, BancShares’ nonperforming assets totaled $204.4 million, a decrease of $37.9 million since~~increased from $32.4 billion at December 31, ~~2020.~~2021, reflecting the addition of $32.7 billion from the CIT Merger and the above noted activity, partially offset by a reduction in SBA-PPP loans.

~~Nonaccrual~~

Upon completion of the CIT Merger, we re-evaluated our loan classes to reflect the risk characteristics of the combined portfolio. BancShares reports its commercial loan portfolio in the following classes: commercial construction, owner occupied commercial mortgage, non-owner occupied commercial mortgage, commercial and industrial, and leases. The consumer portfolio includes residential mortgage, revolving mortgage, consumer auto and consumer other. Commercial loans ~~and leases~~ at September 30, ~~2021~~2022 were ~~$163.8 million, reflecting a decrease of $27.7 million since~~$53.0 billion compared to $51.5 billion at June 30, 2022 and $22.6 billion at December 31, ~~2020. Nonaccrual loans~~2021, representing 76%, 76% and ~~leases as a percentage~~70% of total loans and leases, ~~was 0.50% and 0.58%~~respectively. Consumer loans at September 30, 2022 were $16.8 billion, compared to $16.3 billion at June 30, 2022 and $9.8 billion at December 31, 2021, representing 24%, 24% and 30% of total loans and leases, respectively.

Table 16

Loans and Leases


dollars in millions	September 30, 2022		June 30, 2022		December 31, 2021
Commercial:
Commercial construction	$	2,752	$	2,783	$	1,238
Owner occupied commercial mortgage	14,053		13,795		12,099
Non-owner occupied commercial mortgage	9,683		9,167		3,041
Commercial and industrial	24,288		23,554		5,937
Leases	2,184		2,178		271
Total commercial	$	52,960	$	51,477	$	22,586
Consumer:
Residential mortgage	12,910		12,441		6,088
Revolving mortgage	1,923		1,893		1,818
Consumer auto	1,385		1,338		1,332
Consumer other	612		586		548
Total consumer	$	16,830	$	16,258	$	9,786
Total loans and leases	69,790		67,735		32,372
Less allowance for credit losses	882		850		178
Net loans and leases	$	68,908	$	66,885	$	32,194

The discount related to acquired loans was $131 million, $146 million and $40 million at September 30, 2022, June 30, 2022 and December 31, ~~2020,~~2021, respectively. At September 30, 2021, OREO totaled $40.6 million, representing a decrease of $10.2 million since December 31, 2020. Nonperforming assets as a percentage of total loans, leases and OREO was 0.63% as of September 30, 2021 compared to 0.74% as of December 31, 2020.

~~Table 13~~

~~NONPERFORMING ASSETS~~

2021 2020
Third Second First Fourth Third
(Dollars in thousands) Quarter Quarter Quarter Quarter Quarter
Nonaccrual loans and leases:
Non-PCD $ 118,737 $ 136,530 $ 141,369 $ 136,544 $ 130,927
PCD 45,038 50,934 53,165 54,939 55,527
Total nonaccrual loans and leases 163,775 187,464 194,534 191,483 186,454
Other real estate owned 40,649 43,685 48,512 50,890 52,789
Total nonperforming assets $ 204,424 $ 231,149 $ 243,046 $ 242,373 $ 239,243
Accruing loans and leases 90 days or more past due
Non-PCD $ 3,827 $ 3,413 $ 5,945 $ 5,507 $ 3,587
PCD 1,787 363 1,432 355 —
Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.63 % 0.71 % 0.73 % 0.74 % 0.73 %
Ratio of nonaccrual loans and leases to total loans and leases 0.50 0.57 0.59 0.58 0.57
Ratio of allowance for credit losses to nonaccrual loans and leases 111.9 100.9 108.3 117.1 120.1

~~TROUBLED DEBT RESTRUCTURINGS~~

We selectively agree to modify existing loan terms to provide relief to customers who are experiencing financial difficulties or other circumstances that could affect their ability to meet debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Troubled debt restructurings (“TDRs”) not accruing interest at the time of restructure are included as nonperforming loans. TDRs accruing at the time of restructure and continuing to perform based on the restructured terms are considered performing loans.

52OPERATING LEASE EQUIPMENT, NET

~~Table~~

Given several factors including but not limited to positive internal and external trends, positive risk metrics, effective incident, oversight and monitoring, the Company returned to business as usual operations and lifted internal COVID-19 related restrictions in early April. BancShares will continue to comply with any state and local orders that are in place. Monitoring of ~~Contents~~associated credit and operational risks has now been integrated into normal risk monitoring activities.

Since the filing of our 2021 Form 10-K, BancShares has been assessing the emerging impacts of the rising international tensions that could impact the economy and exacerbate headwinds of rising inflation, elevated market volatility, global supply chain disruptions, and recessionary pressures as well as operational risks such as those associated with potential cyber-attacks for FCB and third parties upon whom it relies. Assessments have not identified material impacts to date, but those assessments will remain ongoing as the condition continues to exist.

~~Credit risk management~~

CREDIT RISK

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCD or non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an ~~adequate~~appropriate ACL that accounts for expected ~~credit~~ losses inover the life of the loan and lease ~~portfolio.~~portfolios.

~~We continue~~

Commercial Lending and Leasing

Commercial loans and leases acquired in the CIT Merger, which are primarily within the Commercial Banking segment, are graded according to ~~actively monitor our loan portfolio~~a rating system that was used by CIT prior to the merger with respect to probability of obligor default (“PD”) and loss given default (severity) based on various risk factors. The PD and severity are derived through historical observations of default and subsequent losses within each risk grading. When these loans and leases were graded at underwriting, or when updated periodically, a model is run to generate a preliminary risk rating. The model incorporates both internal and external historical default and loss data to develop loss rates for ~~areas of increased~~each risk rating. The preliminary risk rating assigned by the model can be adjusted as a result of borrower specific facts that in management’s judgment warrant a modification of the ~~COVID-19 pandemic~~modeled risk rating to arrive at the final approved risk ratings.

For small-ticket lending and leasing portfolio acquired in the CIT Merger, automated credit scoring models for origination (scorecards) and re-grading (auto re-grade algorithms) are also employed. These are supplemented by business rules and expert judgment. Adjustments to ~~date have~~credit scorecards, auto re-grading algorithms, business rules and lending programs may be made periodically based on these evaluations. A credit approval hierarchy is enforced to ensure that an underwriter with the appropriate level of authority reviews applications.

Consumer Lending

Consumer lending begins with an evaluation of a consumer borrower’s credit profile against published standards. Credit decisions are made after analyzing quantitative and qualitative factors, including borrower’s ability to repay the loan, collateral values, and considering the transaction from a judgmental perspective.

Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant. Credit standards follow industry standard documentation requirements. Performance is largely evaluated based on an acceptable pay history along with a quarterly assessment which incorporates current market conditions. Non-traditional loans may also be monitored by way of a quarterly review of the borrower’s refreshed credit score. Loans are placed on non-accrual status at 90 days past due or more, except for government guaranteed loans. When warranted, an additional review of the underlying collateral’s loan-to-value may be conducted.

Allowance for Credit Losses

The ACL is calculated using a variety of factors, including, but not ~~seen any significant declines~~limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. ~~Through~~Forecasted economic conditions are developed using third party macroeconomic scenarios and may be adjusted based on management’s expectations over the lives of the portfolios. Significant macroeconomic factors used in estimating the expected losses include unemployment, GDP, home price index, commercial real estate index, corporate profits, and credit spreads.

The ACL at September 30, 2022 was $882 million, compared to $850 million at June 30, 2022 and $178 million at December 31, 2021. The ACL as a percentage of total loans and leases at September 30, 2022 was 1.26%, compared to 1.26% at June 30, 2022 and 0.55% at December 31, 2021.

The ACL at September 30, 2022 increased compared to June 30, 2022 primarily due to moderate deterioration in the macroeconomic forecasts related to GDP, interest rates, home prices, and commercial real estate prices. In contemplation of additional uncertainty, primarily based on the elevated levels of inflation and its impact on other macroeconomic variables such as interest rates, which could in turn impact home prices, commercial real estate values, and other variables, we do not believe the current baseline scenario fully incorporates the potential downside impacts of future macroeconomic deterioration, so an additional weighting on the downside scenario was incorporated into the estimate. In the three months ended September 30, 2022, the ACL on commercial loans increased $26 million and the ACL on consumer portfolios increased $6 million.

Compared to December 31, 2021, the increase in the ACL at September 30, 2022 on commercial portfolios was $686 million and $18 million on the consumer portfolios. The increases were primarily due to the impact of the CIT Merger, as well as the above noted moderate deterioration in the macroeconomic forecasts and loan growth. The initial ACL for PCD loans and leases acquired in the CIT Merger (the “Initial PCD ACL”) of $272 million was established through the PCD Gross-Up and there was no corresponding increase to the provision for credit losses. The PCD Gross-Up is discussed further in Note 2 — Business Combinations. The initial ACL for Non-PCD loans and leases acquired in the CIT Merger was established through a corresponding increase of $454 million to the provision for credit losses for the “Initial Non-PCD Provision”. In addition to the impact on the ACL from the CIT Merger, revisions to the CECL macroeconomic forecasts during 2022 impacted the ACL. The loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs.

While management utilizes its best judgment and information available, the ACL is dependent upon factors that are inherently difficult to predict, the most significant being the factors in the economic scenarios. ACL estimates in these scenarios ranged from approximately $630 million to approximately $1.1 billion. BancShares management determined that an ACL of $882 million was appropriate as of September 30, 2022.

Table 21

Allowance for Credit Losses


dollars in millions	Three Months Ended September 30, 2022
	Commercial			Consumer			Total
Balance at June 30, 2022	$	740		$	110		$	850
Initial PCD ACL(1)	—			—			—

Provision for credit losses - loans and leases	43			7			50

Charge-offs(1)	(28)			(5)			(33)
Recoveries	11			4			15

Balance at September 30, 2022	$	766		$	116		$	882
Annualized net charge-off ratio							0.10		%
Net charge-offs (recoveries)	$	17		$	1		$	18
Average loans							$	68,795
Percent of loans in each category to total loans	76		%	24		%	100		%

	Three Months Ended June 30, 2022
	Commercial			Consumer			Total
Balance at March 31, 2022	$	743		$	105		$	848
Initial PCD ACL(1)	(12)			—			(12)

Provision for credit losses - loans and leases	33			3			36

Charge-offs(1)	(36)			(5)			(41)
Recoveries	12			7			19

Balance at June 30, 2022	$	740		$	110		$	850
Annualized net charge-off ratio							0.13		%
Net charge-offs (recoveries)	$	24		$	(2)		$	22
Average loans							$	66,431
Percent of loans in each category to total loans	76		%	24		%	100		%

	Three Months Ended September 30, 2021
	Commercial			Consumer			Total
Balance at June 30, 2021	$	86		$	103		$	189
Provision (benefit) for credit losses - loans and leases	—			(1)			(1)
Charge-offs	(7)			(4)			(11)
Recoveries	3			3			6

Balance at September 30, 2021	$	82		$	101		$	183
Annualized net charge-off ratio							0.06		%
Net charge-offs	$	4		$	1		$	5
Average loans							$	32,608
Percent of loans in each category to total loans	70		%	30		%	100		%

(1) The Initial PCD ACL related to the CIT Merger was $272 million, net of an additional $243 million for loans that CIT charged-off prior to the Merger Date (whether full or partial) which met BancShares’ charge-off policy at the Merger Date. The $12 million reflects second quarter adjustment to the original amount recorded on the Merger Date, with an equal adjustment to the UPB of PCD loans. There was no income statement impact or adjustment to the purchase price.


dollars in millions	Nine Months Ended September 30, 2022
	Commercial			Consumer			Total
Balance at December 31, 2021	$	80		$	98		$	178
Initial PCD ACL(1)	258			14			272
Initial Non-PCD Provision	432			22			454
Provision (benefit) for credit losses - loans and leases	53			(20)			33
Total provision (benefit) for credit losses - loans and leases	485			2			487
Charge-offs(1)	(92)			(15)			(107)
Recoveries	35			17			52

Balance at September 30, 2022	$	766		$	116		$	882
Annualized net charge-off ratio							0.11		%
Net charge-offs (recoveries)	$	57		$	(2)		$	55
Average loans							$	66,816
Percent of loans in each category to total loans	76		%	24		%	100		%

	Nine Months Ended September 30, 2021
	Commercial			Consumer			Total
Balance at December 31, 2020	$	92		$	133		$	225
Benefit for credit losses - loans and leases	(3)			(29)			(32)
Charge-offs	(14)			(13)			(27)
Recoveries	7			10			17

Balance at September 30, 2021	$	82		$	101		$	183
Annualized net charge-off ratio							0.04		%
Net charge-offs	$	7		$	3		$	10
Average loans							$	32,872
Percent of loans in each category to total loans	70		%	30		%	100		%

(1) See footnote to table above.

Net charge-offs during the three months ended September 30, 2022 were $18 million, compared to $22 million during the second quarter of 2022 and $5 million during the third quarter of 2021. On an annualized basis, the net charge-off ratio was 0.10%, 0.13% and 0.06% for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, ~~over 99%~~respectively. Net charge-offs for the nine months ended September 30, 2022 and 2021 were $55 million (net charge-off ratio of ~~all COVID-19 related loan extensions have begun repayment.~~

~~Additionally, we participated~~0.11%) and $10 million (net charge-off ratio of 0.04%), respectively. The increase in ~~both rounds of funding~~net charge-offs compared to the 2021 periods reflects the impact from the loans acquired in the ~~SBA-PPP program, which provided much needed funds to our existing small business customers. At~~CIT Merger.

The following table provides trends in the ACL ratios.

Table 22

Allowance for Credit Losses Ratios


dollars in millions	September 30, 2022			June 30, 2022			December 31, 2021
Allowance for credit losses	$	882		$	850		$	178
Total loans and leases	$	69,790		$	67,735		$	32,372
Allowance for credit losses to total loans and leases:	1.26		%	1.26		%	0.55		%
Commercial loans and leases:
Allowance for credit losses - commercial	$	766		$	740		$	80
Commercial loans and leases	$	52,960		$	51,477		$	22,586
Commercial allowance for credit losses to commercial loans and leases:	1.44		%	1.43		%	0.35		%
Consumer loans:
Allowance for credit losses - consumer	$	116		$	110		$	98
Consumer loans	$	16,830		$	16,258		$	9,786
Consumer allowance for credit losses to consumer loans:	0.70		%	0.69		%	1.01		%

The reserve for unfunded loan commitments was $91 million, $81 million and $12 million at September 30, 2022, June 30, 2022 and December 31, 2021, respectively. The increase of $10 million compared to June 30, 2022 was driven by moderate deterioration in the macroeconomic forecasts. The 2022 increases from December 31, 2021 were primarily driven by the additional commitments from the CIT Merger. The additional off-balance sheet commitments primarily reflect loan commitments or lines of credit and DPAs. See Note 23 — Commitments and Contingencies for information relating to off-balance sheet commitments and Note 5 — Allowance for Credit Losses for a roll forward of the ACL for unfunded commitments.

Credit Metrics

Non-performing Assets

Non-performing assets include non-accrual loans and leases and OREO. Non-performing assets at September 30, 2022 totaled $508 million, compared to $558 million at June 30, 2022 and $161 million at December 31, 2021.

The following table presents total nonperforming assets.

Table 23

Non-Performing Assets


dollars in millions	September 30, 2022			June 30, 2022			December 31, 2021
Non-accrual loans:
Commercial loans	$	356		$	413		$	45
Consumer loans	98			100			76
Total non-accrual loans	$	454		$	513		$	121
Other real estate owned	54			45			40
Total non-performing assets	$	508		$	558		$	161

Allowance for credit losses to total loans and leases:	1.26		%	1.26		%	0.55		%
Ratio of total non-performing assets to total loans, leases and other real estate owned	0.73		%	0.83		%	0.49		%
Ratio of non-accrual loans and leases to total loans and leases	0.65		%	0.76		%	0.37		%
Ratio of allowance for credit losses to non-accrual loans and leases	194.18		%	165.41		%	148.37		%

Non-accrual loans and leases at September 30, 2022 were $454 million, a decrease of $59 million from June 30, 2022 and an increase of $333 million since December 31, 2021. Non-accrual loans and leases as a percentage of total loans and leases was 0.65%, 0.76% and 0.37% at September 30, 2022, June 30, 2022 and December 31, 2021, respectively. The increase from December 31, 2021 was primarily driven by the CIT Merger.

OREO at September 30, 2022 totaled $54 million, representing an increase of $9 million from June 30, 2022 and $14 million since December 31, 2021. Non-performing assets as a percentage of total loans, leases and OREO at September 30, 2022 was 0.73% compared to 0.83% at June 30, 2022 and 0.49% at December 31, 2021.

Past Due Accounts

The percentage of loans 30 days or more past due at September 30, 2022 was 0.72% of loans, compared to 0.78% at June 30, 2022 and 0.43% at December 31, 2021. Delinquency status of loans is presented in Note 4 — Loans and Leases.

Troubled Debt Restructurings

We selectively agree to modify existing loan terms to provide relief to customers who are experiencing financial difficulties or other circumstances that could affect their ability to meet debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. TDRs not accruing interest at the time of restructure are included as nonperforming loans. TDRs accruing at the time of restructure and continuing to perform based on the restructured terms are considered performing loans.

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 accounting and reporting expectations for loan modifications in determining TDR designation for borrowers experiencing COVID-19-related financial difficulty. BancShares ~~had $1.1 billion~~applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19, and in ~~SBA-PPP~~most cases, did not record these as TDRs.

Table 24

Troubled Debt Restructurings


dollars in millions	September 30, 2022						June 30, 2022
	Commercial		Consumer		Total		Commercial		Consumer		Total
Accruing TDRs	$	124	$	51	$	175	$	105	$	49	$	154
Non-accruing TDRs	54		24		78		25		24		49
Total TDRs	$	178	$	75	$	253	$	130	$	73	$	203

							December 31, 2021
Accruing TDRs							$	97	$	49	$	146
Non-accruing TDRs							21		25		46
Total TDRs							$	118	$	74	$	192

Concentration Risk

We aim to maintain a well-diversified loan portfolio and seek to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries.

Commercial Concentrations

Geographic Concentrations

The following table summarizes state concentrations greater than 5.0% of our loans. Data is based on obligor location unless secured by real estate, then data based on property location.

Table 25

Commercial Loans - Geography


dollars in millions	September 30, 2022				June 30, 2022				December 31, 2021
State
California	$	8,800	16.6	%	$	8,636	16.8	%	$	3,163	14.0	%
North Carolina	8,609		16.3	%	8,639		16.8	%	7,181		31.8	%
Texas	3,486		6.6	%	3,330		6.5	%	879		3.9	%

Florida	3,253		6.1	%	3,156		6.1	%	1,496		6.6	%
South Carolina	3,016		5.7	%	2,989		5.8	%	2,855		12.6	%
All other states	24,431		46.1	%	23,217		45.1	%	7,012		31.1	%
Total U.S.	$	51,595	97.4	%	$	49,967	97.1	%	$	22,586	100.0	%




Total International	1,365		2.6	%	1,510		2.9	%	—		—	%
Total	$	52,960	100.0	%	$	51,477	100.0	%	$	22,586	100.0	%

Industry Concentrations

The following table represents loans ~~outstanding.~~by industry of obligor:

Table 26

Commercial Loans - Industry


dollars in millions	September 30, 2022				June 30, 2022				December 31, 2021
Real Estate	$	11,427	21.6	%	$	10,968	21.3	%	$	4,279	18.9	%
Healthcare	7,985		15.1	%	7,817		15.2	%	6,997		31.0	%
Business Services	5,372		10.1	%	5,150		10.0	%	2,307		10.2	%
Transportation, Communication, Gas, Utilities	4,938		9.3	%	4,828		9.4	%	774		3.4	%

Manufacturing	4,342		8.2	%	4,539		8.8	%	1,347		6.0	%
Service Industries	4,087		7.7	%	3,986		7.7	%	722		3.2	%

Retail	3,693		7.0	%	3,355		6.5	%	1,301		5.8	%
Wholesale	2,572		4.9	%	2,485		4.8	%	882		3.9	%
Finance and Insurance	2,569		4.8	%	2,549		5.0	%	1,361		6.0	%



Other	5,975		11.3	%	5,800		11.3	%	2,616		11.6	%
Total	$	52,960	100.0	%	$	51,477	100.0	%	$	22,586	100.0	%

Consumer Concentrations

Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The following table summarizes state concentrations greater than 5.0% based on property address.

Table 27

Consumer Loans - Geography


dollars in millions	September 30, 2022				June 30, 2022				December 31, 2021
	Net Investment		% of Total		Net Investment		% of Total		Net Investment		% of Total
State
North Carolina	$	5,515	32.8	%	$	5,266	32.4	%	$	4,931	50.4	%
California	3,936		23.4	%	3,796		23.4	%	161		1.6	%
South Carolina	2,903		17.2	%	2,786		17.1	%	2,626		26.9	%



Other states	4,476		26.6	%	4,410		27.1	%	2,068		21.1	%
Total	$	16,830	100.0	%	$	16,258	100.0	%	$	9,786	100.0	%

Counterparty Risk

We enter into interest rate derivatives and foreign exchange forward contracts as part of our overall risk management practices and also on behalf of our clients. We establish risk metrics and evaluate and manage the counterparty risk associated with these derivative instruments in accordance with the comprehensive Risk Management Framework and Risk Appetite Framework.

Counterparty credit exposure or counterparty risk is a primary risk of derivative instruments, relating to the ability of a counterparty to perform its financial obligations under the derivative contract. We seek to control credit risk of derivative agreements through counterparty credit approvals, pre-established exposure limits and monitoring procedures, which are integrated with our cash and issuer related credit processes.

The Chief Credit Officer, or delegate, approves each counterparty and establishes exposure limits based on credit analysis of each counterparty. Derivative agreements for BancShares’ risk management purposes and for the hedging of client transactions are executed with major financial institutions and are settled through the major clearing exchanges, which are rated investment grade by nationally recognized statistical rating agencies. Credit exposure is mitigated via the exchange of collateral between the counterparties covering mark-to-market valuations. Client related derivative transactions, which are primarily related to lending activities, are incorporated into our loan underwriting and reporting processes.

ASSET RISK

Asset risk is a form of price risk and is a primary risk of our leasing businesses related to the risk to earning of capital arising from changes in the value of owned leasing equipment. Reflecting the addition of operating lease equipment and additional asset-based lending from the CIT Merger, we are subject to increased asset risk. Asset risk in our leasing business is evaluated and managed in the divisions and overseen by risk management processes. In our asset-based lending business, we also use residual value guarantees to mitigate or partially mitigate exposure to end of lease residual value exposure on certain of our finance leases. Our business process consists of: (1) setting residual values at transaction inception, (2) systematic periodic residual value reviews, and (3) monitoring levels of residual realizations. Residual realizations, by business and product, are reviewed as part of the quarterly financial and asset quality review. Reviews for impairment are performed at least annually.

In combination with other risk management and monitoring practices, asset risk is monitored through reviews of the equipment markets including utilization rates and traffic flows, the evaluation of supply and demand dynamics, the impact of new technologies and changes in regulatory requirements on different types of equipment. At a high level, demand for equipment is correlated with GDP growth trends for the markets the equipment serves, as well as the more immediate conditions of those markets. Cyclicality in the economy and shifts in trade flows due to specific events represent risks to the earnings that can be realized by these businesses. For instance, in the Rail business, BancShares seeks to mitigate these risks by maintaining a relatively young fleet of assets, which can bolster attractive lease and utilization rates.

MARKET RISK

Interest rate risk management

BancShares is exposed to the risk that changes in market conditions or government policy may affect interest rates and negatively impact earnings. The risk arises from the nature of BancShares’ business activities, the composition of BancShares’ balance sheet, and changes in the level or shape of the yield curve. BancShares manages this inherent risk strategically based on prescribed guidelines and approved limits.

Interest rate risk ~~management~~

~~Interest~~can arise from many of the BancShares’ business activities, such as lending, leasing, investing, deposit taking, derivatives, and funding activities. We evaluate and monitor interest rate risk ~~(“IRR”~~primarily through two metrics.

•Net Interest Income Sensitivity (“NII Sensitivity”) ~~results principally from: assets and liabilities maturing or repricing at different points~~measures the net impact of hypothetical changes in ~~time, assets and liabilities repricing at the same point in time but in different amounts, and short-term and long-term~~ interest rates ~~changing in different magnitudes.~~on forecasted NII; and

~~We assess our short-term IRR~~•Economic Value of Equity Sensitivity (“EVE Sensitivity”) measures the net impact of these hypothetical changes on the value of equity by ~~forecasting net interest income over 24 months under various interest rate scenarios~~assessing the economic value of assets, liabilities and ~~comparing those results~~off-balance sheet instruments.

BancShares uses a holistic process to ~~forecasted net interest income, assuming stable rates. IRR scenarios modeled include,~~measure and monitor both short term and long term risks which includes, but ~~are~~is not limited to, gradual and immediate parallel rate shocks, ~~interest rate ramps,~~ changes in the shape of the yield curve, and changes in the ~~relationships~~relationship of ~~our rates to market rates. Market interest rates have increased since year-end, driven by improving economic conditions.~~

~~Table 19 provides~~various yield curves.NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the ~~impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios as~~longer-term risk of ~~September 30, 2021 and December 31, 2020.~~

~~Table 19~~

~~NET INTEREST INCOME SENSITIVITY ANALYSIS~~

Estimated percentage (decrease) increase in net interest income
Change in interest rate (basis points) September 30, 2021 December 31, 2020
-100 (6.94) % (6.24) %
+100 7.42 8.09
+200 15.41 14.57
the existing balance sheet.

~~Net~~Our exposure to NII Sensitivity is guided by the Risk Appetite Framework and a range of risk metrics and BancShares may utilize tools across the balance sheet to adjust its interest ~~income sensitivity metrics as of September 30, 2021 remain largely unchanged when compared to December 31, 2020.~~rate risk exposures, including through business line actions and actions within the investment, funding and derivative activities.

~~Long-term~~The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position for NII Sensitivity, whereby our assets will reprice faster than our liabilities, which is generally concentrated at the short end of the yield curve.

Our funding sources consist primarily of non-maturity deposits and time deposits. We also support our funding needs through wholesale funding sources (including unsecured and secured borrowings).

The deposit rates we offer are influenced by market conditions and competitive factors. Market rates are the key drivers of deposit costs and we continue to optimize deposit costs by improving our deposit mix. Changes in interest rates, expected funding needs, as well as actions by competitors, can affect our deposit taking activities and deposit pricing. We believe our targeted non-maturity deposit customer retention is strong and we remain focused on optimizing our mix of deposits. We regularly assess the effect of deposit rate changes on our balances and seek to achieve optimal alignment between assets and liabilities.

Table 28 below summarizes the results of 12-month NII Sensitivity simulations produced our asset/liability management system. These simulations assume static balance sheet replacement with like products and implied forward market rates, but also incorporates additional assumptions, such as, but not limited to prepayment estimates, pricing estimates and deposit behaviors. The below simulations assume an immediate 25, 100 and 200 bps parallel increase and 25 and 100 bps decrease from the market-based forward curve for September 30, 2022, June 30, 2022, and December 2021.

Table 28

Net Interest Income Sensitivity Simulation Analysis


	Estimated (Decrease) Increase in NII
Change in interest rate (bps)	September 30, 2022		June 30, 2022		December 31, 2021
-100	(3.63)	%	(5.34)	%	(5.77)	%
-25	(0.80)	%	(1.25)	%	(1.15)	%
+25	0.91	%	1.34	%	1.05	%
+100	3.44	%	5.17	%	3.21	%
+200	6.81	%	10.20	%	6.30	%

NII Sensitivity metrics at September 30, 2022, compared to June 30, 2022, were primarily affected by a reduction in cash as well as liability management actions which included borrowing FHLB advances to support loan growth and to offset deposit runoff. BancShares continues to have an asset sensitive interest rate risk profile and the potential exposure to forecasted earnings is ~~measured using~~largely driven by the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as well as estimates of modest future deposit betas. Approximately 45% of our loans have floating contractual reference rates, indexed primarily to 1-month London Inter-Bank Offered Rate (“LIBOR”), 3-month LIBOR, Prime and Secured Overnight Financing Rate (“SOFR”). Deposit betas for the combined company are modeled to have a portfolio average of approximately 20%-25% over the forecast horizon. Impacts to NII Sensitivity may change due to actual results differing from modeled expectations.

As noted above, EVE Sensitivity supplements NII simulations as it estimates risk exposures beyond a twelve-month horizon. EVE Sensitivity measures the change in value of the economic value of equity ~~(“EVE”) sensitivity analysis~~driven by changes in assets, liabilities, and off-balance sheet instruments in response to ~~study~~a change in interest rates. EVE Sensitivity is calculated by estimating the ~~impact of long-term cash flows on earnings and capital. EVE represents~~change in the ~~difference between the sum of the~~net present value of ~~all asset cash flows~~assets, liabilities, and ~~the sum of the present value of the liability cash flows. EVE sensitivity analysis involves discounting cash flows of balance~~off-balance sheet items under ~~different interest~~various rate scenarios. Cash flows will vary by interest rate scenario, resulting in variations in EVE. The base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet.movements.

Table 2029 presents the EVE profile as of September 30, ~~2021~~2022, June 30, 2022, and December 31, ~~2020.~~2021.

Table 2029

~~ECONOMIC VALUE OF EQUITY MODELING ANALYSIS~~Economic Value of Equity Modeling Analysis


		Estimated percentage (decrease) increase in EVE					Estimated (Decrease) Increase in EVE
Change in interest rate (basis points)		September 30, 2021		December 31, 2020
Change in interest rate (bps)						Change in interest rate (bps)	September 30, 2022		June 30, 2022		December 31, 2021
-100	-100	(15.09)	%	(21.20)	%	-100	(5.39)	%	(7.17)	%	(13.68)	%
-25						-25	(1.21)	%	(1.67)	%	—	%
+100	+100	8.32		12.18		+100	4.29	%	5.92	%	6.10	%
+200	+200	8.77		15.71		+200	3.54	%	7.21	%	5.93	%


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the quarterly period ended September 30, 2022
			or
☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Delaware			56-1528994
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

4300 Six Forks Road	Raleigh	North Carolina	27609
(Address of principle executive offices)			(Zip code)

		(919)	716-7000
(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading ~~Symbol~~Symbol(s)	Name of each exchange on which registered
Class A Common Stock, Par Value $1	FCNCA	Nasdaq Global Select Market
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series A	FCNCP	Nasdaq Global Select Market
5.625% Non-Cumulative Perpetual Preferred Stock, Series C	FCNCO	Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
Class B Common Stock, Par Value $1


dollars in millions, except shares issued and price per share	Purchase Price Allocation
Common share consideration
Shares of Class A Common Stock issued	6,140,010
Price per share on January 3, 2022	$	859.76
Common stock consideration	$	5,279
Preferred stock consideration	541
Stock-based compensation consideration	81
Cash in lieu of fractional shares and other consideration paid	51
Purchase price consideration	$	5,952
Assets
Cash and interest-earning deposits at banks	$	3,060
Investment securities	6,561
Assets held for sale	59
Loans and leases	32,714
Operating lease equipment	7,838
Bank-owned life insurance	1,202
Intangible assets	143
Other assets	2,198
Total assets acquired	$	53,775
Liabilities
Deposits	$	39,428
Borrowings	4,536
Credit balances of factoring clients	1,534
Other liabilities	1,894
Total liabilities assumed	$	47,392
Fair value of net assets acquired	6,383
Preliminary gain on acquisition	$	431


	September 30, 2021
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale

Government agency	$	302,114	$	2,857	$	119,231	$	623	$	421,345	$	3,480
Residential mortgage-backed securities	2,137,675		17,752		1,762		$	15	2,139,437		17,767
Commercial mortgage-backed securities	758,798		11,406		—		$	—	758,798		11,406
Corporate bonds	42,593		1,042		10,444		$	56	53,037		1,098

Total	$	3,241,180	$	33,057	$	131,437	$	694	$	3,372,617	$	33,751







	December 31, 2020
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale

Government agency	$	268,622	$	3,197	$	328,777	$	2,376	$	597,399	$	5,573
Residential mortgage-backed securities	433,816		1,241		23,064		69		456,880		1,310

Corporate bonds	57,715		2,028		—		—		57,715		2,028

Total	$	760,153	$	6,466	$	351,841	$	2,445	$	1,111,994	$	8,911


(Dollars in thousands, unaudited)	September 30, 2021		December 31, 2020
Assets
Cash and due from banks	$	337,450	$	362,048
Overnight investments	9,875,063		4,347,336
Investment in marketable equity securities (cost of $85,554 at September 30, 2021 and $84,837 at December 31, 2020)	123,147		91,680
Investment securities available for sale (cost of $7,345,143 at September 30, 2021 and $6,911,965 at December 31, 2020)	7,371,129		7,014,243
Investment securities held to maturity (fair value of $3,353,078 at September 30, 2021 and $2,838,499 at December 31, 2020)	3,381,078		2,816,982
Loans held for sale	98,451		124,837
Loans and leases	32,516,189		32,791,975
Allowance for credit losses	(183,194)		(224,314)
Net loans and leases	32,332,995		32,567,661
Premises and equipment	1,230,572		1,251,283
Other real estate owned	40,649		50,890
Income earned not collected	132,911		145,694
Goodwill	350,298		350,298
Other intangible assets	44,142		50,775
Other assets	1,584,092		783,953
Total assets	$	56,901,977	$	49,957,680
Liabilities
Deposits:
Noninterest-bearing	$	21,514,407	$	18,014,029
Interest-bearing	28,551,355		25,417,580
Total deposits	50,065,762		43,431,609
Securities sold under customer repurchase agreements	663,575		641,487

Federal Home Loan Bank borrowings	645,663		655,175
Subordinated debt	497,427		504,518
Other borrowings	76,139		88,470
FDIC shared-loss payable	—		15,601
Other liabilities	372,116		391,552
Total liabilities	52,320,682		45,728,412
Shareholders’ equity
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 8,811,220 shares issued and outstanding at September 30, 2021 and December 31, 2020)	8,811		8,811
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2021 and December 31, 2020)	1,005		1,005
Preferred stock - $0.01 par value (10,000,000 shares authorized; 345,000 shares issued and outstanding at September 30, 2021 and December 31, 2020; $1,000 per share liquidity preference)	339,937		339,937

Retained earnings	4,263,679		3,867,252
Accumulated other comprehensive (loss) income	(32,137)		12,263
Total shareholders’ equity	4,581,295		4,229,268
Total liabilities and shareholders’ equity	$	56,901,977	$	49,957,680


	Three months ended September 30				Nine months ended September 30
(Dollars in thousands, except per share data, unaudited)	2021		2020		2021		2020
Interest income
Loans and leases	$	319,214	$	336,382	$	966,525	$	988,029
Investment securities interest and dividend income	39,246		37,195		105,530		113,293
Overnight investments	3,395		757		6,948		5,828
Total interest income	361,855		374,334		1,079,003		1,107,150
Interest expense
Deposits	8,073		13,468		25,408		55,578
Securities sold under customer repurchase agreements	358		395		1,052		1,236

Federal Home Loan Bank borrowings	2,114		2,156		6,300		7,612
Subordinated debt	4,174		4,351		12,543		11,783
Other borrowings	249		305		768		1,488
Total interest expense	14,968		20,675		46,071		77,697
Net interest income	346,887		353,659		1,032,932		1,029,453
Provision (credit) for credit losses	(1,120)		4,042		(31,697)		52,949
Net interest income after provision for credit losses	348,007		349,617		1,064,629		976,504
Noninterest income
Wealth management services	31,935		26,369		95,886		75,152
Service charges on deposit accounts	24,858		20,841		68,277		64,776
Cardholder services, net	22,879		19,756		65,310		55,503
Other service charges and fees	9,205		7,892		26,653		22,829
Merchant services, net	8,409		6,763		25,858		18,014
Mortgage income	6,106		13,106		25,026		28,141
Insurance commissions	4,000		3,576		11,702		10,453
ATM income	1,481		1,537		4,534		4,354
Realized gains on investment securities available for sale, net	8,082		21,425		33,119		54,972
Marketable equity securities gains (losses), net	3,350		(2,701)		31,015		10,461


Other	2,639		2,008		6,363		5,330
Total noninterest income	122,944		120,572		393,743		349,985
Noninterest expense
Salaries and wages	160,947		147,297		462,420		439,185
Employee benefits	32,146		31,788		103,169		100,663
Occupancy expense	29,101		27,990		87,283		85,026
Equipment expense	30,229		29,430		88,934		86,054
Processing fees paid to third parties	15,602		11,927		43,702		32,485
FDIC insurance expense	3,661		2,167		10,261		9,364
Collection and foreclosure-related expenses	836		2,168		3,207		10,171
Merger-related expenses	7,013		3,507		19,601		12,108
Other	33,283		35,388		91,745		108,256
Total noninterest expense	312,818		291,662		910,322		883,312
Income before income taxes	158,133		178,527		548,050		443,177
Income taxes	34,060		35,843		123,873		89,538
Net income	$	124,073	$	142,684	$	424,177	$	353,639
Preferred stock dividends	4,636		4,636		13,908		9,426
Net income available to common shareholders	$	119,437	$	138,048	$	410,269	$	344,213
Weighted average common shares outstanding	9,816,405		9,836,629		9,816,405		10,137,321
Earnings per common share	$	12.17	$	14.03	$	41.79	$	33.96


	Three months ended September 30
(Dollars in thousands, unaudited)	Class A Common Stock		Class B Common Stock		Preferred Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Shareholders’ Equity
Balance at June 30, 2020	$	8,929	$	1,005	$	339,937	$	—	$	3,651,237	$	(9,664)	$	3,991,444

Net income	—		—		—		—		142,684		—		142,684
Other comprehensive loss, net of tax	—		—		—		—		—		(4,092)		(4,092)
Issuance of preferred stock	—		—		—		—		—		—		—
Repurchase of 117,700 shares of Class A common stock	(118)		—		—		—		(46,942)		—		(47,060)

Cash dividends declared ($0.40 per common share)
Class A common stock	—		—		—		—		(3,524)		—		(3,524)
Class B common stock	—		—		—		—		(402)		—		(402)
Preferred stock dividends declared	—		—		—		—		(4,636)		—		(4,636)
Balance at September 30, 2020	$	8,811	$	1,005	$	339,937	$	—	$	3,738,417	$	(13,756)	$	4,074,414

Balance at June 30, 2021	$	8,811	$	1,005	$	339,937	$	—	$	4,148,857	$	(22,120)	$	4,476,490

Net income	—		—		—		—		124,073		—		124,073
Other comprehensive loss, net of tax	—		—		—		—		—		(10,017)		(10,017)



Cash dividends declared ($0.47 per common share)
Class A common stock	—		—		—		—		(4,143)		—		(4,143)
Class B common stock	—		—		—		—		(472)		—		(472)
Preferred stock dividends declared	—		—		—		—		(4,636)		—		(4,636)
Balance at September 30, 2021	$	8,811	$	1,005	$	339,937	$	—	$	4,263,679	$	(32,137)	$	4,581,295

	Nine months ended September 30
(Dollars in thousands, unaudited)	Class A Common Stock		Class B Common Stock		Preferred Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance at December 31, 2019	$	9,624	$	1,005	$	—	$	44,081	$	3,658,197	$	(126,723)	$	3,586,184
Cumulative effect of adoption of ASC 326	—		—		—		—		36,943		—		36,943
Net income	—		—		—		—		353,639		—		353,639
Other comprehensive income, net of tax	—		—		—		—		—		112,967		112,967
Issuance of preferred stock	—		—		339,937		—		—		—		339,937
Repurchase of 813,090 shares of Class A common stock	(813)		—		—		(44,081)		(288,861)		—		(333,755)

Cash dividends declared ($1.20 per common share)
Class A common stock	—		—		—		—		(10,869)		—		(10,869)
Class B common stock	—		—		—		—		(1,206)		—		(1,206)
Preferred stock dividends declared	—		—		—		—		(9,426)		—		(9,426)
Balance at September 30, 2020	$	8,811	$	1,005	$	339,937	$	—	$	3,738,417	$	(13,756)	$	4,074,414

Balance at December 31, 2020	$	8,811	$	1,005	$	339,937	$	—	$	3,867,252	$	12,263	$	4,229,268

Net income	—		—		—		—		424,177		—		424,177
Other comprehensive loss, net of tax	—		—		—		—		—		(44,400)		(44,400)



Cash dividends declared ($1.41 per common share)
Class A common stock	—		—		—		—		(12,426)		—		(12,426)
Class B common stock	—		—		—		—		(1,416)		—		(1,416)
Preferred stock dividends declared	—		—		—		—		(13,908)		—		(13,908)
Balance at September 30, 2021	$	8,811	$	1,005	$	339,937	$	—	$	4,263,679	$	(32,137)	$	4,581,295


dollars in millions	Fair Value
Low-income housing tax credits and other investments	$	777
Right of use assets	327
Premises and equipment	230
Fair value of derivative financial instruments	209
Counterparty receivables	133
Other	522
Total other assets	$	2,198


	September 30, 2021
(Dollars in thousands)	Amortized cost(1)		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale

Government agency	$	851,860	$	5,348	$	3,480	$	853,728
Residential mortgage-backed securities	4,800,194		19,219		17,767		4,801,646
Commercial mortgage-backed securities	1,092,183		9,875		11,406		1,090,652
Corporate bonds	600,906		25,295		1,098		625,103

Total investment securities available for sale	$	7,345,143	$	59,737	$	33,751	$	7,371,129
Investment in marketable equity securities	85,554		37,744		151		123,147
Investment securities held to maturity
Residential mortgage-backed securities	2,122,299		5,313		15,051		2,112,561
Commercial mortgage-backed securities	1,256,771		3		18,265		1,238,509
Other	2,008		—		—		2,008
Total investment securities held to maturity	3,381,078		5,316		33,316		3,353,078
Total investment securities	$	10,811,775	$	102,797	$	67,218	$	10,847,354

	December 31, 2020
(Dollars in thousands)	Amortized cost(1)		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale
U.S. Treasury	$	499,832	$	101	$	—	$	499,933
Government agency	706,241		723		5,573		701,391
Residential mortgage-backed securities	4,369,130		70,283		1,310		4,438,103
Commercial mortgage-backed securities	745,892		25,645		—		771,537
Corporate bonds	590,870		14,437		2,028		603,279

Total investment securities available for sale	$	6,911,965	$	111,189	$	8,911	$	7,014,243
Investment in marketable equity securities	84,837		8,654		1,811		91,680
Investment securities held to maturity
Residential mortgage-backed securities	1,877,692		17,689		—		1,895,381
Commercial mortgage-backed securities	937,034		3,884		56		940,862
Other	2,256		—		—		2,256
Total investment securities held to maturity	2,816,982		21,573		56		2,838,499
Total investment securities	$	9,813,784	$	141,416	$	10,778	$	9,944,422
(1)Amortized cost includes any recorded ACL.


	September 30, 2021
(Dollars in thousands)	30-59 days past due		60-89 days past due		90 days or greater		Total past due		Current		Total loans and leases
Commercial:
Construction and land development	$	233	$	—	$	1,424	$	1,657	$	1,246,023	$	1,247,680
Owner occupied commercial mortgage	7,210		5,553		8,198		20,961		11,604,593		11,625,554
Non-owner occupied commercial mortgage	752		1,245		6,716		8,713		2,994,215		3,002,928
Commercial and industrial and leases	10,309		3,234		9,690		23,233		5,243,033		5,266,266
SBA-PPP	—		—		—		—		1,086,917		1,086,917
Total commercial loans	18,504		10,032		26,028		54,564		22,174,781		22,229,345
Consumer:
Residential mortgage	18,417		6,607		20,864		45,888		5,655,458		5,701,346
Revolving mortgage	5,587		1,443		4,513		11,543		1,823,147		1,834,690
Construction and land development	477		1,719		70		2,266		389,502		391,768
Consumer auto	5,345		1,173		1,263		7,781		1,342,596		1,350,377
Consumer other	2,197		1,122		1,295		4,614		630,794		635,408
Total consumer loans	32,023		12,064		28,005		72,092		9,841,497		9,913,589
PCD loans	11,407		5,200		27,111		43,718		329,537		373,255
Total loans and leases	$	61,934	$	27,296	$	81,144	$	170,374	$	32,345,815	$	32,516,189

	December 31, 2020
(Dollars in thousands)	30-59 days past due		60-89 days past due		90 days or greater		Total past due		Current		Total loans and leases
Commercial:
Construction and land development	$	956	$	527	$	1,603	$	3,086	$	982,338	$	985,424
Owner occupied commercial mortgage	8,757		2,232		14,082		25,071		11,139,941		11,165,012
Non-owner occupied commercial mortgage	12,370		—		5,973		18,343		2,969,346		2,987,689
Commercial and industrial and leases	14,532		2,842		3,243		20,617		4,993,027		5,013,644
SBA-PPP	—		—		—		—		2,406,291		2,406,291
Total commercial loans	36,615		5,601		24,901		67,117		22,490,943		22,558,060
Consumer:
Residential mortgage	43,218		8,364		31,690		83,272		5,478,414		5,561,686
Revolving mortgage	11,977		2,626		7,415		22,018		2,030,836		2,052,854
Construction and land development	932		77		330		1,339		346,784		348,123
Consumer auto	6,825		1,835		1,076		9,736		1,245,666		1,255,402
Consumer other	3,610		1,464		1,505		6,579		546,389		552,968
Total consumer loans	66,562		14,366		42,016		122,944		9,648,089		9,771,033
PCD loans	18,322		6,076		31,026		55,424		407,458		462,882
Total loans and leases	$	121,499	$	26,043	$	97,943	$	245,485	$	32,546,490	$	32,791,975


	September 30, 2021
	Commercial Loans Amortized Cost Basis by Origination Year
Classification:	2021		2020		2019		2018		2017		Prior		Revolving		Revolving converted to term loans		Total
(Dollars in thousands)
Construction and land development
Pass	$	373,012	$	451,926	$	256,321	$	98,892	$	44,343	$	12,396	$	4,231	$	—	$	1,241,121
Special Mention	19		157		—		134		63		—		—		—		373
Substandard	300		38		326		1,442		4,070		10		—		—		6,186


Total	373,331		452,121		256,647		100,468		48,476		12,406		4,231		—		1,247,680
Owner occupied commercial mortgage
Pass	2,069,209		3,078,093		1,989,052		1,316,012		1,036,593		1,778,334		122,411		120		11,389,824
Special Mention	2,082		24,356		29,358		28,165		12,199		20,469		4,047		71		120,747
Substandard	9,459		7,495		22,482		10,947		18,598		39,695		6,307		—		114,983


Total	2,080,750		3,109,944		2,040,892		1,355,124		1,067,390		1,838,498		132,765		191		11,625,554
Non-owner occupied commercial mortgage
Pass	438,949		770,507		587,335		278,507		283,867		507,411		31,876		—		2,898,452
Special Mention	495		487		263		10,219		800		5,654		500		—		18,418
Substandard	2,615		11,742		22,600		10,184		10,243		27,352		1,322		—		86,058


Total	442,059		782,736		610,198		298,910		294,910		540,417		33,698		—		3,002,928
Commercial and industrial and leases
Pass	1,238,557		1,162,246		714,374		344,220		193,857		350,870		1,087,462		5,136		5,096,722
Special Mention	2,323		8,279		22,100		3,528		4,070		4,324		4,575		206		49,405
Substandard	7,765		7,978		4,770		4,241		3,175		4,221		17,392		1,280		50,822
Doubtful	—		—		—		—		—		1		1		—		2
Ungraded	—		—		—		—		—		—		69,315		—		69,315
Total	1,248,645		1,178,503		741,244		351,989		201,102		359,416		1,178,745		6,622		5,266,266
SBA-PPP
Pass	1,011,370		75,547		—		—		—		—		—		—		1,086,917





Total commercial	$	5,156,155	$	5,598,851	$	3,648,981	$	2,106,491	$	1,611,878	$	2,750,737	$	1,349,439	$	6,813	$	22,229,345


	September 30, 2021
(Dollars in thousands)	Collateral-Dependent Loans		Net Realizable Value of Collateral		Collateral Coverage		Allowance for Credit Losses
Commercial:
Construction and land development	$	1,424	$	1,964	137.9	%	$	—
Owner occupied commercial mortgage	7,411		8,367		112.9		—
Non-owner occupied commercial mortgage	8,204		11,307		137.8		1,203
Commercial and industrial and leases	4,787		6,530		136.4		230
Total commercial loans	21,826		28,168		129.1		1,433
Consumer:
Residential mortgage	11,423		14,625		128.0		—
Revolving mortgage	—		—		—		—



Total consumer loans	11,423		14,625		128.0		—
PCD loans	18,154		32,788		180.6		—
Total collateral-dependent loans	$	51,403	$	75,581	147.0	%	$	1,433

	December 31, 2020
(Dollars in thousands)	Collateral-Dependent Loans		Net Realizable Value of Collateral		Collateral Coverage		Allowance for Credit Losses
Commercial:
Construction and land development	$	1,424	$	1,795	126.1	%	$	—
Owner occupied commercial mortgage	9,792		14,253		145.6		—
Non-owner occupied commercial mortgage	5,556		7,577		136.4		—

Total commercial loans	16,772		23,625		140.9		—
Consumer:
Residential mortgage	23,011		29,775		129.4		131





PCD loans	19,042		27,872		146.4		—
Total collateral-dependent loans	$	58,825	$	81,272	138.2	%	$	131


	Three months ended September 30, 2021			Three months ended September 30, 2020
	All restructurings				All restructurings
(Dollars in thousands)	Number of Loans	Recorded investment at period end				Number of Loans	Recorded investment at period end
Loans and leases
Interest only	7	$	9,639			6	$	5,703
Loan term extension	41	6,371				29	2,380
Below market interest rate	47	3,126				55	15,341
Discharged from bankruptcy	21	2,783				55	1,654
Total restructurings	116	$	21,919			145	$	25,078

	Nine months ended September 30, 2021			Nine months ended September 30, 2020
	All restructurings				All restructurings
(Dollars in thousands)	Number of Loans	Recorded investment at period end				Number of Loans	Recorded investment at period end
Loans and leases
Interest only	17	$	19,728			23	$	24,847
Loan term extension	112	14,500				62	5,885
Below market interest rate	148	21,004				212	38,740
Discharged from bankruptcy	110	12,478				165	7,025
Total restructurings	387	$	67,710			462	$	76,497


	September 30, 2021			December 31, 2020
Discount rate - conventional fixed loans	8.49		%	7.92		%
Discount rate - all loans excluding conventional fixed loans	9.49		%	8.92		%
Weighted average constant prepayment rate	17.32		%	20.62		%
Weighted average cost to service a loan	$	87.58		$	87.58


	September 30, 2022			December 31, 2021
Discount rate	9.62		%	8.55		%


Weighted average constant prepayment rate	6.70		%	15.69		%
Weighted average cost to service a loan	$	81		$	88


dollars in millions
Twelve months ended September 30,
2023	$	6,178
2024	1,187
2025	685
2026	95
2027	41
Thereafter	122
Total time deposits	$	8,308


dollars in millions	Maturity	September 30, 2022		December 31, 2021
Parent Company:
Senior:
Unsecured term loan at 1-month LIBOR plus 1.10%	September 2022	$	—	$	68
Subordinated:


Fixed-to-Floating subordinated notes at 3.375%	March 2030	350		350
Junior subordinated debenture at 3-month LIBOR plus 2.25% (FCB/SC Capital Trust II)	June 2034	20		20
Junior subordinated debenture at 3-month LIBOR plus 1.75% (FCB/NC Capital Trust III)	June 2036	88		88
Subsidiaries:
Senior:
Senior unsecured fixed to floating rate notes at 3.929%(1)	June 2024	500		—
Senior unsecured fixed to floating rate notes at 2.969%(1)	September 2025	315		—
Fixed senior unsecured notes at 6.00%(1)	April 2036	51		—
Subordinated:
Fixed subordinated notes at 6.125%(1)	March 2028	400		—
Fixed-to-Fixed subordinated notes at 4.125%(1)	November 2029	100		—
Junior subordinated debentures at 3-month LIBOR plus 2.80% (Macon Capital Trust I)	March 2034	14		14
Junior subordinated debentures at 3-month LIBOR plus 2.85% (SCB Capital Trust I)	April 2034	10		10
Secured:
Notes payable to FHLB of Atlanta at overnight SOFR plus spreads ranging from 0.24% to 0.37%.	Maturities through September 2025	3,250		—
Fixed notes payable to FHLB of Atlanta	Maturities through March 2032	—		645
Other secured financings(1)	Maturities through January 2024	17		—
Capital lease obligations	Maturities through June 2027	8		4
Unamortized issuance costs		(2)		(2)
Unamortized purchase accounting adjustments(2)		94		(2)
Total long-term borrowings		$	5,215	$	1,195


~~(Dollars in thousands)~~2021, unamortized purchase accounting adjustments were $72 million and $2 million, respectively, for subordinated debentures.	~~Total~~
~~Balance at December 31, 2020~~	$	~~15,601~~
~~Accretion~~	~~502~~
~~Payment made to the FDIC to settle shared-loss agreement~~	~~(16,103)~~
~~Balance at September 30, 2021~~	$	—


dollars in millions	September 30, 2022
	Notional Amount		Asset Fair Value		Liability Fair Value




Derivatives not designated as hedging instruments (Non-qualifying hedges)
Interest rate contracts(1)(3)	$	18,604	$	143	$	(500)
Foreign exchange contracts	145		6		—
Other contracts(2)	769		—		—
Total derivatives not designated as hedging instruments	$	19,518	149		(500)
Gross derivatives fair values presented in the Consolidated Balance Sheets			149		(500)
Less: Gross amounts offset in the Consolidated Balance Sheets			—		—
Net amount presented in the Consolidated Balance Sheets			149		(500)
Less: Amounts subject to master netting agreements(4)			(6)		6
Less: Cash collateral pledged(received) subject to master netting agreements(5)			(129)		—
Total net derivative fair value			$	14	$	(494)


	Three months ended September 30, 2021
(Dollars in thousands, net of tax)	Unrealized gains (losses) on securities available for sale		Unrealized gains on securities available for sale transferred to held to maturity		Defined benefit pension items		Total
Beginning balance	$	34,910	$	3,187	$	(60,217)	$	(22,120)


Net unrealized losses arising during period	(8,677)		—		—		(8,677)
Amounts reclassified from accumulated other comprehensive loss	(6,224)		(331)		5,215		(1,340)
Net current period other comprehensive (loss) income	(14,901)		(331)		5,215		(10,017)
Ending balance	$	20,009	$	2,856	$	(55,002)	$	(32,137)

	Three months ended September 30, 2020
(Dollars in thousands, net of tax)	Unrealized gains (losses) on securities available for sale		Unrealized gains on securities available for sale transferred to held to maturity		Defined benefit pension items		Total
Beginning balance	$	113,102	$	—	$	(122,766)	$	(9,664)


Net unrealized gains arising during period	7,530		—		—		7,530
Amounts reclassified from accumulated other comprehensive loss	(16,497)		—		4,875		(11,622)
Net current period other comprehensive income	(8,967)		—		4,875		(4,092)
Ending balance	$	104,135	$	—	$	(117,891)	$	(13,756)


	September 30, 2021
			Fair value measurements using:
(Dollars in thousands)	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Assets measured at fair value
Investment securities available for sale

Government agency	$	853,728	$	—	$	853,728	$	—
Residential mortgage-backed securities	4,801,646		—		4,801,646		—
Commercial mortgage-backed securities	1,090,652		—		1,090,652		—
Corporate bonds	625,103		—		316,968		308,135

Total investment securities available for sale	$	7,371,129	$	—	$	7,062,994	$	308,135
Marketable equity securities	$	123,147	$	52,991	$	70,156	$	—
Loans held for sale	$	98,451	$	—	$	98,451	$	—



	December 31, 2020
			Fair value measurements using:
	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	499,933	$	—	$	499,933	$	—
Government agency	701,391		—		701,391		—
Residential mortgage-backed securities	4,438,103		—		4,438,103		—
Commercial mortgage-backed securities	771,537		—		771,537		—
Corporate bonds	603,279		—		286,655		316,624

Total investment securities available for sale	$	7,014,243	$	—	$	6,697,619	$	316,624
Marketable equity securities	$	91,680	$	32,855	$	58,825	$	—
Loans held for sale	$	124,837	$	—	$	124,837	$	—


per share amounts in whole dollars	Stock-Settled Awards
	Number of Shares	Weighted Average Grant Date Value
Unvested BancShares at December 31, 2021	—	$	—
Unvested CIT RSUs converted to BancShares RSUs at Merger Date	116,958	859.76
Unvested CIT PSUs converted to RSUs at Merger Date	10,678	859.76
Forfeited / cancelled	(4,922)	859.76
Vested / settled awards	(74,500)	859.76

Unvested BancShares RSUs at September 30, 2022	48,214	$	859.76


(Dollars in thousands)
	Round 1				Round 2
Status	$ of Loans		% of Round Total		$ of Loans		% of Round Total
Total Funded	$	3,199,897	100.0	%	$	1,223,797	100.0	%
Payments Received	3,121,746		97.6		175,660		14.4
Total Remaining	$	78,151	2.4	%	$	1,048,137	85.6	%


	Three months ended September 30, 2021						Nine months ended September 30, 2021
	Change from prior year period due to:						Change from prior year period due to:
(Dollars in thousands)	Volume(1)		Yield/Rate(1)		Total Change		Volume(1)		Yield/Rate(1)		Total Change
Assets
Loans and leases	$	(4)	$	(17,192)	$	(17,196)	$	50,823	$	(72,300)	$	(21,477)
Investment securities:
U.S. Treasury	(497)		—		(497)		(1,956)		(725)		(2,681)
Government agency	539		202		741		1,718		(2,659)		(941)
Mortgage-backed securities	3,787		(2,967)		820		17,444		(29,983)		(12,539)
Corporate bonds	1,416		(239)		1,177		10,406		60		10,466

Other investments	75		(270)		(195)		(1,180)		(1,031)		(2,211)
Total investment securities	5,320		(3,274)		2,046		26,432		(34,338)		(7,906)
Overnight investments	1,516		1,122		2,638		13,953		(12,833)		1,120
Total interest-earning assets	$	6,832	$	(19,344)	$	(12,512)	$	91,208	$	(119,471)	$	(28,263)
Liabilities
Interest-bearing deposits:
Checking with interest	$	313	$	(332)	$	(19)	$	1,195	$	(1,312)	$	(117)
Savings	94		(66)		28		294		(239)		55
Money market accounts	800		(2,077)		(1,277)		4,845		(16,607)		(11,762)
Time deposits	1,525		(5,652)		(4,127)		(6,827)		(11,519)		(18,346)
Total interest-bearing deposits	2,732		(8,127)		(5,395)		(493)		(29,677)		(30,170)
Securities sold under customer repurchase agreements	12		(49)		(37)		101		(285)		(184)
Other short-term borrowings	(248)		248		—		(1,052)		—		(1,052)
Long-term borrowings	(271)		(4)		(275)		2,169		(2,389)		(220)
Total interest-bearing liabilities	2,225		(7,932)		(5,707)		725		(32,351)		(31,626)
Change in net interest income	$	4,607	$	(11,412)	$	(6,805)	$	90,483	$	(87,120)	$	3,363
(1) The rate/volume variance is allocated proportionally between the changes in volume and rate.


	2021									2020
	Third			Second			First			Fourth			Third
(Dollars in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Nonaccrual loans and leases:
Non-PCD	$	118,737		$	136,530		$	141,369		$	136,544		$	130,927
PCD	45,038			50,934			53,165			54,939			55,527
Total nonaccrual loans and leases	163,775			187,464			194,534			191,483			186,454
Other real estate owned	40,649			43,685			48,512			50,890			52,789
Total nonperforming assets	$	204,424		$	231,149		$	243,046		$	242,373		$	239,243

Accruing loans and leases 90 days or more past due
Non-PCD	$	3,827		$	3,413		$	5,945		$	5,507		$	3,587
PCD	1,787			363			1,432			355			—

Ratio of total nonperforming assets to total loans, leases and other real estate owned	0.63		%	0.71		%	0.73		%	0.74		%	0.73		%
Ratio of nonaccrual loans and leases to total loans and leases	0.50			0.57			0.59			0.58			0.57
Ratio of allowance for credit losses to nonaccrual loans and leases	111.9			100.9			108.3			117.1			120.1


dollars in millions	September 30, 2022
Time deposits maturing in:
Three months or less	$	296
Over three months through six months	206
Over six months through 12 months	766
More than 12 months	215
Total	$	1,483


	Three months ended September 30				Nine months ended September 30
(Dollars in thousands, expect per share data)	2021		2020		2021		2020
Number of shares repurchased	—		117,700		—		813,090
Total cost	$	—	$	47,060	$	—	$	333,756
Average price per share	$	—	$	399.82	$	—	$	410.48


	Requirements to be well-capitalized		September 30, 2021				December 31, 2020
(Dollars in thousands)			Amount		Ratio		Amount		Ratio
BancShares
Risk-based capital ratios
Total risk-based capital	10.00	%	$	4,944,822	14.30	%	$	4,577,212	13.81	%
Tier 1 risk-based capital	8.00		4,260,729		12.32		3,856,086		11.63
Common equity Tier 1	6.50		3,920,792		11.34		3,516,149		10.61
Tier 1 leverage ratio	5.00		4,260,729		7.68		3,856,086		7.86

FCB
Risk-based capital ratios
Total risk-based capital	10.00	%	$	4,811,214	13.93	%	$	4,543,496	13.72	%
Tier 1 risk-based capital	8.00		4,581,621		13.26		4,276,870		12.92
Common equity Tier 1	6.50		4,581,621		13.26		4,276,870		12.92
Tier 1 leverage ratio	5.00		4,581,621		8.27		4,276,870		8.72


dollars in millions	At September 30, 2022, Maturing
	Within One Year		One to Five Years		Five to 15 Years		After 15 Years		Total
Commercial
Commercial construction	$	578	$	1,316	$	753	$	105	$	2,752
Owner occupied commercial mortgage	630		3,903		9,068		452		14,053
Non-owner occupied commercial mortgage	2,005		5,370		2,059		249		9,683
Commercial and industrial	7,136		13,359		3,618		175		24,288
Leases	759		1,370		55		—		2,184
Total commercial	$	11,108	$	25,318	$	15,553	$	981	$	52,960
Consumer
Residential mortgage	268		1,088		3,599		7,955		12,910
Revolving mortgage	89		164		77		1,593		1,923
Consumer auto	10		673		702		—		1,385
Consumer other	302		157		115		38		612
Total consumer	$	669	$	2,082	$	4,493	$	9,586	$	16,830
Total loans and leases	$	11,777	$	27,400	$	20,046	$	10,567	$	69,790


dollars in millions	Loans Maturing One Year or After with
	Fixed Interest Rates		Variable Interest Rates
Commercial
Commercial construction	$	958	$	1,216
Owner occupied commercial mortgage	11,913		1,510
Non-owner occupied commercial mortgage	2,929		4,749
Commercial and industrial	7,546		9,606
Leases	1,425		—
Total commercial	$	24,771	$	17,081
Consumer
Residential mortgage	7,303		5,339
Revolving mortgage	38		1,796
Consumer auto	1,375		—
Consumer other	272		38
Total consumer	$	8,988	$	7,173
Total loans and leases	$	33,759	$	24,254


dollars in millions	September 30, 2022
Available Cash	$	6,050
High Quality Liquid Securities	13,111
Liquid Assets	$	19,161

FHLB capacity(1)	$	7,140
FRB capacity	4,464
Line of credit with bank	100
Total contingent sources	$	11,704
Total Liquid Assets and contingent sources	$	30,865


dollars in millions	Payments Due by Period
Type of Obligation	Less than 1 year		1-3 years		4-5 years		Thereafter		Total
Contractual obligations:
Time deposits	$	6,178	$	1,872	$	136	$	122	$	8,308
Short-term borrowings	3,128		—		—		—		3,128
Long-term obligations	19		4,117		35		1,044		5,215
Total contractual obligations	$	9,325	$	5,989	$	171	$	1,166	$	16,651
Commitments:
Financing commitments	$	12,050	$	4,197	$	2,693	$	4,433	$	23,373
Letters of credit	166		175		91		27		459
Deferred purchase agreements	2,152		—		—		—		2,152
Purchase and funding commitments	914		8		—		—		922
Affordable housing partnerships(1)	117		104		32		11		264
Total commitments	$	15,399	$	4,484	$	2,816	$	4,471	$	27,170


	Three Months Ended September 30, 2022	Nine Months Ended September 30, 2022
Class A shares outstanding at beginning of period	14,997,202	8,811,220
Share issuance in conjunction with the CIT Merger	—	6,140,010
Restricted stock units vested, net of shares held to cover taxes	1,156	47,128
Shares purchased under authorized repurchase plan	(1,027,414)	(1,027,414)
Class A shares outstanding at end of period	13,970,944	13,970,944


Standard	Summary of Guidance	Effect on BancShares’ Financial Statements
ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting Issued March 2020 ASU 2021-01 - Reference Rate Reform (Topic 848): Scope Issued January 2021	The amendments in these updates apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Allows entities to prospectively apply certain optional expedients for contract modifications and removes the requirements to remeasure contract modifications or de-designate hedging relationships. In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing certain effectiveness assessments. ASU 2021-01 refines the scope of ASC 848 and clarifies which optional expedients may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified in connection with the market-wide transition to new reference rates. Guidance in these ASUs are effective as of March 12, 2020 through December 31, 2022.	The amendments are effective for all entities at issuance date of March 12, 2020, and once adopted will apply to contract modifications made and hedging relationships entered into on or before December 31, 2022. BancShares is in the process of evaluating the optional expedients as applicable for eligible contract modifications and any hedge relationships. However, we do not expect the guidance to have a material impact on the financial statements.
ASU 2022-01, Fair Value Hedging - Portfolio Layer Method Issued March 2022	The amendments in this Update allow entities to designate multiple hedged layers of a single closed portfolio, and expands the scope of the portfolio layer method to include non-prepayable financial assets. Provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method. In addition, as of the adoption date the Update permits reclassification of debt securities from the held-to-maturity category to the available-for-sale category if the entity intends to include those securities in a portfolio designated in a portfolio layer method hedge. Also provides 30 days post adoption to reclassify securities and include them in a hedged closed portfolio.	Effective for BancShares as of January 1, 2023. Early adoption is permitted. The guidance on hedging multiple layers in a closed portfolio is applied prospectively. The guidance on the accounting for fair value basis adjustments is applied on a modified retrospective basis. BancShares is currently evaluating timing of adoption of this guidance and the impact of the guidance on its consolidated financial statements and disclosures.